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The Nuclear Option

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Michael Pettis has a killer post on why China won’t use the nuclear option & what the near term future likely holds.

The US, in other words, is not likely to face the “nuclear option” of a Chinese disruption of the US Treasury bond market. It is far more likely to be swamped by a tsunami of foreign capital. This tsunami will bring with it a corresponding surge in the US trade deficit and, with it, a rise in US unemployment. It will also force the US Treasury to increase the fiscal deficit as more of the jobs created by its spending leak abroad.

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July 31st, 2010 at 3:30 pm

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