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China’s Central Bank Subsidizes the Federal Deficit

Written by Gary North on July 17, 2013

The U.S. government is running about a $650 billion deficit this fiscal year. The People’s Bank of China is doing its part to help out. It just bought another $25 billion of this deficit last month.

Why is it doing this? To hold up the value of the dollar.

Why is it holding up the value of the dollar? To make it less expensive for Americans to buy goods made in China.

But then protectionists in Congress scream bloody murder, because China is subsidizing exports to Americans. Then they vote for federal spending that runs a huge deficit. So, in order to hold down government interest rates, the Treasury Department must find buyers of this debt, other than the Federal Reserve System. The Chinese central bank is a large buyer.

So, every time Senator Chuck Schumer of New York insists that China must be stopped from rigging its currency, he is really saying that the Chinese central bank should stop buying IOUs issued by Congress. Then he votes for another spending program.

The Chinese central bank creates money out of nothing, just as the Federal Reserve does. Then it takes this newly counterfeited money and buys U.S. government debt, just as the Federal Reserve does. It bought $25 billion of this debt last month. The Federal Reserve bought $45 billion. So, when it comes to currency-rigging, which central bank is the greater culprit?

This is the race to the bottom. Which central bank will destroy its currency first? Or, if the central banks decide not to inflate any more, which central bank will cease counterfeiting money, thereby causing an economic depression?

The two economies, China’s and America’s, are addicted to the drug of fiat money. The first central bank to quit counterfeiting — the first one to “taper” — starts the international recession. Which will it be?  The first one to stop inflating permanently will turn the recession into a depression. Which will it be?

Senator Schumer wants to know.

Continue Reading on www.treasury.gov

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4 thoughts on “China’s Central Bank Subsidizes the Federal Deficit

  1. With politicians, it isn’t about knowledge or truth. It’s what sounds good to their gullible constituents.

  2. We the united states should not bit ch and complain about China and what we owe them. We are the ones who begged them to pull us out when we needed it. Had they not done so, we would possibly have a right to complain, but we asked and they answered. If you raise the debt ceiling every time what do you expect?
    Our government is and has been out of control on spending and is only getting worse. By the way our government has been printing money as fast as they can which only devalues the real authorized currency.

  3. Will an economist or somebody, anybody, please explain to Senator Chuck Schumer of New York the main reason why the US Economy is such a mess. It seems like his right hand does not know what his left hand is doing!

  4. At the time of the Revelation of Jesus Christ, it appears that the US no longer exists as a world power. I assume we will win the race to the bottom and will be part of China by then.