The bailout bill and the Chinese

From a casual distance, it looks as if one effect of the bailout bill is to push back the day when China starts dumping its dollar holdings.  Or is that its primary purpose?

That's what one bailout critic in the House — California Democrat Brad Sherman — seemed to say in this video:  "Hundreds of billions of dollars are going to bail out foreign investors. They know it, they demanded it, and the bill has been carefully written to make sure that can happen."

Sherman's thesis appears borne out by George Mason University economist Tyler Cowen.  "As for this country, the Chinese now regard us as 'battle tested,'" Cowen writes.  "We have been through some truly major bumps, yet no major U.S. politician has called for 'not paying back the Chinese.'  We've even guaranteed the $350 billion in agency securities held by the Chinese central bank and without a stir.  I think the Chinese are shocked by that and in many ways they now trust their investments more than before, not less."

Granted, Cowen is among those who believe "the dollar will hold its value."  (Relative to what?)  But he has a point when he says the precipitating event that tanks the dollar will not be China's foreign reserves flooding back into the United States.  Not now, anyway.  "Bush, Bernanke, Paulson — we call them leaders.  The Chinese think of them as the customer service department.  I suspect the Chinese get straighter answers from them than we ever do."


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