Why China is Forced to Purchase US Debt

It has become conventional wisdom among ordinary people to think that Chinese purchases of US Treasuries are the “generosity” of the Chinese who are willing to lend to Americans so that they can purchase Chinese imports. Nothing can be farther from the truth. China purchases US government bonds not to accommodate US needs; instead, Beijing does so to continue running the current account surplus to provide domestic employment and relative domestic stability. In order to understand why, we have to delve deeper into the basics of economics, so let me explain the dynamics of the balance of payments, which are…...