The Chinese yuan is so vastly undervalued -- if purchasing power parity estimates are taken as an indicator, the undervaluation is by an integer factor between 3 and 5! -- that something has to be done to balance the U.S. trade deficit with China.

Japan in the 80's was a wholly different problem -- high savings rates were chasing a paucity of good investment opportunities. China presumably has a veritable cornucopia of good investment opportunities. Allowing the dollar to penetrate the internal capital market, however, would mean the end of government control of the economy.

Regardless of the reason for the accumulation of treasuries in China, the scale is so large, that if it continues for long, it will affect great power relationships.

Japan in the 80's was a wholly different problem -- high savings rates were chasing a paucity of good investment opportunities. China presumably has a veritable cornucopia of good investment opportunities.

Actually, I don't think there's much difference there at all. The Chinese save simply enormous amounts of capital -- amounts not even their rapidly growing, voracious economy can easily absorb (especially if you add the qualifier "good" to the word "investment") -- there is surely a lot of money in China chasing what will ultimately prove to be bad investments.

good post dan

I go with Cowen's "6. They are incredibly risk-averse. What safer investment could you find?" Among other things, Saudi oil stability is an issue now.

“They are incredibly risk-averse. What safer investment could you find?”

Yup, it’s probably just that simple. We are the only empire on this planet. No other nation possesses our stable institutions and ability to kick rear end when it’s required. When things get rough, who are you going to call? The French?

Too many Americans get conned by the pervasive childish anti-Americanism found throughout the world. Alas, these people are rarely adults uttering valid complaints. They often also desire a visa to move to the United States. Anything they say should be taken with a huge grain of salt.

Couldn't agree more with David.
Fact remains that the US is shouldering a disproportionate amount of the world's security burden and getting little help and thanks for it. Consider this :-
1. Most of the World's maritime security is at any given time, directly or indirectly under US Naval protection.
2. The US is ending up paying for a disproportionate portion of ensuring global oil security
3. ditto for anti terrorism action
4. and the list goes on.
In a sense, maybe Asian buying up T-bills is the price paid by the Third World's most dynamic region for the stabilizing influence of the US on Oil, export and Other markets??

Slightly off topic, but I had asked in your original post on Niall Ferguson's book who would step in and fill the void if the U.S. retreated into a neoisolationism--what are the implications and what the world look like?. In today's (Monday's) Wall Street Jouranl, Ferguson addresses just that question. While not agreeing with everything, I did want to recommend it.