The expension of the US debt must be very scary to them as they watch helpless , the US government making record deficits .

I'm starting to view this US-China thing in terms of the Cold War.

In the Cold War, the US engaged the USSR in an arms race - a race that kept the Soviet economy on a war footing and denied their population the benefits of a modern consumer society (which wouldn't have amounted to much under socialism anyway, but that's a different story).

In the present case, The US is burying China in worthless paper while reaping the benefits of cheap consumer goods. In order to keep the game going, China must keep wages low, thus putting the brakes on a rising living standard. Eventually the gap between the broad population and the 10% of well-off Chinese erupts into social chaos. At least that's the plan.

The Chinese are aware of this, hence the diversification, but it may be too little too late. Fooled into believing they could duplicate the post-war "Japanese Miracle" they failed to realize that the world just isn't big enough to absorb their output. The only way to achieve first world status then, is to develop their internal markets, but this has two unpleasant consequences. 1) they lose their competitive edge in exports 2) rising living standards creates demand for more political participation, hence the end of Communist Party rule.

Of course all this presumes they have the resources to even pull it off, which seems doubtful. The current hunting and gathering for everything from oil to copper to uranium can be seen in this context.

But who knows how this all plays out? There are far too many variables for even the respective governments to get a handle on, so how would I ever know?

One thing I do know. Massive credit expansion always leads to massive misallocation. So then the question becomes, who's in a better position to survive the fall-out, given that both China and the USA have taken that path?

ebear