Caylus
Thanks for a great essay.
My understanding is that China is trying to offload the excess dollars so as to ensure that its currency does not appreciate - hence it buys assets overseas including US Treasuries. This is to keep their exports competitive.
If China stopped buying US Treasuries then the Fed could just buy them or other market participants. In fact QE3 was about the Fed buying Trasuries. In any case Treasuries are very popular at present and their interest rates are falling.
loki
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