China currently owns more than a trillion dollars of the government's debt. The Chinese have lent the United States money in the past, because they felt it was in their best interest. Because they have such a large investment in our finances, they have in the past lent to us. As they lose confidence in the US economy, they are less eager to lend money. In February, Luo Ping, who is a director-general for the Chinese Banking Regulatory Commission, stated "we hate you guys" when referring to the US government's spending binge. They are clearly not happy about lending to the US government, because it has failed to clean up its spendthrift ways.
Getting out of Dollars
Although the Chinese government is still buying dollars, they are slowly divesting of their investments, spending more dollars than they are buying. At the same time that China has been slowly reducing their dollar holdings, the country has been
investing in gold by investing in gold mines. The Chinese must believe that it is in their best interest for their citizens to buy gold, or they wouldn't be pushing their citizens to do so.If the Chinese government continues to dump US dollars, they will have less of an incentive to keep the dollar afloat. This could result in inflation, or perhaps even hyperinflation, for the dollar. By encouraging the citizens of the most populous country in the world to purchase precious metals, the supply of gold and silver could become limited, causing an increase in the price.
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