Reply #8: Slight correction about "instead of China using ... earnings to improve the lot of its own people"

[HamdenRice]

To understand this strategy, you have to understand the Chinese economic mentality. First, the typical Chinese person is incredibly frugal and a very big saver. They don't consume a lot because they don't want to consume a lot. A typical peasant wearing worn out shoes and a threadbare Mao jacket may have more money in the bank than an American living paycheck to paycheck in a MacMansion and driving a SUV.

For all its sophistication, the government of China thinks about finance a lot like a Chinese peasant or worker.

The strategy behind using the money to finance the US is that whatever they "give" the US "today" (for whatever idiotic reason the US uses it for, like the wars) grows and becomes bigger next year. Whatever consumption is postponed (any "improvement in the lot of people") causes an even bigger possible improvement, an exponential improvement, in the life of the people 5 years down the road -- because of compound interest.

That's how China went from being the place your mother scolded you about when telling you to eat your vegetables ("don't you know there are millions of people starving in China?") to the place that is the creditor of the biggest empire in history.