Thoughts on PRC dollar reserves

One macro interpretation the US-PRC trade imbalance has been that the Chinese are simply importing demand to create employment, maintaining reserves in foreign currency/bonds to sterilize the imbalance from a domestic demand perspective. From this perspective, the Chinese might as well shred a certain percentage of their gains and effectively that's what their waiting around for the inevitable (in my view) depreciation of the dollar versus hard assets does. This is apart from the question of the dollar value versus the managed renmimbi or other currencies.

I don't buy it as a long term strategy, but it's clearly a path to short term stability and managed growth, at some opportunity cost. But why perfectly savvy economists seem to think "sunk cost" doesn't also apply to the worth of the Chinese reserves beats me. It's true they would not only be the first but also the last out the door in the event of a run on the dollar (because of their massive reserves would take a long time to unwind), but those dollars can be translated into hard assets now, on a continuing basis.

The other point is that labor-absorbing economic pyramid projects (in the Egyptian sense) are always available to a command economy if you don't care whether your investments stimulate returns (or not for a couple of thousand years). The PRC military could provide this kind of demand.