Why do the Chinese keep buying our government (debt) bonds if our fiscal process is obviously dysfunctional and debt sustainability not grounded in reality at all? In a way, for China, the US is too big to fail. They don’t want to lose their free ride in benefitting from an international system where they don't have to do anything militarily to support it (and very little economically), and can just let the Americans do most all that. They also have their export market that benefits them disproportionally, and a currency they are allowed to undervalue by 40%.
But there is additionally the probability that they have done a cost-benefit analysis. Sure, they know we’re not a very good credit risk, but the money they spend on the bonds is more than balanced by all they get (listed above), and in the meantime, they’ll get some interest. They are just going to bleed this pig for as long as possible, and investing in bonds in the meantime is a trade off.
They strategize very well.
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