Tuesday, August 07, 2007

China Threatens to Dump Dollar on International Market

With 44 percent of the American foreign debt in foreign banks, China sees the US as a very vulnerable adversary. China holds $1.33 trillion in foreign reserves and has announced today they are not afraid to use that clout to beat America into submitting to their wishes. Prepare yourselves, folks, for more inferior and dangerous products, and poisonous foods. If we object, China is threatening to dump their greenbacks on the world market devaluing the dollar far below a survivable level.

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added.

He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.

"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.

"China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.

The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decisions being made in Beijing, Shanghai, or Tokyo".

She said foreign control over 44pc of the US national debt had left America acutely vulnerable.
The power of the American economy cannot be ignored, however. We have found ourselves in very bad economic situations before and we prevailed. China, too, is in a vulnerable position. They hold far more dollars than is healthy for a chronically sick economy. If you owe the bank $100.00, the bank owns you. If you owe the bank $1.33 trillion, the bank can't afford the loss. China however, has always played the long game and may be willing to take the hit to have the chance to bring down the great American economy.

Buckle your seat belts. It's going to be a bumpy ride.

The Telegraph

The life of Indigo Red is full of adventure. Tune in next time for the Further Adventures of Indigo Red.


Indigo Rose said...

Couldn't a move like this cause problems for the upcoming 2008 summer olypics in Beijing?

Don said...

I think there is way too big a market for Chinese goods here for them to get too frisky.

dcat said...


Mike's America said...

Wouldn't that make Chinese goods, even those produced with slave labor and subsidized by the government, too expensive for Wal-Mart to buy?>

bernie said...

Both Wal-Mart and China need to be bitch slapped.

I say the US should counter-threaten that if they dump dollars we will embargo ALL trade with China. The US can easily cakewalk through a recession but the Chinese cannot sustain having most of their population unemployed. Chinese workers are getting used to the better life and the Communists cannot put the Jinni back in the bottle.

As for Wal-Mart, if they go out of business it would be the best thing to happen to small business in this country.

Let's see their bluff.

Tom C said...

Years ago I worked for a company that could and still can stand up to wal-mart. Meijers was making big money with hyper markets befor Sam got a clue. Where did Barney Kroger go? All things change. I have about a third of my money in the bond market and won't say where the rest is but I plan to eat chinese for lunch.