China's "Nuclear" Option

DarkAngelKamui · #1 08-10-2007, 09:30 AM

Doesn't involve any megatons, but it's still guaranteed to hit hard if they actually decide to play this card....

China Threatens to Trigger US Dollar Crash

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 Treasury bonds if Washington imposes trade sanctions to force a yuan revaluation.

http://www.telegraph.co.uk/money/mai...cnchina108.xml

Just to save some of you the trouble of trying to understand how serious this could be:

Quote:

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 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 more than $900bn in a mix of US bonds.

Quote:

"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," he told China Daily. "Russia, Switzerland and several other countries have reduced their dollar holdings."

DarkAngelKamui · #2 08-10-2007, 09:34 AM

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Frankly, the US government should have seen this coming. Continual overspending and overborrowing only leads to disaster. It is to the fault of every elected official over the last decade or more who has had a hand in creating this looming threat. But the Bush administrati on took what was a moderately balanced national budget and gutted it with tax cuts and a trillion dollar war. At the same time, the Fed played along by pushing interest rates to historic lows, encouraging Americans to spend, spend, spend. And they spent on things that come from China-electronics, clothing, plastic crap. At the same time, US manufacturing was shipped abroad, making the potential for the US to export goods the Chinese want nearly non-existent . And the Chinese could buy the stuff at home- it was all being made there anyhow.

Meanwhile, China kept taking the money earned from exported goods and turned around to buy US securities and currency, because the US dollar was the world’s main currency reserve. And at this point, it still is.

But Russia, Switzerland, and several other countries have been reducing their own dollar holdings as they watch the US economy enter uncertain times. And the fact that China holds such a large percentage of US debt is a major factor in what happens to the US economy. If China pulls the trigger and sells out, the US dollar could drop in value quickly, creating massive inflation and making the Great Depression look like a warm-up match before the main event. And if China sells off, others will follow. You can bet the farm on that.

The US government was foolish to let things get to this point. Regardless of the fact that for decades our economy and currency was stable, any economist with the sense of a grain of salt should have been able to predict the outcome of such an imbalance in trade. Couple that with China’s historic rejection of being forced into any position, and it’s clear to see that our leaders had their eye off the ball for some time now.

A collapsed dollar will have implications that go far beyond our borders though. Much of the western world will suffer too. As will China. But the difference is this: in China (and other developing countries) the people are used to having nothing and can adapt. In America, we expect to get the best all the time, and we can’t even remember what it feels like to do without.

I don’t have a solution though. It’s a damn shame we’re where we are. And we may well just have to sit back and let China do whatever it will with the yuan or else expose ourselves to financial disaster.

To think- if we had a president who cared more about America’s long term security and success, he’d not have thrown us all under that big Chinese bus to give his pals a few extra million dollars in tax cuts. And he sure as hell wouldn’t have spent a trillion dollars going after a band of terrorist thugs. Not when there were better choices to be had.

But then that assumes Bush cares about America at all. And really, he just cares about himself and his rich cronies. And hey- doesn’t Bush have a bunch of property in South America now anyhow? Wonder where he’ll be going when the US is in the shithole

rodney87 · #3 08-10-2007, 11:54 PM

Does this mean my Chinese money will be worth more now?

IHI · #4 08-11-2007, 03:03 AM

Liquidation of foreign assets is always an option, and the US federal government has already weighed the risk of this scenario....... although China holds the next move.

The undeniable reality, in economic terms, is that China and the US are symbiotically attached in and will both suffer if one harms the other.

Clearly, we are already in the age of self-worship and of man made things..... if anyone places their faith in human control, the birth pangs of the coming of Christ will come as a theif in the night, unexpectedly, and with great peril.

czarofzar · #5 08-11-2007, 07:33 AM

whatever.
USA will just forfeit any exchange of bonds to currency. So easy.
p.s. Tell Jesus I think he is fat.

Manntis · #6 08-11-2007, 06:07 PM

meh - the market is already doing this without China making a move. sub-prime mortgages are being called in, the US dollar is dropping further, and the stock market has taken a sizable hit since Monday.

czarofzar · #7 08-11-2007, 08:49 PM

Quote:

Originally Posted by Manntis

meh - the market is already doing this without China making a move. sub-prime mortgages are being called in, the US dollar is dropping further, and the stock market has taken a sizable hit since Monday.

I think it is you, Manntis, that is pulling gobs of money in and out, screwing with our system.

IHI · #8 08-11-2007, 11:07 PM

Quote:

Originally Posted by czarofzar

whatever.
USA will just forfeit any exchange of bonds to currency. So easy.

And China won't forfeit the trade of raw materials such as steel?

Quote:

p.s. Tell Jesus I think he is fat.

As you wish.

czarofzar · #9 08-12-2007, 09:26 AM

Quote:

Originally Posted by IHI

And China won't forfeit the trade of raw materials such as steel?

Can you imagine? China deploying an embargo? Who else will buy their cheesy gifts and knick knacks?

Ryosuke91t · #10 08-14-2007, 10:10 AM

Quote:

Originally Posted by czarofzar

Can you imagine? China deploying an embargo? Who else will buy their cheesy gifts and knick knacks?

Americans can't afford to buy American.

czarofzar · #11 08-14-2007, 10:34 AM

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Originally Posted by Ryosuke91t

Americans can't afford to buy American.

I can't argue here.

But we smartly didn't put all of our eggs in one basket. We spread plenty of our industry over the Earth. We have Israel, Mexico, Taiwan, Japan, etc, whom we buy crap from. Now aren't you glad we have Indonesians answering phones instead of Chinese?

Manntis · #12 08-14-2007, 12:19 PM

Quote:

Originally Posted by czarofzar

I think it is you, Manntis, that is pulling gobs of money in and out, screwing with our system.

Now why would I do that, when pre-war Iraqi Dinars are printed on the exact same linen paper as US dollars, and bleach so easily for re-printing?

I mean... so I've heard...

Manntis · #13 08-14-2007, 12:20 PM

Quote:

Originally Posted by czarofzar

Can you imagine? China deploying an embargo? Who else will buy their cheesy gifts and knick knacks?

Actually the US is only 18% of China's exports. They are, literally, the world's factory.