Posted on 03/11/2005 9:21:43 AM PST by ICE-FLYER
It is estimated that China holds 1.6 Trillion dollars in US Bonds and Treasury notes. This is an awesome amount of currency on demand that they can ask for disbursement on at any time.
What I would like to know from those in the know here at Freerepublic is any details of what a dump of this kind on our market would cause. What could be its effect on the US?
They would be cutting their throat economically
We'd still owe the money.
China, on the other hand, would be broke.
Someone set us up the bomb!
A wise saying goes something like, "Owe someone 100 bucks and he controls you. Owe someone a million bucks and you control him."
They can't demand payment unless the notes become due. However, they could sell them on the market until they drive the price low enough that the rates become attractive to buyers.
It would be exciting for futures option traders.
When the South Korean minister of finance said the "US dollar could not be sold," he was telling you the truth. Central banks do not hold US dollars as dollars. They hold US Treasury securities in reserve. What the minister was saying was that there is no practical way to withdraw from the system the liquidity injected into it by the Bernanke Electric Mayhem Money Printing Machine.
Should central banks seek to sell US Treasuries, that market would fall out of bed so hard that it would drag the world down with the falling quotes on US Treasuries. Interest rates would spike up so hard, so fast, that in a practical sense major central banks could not sell the US Treasury instruments. Therefore, the minister was speaking truthfully in his statement that the US dollar cannot be sold by central banks.
However, what is happening now is that central banks are NOT BUYING more US Treasuries and diversifying this way. That put the TIC figures completely on investors. As such, everything possible has to be done to keep the stock market chugging ahead because the bond market isn't going to be attractive to investors overseas as the dollar falls and interest rates rise. The Fed knows this all too well so it will keep the system liquid in order to do its part for the stock market.
The bonds and notes are due on maturity. China can attempt to turn them in earlier, but Treasury won't accept them. Maybe they can be traded, but the market would want a hefty discount.
"And then their economy would implode"
Maybe 30 years ago, now just about everything we by is from China. Think if everything disappeared from them. massive shortages from tooth brushes to whatever. Keep in mind GM is going to start selling Caddys in china.
I know that Freepers love to thumb their nose at China, but it is a two-way street. We are in bed with them, and neither is going to get out of bed b/c of the agony involved in doing so.
Think if everything disappeared from them. massive shortages from tooth brushes to whatever. Keep in mind GM is going to start selling Caddys in china.
I think we could get our pink umbrella and Hello Kitty backpack industries up to speed pretty quickly if the Chinese supply dries up.
Well, that is nice to say and all but in reality weve become dependant on those "crappy goods"
A wise move would be to start shifting to find goods elsewhere. That would not only stop fueling their economy but help another that is more US-friendly.
The US Treasury Bond and the US Dollar are the world's reserve currencies.
Any serious drop in value will hurt every country with a modern economy almost as badly as it hurts us. We are strong enough to stand the pain, no one else is.
After a day or so of watching us squirm, every Central Bank in te World would join to rescue the dollar for their own self preservation.
The US Treasury defines the worth of every other currency, we are too big to be allowed to fail.
SO9
I've said it before in other china related threads, and I'll say it again. For a eye opening picture of the impact of China on the world and US economies every freeper should read China Inc, By Ted Fishman.
"I think we could get our pink umbrella and Hello Kitty backpack industries up to speed pretty quickly if the Chinese supply dries up."
Granted, big ticket items generally dont come from there, but a hell of alot still does and I question our ability to quickly rebound from that.
Um, which is why their economy would implode. Do you think China just wishes the goods they sell us up out of thin air?
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