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?
Won't happen. Chinese have been bankers, peddlers and traders for a thousand years.
China will require vast natural resources to satisfy comsumer demand, this will put it in direct competition with the USA for resources like oil (why do you think oil is over 50/barrel) things will only get worse for the USA and better for China.
I guess we could nationalize the bonds
I'll see what I can do.
1. Cause the value of them to drop. They would sell at loss compared to the price they paid. This would cost the Chinese billions of dollars.
2. Leave them with a lot of U.S. currency that would have to be invested (where?) or sold (for Euros for example). If they went the Euro route, the exchange rate for that large a transaction would increase way above where it is now causing them further loses in buying power. If they invest the dollars then the best place to put them is in the U.S. bonds that they just sold.
The bottom line is that the Chinese cannot actually do us any harm by selling the bonds and it is not in their best interest to do so. We are their best customer. They are like a giant Walmart for the U.S.
>They would stop exporting to us.
>And then their economy would implode.
Then we would make do with the products we have, or buy them from another source (albeit not so cheap) or we would actually do without (this country IS capable of that believe it or not. Half of us would not own DVD's if they weren't 50 bucks a piece) and they would have no money from sales.
They'd be worse off than us.
THANKS FOR THE POST, THOUGHT I WAS ALONE IN THE UNDERSTANDING.
China is a communist country with a military population that is many times larger than ours but way behind in technology.
Their solution is to temporarily engage in the global market until they can buy/build their internal technology & manufacturing capability up to the point where their superiority in manpower gives them the edge against the U.S.
Most of the replies you're getting here to your question about an economic bomb are making the critical mistake of applying capitalist logic to rationalize communist intent.
A: Yes, but it would be a suicide bomb.
"They are just not that powerful yet. 'Yet' being the operative word here."
I don't know about the mechanics of economics, but my spider sense tells me that the Chicoms will bleed us of wealth and tech till the spigot shows signs of drying up. Then make a move.
Funny you should mention that while this thread is running on FR: Report: China's Foreign Reserves Fall (China switching dollars for Euros)
It is highly unlikely China would ever "dump" U.S. Treasuries because a huge percentage of the wealth tied up in them would vaporize. China could stop buying Treasuries but that would mean abandoning the yuan-dollar peg because treasury purchases are the mechanism they use to maintain that peg. Abandoning yuan-dollar peg would mean abandoning the current favorable trading relationship with the U.S. which would make the minimum growth rate of 8-10% per year(needed to maintain a socially harmonious employment rate)impossible to achieve.
Yes, they are diversifying into Euros. That is just good business pratice. A long way from dumping the dollar for the Euro. That would not be good pratice. They will hold and invest a mix of both currencies. In the long run, they will tend to hold those currencies and investments that benefit them the most. I think that will be capitalist dollars and not socialist Euros. Time will tell.
Today's news.
"Japanese Finance Minister Sadakazu Tanigaki later said the remarks don't mean the government plans to change its asset mix. Japan is the largest overseas holder of U.S. Treasuries, owning a total of $711.8 billion as of December.
China's central bank cut the share of its currency reserves held in dollars and raised its holdings of euros, according to a report by Lehman Brothers Holdings Inc. China is the second- largest foreign holder of Treasuries. It slowed its purchases of the securities in the last three months of 2004. "
Quote: Should a significant part of China 1 billion people become comsummers then China could care less about the USA or it's dollar
Bingo. People in this country have an attitude that the world needs us or we are indespensible. I'm sorry they don't.(some countries need our aid or military) The Chinese can sell to all the other countries and leave us behind. We are a large market to them now but when we get "downsized" by losing our high paying jobs-hence middle class, when they take over the IT tech sector, start making a chinese made cars etc) they can always sell to south america, Canada, Middle east, Europe, southeast asia etc.
Treausry bonds are not currency on demand. These bonds have to be sold in the treasury bond market to generate cash. If China sells a huge amount of bonds at one time they would collapse the price of these bonds and take a massive loss. This would also drive up interest rates in the U.S. and send us into recession, which would greatly reduce the demand for Chinese products. So they aren't going to sell our treasury bonds in significant amounts.
"We may no longer manufacture the kind of garbage we buy from there, but dozens of other nations do."
That is really true
But I do not think any nations would sell anything to anyone for cedit what may never pays.
Where'd you get that? "Proverbs for Dummies"???
"Think what you do when you run into debt;
you give another power over your liberty."-- Benjamin Franklin (1706 - 1790)
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