China Threatens 'Nuclear Option' Of Dollar Sales (Oops!)

The Telegraph (UK) ^ | 8-7-2007 | Ambrose Evans-Pritchard

[reluctantwarrior]

The market for debt is fungible so at a deep enough discount the saudis or the iranians or the venezualeans will buy it....Oh I mentioned this threat from the PRC last years and everyone flamed me. So I guess I was right twice this century.

[sono]

This story brought to you by the people at Lear Financial.

[Poser]

While most of economic “science” is just voodoo BS, supply and demand actually works. If the Chinese flood the market with bonds, the value of bonds will go down and the Chinese investment will go into the crapper. That would hurt the Chinese as much as anybody.

Let’s see... Value of dollar drops. Chinese products more expensive. Americans buy less Chicom crap. China economy tanks.

Conversely... Chinese products more expensive. US products become more competitive. US consumers buy US products. US economy soars after brief recession. Dollar recovers.

Long-Term results... US economy strengthened. Consumers soured on Chinese products. Astute investors have great retirement.

While it might cause a temporary recession, it would create some great buying opportunities for long term investors.

[whitedog57]

Thank you.

The Chinese can sell their USTs to someone else. True, they can dump the USTs in a lump sum transaction. That will clearly depress the price of the USTs resulting in them getting less than par value. Someone will pick them up in the market at a discount - maybe even us!

There was this movie with Jane Fonda and Kris Kristofferson called “Rollover.” In this film, the Saudis don’t rollover their USTs. The world degenerates into food riots, looting, total collapse. Hillarious! Someone would buy the debt that the Saudis wouldn’t rollover. Also, can the US default on its debt? Sure, just like Russia. But countries would negotiate new terms so that the US wouldn’t default.

[ARE SOLE]

Thanks, but the Chicoms would be selling at a major loss just to spite us and wouldn’t we remain with the same debt obligations we had with China?

Regards

[reluctantwarrior]

Yes, it is still a USG obligation, the discount doesn’t effect the face value of the obligation or the maturity, it would dramatically alter the yield. The threat is real but it would hurt the fragile Chinese economy more the the US, but the Chinese do not worry about public opinion. A credit crunch would cause panic selling in US dollar debt and equities, unfounded in my opinion but fear and greed psychology are easily released in the US markets. The congress will blink before the Politburo Standing Committee.

[Eagles Talon IV]

Point is the Chinese would badly harm their own economy not to mention losing a pile of money if they dumped the Treasuries or dollar reserves held in cash.