Posted on 08/08/2007 7:51:59 PM PDT by JACKRUSSELL
The Chinese government has hinted that it may liquidate its vast holding of US Treasury bonds, potentially triggering a crash in the dollar, if Washington imposes trade sanctions to force a yuan revaluation, The Telegraph reported.
The paper said that two Chinese officials at leading Communist Party bodies have given interviews in recent days warning, for the first time, that China may use its 1.33 bln usd of foreign reserves as a political weapon to counter pressure from the US Congress.
Xia Bin, finance chief at China's Development Research centre, which has cabinet rank, commented last week that China's foreign reserves should be used as a 'bargaining chip' in talks with the US, the report said.
He Fan, an official at the Chinese Academy of Social Sciences, went further yesterday, indicating that China had the power to set off a dollar collapse, if it chose to do so, The Telegraph said.
'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. 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 said.
Shifts in Chinese policy are often announced through key think tanks and academies.
So, now they’re trying to blackmail us. Sorry, not buying that either.
Thanks for the post, BTTT.
This I have feared for many years. They have us where they want us. The nuances began by Nixon, furthered by GHWB, and sprang into full stupidity by WJ Clinton, topped off by W, all Globalists.
Yep, this is just jawboning. Maybe the US stock market or bond market mildly pees itself tomorrow. It’s about due after the past three days of chicanery anyway.
If that happens and this statement is (very conveniently) blamed, look for bigger Chinese functionaries to blah blah blah about a “clarification” or “translation mistake” or “unauthorized statement”.
That's a typographical error. China doesn't have $1.33 billion in reserves, it has $1.33 TRILLION in USD reserves. That's an incredible amount of money and enough to collapse the US economy if all dumped at once.
I should hope so. Selling off those bonds will cause the U.S. Dollar to fall, which in turn makes imports to the U.S. more expensive.
Throw me into that briar patch. They can pretend that it's a bad thing...but it's bad for China for their prices to increase...not bad for the U.S. for Chinese prices to go up.
What aren't you buying? They have $1.33 trillion in US Government debt. If they dump that, the US is in serious trouble. Of course Chinese taxpayers would also be in serious trouble, but that doesn't mean the option is unthinkable.
It’s not the U.S. economy that would collapse from a Treasury Bond selloff...it’s China’s.
Selling U.S. bonds will drop the value of the Dollar, which in turn raises the price that Americans have to pay for imports.
For a nation that exports to the U.S., that’s a bad thing. For the U.S., that’s a good thing.
I’ve got 20 Canadian and a few pesos. Can I buy $890,000 American with that?
Selling off those bonds would send US securities markets through the floor, hurting a hell of a lot more companies than a modest boost in exports would help. It would also make it much more difficult for the US government to finance its debt, making the deficit go through the roof.
The problem for China isn't that Chinese goods would be too expensive, it's that the US economy would absolutely tank and Americans wouldn't be buying any goods, from China or from anywhere else. That would hurt the world economy, China included.
I don’t think they care too much about their economy.
Of course, the entire China GDP is $2.2 trillion, meaning that dumping the $1.3 trillion US T-bills they have would completely annihilate their economy, putting the RMB in an amazing escalation, meaning that the price of Chinese products would double overnight, completely stifling their exports and thus their entire economy.
For better or worse, China and the US are inextricably economically linked. When we burp, they convulse. When they spasm, we feel a mild twitch. Our economy is a good 6 times theirs, and much more diverse and stable. And China knows it. It will talk a strong talk, but will not make any such rash actions because it would completely destroy everything they’ve gained in the last 20 years.
I think we're on the same page (as seems often to be the case). If China really wants to destroy the world economy, it certainly has the power to do so, but that doesn't seem like something that would be in China's interests.
“That’s an incredible amount of money and enough to collapse the US economy if all dumped at once”
1. They can’t dump it all at once
2. If they even begin trying to rapidly “dump dollars” they’ll cost themselves a tremendous amount of money, and blow a hole into the bow of many other economies on the planet in the process.
This is akin to someone grabbing your paycheck and threatening to leap over a cliff with it to teach you a lesson.
There is an excellent book about the 1987 stock market crash by Daniel Burstein in which the title starts with Yen. He contends that crash was precipitated by the Japanese reluctance to continue to buy our debt. The world has changed a lot since then and the money out flows in our trade balance are going largely to China and the oil cartel. The problem is not the debt in itself, the debt that we are incurring is not productive. Debt can be used to create value, but when so much of the debt is public debt incurred by two corrupt parties who are using the people’s credit card to buy their next election, then nothing good will come of that debt. Our sovereignity is being sold out by our leaders in a variety of ways, not just by the non enforcement of our borders and our immigration laws.
To whom? Who’d buy them?
Their currency is pegged to ours, so they’d be deflating their own currency in the bargain.
Let’em.
Forget exports. It's Chinese imports that would die from such a bond selloff.
Also, keep in mind that a falling Dollar makes it easier to pay off debts because old debt is suddenly devalued.
The converse is that Dollar savings accounts are likewise devalued, so savers are harmed while debters are aided by a falling Dollar.
...but our government is no saver.
Yes, yes, but what about those great deals at Wal-Mart?
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