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ShnickyShnack · 2007-08-08 8:59 am

China threatens to liquidate its dollar holdings if bullied by America

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion of foreign reserves as a political weapon to counter pressure from the US Congress.

Shifts in Chinese policy are often announced through key think tanks and academies.

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 already 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 over $900bn in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added.

He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.

"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. Russia, Switzerland, and several other countries have reduced the 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 told China Daily.

So they're finally saying what we've all known for quite some time. Namely, that the status quo may suck in many ways for the US, but it can't be smurfed with.

Basically you've got America's chief rival, which is still a developing country with a far smaller and weaker military, informing the world's superpower that it's no longer in the driver's seat.

Amazing where history leads sometimes.

user · 2007-08-08 9:24 am

Amazing where dumbass neo-cons lead.

StaticAge · 2007-08-08 9:44 am

That was leading?

user · 2007-08-08 9:59 am

Good point.

When did we start borrowing from the Chinee anyway?

ShnickyShnack · 2007-08-08 10:02 am

Bonds are for sale to whoever wants them.

The real issue is decades of piling up gargantuan debt.

radarman · 2007-08-08 10:09 am

We've been on this path a LONG time, pretty much starting when we decided it was cheaper to make stuff overseas and import it, rather than just making it here in the first place.

However; WRT China, I would say Nixon is to blame. Prior to his visits, China and the US didn't really have a relationship at all.

The sad thing is, we can't really blame anyone other than ourselves for this mess. We demanded low cost over quality, and got it. Then, we decided to buy more low cost crap than we could afford, borrowing the money to fund our spending. At some point, the government decided it could play at that game too. We are pretending to be more affluent than we really are, and the bill is now coming due.

What sucks is that those of us who try to be responsible are going to be just as screwed as those who were out spending like drunken sailors. We are all going to end up tenants in our own country, renting our homes from the Chinese.

I don't hold out a great deal of hope for the situation. Americans are simply not ready for the kinds of sacrifices that will be required to turn the situation around. What pisses me off is that we have seen it coming, and didn't do anything about it. Only the most short-sighted, or ADD afflicted, people in the country could have missed the warning signs.

JakeTheTall · 2007-08-08 10:19 am

I, for one, would like to thank Presidents Reagan, Bush, and Bush, for bravely running massive deficits. Bravo.

user · 2007-08-08 10:28 am

What I was was asking is when do the US Government start actively financing themselves by dealing with the Chinese?

radarman · 2007-08-08 10:30 am

user wrote:
What I was was asking is when do the US Government start actively financing themselves by dealing with the Chinese?

The US has been issuing bonds for a very long time. You still see those old posters for "War Bonds" in antique shops from time to time. The trick is, anyone can buy those bonds. Lately, the Chinese have been busy doing just that.

Has the government specifically issued bonds directly to the Chinese? That I'm not sure about, but there are enough generally available bonds on the market that they really didn't need to.

user · 2007-08-08 10:34 am

I'm sure that could restrict sales to foreign governments, but I guess if the bonds are financial instruments then the Gov would have no control after the initial sale.

ShnickyShnack · 2007-08-08 10:45 am

Are you kidding? They don't want to restrict bond sales, they want to open them up. The more the merrier! Better the Chinese buy them than nobody.

Really, at this point I don't know what can be done to rectify the situation. Everything depends on the interests of other countries -- namely the countries (including but not limited to China) who hold America's debt. Those countries ill keep the party going for as long as it's in their national interest, but it's foolish to think this is a permanent situation.

China for example is focused on developing its economy to the point where it's so large a market that it doesn't need to rely on American consumption anymore.

robco · 2007-08-08 10:50 am

Everyone wants tax cuts for themselves, but not for others. Everyone wants to see gubment cut, except the programs and services that affect them. And for some reason, even pre-Iraq, we never transitioned from a wartime to peacetime economy after WWII or even the end of the Cold War.

Hopefully solving this problem won't be up to the neocons since their solution would probably be war with China...

JakeTheTall · 2007-08-08 10:55 am

I'm not sure if this is the whole story, but I've read that the US used the "we'll liquidate your currency and break your economy" on the British during the Suez Crisis in 1956, to get the British to leave Egypt.

So, in case anyone figured its not possible, well, looks like its worked in the past.

matt · 2007-08-08 2:03 pm

ShnickyShnack wrote:
Bonds are for sale to whoever wants them.

The real issue is decades of piling up gargantuan debt.

But the Republicans have been telling us we get to keep more of our [Monopoly®] money! sad

robco · 2007-08-08 2:06 pm

You get to keep more, it's just worth a lot less.

ShnickyShnack · 2007-08-08 2:13 pm

JakeTheTall wrote:
I'm not sure if this is the whole story, but I've read that the US used the "we'll liquidate your currency and break your economy" on the British during the Suez Crisis in 1956, to get the British to leave Egypt.

So, in case anyone figured its not possible, well, looks like its worked in the past.

Well, sorta. The Pound was already tanking by the time the Americans (and Soviets) started getting tough.

But yeah, 1956 is in some ways an apt analogy. Humiliating last hurrah of empire.

Ribtorus · 2007-08-08 4:17 pm

Borrowing doesn't come out of the blue.
Wal-Mart-nation-fueled trade deficitry and the easy attractiveness of low taxes are two major culprits.

Yellowfin · 2007-08-08 4:21 pm

JakeTheTall wrote:
I, for one, would like to thank Presidents Reagan, Bush, and Bush, for bravely running massive deficits. Bravo.

Add Roosevelt, Truman, Eisenhower, Kennedy, Johnson, Nixon, and Carter to that list. We need to do as Greenspan recommends and go back to the gold standard to put an end to this crap. http://www.usagold.com/gildedopinion/greenspan.html

Last edited by Yellowfin (2007-08-08 4:22 pm)

Farmerkev · 2007-08-08 4:26 pm

Ribtorus wrote:
Borrowing doesn't come out of the blue.
Wal-Mart-nation-fueled trade deficitry and the easy attractiveness of low taxes are two major culprits.

Tax receipts are at all time highs.
It's the smurfing spending that has to stop.
State and Fed.
An example would be Illinois, we still don't have a budget because the Dems can't get along with each other and the Dem governor is an out of touch idiot.
We've actually got a couple billion surplus and the Gov wants to start health care and spend 10 billion a year plus increase money for schools and several other things.

Ribtorus · 2007-08-08 4:32 pm

Tax recipts could be higher without overly impacting consumer spending.

But anyway, does this economy really need a tax policy that promotes consumer spending?

You're being cut with both edges of the sword, on each swing.

Last edited by Ribtorus (2007-08-08 4:33 pm)

Yellowfin · 2007-08-08 4:37 pm

Ribtorus wrote:
Tax recipts could be higher without overly impacting consumer spending.

But anyway, does this economy really need a tax policy that promotes consumer spending?

You're being cut with both edges of the sword, on each swing.

Actually if they could cut way back on frivolous consumer credit then implement a tax policy to replace the lost credit spending with real money spending then that would in fact fix the problem. big_smile Reigning in the debt inflation monster is what our society direly needs.

Last edited by Yellowfin (2007-08-08 4:38 pm)

Farmerkev · 2007-08-08 4:37 pm

Ribtorus wrote:
Tax recipts could be higher without overly impacting consumer spending.

But anyway, does this economy really need a tax policy that promotes consumer spending?

You're being cut with both edges of the sword, on each swing.

We certainly don't need a tax policy that encourages any more government spending.
Make no mistake, they would spend that and more.

Ribtorus · 2007-08-08 4:47 pm

Farmerkev wrote:
Ribtorus wrote:
Tax recipts could be higher without overly impacting consumer spending.

But anyway, does this economy really need a tax policy that promotes consumer spending?

You're being cut with both edges of the sword, on each swing.
We certainly don't need a tax policy that encourages any more government spending.
Make no mistake, they would spend that and more.

I say if the tax model doesn't take into account legislative reality, then it isn't much of a model. Kind of like if wishes were ponies.

matt · 2007-08-08 5:01 pm

Farmerkev wrote:
Ribtorus wrote:
Tax recipts could be higher without overly impacting consumer spending.

But anyway, does this economy really need a tax policy that promotes consumer spending?

You're being cut with both edges of the sword, on each swing.
We certainly don't need a tax policy that encourages any more government spending.
Make no mistake, they would spend that and more.

I would agree with that if government spending was in any way related to having the funds to pay for said spending.

Farmerkev · 2007-08-08 5:08 pm

matt wrote:
Farmerkev wrote:
Ribtorus wrote:
Tax recipts could be higher without overly impacting consumer spending.

But anyway, does this economy really need a tax policy that promotes consumer spending?

You're being cut with both edges of the sword, on each swing.
We certainly don't need a tax policy that encourages any more government spending.
Make no mistake, they would spend that and more.
I would agree with that if government spending was in any way related to having the funds to pay for said spending.

Which is what I just said.
You want to give them even more control of the total money per year in the US?

Forums | MacLife

#1 2007-08-08 8:59 am

China to US: "News flash -- we've got you by the short hairs!"

#2 2007-08-08 9:24 am

Re: China to US: "News flash -- we've got you by the short hairs!"

#3 2007-08-08 9:44 am

Re: China to US: "News flash -- we've got you by the short hairs!"

#4 2007-08-08 9:59 am

Re: China to US: "News flash -- we've got you by the short hairs!"

#5 2007-08-08 10:02 am

Re: China to US: "News flash -- we've got you by the short hairs!"

#6 2007-08-08 10:09 am

Re: China to US: "News flash -- we've got you by the short hairs!"

#7 2007-08-08 10:19 am

Re: China to US: "News flash -- we've got you by the short hairs!"

#8 2007-08-08 10:28 am

Re: China to US: "News flash -- we've got you by the short hairs!"

#9 2007-08-08 10:30 am

Re: China to US: "News flash -- we've got you by the short hairs!"

user wrote:

#10 2007-08-08 10:34 am

Re: China to US: "News flash -- we've got you by the short hairs!"

#11 2007-08-08 10:45 am

Re: China to US: "News flash -- we've got you by the short hairs!"

#12 2007-08-08 10:50 am

Re: China to US: "News flash -- we've got you by the short hairs!"

#13 2007-08-08 10:55 am

Re: China to US: "News flash -- we've got you by the short hairs!"

#14 2007-08-08 2:03 pm

Re: China to US: "News flash -- we've got you by the short hairs!"

ShnickyShnack wrote:

#15 2007-08-08 2:06 pm

Re: China to US: "News flash -- we've got you by the short hairs!"

#16 2007-08-08 2:13 pm

Re: China to US: "News flash -- we've got you by the short hairs!"

JakeTheTall wrote:

#17 2007-08-08 4:17 pm

Re: China to US: "News flash -- we've got you by the short hairs!"

#18 2007-08-08 4:21 pm

Re: China to US: "News flash -- we've got you by the short hairs!"

JakeTheTall wrote:

#19 2007-08-08 4:26 pm

Re: China to US: "News flash -- we've got you by the short hairs!"

Ribtorus wrote:

#20 2007-08-08 4:32 pm

Re: China to US: "News flash -- we've got you by the short hairs!"

#21 2007-08-08 4:37 pm

Re: China to US: "News flash -- we've got you by the short hairs!"

Ribtorus wrote:

#22 2007-08-08 4:37 pm

Re: China to US: "News flash -- we've got you by the short hairs!"

Ribtorus wrote:

#23 2007-08-08 4:47 pm

Re: China to US: "News flash -- we've got you by the short hairs!"

Farmerkev wrote:

Ribtorus wrote:

#24 2007-08-08 5:01 pm

Re: China to US: "News flash -- we've got you by the short hairs!"

Farmerkev wrote:

Ribtorus wrote:

#25 2007-08-08 5:08 pm

Re: China to US: "News flash -- we've got you by the short hairs!"

matt wrote:

Farmerkev wrote:

Ribtorus wrote:

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