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  #1  
Old 08-07-2007, 10:31 PM
Medmech's Avatar
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The Economic Nuke

I have been screaming about this to my on and offline pals for two years and here we go:

China threatens 'nuclear option' of dollar sales


By Ambrose Evans-Pritchard
Last Updated: 1:48am BST 08/08/2007


The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.
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 (£658bn) 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.
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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.
The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo".
She said foreign control over 44pc of the US national debt had left America acutely vulnerable.
Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.
"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles," he said.
A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.
The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June.
Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".
Mr Paulson is a China expert from his days as head of Goldman Sachs. He has opted for a softer form of diplomacy, but appeared to win few concession from Beijing on a unscheduled trip to China last week aimed at calming the waters.






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  #2  
Old 08-07-2007, 10:38 PM
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reason why we have a safe house in columbia with my step dads side of the family.. I kid you not... getting my passport soon so incase anything goes south here we leave here and get into the family business of running a country wide bus line... 45 rigs ^_^ half of em brand new
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  #3  
Old 08-07-2007, 10:45 PM
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If the people in Washington didn't see this coming, they should be beaten. I considered this a couple of years ago, and all I got was a C in Economics101, and that was over 20 years ago.
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Old 08-07-2007, 11:34 PM
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Why would China do that? That would be like shooting through your head to kill the guy behind you.

If our economy goes in the hole so will everyone elses, who will buy China's exports? If we can't afford them, or all of a sudden its cheaper to make stuff here again China is in trouble. Europe will be in the hole with us so they won't be buying China's stuff.

Its a political tactic, they cannot afford to do that any more than we can.


However now is a great time to buy gold coins!
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  #5  
Old 08-07-2007, 11:41 PM
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The article fails to mention the 2 trillion $American$ that are sitting the China banks.

our gdp is $13 trillion.
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Old 08-08-2007, 02:57 AM
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Quote:
Originally Posted by TheDon View Post
reason why we have a safe house in columbia with my step dads side of the family.. I kid you not... getting my passport soon so incase anything goes south here we leave here and get into the family business of running a country wide bus line... 45 rigs ^_^ half of em brand new
In other words ... if things go South here, you go with it ....
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Old 08-08-2007, 03:25 AM
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Quote:
Originally Posted by Hatterasguy View Post
Why would China do that? That would be like shooting through your head to kill the guy behind you.

If our economy goes in the hole so will everyone elses, who will buy China's exports? If we can't afford them, or all of a sudden its cheaper to make stuff here again China is in trouble. Europe will be in the hole with us so they won't be buying China's stuff.

Its a political tactic, they cannot afford to do that any more than we can.


However now is a great time to buy gold coins!

The Chinese government seems more than willing to sacrifice their own people's well being.

However, I don't think it will happen, they just want to dangle it out there so we know what they are capable of.

Sort of off topic, but I'm really scared of the dollar sinking fast against other currencies. Parts from the MB dealer are going to cost much more and that is just too scary to consider.
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  #8  
Old 08-08-2007, 07:24 AM
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Let's see, they hold a fire sale on their us currency holdings. Once they start, the price drops and all of those assets they hold drop in value. Now, since their banking system is already at a non-performing loan ratio of about 25% this just makes things go even worse. Then as the cost of their goods become more expensive in the US market, Wal-Mart and others actually go back to selling (cheaper) American products. Since they have caused a recession in the US, there are less people buying things anyway so their sales further tank.
Yes, it would hurt us, but like Hatty said, it would be shooting themselves first to shoot us too. Those folks are calculating, not crazy. And the last thing they want is American people actually looking at the "Made in" label on stuff and thinking how much they hate China.
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  #9  
Old 08-08-2007, 08:49 AM
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I'm happy to see the "other" side sees the light. I've never seen Howi talk about this before, and it doesn't mean he hasn't, but he is 100% right. China has our balls in their purse and we kiss them good morning everyday.

But hey, the moronic masses have their baseball and their beer.

Thanks for the info Howi!
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  #10  
Old 08-08-2007, 08:59 AM
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There's no doubt it would hurt China, but not as much as the US. China is a very patient culture, and that is one of the big differences. They view themselves as the extension of a culture that is thousands of years old, and has overcome countless other crises over that time. They know that they'll recover, even if it takes 20 or 50 years. The US doesn't have the patience or ability to wait that long. The US also doesn't have the manufacturing infrastructure that it used to have. Tooling from whole factories have been shipped overseas. If the US economy went into the toilet where will the money for new capital investment come from? It ain't cheap to start up manufacturing.

Yes, Europe would hurt too, but not anywhere near as bad as the US. One of the likely responses to a drastic devaluation of the US dollar would be the emergence of the Euro as the new world standard currency. Continued integration of the former Eastern Bloc countries into economic and political union will create new markets for cheap consumable goods made in China. All China really has to do is alter their supply chains in order to ship more to their West than to their East.

Why did this happen? Because it was "good for business". We apply western thinking when we say "China will never do that, it will hurt them too much". We have to learn to view the world as they see it in order to determine what they will and will not do. I've been flogging this horse for the past year or so. China represents a greater threat to the west than anything else on the face of the planet. An economic catastrophe will do more harm than terrorists could ever dream of doing.
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  #11  
Old 08-08-2007, 09:03 AM
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Their population is 5 times ours, and they are just getting a taste of what free enterprise is all about. The genie is out of the bottle. If their government needlessly causes some kind of backlash, they will have a very hard time containing the unrest that will result.

They are flexing some muscle, and letting everyone know that they don't want to be seen as merely the source of convenient consumables for the rest of the world. One of their generals last year suggested the possibility of a nuclear first strike against the US. It was later dismissed as the personal views of someone who has no say in official China policy.

The situation can always change of course. If their government decides that the rising lifestyles of their 1.3 billion people is unsustainable, watch out.
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  #12  
Old 08-08-2007, 10:13 AM
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But, but, but...China is our friend

Maybe therein lies the reason for the apparent desire to allow in as many illegal immigrants as possible. The cheap Chinese labor may not be for much longer so we'll just bring the cheap labor to us.

At least I still have baseball and beer.
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  #13  
Old 08-08-2007, 10:30 AM
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Quote:
Originally Posted by SwampYankee View Post
But, but, but...China is our friend

Maybe therein lies the reason for the apparent desire to allow in as many illegal immigrants as possible. The cheap Chinese labor may not be for much longer so we'll just bring the cheap labor to us.

At least I still have baseball and beer.

China is about as much our friend as Israel is.

But you know what they say about "friends" right.
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Old 08-08-2007, 10:32 AM
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Originally Posted by GottaDiesel View Post
China is about as much our friend as Israel is.

But you know what they say about "friends" right.
Don't lend them money or date your sister?
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  #15  
Old 08-08-2007, 10:43 AM
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Quote:
Originally Posted by GottaDiesel View Post
I'm happy to see the "other" side sees the light. I've never seen Howi talk about this before, and it doesn't mean he hasn't, but he is 100% right. China has our balls in their purse and we kiss them good morning everyday.

But hey, the moronic masses have their baseball and their beer.

Thanks for the info Howi!

I have been talking about this for two years you should pay closer attention OTOH you were suprised that I hated Rumsfeld despite the fact that I have never said anything good about him for 7 years.

I am much father left than you may think.

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