We are China's Bitch: China threatens 'nuclear option' of dollar sales

[Herman Munster]

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/07/bcnchina107a.xml

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.

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.

[AX10]

1. The economy is already heading towards a recession.

This will just speed up the process and make it worse.

"Free" trade my ass! :argh:

[Egalitariat]

2. What does this mean in your own words?***

nm

[soothsayer]

24. We will threaten to nuke Iran (Chinal---how would you like to be without oil

for the next few months?). Hell, we actually already told them this last Christmas.

[polichick]

3. That's exactly what we are...

...but Americans can help put an end to that immediately ~ BUY "MADE IN THE USA" (and GROWN IN THE USA)

It's completely absurd that Americans contribute to the trade deficit in light of our debt to China.

[billyoc]

5. Wow, when we get to the Chinese debtor's prison,

I want to get on the same work detail with you, polichick! :patriot:

[Crayson]

27. Forced labor

You'll probably have to work 18 hours a day manufacturing cheap goods for.... oh wait, who'll buy them if the whole western world owes to China?....

[spag68]

4. Don't believe this crap

If they did that, sure it would hurt. What do you think would happen to their economy if their no. 1 buyer stopped buying? they would be in the big toilet, and some t-shirts and other products would again be made here. Also the other nations would not let them do it, as we are still the no-1 FOOD producer in the world. And how could they collect? We would say go fu56 yourself, we'll pay as the notes come due.not before. Despite their billions of people, we are still the largest economy in the world. I say better now then later. Just think all those chinese factories with no one to sell to, there would be riots there as all the workers got pink slips.

[Meldread]

9. Said the exact same thing down in #7.

I just laughed when I read it. The whole thing goes both ways. If they fuck us we can fuck them right back, and in the end we still hold the upper hand. If the Chinese get too far out of line, I know another communist country right off the coast of Florida who can tell them what happens. No imported goods from China. Boom. Millions of Chinese out of work. Their standard of living collapses, all the good western things they've enjoyed gone. That road to being a super power that they happened to be traveling on? Permanent roadblock.

As you said, it is better for it to happen now than later. If they want to black mail us (and that is what this is) then I say call their bluff. We shouldn't allow ourselves to be intimidated. Whatever happens we will recover.

[AdHocSolver]

16. Where have you been the last five years?

Comparing a huge country like China that has a large and growing industrial base and considerable natural resources, not to mention billions of dollars in assets, to a small island like Cuba with no natural resources, a relatively small population, and suffering under a U.S. imposed embargo for decades is ludicrous at best.

Considering that most of the good Western things that we enjoy, such as clothing, tools, consumer electronics, computers, toys, auto parts, pens, pencils, paper, furniture, hardware, plumbing, appliances, etc., etc., almost all are made in China, what are they going to miss compared to what we are going to miss, if we stop buying from them?

They have no need to bluff.

[Old and In the Way]

12. I agree...it's a MAD strategy.

We're too deep into each other's shorts to let go now. Still, I can't see that their banks are going to continue buying T bills as a hedge at the same rates going forward. They want to attract more Euro's, but pegging the RMB to the USD isn't helping them...I see a consistent rise in the RMB over the next few years....things will get more expensive, but not enough to justify the reinvestment required here to restart the manufacturing base.

[AdHocSolver]

15. Five years ago your bravado would have been credible; today China can damage the U.S.

Today the Chinese can sustain their own economic development internally without the U.S. as a customer. To be sure, some Chinese companies will fail. But their economy can sustain itself. For example, a couple of years or so ago General Motors invested a billion and a half dollars in building a Buick plant in China. Today, sales in China are brisk, and it is one of GM's most profitable operations.

As for the U.S. being the number one food producer - no longer true. A large chunk of our corn crop - food for people and livestock - is being converted into ethanol to burn in our cars in a mind-boggling display of how desire for profit produces the most idiotic economic activity the mind can imagine. This is why dairy prices are rising across the board. In fact some of the pet food ingredients imported from China (the stuff laced with melamine) was ... corn. You see it is more profitable to turn our food into higher priced fuel and import cheaper food from abroad.

The Chinese middle class is growing rapidly, and since their production costs are lower, they can still make a profit selling to their own people at a lower price. American businesses didn't pass any production cost saving on to American consumers. They just increased their profit margins.

If the Chinese dump a lot of their U.S. government and corporate bonds, this lowers the bond prices which has the effect of raising the effective interest rates. This would put a big chill on investment and house sales in the U.S. at a time when the U.S. markets are weakening - not good. The timing of the Chinese threats shows that they know perfectly well what they are doing and that they have the upper hand.

As for riots in China due to unemployment. Their actions in Tianeman Square indicates that China knows how to deal with riots.

[enid602]

19. China

China has been diversifying its exports to non-US customers for years. Once over half of world GDP in the late '40's, the US economy now commands less than 20%. With many of China's trading partners currently enjoying double-digit economic growth, they'll be able to sustain a major loss of US market in the future. I think China will be calling the shots in the future.

[spindoctor]

21. That's why they call it the nuclear option n/t

[AndyA]

6. If Americans today had the common sense, respect, and decency of their forefathers,

Wal-Marts across the country tomorrow would do NO BUSINESS.

Americans would immediately stop buying anything and everything imported from China, and in about a week we'd take a lot of China's power over us away.

But no...that will never happen because Americans today, by and large, are selfish people, who think only of themselves and to hell with everyone else. They only get upset/worried/involved when it has a direct impact on them.

And that kind of thinking is what has given us 6.5 years of George Bush in the White House!

Heaven forbid people give up their beloved Wal-Mart and foreign cars in order to have rights and liberties! I swear, every time I have to slow down so some turd in a foreign car can turn into Wal-Mart, I want to :puke:.

[spag68]

13. Wal-Mart

really started this crap with China years ago. It is how they got such a huge advantage over other stores then drove them out of business. I find it hard to hate people, but I hate Wal-mart.

[Meldread]

7. They are threatening us.

This is China's way of responding to the Democratic Party's threats (through our debates) of dealing with the free trade issue and calling them out in particular.

I say call their bluff. Let them do it. I do not respond well to black mail and I don't think America should either. The moment China does this they lose part of the hold they have over us. If they follow through with their threat, then it'll hurt us bad, but we'll recover. However they won't like the United States counter response. Putting high taxes on any goods coming from China equals out the competition in the market, and the taxes on goods bought will help us recover. Mean while, we could put restrictions on United States corporations moving their business over there which will help boost growth in our own economy, which would in turn fuck over China.

So yeah, go ahead. I call their bluff.

[AdHocSolver]

18. The Chinese aren't bluffing...They can wreck our economy thanks to US corporations.

Wealth is produced by manufacturing goods, that is, turning natural resources into useful goods. This is one reason why burning oil in cars and trucks is so stupid. You are destroying a natural ersource for a one time use. Without a strong manufacturing base, which U.S. corporations have been shipping overseas for short term gain (next quarters profits), an economy is like a house of cards, easily blown over by external forces. One of those major external forces happens to be China.

[soothsayer]

25. actually, we already told them we will disrupt their oil supply for months

by bombing Iran (their major supplier).

[Lint Head]

8. Thank you George for setting this up.

How much of this country is going to be destroyed by the incompetence of George Pussy before something is done about it? :dem:

[piedmont]

17. And Clinton and every president and Congress since Nixon. nt

[spindoctor]

22. Agreed. This hole we dug together. n/t

[and-justice-for-all]

10. and Saudi Arabria owns our ass as well...

and the World Bank..

[TheFarseer]

11. HELLO!!! pay off the damn debt!

we would be half-way home if the Clinton plan had remained in place. National security is more than blowing up people that aren't a threat to us in any way. (note the sarcasm) It's also keeping the budget balanced and the manufacturing plants open. China is doing alot of things right if they want this to be their century and we're doing everything wrong.

[Old and In the Way]

14. How to do?

I'd slash defense about 75% and reinvest into a new alternative/renewable economy. Our military's #1 mission is to secure the oil, so that's a start. Probably have to tax the crap out of the top 20%....but that's because they've enjoyed windfall taxcut benefits that should never have been done in the 1st place. Inheritance taxes need to be beefed up to. Sorry, no more trustfund freeloaders.

If we continue doing what we're doing the national debt is going to grow...I don't see any way to address it other than to make significant changes in our current tax policies and budget allocations.

[soothsayer]

23. there isn't enough money in print to pay off the national debt, lol

[SoCalDem]

20. Which is precisely why you do not base your livelihood in the hands of your potential "enemy".

You do not let them feed you, house you, medicate you.

In a country that supposedly prides itself on self-sufficiency, we sure did "delegate" more than was sensible..

they "sell" us crappy, dangerous..in fact POISONOUS trinkets & food, and if we dare to complain, they will essentially "call in our loans", and financially ruin our economy..

well then... that's quite a new "friend" we have..

[Odin2005]

26. Fuck China.

:grr: