China Threatening US Dollar?
By Justin Gardner | Related entries in Money, The WorldThis is no joke. They could hurt us if they wanted to. Of course they’d hurt themselves too, but given how much ill will we have against us around the world and how pissed people are at our monetary policy anyway…don’t count this out as a viable option for the asian juggernaut.
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.
And oddly enough, this is something Ron Paul has been talking about quite frequently in his criticism for the Iraq war, since we have to borrow untold billions from China to conduct our “War on Terrorism.” If they actually do screw the dollar over, then Paul’s star could rise on the national scene. But it would have to happen soon.
Money guys are not happy…
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.
Listen, foreign interests carry 44% of our debt. That’s too much if we care about maintaining some sembelance of control over our economy. We spend much, much more than we make and we’ve gotta get our house in order, not just with China but in general.
Here’s what the Dems had to say in their debate last night…
Yes, but what does “take them to the mat” mean? Out-manuever them on the global market? How?
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August 8th, 2007 at 8:22 am
ZOMG Noway, you mean Ron Paul was RIGHT?
Everyone expects the democrats to win the presidency, everyone. All the dems have been talking about sticking it to China. So China threatens back. Who’s going to win that fight? Not the Chinese … they don’t vote for anyone here, and the dems will pander to the masses who don’t understand anything of what’s going on. So, they will have to pull the trigger, at least somewhat, when restrictive regulations start screwing with their profits. Consulting the Magic 8 Ball re: USD, it says “Outlook not good.” The dollar is going to die a long, slow death … perhaps punctuated by a few very fast freefalls and dead-cat bounces, but it is going to die. And then they’ll trot out the amero as a solution to the problem.
The Constitution has a better solution, it’s called gold and silver. Too bad that would restrict the heck out of government spending and corruption, naw, we can’t have that now can we.
God save us all - we clearly do not deserve it, though.
August 8th, 2007 at 9:49 am
Justin — It is a potential, yet unlikely, nightmare. Obviously, the fear is that if they went nuts and dumbed all USD treasury bonds overnight -you could just start wiping your ass with US dollars rather than toilet paper, inflation would soar, the interest rate would sky-rocket, the already anemic housing market would collapse and stagflation would set hold. Mrs. Dos would have to get a job sacking groceries. I would start drinking excessively and beating the children. Ultimately, the Dos family would end up in trailer park.
However, if they did that the ubiquitious “Made In China” would quickly disappear. It would dramatically add to their unemployment problem Their export dominance relies on their peg to the US dollar which keeps them regionally competitive in terms of low wages. All that glorious savings would go up in smoke. It is a true “nuclear option” for the Chinese - mutually assured economic destruction.
A more likely scenerion is this: China starts to diversify its incredible savings and dumps t-bills for private equity markets. Read: China becomes the worlds largest hedge fund. There are signs of this happening: China has sunk 3B into Blackstone Group LP, less than 10% which triggers Congressional oversight of the deal and no voting rights. This is the wave of future and I don’t believe a Chinese infusion of cash into global equity markets is a bad thing for US businesses.
Interesting times….
August 8th, 2007 at 10:47 am
China is also concerned that the dollar is inflated greater than the federal reserve indicates. Ron Paul has sponsored a bill requiring the fed to report M3, which is a step in the right direction. China will have to shift out of the dollar, and as indicated by other commenters, a lot depends on how China does this. The falling dollar and the race to the equities in general will create false prices. Also, real inflation (whatever that is) is a concern for all of us, not just China and the earthquake of each step China makes. The fed is racing through the hills in a very top-heavy truck, barely able to make the turns, and saying “what a good driver am I!” Ron Paul has sponsored other bills this year to put money in a better position.
August 8th, 2007 at 12:06 pm
DosPeros,
If china decides to dump $1 trillion dollars and buy gold with all their funds then the value of the gold would shoot up into the thousands or tens of thousands of $ per ounce immediately….Sure China would a lot on it’s dollar holdings but it would also profit on it’s bets on gold…however a slow move into all commodities and some private equity is more likely….when they spread it out over all these markets they can buy more and make bigger profits when it becomes clear to the masses what is happening….they are not goign to just dump it all into private equity…that leaves them far too vulnerable to legal manuevers and government regulations..they are locking up physical assets and ….basically buying african countries or at least their future commodity productions all while making contradictory political statements to hide the positiions they are building.
This is NOT a policy of self-destruction because they know that can’t infinitely produce goods just to sell to a client that is going into bankruptcy…..RON PAUL 2008 …..
drastic tax reduction and reduction in government spending would get rid of all of these problems as America would enjoy a huge boom if we eliminated the individual income tax and brougth all of our troops around the world home while cutting military spending by 50%
August 8th, 2007 at 2:07 pm
welcome to the end of the world (as we know it). china has the power, and its going to be quite a struggle.
August 8th, 2007 at 2:44 pm
The reason we have all this debt has nothing to do with the Iraq war. A small, imperceptibly small chunk, maybe. But the vast majority of this borrowing has come from Democratic administrations attempting to satiate rampant entitlements. You can blame the war for a lot…but you can’t blame the debt imbalance on anything other than free spending liberal democrats who forsake our future to hand out pittances to those who should be doing for themselves.
August 8th, 2007 at 3:24 pm
The non-partisan Congressional Budgeting Office said that the Iraq war will eventually cost us upwards of 1 trillion dollars. But we’ve already spent 500 billion, so what’s another half a trillion, eh?
So my challenge to you Gerry is drop the rhetoric and prove your point. Because all you’re doing here is asserting something without any backup.
And as far as entitlements…you ever hear of pork barrel projects? That’s a vice on both sides of the aisle, so your “liberal” smear feels even more desperate.
August 8th, 2007 at 3:40 pm
This is what we get when the people charged to run our country are money driven. No one wants to be left out, it’s a race to see who can get as much money as they can. Our system is setup where it’s practically legal to filch the tax payers money. All this money going to this corrupt war is flowing into the pockets of a few.
The defense industry is doing great thank you very much! The oil industry is making a killing. War profiteers like Haliburton are making out like kings. Meanwhile…social programs in our country have been cut to the bone.
We have enough money for an ideological struggle which has no conceivable end, and what a boon that is for these profiteering corporations, they profit while the working poor shoulder both the cost of the war and the casualties on the ground.
Our deficit is sky-rocketing and for all the “Less Government” talk we hear from the Republicans, our government as ballooned and it has become less accountable and less efficient . One only need to look at the Katrina disaster and realize this Republican administration is big on talk and short of action.
August 8th, 2007 at 4:21 pm
You must be talking about yourself. Did you look for the best bargain when you shopped for the computer you are typing on right now? How many components do you think were made in China?
August 8th, 2007 at 4:26 pm
gerry, please don’t play partisan politics with this, it’s what’s gotten us into this mess in the first place.
the issue du jour is the massive spending on this elective quagmire in iraq, so that’s the easy thing to point at, but it certainly isn’t the only thing.
democans raise taxes and spend boatloads of money they don’t have on social programs
republicrats lower taxes slightly and spend boatloads of money they don’t have on the military industrial complex
it’s two sides of the same (fiat) coin and the net result of this thug-o-war is constantly increasing taxes and government that is not limited in scope. blind allegiance to your ‘party’ (whichever one that may be) and blaming the other party for all of the problems has only gotten us into this jam we are in now.
ron paul 2008!
August 8th, 2007 at 6:26 pm
Jimmy the Dhimmi, most of the components were made in Southeast Asia. A great deal were probably made in China. I’m not against trade with China. I am against U.S. corporations moving our entire economy to China. I am against U.S. corporations that demand tax-breaks and subsidies while they move plunder the Chinese continent and then export those goods to Americans for top dollar.
Free markets don’t have to be inherently dishonest and corrupt. This world needs some “real” trade laws, not this plunder and loot policy we have in place now. We have U.S. corporations and politicians selling out lock, stock and barrel. If the U.S. wasn’t so damn busy committing human rights violations perhaps we’d have the footing and moral high ground to demand that China play fair, that corporations in the U.S. be accountable not only to their share holders but the country that has given them the prosperity by which they continue to benefit.
I have done a great deal in the last 10 years of my life to be an educated consumer. I am all to willing to pay more money so that I know that my money is going to the people that deserve it. No one is perfect, I don’t believe everyone in America is corrupt, I just believe this current administration and the business atmosphere in this country at this time is largely corrupt and the laws in place support this sort winner take all atmosphere and damn the consequences.
I believe in a free market. I don’t however, believe in a free market that is allowed to do whatever it damn well pleases. Companies must be held accountable just like people are held accountable. Life is not business as usual!
My major point being, we shouldn’t be borrowing money to bomb people half a world away. Perhaps we should “pay as we bomb?” or perhaps we shouldn’t be bombing people if we can’t G’damn afford to. It’s just pathetic! We had money in surplus when Bush was elected, we now have record high debt. How about we use that borrowed money to create technology to save the planet instead of destroying it at our (the tax payers) cost?
August 8th, 2007 at 6:47 pm
But the vast majority of this borrowing has come from Democratic administrations attempting to satiate rampant entitlements.
Its hard to know if you are being satirical, or just woefully ignorant of the deeds of the current Federal Govt. The debt run up by George W Bush is staggeringly bad compared to all previous presidents, Republican and Democrat alike.
http://en.wikipedia.org/wiki/National_debt_by_U.S._presidential_terms
If George W Bush walked into a bank branch and applied for a loan or credit card with his economic credentials, he’d be physically thrown out of the building. If you would like to know what the US will be like in 5-10 years if this pattern continues, then look at Zimbabwe ( or whats left of it ) today.
August 8th, 2007 at 9:38 pm
this is ridiculous!
the nerve of some of these republican commentors who allege its not the fault of Bush’s failed foreign policy and waging war on TWO countries, whilst planning for a third war with IRAN.
“its all the dems fault”
let me get this straight Universal Healthcare systems around the world cost HALF AS MUCH as the U.S PRIVATIZED SYSTEM.
BY ANY MEASURE AS RECORDED BY W.H.O THEY”RE BETTER
DO YOU KNOW WHAT THAT MEANS? THE REPUBLICAN OBSESSION OVER YOUR PRIVATIZED HEALTHCARE SYSTEM IS NAIVE. YOUVE BOUGHT INTO THEIR PROPAGANDA. $100 MILLION DOLLARS WAS SPENT FIGHTING U.H.C BACK IN 1993 YOU IDIOTS.
you know what else? the iraq war is estimated to cost $1trillion dollars
And another thing, under Clinton’s administration we wrote a BUDGET SURPLUS OF $187 BILLION DOLLARS
SO BEFORE YOU BLAME DEMOCRATS FOR ACTUALLY SPENDING THE MONEY ON REAL PROBLEMS. HELPING REAL AMERICANS. LOOK IN THE MIRROR YOU DUMB IDIOTS OR AT LEAST DO SOME RESEARCH OUTSIDE OF FOX NEWS AND LIMBAUGH,
FOR CHRIST’S SAKE ARE REPUBLICANS REALLY JUST A BUNCH OF BAFOONS ENSLAVED BY THEIR CRONY UPPER-CLASS ELITES?
August 8th, 2007 at 11:07 pm
I think the problem is that EVERYONE in America wants more and more money and that’s just not sustainable in a world that basically has a fixed amount of wealth. This wealth is actually being hoarded by a few elite people and the rest of the world has to live and function off of the rest of the wealth that IS being spent. This wealth has to come from SOMEWHERE and where it comes from is out of the hands of third world countries through our foreign policy and out of taxpayer’s pockets through inflation. Third world countries get ripped off because labor actually is considered cheaper than here and the taxpayers get ripped off because the quality of the products we buy go down and they get more expensive.
Since the Earth does not supply an infinitely increasing supply of wealth, it really makes no sense to run our economy as if it does. Trying to force this system to work only serves to hurt the world. We do need to distribute wealth more to the poor and middle classes, but we should do it in a responsible way by having more socialized or not-for-profit services for basic necessities such as health care, education, food programs, shelter programs and things like that. When you take the profit margins out, that extra wealth either comes off the price of the product, or it goes back into the product by being able to produce a higher quality of product.
August 9th, 2007 at 1:20 am
Jeff Says:
If you would like to know what the US will be like in 5-10 years if this pattern continues, then look at Zimbabwe ( or whats left of it ) today.
Which is interesting since Zimbabwe is ruled by the gun. Effectively by a dictator.
Does this mean you think America has a real possibility of a civil war?
August 9th, 2007 at 2:18 am
You know, if more people would stop talking out their butts and parroting the mainstream news line on everything, they’d see real quick that Ron Paul is right about a LOT of things.
But if history is any indication, people will continue to lie down and let the political machinery walk all over them only to figure out in 30 years’ time that if only they would have listened more intently to that crazy Ron Paul guy they would have been a lot better off.
People, for the sake of sanity…let’s for once make PRESENT sight 20/20 and vote for the correct person. Can we please do that just once?! Hell, retarded monkeys pressing random buttons on Diebold voting machines would have a better success rate than we’ve had the past 60+ years in this country!
August 9th, 2007 at 11:59 am
Amazing how in that lovely Wikipedia article it so clearly shows that Reagan, Bush, and Bush seriously increased the debt way more than Clinton did. I usually refer to Reagan as the father of the American Debt, with his 89% increase over his 8 years. Of course I also consider him responsible in large part for the early spread of the AIDS epidemic, since he refused to do anything about or even recognize the existence of the “gay disease.” Hundreds of thousands of wonderful people might still be alive if research had begun earlier on treatments.
Georgie W however, took a budget surplus and stunningly turned it around into what’s looking like will be a 50% increase in the national debt during his two terms. Hopefully we impeach him so we can get some sanity back into tax policy, rather than just recklessly cutting taxes for the rich before figuring out how much you need to pay for government.
August 9th, 2007 at 1:54 pm
Whatever you do Sleipner, don’t blame the Democrats that controlled Congress under Reagan for the bill. They had nothing to with it. Also, Reagan had NOTHING to do with the largest peace time economic expansion since WWII. And since, it was Clinton’s VP that created the internet, it makes sence that you credit the AK-BJ for the good economic times of 90’s. As usual, you’re good for a good laugh.
August 9th, 2007 at 5:34 pm
DosPeros, but what about now? How is it Bush can give tax brakes to the richest Americans while he taxes the poorest to fund his war? Where do you think our government finds all this money to fight this soon to be trillion dollar plus war?
They take the American tax payer’s money which is supposed to go toward running the government and instead it is funneled into the pockets of the war profiteers. And when all of the taxes are spent and gone where does Bush find the money to fight his never-ending phony war? Yep, that’s right, he borrows it from China. But that’s okay, he doesn’t have to pay it back, WE do! and your children do, and their children.
Who cares who was responsible for the surplus left to Bush when he entered office. A far more important and relevant question is: How can you spend so much money so recklessly and get so little in return for it? That’s! the real question.
August 9th, 2007 at 5:38 pm
sleipner, Bush and Bush, is that anything like Dumb and Dumber? :)
August 9th, 2007 at 7:34 pm
I don’t believe in Ron Paul but I have long thought that this was a potential problem. The great mistake that those who have constantly refused to believe in the possibility that China could use its leverage like this make is that they never admit to the possibility that there are motivations other than the ones they function on. It never occurs to some people that for reasons of national pride or what they view as national interest that the Chinese would do something that could hurt themselves financially. If the Party leadership thinks they can maintain control and stability by appealing to national pride they will do things that the kind of leaders our government has (You know, the ones who know nothing about foreign cultures and ignore the experts on them.) wouldn’t dream of happening.
August 9th, 2007 at 8:34 pm
Absolutely right; however, all Americans, as well as every other human being everywhere, do NOT live in that world. If wealth were fixed, then all of us would be living as subsistance farmers in thatched-roof huts. Better yet, we would probably still be hunter-gatherers.
Wealth=Technology. Think about it. If a pauper has a hut full of promisary bank notes, is he still poor? The answer is YES. If he spends it on stuff that makes his life less miserable, for example: food, medicine, a house, electricity, appliances, vehicles, (i.e. technology) ect.. then NO.
Since new technologies are constantly being invented, manufacured, and sold, which makes the older technologies cheaper and more affordable and available to the less fortunate, the amount of wealth constantly increases and is distributed to everyone gradually through buying and selling. Free market capitalism is the only effective process that drives such economic growth.
And you Ron Paul guys call yourselves libertarians!
August 10th, 2007 at 4:30 am
Bits from the Blogosphere…
The Gun Toting Liberal brought to our attention this tidbit about presidential candidate Mitt Romney: while he wants to send more soldiers into Iraq, his five military-aged sons are supporting the nation by helping their father campaign. Note to Mr. Ro…
August 10th, 2007 at 8:06 am
Tyson - You are actually correct in terms of taxpayers getting rip off, but it has to with the US monetary policy. Every time the Feds infuse cash (print money) the value of the US dollar decreases. It is literally a race to the bottom. Our monetary policy is short-sighted and, ulitmately, I believe, disasterous. I was never a fan of Greenspan and I’m not a fan of Bernanke. This is a profoundly libertarian monetary policy — that most libertarians do not understand.
Jimmy - You are one of the few that seems to have the foggiest clue in terms of economics. Wealth is not fixed. Weath is created - everyday. The key to solving poverty is to make wealth creation as easy as possible. The way to preserve and increase poverty is to try to redistribute wealth.
August 10th, 2007 at 9:00 am
This is what I am talking about:
http://biz.yahoo.com/ap/070810/wall_street.html?.v=37
This kind of Fed tinkering is a mega-form of corporate welfare and it is redistributive in nature. There is no difference between the fed infusing cash into the banking system and the fed taking money out of your wallet and giving it to banks. It might not catch the same emotional response, but it is the same. The result is the creation of bubble economies that we try desperate to sustain by (again) tinkering with the monetary policy, but ultimately collapse.
If this is the kind of leadership we get from the Harvard School of Business, we should think about getting our next Fed Chair from the Osage County Heating & Air Conditioning vo-tech school.
August 10th, 2007 at 11:31 am
China doesn’t mean to Threaten Dollar.
Boosting U.S. exports to China is the right step to narrow the trade gap. China exports millions of pairs of jeans, or millions of boxes toys in exchange for an airplane. If the U.S. government allows more high-tech products to be exported to China, the trade imbalance could easily be improved.
Demand for many US products in China are very strong,but there are few, if any, effective methods for US SMF’s to access Chinese buyers and meet the demand. AC-Ali enables US businesses to list their company and product descriptions in English. AmeriChinaB2B will translate these descriptions in Chinese and put them on its China Business platform http://www.acb2b.cn. which attracts a large number of Chinese importers and distributors looking for American products to import to China. Together with AmeriChinaB2B’s recently launched keyword advertisement services or Baidu.com. AC-Baidu, AmeriChinaB2B provides the most effective marketing and sales online platforms for US SMFs to find buyers, distributors and sales representatives in China.
Welcome to AmeriChinaB2B( http://www.acb2b.com/ ) to begin your business trip of China.
August 10th, 2007 at 11:43 am
Jeremy - I have a t-shirt with the faces of Bush Sr and Bush Jr on it, with the caption “Dumb and Dumber” I wear it frequently, usually in places where I expect to find republicans (though in LA there aren’t many of those).
August 10th, 2007 at 4:57 pm
gabe harris hits a critical point about China’s investments: “..they are locking up physical assets and ….basically buying african countries or at least their future commodity productions all while making contradictory political statements to hide the positiions they are building.”
Following just Zambia and Tanzania in the African press (and the English version of Chinese media) for the last two years, I’ve been watching with fascinated horror as the Chinese not only took control of the development and production of critical natural resources, but they have purchased — they own — key pieces (e.g., bridges, railroads) of those countries’ infrastructure. (Not to mention control of Chile’s copper mines/manufacturing.)
One of the fatal consequences of the war in Iraq is that it has not only diverted trillions of dollars — it has diverted intelligence, focus, planning/strategizing, public awareness, education …
August 11th, 2007 at 5:54 pm
I highly recommend people watch the author Peter Navarro on C-SPAN 2 (Booktv) this weekend, Saturday the 11th on C-SPAN 2. The book is titled: “The Coming China Wars.” It should run on C-span on weekend.
August 11th, 2007 at 5:58 pm
I meant to say: It should run on C-SPAN 2 (Book tv) all weekend long. That is, August the 11th and 12th. Check your local listing.
August 12th, 2007 at 6:44 am
I hope that they do dump our money. Then we can finally begin to get our freedom back. When you buy from China you are supporting slavery!! I spent a boatload of time just trying to buy my wife non-china gifts last Christmas. Support your local business!!!
August 14th, 2007 at 3:25 am
[...] China’s threatening the dollar, illegal immigrants siphoning off more services than they pay in taxes, and the baby-boomer retirement is threatening our federal budgets. Add in the fact that our military is stretched to the point where high-level military officials openly admit that the draft might be needed to maintain current commitments and you’ve got a recipe for disaster. [...]