China threatens to trigger U.S. dollar crash

[battlebot]

China threatens to trigger U.S. dollar crash. Who would have guessed

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Quote:
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.

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.

[Haul Asp]

We did this to ourselves. We can be taken down economically at any time.

[chrish]

The only reason why we haven't been is because it would take down the whole world. However, we did sell ourselves to the highest bidder at the time.

[battlebot]

I'd like to see them do it personally. If they've got us by ther balls, they need to quit playing with them. What's the absolute worst that could happen? Just another depression?

[chrish]

Given the depraved state of society today, a depression now would be far far worse than the last one.

[Haul Asp]

Agreed. Somehow I think that's going to be in the grand design of things. Take America down to a second rate nation so the EU can run things.

[battlebot]

a depression now would be far far worse than the last one.

What would those clowns with wic and food stamps do then? Or the katrina apes who are still living in moldy trailers?

[chrish]

Looting, Murder, Anarchy.

...and chrish on his roof shooting every motherfucker who comes within 300 feet.

[Haul Asp]

It would be worse in the cities vs. rural areas because people would be so desperate. Especially those who currently rely on the government to provide for them. A low education individual who is living off uncle Sam+no more handouts=social chaos.

[Haul Asp]

You'll never see me in a soup line either!