China threatens \'nuclear option\' of dollar sales
 

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China threatens 'nuclear option' of dollar sales


By Ambrose Evans-Pritchard
Last Updated: 6:00pm BST 07/08/2007



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.



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.

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Full Article

Re: China threatens \'nuclear option\' of dollar sales
 

You can't play hardball against someone who's got you by the balls.

Re: China threatens \'nuclear option\' of dollar sales
 

LOL. Unfortunate as it is, China's government is still obviously mercantilist. "We'll bomb your economy so we can still ship goods to you!" The US will have to adopt governmental fiscal rectitude to ameliorate this threat, which isn't likely given the Congressional climate, so hopefully our politicians in Washington will STFU. I wonder, is this coercion?

Re: China threatens \'nuclear option\' of dollar sales
 

This looks more like self defense to me, it's the US that wants the chinese to [censored] with the value of their currency.

Re: China threatens \'nuclear option\' of dollar sales
 

So their plan to avoid having to increase the value of the yuan is to drive down the value of the dollar?

Re: China threatens \'nuclear option\' of dollar sales
 

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This looks more like self defense to me, it's the US that wants the chinese to [censored] with the value of their currency.

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lol?

Re: China threatens \'nuclear option\' of dollar sales
 

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This looks more like self defense to me, it's the US that wants the chinese to [censored] with the value of their currency.

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lol?

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" if Washington imposes trade sanctions "

Re: China threatens \'nuclear option\' of dollar sales
 

It could get really bad, especially if China manages to drive the dollar so low that oil isn't paid for in dollars. It would be the perfect storm especially since the Fed can't raise interest rates right now. No mincing words, this is a recessionary threat.

Re: China threatens \'nuclear option\' of dollar sales
 

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This looks more like self defense to me, it's the US that wants the chinese to [censored] with the value of their currency.

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lol?

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" if Washington imposes trade sanctions "

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Right, obv. trade sanctions are a dumb idea, but you implied that China isn't currently [censored] with the value of their currency, which is completely false.

Re: China threatens \'nuclear option\' of dollar sales
 

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So their plan to avoid having to increase the value of the yuan is to drive down the value of the dollar?

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What I thought too. My understanding is the Chineese convert the excess US $ they receive due to the fact that they're net exporters of goods to the U.S. to U.S. treasuries more or less. Dumping US treasuries en masse seems like an excercise in shooting themselves in the foot.

Andy had an interesting trip report on his recent visit to China about labor conditions there. It was in my John Kerry Had A Point thread. Methinks that perhaps Congress is doing grandstanding more than anything else.

Re: China threatens \'nuclear option\' of dollar sales
 

Well I don't think I implied that at all; what I said was in response to the characterization of China as a mercantilist "We'll bomb your economy" type, when in reality they are simply trying to defend themselves from being subject to trade sanctions.

Re: China threatens \'nuclear option\' of dollar sales
 

Yeah, they'd devalue their holdings, but they aren't exactly worried about future streams of revenue right now (11.9% Q2 GDP growth!!!, diversified export growth). Remember also even if China can only get like 90 cents on the dollar for the T bills, the threat is more political than economic and the ensuing reality of a recession, maybe even depression is sure to stay Capitol Hill's hand right now. The economic MAD.

Re: China threatens \'nuclear option\' of dollar sales
 

At some point China's internal market is going to mature. Then it wont need to exports so much to keep its economy going.

Then it can exercise this option at its leisure.

Re: China threatens \'nuclear option\' of dollar sales
 

Does Trump's Law apply here at all (I'm terrible at economics): "If you owe the bank a million dollars and can't pay, you have a problem. If you owe the bank a billion dollars and can't pay, the bank has a problem."

Re: China threatens \'nuclear option\' of dollar sales
 

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At some point China's internal market is going to mature. Then it wont need to exports so much to keep its economy going.

Then it can exercise this option at its leisure.

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Not necessarily true. Japan's economy is certainly mature and they are still heavily dependent on exports. The U.S. & China are going to be dysfunctionally co-dependent for the forseeable future.

Re: China threatens \'nuclear option\' of dollar sales
 

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At some point China's internal market is going to mature. Then it wont need to exports so much to keep its economy going.

Then it can exercise this option at its leisure.

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Not necessarily true. Japan's economy is certainly mature and they are still heavily dependent on exports. The U.S. & China are going to be dysfunctionally co-dependent for the forseeable future.

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Does Japan have an internal market of 1 billion people? 1 in every 6 people on earth are part of China's internal economy. China could have the largest economy in the world and never export a thing.

Re: China threatens \'nuclear option\' of dollar sales
 

China won't do anything to slow economic growth. It is part of thier contract with thier people not ask for democracy.

Re: China threatens \'nuclear option\' of dollar sales
 

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At some point China's internal market is going to mature. Then it wont need to exports so much to keep its economy going.

Then it can exercise this option at its leisure.

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Not necessarily true. Japan's economy is certainly mature and they are still heavily dependent on exports. The U.S. & China are going to be dysfunctionally co-dependent for the forseeable future.

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Does Japan have an internal market of 1 billion people? 1 in every 6 people on earth are part of China's internal economy. China could have the largest economy in the world and never export a thing.

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And why is it that they don't already, and if they lose the US market due to their own obstinance, what makes you think they wont return to the policies that put them so far behind to start with?

Re: China threatens \'nuclear option\' of dollar sales
 

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You can't play hardball against someone who's got you by the balls.

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QFT

Re: China threatens \'nuclear option\' of dollar sales
 

Why am I reminded of this scene from Blazing Saddles?

http://i194.photobucket.com/albums/z...avonlittle.jpg

No way the filter allows the dialgoue through on this one.

Re: China threatens \'nuclear option\' of dollar sales
 

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At some point China's internal market is going to mature. Then it wont need to exports so much to keep its economy going.

Then it can exercise this option at its leisure.

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Not necessarily true. Japan's economy is certainly mature and they are still heavily dependent on exports. The U.S. & China are going to be dysfunctionally co-dependent for the forseeable future.

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Does Japan have an internal market of 1 billion people? 1 in every 6 people on earth are part of China's internal economy. China could have the largest economy in the world and never export a thing.

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And why is it that they don't already, and if they lose the US market due to their own obstinance, what makes you think they wont return to the policies that put them so far behind to start with?

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I said "at some point" meaning that at some point in the future China's internal economy will be mature. At this point .e.g. NOT NOW it can pull the nuclear dollar trigger with much less fear of catching radiation sickness from the fall out.

Unlike Japan of course which will allways need external markets because its internal market isnt comprised of 1 in 6 people on the planet.

Re: China threatens \'nuclear option\' of dollar sales
 

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At some point China's internal market is going to mature. Then it wont need to exports so much to keep its economy going.

Then it can exercise this option at its leisure.

[/ QUOTE ]

Not necessarily true. Japan's economy is certainly mature and they are still heavily dependent on exports. The U.S. & China are going to be dysfunctionally co-dependent for the forseeable future.

[/ QUOTE ]

Does Japan have an internal market of 1 billion people? 1 in every 6 people on earth are part of China's internal economy. China could have the largest economy in the world and never export a thing.

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And why is it that they don't already, and if they lose the US market due to their own obstinance, what makes you think they wont return to the policies that put them so far behind to start with?

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I said "at some point" meaning that at some point in the future China's internal economy will be mature. At this point .e.g. NOT NOW it can pull the nuclear dollar trigger with much less fear of catching radiation sickness from the fall out.



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If their economy has matured to the point where they can afford total isolationism the health of their economy will still be based on growth, as ours is. There will never be a point where businesses can suddently turn isolationist and continue to grow.

The US certainly is a market with critical mass. We don't NEED German and Japanese cars, we don't NEED fruit from Chile, we can build our own Ipod's quite well if we had to. Despite that we would never shut down our trade partners because the reduction in the economy would take decades to recover from.

China would have an even more severe problem because of their size and diversity of trading partners (assuming we don't bully them into eschewing trade with the Axis of Evil first).

We've got much more severe problems to face from within for the next decade than China going "economic nuclear".

Re: China threatens \'nuclear option\' of dollar sales
 

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If their economy has matured to the point where they can afford total isolationism

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Since when does China selling of its dollar reserves and crippling the American economy = Total isolationism.

Re: China threatens \'nuclear option\' of dollar sales
 

LOL you scaremongers. China is a least a decade away from being able to do this. Hint - When China gets extra dollars, they print yuan for each one and give those to its citizens. If the dollar crashes, so does the yuan. This is why they are trying to diversify.

Re: China threatens \'nuclear option\' of dollar sales
 

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If their economy has matured to the point where they can afford total isolationism

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Since when does China selling of its dollar reserves and crippling the American economy = Total isolationism.

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Youre the one who raised the possibility of isolationism when you said, with 1/6 of the worlds population they could be a self contained economy. I was addressing the consequences of that event on their economy, which, since its the topic of the thread, would presumably start with crippling the US economy.

Re: China threatens \'nuclear option\' of dollar sales
 

The situation with China is going to get a lot worse in years to come.

BRILLIANT! Best Post of the Thread!
 

Brilliant! This is the best post of the thread.
The Chinese would be slitting their own financial throats if they tried this move. Their threat is empty but there are enough gulliable fools that believe this "urban legend" threat to fall on their knees and start sucking the Chi-Coms [rooster].

Jeez....there are a lot of ignorant people in this world. But the Chi-Coms have a history of doing stupid things so they might be dumb enough to try these ploy.