China threatens 'nuclear option' of dollar sales

The once and future king · #1 08-07-2007, 05:44 PM

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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

GoodCallYouWin · #2 08-07-2007, 05:48 PM

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

ConstantineX · #3 08-07-2007, 05:51 PM

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?

GoodCallYouWin · #4 08-07-2007, 05:57 PM

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

bobman0330 · #5 08-07-2007, 05:57 PM

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

bobman0330 · #6 08-07-2007, 05:59 PM

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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?

GoodCallYouWin · #7 08-07-2007, 06:00 PM

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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 "

ConstantineX · #8 08-07-2007, 06:03 PM

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.

bobman0330 · #9 08-07-2007, 06:03 PM

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[ QUOTE ]
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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.

adios · #10 08-07-2007, 06:06 PM

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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.