China threatens 'nuclear option' of dollar sales

This reminds me of a certain scene from Blazing Saddles....

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

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.

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.

Reminds me of the phrase, "kindness of strangers"...

China does not want to follow the path of a Japan style depression brought on by a sudden revaluation of the yen (1985 Plaza Accord).

We're still begging....now for Ginnie Mae and GSE/MBS money.

China is not going to do the "nuclear option of dollar sales"...but like BB the mere mention of "helicopter of cash" is enough to keep order.

czarandy said: Trade sanctions are a bad idea regardless of what China says. Maybe our government should stop screwing with trade.

Agreed on trade sanctions, but then this is the game of "they should do it first" and everyone in the world is a player.

Within my lifetime, I will see an American-Chineese war.

RedCelicaGT said: Within my lifetime, I will see an American-Chineese war.

I seriously doubt it. The only reason for such a war would be over Taiwan and I believe that the inter-dependence of these two powers on each other would stop them from going down that part. Mostly China and Taiwan would work out some kind of political solution to their problems.

Hindustani said: RedCelicaGT said: Within my lifetime, I will see an American-Chineese war.

I seriously doubt it. The only reason for such a war would be over Taiwan and I believe that the inter-dependence of these two powers on each other would stop them from going down that part. Mostly China and Taiwan would work out some kind of political solution to their problems.

How do I know you are not a representative of the chineese propaganda ministry?

*Tightens strap on tin foil hat*

Hindustani said: ArbolLoco said:
And believe me the Chinese aren't making these threats because of some moral ralization that they have come to... they're doing it for their own greedy economic self interest. Did you know that 3.7% of the Chinese GDP is directly related to international students in the US who do huge AoRs and then flee the country?

Nothing wrong with any country looking out for its economic self interest. Every major power does that and will even go to a war to protect its econimic interests. For the part about chinese students doing AoRs and running away; its really hard to believe. Do you have any links related to this?

Exactly. Didnt France,Germany complained about the Iraq invasion. They lost billions in Iraq debts. How many developing nations have complained,sue to the WTO against the US and EU for their farm subsidies? an unfair trade tactic that hinders nations to export their farm products. Good for the chinese if they found a loophole in our system , cheap labor, that benefits the greedy US corporations. Hmm, reminds me of somebody playing AOR, duh.

If anyone has noticed the United States corporatocracy has been fueling a serious propaganda war against China for the past couple of months to show the Chinese government that we can cut off their consumer lifeline any time we want. China is just responding in kind to show the US that they have a little red button that can cause our economic collapse. This is the financial equivalent of the Cuban Missile crisis in my estimation - and we are the Soviets...

If China dumps our bonds, we'll default on them first so nobody will buy them.
Its like breaking up with your girlfriend before she breaks up with you.

Nobody is thinking why China is saying they will dump US bonds? They are asking us to shutup as we keep telling them to devalue Chinese yuan.

javaman2003 said: Nobody is thinking why China is saying they will dump US bonds? They are asking us to shutup as we keep telling them to devalue Chinese yuan.
The OP mentioned the why. And it's not to devalue the Yuan, but to re-evaluate it and bring it inline with a value closer to what it should be.

javaman2003 said: They are asking us to shutup as we keep telling them to devalue Chinese yuan.I don't think so ... those asking for change allege that the yuan is already undervalued and needs to be increased in value.

Nice bait, Arbol... drawing out all the USA Suck crowd. The same folks probably would have cheered German's "economic success" during the mid 1930s. Ignorance is never a bless.

Neo-Fascist economic "miracle" can only go so far. It remains to be seen if they will make a peaceful transition to rule of law and allow dissenting voice.

Comments posted here also reveal some very deep misunderstandings of the political climate in China. While the political entity in power is still officially the communist party, they do not subscribe to much of the original communist concept, and the rule is far from totalitarian. These days, you can do or say pretty much whatever you want. No, it is not nearly as free as the US, but for the most part, people go on with their lives following their own wishes.While this is largely true. Cross that line in the sand still earn you a good beating or disappearance into the detention camp. Part of the reason you see less outward dissention is that people are largely content with the improvement in living standard. Which is another reason that is no way they would try to rock the boat. Their live literally depend on it.

Another is the skillful play on ex-pat Chinese media outlet using the old fashion dollar assault. This past June 4 only the largest worldwide Chinese newspaper were brave enough to print a tribute to those who died under the thread of rolling tanks. Warning: Graphic Content

lostdude said: Comments posted here also reveal some very deep misunderstandings of the political climate in China. While the political entity in power is still officially the communist party, they do not subscribe to much of the original communist concept, and the rule is far from totalitarian. These days, you can do or say pretty much whatever you want. No, it is not nearly as free as the US, but for the most part, people go on with their lives following their own wishes.While this is largely true. Cross that line in the sand still earn you a good beating or disappearance into the detention camp. Part of the reason you see less outward dissention is that people are largely content with the improvement in living standard. Which is another reason that is no way they would try to rock the boat. Their live literally depend on it.The thing is I do see outward dissention. A lot of it at times. I have the chance to travel extensively in China, read their local news papers (sometimes forced to do so on airplanes out of sheer boredom), and of course interact with the locals. They all freely express displeasure with the government. I don't get the feeling that any of them are looking over their shoulders. People refer to political figures and entities with unflattering nicknames, even in print, a sign that such behavior is not only widespread but popular. I think what China has maintained a firm thumbs-down attitude on is large scale organized political dissention, such as the FaLunGong group - anyone thinking that group is apolitical needs to attend some of their organized functions in China. I am not saying I agree with the crack down on FaLunGong, just that some times you don't the whole picture in the US (shocker). China wants a one-party system, they don't want to deal with the inconvenience of having to compaign and holding elections.

If China backs their talk (which is likely just the same sort of propaganda we throw at them), I think we could reasonably expect a buying opportunity that cames along once a decade in the financial markets. As painful as it could be to watch, look at equity returns following major sell offs. The sound of it makes me want to do an Irish jig around the office...

Anyone who has ever been to China will notice that they are capitalists, maybe more so than Americans. Devaluing the rmb even 20% will do little to the trade gap. Last time I checked, something like 60% of durable products in Wal-Mart are MIC. China and Japan have u.s. by the balls as long as they continue to buy our debt. What other countries can afford to buy our debt?

chimeer said: The real problem here is overspending by our goverment. If we didn't have trillions of dollars in debt then china's threat wouldn't really exist. Maybe this threat will help focus congress on actually balanceing the budget but I doubt it.I sure hope we don't balance the budget - that would do far more harm to the economy that what China is threatening to do. Our healthy debt is one of the main contributors to economic growth.

This isn't a real threat. This is akin to somebody threatening to short a stock that they are very, very long on. They can't do it without considerably devaluing their own assets. China is simply not going to shoot itself in the foot like that.

Are you kidding me?
Do you think both sides are stupid enough to fight with the powerful country they can find?

In fact, China and US are so interdependent to each other that any stupid lateral action such as section would screw both sides.

The only thing that Chinese government worries about is their absolute ruling of the country and a hostile action from US would help to shift the tension between the Chinese people and Chinese government to US, which is good for the administration.

Besides, please do not use Chinese and Chinese government interchangeably, since Chinese government does not represent the interests of the people.

RedCelicaGT said: Within my lifetime, I will see an American-Chineese war.

asharerin said: ...The US is doing a fine job of devaluing the dollar....it doesn't need anybody elses help on that.
So if the American dollar continues to lose its value, will it be replaced by the Amero?

Tightening tin foil hat...On this CNBC interview (Youtube), a vice president of market maker Jefferies International says: "The Amero is the proposed new currency for the North American Union (NAU), which is being developed now between Canda, the US and Mexico, to make a borderless community like the EU. The dollar, Canadian dollar and the Mexican peso will be replaced by the Amero."

Goodbye Dollar, Hello Amero.
By James T. Moore (07/03/07)
http://americandaily.com/article/19468

China, the world's next economic power, will make possible the creation of the North American Union (NAU). How? The billions of dollars China has invested in the flagging American economy will be worthless. They will have to negotiate the exchange rate to the amero. This will force the creation of the North American Union. One of the signs that the NAU is on its way is the collapse of the American greenback dollar, paving the way for the debut of the new amero.

This somewhat visionary observation is the essence of an article written by Judi McLeod, an award-winning journalist who operates the conservative website Canada Free Press. McLeod’s articles are powerful, provocative, and often challenged, but that is not the issue. What is the issue is her view of the dollar’s demise in favor of the amero and its sovereign-killing consequences to this country.

Whether McLeod is providing a questionable news story, or is really on to something of international importance, and a danger to America, is for you to decide.

Here’s what McLeod sees coming. “The North American Union (NAU) fashioned in secrecy will be thrown over an unsuspecting public, erasing the borders of three countries. Mexico, with its legions of its citizens working in America, is, in effect already inside the NAU. Their governments will inform the American and Canadian people that there is no option but the bread line.”

One of the signs that the NAU is on its way, says McLeod, is the collapse of the American dollar, which will be replaced by the amero. And the American public won’t even know it’s happening until it’s happened. It will follow the same blueprint of stealth and surprise that “introduced” the euro in Europe. Remember when people said the formation of a European Union was impossible? Many U.S. experts are predicting that the collapse of the dollar is imminent. And the American people are going to be hit hard, Very hard.

The devious little plan is this: in the recessive downturn America is now in, the President will argue that we have to have a North American Union to compete with the euro. That’s how the amero will be created. It will be presented to the American public as the administration’s solution for the dollar recovery. In the process of creating the amero, the Bush administration will simply abandon the dollar.

A few Republican Reps: Virgil Goode, Jr., Tom Tancredo, Walther Jones and Ron Paul are warning their Congressional collegues that the United States should not enter into North American Free Trade Agreement (NAFTA), a Super Highway System, or a North American Union (NAU) with Mexico or Canada. Moreover, this group of patriots has about 1,000 documents that could embarrass the governments of all three countries by revealing that the White House is engaging in collaborative relations with Mexico and Canada outside the U.S. Constitution.

As a final chop on the block, Daneen J. Peterson, a Ph.D. and political writer, issues this confirming statement: “Research will reveal the betrayal of the American people by a government cabal who are bent on destroying our sovereignty in order to create a North American Union. These miscreants include many who function at the highest levels in our government. Many hold membership in the Council on Foreign Relations (CFR) and the Trilateral Commission, and pursue a subversive agenda. This cabal is deliberately circumventing the U.S. Congress and ‘We the People’ in a blatant violation of our Constitution. Collectively they are committing TREASON.”

Obviously, very little of this has been covered by either the American or Canadian media.

So, as Judo McLeod believes, the stage has been carefully set and only intervention will stop North America from taking the same stealthy route that Europe took in creating the European Union and its now legal tender the euro.

If intervention fails, we stand to lose not only our dollar but our sovereignty as well.

SUCKISSTAPLES said: Hindustani said: For the part about chinese students doing AoRs and running away; its really hard to believe. Do you have any links related to this?this forums demographic has a heavy concentratuon of h1b workers and intl students. Whether or not they are doing AORs and fleeing the country to avoid debt repayment, I dont know...but I bet at least a few of them have. There have been posts asking about it

Where are those posts? Evidence please!

i was jking about quikie mart because that doesnt even exist in real life. hope i didnt hurt anyones' feelings