China threatens "nuclear option" of dollar sales

[Toro]

Thanks partly to President Bush, we are in this mess. But the Fed is as much to blame, if not more.

And we wouldn't be talking about this if the dumbasses in Congress - most of them Democrats BTW - weren't talking about slapping tariffs on Chinese goods because China is a currency manipulator. Threats of tariffs is what is prompting the Chinese to talk about this scenario. And the blame for that is primarily on the Democrats.

China could easily throw the US into a recession if it started to dump our bonds.

And don't think "they'd never do it because it would be bad for their economy." Governments are not rational economic agents, especially China's.

 

[Gunny]

Memo Gunny - Clinton is not in office....this is 2007

Memo Diuretic -- He may be out of office, but the appeasement mindset is far from dead.

I'm far from a Clinton basher. He just happened to be the one that tried to buy off N Korea. I WILL call a spade a spade.

 

[JeffWartman]

Does anyone else see the irony of a socialist-communist nation using the free market to threaten economic ruin on a capitalist nation?

Just goes to show you the real power of the free market

 

[onedomino]

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



It sounds like China now has almost as much control over the dollar as the federal reserve. If they dump their dollars, everything you buy from China would become more expensive. Likewise, everything we still manufacture would become cheaper to them. I don't think they will do it because it would be bad news for their export-dependent economy, but still, the fact that they are talking about it openly (while we openly discuss possible sanctions) makes me nervous. In the 1920's we had a credit bubble, then the Smoot-Hawley trade sanctions, then the depression. Now we've got a credit bubble, and almost as if on cue, politicians talking about big trade sanctions.

This is empty rhetoric from the Chinese. $900 billion sounds like a lot, but to a US economy that has a $14 trillion per year GDP (with comparatively soft export demand for US products), it will cause a disruption that can be absorbed over not too long a period. If the Chinese dumped US dollars in favor of say, Euros, the flood would reduce the value of the US dollar and make American exports explode onto world markets and suppress Chinese industrial demand. If the Chinese dumped dollars, to which country would they export are their Wal-Mart and Target stuff that has caused so much job dislocation in the US? If the Chinese unload US dollars, there would be short-term problems (e.g., to control inflation, interest rates would rise sharply, and it would be more expensive to own a home), but the long-term effects would include an expanded US industrial base, greatly increased export demand, but increased consumer prices, i.e., inflation until US industrial supply compensates. The Euro is already overvalued, and if the Chinese dumped dollars in favor of Euros, then European exports would dramatically decline making US exports even more competitive.

 

[dilloduck]

I would agree that this problem is the fault of both parties but it is Bush who has taken this problem to new heights. We are borrowing at a pace faster than the speed of light due to a war that the Bush administration started. Think of ALL the money and debt we wouldnt have if we had not started the war in Iraq, think of all the money that we have yet to borrow are going to spend in the future on this war. Bush exacerbated this problem to a very high degree.

Bush didn't start this war---I think it's something you might want to consider.

 

[onedomino]

Dirt, fair dinkum, they are about a socialist/communist as my arse. It's a totalitarian, single-party state with an economy that is almost hyper-capitalist.

There is some irony in it. The way that the peasants and the poor are being treated in China, they need a revolution

China is far from "hyper-capitalist." For the 200 million or so that populate the large Chinese cities, some capitalism is allowed, but it is (un)business as usual for the 1.1 billion that populate Chinese rural areas. I have seen this in travels throughout China. For the rural population, there is no capitalism. Such an economic structure fundamentally entails the free movement of labor, from market to market, as a function of price and demand. Labor movement is severely restricted in China. One cannot simply move from a rural area to a city and look for a job. There are requirements for government issued permits and military roadblocks that restrict the movement of labor.

 

[Ruby]

Bush didn't start this war---I think it's something you might want to consider.

Yea he did, he shocked and awed Iraq based on lies and the US was never in any danger or threat from Iraq. There is nothing about "self defense" going on nor is there any "liberation" going on. Whats really going on is a rape and pillage of Iraq and the US tax payer and we are sacraficing our soldiers to accomplish it. Thats not support for the troops by a long shot, thats a gross MIS-USE of the troops.

http://www.americanchronicle.com/articles/viewArticle.asp?articleID=9276

The result of these orders was to create an economic environment more favorable to U.S. corporations than laws in the United States. As a result Iraq corporations, and Iraqi workers have been excluded from the rebuilding of Iraq. And, the Iraq reconstruction has failed to provide adequate electricity, food, sewage treatment and even gasoline - but U.S. corporations have profited handsomely from this failed reconstruction.

Juhasz describes the impact of U.S. policies on the Iraqi economy:



"The new economic laws have fundamentally transformed Iraq's economy, applying some of the most radical, sought-after corporate globalization policies in the world and overturning existing laws on trade, public services, banking, taxes, agriculture, investment, foreign ownership, media, and oil, among others. The new laws lock in sweeping advantages to U.S. corporations including greater U.S. access to, and corporate control of, Iraq's oil. And the benefits have already begun to flow. Between 2003 and 2004 alone, the value of U.S. imports of Iraqi oil increased by 86 percent and then increased again in the first three quarters of 2005."

Theres your real reason.

 

[Diuretic]

China is far from "hyper-capitalist." For the 200 million or so that populate the large Chinese cities, some capitalism is allowed, but it is (un)business as usual for the 1.1 billion that populate Chinese rural areas. I have seen this in travels throughout China. For the rural population, there is no capitalism. Such an economic structure fundamentally entails the free movement of labor, from market to market, as a function of price and demand. Labor movement is severely restricted in China. One cannot simply move from a rural area to a city and look for a job. There are requirements for government issued permits and military roadblocks that restrict the movement of labor.

I appreciate the correction and the first-hand information. I was searching for the proper term which described a totalitarian government which was brutally repressing its population and allowing a small oligarchy to become super-wealthy in about the same time it took John D. Rockefeller to pull up his pants. I was looking for the proper term to describe a totalitarian government which had completely and utterly despoiled and destroyed its first principles and which in the most breathtaking hypocritical manner dare still call itself "communist" and thereby completely debasing the word, the concept and the very principles which communism is supposed to stand for.
I failed.

 

[BaronVonBigmeat]

This is empty rhetoric from the Chinese. $900 billion sounds like a lot, but to a US economy that has a $14 trillion per year GDP (with comparatively soft export demand for US products), it will cause a disruption that can be absorbed over not too long a period. If the Chinese dumped US dollars in favor of say, Euros, the flood would reduce the value of the US dollar and make American exports explode onto world markets and suppress Chinese industrial demand. If the Chinese dumped dollars, to which country would they export are their Wal-Mart and Target stuff that has caused so much job dislocation in the US? If the Chinese unload US dollars, there would be short-term problems (e.g., to control inflation, interest rates would rise sharply, and it would be more expensive to own a home), but the long-term effects would include an expanded US industrial base, greatly increased export demand, but increased consumer prices, i.e., inflation until US industrial supply compensates. The Euro is already overvalued, and if the Chinese dumped dollars in favor of Euros, then European exports would dramatically decline making US exports even more competitive.

I agree with most of this, but China isn't the only country with a big hoard of dollars. They do have the biggest stockpile however, so it's quite likely that a drastic move by China, however unlikely, would set off a stampede for the exits amongst other countries, so to speak. So now we're talking multiple trillions of dollars. I want to say that I've heard a $7 trillion dollar estimate of how many dollars could be dumped by foreign nations, but I'm not totally sure on that.

 

[Toro]

Until 2005, the country with the biggest dollar reserves was Japan. They were accumulating dollars faster than China.

But they've slowed their accumulation since.

And one of the fastest growing repositories of dollars the past half decade has been the Middle East.

 

[dilloduck]

Yea he did, he shocked and awed Iraq based on lies and the US was never in any danger or threat from Iraq. There is nothing about "self defense" going on nor is there any "liberation" going on. Whats really going on is a rape and pillage of Iraq and the US tax payer and we are sacraficing our soldiers to accomplish it. Thats not support for the troops by a long shot, thats a gross MIS-USE of the troops.

http://www.americanchronicle.com/articles/viewArticle.asp?articleID=9276



Theres your real reason.

ahhh your one of those that doesn't believe that Iraq has anything to do with the war on terrorism. Will you please fill me in on what would be transpiring in Iraq if the US had not invaded ?

 

[JeffWartman]

Will you please fill me in on what would be transpiring in Iraq if the US had not invaded ?

There would be no Al Qaeda in Iraq.