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China threatens to "nuke" dollar

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The outcome of outsourcing and globalization begins...

China threatens 'nuclear option' of dollar sales

By Ambrose Evans-Pritchard

Last Updated: 1:41am BST 09/08/2007

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.

http://www.telegraph.co.uk/money/main.jhtm...cnchina107a.xml

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Empty threats, this would hurt China just as much if not more.

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Not as an empty a threat as one might imagine. Don't forget: we exist in a democracy, they do not. Just look at what happened in Tiannemen Square. Who would dare protest a food shortage as a result of an implosion of their economy?

This may be just sabre rattling, but the ultimate signal in the world market is - who is running the show? The U.S. economy, or China's? This is just the nightmare scenario that I have been worrying about for a couple years now. Sooner or later, China will be calling the shots. It looks like they are already trying to influence the outcome of the next election. The U.S. may be in a safe place (or at least believe it is in a safe place) by making threats on the eve of the Olympics, but after the Olympics....hmmm? :scratchchin:

This has all the makings of the next big Crichton novel.

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The dollar would colapse against the Yuan and then what? Chinese exports turn to the Euro-zone? Or would the ensuing global economic crisis screw up the Chinese economy as well?

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Disgusting!!!!

My family left communist eastern Europe ni the late 80s to escape the

oppresion, economic strife & depressing red tape of the socialist way

just to have my dad loose his job to a communist country that is now

in some ways more dangerous than the USSR ever was.

It is very depressing to see the USA whored out by its own people. <_<

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As much as I will never vote for Hillary, she does have a good idea in her plan to limit foreign investment in treasury bonds. Problem is, we'd have to have a sound fiscal policy to do it... and that's not something we've had for about..... 7.5 years.

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Disgusting!!!!

My family left communist eastern Europe ni the late 80s to escape the

oppresion, economic strife & depressing red tape of the socialist way

just to have my dad loose his job to a communist country that is now

in some ways more dangerous than the USSR ever was.

It is very depressing to see the USA whored out by its own people. <_<

I saw a 2007 Scion xB, with two huge American flags attached to it, talk about being whored out! When their jobs are outsourced to some 3rd world nation, they may actually wake up and see the light, but by then it will be too late.

On a side note I was at the Berlin Wall helping to rip it down in 1989. Helping to free my people from the evil DDR (East Germany). I was 20 at the time.

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That was a great moment in history!

:unitedstates:

As far as the Scion, you know where I stand.

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As much as I will never vote for Hillary, she does have a good idea in her plan to limit foreign investment in treasury bonds. Problem is, we'd have to have a sound fiscal policy to do it... and that's not something we've had for about..... 7.5 years.

The issue is not just sound fiscal policy, but also the trade deficit. Since the US economy doesn't save much or anything at all (clicky nr.1 and clicky nr.2, for illustration purposes), the financing of deficits has to come from abroad. Edited by ZL-1
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Can't the US just get help from other countries if they buy the currency China dumps, and have them sell it off gradually?

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The issue is not just sound fiscal policy, but also the trade deficit. Since the US economy doesn't save much or anything at all (clicky nr.1 and clicky nr.2, for illustration purposes), the financing of deficits has to come from abroad.

Well, the homeowner's equity balloon is just waiting to burst, to be sure; however, the economics are pretty simple. The U.S. has been outsourcing its jobs, buying 'cheap' imported goods and the only way the world's largest economy can pay for all this is by selling paper back to its customers.

So, China has nearly a trillion dollars worth of paper stockpiled? Scary. As to America's 'friends' helping out, I think America is in hock to many of its friends already, although trade with its European and Canadian partners is more two-way. Remember, that America's 'friends' include Germany and France, who already have their own agenda with respect to trading with many of America's enemies. International trade is a complicated mess, but the U.S. has to stop pretending it is 1950 because gratitude ain't what it used to be - they will bite the hand that feeds them!

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Well, the homeowner's equity balloon is just waiting to burst, to be sure; however, the economics are pretty simple. The U.S. has been outsourcing its jobs, buying 'cheap' imported goods and the only way the world's largest economy can pay for all this is by selling paper back to its customers.

So, China has nearly a trillion dollars worth of paper stockpiled? Scary. As to America's 'friends' helping out, I think America is in hock to many of its friends already, although trade with its European and Canadian partners is more two-way. Remember, that America's 'friends' include Germany and France, who already have their own agenda with respect to trading with many of America's enemies. International trade is a complicated mess, but the U.S. has to stop pretending it is 1950 because gratitude ain't what it used to be - they will bite the hand that feeds them!

I would include Japan on the '"friend" list as well, regardless of what people here think about Japan. We do have good relations with them, and we know Japan will not do something against us, that will hurt their own economy. The rising issue is China with their growing influence, and Japan will be on our side with regards to anything China tries to pull. Also, the world economy is tied into the US economy, and any big recession in the US will affect the rest of the world, so other countries will not want to see China do anything like what they threaten to do. The way I see it, it is in alot of countries best interests to not allow China to do what they have threatened to do.
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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".

LOL, that's funny since her dumbass husband is the reason we're in this situation in the first place.... I swear to god, I think the chinese had pictures of him in bed with a 12 year old boy or something, because he ALWAYS bent over backwards for China. hell, his administration was the one that granted them free trade in the first place.

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.

So much for the "bill that could single handedly save the domestic auto industry" I knew something like that was too good to be true because Detroit NEVER will and never does get a break like that.

So what options do we have? 1) We can piss China off and watch what little industry we have go down the drain rapidly -or- 2) We can sit here and not piss off China and watch our country continue to rot away like the 'has been' it is...

Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".

A.K.A. "Way to go dumbasses, were so screwed it's not even funny."

You know, EVERYONE with half a brain knew tht this was coming and that it was a bad idea to 'sell america out' China essentially declared war on us (Just like they always said they would) except it isn't a traditional war. I just didnt think they would win this quickly, but hell, I guess that's what happens when our bleeding heart society helps them every step of the way.

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.

Naturally... China has us over a barrel and they know it. It's their way or the highway and that's exactly how it'll be.

This nonsense and complete lack of intelligence on the part of our government and it's followers are yet another reason why I no longer support this country.

It is very depressing to see the USA whored out by its own people.

A-f**kin'-men brother! I'm SOOO tired of this country fixing everyone elses problems at the expense of ourselves. It's high time america THINKS about america and the future of itself before 'itself' has no future.

Edited by FUTURE_OF_GM
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Oldsmoboi has a good take on it.

China can afford to do this but it is a shortsighted solution because virtually their entire econemy is geared twards American Imports. Yes they can cause a really bad recession but they will ultimatley be biting the hand that feeds them. Who will they sell all these goods to when they piss us off? Mean while the US econemy will stabilize, lots of manufacturing jobs will bre brought back here or sent to other countries that will actually trade with us. As horrible as this might be in the short term it may be for the best in the end.

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Oh, it will happen-it will just be a matter of time.

It is really going to hurt, but at the same time-we will again realize we can build our own stuff.

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I think we're entering a second Cold War, but this time its an economic one. As China grows in power, its going to keep flexing its muscles. I don't see much hope for the value of the dollar with the Euro gaining strength and the Yuan / Yen putting pressure on our industry. And the sad thing is, it's just going to keep getting worse the more China develops. How many banks in this country are now Chinese owned?

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additionally.... if they *did* nuke the dollar... it would make imports of everything *far* more expensive. The dollar wouldn't just crash against Chinese currency, it would crash against the Euro and the Yen as well. Would Japan "crash" their own currency to keep it under the dollar just to keep exports to the U.S. up? We would see a sudden need to swing manufacturing back here but wouldn't be able to react fast enough to do it. Meanwhile the chinese have caused a global recession.

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I believe things are much worse than we know.

On a personal note, I am making it my own personal crusade to never, ever buy anything made in China again. I vow to read all packages and to switch brands, even give up a product if necessary. I have just had a very ugly morning. I just finished smashing my Betty Crocker blender against the kitchen floor. Although I got a lot of satisfaction listening to it crash down the garbage chute, after it bounced off the kitchen floor two or three times, my partner (who is used to my diatribes by now) and I got into a discussion on the conspiracy that is China.

My last blender was handed down to me from my mother. I am not even sure when she bought it, but I would guess sometime in the early 1970s. She used it faithfully (in a family household of 5) for 9 or 10 years, before giving it to me when I moved out. I used it for another 20 years, until a stupid (ex) roommate of mine put the blade part in the dishwasher, causing the bearings to seize, then he burned the motor of the blender out trying to force it to work. (Note to idiot ex-roommate: when electrical appliances begin to smoke, that is not a good thing.) Anyway, I went without a blender for a couple years, then my partner and I went and bought a cool-looking stainless-steel looking one for our kitchen. We use it about once a week, to make pancakes or he sometimes makes lime mousse in it. Well, a week ago, it started acting up. I thought it was just the 'safety' switch (so some idiot child can't accidentally start it up unless the glass bottle part is actually attached), but after fiddling with the switch, it just won't work.

IT WASN'T EVEN FOUR YEARS OLD YET. Made in China, of course.

So, now I am on a crusade. I don't care if I have to pay twice as much, I will not buy something if it is made in China. If my mother paid $30 for her blender in 1972 (just speculating here) and it lasted 30 years, but I paid $50 (adjusted to about $10 in 1972 dollars) for my blender in 2004 but it only lasted 3 years, which is the better deal?

The new a/c unit that I bought in May is already making strange gurgling noises and I have only used it for 3 months. My Carrier (madein Canada) is 5 years old and works fine, and the AirTemp that my father bought USED in 1975, I left at my last apartment in October. IT STILL WORKED.

No, no, no. NO more Made In China crap for me. Period.

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^ I totally agree with you here, Made in China crap is what it really is! I have been trying to buy clothes that have been made in either Canada or the US but it is very hard to come by.

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I believe things are much worse than we know.

On a personal note, I am making it my own personal crusade to never, ever buy anything made in China again. I vow to read all packages and to switch brands, even give up a product if necessary. I have just had a very ugly morning. I just finished smashing my Betty Crocker blender against the kitchen floor. Although I got a lot of satisfaction listening to it crash down the garbage chute, after it bounced off the kitchen floor two or three times, my partner (who is used to my diatribes by now) and I got into a discussion on the conspiracy that is China.

My last blender was handed down to me from my mother. I am not even sure when she bought it, but I would guess sometime in the early 1970s. She used it faithfully (in a family household of 5) for 9 or 10 years, before giving it to me when I moved out. I used it for another 20 years, until a stupid (ex) roommate of mine put the blade part in the dishwasher, causing the bearings to seize, then he burned the motor of the blender out trying to force it to work. (Note to idiot ex-roommate: when electrical appliances begin to smoke, that is not a good thing.) Anyway, I went without a blender for a couple years, then my partner and I went and bought a cool-looking stainless-steel looking one for our kitchen. We use it about once a week, to make pancakes or he sometimes makes lime mousse in it. Well, a week ago, it started acting up. I thought it was just the 'safety' switch (so some idiot child can't accidentally start it up unless the glass bottle part is actually attached), but after fiddling with the switch, it just won't work.

IT WASN'T EVEN FOUR YEARS OLD YET. Made in China, of course.

So, now I am on a crusade. I don't care if I have to pay twice as much, I will not buy something if it is made in China. If my mother paid $30 for her blender in 1972 (just speculating here) and it lasted 30 years, but I paid $50 (adjusted to about $10 in 1972 dollars) for my blender in 2004 but it only lasted 3 years, which is the better deal?

The new a/c unit that I bought in May is already making strange gurgling noises and I have only used it for 3 months. My Carrier (madein Canada) is 5 years old and works fine, and the AirTemp that my father bought USED in 1975, I left at my last apartment in October. IT STILL WORKED.

No, no, no. NO more Made In China crap for me. Period.

Let's not even start with things like refrigerators. We had this old, nasty thing that came with the house when we bought it 20 years ago. It was made before they had a defrost feature to keep the freezer from collecting with ice. We finally got rid of it but it was still working up until the day we unplugged it.

We had a newer fridge that lasted about 3 years before it died. My mom almost went for some cheap off brand one because it was a good deal last year...but thankfully we ended up getting a GE with a 10 year warranty. Nothing fancy but it works great and the space is well used.

While I haven't gone a crusade yet, I do avoid Chinese things when I can. Say what you will but Japanese or American is the way to go...go look at a cheapo pen or pencil made in China, then one made in America, and then finally a Zebra pen or pencil made in Japan...no comparison. Zebra makes some of the finest pens and pencils out there...I know, I use them for drawing...and they are made with actual metal not chromed plastic.

Likewise I would never, ever buy any computer components from China. Taiwan is another story, because the products I've come across are quite good..of course they use Japanese components too...my ABIT motherboard which replaced my POS Chaintech uses Japanese capacitors and other components...it is an excellent motherboard.

Finding something that's actually made in America is pretty hard these days...last thing I came across that was made in the states was a battery terminal cleaner from NAPA

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good luck. China monopolizes the world with cheap goods and since people love to settle less for less, china has that much more.

Speaking out of paranoia, however: maybe the conspiracy isnt only limited to the chinese government and maybe part of our own?

:mellow:

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