Wednesday, August 08, 2007

Would China use the "nuclear option?"

I wonder if China would actually shoot itself in the foot like that? Do they think that they can take us down and leave themselves unscathed? Who do they think will be buying their products if they devalue the dollar? What about the US companies that have moved their operations over there? Their biggest problem right now is employment, they have to keep control of their population with jobs. Do they really want to risk open rebellion when their population starts losing their manufacturing jobs when their market starts drying up? A hit on our economy would have global implications, we would not go down alone, the world would join us in our economic collapse.

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.


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.