China threatens to trigger U.S. dollar crash

[Soldier4Christ]

China threatens to trigger U.S. dollar crash 
Beijing hints it may liquidate its vast holding of American treasuries

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.

[nChrist]

WOW! - I would want to know who got us into this mess.

I personally think that we need to break loose from anything that allows our country to be held hostage, and that certainly includes oil. I would also think that it's far past time to stop buying anything from China, but I'm far too shy on this. I would also want to know if China has any unpaid World War II debts that they still owe us. Regardless, we can't allow China to hold us hostage.

[Soldier4Christ]

I would like to know the answer to that question myself. With China and Japan being the largest holders of U.S. bonds it does put us at a risk of being controlled by foreign governments. It is more stupidity by whoever it is that controls this.

[Faithin1]

It is absurd that this was ever allowed to happen.  Lately, I continue to feel as though we are living episodes of the Twilight Zone.  It's absolutely incredible.  I fear the U.S. is on the brink of destruction.

[nChrist]

It is absurd that this was ever allowed to happen.  Lately, I continue to feel as though we are living episodes of the Twilight Zone.  It's absolutely incredible.  I fear the U.S. is on the brink of destruction.

Hello Faithin1,

I've wondered the same thing many times. I've also wondered if our internal problems have gotten so bad that we could almost self-destruct without any outside help. The terrorists might not even have to attack us that way. After all, some of our most dangerous enemies are from within.

YES - Many things are absolute INSANITY!

[Shammu]

Think about this brothers................

China can threaten this but, it can't economically do this.

1. They would be shooting themselves in the head. Financially kill your biggest customer??
2.  If China started liquidating the U.S.D. the Fed would move to revalue it almost immediately. The G-8 has been bugging the U.S. Government to do that for some time now, and we haven't.

[Brother Jerry]

However you forget one thing. Even though there have been big turn arounds in China over the past 20 years or so.  They are still a Communist state.  And they still have a great deal of poverty.  And although we are their biggest customer....they are also becoming more and more self sufficient daily. 

They could easily survive a global economic crash.  They could easily survive losing the US as a customer.  They have been there before and will continue on as they need too.

[Soldier4Christ]

Exactly right. In recent years China has moved up to be the largest producer/exporter in the world surpassing the U.S. by billions of dollars. Their financial success is the reason why they have such a strangle hold on the majority of the U.S. bonds. They have been working to start a move to place their finances in other systems other than the U.S. for some time now. China has been moving to other nations for exporting their goods to. The EU is now importing more from China than they are from the U.S. There is nothing that the U.S. can do to reshape our dollar that would work to recover from such an action by China. This is one reason why the U.S. is working toward a different monetary system that involves the NAU. They are hoping that a monetary system under the NAU, the combination of Canada/Mexico/U.S., would be strong enough to counter this. Unfortunately China still outweighs any NAU that could be formed between a three nation party. This is the reason that the NAU is now considering on adding some Central America nations and maybe even South American nations into the union.

China would not be taking a big risk. Even if this does not work as well as they think it would, it would only help them in controlling their own population problem as they see it.

If China takes action on this before the NAU can formulate and initiate their plan it would devastate the U.S. and allied nations.

Don't get the wrong idea here. I am not for the formulation of the NAU. Unfortunately the U.S. has backed themselves into a corner by not taking action on this sooner, by allowing China to get this advantage on us.

[Faithin1]

This is all so very disturbing.  The greatest and most powerful country in the world is now at the mercy of a communist nation that would love to facilitate our destruction.  The most disturbing aspect of this blunder is that the U.S. is a major contributor to the financial growth and prosperity of China.  We have not only enabled them to become a financial powerhouse, we have also been instrumental in their military upsurge. 

I also agree that we will be destroyed from within.  There's a strong demonic force in this country.  We would all be lost if not for Jesus.

[Soldier4Christ]

China could flex economic muscles against the U.S.

An anti-Communist organization is concerned that the United States is in a new cold war that, unfortunately, is not going as well as the first one.

The London Telegraph recently reported that the Chinese government has begun a concerted campaign of economic threats against the United States, indicating that it may liquidate its vast holdings of U.S. treasuries if Washington imposes trade sanctions to force a Yuan revaluation. And one Chinese official hinted that Beijing has the power to set off a dollar collapse if it chooses to do so.

Curry Kenworthy of the China E-lobby says the United States is not on top of this new cold war confrontation. He says the U.S. is in the same position that Russia was in during the last cold war and that the U.S. is not limited just by the huge economic disadvantage with the Chinese.

"China has indicated that war is inevitable. When you've got North Korea [and] you've got the Taiwan situation, any of those things can actually be an advantage to China and a disadvantage to the U.S.," says Kenworthy.

He states that China is in a strong position to make a military move on Taiwan or anywhere else it wants and can confront the United States at a time that it chooses.