BEIJING, Aug. 9, 2007
China Weighs Economic "Nuclear Option"
Officials Contemplate Dumping U.S. Cash Holdings
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U.S. Treasury Secretary Henry Paulson, left, shakes hands with Chinese President Hu Jintao in Beijing, Aug. 1, 2007. Paulson said last week he was assured that China is committed to currency flexibility and financial reforms, but Beijing offered no specific changes that could help assuage U.S. congressional ire over China's huge trade surplus. (AP Photo/Michael Reynolds POOL)
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Talking about currency rates is a lot like being forced by Mom to eat your vegetables: you know it's good for you, but you hate it.
So, apologies for offering a big course of Brussels sprouts here, but it is information worth knowing. The Chinese are holding and investing something like $1.3 trillion they made from selling goods to America.
Now, some Chinese officials have floated the idea that these U.S. dollars could be used against the United States. Here is how the London Telegraph's Ambrose Evans-Pritchard reported the story:
"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 of foreign reserves as a political weapon to counter pressure from the U.S. Congress.
"Described as China's 'nuclear option' in the state media, such action could trigger a dollar crash at a time when the U.S. currency is already breaking down through historic support levels."
The words that hit were "NUCLEAR OPTION". Rarely do you find that in a story on currency.
Here is the problem: The United States maxed-out its credit cards long ago, and it needs to borrow and borrow both to raise still more money, and to pay interest on that ever-growing debt. The Chinese, with all those dollars, are willing to lend by buying U.S. Treasury bonds. That keeps interest rates down and that gives Americans extra bucks to buy… more goods from China.
This is now a part of the presidential campaign. Here's what Sen. Joe Biden (D-Delaware) said at this week's AFL-CIO debate in Chicago about our debts to China:
"This administration, in order to fund a war that shouldn't be being fought and tax cuts that weren't needed for the wealthy — we're now in debt almost a trillion dollars — a trillion dollars to China. We better end that war, cut those taxes, reduce the deficit and make sure that they no longer own the mortgage on our home."
His comment drew this response from leading Democratic candidate Sen. Hillary Clinton: "I want to say 'Amen!' to Joe Biden, because he's 100 percent right."
The reality is that China is probably going to slow down its investment in U.S. bonds anyway. This is not so much because they don't like us, as it is because they are becoming savvy about where and how to spend their huge nest egg.
Low-interest U.S. bonds? According to an article in USA Today, some Chinese bankers say it would be better to start buying into businesses (U.S., European, Asian), where you get a better return and have long-term growth. Think the Japanese in the 1980s buying U.S. skyscrapers (Rockefeller Center) and golf courses (Pebble Beach).
Back to the nuclear option — oddly enough, many voices in the U.S., especially in the U.S. Senate, are pressing China to re-value its currency up against the dollar, making Chinese goods more expensive and U.S. goods cheaper for the Chinese to buy.
The Chinese are resisting. Their cheap currency helps them sell their goods. And that is where the nuclear (currency) option comes in… the U.S. is being warned to stop meddling in China's internal affairs.
But let us, for a moment, allow those Senators their due. Let us say that China revalues its currency. Then the Chinese could — if they wanted — buy U.S. goods by spending a lot less of their money, called the yuan. American proponents of this think it would level the trade playing field and spark an economic revival for U.S. companies.
Alas, and alack. Back to those vegetables, because it probably won't happen that way.
Arthur Kroeber, a managing director of the Dragonomics research firm in Hong Kong and Beijing, looked ahead to see what would likely happen if China's currency is revalued. His thoughts:
Sorry about making you eat all those spears of economic broccoli. But if we don't understand this, and are guided by politicians playing for sound bites, promising quick fixes, we could end up on a path that means we all share the pain... right in our pocketbook.
And the Chinese would be laughing all the way to the bank. Their bank.
By Barry Petersen © MMVII, CBS Interactive Inc. All Rights Reserved.
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See all 115 CommentsRule #1. The Customer is always right.
Rule #2. When the Customer is wrong refer to Rule #1.
Another set of UNSTABLE MARKETS.
More excitement than an amusement park full of rides going haywire.
Another set of made up "currency" releases and STILL no stability in sight!
Sadly such regimes always finish up in tears, albeit that the end result will be for the better in the long term. Following our civil war, one type of slavery was replaced by another, certainly more clandestine but none the less evil.
We must ALL engaged to prevent further injustice and hurt, the evil to which ordinary folk are subjected to by the few must cease, it is not what was intended or designed for us. Neither does it entail retribution by bloodshed, simply by speaking up and saying No More will suffice. We cannot continue to vote or support any politician as our employee whose sole support is for the wealthy and privileged. it is time for change.
All of these "sky will fall" financial writers spew the same drivel about china floating their currency.
They are paid prostitutes. They are just doing the bidding of big investors/business that want to continue to import masses of cheap chinese junk to sell to americans at massive profit margins (lining their pockets).
Don't believe Peterson, he's a dope. You gotta ask yourself, when all of these economic "expert" financial writers say the same thing, without exception, could something be up? Yes it is. They are simply propogandists for big business......that want the status quo with china's continued manipulation of their currency.
You also gotta ask yourself. Since free trade and open markets are supposed to be good according to hacks like Peterson, why is it that he supports continued chinese central government manipulation of the price of their currency? If markets should determine prices, shouldn't the market AND NOT THE CHINESE GOVERNMENT determine the price of the yuan?
Apparently he's only for markets determining prices when it fits in with the needs of his paymasters.
All of these "sky will fall" financial writers spew the same drivel about china floating their currency.
They are paid prostitutes. They are just doing the bidding of big investors/business that want to continue to import masses of cheap chinese junk to sell to americans at massive profit margins (lining their pockets).
Don't believe Peterson, he's a dope. You gotta ask yourself, when all of these economic "expert" financial writers say the same thing, without exception, could something be up? Yes it is. They are simply propogandists for big business......that want the status quo with china's continued manipulation of their currency.
You also gotta ask yourself. Since free trade and open markets are supposed to be good according to hacks like Peterson, why is it that he supports continued chinese central government manipulation of the price of their currency? If markets should determine prices, shouldn't the market AND NOT THE CHINESE GOVERNMENT determine the price of the yuan?
Apparently he's only for markets determining prices when it fits in with the needs of his paymasters.
Has it ever occured to America that maybe China is bucking for the position of America in the world? I mean they poisoned the pet food, (there was some in Canada but most of the recalled food was American and what we had came through the U.S.),most human food is contaminated and most things from there have lead in it. Now we find out that they are selling weapons to Iranian soldiers which are being used against the American military. AND NOW THIS! Maybe they are slowly but surely trying to destroy you in the only way they can. I don't usually like to speculate but it makes you think, doesn't it?
Spot on!
Probably a leftover from the colonization and land grab from the indigenous people to the colonizers - mainly European in the beginning but now just about any nationality as long as they came here to "get rich" at any cost.
It's in the nature of the nation.
Go North and in Canada they've taken a different social route. I like Canada.
Mexico has already stratified into ultra wealthy and dirt poor human exports. A poster child for questionable economic choices.
The recent top US government choices only highlight which route US leadership plans to take the country.
The writing on the wall IS NOT PRETTY.
Saw it coming 30 years ago and vowed I'd be on the wealthy side of the then future gap.
I put family before greed and gave up that position.
Now, all I can do is to find ways to survive the upcoming mess.
My preferred way would be to be ELSEWHERE (like certain corporations have done).
Recent Changes in Passport policies may make that impossible for me but it still is a possibility for other more savvy Americans.
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