Tuesday, August 07, 2007

Uh Oh

You don't want any undesirable phenomenon in the global financial order, do you? The Telegraph (08.08.07), via Huffington:
"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."

China threatens 'nuclear option' of dollar sales

"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."

Bargaining chip? Now there's an understatement.

"'Of course, China doesn't want any undesirable phenomenon in the global financial order,' he added."

Of course.

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