Fistful of dollars - China threatens 'nuclear option' of dollar sales

[DesertFox]

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.

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.

More (http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/07/bcnchina107a.xml)

[DesertFox]

Never happen. First place, a seller needs a buyer. Ain't nobody gonna put up that much cash. Second place, liquidating $658b in treasuries would hurt them quite a bit worse than us, since the vacuum of bucks would not only hurt but also retaliatory trade sanctions.

China's economic growth has been fueled by three things: Changed internal policies, the actions of the Chinese people themselves to get rich, and a ready market. That third one is us, and without it Chinese growth screeches to a halt.

[Rhino]

Plus, those in the money markets will recognize an opportunity when they see one. If China dumped their dollars, the price would fall of course. But knowing full well that this was an artificial effect that was bound to reverse itself, investors would gobble up those cheap dollars, which would send the price right back up, maybe even higher than before. The effect would be damaging, but short lived.

[Lazarus]

Plus, those in the money markets will recognize an opportunity when they see one. If China dumped their dollars, the price would fall of course. But knowing full well that this was an artificial effect that was bound to reverse itself, investors would gobble up those cheap dollars, which would send the price right back up, maybe even higher than before. The effect would be damaging, but short lived.Exactly... The ultimate loser in the event would be China, because dumping such a large bucket of investments that quickly would require them to take a significant loss - they would have to be sold at a significant "Discount" to liquidate them... We're talkin about US Treasury instruments, not the Foreign Currency Exchange (Forex)...

In effect they are threatening an immediate dump of a huge bond issue all at once - The selling price of the bonds would have to take a big hit in order to find enough buyers to complete the sale... With a low enough offering price they will find the buyers, but the price must be low indeed for such a large volume...

Yes it may have a short term effect on the US Government's ability to sell NEW Treasury issues, since there will be a glut of very cheap current Treasury Bills on the market... But that effect will last only until the bargain buying is complete...

Personally I would love to see China try that trick... It would be disastrous for them, they would lose a major stick they have used to threaten us, and those of us who play in the Bond market:biggrin: would get the chance to snatch up the highest rated, most secure bonds on the market at a greatly discounted price... Sounds like a great opportunity to make some profit in the long run...

China would be the big loser - the US Government might lose a little in the short run - And private investors would be the big winners - Which is to say the government would re-coup some of their loses in the form of capital gains taxes...

Sounds better everytime I hear it... :D

[Dowple]

Interesting. Here you have Communist totalitarians who just might not care if they suffer some short term damage if it crushes their primary enemy. They've already sucked out most of our industry. They've sucked out most of our dollars. We are broke, can't borrow anymore, and have to rely on the "goodwill" of China for all the electronic trinkets our iPhone addicted population requires. But keep on whistling past the graveyard. Everything is just fine. Remember, a sincere belief that something is so will make it so. Right.

[Rhino]

Remember, a sincere belief that something is so will make it so. Right.Apparently so in your case. Do you really believe all that stuff?

[Dowple]

Apparently so in your case. Do you really believe all that stuff?


Oh, I see. It's a good thing the Communist Chinese are taking over our industrial base and holding our debt.

[Rhino]

Whatever floats your boat, dude.

[Lazarus]

Oh, I see. It's a good thing the Communist Chinese are taking over our industrial base and holding our debt.No... You missed the point entirely, Dowple... The Chinese will not suffer a short term loss if they try this trick... They will be the biggest losers in the deal... It will devastate them - Their screaming economy will come to the proverbial screeching halt - a total train wreck!

Their new-found prosperity in Global Capitalism is tied 100% to the US economy - more specifically, the Dollar... If they make a monetary strike on us by selling off all their US Treasury instruments in a sudden stroke:
1) They will take a huge loss on the sale - you can't dump the amount of bonds we are talking about overnight without utterly flooding the market... Increase in supply with demand remaining constant results in prices dropping... They must sell far below what they paid...
2) To hit the US like that is worse than cutting off your nose to spite your face - worse than shooting yourself in the foot - Its killing their golden goose... We are their primary customer - bigger than all the others combined... You dont kill your primary customer and stay in business, and
3) The economies of the entire rest of the world are tied to the Dollar... The US Dollar is the reserve curency of practically ever other nation on the globe... Death to the US economy sinks the whole ship - THE WHOLE SHIP! A total world-wide economic collapse...

No one here likes the fact that China has sunk its claws so deeply into our financial hide, but this has happened over years and while we were distracted by other issues - some important, some not... We can pontificate all day about what mistakes were made and what we shouldn't have done... But in the end that doesnt solve anything - We must stop now and deal with this situation...

Financially we are behind the eight-ball... And IMO we have allowed ourselves to be lulled into a serious strategic military deficit - China is going to be the biggest threat in our lifetimes - Much bigger than Bin-Laden and his weaslely thugs...

But we have a trump card still in our hand - We ARE the golden goose that is ultimately fueling this global propserity... And this little "crisis" may indeed be a blessing - it may be the catalyst that moves our government to get off their spoiled, lazy, cowardly asses and deal with this...

If we use our Golden Goose status with some courage, we can extricate ourselves from this tarbaby we're in... THAT is why its critical that we elect a president with the courage and cunning to play the game aggressively - Someone who doesnt give a rat's ass about the UN or world-wide PR...

Right now, more than ever, we need another Reagan - But I'll settle for a Thompson or a Tancredo...

[JOHN D]

Interesting. Here you have Communist totalitarians who just might not care if they suffer some short term damage if it crushes their primary enemy. They've already sucked out most of our industry. They've sucked out most of our dollars. We are broke, can't borrow anymore, and have to rely on the "goodwill" of China for all the electronic trinkets our iPhone addicted population requires. But keep on whistling past the graveyard. Everything is just fine. Remember, a sincere belief that something is so will make it so. Right.

Besides, I watched the President, just yesterday, in a press conference, and he re-assured Americans that everything is just hunky-dory... dude. :thumb:

[JOHN D]

If we use that with some courage, we can extricate ourselves from this tarbaby we're in... THAT is why its critical that we elect a president with the courage and cunning to play the game aggressively - Someone who doesnt give a rat's ass about the UN or world-wide PR...

Right now, more than ever, we need another Reagan - But I'll settle for a Thompson or a Tancredo...

The KEY!

And I'll add, Duncan Hunter, over Fred Thompson. But in either event, the chances of any of these candidates winning, at this point, is slim and none. Hoping the American voters will wake up, is wishful thinking.

[Lazarus]

Besides, I watched the President, just yesterday, in a press conference, and he re-assured Americans that everything is just hunky-dory... dude. :thumb:Well one of the major criticisms I have had with this president and his staff is their utter inability to communicate in any meaningful way to the American public... Its like they completely slept thru the Reagan years... Totally clueless when it comes to PR...:rolleyes:

The result is, we're not sure if Bush even has a plan to deal with this, or is he just stomping on fires...

But that doesnt mean its time to panic... We still can gain the upperhand if we have a plan and act... As to this immediate "crisis" with China, I wouldn't sweat it... Its all just noise - China is a barking dog, acting tough but desperately afraid that we will call their bluff...

Yes we are out on the limb and they are revving up the chainsaw... What everyone hasn't realized is that China is standing on the same limb - but they know it - That you can bet on... So its all just noise...

[Lazarus]

...And I'll add, Duncan Hunter, over Fred Thompson. But in either event, the chances of any of these candidates winning, at this point, is slim and none. Hoping the American voters will wake up, is wishful thinking.Don't be so pessimistic, John... Its ok to listen to the MSM but for God's sake, don't believe their BS... Given a solid conservative candidate with name recognition, America will utterly reject the Left...

I have no doubt that Duncan Hunter is "one of us" and would make a great president... But its Fred Thompson who's gonna snatch this election from the jaws of defeat... Maybe we can see Hunter on Thompson's team as a cabinet psition or even the No 2 seat...

[JOHN D]

Don't be so pessimistic, John... Its ok to listen to the MSM but for God's sake, don't believe their BS... Given a solid conservative candidate with name recognition, America will utterly reject the Left...

I have no doubt that Duncan Hunter is "one of us" and would make a great president... But its Fred Thompson who's gonna snatch this election from the jaws of defeat... Maybe we can see Hunter on Thompson's team as a cabinet psition or even the No 2 seat...

Thanks, Lazarus, but, I look back to the 06 election. Irregardless of the left being exposed for the traitors they are from the beginning of the Iraq war, they still won back control of congress. This tells me, Americans aren't paying attention. And with Bush's, what I would characterize as, dismal leadership, the left has been able to attach the smear to Conservatives and Republicans. I look forward for our candidates to come out strongly for conservative values, and most importantly, in my view, for strict border security. Thompson's hiring of a campaign chairman who is alledged to be an open border advocate, is not a good look for him. In my book, actions speak louder than words. I know, by their track records, where Tanc and Hunter are coming from, yet there has been no groundswell of support for them. I pray this will happen, soon. :)

[cerberus]

China doesn't need to sell off all it's US T-Bills to screw with us. They could do it slowly just by not buying any more....