China threatens 'nuclear option' of dollar sales

OK...yes, let's look at BRIC! Brazil-wonton environmental destruction, unstable economy, unavailability of credit. I knew a friend of a friend who went to live in Brazil with his wife but couldn't get a house because he couldn't get a loan (nevermind he wouldn't have a problem getting a loan Stateside). Russia-my exgirlfriend left there because it was hell on earth as she put it. Repressive politics, rampant crime, the only good jobs available to the well connected. True there are resources in Siberia but it's frozen solid in the winter and a swamp in the summer. India-some promise here but still there's a lot of Muslim-Hindu ethnic unrest. The ultradepressing slums of Calcutta and Bombay are still there.
China, well I've spilled so much negative ink on them earlier in this thread, just read that.

A motley crew, indeed, not any kind of economic coalition I'd like to assemble.

Read The Coming China Wars by Peter Navarro.

He states that China has become the de facto central bank of America.
(Sadly, his book is very biased and written in a typical western style.)

However, The Writing on the Wall by Will Hutton is a much better and balanced book. The author believes that America has two options,

China is either the partner or the enemy. It cannot be both.

What is driving this "nuclear option" is the low ranking members of the Chinese government. The old guard. Who still have huge influence.

We in the West do not understand the internal politics of China. The government is facing growing pressure from nationalist who HATE Japan and want to take revenge.

Of course, China has a democracy movement, but its very small now. Liberal faction is enjoying the current mood, repression isn't as strong now. And the Chinese people are happy, especially the rapidly growing middle class.

Nothing will happen till after Beijing 2008..

As author Susan L. Shirk, puts in her book...

It is here, Shirk concludes, in the tangled interactions between Japan, Taiwan, China, and the United States, that the greatest danger lies. Shirk argues that rising powers such as China tend to provoke wars in large part because other countries mishandle them. Unless we understand China's brittle internal politics and the fears that motivate its leaders, we face the very real possibility of avoidable conflict with China.

Originally posted by apc

..................
I prefer to see how an investment has performed in the past, as that will be your true indicator of the future.

That's an old graph, it ends in 2000, gold is now at $673 USD an ounce. It is at the same level that it was back in 1980 and 1981, but now it has stayed at around this price for what over two or three years now?.


[edit on 8-8-2007 by Muaddib]

Quiz for the smartest here:
What exactly would happen to Americans if China did deliver on their threats to liquidate their holdings. Please put some thought into this and break down your answer by the type of people (i.e. how it would effect rich people versus poor people, or home builders versus government employee, etc.)

We're heading into an election year, so we have a group of politicians conveniently beating the economic war drums in hopes of rallying votes. Issues that affect the pocketbook always rise to the surface the closer we draw to the ballot box. I expect that this year may be an extreme example of this pandering, given the fact that last weeks NBC-Wall St. Journal Poll indicates that three quarters of Americans believe we are either in recession now, or that we will be next year.

China is indicating that they will not be used as an election pawn, nor will they be bullied into making a monetary decision that may not be in their best interest, simply to ameliorate the sins of their trading partners. They refuse to be the fall guy.

How will this eventually all play-out for the world community, the country, the average Joe? There has never been this level of debt...toxic derivatives, liquidity, and market intervention infesting the planet. Nobody even understands the amount real risk floating around out there. I don't think anyone can predict the details, but given our position as debtor, I see things getting a bit crunchy for the USA.

I think King Solomon pretty much summed it-up: "the borrower becomes the lender’s slave". In my opinion, this applies to the personal, the national, and the global level as well.

I apologize for going off-topic here, but I want to comment on the gold discussion. In an inflationary environment (see now), basically, gold acts a store of value, not a return on value. It isn't necessarily a for profit investment unless a person is actively trading the market. However, in a generational bull market (see now), any rate of return/profit depends entirely on when a person enters, and exits the market. In my case, if I were to liquidate my physical holdings today (fat chance), and adjust for 4% annual inflation, I would realize close to a 50% net profit. Reasonable expectations, estimate that there are 5-7yrs remaining in the current bull...Does anyone see the dollar recovering soon? In fact, a weak dollar is the plan, and monetary expansion is it's evil twin.

A little historical anecdote to illustrate gold's reliability as a store of value:

Under Julius Caesar, an ounce of gold would buy the purchaser a decent toga, a good pair of leather sandals, and a leather belt. Today at $673, an ounce of gold still buys the equivalent: a decent suit, a good pair of leather shoes, and a nice leather belt. Roughly the same amount of goods, and services, though the ratio has shifted...more expensive materials...less intensive labor. The dollar, and all dollar denominated paper assets are hemorrhaging value...have been. A dollar can't buy the same amount of goods & services it did last month, or last year...let alone in 1913 when the Federal Reserve Note was created.

Another misconception is risk. Historically, gold isn't any more volatile than indices like the S&P 500. this is why financial advisers often recommend that low risk profiles hold 10% in the barbarous relic as a hedge. The 30yr chart apc showed us was a thing of beauty...but have a gander at the 5ryr

Originally posted by Muaddib
That's an old graph, it ends in 2000, gold is now at $673 USD an ounce. It is at the same level that it was back in 1980 and 1981, but now it has stayed at around this price for what over two or three years now?.

That's largely my point. The relatively high current value shows the volatility of the commodity. Two or three years is nothing... it's like saying Katrina is proof of Global Warming.

[edit on 8-8-2007 by apc]

So this is good food for the thought...but what do we do?

All geniuses should be able to come up with something.
I mean, this is America.

Personally, I would try to take down China somehow. If that happened, guess what? Our bills are gone. Huzzah!!

And I would kill all these big business exporting. If they export, their not selling any goods here, that's for true.
But, alas, none of my dreams will come to fruition for a while. Time will only tell.

Originally posted by infinite

Originally posted by Dae
I can see both America and UK joining the Euro as some sort of 'bid to fight terrorism' together.

America is not a member of the European Union, so how can it join the Euro or the Eurozone?

We are not talking about the USA entering the European communoty.
USA will not let the Euro to be a single trading world currency.
Many oil producing country has shown reluctance to the Dollar.
The bigest trading commodity is oil.
Therefor the only alternative is to creat a new single trading world currency (EuroDollar) managed by USA and Europe as they are together the largest consumer market in the world.
This will not mean that the Euro and the Dollar will desapear, it is a creation a wordl currency.
Again it is just an hypothesis.
Kacou.

Originally posted by Muaddib
There is something that China wants more than even the 2008 Olympics, and that is Taiwan.

China knows the U.S. will step in if they attack Taiwan, and the Chinese are not that stupid, hence the one way they can stop the U.S. stepping in, is economically weakening us, and that does not happen overnight.

We tend to disagree a lot Muaddib, but I agree with you 100% on this one.

The nationalists in both mainland China and Taiwan have made it their aim to achieve the reunification of China. By force if needed.

The Chinese nationalists are more dangerous than the Communists rulers. As I said in an earlier post, the nationalist core still hate Japan for what happened during WWII and the hate grow when the current Japanese Prime Minister refused to apologise for what happened.

If China was to become democratic, the first government will be a nationalist administration. Taiwan will be in their plans, but revenge on Japan will be first.

This "nuclear option" is not about just protecting trade, is about forcing America out of Asia-Pacific region.



[edit on 9-8-2007 by infinite]

The Chinese are not doing anything that any of the other big players on the world stage do; maneuver by bluff or threat into the best positions they can against their rivals. We do the same thing with threat of sanctions and the like.

Personally I think the Chinese are sending the US a roundabout warning about Iran and any plans we may have against it.... you mess with our oil supply, we will call in our loans. And, you have to admit its a potent threat.

And what about the more friendly trading partners/Allies?
Japan still has a lot more dollar reserves? i quess they cant take over the whole bunch China has now.But the [savings] banks in Japan still have a whole lot of saving money dont they?
The EU?the swiss? allthough we had lots of economic conlicts, cant the eu[or just banks and firm] take over some treasaries/bonds/loans, if they take over some of those assets from the chinese[if they get rid of them], maybe the dollar will revalue a bit, and so the euro wont be so frigging expense[and so better for our export]..but the speculators also have to buy more dollars right?..
After all this whole chinese hostage situation is a real predicament, glad to see people like H.Clinton really take steps to do something about it..maybe a good idea after all not to vote for those silly republicans again?




[edit on 9-8-2007 by Foppezao]

Let's see if I understand this.....

1. China has our bills. (the US debt basicly, right ?)

2. Bush & Company want to invade Iraq.

3. China says if we do invade Iraq, say bye-bye to the US dollar. ( Basicly speaking. )

4. If the troops come home they just might kick Bush & Company out of there. ( Our military has that right under the Consitution still, correct ?)

5. Keeping the troops in the mid-east is incresing said debt every day.

So, what we have here is what might be called, a stalemate, no matter what the NeoCons do, or don't do, we're screwed.

They could play the Econmic Collapse card right now, but then they'd have to deal with something far more dangerous then a ticked-off population of the US wouldn't they.

They could play the Chineese are terrorists card, but then they'd have to deal with China head on, would John Q. Public stand still for that ?

Could anyone in Hollywood make this stuff up ?

This is a verry dangerous game being played here isn't it ?

No theories here, this is what could verry well happen tomarrow, this is a situation that can bite us in the ass anytime soon.

No false flag operations, this is something verry real and tangable, something even John Q. Pubic can understand, if you tell him that it will effect him personaly, that ignoreing it will not make it go away.

- W -
* Who now worries about Tomarrow, something he hasn't done so far *

Sorry Woulfe. You don't understand this. Most people don't.

Originally posted by Woulfe
Let's see if I understand this.....

1. China has our bills. (the US debt basicly, right ?)

Incorrect. China does not have all US debt. It has a minority of issued debt instruments. ALL (not just China) foreign ownership of debt comes to about 27.5% as of 2006.

2. Bush & Company want to invade Iraq.
3. China says if we do invade Iraq, say bye-bye to the US dollar. ( Basicly speaking. )

Did you mean Iran?

4. If the troops come home they just might kick Bush & Company out of there. ( Our military has that right under the Consitution still, correct ?)

... What?

5. Keeping the troops in the mid-east is incresing said debt every day.

In so much as all government spending increases the debt every day.

Originally posted by Woulfe
They could play the Econmic Collapse card right now, but then they'd have to deal with something far more dangerous then a ticked-off population of the US wouldn't they.

Well, it would take down the world economy too...

I believe its us (the British) who hold the second highest amount of US treasuries, followed by Japan, and we would be forced to sell ours if China does use the "nuclear" option because the value will decline rapidly.

And if the UK economy takes a dive, so does the Eurozone.

Originally posted by infinite

Originally posted by Woulfe
They could play the Econmic Collapse card right now, but then they'd have to deal with something far more dangerous then a ticked-off population of the US wouldn't they.

Well, it would take down the world economy too...

I believe its us (the British) who hold the second highest amount of US treasuries, followed by Japan, and we would be forced to sell ours if China does use the "nuclear" option because the value will decline rapidly.

And if the UK economy takes a dive, so does the Eurozone.

So i guess the chinese hold this "nuclear" joker card only if they sell them "all" rapidly? In that case it would be useless buying those wortless treasuries..What i wonder is, people question about why would China get rid of those treasuries, since their dollar reserves become wortless, but if you sell them all[and so their dollar reserves], they have no "wortless" dollar left right? they probably have some some other currencies stored..
Another thing i wonder, if this "fall" causes world wide crises, how could China recover better if they have no serious outlet to export to?, why would the US buy their goods in the first place after they tricked them, if they cant buy anything?



[edit on 9-8-2007 by Foppezao]

Originally posted by Foppezao
Another thing i wonder, if this "fall" causes world wide crises, how could China recover better if they have no serious outlet to export to?, why would the US buy their goods in the first place after they tricked them, if they can buy anything?

China is now increasing investment into Europe and Africa now.
The new governments of Europe are looking towards China and better relations. You say how can China recover? She will take a hit, but nothing compared to what America will feel.

As others have pointed out in this thread, China is signing trade deals all over the place.

Again, the Chinese are not stupid. No "economic wars" will happen till after Beijing 2008.

America is far and away China's biggest importer, it would be very tough for China to find another importer who buys as much as we do...The risks of collapsing America's economy therefore outweigh the benefits for China.

internationaltrade.suite101.com...

Originally posted by uberarcanist
America is far and away China's biggest importer, it would be very tough for China to find another importer who buys as much as we do...The risks of collapsing America's economy therefore outweigh the benefits for China.

internationaltrade.suite101.com...

the article was written in 2006

plus the data is from 2005

[edit]

the figures in 2006, show US as number one...

but Japan is now second. Even the Chinese feel Japan will over take the United States as their number one trading partner.

Again, China are not stupid and won't do anything risky. yet.


[edit on 9-8-2007 by infinite]

And what has changed in the meantime other than China is selling even more stuff to the United States?

Uncle Sam, Your Banker Will See You Now

In reference to this thread I have find this very interesting article By Paul Craig Roberts who was Assistant Secretary of the Treasury in the Reagan administration.

www.informationclearinghouse.info...

Kacou