China threatens 'nuclear option'

[Eric_Boyer]

http://www.telegraph.co.uk/money/mai...nchina107a.xml

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.

[BrAinPaiNt]

And we keep going in debt with them at a staggering rate because we can not afford to pay for his war with Iraqi Oil like we were told.

[Eric_Boyer]

Originally Posted by BrAinPaiNt

And we keep going in debt with them at a staggering rate because we can not afford to pay for his war with Iraqi Oil like we were told.

The number one threat to our country and way of life is our spending and our debt.

I have been on a 6 year crusade trying to explain this - and I don't feel like people care, or understand.

America is doomed if we don't reverse course fast.

[Sasquatch]

Originally Posted by Eric_Boyer

The number one threat to our country and way of life is our spending and our debt.

I have been on a 6 year crusade trying to explain this - and I don't feel like people care, or understand.

America is doomed if we don't reverse course fast.

What do you think of Mike Gravel's suggestions that we eliminate all taxes except a sales tax? I believe it's intended to promote savings and transparency in the tax code.

How's the crusade coming along, by the way?

[ABQCOWBOY]

Let it happen. The price of building a house will decrease by about 2/3rds and half the chinese will freeze to death come next winter.

This is a bunch of BS if you ask me. China needs us more then we need them. That's the truth of the matter. China can't afford to use a "Nuclear" option with us. That's like bringing a knife to a gun party.

[Mavs Man]

Originally Posted by The_Jackal

What do you think of Mike Gravel's suggestions that we eliminate all taxes except a sales tax? I believe it's intended to promote savings and transparency in the tax code.

This would be great, even if it was just a one-for-one swap of national sales tax for income tax. That would reward work (instead of taxing work), while also curbing personal spending (more savings). As an added benefit it would, as you said, make the tax code transparent by doing away with tax loopholes and all that other garbage.

Of course, this would also do away with a large chunk of accounting jobs.

[Eric_Boyer]

Originally Posted by ABQCOWBOY

Let it happen. The price of building a house will decrease by about 2/3rds and half the chinese will freeze to death come next winter.

This is a bunch of BS if you ask me. China needs us more then we need them. That's the truth of the matter. China can't afford to use a "Nuclear" option with us. That's like bringing a knife to a gun party.

This is dead wrong.

China is on pace to be the worlds superpower - it's only a matter of when.

Their economy would certainly take a nose dive from this, but the difference is they are in excellent financial standing and could brace themselves from the fallout. We are a nation of creditors and are up to our eyeballs in government debt and individual debt.

Not only that but we have become so soft that when real poverty sets in and the people can't turn to the government for help, they won't know what to do.

[Eric_Boyer]

Originally Posted by The_Jackal

What do you think of Mike Gravel's suggestions that we eliminate all taxes except a sales tax? I believe it's intended to promote savings and transparency in the tax code.

How's the crusade coming along, by the way?

I would prefer no tax over a consumption tax - but it is an improvement.

[ABQCOWBOY]

Originally Posted by Eric_Boyer

This is dead wrong.

China is on pace to be the worlds superpower - it's only a matter of when.

Their economy would certainly take a nose dive from this, but the difference is they are in excellent financial standing and could brace themselves from the fallout. We are a nation of creditors and are up to our eyeballs in government debt and individual debt.

Not only that but we have become so soft that when real poverty sets in and the people can't turn to the government for help, they won't know what to do.

Credits and good standing are all great but when push comes to shove, you gotta feed people. You gotta house people and you gotta provide a certain standard of living. China is nowhere near capable of doing this on there own. There is no country in the world that can provide the raw materials necessary to accomplish this other then the United States. If our economy went down the tubes, the world economy would follow it and that would mean a bunch of starving people in China.

I'm not wrong.

[Eric_Boyer]

Originally Posted by ABQCOWBOY

Credits and good standing are all great but when push comes to shove, you gotta feed people. You gotta house people and you gotta provide a certain standard of living. China is nowhere near capable of doing this on there own. There is no country in the world that can provide the raw materials necessary to accomplish this other then the United States. If our economy went down the tubes, the world economy would follow it and that would mean a bunch of starving people in China.

I'm not wrong.

This makes no sense. You claim because China imports grains, they can't feed themself?

China's GDP and it's gigantic stash of wealth will guarantee they can feed themselves longer then we could feed ourselves.

You seem to have this faulty assumption that China relies on world charity to get by, whch is absurd. China is funding our interventionist policy, feeding themselves, and still increasing their wealth. Just because they buy grain from foreign sources doesn't mean they can't feed themselves. They will still be able to buy grain from foreign sources - it would be us without the money or the credit standing to do so.

[BrAinPaiNt]

Originally Posted by Eric_Boyer

This makes no sense. You claim because China imports grains, they can't feed themself?

China's GDP and it's gigantic stash of wealth will guarantee they can feed themselves longer then we could feed ourselves.

You seem to have this faulty assumption that China relies on world charity to get by, whch is absurd. China is funding our interventionist policy, feeding themselves, and still increasing their wealth. Just because they buy grain from foreign sources doesn't mean they can't feed themselves. They will still be able to buy grain from foreign sources - it would be us without the money or the credit standing to do so.

I, by no means, am an economic guru.

But I am on your side on this one.

They were more of an isolationist type of country for years and did ok for themselves.

If someone has money, they can find a way to get what they need.

China is not hurting for money....we made sure of that.

[ABQCOWBOY]

Originally Posted by Eric_Boyer

This makes no sense. You claim because China imports grains, they can't feed themself?

China's GDP and it's gigantic stash of wealth will guarantee they can feed themselves longer then we could feed ourselves.

You seem to have this faulty assumption that China relies on world charity to get by, whch is absurd. China is funding our interventionist policy, feeding themselves, and still increasing their wealth. Just because they buy grain from foreign sources doesn't mean they can't feed themselves. They will still be able to buy grain from foreign sources - it would be us without the money or the credit standing to do so.

Yeah, that's pretty much what I claim. Let me just ask you a question here. Why did China come in from out of the cold to begin with? China's Communist Party certainly didn't want to open things up to the West. The were forced to do it because they could no longer support there own population. In addition to this, they couldn't house them or provide sufficiant necessities such as heat etc. China, for many years, was one of the most under developed countries in the world. They still are although, they are getting better. It's not just food. It's raw materials used to develope and build with. Everything from Grain to gravel used to make cement is imported from the West. We have a world market now. Don't you think that if the possability were there for China to produce enough food on there own, they would have already done so? Don't you think that if the opportunity were there for them to purchase enough food from other sources in the world, they would already be buying it for a cheaper price then we are selling it? The reality is that the world does not produce enough food for China to use on there own. There isn't enough out there so while your theory on buying food from another source is a nice concept, it's not very realistic. All that happens if you take America's grain out of the equation is a bidding war between other starving nations. The Price of Grain suddenly jumps way up and China is stuck buying food for much more then they would have from us. We, on the other hand, still have a world market so we simply turn around and sell our grain to whomever lost out now that China is purchasing what used to go to other countries. We produce nearly half of the worlds grain. You don't just remove that from the equation and think that somebody else can fill the void. This is not about money. It's about availability.

Sure, go ahead and do what you can do China. Lets see you eat up all that currancy.

[Crown Royal]

Sometimes you have to wonder if it is going to take a massive market crash/resession, something, for some real improvements to be made with the country. Right now this place just seems so stale.








ATTENTION FBI - Yes, I understand that what I just posted caused your entire system to raise red flags and begin to monitor me. I should let you know that in no way am I endorsing some radical attack on the US or it's holding, I was simply thinking aloud in a purely theoretical manner. Please have a nice day and go make a useless marijuana bust or something.

[Mavs Man]

Question - if this is their "nuclear option", what do they call their, uh, "other" nuclear option?

And no, "nuke-ya-lure option" is not the right answer.

[Crown Royal]

Originally Posted by The Real Mavs Man

Question - if this is their "nuclear option", what do they call their, uh, "other" nuclear option?

And no, "nuke-ya-lure option" is not the right answer.

Atomic.