China Threatens 'Nuclear Option' of Dollar Sales
Posted August 7th, 2007 by manystrom
By Ambrose Evans-Pritchard
Last Updated: 1:48am BST 08/08/2007
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.
Continue reading at the Telegraph.
Comments welcome below. No need to register to post.
Bookmark/Search this post with:
- New charts, news and financial links -- both the bull and the not bull -- updated each day on the homepage.
- For more articles like this, please see the Archive
- If you would like to be notified of updates, and new articles, subscribe to my low volume announcement list
Market Updates:
Riding the knife edge
Michael,
We are riding the knife edge between hyper-inflation and deflation. This story highlights the hyperinflationary risk. The destruction that can be seen in the mortgage/housing markets is embodiment of the natural deflationary forces that are present at this point in the Kondratieff cycle. I'm betting that the deflationary forces will win out but this story sends a chill down my spine. Is there any historical precedent that can serve as a guide in this case? It would seem to me that the US is in a very unique position historically.
Comparing to 1929 - 1933 US only goes so far. Yes we are the same country at the same point in the K-cycle but most of our debt was internal in 1929. This fact bothers me quite a bit even though I believe the deflationary forces to matter more at this time.
What about Weimar Germany? Yes most of their debt was external like the US now...however, the German currency was not the global currency standard that the US dollar is today. Also, Weimar Germany occured in the 1920's. This was a different point in the K-cycle.
I've considered a comparison to the Roman empire. The question would be: Is there enough economic and market data from that time to fit K-waves to? Then I would want to do Elliot wave analysis as well. I think this is unlikely. The question to be answered would be: Did the Roman empire collapse during a period of hyperinflation or deflation or both periods coming serially in relatively close proximity.
My best guess as to what any serious scholar should study with regards to trying to understand what might happen to the U.S. over the next 2-3 years would be to study Great Britain 1929 - 1939. My logic is as follows: the British pound was then the global currency at the time.
Questions to be answered: What happened to the British Pound with regards to the things it could by within British Society? If they experienced deflation like the rest of the world how bad was it compared to the U.S.? Was there anything like the threat China poses to the US at that time? Was any major country threatening to dump British pounds on the global currency markets?