How Long Will the Chinese Let the U.S. Bluff?

March 24 (Bloomberg) -- China’s call for a new international reserve currency may signal its concern at the dollar’s weakness and ambitions for a leadership role at next week’s Group of 20 summit, economists said.

Central bank Governor Zhou Xiaochuan yesterday urged the International Monetary Fund to create a “super-sovereign reserve currency.” The dollar weakened after the Federal Reserve said it would buy Treasuries and the U.S. government outlined plans to buy illiquid bank assets.

You can surely expect China, the largest foreign holder of dollar and dollar denominated assets, to increase its influence and make its presence felt on global economic issues. This is the natural progression of things given the massive paradigm shift of power away from the G-20 nations (debtors) to the emerging powerhouses in SE Asia and other resource rich countries (creditors). It’s very interesting / pathetic to watch the likes of the U.S. and Western Europe both pretend like this isn’t even happening, and act as if they are the ones still holding the means to dictate the monetary / fiscal policy of other nations.

This is exactly what we saw today in response to the Chinese call for a new global currency. Tim Geithner and Bernanke both spoke in front of the House Finance Committee and each one responded to the idea in the Bloomberg article of whether or not this was a plausible situation with an emphatic and almost stubborn NO. That was followed up by the President’s response to a new global currency in which he responded with claims regarding the U.S. political system and strong domestic economy as dollar bullish factors…right.

I digress. Think of it as a sort of poker game. The G-20 economies are holding the losing hand and the emerging economies have the winner and the chips to boot. As with each groups’ economic climate, the player in this game knows what the others are holding. The G-20 talking tough and pretending like they can force the hand of the emerging economies is like bluffing in the poker game with the losing hand already flipped over. Unfortunately for the G-20 nations, the emerging countries aren’t going to fold the cards that they already know to be the best hand. The question becomes: how long will the U.S. bluff, or how long will the Chinese let the U.S. bluff?

Ace Up Their Sleeve

Economically speaking, the Chinese aren’t brilliant, but they have been fairly smart and very strategic. They do an especially good job with keeping their sizeable financial transaction very discrete and limiting the psychological market impacts that would otherwise occur. This was prevalent in both their massive commodities purchases in the grains, metals and energy markets; as well as the brief periods when the Chinese were net sellers of U.S. Treasuries.

The disconnect of the financial media to these events can’t 100% be attributed to the subtleness of the Chinese. The lack of reporting was done so intentionally by the likes of CNBC and MSNBC in order to minimize market volatility and market worries, but these half truths or forms of propaganda, for lack of a better word, would not have been possible had the Chinese desired their actions to fall in the public media sphere.

This is a very important notion that really stems from the Chinese patience and the diligent way in which they approach this transition of global super powers. As previously mentioned, they already know they have the winning hand; it’s just a matter of maximizing their economic potential, or minimizing the losses associated with the Chinese taking the reigns from the U.S.

The most destructive part of this transition will be the separation of the dollar as the reserve currency in the world and the absolute implosion of U.S. government and private debt markets. In the prior statement, the former is only beginning to show signs of stress. The Chinese realize that they really have the ace up their sleeves and when they play it, FOREX markets will tremble. This will be painful for China, but they will employ their discrete financial methods and attempt to minimize the associated losses. As far as private debt markets go, they have jumped into the public spotlight, but don’t let that deceive you; ALL PRIVATE DEBT MARKETS IN THE U.S. STILL HAVE NEGATIVE REAL YIELDS.

All In

Growth in the monetary base is running at triple digit levels, while curtain interest rates, such as mortgage rates, are at or near historic lows. This creates an unbelievable amount of economic imbalance. For example, if you are looking to buy a house or take out a student loan, it is in your best interest to assume as much debt over the longest period as possible. By simply holding the loans, you gain in purchasing power.

For something that doesn’t have an asset value associated with it like the student loans, this is a no brainer. For a home loan, if the difference between interest rates and inflation is greater than the decline in home value over the same period, then you gain in purchasing power. On the flip side of the trade, the money the borrower collects plus the interest is worth less than the initial value of the lent money. In other words, when interest rates are negative real, the borrower wins and the lender loses.

THIS ECONOMIC CLIMATE IS BOTH EXTREMELY DESTRUCTIVE AND FINITE. You have to look at who actually incurs these losses. In order for lenders to keep lending at negative real rates, they need loans with negative real rates from the U.S. government. In order for distressed borrowers to keep borrowing, they need these negative real rates implemented by the Federal Reserve and Treasury Department.

Through the process of implementing financial socialism and transitioning a semi-capitalist economy into a social welfare state; the U.S. government and Federal Reserve have become both the lenders and borrowers of last resort as they try and bail out both sides of the debt markets. That is an extremely expensive task to undertake with the costs sustained by the U.S. dollar, and the Chinese are the largest holders of dollars and dollar denominated assets.

I’ve been sort of a tease, in the sense that I can’t really say how long the Chinese will let this go on and watch the value of their assets in holding decline. There are some signs that the stresses are growing like this rhetoric of a new reserve currency and the recent $300 billion commitment by the Federal Reserve to monetize long dated U.S. Treasuries. Remember that when the Chinese really begin to mitigate their dollar risks, they will do so subtly. The signs won’t be extremely prevalent, things like TIC data, debt monetization, Fed/Treasury lending facilities and money supply growth figures will be the first to show signs. If you wait for this to become a big story in the financial media it will be too late. Creditor nations are getting ready to rake in the pot.

Comments

[morph366:]

There seems to be a confusion in your article when you say - "The G-20 economies are holding the losing hand and the emerging economies have the winner and the chips to boot."

The G20 countries include the key emerging economies - the so called BRIC countries and some others

Apr 02 06:36 AM

[xcer:]

If a “super-sovereign reserve currency.” is created, can US continue to print money?

Apr 02 07:03 AM

[CautiousInv...:]

Chinese accumulationof reserves is a result of successful mercantilism. t's move into commodities is more related to acquiring required inputs than it is to diversifying its basket of reserves.

It had many opportunities to revalue its currency to avoid accumulating these troublesome........and now it's playing it both ways.

Any move to a supranational currency will be resisted by the US and is frought with difficulty; China could wind worse off holding SDR's than it would be holding US dollars.

Just a couple of questions to consider:

- How will the IMF or whoever controls the SDR create and assign reserves?

- Will use of the SDR be broadened? This will involve promoting its use in foreign exchange trading, as an invoicing currency and unit of account in international trade, and as a currency in which private international financial transactions, such as loans, bonds and deposits, are denominated.

- Will there be a change in the range of currencies included in the basket that forms the basis for constructing the SDR? There is likely to be a push from big emerging economies to expand the basket to include their currencies -- China has already suggested this.

- Can the IMF introduce SDR-denominated securities by issuing SDR-denominated bonds and if so will it be in sufficient quantity to take account of the liquidity concerns of national reserve managers and investors?

- Who decides on the size of issuance of any SDR-denominated bonds? Any debate on this issue will be closely related to reform of IMF governance since the current structure effectively gives the United States a veto.

- Who will determine the global money supply and how do we prevent this from becoming a horribly politicized process?

Apr 02 08:02 AM

[timwalsh300:]

For those who care, here is another poker game analogy to this situation which takes the opposing view: That the US is in fact holding the winning hand...

www.optimist123.com/op...

Apr 02 08:02 AM

[TeresaE:]

Our idiot government and corporation have GIFTED China our demise.

We sent them our jobs (our best customers-broke, underemployed and bankrupt now), then we sent them our cash, but not cash, we bought their goods with credit, then credit was taken away from us (2005 financial acts) and now they are licking their chops waiting to grow their economy to the point that they can afford to consume all the products they produce--and that day is quickly approaching. We forget that the Chinese middle class dwarfs the entire population of America, they soon won't truly need us.

This will be yet another problem caused by massive debt and credit, but this time China will help, by swooping in and buying our country out from under us. With our money (for if not for American consumerism, China would NOT be as cash strong as they are) they will own us-lock, stock and barrel.

Apr 02 08:47 AM

[kelm:]

China is negotiating currency swap agreements with countries at a a rapid rate allowing trade between China and that country to be conducted in Yuan and they are moving increasingly towards full convertibility. Their strategy then is multi-pronged. They will not allow all of the blood, tears, and toil of the last 150 years to get wasted by being tied to a reserve currency that is backed up by a printing press mentality. Note too that China has become the second largest gold producer in the world and is significantly increasing production and reserves. My take is they will find a way to distance themselves from the dollar.

As far as the IMF is concerned I learned the other day that Belgium has about the same voting rights as China - so some reforms are needed.

Apr 02 10:27 AM

[waf76:]

One of the replies in this article accurately describes the US as playing poker while China is playing chess. While we seek the short term boost, China is positioning themselves beautifully for the long term. However, they will not look to destroy the value of the dollar b/c they are a key stakeholder in it whereas our government wants nothing more than to destroy the dollar to inflate ourselves out of debt. Pretty ironic. So as the author rightfully suggests, 'If you wait for this to become a big story in the financial media it will be too late. Creditor nations are getting ready to rake in the pot.'



On Apr 02 08:02 AM timwalsh300 wrote:

> For those who care, here is another poker game analogy to this situation
> which takes the opposing view: That the US is in fact holding the
> winning hand...
>
> www.optimist123.com/op...
>
>

Apr 02 10:34 AM

[fireball:]

until they unload enough dollars for real goods, military upgrades, and building strong trade partners.
their weakness is the percentages. it will be difficult to find a consumer like the u.s..
another weakness-now that the citizens have had a small taste of freedom and prosperity if they cannot consume enough product themselves they may face inner turmoil.

Apr 02 10:45 AM

[Ryan in Sha...:]

On Apr 02 07:03 AM xcer wrote:
> If a “super-sovereign reserve currency.” is created, can US continue to print money?

Yes, if a "super-sovereign reserver currency" is created then the US can continue to print money as much as it likes - just like it did previously and just like every other nation is free to do. As part of the WWII legacy, the US still has the added responsibility of managing the worlds global reserve currency.

The "downside" for the US would simply be that excessive printing of money would be money that the US would have to figure out how to pay back, and if the US would no longer have the freedom to pay back in it's own debased currency.

So much has changed since WWII (re-industrialization of Europe and Japan, BRIC emergence) that it's completely reasonable that the worlds leading economies work on equal footing to manage the value of global debits. See: World Currency Unit:
www.ln.edu.hk/cpps/wcu...

Apr 02 11:01 AM

[Bob 123:]

Teresa, sad to say but you are correct. They have us, without firing a shot. Straight out of the Art of War.
But they couldn't have done it without a little help. The small cadre of multinational western elites, that essentially got very rich selling out their respective countries. About 400 or so families that control much of the world's wealth. It's never enough.


On Apr 02 08:47 AM TeresaE wrote:

> Our idiot government and corporation have GIFTED China our demise.
>
>
> We sent them our jobs (our best customers-broke, underemployed and
> bankrupt now), then we sent them our cash, but not cash, we bought
> their goods with credit, then credit was taken away from us (2005
> financial acts) and now they are licking their chops waiting to grow
> their economy to the point that they can afford to consume all the
> products they produce--and that day is quickly approaching. We forget
> that the Chinese middle class dwarfs the entire population of America,
> they soon won't truly need us.
>
> This will be yet another problem caused by massive debt and credit,
> but this time China will help, by swooping in and buying our country
> out from under us. With our money (for if not for American consumerism,
> China would NOT be as cash strong as they are) they will own us-lock,
> stock and barrel.

Apr 02 12:28 PM

[pacman1947:]

China always takes the long view. Their holdings of foreign currency are massive, but still less than $2,000 per capita. They want to dominate, but in a manner that is comfortable for both them and their competitors. I don't see it as a cold or hot war, but more like a chess game in the sense of a good game of strategy. They are looking for a win that leaves them strong and enduring. That means lending to customers to make their sales and build the backbone of an industry that accomplishes the longer goal.

They may provide us a model of how to proceed in today's global market. It's a good strategy.

Apr 02 01:10 PM

[Leftfield:]

Since the Marshall plan, we have allowed trade partners starting mainly with Japan to practice extreme mercantilism. It has added to the extreme dysfunction in our real economy since the Fed started issuing funny money. Vested interests built up and our government and elites have nearly completed the complete sellout and dismantling of our country.

Nice kicker, TARP and the ongoing heist of almost anything left they can pull off. This attempt at "recovery" will soon enough see astronomical interest rates that will sink us along with our ocean of new bailout debt.

Apr 02 02:17 PM

[Larry House:]

Cetin, there is NO such thing as inflating your way to prosperity! China can do without us more readily than we can do without her.

Apr 02 03:05 PM

[Dave Wrixon:]

Yes, because if Ben is buying them there is no problem, is there?


On Apr 02 07:03 AM xcer wrote:

> If a “super-sovereign reserve currency.” is created, can US continue
> to print money?

Apr 02 03:17 PM

[Dave Wrixon:]

Yeah, but you've stopped buying their goods!

And the only outfit that has being calling for the Chinese to revalue her currency upwards is Uncle Sam. You guys need to make up your mind just what it is you think you want!

On Apr 02 02:54 PM Cetin Hakimoglu wrote:

> Do keep in mind that the Chinese are our friends, not enemy. They
> are dependent upon the Wallmart purchasing their cheap goods, and
> we're depend on the Chinese to keep buying our Treasuries. If the
> Chinese inflate their currency too much it may cause a trade war.
> the Chinese know better than to rock the boat. it is this interdependency
> that allows the United States to inflate its way to prosperity

Apr 02 03:19 PM

[Dave Wrixon:]

I agree but perhaps you have served your purpose and are now expendable?


On Apr 02 01:10 PM pacman1947 wrote:

> China always takes the long view. Their holdings of foreign currency
> are massive, but still less than $2,000 per capita. They want to
> dominate, but in a manner that is comfortable for both them and their
> competitors. I don't see it as a cold or hot war, but more like a
> chess game in the sense of a good game of strategy. They are looking
> for a win that leaves them strong and enduring. That means lending
> to customers to make their sales and build the backbone of an industry
> that accomplishes the longer goal.
>
> They may provide us a model of how to proceed in today's global market.
> It's a good strategy.
>

Apr 02 03:21 PM

[Morrison Bo...:]

The value of a currency depends upon trust. In today's multicurrency world, loss of trust causes a flight away from a currency. It's a risk which a globalized world need not tolerate.
Despite the initial U.S. demurrals, China is correctly leading the way to a Single Global Currency, which necessariy will be managed by a Global Central Bank within a Global Monetary Union. As China requests, this next global currency will not be the responsibility of just one country. This proposal is similar to the pending proposal from the U.N. Task Force on Financial reform, let by Joseph Stiglitz. The U.S. should join that panel and China in urging the G20 to begin planning for a Single Global Currency.
The success of the euro shows that monetary union is the best way to ensure monetary stability. The primary problem with the euro and currencies of other monetary unions is that they still must co-exist within the international multi-currency system itself where the value of those common currencies must still fluctuate in value against each other.
With a Single Global Currency, there are no such fluctuations, by definition.
If 16 countries can use the same currency, why not 192?
In addition to eliminating currency fluctuations, the use of a Single
Global Currency would eliminate the current foreign exchange trading expense of $400 billion annually, eliminate currency risk, eliminate current account imbalances, eliminate the need for foreign exchange reserves (now totaling more than $6 trillion); and bring other benefits worth trillions, such as reducing the impact of global financial turmoil such as we are now experiencing.
The Single Global Currency Assn. (singleglobalcurrency.org)
promotes the implementation of a Single Global Currency by 2024, the 80th anniversary of the 1944 conference. That’s only 15 years away.
The world is moving toward a Single Global Currency through the
creation, expansion and merger of regional monetary unions. Anoth route is through international monetary conferences proposals and agreements, such as were seen at Bretton Woods.
The challenge now is to reach that goal planfully, as soon as possible with as little cost and as few crises as possible.
See the book, "The Single Global Currency - Common Cents for the World."
Morrison Bonpasse
Single Global Currency Assn.
Newcastle, Maine, United States

Apr 02 04:07 PM

[Leftfield:]

Now that our economy and currency are nearly dismantled, the next step. One world everything down the road. Elitists all call for it. Welcome to the third world.

Apr 02 04:53 PM

[Gregman2:]

There's an old Chinese saying, "He who owes is emperor." As long as the dollar is the reserve currency, the Chinese are held hostage. They have little recourse, and to a large degree they are equally at fault for the global dilemma.

Apr 02 08:49 PM

[TERN:]

What is unsustainable in a globalized world is one region's workers earning massively higher wages than another region's.
It takes a few decades of adjustment, but in the end global trade will stop flowing in a single direction.

There is no loss in the loss of hegemony, if it is replaced by peaceful mutual dependence and free trade.
If China's policy is played like chess, it's desired outcome would be a draw.
There will be no peace for a "winner".

Apr 02 09:04 PM

[Spook:]

More like a game of GO, it rely on patience, wisdom and strategy to corner the opponent and lock them into aan unmovable position.


> I don't see it as a cold or hot war, but more like a
> chess game in the sense of a good game of strategy. They are looking
> for a win that leaves them strong and enduring. That means lending
> to customers to make their sales and build the backbone of an industry
> that accomplishes the longer goal.
>
> They may provide us a model of how to proceed in today's global market.
> It's a good strategy.
>

Apr 02 09:52 PM

[Francisco M...:]

China is just teasing the Americans. How apropos! Communists telling Capitalists how to do it. Something wrong with that picture. China: Don't sell us your tainted foods and toys!

Apr 02 10:46 PM

[EdG:]

I would like to see some discussion around how fast China is burning through its reserves.

This recession is rebalancing international trade and it must be hurting China. Also by China keeping their currency low they are effectively overpaying for all their imports. Consequently the US is underpaying for their imports with a high dollar or "reserve currency" as you like.

My question is: can China continue to subsidise the US? My hypothesis is: China's relatively small economy is using its reserves instead of its exports to sustain its international presence on world markets.

Apr 03 09:11 AM

[Moresby:]

My opinion is that the Chinese government will not cut its nose to spike it face; they are holding an awful amount of US bonds and they do not want to see these devalue if they can help it.
I think there are 2 opposing voices there, the nationalist one that wants to remind the world that they are one of the largest creditor for the US, this also pimp up nationalist pride; there is the opposite voice that are concern that all these trillion dollar deficit will devalue the dollar - their precious investment.
Does the Chinese government nurse the ambition of being a true world leader with a currency that is the world currency? You bet.
Will this happens, depends, a lot has to change in China before this will happen, I am not holding my breaths.

Apr 03 07:29 PM

[Moresby:]

I bet to differs on your assessment of the Euro, it is a currency cobbled together for political reason while the countries in it are in various stages of economic development and cycle.
The fast growth in Spain and Ireland was partly because of the Euro, these two countries had gone from traditionally high interest rate to that of the low interest rate, people started to borrow and mortgage and lead to the housing boom.
Now the bust is here, neither of this country can devalue or do whatever with its currencies because they are now Euro.
What may be suitable for Germany and France, may not be suitable for Spain, Greece or Ireland.
UK which has wisely stay out will I expect get out of the recession quicker as the government has keep control of its currency.
As to a global currency.... it is all hot air at the moment, those international civil servants have to justify their salaries.


On Apr 02 04:07 PM Morrison Bonpasse wrote:

> The value of a currency depends upon trust. In today's multicurrency
> world, loss of trust causes a flight away from a currency. It's a
> risk which a globalized world need not tolerate.
> Despite the initial U.S. demurrals, China is correctly leading the
> way to a Single Global Currency, which necessariy will be managed
> by a Global Central Bank within a Global Monetary Union. As China
> requests, this next global currency will not be the responsibility
> of just one country. This proposal is similar to the pending proposal
> from the U.N. Task Force on Financial reform, let by Joseph Stiglitz.
> The U.S. should join that panel and China in urging the G20 to begin
> planning for a Single Global Currency.
> The success of the euro shows that monetary union is the best way
> to ensure monetary stability. The primary problem with the euro and
> currencies of other monetary unions is that they still must co-exist
> within the international multi-currency system itself where the value
> of those common currencies must still fluctuate in value against
> each other.
> With a Single Global Currency, there are no such fluctuations, by
> definition.
> If 16 countries can use the same currency, why not 192?
> In addition to eliminating currency fluctuations, the use of a Single
>
> Global Currency would eliminate the current foreign exchange trading
> expense of $400 billion annually, eliminate currency risk, eliminate
> current account imbalances, eliminate the need for foreign exchange
> reserves (now totaling more than $6 trillion); and bring other benefits
> worth trillions, such as reducing the impact of global financial
> turmoil such as we are now experiencing.
> The Single Global Currency Assn. (singleglobalcurrency.org/)
>
> promotes the implementation of a Single Global Currency by 2024,
> the 80th anniversary of the 1944 conference. That’s only 15 years
> away.
> The world is moving toward a Single Global Currency through the<br/>creation,
> expansion and merger of regional monetary unions. Anoth route is
> through international monetary conferences proposals and agreements,
> such as were seen at Bretton Woods.
> The challenge now is to reach that goal planfully, as soon as possible
> with as little cost and as few crises as possible.
> See the book, "The Single Global Currency - Common Cents for the
> World."
> Morrison Bonpasse
> Single Global Currency Assn.
> Newcastle, Maine, United States
>

Apr 03 07:40 PM

[Moresby:]

I think anybody claiming to know how China is doing with its reserve is probably not tell the truth.
China keeps it national accounting very close to its chest, and the data that the government publish..... I personally take it will a huge pinch of salt.
How is the economy doing there right now?
From what I read in Ming Po (a respected Hong Kong daily), the government is more worried about graduate unemployment than anything else.
Why, students are the traditional 'prince-lings' , they expect good jobs, they expect a much higher standard of living than their parents and they are the one who give real trouble - remember Ti An Mun Square.
The sight of hundreds of graduates holding out placards to offer their expertise (this method of finding job used to be solely confined to migrant workers) is unnerving to me.
The fact that 5000 graduates turn up at a job fair for 400 jobs organised by the funeral business is incredible too, traditionally no Chinese will join this line of business, for thousands of years, it was a trade that was passed on within the family.

My guess, the power that be is as scared about the world economy as anyone and I think they may be trying to deflect attention by making noises and if the worse come to the worse, it will not be beyond it to find some foreign countries to blame.
The US, with or without Obama is a very convenient target.



On Apr 03 09:11 AM EdG wrote:

> I would like to see some discussion around how fast China is burning
> through its reserves.
>
> This recession is rebalancing international trade and it must be
> hurting China. Also by China keeping their currency low they are
> effectively overpaying for all their imports. Consequently the US
> is underpaying for their imports with a high dollar or "reserve currency"
> as you like.
>
> My question is: can China continue to subsidise the US? My hypothesis
> is: China's relatively small economy is using its reserves instead
> of its exports to sustain its international presence on world markets.

Apr 03 07:57 PM

[dybydx:]

moresby,

it is true that unemployment and economic condition was a more plausible cause of tian an men 1989 than the romanticized quest for democracy as portrayed in the west. the chinese gov is aware of this.

althought both the chinese gov and young chinese ppl have learned better from the past. for the gov, they know what the ppl want is mere basic necessities of life and they have the resources to provide that. for the youth, they know the gov will not tolerate revolt. those who do it willl die in vain.

Apr 03 10:13 PM

[Planting $ ...:]

I think you are right that they are worried about the dollar devaluing. The Chinese have been pegging their own currency to the dollar for a long time. They want to have the Yaun cheep so that they can export. Pegging a currency to another currency can be painful if the currency you are pegged to moves shaply in one or the other direction. To be forced off the dollar peg by wild swings in our dollar would be destabalizing for China. They would be better to slowly ween themselves off the dollar peg. It is hard to imagine that they will be able to sustain a dollar peg indefinately especially now that the U.S. government is no longer worried about having a strong dollar. After all the U.S. likes to export too, and many US economists are now pushing for a less expensive dollar. If China wants their currency lower than the dollar they may have to see how low they can go.

Really I think Russia and China calling for a world currency is just to get the U.S. to stop talking tough about China letting their currency float freely instead of pegging themselves to the dollar. Note, that we backed off on that demand since they started talking about the world reserve currency again. I don't think tey held any beliefs that the world reserve currency was anywhere in the near future.


On Apr 03 07:29 PM Moresby wrote:

> My opinion is that the Chinese government will not cut its nose to
> spike it face; they are holding an awful amount of US bonds and they
> do not want to see these devalue if they can help it.
> I think there are 2 opposing voices there, the nationalist one that
> wants to remind the world that they are one of the largest creditor
> for the US, this also pimp up nationalist pride; there is the opposite
> voice that are concern that all these trillion dollar deficit will
> devalue the dollar - their precious investment.
> Does the Chinese government nurse the ambition of being a true world
> leader with a currency that is the world currency? You bet.
> Will this happens, depends, a lot has to change in China before this
> will happen, I am not holding my breaths.

Apr 05 11:13 PM

[Planting $ ...:]

Here is an interesting article about the dollar and China by noble Prize winning economist Paul Krugman:

www.nytimes.com/2009/0...

Apr 06 12:12 AM

[Mad Hedge F...:]

This is an old story. Will people pleeease stop incessantly talking about the possibility of China dropping the dollar as a reserve currency? What else are they going to use? Monopoly money? Taiwanese dollars? Collectable postage stamps? At nearly $2 trillion, the Middle Kingdom’s reserves are so enormous that no other currency in the world could accommodate the switch, and no other security offers the necessary depth and liquidity but Treasury bills. Chinese attempts to buy anything in size causes its price to immediately skyrocket, such as we saw in the relatively Lilliputian commodity markets last year. And really, how like is it that China embarks on policies that quickly halve the earnings of the country’s exporters, as well as its 30 year hoard of accumulated savings? The demise of the dollar has been predicted more often than the ditching of Microsoft’s Windows as the global PC operating system, and is just as likely. Hate the greenback as much as you like, but there just isn’t any other alternative. I have been hearing these arguments ever since the US went off the gold standard in 1973. First there was a perennial Arab threat to price crude in a basket of currencies. Gee, they never seem to complain when the buck is going up. Then there was the speculated emergence of the “Yen Block”, in the eighties, back when Japan was dominating international trade and the yen was bumping up against ¥80 to the dollar. Remember the book “Japan as Number One? Ha! Double Ha! Then we got all that European whining after the launch of the euro when the weak dollar was everyone’s one way trade. Let’s face it, Europeans hate using someone else’s currency as the primary reserve instrument. Before the dollar, sterling was in widespread use and was equally despised. So rather than waste time discussing this issue anymore, let’s talk about something more important, like which of those two flies over there will jump off the wall first.

Apr 06 02:09 PM

[jse17:]

Hey, if the US stops buying shoddy blenders, ill-fitting underwear, and contaminated food products, then who will buy this and other junk products?

Hello and ultimately, which party is the horse vs. the horse’s ***!

Apr 07 09:07 AM

[Amouna:]

It is called Chinese Art of War and it is thousands of years old! Its key quality is resilience and patience, much like the in the Kung Fu movies I used to get excited about in the eighties!


On Apr 02 08:47 AM TeresaE wrote:

> Our idiot government and corporation have GIFTED China our demise.
>
>
> We sent them our jobs (our best customers-broke, underemployed and
> bankrupt now), then we sent them our cash, but not cash, we bought
> their goods with credit, then credit was taken away from us (2005
> financial acts) and now they are licking their chops waiting to grow
> their economy to the point that they can afford to consume all the
> products they produce--and that day is quickly approaching. We forget
> that the Chinese middle class dwarfs the entire population of America,
> they soon won't truly need us.
>
> This will be yet another problem caused by massive debt and credit,
> but this time China will help, by swooping in and buying our country
> out from under us. With our money (for if not for American consumerism,
> China would NOT be as cash strong as they are) they will own us-lock,
> stock and barrel.

Apr 07 01:00 PM