China Threatens To Trigger Us Dollar Crash

[Taco John]

CHINA THREATENS TO TRIGGER US DOLLAR CRASH

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.

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.

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

[Bob]

Not sure...

The fact is that we are so tied to each other economiclly that if they hurt us, there economy is in shreads as well...

A new form of mutually assured destruction -- which might ensure that absoultely nothing drastic happens.

[REB]

Well...this is another fine mess we've gotten ourselves into...

http://www.the-spine.com/wp-content/uploads/2007/03/retouch.jpg

[Bronco Bob]

Maybe Bush could give the rich another tax cut.

[Taco John]

Not sure...

The fact is that we are so tied to each other economiclly that if they hurt us, there economy is in shreads as well...

A new form of mutually assured destruction -- which might ensure that absoultely nothing drastic happens.



I agree that China isn't going to do anything drastic. But just making noise about this destabilizes the dollar. The main thing keeping us afloat is that the dollar is tied in with oil. The Euro is competing to replace the dollars spot there. Should that ever happen, the dollar is screwed.

I've heard rumors that Russia is counterfitting our bills like mad in an effort to destabilize the dollar in the same way that we destabilized the ruble during the cold war. According to Pravda (for what they're worth) about 50 percent of US dollars in Russia are fake (http://english.pravda.ru/russia/economics/3029-fake-0).

[yavoon]

I agree that China isn't going to do anything drastic. But just making noise about this destabilizes the dollar. The main thing keeping us afloat is that the dollar is tied in with oil. The Euro is competing to replace the dollars spot there. Should that ever happen, the dollar is screwed.

I've heard rumors that Russia is counterfitting our bills like mad in an effort to destabilize the dollar in the same way that we destabilized the ruble during the cold war. According to Pravda (for what they're worth) about 50 percent of US dollars in Russia are fake (http://english.pravda.ru/russia/economics/3029-fake-0).

a lot of ppl in europe are dreading further increases in the euro, just like china/japan intentionally hold the value of their currency down.

[yavoon]

btw we're on the even of the chinese car manufacturing era. I hear that the koreans are scared ****less of the chinese and are desperately trying to move upmarket, like right now, to avoid direct competition w/ the chinese.

[Meck77]

We should just hit them with Dihydrogen Monoxide.

[BroncoBuff]

We should just hit them with Dihydrogen Monoxide.
You shouldn't even joke about that nasty stuff Meck, it's caused countless deaths. And Taco - if you were being honest, you would COME CLEAN and tell everybody the bad news that a few of us already know: That the Orange Mane was fully invested - knee deep in yuan/dollar exchange futures, and that has caused the site to go under: Click Here. (http://www.the.orange.mane.isbankrupt.com/)

Sorry TJ ... but the people here deserve to know.

[El Guapo]

wait! The chinese have purchased bonds?!?! This is clearly Bush's fault.

[Rohirrim]

Wait a minute. I thought greed was good!? You mean we've been duped?

[Bronco Bob]

Originally Posted by Meck77
We should just hit them with Dihydrogen Monoxide.


You shouldn't even joke about that nasty stuff Meck, it's caused countless deaths.

Indeed. I wouldn't doubt that Dihydrogen Monoxide played a role in the Minneapolis bridge disaster.

And speaking of China, every year you hear about hundreds of people over there dying from inhaling the stuff.

[Garcia Bronco]

China makes me laugh...without us...they wouldn't exist at all. So do what you want. We'll just quit buying your crap.....enjoy the civil unrest that follows.

[Bronco Bob]

China makes me laugh...without us...they wouldn't exist at all. So do what you want.

Ah, the Xia dynasty was founded in 2070 BC. The United States didn't
come along until 1776 AD, almost 4,000 years later. Are you sure
China wouldn't exist without the USA?

We'll just quit buying your crap.....enjoy the civil unrest that follows.

I'd prefer not to see people rioting in the streets here in the US because
people could no longer afford all the cheap clothes and household appliences
they are buying at Wal-Mart. People in the US already have their
budgets stretched pretty thin with the high gas prices.

[Garcia Bronco]

Ah, the Xia dynasty was founded in 2070 BC. The United States didn't
come along until 1776 AD, almost 4,000 years later. Are you sure
China wouldn't exist without the USA?



I'd prefer not to see people rioting in the streets here in the US because
people could no longer afford all the cheap clothes and household appliences
they are buying at Wal-Mart. People in the US already have their
budgets stretched pretty thin with the high gas prices.

Look up the Boxer Rebellion. Bascially Russia, Germany, Japan, Britain, and others were trying to carve up China into "economic spheres of influence". We were able to swing China out of that by keeping the other countries at bay during the treaty that followed the rebellion.

The business can setup shop elsewhere to make cheap crap for people to buy at Walmart.. Say Mexico for example.

[footstepsfrom#27]

I agree that China isn't going to do anything drastic. But just making noise about this destabilizes the dollar. The main thing keeping us afloat is that the dollar is tied in with oil. The Euro is competing to replace the dollars spot there. Should that ever happen, the dollar is screwed.

I've heard rumors that Russia is counterfitting our bills like mad in an effort to destabilize the dollar in the same way that we destabilized the ruble during the cold war. According to Pravda (for what they're worth) about 50 percent of US dollars in Russia are fake (http://english.pravda.ru/russia/economics/3029-fake-0).
http://www.blackcommentator.com/30/30_analysis.html

[NYBronco]

If the Chinese accomplished what has been speculated that would send shock waves through out the world. The Japanese and South Korean investment in this country would collapse as well. Perhaps the out of control trade deficit this country is so proud of is actually a good thing.

[yavoon]

If the Chinese accomplished what has been speculated that would send shock waves through out the world. The Japanese and South Korean investment in this country would collapse as well. Perhaps the out of control trade deficit this country is so proud of is actually a good thing.

and america would become a much more powerful exporter, jobs would leave a lot less quickly, or possibly even return. imports would be far less effective and the manufacturing sector would almost surely expand.

I'd like someone to explain to me why EVERY MAJOR WORLD POWER IS INTENTIONALLY DEVALUING THEIR CURRENCY, why we are having a schizophrenic ****fit that ours might drop?

[mhgaffney]

There is a silver lining to these new developments -- which are not in the least surprising. Last spring, in a detailed article posted on this board -- I urged the nations that provide credit to the US (Japan, China etc) to use their $$$ leverage to prevent another Mideast debacle.

This may be happening. China's resolve could prevent Bush from attacking Iran. To learn more check out the following:

Uncle Sam, Your Banker Will See You Now

By Paul Craig Roberts

08/08/07 "ICH" --- - Early this morning China let the idiots in Washington, and on Wall Street, know that it has them by the short hairs. Two senior spokesmen for the Chinese government observed that China’s considerable holdings of US dollars and Treasury bonds “contributes a great deal to maintaining the position of the dollar as a reserve currency.”

Should the US proceed with sanctions intended to cause the Chinese currency to appreciate, “the Chinese central bank will be forced to sell dollars, which might lead to a mass depreciation of the dollar.”

If Western financial markets are sufficiently intelligent to comprehend the message, US interest rates will rise regardless of any further action by China. At this point, China does not need to sell a single bond. In an instant, China has made it clear that US interest rates depend on China, not on the Federal Reserve.

The precarious position of the US dollar as reserve currency has been thoroughly ignored and denied. The delusion that the US is “the world’s sole superpower,” whose currency is desirable regardless of its excess supply, reflects American hubris, not reality. This hubris is so extreme that only 6 weeks ago McKinsey Global Institute published a study that concluded that even a doubling of the US current account deficit to $1.6 trillion would pose no problem.

Strategic thinkers, if any remain who have not been purged by neocons, will quickly conclude that China’s power over the value of the dollar and US interest rates also gives China power over US foreign policy. The US was able to attack Afghanistan and Iraq only because China provided the largest part of the financing for Bush’s wars.

If China ceased to buy US Treasuries, Bush’s wars would end. The savings rate of US consumers is essentially zero, and several million are afflicted with mortgages that they cannot afford. With Bush’s budget in deficit and with no room in the US consumer’s budget for a tax increase, Bush’s wars can only be financed by foreigners.

No country on earth, except for Israel, supports the Bush regimes’ desire to attack Iran. It is China’s decision whether it calls in the US ambassador, and delivers the message that there will be no attack on Iran or further war unless the US is prepared to buy back $900 billion in US Treasury bonds and other dollar assets.

The US, of course, has no foreign reserves with which to make the purchase. The impact of such a large sale on US interest rates would wreck the US economy and effectively end Bush’s war-making capability. Moreover, other governments would likely follow the Chinese lead, as the main support for the US dollar has been China’s willingness to accumulate them. If the largest holder dumped the dollar, other countries would dump dollars, too.

The value and purchasing power of the US dollar would fall. When hard-pressed Americans went to Wal-Mart to make their purchases, the new prices would make them think they had wandered into Nieman Marcus. Americans would not be able to maintain their current living standard.

Simultaneously, Americans would be hit either with tax increases in order to close a budget deficit that foreigners will no longer finance or with large cuts in income security programs. The only other source of budgetary finance would be for the government to print money to pay its bills. In this event, Americans would experience inflation in addition to higher prices from dollar devaluation.

This is a grim outlook. We got in this position because our leaders are ignorant fools. So are our economists, many of whom are paid shills for some interest group. So are our corporate leaders whose greed gave China power over the US by offshoring the US production of goods and services to China. It was the corporate fat cats who turned US Gross Domestic Product into Chinese imports, and it was the “free trade, free market economists” who egged it on.

How did a people as stupid as Americans get so full of hubris?

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions.

[L.A. BRONCOS FAN]

Well...this is another fine mess we've gotten ourselves into...

Correction: This is another fine mess BushCo has gotten us into.

http://www.bartcop.com/bernake-breeze.jpg

[baja]

China makes me laugh...without us...they wouldn't exist at all. So do what you want. We'll just quit buying your crap.....enjoy the civil unrest that follows.

Dude just when I think you couldn't post something more outrageously wrong you come back and top your already epic high standard.

[Bronco_Beerslug]

China makes me laugh...without us...they wouldn't exist at all. So do what you want. We'll just quit buying your crap.....enjoy the civil unrest that follows.Nominated for stupidest post of the year.
This post was brought to you by someone who clearly has no idea about how global economics effects everyone.

For example...French bank freezes funds invested in U.S. subprime mortgages.... DOW losses over 380.

[TheDave]

Nominated for stupidest post of the year.
This post was brought to you by someone who clearly has no idea about how global economics effects everyone.

In all fairness, until someone tops the phrase "mini-nukes" no one will ever mount a serious challenge for stupidest post of the year.

[Bronco_Beerslug]

In all fairness, until someone beats the term "mini-nukes" no one will ever mount a serious challenge for stupidist post of the year. :) This may be true but the when you search for this particular parameter (stupidest post) you'll see some stiff competition :wiggle:

[L.A. BRONCOS FAN]

This post was brought to you by someone who clearly has no idea about how global economics effects everyone.


That's what makes him a trick for Dubya.

[Garcia Bronco]

Dude just when I think you couldn't post something more outrageously wrong you come back and top your already epic high standard.

You don't know your history.

[baja]

do you know how old china is?

[Garcia Bronco]

do you know how old china is?

Boxer Rebellion. Look it up...without us they would have be carved up by other countries. And anybody who though I meant "created the country"...come on...

Further more we float their economy as much as they float ours. It'll all work out.

[BroncoBuff]

CHINA THREATENS TO TRIGGER US DOLLAR CRASH

Beijing may use its $1.33 trillion of foreign reserves as a political weapon to counter pressure from the US Congress.
Hmmm... 1.3 trillion. Where have I heard the figure 1 trillion dollars lately in connection with totally unnecessary government spending?

OH YEAH - the Iraqi War.

We are way beyond "worst president ever" now. George W. Bush is the worst U.S. citizen ever imo. Throwing a trillion dollars down a hole, at precisely the time we needed to be gearing up for the 21st century competition with China. A trillion dollars and 2 trillion bits of good faith around the world. How could he have done this? Without this waste of a war, we could leverage a revaluation of the yuan, and put ourselves in a much better competitive position as the Chinese expand exponentially. :oyvey:

[atomicbloke]

China makes me laugh...without us...they wouldn't exist at all. So do what you want. We'll just quit buying your crap.....enjoy the civil unrest that follows.

Hilarious! Hilarious! Hilarious! Hilarious!

[Garcia Bronco]

Hilarious! Hilarious! Hilarious! Hilarious!

Another person that doesn't know their history.

[Bronco Bob]

Another person that doesn't know their history.

Links? I couldn't find anything about the Japanese, Russians, British,
Germans, French, Austro-Hungarians, and Italians wanting
to carve up China and the US stopping them. In fact the US
was one of the armies fighting the Chinese, so why wouldn't
they have wanted a piece of the pie afterwards. It's not
like the US wasn't into empire building at the time, they already
had taken the Philippines as a colony.

[Garcia Bronco]

Links? I couldn't find anything about the Japanese, Russians, British,
Germans, French, Austro-Hungarians, and Italians wanting
to carve up China and the US stopping them. In fact the US
was one of the armies fighting the Chinese, so why wouldn't
they have wanted a piece of the pie afterwards. It's not
like the US wasn't into empire building at the time, they already
had taken the Philippines as a colony.

We wanted to trade with China yes, but why we wouldn't let the others carve up China, I can't remember why. I would imagine we didn't want to give the others an advantage in trade. We learned about this in 7th grade history.

English Imperialism into China started before the first and second opium wars

[mosca]

China makes me laugh...without us...they wouldn't exist at all. So do what you want. We'll just quit buying your crap.....enjoy the civil unrest that follows.
Speak for yourself ... but there's no way that all the sheeple out there will stop buying cheap Chinese crap. You'd think they would've already, after all the health scares recently over Chinese food products, but no. The average American, as noted elsewhere, is too shortsighted to give a crap.

[Garcia Bronco]

Speak for yourself ... but there's no way that all the sheeple out there will stop buying cheap Chinese crap. You'd think they would've already, after all the health scares recently over Chinese food products, but no. The average American, as noted elsewhere, is too shortsighted to give a crap.

The truth is it's hard to escape, but I do a good job of it. You are correct that there is a complete lack of teamwork in this country.

[mosca]

The truth is it's hard to escape, but I do a good job of it. You are correct that there is a complete lack of teamwork in this country.
IMO it would take something huge and monumental to get the masses' attention and convince most of them to stop supporting China by buying their junk. Maybe the Chinese triggering a dollar collapse would do it ... depends how tough they're willing to play, I suppose. If their actions truly created a large recession over here ... maybe.

[defenseman]

IMO it would take something huge and monumental to get the masses' attention and convince most of them to stop supporting China by buying their junk. Maybe the Chinese triggering a dollar collapse would do it ... depends how tough they're willing to play, I suppose. If their actions truly created a large recession over here ... maybe.

They would pay also.......

China 'Goes Nuclear'
By INVESTOR'S BUSINESS DAILY | Posted Wednesday, August 08, 2007 4:20 PM PT

Trade: China's threatening to use the "nuclear option" against the U.S. Another bomb threat? Nope. China says it may dump some of its $900-billion-plus in U.S. investments on the market, creating financial chaos.


--------------------------------------------------------------------------------

Related Topics: East Asia & Pacific | Economy


--------------------------------------------------------------------------------


Should we be worried? Not really. It's more hot air and anger over talk of U.S. trade protectionism than it is an actual threat. Because, the fact of the matter is, if China did what it proposes to do it would suffer as much if not more than us.

Yes, China has amassed a humongous $1.33 trillion in foreign reserves — roughly $900 billion of which are in dollars.

And it's very angry at the U.S. Congress, which has threatened U.S. trade sanctions unless China lets its undervalued currency, the yuan, go higher.

"China has accumulated a large sum of U.S. dollars," said He Fan, an official at the Chinese Academy of Social Sciences, in a thinly veiled threat. "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."

Maybe so. This is the so-called nuclear option. More likely, however, is that it would cause China's economy to melt down. During the first six months of this year, China's trade surplus with the U.S. jumped to $125 billion — a nearly 90% rise over the year before.

If China decided to dump U.S. assets, the yuan would rise — and sharply. China would have a tougher time selling its goods in the U.S., by far its most lucrative market. And those who would invest in China might think twice if they were convinced that their return on investment would be much lower.

As TCS Daily writer Desmond Lachlan recently pointed out, this would be a disaster for China, where 10 million workers migrate from the countryside to cities each year looking for work.

So far this year, China's economy is growing at a sizzling 11.4% annual rate, fueled by a yearly rise in exports of nearly 30%.

Dump the dollar, China, and all that goes away. GDP will grow much more modestly (some say official figures already overstate growth by a large margin), inflation will rise, and social pressures — the kind that led to the 1989 Tiananmen Square demonstrations — will grow commensurately.

Nor does the U.S. have much to gain from such a scenario, despite the protectionist rantings of the Democratic presidential candidates. Most of the foreign companies that invest in China are American. They'll be hurt just as much as the Chinese.

That's why U.S. Treasury Secretary Hank Paulson — an expert on China while at Goldman Sachs — is telling everyone to cool the rhetoric. Trade with China is a benefit, not a drag. We hope everyone — including China's government and Congress — will listen.

http://www.ibdeditorials.com/IBDArticles.aspx?id=271465242819506

[Bronco Bob]

Speak for yourself ... but there's no way that all the sheeple out there will stop buying cheap Chinese crap. You'd think they would've already, after all the health scares recently over Chinese food products, but no. The average American, as noted elsewhere, is too shortsighted to give a crap.

Not to mention it's all but impossible to buy a lot of things these days
that aren't made in China. I saw one woman on a news show that tried
to live China free for a year and it was an exceedingly difficult task.
Add to the fact that a lot of foods don't require it to be listed where
they come from. You want to drink apple juice, forget it. All the
apple juice sold in this country in stores comes from China. It's not
shortsighted, it's most people just don't have the time or money to
search out and not buy things made in China, even if they wanted to.

[Garcia Bronco]

They would pay also.......

China 'Goes Nuclear'
By INVESTOR'S BUSINESS DAILY | Posted Wednesday, August 08, 2007 4:20 PM PT

Trade: China's threatening to use the "nuclear option" against the U.S. Another bomb threat? Nope. China says it may dump some of its $900-billion-plus in U.S. investments on the market, creating financial chaos.


--------------------------------------------------------------------------------

Related Topics: East Asia & Pacific | Economy


--------------------------------------------------------------------------------


Should we be worried? Not really. It's more hot air and anger over talk of U.S. trade protectionism than it is an actual threat. Because, the fact of the matter is, if China did what it proposes to do it would suffer as much if not more than us.

Yes, China has amassed a humongous $1.33 trillion in foreign reserves — roughly $900 billion of which are in dollars.

And it's very angry at the U.S. Congress, which has threatened U.S. trade sanctions unless China lets its undervalued currency, the yuan, go higher.

"China has accumulated a large sum of U.S. dollars," said He Fan, an official at the Chinese Academy of Social Sciences, in a thinly veiled threat. "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."

Maybe so. This is the so-called nuclear option. More likely, however, is that it would cause China's economy to melt down. During the first six months of this year, China's trade surplus with the U.S. jumped to $125 billion — a nearly 90% rise over the year before.

If China decided to dump U.S. assets, the yuan would rise — and sharply. China would have a tougher time selling its goods in the U.S., by far its most lucrative market. And those who would invest in China might think twice if they were convinced that their return on investment would be much lower.

As TCS Daily writer Desmond Lachlan recently pointed out, this would be a disaster for China, where 10 million workers migrate from the countryside to cities each year looking for work.

So far this year, China's economy is growing at a sizzling 11.4% annual rate, fueled by a yearly rise in exports of nearly 30%.

Dump the dollar, China, and all that goes away. GDP will grow much more modestly (some say official figures already overstate growth by a large margin), inflation will rise, and social pressures — the kind that led to the 1989 Tiananmen Square demonstrations — will grow commensurately.

Nor does the U.S. have much to gain from such a scenario, despite the protectionist rantings of the Democratic presidential candidates. Most of the foreign companies that invest in China are American. They'll be hurt just as much as the Chinese.

That's why U.S. Treasury Secretary Hank Paulson — an expert on China while at Goldman Sachs — is telling everyone to cool the rhetoric. Trade with China is a benefit, not a drag. We hope everyone — including China's government and Congress — will listen.

http://www.ibdeditorials.com/IBDArticles.aspx?id=271465242819506

and this is basically what I was gettig at with my original post. It's so much a symbotic relationship at this point that they can't do anything without hurting themselves.

[defenseman]

and this is basically what I was gettig at with my original post. It's so much a symbotic relationship at this point that they can't do anything without hurting themselves.

In a few words, it could economic suicide for them also. I'm not so sure they are read to sacrifice to that extent given their present prosperity...dman

[L.A. BRONCOS FAN]

In a few words, it could economic suicide for them also. I'm not so sure they are read to sacrifice to that extent given their present prosperity...dman

The mere fact that China is able to weild such threats and to expose our economic house of cards to the whole world is bad enough for me.

The court-appointed pinhead has driven our economy into the ditch.

[Garcia Bronco]

Hey buddy...welcome to the global economy. The factors that have led to this were already in place.

[mhgaffney]

Are we at a tipping point?

Garcia BRonco - above - repeats the mantra now being heard everywhere "China can't dump the US dollar without hurting themselves..."

Garcia should turn off his TV and READ the following.

In this brilliant analysis -- Paul Craig Roberts explains the present situation -- including why China in the end will probably dump the US dollar. Why? Because it's the lesser evil. Because it will benefit China.

Peking is one place where they don't take orders from Washington.

The folks who voted for Bush need to be reminded: YOU brought all of this upon us. MHG


China’s “Nuclear Option” is real

By Paul Craig Roberts

08/11/07 "ICH' -- -- Twenty-four hours after I reported China’s announcement that China, not the Federal Reserve, controls US interest rates by its decision to purchase, hold, or dump US Treasury bonds, the news of the announcement appeared in sanitized and unthreatening form in a few US news sources.

The Washington Post found an economics professor at the University of Wisconsin to provide reassurances that it was “not really a credible threat” that China would intervene in currency or bond markets in any way that could hurt the dollar’s value or raise US interest rates, because China would hurt its own pocketbook by such actions.

US Treasury Secretary Henry Paulson, just back from Beijing, where he gave China orders to raise the value of the Chinese yuan “without delay,” dismissed the Chinese announcement as “frankly absurd.”

Both the professor and the Treasury Secretary are greatly mistaken.

First, understand that the announcement was not made by a minister or vice minister of the government. The Chinese government is inclined to have important announcements come from research organizations that work closely with the government. This announcement came from two such organizations. A high official of the Development Research Center, an organization with cabinet rank, let it be known that US financial stability was too dependent on China’s financing of US red ink for the US to be giving China orders. An official at the Chinese Academy of Social Sciences pointed out that the reserve currency status of the US dollar was dependent on China’s good will as America’s lender.

What the two officials said is completely true. It is something that some of us have known for a long time. What is different is that China publicly called attention to Washington’s dependence on China’s good will. By doing so, China signaled that it was not going to be bullied or pushed around.

The Chinese made no threats. To the contrary, one of the officials said, “China doesn’t want any undesirable phenomenon in the global financial order.” The Chinese message is different. The message is that Washington does not have hegemony over Chinese policy, and if matters go from push to shove, Washington can expect financial turmoil.

Paulson can talk tough, but the Treasury has no foreign currencies with which to redeem its debt. The way the Treasury pays off the bonds that come due is by selling new bonds, a hard sell in a falling market deserted by the largest buyer.

Paulson found solace in his observation that the large Chinese holdings of US Treasuries comprise only “one day’s trading volume in Treasuries.” This is a meaningless comparison. If the supply suddenly doubled, does Paulson think the price of Treasuries would not fall and the interest rate not rise? If Paulson believes that US interest rates are independent of China’s purchases and holdings of Treasuries, Bush had better quickly find himself a new Treasury Secretary.

Now let’s examine the University of Wisconsin economist’s opinion that China cannot exercise its power because it would result in losses on its dollar holdings. It is true that if China were to bring any significant percentage of its holdings to market, or even cease to purchase new Treasury issues, the prices of bonds would decline, and China’s remaining holdings would be worth less. The question, however, is whether this is of any consequence to China, and, if it is, whether this cost is greater or lesser than avoiding the cost that Washington is seeking to impose on China.

American economists make a mistake in their reasoning when they assume that China needs large reserves of foreign exchange. China does not need foreign exchange reserves for the usual reasons of supporting its currency’s value and paying its trade bills. China does not allow its currency to be traded in currency markets. Indeed, there is not enough yuan available to trade. Speculators, betting on the eventual rise of the yuan’s value, are trying to capture future gains by trading “virtual yuan.” The other reason is that China does not have foreign trade deficits, and does not need reserves in other currencies with which to pay its bills. Indeed, if China had creditors, the creditors would be pleased to be paid in yuan as the currency is thought to be undervalued.

Despite China’s support of the Treasury bond market, China’s large holdings of dollar-denominated financial instruments have been depreciating for some time as the dollar declines against other traded currencies, because people and central banks in other countries are either reducing their dollar holdings or ceasing to add to them. China’s dollar holdings reflect the creditor status China acquired when US corporations offshored their production to China. Reportedly, 70% of the goods on Wal-Mart’s shelves are made in China. China has gained technology and business knowhow from the US firms that have moved their plants to China. China has large coastal cities, choked with economic activity and traffic, that make America’s large cities look like country towns. China has raised about 300 million of its population into higher living standards, and is now focusing on developing a massive internal market some 4 to 5 times more populous than America’s.

The notion that China cannot exercise its power without losing its US markets is wrong. American consumers are as dependent on imports of manufactured goods from China as they are on imported oil. In addition, the profits of US brand name companies are dependent on the sale to Americans of the products that they make in China. The US cannot, in retaliation, block the import of goods and services from China without delivering a knock-out punch to US companies and US consumers. China has many markets and can afford to lose the US market easier than the US can afford to lose the American brand names on Wal-Mart’s shelves that are made in China. Indeed, the US is even dependent on China for advanced technology products. If truth be known, so much US production has been moved to China that many items on which consumers depend are no longer produced in America.

Now let’s consider the cost to China of dumping dollars or Treasuries compared to the cost that the US is trying to impose on China. If the latter is higher than the former, it pays China to exercise the “nuclear option” and dump the dollar.

The US wants China to revalue the yuan, that is, to make the dollar value of the yuan higher. Instead of a dollar being worth 8 yuan, for example, Washington wants the dollar to be worth only 5.5 yuan. Washington thinks that this would cause US exports to China to increase, as they would be cheaper for the Chinese, and for Chinese exports to the US to decline, as they would be more expensive. This would end, Washington thinks, the large trade deficit that the US has with China.

This way of thinking dates from pre-offshoring days. In former times, domestic and foreign-owned companies would compete for one another’s markets, and a country with a lower valued currency might gain an advantage. Today, however, about half of the so-called US imports from China are the offshored production of US companies for their American markets. The US companies produce in China, not because of the exchange rate, but because labor, regulatory, and harassment costs are so much lower in China. Moreover, many US firms have simply moved to China, and the cost of abandoning their new Chinese facilities and moving production back to the US would be very high.

When all these costs are considered, it is unclear how much China would have to revalue its currency in order to cancel its cost advantages and cause US firms to move enough of their production back to America to close the trade gap.

To understand the shortcomings of the statements by the Wisconsin professor and Treasury Secretary Paulson, consider that if China were to increase the value of the yuan by 30 percent, the value of China’s dollar holdings would decline by 30 percent. It would have the same effect on China’s pocketbook as dumping dollars and Treasuries in the markets.

Consider also, that as revaluation causes the yuan to move up in relation to the dollar (the reserve currency), it also causes the yuan to move up against every other traded currency. Thus, the Chinese cannot revalue as Paulson has ordered without making Chinese goods more expensive not merely to Americans but everywhere.

Compare this result with China dumping dollars. With the yuan pegged to the dollar, China can dump dollars without altering the exchange rate between the yuan and the dollar. As the dollar falls, the yuan falls with it. Goods and services produced in China do not become more expensive to Americans, and they become cheaper elsewhere. By dumping dollars, China expands its entry into other markets and accumulates more foreign currencies from trade surpluses.

Now consider the non-financial costs to China’s self-image and rising prestige of permitting the US government to set the value of its currency. America’s problems are of its own making, not China’s. A rising power such as China is likely to prove a reluctant scapegoat for America’s decades of abuse of its reserve currency status.

Economists and government officials believe that a rise in consumer prices by 30 percent is good if it results from yuan revaluation, but that it would be terrible, even beyond the pale, if the same 30 percent rise in consumer prices resulted from a tariff put on goods made in China. The hard pressed American consumer would be hit equally hard either way. It is paradoxical that Washington is putting pressure on China to raise US consumer prices, while blaming China for harming Americans. As is usually the case, the harm we suffer is inflicted by Washington.

[Garcia Bronco]

Are we at a tipping point?

Garcia BRonco - above - repeats the mantra now being heard everywhere "China can't dump the US dollar without hurting themselves..."

Garcia should turn off his TV and READ the following.

In this brilliant analysis -- Paul Craig Roberts explains the present situation -- including why China in the end will probably dump the US dollar. Why? Because it's the lesser evil. Because it will benefit China.

Peking is one place where they don't take orders from Washington.

The folks who voted for Bush need to be reminded: YOU brought all of this upon us. MHG


China’s “Nuclear Option” is real

By Paul Craig Roberts

08/11/07 "ICH' -- -- Twenty-four hours after I reported China’s announcement that China, not the Federal Reserve, controls US interest rates by its decision to purchase, hold, or dump US Treasury bonds, the news of the announcement appeared in sanitized and unthreatening form in a few US news sources.

The Washington Post found an economics professor at the University of Wisconsin to provide reassurances that it was “not really a credible threat” that China would intervene in currency or bond markets in any way that could hurt the dollar’s value or raise US interest rates, because China would hurt its own pocketbook by such actions.

US Treasury Secretary Henry Paulson, just back from Beijing, where he gave China orders to raise the value of the Chinese yuan “without delay,” dismissed the Chinese announcement as “frankly absurd.”

Both the professor and the Treasury Secretary are greatly mistaken.

First, understand that the announcement was not made by a minister or vice minister of the government. The Chinese government is inclined to have important announcements come from research organizations that work closely with the government. This announcement came from two such organizations. A high official of the Development Research Center, an organization with cabinet rank, let it be known that US financial stability was too dependent on China’s financing of US red ink for the US to be giving China orders. An official at the Chinese Academy of Social Sciences pointed out that the reserve currency status of the US dollar was dependent on China’s good will as America’s lender.

What the two officials said is completely true. It is something that some of us have known for a long time. What is different is that China publicly called attention to Washington’s dependence on China’s good will. By doing so, China signaled that it was not going to be bullied or pushed around.

The Chinese made no threats. To the contrary, one of the officials said, “China doesn’t want any undesirable phenomenon in the global financial order.” The Chinese message is different. The message is that Washington does not have hegemony over Chinese policy, and if matters go from push to shove, Washington can expect financial turmoil.

Paulson can talk tough, but the Treasury has no foreign currencies with which to redeem its debt. The way the Treasury pays off the bonds that come due is by selling new bonds, a hard sell in a falling market deserted by the largest buyer.

Paulson found solace in his observation that the large Chinese holdings of US Treasuries comprise only “one day’s trading volume in Treasuries.” This is a meaningless comparison. If the supply suddenly doubled, does Paulson think the price of Treasuries would not fall and the interest rate not rise? If Paulson believes that US interest rates are independent of China’s purchases and holdings of Treasuries, Bush had better quickly find himself a new Treasury Secretary.

Now let’s examine the University of Wisconsin economist’s opinion that China cannot exercise its power because it would result in losses on its dollar holdings. It is true that if China were to bring any significant percentage of its holdings to market, or even cease to purchase new Treasury issues, the prices of bonds would decline, and China’s remaining holdings would be worth less. The question, however, is whether this is of any consequence to China, and, if it is, whether this cost is greater or lesser than avoiding the cost that Washington is seeking to impose on China.

American economists make a mistake in their reasoning when they assume that China needs large reserves of foreign exchange. China does not need foreign exchange reserves for the usual reasons of supporting its currency’s value and paying its trade bills. China does not allow its currency to be traded in currency markets. Indeed, there is not enough yuan available to trade. Speculators, betting on the eventual rise of the yuan’s value, are trying to capture future gains by trading “virtual yuan.” The other reason is that China does not have foreign trade deficits, and does not need reserves in other currencies with which to pay its bills. Indeed, if China had creditors, the creditors would be pleased to be paid in yuan as the currency is thought to be undervalued.

Despite China’s support of the Treasury bond market, China’s large holdings of dollar-denominated financial instruments have been depreciating for some time as the dollar declines against other traded currencies, because people and central banks in other countries are either reducing their dollar holdings or ceasing to add to them. China’s dollar holdings reflect the creditor status China acquired when US corporations offshored their production to China. Reportedly, 70% of the goods on Wal-Mart’s shelves are made in China. China has gained technology and business knowhow from the US firms that have moved their plants to China. China has large coastal cities, choked with economic activity and traffic, that make America’s large cities look like country towns. China has raised about 300 million of its population into higher living standards, and is now focusing on developing a massive internal market some 4 to 5 times more populous than America’s.

The notion that China cannot exercise its power without losing its US markets is wrong. American consumers are as dependent on imports of manufactured goods from China as they are on imported oil. In addition, the profits of US brand name companies are dependent on the sale to Americans of the products that they make in China. The US cannot, in retaliation, block the import of goods and services from China without delivering a knock-out punch to US companies and US consumers. China has many markets and can afford to lose the US market easier than the US can afford to lose the American brand names on Wal-Mart’s shelves that are made in China. Indeed, the US is even dependent on China for advanced technology products. If truth be known, so much US production has been moved to China that many items on which consumers depend are no longer produced in America.

Now let’s consider the cost to China of dumping dollars or Treasuries compared to the cost that the US is trying to impose on China. If the latter is higher than the former, it pays China to exercise the “nuclear option” and dump the dollar.

The US wants China to revalue the yuan, that is, to make the dollar value of the yuan higher. Instead of a dollar being worth 8 yuan, for example, Washington wants the dollar to be worth only 5.5 yuan. Washington thinks that this would cause US exports to China to increase, as they would be cheaper for the Chinese, and for Chinese exports to the US to decline, as they would be more expensive. This would end, Washington thinks, the large trade deficit that the US has with China.

This way of thinking dates from pre-offshoring days. In former times, domestic and foreign-owned companies would compete for one another’s markets, and a country with a lower valued currency might gain an advantage. Today, however, about half of the so-called US imports from China are the offshored production of US companies for their American markets. The US companies produce in China, not because of the exchange rate, but because labor, regulatory, and harassment costs are so much lower in China. Moreover, many US firms have simply moved to China, and the cost of abandoning their new Chinese facilities and moving production back to the US would be very high.

When all these costs are considered, it is unclear how much China would have to revalue its currency in order to cancel its cost advantages and cause US firms to move enough of their production back to America to close the trade gap.

To understand the shortcomings of the statements by the Wisconsin professor and Treasury Secretary Paulson, consider that if China were to increase the value of the yuan by 30 percent, the value of China’s dollar holdings would decline by 30 percent. It would have the same effect on China’s pocketbook as dumping dollars and Treasuries in the markets.

Consider also, that as revaluation causes the yuan to move up in relation to the dollar (the reserve currency), it also causes the yuan to move up against every other traded currency. Thus, the Chinese cannot revalue as Paulson has ordered without making Chinese goods more expensive not merely to Americans but everywhere.

Compare this result with China dumping dollars. With the yuan pegged to the dollar, China can dump dollars without altering the exchange rate between the yuan and the dollar. As the dollar falls, the yuan falls with it. Goods and services produced in China do not become more expensive to Americans, and they become cheaper elsewhere. By dumping dollars, China expands its entry into other markets and accumulates more foreign currencies from trade surpluses.

Now consider the non-financial costs to China’s self-image and rising prestige of permitting the US government to set the value of its currency. America’s problems are of its own making, not China’s. A rising power such as China is likely to prove a reluctant scapegoat for America’s decades of abuse of its reserve currency status.

Economists and government officials believe that a rise in consumer prices by 30 percent is good if it results from yuan revaluation, but that it would be terrible, even beyond the pale, if the same 30 percent rise in consumer prices resulted from a tariff put on goods made in China. The hard pressed American consumer would be hit equally hard either way. It is paradoxical that Washington is putting pressure on China to raise US consumer prices, while blaming China for harming Americans. As is usually the case, the harm we suffer is inflicted by Washington.

Again...it's pretty much a symbotic relationship. The can do what they want, but they aren't stupid and they know what will happen if they push too hard.

[yavoon]

Again...it's pretty much a symbotic relationship. The can do what they want, but they aren't stupid and they know what will happen if they push too hard.

ghaff is unrelentingly psychotic.

[Bronco Bob]

ghaff is unrelentingly psychotic.

I'll have to jump in here and ask what are the factual errors in Gaffney's post?
I'm not saying there is or isn't any. I'm just asking which parts you feel
aren't true, and why, in that you were so quick to jump on this particular post
with a one-liner.

[yavoon]

I'll have to jump in here and ask what are the factual errors in Gaffney's post?
I'm not saying there is or isn't any. I'm just asking which parts you feel
aren't true, and why, in that you were so quick to jump on this particular post
with a one-liner.

remember we covered this ground before, its for braver ppl then me. I just marvel at the overall narrative.

[Bronco Bob]

remember we covered this ground before, its for braver ppl then me. I just marvel at the overall narrative.

I'm just saying even a nut can be right about some things and I was
just curious as to what you found factually wrong in this particular
post of his. I don't know one way or the other, so I was hoping you
could give the article itself a critical, line by line debunking.

[Odysseus]

Well...this is another fine mess we've gotten ourselves into...

http://www.the-spine.com/wp-content/uploads/2007/03/retouch.jpg

:thumbsup:

[L.A. BRONCOS FAN]

Hey buddy...welcome to the global economy. The factors that have led to this were already in place.

Way to give Bush and his policies/economic record a pass by deflecting blame onto past administrations.

You've apparently been studying under W*GS.

[L.A. BRONCOS FAN]

http://www.bartcop.com/mmail12.gif

ghaff is unrelentingly psychotic.

Your semi-literate, sloppily-formatted posts are unrelentingly like those of a 16 year-old kid on Myspace.com.

[Cito Pelon]

Not sure...

The fact is that we are so tied to each other economiclly that if they hurt us, there economy is in shreads as well...

A new form of mutually assured destruction -- which might ensure that absoultely nothing drastic happens.

It's an interesting development. China certainly holds some cards at the world bargaining table. I love the geopolitical game, as some of you know. Best game in the world, the highest stakes, the most to gain, the most to lose.

China is playing a card with this. China has tried to be a big mover in Asian politics over the past ten years, but few Asians trust them. They have a bad reputation from way, way back with the "overseas Chinese", the Chinese merchants that have swindled too many other Asians, then scuppered to Hong Kong or the mainland. Asians don't want to be dominated by China any more than they want to be dominated by the US, or anybody else.

The Chinese are tied to us not only here in the US but also in Asia. The Chinese crave a bigger role geopolitically, but much like the Russians they wear out their welcome very quickly. They've assumed the role of troublemakers politically in Asia. The Chinese have abused their role as Permanent Members of the UN Security Council, and therefore the veto power that comes with it - like the Russians - to stymie global progress.

Asians are weighing their chances with the two behemoths in Asia, the US and China. The Chinese are not real popular. They throw their weight around pretty good, but who protects the seas? The US, Australian and British Navy. Who keeps the shipping lanes open? The US, British and Australian Navy. Asia depends on shipping by sea one hell of a lot, and I bet they'll take their chances with the US, Britain and Australia before they pay bribes to the Chinese to protect the shipping lanes.

So it's an interesting move by the Chinese, but this story is just beginning.

[yavoon]

I'm just saying even a nut can be right about some things and I was
just curious as to what you found factually wrong in this particular
post of his. I don't know one way or the other, so I was hoping you
could give the article itself a critical, line by line debunking.

I'm putting myself in grave ghaffney response danger here, but cuz ur sexy I will do a little:).

" The US companies produce in China, not because of the exchange rate, but because labor, regulatory, and harassment costs are so much lower in China."
=wrong, or atleast misleading. US companies produce in china because they get higher profits by doing so. anything that lowers cost, could in theory contribute, but certainly an artificially low currency is a contributor.

"The notion that China cannot exercise its power without losing its US markets is wrong. American consumers are as dependent on imports of manufactured goods from China as they are on imported oil."
wrong, oil is non-replacable(at this time) resource. before china made the world's bra's, brazil did. its also confusing an actual resource w/ a place where cheap stuff is made. infact that whole paragraph is stupid, except for the part about US companies realizing a lot of profits off of make in china, sell to america.

"Consider also, that as revaluation causes the yuan to move up in relation to the dollar (the reserve currency), it also causes the yuan to move up against every other traded currency. Thus, the Chinese cannot revalue as Paulson has ordered without making Chinese goods more expensive not merely to Americans but everywhere."
who needs this explained to them? is this an article for fourth graders?

"Economists and government officials believe that a rise in consumer prices by 30 percent is good if it results from yuan revaluation, but that it would be terrible, even beyond the pale, if the same 30 percent rise in consumer prices resulted from a tariff put on goods made in China. The hard pressed American consumer would be hit equally hard either way."
yes, the most matericalistically rich consumers on the planet would be hurt by higher consumer prices, atleast in terms of the amt of crap they can afford.

"Compare this result with China dumping dollars. With the yuan pegged to the dollar, China can dump dollars without altering the exchange rate between the yuan and the dollar. As the dollar falls, the yuan falls with it. Goods and services produced in China do not become more expensive to Americans, and they become cheaper elsewhere. By dumping dollars, China expands its entry into other markets and accumulates more foreign currencies from trade surpluses. "
so lets work this out, the dollar becomes cheaper, improving american exports. ZERO CHANGE in export/import relations w/ china because of pegged yuan, so consumer prices would probably largely stay low. how is this bad? or is this one of those, cause he wrote its obviously bad things. effectively this is saying china would dump the dollar and abosrb 100% of the dollars subsequent devluation into the yuan, making the yuan about as valuable as oh I dont know, the peso?
"Now consider the non-financial costs to China’s self-image and rising prestige of permitting the US government to set the value of its currency."
yes china is gna spite us.

this is just the ramblings of a cynical asshat. and why is it always implied that china lowering its currency's value is some master stroke while the US dollar devaluing is supreme disaster?

[Atlas]

What do you guys expect GW keeps lowering taxes and raising spending. The guy is a total buffoon and has ruined this country. Paying off the deficite will now fall upon our children and their children.

To the 50.4% of the people that voted for GW thwack thwack thwack thwack

This is the country you voted for CONGRATULATIONS..... idiots

[Willynowei]

We wanted to trade with China yes, but why we wouldn't let the others carve up China, I can't remember why. I would imagine we didn't want to give the others an advantage in trade. We learned about this in 7th grade history.

English Imperialism into China started before the first and second opium wars

You're thinking of the US open door policy; which was nothing more than to ensure our own trading rights and prevent the European powers from levying heavy tariffs on points of access into China which at the time, as a sovereign state DID NOT EXIST. It only existed as a cultural nation. So China, for the better part of century was not a state of power - we didn't save crap, it was already too late.

It was not untill after World War II that China was recognized as a sovereign power. Yes, we kicked the Japanese out. And yes, you can say things like "the US saved China" just as you can say we saved France, England and the rest of the world from Hitler.

But that type of thinking is backward and pointless. If the Chinese had not held off the Mongols for as long as they did, western civilization would've been sacked twice over, all the way to the shores of modern day Portugal.

So maybe, without China, Europe would've been set back a good century. Hypotheticals are awesome, including the one that says imperial powers don't last and that even if we let the Japanese take China, civil unrest would've erupted and they would've been forced off Mainland China shortly after resorting to Genocide.

You can go on like that forever. The US did what was right in WWII and the Chinese did what was right way back then, none of it pertains to this discussion.

[Willynowei]

Back on topic,

The Chinese do have a nuke, and it would hurt us more than them.

Yes a big chunk of Chinese exports come directly to the US, but not all of it. The dumping of US currency only strengthens the Yuan against our currency, thus the Chinese Yuan is still traded at the same ratio to the Euro.

In fact they could dump all the US dollars for Euros, which should appreciate the Euro; making their exports more attractive to the Europeans.

Monetary changes are all short term, the US is not going to be doomed, but it will suffer a correctional period. The same will happen with China, but during the same period, exporting to the US will become less attractive, and Europe becomes the more attractive target, thus after the slow down in China, their economy would likely become less US dependant.

Our currency value will go down and lose stability. Production at home will increase but that's by no means a good thing because cost of living will rise as well. The cost of all imports will rise, but not just Chinese goods, since its our currency that is being devalued and the Yuan, Euro and every other currency will all rise in relation. Thus, you cannot substitute Chinese imports for lets say, Mongolian - because their currency will rise in relation just the same.

The final result is that, the world economy will suffer and so will China, but only as an aftershock to our troubles. Meanwhile, as all major global economies are forced to shift their economic dependance away from the US, especially China, at the end of the correctional periods, we'll be the ones standing to lose the most.

This nuke the Chinese are threatening is all too much a real weapon against the US, made ever more powerful by the large debt that we hold.

I'm not interested in screamin profanities at Busch when he's about to finish his second term anyways. But I will say that I remember this administration saying they would attend to the issue of the national debt. Obviously you can't pay off the debt and fight a war at the same time. But the dollar is vunerable people.

[Bronco Bob]

Obviously you can't pay off the debt and fight a war at the same time.

Not to mention Bush pushing through six tax cuts while this war is going on.
The first time in US history the US was at war and had tax cuts instead of tax increases.

[REB]

Some people refuse to see the real threats and China is one of them. They will be a problem for years to come imo.

[alkemical]

ECB injects another 48 bln euros to stabilize market (http://news.xinhuanet.com/english/2007-08/13/content_6524888.htm)

[Bronco Bob]

China, Filling a Void, Drills for Riches in Chad

http://www.nytimes.com/2007/08/13/world/africa/13chinaafrica.html?ref=africa


Chad is as geographically isolated as places come in Africa. It is also among the continent’s poorest and least stable countries, the scene of recurrent civil wars and foreign invasions since it gained independence from France in 1960.

None of that has put off the Chinese, though. In January, they bought the rights to a vast exploration zone that surrounds this rural village, making the baked wilderness here, without roads, electricity or telephones, the latest frontier for their thirsty oil industry and increasingly global ambitions.
The same is happening in one African country after another. In large oil-exporting countries like Angola and Nigeria, China is building or fixing railroads, and landing giant exploration contracts in Congo and Guinea.

In mineral-rich countries that had been all but abandoned by foreign investors because of unrest and corruption, Chinese companies are reviving output of cobalt and bauxite. China has even become the new mover and shaker in agricultural countries like Ivory Coast, once the crown jewel in France’s postcolonial African empire, where Chinese companies are building a new capital, in Yamoussoukro, paid for by Chinese loans.

Surging Chinese interest in this continent has helped bring about what many Africans believe is the most important moment since the end of the cold war, when democracy was spreading in Africa and Western nations spoke of a “peace dividend” that might ease African poverty.

That blush of interest in Africa quickly faded, though, as did several of the new democracies, and Africans and Westerners have regarded each other warily ever since. Westerners complain about chronic corruption and ineffective government, while Africans lament broken promises on aid and a hostile international economic system.

The Chinese have stepped into this picture, coming to struggling countries like Chad with deep pockets, fewer demands on how African governments should behave and an avowed faith in everyone’s ability to prosper.

As Beijing’s ambassador to this country, Wang Yingwu, said at his residence in Ndjamena, Chad’s capital, where the electricity repeatedly failed, “We are exempting Chadian goods from import duties.” When the interviewer noted that Chad produced almost nothing besides oil, Mr. Wang was undaunted, saying, “If they don’t produce things today, they will tomorrow.”

To help make that happen, China plans to build the country’s first oil refinery, lay new roads, provide irrigation and erect a mobile telephone network, for starters.

With such intensive efforts across the continent, China’s trade with Africa topped $55 billion in 2006, up from less than $10 million in the 1980s. To achieve this growth, it has bypassed multinational institutions like the World Bank and the International Monetary Fund and flouted many of their lending criteria, including minimum standards of transparency, open bidding for contracts, environmental impact studies and assessments of overall debt and fiscal policies.

[ Anyone get the idea China is paving the way for new markets that aren't dependent on the USA ]

[L.A. BRONCOS FAN]

With such intensive efforts across the continent, China’s trade with Africa topped $55 billion in 2006, up from less than $10 million in the 1980s.



That's one staggering statistic.

I hope the Chinese people appreciate everything Bush and the Republicans have done for their economy.


[ Anyone get the idea China is paving the way for new markets that aren't dependent on the USA ]

Yep.

Replacing the U.S. market for their exports would be the one chess move China could make that would put us perilously in check.

[W*GS]

The mandarins of money
Aug 9th 2007
From The Economist print edition

Central banks in the rich world no longer determine global monetary conditions

Exactly 30 years ago, in August 1977, The Economist published an article by Alan Greenspan, the former chairman of America's Federal Reserve, who was then a private-sector economist. It listed five economic “don'ts”. One of these was: “Don't allow money-supply growth to spiral out of hand.” Yet that is exactly what central bankers have done in recent years. The bubble in credit markets that now seems to be bursting and the frothiness of so many asset prices was encouraged by loose monetary policies which pumped liquidity into financial markets.

Many economists blame that excess liquidity on Mr Greenspan himself for keeping interest rates too low for too long when he headed the Fed. After the dotcom bubble burst in 2000-01, the Fed slashed short-term interest rates to 1% by 2003. The European Central Bank (ECB) and the Bank of Japan also cut rates to unusually low levels, pushing the average interest rate in the big rich economies to a record low. The real short-term interest rate is now above its long-term average for the first time since 2001, suggesting that global monetary policy is no longer loose. So why did financial markets remain exuberant for so long? One reason is that the world's two most important central banks, the Fed and the ECB, have not been the main sources of global monetary liquidity.

Many economists in investment banks and international institutions mistakenly assume that “global” monetary conditions are set by the central banks of the rich economies. Yet over the past year, a staggering three-fifths of the world's broad money-supply growth has flowed from emerging economies.

Their mints are working overtime. Goldman Sachs reckons that growth in China's M3 measure of broad money has quickened to 20% over the past year. In Russia money supply has grown by a striking 51% and India's is up by 24%. Indeed, the broad money supply in emerging countries has increased by an average of 21% over the past year, almost three times as fast as it has in the developed world. Adjusted for inflation, their money growth has accelerated alarmingly (see chart). As a result, the entire world's money supply is growing at its fastest for decades in real terms.

http://www.economist.com/images/20070811/CFN772.gif

One would expect emerging economies' money supply to outpace that of the rich world, because their GDP growth is faster. But their surplus money growth over and above the increase in nominal GDP (a crude measure of the excess money available to be invested in financial assets) is also far bigger. Their interest policy has been timid: over the past three years, as monetary policy has been tightened in America and the euro area, average rates in the emerging world have barely budged. China and India have real interest rates among the world's lowest, even though they have the fastest-growing economies.

A decade or so ago, speedy monetary growth in emerging economies was of little concern to the central banks of the developed world: a monetary deluge in Brazil, say, simply caused hyperinflation there. But today these economies play a larger role in the world economy and cross-border financial flows are much bigger. Inflation remains low, so the liquidity pumped out by central banks is flowing somewhere else, namely into global financial markets. For instance, huge purchases of Treasury bonds by these central banks have reduced bond yields, and so spurred excessive borrowing in America.

The policies of the People's Bank of China (PBOC) or the Bank of Russia are likely to have an increasing impact on developed economies in future as capital controls are reduced and markets become more integrated. This prospect becomes more alarming when one considers that, unlike the Fed and the ECB, most central banks in emerging economies are not independent, and thus free to set interest rates in the best long-term interest of the economy. They are still firmly under the thumb of politicians.

Yes, Minister
According to conventional wisdom, monetary-policy mistakes such as those that caused the Great Inflation in the 1970s are much less likely today because central banks in the rich world are now independent of politicians. Yet few of the main central banks in emerging economies enjoy full legal independence, and thus often face pressure from politicians to hold interest rates low to boost growth and jobs. Their monetary independence is also constrained by governments' desire to hold down exchange rates. This forces central banks to engage in heavy foreign-exchange intervention, which inflates money supplies.

A recent IMF study ranked 163 central banks according to their political autonomy (based on factors such as how officials are appointed, the length of their terms and whether interest rates have to be approved by the government). Emerging central banks have become more independent since the 1980s, but they remain much less so than the ECB or the Fed. Some of the central banks that have been pumping out the most money, notably those in China, India and Russia, are among the least independent. The PBOC is under the sway of the Communist Party. The Reserve Bank of India would have raised interest rates more aggressively last year were it not for political pressure. Controversially, the study reckons that both central banks are more independent than the Bank of Japan—another country where its own cheap money policy has created a flood of liquidity outside its borders, through the carry trade.

The days when central-bank watchers could just focus on the Fed and perhaps the ECB in order to assess “global” monetary conditions are over. They no longer control the amount of money sloshing around the world and, as financial markets become ever more linked, analysts will need to pay more attention to central banks in the emerging world. They may even have a bigger role to play in stabilising the global economy if the squeeze in the credit markets becomes more acute.

Copyright © 2007 The Economist Newspaper and The Economist Group. All rights reserved.

[Willynowei]

Well the last two articles, I think create the illusion that China and India are profiting from their financing adventures in Africa. The fact is, the World Bank and IMF have their regulations set up for a reason.

If you look at US foreign investment ROI, it is better than the Europeans and all the Asian economies put together. ROI for the Chinese is one of the worst. The Chinese are rich, and getting richer, but their management remains inexperienced, they've never seen so much money in their life. The fact is that the service sectors of India and China are both minute in proportion to their industrial and agricultural sectors. And although this is changing as the financial districts of Delhi and Shanghai put up one towering skyscraper after another, things are far from ideal.

They will likely go through growing pains just as the Koreans and Japanese did decades ago. The US was worried about dependance on those economies as well. The Asian Financial crisis happened then and; I'm sure it will happen again with China. The central planning think tanks in China are doing their best but it is innevitable that this over lending and spending is going to have drawbacks once these overseas campaigns fail.

US money is smart, the smartest in the world, I'm not worried about who's investing in what we passed up on.

I am however worried that when I travel outside of the US, I've never in my life seen people work more hours than they do in the states, untill now. Right now I'm in China, and from talking to the people here, their hours can get very rough. Rough as in 6 days a week, 12 hours a day for many jobs. The average work week here is six days, and paid vacations don't really exist. Contrast that to the work weeks in Europe, or any other country outside the US.

Again, management is noticeably poor in areas outside of Shanghai (Which has grown to look like New York City with Chinese lettering). Go to Beijing where property values are even higher than Shanghai, and you see poor city planning, management, and unbreathable air quality. The country is very much parallel to where the US was during the Gilded age. You've got towering skyscrapers absolutely everywhere, and inhumane living conditions in the streets below. But one thing that would scare anyone about China is - everyone here works overtime.

[Garcia Bronco]

You're thinking of the US open door policy; which was nothing more than to ensure our own trading rights and prevent the European powers from levying heavy tariffs on points of access into China which at the time, as a sovereign state DID NOT EXIST. It only existed as a cultural nation. So China, for the better part of century was not a state of power - we didn't save crap, it was already too late.

It was not untill after World War II that China was recognized as a sovereign power. Yes, we kicked the Japanese out. And yes, you can say things like "the US saved China" just as you can say we saved France, England and the rest of the world from Hitler.

But that type of thinking is backward and pointless. If the Chinese had not held off the Mongols for as long as they did, western civilization would've been sacked twice over, all the way to the shores of modern day Portugal.

So maybe, without China, Europe would've been set back a good century. Hypotheticals are awesome, including the one that says imperial powers don't last and that even if we let the Japanese take China, civil unrest would've erupted and they would've been forced off Mainland China shortly after resorting to Genocide.

You can go on like that forever. The US did what was right in WWII and the Chinese did what was right way back then, none of it pertains to this discussion.

I beg to differ. They owe...they owe my family and hundreds of thousands of others who shed their blood for their existence. Don't forget that.

[Willynowei]

I beg to differ. They owe...they owe my family and hundreds of thousands of others who shed their blood for their existence. Don't forget that.

And what do we owe the Europeans? And the 20 million dead Russians? You think we took down Germany by ourselves?

We lost a lot of men, but England and France lost an entire generation through how many years of fighting before the Japanese brought the guns to our doors?

You think Hitler would've stopped at England? Or France? You think that if he took down Russia and the vast oil reserves there, he wouldn't have come after us? With rocket propelled Jets and a full nuclear arsenal.

As early as the first world war, Germany had U-boats parked off the Jersey shore. Look up how the coast guard was born.

The cold war was an extension of German technology in American and Russian hands. What if the Germans were never stopped, and America stood by the entire time. I'll tell ya what, we'd all be speaking German. We owe the Europeans as much as they owe us.