POLITICS: China set to dump dollar reserves

Originally posted by subz

Now some believe punitive action is arranted against China if they were to dump THEIR American dollars. Let's not forget this is Chinese money, not American. The currency maybe American made but it is now China's assets. They are able to do as they wish with their own property. It's far too late to bemoan the stupidity that allowed the Chinese to horde nearly US$1 trillion, and its not the Chinese who should be the focus of your anger.

You are true they have right to do everything they want with their money, but not with intention to hurt US economy. If they do such thing, I can guarrantie you, that no one would care, whether they had "right" to do it or not. And I agree it was stupid to feed them with dollars both by Clinton, but especially by Bush. That's the reason it must stop NOW.

[edit on 7-1-2006 by longbow]

Originally posted by Xerrog
...........................
So with that would this be possible?...

China and her "friends" shore up their oil supplies from taking a pounding during a US economic downtime.

China and her "friends" build up enough military might to expand outside of it's borders if no fear of US intervention.

China by this time has built up $1tril+ USD.

China at the same time dumps the USD and ramps up procurement of oil.

This would have the effect of crippling a already fragile US economy, force the US to release strategic oil reserves for civilian use, and in many area's deploy national guard to keep the peace.

Admist this I do not beleive the US would be able to respond to chinese aggresion especially if it was swift.

Then again as we all know this isnt a one on one chess match. Its even more then one match at once. Thought while simplistic I do think my scenario is more then a little possible.

I believe that you have hit the mark, China and "her friends", some of whom call themselves "friends of the west but are just waiting for the right time to backstub us and they have been doing this for some time, are playing chess with the U.S. and the world at large.

If the Chinese, and her friend's, government's actions were purely economical, why the continuous increase in their military?
Why are they all buying massive amounts of gold and are ushering everyone to dump the dollar?
Even Chinese military officials have said that war with the U.S. is inevitable and they, the Chinese, must make sure they have the upper hand.

All this comes straight from the book "The Art of War by SunTzu", and the latest Chinese book written by two Chinese Generals and approved by the Chinese government "Unrestrictive Warfare."

The Chinese among some other countries, many of whom are friends of the Chinese have been in a gold rush frenzy, buying as much gold as possible.

I think the Chinese government, alongside some others, are ready to make their move against the U.S.

It is a shame that there are so many people, mainly from Europe, who believe this would be a good thing, but they don't realize, or don't want to believe, that once China and her friends make their move against the U.S. things will be 100 times worse than they are now for everyone. These people are oblivious to the history of the Chinese government and the history of her friends.....

The picture you paint Muaddib is exactly what the United States has always done. Are you telling me that spending big militarily is an indicator of how nefarious a nation is? You can see where I am going with that one. You also view buying gold as predicate to war? Then I think every other nation on the planet is guilty of warmongering. Finally the Chinese have as much right to protect their global interests as the United States. The United States has publically voiced its intentions to safeguard American interests over any other consideration. This you view as a pragmatic and completely understandable policy yet when the Chinese admit to the same you cry foul and drum up scenes of a yellow terror.

Is it these actions you have a problem with or simply because the Chinese are doing it? You're on record here of how you loath the Chinese. Is there anything else you can add to your argument aside from your apparent hatred for all things CCP?

Ace, FredT
You guys couldn't more wrong concerning unemployment. Long term unemployment has never been higher. The number of people receiving unemployment assistance is NOT an accurate indicator of how many people are actually out of work. You have to consider those whose assistance has expired, those who choose not to file, and those who are inelligible.

Also, the makeup of the unemployed has never been more bleak. The people who are out of work right now in this country are NOT just unskilled laborers. Many are degreed professionals who are incompatible with this brand of service economy.

People are out of work for longer (I think the average is 5.5 months to find a new job, something ridiculous like that), and on average have to go farther to find work. And if all that wasn't bad enough, prices for essentials such as food and fuel have outstripped inflation by like 20%+, making it much more difficult for the unemployed and underemployed masses to survive.

The economy in America is not sustainable, not by any stretch of the imagination.

I think investment Dollars need to be thrown at India, a population just like China, and we can never be sure of Chinas ultimate intentions.

India on the other hand seems to be a peaceful hard working nation, just hardly any manufactoring industry because of lack of investment i guess.

Personally, I am looking forward to China doing this.
Why?
Well, remember the years past motto of "Buy American"?
Despite the short term negative effects such will have, the long term effects will be good for the US.





seekerof

Just some interesting info today on gold here:
Bloomberg Gold Highest Since 81

As mentioned in my previous post the difference in trade in Dollars to Euro soon with Iran Oil, with rumours that China and India are interested in a more stable Euro against the Dollar for their Oil/Mineral trades.

What has not been mentioned here was that Saddam Hussein was going to stop trading in $ with the Oil for food programme that made the US lots in currency exchanges, but hey then Chemical weapons were found there by Bush and he invaded 2 weeks before the change in trade!

This with the coming housing correction, in addition the real chance of Hyperinflation as Oil continues to rise, especially if the US dollar fell due to dump of it by the Chinese, with a housing market slowdown, high manufacturing costs (OIL) = Inflation....

This is a real threat as remember that a dollar is only worth what people will pay for it, no gold standard

Wiki Gold Standard

Though im not going to say that that system is better, however not having it can lead to Hyperinflation which is the real danger for all.

SAN FRANCISCO (MarketWatch) -- Gold futures closed above $541 an ounce Friday to log a gain of more than 4% for the week with a decline in the U.S. dollar driving investors toward precious metals as a hedge against potential losses.

MarketWatch

I’ve said in other posts a early as August last year that things will come to a head around spring 2006, and looks like it unfortunately may.

To be honest I smile when people say that the job market is good in the US

NEW YORK, Jan 6 (Reuters) - The dollar slid to three-month lows against the euro, yen and Swiss franc on Friday after the U.S. jobs report for December came in much weaker than expected, bolstering expectations that the Federal Reserve is close to finishing the current cycle of monetary tightening.

Reuters

Maybe its the source they read?

With the market now anticipating a pause in monetary tightening on behalf of the Fed ... the dollar is having trouble maintaining its value against the majors. Any disappointments in next week's U.S. data could well feed into the emerging bearish dollar sentiment," said Michael Woolfolk, senior currency strategist at the Bank of New York.

Also When the Cost of Katrina going to come home?

To Surmise I feel there is real observable evidence of past historical patterns of behaviour by traders, and investors that has always preceded a major crash, being played out now. With the politically unstable geo political landscape at present too that only makes it more likely. A lot of US UK Euro money is based on a 'feeling and mood' rather than anything concrete!

"If you take your dollar to a bank and ask for say euro or yen, you get less than you would have otherwise," said Kenneth Rogoff, a professor of economics at Harvard University. "It also means that if somebody from Paris or Berlin comes to New York, they think everything is pleasantly cheap. But if one of us goes over there, it suddenly looks really expensive."

Yep But Further and this is the mood around the world in traders, especially the viability of long term bonds, I mean why should China and India Buy $Bonds to fund a war they don’t agree with when the US economy is massively in debt, and they can buy EU Bonds instead?

As the deficit continues to grow and the United States falls further into debt, these countries have begun to worry that when the time comes, the United States might not be able to pay the returns on its investment. Because of this, several countries have begun to place less value in the dollar.

"[T]he United States has been borrowing and borrowing and borrowing," Rogoff, said. "[T]he United States is allowed to put the rope around its neck several times, but it's coming to an end. And that's why the dollar is starting to go down, because everybody is sort of seeing it coming to an end."

Kenneth Rogoff: Professor of economics at Harvard University

Source

Most Americans pay no attention to the exchange rate of the dollar, unless they take a trip to Europe and gasp at forking over the equivalent of five dollars for a cup of coffee. Only then do they realize that their paper currency which they once thought was as good as gold, is only worth what foreigners think it's worth. And right now, foreigners have a very low opinion of the dollar. Since the end of the Clinton administration - or to put it another way, since the beginning of the Bush administration - the dollar has been heading south at an alarming rate.

CBS Dec 6th 05

Wake up guys, its apparent and endemic in society:

Even drug dealers are starting to choose the euro over the American dollar these days. That's just another in a string of problems that have fallen upon the currency that was once king. James Grant who publishes Grant's Interest Rate Observer says black markets were, until now apparently, the dollar's last international strong-hold.

Source

The bubble truly could be about to burst, however I hope it is just a correction.

What is interesting is that if you don’t live in the Bubble when it bursts it does not shock you, with the cold blast of poverty rushing in.... Wake up !

HONG KONG (MarketWatch) - China's latest signal this week that it will diversify foreign exchange reserves away from U.S. dollars and government bonds could ripple through U.S. and global markets, analysts said Friday. China announced several steps this week in follow-up moves to its decision last summer to drop a decade-long yuan-dollar peg. Policy changes continue to come at a pace frustrating to U.S. manufacturers and some global financial officials but more change may be in store.

MarketWatch

Truly the main three factors that can cause real financial difficulties seem to be converging soon, I just hope as said its just a correction and not a big crash/depression

Regards

Elf

Originally posted by MischeviousElf
Truly the main three factors that can cause real financial difficulties seem to be converging soon, I just hope as said its just a correction and not a big crash/depression

And since it appears that your predictions may have some simblance of validity, in all your research, did you run across anything describing or detailing the effects of a US crash or depression on the world economy?

I will simply mention that prior to WWII, Germany went thru massive hyperinflation, a crash, and a depression, which then trickled and effected the rest of the world economy. As such, the US economy is the largest and most diverse economy in the world. If the US economy crashes or goes thru a depression, the rest of the world, including China, will reap the same in varying degrees, but none of those varying degrees will be 'good'.





seekerof

The Chinese control vast amounts of US Bonds and have nearly a trillion in US Dollars in their reserves, sounds scary huh? It's not. One trillion dollars is a drop in the bucket that will be absorbed by the global traders in no time and basically forgotten.

The SEVERE risk comes from the Chinese changing policy on their "Forex" buying. The Chinese have held up much of the US Bond market for the past decade or so. Let's step through this scenario...

If the Chinese just quit buying US T-Bills; long term, 30 year notes, mid term 10 year notes and short term 5 or less year notes, the immediate impact on the US economy will be harsh.

The "price" of bonds (a percentage above or below "par" or face value) runs inverse of their yield. If someone pays 103% for a bond, the yield on that bond will be less than if they paid 99% of par for it. The yield directly impact the interest rates of virtually EVERYTHING.

If China gets out of the US Bond market in a significant way, there will be much less bidding on Bond offerings and the prices could very well decline thus causing the yield to rise. A rising yield is a rising interest rate.

Rising interest rates are US Economy KILLERS unless the economy is "too hot", growing faster than the system can sustain (way more demand than supply), then rising interest rates are a good, not a great, balance mechanism. Raise rates (ala the Fed with their "rate hikes) and slow the economy to a more manageable rate of growth and stave off inflation.

The current US Economic picture is NOT one of solid, sustainable, industrial growth IMHO right now. This is very important because fast rising interest rates in this situation are guaranteed stifle and maybe crush the fragile growth we have right now.

The CONSUMER. Finally we arrive at the real US Economy, the good old Consumer, YOU and ME.

When I read all the convoluted analysis of the current US economic outlook I often wonder what planet some of these "economists" are working from. The bottom line, way over simplified reality of the US economy right now is that the engine of growth, the Consumer (you and me), is in debt up to his/her eyeballs. That's nothing new for the US and normally wouldn't be a big deal. The dangerous part of today's situation is the type of debt we all are buried under. Interest rate sensitive debt.

Anyone with a variable rate mortgage for example stands to get creamed by China dropping out of the US Bond market. Bond yields go up, interest rates go up, your house payment goes up. There are caps on how much the rate can increase on a variable rate mortgage, usually 6% a year. That can add many hundreds of dollars a month to one's housing costs. That takes those hundreds OUT of the economy.

The economists who keep lauding the "growth" of the US economy make me nervous. The "growth" is nothing more than people going into debt and buying products that will wear out. There is a limit on how much debt we can incur isn't there? Maybe not. But if there is we are getting close to it and any negative influences can tip the boat over pretty easily.

The typical follow through for the US economy once the consumer is worn out (slows spending dramatically) is industry. Industry has historically picked the ball up and carried the economy until the next big consumer spending cycle. Industry will be hard pressed to do this now. With a double whammy of higher debt service and lower sales to a worn out consumer the picture gets bleak fast.

The weaker US Dollar will hurt China without question, China has been buying US Bonds for this very reason, to keep the dollar strong and able to buy lots of Chinese produce. The real question is going to be is China in a position to take that hit? Maybe.

The "strong US Dollar means more exports from the US and therefor more economic growth for the US" concept is long dead. What, exactly are we going to export? We have shipped our manufacturing base over seas or lost it completely in many industries to cheaper competitors.

The US is in a transition phase IMHO. We are going to have to find the way to lead with innovation and creation. We are going to have create NEW industries that we can dominate globally and grow with. That's how we did it at the beginning of the industrial revolution. That's what made us the powerhouse we are today.

The very fact our economy is exposed to calamity by a decision China may or may not make should be a WAKE UP CALL that we are not in a good space economically. The short view management tactics (grab the cash today by selling bonds) are going to catch up with us in the long run.

Interest rates are crucial to our economy and we have sold way too much paper debt (bonds) to foreign governments, we have incurred way to much debt individually (credit card and real estate debt) and now are faced with China having the ability to single handedly impact our interest rates for a while at least. Is this a good economic strategy?

Time will tell if this economy is going to tank or slide by. I personally believe we will take a pretty good hit in the next 1-3 years IF something like China bailing out of the bond market happens. If it doesn't happen then it's any body's guess. We've never seen times like these.

All this and we still have "terrorism" threatening our economy to boot!

Springer...

[edit on 1-7-2006 by Springer]

In the currency market I go flat at the end of each trading day.


The dollar has lost some of it's luster lately due to bad economic news and when they stop the interest increases the dollar may fall.

It's it's own worst enemy and President Bush is responsible.

An embargo on China's goods is not the case here because the US has no hold on the number of units, good, China can export. Remember there is a whole wide world out there. That is nearsighted and proud.

The reason I believe for the dumping of the dollar is that now is the time for them, looking at their long term economic goals. It is not a shoving match. China just recently went to a capitalistic type economy. China has been watching and studying the economic machine of the US before employing this economic avenue. The next move for China is to purchase Euros since it is now on square footing with the US dollar. Any embargo from the US means thet China will move its exports to the eastern and western european markets and will have leverage because of all the Euros they will hold. Its called manipulating the market. Make some since to me but I am not an economist.Cordially, LEGALCATALYST.

Bascially in the end China has us in a bad situation should she choose to use it. The thing is the economic war will only work once (at least I hope) and will only work for a year or so.

If China is even questionably willing to play that game ( and I beleive thier history shows they are) then we should not sit idly by and let it become possible.

Again I wanted to point to the fact that China has had alot of history. I think the US has had the longest running economy based upon capitalism in the world. Good model to start with. Right? So copy it. Make it better. Prevent risk. Look long term.

What it boils down to is the laziness in the Whitehouse, crooked Corp. Execs that do not believe in trickle down, like giving the little man a raise. Plus the new generation grabs the ring called greed because they see the big CEO'S and their lifestyle. Remember most lifestyles were not made on hard work from those CEO's.

My assumption is that our - The People - financial advisors have not been fine tuning while China was on the concept of capitalism. Now it is time for the US financial policy makers to take a look at the Chineese model for improvments needed to our own. Fire the financial advisor in a personal sense. That is where we should look, look at the returns. None, just debt like a credit card. Now we have to pay the Piper on those bonds. Cordially, LEGALCATALYST.

I do not pretend to be an economist. I am aware of the impact that dumping the dollar could have on our economy.

Having said that, if the U.S. economy goes under the world economy will spiral into a downward trend resulting in world wide depression. The members of the IMF and the World Bank would not allow this to happen.

No one Country or economy controls the financial world. It is controlled by the two organizations mentioned above and they'll not allow that to happen even if they and their members have to buy up the dollar.

Noticias Del Zorro

As the aforementioned dialog has indicated, a economic tug of war between two like wise economic machines, there will be grouping of financial nations in that sense rather than offensive/defensive SALT/NATO in the past. Wars with nations will soon not be fought with men but with food.Cordially, LEGALCATALYST

I invite all you wouldbe and wannabe currency experts to dowload the current issue of CURRENCY TRADER MAGAZINE. It has an article about what drives currencies up and down. It's called: Advanced Concepts on page 30


www.currencytradermag.com...

You might also find this site on the FOREX interesting:

www.trade2win.com...

Thank you for those links. That is what it is all about finding the information and seeking answers to those questions using information, debate, forums and most importantly free will to decide for oneself their own position on the topic at issue. Cordially, LEGALCATALYST.

Originally posted by Springer
Finally we arrive at the real US Economy, the good old Consumer, YOU and ME.

The bottom line, way over simplified reality of the US economy right now is that the engine of growth, the Consumer (you and me), is in debt up to his/her eyeballs. That's nothing new for the US and normally wouldn't be a big deal. The dangerous part of today's situation is the type of debt we all are buried under. Interest rate sensitive debt.

Don't forget the country's negative savings rate to boot.

The "growth" is nothing more than people going into debt and buying products that will wear out. There is a limit on how much debt we can incur isn't there?

The housing market allowed many to use their property and the miracle of refinancing as an ATM machine to buy "consumables". Suburban expansion itself also creates the need of big box stores to fill the resulting expansion with furniture and goods. The brave new "service economy" (or is that servitude economy?) is weak and vulnerable. If the real estate bubble pops (activity is already slowing with increasing inventories properties on the market) there is not much left to fall back on.

Industry has historically picked the ball up and carried the economy until the next big consumer spending cycle. Industry will be hard pressed to do this now. With a double whammy of higher debt service and lower sales to a worn out consumer the picture gets bleak fast.

Manufacturing has already been moved to China and many service sectors have moved to India.
Rats abandoning ship?

The real question is going to be is China in a position to take that hit? Maybe.

I think they have been preparing for some time. They've had double-digit growth for many years now. They have growing upper and middle classes of consumers with a manufacturing base. Their local markets may be big enough to take a hit if all the pieces are in place. They've been very busy securing resources and forming ties. China a Leader in Scramble for Oil

Also recall that Venezuela recently sold all of it's US assets for the Euro and has economic ties with China.

China also has ties and energy deals with Iran and Russia (who just fired a warning shot across Europe's bow with NG) and the Euro oil bourse is only two months away. Petrodollar Warfare

The chess pieces are moving.

What, exactly are we going to export?

Exactly. I'm willing to bet that military hardware accounts for the bulk of US exports. Food probably a close second. The US consumes upwards of 25% of the world's resources, hence the trade deficit. What do you do when supplies get tight? Hit the consumer so they consume less or simply cut them off while you collectively figure out how to live with less.

The US is in a transition phase IMHO. ...
The very fact our economy is exposed to calamity by a decision China may or may not make should be a WAKE UP CALL ...

Yep. But some people want to continue their non-negotiable way of life by force so a few can get rich from the spoils. Iraq sits as testimony to that.

There's no shortage of nutcases in our world. The US looks from the outside as an isolated and bankrupt militarised giant with a divided populace, a democratic crisis and a seemingly unaccountable administration with theocratic overtones. Scary times.

We've never seen times like these.

No but some of the echoes from History are ominous.
.
edit to add links

[edit on 1/7/2006 by Gools]

China a country of 1.3 billion has an economy 1/7th that of the US.

The Chinese have no wiggle room. They do not have the economic might to jump around like the hero in a kung-foo movie.

The chinese will do what's best for them, but they will also be careful not to injure their relationship with their biggest market.

Any other idea is pure fantasy.









[edit on 1/7/2006 by bodebliss]