WP: China Losing Confidence in the Dollar

[UpInArms]

http://www.washingtonpost.com/wp-dyn/content/article/2006/01/09/AR2006010901042.html

SHANGHAI, Jan. 9 -- As China's industrial juggernaut has flooded foreign ports with cheap factory-made goods in recent years, its central bank coffers have filled with the bounty flowing back to these shores -- a stash of foreign exchange now exceeding $800 billion. China's leaders have steadily invested the bulk in one primary vehicle: the U.S. dollar.

But on Monday came the latest recent sign that China has grown worried about tying its savings so closely to the dollar, a currency that many economists think is due for a fall. A senior economist at China's State Council -- the equivalent of the cabinet -- said in an interview that China is moving toward a new policy of buying fewer U.S. Treasury bills while shifting slightly toward buying assets that trade in other currencies.

China now boasts the world's second-largest stock of foreign exchange reserves after Japan, and with roughly three-fourths of those holdings now invested in the U.S. dollar and dollar-backed assets such as bonds and real estate, even a slight shift in the composition of China's investments could push the value of the greenback down, some analysts said.

The comments of the senior economist, made on condition of anonymity because he is not authorized to speak to the press, confirmed an analysis in Monday's Shanghai Securities News stating that China is inclined to shift some its savings into other currencies such as the euro and the yen, or into major purchases of commodities such as oil for a long-discussed strategic energy reserve.

<snip>

Many economists anticipate a significant slide in the value of the dollar if the United States' trade and fiscal deficits continue growing. In recent years, the dollar has been propped up by aggressive purchases by China, Japan and oil-exporting countries. Some economists warn that this has made U.S. prosperity dependent on the willingness of foreign powers to continue financing America's profligate ways. If foreigners lose their appetite for U.S. Treasuries, the dollar would drop, increasing the cost of imported goods in the United States and likely forcing the U.S. Federal Reserve to lift interest rates, perhaps bursting what is widely seen as an investment bubble in the real estate market, sending prices plummeting.

...more...

[FloridaPat]

1. Oh joy. Another * fiasco.

[iamahaingttta]

3. Not a * fiasco. The * agenda.

I remain convinced that this is all part of the plan.
They want to fuck us all over and turn the U.S. into a third-world country.
Making China "lose confidence" in the dollar is just one of the many pieces in the puzzle.
Nobody will even really notice this one!

[ShockediSay]

14. And Warren Buffet's bet against the Dollar

turns into a WINNAH!!!

ps: gold just hit a high; wanna bet on gold or the dow?

[radfringe]

35. and bush* says:

"The American economy heads into 2006 with a full head of steam," the president proclaimed.

full head of steam: (translation) full of hot air....

[onehandle]

2. China will leave us in the financial dust in this century.

I often quote my high school friend the college professor, "The United States will be the Mexico of the 21st century".

He said this in the heydays of the Clinton economy ten years ago. I laughed.

[Deja Q]

5. NAFTA, et al, we all saw it coming.

"Survivor" was more fun, however.

[hogwyld]

38. I hear Ye

Everyone thought I was nuts 15 years ago when I said that China was a dragon waking up from a long sleep. 10 years ago, everyone laughed when I said China will quickly become a top G-7 nation. 5 years ago, my puke friends chortled when I said China will flush us down the toilet by 2020. They're not laughing anymore.

[Deja Q]

4. * didn't cause the problem, but he HAS brought it breaking point

Sorry to annoy anyone, but the truth is the truth.

Still, I didn't make the problem. I'd like to be a part of a viable solution.

[Vincardog]

6. The * plan is to bankrupt the US and lead us into a glorious new Dark Age

We all starve while he and the "Have More's" live by eating our children.

[Deja Q]

8. Compassionate conservatives

Doublespeak.

But in an overpopulated world that's consuming resources like no tomorrow and damaging the earth's environment, what else CAN be done?

Assuming all we read is true, there is no simple or shiny happy situation.

We are all expendable.

I'm sorry if it annoys you, but we all have to get accustomed to that fact.

Just another reason why I keep saying "live life as happily as you can while you can". It's easier to say, and we could be ran over by a bus tomorrow.

[mom cat]

16. Methinks they carve a feudal system.

[louis-t]

7. Yeah, sure, like they decided this yesterday.

They've been warning us for 3 years.

[justabob]

9. Maybe you can tell me

Since China and Iran are so involved via oil, isn't it likely that China will dump its dollars and acquire euros for the new bourse? How badly is that going to hurt us and what will that for Europe?

[UpInArms]

15. the Iranian "PetroEuro" has been referred to as the death knell

for the dollar.

Perhaps that is why dimson is intent on attacking Iran?

[justabob]

18. yes

I understand that much :) ... I read the same thing about the invasion of Iraq and it made sense, but beyond the very basic knowledge that petro-euros are not good for us, I really don't understand how it all works and what it means to the various players internationally.

[UpInArms]

20. currently, oil is bought with US dollars and any country buying

oil has to buy or use dollars to make their purchases. It is one way that the dollar has maintained supremacy over other currencies. It also makes all those countries have a need for dollars - thus there is a continued interest in owning dollar denominated assets - they can be traded for oil.

If that scenario changes, the dollar then loses its value because there will not be the need for their use in purchasing the one commodity that all nations need: oil.

[Jacobin]

10. Interest rates are about to spike

In order to attract foreign dollars to buy T-bills to finance the gigantic deficits, the Fed will have no choice but to raise interest rates. Which will put a damper on the economy and hurt the housing market along with other borrowers.


The day of reckoning is ahead

[William Bloode]

11. Perfect!

Who's gonna buy or debt now? Worse yet what if they want their money back? Terrible, terrible! They have us by the nutz, and the bad thing is we handed them right over.

[American liberal]

28. that's what I thought, too, William...

the first time I heard that China owns at least 40% of U.S. national debt. What happens when they start calling in those notes? A friend of mine who knows a lot more about how the economy works says it's not in China's best economic interest to bleed us dry. It's a symbiotic relationship: As the biggest consumer nation on earth, we buy their goods, which helps their economy; therefore, if China were to bankrupt the U.S., they'd be shooting themselves in the foot. They need us worker bees to buy their "cheap" products at Wally-world in order to keep building their economy, which is poised to eclipse ours--probably within the next 20 years. (sorry for mixing all those metaphors. it's late and I've had a long day.) :)

My understanding of what the Bush admin. has been trying to accomplish is to bankrupt the govt., so they can discontinue all the social programs that have cropped up since the Depression. What's ironic, from my very uneducated, simplistic view, is that if by destroying the U.S. economy it throws us into another Depression era, NEW programs will have to be developed to help bail us out. Katrina victims are one thing; the American people will surely not stand by and watch other formerly middle-class white people starve to death.

These are scary times, indeed. The only good coming out of it for me personally is that I am learning more about the world and our own political process than I ever thought possible. And I discovered DU. Bless you all.

Peace,
AL

[Extend a Hand]

32. I've been reading about what happened to Argentina when

on their international debt in 1991.
their government defaulted on its debt in Dec. 2001.

http://www.thenation.com/doc/20011210/weisbrot
http://dominionpaper.ca/labour/2005/08/06/after_the_.html
note the police state look :scared:
The poor collect cardboard at dumps

20% unemployment - at the link below listen to middleclass people waiting to pawn their family heirlooms for food & rent.
http://marketplace.publicradio.org/shows/2003/08/04_mpp.html

For a monthly donation of 10.00, This organization feeds the poor in Argentina.
Even with things improving now, 50% of the population are now poor.
http://www.diezeuros.org/en/

Workers have taken over and reopened businesses abandoned by the capitalists when the crash occured but whether the state will award ownership to the workers is still up in the air.

And still, Argentinians collected and donated to Katrina victims.

Guess where the guy is now that headed the central bank at the time of the crash--
He's teaching economics at Harvard.

[EuroObserver]

36. This is correct, so far,

But China's domestic market is growing fast, as is India's and Asia's in general. Japan's (the biggest holder of dollars) is also due for a reawakening, so they say...

There seem to be renewed discussions on the establishment of an Asian free trade area.

The EU market, meanwhile, is called by some 'sluggish' and by others 'stable'. The EU sells more stuff internally than externally, although Germany, for example, is still the world's largest exporter.

[enid602]

12. investments

45% of my 401K portfolio is now in non-dallar holdings. I Bush-proofed my investments right after the last election.

[HuffleClaw]

13. EEP

this'll have bush and friends absolutely shaking in their boots. just freaked. its not like they can jump up to declare china a hotbed of terrorism and wmd to solve the problem. this and the iranian oil bourse combined will not bode well.

[Marie26]

17. How will this affect the deficit?

I'm not an economist, but aren't the Chinese basically funding our debt right now? If China stops buying U.S. Treasury notes, how will the US find the buyers to fund our annual deficit? If China loses confidence, ther other countries could lose confidence too. I'm just curious - what would happen if no one wants to buy up US Tresury notes anymore?

[UpInArms]

21. interest rates will have to rise to attact investors - it's similar to

a credit card instantly charging more interest on the total owed - making the government then compete with individuals and corporations for borrowing power.

It will definitely pop all the bubbles that depend on low interest rates.

[Auntie Bush]

19. Isn't Bush counting on the fact that China won't do anything to

damage the value of the dollar because it would ruin their OWN economy.
We owe them too much money and buy most of their goods. They'd be fools to do that but I think they are fools...so I worry! :scared:

[UpInArms]

22. *Co is not sophisticated enough to worry, they/it believe that

since they have lots of weapons, they/it have control.

:shakesheadsadly:

[leesa]

23. But the economy is great according to all these economic wizards in the US

Doesn't the First Fool have his Bidness degree, after all? God, even a child could figure out that if you don't make anything your economy DIES.

[wordpix]

24. here it comes---what if US can't pay China back what we owe? Does China

then send in its army to take over our national real estate---parks, buildings and natural resources?

[Deja Q]

25. cbsnews.com, from a month ago, put things in "perspective".

http://www.cbsnews.com/stories/2005/11/23/uttm/main1070315.shtml

Is the Chinese military getting better, stronger? Absolutely. Will it someday catch up with the U.S.? Not at this rate. Not now, and unless something radical changes … probably not ever.

Propaganda, perhaps?

[hang a left]

34. OK....now you are annoying me.

:evilgrin:

[doublethink]

27. That won't happen ......

the federal reserve just decided to hide the M3 figures come 'March' of this year which means the U.S. can just print all the (worthless) money they want to pay China off if it came to that. Of course we'd all be going down the street with wheel-barrows of cash to buy a bottle of milk. The shelves in Wall Mart would empty pretty quick, not to be restocked. But you can hedge your bets and invest in 1/3 Gold (just hit a 25 year high today) 1/3 Euro (The Iranian Oil Bourse goes online 'March 20th) and keep 1/3 U.S. Dollars. See this way if Bush does bomb Iran and start WW3 .... depending how China reacts (they have so much invested in the U.S. it would be 'mutual economic destruction' for them to cash out) ..... well before I go any further why does all this remind me of that movie with Jack Nicholson from 1996 called 'Mars Attacks'? :shrug: ..... especially the part with the Martians running around shooting everybody while they say 'don't be scared, we are your friends' ...... scheesh ..... peace. :)

[AngryAmish]

39. We pay them back in dollars

That is what a T-Bill is. They buy with dollars and pay back with dollars. We have printing presses.

[Wordie]

26. Recommended...with dismay. Is there anything to be done? n/t

[doublethink]

29. Pray.

:shrug:

[AlienGirl]

33. Buy gold coins

You can get 1/10-oz. gold coins for about $75. An ounce of gold is about $560. If you have any money at all to spare, start buying gold in dribs and drabs and saving it. If the dollar plummets and inflation runs wild, you will be glad; if a worst-case-scenario doesn't happen, sell 'em at a slight profit and take a vacation or something.

Tucker

[lovuian]

30. Who wants cheap currency...

thats going down in value... China's greed is going to destroy it too...

[kysrsoze]

31. Everything is made in China - at Wal Mart, Target, Sears, everyplace

I want to buy non-chinese but it's really hard. The last American made thing I can remember buying is my rather nice bicycle. Even the new furniture is mostly Canadian. I give up.

[Toots]

37. When a Democrat becomes President all hell will break lose

As soon as the Democrats fix our financial and ethical problems America will once again vote in the criminals. It is just the American way. Americans seem to idolize the Mafia and what they stand for...

[AngryAmish]

40. Umm, virtually every major economist has wanted this to happen for a while

The main beef the US has economically with China is that their currency is devalued. A devaluation of the dollar is coming and should have happened a long time ago but for the purchase by Chinese, Japanese and oil producing countries of dollars.

What happens when the dollar becomes devalued? 1. Our interest rates will go up (don't have to in short term per Fed policy but must in long term). 2. Our exports become cheaper. 3. There may finally be some pressure for some fiscal sanity in Washington.

The administration has been quite lucky in that they have spent like crazy and has sold the debt off cheaply. If some inflation has happens then the debtors are being paid back in devalued dollars.

Also, for the last time, none of the holders of US gov't debt can "call in" their debt. It just doesn't work that way. They can refuse to buy more but the whole debt is not payable all at once.

Finally, because of internal Chinese politics, they have no interest in crashing our economy. The real estate bubble in Shanghai is already bursting.

This is a correction and one that is too long in coming. It is going to hurt. But it is due and not entirely bad.

[nolabels]

41. The US debt is astronomical, government and personal

The other sign, a stock market that goes up when all the signs point to a downward. Isn't that the way it happened in the late 20s crash. They already have neutered all the controls on stocks, bonds and commodities that were placed on them previously. This will all make for one hell of a crash landing.


The U.S. is a paper tiger, the nukes and other high tech weaponry that have sucked up the discretionary expenditures up will be useless as a bargaining chip when the currency crashes because of a unsound economic system. If you haven't been watching them other countries that trade with U.S. are setting up stand afar trade for this eventual problem. Just like the ruskies, we will implode of our own weight

I don't share the rosy scenario of a manageable downward, too many fools running things just for one. One of the big reasons for the invasion of Iraq was to stop the transfer to Euros and it isn't working.