Asia's Stockpiles of Dollars Pose U.S. Economic Risks

[papau]

http://www.latimes.com/business/la-fi-dollar6apr06,1,6876656.story?coll=la-home-headlines

Asia's Stockpiles of Dollars Pose U.S. Economic Risks
By Tyler Marshall, Times Staff Writer

HONG KONG — <snip>Collectively, Asian countries hold foreign exchange reserves — mostly in dollars — valued at more than $2 trillion, nearly triple that of just seven years ago, according to the Asian Development Bank. Those dollar holdings continue to grow rapidly, with the Japanese and Chinese governments particularly heavy buyers.

Asian governments buy dollars because it helps boost their export-led economies. Snapping them up keeps the greenback's value high and the value of regional currencies low, giving Asian countries a vital competitive edge in foreign markets.

Though this strategy makes a Chinese-made toy or a Japanese TV set cheaper for Americans and other global consumers, it has serious side effects. The dollars that Asian countries rake in as payments for those exports further boost their already bloated reserves while the record U.S. trade deficit grows even larger.

But that's not all. Asia's dollar purchases also effectively finance the huge and growing U.S. budget deficit as central bankers in the region invest most of their dollars in U.S. Treasury bonds and other securities. They have done this with such gusto that Uncle Sam doesn't even have to offer higher rates to move the average $1.5 billion of Treasury securities it must sell each day to sustain the current year's deficit.

Without that demand, the United States would have to offer higher interest rates to lure buyers — a move that would drive up rates on mortgages, business loans and more.<snip>

[brokensymmetry]

1. A huge risk.

Suppose China wanted to make the US do something or other. All they have to do to deliver a body blow to our economy is to quit lending us more money for a few months. Interest rates would rise, and the economy would slow.

If they really got irritated, they could sell a few tens of billions of bonds per month. Long term rates would escalate, federal borrowing costs would skyrocket, and the stock market would swoon.

Yes, definitely some risks...

2. This is similar to my earlier article on "Japan Reserves"

I found the Federal Reserve on my website a few days after I wrote an article on this subject.

Greenspan then commented on this situation to Congress.

I don't know if there is cause and effect here, but my website does get good readership!

It should be noted that the continued purchase of dollar assets is already dwindling, based on recent statistics.

[kalian]

3. Damn straight its a risk....

and just imagine when China decides to invade Taiwain and the US
wants to help the Taiwanese... :eyes: The US cannot win any future
wars against nations that CAN and WILL fight back...both on
the military as well as the economic front.

And poor Wal-Mart...imagine what China will do to its sales...
:evilgrin:

[Pale Blue Dot]

4. dupe

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http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x7735