"scary stuff for the dollar"

[donsu]

http://www.atimes.com/atimes/Global_Economy/HK11Dj02.html

Daily Forex Commentary

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Before US Senator and leading US-China trade/currency critic Chuck Schumer even finished celebrating Democrat victory in the Senate, Chinese central bank governor Zhou Xiaochuan fired the first salvo in what could be a US-Chinese currency battle. This is scary stuff for the dollar.
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-snip-

Quotable
"China has a clear plan to diversify its $1 trillion foreign exchange reserves and is considering various options to do so, central bank governor Zhou Xiaochuan said on Thursday." - Reuters

FX Trading - A salvo
Before US senator and leading US-China trade/currency critic Chuck Schumer even finished his joyous celebration of Democrat victory in the Senate on Thursday, Chinese central bank governor Zhou Xiaochuan launched the first salvo in what could be the upcoming US-Chinese currency battle.

The diversification comment made by Zhou, and the dollar and metals market reaction, effectively shows that China has some heavy artillery that it's not afraid to use should Schumer turn his threats into legislation now that he and his party are in a position to do so.

This is scary stuff for the dollar, and all financial assets in general, if indeed a real battle were to break out between the US and Chinese over trade and the yuan.
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[DBoon]

1. So now China gets to dictate our foreign policy?

Which fiscally irresponsible administration let that happen?

And for how long was China already doing so before a Democratic victory forced the issue out to the open? How many secret trade deals were cut by the Bush administration knowing that China would in turn buy our debt and keep us solvent?

[LongTomH]

5. Not Just our foreign policy!

If I read this correctly, they're threatening that, if we try to keep us industries and jobs in the U.S. instead of continuing to send them to China, they'll retaliate.

The American public should be made aware of this. Start by sending links to this article to your own mailing lists.

[SammyWinstonJack]

24. Hey freeps, happy now?

:banghead:

[dipsydoodle]

10. Given that they now ,in effect , own

a substantial part of "you" it shouldn't really come as much of a surprise.

Here's a table which shows the pattern of their reserves from 1977 to mid this year : http://www.chinability.com/Reserves.htm

Joining the WTO in 2001 appears to have influenced matters.

[Greyhound]

16. "Which fiscally irresponsible administration let that happen?"

I think that would be the raygun, shrub, clinton, and shrubII administrations, with assistance from carter, ford, and nixon.

[Wiley50]

23. Much More on This Subject. HERE...

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=364x2677438

[Eurobabe]

2. This is the CONS fault for letting China buys us out

Now they are playing monetary blackmail. Bush sure has made us safer, huh?

[NoSheep]

3. Dick-wad idiot fuck.

[Nite Owl]

4. People for the most part are

unaware of the fact that we are owned by foreign countries. It might be a good thing that this is coming out in the open now. Lou Dobbs could be the one who pushes this best. All they have to do is demand payment on their bonds and we are well on our way to bankruptcy. This administration has sold us out and I hope it isn't too late to regain our economy.

[A HERETIC I AM]

8. Sorry, but they CAN NOT "Demand payment on their Bonds"

It doesnt work that way. They purchased the bonds knowing their maturity and interest rate. They can attempt to sell those bonds on the open market but they can not, nor can anyone, simply walk up to the US Treasury and demand payment on a bond still years from maturity.

This sort of concept is mentioned regularly here on DU and it is simply not true that the holder of a particular debt instrument can demand full reimbusement for that security at any time. That would be called a "Put Option" or provision and they are as rare as hens teeth in the bond market. International Bond markets just simply do not work that way.

[lumberjack_jeff]

18. Refusing to buy more treasury bonds

Would be catastrophic in itself.

Calculate the monthly interest on a $9t debt if interest goes up just one point. The deficits of the early 80's were solely the result of debt service. The increased cost to service that debt is $7.5 billion dollars per month.

(and dumping $1t worth of bonds on the open market would drive interest rates far higher than 1%)

[A HERETIC I AM]

20. You are entirely correct. If the Treasury began to have trouble

at it's weekly auctions then there would be serious difficulties. If investors, whether they are governments, institutions or individuals began to regard US Treasury securities as having too much risk then it would be seriously bad. And that is the major danger of having such high debt loads.

But it hasn't happened yet and it isn't likely to happen for a very long time. Most nations look at the debt of the US Government as being something that the American workforce and consumer could easily satisfy. Quite frankly, they are correct, we can. Big debt is never a good thing but the fact that other governments continue to buy Treasury instruments says they think we are a good credit risk.


Relax.

[lumberjack_jeff]

21. The Chinese central government buys bonds for reasons other...

than the interest they bear. In fact, with the slowly declining dollar, they suffer a net loss on that investment. What they gain is the leverage to influence US trade policy and (with the trade deficit) the opportunity to lend us the money to buy their stuff.

[A HERETIC I AM]

22. So in very practical terms, we get inexpensive tangible goods.....

and they get....what?


Paper. Notes.

Unfortunately, they aren't notes only redeemable at the issuer. They can do all sorts of things with those notes like build up their military.

Honestly, the influence they want to gain by buying Treasury Securities is, at the end of the day, significant to a limited degree. Their burgeoning economy is more dependent on our buying their cheaply made crap at Wal-Mart than ours is if they stopped buying Us Gov't debt.

The world is a big place.

China is big, but it aint that big. But it wants to get bigger economically and they KNOW they need the help of the West to do it. The Chinese Leadership will not bite the hand that they have come to realize is, if not feeding them, making the food.

If you catch my drift.

Please don't think anything i have said in the posts in this thread suggest i am not for sound fiscal policy. I am, most assuredly. One of the reasons for the great economy of the late 90's was Clinton's ability to get Congress to pass balanced budgets. Not having to borrow to finance ongoing expenditures made money easier to come by worldwide. Our own fiscal sanity helps the entire world.

A point forgotten by Bush and his band of merry spenders and war makers.

[A HERETIC I AM]

6. No Big Deal.

This is not a big deal UNLESS the Chinese central bank decided to sell all of its US$ denominated debt holdings. That is NOT what the news is about. They are simply looking to diversify their US Debt holdings among various US debt securities. The Yuan has been propped up by the US Dollar for years and the Chinese Central Bank has yet to allow it to be traded on the international market. China is for the most part simply trying to slow down the growth in their economy.

Again, no big deal.

[mainegreen]

7. Agreed. If our dollar drops their economy flops. nt

[darkworkz]

19. yup!

Things aren't as bad as most think. We the People just need a bit more info and we'll be just fine.

http://www.freedomtofascism.com/cms/index.php?option=com_content&task=blogcategory&id=4&Itemid=21

[redqueen]

9. Exactly.

:hi:

[Dancer]

11. This is where it gets interesting

*Will the Democrats Become Part of the Problem?*

* Bush’s Chernobyl Economy; hard times are on the way*


http://www.informationclearinghouse.info/

[redqueen]

12. It's a balancing act.

Anyone that pretends this is simple stuff is fooling themselves.

None of this is really news, either... but I can't say it's too surprising that suddenly the media is starting to talk more about it now that the dems are in charge. *yawn*

[Xenotime]

13. We need to sit down and have disccusions with them..

That's the only way to solve the problem.

[EstimatedProphet]

14. Idiot freepers will find a way to blame this on Democrats

[buzzard]

15. That is why I think in the long term interest rates will have to go up in order to

attract foreign investment.

[Greyhound]

17. and who's going to take the fall when this happens? n/t