Monday, December 04, 2006
Sinking Dollar
- Will China Back Out?
In a recent article entitled "Will China Lead a Stampede out of the US Dollar?", it was reported that Beijing is having second thoughts about the composition of its $1 trillion portfolio of FX reserves, with 70% held in low yielding US fixed income securities. “Firstly, long-term US interest rates are falling. Secondly, the exchange rate of the US dollar, which is the major reserve currency, is going lower, increasing the depreciation risk for east Asian reserve assets,” Wu said.Most of the US trade surplus with China is being recycled with US Bonds. China now owns more than a Trillion dollars worth of US Bonds. According to the article, “China's economy would take a big hit if the US dollar weakened sharply due to such factors as a bursting of the US property bubble. The loss for China’s foreign exchange reserves would be extremely serious. If that happens, it will be a tremendous hit to the Chinese economy,” he said.
On October 10th, Fan Gang, another member of People’s Bank of China’s policy committee, made similar comments, “China risks an erosion of its holdings because the US dollar will probably decline.” On August 29th, Gang wrote, “The US dollar is no longer a stable anchor in the global financial system, nor is it likely to become one, therefore it is time to look for alternatives.”
Aparently, China is caught up in a Catch 22. If they continue to invest in the US dollar, they will lose their capital due to the sinking dollar. If they pull out of the US dollar, they will cause themselves internal economic problems. At some point the losses due to the dropping dollar are worse than the loss of being able to sell their goods in the US and they will pull out of the US dollar. That point is approaching fast.
What will the globalists do?
They are creating all of this. They move jobs overseas, they artificially create wars, set up the dominoes and then deliberately collapse entire economies to collect. It's part of the plan. Since the war on terror is losing its support and costing too much money, they will find a new enemy - China.
According to the scenario you lay out running up to the "looking for a new enemy" part, new enemies are the last thing you need when you can't afford a war and your enemy has all your IOUs.
so true. The US cannot afford war and China holds many of the IOUs. But look at the idiots stir up trouble with Syria, North Korea and Iran. When China pulls the plug, they will be judged as "terrorists" too.
By the way, many of us hoping to get Social Security own a large part of the national debt and so do US investors. Japan also owns a large part of the IOUs.
One thing that's for sure. Once the US's credit rating towards junk status, the interest rates necessary to finance the debt are sure to go up. I.e. interest hikes are on their way. Can you say inflation? Of course it will be the Democrat's fault.
We talk in terms of "China's economy " or the "US economy" but in this age of integrated ,trans-national capital many of the players are the same stateless actors. General Electric or the Carlyle Group don't care who is the seller or who is the buyer or who does the financialization or the manufactering. They make money off of every deal.The proxy wars are just pissing matches to prove we can protect shipping lanes or oil wells.
