In response to measures currently being considered in the US Senate, which would allow US companies to apply for anti-dumping penalties against Chinese companies unless China allows the Yaun to rise against the US dollar, China has threatened to begin dumping it’s foriegn currency reserves triggering a crash of the US dollar.

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

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Described as China’s “nuclear option” in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

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He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.

“China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.

“China is unlikely to follow suit as long as the yuan’s exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar,” he told China Daily.

source: Daily Telegraph

To me this seems like a very dangerous game of brinksmanship for the Chinese. China’s two largest trading partners are the US and Japan. Together they make up approximately 40% of China’s foreign trade; the US alone makes up 24%. The US also makes up about 24% of Japan’s foreign trade. If the Chinese trigger a recession in the US it will surely cause a recession in Japan and that severely affect China’s export market. As Insider and Senior Administration Official pointed out to me what do they think is going to happen if millions of newly middle class Chinese are suddenly unemployed? It probably won’t be pretty.

Sometimes I wish I was President just so I could call their bluff. Or Bill Gates, once the sell off begins he would be in the position to start buying up $900,000,000,000 worth of debt at rock bottom prices. Let’s see the Justice department complain about monopolies then.

This entry was posted on Wednesday, August 8th, 2007 at 9:51 am by Chad and is filed under Brilliant, but uncategorizable. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.