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.First, how stupid have we been in the US to have given this power to China? By spending more than we earn we have given the Chinese (and also the oil exporters of the world) the ability to tank our economy whenever they choose. All they have to do is sell their US bonds and take the money out of the US.
Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.
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.
It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.
Second, how stupid is this Chinese threat? They are planning to do this because they don't want trade sanctions or a yuan revaluation. But, if they tank the dollar, the yuan will become stronger in relation and yet this is exactly the kind of yuan revaluation that the Chinese have been fighting. And if they tip the US economy into recession, this will lower demand for Chinese goods more than any trade sanction would.
The fact of the matter is that the Chinese and American economies are in a co-dependent relationship, and the Chinese can't pull off this threat without harming their economy as much as America's.
via The Telegraph