The Web site’s headline was certainly arresting: “China threatens to trigger U.S. dollar crash.”

And so was the first paragraph of the story in Britain’s Daily Telegraph: “The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of U.S. Treasury bonds if Washington imposes trade sanctions to force a yuan revaluation.”

This is one of those threats beloved by thriller writers that is theoretically plausible but economically impractical and, if carried out, would be as damaging, perhaps even more so, to China as to the United States.

The Chinese have eagerly snapped up U.S. bonds — in effect, lending us money — to gain access to the world’s largest export market and to accumulate dollar holdings, said to be $900 billion now, in the world’s standard reserve currency.

The threats were made by two senior officials at Communist Party organizations, and the fact that the two weren’t immediately slapped down by the government suggests the threats have semi-official backing.

If China dumped its dollar reserves, it would certainly drive down the value of the dollar and maybe cause it to crash — and with it the value of China’s own savings. China’s phenomenal economic growth is driven by exports. But China would immediately lose the huge U.S. export market, the cost of its own exports on world markets would rise and the global turmoil would further diminish the demand for those exports.

China’s own economy would suffer; so, too, would ours, although the U.S. economy is much less dependent on international trade. Alarmed lawmakers here and in other nations could begin raising protectionist barriers with the likely consequences of a global recession, even another depression.

The easiest way to combat this prospect is for Congress to balance the budget and quit enacting tax cuts and spending programs that must be financed with borrowed money. The worst way is the course being advocated by some congressional Democrats — punitive tariffs on Chinese goods.

The idea of intentionally triggering a dollar crash is something best left to the thriller writers.

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18 COMMENTS

  1. I have always been impressed with true believers in the American Way as they seem to be able to justify their thoughts every time. This time, I guess, its that the Chinese are barbarian communists. You should really go over there and take a look. Its the strangest communism you are ever going to see. They do have communist leaders and many, if not most, would seem to be corrupt to us. I have seen them in action and the ones I have seen are genuine pigs. I also remember a Chinese man pointing to them, in their big cars and telling me that he fully expected a leader to come and KILL them! The Chinese people seem, for instance, to consider the time of the 60’s and 70’s (the cultural revolution) like we would think of a really bad earthquake.

    What bothers me is that our attitudes do us no good. We are in a really serious battle over oil, for instance. Its being done quietly but its being done. Nigeria, for instance, is fighting an increasingly nasty battle against increasingly well armed ‘insurgents’ and the ‘insurgents’ seem to be gaining.

    When china goes to dicker they say; “We do not have a single soldier on foreign soil”. They don’t have to say much more given that we have soldiers in something like 400 countries around the world! If you want to do business would you prefer it at the point of a gun? Our superior attitude, our obvious inability to fight, and win, a sustained war are serious questions. Hell, does anybody remember how we treated our ‘allies’ after Vietnam? How about how we are treating, right now, those poor devils who aligned themselves with us in Iraq? Why in the WORLD do people even trust us? Historically we are really not very good at this empire thing. It sure as hell doesn’t benefit us (although it might benefit the big corps and the oil folk). Our children are dying for what is, in the end, seeming a whim of an American president.

    To re-iterate. We need a serious change in direction. I do not see the political parties of even being capable of having a discussion on the basics. They have been, literally, bought and sold. There is NO secret about this! All the facts are easily found. When, for instance, Hillary Clinton tells us that the corporations have ‘donated’ tens of millions of dollars to her campaign, and expect nothing in return, do people really believe that? Not, I think, if they have half a mind. When you hear a Republican praising the Lord the first thing that comes to my mind is to wonder when is he going to get caught doing some really disgusting thing. In spite of that, WE continue to elect these jerks! How does it go? “I have seen the enemy and the enemy is us!”

    We gotta stop jerking our knees about the evil illegal, the Chinese, the gays, etc. and start paying attention! We gotta start actually getting things fixed! We gotta stop our electing getting bought and sold like hookers on a street corner. We gotta simply wake up and smell the roses…..

    I know – wishful thinking………… (its not gonna happen – we are simply too fat and pleased with ourselves)

    john white
    Port Angeles, WA

  2. Right,and not right on this one. China would suffer consequences if they “crashed” the US dollar. But those consequences would be moderated to a large extent by two factors.
    One, much of China’s economy is state owned, they are Communists after all. So the paper losses would not damage their productive capability, only their ability to obtain raw materials. We don’t supply those raw materials. China does not import much non agricultural material from the US.
    Two, Since the day Bush was re elected China has been expanding its markets in a massive way. We are their major trading partner, but we are not their only trading partner. If the US Dollar Crashes, The Euro remains strong. The rest of the world’s currency also remain strong. China will have markets, and while the reduced value of the dollar will make American goods more attractive, WHAT GOODS DO WE PRODUCE? There is a downside for China, but they have already hedged their bets. They have been hedging their bets for years, and they went all out when Bush was re-elected.

  3. Eat Anything? So what?
    Since when does a nation’s eating habits have anything to do with the subject at hand? Hell, the Thai people eat more strange things than the Chinese, and in fact make fun of the Chinese for their “limited menu.” Rats from the rice paddys are a common diet item, whereas the Chinese do not eat rats. They eat dogs, something the Thai people should learn to do as there is a huge overpopulation of dogs in Thailand.
    But that is all irrelevant. I happen to agree with John White and would just add one comment–the Chinese do not make threats as much as they make warnings. It is in their best interest to dump the US Debt that they own, and I would really expect this to happen in the not too distant future.
    China is not a nation of communists. It is a Communist Nation that is filled with Capitalists. The Chinese people are smart, industrious, and creative. They are similar to the Japanese in the 1970s, when Japan really began emerging as an economic power in the world. China already is such a power, with many, many more citizens as a driving force.

    Sure they are having some quality and corruption problems now. That happens. But watch how fast they fix them because as a Communist Nation they have a much different legal system than we are used to. Their system is one of trial, convict, and execute. There are no drawn out appeals, no long court processes. It’s quick and deadly. If you are convicted, you die. Publicly.

    The Chinese like to show how tough they are judicially. All those political prisoners don’t amount to a pimple on someone’s butt. When you have more than 1.4 Billion citizens, the loss of a few thousand, hundred thousand, or even million is not of much consequence.

    Those mine disasters that we occassionally read about are far more frequent than you think–and far less important than we can ever understand. They probably lose 100+ people a week in coal mine disasters, a number to them that is totally insignificant. Their standard of measurement is not people, their standard is money. Money is the driving force in the life of most Chinese. Even those in America are this way, and the sooner we Americans realize this fact, the sooner we will be able to deal with the situation and the Chinese.

    So yes, they may cash in the 900 billion dollars of debt. If China destroys the dollar then what currency do you think will reign supreme in the world?
    My guess would be the Yuan, the RMB.

  4. Eat Anything? So what?
    Since when does a nation’s eating habits have anything to do with the subject at hand? Hell, the Thai people eat more strange things than the Chinese, and in fact make fun of the Chinese for their “limited menu.” Rats from the rice paddys are a common diet item, whereas the Chinese do not eat rats. They eat dogs, something the Thai people should learn to do as there is a huge overpopulation of dogs in Thailand.
    But that is all irrelevant. I happen to agree with John White and would just add one comment–the Chinese do not make threats as much as they make warnings. It is in their best interest to dump the US Debt that they own, and I would really expect this to happen in the not too distant future.
    China is not a nation of communists. It is a Communist Nation that is filled with Capitalists. The Chinese people are smart, industrious, and creative. They are similar to the Japanese in the 1970s, when Japan really began emerging as an economic power in the world. China already is such a power, with many, many more citizens as a driving force.

    Sure they are having some quality and corruption problems now. That happens. But watch how fast they fix them because as a Communist Nation they have a much different legal system than we are used to. Their system is one of trial, convict, and execute. There are no drawn out appeals, no long court processes. It’s quick and deadly. If you are convicted, you die. Publicly.

    The Chinese like to show how tough they are judicially. All those political prisoners don’t amount to a pimple on someone’s butt. When you have more than 1.4 Billion citizens, the loss of a few thousand, hundred thousand, or even million is not of much consequence.

    Those mine disasters that we occassionally read about are far more frequent than you think–and far less important than we can ever understand. They probably lose 100+ people a week in coal mine disasters, a number to them that is totally insignificant. Their standard of measurement is not people, their standard is money. Money is the driving force in the life of most Chinese. Even those in America are this way, and the sooner we Americans realize this fact, the sooner we will be able to deal with the situation and the Chinese.

    So yes, they may cash in the 900 billion dollars of debt. If China destroys the dollar then what currency do you think will reign supreme in the world?
    My guess would be the Yuan, the RMB.

  5. Eat Anything? So what?

    Since when does a nation’s eating habits have anything to do with the subject at hand? Hell, the Thai people eat more strange things than the Chinese, and in fact make fun of the Chinese for their “limited menu.” Rats from the rice paddys are a common diet item, whereas the Chinese do not eat rats. They eat dogs, something the Thai people should learn to do as there is a huge overpopulation of dogs in Thailand.

    But that is all irrelevant. I happen to agree with John White and would just add one comment–the Chinese do not make threats as much as they make warnings. It is in their best interest to dump the US Debt that they own, and I would really expect this to happen in the not too distant future.
    China is not a nation of communists. It is a Communist Nation that is filled with Capitalists. The Chinese people are smart, industrious, and creative. They are similar to the Japanese in the 1970s, when Japan really began emerging as an economic power in the world. China already is such a power, with many, many more citizens as a driving force.

    Sure they are having some quality and corruption problems now. That happens. But watch how fast they fix them because as a Communist Nation they have a much different legal system than we are used to. Their system is one of trial, convict, and execute. There are no drawn out appeals, no long court processes. It’s quick and deadly. If you are convicted, you die. Publicly and quickly.

    The Chinese like to show how tough they are judicially, but to them all those political prisoners don’t amount to a pimple on someone’s butt. When you have more than 1.4 Billion citizens, the loss of a few thousand, hundred thousand, or even million is not of much consequence.Just a bunch of harvestable organs to sell and make more money for the government.

    Those mine disasters that we occassionally read about are far more frequent than you think–and far less important than we can ever understand. They probably lose 100+ people a week in coal mine disasters, a number to them that is totally insignificant. Their standard of measurement is not people, their standard is money. Money is the driving force in the life of most Chinese. Even those in America are this way, and the sooner we Americans realize this fact, the sooner we will be able to deal with the situation and the Chinese.

    So yes, they may cash in the 900 billion dollars of debt. If China destroys the dollar then what currency do you think will reign supreme in the world?
    My guess would be the Yuan, the RMB.

  6. Thank you, John, for the reality check. I hope enough people read it. The chinese have been “limping’ though history on that foot longer than anyone knows and I suspect will still be doing so when the rest are gone. They are living proof that population is the greatest resource.

  7. Again, interesting. I guess its China bashing time. I used to have a collection agency. I remember when Chinese banks started doing business in this country. They had, absolutely, no clue. In China they loaned money, regularly, to people with a handshake. They were astounded that people never paid them back and wanted me to collect their debts (there was quite a lot of money involved). I think that was education that they took to heart.

    I never said that the Chinese were not predatory – they are. If they get a chance they will take advantage and they are viscous competitors (not unlike some right here). All this is true. Its obviously got a lot of folks upset – with the Chinese. My point is that we just may be blaming the wrong people. They sell us crap, but, don’t forget – we buy it! We, the American public, prefer that crap to American made stuff – obviously. So our reaction is? Ahhhhhhhh! Blame the Chinese! We have a government borrowing as if there is no tomorrow and the Chinese have facilitated this by loaning us the money (buying our bonds & notes. Who do we blame – Ahhhhhhhh! The Chinese! (the bastards!) We used to test food coming into this country (actually secure our food supply!). Government decided that the money would better be spent in Iraq. So, the Chinese took advantage, yet again, and sent us bad stuff. Who do we blame? Ahhhhhh! The Chinese!

    I guess this means that this country is just chock full of Christian business folk, doing the right thing, following all the rules and being kind and sensitive (unlike them damned Chinese). Let me see, it has been estimated that these same kindly americans have seemingly ripped off something like 50 billion dollars in Iraq. Then there are the Enrons, Worldcoms, et. al. All kindly, sensitive, Christian, businessmen. All I can say is thank goodness we have rules and regulations, over here, that guard us from predators, like the Chinese. Give me a freaking break!

    The simple fact is the government is supposed to stand between us and the greedy capitalist thereby mitigating the most egregiously greedy. It no longer happens. They have relaxed regulations on banks, agriculture, food inspection, drugs (the list is endless). Political ‘donations’, by the affected industries are well documented (www.opensecrets.org). They have not protected us from our own, and they have not protected us from those who are not our own. Our government, in other words, has simply failed. There is a LOT of evidence that the culprit is the self serving greed of OUR elected! If you want to place blame is really pretty easy – US (WE voted for these jerks and WE are the ones buying Chinese junk!).

    One last thought. I remember when the Japanese ‘invaded’ and bought everything in sight. We were upset! Just wait until China turns their entrepreneur class loose on the world (right now they can’t take money out of China to re-invest). Its going to make the Japanese buyout pale in comparison. If the Chinese are upsetting you now Just wait! So far only government has sold us out. just wait until American business does the same! (I, for one, have full faith in American business).

    john white
    Port Angeles, WA

  8. Okay Bill, posting something three times doesn’t drive the point home any better.

    MY point was that the Chinese government will force its people to revert to ANY austere program it needs if it means slapping down the overbearing West, and in particular a USA that is strapped on credit and too big for its now commoditized britches.

    Using your logic, let’s play out everyone’s fright scenario of rioting middle class Chinese capitalists angry with the new “emergency reforms”.
    Even if the government had to exterminate tens of millions it wouldn’t be a “pimple on their butt”.

    ALl I am trying to say is that they will simply look at such a measure as a tough but temporary necessity which is needed to choke off the influence of a corrupt American government, and they would do it in a Beijing heartbeat, accepting all of the temporary economic losses as simply the price of doing business and playing to win.

    Because, in the end, they would move on, to India, the rest of Eurasia and the Middle East while we lie with our economy in smoking ruins, with Fred Thompson chomping his cigar, talking about sending an army he doesn’t have to “teach them commies a lesson”.

    China’s ability and willingness to take abrupt 180 degree turns is apparently unknown to anyone under 40 in this country.

    People need to look over their history.

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