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How China could wreck the US economy

Original post made by Sharon, Midtown, on Oct 6, 2008

M R Venkatesh at RediffWeb Link asks whether China’s accumulation of 2 triillion in US dollar reserves has an ominious purpose and whether that card is about to be played.
The close linkage between economic and foreign security has rarely been subjected to close scrutiny.
The recent financial crisis raises the question whether appointing Barney Frank to his position isn’t at least as important as appointing a General Petraeu to his.

" This gargantuan build-up of forex reserves by China has strangely received very little attention of economists, policy analysts, currency traders and, of course, geo-strategists around the world. … After adjusting for all known sources of reserve accretion, experts conclude that approximately an excess of $200 billion could have flown into China as ‘hot money’ — read inexplicable flow of funds — in this period.
The Economist — in one of its issue in recent months — quotes Michael Pettis, an economist working in China, who explains how and why hot money flows into China.
According to Pettis, hot money comes into China when companies overstate FDI and over-invoice exports.

In effect, is this hot money flowing into China in anticipation of this revaluation of the yuan?
Or is it a simple case of China maintaining trade competitiveness through a weak yuan?
Or is there something more to it than meets the eye?
Are the Chinese acquiring the dollars with some sinister motive?

In effect, has the Chinese strategy of a weak currency over the years the un-stated policy of dynamiting the American economy? "

Unless of course, Obama wins.
Then all bets are off.
Then I see Russia taking over Ukraine, Iran getting nukes, and possibly China making a move on Taiwan because we would definitely blink if he were President.

Comments (6)

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Posted by pam
a resident of Charleston Gardens
on Oct 6, 2008 at 4:13 pm

sharon, the world is no longer filled with discrete players. the world's problem is that it's filled with weak and unenlighted "leaders". If america tanks, china tanks. the chinese understand that. neither obama or mccain are going to do much of anything iexcept run in place. this will take a long time to fix.

Like this comment
Posted by tj
a resident of Old Palo Alto
on Oct 6, 2008 at 4:14 pm

All the US Treasury has to do is to keep printing dollars.
The way the EU monetary system is constructed, it may very well collapse next week, triggering even more massive purchases of the dollar against the Euro.
Each such purchase makes the Chinese holdings more worthless.
However, if those T-Bills get dumped, it will affect the bond market just as the stock market is currently affected.

If China is half as smart and half as focused on the long-term as advertised, they will gradually spend those dollars after the world markets bottom out in three to twelve months.

There’s lots of profit-producing assets, as well as hard assets, in the US, Africa and South America that will be cheap.

Like this comment
Posted by short
a resident of Duveneck/St. Francis
on Oct 6, 2008 at 4:36 pm

The euro had its biggest one-day drop against the yen since its 1999 debut as the deepening credit crisis prompted European governments to pledge bailouts for troubled banks while stopping short of coordinated action.

The 15-nation currency fell below $1.35 for the first time since August 2007 after European authorities avoided announcing any plan comparable to the $700 billion U.S. bailout.

The yen rose the most against the dollar in a decade as global stocks plunged, damping carry trades.

Implied volatility on one-month euro-dollar options rose to a record high.

“People are running for safety,” said Ram Bhagavatula, a portfolio manager at Combinatorics Capital LLC, a New York-based hedge fund that has $45 million under management.
“There’s a huge premium for safety bets: the dollar and the yen.
A global recession is coming.”Web Link

Obama is welcome to the presidency IMHO.

The climate will not change for 5 years, during which we will be lucky if we do not have martial law.

Obama has the " Poisoned Chalice" Carter Redux, good luck.

Like this comment
Posted by Go Republicans!
a resident of Charleston Meadows
on Oct 6, 2008 at 5:19 pm

"How China could wreck the US economy"

Glad someone still has a sense of humor. Good one.

The Republicans have beat the Chinese to the punch.


Like this comment
Posted by Money
a resident of Hoover School
on Oct 6, 2008 at 5:36 pm

Actually many western Republicans, like me wish, for obama to win, creative destruction it is called, then renewal with Romney/ Palin in 2 years 2010, after the impeachment of obama

Like this comment
Posted by Walter_E_Wallis
a resident of Midtown
on Oct 7, 2008 at 3:06 am

Walter_E_Wallis is a registered user.

What if every made in china product had a kill switch operable by a button in Peking?

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