Aug 092007
 

This is hardly surprising:

Two Chinese officials at leading Communist Party bodies have given interviews in recent days warning, for the first time, that Beijing may use its $1,330bn (£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 breaking down through historic support levels.

You can’t expect someone to buy up all of your debt, prop up your currency, and then not use it as a bargaining chip.

The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being “held hostage to economic decisions being made in Beijing, Shanghai or Tokyo”. She said foreign control over 44pc of the US national debt had left America acutely vulnerable.

Exactly what restrictive legislation would prevent America from being held hostage? Stop China from buying US debt? They are the only ones that want it! Here is the situation for you Hillary:

The US govt has been spending a hell of a lot more than it makes, a good chunk of that being for war. China wanted the US to keep buying goods, so it picked up the slack and bought up all the US debt. The US continued to finance the housing bubble. China now holds enough US cash to decimate the dollar, and a big enough trade deficit that they are under little threat from protectionist measures. If the US makes any moves this way, China holds all the cards.

Near as I can tell, the only solution is to get our financial house in order. Cut spending, raise taxes, and get out from under the massive debt that *my* generation and younger will be left dealing with.

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