China Threatens U.S.

peon · December 07, 2007 08:28

In an effort to protect the inflated value of its Yuan from hints by the United States to impose trade sanctions to get the yuan to float internationally against the Dollar, China's communist regime is making economic gestures that hint it may liquidate its vast holdings of U.S treasuries if the trade sanctions plan is pursued.

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 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. It is estimated that China holds over $900bn in a mix of US bonds.

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, primarily due to the faultering "sub-prime" financing scheme that has brought new home sales and mortgage lending programs to a screeching halt.

So what happens if Congressional pressure does force the Chinese to revalue its currency?

Short of a worldwide financial meltdown, something which will hit China harder than the United States, when China's currency ceases to be undervalued, American shoppers at Wal-Mart, where 70 percent of the goods on the shelves are made in China, will think they are in Neiman Marcus. Price increases will cause a dramatic reduction in American real incomes. Without President Bush's leadership get financial institution to stall the current housing crisis with freezes in escalating sub-prime interest rates, it could mean American consumers might experience the hardest times since the Great Depression.

Xia Bin, finance chief at the Development Research Center (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

China is unlikely to follow through with its threats as long as the yuan's exchange rate is stable against the dollar. But make no bones about it, Beijing may be using the opportunity in the issuance of idle threats at a time when their actions play into the scheme of 2008 presidential politics, lending support to the campaign of Hillary Clinton, who with her husband, held favored status among the communist regime in the acquistion of U.S secrets, technologies, and capabilities.

China Threatens U.S.

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