Bending the Third Rail
Because We Should, We Can, We Do
Thursday, April 12, 2007
More about the Chinese economy.

No wonder their stock market is frothy:
BEIJING - China's foreign reserves, already the world's largest, have risen past $1.2 trillion, a state news agency said Thursday, amid surging trade and plans to create a multibillion-dollar company to invest some of the stockpile.

The figure, as of the end of March, represented a 37.4 percent rise over the same period last year, the Xinhua News Agency said, citing the central bank.

China's reserves have risen rapidly as huge trade surpluses and foreign investment force Beijing to drain billions of dollars from the economy every month through bond sales to hold down pressure for prices to rise. The money is stockpiled in U.S. Treasury bonds and other foreign assets.
Their surplus is up $300 Billion in one year. The U.S. might as well be loading freighters with cash and shipping them over to China so they can then return with Wal Mart items.

This is a major ticking timebomb. What if the Chinese start putting that money in Euro's instead of Treasuries? And just what kind of leverage does our economic dependence on the Chinese give them politically? To free ourselves would require a substantial economic "readjustment" (read: meltdown). Of course a meltdown would also cause pain in China. But at least they'd have a whole bunch of cash in reserve to soften the blow. What do we have?
Anonymous Anonymous said...
"What if the Chinese start putting that money in Euro's instead of Treasuries?"

Saddam tried to use Euros for oil trading and look what happened to him. Now Iran has threatened an oil bourse....
The U.S. doesn't play well with others.