Thursday, August 09, 2007

Blackmail, Chinese Style

Blogger buddies at Reformed Chicks Blabbing and The Bos'un Locker both referenced this story of blackmail yesterday from the Telegraph:
By Ambrose Evans-Pritchard

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

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...

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.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds...

"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added....

A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation...

While tariffs generally aren't a good idea, this extreme threat from the Chinese to blow up our economy clearly demonstrates their underlying attitude toward the U.S. and our weakness.

Earlier we saw that the Chinese government's response to an FDA testing mandate was to claim it was "illegal under world trade rules." The FDA mandate came after tainted pet foods killed our pets, toothpaste and toys contained unsafe substances and "15 percent of farm-raised shrimp, eel and catfish contained dangerous or unapproved substances"--all courtesy of Chinese businesses. (see Time for a Ban?)

Granted this latest threat to nuke our economy is probably mere political posturing since the Chinese would damage their own economy greatly in the process, but for their threat to have any impact on the U.S. at all exposes our weakness. Although national debt often grows during times of war, the U.S. debt has been increasing for decades just to fund our normal operating expenses. Is it any surprise we are now blackmail victims? The debtor is, after all, the servant of the lender.

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