Nuclear Explosion
Ouch.
 
China seems to be wielding some of their soft power in a harder way lately. Beijing is sick of Washington’s efforts to force a yuan revaluation to balance the trade defecit, and they’re doing something about it.
 
What exactly are they doing? Well, China owns $1.33 trillion in foreign reserves, including $900 billion in US bonds, and they’re threatening to unload them, which could effectively nuke the US economy. That would hurt a bit.
 
He Fan at China’s Academy of Social Sciences told China Daily, “China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings. China is unlikely to follow suit as long as the yuan’s exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar.” In other words, “push us, and you’ll be really, really sorry.”
 
It’s like a big playground shoving match between two kids that just don’t understand each other and don’t particularly seem to want to. Or, as someone I know put it, “We are Klingons to them, and they to us. We just don’t ‘get’ the other’s culture. At least the Joe Sixpack guys don’t.” It’ll be interesting (interesting in a “oh, crap, I hope that doesn’t happen” sort of way) to see how this whole currency revaluation thing plays out.
 
***Update: Apparently this is just the Chinese government blowing off some steam because almost every analysis I’ve read of this option says that it would probably hurt China a lot as well and that it would probably end up being a good thing for the US economy in the long run since it would get some of the debt out of China’s hands. I’m no economist, so I’ll leave that debate up to other people. I just thought I’d give an update on the story***
 
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