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China threatens to crash the US dollar August 11, 2007

Posted by Al in : politics , trackback

I would imagine everyone is now aware of China as a superpower, and also that just about everything (cheap) in the world today is made there. But were you aware how much economic power China now has? More specifically, were you aware that China owns $1.3 Billion of foreign reserves, and also a reasonable portion ($103 Billion) of the current loans and mortgages in the US, and they’re not happy to find out that these are unlikely to repay their expected values (see more here). So China now has the upper hand over the USA, and they intend to milk it.

If China start to sell their US dollar reserves, then the US dollar loses value. As it loses value, investors will switch away from any US Dollar based options, as what point is there in making 6% return in a currency which has devalued by 10%+? And if Chinese investors start to sell, or cash in on, the debts they have bought from American lenders, then there will be a definite collapse of the US mortgage industry, as well as an impact on major banks which lend in the US market.

I wonder what it feels like to be an American diplomat at the moment? So used to being in a position of power, but now suddenly realising that your entire country’s economy is on the road to ruin, your currency may not have much time left as THE global currency, and that other countries may now have more military and economic power than the US. Life must be hard!

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