Post by Catdaddy on Aug 9, 2007 14:11:23 GMT -5
China's 'Nuclear' Warning: Empty Threat?
Financial Intelligence, with John Browne
MoneyNews.com
Thursday, 9 August 2007 3:03PM EDT
Yesterday, MoneyNews alerted you to China's threat of employing the 'nuclear option' of dumping its dollar reserves.
We have long warned of the implied threat to our country of allowing a constant balance of payments deficit to pile up against us, particularly in the hands of our ideological and trade competitors.
We feel that a very serious situation has developed that could lead to key U.S. policy, (on interest rates and trade) being decided in Beijing rather than in Washington.
We were interested by the low priority given to this issue in the mainstream media, particularly at this time when both the U.S. economy and our dollar appear to be so vulnerable.
The Chinese threat, typically released subtly by a think tank, rather than more brazenly and offensively by a government minister, may well dilute Democratic Party cries for import tariffs against China.
It must have pleased Treasury Secretary Paulson greatly as he lunched today with President Bush.
Indeed, we speculate that it may even have allowed Paulson possibly to announce to President Bush, an "achievement" (to trump those darned Democrats) in his recent trip to China!
Money talks and we believe that, J.P. Morgan was right when he said that, in America, politics is big business.
We have noted how Democratic calls for hedge fund managers to be taxed at normal income rates have become decidedly muted, following the large campaign contributions made to them by certain hedge fund owners.
Following this logic, we feel that Democrat calls for anti-China tariffs will soon become more muted.
As we have said many times, the massive dollar reserves accumulated by China represent a great threat to America, but over the longer-term.
In assessing the immediate, as opposed to the long-term, effects of this threat from China, we are less concerned.
China has great internal strains. The continued absolute power of the Communist Party leaders depends vitally upon maintaining and spreading the flow of political "goodies" that stem from China’s explosive growth and export success.
Some 40 percent of China’s export earnings are derived from the United States. It would be very damaging for China to lose any of this "pot of gold", either to U.S. tariffs or to a trade war.
On 08/08/08 (a highly significant date in China) the next Olympic Games open in Beijing.
China’s clear ambition is to become a world superpower.
The fact that China is spending $40 billion on the Olympic Games is testimony to the importance she attaches to the great international prestige element to be gained in her path to superpower status.
We believe that China has issued this "unofficial" financial nuclear threat to stall the Democrat move to enact internally damaging, political tariffs against them.
This is vitally important to China, but, we feel, not important enough to threaten either the Olympic Games or to risk a wider trade war that may endanger part of their massive exports to America.
So, our conclusion is that the Chinese financial nuclear threat is indeed serious, but only in the longer term, by which time it may also be accompanied by a military nuclear option.
In the short-term, we feel that the logic of Mutually Assured Destruction (MAD) still applies financially, just as it did with the military nuclear threat of the Cold War.
In other words, we feel that, until after the Olympic Games at least, the Chinese financial nuclear threat is just that — a threat.
There may well be some small tactical moves by China to shed U.S. dollars designed to achieve their aim of striking fear into the Democrats.
However, we doubt China will act strategically, in the short-term, to trigger its threatened panic in Treasury or in currency markets.
In the meantime, we feel that other forces of our own doing are poised to cause serious eruptions in those markets.
Financial Intelligence, with John Browne
MoneyNews.com
Thursday, 9 August 2007 3:03PM EDT
Yesterday, MoneyNews alerted you to China's threat of employing the 'nuclear option' of dumping its dollar reserves.
We have long warned of the implied threat to our country of allowing a constant balance of payments deficit to pile up against us, particularly in the hands of our ideological and trade competitors.
We feel that a very serious situation has developed that could lead to key U.S. policy, (on interest rates and trade) being decided in Beijing rather than in Washington.
We were interested by the low priority given to this issue in the mainstream media, particularly at this time when both the U.S. economy and our dollar appear to be so vulnerable.
The Chinese threat, typically released subtly by a think tank, rather than more brazenly and offensively by a government minister, may well dilute Democratic Party cries for import tariffs against China.
It must have pleased Treasury Secretary Paulson greatly as he lunched today with President Bush.
Indeed, we speculate that it may even have allowed Paulson possibly to announce to President Bush, an "achievement" (to trump those darned Democrats) in his recent trip to China!
Money talks and we believe that, J.P. Morgan was right when he said that, in America, politics is big business.
We have noted how Democratic calls for hedge fund managers to be taxed at normal income rates have become decidedly muted, following the large campaign contributions made to them by certain hedge fund owners.
Following this logic, we feel that Democrat calls for anti-China tariffs will soon become more muted.
As we have said many times, the massive dollar reserves accumulated by China represent a great threat to America, but over the longer-term.
In assessing the immediate, as opposed to the long-term, effects of this threat from China, we are less concerned.
China has great internal strains. The continued absolute power of the Communist Party leaders depends vitally upon maintaining and spreading the flow of political "goodies" that stem from China’s explosive growth and export success.
Some 40 percent of China’s export earnings are derived from the United States. It would be very damaging for China to lose any of this "pot of gold", either to U.S. tariffs or to a trade war.
On 08/08/08 (a highly significant date in China) the next Olympic Games open in Beijing.
China’s clear ambition is to become a world superpower.
The fact that China is spending $40 billion on the Olympic Games is testimony to the importance she attaches to the great international prestige element to be gained in her path to superpower status.
We believe that China has issued this "unofficial" financial nuclear threat to stall the Democrat move to enact internally damaging, political tariffs against them.
This is vitally important to China, but, we feel, not important enough to threaten either the Olympic Games or to risk a wider trade war that may endanger part of their massive exports to America.
So, our conclusion is that the Chinese financial nuclear threat is indeed serious, but only in the longer term, by which time it may also be accompanied by a military nuclear option.
In the short-term, we feel that the logic of Mutually Assured Destruction (MAD) still applies financially, just as it did with the military nuclear threat of the Cold War.
In other words, we feel that, until after the Olympic Games at least, the Chinese financial nuclear threat is just that — a threat.
There may well be some small tactical moves by China to shed U.S. dollars designed to achieve their aim of striking fear into the Democrats.
However, we doubt China will act strategically, in the short-term, to trigger its threatened panic in Treasury or in currency markets.
In the meantime, we feel that other forces of our own doing are poised to cause serious eruptions in those markets.
