The Occasional Observer

While it's not news to readers of Occ Obs, China represents a real threat to U.S. interests in a way that other enemies of our state do not. They are aggressively seeking to expand their sphere of influence in the Far East, and want the US removed as an impediment to regional Chinese hegemony. Our massive trade imbalance with China--which we have refused to confront--has led to the Chinese government stockpiling billions upon billions in US currency and dollar-denominated notes. And now they are threatening to use those currency reserves as a political weapon to prevent us from standing up for US firms and US workers:

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 (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

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.

Just when our economy is in a credit crunch, our military is tied up and extending tours to meet their obligations, and our international diplomatic leverage is at a post Cold War low water mark. Should somebody tell them not to kick us while we're down? Surely they don't want to antagonize their good friends, right?

Somewhere on the campaign trail, Duncan Hunter is wishing he didn't have to say "I told you so."


HT: Drudge