Re: What could China do to the American economy if they traded their dollars for Euros?


"S. Doo" <none@xxxxxxxxxxxx> wrote in message
news:755jj2lv1cq2q7dh8pb5i7ks1lvkppk8rg@xxxxxxxxxx
On Fri, 20 Oct 2006 22:11:20 -0600, "Robert Miller"
<stargazzr@xxxxxxxxxxxx> wrote:

China has a Trillion dollar balance. What could they do if they wanted to
hurt us or get Taiwan?

"Get Taiwan" with dollars? What, buy it?

If they dump their dollars and buy Euros. It seems to me the dollar would
be in for a very bad time,devalued by how much?

Well, let's start from the beginning:

The Chinese gov't got that money to invest in US dollars by borrowing
it from the Chinese people's savings -- *poor* people,
overwhelmingly, who have no social security system or western style
pensions to carry them in their old age, and who thus have a very high
personal savings rate to provide for themselves, with their savings
kept in banks that collect the money the gov't invests.

OK, so the Chinese gov't borrows this money from its people, then it
invests this money in a trillion $US.

Then the Chinese gov't decides to drive down the value of the US
dollar by dumping it.

Let's say the dollar drops in value by fully half, a good 50%.

Now the Chinese people have had the value of their savings halved, and
their retirement wealth such as it was is gone, because the gov't
can't repay them. Now how happy are they with their gov't?

Can you say "Tiananmen Square times one billion"?


Dollar Drops Further on China Diversification
LONDON -- China will diversify its $1 trillion foreign exchange reserves,
the largest in the world, across different currencies and investment
instruments,
including in emerging markets, Chinese central bank governor Zhou Xiaochuan
said on Friday.
His remarks sent the dollar tumbling for a second day and fuelled a growing
debate about how China should best use its fast-growing reserves, which are
about 70 percent in U.S. debt securities, bankers estimate.

I guess now we can see what strategy the Chinese will use, and how much they
want to influance U.S. policy if that's what they intend to do.

Smart Chinese govt! They sure taught the Americans a lesson!


Robert Miller



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