Thursday, August 4, 2011

China Making A Play

Earlier this week I posted a link and an article about how we may be entering a double-dip in the recession. The article gave ten reasons why this is a very distinct possibility.  Of those 10 was one regarding the debt ceiling.

8. Debt Ceiling. Tied directly, as far as I am concerned, to the out of control budgeting and spending by the democrats. Yes, Bush was also out of control but his deficit spending can’t hold a candle to spending initiated by Obama and the democrat Congress during the first two years of his term. This has caused the deficit to reach a staggering $14T+ level, with little end to the upward spiral in sight. China, an ideological enemy of our form of governance, controls a very large portion of the debt. I am sure the only thing stopping them from calling in the marker is the knowledge that this create an economic meltdown that would make the Great Depression look like a bump in the road. It would not surprise me in the least if once our economy is humming again (after 2012), China does what it can to slow us down. (Source: 24/7WallStreet)

Looks like I might have not been correct, but hey, I am not an economist. According to this article at Big Peace, the Chinese have decided to diversify their monetary holdings by getting rid of their dollars.

But a failure to rein in US borrowing could “jeopardize the well-being of millions of families within and beyond the US border,” the official Yinhua news agency said in a blistering commentary on the deal (recent passage of the increased debt limit).

“The months-long tug of war between Democrats and Republicans…failed to defuse Washington’s debt bomb for good, only delaying an immediate detonation by make the fuse an inch longer,” the commentary said.

“Meanwhile, the madcap farce of brinkmanship has disclosed yet another ticking bomb in the heartland of the sole superpower in the world – the crippling tendency to poloticise the economics while trivializing the politics.”

China, sitting on the world’s biggest foreign exchange reserves of around $3.2 trillion as of the end of June, is the largest holder of US Treasuries. (Source: Big Peace)

This diversification can only spell trouble for us as it is sure to weaken the dollar even further. This will add further inflationary pressure in the short term and quite possibility cost the US dollar its place as the worldwide currency of business in the long term.

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