China Has Canceled Americas Credit Card
China, wary of the troubled US economy, has already “canceled America’s credit card” by cutting down purchases of debt, a US congressman said Thursday.
China has the world’s largest foreign reserves, believed to be mostly in dollars, along with around 800 billion dollars in US Treasury bonds, more than any other country.
But Treasury Department data shows that investors in China have sharply curtailed their purchases of bonds in January and February.
Representative Mark Kirk, a member of the House Appropriations Committee and co-chair of a group of lawmakers promoting relations with Beijing, said China had “very legitimate” concerns about its investments.
“It would appear, quietly and with deference and politeness, that China has canceled America’s credit card,” Kirk told the Committee of 100, a Chinese-American group.
“I’m not sure too many people on Capitol Hill realize that this is now happening,” he said.
The Republican lawmaker said that China was justified in concerns about returns from finance giants Fannie Mae and Freddie Mac, which were bailed out by the US government due to the financial crisis.
Kirk said he was the first member of Congress to tour the Bureau of Public Debt, which trades bonds, and was alarmed at how much debt was being bought by the US Federal Reserve due to absence of foreign investors.
“There will come a time where the lack of Chinese participation may have a significant impact,” Kirk said.
“We should track that, because up until last month they were the number one provider of currency to the United States and now they’re gone.”
With China’s economy also hit by the global economic crisis, Premier Wen Jiabao has openly voiced concern about the status of his country’s investments in the United States.
China has also floated replacing the dollar as the key international currency with a basket of units bringing in the euro, sterling and yen.
via AFP: China has ‘canceled US credit card’: lawmaker.
China Calls For Reform Of Global Monetary System
April 27, 2009 by admin
Filed under new world order
China called Sunday for reform of the global currency system, dominated by the dollar, which it said is the root cause of the global financial crisis.
“We should attach great importance to reform of the international monetary system,” Chinese Vice Finance Minister Li Yong told the spring IMF/World Bank Development Committee meeting in Washington.
A “flawed international monetary system is the institutional root cause of the crisis and a major defect in the current international economic governance structure,” Li said, according to a statement.
“Accordingly, we should improve the regulatory mechanism for reserve currency issuance, maintain the relative stability of exchange rates of major reserve currencies and promote a diverse and sound international currency system.”
As the world’s main reserve currency, US dollars account for most governments’ foreign exchange reserves and are used to set international market prices for oil, gold and other currencies.
As the issuer of the key reserve currency, the United States also pays less for products and can borrow more easily.
Li did not name the dollar but in late March the People’s Bank of China Governor Zhou Xiaochuan said he wanted to replace the US unit which has served as the world’s reserve currency since World War II.
“The outbreak of the crisis and its spillover to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system,” Zhou said, suggesting the International Monetary Fund could play a greater role.
Forget Nukes Watch Out for Economic War
Fought with currencies, embargoes and hackers, economic warfare may lack the “shock and awe” of conventional battles but it could still pose a threat to the U.S., especially in these troubling economic times.
Picture this hypothetical dreamed up by a national security expert obsessed with economic catastrophe:
Angry that U.S. policies aimed at boosting the economy have devalued their $2 trillion of currency reserves, the Chinese decide to stop buying Treasurys just as America tries to finance its massive spending plans.
In response, the U.S. imposes trade sanctions against China, which in turn pushes for a global currency. From there, the U.S. accuses China of manipulating its own currency and things escalate further.
Without a shot being fired, those actions represent a type of unfriendly economic competition that some are very worried about.
‘Unstable Escalation’
“I think it’s very likely the participants wouldn’t call it a war. Each side would say they are acting in their best interest. But this could lead to an unstable escalation,” said James Rickards, co-head of threat finance and market intelligence at consulting firm Omnis.
The struggling U.S. economy and scary financial crisis could make such an escalation more likely and more damaging.
“On the one hand, you could say it [would have] less of an impact because we’re already in a more defensive posture due to the recession,” said Dan Goure, vice president of the Lexington Institute, a nonprofit public-policy research organization. “On the other hand, we’re closer to the edge so we have fewer resources.”
Rickards was more unequivocal, saying flatly, “It definitely raises the stakes which could play out in some financial warfare scenarios.”
