BREAKING: CHINA TO DUMP ONE TRILLION IN U.S. RESERVES!!!

Short-term effects for the United States might be an economic slump, but not severe, and the long-term effects would be negligible. The short- and long-term effects on China would be much worse, because their cities have filled with peasants from the countryside, looking for manufacturing jobs, which would dry up, and already resentful of the treatment they get as provincials and wage-slaves. This would hurt China more than the United States.

During his speech at the Academy of Social Sciences, Bernanke argued that more open markets, more spending and less saving would benefit China and the world economy.

Some, however, questioned Paulson and Bernanke's altruistic tone and call for quick results. "America wants everything to happen tomorrow," said Wang Yiwei, an American studies professor in Shanghai. "There's a cultural difference here."

U.S. officials acknowledged there are good reasons Chinese consume relatively little and save a lot: The country has a weak social safety net. Only 14% of the population has health coverage and 16% of workers can expect a pension.

The solution, Bernanke and Labor Secretary Elaine Chao said, was for Beijing to spend more on welfare so citizens feel more secure and spend more.

Wang Xiaofeng, 38, a Beijing-based magazine writer, said his quality of life had risen tremendously in the last decade and there was much more consumer choice and disposable income in China. But he still saves roughly half of what he makes.

"America has a very good and mature social security system, so they 'dare' to spend," he said. "China has a huge population and not all that much money for good infrastructure. So we save because we don't feel secure. Americans and Europeans can afford to be confident because they have enough to eat."

Paulson and the rest of the Bush administration are grouchy because data published on Tuesday showed that the U.S. trade deficit with China grew 6.1% to a record $24.4 billion in October, and that the deficit with China represented 41% of the total U.S. deficit for the month of $58.9 billion. But their anger is inappropriate.

Trade numbers like these more an indication of Americans' demand for the goods that China makes than of an undervaluation of the yuan, the latter being Paulson and the U.S. government's primary bugbear when it comes to China.

But let's assume for a moment that the yuan is maybe 50% undervalued, and that tomorrow, its value was to suddenly be adjusted upwards by that dramatic proportion. China would still be the cheapest place for U.S. firms to source virtually all the goods they currently import from the country.

It is likely that the yuan is somewhat undervalued, and it is also likely that when the Chinese are ready, they will allow it to appreciate. But in doing so, they will be making the way of life that Americans have become accustomed to more expensive to enjoy, without necessarily prompting any major change in the pattern of trade between the two countries.

Of course, the story might be different if the yuan's undervaluation were to be of the magnitude implied by the World Bank's 2005 judgement of its value based on purchasing power parity (PPP) estimates for the year 2003, which has the dollar equivalent to 1.8 yuan. However, PPP-based exchange rate estimates can be very misleading, and no reasonable observer would expect the dollar to yuan exchange rate to shoot towards that level if the controls were removed tomorrow.

An exchange rate such as that implied by the World Bank's estimate might well shift some of the manufacturing currently done in China for the U.S. market back across the Pacific. But it is also unrealistic and isn't likely to come to pass any time soon, even if the yuan were to become a free floating currency. It shouldn't be forgotten that since July 2005, the yuan has been free to appreciate by a maximum of 0.3% each day, but market pressure for it to do so has been limited, suggesting that the market has a different view on the currency to the U.S. government.

No discussion of this issue is complete without the point being made that while the yuan may be undervalued, the dollar is overvalued. But you don't hear the Secretary of the Treasury complaining that the dollar isn't declining fast enough because the Chinese are manipulating it, although they are.

China's ongoing purchases of U.S. dollar assets with the proceeds of its trade surplus keep the dollar's parity with other currencies reasonably secure at present levels.

The abandonment by China of this policy would lead to a substantial devaluation of the dollar. My point is that both currencies need to move.

So what's the solution? A cautiously timed policy shift by the Chinese to allow the yuan to appreciate while allowing the dollar to fall would benefit both countries in the long run. While change is necessary, excessively rapid change, which could potentially hit growth in China and push the U.S. into recession, won't do anyone any favours.

To avoid this, the two governments should cooperate and try to come up with a timetable, but with the low level of tact being employed last week by Paulson, that may be difficult

This article is twaddle.

What I find to be of more signifance, is that Iran is now going to trade in euros, and not dollars. Oil included.

It may not mean much at this moment in time, but if some other oil producers follow the lead and drop the dollar, or at least start accepting euros as payment, it could lead to a bit of a run on the dollar, to say the least.

Lord Ellpus wrote:

This article is twaddle.

What I find to be of more signifance, is that Iran is now going to trade in euros, and not dollars. Oil included.

It may not mean much at this moment in time, but if some other oil producers follow the lead and drop the dollar, or at least start accepting euros as payment, it could lead to a bit of a run on the dollar, to say the least.

Yeah. Occum might remember that quite some time ago, I was talking about Iran trading in euros instead of dollars.

The article from the Economist & infoclearinghouse is relevant regarding China's powerful position regarding holding over $941 BILLION of US debt. Do you really think the Chinese will sit there holding that much debt? They aren't fools. When they decide to change those dollars into euros, what do you expect will happen to the US economy? But, you go ahead and ignore that as well as my comments MONTHS ago about Euro vs Dollar, and what all the hoopla in Iran and Iraq was really about. You yanks are real good at ignoring the obvious until it smacks you in the face.

Setanta ought to wake up from his wet dream and remember Rome. It can and will happen to the US.

BREAKING: CHINA TO DUMP ONE TRILLION IN U.S. RESERVES!!!

December 15
l

Well, my shoes, they come from Singapore,
My flashlight's from Taiwan,
My tablecloth's from Malaysia,
My belt buckle's from the Amazon.
You know, this shirt I wear comes from the Philippines
And the car I drive is a Chevrolet,
It was put together down in Argentina
By a guy makin' thirty cents a day.

Well, it's sundown on the union
And what's made in the U.S.A.
Sure was a good idea
'Til greed got in the way.

Well, this silk dress is from Hong Kong
And the pearls are from Japan.
Well, the dog collar's from India
And the flower pot's from Pakistan.
All the furniture, it says "Made in Brazil"
Where a woman, she slaved for sure
Bringin' home thirty cents a day to a family of twelve,
You know, that's a lot of money to her.

Well, it's sundown on the union
And what's made in the U.S.A.
Sure was a good idea
'Til greed got in the way.

Well, you know, lots of people complainin' that there is no work.
I say, "Why you say that for
When nothin' you got is U.S.-made?"
They don't make nothin' here no more,
You know, capitalism is above the law.
It say, "It don't count 'less it sells."
When it costs too much to build it at home
You just build it cheaper someplace else.

Well, it's sundown on the union
And what's made in the U.S.A.
Sure was a good idea
'Til greed got in the way.

Well, the job that you used to have,
They gave it to somebody down in El Salvador.
The unions are big business, friend,
And they're goin' out like a dinosaur.
They used to grow food in Kansas
Now they want to grow it on the moon and eat it raw.
I can see the day coming when even your home garden
Is gonna be against the law.

Well, it's sundown on the union
And what's made in the U.S.A.
Sure was a good idea
'Til greed got in the way.

Democracy don't rule the world,
You'd better get that in your head.
This world is ruled by violence
But I guess that's better left unsaid.
From Broadway to the Milky Way,
That's a lot of territory indeed
And a man's gonna do what he has to do
When he's got a hungry mouth to feed.

Well, it's sundown on the union
And what's made in the U.S.A.
Sure was a good idea
'Til greed got in the way.

I didn't make an attempt to validate the article heading this thread. All I said was that I had raised some concerns about the looming economic crisis addressed in a thread that got no responses.

I also said this latest news adds to my concern. This article may be bunk, but my concerns are still there. I'm also concerned that very few others are concerned about the state of the economy as a whole and not just measured by the stock market.