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Has WWIII already started? | 60 comments (60 topical, 0 editorial, 0 hidden)
Re: Has WWIII already started? (none / 0)
China can do a big hurt to the U.S. economy whenever it wants to. Such a situation requires prudence on the part of the U.S.

Hey, Grandma Moses started late!
by LEP on Mon Apr 28th, 2008 at 09:09:49 AM EST
Re: Has WWIII already started? (none / 1)
Can it? I've started wondering recently to what extent that it can. Is there enough Chinese nationalism to prevent a trade war turning into a revolt of the Chinese middle class?
by Colman (colman at eurotrib.com) on Mon Apr 28th, 2008 at 09:14:25 AM EST
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Re: Has WWIII already started? (none / 0)
I would find it very surprising if China, sensing an imminent U.S. military attack upon it, would not start dumping its huge holdings of Treasury Bonds. The panic in the west would be indescribable. Silly position for the U.S. to have put itself into. Good for the rest of the world though.

Hey, Grandma Moses started late!
by LEP on Mon Apr 28th, 2008 at 09:21:27 AM EST
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Re: Has WWIII already started? (none / 0)
But the treasury bonds would lose value as the attack tension ratcheted up in anticipation of precisely the dumping you're talking about.
by Colman (colman at eurotrib.com) on Mon Apr 28th, 2008 at 09:22:26 AM EST
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Re: Has WWIII already started? (none / 1)
In that case the Chinese wont have to dump. When Treasuries collapse, the U.S. economy collapses. And just as I would not play chess with the Russians, I wouldn't play a numbers game with the Chinese. They're very good with math.

Hey, Grandma Moses started late!
by LEP on Mon Apr 28th, 2008 at 09:27:02 AM EST
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Re: Has WWIII already started? (none / 1)
Of course, when Treasuries Collapse, its mostly the ability of US corporations to exercise economic power outside the borders of the US based on US dollar assets that collapses.

It would certainly be an economic crisis if the US dollar collapses, but its not certain to be an economic collapse.

Of course, a lot depends on whether the government of the day is more concerned with preserving people's standard of living or preserving the international purchasing power of US dollar portfolios of corporations.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Apr 28th, 2008 at 09:44:52 AM EST
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The nuclear option (none / 0)
There is a reason why dumping the Chinese US Treasuries is called 'The nuclear option'. Sure there will be a lot of harm to the US if that is done. But as much, if not more harm to China.
From a comment of Brad Setser's latest post:
"The facts that you present show mind-boggling numbers. 750bn$ is an amount of roughly 25% of Chinese GDP in foreign asset growth PER YEAR. As you say, this is now not only an 'imbalance', it is a symptom of a massive transfer of wealth and the entire financial system from other countries."

The Chinese state is buying up FX en masse. Much more than the Trade surplus, which is anyhow melting down at the moment. The Chinese state is buying low yielding overvalued (compared with CNY) dollar debt, and selling more yielding undervalued CNY debt to sterilise monetarily. If their Dollars become worthless, and their CNY shall not become worthless, they have to stem  a big net debt from the currency mismatch on their balance-sheet.
It is trivial, why should the debtor be hurt more than the creditor, when it comes to a default?

Of course the US would have to finance its trade deficit then in another currency. But the west has plenty of currencies, which could take over. Euro, Sterling, maybe SFR.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Mon Apr 28th, 2008 at 10:22:09 AM EST
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Re: The nuclear option (none / 0)
And, further, the Chinese don't have to dump their US Treasuries to shift their peg to the EUR / YEN / GBP / AUD / SWF ... they just have to stop buying new ones.

Sure, the Renminbi value of the US$ Treasuries they hold will fall, but the purpose of buying those US$ Treasuries was to maintain the discounted exchange rate against the USD, which has already been done ... the "cost" of the process of creating Renminbi to purchase US$ Treasuries to maintain a discounted RNM/USD FXR was the trade of financial return per transaction for increased volume and lower unemployment.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Apr 28th, 2008 at 04:04:01 PM EST
[ Parent ]
Re: The nuclear option (none / 0)
Yeah, but the Chinese and US economy are tied to each other through that mechanism. It would not be good for China if the US falls.

The resources thing is really the only reason, why one country could benefit from the others gloom. But e.g. for building up a long term energy solution, cooperation would help everybody much more than confrontation. Here is the point, that even in the best possible scenario a confrontation could only give some more years of cheap oil consumption for the winner. A common enemy helps to bring different people together and this common enemy is time/energy shortage.
Peak oil is as much a chance as it is a risk.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Mon Apr 28th, 2008 at 07:05:05 PM EST
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Re: The nuclear option (none / 1)
Yes, but the US economy is far from the only growth driver for China ... there is Europe and Japan as well as domestic growth ... and indeed, to the extent that China is simply financing the export of Chinese output to try to keep labor intensive producers afloat, that can be done by providing finance to LDC's to purchase Chinese products, with long term resource contracts from shaky governments certainly at a rough par with US Treasury securities ... a shaky command over something (material resources) certain to be of value against a reliable command over something (USD) of shaky value.

If imported inflation threatens to upset domestic growth, then sacrificing competitiveness in the US market may be the lesser of two evils, and China always reserves the power to reduce domestic inflation by increasing the weight of the Euro in its basket peg at the expense of the USD.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Apr 28th, 2008 at 07:17:25 PM EST
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Re: Has WWIII already started? (none / 1)
Colman: Is there enough Chinese nationalism to prevent a trade war turning into a revolt of the Chinese middle class?

Does anyone know what critical commodities, products, or services the U.S. exports to China that would be hard to replace (if any)?

A language is a dialect with an army and navy.

by marco on Mon Apr 28th, 2008 at 10:15:28 AM EST
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Manhole covers for scrap steel? (4.00 / 2)
Over the last half century, the key strategic resource for the core economies have been the ability to produce productive equipment ... machine tools, heavy turbines, etc. ... and there's nothing on that front that the US producers that the Chinese cannot get from Japan.

Indeed, if thinking of China as a great power, it really has to be the Sino-Japanese system that is the great power.

There may be selected strategic raw materials, but of course between Australasia and Africa, it does not seem likely that the US has any kind of actual lock on strategic raw materials.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Apr 28th, 2008 at 11:18:47 AM EST
[ Parent ]
Re: Has WWIII already started? (none / 0)
hmmm, here i was wondering whether enough chinese nationalism, aggressively boosted by the rest of the world's criticism re tibet and human rights, would be enough to prevent a revolt of the chinese working poor, as they try to ascend the greasy pole, often without success, or have their farmland taken, or suffocate downwind of the umpteenth coal plant.

one the one hand, this might be the last chance for public opinion to have any influence on the growing economic giant, so embarrassingly dependent on a potemkin olympics for 'national pride' ...here we go again...

on the other, we look like fools criticising china for human rights issues, when our own houses are in such disorder in that respect.

whatever you believe, it seems clear that many chinese are learning to hate and wave their flag, especially if they know about the history of 'our' behaviour regarding them in the opium wars.

 

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Mon Apr 28th, 2008 at 03:16:45 PM EST
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Has WWIII already started? | 60 comments (60 topical, 0 editorial, 0 hidden)
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