As The Trade War Rages – China Won’t Be Held Hostage By The U.S. Dollar
In last week’s Palisade Weekly Letter, I wrote about how the Chinese are now selling their U.S. debt. And since this was an important write-up, I also published it as an article – so if you missed it, click here.
I mentioned that although China’s now a net-seller of U.S. debt – they’re slowing doing so.
I reckon they’re doing just enough to let the Treasury and Trump know that they can send yields soaring and can’t afford it if China unloads the whole $1+ trillion amount.
That’s why we at Palisade Research have called this China’s ‘nuclear‘ option – it’s no doubt a financial weapon of mass-destruction (FWMD).
If China suddenly dumped their $1+ trillion of U.S. debt, it would cause markets worldwide to implode.
But that also means China would suffer. . .
Now, China isn’t stupid. They’ve worked decades to grow their massive dollar surplus and reserves. They won’t recklessly lose it all for nothing.
But still, this put’s China in a corner. Because although they won’t risk blowing themselves up to hurt the U.S. – what if the U.S. must cheapen the dollar to boost trade? Or get out of a recession? Or monetize the Treasury’s never-ending spending and huge fiscal deficits?
The depreciation of the U.S. dollar for any reason is a huge threat to China currently.
Today China holds roughly 3 trillion of dollar reserves. That’s down 25% from the 4 trillion they had in beginning of 2015 (the strong dollar really hurt them).
And putting things into context – if the U.S. dollar devalues by just 10%, that’s more than 300billion of purchasing power lost from China’s dollar reserves. . .
Gone – just like that. And completely out of China’s control.
Imagine if someone else held the power to devalue the money in your own bank account. That puts you at their mercy – in a very fragile place – right?
…click on the above link to read the rest of the article…
