China and the US Dollar

China makes US economy its hostage
"China may lead US economy to collapse dumping US dollar".

The US government theoretically could not be happier that foreign Central Banks are willing to finance its perennial budget deficits. However, this borrowing has reached a point where foreigners now control over 40% of the US national debt. Moreover, long-term US interest rates are market-driven, based on the buying and selling of US government bonds. In other words, the US has gradually ceded control of its long-term interest rates to foreign Central Banks, namely China and Japan.

Over the last 30 years, China’s economy has grown at an average annualized rate of nearly 10%. While this statistic alone is jaw-dropping, what is more impressive is the extent to which the nominally Communist country’s economy has become intertwined in the global economy. China now exerts enormous influence over the economies of virtually every country in the world, and a slight change in its domestic economic policy has the potential to send shockwaves rippling throughout the world. Nowhere is this more apparent-and frightening-then in China’s economic relationship with the United States, which is very much at the mercy of China when it comes to prices, wages, interest rates, most importantly, the value of the Dollar.

... if China suddenly decided to diversify its reserves, for economic and/or political reasons, it could potentially crash the Dollar and send US long-term interest rates skyward. READ ALL...

China 'worried' about US Treasury holdings

U.S. Insists China Fears Over Debt Unfounded
The U.S. is implicitly asking China, along with other nations, to buy more government debt to finance its $787 billion stimulus package and other crisis-related spending. That puts China in a bind: It is apparently wary of investing too heavily in dollar assets for fear they will lose value. But it also doesn't want to precipitate a dollar decline by appearing too pessimistic about U.S. prospects.

"We have lent a huge amount of money to the U.S., so of course we are concerned about the safety of our assets," Mr. Wen said in response to a question at his annual news conference. "Frankly speaking, I do have some worries."

"There's no safer investment in the world than in the United States," said presidential spokesman Robert Gibbs. READ ALL...