Power of Story
Send a Tweet        
- Advertisement -
OpEdNews Op Eds

China Barks Back

By   Follow Me on Twitter     Message Rowan Wolf     Permalink
      (Page 1 of 1 pages)
Related Topic(s): , Add Tags Add to My Group(s)

View Ratings | Rate It

opednews.com

Author 6285
Become a Fan
  (2 fans)
China ranks number two (behind Japan) as the largest holder of U.S. Treasury bonds. So when China threatens to sell off its holdings, it should be big news. Instead, we get the esteemed Senator Graham stating:

"would advise our Chinese trading partners to work with us to achieve meaningful currency reform rather than issuing draconian threats. Congress has been incredibly patient on this issue, and the consequences of inaction without real reform are too great to many sectors of our economy." (Wa. Post)


"Draconian threats." Now there's an interesting choice of words. In common parlance, that is generally interpreted as "cruel" or "punishments that are harsher than the crime." Which crime are we talking about? There has been significant U.S. pressure on China to revalue the yuan upwards. China has chosen to take a moderate pace in any such revaluation.

In July 2005, China unpegged the yuan from the dollar" and moved to a "basket" of currencies to determine the yuan's value each day.

The value of the yuan is a many-edged sword. On one hand, increasing the value of China's currency, increases the the competitive rate of U.S. exports. However, such a move also decreases its competitiveness against other exporters - say India, Malaysia, and Singapore. On the other hand, increasing the Yuan's value also means that U.S. imports from China cost more, and perhaps even more importantly, that the value of U.S. debt to China increases.

One interesting aspect of the move in 2005 was that it immediately gave China a discount on oil. Since oil trades in U.S. dollars, a higher valued yuan means fewer dollars necessary for oil acquisition. However, the weakness of the dollar gives all those with a stronger currency such a discount (for example, having recently visited England, the exchange rate was $2.03 for £1).

The not so subtle threat by China to sell off dollars (Wa. Post) is quite a significant threat. As of May 2007, China held $407.4 billion in U.S. bonds. Japan held $615.2 billion; the UK $167.6 billion; OPEC $121 billion (U.S. Treasury Dept). The threat is referred to as "the nuclear option," which captures the potential impact on the U.S. economy. A major sell off of dollars would further devalue the dollar against other currencies and could trigger a major inflationary spiral in the U.S.

So back to "draconian threats." "Draconian" comes from the legal code that Draco laid down for Athens in roughly 620 BC (Wikipedia). The punishments for crimes were exceptionally harsh with even minor offenses requiring the death penalty. Harsh indeed, but Wikipedia offers a pertinent example of Draco's code:

... "any debtor whose status was lower than that of his creditor was forced into slavery."

 

- Advertisement -

View Ratings | Rate It

Rowan Wolf is an activist and sociologist living in Oregon. She is the founder and principle author of Uncommon Thought Journal, and Editor in Chief of Cyrano's Journal Today.


Share on Google Plus Submit to Twitter Add this Page to Facebook! Share on LinkedIn Pin It! Add this Page to Fark! Submit to Reddit Submit to Stumble Upon



Go To Commenting
/* The Petition Site */
The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.

Follow Me on Twitter

Contact AuthorContact Author Contact EditorContact Editor Author PageView Authors' Articles
Related Topic(s): , Add Tags
- Advertisement -

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

Occupy Wall Street: The Roots of a Social Movement

Acinetobacter Baumannii: We Need to Know

High Crime - and Profit - in Jailing Kids: Monopoly Capitalism at Work

Keeping an Eye on Turkey

Gas Shortage Across Southeastern U.S.

Economic Globalization and Speculation Coming Home to Roost