China calls in its debts

The Daily Telegraph reports:

"The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation."

This is what happens when you allow yourself to get into hock. The US is currently running a $836 billion trade deficit with China and now Congress thinks it's going to threaten the Chinese with trade sanctions over their manipulation of the Yuan. The problem I see here, from my very limited understanding of international finance, is that they've got us over a barrel.

According to a July 7th article I came across from Xinua, the Chinese propaganda arm:

"America's net national saving rate plunged to a record low of one percent of the national income for the 2004-2006 period, leaving the United States no choice but to accumulate trade deficits to attract foreign capital. Trade sanctions such as tax and countervailing duties are functional equivalents of tax hikes on U.S. consumers and American multinational business. In response, China can put reciprocal tax on products sold to the United States and diversify China's foreign exchange reserve from the U.S. dollar."

Which what they are now more openly threatening.

This news combined with the subprime lending crisis is really going to make the next few months really interesting. Of course, W. says he hasn't seen this story about the Chinese calling in our debts, but he says,

"That would be foolhardy of them to do that. If that's the ... position of the government, it would be foolhardy for them to do this."

Well, great, but he's gone fishin' so those China men will just have to cool their heels until he gets back in September. If there's anything to come back to, that is. No worries for him, though, if the economy goes to hell, Daddy can borrow some money from the Saudis.

Fore!