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Tuesday, January 10, 2006

Extra: Shit Hits Fan
Posted by Jill | 11:44 AM

Americans, kiss your standard of living goodbye. China is pulling out the rug:

China has resolved to shift some of its foreign exchange reserves -- now in excess of $800 billion -- away from the U.S. dollar and into other world currencies in a move likely to push down the value of the greenback, a high-level state economist who advises the nation's economic policymakers said in an interview Monday.

As China's manufacturing industries flood the world with cheap goods, the Chinese central bank has invested roughly three-fourths of its growing foreign currency reserves in U.S. Treasury bills and other dollar-denominated assets. The new policy reflects China's fears that too much of its savings is tied up in the dollar, a currency widely expected to drop in value as the U.S. trade and fiscal deficits climb.

China now boasts the world's second-largest cache of foreign exchange -- behind only Japan -- and is on pace to see its reserves climb past $1 trillion later this year. Even a slight diminishing of the dollar as a percentage of those holdings could exert significant pressure on the U.S. currency, many economists assert.

In recent years, the value of the dollar has been buoyed by major purchases of U.S. Treasury bills by Japan, China and oil-exporting countries -- a flow of capital that has kept interests rates relatively low in the United States and allowed Americans to keep spending even as debts mount. Some economists have long warned that if foreigners lose their appetite for American debt, the dollar would fall, interest rates would rise and the housing boom could burst, sending real estate prices lower.

The comments of the Chinese senior economist, made on the condition of anonymity because the government disciplines those who speak to the press without express authorization, confirmed an analysis in Monday's Shanghai Securities News stating that China is inclined to shift some its savings into other currencies such as the euro and the yen, or into major purchases of commodities such as oil for a long-discussed strategic energy reserve.

In a report circulated this week, Stephen Green, senior economist with the bank Standard Chartered PLC in Shanghai, identified several signals that China is intent on limiting its exposure to the dollar -- not least, a recent pledge from the State Administration of Foreign Exchange to "actively explore more efficient use of our foreign exchange reserves."

"We believe this adds to the downside pressure the USD [U.S. dollar] is currently facing," Green wrote. "It is the first official expression from SAFE that they are looking at switching away" from the dollar.


This can be laid ENTIRELY at the feet of George W. Bush, who took office with a $128 billion surplus, and turned it into a $427 billion deficit through massive tax cuts primarily benefitting his campaign contributors, and his colossal fuckup of an adventure in Iraq, which will end up costing us $2 trillion.

So when your house's value drops in half, and you can't sell it because everyone else's house is on the market and your job is cut because your employer can't afford to pay you and still pay the dividend at the end of the quarter, you know who to thank.
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