Monday, September 7, 2009


China ditching the dollar?
Cheng Siwei, former vice-chairman of the Standing Committee . . . said Beijing was dismayed by the Fed's recourse to "credit easing." . . . "If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," he said.
Edward Harrison of RGE Monitor explains:
For months now, the Chinese have signalled growing unease with U.S. monetary policy. And now comes the clearest signal yet that they are moving away from the dollar. . . . The $2 trillion in U.S. dollar reserves the Chinese already have are a sunk cost. Going forward, the Chinese are free to do as they wish with incremental additions to reserves.
Which is to say there is a limit to the willingness of Beijing to keep funding endless deficit spending. If China starts shorting the dollar . . . Oh, this could get ugly.

Expect a lot of public pushback from Geithner and Bernanke, who will emphasize that this one official was not expressing actual policy for Beijing. But I rather doubt the markets will be spun so easily.

Watch gold prices today. Wall Street won't be open until Tuesday, but gold is traded globally 24/7 and that price will tell you whether investors are taking this Chinese official's remark seriously.


  1. Also, throw Oil into the mix.

    China could make a killing on their state owned Oil company investments.

    And the Chinese made "gas savers".

  2. We get to celebrate b y flying the chines flag over the nation's capitol on 9/20. Isn't that sweet??

  3. Can you blame the Chicoms? What are they, stupid? They are getting off Obama's Weimar Crazy Train.

  4. Related reading from The Daily Telegraph - George Mason Economic Professor Charles K. Rowley says that it is not impossible that we follow the Argentinians from 1st-world to 3rd-world status. Care to guess under whose tutelage the Argentinian collapse came?

    I wonder what would be more devastating - hyperinflation as the Fed prints dollars to cover government debt, or a default on said government debt.

  5. Well this has been building for some time (although President Obama is going to get the lion's share since it would be under his watch). But many right-thinking economists and right-thinking Americans have been saying for YEARS that the "Made In China" everywhere tag would bite us in the arse.