China digs itself deeper into dollar trap – In The Dollar Trap, the Cornell University economist doesnt paint the U.S. Treasury secretary or Federal Reserve chairman in sinister terms. Prasads argument is that for all the worries about U.S. policies and debt, and the many efforts to build up an alternative, the dollars linchpin role is only strengthening. What struck me most, though, is that China still cant see that its the dupe in this giant pyramid scheme. Chinas $3.8 trillion of currency reserves are the largest stockpile ever amassed. Economists have long seen that money as a strength -- the ultimate rainy-day fund should Chinas shadow-banking system blow up. Trouble is, the value of those holdings depends on Chinas $1.3 trillion of U.S. Treasuries. If they plunge in value, all hell breaks loose and officials from Beijing to Brasilia will scramble to exit the American bird cage. The concept of such enclosures has great significance in feng shui. In the late 1960s, Macau tycoon Stanley Ho designed his Lisboa casino -- featured in a James Bond film -- to be a huge bird cage. The symbolism was obvious: Weve got you and your cash trapped. China is looking like a big-money gambler who just knocked over a casino and cant use the loot because its all in marked bills. If the mainland ever tried to spend down its Treasury holdings, the global financial system could collapse. Chinas central bank faces the prospect of significant losses in its reserve portfolio if it were to disentangle itself from the trap through any precipitous actions to shift out of the dollar, and the political fallout could be ugly if the Chinese public learned of the magnitude of these losses, which would be seen as a transfer of wealth to the U.S.
Posted on: Mon, 10 Mar 2014 20:26:48 +0000
Recently Viewed Topics
© 2015