China Set To Reduce Exposure To Dollar/ Move Would Probably Push Currency Down By Peter S. Goodman Washington Post Foreign Service Tuesday, January 10, 2006; Page D01
http://www.washingtonpost.com/wp-dyn/content/article/2006/01/09/AR2006010901042.html
The US Economy has become an insane Keynesian perpetual motion machine, fueled by low interest rates made possible by massive deficits sold to a Communist Government which is ideologically and culturally our enemy.
Speculation has been that China would stop buying US dollars is now officially confirmed. This has major implications for the US economic recovery, which is riding on low interest rates and rising real estate prices. In a recovery without jobs and with wages declining, the real estate bubble has been a boom for homeowners, who can dip into their home equity to make ends meet.
If China reduces it's investments in US debt, that means interest rates will rise, and home purchases will slow down. Since so many real estate purchases have been made in the expectation of prices continuing to rise at a certain rate, even a slow down has the risk of accelerating the real estate bubble into a meltdown.
A major disappointment in this recovery has been wages, which are not rising. If the dollar falls, the wages are going to buy less at Ikea, Walmart, and Rite Aid. Bad news for middle class families with a couple of kids trying to keep a house over their head without falling into debt.
Wall Street is singing the same old song, that the US has trapped the Chinese in our perpetual motion machine, and that they must continue to subsidize US consumer demand in order to keep their factories busy. But Wall Street has it's own agenda, and that's the profits it makes dismantling US companies and financing their rebuilding in China.
This announcement yields little hope that the Chinese will cease it's relentless pressure on domestic employers by artifically pegging it's yuan lower then the US dollar. If the Chinese need to diversify their debt holdings, and it matters little to them if the dollar falls, because the advantageous relationship the Chinese have enjoyed between the dollar and the yuan will remain the same.