China dumping dollars—but slowly

An Associated Press story reported in Forbes magazine indicates that China has for the past two months been  reducing its holdings of  U.S. Treasury debt. ” The $24 billion decline in China’s holdings in June followed a $32.5 billion drop in May. China’s holdings had hit a high for this year of $900.2 billion in April.” And this was down from their record high holdings of $939.9 billion reached in July 2009.

This seem to confirm my expectation that China would be diversifying its foreign reserve holdings away from dollar denominated securities.

The slack is being taken up by Japan and Britain so the immediate impact on the dollar in foreign exchange markets may continue to be minimal– for a while.

Central banks collude to advance their common objectives, but given the astronomical budget deficits and continued monetization of U.S. government debt by the banking system, it is unlikely that they will continue to support the dollar in the future as they have in the past. At some point, they will allow the dollar to slide into the void as they roll out their new plan for a global reserve currency. –t.h.g.

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5 responses to “China dumping dollars—but slowly

  1. On a lighter note, your readers may be interested in http://www.heliko.org/sennaciabanko.html as well as http://www.youtube.com/watch?v=ZpC8mPk4QBMAs

    Interestingly as well financier George Soros is a native Esperanto speaker, or someone who speaks the international language from birth.

  2. Interesting question–I’ve seen rumors that the Chinese have a massive real-estate bubble. Google ‘Chinese bubble’–lots of stories of brand new shopping malls standing empty, projects being built an not sold… It’s hard for me to sort out what the implications of that are. Do you have any insight?

    • China has created its own bubble by industrializing on the basis of an export strategy. By pegging its currency at a low rate relative to the U.S. dollar, it has been able to export huge amounts of consumer goods to the U.S. and the west. This has drawn workers from the countryside into the cities looking for jobs. That influx has caused urban housing prices to be bid up to enormous levels. The new wealthy class is using its capital to speculate in real estate, adding fuel to the fire.

      The global economy is headed for the rocks. There is no saving it. Political currencies will soon lose most of their value.

      Economies will need to be rebuilt from the bottom up, community by community using money and finance that is free of usury/interest or monopoly control.
      Production will be more for local consumption and less for export. Everything will be more decentralized and small-scale under community control.

      • I think what you’re talking about is the endgame, which is hard to argue against. But I suspect the line from here to there is not a straight one, and strategies predicated upon the conditions at the endgame may not get you through the middle. I agree those new economic structures need to be germinated, but I suspect that’s not enough.

        ‘Production will be more for local consumption and less for export. Everything will be more decentralized and small-scale under community control.’

        This is not just a direction of economics, but also technology. Have you heard about the Reprap and other associated projects?

        http://reprap.org/
        http://makerbot.com/
        http://www.thingiverse.com/

        This stuff is rapidly evolving and potentially revolutionary. I suspect a new economic order would be required to accommodate this kind of powerful new technology. There needs to be harmony between the two, or one will break down.

      • Yes, of course, how to get from here to there is the big challenge. I think we will very quickly need to learn to share, cooperate, and organize in our communities. That means investing what we have to make our communities more self-reliant and secure in food, energy, and other necessities. Those of us who have a little savings need to take it away from Wall Street banks and invest it in Main Street enterprises. Use it or lose it (to inflation).

        I’ve not heard of Reprap but will check it out. Thanks.

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