Thursday, August 09, 2007

Uh Oh ... Better Buy Gold!

First we have the very volatile stock market, which today lost 3% of its value:
The Dow Jones industrial average dropped 387 points today and other stock prices tumbled around the world as the U.S. and European central banks pumped more than $100 billion of extra money into the financial system to counter tightening credit conditions in panicky markets.
What do I care about those rich bastards anyway, right? Well, I don't, except that I worry that the sky is falling, and it's just one part. Far more worrisome is this delightful little nugget:

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US Treasury bonds if Washington imposes trade sanctions to force a yuan revaluation.

Two Chinese officials at leading Communist Party bodies have given interviews in recent days warning, for the first time, that Beijing may use its $1,330bn (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession.

Even if this doesn't signal a US economic collapse (don't you believe it, goldbugs!), it sounds like China may be ready to start calling in some markers, and that can't be good. Oy.

No comments: