China Weighs Economic "Nuclear Option"

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China Weighs Economic "Nuclear Option"
BEIJING, Aug. 9, 2007
(CBS) CBS News' Barry Petersen filed this story from China for CBSNews.com.
Talking about currency rates is a lot like being forced by Mom to eat your vegetables: you know it's good for you, but you hate it. So, apologies for offering a big course of Brussels sprouts here, but it is information worth knowing. The Chinese are holding and investing something like $1.3 trillion they made from selling goods to America. Now, some Chinese officials have floated the idea that these U.S. dollars could be used against the United States. Here is how the London Telegraph's Ambrose Evans-Pritchard reported the story: "Two officials at leading Communist Party bodies have given interviews in recent days warning — for the first time — that Beijing may use its $1.33 trillion of foreign reserves as a political weapon to counter pressure from the U.S. Congress. "Described as China's 'nuclear option' in the state media, such action could trigger a dollar crash at a time when the U.S. currency is already breaking down through historic support levels." The words that hit were "NUCLEAR OPTION". Rarely do you find that in a story on currency. Here is the problem: The United States maxed-out its credit cards long ago, and it needs to borrow and borrow both to raise still more money, and to pay interest on that ever-growing debt. The Chinese, with all those dollars, are willing to lend by buying U.S. Treasury bonds. That keeps interest rates down and that gives Americans extra bucks to buy… more goods from China. This is now a part of the presidential campaign. Here's what Sen. Joe Biden (D-Delaware) said at this week's AFL-CIO debate in Chicago about our debts to China: "This administration, in order to fund a war that shouldn't be being fought and tax cuts that weren't needed for the wealthy — we're now in debt almost a trillion dollars — a trillion dollars to China. We better end that war, cut those taxes, reduce the deficit and make sure that they no longer own the mortgage on our home." His comment drew this response ...full text