Thursday, May 28, 2009

The Debts of the World: How To Solve China's Dollar Trap

This is my proposal:

China needs to do exchange swaps w/Argentina, Brazil, and other Latin American nations (predominantly S. American). Dollar debt (treasuries) can be swapped in exchange for stuff that China needs - physical commodities such as iron, copper, lumber, beef, pork, wheat, soybeans, etc.

It's a deal of harmonious proportions as the Chinese like to say. Beijing gets to divest itself of unwanted dollars while S. America gets to prop its politically fragile states w/dollars. If done in large enough amounts, states such as Argentina will even be able to re-boot their dollar pegs.

Of course, this deal cuts out the traditional middleman - the IMF and World Bank. So an official deal is unlikely to happen soon. However, low level, BILATERAL accords have been going on for some time between individual ministers of respective nations (This information can be found in trade reports coming out of Argentina and Brazil for example. Most of this information is NOT in English so it helps to have a healthy command of Spanish or Portuguese. The Chinese for their part are very adept at hiding information through their official media channels). Make no mistake - Chinese commissars are not stupid. They simply wish to avoid antagonizing the US eagle at a time when their own internal development is fragile.
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