Monday, June 1, 2009

The Debts of the Lenders: China Warns Geithner About Bond Yields

Look at the prior post about the dollar chart and then compare it to these following lines from the Chinese. The formerly soft spoken and conscientious Chinese have been growing increasingly blunt about their criticism regarding dollar diplomacy. You certainly won't hear such scathing criticism from the Japanese or Koreans.

And for all the bond bulls out there crying out about Chinese being stuck in a dollar trap, you are correct - for now. But as I said in an earlier posting, the Chinese have already expanded into BILATERAL trade deals w/key commodity producing countries such as the resource rich nations of South America. Why bilateral? Well, in keeping w/Beijing's mandate of soft diplomacy, the Chinese wish to avoid pushing unless they are in a position of strength. Entering into multilateral deals or networks such as Mercosur or the World Bank will mean bringing unwanted US attention to the table.

Such diversification is slow but steady. China is a player for the long haul. Bitter experience in the 19th and 20th centuries has taught them to be wary of Western trade links.


“I wish to tell the U.S. government: ‘Don’t be complacent and think there isn’t any alternative for China to buy your bills and bonds’,” Yu said in an interview yesterday. “The euro is an alternative. And there are lots of raw materials we can still buy.”

The U.S. should take China’s interests into consideration “so that your own interest can be protected,” Yu said. “You should not try to inflate away your debt burden.” China could still diversify some of its Treasury holdings into euros or commodities, Yu added.

“Yes, some people say the euro is very weak,” Yu said. “Okay, weak is good, we’ll buy very cheap.”
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