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Monday, May 23, 2011

shall US china tussle lead the world economy in turbulence ?

China's foreign reserves have surpassed the $ 3 billion mark in march 2011, and its trade’s surplus of $ 200 billion was the main driving force behind it.
Chinese reserves are mostly dollar denominated and thus China shall try its best to prevent dollar from devaluation, while US getting dumped under its own debt, has no option left but to let the dollar depreciate.
Chinese authorities are hesitating to invest this reserve in China for infrastructure development fearing future rise in inflation, instead China is using reserves in buying technologies (both civil and military), strategic resources and overseas investment.
Diminishing dollar shall erode Chinese reserve value and on the other side it shall cause higher inflation in USA, and it shall set the world on the pyre of inflation due to commodity price rise.
US sovereign debt has crossed the vicious level of 97% of the GDP.
US have to cope with its debt and for that US needs to devalue its dollar, which shall prove to be detrimental for China.
US always wanted China to let appreciate its renmibi so that to reduce US trade deficit and for which China has been categorically denying so for and  thus making only option left for US to devalue dollar.
China’s optimal reserve requirement is around $1.3 trillion only and Reduction of $ 2 trillion of Chinese reserve shall have a great impact on US economy.
When China shall sell US treasuries to another investors, which shall reduce the demand for US treasury products and thus increasing interest hike on new issues which shall add woes to US economy.
The following Youtube video best reflects the fear of Chinese-financial-clout in US citizen’s psyche-

1 Comments:

Anonymous said...

US becomes chinese!
ha ! ha! ha!

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