Is Chinese want to hurt the Dollar?

Thursday, August 20, 2009

So I was reading a story in the Wall Street Journal last night and I came across a well muted tidbit of information that, if it continues, could serve to hurt the Dollar in the near and demolish it in the long term.

China, the US’s largest investor, sold off a significant chunk of its T-Bills in June. Now, in recent months there has been much talk from China about their concerns regarding the US’s debt load, but trust me on this, they would not be selling the debt at this time if they did not have to.

If they did, they stand to lose a serious amount of money if the prices go down based on the sheer volume as well as psychological implications of the act.

According to other sources I read after my curiosity was peaked, it seems as if the Chinese government is spread a bit too thin right now – having increased their feverish purchase plan of almost every natural resource in the Eastern hemisphere while investing heavy in mineral and oil excavation Africa as well.

In an economy that thrives on exports to be spending as large as they have been under conditions that are being equated with the Great Depression is just plain crazy – and culturally it was probably not easy for them to stop when they realized this.

Culturally, the Chinese are all about not making mistakes or miscalculations and while they were saying things were fine, they were really not.

The theory here is that the Chinese need to unload some of the 3 Trillion greenbacks they have to raise cash – by no means am I saying that China is in trouble, but they are not as well off at this point as everyone thought.

If this is the case, Forex traders can worry if they are long Dollar positions. The fact is, the Chinese have so much impact on the Forex at this moment based solely on their reserve levels, that the hint of a selloff would panic the market.

I don’t believe the Chinese want to hurt the Dollar, I will say this a thousand times, it is not in their interest to do so. I just think that their needs might inadvertently lead to this and there is nothing anyone can do about it.

For now, I will keep my nose in the online Forex world and ears to the whispers – perhaps I can help make more sense of this as the weeks go by.


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