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From Adem Tumerkan: In last week’s Palisade Weekly Letter, I wrote about how the Chinese are now selling their U.S. debt. And since this was an important write-up, I also published it as an article – so if you missed it, click here.
That’s why we at Palisade Research have called this China’s ‘nuclear‘ option – it’s no doubt afinancial weapon of mass-destruction (FWMD).
If China suddenly dumped their $1+ trillion of U.S. debt, it would cause markets worldwide to implode.
But that also means China would suffer. . .
Now, China isn’t stupid. They’ve worked decades to grow their massive dollar surplus and reserves. They won’t recklessly lose it all for nothing.
But still, this put’s China in a corner. Because although they won’t risk blowing themselves up to hurt the U.S. – what if the U.S. must cheapen the dollar to boost trade? Or get out of a recession? Or monetize the Treasury’s never-ending spending and huge fiscal deficits?
The depreciation of the U.S. dollar for any reason is a huge threat to China currently.
Today China holds roughly 3 trillion of dollar reserves. That’s down 25% from the 4 trillion they had in beginning of 2015 (the strong dollar really hurt them).
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