China Isn't For Dummies | CorrenteWire:
China can now credibly threaten to stop financing US deficits and start dumping greenbacks.
This is a very credible threat. If executed, inflation, the costs of imports, and interest and mortgage rates would skyrocket. With higher housing costs leading the way, consumers would soon be overburdened. The result: a nasty stagflation shock.
Some say that the Chinese would never take such an action because it would hurt them as much as Americans. But it’s Beijing’s view that the Chinese people are far tougher and better able to withstand any economic shock than Americans who’ve grown soft living the good life – and they are probably right. Chinese officials also take a far longer view of strategic action. So if a “dump the greenbacksâ€? strategy needs to be implemented to break the back of a rising American protectionism, to secure Taiwan, or to achieve any other strategic goals, sobeit.