“Mutually Assured Destruction (MAD) What is worrying the Americans is that China accounts for about one-fourth of the global forex surpluses and are the counterparts of the US current account deficit. Put simply, while China accumulates forex reserves, the US accumulates a corresponding debt. And the Americans are aware that it is the Chinese are the biggest accumulators of the US treasury bonds. What is indeed intriguing is that a country — the US — that prides on being ‘independent’ of other countries, especially in security affairs, is now caught in a quagmire as it has to be constantly in the good books of the Chinese government if it wants to avoid a sudden shock. Countries that hold large US dollar denominated forex reserves have a powerful tool in their arsenal — they could wreck American financial markets at a mere click of a mouse by selling their dollar holdings. Imagine China with a holding nearly $2 trillion worth of treasury bonds seceding to sell the same overnight. And that could instantaneously dynamite the global financial system as it could suck out liquidity and cause interest rates to shoot through the roof. Remember, the $700 billion package announced last week by the US is precisely aimed at addressing the liquidity crunch within the US.”
“At the bipartisan White House meeting that Mr. McCain had called for a day earlier, he sat silently for more than 40 minutes, more observer than leader, and then offered only a vague sense of where he stood, according to people in the meeting.”
“Chris Dodd, Democratic chairman of the Senate banking committee, summed up the mood of many in Congress when he said: “After reading this proposal, I can only conclude it is not just our economy that is at risk but our constitution as well.”
