Another very common objection raised to the Economic Warfare reality is based on the misperception that China is so connected to our economy that "they" would never harm us. [Of course, these are the same people who said that America would never lose our Triple-A Credit Rating.] The idea that "the Chinese" would never harm us is ridiculous on its face, given the proven reality that there are Chinese who continually hack our systems, manipulate and undermine our markets. There is ample evidence of that. The whole concept is rather naive, assuming that all Chinese are the same. Certainly the average businessperson in China might not want harm to our economy. But, how about the PLA (People's Liberation Army)? We addressed this in our posts titled "Which Chinese?" and "Which Chinese Part 2."
In the book, Secret Weapon (www.secretweapon.org), starting on page 193 we address the question, Would China Do It? We start by quoting Fareed Zakaria who has the ear of the Obama team (and wrote The Post-American World that Obama is so fond of):
"Here in the U.S. you may hear many people worry that the Chinese government might stop buying American T-Bills. I think those fears are vastly overblown. The economic situation between China and the U.S. is the financial version of mutually assured destruction…"
Basically, this theory is based on the idea that the Chinese hold so much in dollar debt that they couldn't afford to see the dollar go down. Here's the problem. The military doesn't care. They have a much longer view of things than the next quarter's export sales. The smug response of those who believe China needs us so much that they must always stay friends is just another example of American arrogance. Now, there is further evidence of what we have been saying all along. We have no idea about what China really holds in dollar debt. They have so many ways to obscure their holdings that we can't ever be certain. This from the March 2, 2012 Wall Street Journal cover story (Beijing Diversifies Away From U.S. Dollar):
"A comparison with China's own foreign-exchange reserve data suggests a marked reduction in the share of reserves parked in dollars. But difficulties in measuring China's holdings, exacerbated by what some analysts call an attempt by Beijing to hide the allocation of its reserves, mean that it is possible the data overstate the trend."
In other words, we can't be sure of what we think we know. And, what we know now includes an awareness that China has been reducing their dollar holdings sharply. The same issue of The Wall Street Journal also contained the story:
China Shifts Out of Dollars, World Doesn't End
China is shifting sharply away from U.S. dollars and the world hasn't ended—yet . . .
As a corollary of that, growth in China's foreign-exchange reserves has slowed. The share allocated to U.S. dollars has fallen, too. Data from the U.S. Treasury suggests the dollar share of China's $3.2 trillion stash fell to 54% in June 2011, down from 65% in 2010, and a high of 74% in 2006. In the 12 months to June 2011, dollar purchases accounted for just 15% of additions to China's reserves.
That confirms hints from Beijing and Europe over the past year that China has ramped up purchases of European debt. Last month, Premier Wen Jiabao said Europe would be a main avenue for diversifying China's reserves. Other highly rated sovereigns like Australia and Canada are also benefiting.
In short, the idea that China couldn't move away from the dollar has been disproven. The reality is that they are moving from the dollar and doing so rapidly as near as we can tell. It is interesting that we are just now getting "fresh data" that is already eight months old (June 2011) and murky at best. We shared all of this in Chapter Nine of Secret Weapon (The Next Attack) including the fact that Chinese holdings of U.S. Treasury debt would stealthily decline. The bottom line? American arrogance has kept us from recognizing that we are in the midst of a global economic war. Shouldn't we prefer that our President reads the truth of Secret Weapon rather than The Post American World?