If this is true, and who knows, then we are just seeing the beginning of a serious drop in the dollar and a real live depression, not just a recession.
Currency traders gave the dollar a thorough pounding today after a Chinese official suggested that the country could begin to diversify its huge foreign-exchange reserves.
The euro broke the $1.47 barrier before retreating a little and the pound climbed above $2.10, a value it had not reached 26 years ago. Other currencies also posted gains against the dollar.
Remarks by Cheng Siwei, vice chairman of the National People’s Congress in China — a colossal dollar investor by virtue of its $1.43 trillion in currency reserves, most of which are presumed to be denominated in dollars — helped drive the dollar lower.
The Chinese have us by the proverbial "short hairs" and if they make a serious move to diversify then there will be absolutely nothing to support the dollar. Don't forget that the entire cost of the Iraq war is on the Chinese issued MasterCard. How else do you fight a war and lower taxes and the same time?
Great job Bushie!
Update...more good news
From the International Herald Tribune:
In short, markets appeared firmly in the grip of a mood that seemed to scream for any investment other than the dollar, a reflection of a broad lack of confidence in a U.S. economy that could not seem to put the subprime mortgage crisis behind it. Unusually, powerful new Chinese investors appeared to endorse the idea that the U.S. currency was bound to fade as a result.
The European Central Bank seems set to stand by the strong euro when it meets Thursday to set interest rates - offering a credible alternative to a U.S. currency that now seems less indispensable than it has in some time.....
"We are experiencing among our clients an awakening that the United States is in big trouble," said Erik Nielsen, chief Europe economist at Goldman Sachs. "It is not just the mortgage market."