"The coming showdown over China -- and perhaps with China -- lacks the drama of the Iraq disaster, but could be every bit as serious"
Robert Kuttner warns that U.S. trade policy is headed for the abyss:
With $1.07 trillion worth of foreign currencies, China has surpassed Japan as the world’s largest holder of foreign exchange. And China’s immense stash of dollars happens to be a prime source of funding America’s national debt.
As Congress increases the pressure on the Chinese to reform trading practices, there is anxiety in Washington about China resorting to its financial neutron bomb, the threat to diversify its currency holdings out of US dollars.
If China starts dumping dollars, expect interest rates to rise.
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