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Originally Posted by Skybird
Spoken by testicles, not by brains.
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No. Spoken by a sense of survival. Doesn't have anything to do with parts of the body at all. If China is building large foreign exchange reserves in dollars simply so they can drop an economic bomb, such as dumping them quickly and completely so as to prevent US military action, or stop oil deliveries to America.....that's just like dropping a bomb of destruction. That means simple deliveries of food within America may be disrupted to the point of non-delivery. I don't know about you, but not being able to eat is hazardous to your health where I come from. With that said, the nuclear option is only the most extreme. And it is the least desirable. But indeed, I would expect the US government to retaliate in a way that would make them pay an ultimate price. China needs to know that economic warfare is not in their interests, and will be painful to them if they partake in it.
If they want to exchange their foreign reserves nominally, then they should do so. But nevertheless, I'm willing to bet that they will not do so at all. The Euro as a long term option ain't that good as is. With a large, yet rapidly shrinking, and aging population sucking on government pensions, and a burgeoning low skilled/hostile Muslim infusion in Europe.....I wouldn't bet on it.