OK, I'm a bit lost here. The US accuses China of hoarding dollars as a way to keep the Chinese yuan artificially low, thereby making Chinese products artificially cheap and flooding the US market with Chinese imports. To protect US consumers from having to pay so little money for these products, Congress is threatening to slap trade sanctions on China if it doesn't stop these currency policies. In response, the Chinese goverment basically says, "Oh, yeah? Well, if you slap sanctions on our companies, you know all those dollars you paid us for everything you buy at Walmart? Well, we're going to give them away for free! That'll show you!"
How am I not exaggerating? The US says stop keeping your currency low or we'll hit you with sanctions, and the Chinese say, if that's how your going to be, then we're going to stop keeping our currency so low! Is that a threat? A negotiating tactic? Who are these people?
The Telegraph goes on to suggest that a massive sell-off of Chinese-held US government debt could "...cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession." Granted, a firesale of US bonds might cause a spike in US bond yields (and an excellent investment opportunity for the rest of us), but even if that caused a recession, which products are these newly impoverished American consumers most likely to forgo most quickly? You think it might be all those Chinese products that suddenly doubled in price?
And all those poor American consumers, suddenly seeing their property values drop. Do you think they might be able recoup some of the loss with a better-paying job at a US exporter? You know, maybe a company like Boeing, since the prices foreigners have to pay for a new Dreamliner just dropped dramatically with a devalued dollar?
All I'm saying is that I wish these Chinese negotiators would come over to my place sometime for a night of poker. I could use the cash...particularly with a recession coming up.