China Stuck

At the Forex BlogAdam Kritzer says China doesn't have much of an alternative:

Even ignoring the potential political fallout from forex reserve diversification, such a move doesn’t really make practical sense. First of all, there isn’t a buyer sufficiently capitalized to relieve China of its US Treasury burden. “If China decided to sell off some of its U.S. Treasury holdings, it would scarcely be able to dump that in large blocks. And a partial selloff would surely lead to a slump in the Treasury market, eroding the remaining value of China’s portfolio.”

Though the main point of the story is how China doesn't have an easy solution, the two-fold plan of changing the duration of loans and investing in natural resources suggests they are trying. As the inflation pressures begin to dominate, they will see the value of their dollar-based assets drop, and they will have that much more incentive to find alternatives.

The I.M.F lending, as well as calls for a new world currency makes little sense, for this merely adds another layer of complexity on top of the current shell game. It's this so-called co-ordinated action that is bad for everyone; we are in desperate need of competition among governments, but lately we've been getting nothing but cartel behavior.