Big Black Swan:U.S./China War?
Just because China was already delighted with Obama's reception of the Dalai Lama, here come John McCain and John Kerry warning China to mind it territorial waters, because apparently US national interests are threatened. Per the FT: “We are concerned that a series of naval incidents in recent months has raised tensions in the region,” said John Kerry, the Democratic chairman of the Senate foreign relations committee, and John McCain, the former Republican presidential candidate. “If appropriate steps are not taken to calm the situation, future incidents could escalate, jeopardising the vital national interests of the United States.” The logical follow up is glairngly obvious but here it is: "China is likely to see the comments as a provocation as they echo remarks by Hillary Clinton, US secretary of state, last year that infuriated Beijing. Speaking at the Asean Regional Forum (ARF) in Hanoi last July, Mrs Clinton angered Beijing by saying the US had “a national interest in freedom of navigation . . . in the South China Sea." What is surprising is that the US is dumb enough to bait China with such provocations as the US Treasury market is now, more than at any other point in the past 3 years, reliant on Chinese bond purchases. And for all those who claim that China has no other alternative where to recycle its trade surplus dollars, we bring you exhibit i) the EURUSD, where China sells dollars and buys euros, and ii) Eurozone bonds over the past months, which it has been gobbling up ravenously. So yes: it does have alternatives, and it may very well make a rather forceful statement to that extent.
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From the FT:
