China International Capital Corp (CICC) economist Ha Jiming is forecasting that the Chinese government will reduce its holdings in US debt, "China held $447.5 billion of US agency bonds as of June 2008, according to the CICC calculations using disclosures by the US Treasury. It is likely to reduce the portion of reserves in dollar assets from the current 60 percent by purchasing more non-dollar assets with new reserves."
As demand to hold US dollars decreases so will the purchasing power of the dollar. This coupled with the increased likelihood of further rate cuts makes another surge in consumer prices a real possibility.
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