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Page added on October 19, 2013
9 Signs That China Is Making A Move Against The U.S. Dollar
On the global financial stage, China is playing chess while the U.S. is playing checkers, and the Chinese are now accelerating their long-term plan to dethrone the U.S. dollar. You see, the truth is that China does not plan to allow the U.S. financial system to dominate the world indefinitely. Right now, China is the number one exporter on the globe and China will have the largest economy on the planet at some point in the coming years.
The Chinese would like to see global currency usage reflect this shift in global economic power. At the moment, most global trade is conducted in U.S. dollars and more than 60 percent of all global foreign exchange reserves are held in U.S. dollars. This gives the United States an enormous built-in advantage, but thanks to decades of incredibly bad decisions this advantage is starting to erode. And due to the recent political instability in Washington D.C., the Chinese sense vulnerability. China has begun to publicly mock the level of U.S. debt, Chinese officials have publicly threatened to stop buying any more U.S. debt, the Chinese have started to aggressively make currency swap agreements with other major global powers, and China has been accumulating unprecedented amounts of gold. All of these moves are setting up the moment in the future when China will completely pull the rug out from under the U.S. dollar.
Today, the U.S. financial system is the core of the global financial system. Because nearly everybody uses the U.S. dollar to buy oil and to trade with one another, this creates a tremendous demand for U.S. dollars around the planet. So other nations are generally very happy to take our dollars in exchange for oil, cheap plastic gadgets and other things that U.S. consumers “need”.
Major exporting nations accumulate huge piles of our dollars, but instead of just letting all of that money sit there, they often invest large portions of their currency reserves into U.S. Treasury bonds which can easily be liquidated if needed.
So if the U.S. financial system is the core of the global financial system, then U.S. debt is “the core of the core” as some people put it. U.S. Treasury bonds fuel the print, borrow, spend cycle that the global economy depends upon.
That is why a U.S. debt default would be such a big deal. A default would cause interest rates to skyrocket and the entire global economic system to go haywire.
Unfortunately for us, the U.S. debt spiral cannot go on indefinitely. Our debt is growing far, far more rapidly than our GDP is, and therefore our debt is completely and totally unsustainable.
The Chinese understand what is going on, and when the dust settles they plan to be the last ones standing. In the aftermath of a U.S. collapse, China anticipates having the largest economy on the planet, more gold than anyone else, and a respected international currency that the rest of the globe will be able to use to conduct international trade.
And China is not just going to sit back and wait for all of this to happen. In fact, they are already doing lots of things to get the ball moving. The following are 9 signs that China is making a move against the U.S. dollar…
#1 Chinese credit rating agency Dagong has downgraded U.S. debt from A to A- and has indicated that further downgrades are possible.
#2 China has just entered into a very large currency swap agreement with the eurozone that is considered a huge step toward establishing the yuan as a major world currency. This agreement will result in a lot less U.S. dollars being used in trade between China and Europe…
The swap deal will allow more trade and investment between the regions to be conducted in euros and yuan, without having to convert into another currency such as the U.S. dollar first, said Kathleen Brooks, a research director at FOREX.com.
“It’s a way of promoting European and Chinese trade, but not doing it with the U.S. dollar,” said Brooks. “It’s a bit like cutting out the middleman, all of a sudden there’s potentially no U.S. dollar risk.”
#3 Back in June, China signed a major currency swap agreement with the United Kingdom. This was another very important step toward internationalizing the yuan.
#4 China currently owns about 1.3 trillion dollars of U.S. debt, and this enormous exposure to U.S. debt is starting to become a major political issue within China.
#5 Mei Xinyu, Commerce Minister adviser to the Chinese government, warned this week that if the U.S. government ever does default that China may decide to completely stop buying U.S. Treasury bonds.
#6 According to Yahoo News, China has already been looking for ways to diversify away from the U.S. dollar…
There have been media reports this week that China’s State Administration of Foreign Exchange, the body that handles the country’s $3.66 trillion of foreign exchange reserve, is looking to diversify into real estate investments in Europe.
#7 Xinhua, the official news agency of China, called for a “de-Americanized world” this week, and also made the following statement about the political turmoil in Washington: “The cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising debt ceiling has again left many nations’ tremendous dollar assets in jeopardy and the international community highly agonized.”
#8 Xinhua also said the following about the U.S. debt deal on Thursday: “[P]oliticians in Washington have done nothing substantial but postponing once again the final bankruptcy of global confidence in the U.S. financial system”. The commentary in the government-run publication also declared that the debt deal “was no more than prolonging the fuse of the U.S. debt bomb one inch longer.”
#9 China is the largest producer of gold in the world, and it has also been importing an absolutely massive amount of gold from other nations. But instead of slowing down, the Chinese appear to be accelerating their gold buying. In fact, money manager Stephen Leeb says that his sources are telling him that China plans to buy another 5,000 tons of gold. There are many that are convinced that China eventually plans to back the yuan with gold and try to make it the number one alternative to the U.S. dollar.
So exactly what would happen if the Chinese announced someday that they were going to back their currency with gold and would no longer be using the U.S. dollar in international trade?
It would change the face of the global economy almost overnight. In a previous article, I described some of the things that we could expect to see happen…
If China does decide to back the yuan with gold and no longer use the U.S. dollar in international trade, it will have devastating effects on the U.S. economy. Demand for the U.S. dollar and U.S. debt would drop like a rock, and prices on the things that we buy every day would soar. At that point you could forget about cheap gasoline or cheap Chinese imports. Our entire way of life depends on the U.S. dollar being the primary reserve currency of the world and being able to import things very inexpensively. If the rest of the world (led by China) starts to reject the U.S. dollar, it would result in a massive tsunami of currency coming back to our shores and a very painful adjustment in our standard of living. Today, most U.S. currency is actually used outside of the United States. If someday that changes and we are no longer able to export our inflation that is going to mean big trouble for us.
The fact that we get to print up giant mountains of money and virtually everyone around the world uses it has been a huge boon for the U.S. economy.
When that changes, the word “catastrophic” is not going to be nearly strong enough to describe what is going to happen.
According to a Rasmussen Reports survey that was released this week, only 13 percent of all Americans believe that the country is on the right track. But the truth is that these are the good times. The American people haven’t seen anything yet.
Someday people will look back and desperately wish that they could go back to the “good old days” of 2012 and 2013. This is about as good as things are going to get, and it is only downhill from here.
11 Comments on "9 Signs That China Is Making A Move Against The U.S. Dollar"
Arthur on Sat, 19th Oct 2013 12:44 pm
“but thanks to decades of incredibly bad decisions this advantage is starting to erode.”
It would have happened anyway, regardless of which decisions the US would have taken. Take comfort from someone from a dot-shaped country like me: Holland had the reserve currency in the 17th century, but it was inevitable that the numerous larger entities France and/or Britain would take over eventually, as they did in the 18th and 19th century resp. And it was inevitable that an even larger entity, the US, would take over from them. And now it is inevitable that even more numerous entities like the EU and China are going to take over from the US. As usual the euro is ignored by the professional collapsers from the ECB, although the size of the European economy is 2.5 times that of China. It looks like the US thinks it has the EU in it’s pocket, but I guess we have to live with that situation for a few more years. Meanwhile, studying the graph below, you will see that the current ranking is
1. Dollar
2. Euro
3. GBP
http://en.wikipedia.org/wiki/File:Global_Reserve_Currencies.png
For the moment there is no Chinese currency to be seen. 95% of the world population is probably unable to name the Chinese currency, where everybody knows the dollar, euro and even GBP.
As the situation now is, the euro is the most likely successor of the dollar and I hate to say that as a fervent anti-globalist. Reason: largest and most advanced economy + less enemies than the dollar (for now). The strategy of China is not to provide the next reserve currency, for which it still lacks the strength (maybe that will change in a few decades), but to play out the euro against the dollar and drive a wedge between the two. As long as Washington keeps behaving like the ‘benevolent global hegemon’ (official Washington’s own words), it can expect to create an enemy out of the rest of the world. On the very moment that the dollar will collapse, SCO will be dissolve almost immediately and Russia will switch camps. Putin implicitly (between the lines [*]) declared three years his willingness to adopt the euro as a second currency. EU + Russia together constitute a GDP 3 times that of China.
[*] – tinyurl . com/8tnef9j
LT on Sat, 19th Oct 2013 12:47 pm
I’m not surprised. Communist China finds every way to bring down the US since Mao was still in charge. Once she knows she is strong enough, she will deal with the US militarily to consolidate her #1 position in the world. Then she will deal with the rest of the world the way she has been doing in Tibet if any country refuses to bow low to her.
Therefore, the world should unite with the US to defeat Communist China before it is too late. World war 3 will be about China expansionism and the fate of US’s #1 in the world.
Airwicky on Sat, 19th Oct 2013 1:17 pm
LOL freaking LT … must be from the cold war era. It’s just about control plain and simple. Why throw in the communist part. It’s not like capitalist America isn’t about the power and control. That leap about China starting war with the USA is big. Like other’s have said, most wars are about resources hence control. So it could be just about any country that would invade another.All these labels are the reason us idiots think about when war happens
Ghung on Sat, 19th Oct 2013 2:36 pm
Airwicky – Agreed. Why would China get involved in wars for resources when they can buys the sources of resources with their glut of dollars? They’ve been spending hundreds of $billions in Africa on oil plays, other resources, and building mega-projects such as hydro damns and railroads. Other area’s of ‘investments’ are South America, Canada, and, indeed, The US itself. Last month they bought Smithfield Foods, North America’s largest pork producer and processor, including the largest slaughterhouse and meat-processing plant in the world, located here in NC. From wikipedia:
<The company had 46,050 employees in the United States, Mexico and Europe as of 2012, and an annual revenue of $13 billion. It raises 15.8 million pigs a year, producing 3.8 billion pounds of fresh pork and 2.7 billion pounds of packaged meat, sold as 50 brands of pork products and 200 gourmet foods.[15] Along with specialty brands such as Paula Deen Collection, and international brands such as Weight Watchers, the company’s 12 core brands are Armour, Carando, Cook’s Ham, Curly’s Foods, Eckrich, Farmland, Gwaltney, Healthy Ones, John Morrell, Kretschmar, Margherita, and Smithfield.[16] The company also operates The Genuine Smithfield Ham Shoppe and a restaurant, Taste of Smithfield, both in Smithfield, Virginia.[17]
They are already sending increasing amounts of swine back to China. Notice the price of bacon lately? They bought out all of the stock:
On 29 May 2013, Shuanghui, a Chinese company, announced a purchase of all of the stock of Smithfield Foods, Inc. for approximately $4.72 billion.[18] It was also announced by Shuanghui that it would list Smithfield on the Hong Kong Stock Exchange after completing the takeover.[19] On 6 September 2013 the U.S. government approved Shuanghui International Holding’s purchase of Smithfield Food, Inc. The deal was valued approximately $7.1 billion. It was the biggest Chinese takeover of a U.S. company to date.
Ancient Chinese proverb – “There’s more than one way to skin a cat without killing it” 😉 No point in going to war when you already own the enemy.
PrestonSturges on Sat, 19th Oct 2013 2:37 pm
China has worked very very hard to depress the value of whatever-they-call-their-currency. Do they really want to let it float and suddenly make all their exports 10%-15% more expensive? Or maybe that would let their own people consume more…
Ghung on Sat, 19th Oct 2013 2:41 pm
BTW: Is there a way to edit a comment after submitting?
J-Gav on Sat, 19th Oct 2013 3:26 pm
Ghung: Rewriting and resending seems to be the only option as far as I can tell …
Ancient African proverb: “When the elephants fight, the grass gets trampled. When the elephants make love, the grass gets trampled too.”
paulo1 on Sat, 19th Oct 2013 3:49 pm
In my Province of BC, it was announced yesterday that China is prepared to invest hundreds of billions of dollars in LNG plants and infrastructure. Our Provincial Govt is on a desperate quest to export almost anything to reinvigorate our economy. After the bad taste of the ‘gun-at-head’ softwood lumber tariffs meant to protect a less efficient US lumber industry, our local forest companies have been delighted at the increasing sales to China. Where I live on the coast, we are in a super cycle boom right now with China buying up everything. Apparently, wood waste is now to be made into pellets for European consumers who are weaning themselves from coal. My source for this information is a friend of mine who is chief forester for a large multi-national company. However, it is common knowledge in the industry.
Paulo
Jerry McManus on Sat, 19th Oct 2013 5:31 pm
@Paulo
Similar things happening here on the West coast of the US, controversial coal export terminals planned for servicing the Asian market.
I sometimes tell people who are so earnestly trying to reduce their carbon emissions with token gestures like changing light bulbs: “Look, anything you don’t burn will happily be consumed by those 3 billion folks in China and India”
Mostly they don’t want to hear it.
paulo1 on Sat, 19th Oct 2013 10:52 pm
@ Jerry,
Hi Jerry. My sister lives on Camano below Bellingham and has been keeping me informed about the plans for increased coal shipments to Bellingham. I was on a side road by Stanwood and what do I see? A huge coal train just like the ones that head for Roberts Bank superport. They have also tried to push Wyoming? coal to a terminal on the Fraser River, which will then be forwarded on to Texada Island in the Gulf of Georgia (by Powell River), where it will join our local Quinsam Coal’s journey to China. Our shut down pulp Mill at campbell River has been renamed an LNG plant and there are applications to use the site for that purpose. The Push is on, big time.
Paulo
BillT on Sun, 20th Oct 2013 5:39 am
China is going to be the next #1 in everything except debt. The US will retain that distinction, followed closely by the EU, UK and Japan.