How China Will Destroy The U.S. Dollar
17 Comments »Giordano Bruno
Neithercorp Press
On August 23rd, 2009, we reported on a Chinese “People’s Daily” article which revealed that China had begun the process of dumping its long term U.S. Treasury bonds. 3.1% in a very short period of time. To the main stream educated wannabe economist, this may not seem like much, and the news may roll off his back. So, it is up to Neithercorp to educate them on why this recent dumping of treasuries is such a big deal.
First, it has been nine years since China has dropped so many U.S. bonds in such a short period of time, and interestingly, it was right around this time that the U.S. Dollar value began to plummet, with a short upwards spike in 2006, and then a continued drop until now.
As you can see from the chart above, overall value of the U.S. Dollar compared to other currencies has faltered significantly in the past decade.
People who do not understand the significance of U.S. debt held by China often argue that China held less treasury bonds a year ago than they do now, so a 3.1% sell off is nothing to write home about. Their problem is that they are not looking at the big picture when making this assessment.
In the past, the U.S. deficit has been a cumbersome, but seemingly manageable affair, at least in the eyes of foreign investors. This changed with Barack Obama’s recent announcement that the U.S. deficit over the next ten years is now projected at $9 Trillion. As with all figures negative to the Government, this is a conservative estimate. The true figure will probably end in the double digits, which is a disaster for the American economy, simply because this kind of debt is completely unconquerable. Our current annual GDP is $14 trillion and falling. Around 70% of America’s economy is supported by the retail and service sector, which are also continuing to lose strength as the current recession drags on. This means that our GDP is getting smaller while our deficit is exploding. Soon, the national debt will be as large or larger than our entire GDP.
Based on these fundamentals, no economy can sustain itself. Due to this massive projected deficit, a comparison of all past Chinese holdings of T-bonds is irrelevant. The only possible way for the U.S. to continue on this path now is through foreign investment in Treasury Bonds. China is one of the few countries which has the national savings necessary to purchase our debt on such a scale. We NEED China to continue not only buying treasuries, but buying them at an ever increasing rate as each year passes. There is no way around this. However, as reported by the “People’s Daily”, China has not only stopped buying U.S. bonds, they have begun dumping the bonds they have already accumulated!
http://www.reuters.com/article/newsOne/idUSTRE57K4XE20090821
Hopefully, the gravity of this situation is starting to set in with any “green shoots” economists out there who still have blind faith in the dollar.
Some may argue that it is not in China’s best interest to dump treasuries because such a move would hurt their economy as well. This is an assumption based on nothing, as I will show.
In the past, China has used a favorable trade deficit between themselves and the U.S. to fuel their economy. Chinese labor is cheap, their goods are cheap, and they can be exported to the U.S. (the largest buyer of Chinese exports) for little additional cost……as long as the Greenback remains strong, that is. If the dollar were to drop in value against the Yuan and other currencies, China would lose its trade deficit advantage, its exports would become more costly, and its current industry would collapse.
This is why China has continued to buy U.S. Treasuries and prop up the dollar far longer than was rationally prudent. Keeping the greenback strong versus the Yuan meant China would be able to keep its export economy going. Until recently, China needed us as much as we need them, but this has changed.
Americans are no longer buying Chinese goods like they used to. Chinese exports have dropped consistently month after month, in some cases as much as 26%:
http://www.bizchina-update.com/content/view/2526/2/
http://www.telegraph.co.uk/finance/economics/5502353/Chinese-exports-fall-for-seventh-month.html
While it is difficult to gage China’s unemployment numbers because of the Communist Government’s knack for misreporting statistics even more often than we do here in the U.S., it has become evident from China’s college graduate suicide rate that jobs are simply not available:
So, China’s exports continue to plummet, the U.S. dollar continues to plummet because of inflation created by the privately controlled Federal Reserve, and the U.S. deficit continues to expand, further threatening any recovery.
The bottom line: China has nothing to gain any longer by investing in U.S. debt.
Their exports are falling anyway, and the dollars they already hold are losing value as I write this. China’s export economy is changing, which is probably why in December of 2008, the Chinese central bank announced a “baby step program” to begin allowing international trade using the Yuan, instead of the U.S. dollar:
http://news.bbc.co.uk/2/hi/asia-pacific/7799541.stm
And why China has been stockpiling gold since at least 2003:
http://www.reuters.com/article/goldMktRpt/idUST30612020090424
The Chinese government has even recently begun encouraging gold and silver investment in its average citizens, an unprecedented move!
China is obviously moving to protect itself, slowly leaving behind its reliance on export markets and focusing more on its own citizens and currency as a potential driving force for its economy. Again, though it is gradual, China is breaking away from the U.S. This will likely move faster as the year of 2009 closes out, perhaps as soon as the G20 meeting this September in Pittsburgh, where it is rumored that BRIC countries may openly announce their intention to move away from the U.S. Dollar permanently and into the IMF’s new “Special Drawing Rights” (Global Currency):
http://www.chinadaily.com.cn/china/2009-09/03/content_8648691.htm
It is inevitable. Because China has nothing to gain by continuing its economic relationship with the U.S. they WILL drop the dollar, and this will probably occur soon. As this begins to happen, main stream media here and across the world will shrug off the whole affair as nothing out of the ordinary. China’s treasury dumping will go from 3.1%, to 10%, to 20% and beyond. Other countries, including Japan with its new anti-dollar government, will follow suit like a chain of dominoes. The dollar will lose most of its value and stagflation will commence, while the average American investor, blissful in his imaginary field of “green shoots”, won’t even see it coming until it is too late.
RSS
*UPDATE – RELATED STORY*
“UN calls for New Global Reserve Currency”
full text and discussion here:
http://www.neithercorp.us/nforum/economics/un_calls_for_new_global_reserve_currency-t1008.0.html
To Washington and Wall Street:
The time is now, time to wake up. Our jobs have all been shipped overseas, our retirement has been wiped out, our home values have plummeted, Fuel prices have doubled in 5 years, food prices have doubled in 5 years, utility rates are skyrocketing, bank fees are up, insurance rates are up, all while our paycheck has shrunk. The American people are under assault from corporations and the government corpocracy. You think you no longer need the American People, you now have the whole world to pillage thanks to free trade agreements. CEOs making 316 times the average wage, government bailing out big banks while people loose their jobs, homes, health insurance, retirement, and families. Big business getting everything they want from government while people suffer. You take their profits and distribute them amongst yourselves, instead of investing them into upgrading your equipment, and infrastructure, then raise fees to pay for necessary upgrades. You are fleecing the whole country. $2000 Fines for denying an energy audit, $3800 fines for not having health insurance. Censored free speech. You are stripping us into a nation of poverty! WASHINGTON, WALL STREET, LEAVE US ALONE! THE AMERICAN PEOPLE WILL FIGHT FOR OUR FREEDOM! WE HAVE FOUGHT FOR EVERYONE ELSES FREEDOM, WHAT MAKES YOU THINK WE WON’T FIGHT FOR OUR OWN!
The American People
It’s been put out there facetiously in the past(The Onion):
http://www.theonion.com/content/video/u_s_government_stages_fake_coup
But seriously, what of the threat of default on our debt to China?
Things are getting that serious, and if it gets to the point that China stops buying debt, it will put our economy into such a tailspin that we may never recover–I’m talking mass panic–cannibalism in the streets, riots, mayhem, etc. So how could defaulting on our debt make it any worse?
Sure, the rating of our debt goes down, but we all of a sudden don’t have to service that debt, we end up with a surplus and can start rebuilding our economy and put a tarrif on anything from China.
So many countries have defaulted (or we’ve forgiven) their debt to the USA, and they’re still alive and kicking.
I think at a minimum we should highly tarrif all imports from China. The downsides have been the obvious threat from China to stop buying tbills, and of course the higher cost of cheap, lead-and-melanine tainted crap we get from them.
We need to start making things here in the USA. I really don’t care if I have to pay $10 for a pair of socks or a widget–now made in the US–instead of the $1 I pay now for a Chinese item. At least it’ll bring jobs back here.
jimo:
The problem is, when the U.S. defaults, we lose our currency. This will cause chaos in our country. And what will our currency be replaced with? SDR’s from the IMF! Meaning, our entire economy will be controlled by the IMF, an unaccountable foreign body. This is horrifying for many reasons that I don’t think I need to even explain to you………..
China’s Exports Drop 23% In August!
http://finance.yahoo.com/news/Chinas-exports-trade-surplus-apf-1275024329.html?x=0&sec=topStories&pos=2&asset=&ccode=
The American elite know what’s at stake and will try and pull a Hail Mary as unemployment benefits begin to run out and civil unrest rears its ugly head. They have to start a large war to frighten and distract the people. False flag terror in the form of a dirty bomb/tactical nuke in a minor city like a Portland or Des Moines will provide the justification. 20,000 dead, panic leading to anger and then unity against a foreign enemy. Draft the jobless young men and get them off the streets. If US forces can invade and hold Iran’s southern oil fields, and control oil flow in and out of the Hormuz Straight they could effectively hold the world’s oil supply hostage. They could then dictate the new SDR to have a sizeable dollar component percentage to prevent the currency and their goverment from being destroyed. Say 25% dollar 50% Euro 25% Yuan. This venture would be extremely dangerous off course and could trigger a larger war involving Israel, China and Russia.
The US is facing the proverbial firing squad right now politically and economically. This is their only way out otherwise they’ll collapse. I don’t think it will happen right away though. A time frame 2013-2017 is a better guess when U6 unemploment has long hit 30% and all the benfits have run out, people rioting, majority of states are bankrupt etc. The US emerging from this,if “successful” would be a complete police state following the false flag attack. State controlled internet, informants, checkpoints and internal passports, FEMA camps for those inclined to subversive politcs, currency controls etc. Once freedoms are taken away for any reason, however “justified” at the moment, those freedoms are rarely returned to the citizenry
[...] http://neithercorp.us/npress/?p=105 [...]
[...] http://neithercorp.us/npress/?p=105 [...]
[...] http://neithercorp.us/npress/?p=105 [...]
[...] http://neithercorp.us/npress/?p=105 [...]
Giordano writes;
” And what will our currency be replaced with? SDR’s from the IMF! Meaning, our entire economy will be controlled by the IMF, an unaccountable foreign body.”
I hold the International Misery Fund directly responsible for the “globalisation”, (read rape and pillage), of various countries assets…esp state owned enterprises.
Argentina, Austraila, and New Zealand are just a few exmaples whereby, afer signing up with the IMF, each govt systematically sold off state- owned enterprises such as oil, water, electricity, telecoms. In every case this has not benefitted the people, but instead lined the pockets of foreign “investors” by way of a bonanza.
In Argentina, the state oilco was sold off so cheaply that it took only 9 months for the “investor” to recoup the purchase price. Arentinians literally starved to death while their country was bled to death. Thank You IMF!
This IMF directive of carving up state-owned assets robs wealth and bleeds countries dry. It ensures perpetual indebtedness to a point where eventually the country goes broke as money exits their economies in devastating fashion. Govts lose their revenue sources and struggle to meet interest payments on loans granted. None of these IMF loans come without a hefty price. They are loan sharks with no ethics or morals.
Note also how the IMF was lurking at Nohopeinhagen, keen to drum up new business and pillage and enslave countries even further. Do you think they care about the environment? They dont even care about people.
We have to say NO to the IMF, just like Ecuador has. Stand up like Venezuala and reclaim those private corporation assets back into nationally-run enterprises. It doesnt mater if they dont run as ‘efficiently”..at least the wealth stays in the country and people are employed,which is far more efficient in real terms to real people.
Finance our own governments with our own currencies and create public loans for public projects at way less than usuary rates and keep the interest payments circulating within our own country for re-investment, rather than sending all the interest payments offshore to a privately owned central bank. These guys print their own money from thin air…We can do this easily without them.
We easily forget how personal income tax is a recent thing. in the USA now virtually all income tax paid goes to service interest- only at the Federal Reserve..i.e private company! Without the FED Reserve you wouldn’t need personal income tax.
[...] http://neithercorp.us/npress/?p=105 [...]
[...] http://neithercorp.us/npress/?p=105 [...]
[...] that with inflation, unemployment, bankruptcy, defaults on mortgages, poverty and a dying currency, it should be obvious to anyone that we are falling down the pit of collapse. But what will [...]
[...] that with inflation, unemployment, bankruptcy, defaults on mortgages, poverty and a dying currency, it should be obvious to anyone that we are falling down the pit of collapse. But what will [...]
[...] that with inflation, unemployment, bankruptcy, defaults on mortgages, poverty and a dying currency, it should be obvious to anyone that we are falling down the pit of collapse. But what will [...]
[...] http://neithercorp.us/npress/?p=105 [...]