Skip to comments.China Starts To Make A Power Move Against The US Dollar
Posted on 02/21/2014 8:11:40 PM PST by Tolerance Sucks Rocks
In order for our current level of debt-fueled prosperity to continue, the rest of the world must continue to use our dollars to trade with one another and must continue to buy our debt at ridiculously low interest rates. Of course the number one foreign nation that we depend on to participate in our system is China. China accounts for more global trade than anyone else on the planet (including the United States), and most of that trade is conducted in U.S. dollars. This keeps demand for our dollars very high, and it ensures that we can import massive quantities of goods from overseas at very low cost. As a major exporting nation, China ends up with gigantic piles of our dollars. They lend many of those dollars back to us at ridiculously low interest rates. At this point, China owns more of our national debt than any other country does. But if China was to decide to quit playing our game and started moving away from U.S. dollars and U.S. debt, our economic prosperity could disappear very rapidly. Demand for the U.S. dollar would fall and prices would go up. And interest rates on our debt and everything else in our financial system would go up to crippling levels. So it is absolutely critical to our financial future that China continues to play our game.
Unfortunately, there are signs that China has now decided to start looking for a smooth exit from the game. In November, I wrote about how the central bank of China has announced that it is "no longer in Chinas favor to accumulate foreign-exchange reserves". That means that the pile of U.S. dollars that China is sitting on is not going to get any higher.
(Excerpt) Read more at freedomoutpost.com ...
The beginning of the end for Barry’s “America”.
Bring American jobs, back to America.
We run a 300 billion + deficit with China, which does not reciprocate by any measure. That is a 300 billion + deficit, on trade in American goods of less than 150 billion.
Every month, the situation further deteriorates.
Enough. Bring back jobs.
The credit card is about to be canceled.
This is why I don’t feel China ever intended to use their military or nukes of any kind. They have WAY more effective weapons in their arsenal and they’re unloading their best one at Americans right now.
Considering all the worthless paper Obama has had printed in the past few years, can you blame the Chinese for making a move?
They should wait for 24-36 more months for maximum effect, IMO.
To move prematurely will put them in just as bad a situation as the US, IMO.
Free Trade...especially Free Trade with Communist China...doesn’t work
Eventually you run out of your own wealth
The only way you can counter Communist China moving away from our dollars is to put tariffs on their goods....that is a much better move than whining like a Liberal Statist Free Trader reciting failed economic theory like a Chairman Mao disciple.
Time to dump stupid Free Trade nonsense
Someone also commented that Jim Rogers has been awfully quiet for some time now.
Peter Schiff says gold ready to make a major move up.
Maybe the music's about to stop.
Easy enough: end the individual and corporate income taxes, and bring back modest tariffs, enough to fund a government small enough to fit in the heel of my left shoe.
Some businesses would move back here under such circumstances.
The problem for China is that right now, if we go down, they go down. And while it will be bad all around, it will be worse for them. (Talking strictly internal turmoil.)
The problem for both the US and China is that the current situation is going to take us both down. It simply is not sustainable. Sigh.
Yes, China, you “win.” And it will suck for us all.
Screw Free Trade. Bring jobs back to America. Do you hear this Club for Growth?
Oh, and to be clear: If (when) we go down, about 100,000,000 Chinese starve to death within six weeks. The revolt that will result will be Biblical in its scale. I mean that literally.
Except that China’s currency is now nearly backed by gold, providing monetary and bank stability that is now gone here.
The other is, if they lose 500 million people, the remainder well say ‘more room and jobs for the rest of us.’
The Chinese will survive a meltdown. We won’t.
“The beginning of the end for Barrys America.”
For everyone’s I’m afraid. As we know it anyway.
“if we go down, they go down”
They have an option, war.
“Yes, China, you win. And it will suck for us all.”
They have a history, letting big percentages of citizens starve.
DITTO. China is playing catch up on stealth, aircraft carrier, space program and etc. Notice they are doing it at a leisurely pace. Four aircraft carriers by 2020?!!!! We have eight on station plus 2 on reserve/refit. If China has four they must keep one in reserve/refit. That is the best China can do in near future. I remember the Cold War where the Soviet Union was pumping out new designs and adding to her forces every five years. That was a true arms race where the Soviet Union was truly aiming for military global dominance. China’s pace is much more mild. I think you hit the nail on the head, because China intends to use her financial might. Makes sense since China defense budget is a distant third to the US with Russia as number 2. But China currency reserves is $ 2600 trillion while the US is only $ 150 trillion. China has about 20x more foreign currency reserves then US which she can use to invest or buy things in the world. If I were China would I use military (distant 3rd to US) or financial (20X strength then US) power to compete against the US?
......”if China was to decide to quit playing our game and started moving away from U.S. dollars and U.S. debt, our economic prosperity could disappear very rapidly”......
I don’t believe that...
first of all the IMF we’ve been feeding full of revenue isn’t about ready to let that happen any time soon. They’ll continue to prop up any nation while they get into place the Global Monitary Controls and Revenues, and they aren’t quite there to let the USA fall at all.
Second of all....China needs us more than we need them. They were unloading our debt a few years ago too...but it’s part of the International game and they can only go so far and they know it.
>>The problem for China is that right now, if we go down, they go down. And while it will be bad all around, it will be worse for them. (Talking strictly internal turmoil.)<<
Yep, but China also has a growing middle class numbering close to 100,000,000 people, belonging to households making over $100,000 annually. Let them develop this trend to increase domestic consumer base, be self-reliant and we shall see.
Chinese labor is not cheap anymore. Qualified laborers in industry are making $700-900 a month - way over nations like Ukraine and Romania right now, and we are talking about China with it’s living costs so much lower (all Walmart merchandise is three to ten times cheaper than in US).
Keep surrendering your industry to a power like that, which is starting to produce engineers capable to develop their own technology while your colleges are cranking liberal artists - all of these is a road to the future of Avatar movie, with Chinese as an humans and Americans as a blue critters.
“Time to dump stupid Free Trade nonsense”
A 30% tariff, applied to all Chinese imports, plus a container processing fee on all incoming containers, would bring the Chinese economy to its knees. Add to that a 0% tax rate on profits derived from manufacturing in the USA. Implications:
1) Importers would immediately begin shifting sourcing from China to other countries until domestic capacity increased to fulfill demand.
2) The Chinese government would have to respond by increasing subsidies (yes free traders the Chicom government does subsidize exports) which makes fewer resources available to support the military buildup.
3) The economics of producing in the US would shift enough to result in capital flowing into the construction of state of the art factories at home. Chinese factories are aging (built 10-20 years ago) and are highly inefficient with respect to labor productivity. New, highly automated, domestic factories would be cost competitive with aging Chinese factories, particularly with a tariff in place.
4) Millions of jobs would be created in the US over a 10 year period as new US factories came on stream. Even if the new US factories would much more efficient than the Chinese factories (employing say 25% of the labor force of a Chinese plant) millions of jobs would be produced.
5) Thousands of new businesses would start up to serve the new domestic factories. These new businesses would employ additional millions.
6) Tax revenue would flow to state an local governments from the new tariffs as well as the income taxes collected from newly employed workers.
7) The middle class would grow again.
8) Our cultural mindset would shift again to an opportunity society from the current redistributionist society.
Let’s get on with it.
I agree 100%.
We must return jobs to America. Now.
If the USA did what you said and stopped the Keynesian economics the USA would soar.
Agreed. I never understood our "love affair" with China. Sure, they do EVERYTHING cheaper, but cheaper isn't better.
And, in the end, NO ONE WITH A BRAIN, can ever think that China would be our FRIEND. The Chinese believe in TWO things and ONLY two things: luck and money. Honor? Commitment? Loyalty? Please...they know who they are and will not change. They haven't in 3000+ years. Why would they do so now? Any "change" would be cosmetic and false.
We have ONLY our own greed to blame for wanting our "stuff" cheaper. Whose fault is China's place in our USA world? We need only look in our mirror.
“Ever noticed that not ONE major high visibility economist ever talks about what your well written post articulates? “
Academics, multinationalist corporations, and Wall Street banks worship at the altar of the modern definition of “free trade” because it is one step on the path to global government. The modern definition of free trade means trade governed by international agencies such as the WTO and NAFTA, not nation states. These international agencies, instead of the market or nation states, determine the rules under which goods will move between countries.
The modern definition of free trade, as directed by these multinational agencies, means the United States ends tariffs, quotas, and other trade restrictions (such as inspections) allowing the free flow of goods into the world’s largest consumer market. Meanwhile the international agencies permit other nations to maintain tariffs, quotas, and non tariff barriers against US exports. The international agencies also allow nations to subsidize the exports of their manufacturers into the US. In essence the US is restricted to an academic theory of free trade while other nations pursue their mercantilist trade policies. As a result, the US has been deindustrialized and the US middle class worker is forced to compete with third world labor. Twenty-five years of this experiment have resulted in declining standards of living in the US, increasing wealth disparity, less domestic competition, bigger government, stagnant economic growth, and loss of national sovereignty. What are the benefits to US citizens of this experiment with modern free trade?
Our founding fathers had a different understanding of free trade. They employed high tariffs to fund the national government and to allow domestic industries to develop. They perceived tariffs and duties to be a source of funding for government than direct income taxes levied on individual citizens. Better let the foreigners wanting to do business in the United States pay the taxes through income duties than stifle the economic freedom of US citizens by taking from income.
To the founders, free trade simply meant US merchants were free to trade with any country. Merchants in the colonies were restricted by the English government to trading only with countries and entities (such as the East India Company) allowed by Parliament. Once America became an independent nation, merchants were free to engage in trade with any nation and any foreign company. Free trade to the founders did not mean absence of tariffs and quotas.
During the 35 years after the Civil War the US rapidly developed the strongest industrial infrastructure on the planet. High tariffs were assessed on imports throughout that period protecting developing US industry from European manufactured imports. Had we employed our current low tariff philosophy, European producers would have crushed new US manufacturing entities and the US would not have become a major power in the 20th Century.
We need to learn from our history. A renaissance of US manufacturing will have incredible benefits to our economy and the nation. The only thing stopping us is vested interests whose loyalties lie with a vision of world government.
I keep warning the ‘Free Traitors’ that in a hot war scenario with China, the ‘Free traitors’ will be hanging from the light poles....
You are correct, however the is a BIG BUT.
Your policies amount to a trade war between the two largest economies in the world. The US would look at this as trade and economic policy decisions. The Chinese would look at it as an act of war.
Let's hit the wayback machine. In the late 1930's Japan was the Asian power with an expanding economy and imperial ambitions. They invaded China to extract badly needed raw materials. The US and some European nations did not approve so they embargoed oil exports and froze Japanese assets. This would have destroyed the Japanese economy in 18 months. Rather than starve, Japan decided to fight.
History really does repeat itself. I figure we are tracking around 1938.
Agree. I think Trump was right when he said even the threat of a 25% tarrif would make China stop manipulating their currency. The other thing Trump said which we all need to keep in mind is that we only owe China just under a trillion dollars. Not really that much. We owe Japan more.
so what does this mean in lay vocabulary?.....what does it mean to US consumers and what would be the first signs of it happening?....thx in advance...
“Your policies amount to a trade war between the two largest economies in the world. The US would look at this as trade and economic policy decisions. The Chinese would look at it as an act of war.”
The Chinese already view themselves at war with the US. Spying, cyberattacks, intellectual property theft, targeting entire US industries and then subsidizing exports of those products to undercut the prices of the US competitors until all of the US factories and the underlying supply chain are shut down, shipping tainted products to the US (poisoned foods, lead paint on toys), actively weaponizing space (i.e. killer satellites), facilitating nuclear proliferation (Korea, Pakistan and Iran), forcibly downing our planes in international airspace (remember early in the Bush administration) and actively bribing US politicians (Charlie Trie and the Clintons for example). All we would be doing by putting in place a stiff tariff is finally responding to decades of attacks on our economy and national security. I’d rather risk arm conflict now than give the Chinese the opportunity to pick when they crash the dollar or have one of their proxies (Korea or Iran) launch an EMP attack on our shores.
I’m assuming it would mean inflation. If China gets rid of its dollars, the dollars would become less valuable, assuming demand by other countries for it stays the same.
You might be right. I think some kind of armed conflict with China is almost inevitable. Better now than later.
Come July 1, when FATCA goes into full effect, the dollar is dust.
After that no foreign bank can possibly accept the dollar on any basis.
I’m sure that this result was designed into FATCA by the bill’s authors, knowing how most congresscritters vote without reading the bill.
>> “ Id rather risk arm conflict now than give the Chinese the opportunity to pick when they crash the dollar” <<
See post #33.
Keep your fuel tanks full, keep plenty of water on hand, be ready to get the heck out of dodge.
Whatever you do, make sure you have plenty of precious metal, brass and lead.
Could be as simple as hedging a much larger long position.
just yesterday we refied our heloc....to a 15 yr 4% fixed rate....the mortgage guy said he had heard rumblings about the fed raising the rates...
Not quite. When I was there (GuangZhou and Beijing, both in the last 4 years), appliances and electronics were all the same or slightly higher than US prices for similar brands and makes. Where you save the most in China is when you're buying labor-intensive things... like car repairs, housing additions, etc. Amazing how much cheaper they are there!!
>>Not quite. When I was there (GuangZhou and Beijing, both in the last 4 years), appliances and electronics were all the same or slightly higher than US prices for similar brands and makes. Where you save the most in China is when you’re buying labor-intensive things... like car repairs, housing additions, etc. Amazing how much cheaper they are there!!<<
Go closer to Russian border and pick local brands and makes.
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