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Can someone answer this dollar/China question?

I forwarded this snip of the zero hedge SPLC paranoia article to a world-traveled, former CEO of a boiler-manufacturing company in my family.

"China, our largest foreign creditor, only needs to do two things before dumping the dollar as the world reserve currency – find a consumer market source to replace the U.S., and, spread it’s own currency around the globe to create a viable alternative to the greenback.

Today, China has announced a full blown transition into a consumer based economy and has established bilateral trade agreements with enough developing nations to easily replace the U.S. as an export market.

This past month, China announced a massive “urbanization project” in which they will sell over $6 trillion in Yuan denominated bonds worldwide. China has also surpassed the U.S. for the first time ever as the world’s largest trade market, meaning, the Yuan will now be more sought after than the Dollar as a global trade mechanism.

The Chinese are nearly ready to dump the dollar, causing an international chain reaction that will brutally devalue our currency."

I said, is this true?(he reads the WSJ daily, he agrees the Congress is reckless on spending, and that Obama told everyone EXACTLY what he was going to do both times he ran for President).

He responded; If you held 6 trillion in US debt, why would you want to devalue it?

To which I said: " What am I missing? We're going to pay them back with inflated dollar, aren't we?"

And he said: Of course but why would they inflate it more?

So China is already aware we've ripped them off, perhaps even that we did it intentionally...so what is the REAL situation? We're gonna default, right? We'll just repudiate the debt...isn't that the crisis?

I'm just trying to get a grasp of what will happen and when; and I seek knowledge from older people who have "played the game"(selling boilers on the world market, where government contracts are just as good as any other contract)...I'd also hedge to guess, our collapse will not be his problem; he retired 6 years ago...



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Incorrect. First China has

Incorrect. First China has already replaced the American consumer. second all China has to do is back yuan with Gold. China has been buying gold hand over fist. They are exchanging those US pieces of script for gold. Prechter is about to have his theory blown out of the water. They dollar may rise some because of of the yen and the euro, but it is a false rise in value. Watch how much Gold china is buying. that is your answer. When they back yuan, they will have the worlds reserve currency and all the good things that go along with it.

Why is China buying more U.S. debt? China financing the USA?

2 minute lesson in Sino-American International Lending. Twas bad in 2008. Much worse now.

Disclaimer: Mark Twain (1835-1910-To be continued) is unlicensed. His river pilot's license went delinquent in 1862. Caution advised. Daily Paul

China Net Purchases of US Treasury Bonds, 1983 ~ 2013

Monthly Change followed by Monthly Roll, 1983 ~ 2013 (30 years chart).

Disclaimer: Mark Twain (1835-1910-To be continued) is unlicensed. His river pilot's license went delinquent in 1862. Caution advised. Daily Paul

Rhodium, a shiny metal ~ Now you see it. Now you don't.

Disclaimer: Mark Twain (1835-1910-To be continued) is unlicensed. His river pilot's license went delinquent in 1862. Caution advised. Daily Paul

Chinas dollar holdings

I don't think China has anywhere near 6T worth of US bonds. Last I knew it was a lot closer to 1T, and they were no longer buying, but were letting their exposure run as bonds matured. I believe they have been doing this since 2010 or so when it became clear that the overspending was gonna sink us. I figure most of their holding are rather short term, probably 10 years or less, so they can probably reduce their exposure over time without causing any big waves by just letting their current holdings mature. They wouldn't really want to make this obvious though as it would set off a rout in the treasury markets sooner than necessary. Instead they will put themselves in a position to control the new reserve currency when it comes along, while lettign their dollar holdings slowly fade away for as long as they can get away with it. That is my take on what they are doing.....

Josh Brueggen
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They bought $1 trillion in US Treasury Bonds.

No sense in letting all their cargo ships return home empty. They bought what they could carry. They balanced trade accounts by taking US Treasury promises to pay.

They have plenty of National Debt of their own. A Chinaman might wonder why his government buys another country's National Debt, when it has so much of its own. He may wonder, but dare not ask.

Disclaimer: Mark Twain (1835-1910-To be continued) is unlicensed. His river pilot's license went delinquent in 1862. Caution advised. Daily Paul

You forgot one thing. Gold.

You forgot one thing. Gold. No one exactly knows how much gold China is accumulating, but it's a lot. They know the dollar is going to fail, and to have the yuan serve as a reserve currency it will need to be backed by something, so people take it seriously. When China announces they have thousands of tons of gold all the sudden then things will probably get real pretty quickly. You see, the gold is a hedge against all the US debt. In the likely event that all their US treasuries become worthless due to hyperinflation of the dollar, the price of gold will skyrocket and the losses will be mitigated. Almost all the cards are in place.

I asked..."what do you think will happen"...

He said: " I don't know what will happen, nor do most experts. What ever it is it won't be China's doing."

The terrorists are DOMESTIC, folks!

Agree.

Agree.

Disclaimer: Mark Twain (1835-1910-To be continued) is unlicensed. His river pilot's license went delinquent in 1862. Caution advised. Daily Paul

The Chinese ARE dumping their "US debt"...

or, so I understand. They have been building up their infrastructure using our "funny money," as well as buying gold. They are already trading with Iran and Russia using gold and they are a part of BRICS (Brazil, Russia, India, China and South Africa), which plans to replace the US dollar and the Euro with a gold-backed currency.

I strongly suspect China and Russia plan to use their client states, North Korea and Iran, as surrogates as a first strike on the US. If the US responds with nukes or any of our really heavy weapons on North Korea, China will receive "collateral damage" and retaliate. Russia has already pledged to attack any nation that attacks Iran.

I was a teen during the Cuban Missile Crisis; then, I never once believed it would result in a nuclear exchange. I am very uneasy about the present crisis, infinitely more so than at that time.

U.S. Treasury Run

"What will happen and when?"

Read my book!

http://www.amazon.com/Indivisible-Troy-J-Grice/dp/1453846727

But seriously, my guess is China wants to liquidate a substantial portion of their holdings without APPRECIATING their currency and without hurting their mercantilist trade surplus. I think they want to expand their internal consumer market to offset what they lose in America.

Unfortunately, a Treasury collapse triggered by let's say a Japanese liquidity crisis would send everyone rushing to the exits so they aren't left holding worthless paper. Then the Fed would have to monetize hundreds of billions in Treasury purchases in order to keep interest rates from exploding and triggering a depression, asset deflation, and bankrupting the government.

The Fed will be caught between saving the government (Treasuries) and saving the banks (the dollar). They will choose the banks but then the President will nationalize the Fed and redirect it to saving the government. Should be fun to watch.

US Treasury Run: Paper Chase. A run for charity. Tax Deductable

Gnome DeGuerre: "Unfortunately, a Treasury collapse triggered by let's say a Japanese liquidity crisis would send everyone rushing to the exits so they aren't left holding worthless paper. Then the Fed would have to monetize hundreds of billions in Treasury purchases in order to keep interest rates from exploding and triggering a depression, asset deflation, and bankrupting the government."

    US Dollars buying/selling US Treasuries is a wash. Laundry. Oh the same ilk. Some prefer one over the other. Both are promises that someone else will pay... someday. Promissory note, one and all. Whether interest rates go up or value of the promises go down is a policy question. A promise from the promiser. Promisor to the promisee. - Mark Twain, 2013

Gnome DeGuerre: "The Fed will be caught between saving the government (Treasuries) and saving the banks (the dollar). They will choose the banks but then the President will nationalize the Fed and redirect it to saving the government. Should be fun to watch.

    Caught between a piece of paper & hard promise. Why would Japan or China let on that they think the US Treasury Bonds thy hold are worthless? They paid so much for them. And they have so much of their own. These countries bought near $1 trillion of our US Treasury Bands. But why, when they have to much of their own? Bankers & traders might call it "arbitrage." I think it fool-hearty. What you write might happen. It would amount to a "change of ownership." The problem would persist. Perhaps you would enjoy reading "Will Rogers." He was a superior US War Bond pitchman. Wit or just folk humor? He had a lot of views on this. - Mark Twain, 2013

Disclaimer: Mark Twain (1835-1910-To be continued) is unlicensed. His river pilot's license went delinquent in 1862. Caution advised. Daily Paul

This short video of George Soros explaining...

the decline of the dollar and rise of China might help. It's also important to remember that the Fed and Wall Street have partnered with China against the U.S. as a means to crush the West's most powerful representative government.

http://www.youtube.com/watch?v=tZH_eRZ4sLY&NR=1&feature=ends...

http://www.dailypaul.com/277342 (Rand Paul: One person can make a difference)
http://www.StandUpForYourRights.me/?p=1264 (Fast and Furious hearing)

Or not

"Go forth and occupy, and I'll take care of the rest. By the way, where do you keep your artwork at home?"

- Soros

I disagree somewhat

I believe the U.S. Government, the Fed, and Wall Street are in bed together. It's a symbiotic relationship. That is, until the Fed is forced to choose between saving the government or saving the banks. They will choose the banks. Then the government will nationalize the Fed.

Nationalization: the ultimate step in regulatory capture

Contrary to former definitions of regulatory capture which stopped at the penultimate step: lobby-culture.

Are you asking ...

... why the Chinese government would dump their US assets in such a way that it would devalue their US asset holdings?

The obvious answer is that a government acts for political reasons, not financial or economic reasons. Why does the US military spend $8,000 on hammers? Because government contractors get no-bid contracts, which are not based on who will provide the best product at the best price, but rather who is politically connected.

Why do government contractors constantly have cost overruns? Because they can. They are politically connected and the politicians are not paying out of their own pockets.

Politicians and bureaucrats do things for political reasons, not economic reasons. They are not dealing with their own money. They are not running a company. They are politicians who can steal other people's money, so economic brilliance is not necessary.

Why might Chinese politicians devalue their own assets? Because they have a political motive to do so: increasing their own power in the world.

It's not like the Chinese government doesn't exactly have a history of wanting power.

The better question is: Why would they NOT do it?

(BTW: I don't necessarily think China can ultimately be the next #1 currency, and they will never be a reserve currency. If they were to back their currency by gold, then maybe, but other countries would follow suit. The big problem for China on the world stage is that they do not have a history of being trustworthy -- which ain't sayin' much when they are the least trusted amongst government, which themselves are never worthy of trust.)