Posted on 11/23/2013 7:25:46 AM PST by IbJensen
China just dropped an absolute bombshell, but it was almost entirely ignored by the mainstream media in the United States.
The central bank of China has decided that it is “no longer in China’s favor to accumulate foreign-exchange reserves”. During the third quarter of 2013, China’s foreign-exchange reserves were valued at approximately $3.66 trillion. And of course the biggest chunk of that was made up of U.S. dollars.
For years, China has been accumulating dollars and working hard to keep the value of the dollar up and the value of the yuan down. One of the goals has been to make Chinese products less expensive in the international marketplace. But now China has announced that the time has come for it to stop stockpiling U.S. dollars. And if that does indeed turn out to be the case, than many U.S. analysts are suggesting that China could also soon stop buying any more U.S. debt. Needless to say, all of this would be very bad for the United States.
For years, China has been systematically propping up the value of the U.S. dollar and keeping the value of the yuan artificially low. This has resulted in a massive flood of super cheap products from across the Pacific that U.S. consumers have been eagerly gobbling up.
For example, have you ever gone into a dollar store and wondered how anyone could possibly make a profit by making those products and selling them for just one dollar?
Well, the truth is that when you flip those products over you will find that almost all of them have been made outside of the United States. In fact, the words “made in China” are probably the most common words in your entire household if you are anything like the typical American.
Thanks to the massively unbalanced trade that we have had with China, tens of thousands of our businesses, millions of our jobs and trillions of our dollars have left this country and gone over to China.
And now China has apparently decided that there is not much gutting of our economy left to do and that it is time to let the dollar collapse. As I mentioned above, China has announced that it is going to stop stockpiling foreign-exchange reserves…
The People’s Bank of China said the country does not benefit any more from increases in its foreign-currency holdings, adding to signs policy makers will rein in dollar purchases that limit the yuan’s appreciation.
“It’s no longer in China’s favor to accumulate foreign-exchange reserves,” Yi Gang, a deputy governor at the central bank, said in a speech organized by China Economists 50 Forum at Tsinghua University yesterday. The monetary authority will “basically” end normal intervention in the currency market and broaden the yuan’s daily trading range, Governor Zhou Xiaochuan wrote in an article in a guidebook explaining reforms outlined last week following a Communist Party meeting. Neither Yi nor Zhou gave a timeframe for any changes.
It isn’t going to happen overnight, but the value of the U.S. dollar is going to start to go down, and all of that cheap stuff that you are used to buying at Wal-Mart and the dollar store is going to become a lot more expensive.
But of even more importance is what this latest move by China could mean for U.S. government debt. As most Americans have heard, we are heavily dependent on foreign nations such as China lending us money. Right now, China owns nearly 1.3 trillion dollars of our debt. Unfortunately, as CNBC is noting, if China is going to quit stockpiling our dollars than it is likely that they will stop stockpiling our debt as well…
Analysts see this as the PBoC hinting that it will let its currency fluctuate, without intervention, thus negating the need for holding large reserves of the dollar. And if the dollar is no longer needed, then it could look to curb its purchases of dollar-denominated assets like U.S. Treasurys.
“If they are looking to reduce these purchases going forward then, yes, you’d have to look at who the marginal buyer would be,” Richard McGuire, a senior rate strategist at Rabobank told CNBC in an interview.
“Together, with the Federal Reserve tapering its bond purchases, it has the potential to add to the bearish long-term outlook on U.S. Treasurys.”
So who is going to buy all of our debt?
That is a very good question.
If the Federal Reserve starts tapering bond purchases and China quits buying our debt, who is going to fill the void?
If there is significantly less demand for government bonds, that will cause interest rates to rise dramatically. And if interest rates rise dramatically from where they are now, that will set off the kind of nightmare scenario that I keep talking about.
In a previous article entitled “How China Can Cause The Death Of The Dollar And The Entire U.S. Financial System“, I described how China could single-handedly cause immense devastation to the U.S. economy.
China accounts for more global trade that anyone else does, and they also own more of our debt than any other nation does. If China starts dumping our dollars and our debt, much of the rest of the planet would likely follow suit and we would be in for a world of hurt.
And just this week there was another major announcement which indicates that China is getting ready to make a major move against the U.S. dollar. According to Reuters, crude oil futures may soon be pricedin yuan on the Shanghai Futures Exchange…
The Shanghai Futures Exchange (SHFE) may price its crude oil futures contract in yuan and use medium sour crude as its benchmark, its chairman said on Thursday, adding that the bourse is speeding up preparatory work to secure regulatory approvals.
China, which overtook the United States as the world’s top oil importer in September, hopes the contract will become a benchmark in Asia and has said it would allow foreign investors to trade in the contract without setting up a local subsidiary.
If that actually happens, that will be absolutely huge.
China is the number one importer of oil in the world, and it was only a matter of time before they started to openly challenge the petrodollar.
But even I didn’t think that we would see anything like this so quickly.
The world is changing, and most Americans have absolutely no idea what this is going to mean for them. As demand for the U.S. dollar and U.S. debt goes down, the things that we buy at the store will cost a lot more, our standard of living will go down and it will become a lot more expensive for everyone (including the U.S. government) to borrow money.
Unfortunately, there isn’t much that can be done about any of this at this point. When it comes to economics, China has been playing chess while the United States has been playing checkers. And now decades of very, very foolish decisions are starting to catch up with us.
The false prosperity that most Americans are enjoying today will soon start disappearing, and most of them will have no idea why it is happening.
The years ahead are going to be very challenging, and so I hope that you are getting ready for them.
China is afraid that Obama will destroy the value of the dollar completely and they will be left with a bag full of financial wallpaper material.
Yep. Oboma is finishing the job his muslim brothers failed to do on 9/11. "Death to America."
WTC: Destroy the economy - Check.
Pentagon: Destroy the military - Check.
Downed plane headed for the capital: Destroy our form of government - Check.
Thank you God for making that happen. The US needs to stop its spending, pull back its bloated expensive armies, and start acting like a limited Constitutional Republic again.
America needs to make things once again.
Stop importing everything.
China has been the biggest buyer of gold in the world in the last year. As they always do, they buy commodities at the bottom.
THE PARTY’S OVER,AMERICA!
They would turn what industry America still has into another piece of the welfare state. There's simply no need to compete when you have a captive market. There's a reason why the Soviet car industry wasn't the wonder of the world.
Tariffs would also give the Government the ability to choose winners and losers in the domestic marketplace, allowing them to effectively enforce unionization and the rest of their whacked-out agenda
If you hand tariff power to the Government then your most important competitive act suddenly isn't to work better, faster, cheaper - it's to lobby the Government for interventions that suit your company.
Because once you allow Government to place a foot on the hose of production, negotiating with that foot becomes more important than anything else.
Finally - tariffs breach Freedom of Association. Why would we force Americans to buy something they don't want? If a foreign car is better, faster or cheaper than a GM Volt, by what right would we interfere?
If you truly want to bring industry back to America then remove the barriers to industry in America. Capital goes where it is treated best.
Reduce Corporate taxation. Also, simplify taxation. Tax fulfillment costs have become a significant burden on smaller businesses.
Reduce the vast panoply of EPA and other environmental regulations. Companies aren't going to relocate to a country where wood stoves can be declared illegal.
Remove arbitrary, vindictive Government (we all remember Gibson's guitars, I hope).
Get rid of Obamacare. America isn't France. Companies need employees to work more than 29 hours a week, and that's only a small piece of the anti-competitive madness pouring out from Obamacare.
Well, hope this was helpful.
THE SKY IS FALLING, THE SKY IS FALLING!!!
Fall 2015. Sept. or Oct. That's when it all collapses if something drastic doesn't happen to save us, but I don't see oboma wanting that to happen. On the contrary, I believe this is the progressives (and their Islamic allies) plan. Socialism/communism and Sharia law have more in common than most people think. "The enemy of my enemy is my friend."
The left believes, after the fall, they can "take care of" the Islamists. The Islamists believe, after the fall, they can "take care of" the liberal left. Both are confident they are the superior ones who will come out on top in the end.
Like Captain Fletcher told the Red Legs. "Don't pee down my back and tell me it's raining."
Importing is OK, just slap a tariff on imports to cover the social costs. Then I am good.
Horsefeathers.
We have tried “your way” now, for nearly an entire generation.
“Your way” has nearly bankrupted America.
Bring back American industry, and enact tariffs.
Do not let the government choose targets for import tariffs. Have one flat percentage (I would say 10% would be good) and charge EVERY SINGLE THING IMPORTED INTO AMERICA exactly that much of a tariff.
10% on imported oil (no tariff on American oil)
10% on imported Chinese (or Mexican, or European) manufactured goods of any sort.
(no tariff on any American good)
10% on imported food. (no tariff on any American food)
I’m completely series. America needs to become friendly to American producers.
And American producers incidentally need to become friendly to their own country for a change.
Put Americans back to work.
Interesting thought when people now consider shift work at McDonalds a career and demand a 'living wage' for what should be part time employment for teenagers.
We are living on cheap imports. Would raising tariffs really make factories in the United States spring back to life or would it just destroy our purchasing power?
(4) Clean out the Feral bureaucracy.
Yep. Good point.
I can just see the thousands of business lining up to come to the U.S. now that this news is out! (/s)
You sound like King Canute commanding the tide not to rise.
We have a government intent on destroying this country, turning it into a third- or fourth-world socialist dungheap.
There is much unpleasantness that lies ahead, no matter what any person or persons do or don't do.
Plan accordingly.
It would incent our heroic "Captains of Industry" to consider building new plants, possible more automated ones, in Right-To-Work states. It would also lower FedGov™ dependency on income taxes. Which would alleviate the lower purchasing power argument. It would lower our deficit. So I am in favor of import tariffs. Just like our very long sighted and wise founding fathers.
The way I've been describing it is the US (and a lot of other countries) need a "time out". Before we had globalism run amuck, the goal of a nation was self-sufficiency. The US was great when we had that.
The "time out" would involve getting rid of non-citizens and make do with the population we have. Next to no handouts, lots of opportunities to manufacture things we're importing, in agriculture, in other basics. Less, not more, government programs. I'm a *itch about it, but those who don't like it can starve.
For decades, the goal has been to move government up, centralized first in states, now under the federal government. Make things local again. It's easier to have accountability when things are local.
Don't pay back the money "owed" to the Federal Reserve and abolish that evil institution.
There will be some pain. The real problem started with GWB, who supposedly has an MBA and got worse with Obama, whose not too bright. It's a math principle that things happen in cycles and if those cycles are disrupted the results are far worse when control is lost (think mortgage meltdown). Quantitative Easing instead of borrowing real money with interest rates that reflected risk upset what would've happened in the recession. Now, it's out of control....the Fed doesn't know how to stop the bogus money scheme and the stock market is out of control.
What a mess.
So - you admit that you want to:
* Raise all prices by 10%
* Give the money raised to the government.
* Forbid Americans from buying better/cheaper products from abroad, in contravention of their rights of Freedom of Association.
Also: you don’t appear to support any measures that would make it easier to produce wealth in America - you just want Government to build an ‘iron curtain’ around America and prevent foreign competition.
Is that about right?
They're not afraid of that at all.
If the US Dollar is destroyed, the US is destroyed, leaving China either the sole world superpower, or perhaps one of two superpowers (the other being Russia).
They lose trillions of dollars, but it's cheaper than an actual war.
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