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.
You’re saying, “Accept reality”. Americans have been avoiding reality for so long they wouldn’t recognize it if she kicked them in the head.
We are liquidating our country to live on cheap imports. Raising the tariffs would cause factories in the U.S. to spring back to life. Purchasing power would be hurt initially, but as 23% of the nation goes back to work, we'd have a lot more purchasing power and total wealth. Gov't revenues would rise due to the increased employment, even as outlays fell because of fewer people on safety net programs. So our national debt and budget problems would be reduced.
At Sunday's opening day of the Dubai Air Show, GE Aviation received $26 billion (USD list price) in jet engine orders and services agreements for wide-body Boeing aircraft from three leading airlines in the Middle East.
Boeing aircraft order was for $40 billion.
There is still a lot of manufacturing in the USA, just not of the low tech junk at Wal-Mart.
In fact our greatest shortages are CNC operators and welders in the USA.
Most Americans have zero clue what is going on in manufacturing as most "journalists" have zero clue on anything except their socialist/communist "causes".
The massive tax and regulatory burden is used by OUR government to control US people. When people start going hungry they’ll revolt or they’ll die. Either way it will be good for the nation.
That may be, but look at our national finances.
We are now 17 trillion in debt.
That is RAPIDLY getting worse. America needs more than trade. We need BALANCED trade.
We need to export as much as we import. Somewhere in the last few presidencies someone made a decision that the amount of exports didn’t matter as long as we kept some of the most important jobs here in America.
That is wrong.
What America needs is not only critical jobs. but America needs enough jobs to grow.
That is the part we are not doing. America stopped growing an entire generation ago.
Sure we need defense. Don’t get me wrong, we need to protect and grow defense.
But we also need to protect and grow other jobs, or defense will eventually collapse.
America needs ALL jobs.
Not only defense.
I hear they are going to stockpile a competing currency that is backed by a much more stable institution than the FED.
Raising import tariffs by 10% would not raise the cost of everything in America by 10%. Imports currently amount to 16% of our GNP. So we are talking about 1.6% increase max. ( 10% tariff x 16% import/GNP = 1.6% increase.
However, it would be less than that. Some foreign firms would choose to eat the tariff and take reduced profits rather than lose market share. If they do that there will be no price rise; however it won’t help our industry, but it will still raise money for the government.
In some cases American producers will start producing and will produce products for less than the tariffed import cost. Remember there will still be competition to keep prices down as long as there are more than one American producer.
So I’d estimate a 10% tariff results in a 1.0% increase in the general price level. But to put 23% of Americans back to work, and restore American industry, that seems a reasonable price to pay.
The MSM’s too stupid to know that China is our enemy.
China wants to destroy our economy. Obama wants to destroy our economy.
Unfortunately most of our politicians don't have any either. Until there is a popular outcry, they won't have the courage to educate people on the issue and lead.
I’m increasingly worried that our own companies, are also too stupid to realize the very same idea.
Look at the huge majority of stuff, sold in any store you shop in.
I’m completely serious.
“Made in China”. Look. Aisle after aisle of stuff, all of it “Made in China”.
We need to make stuff.
Right here.
But “Unions” are such a wonderful boogeyman.
Practically every disagreement I get into on FR, someone brings up the Unions.
It’s true making American industry stronger will probably help the unions. I think some of these free traders would love to see American industry completely destroyed just to hurt the unions.
It’s weird, they view the unions as communist, so they’re willing to sign over all of our industry to communist China to teach those unions a lesson.
When a ‘cheap’ shirt from China costs $600 we’ll start making shirts here again. Of course like all third world countries ( which is where Obama, China and dems are taking us) those shirts will be sold in countries that can afford America’s cheap labor. It’s not just our kids and grandkids who will suffer for liberals destroying the nation’s wealth... it’ll be us too.
Pat Buchanan warned up way back in the early 1990’s. He was and is always against the American version of free trade. No one listened to him and others on Free Trade and immigration. They thought it was big joke. So now we have the crashed country we have to today that elects anti-American idiots like Barak Obama, with the phony crashed economy kept alive on Federal Reserve fiat money. With all these jobless university graduates
At least I lived when America was a real nation with a real economy and real morals. No abortion for most of it
Agreed. I believe the unions take a lot blame for shipping jobs overseas. Also environmental and labor regulations are becoming more and more burdensome.
I believe we’ve hit an important peg, which not a lot of people yet understand:
China now exports more, than America.
Let me repeat that, for everyone. China now is the world’s largest manufacturing output nation. And this situation is rapidly growing worse.
Sure I was all for sending American industry to China at first, because China needed to present a balance with Russia, but frankly now China has grown large enough we need to bring American industry back to America.
Now.
Bring back American industry. All kinds of American industry.
America businesses as well, start to think about your own decisions.
China matters a great deal. When you do business in China you are giving away what you make.
Sure you make money, but you are ceding all rights for all eternity, for everything you make there.
Bring back American industry.
I’m sorry but I think raising taxes, even in the form of tariffs, should be step 23 in fixing our country, not step 1. Taming our out of control government must come way before we commit economic suicide by starting a trade war.
the Chinese have not been buying US debt for over a year now. Their announcement just made it official.
You would think that without the chinese stepping in to buy US debt—the dollar would be falling precipitously—and gold would be rising. Neither are happening. Rather the dollar has been tracking pretty much sideways in the last year. (and also roughly sideways for the last decade.) http://on.mktw.net/1cekhX9
Gold has been falling.
http://www.macrotrends.net/1333/gold-and-silver-prices-100-year-historical-chart
What’s going on?
The Chinese move would be disastrous for the USA if it were not for the shrinking US trade and federal government budget deficits.
Consider the federal deficit.
Here’s what the OMB said in October:
“The Office of Management and Budget and the Department of the Treasury today released the fiscal year (FY) 2013 budget results, which show that we are continuing to make significant progress in reducing the deficit. The final 2013 deficit was $680 billion, $409 billion less than the 2012 deficit.”
If over the next two years, the federal deficit shrinks this fast—the feds will be in surplus in 2015. Even if the pace of federal deficit shrinkage slows down—the federal deficit is rapidly returning to normal ranges.
But its not likely the budget deficit shinking is going to slow down by much, thanks to oil/natural gas and the fracking revolution....
But as well thank to the oil/gas patch fracking—the trade deficit has been falling since 2011.
http://www.mining.com/a-closer-look-at-the-us-trade-deficit-26143/
Oil and gas put upward pressure on the dollar. The fed’s QE’s put downward pressure on the dollar (except that most of the QE’s wind up in the stock market making the rich richer and increasing federal revenues by $100 billion or so.
For those of you with a historical view—what’s happening now is basically the same thing as happened in the late 90’s. During that period the stock market juiced the revenues to the federal goverment while the pubbies under Newt kept the federal government from increasing its spending. The result was that the budget balanced. Clinton got the credit while Newt got dumped on..
What’s right now in the cards is that Obama’s legacy—like Clintons— will be that he balanced the budget (despite his best efforts to break it)
the Chinese have not been buying US debt for over a year now. Their announcement just made it official.
You would think that without the chinese stepping in to buy US debt—the dollar would be falling precipitously—and gold would be rising. Neither are happening. Rather the dollar has been tracking pretty much sideways in the last year. (and also roughly sideways for the last decade.) http://on.mktw.net/1cekhX9
Gold has been falling.
http://www.macrotrends.net/1333/gold-and-silver-prices-100-year-historical-chart
What’s going on?
The Chinese move would be disastrous for the USA if it were not for the shrinking US trade and federal government budget deficits.
Consider the federal deficit.
Here’s what the OMB said in October:
“The Office of Management and Budget and the Department of the Treasury today released the fiscal year (FY) 2013 budget results, which show that we are continuing to make significant progress in reducing the deficit. The final 2013 deficit was $680 billion, $409 billion less than the 2012 deficit.”
If over the next two years, the federal deficit shrinks this fast—the feds will be in surplus in 2015. Even if the pace of federal deficit shrinkage slows down—the federal deficit is rapidly returning to normal ranges.
But its not likely the budget deficit shinking is going to slow down by much, thanks to oil/natural gas and the fracking revolution....
But as well thank to the oil/gas patch fracking—the trade deficit has been falling since 2011.
http://www.mining.com/a-closer-look-at-the-us-trade-deficit-26143/
Oil and gas put upward pressure on the dollar. The fed’s QE’s put downward pressure on the dollar (except that most of the QE’s wind up in the stock market making the rich richer and increasing federal revenues by $100 billion or so.
For those of you with a historical view—what’s happening now is basically the same thing as happened in the late 90’s. During that period the stock market juiced the revenues to the federal goverment while the pubbies under Newt kept the federal government from increasing its spending. The result was that the budget balanced. Clinton got the credit while Newt got dumped on..
What’s right now in the cards is that Obama’s legacy—like Clintons— will be that he balanced the budget (despite his best efforts to break it)
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.