If a country is clearly bent on depreciating its own currency, why hold either the currency or assets denominated in that currency. From Alasdair Macleod at goldmoney.com:
In the wake of the Fed’s promise of 23 March to print money without limit in order to rescue the covid-stricken US economy, China changed its policy of importing industrial materials to a more aggressive stance. In examining the rationale behind this move, this article concludes that while there are sound geopolitical reasons behind it the monetary effect will be to drive down the dollar’s purchasing power, and that this is already happening. More recently, a veiled threat has emerged that China could dump all her US Treasury and agency bonds if the relationship with America deteriorates further. This appears to be a cover for China to reduce her dollar exposure more aggressively. The consequences are a primal threat to the Fed’s policy of escalating monetary policy while maintaining the dollar’s status in the foreign exchanges.
On 3 September, China’s state-owned Global Times, which acts as the government’s mouthpiece, ran a front-page article warning that
“China will gradually decrease its holdings of US debt to about $800billion under normal circumstances. But of course, China might sell all of its US bonds in an extreme case, like a military conflict,” Xi Junyang, a professor at the Shanghai University of Finance and Economics told the Global Times on Thursday”[i].
Do not be misled by the attribution to a seemingly independent Chinese professor: it would not have been the frontpage article unless it was sanctioned by the Chinese government. While China has already taken the top off its US Treasury holdings, the announcement (for that is what it amounts to) that China is prepared to escalate the financial war against America is very serious. The message should be clear: China is prepared to collapse the US Treasury market. In the past, apologists for the US Government have said that China has no one to buy its entire holding. The most recent suggestion is that China’s Treasury holdings will be put in trust for covid victims — a suggestion if enacted would undermine foreign trust in the dollar and could bring its reserve role to a swift conclusion.[ii] For the moment these are peacetime musings. At a time of financial war, if China put her entire holding on the market Treasury yields would be driven up dramatically, unless someone like the Fed steps in to buy the lot.
If that happened China would then have almost a trillion dollars to sell, driving the dollar down against whatever the Chinese buy. And don’t think for a moment that if China was to dump its holding of US Treasuries other foreign holders would stand idly by. This action would probably end the dollar’s role as the world’s reserve currency with serious consequences for the US and global economies.
There is another possibility: China intends to sell all her US Treasuries anyway and is making American monetary policy her cover for doing so. It is this possibility we will now explore.
Posted in banking, Business, Currencies, Debt, Financial markets, Foreign Policy, Geopolitics, Governments, History, Trade
Tagged China, Federal Reserve, Gold, Inflation, Trade War, US dollar
If US trade policy forces China to sell down its dollar reserves accumulated from its trade surpluses, the US will have to find someone else to finance its budget and trade deficits, or finance them via Federal Reserve debt monetization. That option would destroy the dollar. From Alasdair Macleod at goldmoney.com:
America’s tariffs against China are already showing signs of undermining the global economy and will create a funding crisis for the Federal Government when it leads to foreigners no longer buying US Treasury debt and selling down their existing dollar holdings. A subversive attempt by America to divert global portfolio investment from China by destabilising Hong Kong will force China into a Plan B to fund its infrastructure plans, which could involve actively selling down her dollar reserves and hastening the introduction of a new crypto-based trade settlement currency.
The US budget deficit will then be financed entirely by monetary inflation. Furthermore, the turn of the credit cycle, made more destructive by trade tariffs, is driving the global and US economy into a slump, further accelerating all indebted governments’ dependency on inflationary financing. The end result is America’s trade policies have been instrumental in hastening the end of the dollar as the world’s reserve currency, ultimately leading to its destruction.
For almost two years President Trump has imposed various tariffs on imported Chinese goods. He advertised his tactics as hardball from a tough president who knows the art of the deal, taking his business acumen and applying it to foreign affairs. He even proudly described himself as a tariff man.
His opening gambit was to impose tariffs on some goods to get leverage over the Chinese, with the threat that if they didn’t cooperate, then further tariffs would be introduced. The Chinese declined to be cowed by threats, introducing tariffs themselves on US imports, particularly agricultural products, to bring pressure to bear in turn on President Trump.
Posted in banking, Business, Currencies, Debt, Economics, Economy, Financial markets, Foreign Policy, Geopolitics, Governments, History, Trade
Tagged Budget Deficit, China, Debt monetization, Inflation, Trade War, US trade deficit
China has the upper hand in trade negotiations with Trump. From Charles Hugh Smith at oftwominds.com:
If we put ourselves in the shoes of the Chinese negotiators, we realize there’s no need to sign a deal at all.
The world’s worst negotiating strategy is to give the other side everything they want in exchange for worthless empty promises, yet this is exactly what Trump and his trade team are doing. All the Chinese trade team has to do to get rid of tariffs and other U.S. bargaining chips is mutter some empty phrase about “agreeing in principle” and the U.S. surrenders all its bargaining chips.
If the other side are such naive chumps that they give you everything you want without actually committing to anything remotely consequential, why bother with a formal agreement? Just play the other side for the chumps they are: if they threaten to reinstate tariffs, just issue another worthless press release about “progress has been made.”
The US and China are headed towards a lot more conflict than a “mere” trade war. From Michael Krieger at libertyblitzkrieg.com:
As President Trump has said many times, we rebuilt China over the past 25 years. No truer words were spoken, but those days are over.
The United States now recognizes China as a strategic and economic rival.
– Vice President Mike Pence during a speech last week at the Woodrow Wilson International Center for Scholars
The truth is that China is a strategic competitor at best that uses coercion and corruption as its tools of statecraft. (Applause.)
We’ve reconvened “the Quad” – the security talks between Japan, Australia, India and the Untied States that had been dormant for nine years. This will prove very important in the efforts ahead, ensuring that China retains only its proper place in the world.
– Secretary of State Mike Pompeo in a speech last week to the Heritage Foundation
I don’t take the U.S.-China trade war seriously, because I don’t expect a transformative deal to come of it. Specifically, I see the current trade charade as little more than a warmup to a far more serious, unpredictable and dangerous conflict between the U.S. and China in the years ahead.
Are Chinese products too cheap or are American products too expensive? From Jeff Thomas at internationalman.com:
“Trump is doing the right thing. Without him, we have no protection against China. China doesn’t only wish to dominate Asia, but the world.”
Here in Hanoi, so said my dinner companion – a major manufacturer and worldwide exporter of steel products.
He, like so many other major Asian producers, sees an opportunity in international trade for all of Asia to capitalize on.
In the Western world, the argument rages as to whether the US tariff war will benefit the US or not.
Of course, those of us who have a libertarian perspective regard all meddling in a free market as counter-productive. Historically, when tariffs are employed, each of the parties involved ultimately becomes a loser. The aggressor suffers as much as the aggressee, as, first, the people of that country must pay more for goods imported, and second, a trade war results in diminished trade overall, hurting both economies.
But there are benefits to be had. The benefits fall to those countries that stayed out of the fray.
Is Trump withdrawing from the Middle East to better focus US efforts against China? From Michael Every at Rabobank via zerohedge.com:
Tipping points are funny things in markets and in life in general. Sometimes you see them clearly ahead of time, sometimes only in hindsight. Sometimes you still don’t see them even afterwards. But they are there regardless.
Most Americans have paid no attention at all to developments in China aside from not liking tariffs. But touch basketball and suddenly things get serious! Daryl Morey, general manager of the Houston Rockets, recently tweeted support for pro-democracy protests in Hong Kong, and the immediate reaction was China–an avid NBA market of 500m–banning the team. Morey deleted the tweet and made a very humble apology, as did the Rockets, which didn’t assuage Chinese fury; but it did create a backlash against the Rockets from the US public, who are pro-democracy, and from US politicians, who are anti-China, and whom are noticing that the outspoken-on-domestic-politics NBA runs a training camp in Xinjiang(!) Indeed, there is new focus on the issue of US firms ‘having to kowtow to Beijing’. Is it a tipping point in US-China relations as trade talks begin? Hard to say. But it’s a discussion the average American will be part of for once.
If China is running out of friends in Washington and Europe, how much of an impact will it have on China? From the Zman at theburningplatform.com:
As is always the case in these matters, the Michael Crichton observationabout the media should be kept in mind. The growing rift between China and the United States is a complicated matter by itself. The impact it will have on global trade, the US economy and geopolitics is even more complex. Even people paid to risk real money in these areas don’t have a firm grasp of all the moving pieces. The people posting in the media know even less. Often they know nothing at all.
That does not mean there is nothing we can know. The first question, in any heated trade dispute between two countries, is “who is buying and who is selling?” and the related question is, “What is being traded?” In this regard, trade disputes are not a lot different from disputes between customers and vendors. How they proceed and how the end is entirely controlled by the relationship and the products in question. That determines who has the most leverage in the dispute.
In this case, the relationship is easy to sort. U.S. imports from China totaled $539.5 billion in 2018. U.S. exports were $179.3 billion. That export total is about 7% of all U.S. exports for 2018. Put another way, the U.S. market is about 5% of the Chinese economy, assuming the fake Chinese economic numbers are even close to reality, which is surely not the case. The Chinese market is less than one percent of the U.S. economy in 2018. Imports are about 3% of the U.S. economy.
Next generation technology is at the core of the trade war between the US and China. From Jack Rasmus at counterpunch.org:
Photograph Source: PAS China – Public Domain
This past weekend, June 29, 2019 Trump and China president, Xi, met again at the G20 in Japan in the midst of a potential further escalating trade war. But the outcome looks eerily similar to that of the prior G20 meeting in Buenos Aires on December 2, 2018, when Trump and Xi also met.
Once more, the same post-G20 ‘spin is in’: i.e. Trump declares publicly he has such a great relationship with Xi. There’s a great trade deal soon forthcoming between the two countries. US and China trade teams will now begin to thrash out the details on the remaining 10% or so of US-China trade differences. In the interim, once again, Trump announced he will withhold imposing more tariffs (this time on an additional $325 billion of China imports to the US). In other words, coming out of the latest G20 it’s almost an exact déjà vu all over again to the outcome which occurred at last December 2, 2018’s G20 meeting between Trump and Xi in Buenos Aires.
Will it be different this time? Will there by an agreement? Or will Trump once again just be buying time—i.e. until just before the 2020 elections? Until he sees China’s economy softening further and he raises US demands further again? Or maybe Trump and his neocon trade advisers—Lighthizer, Navarro, Bolton who are now driving US trade (and most of US foreign) policy—don’t want to compromise and will accept nothing less than China’s capitulation on the nextgen technology issue that was at the core of the blow up of negotiations in May 2019?
China doesn’t bring as many weapons to the trade war as many people think. From Daniel Lacalle at dlacalle.com:
In these weeks we have read a lot about the so-called trade war. However, this is better described as a negotiation between the largest consumer and the largest supplier with important political and even moral ramifications. This is also a dispute between two economic models.
Nobody wins in a trade war, and tariffs are always a bad idea, but let’s not forget that they are just a weapon.
Why right now?
For many years China has been allowed to maintain a mercantilist dictatorship and protectionist model under the excuse that its high growth made it attractive.
Shortly before the US launched its set of tariffs, the Chinese government accelerated two dangerous policies that we cannot ignore: intensifying capital controls , limiting the outflow of dollars from the country, and increasing the list of banned companies and sites, two measures that proved that the Chinese government was unlikely to open its economy, rather the opposite. These measures intensified in the last year and a half. Two other factors show China’s decision to halt the opening of its system. The “Made In China 2025 Plan” and the removal of the two-term limit on the presidency, effectively allowing Xi Jinping to remain in power for life.
Between 2004 and 2018, the United States filed 41 complaints against China at the World Trade Organization, focused on 27 different areas. The vast majority of these WTO resolutions are not enforced (“Paper Compliance: How China Implements WTO Decisions.” The previous strategy of looking the other way and expecting the Chinese economy to open up little by little met the reality of increased interventionism.
Posted in Business, Currencies, Debt, Economics, Economy, Foreign Policy, Geopolitics, Governments, Trade
Tagged China, protectionism, Trade War
The globalists not only want to impose one-world government, they want us to love it, or at least say we love it. From Brandon Smith at alt-market.com:
When discussing the fact that globalists often deliberately engineer economic crisis events, certain questions inevitably arise. The primary question being “Why would the elites ruin a system that is already working in their favor…?” The answer is in some ways complicated because there are multiple factors that motivate the globalists to do the things they do. However, before we get into explanations we have to understand that this kind of question is rooted in false assumptions, not logic.
The first assumption people make is that that current system is the ideal globalist system – it’s not even close.
When studying globalist literature and white papers, from Aldous Huxley’s Brave New World, to H.G. Wells’ book The New World Order and his little known film Things To Come, to Manly P. Hall’s collection of writings titled ‘The All Seeing Eye’, to Carol Quigley’s Tragedy And Hope, to the Club Of Rome documents, to Zbigniew Brzezinski’s Between Two Ages, to former UN Director Robert Muller’s Good Morning World documents, to Henry Kissinger’s Assembly Of A New World Order, to the IMF and UN’s Agenda 2030, to nearly every document on globalization that is published by the Council on Foreign Relations, we see a rather blatant end goal described.
To summarize: For at least the past century the globalists have been pursuing a true one world system that is not covert, but overt. They want conscious public acceptance of a completely centralized global economic system, a single global currency, a one world government, and a one world religion (though that particular issue will require an entirely separate article).
To attain such a lofty and ultimately destructive goal, they would have to create continuous cycles of false prosperity followed by catastrophe. Meaning, great wars and engineered economic collapse are their primary tools to condition the masses to abandon their natural social and biological inclinations towards individualism and tribalism and embrace the collectivist philosophy. They created the current system as a means to an end. It is not their Utopian ideal; in fact, the current system was designed to fail. And, in that failure, the intended globalist “order” is meant to be introduced. The Hegelian Dialectic describes this strategy as Problem, Reaction, Solution.
Posted in banking, Business, Currencies, Debt, Economy, Financial markets, Government, Trade
Tagged China, globalists, President Trump, Trade War