9 Signs That China Is Making A Move Against The U.S. Dollar

On the global financial stage, China is playing chess while the U.S. is playing checkers, and the Chinese are now accelerating their long-term plan to dethrone the U.S. dollar.  You see, the truth is that China does not plan to allow the U.S. financial system to dominate the world indefinitely.  Right now, China is the number one exporter on the globe and China will have the largest economy on the planet at some point in the coming years.  The Chinese would like to see global currency usage reflect this shift in global economic power.  At the moment, most global trade is conducted in U.S. dollars and more than 60 percent of all global foreign exchange reserves are held in U.S. dollars.  This gives the United States an enormous built-in advantage, but thanks to decades of incredibly bad decisions this advantage is starting to erode.  And due to the recent political instability in Washington D.C., the Chinese sense vulnerability.  China has begun to publicly mock the level of U.S. debt, Chinese officials have publicly threatened to stop buying any more U.S. debt, the Chinese have started to aggressively make currency swap agreements with other major global powers, and China has been accumulating unprecedented amounts of gold.
All of these moves are setting up the moment in the future when China will completely pull the rug out from under the U.S. dollar.
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From The Economic Collapse Blog:

Today, the U.S. financial system is the core of the global financial system.  Because nearly everybody uses the U.S. dollar to buy oil and to trade with one another, this creates a tremendous demand for U.S. dollars around the planet.  So other nations are generally very happy to take our dollars in exchange for oil, cheap plastic gadgets and other things that U.S. consumers “need”.

Major exporting nations accumulate huge piles of our dollars, but instead of just letting all of that money sit there, they often invest large portions of their currency reserves into U.S. Treasury bonds which can easily be liquidated if needed.

So if the U.S. financial system is the core of the global financial system, then U.S. debt is “the core of the core” as some people put it.  U.S. Treasury bonds fuel the print, borrow, spend cycle that the global economy depends upon.

That is why a U.S. debt default would be such a big deal.  A default would cause interest rates to skyrocket and the entire global economic system to go haywire.

Unfortunately for us, the U.S. debt spiral cannot go on indefinitely.  Our debt is growing far, far more rapidly than our GDP is, and therefore our debt is completely and totally unsustainable.

The Chinese understand what is going on, and when the dust settles they plan to be the last ones standing.  In the aftermath of a U.S. collapse, China anticipates having the largest economy on the planet, more gold than anyone else, and a respected international currency that the rest of the globe will be able to use to conduct international trade.

And China is not just going to sit back and wait for all of this to happen.  In fact, they are already doing lots of things to get the ball moving.  The following are 9 signs that China is making a move against the U.S. dollar…

#1 Chinese credit rating agency Dagong has downgraded U.S. debt from A to A- and has indicated that further downgrades are possible.

#2 China has just entered into a very large currency swap agreement with the eurozone that is considered a huge step toward establishing the yuan as a major world currency.  This agreement will result in a lot less U.S. dollars being used in trade between China and Europe…

The swap deal will allow more trade and investment between the regions to be conducted in euros and yuan, without having to convert into another currency such as the U.S. dollar first, said Kathleen Brooks, a research director at FOREX.com.

“It’s a way of promoting European and Chinese trade, but not doing it with the U.S. dollar,” said Brooks. “It’s a bit like cutting out the middleman, all of a sudden there’s potentially no U.S. dollar risk.”

#3 Back in June, China signed a major currency swap agreement with the United Kingdom.  This was another very important step toward internationalizing the yuan.

#4 China currently owns about 1.3 trillion dollars of U.S. debt, and this enormous exposure to U.S. debt is starting to become a major political issue within China.

#5 Mei Xinyu, Commerce Minister adviser to the Chinese government, warned this week that if the U.S. government ever does default that China may decide to completely stop buying U.S. Treasury bonds.

#6 According to Yahoo News, China has already been looking for ways to diversify away from the U.S. dollar…

There have been media reports this week that China’s State Administration of Foreign Exchange, the body that handles the country’s $3.66 trillion of foreign exchange reserve, is looking to diversify into real estate investments in Europe.

#7 Xinhua, the official news agency of China, called for a “de-Americanized world” this week, and also made the following statement about the political turmoil in Washington: “The cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising debt ceiling has again left many nations’ tremendous dollar assets in jeopardy and the international community highly agonized.”

#8 Xinhua also said the following about the U.S. debt deal on Thursday: “[P]oliticians in Washington have done nothing substantial but postponing once again the final bankruptcy of global confidence in the U.S. financial system”.  The commentary in the government-run publication also declared that the debt deal “was no more than prolonging the fuse of the U.S. debt bomb one inch longer.”

#9 China is the largest producer of gold in the world, and it has also been importing an absolutely massive amount of gold from other nations.  But instead of slowing down, the Chinese appear to be accelerating their gold buying.  In fact, money manager Stephen Leeb says that his sources are telling him that China plans to buy another 5,000 tons of gold.  There are many that are convinced that China eventually plans to back the yuan with gold and try to make it the number one alternative to the U.S. dollar.

So exactly what would happen if the Chinese announced someday that they were going to back their currency with gold and would no longer be using the U.S. dollar in international trade?

It would change the face of the global economy almost overnight.  In a previous article, I described some of the things that we could expect to see happen…

If China does decide to back the yuan with gold and no longer use the U.S. dollar in international trade, it will have devastating effects on the U.S. economy.  Demand for the U.S. dollar and U.S. debt would drop like a rock, and prices on the things that we buy every day would soar.  At that point you could forget about cheap gasoline or cheap Chinese imports.  Our entire way of life depends on the U.S. dollar being the primary reserve currency of the world and being able to import things very inexpensively.  If the rest of the world (led by China) starts to reject the U.S. dollar, it would result in a massive tsunami of currency
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coming back to our shores and a very painful adjustment in our standard of living.  Today, most U.S. currency is actually used outside of the United States.  If someday that changes and we are no longer able to export our inflation that is going to mean big trouble for us.

The fact that we get to print up giant mountains of money and virtually everyone around the world uses it has been a huge boon for the U.S. economy.

When that changes, the word “catastrophic” is not going to be nearly strong enough to describe what is going to happen.

According to a Rasmussen Reports survey that was released this week, only 13 percent of all Americans believe that the country is on the right track.  But the truth is that these are the good times.  The American people haven’t seen anything yet.

Someday people will look back and desperately wish that they could go back to the “good old days” of 2012 and 2013.  This is about as good as things are going to get, and it is only downhill from here.

Comments

  1. China is in even worse shape than the United States. They are never going to touch the dollar. When the dollar does collapse, China will be left holding the bag (and some, but not all, the Gold). They have 800 million in poverty. 800 MILLION. What happens when the dollar dies? The Chinese Yuan will too. And then you have 800 MILLION angry people…
    Yeah, I’m real worried about China…not.

    • China is already “holding the bag”, this is exactly why they are buying up as much metal as possible, and why they would want to take the “advantage” away from the US by forcing the reserve hand after all, they have to get something back for their trouble, (loans). Their “owed” dollars are as good as gone already so a reset is sorely in order. This is not a good thing for the US, especially when we have given up our gold, (in my opinion), there is little gold in comparison to what we are supposed to have as it’s been traded away. This is why Germany can’t get theirs back all at once.
       
      One sure thing is we will all see very soon what the east has in store for the US. When the global economy completely tanks, somebody has to step in and the country with the largest population and a lion’s share of the gold, would be a likely candidate for that role.

    • @jlee
       
      i actually signed up to let you know how wrong you are.
       800m that you have highlighted so nicely is the entire workforce of china.
      So where are you getting your facts on china and poverty.  THE CIA, you can check this too, shows THE USA has HIGHER poverty levels than China.  
       
      China has gone from over 30% poverty to 13%.  The USA is at 15%.
      I could spew facts all day, mine are factual and I can cite them.  Cite yours 800m. You are ignorant.  
       
       

  2. OT: Anyone see the prices of Levi’s or Dockers recently? Wow. I was out shopping for clothes yesterday–I absolutely hate shopping for clothes, so I put it off as long as possible, but I was in desperate need of some new pants for work and hanging out–and I honestly remember paying $35/per pair, no sale, nothing, less than 2 years ago. These SAME pants from the SAME store, are now on the shelves for $50/pair. I was stunned. Now I’m okay, I have a decent amount of disposable income at the moment, but these prices must be seriously squeezing many people.

    • I switched to Wranglers at $25 each +/- online.

      I hear ya though SS, when I go to buy anything, I am amazed at the rapid jump in prices, and those prices that seem not to have risen, are packaged in smaller quantities instead, as though they are kidding us or something. I also am always amazed at how crappy everything is made now, again, to keep the final cost low. I have started buying vintage whenever possible, as today’s quality is severely lacking unless you can afford to always buy top shelf. I just hope this is as bad as it’s going to get!

    • Two words: Thrift Store.

      I get my Levi’s at 3 to 5 bucks a pair. =)

  3. Ok, so you are not worried about China.  Why not? There is a little difference in culture.  Did you ever live in the third world?  They live differently.  What is acceptable as a lifestyle in China would cause riots to occur in the US.  The disadvantage for the US is that we have to somehow maintain a high standard of living for those that live in poverty.  Yes, those in poverty in the US live much better than in other parts of the world and the US has to borrow in order to keep this up.  China does not.  Their people live a certain way that is not acceptable to the US citizens.  That is the Chinese advantage.  So, you should be worried about China since when things get bad in the US the citizens will rise up and demand to be taken care of.  No so in China.  They are used to austerity.  Stay complacent if you want JLee2027.  The Chinese are in position to over take the US easily with the passage of time.  US lifestyle is not sustainable.  In the next few years, as China is able to overtake the US dollar as the reserve currency of the world, US citizens will have to hunker down and get used to living an austere life and join the ranks of the third world.  Welcome US to reality.

    • Just what I was gonna say.
       
      Poverty is a state of mind.  800 million people must be happy enough,
      to not over throw the Gov’t.
       
       

    • China definitely has a plan for the US.  A look at the work of 2 Chinese PLA colonels in 1999, Unrestricted Warfare, gives you a clue:
      http://en.wikipedia.org/wiki/Unrestricted_Warfare
       
      As for gold, Rickards probably has as good a guess as anyone, and imagines that they could have north of several thousand tons. Watch the interview with Rickards about his forthcoming book, The Death of Money: The Coming Collapse of the International Monetary System
      http://futuremoneytrends.com/blog/?p=10062

    • Pollokeeper is spot on with his observations.
       
      Poverty almost has two definitions—one for the poor in the US and one for the poor in the rest of the world. The USA is the best place in the world to be a ‘poor person’   –it’s not even close.

  4. Like Richard Pryor once said, “You don’t get to be old by being a fool”. China most likely the oldest civilization on the planet today, has not existed by being a foolish nation. Sure they have adjusted their society over thousands of years, but still remain stalwart. China is investing their fumds, (Shedding dollars) in 3rd world country infrastructure and making many, many new friends as  the U.S. is losing friends globally. The Chinese don’t call for nor put up with delays in their government and they act upon facts because they are a very pragmatic race. So my friends don’t be fooled with negative China hype as they are destined to rule the entire world and they have the plan to do it. 

  5. Big Mac in the past 20 years has reduced in size twice or more. Now this is not a Big Mac, now this is Mini Mac.
    “Big Mac Index” – it’s just funny joke and tool of deception for a profanation the stupid people and crowd.

  6. China is not planning to take over the dollar. The dollar system works, its just wealth transference, if the yuan does take over from the dollar, hey survival of the fittest, and us westerners have become lardy are whingers. But, if the dollar did collapse, who would the Chinese, with their major export trade sell too? Americans couldn’t afford to import, be cheaper to just close the door and become a protectionist state. The US has the largest export of gra in the world , 50%. Buff said.
     
    Keep stacking, don’t sweat it. Us westerners will still be lardy arse ones in 10 years time.

  7. Cyprus and Greece were asked to surrender gold to cover debts. How far-fetched to ask the US the same?
    And they’ll need to buy back bonds if they want goods from China. China also supplies the other 96% of global population. Who on average pay with less diluted currency.
    When China gives up on the USA and dollar, the cost inflation in the US could be skyrocketing. No more game consoles for Christmas.  

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