Why China Is Dumping The Dollar - And Why You Should Read Up on the Weimar Republic

CrownThomas's picture

As ZH posted today, China is systematically dumping the dollar (and beginning to set up other agreements). CNBC assures everyone, however, that things are fine. Don't read those anonymous financial blogs.

China has a long way to go in turning itself into more of a consumption based economy, so the dumping of USD has to be rather gradual (as to not rock the boat too much, the U.S. still needs to be supplied the funds to purchase Chinese goods, and also most trades are settled in USD for now), but it is happening.

One major reason for this action by China is due to the fact that the United States Government has loaded up on so much debt that it's not possibly sustainable - and the Federal Reserve knows that unless they want to see the house of cards the Keynesians have built come crashing down, they have no choice but to completely monetize the debt. As the dollar continues to be devalued (more in a second), the more yuan China has to print in order to buy dollars to keep their fx target. So not only is China on the hook to pay higher commodity prices (priced in dollars), they're stuck with creating more domestic inflation as well - which is something they don't have time to deal with at the moment, as their housing market is on the verge of collapsing.

Today ZH also pointed out that Greece has 107 Billion Euro in hidden liabilities that oops, they forgot to disclose to anyone. Which made me think, hey, how about the unfunded & if not hidden, largely swept under the rug liabilities the United States has.

Alas, the Treasury doesn't use GAAP accounting when they put out their debt figures, they use cash accounting. This means that all of the social programs we have in place (medicare, pensions, social security, etc) are left out of the debt calculation. China is not stupid, they realize that not only are we going to be 100% of GDP soon on our reported debt, we're going to be well over 100% of GDP on total debt if we are being honest & including our unfunded liabilities. Over $80 Trillion in debt, or over 500% of GDP, accordng to Shadow Stats John Williams.

Here is a chart showing our Gross Debt to GDP, along with Total Debt to GDP if we were being honest (via John Williams, Shadow Stats)


That's pretty isn't it? So what options does that leave the Federal Reserve if they want to continue the global ponzi? You guessed it, monetize the debt, all of it. And as the Fed buys over 100% of the net treasury offerings, the Dollar begins to lose even more purchasing power. This is what puts China in a tough spot, for reasons mentioned above.

And Yes, Monetize the Fed Will:


So, as you can see this is the house of cards we're dealing with right now. China is not being fooled, and they will inevitably leave the dollar behind at some point in the future. Which means less buyers for US Debt, which means more money printing by the fed, and dollar devaluation - you see where we're going here. As this cycle picks up steam, we can expect more inflation than we're already seeing (be it "core" calculated by the Government, or "real" calculated by Shadow Stats).

Here is a nice chart showing how happy we can be that the A. The Federal Reserve was put in place to facilitate this ponzi, and B. That we went off the Gold standard


Pretty soon we can start using money that looks like this -- I reserve the right to be the Battleship.



And finally, the Federal Reserve would like to let the Congress, and the American public know, that no matter what Zero Hedge says about them, they will "not monetize the debt"! 


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wtlf555's picture

This info is great - thank you ShadowStats and CrownThomas. I have one disagreement and that is the overall premise of ZH that the fiat Ponzi scheme leads to inflation. It may be a matter of semantics but it bothers me. The only DIRECT correlations are that most central banking/govt/FIAT cartels lead to the destruction of the currency AND most currency destruction is preceded by hyperinflation. But I do not believe there is much direct correlation between what is happening and inflation. Inflation has and always will be about supply demand of money (M1) and goods. The Fed could buy ALL the debt and issue a million gazzillion to primary dealers jacking the monetary base into the strosphere and that would not cause inflation. In fact as MB has increased exponentially M1 has not. Yes asset and consumer goods prices rise to a certain extent because speculators have much more leverage to work with increasing volatility but that is a transitory thing that ends (as it did in 2008).TRUE LASTING INFLATION  WILL OCCUR THROUGH TOO MUCH M1 CHASING TOO FEW GOODS. I track M1 per capita and demand deposits per capita and they have almost little correlation with increased MB or the Fed monetizing debt. I think the general disagreement I have is that most at this site believe that there is a direct linear correlation with what is happening and inflation. I believe that there is little correlation but that on the margins what is happening adds to consumers doubt about our currency - like water builing in a dam. If the populace loses faith and starts hoarding dollars under the mattress we will have inflation but there is little linear corraltion to what the Fed/Treasury/CB and MONEY demand.

I believe the pattern in a FIAT rise and fall is always the same. Demand for equities => demand for debt => demand for cash => demand for goods. Inflation occurs at the transition to demand for goods. According to M1 per capita and demand deposits per capita we are not even in the demand for cash.

I believe there is at least one more huge deflationary event (ala 2008) before we transition into demand for cash. I also believe that one trigger will be a headline event regarding the content of physical gold holdings. Either GLD will be shown to not actually have what they list in trust or a government will not have what they list in reserves through missing or compromised bullion. This will cause a pretty steep drop in investor faith in commodities as well as in commodity prices - although the arb for physical to non-physical will increase dramatically. This will be the last bit of water in the dam that breaks the dam as demand for cash goes through the roof.  


Shizzmoney's picture

At least the Brazilian and Chinese tourists are loving the cheap US Dollar


I can't wait until inflations hits home, and the sheeple start going, "ZOMG WTF?".

Pretty simple the reason why oil/food all going up.....thats what happens when a private entity controls your currency and monetary policy.

ilovefreedom's picture

but but but, Obama has added millions of starbucks/mcjobs!!


stiler's picture

Move along... *hey Joe, we need the heat ray over here at ZHedge!*

Mamzer Ben Zonah's picture

"Alas, the Treasury doesn't use GAAP accounting ..."

The Treasury uses CRAAP accounting ...

unionbroker's picture

watched the Grapes of Wrath on the weekend funny how it is looking moe and more like the future

Shizzmoney's picture

Jesus Christ, look at the Consumer Inflation from 1665 to now (and that faux CPI number)!

As ZH posted today, China is systematically dumping the dollar (and beginning to set up other agreements). CNBC assures everyone, however, that things are fine. Don't read those anonymous financial blogs.

BTW, CNBC is pretty funny.  There were some pretty important "anonymous" writers in the colonial times as well...their names were: "Thomas Jefferson", "Thomas Payne", and "Benjamin Franklin".

The truth is toxic today......how are we going to solve problems when the peopl in charge of our media, and the people in charge of our government, (are paid to) turn a blind eye to the ones that exist?

Totentänzerlied's picture

"how are we going to solve problems when the peopl in charge of our media ..."


Blue Horshoe Loves Annacott Steel's picture

We need  a Riot, Civil Unrest, & Revolution ETF.

dontgoforit's picture

...isn't that exactly what Soros, Obama and the rest of them are counting on?...think about it.

AustrianEconomist's picture

Check out the latest from the Capital Research Institute:

Currency Wars – Survival of the Weakest

winter2012's picture

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Lmo Mutton's picture

Has anybody called the car yet?  I always liked the car.

RSDallas's picture

You know, I have to take issue with this post. China has created as much or more phony money based soley on pixie dust and red slippers. The mal-investment in China dwarfs that of the US. China is indeed growing, but give me a break, their average monthly wages are comical. I am not saying that we (the US) is the best of breeds, by any stretch of the imagination, but to begin to say China is superior to the US is ridiculus. Folks, the manufacturing you are seeing in China has already begun to migrate to other countries. Just like it did here in the US. International free trade will always follow low cost labor and pro business governments.

HeadintheGame's picture

One thing occurrs to me, China hasn't spent a couple of trillion dollars of debt foisted on their people to bomb the shit out of third-world countries because they could.  Housing is a much more citizen freindly way to employ your people.  It ain't perfect.  But it is far better than empire building.

whoknoz's picture

why go to the trouble and expense of printing a high tech 100,000,000,000,000 currency note?...who the heck is ever going to "counterfit" such a worthless item...just write the promise to pay on a napkin...quicker, cheaper, and equally worthless...

justsayin2u's picture

Bennie would never let his country down like this.  I'm sure this is as well contained as the liar loan contagion back in 2007-2008.  Long UST baby.

cranky-old-geezer's picture



That 1665 - 2011 CPI chart is great.  It clearly shows America is in its end-game (hyper)inflation. 

Ok, we're in the early stage of it.  But the end result is well known from examples like Weimar and Zimbabwe.

Yes America has seen currency collapse before.  "Not worth a Continental" comes to mind.

We're doing the very same thing now, printing currency whose value is supported only by people's confidence in it. 

If that confidence fades or collapses altogether, that's it for the US dollar.

And no, Bernanke cannot control how much confidence people have in the US dollar. 

And yes it's not just Americans' confidence, it's everybody's confidence around the world. 

And yes the asian (nuclear) alliance is making its move now, attacking the petrodollar status of the US dollar, making large oil purchase arrangements in other currencies, while thumbing their noses at Bernanke and Wall Street bankers, daring them to do anything about it.

That's why "nuclear alliance" is significant.  It far outguns America in the thermonuclear area.  No, not in the conventional warfare area.  But yes in the thermonuclear warfare area. 

And yes I believe they'll play their thermonuclear card.  If America attacks / invades Iran, I believe things will go thermonuclear rather quickly.

I suspect Russia and China have clearly told our rogue American leaders Iran is the line in the sand, and if America crosses it, things wll go thermonuclear very quickly.

Ace Ventura's picture

Compelling thought, no doubt. What I wonder about is the Russia/China connection vis-a-vis Iran. Seems to me Russia and China are central players in the Globalist Insiders Club, right along with Euroland and the U.S. If they all aspire to the some goal, a world dominated by their Club with all the world's general citizenries at their feet in debt-indentured servitude.....then why risk going nuclear and decimating everything they're trying to get their greasy hellspawned claws on in terms of assets, territories, and people?

Now, I fully believe the aforementioned players are all just itching to start another major war, so they can fund both sides and profit from whatever determined result is being planned. I just can't make the connection to a major nuclear conflict. Then again, most of these Nw0 types are full-blown psychopaths, so nothing would surprise me. But even Hannibal Lecter didn't think it was a good idea to go raging down Main Street with a giant chainsaw cutting up some din-din amongst the rush hour pedestrian crowd.

P.S. How fucked up is it that we have to think about shit like this in this day and age?


cranky-old-geezer's picture



What I wonder about is the Russia/China connection vis-a-vis Iran.

Russia & China have made their connection to Iran very clear. They view Iran as their last significant opportunity to stop American petrodollar aggression. 

They've stated very clearly Iran is the line in the sand, America better not cross it. 

We can speculate all day long what that means.  I believe it's a thermonuclear warning to America, since thermonuclear is where they have the upper hand, Russia anyway.

I can't see them clearly warning America don't go into Iran, and not backing up that warning with some sort of force where they're superior.  Thermonuclear is the only area they're superior in.

Seems to me Russia and China are central players in the Globalist Insiders Club, right along with Euroland and the U.S.

I don't think so.   Seems to me the east isn't going along with western anglo bankers and their plan for world dominance, and I believe they're making their first real stand at Iran.

mess nonster's picture

How do you spell debt-writedown?

Probably "Thermonuclear".

Israel has a closing window. It will be closed by June, my guess. When Iran gets a bomb, the Palestinians will gat a state. When the Pals get a state, then Israel has the land of the Philistines, but not the territory of Zion. What an existential bitch for them. This spells the death of Zionism, because as long as Israel cannot possess (as opposed to occupy) the homeland, it is just a ghetto, and it could be in Madagascar, New Schwabenland, anywhere.

So Israel MUST attack, and it must do it soon.

When Israel attacks, it must neutralize all opposition with maximum force, all opposition, within 48 hours, or else face a terrifying counterattack. Furthermore, if the war lasts more than 30 days, the world economy, upon which Israel depends more than any other nation, will be uetterly destroyed, thus making israel even more vulnerable and likely to lose the long war. Therefore, the attack will be a blitzkrieg that will make the Nazis in 1940 look like they were on an Easter-egg hunt.

As Assad gets the upper hand over the Syrian rebels, (bad news out of the North), and as Iran burrows deeper and deeper into the hills of Qom and Fordo, (bad news out of the East), Israel will have to act now, or face a slow but certain irrelevance. Will Israel get MOP's? Not soon enough. It will have to use the tools at its dispposal, and those tools, for maximum liquidating power, are nuclear.

Econimcs at this juncture, is merely a diversion my friends. We have much bigger problems.

cranky-old-geezer's picture



So Israel MUST attack, and it must do it soon.

Israel is irrelevant. This is a much bigger game between much bigger players.  Israel is merely a spectator.  If they're smart they'll remain a spectator.  If they decide to be a player, they'll be wiped out.  I think they know it.  I hope they know it.

espirit's picture

Fat roasted banker sounds pretty tasty to a starving survivor.

cjbosk's picture

"the U.S. still needs to be supplied the funds to purchase Chinese goods"

I thought we would have been like 20% or something of total GDP in China, our consumption of their goods that is.  It's only 5% or so.  So I think China could actually dump dollars perhaps more aggressively than we think.  I do not think the green back loses status as reserve currency at 28% of all global trade...that would be VERY difficult to replace IMHO.

TruthInSunshine's picture

The U.S. buys roughly 25% of China's exports.

dontgoforit's picture

could be oriental guards...jus' sayin'

AndrewCostello's picture

The writing is on the wall, and the nails are being hammered into the coffin one at a time.  The US dollar is over and everybody knows it - so China is gradually pulling out.  They don't want to cause panic, but they don't want to stay on the losing team either.


Read this NOW, it will save your future.



AntiLIB's picture

To infinity and beyond?

Fix It Again Timmy's picture

American Indians call our greenback currency "Frog Skins".  We owe people 80 Trillion frog skins?  I would hate to be a frog...

Binkerthebear's picture

I saw a very well thought out analysis by Mish Shedlock about a month ago explaining why hyper-inflation can never happen. I would love for this author to address Mish's thoughts on the subject.

T-roll's picture

I'm having a hard time buying the hyper-inflation argument as well.  I don't understand how the price of commodities can skyrocket without wages rising as well.  If gas gets north of $5.00/gallon and food prices go up more than they have, people will have significantly less money to spend on other items.  Being that our economy is 70% driven by consumer spending, there has to be a limit on how high prices can go without causing a recession/depression.  I would appreciate if someone can explain how hyper-inflation (Zimbabwe/Weimar style) can happen as long as the US dollar is the world's reserve currency.  No smart-ass comments necessary.

Ace Ventura's picture

I'm no expert, but I believe wage inflation typically lags behind monetary inflation. Then there is the oft-posited theory that we are in for BOTH hyperdeflation in the near term, with follow-on hyperinflation shortly thereafter. As long as the world retains confidence in the dollar as reserve currency (which this article pointed out is already unraveling)...then yes hyperinflation is unlikely.

The moment the Dollar Opera ends and the fat lady runs out of breath carrying that last, long-winded note.....watch out for the stampede towards the exit. The big x-factor in all of this is the unprecedented nature of the situation. All currencies have been fiat since 1999, so there is no safe haven in terms of modern currencies to run to when the aforementioned occurs. It would be the equivalent of climbing towards the top-rung of a 40-foot ladder....which had just been thrown off the side of a 5,000 foot cliff.

Blue Horshoe Loves Annacott Steel's picture

"a very well thought out analysis by Mish Shedlock"...

That's about as real as Obomber's birth certificate.

Quinvarius's picture

Mish should try using math instead of debating the tape.

marcusfenix's picture

I'm gonna be a trillionaire...

BigJim's picture

Much as I loathe Keynes, the pedophilia charge is very much unproven

Blue Horshoe Loves Annacott Steel's picture

The bullshit economics charge isn't.

dontgoforit's picture

It's evolving.  Or morphing.  Take ur pik

proLiberty's picture

The current exchange ZBWE/USD exchange rate is two 100 Trillion Zim$$ notes for $9.95 on eBay:





jimijon's picture

Wow. I already doulbed my investment! I bought two about three years ago for $4.00

espirit's picture

They were like 3 dollahs per trillion a while ago. Maybe they're coming back to parity in the near future ...or... the dollah's got some catching up to do.

Back to the main, I dump on the dollah everytime I buy some phyzz.

ilovefreedom's picture

Nice, so at $8 for $100 Trillion zimbabwe note I did pretty well??

Personally I think the zimbabwe note is charming with it's depiction of a yak and stack of 3 rocks.

Coming to the US soon, the new American dream: that your kids don't grow up eating bugs!

azzhatter's picture

I dropped a floater this morning. It looked like a dollar

my puppy for prez's picture

Really, all we can do at this point is quit arguing about how this is all going to go down, and get busy creating our own survival reality.

We can, as passengers on the Titanic, spend our time arguing as to which life vest is more dependable, which life boat has the best construction, exactly when we should don the vest and bail ship, and how high the water should be before we abandon ship....

But it's really time NOW to create our own individual survival mechanisms.  Waiting will only make it harder.

There will be NO one week or one hour siren to warn us....it will just HAPPEN.  Don't count on the Captain to save you.  He won't.

Stuck on Zero's picture

The advantage of a monetary system like Zimbabwe's is that the populace becomes very good at mathematics.  Think about counting change to someone who buys a newspaper for ZD$140,000,000,000 and a cup of coffee for ZD$380,000,000,000 and offers two $ZD500,000,000,000 notes in payment.  I expect American's will soon become very adept at large numbers, too.  Just think, 80 years ago you could buy an egg for 1 cent.  Today I filled up my Jeep for 8976.9 cents.

donsluck's picture

Too bad you missed cash-for-clunkers. I got a brand new +40 mpg Versa for $5,100 and a totalled Pathfinder.