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Why China Is Dumping The Dollar - And Why You Should Read Up on the Weimar Republic
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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That $100 trillion bill is a cosmic joke on the stupidity of the sheep. They might as well print up bills that say "fuck you citizens."
That coffee and donut will be 27 FUCs, thank you very much.
This has nothing to do with the stupidity of the sheep, but it does have to do with how we have structured the modern economy.
When society industrialized, most people began to work for producers. They were paid a wage, rather than a product. Just as farmers did well in the Weimar episode, anyone with an actual product can still trade for other items of value. Barter re-establishes itself in periods of economic duress.
When you are paid a wage only, you have nothing to trade. You are dependent on the currency and the value it retains. This value is not within your control. Thus, those most dependent suffer the most in a hyperinflationary event.
This leaves us with a choice: we can maintain a currency system that has stable value or we can become producers of real goods.
One caveat- the human population went from 100 million to 7 billion because of industrialization- the system that created the current wage/goods system. You can call for responsible government, but the government is owned by the producers- not the wage earners. This has never changed, so there is little to hope for in that avenue of attack.
The people are not stupid- they are dependent. Like cattle or sheep, they have put themselves in the care of strangers whom promised better grazing and security. Little did they realize, it was as a consistent source of food.
gas will hit $100 a gallon and most people will still believe that we are living in a democracy. We will be living in FEMA camps under martial law and people will still belive that our pretend elections are real. What will it take for people to get them to wake up to the fact that we are governed by a bureaukleptocratic military banking complex whose sole motive is to extract wealth from us? How much longer before theres no affordable food on the shelves at the store? This country has been turned into a prison labor death camp yet people dont see it because its not on television
Marc Faber from the Gloom, Boom and Doom report from 6/23/2003 has a essay on ‘The Financial Implications of Reflation’ that is usually THE ONLY thing I show prospective financial clients. As Dr. Faber has given me permission to print and distribute only 20 copies I let clients read it and then give it back. Here are some excerpts about the German hyperinflation of 1921-1923:
“The inflation retarded the crisis for some time, … but later it exercised an increasingly disadvantageous influence, disorganizing and limiting production. It annihilated thrift; it made reform of the national budget impossible for years; it obstructed the solution of the Reparations question; it destroyed incalculable moral and intellectual values. It provoked a serious revolution in social classes, a few people accumulating wealth and forming a class of usurpers of national property, whilst millions of individuals were thrown into poverty. …. it poisoned the German people by spreading among all classes the spirit of speculation and by diverting them from proper and regular work…..It is indeed easy enough to understand why the record of the sad years 1919–23 always weighs like a nightmare on the German people.” Dr. Faber quoting Professor Bresciani- Turroni in The Economics of Inflation (first published in 1931 and reprinted by Augustus M. Kelley, London, in 1968). page 404
Note – It’s a result of this “nightmare on the German people” Germany is acting the way it is NOW regarding the EU, the Euro and the Greek question. The United States has had no major currency collapse since the Revolution and the hordes of immigrants who have come here in the past 200 years have quickly forgotten the trials, famines and poverty their forebears came from. And then the Federal Reserve – essentially a debt kiting scheme - was created to monetize this 200 years of goodwill and was quickly put to the supposed good use by Woodrow Wilson of entering us into WW 1.
As so well put by George Washington – “The great rule of conduct for us, in regard to foreign nations, is in extending our commercial relations, to have with them as little political connection as possible. Europe has a set of primary interests, which to us have none, or a very remote relation. Hence she must be engaged in frequent controversies the causes of which are essentially foreign to our concerns. Hence, therefore, it must be unwise in us to implicate ourselves, by artificial ties, in the ordinary vicissitudes of her politics, or the ordinary combinations and collisions of her friendships or enmities.”
“But the printing works of the Reich were, despite its great equipment, no longer sufficient for the needs of the Reichsbank. As a result, around 100 private presses in Berlin and the provinces were continuously printing notes for the Reichsbank.”
“the paper mark totally collapsed in value against foreign currencies and gold, which encouraged wild speculation on the foreign exchange and stock markets, during which smart operators and large industrial groups accumulated large fortunes at the expense of small savers and the working class.”
“an index of German share prices (1913 = 100) rose from 126 in January 1918 to 531,300,000 in September 1923, and to 23,680,000 million in November 1923 amidst extremely high volatility. (In dollar terms, because of the currency depreciation, the same index (1913 = 100) fell from 101.55 in January 1918 to 2.72 in October 1922, before recovering to 39.36 in November 1923.) The extremely high volatility of the stock market is a typical feature of hyper-inflating economies.”
Your song "Kiss From A Rose" is great. Also, sorry to hear about U & Heidi Klum's relationship problems.
One correction: "Essentially a debt kiting scheme..."
Check (or debt) kiting is taking advantage of the float period, the period of time between when a check is written and when it is actually cleared. Check kiters often plan to replenish the fund before the check clears. When a check is written that a person knows they have no funds for and has no plans to replenish the account with funds in time for the check to clear, this is called "paper hanging."
Thus the Fed is actually a paper hanging scheme, as they have no plans or ability to put resources into the system to backstop the claims for resources (Federal Reserve Notes) they have written against the resources currently held by the system.
the last bit is very interesting. so if somthing similar were to happen in the U.S. the stock owning public would have the perception that their portfolios are going up in value as they are priced in increasingly devalued dollars. the reality in the end is that the real value of their holdings will be reduced by a huge percentage and the country around them will be bought up by foriegn capital at a huge discount.
“One of our clients grew up on a farm in Germany. Years ago he told us about what happened in 1921. His parents had a large mortgage on the farm. One day, at the peak of the hyperinflation, they took ten dozen eggs to market and sold them. With the proceeds they went to the bank and paid off the mortgage.” From http://www.investmentrarities.com/ , BEST OF JIM COOK, May 24, 2005, GOLD REDUX
This is why I like hyperinflation.
This is all bullish for eggs, then?
Bingo.
described rather eloquently back in 1932.
http://www.afn.org/~govern/mcfadden_speech_1932.html
also covered by Thomas Jefferson;
http://avalon.law.yale.edu/18th_century/bank-tj.asp
and Andrew Jackson;
http://avalon.law.yale.edu/19th_century/ajveto01.asp
Excellent +1
Wow
That third chart down the page, looks a lot like Al Gorefaces
Anthropogenic Global warming chart he and Max Keiser are pimping.
Roflmao
China is swapping bucks for crude. It needs every dollar it can get its hands on. Outcome: a shortage of dollars overseas.
Carry trade is breaking down as the dollar becomes scarce.
Losing the dollar hoard is the smartest thing China can do. The costs of the hoard are far greater than what the hoard is worth.
What about China's euros?
'Printing' currency reduces debt as its creation takes place when debt needs to be extinguished. The entire idea of credit expansion/money printing idea is completely wrong.
Hyperinflation is currency arbitrage. What other currency trades in the US? In what black market?
Reading up on Weimar would be a good idea. Inflation was continental after WWI. A reason for hyperinflation in Germany and elsewhere was the flow of gold into Europe after the war.
The Republic could have avoided hyperinflation by taking on more debt or printing more goldmarks to sterilize the flows of gold into the country. However, the French occupation of the Rhineland areas might have dissuaded authorities from taking that chance. As it was, goldmark became the currency arbitraged against the mark which was sold in increasing amounts to gain gold.
Whenever I see your avatar, my first interpretation of the picture is of a very fat man wearing a cheese cutter hat hunched over a typewriter.
Yes, reducing your USD hoard is a very sensible thing to do, but when China swap USD for crude, the dollars don't just 'vanish'. The scarcity of USD is not because China is spending them, but because most debt is denominated in USD (as is collateral) and, putting it simply, people can't afford to pay back the debt.
The reason for hyperinflation in Germany wasn't because of 'the flow of gold into Europe after the war', the reason for hyperinflation in Germany was because it had no gold after the war.
What the fuck are you talking about?
http://www.bloomberg.com/news/2011-04-26/u-s-states-pension-fund-deficit...
And this artilce is from April, 2011....it's much worse now.
I bought a stack of 100 100T Zim notes in '08 on the Interwebs for $1 a piece and felt like a moron for paying so much since I knew what they were worth. Gave most of them away playing a game of "Guess how much Zimbabwe money I have in this envelope?" [I had 10 bills in there] No one ever won but I gave them a bill to wow their friends. Shit - I should have been investing in them. Now they are going for $4 each! Better than my PMs!
Until the $4 also goes down sufficiently in value ...
Maybe the Chinese read Larry Kudlow.
http://www.nationalreview.com/kudlows-money-politics/293001/fed-hooey
He basically calls Bearknaker a liar. What and who next? Will Cramer jump ship?
Dudes,
I'm back again after reading the above comments.
I'm pretty amazed by all of us, this oldman included, and our believing that any of this is real.
We admit that the markets are rigged, the gov't. lies about everything, the banks are phantoms though not as much as their mommies the CBs, and yet we still talk and write and think about all of this as if it is real, true, believable. How????????????????
I am really fantasizing. I am imagining one day a decree comes down from the UN, Nato, and and the CBs that will say, "Since the 'people' have lost faith in their currencies and stored all economic value in pms, the authorities of each of the G 20 have agreed to confiscate all gold, silver, and platinum in the interest of the common good of each of the world's citizens. Therefore, the military of each nation is charged with restoring to each nation the economic balance that its citizens have destroyed in their ignorance of the finacial structure of its economy", or something to this effect.
I'm writing to myself tonight in the hope that some other person can tell me how we can keep being so serious about the most fantastic fantasy the human mind has ever concocted.
What the fuck are we talking about that is real or true? I can't find a thing from the price of gold to our presidents name, birth, or nationality that is real-------
I'm putting this out because it is all so UN-real that I don't even have the words to question it
I'd like to hear others opinions rather than just to keep slapping an oldman in the face
thanks for your tolerance om
Hey old man, my guess is we probably about the same age; old enough to die and too oreny to do so.
I am stunned in what I have seen in the past 12 years or so. I was a teener in the early fifties and carrying a rifle a little later but I agree pretty much with your assessment of where we are at. This is the time for the ole farts to stand up and provide some direction to the young.
Start removing these bastards by whatever means necessary; bankers and pols. This is what it is coming to. Milestones
Milestones,
Thanks.
These younger people are too far ahead for us to help them. We had our chance, but our time was not the time of change; now is that time because we have to in order to survive. I do not believe many in the US are survivors, but the other nations are tougher than we are now and most in the '3rd world' will make it. It is their time and they know all about survival on a day-to-day basis from practice; we haven't a clue.
This is OK because if the species gets through this, we will swim back to the surface in time.
And who cares, anyway----one lifetime like I have had is all anyone should ever have. The bastards are US----you and I and all those others of our time who coddled and spoiled our children and left them nothing but materialism in exchange for their souls
Oh-------------this is too preachy and I am old enough to respect everyone wanting to have their OWN LIFE irrespective of what is best for our entire ant colony---survival is just THAT.
Besides, if you are still with me, I don't have to tell you how BORING an old fool can be.
All we can do is stand up, sit down, stand up,sit----
thanks milestones om
oldman, all of what you write of is real, though none of it is true - as in the ultimate truth.
and we all live within that awareness, collecting facts 'n' figures, and letting them go free, cycles. . .
http://en.wikipedia.org/wiki/Om
but you know this, *nods*
@Cathartes Aura
I am a bit confused by your words, "-----all of what you write of is real, though none of it is true - as in the ultimate truth.", though they are quite clear. "Real", as someone wrote is 'a dog's nose is cold', and since ultimate truth is irrelevan, it it is a throwaway.
I simply find myself chasing ghosts by believing in any of this-------we have
no 'markets' merely machine-made effigies, if I may use that word. To hang an effegy of someone----------------oh, I think i get it-----it is the best one can do with 'reality' these days in 'markets'.
Thanks, Cathartes Aura---this helps a lot----at least it gets me over the hump.
And, yes, I smile at how my 'handle' in its initials makes such a lovely souind----height of irony om
The one piece of "objective evidence" that has been in our collective face since 2007 was the Resignation of David Walker as ceo of Governmental Accounting Office. That post is the ultimate professional recognition any CPA could aspire to. Walker resigned and cited the phony numbers he was having to give his imprimatur to as the reason.
That is the canary in the coalmine.
What we are living through is the logical extension of pirate-raiders and junk-bond schemers begun in the early 80s. Took them just under 30yrs to loot the world. When the derivative weapons were launched there was no coming back...
Entire civilisations can be gripped with insanity for generations..
In fact, most of them have been. It's called history, and it's littered with examples of collective psychosis, maniacs running around 'achieving' improbable things through sheer force of will before reality catches up with them and snuffs them and their movements out.
Living in some variation of Alice in Wonderland has been the norm for most of mankind since forever..
Stashing PMs is a gamble that when this particular Alice in Wonderland collapses, the next one we find ourselves in will value them more highly.
But it might not, which is why it's probably not best to go 'all in'. And that's why I recently bought a stash of good claret :-)
What the fuck are we talking about that is real or true? I can't find a thing from the price of gold to our presidents name, birth, or nationality that is real-------
remember dog's noses should be cold and wet
I'm there with you old man. I feel like I'm living in Alice in Wonderland world, waiting to be yanked out of the hole into a believeable reality.
All these banks that should have gone BK, that still have tonnes of bad loans on their books, that have record profits and record bonuses for their corrupt bosses.
I have faith that one day, the truth will out and my stacking and stocking efforts will make me a 'prophet grandier' - until that day, I keep thinking I took the wrong colour pill as Mad Hatter Obama keeps singing the "Very Happy Unbirthday to Me" song.
Don't forget about all the assets that the banks have on their books marked at 2006 values. Those assets are just waiting for inflation to make their value true.
The Mother of all 'verges', it's taken three years to cross it ... so far ... the perpetual, "are we there yet?".
Isn't that Mark Farber piece from 2009?
First of all, RMB is not even a free floating currency. So how can be a fiat currency? China has RMB pegged to dollar so that they can export despite massive trade surplus. If China lets other countries to hold RMB, they will not be able to manipulate its exchange rate. Yes dollar will devalue bu that would also mean,American labour will become cheaper and therefore companies will move their production here or at least out of China. Agreed US shouldn't have spent so much in all those unnecessary wars etc. but being a fiat currency is part of the problem. Does China really want that problem?
China may urge all the Asians , Africans and Russia to do business in RMB but do those countries really want that? After all many of the Asian countries are fearful of China and spend on defense. If they hold RMB, they can only trade with China. So they'll hav eto buy weapons from China to defend against China
Why would it need to float to be fiat?
Check and see if the Central Bank of China is
1- privately or publicly owned
1a- if privately owned, if JPMorgan is a shareholder
That in itself should render some interesting discussions, especially in geo-politcal and geo-financial arena.
We have no basis of understanding when the PBOC is not only a horse of a different colour but a horse of a different breed.
PBOC is government/public owned and until 1978 it was the ONLY bank in China. You can thank neoliberalism and listening too much to western idiots who were good at speaking out of their asses for that change.
Personally, I would much rather it go back to being the only bank, because that just makes sense
My guess is PBOC is run by the same people that run all the other banks, but that is just a guess, based on the international nature of this group of people.
yours is either an incredibly thoughful statement or an incredibly ignorant one - my compliments either way
Yes, up arrow to both of you.
Defend against China? China's not the one invading other countries and murdering civilians.
You really do have to understand, money is not money. Money is a tool and needs to be viewed and treated as such. I don't see why if RMB trade increases the only partner becomes China. Nothing prevents RMB from finding its way to other countries which have negative balances with China.
A devalued dollar also doesn't mean increased manufacturing in the US, this is not what caused it to leave in the first place and you are working under the assumption that other nations will even allow for it to happen. You have a very simplistic and naive understanding of real world economics.
"China's not the one invading other countries and murdering civilians"
Too busy murdering their own citizens.
of course the US only has 8 times the incarceration rate of China.
China doesn't have overseas 'rendition' bases.
China doesn't claim the right to execute Chinese civilians anywhere in the world with drone strikes ordered by the executive branch.
China didn't drop two nuclear weapons on another country.
China didn't sell chemical weapons to a dictator.
Sure, China does execute more civilians and they do it a lot faster, but lets not pretend the USA has a 'human rights' record to hold up to the world as a candle.
China does not need rendition they will do what they need in house.
China executes their citizens anywhere in the world. Especially in China. Additionally please consider the results of the one child policy and the millions of murdered Chinese infant girls.
Hiroshima and Nagasaki are well understood and this straw man holds no water to the informed.
Seriously? You know this? You even believe this?
Find me a better candle for freedom and liberty. Even now after the left has destroyed so much in the US.
dick cheney. he's "right" amirite?
The US is the new big bully on the block because it can. (ignore grammar, please)
If it were China, or Russia, or (say) Argentina that was the only hyperpower on the block, they'd behave in pretty much the same way.
Acton was kinda right when he said power corrupts, and absolute power corrupts absolutely. What he should have said was that power enables the corrupt to acquire more power, and absolute power enable the corrupt to become absolutely powerful (and crazy, with it)
The problem isn't the US, the problem is that the US' citizens have let their government become a rogue state. And, I'm sad to say, history suggests that China's or Russia's populace would do no better at keeping their own 'leaders' at heel.
Our elections are rigged too.
Kind of funny listenning to the MSM usual suspects complaining about Vlad.
This is not people in glass houses throwing stones.
This is people in thin sheets of ice houses throwing molitovs.
Look who've they've launched against him.
http://www.youtube.com/watch?v=CZUhkWiiv7M
Is this disarming the opposition?
I need to understand ...
"Money is not Money"
That's Confucius right? Or was that Marx? Groucho?
Real world economics is exactly what the Marxist leaders of China are about see for the first time. Alas, so are we ...
You can't fool me, there is no Sanity Clause.
Correct, money is not money in today's world; it's a tool of the The Ruling Omnipotent Kleptocracy -- http://ldrlongdistancerider.com/images/Kleptocracy_and_You.jpg -- that will be wiped off the face of the Earth once the real New World Order emerges, one of the latest signs of which is this:
http://www.forbes.com/sites/haydnshaughnessy/2012/03/09/stop-kony-kony-2...
When money is money again -- i.e., not just a medium of exchange but a good used as a medium of exchange -- it will be because gold has reasserted itself as the good of choice (along with silver), in which case it will no longer be an investment. One doesn't invest in money, after all; one invests in order to make money.
So, what gives gold value?
It is a trick question, because the only answer is a tautology.
Go ahead, try.