US Threatens To Cut Off China From SWIFT If It Violates North Korea Sanctions

Tyler Durden's picture

In an unexpectedly strong diplomatic escalation, one day after China agreed to vote alongside the US (and Russia) during Monday's United National Security Council vote in passing the watered down North Korea sanctions, the US warned that if China were to violate or fail to comply with the newly imposed sanctions against Kim's regime, it could cut off Beijing’s access to both the US financial system as well as the "international dollar system."

Speaking at CNBC's Delivering Alpha conference on Tuesday, Steven Mnuchin said that China had agreed to "historic" North Korean sanctions during Monday's United Nations vote. "We worked very closely with the U.N.  I'm very pleased with the resolution that was just passed.  This is some of the strongest items.  We now have more tools in our toolbox, and we will continue to use them and put additional sanctions on North Korea until they stop this behavior."

In response, Andrew Ross Sorkin countered that "we haven't been able to move the needle on China, which seems to be the real mover on this, in terms of being able to apply the real pressure. What do you think the issue is?  What is the problem?"

The stunner was revealed in Mnuchin's answer: "I think we have absolutely moved the needle on China.  I think what they agreed to yesterday was historic.  I'd also say I put sanctions on a major Chinese bank.  That's the first time that's ever been done.  And if China doesn't follow these sanctions, we will put additional sanctions on them and prevent them from accessing the U.S. and international dollar system.  And that's quite meaningful."

And to underscore his point, the Treasury Secretary also said that "in North Korea, economic warfare works. I made it clear that the President was strongly considering and we sent a message that anybody that wanted to trade with North Korea, we would consider them not trading with us.  We can put on economic sanctions to stop people trading."

In other words, to force compliance with the North Korean sanctions, Mnuchin threatened Beijing with not only trade war, but also a lock out from the dollar system, i.e. SWIFT, something the US did back in 2014 and 2015 when it blocked off several Russian banks as relations between the US and Russia imploded.

Of course, whether the US would be willing to go so far as to use the nuclear option, and pull the dollar plug on its biggest trade partner, in the process immediately unleashing an economic depression domestically and globally is a different matter.  So far Washington has been reluctant to impose economic sanctions on China over concerns of possible retaliatory measures from Beijing and the potentially catastrophic consequences for the global economy. Washington runs a $350 billion annual trade deficit with Beijing, while the PBOC also holds over $1 trillion in US debt.

Ironically, the biggest hurdle to the implementation of the just passed sanctions may be the president himself.  “We think it’s just another very small step, not a big deal,” Trump told reporters at the start of a meeting with Malaysian Prime Minister Najib Razak. "I don’t know if it has any impact, but certainly it was nice to get a 15-to-nothing vote, but those sanctions are nothing compared to what ultimately will have to happen,” said Trump who has vowed not to allow North Korea to develop a nuclear ballistic missile capable of hitting the United States.

Separately, at a hearing of the House Foreign Affairs Committee on Tuesday, Republican Chairman Ed Royce said the U.S. should target major Chinese banks, including Agricultural Bank of China Ltd. and China Merchants Bank Co., for aiding Kim’s regime. Russia also came in for criticism. Assistant Treasury Secretary Marshall Billingslea said in prepared remarks to the committee that North Korean bank representatives “operate in Russia in flagrant disregard of the very resolutions adopted by Russia at the UN.”

While China and Russia supported the latest UN sanctions, officials made clear they were troubled by Haley’s comments in the Security Council that the U.S. would act alone if Kim’s regime didn’t stop testing missiles and bombs. They emphasized the world body’s resolution also emphasized the importance of resolving the crisis through negotiations. “The Chinese side will never allow conflict or war on the peninsula,” Foreign Ministry spokesman Geng Shuang said in a statement on Tuesday.

In a soundbite late on Tuesday, Japan's Nikkei quoted prime minister Shinzo Abe who said that "in the end, [the North Korean] problems should be solved through diplomatic dialogue," adding that Japan will "work together with the international community to apply maximum pressure, so that North Korea commits to perfect, verifiable and irreversible denuclearization." For Japan to engage with the regime, he stressed it would have to be "on the condition that North Korea commits to" this complete denuclearization."

Which, of course, won't happen: “sanctions of any kind are useless and ineffective,” Russian President Vladimir Putin told reporters earlier this month at a summit in Xiamen, China. “They’ll eat grass, but they won’t abandon their [nuclear] program unless they feel secure.

Predictably, North Korea's Foreign Ministry slammed the sanctions saying it “condemns in the strongest terms and categorically rejects” the United Nations adding more sanctions, North Korea’s state-run KCNA reported on Wednesday morning. Instead, North Korea warned it “will redouble efforts to increase its strength” as it seeks to establish “practical equilibrium” with U.S.

And so, not only is the entire geopolitical circle jerk back at square one, but the ball is again back in North Korea's court, while the decision on whether or not to launch another ICBM really depends on whether China will give it the quiet go ahead; a China which responds notoriously poorly to being threatened in the global financial arena, like for example when the US threatens to kick it out of the global dollar system...

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MsCreant's picture

Something has to stop all our warmongering. Cutting off the $ spigot is the only way to do it. We clearly do not have control of these politicians and the MIC at all. 

FreeEarCandy's picture

Beijing has been dumping U.S. government debt to prop up its currency. China uses the dollars it gets from selling U.S. Treasuries to buy the yuan, which has sunk to an 8-year low as the world's second largest economy slows.

http://money.cnn.com/2016/12/16/investing/china-japan-us-debt-treasuries...

 

China’s debt surpasses 300 percent of GDP, IIF says, raising doubts over Yellen’s crisis remarks

https://www.cnbc.com/2017/06/28/chinas-debt-surpasses-300-percent-of-gdp...

 

Seem the USA doesn't have to do anything to China. Looks like they have done it to themselves.

BigJim's picture

The "inflation" you mention in your later posts on this subject happens when the credit is actually created and spent into the economy, NOT when central banks "print" money to bail out credit creators who issued loans for assets that didn't generate enough cash flow to meet their repayment obligations.

This is why the Fed's, BoE's, BoJ's, ECB's etc QE didn't spark off major price inflation; it just staved off major deflation in assets that had already undergone even more inflation but which wasn't counted in official inflation statistics.

China does indeed have a very high debt to GDP ratio, but if they've used that credit to buy productive assets it's not a problem. If that IS the case, we should see the ratio drop; if not, and the ratio keeps climbing (as it has been for decades in the West) we'll know the investments were unsound and eventually, when governments start directly monetising their spending, price inflation will really pick up steam.

THAT is when gold might come into its own... unless enough people think crypto is a better bet. I have my doubts.

 

xtaxpayer's picture

Oh wooooo.... scary!  Threaten to prevent them from using something they are trying to get away from to begin with.  The arrogance of the US is amazing.  

passerby's picture

LOL. As if all countries aren't trying to get out of SWIFT anyway.

AriusArmenian's picture

China will never bend its knee to the US, mister 'Mnuchin'.

Take your 'indispensable and exceptional' lunacy and shove it.

my new username's picture

We The People would prefer a massive trade war instead of a Nuclear War.

So let's accept that there will be a shortage of computers, cheap furniture and crappy toys. That Walmart will have to source more expensve stuff from other countries. As a bonus, the Chambers of Commerce will take a hit.

el buitre's picture

The flaw in your reasoning is with a $600B trade deficit and the USD printing press in hyperdrive, very soon no other countries making that "more expensive stuff" will take scheiss dollars as payment.  Right now Russia and China are selling off the US dollar bonds to build their infrastructure, the One Belt One Road, and import gold.  To quote W, "This sucker is going down," and that sucker is the total USA economy.

coast1's picture

the MIC and the politicians are completely insane.  Beginning to think that fat kid in north korea has more intelligence.

Clearcutt's picture

The fat kid has the advantage, we need intel on him, he knows all he needs to know.

thestarl's picture

Yeah hundreds of missiles loaded with VX and god knows what else

HardAssets's picture

Its the parasite class against We The People. Most of us just didn't realize that for a very long time. We were brainwashed to think otherwise since we were youngsters.
They are trying to steal as much as they can get away with before their system comes down. They don't give a damn about America or any of us. They don't want the people to figure this out before they do a final smash & dash robbery.

kindasketchy's picture

Well, he doesn't trust the US so we know he's not a complete dolt.

Clearcutt's picture

Heckuva job, Munch.

 

So you block Apple from paying China to build all those $1000 iPhones? I'm in!

JohninMK's picture

Brilliant they will have to dump them here in Europe for $500.

xtaxpayer's picture

These days everything is connected so shooting China in the foot is the same a shooting yourself in the foot if you are the US.

FoggyWorld's picture

Ditto Russia the other half of the axis.

Dickguzinya's picture

If Mnuchin isn't busy, perhaps he could foreclose on some more properties.  Mr. foreclosure sure has his hands full these days.  I was hoping, from the get go, that Trump would name John Allison as his Secretary of the Treasury.  I like his pro gold standard stance, and the fact that, as head of BB&T Bank, he always passed the stress test because he didn't allow scum bags, like obama, not so sharpton, holder, and hijackson, to use the race card and strongarm him into giving undeserving filth mortgages.  He has his shit together in more ways than one.  Trump should name Allison as the next Federal Reserve President.  He would clean house.

WTFUD's picture

It would take at least one good kicking to knock the hubristic nature of MnutsOnchin and his ilk, out of him. Talk about delusional, sheeeeeeeeeeeeeeesh!

MsCreant's picture

Lookit what it is married to. 

She really loves him for who he is. 

She finds him "attractive." 

She is in touch with reality, the exact same way he is. 

Fuuuuck me. 

Volkodav's picture

       but is sure the gold is okey...

 

 

 

 

 

ThePhantom's picture

how am i going to find ridiculously cheap shit if we stop trading with china?

jefftoycen's picture

it will be made in the US sometime very soon, hang in there

 

FreeEarCandy's picture

I bought one of those $1 sponge mops yesterday. Lasted, and I'm not even kidding, 5 min. It will cost me another 25 cents to throw it out. They can keep their "Cheap Shit".

 

sinbad2's picture

So why did you buy it?

You get what you pay for.

FreeEarCandy's picture

It was all that was on the shelf. Can't find good quality anything anymore. Surrounded by crap from every corner of the world. Even though it looks new we are all living in a trash bin.  

HRH Feant2's picture

Every garage in my neighborhood is full of cheap shit. Plenty of it around.

FoggyWorld's picture

If it's in a garage though it's broken.

FoggyWorld's picture

Try India for a while and Bangladesh.  Obama did away with those Made In __________ (specific country labels) so you will get it one way or another even if China pushes it through another port.

Joiningupthedots's picture

One has to view all of these rumblings emanating from Washington as nothing more than the internal recognition that Pax Amercana is almost over.

The world is moving on at an expotenially faster tempo every year and every conflict. America is slowly bu tsurely being sidelined and all these fucking dimwit monkey's in Washington dont want to go down in history as the ones who lost their empire LOL.

If they had television and recordings as the Roman Empire slide into oblivion I'm pretty sure it would have resembled the circus that is Washington today.

Dont the Russians and Chinese already have an operational SWIFT replacement anyway?

How will America pay for is 50' TV's, cell phones, computers, microchips etc? (that China makes for them)

Just another example of Economics 101 not being understood by recycled Hill Billy's.

 

 

FreeEarCandy's picture

Chinas debt to GDP ratio is around 300%. Who is in trouble?

roddy6667's picture

China built infrastructure with most of their debt. They have homes, malls, highways, schools, factories, subways, trains, ports, airports, parks,concert halls, museums, office complexes, industrial parks, hotels, resorts, farms, and a whole lot more to show for the debt.  America made interest payments, waged wars that just made more enemies, and propped up crooked banks and Wall Street. Who is in better shape?

BTW, that whole Internet meme of "empty cities" is bullshit. It is just proof that the writer does not understand how things work here. Most of those "empty homes" were puchased for cash and are intentionally vacant. Many of the "cities" in those articles have hundreds of thousands of people living there, but the article from 7 years ago is still on the Internet. The home ownership rate is 130% in China because so many people own second homes, almost all paid for with cash. In some cities the rate is 200%. Is the sign of a country "in trouble"? Americans can't afford to do this.

FreeEarCandy's picture

The Chinese government is well aware it has a problem.

Authorities have introduced a series of measures in recent years to tackle local government debt and bad bank loans. They have also tried to reduce the economy's dependence on credit as a way to fuel growth.

Many experts say more needs to be done. But efforts by regulators in recent weeks to clamp down on risky debt in the country's financial system have unsettled investors.

http://money.cnn.com/2017/05/25/news/economy/china-debt-economy/index.ht...

Moody's cuts China debt rating for first time since 1989

 

 

http://money.cnn.com/2017/05/23/investing/china-debt-downgrade/index.htm...

 

 

 

You do realize that one can have a million dollar home, but only as long as one can pay the mortgage or find another sucker to lend one money. Rob Peter to pay Paul? Good economic model-right? China is free to run with such sharp ideas, but it better not trip and fall down on it.

Pliskin's picture

You come on here mouthing off about shit you obviously know nothing about, then to top it all off you put up a couple of links to CNN...Aww bless!

Back to school now, junior!

FreeEarCandy's picture

And you said what concerning economics? Share your wisdom Buddha!  Tell us all the facts.

el buitre's picture

But 95+% of their debt is held within the country.

FreeEarCandy's picture

Tell me more. Tell me how one borrows money from oneself. Does the left hand lend to the right? Tell me more!

Volkodav's picture

     looks you know nothing about this subject in real..

     better worry about your own country

FreeEarCandy's picture

So the fact is you have no idea how a state owned bank can repo a state owned firm. I'll tell you how. One has to stick their head up their ass and pretend they are a human donut. That way one can eat their own shit and never go hungry.

 

FreeEarCandy's picture

So the state banks lend to the state owned firms. Then the state owned firms default and the state owned banks do what? How's that work? I suppose you tell the banks to print more funny money to replace the money they lost-right? Or maybe the state will repo what they already own? So what do you do about the inflation and the sheer vanity of lending yourself money and eventual taking back what you already own? Why even go through all the commotion and nonsense? Just give the firms the helicopter money and then see how valuable ones currency ends up.  Why work at all.

HA! I can't believe this shit! Total insanity!

Joiningupthedots's picture

China's debt is mostly internal

Americas debt is mostly external

 

Just saying :)

oak's picture

he is a smart guy, he must feel the urgency to talk like this way. What is it?

Hillarys Server's picture

Maybe it's like at a playground when a child realizes soon no one will play with their ball anymore and paradoxically screams "You guys better be nice or I'm going to take my ball away" as he sees everyone walking away from him.

I have a book called "101 Ego Defenses" and I think it's in there.

Like the self harm people who have cut scars on their arms.

"US Threatens to Kill Petrodollar and Accelerate Collapse of America if China Does Not Comply"

But if someone even just threatens to pull a chair out from under you who would continue sitting in that chair especially if there are other chair alternatives?

Maybe Mnuchin has inside info that China is planning to stop using Swift anyways whatever happens and is just tying to look tough in the face of impending doom. Otherwise it doesn't make sense.

FoggyWorld's picture

Makes himself feel important but at the same time he looks like a guy that has no understanding of Russia and China and the power they have together.  

Or he has a different boss than Trump.

Albertarocks's picture

Dear Mr. Munchkin,

We're a step (a year) ahead of you... but thanks for thinking of us.

https://www.activistpost.com/2017/04/russia-china-preparing-alternative-...

Best regards,

Xi Jinping

wisehiney's picture

Don't worry china.

No matter how much the boy cries "wolf".

This particular wolf will never show up.

jefftoycen's picture

Say goodbye to the dollar as a reserve currency,   

The swift system is a racket , nice move idot,  this will help things along.

Yen Cross's picture

  That's probably NOT a very good approach...

  China and Russia will probably be motivated to expedite their SWIFT alternative.

 What I see happening here, is a bunch of deluded bankster families thinking that they are the ONLY network for exchange.

 This is very dangerous, and I wouldn't be surprised if all those Cocks and Cunts are talking out the sides of their mouths, while they cash out and fuck everyone and thing in the process.

 Those asshole Rothschilds are probably using solid gold Byzantine candlesticks , to pay the ferryboat driver back to HELL.

Mustafa Kemal's picture

"Those asshole Rothschilds are probably using solid gold Byzantine candlesticks , to pay the ferryboat driver back to HELL."

Yen, I like it when you do your poetry