China's Rise, America's Fall

Via Golem XIV's blog,

Will the rise of China mean the fall of America?  In a word, yes. Although decline might be more accurate.

Why do I think this?  Because China is about to launch the PetroYuan and when it does the demand for dollars and for dollar denominated debt will shrink. When it does, I question whether the world will be so sanguine about the level of debt that America carries. If that happens then the value of the dollar is in question.

At the moment no matter what level of debt America carries, other countries need dollars. Dollars to pay for oil, since oil is traded in dollars.  Dollars for their financial system so their banks can settle contracts for goods and services traded in dollars.

But over the last few years China has been systematically putting in place everything it needs to launch the Yuan as not only a rival to the dollar in trading and settling oil contracts but as a rival to the dollar as the world’s reserve currency.  At the moment the only rival to the dollar is the Euro. I think it fair to say the relationship between the two currencies and their issuing powers, has been… ‘delicate’.  The news that Sadam Hussein was going to start trading his oil in Euros came just a few months before America and its lap dog GB, decided Sadam was a threat to world peace and went to war with him.  Something similar happened to Colonel Qaddafi.

Under Qaddafi Libya’s currency was backed by the country’s large holdings of gold and silver. This had allowed Qaddafi to finance, for example, the entire construction of the Great Man Made River without going to Western banks for a single loan. Libya was debt free and owned its own resources and infrastructure. Obviously a very unsatisfactory state of affairs for any third world country to get ideas so far above their station.  Worse, he had a very public plan which he had laid before the Pan African Congress, to create a pan African currency backed by gold and silver to be launched by 2023. It was not too long before Hilary Clinton arrived in a freshly bombed Libya and crowed to CBS, “We came, we saw, he died.” Charming woman. I was only surprised she didn’t say “Mission accomplished.”

Libya and Iraq were small enough, that their pretensions to threaten the hegemony of the dollar and have the jumped up arrogance to think they could trade their own resources in their own currency or a currency of their choice, could be dealt with by shock, awe and death. I think China might not be so easily dealt with.

China’s plans for the replacement of the dollar and the positioning of their own currency are very like Libya’s. China too has had the idea to back its new settlement and perhaps one day its reserve currency, with gold.  And China is not alone. Russia has been a part of the BRIC group with an interest in the plan. Russia, like China has been a very large buyer of gold.

As reported just a few weeks ago by the Irish Independent,

…the Bank of Russia has more than doubled the pace of gold purchases, bringing the share of bullion in its international reserves to the highest of Mr Putin’s 17 years in power, according to World Gold Council data.

In the second quarter alone, it accounted for 38pc of all gold purchased by central banks.

The article goes on to explain how purchasing gold has meant that Russia has not had to buy foreign currencies.  For foreign currencies think Dollars.

The gold rush is allowing the Bank of Russia to continue growing its reserves while abstaining from purchases of foreign currency for more than two years.

China and Russia have very large holdings of gold between them. China actually produces 12% of the world’s gold and keeps much if not most of what it produces. The new Petro Yuan will be backed by Gold,  Something the IMF decades ago, said no paper currency should have.  A clear break with the Bretton Woods Dollar-world agreement.

Who will use this new currency?  Over the past few years a network of bilateral agreements has been created around China and Russia. Back in 2012, in an article called   A new Reserve currency to challenge the dollar – What’s really going on in The Straits of Hormuz, I pointed out that not only had China and Russia agreed to bypass the dollar and trade direct in their own currencies but that,

the India Times reported that India was talking to Iran about moving out of dollar settlements so as to be able to buy Iranian oil despite a US embargo. India said it was discussing settling in Gold. Remember, India has just signed a settlement agreement with China to use the Yuan.

Remember also, Russia recently eclipsed Saudi as the number one supplier of China’s oil. And if I remember correctly Angola was number two. Promoting perhaps the recent state visit this year of Saudi’s King Salman to see Mr Putin. As The Guardian put it,

Saudi king’s visit to Russia heralds shift in global power structures


King Salman agrees new areas of cooperation with Vladimir Putin on first official trip by Saudi monarch to Moscow

In addition Japan and China have agreed to trade in Yuan, by-passing the dollar, as has Iran. They are now trading their oil in Yuan or euros, but not the dollar. Ever wondered why Iran is ‘the axis of evil?  It’s because they don’t use the dollar.

Then came the news in 2015 that Qatar had opened the first and so far only financial centre in the Middle East, for trading and clearing oil, gas and anything else, in Yuan. China’s ICBC is the central banking concern in the hub, allowing any Middle Eastern country to trade oil and gas and settle in Yuan. In the previous few years China’s trade with Qatar had tripled.  And now, guess what? Qatar has been declared by the US to be a sponsor of terrorism and US allies in the gulf , led by Saudi, have begun to blockade Qatar’s trade.  Hmm.  Any pattern emerging?

The problem for the US is how much debt is too much for any country or business? Clearly it is not any magic figure or particular debt to GDP ratio. America and China carry huge debts and no one has balked…yet. How much debt you can carry is a function of debt to the estimated future productive  capacity of the country in question. That creates the demand for its currency and the demand for the currency creates a market and demand for debt denominated in that currency.

At the moment the US can carry a huge debt load because everyone needs dollars to trade oil. And China can carry a huge debt because everyone needs yuan to buy the goods whose production was off-shored to China by our globalist leadership.


But what happens to demand for Dollars and dollar debt when, not if, oil starts to be traded less and less in dollars?  I suggest the world’s appetite will diminish quite quickly. As it does so, the world will start to see US debt in a different light.  While the opposite will happen to China. And this is what interests me and makes me think China has a plan.

At the moment China also has a very large debt load. I have argued that the Central Chinese authorities have not got the control they would like to have over the growth of that debt. Of course I have no inside information. But the on again/ off again attempts of the Chinese central authorities to deflate its housing-debt bubble and its quite out-of-control shadow banking lending suggests, to me at least, that the central authorities have not and can not control the level of debt being accumulated by provincial governments, their off-book, arm’s length financial vehicles, regional banks, property developers and the vast, largely unregulated trade in wealth management vehicles.

Chinese debt already overflowed once back in the 90’s. Four companies were created to take the debt off the banks’ books and trade it away. Decades later these companies still exist and still have the bad debts from the 90’s hanging around. You will see headlines telling you how those companies have been doing well, making money. Suggesting their trade in bad chinese debt has been going well. The reality, if you dig a little deeper, is that those companies lobbied for and were given permission to engage in ‘proper’ banking activities. Which meant they began to make their own loans – to property developers.  As the property bubble continued to inflate over the last decade and a half they have ridden it and that, not trading the old bad-debt, is why they have made a profit.  But now those ‘bad’ banks, have themselves started to find some of their own loans going bad. In any hard-landing or financial paroxysm the ‘bad-banks’ will need to be rescued by a new bad banks. Bad banks for bad banks is not really a solution.

I think the Chinese authorities can see this. It doesn’t take a genius after all.  What can they do?  Well if you already have a huge debt problem and know many of them are going to go bad and will do so overnight in the event of another global banking crisis, and know you are not able to reign it all in, then a very tempting alternative would be to get the world to agree that you can carry  more debt – a lot more.  And what could help convince the world? Well if your currency could become far more sought after, that would be peachy.

And so I think the long standing Chinese goal of making the yuan an important international currency which China, and Hong Kong in particular, have been working towards for years, has now taken on a far greater import and urgency.  I think the Chinese central government’s  best way of avoiding a politically disastrous  domestic debt implosion is to get the Yuan to be used as a settlement currency for oil and not long after that to become a de facto rival to the dollar as the world’s reserve currency.

Recently I argued at length with a military analyst who disagreed that China would risk such a break with America. Too dangerous he felt. China, he pointed out has such huge holdings of American debt. He argued that the Chinese would prefer to work alongside the dollar.  I feel that even if the Chinese would prefer to ‘work alongside’ the dollar, this  will prove very difficult if not impossible. Once a flow of countries and trade moves away from the dollar there will be a momentum the Chinese will not be in control of.  Cooperation between dollar and Yuan as clearing and reserve currency, especially for oil, will be like trying to dock two super-tankers in a high sea.  In theory possible. In practice – not going to work.

As for Chinese holdings of US debt – I think the advantages of avoiding a domestic debt implosion and projecting the Yuan to world centre stage, will outweigh the losses. I also think, If I were the Chinese, I would imagine a scenario where the dollar does begin to look vulnerable. Its value begins to be questioned, nations holding dollars and dollar debt will feel America’s profligate indebtedness is a global danger. They will blame America. How wonderful then, for China to arrive and say to a worried world, on the edge of a huge crisis, “Fear not, we have thought ahead and can offer you the use of a new currency – one backed by GOLD not paper debts. We are here to save you. To offer a ride on a sound ship as an alternative to the rotten and leaking ship you have been riding on.”  China will be able to position their rise not as an aggressive act, not as trying to destabilise the world, but as trying to save it, from the collapse of an internally divided, corrupt, aggressive and indebted America.

America’s decline will be both financial and political. Financial due to the recalibration of what the world thinks of America’s debt load, and therefore their confidence in and need for the dollar. Political, because America has got used to being able to enforce its foreign policy through sanctions and embargoes. But once oil and other goods and the nations trading in them, no longer need the dollar for their trade, and do not have to use US clearing or custodial banks, then this power evaporates.

Try to imagine the shift in power when Wall Street’s banks are no longer guaranteed top position as the world’s custodial banks and Manhattan’s Southern District Court (Wall Street’s court)  is no longer in a position to dictate to whole nations via decisions upon Wall Street Custodial banks, what debts those nations and their custodial banks must pay and to whom.  The whole edifice of Bilateral Investment Treaties and the trade agreements they sit inside, depends for enforcement upon the US banks being the custodial banks and the Southern District court’s rulings being able to tell those banks what they must do.  Take that power away, which will happen if the dollar is no longer pre-emininent, and America will no longer be able to enforce its foreign policy or world view via economic sanction.

I think the main US banks will be positioning themselves to try to bridge this decline by having a major presence in Hong Kong. They are all already there but will be working to be part of the new Yuan-world of trade and clearing.

Of course this is speculation. But it seems to me the underlying evidence of the previous decade makes it worth thinking about.

If I am in any way correct then I think other things follow.

 I think the House of Saud knows it’s future is in question. I have written a lot about how I see Qatar rising to rival Saudi. Qatar not Saudi has the Yuan clearing house.  Saudi is late to the party.  Can Saudi risk being seen to move away from its traditional ally, America?  If it does, too quickly, and signs yuan trade deals it risks falling as soon as Americal turns its back.  If it doesn’t move quickly enough it risks being completely eclipsed by Qatar,  having to go to Qatar cap in hand to trade its oil with Russia and China.

I see the political changes within the House of Saud as signs of the internal struggles to decide which way to go.  I personally think the House of Saud will fall.

I also think the position of Israel under its present leadership is also very fragile.  Israel needs Saudi.  While they may seem to be on opposite sides, in many ways they are on the same side.  If the House of Saud falls or changes allegiances from America to Russia/China then Israel will become even more isolated than it is.  And of course if America is eclipsed and does enter a period of decline, then Israel will go with it.

If any of the above is near the mark, will it mean the end of America? Of course not. American’s will still work and sleep and raise their children like everyone else.  But the pre-eminence of the dollar and American finance will decline as the stock of dollar denominated bonds and debt agreements expires, and with it the power and wealth of many of America’s elite. How that decline will sit alongside America’s still overwhelming military power I don’t know.

Of course what I have suggested above is merely speculation but  personally I think another debt crisis will happen, because never ending QE and Central Bank debt buying cannot go one for ever, and what China does in the next few months could very well destabilise the whole unstable system.   Many people will suffer and lives will be blighted. But I wonder if, when we all look back from a decade or a generation after, if we won’t think it lucky the crisis did finally come and the system we have been slaving under since 2007 as well as those who have forced it upon us for their own enrichment, were called to account.

It is difficult to accept that such historic changes could occur.  But history has not ended despite what some have claimed.

Rumours of History’s end have been, in my opinion, greatly exaggerated. History is very much alive and happening to us, now. We are, as the Chinese saying goes, living in interesting times.


HopefulCynical loebster Thu, 10/26/2017 - 00:45 Permalink

The problem being, China cannot project force. The US can. China is still a command economy and as such, is rife with even worse systemic imbalances than bankster-infected America. If China attempts to usurp the US in this fashion, pretense for an overt war, or a covert chess move to force their hand in the Pacific Rim, will be expediently found.I'm not saying this approvingly; only realistically.

In reply to by loebster

Quantum Bunk HopefulCynical Thu, 10/26/2017 - 01:14 Permalink

All bullshit. China is the biggest exporter in the world. Mountains of forign currency flow into the country every day. China has 3 trillion in FX reserves. 1 trillion of that is dollars. So if it has to write off all of its dollars, it still has 2 trillion of Euro, gold and other FX. Contrast that with the US. The biggest debtor ever with the biggest liability ever. The US military. Ask the USSR how much money the military makes. What does the US have for money ? 180 million in FX reserves. Brazil has 3x that.A US carrier strike group costs 30 billion. Brazil could buy all 10 of the US's with its reserves. The US could onlu buy 6.

In reply to by HopefulCynical

Dr. Bonzo Quantum Bunk Thu, 10/26/2017 - 02:26 Permalink

You know what. Welcome to my list. I needed a short, catchy name for this list that accurately describes fucking morons like you. Something PC, not too harsh, but something true that reflects the low and aboveall ignorant pea-brained nature of entrants on it. I thought Truly Contemptible Fucking Clueless Moron Piece of Shit pretty much captures the concept, don't you?A US carrier strike group costs 30 billion. Brazil could buy all 10 of the US's with its reserves. The US could onlu buy 6.So... this is your recurring grand theory right? Brazil... a jungle shithole reknown across the world for its ineffectual government, corruption, social inequality, massive crime problem... is a wealthier country... than the US. Because... drumroll... the Brazilians... can buy shit. THAT's your theory. Right? To illustrate your fine example... you use... carrier strike groups.Then you percolate the carrier strike group down to a balance sheet entry. And you're done. You don't see the underlying complexity behind it. You don't really understand that the wealth is not the carrier strike group, but the intellectual acumen to conceive of a carrier in the first place. To conceive of it, to execute the idea, to bring it to fruition, and to use it as a policy tool. Obsolete? Sure. What does the concept of obscelence even imply? You fucking simpleton. Do you fucking GET IT yet? Do you think the concept of obscelence even occurs in an agrarian society that has been stuck in the same economic mode for the last 2000 goddamned years? Obscelescence only occurs in highly dynamic economies where rapid innovation--the churn of ideas--is high in the first place. The rest of world is bootstrapping whatever progress they are experiencing to our conceptualization of the world. Is ANY of this sinking in?Fucking simpleton. Goddamned fucking simpleton.

In reply to by Quantum Bunk

iknowsomething Dr. Bonzo Thu, 10/26/2017 - 03:36 Permalink

How odd to see an intelligent answer downvoted. Might be your insults, but I can understand given the dissappointment in the quality and superficiality of comments in general on ZH, frustration ? can't say I blame you.I do wonder why almost all comments across the web that are critical of Chinese are downvoted or their authors abused. Peculiar trend.

In reply to by Dr. Bonzo

Dr. Bonzo iknowsomething Thu, 10/26/2017 - 03:50 Permalink

You're right. I shouldn't. But I'm done with ZH. The simpletons have come rushing in by the thousands. I'm done with them. All of them. They don't deserve calm, reasoned, well-argued patiently crafted responses. Their ignorance invites nothing but abuse. Abuse they get. You know what, on the new and improved ZH, overrun by dull, simple-minded witless clueless China-loving North Korea cheerleaders, downvotes are the new upvotes. Cheers.

In reply to by iknowsomething

new game Dr. Bonzo Thu, 10/26/2017 - 06:04 Permalink

you are correct dr. when both sides are not listening, we are sure to be headed to a civil war of sorts. first was the indescriminate shooting of police. next the thought police reducing free speech, now the civil discourse. next moar shoots and killing...time has finally come. the resonsability of being intellectually honest and informed has come and gone. not enough people can take the responsability of freedom and understand that the is the problem. it is a too few and too late situation. hearing ya loud and clear...zh reflects this big tyme. just to many idiots dumbed down to levels that ultimately freedom allowed... 

In reply to by Dr. Bonzo

Cloud9.5 hestroy Thu, 10/26/2017 - 07:39 Permalink

Every civilization reaches the point of collapse.  China has seen it fair share of rises and falls.  I am not particularly concerned about the collapse of the American Empire.  I am concerned about governmental attempts to arrest what is in fact a natural process.  Often the nostrums are worse than the disease.  

In reply to by hestroy

new game Xena fobe Thu, 10/26/2017 - 05:52 Permalink

xena, ignorance=dumb fuk. this is part and parcel of that great 30 year sucking sound. what powers industrial production? duh! oil. yup, the production left and is gutting blue collar middle income jobs.blame congress. blame unnationalistic congressional pigs and wall street.  now, they call it a fascist white nationalist agenda that caused their plight. they(democrates) are crying wolf when BOTH parties did nothing, like taxing foriegn profits at much higher rates to discourage this suck of jobs. nafta and unions knew and were compliant to let this happen. clintons are at the top of the list. then there is the tbtf banksters happily financing this purge of the middle class. how many corporations barrowed low interest money and ramped production in china?add graft to this and here we are. so many culprits. and trump stands in the middle of this mess ending up as the next hope and change prez still sucking a wall street dick and blaming the wrong parties. when an ultra majority creates this mess, it is time to fly the white flag with a dolla dead sign on it. inflation will come as dolla denominated assets flood the markets. the fed is in a situation wereas they will NOT be able to unwind. they will be in the middle of this mess, and buying this shit as only resort. or defaults. bankrupt as always was the case. spent too much with nothing but a shit ton of worthless pissed off sheep gone mad. coming the great unwind of dolla denominated assets without anything but war to offset this uuuge imbalance... should be interesting times ahead.

In reply to by Xena fobe

HopefulCynical new game Thu, 10/26/2017 - 08:22 Permalink

now, they call it a fascist white nationalist agenda that caused their plight.That is Marxism 101: Call everyone who isn't a rabid commie, a fascist.At this point, our choices are to either take helicopter piloting lessons, or be prepared for a machine-gun induced dirt nap.These fucksticks are STILL trying to repeat the Bolshevik Revoltion, 100 years later, and they'll still kill anyone who tries to stop them.

In reply to by new game

Dr. Bonzo Quantum Bunk Thu, 10/26/2017 - 02:07 Permalink

China could use its 1 trillion in dollar FX to just flood the market with dollars and crash it. Just write it off And it would still have 2 more trillion of Euro, gold and other reserves at hand. what does the USSA have ? 180 billion in FX. Less than half of what Brazil hasFirst of all, China has at least 30 trillion in debt piled up, whether you choose to acknowledge it or not. China is printing faster than any country in history, and it's non-performing assets are piling skyhigh, but you just keep yacking about Chinese gold.Besides, the boat has really sailed if you fucking people can't grasp what makes American inherently a wealthy country. You think someone's wealthy because they have a brick of gold? You're a fucking clown too. You think America is poor because it has debt? You're a fucking clown. Seriously. You're all out to lunch. Permanently. You've been on ZH for years and you still don't understand how the world works.America's true asset is its intellectual prowess. America was an advanced country in the 18th century. China is still a medieval country in the 21st century. Do you fucking grasp this? Do you grasp the significance? Saudi Arabia has sat on top of 20 trillion in oil reserves for the last 50 years. So... that makes Saudi Arabia the wealthiest country in the world? Is THAT your theory? Do I really have to spell this out for you? Saudi Arabia is a fucking shithole. It's a human cesspool. 20 trillion in oil reserves... all squandered. But that's your grand theory. A country's most precious resource is bricks of gold or entries on a balance sheet. Shaking my Motherfucking Head. You're OUT. TO. FUCKING. LUNCH.Iceland went belly up in 2008. Bankrupt. Broke. So Iceland is a shithole and Saudi Arabia is a human paradise. Right? That's your grand theory. A country's wealth is a simple linear correlation to its balance sheet. You are OUT. TO. FUCKING. LUNCH. Fucking simpletons. You deserve all the verbal abuse and some for being a goddamned fucking simpleton.America intellectualized a new political paradigm in the 18TH fucking century through debate and the exchange of ideas and then acted on those beliefs. The fucking Chinese Commies overthrew the political aristocracy and then simply replaced them as a mob of more ruthless gangsters. And that's it. It's 2017, and China is STILL ruled by a mob of fucking gangsters. But you fucking self-loathing clowns just can't letup how much you fucking admire a clique of murdering thugs because they have gold, and you loathe your own people becuase WE, the LOT OF US... have allowed our country to fall into the hands of a political class of greedy shitbags. But you can't see the trees through the forest. It's all the same to you. The US falling, China rising. Blah blah blah blah. No fucking clue whatever made America a great country in the first place.Fucking simpletons. The lot of you. Goddamned fucking simpletons.You know what, you fucking morons sit here chuckling about Social Justice Warrior turds and their neomarxist horseshit, but when push comes to shove you're no fucking better. The lot of you. Your self-loathing is palpable. China rising.... because they have "gold." SMFH... OUT. TO. FUCKING. LUNCH. 

In reply to by Quantum Bunk

zaphod Dr. Bonzo Thu, 10/26/2017 - 03:46 Permalink

As someone who used to post regularly here 2009-2012 and then left due to the drop in the quality of the comment section, and now only checks in once a month to chuckle at ZH nonsense, let me just say bravo.Oh, and anyone who looks at that chart and believes that drival and thinks "yes China had a stronger economy than the British empire did from 1800 to 1850", well you're a f*cking moron. 

In reply to by Dr. Bonzo

DaBears Thu, 10/26/2017 - 00:03 Permalink

Yawn! Chinese dream, what happen to the last "destruction" of USD to Yen, then again to Euro and the one recently to Yuan when IMF included Yuan as part of their reserve currency, Yuan holding globally actually went down since the love fest 2016. OBOR are mapped through some of the most corrupt nations in the world, see China invested Venezuela and their now abandoned "Made in China" train tracks for example. 

Quantum Bunk DaBears Thu, 10/26/2017 - 01:23 Permalink

China could write off its 1 trillion in USD garbage (which would flood the mkt with USD) and it would still have 2 trillion in other FX like Euro and gold. The EU is China's biggest trade partner. Not the US. China is the biggest exporter that is the biggest treade partner of 120 countries. The US is the biggest for 75.The US's flyover country looks as bad as the USSR in the late 80's. It has just as badly of an over-extended military as the USSR.The hubris that Americans have, and their denial of basic realities as they pertain to China, are really mind blowing. The US has 180 billion in reserves. Enough said

In reply to by DaBears

ebworthen Thu, 10/26/2017 - 00:05 Permalink

U.S. Citizens SOLD OUT by the Kleptoligarchy of .gov and banks/corporations/insurers.May as well let the nukes fly at this point, I'm not going to be a Serf to any of those fuckers.

simulkra Xena fobe Thu, 10/26/2017 - 02:48 Permalink

I wish. The globalists are just changing horses, as they always have. Trading in Dobbin for a mongolian pony. I don't agree with this guy's chart. Merchantile capitalism begins in Venice, remember the Merchant and is rivaled by San Gorgio in Genoa. Henry the Navigator ouflanked the Mediteranian monopoly which is why San Giogio funded Columbus, who was a Genoan, to find a more direct route to the Spice Islands. He hit something called America so the money moved to Amsterdam and the Dutch took out the Portugese. England was a better bet so that was the next move, over 1/2 the original board of the BoE were "Dutch". Next stop NY, moving from a national to a continental base. Next level up is globalism. China (economically) was created by the NWO crew, injecting capital and moving US manufacturing to a more compliant serfdom. Same as their English fellow creatures did with Japan post WWII. All part of the plan.

In reply to by Xena fobe

PitBullsRule Thu, 10/26/2017 - 00:16 Permalink

"Hey I was thinking about ruining your currency!""Oh yeah?""Yeah, I was thinking about starting my own, and making yours lose most of its value!""Oh OK""Hey, don't you owe me some money?""Yeah, I think we do""How much do you owe me?""Eh, lets see... um... about one thousand ninety... eh... billions""WHAT?!""A thousand ninety billions, or just over a trillion""When are you gonna pay us?!""I dunno, we'll get it to ya one of these days...  Good luck with that new currency""You Mother Ffffff...." 

Dragon HAwk Thu, 10/26/2017 - 00:20 Permalink

Does China still dump their Blue jean Dye into their drinking water and Poison their own babies with plastic Milk? and how about selling fake malaria drugs to African nations,  I'm not worried Quite Yet.