China's Dollar Crocodile Tears

Sorry to have burst the naivete bubble early, but it didn't take China outwardly denouncing the U.S. currency as the world's reserve currency to figure out that China is concerned about their investment in U.S. Treasurys.

Tim Geithner was pouring gas on the fire with his unncecessary and obvious public statement about China manipulating their currency.

I really don't know why China is crying to the IMF about it when they could single-handedly shut down the U.S. currency as the reserve currency by ceasing to buy Treasurys or by selling them. China has such a massive investment that they are stuck in a paradox with their investment, the same as a creditor that has sunk a large investment into a dying business. The creditor knows the business is dying but doesn’t want to be the one to kill it. The U.S. is like a dying business that has creditors but also has a counterfeit money printer and prints out money when it doesn't have enough money to pay its debts. But if it prints too much it will become obvious to the creditor that the money isn't real.

I wonder when the public will stop focusing on smaller infractions like the AIG bonuses and take a closer look at China's ongoing rhetoric about our currency. The accepted lie about the U.S. currency is that a devalued dollar is a good thing. Let's take a look at what happened when we had $150 oil which was amazing for our economy. It helped to drive our economy right down to where it is now. It was also coupled with the bursting of the debt and housing bubbles that were the drivers of our shadow economy.

Everything that seems so obvious now was obvious then, too, but no one wanted to listen because of the other static like the war in Iraq. It was clear and indicators like average household salaries did not go up but yet their mortgage obligations and spending did. This is just like a cash flow statement. Where did the money come from? Debt - of course.

Comments

[Robert Browne:]

Debt monetization or printing dollars until the printing press starts to melt causes the Chinese government real worries, it makes them look foolish in the eyes of their own people. They would be idiots to stand idly by and have their bonds devalued by a FED which has not only failed to regulate the markets but is in fact addicted to credit itself. Even now the US government and the FED say they are helpless to stop AIG and other executives looting tax payer funds. If they cannot stop that why should anyone, anywhere including China have any confidence. The US can expect a currency crisis a lot sooner that it thinks!

Mar 25 11:00 AM

[Morrison Bo...:]

China seeks what every user of any currency wants, which is monetary stability. The best way for the world to secure monetary stability is to move to a Single Global Currency, managed by a Global Central Bank within a Global Monetary Union.
The success of the euro shows that monetary union is the best way to ensure monetary stability. The primary problem with the euro and currencies of other monetary unions is that they still must co-exist within the international multi-currency system itself where the value of those common currencies must still fluctuate in value against each other.
If 16 countries can use the same currency, why not 192?
In addition to eliminating currency risk and currency fluctuations, the use of a Single Global Currency would eliminate the current foreign exchange trading expense of $400 billion annually, eliminate current account imbalances, eliminate the need for foreign exchange reserves (now totalling more than $3 trillion); and bring other benefits worth trillions.
The Single Global Currency Assn. (singleglobalcurrency.org)
promotes the implementation of a Single Global Currency by 2024, the 80th anniversary of the 1944 conference. That’s only 16 years away.
The world is moving toward a Single Global Currency through the
expansion and creation of regional monetary unions and then the merger of those monetary unions. Another route is through international monetary conferences proposals and agreements, such as were seen at Bretton Woods. The challenge now is to reach that goal planfully, as soon as possible with as little cost and as few crises as possible.
See the book, "The Single Global Currency - Common Cents for the World."
Morrison Bonpasse
Single Global Currency Assn.
Newcastle, Maine, United States

Mar 25 11:15 AM

[Alex Filonov:]

There is another small problem with China. It's an export oriented economy with USA being the main importer. Falling dollar will kill China from two sides: reducing assets kept in US financial obligations (and they also hold a lot of crap, like CDOs and bank debt, Treasuries are their last concern) and killing exports.

Of course, the biggest dream for China would be to issue something which is world currency. They would want seigniorage. But to want and to have are quite different things.

I don't say that weak dollar is good for US. Quite an opposite. But current "printing" money by Fed only keeps deflation at bay, inflation is still nowhere in sight.

Mar 25 12:47 PM

[HaavBline:]

Author saide: "I really don't know why China is crying to the IMF about it when they could single-handedly shut down the U.S. currency as the reserve currency by ceasing to buy Treasurys or by selling them."

This is nonsense. China can in theory dump all 1Trillion of their US dollar assets and it will not change the USD's status as a reserve currency. Global trades and investments are settled in US Dollars and major commodities are priced in US Dollars. None of these can be changed by any other country "single-handedly". It takes global concensus and coordinated efforts over an extended period of time to make any change to the current 'architecture'.

Mar 26 12:40 AM

[Allan Frain:]

If you think our Central Bankers do not serve our best interests, wait until a Global Banking Cabal is unleashed !

On Mar 25 11:15 AM Morrison Bonpasse wrote:

> China seeks what every user of any currency wants, which is monetary
> stability. The best way for the world to secure monetary stability
> is to move to a Single Global Currency, managed by a Global Central
> Bank within a Global Monetary Union.
> The success of the euro shows that monetary union is the best way
> to ensure monetary stability. The primary problem with the euro and
> currencies of other monetary unions is that they still must co-exist
> within the international multi-currency system itself where the value
> of those common currencies must still fluctuate in value against
> each other.
> If 16 countries can use the same currency, why not 192?
> In addition to eliminating currency risk and currency fluctuations,
> the use of a Single Global Currency would eliminate the current foreign
> exchange trading expense of $400 billion annually, eliminate current
> account imbalances, eliminate the need for foreign exchange reserves
> (now totalling more than $3 trillion); and bring other benefits worth
> trillions.
> The Single Global Currency Assn. (singleglobalcurrency.org)
>
> promotes the implementation of a Single Global Currency by 2024,
> the 80th anniversary of the 1944 conference. That’s only 16 years
> away.
> The world is moving toward a Single Global Currency through the<br/>expansion
> and creation of regional monetary unions and then the merger of those
> monetary unions. Another route is through international monetary
> conferences proposals and agreements, such as were seen at Bretton
> Woods. The challenge now is to reach that goal planfully, as soon
> as possible with as little cost and as few crises as possible.<br/>See
> the book, "The Single Global Currency - Common Cents for the World."
>
> Morrison Bonpasse
> Single Global Currency Assn.
> Newcastle, Maine, United States
>

Mar 26 11:22 AM

[dtblount:]

Agreed, HaavBline, on the view that China CANNOT single-handedly "shut down the US currency as the reserve currency." That is completely absurd...as are the author's comments regarding the US having a "counterfeit money printer" printing "fake money." How is it fake money? It is able to be exchanged for goods and services all over the world and backed by the US gov't. Granted, there are risks to the USD and all that comes with that, but if it is "fake," then which currency is real?

There is no immediate threat to the USD being dropped as the world's reserve currency...especially in light of all too many central bankers seeking weaker currencies, while we are happy with a strong USD...and I'm sure the world is happy to hold strong USD in their reserves.

The idea of a single "Global Central Bank" is simply terrible. The EUR is squeezed enough by the fact that the ECB has to set policy for countries as different as Germany, Slovakia, and Spain...how would blanket policy be set for countries as different as the US, Sweden, and Zimbabwe???

Mar 26 11:55 AM

[Sean Privitera:]

HaavBline: The reason China could sigle handedly shut down the US as the reserve currency is due to the large nature of their holdings. If they dumped all $1 Trillion (worst case scenario and this would take a while to do) This would significantly devalue the dollar at a time when the US needs to issue more debt - making the new debt much more expensive in an environment where US bonds become worth less. If China dropped their $1 Trillion it would lower the value giving other countries the incentive to sell if the other countries started to notice the trend that China was starting. China is more likely to slow or stop its purchases then to sell. It would hurt their investment too much to sell. I bet they're feeling like idiots now for not buying TIPS (even if the CPI numbers are manipulated). They did see a huge gain for 2008 for their treasuries investment, but this was also during the biggest global meltdown in half a century.

Mar 26 12:19 PM

[dybydx:]

I think China is in fact shutting down the USD, but not in the way ppl are describing it. Instead of dumping the USD alone, which is dumb, China is pumping it.

Eventually the world will realize the US economy shrinking in comparison to the size of forex reserve (and thus USD) outstanding, the USD bubble will burst.

While China will also be taking a hit, they only held 50% of their forex reserve in USD denominated assets. The world average is 66%. So somewhere, someone is out their with their pants down, holding 70% or 90% of greenbacks.

Mar 26 01:53 PM

[Morrison Bo...:]

Responding to Allan Frain, the ongoing movement to a Single Global Currency is similar to the process in Europe leading up to the euro. There is no "cabal" at work here. George Soros supports a Single Global Currency, despite his obvious talent for making vast sums of money from the existing muti-currency system.
Paul Volcker is another supporter of a Single Global Currency, along with Nobel Laureate Robert Mundell.
It's Common Cents.
Do you have any objection to the benefits that you kindly listed for the Single Global Currency?
See singleglobalcurrency.org

Mar 28 01:01 PM