Dollar's Days of Dominance Are Over 53 comments
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While it may not constitute the final “nail in the coffin”, India commemorated the 4th of July by joining China and Russia in announcing they were seeking “alternatives” to the U.S. dollar (as “reserve currency”). With yet one more “prop” removed from the gangrenous greenback, this left only the submissive Japanese as the last major holder of U.S. dollars who strongly supports its continued status.
Bloomberg reported Saturday that the economic advisor to Indian Prime Minister Manmohan Singh has publicly and explicitly recommended that India reduce the U.S. dollar component of its currency reserves. “The major part of India reserves [totaling $264 billion] is in U.S. dollars – that is something that's a problem for us,” said Suresh Tendulkar.
These remarks come only one day after China's former Vice Premier, Zeng Peiyan stated, “There should be a system to maintain the stability of the major reserve currencies.”
Several comments need to be made with reference to this remark. First, China commonly uses “voices” of those associated to but not in the government to indirectly reveal its thoughts on issues. Thus the fact that Zeng is a former Vice Premier should not be taken to mean that his remark is not indicative of the position of the Chinese government.
Second, there were two subtleties which should cause Americans (and the Obama regime) serious concern. First, Zeng spoke of “major reserve currencies” - making it explicitly clear that he (and China) no longer consider the dollar the sole “reserve currency” today. The other point to ponder is Zeng's reference of a “system to maintain stability” in currency markets. The U.S. dollar was that system.
There is much more at stake here than economic prestige. As the Obama regime floods the world with trillions of dollars more in U.S. Treasuries, the Federal Reserve has already been forced to buy-up a significant part of those Treasuries (i.e. monetizing debt). Monetizing debt alone guarantees the steady decline of the U.S. dollar versus other currencies (with the exception of the British pound and Japanese yen) because other economies have not been weakened to the point of such desperation.
However, as major economies continue diversification out of the U.S. dollar, even as economic growth in these other countries produces growing budget surpluses once again, few if any of those surpluses will be channeled into U.S. dollars.
The process is already well underway. China alone has engaged in currency swaps and trade agreements which by itself, reduces the demand for U.S. dollars by hundreds of BILLIONS per year. Many other countries are also engaged in similar measures – with varying speeds.
Countries either indifferent or antagonistic to the U.S. (Russia, Iran and Venzuela) come to mind, are already well-advanced in practically eliminating the use of dollar in their foreign trade. However, even many of the U.S.'s “allies” (with the Western-dominated Persian Gulf countries coming to mind) are also well down the path of reducing the U.S. dollar to merely one of their major currency holdings.
Indeed, the combination of rapid, extreme dilution of the U.S. dollar, along with rapidly diminishing demand mean there is no “floor” visible for the dollar – at any price level.
Reinforcing a future of endless declines for the dollar are the U.S.'s totally unsustainable mountains of debt ($57 TRILLION in total public/private debt + another $70+ TRILLION in unfunded liabilities. In comparison, real U.S. GDP is a puny $11.5 trillion/year – not nearly enough to even keep up the payments on the debt (let alone ever actually paying-off a dollar).
The only possible way for the U.S. to delay national default on these debt-mountains is to devalue the U.S. dollar to such an extreme that the real value of all those trillions in debt becomes sustainable. This will obviously necessitate at least a 75% decline in the dollar's grossly-inflated current value – and even then the viability of the U.S. economy is extremely dubious, unless there are huge reductions in spending to accompany the massive devaluation of the dollar.
Keep in mind that due to the success of the U.S.'s relentless propaganda-machine, most other countries are just beginning to comprehend the dynamics of the U.S.'s unsupportable debts. As that awareness grows, the decline of the U.S. dollar is certain to accelerate rapidly.
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This article has 53 comments:
But what value are these dollars if they can't spend them?
Billions of Chinese people have been working industriously for us for years and all we've given them is a bunch of worthless IOUs.
China has 1.3 BILLION consumers, who have fattened-up their savings over the last decade with a 30% savings rate.
Conversely, Americans have virtually NO savings, and more debt than all the rest of the world put together.
Obviously, it's the CHINESE who will be consuming their own goods in the future - and getting PAID in a currency that's worth something.
On Jul 05 04:12 PM GrandestR wrote:
> from GrandestR - This analysis is about as narrow-minded as one can
> get. Assume the Chinese stop "financing" us through manipulated currency
> levels of the Yuan, and dollar-a-day labor. Then what for the Chinese?
> Can the EU, already China's second leading partner, absorb exports
> that would have been dumped in the U.S.? Hardly. Japan's own economy
> certainly can't absorb the surplus Chinese capacity. That leaves?
> India (20 bil trade value with China), Russia (50 bil) Brazil (45
> bil)? Double those trade numbers and they still don't equal either
> the US or EU trade with China. The best thing for the United States,
> which is coming, is a huge reduction of consumption. The 49 to 64
> year-olds here are well past their consuming primes. Ditto the EU.
> If I were China, I'd be worried, very worried.
You can't really project how it will play out. Systems aren't like wheat you can't simply relocate your development teams to the US. It is an expensive process - as was shipping the jobs overseas in the first place. And corporations are loathe to take on that kind of expense until they have endured a lot of pain.
For anyone actually following this debate it has been clear for some time that what you describe is going to happen has actually been the plan by our government all along.
I always advocate a rigid black box analysis that ignore rhetoric, but looks at the interest groups involved in making the policy, the policy that comes out, and what the problem to be solved is.
Using this analysis it has been clear this was the plan all along. Of course the american tax payer is going to be the last to figure it out, and wall street will be ahead of the game.
This bails out the banks, is the best solution for wall street, allows the government to engage in plausible deniability (it was a tsunami we couldn't see ), and keeps the special interst money flowing. By then all assets will be own by the banks, and the american tax payer will be destitute. We will be Argentina or Iceland eventually. I think it is unlikley they will allow the effect to happen too fast, but by the end of this "retest" I will be out of dollars, and if I had listened to my own advice I would have been out of dollars on the monday 9:00 am after March 9th!!!!
The only way to analyze what our government does is to completely ignore what is said. Then things can become a bit more clear!!!
The BRIC nations do not hold 5% of world bonds most based in USD. Japan and the Arabs and pension funds the world over are not going to walk from the USD world currency and damage their holdings even further
As to the 53 trillion owed to future social programs a promise to deliver in the future is not the same as a real debt. You are going to kiss 1/2 of your social secuity entitlements goodbye. Just like California you may want a nice retirement but you forgot to put away the money for it...... you refuse to be taaxed to cover it so start getting ready for the fact its not there
Keep fooling yourself thinking China "needs" us, they don't.
And everyday our consumers are regulated, taxed and financed out of existence makes this truth more self-evident.
On Jul 05 04:12 PM GrandestR wrote:
> from GrandestR - This analysis is about as narrow-minded as one can
> get. Assume the Chinese stop "financing" us through manipulated currency
> levels of the Yuan, and dollar-a-day labor. Then what for the Chinese?
> Can the EU, already China's second leading partner, absorb exports
> that would have been dumped in the U.S.? Hardly. Japan's own economy
> certainly can't absorb the surplus Chinese capacity. That leaves?
> India (20 bil trade value with China), Russia (50 bil) Brazil (45
> bil)? Double those trade numbers and they still don't equal either
> the US or EU trade with China. The best thing for the United States,
> which is coming, is a huge reduction of consumption. The 49 to 64
> year-olds here are well past their consuming primes. Ditto the EU.
> If I were China, I'd be worried, very worried.
i would suggest that the bric countries assemble a trading currency that will really float against the dollar. because of the size of international trade, their is not alternative to the dollar at this time. they do not want to create their own option because they would be forced to float their own currency. they want things both ways to the detriment of floating currencies.
their rhetoric is logical, their actions are not.
The main political issue confronting the world’s central banks is therefore how to avoid adding yet more dollars to their reserves and thereby financing yet further US deficit spending – including military spending on their borders?
Foreigners see the IMF, World Bank and World Trade Organization as Washington surrogates in a financial system backed by American military bases and aircraft carriers encircling the globe. But this military domination is a vestige of an American empire no longer able to rule by economic strength. US military power is muscle-bound, based more on atomic weaponry and long-distance air strikes than on ground operations, which have become too politically unpopular to mount on any large scale.
Eisenhower warned the U.S. (and the world). History has shown there is NOTHING worse than bankers and arms dealers collaborating (i.e. the "military-industrial complex").
On Jul 05 11:43 PM conceptwizard wrote:
> When foreign military spending forced the US balance of payments
> into deficit and drove the United States off gold in 1971, central
> banks were left without the traditional asset used to settle payments
> imbalances. The alternative by default was to invest their subsequent
> payments inflows in US Treasury bonds, as if these still were “as
> good as gold.” Central banks now hold $4 trillion of these bonds
> in their international reserves – land these loans have financed
> most of the US Government’s domestic budget deficits for over three
> decades now! Given the fact that about half of US Government discretionary
> spending is for military operations – including more than 750 foreign
> military bases and increasingly expensive operations in the oil-producing
> and transporting countries – the international financial system is
> organized in a way that finances the Pentagon, along with US buyouts
> of foreign assets expected to yield much more than the Treasury bonds
> that foreign central banks hold.
>
> The main political issue confronting the world’s central banks is
> therefore how to avoid adding yet more dollars to their reserves
> and thereby financing yet further US deficit spending – including
> military spending on their borders?
>
> Foreigners see the IMF, World Bank and World Trade Organization as
> Washington surrogates in a financial system backed by American military
> bases and aircraft carriers encircling the globe. But this military
> domination is a vestige of an American empire no longer able to rule
> by economic strength. US military power is muscle-bound, based more
> on atomic weaponry and long-distance air strikes than on ground operations,
> which have become too politically unpopular to mount on any large
> scale.
I wish there was a realistic way to extrapolate on Jeff's conclusion. The US was viewed as an unquestionable beacon of prosperity for so long that much of the Third World (California, Michigan, Indiana, South America etc..) has yet to get the memo that we're broke.
sure, relocating 'systems' and development teams is not easy, but it is actually much easier than relocating factories, refineries, shipyards, etc. as u mentioned, talented employees are mobile. if india becomes more expensive because the dollar devalues a lot vis-a-vis the India Rupee, then it is actually not that difficult to in-source back all those system development work -- at least much easier than bringing back manufacturing work.
software business is the most 'mobile'. u don't need to build a factory or buy land or heavy equipment. just some talented programmers and some computers, a reliable Internet connection, and you are in business.
On Jul 05 07:46 PM a fat panda wrote:
> One thing that people aren't looking at in regard to a falling dollar
> is the impact on IT outsourcing. We sent jobs over to India to capture
> lower wages. If the dollar falls as you are predicting, US corporations
> will have to pay more for offshore services or the Indian development
> firms are going to have to accept lower margins because talented
> employees are mobile.
>
> You can't really project how it will play out. Systems aren't like
> wheat you can't simply relocate your development teams to the US.
> It is an expensive process - as was shipping the jobs overseas in
> the first place. And corporations are loathe to take on that kind
> of expense until they have endured a lot of pain.
i like to believe you. but right now, especially these few weeks, every time the dollar strengthen to say 1.38 against the euro, it will drop back to 1.42 again.
unless there is a big crash in the stock markets, i don't see the dollar strengthening.
now, will there be a big crash? nobody knows. TPTB seems to be supporting the stock markets with all those Green Shoots talk...
i rather they stop doing that, because that would weaken the dollar. they got it all wrong! the dollar is actually more important! the stability of the dollar is more important to the world. and also more important to the usa in the long run. and not the stock markets now. let the stock markets crash! save the dollar.
On Jul 06 01:53 AM Peter Cooper wrote:
> For more than 40 years commentators have been writing off the dollar
> as soon to become history. The problem is that without a viable alternative
> the dollar just has to stay as the reserve currency. Indeed in the
> short term the outlook favors a dollar rally as stock market weakness
> is resumed and people cash-out and into dollars, see:
> arabianmoney.net/2009/.../
>
> Printing new dollars should eventually unwind this position but it
> would be unwise to bet against it now.
well said.
can u elaborate on these figures?
"($57 TRILLION in total public/private debt + another $70+ TRILLION in unfunded liabilities. In comparison, real U.S. GDP is a puny $11.5 trillion/year – not nearly enough to even keep up the payments on the debt (let alone ever actually paying-off a dollar)."
what exactly is the $57 trillion ? and where is the source of this figure? and the $70 trillion in 'unfunded liabilities'? what is the meaning of 'unfunded liabilities'? and what are they?
i'm not doubting your figures. but they really look out of this world - and scary too.
The fact that the BRIC countries are pressing for a new global reserve currency reflects an urgent call to address a dire situation (whether it is to address an urgent and important economic crisis or to promote a political conspiracy will depend on what position one wants to take). When global trade was good, countries tend not to worry too much even though the signs and symptoms were already there.
Consider this, that in 1996, Lester Thurow, Professor of Mgmt and Econ at MIT, has this to say:
" While the dollar’s unique position as the effective reserve currency of the world, America’s enormous holdings of assets abroad and its great wealth (there are numerous US assets that the rest of the world would like to buy) mean that America can run a trade deficit for a long period of time, even the United States cannot forever repeal the fundamental rules of economic gravity. No one can run a large trade deficit forever. The United States is very large, it can borrow a lot and sell a lot before it goes broke, but at some point the world’s financial markets will clamp down upon it just as they clamp down upon Mexico. The question is not whether an earthquake will occur. The only question is when, and whether it occurs as one big shock or as a series of smaller shocks that do less damage. But when conditions have existed for a long period of time and nothing has happened, humans being human, begin to believe that it is possible to defy economic gravity forever."
(page 196 THE FUTURE OF CAPITALISM, Lester Thurow, published 1996 by Nicholas Brealey Publishing Ltd.)
So, the built-up to the present situation, like all things, started a long time ago. At that time, perhaps those who were visionary, did not have a loud enough voice (perhaps like N. Roubini - before and after the meltdown). Going forward, it is only natural that creditors will want to secure their investments while debtors with nothing to give will want to delay the day of reckoning. Looks like this time around, creditors are not going to wait forever.
On Jul 06 02:24 AM ron_paulite wrote:
> hi fat panda
>
> sure, relocating 'systems' and development teams is not easy, but
> it is actually much easier than relocating factories, refineries,
> shipyards, etc. as u mentioned, talented employees are mobile.
> if india becomes more expensive because the dollar devalues a lot
> vis-a-vis the India Rupee, then it is actually not that difficult
> to in-source back all those system development work -- at least much
> easier than bringing back manufacturing work.
>
> software business is the most 'mobile'. u don't need to build a
> factory or buy land or heavy equipment. just some talented programmers
> and some computers, a reliable Internet connection, and you are in
> business.
The $57 trillion in total public/private debt comes from this article: mwhodges.home.att.net/.... The site itself is the best place I've seen for info on U.S. debt.
As for the "unfunded liabilities" that refers to the anticipated future pay-outs for Social Security, Medicare, and some smaller programs - where revenues are grossly inadequate to pay for these benefits.
I'm not sure ANYONE has a totally accurate figure for these obligations, since the parameters change daily (for the worse) - based on changes in the economy. However, the most recent figures I've heard range from about $70 trillion to just under $100 trillion.
Keep in mind that as government revenues FALL, then this number soars higher.
There is absolutely no way to "pay" for these benefits in current dollars.
On Jul 06 02:37 AM ron_paulite wrote:
> hi jeff
>
> well said.
> can u elaborate on these figures?
> "($57 TRILLION in total public/private debt + another $70+ TRILLION
> in unfunded liabilities. In comparison, real U.S. GDP is a puny $11.5
> trillion/year – not nearly enough to even keep up the payments on
> the debt (let alone ever actually paying-off a dollar)."
>
> what exactly is the $57 trillion ? and where is the source of this
> figure? and the $70 trillion in 'unfunded liabilities'? what
> is the meaning of 'unfunded liabilities'? and what are they?
>
>
> i'm not doubting your figures. but they really look out of this
> world - and scary too.
None of these economies are in better shape then that of the United States, and recently the swiss devalued there own currency. So as the old saying goes "Talk is cheap". I would like to see what other currencies they would like to float. The Chinese Yuan isn't available to the outside world. The rouble is a disaster, and even the russian's know that.
It has engaged in currency-swaps with at least 6 major trading partners - supplying them with renminbi so they will be paying for all their Chinese goods with China's currency, not USD's.
As of TODAY, five of China's largest exporting cities have been authorized by the Chinese government to conduct their international trade in renminbi.
China has engaged in various barter and off-take agreements which ALSO exclude the use of USD's.
Lastly, China is expanding its gold reserves faster than EVERY OTHER nation in the world combined (while the idiotic governments of the U.S. and Europe are getting rid of their gold reserves and the idiotic government of Canada simply has no gold reserves).
So when China DOES make its currency the new OFFICIAL "reserve currency", it will be BACKED by precious metals - unlike the irredeemable USD.
On Jul 06 11:03 AM Anil Aluri wrote:
> Just because countries like India,China and Russia say that there
> should be an alternative to the dollar, doesn't mean that they are
> going to shift overnight to another currency. The only other currencies
> they can shift to are the Euro,The sterling pound and the swiss francs.
>
> None of these economies are in better shape then that of the United
> States, and recently the swiss devalued there own currency. So as
> the old saying goes "Talk is cheap". I would like to see what other
> currencies they would like to float. The Chinese Yuan isn't available
> to the outside world. The rouble is a disaster, and even the russian's
> know that.
If the US governing elites wanted to fund the "unfunded" programs, they would create a guest worker program for illegals and have the taxes on their wages contribute to all three programs.
As for your accusation that I "copied" material from another book (which is 50 years old), how could I "copy" from a book which I have never heard of?
And not floating the renmimbi it will fall with the USD
China is so big that it will overtake US as the biggest market in the world very soon. When that happens, everybody will need to have RMB so that they can do business with China.
The currency which can replace USD is the RMB.
On Jul 06 11:47 AM Jeff Nielson wrote:
> Anil, the currency which will replace the U.S. is the Chinese renminbi
> - and China is VERY active in creating this change.
>
> It has engaged in currency-swaps with at least 6 major trading partners
> - supplying them with renminbi so they will be paying for all their
> Chinese goods with China's currency, not USD's.
>
> As of TODAY, five of China's largest exporting cities have been authorized
> by the Chinese government to conduct their international trade in
> renminbi.
>
> China has engaged in various barter and off-take agreements which
> ALSO exclude the use of USD's.
>
> Lastly, China is expanding its gold reserves faster than EVERY OTHER
> nation in the world combined (while the idiotic governments of the
> U.S. and Europe are getting rid of their gold reserves and the idiotic
> government of Canada simply has no gold reserves).
>
> So when China DOES make its currency the new OFFICIAL "reserve currency",
> it will be BACKED by precious metals - unlike the irredeemable USD.
>
That is before ultimately the USD becomes devalued.
If the Bearer Bonds intercepted in Sweden were truly Japanese in origin then they may only be "Strongly Supporting" in speech.
The Plan - Give The Indians "Credit" for goods supplied at the forts. When they could not pay have them sign over large amounts of land to pay the debt.
The Tecumseh led Indian rebellion was in response to this "Engineered Rip-Off".
How very similar things are stacking up for the "Repossession Of America" today.
On Jul 05 06:07 PM Tom E. wrote:
> We could always sell Canada to the Chinese to wipe out our debt.
1) 95% depreciation in the purchasing power of USD since the institution of the FED in 1913.
2) The USD Index has been declining nearly all decade. It was trading around 137 (off the top of my head, but somewhere in that neighborhood ) and now has been hovering between 80-82. That is around a 40% decline, which is rather substantial.
The entire meeting was to talk about trade without using the American dollar. American arrogance is boundless.
LOL!
(Thanks for the memories, HP)
On Jul 06 09:07 AM Workus wrote:
> ... our Indian programmers.
> Their prices keep going up and the quality was never there. I swear
> they hire people who can barely program, have no math background
> and have no concept of quality.
It is interesting you would phrase your comments as you did Anil (referring to an overnight shift to a new currency).
The surprising speed with which the BRIC has acted to jointly reform their currencies into special drawing rights (SDR) and the support each has given the others officially suggests otherwise. This idea has taken hold with alarming speed. This can happen overnight.
If Brazil should come on board there is no reason this motley and unlikely group should not easily set up an alternative reserve. Particularly if it is one backed by Gold, Silver and/or other commodity groups. In other words, a currency with real value and meaning at a time when Western Currencies are starting to appear risky. It is beyond my post today to surmise what the mix might include but a solid alternative reserve currency is in demand right now and investors are looking for alternatives to Treasuries (and alternatives to the obvious non-performing risks of gold and precious metals too).
And just consider for a moment that that the BRIC group represents nearly half of the worlds population. If it were a vote by pop. they might nearly carry the day by that means alone. In consideration of the groups foreign reserve holdings and their real and potential growth prospects as a group it becomes clear that the US Dollar is at risk of losing dominance. It is at risk simply because an alternative is being presented that did not exist before. It is at risk because the idea of SDR's with gold backing have real traction with investors in this environment.
I see four significant currencies going forward that will compete on the world stage and be representative of groups, regions and nationalities.
The Euro, the Yen, SDR's inclusive of the BRIC and other aligned nations including parts of Asia and Africa. Lastly, a currency based around North American interests. The Amero.
There seems to be a trend toward country and currency groupings based around common interests but that are not in every case geographical. Each is unique in it's own way. Each has strengths and weaknesses.
I do not doubt for a moment that the BRIC can and will form one of those groups. And if they do there will very likely be a shift of funds there for security against possible defaults elsewhere.
On Jul 06 11:03 AM Anil Aluri wrote:
> Just because countries like India,China and Russia say that there
> should be an alternative to the dollar, doesn't mean that they are
> going to shift overnight to another currency. The only other currencies
> they can shift to are the Euro,The sterling pound and the swiss francs.
>
> None of these economies are in better shape then that of the United
> States, and recently the swiss devalued there own currency. So as
> the old saying goes "Talk is cheap". I would like to see what other
> currencies they would like to float. The Chinese Yuan isn't available
> to the outside world. The rouble is a disaster, and even the russian's
> know that.
And I just read that China will allow certain coastal cities in the South East to conduct trade with Taiwan, using reminbi.
Those who do not learn from history are doomed to repeat it.
Every tyrant that has risen to power, rode on the wave of economic turmoil----Hitler, Mussolini, Franco, Stalin, Napoleon and others----economic turmoil inevitibly becomes political turmoil.
We haven't even begun to see the effect of the trillions of $$$ of paper that has been pumped into the economy yet----much of it is not even spent yet----but when it is, and it is circulated more and more widely, the effect will be geometric and devastating. The only thing supporting the value of the USD is belief in the value represented. As Socrateazz points out---old beliefs take awhile to die out in the face of reality----but when reality sets in, faith in the USD will evaporate like spilled water on an asphalt parking lot in Las Vegas at high noon on a summer day.
It seems to me that the only possible answer to this scenario is to return to the silver standard. And I'm not even too sure that would work.
The dollar survived as a global currency because of the cold war; now our former enemies are now our competitors, and they want to adopt global currency that is independent of national control.
Because the dollar is a global currency, we can obtain goods, services and/or assets simply by issuing currency; this explains why our political leadership has no problem in borrowing money to finance unjust wars, give out money in foreign aid, and finance government programs that will provide benefits to our generation or future generations. And the list goes on.
I think the global community is doing us a good turn when they proposed a global currency that is independent of national control.
we will have to learn how to live within our means. this will be a crushing blow to republicans who believe that they can finance endless/pointless wars through deficit spending and democrats who believe they can fund welfare in the same manner. political exuberance will have to be matched by what can be extorted out of the taxpayer and the result will be something similar to the soviet union!
cut spending? ........... wishful thinking!
On Jul 05 06:34 PM D. McHattie wrote:
> China may seriously damage the value of its foreign reserves, specifically
> the USD, if it makes significant diversification out of the USD.
>
>
> But what value are these dollars if they can't spend them?
>
> Billions of Chinese people have been working industriously for us
> for years and all we've given them is a bunch of worthless IOUs.
actually the japs have no choice but to support the us dollar.
any discussion on the world reserve currency must take geo-politics into account.
japan depends on the usa for its defense.
go to china and talk to the chinese people.
you will be surprised with the animosity most chinese have against the japanese.
in the minds of the chinese, the japanese have not really admitted to their WWII atrocities.
and to make matters worst, the hardliners in japan are still very powerful today.
china is strong today and so the hardliners in japan are afraid. and so japan has to align itself with the usa.
the same applies to small countries dependent on the usa for protection. they also have to support the us dollar. small countries surrounded by big neighbors, e.g., taiwan, south korea, singapore, etc.
Plus, that massive wealth was built on the foreign currency so many people say China stands to collapse.
What do I fear? The collapse of China. Just watch and wait.