Darrell

U.S. vs. China: Has Trade War Begun?

My take is that China and all the other nations in our global commerce community cannot continue to accept the dollar as legal tender, as a medium of exchange for their goods, services and/or asset, without placing severe controls on the number of dollars that can be placed in circulation for use.

For way to long we have been prolonging our false prosperity by exchanging a valueless currency for goods, services and/or assets that continues our false prosperity; as people have stated for far too long: we have been kicking the can down the road.

Right now central bankers are acting as the black hole for excess dollars, dollars that are not needed to conduct global commerce. China is using some of their dollar stockpile to buy commodity assets all over the world with the warning that they think the dollar is valueless and it is part of a flawed global currency system.

China, France, Japan, Brazil, India, and other nations have been developing a new global currency system that will replace the existing system,

Central bankers are committed to changing the current global currency system so it is now just a matter of time before the dollar is no longer accepted as legal tender for the purposes of global commerce.

The only remaining question is will the dollar’s demise be the result of investors, institutions, central bankers, etc. manically abandoning the dollar or will the dollar’s demise be the result of planned transition.

Your guess is as good as mine.

And I agree with TheresaE, China thinks their political system is far superior to ours. And, I disagree with China’s viewpoint, the fact that we can share our views and grow and change from our ethical lapses, is the hallmark of democracy.

China Urges Citizens to Buy Gold and Silver

A lot of dollars are held by foreign investors as protection against their own currency. The investors acquired their dollar holdings in an era when the dollar was the only currency used as legal tender for international transactions. We are in a new era, but the mine set of these investors are still fixated on the past era.

China is doing the prudent thing: informing their citizens that they should reduce their dollar holdings now while it is still accepted as legal tender by the world’s central bankers.

For the last several years, Russia government leaders have been encouraging their citizens to exchange their dollar holdings for gold; In America and Canada, commentators, such as you, have been telling investors for years and years to convert as much dollars as possible to gold and silver as this is the true currency and the only currency that can withstand the ravages of inflation.

In my view, China is rather late to the game in recognizing gold and silver as a currency, but not too late in warning their citizens to convert their dollars and/or other currencies into gold and silver.

China's 'Problem': Too Much Money

Currency is simply a medium of exchange: one can invest it, one can save it or one can spend it.

When China exchanges their goods and/or services for our currency one has to ask: why? After all they have no need for the dollar; they simply use it to buy mainly US government debt. Recently, they have used their vast dollar hoard to buy minerals from other countries, exchanging the dollar for that country’s assets.

China accepted the dollar because they needed our expertise in training their managerial workforce; they needed our expertise in developing their professional class to function effectively in a global competitive environment. China is now at the edge of being able to function effectively in a global competitive environment.

Because China thinks they are no longer are dependent on American assistance for building their economy they want to break free of the dollar, they no longer want to exchange their goods and services for a worthless currency.

But the question is how?

America, on the other hand, has used creative destruction tactics, to transform their industrial economy. By transferring our industrial production overseas, we essentially broke the backs of the unions that controlled our industrial workforce. It remains to be seen if the new industrial workforce will be nonunion. But it is certain, they will be highly skilled, well educated, and be focused on outcomes.

As far as the dollar, we will tell China how they will use it. Instead of the taxpayer subsidizing the farmer, we will simply allow China use some of their dollar hoard to buy our farm products. Instead of bailing out our natural gas producers we will allow China to buy natural gas. We are in the driver’s seat; we will tell them how they can use our currency if they want to spent it or invest it. Buy our bonds, no problems. But if you want to invest it or spent it, get our permission first. Otherwise no go.

China understands their predicament and this is why they want a universal currency for global trade, a currency that will be regulated by policy wonks who is not tied to a national government. Other nations understand the problems of national currencies being used as a global currency and they want to see changes in the global currency situation.

Changes will occur, and we are in the start of a transition stage.