Why China Is Dumping The Dollar – And Why You Should Read Up on the Weimar Republic
As ZH posted today, China is systematically dumping the dollar (and beginning to set up other agreements). CNBC assures everyone, however, that things are fine. Don’t read those anonymous financial blogs.
China has a long way to go in turning itself into more of a consumption based economy, so the dumping of USD has to be rather gradual (as to not rock the boat too much, the U.S. still needs to be supplied the funds to purchase Chinese goods, and also most trades are settled in USD for now), but it is happening.
One major reason for this action by China is due to the fact that the United States Government has loaded up on so much debt that it’s not possibly sustainable – and the Federal Reserve knows that unless they want to see the house of cards the Keynesians have built come crashing down, they have no choice but to completely monetize the debt. As the dollar continues to be devalued (more in a second), the more yuan China has to print in order to buy dollars to keep their fx target. So not only is China on the hook to pay higher commodity prices (priced in dollars), they’re stuck with creating more domestic inflation as well – which is something they don’t have time to deal with at the moment, as their housing market is on the verge of collapsing.
Today ZH also pointed out that Greece has 107 Billion Euro in hidden liabilities that oops, they forgot to disclose to anyone. Which made me think, hey, how about the unfunded & if not hidden, largely swept under the rug liabilities the United States has.