Many people believe the Chinese are on the cusp of replacing the U.S. in many fashions, I believe this myself. There are others out there who believe the Chinese economy and financial markets will crash and burn with all the rest when the derivatives chain finally breaks, I don’t disagree with this either. Let’s look at what the Chinese have done, what they are doing and where they may end up. The spoiler is this, I believe you can equate the Chinese to where the United States stood in the late 1920’s and early 1930’s.
China has done many things over the past years. They have built their manufacturing base and infrastructure faster and on a far larger scale than America did in the early years of the 20th century. They have financed the U.S. budget deficits and “played the game” just as the U.S. did with Britain. It seems as if everything they do is geared toward one goal, that being economic and financial supremacy.
The list of what they have done over just the last few years is very long. China has set up global currency hubs in a dozen or more places all over the world. They have done trade deals all over the world and in various businesses and deals in various raw materials. The recent formation of the AIIB bank is a perfect example of how wide their sight is.
Do you notice anything strange about this map? All of the names from Asia you would expect to see are on the list, but there are others that are (were) shockers. Two weeks ago we heard Britain had applied for charter member status. This was followed by president Obama’s very harsh words the next day …which was then followed by Germany, France and Italy making their application. This is all old news, I know. Let me ask you again, is there something else quite strange about this map?
Until I saw this, I did not know that Qatar, Jordan, Oman, our old Gulf War friends Kuwait AND the biggie, Saudi Arabia have all applied for membership. Our allies in Europe was bad enough and certainly a slap on Uncle Sam’s kisser, but Saudi Arabia? This is like dropping an F-bomb at a Sunday afternoon social! Aren’t they the absolute cornerstone of the “petrodollar”? Where has this news been in our mainstream media? Is it important news? Just a little, or just irrelevant?
Think about this and the ramifications for a moment. The AIIB will be a bank which does not use dollars and will be a direct competitor to the World Bank. Over the last 25 years, rulers have been deposed and countries invaded and bombed for less, just ask Saddam Hussein or Mr. Qaddafi. All they had to do was mention they would accept euros for oil and their lifespans became shortened significantly. If Saudi Arabia is straying off the reservation and no longer using dollars “EXCUSIVELY”, what does this mean for the future of the dollar?
There is one more area where insult was added to injury. Last week the IMF’s Christine Lagarde and Chinese central bank governor Zhou Xiaochuan were to give a speech about monetary policy in the “new normal”, the topic turned 180 degrees. Rather than talk about monetary policy, Zhou talked about the merits of including the Chinese yuan in the IMF’s SDR basket!
Do you see where this is all going? China is the United States of 1929. Will their financial system crash and burn with the West’s? In my opinion, yes most probably. Do they care? Probably yes but it is unavoidable. However, China has built out new infrastructure that will serve them well for the next 50-100 years. It is REAL stuff, paid for with credit which will evaporate in the coming collapse. (As an interesting side note, China used more concrete in 3 years than the U.S. did throughout ALL of the 20th century).
China is moving to not only be a “part of the competition”, they will lead the “rest of the world”. They want to be included in the SDR basket of which the U.S. dollar is the lions share. Think about this for a moment, the IMF supposedly has over 3,000 tons of gold and the U.S. over 8,000 tons. Gold “was” deemed to be important when the SDR was formed (and will again). What if it turns out the U.S. doesn’t have the gold? …And China does? Could the yuan just substitute for the dollar in a reengineered SDR? It pains me to say this but it is what it is, the U.S. has bullied, cheated and lied its way into what looks like an isolated corner while China politely slides into Uncle Sam’s emptied chair. American leadership has no one to blame other than themselves. The options remaining to the U.S. are now few. Unfortunately, kicking the table over and shooting all the players is at the top of the list.