How China Can Cause The Death Of The Dollar And The Entire U.S. Financial System

The death of the dollar is coming, and it will probably be China that pulls the trigger.  What you are about to read is understood by only a very small fraction of all Americans.  Right now, the U.S. dollar is the de facto reserve currency of the planet.  Most global trade is conducted in U.S. dollars, and almost all oil is sold for U.S. dollars.  More than 60 percent of all global foreign exchange reserves are held in U.S. dollars, and far more U.S. dollars are actually used outside of the United States than inside of it.  As will be described below, this has given the United States some tremendous economic advantages, and most Americans have no idea how much their current standard of living depends on the dollar remaining the reserve currency of the world.  Unfortunately, thanks to reckless money printing by the Federal Reserve and the reckless accumulation of debt by the federal government, the status of the dollar as the reserve currency of the world is now in great jeopardy.

As I mentioned above, nations all over the globe use U.S. dollars to trade with one another.  This has created tremendous demand for U.S. dollars and has kept the value of the dollar up.  It also means that Americans can import things that they need much more inexpensively than they otherwise would be able to.

The largest exporting nations such as Saudi Arabia (oil) and China (cheap plastic trinkets at Wal-Mart) end up with massive piles of U.S. dollars...

Instead of just sitting on all of that cash, these exporting nations often reinvest much of that cash into low risk securities that can be rapidly turned back into dollars if necessary.  For a very long time, U.S. Treasury bonds have been considered to be the perfect way to do this.  This has created tremendous demand for U.S. government debt and has helped keep interest rates super low.  So every year, massive amounts of money that gets sent out of the country ends up being loaned back to the U.S. Treasury at super low interest rates...

And it has been a very good thing for the U.S. economy that the federal government has been able to borrow money so cheaply, because the interest rate on 10 year U.S. Treasuries affects thousands upon thousands of other interest rates throughout our financial system.  For example, as the rate on 10 year U.S. Treasuries has risen in recent months, so have the rates on U.S. home mortgages.

Our entire way of life in the United States depends upon this game continuing.  We must have the rest of the world use our currency and loan it back to us at ultra low interest rates.  At this point we have painted ourselves into a corner by accumulating so much debt.  We simply cannot afford to have rates rise significantly.

For example, if the average rate of interest on U.S. government debt rose to just 6 percent (and it has been much higher than that at various times in the past), we would be paying more than a trillion dollars a year just in interest on the national debt.

But it wouldn't be just the federal government that would suffer.  Just consider what higher rates would do to the real estate market.

About a year ago, the rate on 30 year mortgages was sitting at 3.31 percent.  The monthly payment on a 30 year, $300,000 mortgage at that rate is $1315.52.

If the 30 year rate rises to 8 percent, the monthly payment on a 30 year, $300,000 mortgage would be $2201.29.

Does 8 percent sound crazy to you?

It shouldn't.  8 percent was considered to be normal back in the year 2000.

Are you starting to get the picture?

We need other countries to use our dollars and buy our debt so that we can have super low interest rates and so that we can afford to buy lots of cheap stuff from them.

Unfortunately, the truly bizarre behavior of the Federal Reserve and the U.S. government over the past several years is causing the rest of the world to lose faith in our currency.  In particular, China is leading the call for a "de-Americanized" world.  The following is from a recent article posted on the website of France 24...

For decades the US has benefited to the tune of trillions of dollars-worth of free credit from the greenback's role as the default global reserve unit.

But as the global economy trembled before the prospect of a US default last month, only averted when Washington reached a deal to raise its debt ceiling, China's official Xinhua news agency called for a "de-Americanised" world.

It also urged the creation of a "new international reserve currency... to replace the dominant US dollar".

So why should the rest of the planet listen to China?

Well, China now accounts for more global trade than anyone else does, including the United States.

China is also now the number one importer of oil in the world.

At this point, China is even importing more oil from Saudi Arabia than the United States is.

China now has an enormous amount of economic power globally, and the Chinese want the rest of the planet to start using less U.S. dollars and to start using more of their own currency.  The following is from a recent article in the Vancouver Sun...

Three years after China allowed the yuan to start trading in Hong Kong’s offshore market, banks and investors around the world are positioning themselves to get involved in what Nomura Holdings Inc. calls the biggest revolution in the $5.3 trillion currency market since the creation of the euro in 1999.

And over the past few years we have seen the global use of the yuanrise dramatically...

International use of the yuan is increasing as the world’s second-largest economy opens up its capital markets. In the first nine months of this year, about 17 percent of China’s global trade was settled in the currency, compared with less than one percent in 2009, according to Deutsche Bank AG.

Of course the U.S. dollar is still king for now, but thanks to a whole host of recent international currency agreements this status is slipping.  For example, China just recently signed a major currency agreement with the European Central Bank...

The swap deal will allow more trade and investment between the regions to be conducted in euros and yuan, without having to convert into another currency such as the U.S. dollar first, said Kathleen Brooks, a research director at FOREX.com.

"It's a way of promoting European and Chinese trade, but not doing it with the U.S. dollar," said Brooks. "It's a bit like cutting out the middleman, all of a sudden there's potentially no U.S. dollar risk."

And as I have written about previously, we have seen a bunch of other similar agreements being signed all over the planet in recent years...

1. China and Germany (See Here)

2. China and Russia (See Here)

3. China and Brazil (See Here)

4. China and Australia (See Here)

5. China and Japan (See Here)

6. India and Japan (See Here)

7. Iran and Russia (See Here)

8. China and Chile (See Here)

9. China and the United Arab Emirates (See Here)

10. China, Brazil, Russia, India and South Africa (See Here)

But do you hear about any of this on the mainstream news?

Of course not.

They would rather focus on the latest celebrity scandal.

Right now, the global move away from the U.S. dollar is slow but steady.

At some point, some trigger event will likely cause it to become a stampede.

When that happens, demand for U.S. dollars and U.S. debt will disintegrate and interest rates will absolutely skyrocket.

And if interest rates skyrocket that will throw the entire U.S. financial system into chaos.  At the moment, there are about 441 trillion dollars worth of interest rate derivatives sitting out there.  It is a financial time bomb unlike anything the world has ever seen before.

There are four "too big to fail" banks in the United States that each have more than 40 trillion dollars worth of total exposure to derivatives.   The largest chunk of those derivatives is made up of interest rate derivatives.  In case you were wondering , those four banks are JPMorgan Chase, Citibank, Bank of America and Goldman Sachs.

By  Michael Snyder

Read more from the source: http://theeconomiccollapseblog.com/archives/how-china-can-cause-the-death-of-the-dollar-and-the-entire-u-s-financial-system

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Why China Wants To Dump the Dollar

China's Dagong credit rating agency on October 17th downgraded its United States sovereign credit rating to A- and maintained its negative outlook on America's solvency.  Dagong warned that despite Washington's last-minute resolution of the debt ceiling deadlock: "The fundamental situation that the debt growth rate significantly outpaces that of fiscal income and gross domestic product remains unchanged." China's official state-run news agency, Xinhua, reiterated its earlier statements that because of the contnuing risk of a United States debt default, it is "a good time for the befuddled world to start considering building a de-Americanized world." This language is code for Chinese want to abandon the U.S. dollar as the world's "reserve currency" and move international financial transactions to the renminbi, the currency of the People's Republic of China. Having benefited for twenty years from an undervalued currency that imported manufacturing jobs and exported lower priced products, China's economic advantage is being destroyed by America's oil and natural gas fracking boom. The Chinese communist authorities are terrified their loss of competitiveness will cause unemployment and the social consequences that flow from it. But with the terms of trade now substantially against China, convincing the world to dump the U.S. dollar as reserve currency and switch to the Chinese "renminbi" is their best hope to try to save tens of millions of manufacturing jobs.

When the Soviet Union collapsed in the early 1990s, China's economy began to implode and inflation skyrocketed from 10% to 25%. The United States, Europe, and Japan saved the Chinese economy by allowing China to devalue their currency by 68% and gain tariff-free export to world's largest markets. Under this new communist form of capitalism from 1993 to 2008, China's economy quadrupled, the U.S. economy doubled, Europe rose by half, and Japan stagnated.

Contract manufacturing is a very competitive business and historically had an average profit margin of only 3.5%. This assumes uncontrollable costs of about 75-80% for purchased inputs and 13.5% for energy. Companies primarily compete over managements' ability to get more productivity from an average of 8.5% in labor cost. But with China's labor rates initially 75% cheaper than the U.S., by moving production to China manufacturers could often double their profit margins to 7% of sales. Once positioned in China, manufacturers could also discount their sales prices to wipe out U.S. competition.

U.S. trade "experts" in 1993 expected Chinese workers' total factor productivity (TFP) would be less than a quarter of American workers' 1.25% annual productivity gain. This may not sound like a lot, but over a 15-year period Chinese manufacturers would produce a unit for 95% of original cost and U.S. manufacturers would be producing the same unit for 82% of cost. The "experts" predicted few jobs would be lost to China and America would gain new markets for high-tech manufactured goods.

Over the next 15 years, China grew the number of assembly workers involved in manufacturing for export to over 200 million workers. America lost about eight million manufacturing jobs to China, 40% of our 20 million production jobs. But even more damaging, every manufacturing job also lost four service jobs and another1.58 manufacturing jobs from subassembly manufacturers who locate near their customer.

China understood that as it sucked manufacturing jobs out of the U.S., the Chinese renminbi currency would be expected to rise in value and destroy their "cheap" labor advantage. As a communist nation, they adopted a national policy of recycling a portion of their export sales revenue into the purchase of U.S. Treasury bonds to drive up the value of the U.S. dollar versus the Chinese renminbi.

Fearing that every 10% increase in the exchange rate of the renminbi to the dollar would cause the loss of 35 million manufacturing jobs, by 2008 China had purchased $2 trillion in U.S. Treasury Bonds. China's bond purchases drove down U.S. interest rates and caused a real estate building boom employing millions of Americans. But when the real estate bubble burst, the "Great Recession" educated Americans on the pain of losing manufacturing jobs.

China's labor costs became even more uncompetitive versus the U.S. after 2008 financial crash drove down U.S. wages. In response, the communist nation began "administering" input costs by subsidizing the cost its state-owned export manufacturers paid to purchase energy. As a country that imports 70% of its oil needs, subsidies preserved China's manufacturing employment. But the subsidized prices increased the demand for oil and drove the international price of oil from a recession low of $40 up to $100 barrel.

The financial crisis caused such scandal in the U.S. banks were forced to slash their leverage risk from holding $25 down to $13 of assets for each $1 of deposits. The Chinese authorities directed their state-owned-banks to increase their leverage risk from $35 to $48 of assets for each $1 of deposits. China banks also increased infrastructure and commercial and residential property loans. Policy lending created such huge new inefficiencies in the Chinese economy that many bank loans can never be repaid.

"China's steady growth in oil demand has led it to become the world's largest net oil importer, exceeding the United States in September 2013" according to the U.S. Energy Information Administration. China's rising oil demand in September outstripped domestic production by 6.3 million barrels per day. But U.S. imports continue to fall as fracking technology increased production to 7.8 million barrels per day, the highest level since early 1989. Natural gas production is also rapidly increasing and America will soon be self-sufficient in this important industrial energy source. The price for 1000 cubic feet of natural gas averages about $3.50 in the U.S., versus over $12 in China.

China remains an impoverished nation, where 900 million people have an annual per capita income around the same level as Guatemala, $3,000-$3,500 a year, and 500 million have an annual per capita income around the same level as Nicaragua, $1,500-$1,700. China's per capita GDP is around the same level as the Dominican Republic. Stimulating the domestic consumer economy will not help manufacturers when the vast majority of Chinese cannot afford to buy the products they currently produce for export.

The Chinese benefited enormously from being allowed to devalue their currency and participating with the dollar as their reserve currency. But if China continues aggressive lending to failing businesses, they will generate higher inflation and make Chinese exports more uncompetitive. But allowing businesses to fail would cause unemployment and cause massive social and political problems. If China sells their $3.3 trillion of U.S. Bonds, the dollar will fall and America will become even more competitive. As China's economic decline becomes obvious, it is doubtful they will convince the world to allow China to devalue and make the renminbi the world's reserve currency.

China as the second largest economy in the world will continue to be a major international power. But its days as the low-wage, high-growth center of the earth are over. Their ability to project military power in Asia will also fade. China's future may be similar to what George Friedman of Stratfor famously said about the future of Japan after the end of its high-growth cycle: "it will play a different role."

Source: http://www.americanthinker.com/2013/10/why_china_wants_to_dump_the_dollar_1.html#ixzz2iYh6TVrk 

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FOOD STAMP SHUTDOWN NATIONWIDE. WILL THE DOLLAR CRASH?! BLOODTHIRSTY FOOD RIOTS NEXT?

WASHINGTON — The House voted to cut nearly $40 billion from the Supplemental Nutrition Assistance Program, or food stamps, over a period 10 years on Thursday.

House Republican’s Nutrition Reform and Work Opportunity Act of 2013 passed largely along party lines on a vote of 217 to 210.

The billion dollar cuts to the program — which has ballooned in participation and doubled in cost since 2008 to nearly $80 billion annually — are achieved through reforms such as reducing waivers for work requirements for able-bodied adults without dependents, tightening eligibility requirements like categorical eligibility (a policy allowing states to determine SNAP eligibility through participation in other welfare programs) and closing loopholes.

The nutrition title represents the second portion of the farm bill, which was split into two separate bills when a comprehensive farm bill failed to pass the House over the summer (in large part due to disputed over the cuts to the program). The cuts to SNAP this time, however, were twice as aggressive.

In July, the House passed the first portion of the traditional farm bill, a stripped down bill dealing just with farm programs.

“In the real world, we measure success by results,” Indiana Republican Rep. Marlin Stutzman said on the House floor arguing in favor of the bill. “It’s time for Washington to measure success by how many families are lifted out of poverty and helped back on their feet, not by how much Washington bureaucrats spend year after year.”

Democrats argued that House Republicans are trying to take food out of needy American’s mouth, with House Minority Leader Nancy Pelosi calling the bill “dangerous” and Maryland Democratic Rep. Donna Edwards calling it “mean” on the floor.

“This bill goes against decades of bipartisan support for fighting hunger and would be disastrous for millions of Americans,” Connecticut Democratic Rep. Rosa DeLauro said in a statement before the vote, calling the cuts “immoral.”

In June, the Senate passed a farm bill that cut $400 million annually from the program.

“[T]he good news for children, families, seniors, the disabled and veterans across America is that the House bill will never see the light of day in the United States Senate,” Debbie Stabenow, chairwoman of the Senate agriculture committee, said on the Senate floor Wednesday.

Source: http://dailycaller.com/2013/09/19/house-passes-bill-cutting-40-billion-from-food-stamp-program/

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New $100 Bill Shows Tidal Wave & Nuclear Devastation?

The new $100 is out with a new message of coming destruction!



In this video, TheJonathankleck decrypts the new $100 bill and the new $10 bill. Do these bills show both a New York City nuclear attack AND a tidal wave as claimed by Jonathan? The new $100 bill has just been released to the public and this new bill finishes the story that the $10 bill started with the missile launch and tidal wave. According to Jonathan, the two bills together tell the story of a nuclear event taking place on the East Coast promulgated by the US Government– which Jonathan feels is spiritually inspired by Satan and his fallen angels.

 

Source: http://beforeitsnews.com/strange/2013/10/new-100-bill-shows-tidal-wave-nuclear-devastation-2452016.html

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