Chinese Economics Thread

[Gatekeeper]

I said China would *prefer* a dollar collapse

There's a difference between what China would like to happen, versus how much effort China wants to put into making it happen.

Before the trade and technology war, it wasn't in China's interest to have a messy Dollar collapse. But now, I don't think China would bother propping up the dollar if there is a crisis.

I would prefer that too, let alone China. I think the world, apart from much of the western world would prefer that too. So you won't get an argument from me there.

But the question how and when to make that happen. It is more difficult than one thinks. But my guess Is, it won't be gradual. It's like a dam, when it goes it will be sudden and chaos will ensue. Question how do China safeguard its holding of dollar?

 

[Sleepyjam]

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1. On the trade war front, Beijing won’t shut down US businesses already operating in China. But companies which want to enter the market in finance, information technology, healthcare and education services will not be approved.

2. Beijing won’t dump all its overwhelming mass of US Treasuries in one go, but – as it already happens – divestment will accelerate. Last year, that amounted to $100 billion. Up to the end of 2020, that could reach $300 billion.

3. The internationalization of the yuan, also predictably, will be accelerated. That will include configuring the final parameters for clearing US dollars through the CHIPS Chinese system – foreseeing the incandescent possibility Beijing might be cut off from SWIFT by the Trump administration or whoever will be in power at the White House after January 2021.

4. On what is largely interpreted across China as the “full spectrum war” front, mostly Hybrid War, the PLA has been put into Stage 3 alert – and all leaves are canceled for the rest of 2020. There will be a concerted drive to increase all-round defense spending to 4% of GDP and accelerate the development of nuclear weapons. Details are bound to emerge during the Central Committee meeting in October.

5. The overall emphasis is on a very Chinese spirit of self-reliance, and building what can be defined as a national economic “dual circulation” system: the consolidation of the Eurasian integration project running in parallel to a global yuan settlement mechanism.

 

[AndrewS]

I would prefer that too, let alone China. I think the world, apart from much of the western world would prefer that too. So you won't get an argument from me there.

But the question how and when to make that happen. It is more difficult than one thinks. But my guess Is, it won't be gradual. It's like a dam, when it goes it will be sudden and chaos will ensue. Question how do China safeguard its holding of dollar?

When it happens, China just had to be amongst the first ones out of the dollar, in order to minimise the losses.

And I expect Japan will be amongst the last as they try to prop up the US, so they'll end up absorbing a lot of the losses.

But if you have to hold dollar assets, make sure it is in liquid assets like treasury bonds or some stocks. And if in illiquid assets, then things which derive their income from exports, so that a currency devaluation doesn't matter.

Watch the Big Short if you want to see what a Fire Sale looked like in the 2008 financial crash.

 

[SimaQian]

I would prefer that too, let alone China. I think the world, apart from much of the western world would prefer that too. So you won't get an argument from me there.

But the question how and when to make that happen. It is more difficult than one thinks. But my guess Is, it won't be gradual. It's like a dam, when it goes it will be sudden and chaos will ensue. Question how do China safeguard its holding of dollar?

The US dollar collapse may not happen anytime soon. Although the warning signals are now showing up.

- magical printing of money
- US debt is increasing
- US productivity is decreasing
- US dollar decline in value

These are the telltale signs that USD is now heading to devaluation but not enough to cause it to collapse.

We have to remember that USD is tied to petrodollar. As long as the oil producers in the middle east
use USD for oil, USD may never collapse anytime soon. So the key is if Saudi or major oil producers in middle east will
dump the US dollar - thats the sure indication the US dollar is headed to collapse.


The wild card event that may hasten the collapse of the USD, is the current virus situation
and how chaotic the US elections in November 2020. Or if Trump refuses to step down
if he is defeated. If for example the vaccines are not that effective - this will prolong more
those warning signals above. If Trump refuses to step down if he is defeated (this is two if's -
the likelyhood for this to happen is 25%), this will create a political crisis in the US that will
translate not only to the stability of the dollar but also the loss of confidence in democratic system
itself.

So we just hold on, but be safe we should start converting our cash into real assets like
putting into gold or real estate. Just in case shit is going real.

Here is a good article, what will happen before the dollar collapse

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U.S. Dollar Will Collapse When This Upcoming Event Happens


The three points to understand here are:

1. You absolutely must be internationalized before the U.S. dollar loses its status as the premier reserve currency. Internationalization is your ultimate insurance policy.
2. The U.S. dollar’s status as the premier reserve currency is tied to the petrodollar system.
3. The sustainability of the petrodollar system is linked to Middle East geopolitics….
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The Rise & Fall of Bretton Woods

Being victorious in WWII and possessing the overwhelmingly largest gold reserves in the world (around 20,000 tonnes) allowed the U.S. to reconstruct the global monetary system with the dollar at its center in what was known as the Bretton Woods international monetary system. Simply put, the Bretton Woods system was an arrangement whereby a country’s currency was tied to the U.S. dollar through a fixed exchange rate, and the U.S. dollar itself was tied to gold at a fixed exchange rate. Countries accumulated dollars in their reserves to engage in international trade or to exchange them with the U.S. government at the official rate for gold ($35 an ounce).

By the late 1960s, exuberant spending from welfare and warfare, combined with the Federal Reserve monetizing the deficits, drastically increased the number of dollars in circulation in relation to the gold backing it and, naturally, this caused countries to accelerate their exchange of dollars for gold at the official price. The result was a serious drain in the U.S. gold supply (20,000 tonnes at the end of WWII to around 8,100 tonnes in 1971, a figure supposedly held constant to this day) so, on August 15, 1971, Nixon officially ended convertibility of the dollar for gold to halt the gold outflow. The U.S. defaulting on its promise to back the dollar with gold ended the Bretton Woods system.

The central justification that the gold–backed dollar had provided as to why countries held the dollar in their reserves and used it as a medium of international trade was now gone. With the dollar no longer convertible into gold, demand for dollars by foreign nations was sure to fall and with it, its purchasing power.

The Advent of the Petrodollar

OPEC passed numerous resolutions after the end of Bretton Woods, stating the need to retain the real value of its earnings (including discussions about accepting gold for oil), which resulted in the cartel significantly increasing the nominal dollar price of oil in the wake of August 15, 1971.

If the dollar was to sustain its status as the world’s reserve currency, a new arrangement would have to be constructed to give foreign countries a compelling reason to hold and use dollars and Nixon and Kissinger succeeded in retaining the dollar’s premier status by bridging the gap between the failed Bretton Woods system and the emerging petrodollar system.

Between the years of 1972 to 1974 the U.S. government completed a series of agreements with Saudi Arabia to create the petrodollar system. Saudi Arabia was chosen because of its vast petroleum reserves, its dominant influence in OPEC, and the (correct) perception that the Saudi royal family was corruptible.

In essence, the petrodollar system was an agreement that, in exchange for the U.S. guaranteeing the survival of the House of Saud regime by providing a total commitment to its political and security support, Saudi Arabia would:

1. Use its dominant influence in OPEC to ensure that all oil transactions would be conducted only in U.S. dollars.
2. Invest a large amount of its dollars from oil revenue in US Treasury securities and use the interest payments from those securities to pay U.S. companies to modernize the infrastructure of Saudi Arabia.
3. Guarantee the price of oil within limits acceptable to the U.S. and act to prevent another oil embargo by other OPEC members.

The Importance of the Petrodollar System

The need to use dollars to transact in oil, the world’s most traded and most strategic commodity, provides a very compelling reason for foreign countries to keep dollars in their reserves. For example, if Italy wants to buy oil from Kuwait, it has to first purchase U.S. dollars on the foreign exchange market to pay for the oil, thus creating an artificial market for U.S. dollars that would not have otherwise naturally existed. This demand is artificial, since the U.S. dollar is just a middleman in a transaction that has nothing to do with a U.S. product or service. It ultimately translates into:

• increased purchasing power and a deeper, more liquid market for the U.S. dollar and Treasuries…and
• the unique privilege of the U.S. not having to use foreign currency but rather using its own currency, which it can print, to purchase its imports, including oil.

The benefits of the petrodollar system to the U.S. dollar are indeed difficult to overstate.

The Weakening of the Petrodollar System

The geopolitical sands of the Middle East have been rapidly shifting as evidenced by:

1. The faltering strategic regional position of Saudi Arabia,
2. the rise of Iran which is notably not part of the petrodollar system,
3. failed U.S. interventions, and
4. the emergence of the BRICS countries providing potential future alternative economic/security arrangements

and all affect the sustainability of the petrodollar system.

The relationship between the U.S. and Saudi Arabia is deteriorating. The Saudis are furious at what they perceive to be the U.S. not holding up its part of the petrodollar deal. They believe that, as part of the U.S. commitment to keep the region safe for the monarchy, the U.S. should have attacked their regional rivals, Syria and Iran, by now. This would suggest that they may feel that they are no longer obliged to uphold their part of the deal, namely selling their oil only in U.S. dollars.

The Saudis have even gone so far as to suggest a “major shift” is underway in their relations with the U.S.. To date, though, they have yet to match actions to their words, which suggests it may just be a temper tantrum or a bluff. In any case, it is truly unprecedented language and merits further watching. A turning point may really be reached when you start hearing U.S. officials expounding on the need to transform the monarchy in Saudi Arabia into a “democracy” but don’t count on that happening as long as their oil is flowing only for US dollars.

Conclusion

It was evident long before Nixon closed the gold window and ended the Bretton Woods system on August 15, 1971, that a paradigm shift in the global monetary system was inevitable. Likewise today, a paradigm shift in the global monetary system also seems inevitable.

By considering Ron Paul’s words, “We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros” we will know when the dollar collapse is imminent.

 

[emblem21]

When it happens, China just had to be amongst the first ones out of the dollar, in order to minimise the losses.

And I expect Japan will be amongst the last as they try to prop up the US, so they'll end up absorbing a lot of the losses.

But if you have to hold dollar assets, make sure it is in liquid assets like treasury bonds or some stocks. And if in illiquid assets, then things which derive their income from exports, so that a currency devaluation doesn't matter.

Watch the Big Short if you want to see what a Fire Sale looked like in the 2008 financial crash.

In a rather twisted way, you could think of this as China’s revenge for ww2 only that this is entire self inflicted and also because the leadership in Japan are a bunch of pussies that suck up to America almost 24/7, hence way most of the people don’t support there government as much.

 

[Gatekeeper]

When it happens, China just had to be amongst the first ones out of the dollar, in order to minimise the losses.

And I expect Japan will be amongst the last as they try to prop up the US, so they'll end up absorbing a lot of the losses.

But if you have to hold dollar assets, make sure it is in liquid assets like treasury bonds or some stocks. And if in illiquid assets, then things which derive their income from exports, so that a currency devaluation doesn't matter.

Watch the Big Short if you want to see what a Fire Sale looked like in the 2008 financial crash.

Agree, but I believe China shouldn't be first when it happens. Wait for it, hear me out. China should get out before it happens to avoid or minimise losses of hard earned graft of the Chinese people. Timing is everything.

China been doing it slowly like moving couple of billion out here and there. But trouble is everything China does is being watch by other investors and governments. They will get the jitters if China sell big. Or move finds into gold or other assets.

I agree that china should move into more liquid assets that can be liquidated quickly. But they are not that many around.

However, i dont think real estate is a good ideal. They are not that liquid, and they can be a deprecating assets especially in times of stress. Also T bills can (I know US has not) be defaulted, given Trump's past records anything can happen.

This is why I said before China is caught in a bind. They are lack of alternatives to move it to, and what is available can be costly as any demand by China will push up prices. Especially when everyone is watching China like a hawk!

 

[Gatekeeper]

The US dollar collapse may not happen anytime soon. Although the warning signals are now showing up.

- magical printing of money
- US debt is increasing
- US productivity is decreasing
- US dollar decline in value

These are the telltale signs that USD is now heading to devaluation but not enough to cause it to collapse.

We have to remember that USD is tied to petrodollar. As long as the oil producers in the middle east
use USD for oil, USD may never collapse anytime soon. So the key is if Saudi or major oil producers in middle east will
dump the US dollar - thats the sure indication the US dollar is headed to collapse.


The wild card event that may hasten the collapse of the USD, is the current virus situation
and how chaotic the US elections in November 2020. Or if Trump refuses to step down
if he is defeated. If for example the vaccines are not that effective - this will prolong more
those warning signals above. If Trump refuses to step down if he is defeated (this is two if's -
the likelyhood for this to happen is 25%), this will create a political crisis in the US that will
translate not only to the stability of the dollar but also the loss of confidence in democratic system
itself.

So we just hold on, but be safe we should start converting our cash into real assets like
putting into gold or real estate. Just in case shit is going real.

Here is a good article, what will happen before the dollar collapse

Please, Log in or Register to view URLs content!

U.S. Dollar Will Collapse When This Upcoming Event Happens


The three points to understand here are:

1. You absolutely must be internationalized before the U.S. dollar loses its status as the premier reserve currency. Internationalization is your ultimate insurance policy.
2. The U.S. dollar’s status as the premier reserve currency is tied to the petrodollar system.
3. The sustainability of the petrodollar system is linked to Middle East geopolitics….
   Please, Log in or Register to view URLs content!

The Rise & Fall of Bretton Woods

Being victorious in WWII and possessing the overwhelmingly largest gold reserves in the world (around 20,000 tonnes) allowed the U.S. to reconstruct the global monetary system with the dollar at its center in what was known as the Bretton Woods international monetary system. Simply put, the Bretton Woods system was an arrangement whereby a country’s currency was tied to the U.S. dollar through a fixed exchange rate, and the U.S. dollar itself was tied to gold at a fixed exchange rate. Countries accumulated dollars in their reserves to engage in international trade or to exchange them with the U.S. government at the official rate for gold ($35 an ounce).

By the late 1960s, exuberant spending from welfare and warfare, combined with the Federal Reserve monetizing the deficits, drastically increased the number of dollars in circulation in relation to the gold backing it and, naturally, this caused countries to accelerate their exchange of dollars for gold at the official price. The result was a serious drain in the U.S. gold supply (20,000 tonnes at the end of WWII to around 8,100 tonnes in 1971, a figure supposedly held constant to this day) so, on August 15, 1971, Nixon officially ended convertibility of the dollar for gold to halt the gold outflow. The U.S. defaulting on its promise to back the dollar with gold ended the Bretton Woods system.

The central justification that the gold–backed dollar had provided as to why countries held the dollar in their reserves and used it as a medium of international trade was now gone. With the dollar no longer convertible into gold, demand for dollars by foreign nations was sure to fall and with it, its purchasing power.

The Advent of the Petrodollar

OPEC passed numerous resolutions after the end of Bretton Woods, stating the need to retain the real value of its earnings (including discussions about accepting gold for oil), which resulted in the cartel significantly increasing the nominal dollar price of oil in the wake of August 15, 1971.

If the dollar was to sustain its status as the world’s reserve currency, a new arrangement would have to be constructed to give foreign countries a compelling reason to hold and use dollars and Nixon and Kissinger succeeded in retaining the dollar’s premier status by bridging the gap between the failed Bretton Woods system and the emerging petrodollar system.

Between the years of 1972 to 1974 the U.S. government completed a series of agreements with Saudi Arabia to create the petrodollar system. Saudi Arabia was chosen because of its vast petroleum reserves, its dominant influence in OPEC, and the (correct) perception that the Saudi royal family was corruptible.

In essence, the petrodollar system was an agreement that, in exchange for the U.S. guaranteeing the survival of the House of Saud regime by providing a total commitment to its political and security support, Saudi Arabia would:

1. Use its dominant influence in OPEC to ensure that all oil transactions would be conducted only in U.S. dollars.
2. Invest a large amount of its dollars from oil revenue in US Treasury securities and use the interest payments from those securities to pay U.S. companies to modernize the infrastructure of Saudi Arabia.
3. Guarantee the price of oil within limits acceptable to the U.S. and act to prevent another oil embargo by other OPEC members.

The Importance of the Petrodollar System

The need to use dollars to transact in oil, the world’s most traded and most strategic commodity, provides a very compelling reason for foreign countries to keep dollars in their reserves. For example, if Italy wants to buy oil from Kuwait, it has to first purchase U.S. dollars on the foreign exchange market to pay for the oil, thus creating an artificial market for U.S. dollars that would not have otherwise naturally existed. This demand is artificial, since the U.S. dollar is just a middleman in a transaction that has nothing to do with a U.S. product or service. It ultimately translates into:

• increased purchasing power and a deeper, more liquid market for the U.S. dollar and Treasuries…and
• the unique privilege of the U.S. not having to use foreign currency but rather using its own currency, which it can print, to purchase its imports, including oil.

The benefits of the petrodollar system to the U.S. dollar are indeed difficult to overstate.

The Weakening of the Petrodollar System

The geopolitical sands of the Middle East have been rapidly shifting as evidenced by:

1. The faltering strategic regional position of Saudi Arabia,
2. the rise of Iran which is notably not part of the petrodollar system,
3. failed U.S. interventions, and
4. the emergence of the BRICS countries providing potential future alternative economic/security arrangements

and all affect the sustainability of the petrodollar system.

The relationship between the U.S. and Saudi Arabia is deteriorating. The Saudis are furious at what they perceive to be the U.S. not holding up its part of the petrodollar deal. They believe that, as part of the U.S. commitment to keep the region safe for the monarchy, the U.S. should have attacked their regional rivals, Syria and Iran, by now. This would suggest that they may feel that they are no longer obliged to uphold their part of the deal, namely selling their oil only in U.S. dollars.

The Saudis have even gone so far as to suggest a “major shift” is underway in their relations with the U.S.. To date, though, they have yet to match actions to their words, which suggests it may just be a temper tantrum or a bluff. In any case, it is truly unprecedented language and merits further watching. A turning point may really be reached when you start hearing U.S. officials expounding on the need to transform the monarchy in Saudi Arabia into a “democracy” but don’t count on that happening as long as their oil is flowing only for US dollars.

Conclusion

It was evident long before Nixon closed the gold window and ended the Bretton Woods system on August 15, 1971, that a paradigm shift in the global monetary system was inevitable. Likewise today, a paradigm shift in the global monetary system also seems inevitable.

By considering Ron Paul’s words, “We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros” we will know when the dollar collapse is imminent.

Yes it's a great piece to read, especially for non-economists here. I already know most of this when I was a economics students many moons ago.. sadly!

 

[Gatekeeper]

In a rather twisted way, you could think of this as China’s revenge for ww2 only that this is entire self inflicted and also because the leadership in Japan are a bunch of pussies that suck up to America almost 24/7, hence way most of the people don’t support there government as much.

Well it's not quite self inflicted to be fair. It's sort of forced upon them when they earned all those foreign exchanges from trade but got nowhere to park their money.

 

[plawolf]

People tend to love the dramatic. The dollar is unlikely to collapse overnight, but it is undeniably in the middle of a slow and steady decline, which is much preferable for everyone, especially China.

When catalytic economic and geopolitical changes happen too quickly, it usually causes massive collateral damage world wide, and leave huge power vacuums that could lead to unforeseen and unwanted developments.

China will actively work to help manage American decline to minimise the risks of a sudden and uncontrollable collapse, and instead ease it into the slow lane and out of the way.

China could have taken any number of actions in retaliation to any number of American provocations to massively damage and exacerbate existing issues in America across the entire spectrum, but it is unmistakably holding back, especially when contrasted to the earlier days of the trade war.

Obviously there is a massive element of not wanting to interrupt your opponent when he is busy making stupid mistakes, but I think America is in a far more precarious position than most mainstream analysts would believe, and Beijing recognises that.

It is not hitting back and even actively backing off because it does not want to risk cornering a wounded rabid beast, nor does it want to be blamed for the calamity it can see coming down the road that America is now in serious risk of blundering into if it is not careful.

America is increasingly risking ending up in an inter-war Germany kind of economic calamity if it continues to print dollars and accumulate debt like there is no tomorrow while it’s government acts like a self parody.

Modern fiat money economies are fundamentally based on trust. That if I give you goods and services now in exchange for paper IOUs, I am trusting your that those IOUs will be worth something in the future when I need to cash them in. Everything America is doing right now is eroding that trust.

If history has taught us one thing, it is that the markets have no loyalty. London bankers and traders were at the forefront of the run on the pound that caused Britain to crash out of the ERM.

If things get bad enough and people think there is easy money to he made, Wall Street will lead the charge to trash the dollar to make a quick buck.

Note that at its most extreme, the pound only dropped from around 3 to 2.4 DM, which is a 20% drop. A calamity but hardly a collapse, and that is the ballpark range for what I would expect a major USD market correction to look like btw.

That is a significant point to remember because while a massive market correction on the dollar will significantly damage America economically, it won’t destroy it overnight, nor will it erode any of its existing hard power capabilities.

With racial tensions already sky high, a massive economic hit could easily tip America over the edge into chaos. And that’s not even considering the far graver threat of actual civil war if Trump losses in November and refuses to leave office.

In that situation, it would be all too easy for America to start an external war to try to redirect domestic fury and also stimulate economic growth through the war effort.

China doesn’t want to be the target of that. It would much rather America attacked someone else and exhausted itself for a few years and then China could come in and end the war with minimal cost and maximum gain, like America did in both world wars.

 

[Gatekeeper]

People tend to love the dramatic. The dollar is unlikely to collapse overnight, but it is undeniably in the middle of a slow and steady decline, which is much preferable for everyone, especially China.

When catalytic economic and geopolitical changes happen too quickly, it usually causes massive collateral damage world wide, and leave huge power vacuums that could lead to unforeseen and unwanted developments.

China will actively work to help manage American decline to minimise the risks of a sudden and uncontrollable collapse, and instead ease it into the slow lane and out of the way.

China could have taken any number of actions in retaliation to any number of American provocations to massively damage and exacerbate existing issues in America across the entire spectrum, but it is unmistakably holding back, especially when contrasted to the earlier days of the trade war.

Obviously there is a massive element of not wanting to interrupt your opponent when he is busy making stupid mistakes, but I think America is in a far more precarious position than most mainstream analysts would believe, and Beijing recognises that.

It is not hitting back and even actively backing off because it does not want to risk cornering a wounded rabid beast, nor does it want to be blamed for the calamity it can see coming down the road that America is now in serious risk of blundering into if it is not careful.

America is increasingly risking ending up in an inter-war Germany kind of economic calamity if it continues to print dollars and accumulate debt like there is no tomorrow while it’s government acts like a self parody.

Modern fiat money economies are fundamentally based on trust. That if I give you goods and services now in exchange for paper IOUs, I am trusting your that those IOUs will be worth something in the future when I need to cash them in. Everything America is doing right now is eroding that trust.

If history has taught us one thing, it is that the markets have no loyalty. London bankers and traders were at the forefront of the run on the pound that caused Britain to crash out of the ERM.

If things get bad enough and people think there is easy money to he made, Wall Street will lead the charge to trash the dollar to make a quick buck.

Note that at its most extreme, the pound only dropped from around 3 to 2.4 DM, which is a 20% drop. A calamity but hardly a collapse, and that is the ballpark range for what I would expect a major USD market correction to look like btw.

That is a significant point to remember because while a massive market correction on the dollar will significantly damage America economically, it won’t destroy it overnight, nor will it erode any of its existing hard power capabilities.

With racial tensions already sky high, a massive economic hit could easily tip America over the edge into chaos. And that’s not even considering the far graver threat of actual civil war if Trump losses in November and refuses to leave office.

In that situation, it would be all too easy for America to start an external war to try to redirect domestic fury and also stimulate economic growth through the war effort.

China doesn’t want to be the target of that. It would much rather America attacked someone else and exhausted itself for a few years and then China could come in and end the war with minimal cost and maximum gain, like America did in both world wars.

Agree with most of what you said there wolfie. Except maybe in my opinion the 20% you quoted for the UK. The US can go further simply because, unlike the UK, it's a world reserve currency. This will give it the ability to stand further strain before it snap. And when that happens, it's going to hurt a lot more.