China to Bail on the US Dollar

gulp!....don't panick!!!!!!!! "China roiled financial markets around the globe yesterday when it asserted that the dollar is losing its luster as the world's reserve currency and that Beijing will swap some of its $1.4 trillion in reserves out of U.S. dollars and into stronger currencies like the euro and Canadian dollar."

Overheard from a converation  . . .

"hey... it doesn't matter if the U.S. keeps on borrowing from China, the more we borrow from them, the more they need us to repay those loans"

 

Umpf, that settles that! 

It's a very odd thing to do to announce this beforehand. The Chinese have just cost themselves a lot of money.

Foreign reserves are about the only thing the Chinese economy has got going for it. Internally they're a shambles.

It has already started: this week the Euro reached a new maximum on the dollar at 1.46. European politicians and coroporate CEOs are litterally panicking because, as usual, they fear that "will hurt the exports". Funny thing we pay our oil in dollars but fuel prices are skyrocketing despite the extremely favourable exchange ratios which would make oil much cheaper than a couple of years ago even at 100 dollars a barrel. I guess it isn't hurting their interests so much... Chinese authorities have also expressed interests in swapping some of their dollar reserves for yet more gold (not a bad move considering that there's no end in sight for the commodity market). Of course a couple of days after the Bank of China said so a few European countries (like Italy) expressed interest in selling part of their much depleted gold reserves...

Do you think the reports of Ron Paul hitting 8% ( and 18% with NHampshirites making less than 50k) had anything to do with the sharp recovery of the dollar in the last few days? I do. I see the dollar plunging in the days just before the 2008 election as the collectivist media broadcasts than Clinton is virtually a sure thing, and then a massive reversal overnight when, like Truman, its announced that Dr. Paul has been elected. Margin requirements will be jacked up so high, though, that the small investor won't be able to take advantage of this phenomena in the futures markets.

 You can only sell as much gold as you posess. But you can buy an unlimited amounts of it. Sellers will lose.

China will turn away from US market. It doesn't matter how much USDs they have in reserves. Once the gag is up and everybody knows US dollar is an empty promise, they will no longer do it. They will sell their production either for barter to US , or for other currencies to somebody else (or US). Their production will be bought one way or another. China is not the loser in this exchange of fiat FRNs for material goods. That is not what they have been exchanging their goods for. They swapped them for the industrial capacity, and now, they can consume some output of that industrial capacity while keep the industry intact as well.

 

What we will pay for their output with, is the question. It is rediculous to suppose that once dollar crashes, the industrial capacity of US will be magically restored. Where would the capital come from and into a society that is hell bent on sharing the profits socialistically? Who will suddenly cheaply man the industry? Overpaid and overprotected school graduates who can't spell? There is some magic in the arguments of those who believes the american industry will just spring back up with the collapse of the buck. This sounds not harder than making wealth by going in debt, or by defending freedom by phonetapping everyone.

Good dreams.