|US Dollar Collapse more likely with Oct 17 Debt Ceiling Agreement – Wiedemer AfterShock Economy may come under BOThe probability of $ collapse under BO is now very likely. Why? The total debt continues to increase much faster than GDP 6 years strong and indefinitely under BO. This is the main reason this week that China’s Dagong Global Credit Rating agency cut its credit rating on the U.S. by one notch to A- on par now with Brazil. Each day the US borrows average of $4 billion per day in treasury certificates and has the Fed buy $1.5 trillion of these treasuries in secondary markets to artificially keep interest rates low! is a day closer to a $ collapse. The debt ceiling agreement ensures this daily risk continues. This week also China signed a 350 billion RMB trade swap agreement with the European Central Bank. The ultimate goal? Replace the $ with the RMB as the world prime currency. Momentum is building.
Please review the table below where GDP and Debt are calculated in nominal dollars.
||% ChgGDP YOY
Data source: Federal Reserve Bank of St. Louis web site, last accessed
October 16, 2013.
Majority of creditors would not buy US Treasuries if the Fed stopped QE. Why? We have an active Ponzi scheme and many creditors still try to time it. They buy new debt then sell to the Fed in secondary market for a slightly higher price. This can not last forever. Another factor – creditors may soon run out of financial resources even if they wanted to buy new Treasuries. Why? Our total debt is now $17.3 Trillion while the world annual economic product is barely over $70 Trillion. At some point ($18, $20, or $22 Trillion??) the world will lack the means.
Notice actions of central banks around the global economy. In specific, after years of selling their gold bullion reserves, central banks are accumulating gold bullion again.
My belief is that central banks are losing trust in the dollar. Central banks could be realizing the devaluation of the U.S. dollar is inevitable, and thus, they are moving away from the $.
China-ECB swap details:
This week, the European Central Bank (ECB) and the People’s Bank of China built a bilateral currency swap line. Through this swap line, which will last three years, 350 billion yuan will be provided to the ECB and 45 billion euros will be given to the central bank of China.
The ECB, in announcing this deal, said, “The swap arrangement has been established in the context of rapidly growing bilateral trade and investment between the euro area and China, as well as the need to ensure the stability of financial markets.” The central bank added, “From the perspective of the Eurosystem, the swap arrangement is intended to serve as a backstop liquidity facility and to reassure euro area banks of the continuous provision of Chinese Yuan.” (Source: “Press Release: ECB and the People’s Bank of China establish a bilateral currency swap agreement,” European Central Bank, October 10, 2013.)
What will be the next move for central banks around the global economy? Do you really think they will continue to buy currencies that can be printed out of thin air? I doubt it.
The bottom line here? The U.S. dollar is in trouble. Congress has kicked the debt ceiling problem down the road again, this time until February of 2014. Meanwhile, gold is having its best day of the month. A new trend? Maybe even a permanent one.
What to do?
Brace for an economic collapse under BO that will be more severe than the 2008-9 Great Recession. Upgrade your job skills with immediate urgency and passion. Competition for decreased labor force will be intense. Make this commitment today. Then you will also be in a position to lead the US back to prosperity after all economic hell breaks loose on BO’s watch.
Excerpt from above follows:
So if the U.S. financial system is the core of the global financial system, then U.S. debt is “the core of the core” as some people put it. U.S. Treasury bonds fuel the print, borrow, spend cycle that the global economy depends upon.
That is why a U.S. debt default would be such a big deal. A default would cause interest rates to skyrocket and the entire global economic system to go haywire.
Unfortunately for us, the U.S. debt spiral cannot go on indefinitely. Our debt is growing far, far more rapidly than our GDP is, and therefore our debt is completely and totally unsustainable.
The Chinese understand what is going on, and when the dust settles they plan to be the last ones standing. In the aftermath of a U.S. collapse, China anticipates having the largest economy on the planet, more gold than anyone else, and a respected international currency that the rest of the globe will be able to use to conduct international trade.
And China is not just going to sit back and wait for all of this to happen. In fact, they are already doing lots of things to get the ball moving. The following are 9 signs that China is making a move against the U.S. dollar…
#1 Chinese credit rating agency Dagong has downgraded U.S. debt from A to A- and has indicated that further downgrades are possible.
#2 China has just entered into a very large currency swap agreement with the eurozone that is considered a huge step toward establishing the yuan as a major world currency. This agreement will result in a lot less U.S. dollars being used in trade between China and Europe…
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.”
#3 Back in June, China signed a major currency swap agreement with the United Kingdom. This was another very important step toward internationalizing the yuan.
#4 China currently owns about 1.3 trillion dollars of U.S. debt, and this enormous exposure to U.S. debt is starting to become a major political issue within China.
#5 Mei Xinyu, Commerce Minister adviser to the Chinese government, warned this week that if the U.S. government ever does default that China may decide to completely stop buying U.S. Treasury bonds.
#6 According to Yahoo News, China has already been looking for ways to diversify away from the U.S. dollar…
There have been media reports this week that China’s State Administration of Foreign Exchange, the body that handles the country’s $3.66 trillion of foreign exchange reserve, is looking to diversify into real estate investments in Europe.
#7 Xinhua, the official news agency of China, called for a “de-Americanized world” this week, and also made the following statement about the political turmoil in Washington: “The cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising debt ceiling has again left many nations’ tremendous dollar assets in jeopardy and the international community highly agonized.”
#8 Xinhua also said the following about the U.S. debt deal on Thursday: US politicians have done nothing substantial but postponing once again the final bankruptcy of global confidence in the U.S. financial system”. The commentary in the government-run publication also declared that the debt deal “was no more than prolonging the fuse of the U.S. debt bomb one inch longer.”
#9 China is the largest producer of gold in the world, and it has also been importing an absolutely massive amount of gold from other nations. But instead of slowing down, the Chinese appear to be accelerating their gold buying. In fact, money manager Stephen Leeb says that his sources are telling him that China plans to buy another 5,000 tons of gold. There are many that are convinced that China eventually plans to back the yuan with gold and try to make it the number one alternative to the U.S. dollar.
So exactly what would happen if the Chinese announced someday that they were going to back their currency with gold and would no longer be using the U.S. dollar in international trade?
It would change the face of the global economy almost overnight. In a previous article, I described some of the things that we could expect to see happen…
If China does decide to back the yuan with gold and no longer use the U.S. dollar in international trade, it will have devastating effects on the U.S. economy. Demand for the U.S. dollar and U.S. debt would drop like a rock, and prices on the things that we buy every day would soar. At that point you could forget about cheap gasoline or cheap Chinese imports. Our entire way of life depends on the U.S. dollar being the primary reserve currency of the world and being able to import things very inexpensively. If the rest of the world (led by China) starts to reject the U.S. dollar, it would result in a massive tsunami of currency coming back to our shores and a very painful adjustment in our standard of living. Today, most U.S. currency is actually used outside of the United States. If someday that changes and we are no longer able to export our inflation that is going to mean big trouble for us.
The fact that we get to print up giant mountains of money and virtually everyone around the world uses it has been a huge boon for the U.S. economy.
When that changes, the word “catastrophic” is not going to be nearly strong enough to describe what is going to happen.
For details about what an Aftershock may be please read – https://economics501.wordpress.com/2011/11/25/aftershock-economy-book-review/