"Chinese" collapse of the dollar may be useful for the United States

Amid the global coronavirus pandemic and low hydrocarbon prices, the dollar is a traditional “safe haven”. In any case, American financiers are stubbornly and consistently trying to make it such, artificially ostracizing gold. But now a lot is starting to change and very quickly.

The national currency of the hegemon may begin to devalue with the filing of its main competitor, China.

As you know, Beijing is one of the largest holders of US government debt bonds in the world. The other day, the South China Morning Post published information from which it follows that the PRC is ready to begin selling these securities, which could directly lead to a depreciation of the dollar. In addition, many recovery programs will be called into question. economics after a pandemic:

This, in turn, can create problems for the US government bond market, as Washington is significantly increasing the issuance of new securities to finance a number of programs to combat the pandemic and related economic damage.

To understand the scale, US financiers intend to place new bonds worth $ 3 trillion. Such a move by Beijing could overwhelm their plans. In turn, according to The Washington Post, the White House is considering the possibility of abandoning part of its debt obligations to China. It is clear that such an exchange of blows does not shine for the foreseeable future by anything good for the global economy. But will this happen?

The formal reason for the aggravation of the conflict between the United States and China was the accusations against the Chinese leadership in the spread of the coronavirus. At the highest level in Washington, they say that the pandemic began due to a leak in a biolaboratory in Wuhan. We do not know whether this is actually true or not, but it is obvious that the situation around COVID-19 in the White House is going to be used to solve their own political and economic problems. On the possible background of a relapse into a trade war between two direct competitors, we detail told earlier.

The main question remains, how far are both sides ready to go in an effort to “lime” each other? There is no definite answer to it.

On the one hand, the US and PRC economies are closely related and dependent on each other. Sanctions will return to the boomerang to the one who introduces them. Each response step will lead to further escalation, and the price of the issue will only increase, not only for the warring parties, but also for the rest of the world.

On the other hand, no matter how strange it may sound, the White House may itself be interested in the devaluation of the dollar. The fact is that the United States is not something single and monolithic: in the political circles in Washington there is a fierce struggle between the "Imperials", whom Donald Trump personifies, with the "globalists." The American president has no direct leverage over the Fed and the financial elites around it. The collapse of the dollar will be a painful blow primarily for financial circles, but for the real US sector, perhaps even a boon. Due to the overvalued national currency, production in the country is becoming less profitable, the working class, the Trump electorate, is massively unemployed. The president, introducing barrage duties against inexpensive Chinese goods, is trying to deal with the consequences, but not with the cause.

In this context, the hands of China to collapse the dollar, then to appoint Beijing “extreme” for all problems, maybe even in the interests of the head of the White House.
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  1. monman Offline monman
    monman (Garik Mokin) 11 May 2020 16: 21
    I want to supplement an interesting article by Sergey.
    If we, OUR, appear in the text of the translation, it means the United States.

    Why is currency devaluation so bad?

    It is really easy. The less your currency is worth, the less goods and services you can buy for your money, the less companies make to pay for goods and services, and the less people actually earn when they take their salaries home. This forces governments and citizens to invest more and more money in the system, trying to get the amount of goods they bought. Thus, not only their money costs less, but inflation can also become a very big problem. Currency devaluation is only resolved through changes in tax laws, aggressive increase in interest rates, reduction of the trade deficit and / or strong corporate profit.
    If the dollar is replaced by world reserve currency, will it be bad?
    This, of course, will not be good for the United States, at least temporarily. If the world switches to some type of new reserve currency, be it the euro, yuan or some basket of currencies, a shock will begin for the US system. Just imagine if there was a giant recall of any product released by Kraft. Either people who own the Kraft product can sell it on the open market, or they can sell it back to Kraft. But what happens to the value of the product that is now flooding the market? This, of course, will depreciate, and in the future the demand for it will be lower. This is the situation in which the US would be; we will either have to redeem all the dollars, or there will be a fire sale of currency on the open market. The first option is not very good, and in fact it is probably not legal. The US Federal Reserve cannot monetize the debts it issues. This means that in this case we cannot repurchase the debt by issuing more debts. So, if we can’t buy the debt, and the foreigners don’t want the debt, who will buy it? This is the problem, and the reason why so many economists and independent observers are nervous. If this happens, a painful devaluation process awaits us, which will shock our economic system to the ground.
    If foreign governments decide to stop buying our debt, what will happen to the dollar?
    Since interest rates are now close to 0% and our currency is depreciating, there was no real incentive for foreign governments to continue to buy our debt, which is issued in the form of treasury bills. But do foreign governments have a choice? The Chinese, the largest holders of US debt, pegged their currency to the US dollar. If they stop buying our debt, their currency and, therefore, their economy will go straight to the toilet along with ours. If they decide to sell the US debt they have, the US dollar will receive a huge blow, which in turn will cause the yuan to receive a big blow. This is an inherent problem with the Ponzi scheme, which has been used for the past 30 years. We consume more than we produce, and those who buy our debts continue to pump money into a system that perpetuates the cycle. It is still possible that foreigners will make a strategic decision that their economy will be able to withstand the short-term shock to their economy if they sell their dollar reserves. Until their economy recovers, will the US recover? Who will buy our debt? These questions have yet to be answered by our politicians.
    1. Observer2014 Offline Observer2014
      Observer2014 11 May 2020 18: 32
      "Chinese" collapse of the dollar may be useful for the United States

      When is it for us Russians something good to break off with their landslides? wassat Probably never.
      We have patriotism! And only patriotism nourishes and energizes our hearts! laughing
      1. Rum rum Offline Rum rum
        Rum rum (Rum rum) 11 May 2020 18: 55
        Respected. Did you want to say something specific? Or, like a dove, they were shitting, just by flying by?
        1. Observer2014 Offline Observer2014
          Observer2014 11 May 2020 19: 11
          Rum rum Respected. Did you want to say something specific?
          Or, like a dove, they were shitting, just by flying by?

          Sorry. I forgot to say the most important thing. Very difficult times await us.
          I understand that it sounds insincere. And in fact, it was possible to get away from this direct conversation. But I want to say that a storm is coming. yes I'm trying to analyze what is happening. Weigh everything as much as possible. But I can’t say the exact answer yet. Doubts remain. I will say only one thing. I will be sure - I will declare categorically.
          1. Rum rum Offline Rum rum
            Rum rum (Rum rum) 12 May 2020 19: 35
            How many of these "Difficult times" were. It's all just another. Why, does this excite you so much?
  2. Sergey Latyshev Offline Sergey Latyshev
    Sergey Latyshev (Serge) 11 May 2020 23: 07
    And, again, 1001 explanations from the series; the dollar can fall, the dollar can fall ....
    In the meantime, you can see its course on Yandex ...
    1. Smirnoff Offline Smirnoff
      Smirnoff (Victor) 12 May 2020 00: 38
      The last to laugh is the one who laughs without consequences. When the candy wrapper becomes a dummy, then we laugh.
      We are waiting, sir !!!
      Many, overnight, will become BANKRUPT. Do not look at the fake course, but run away from the candy wrapper. Gold is in price, and the wrapper is END!
      1. Sergey Latyshev Offline Sergey Latyshev
        Sergey Latyshev (Serge) 12 May 2020 07: 23
        Absolutely right.))) In the meantime, we are waiting, sir, you can watch the video "A short course in the history of the dollar."
  3. Smirnoff Offline Smirnoff
    Smirnoff (Victor) 12 May 2020 00: 34
    The “Chinese” collapse is the CELLAR for the dollar.
    We need a new world currency without American financial terrorism and paper wrappers.