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US Debt Hole Goes All the Way to China
Is China on the way to making the yuan the world’s new reserve currency?
More to the point, are the Federal Reserve and the Obama Administration playing an active role in reducing the greenback to wallpaper or other less-than-desired pieces of paper to pave the way for the yuan’s rise to reserve currency status?
And, if so, why…and why is Congress letting it happen?
Enquiring minds want to know.
Think I’m blowing smoke?
Maybe so; but what if I’m not?
Here’s the straight dope on the crooked dopes who seem to be hell bent on breaking the buck as a reserve currency…
And letting China’s replace it.
A little recent history is helpful…
The Golden Rule
While the Federal Reserve gave big love to the banks by mean of quantitative easing and filled their balance sheets with untold trillions of electronic cash…
And I say “untold” because we will really never know how many trillions went where because the Federal Reserve doesn’t tell us where all the money went or how much went where…
And, as Ron Paul has pointed out to Mr. Bernanke in Congressional hearings a while back, no one---not a soul in the US government---can audit the Fed.
So how can we trust that it’s acting in the best interests of the United States? How do we know?
Why not make the Fed transparent? Paul asked Bernanke in so many words.
But back to the QE programs…
When the banks got all of those mega bucks and more…
What did they do?
The protégés of the Fed did exactly what they were told to do—which was nothing.
Here’s what that was about…
Banks who got Federal Reserve bailouts did whatever the Fed said…
If they were told to lend that money out, they would have; it’s called a quid pro quo.
Think about it…
If you’re bailing out the biggest players in the world’s financial system with trillions of dollars, don’t you think that there would be strings attached? You know, conditions that go with the money…
Like, say, if we give you this money, you make damn sure that you lend it to small businesses, for example to get the economy moving again…
Or something along those lines?
Don’t you think that the golden rule would apply in that case?
You know, ‘he who has the gold makes the rules?”
But what happened?
Those same banks—familiar names all, like Bank of America, Citibank, et al—have lent just about diddly squat to small businesses in the past three years…
Just who do you think told them to do that, and why?
And just to make sure that they did as instructed, the Fed said that it would keep interest rates near zero for the next few years…
That way, there would be little to no profit in lending money anyway….
And certainly not enough to justify the risk in a dicey economy.
In the meantime, the economy continues to suck wind…
But hey, how bad can it be?
The banks still feel the Fed’s big love all the way to the Treasury bond trading desk…
Which is where they’re putting “their” money, risk free….
They’re earning a couple of points on T-bills without risk…
And the Obama administration gets that money to fund its big programs, hire more federal workers/voters, and hey, (insert fist bump here) it’s all good…
See how that works?
But wait, sports fans, there’s more…
Gangrene greenback
Printing trillions of dollars makes the dollar cheap, which makes American goods cheaper and more competitive abroad…
And it also exports inflation to the rest of the world, making it more expensive to buy dollar-denominated commodities, like oil for example.
In case you didn’t know it, that’s a great way to not only weaken the dollar in the eyes of the world…
But it’s also a great way to tick the rest of the world off and make other countries not want to hold the value-less dollars anymore.
I say value-less because that how the dollar is viewed to many abroad. Everyone knows that the US economy is not large enough to grow out of the deep hole of debt that it is in…
And that fiat currency, even though issued by the biggest economy in the world, is used only because there is nothing to replace it…yet.
And do you know who is really aware of this fact? The Chinese.
Yeah, the same guys who of late have been given special direct access to the US Treasury itself, so that they can buy US Treasury Bonds without the pesky market knowing any details about their purchases…
And the same folks whose state-owned banks are now allowed into the US banking system, to buy our banks…
Doesn’t this seem strange to you?
Seems like the golden rule does apply after all, doesn’t it?
Really, doesn’t it seem as if China is deciding how it will buy—or sell—US Treasury bonds on its own terms?
If I knew that T-bills were a depreciating asset, and I owned more of them than any other country, I think I would want to dictate some terms going forward, wouldn’t you?
And the fact is, China is selling more T-bills than they’re buying in such a way to minimize loss as they gradually shift away from US debt…
At the same time, doesn’t it appear that if China wants in to the US banking system to buy US banks, well, who’s to say ‘no’ to them?
Certainly not this administration, and the Fed seems okay with it, too. Not a word from Congress, either.
And what are the Chinese doing to make the yuan even more attractive, besides all of the above?
Establishing direct currency relationships with Japan, and others, without having to use the dollar as a value base…
And buying gold, of course…about 400 tons of it every year.
Now why would they be doing that?
And those are…The Gorrie Details.
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Larry
May 30, 2012 at 6:17 am
Great perspective. Fiat currency is on the way out and the US now has over 8,000 ton of gold reserves. Is a gold/commodities currency on the way in? If so what happens to countries like Canada that have USD for reserves and only minimal gold?
don larson
May 30, 2012 at 7:25 am
To be taken seriously, double check what you are presenting as "facts." With respect to the Fed, and it's Printing Press - - has it printed Trillions as you suggested; or, is it more like $1.8 - $2.0 Trillion?
Much of your information is very useful; especially when you take so much of the personal emotion out of the article.
Most of your facts and conclusions are very interesting.
don
James R. Gorrie
June 4, 2012 at 9:55 am
Don,
Regarding the checking of "facts" it has been quite difficult for even Congress to nail down exactly how much stimulus money the Fed has created and for how long. Bernanke isn't required to respond to questions as Congress would like him to do so. But some reports put the Fed spending at much more than $2 trillion--care to guess?--beginning in at least 2007, well before the 2008 crisis season, when the Fed secretly funneled money to banks here and abroad in an attempt to thwart what happened anyway.
JRG