Is It Still Just A Conspiracy?

In one of my previous posts, I focused on an article published by the British newspaper The Independent, in which the authors stated there are now widespread attempts by many central bankers all over the world to divest their countries of US dollars. The swirl associated with their story is more in regard to public reactions to the information than to the info itself. But ultimately denial will get us nowhere. And, for the second time in three weeks, I'm happy to say that I'm in good company with my concerns about the decline of the dollar. In an article posted on Yahoo Finance titled “Wake Up Washington! China Is Already Dumping the Dollar...” Harvard professor Niall Ferguson shares his view, and states that Washington is too dismissive, and that anyone who thinks the Chinese will be left with no or few alternatives to the American consumer is “slightly naïve.”

The crux of the issue is this: if the Chinese sell dollars, or in this case, trillions worth of US treasuries, the greenback will be devalued enormously. A side effect, however, will be the concurrent inflation of the renminbi (a.k.a. Yuan), China's official currency. But our oriental trading partners have more motivation and less to lose than you might think. First, their trade surplus is down nearly 60% from last year. And second, they have much less loose currency in the marketplace as a percentage of their GDP than the US does. This essentially means that if they are ever going to make a major transition away from American consumers and the dollar, the best possible and least painful time is right now. Couple this with the fact that China's leadership has in recent years been purchasing commodities of all kinds in every corner of the planet, and you can see that any likely increase in commodities will result in a major windfall for China's economy.

So Washington can poo poo this idea all they like. But I'm reminded of the words of my favorite author who said: “There's no denial of reality that can change reality.” It looks to me as though China has much to gain and little to lose in transitioning away from the United States.

And I'm already wondering about one of my future posts, when the dreaded term “economic warfare” will undoubtedly make its way back into common English parlance. That should make for some interesting news.