Posted on November 6, 2012
November 5th, 2012
Source: ETF Daily News
Jeff Nielson: It is no secret that China is replacing the U.S. dollar with its own currency in more and more of its bilateral trading. It’s apparent to all that the renminbi will soon have (at least) a co-equal status with the dollar as the global “reserve currency”. Yet what is rarely if ever discussed in the mainstream media are the enormous economic repercussions of a world suddenly awash with a massive glut of surplus dollars.
In most respects economics mirrors one of the basic principles of physics: for every action there is an equal-and-opposite reaction. If farmers produce a bumper-crop of wheat and supply soars, then the price falls. Similarly, if (for some reason) the demand for wheat suddenly collapsed, the price would also fall – as both a jump in supply and/or a plunge in demand result in the same state: abundant/excessive supply. And the consequence of excessive supply is always a fall in price.
This economic “physics” applies in an identical manner to the world of currencies…eventually. In a global economy ever more corrupted by serial market-rigging; nowhere is this manipulation more blatant than in the world’s forex markets. Indeed, the world’s nations have openly declared that they are all competitively engaged in currency-manipulation; as denoted by the euphemistic term “competitive devaluation.”
The Euro’s Demise Has Been Set in Motion: Are you protected?
“Nationalism will emerge. Healthier countries will not see fit to spend their hard earned money to bail out their less responsible neighbors.”
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For new readers, let me quickly summarize the (for lack of a better word) “principle” behind competitive devaluation. Through destroying the value of one’s own currency, the wages of workers (in real dollars) are driven steadily toward zero, and so (supposedly) this will allow a nation to under-cut its trade partners and export more goods.
The sick joke here is that with all nations destroying the value of their currencies (and the wages of their workers) simultaneously, no nation gains any “advantage” and the wages of workers are being destroyed for no reason whatsoever. This does, however, produce the paradigm of all currencies simultaneously falling in value, only the rate of decline of this paper-destruction varies.
This is why any time we see some talking-head refer to a currency as “rising in value”, it is an implicit admission that the person has no understanding of the global economy. If two people jump off the roof of a 100-storey building at the same time, and (while on the way down) one individual climbs on top of the shoulders of the other; that person hasn’t “risen”, he will merely go “splat” on the pavement a millisecond later.
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The collapse in value of our paper currencies is accomplished through our morally/intellectually bankrupt central banks flooding the world with this (un-backed) paper. In other words, the entire global economy is already drowning in an ocean of these paper currencies. It is thus little surprise that these same central banks are now swapping their own paper for gold at the fastest rate on record.
It is in this context that we see a shift taking place where the U.S. dollar as (current) reserve currency is being steadily replaced by the renminbi. Some numbers here are in order. A recent article in China Daily noted that for much of Asia the renminbi is already the reserve currency.
A “renminbi bloc” has been formed in East Asia, as nations in the region abandon the U.S. dollar and peg their currency to the Chinese yuan…
And now seven out of 10 economies in the region – including South Korea, Indonesia, Malaysia, Singapore and Thailand – track the renminbi more closely than they do the U.S. dollar…
According to the latest report by the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, renminbi-denominated trade accounted for 10 percent of China’s total foreign trade in July. The figure was zero just two years ago.
From July 1 to August 31, global payments in the renminbi rose 15.6 percent, according to Swift as payment in other currencies fell 0.9 percent on the average… [emphasis mine]
We see three obvious points in the quote above:
1) The move from the dollar to the renminbi is now occurring rapidly.
2) Demand for the U.S. dollar is falling as a direct result of this shift.
3) Even Chinese media are attempting to cover-up the collapse of the dollar.
Notice how the article talks about the demand for “other” (Western) currencies falling by “0.9 percent on average.” This is laughable. It’s not (British) pounds that are being dumped in favor of renminbi. It’s not euros that are being dumped. It’s dollars. However, to hide the size of the collapse in demand for the dollar; we see the propaganda machine “average out” the number with other currencies.
Referring again to the inevitable laws of supply and demand (and physics); as demand for the renminbi rises purely as a vehicle for international trade, then its value (relative to other currencies) must also rise as a result of this upward shift in demand. Equally inevitable, as dollar-holders abandon the dollar for the renminbi, an even greater global glut of dollars is created; and the dollar must fall in value (relative to other currencies).
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With this economic trend now carved in stone, Americans can rely upon the Federal Reserve – the statutory “guardians” of the U.S. dollar – to shrewdly limit the global supply of dollars, in order to delay the complete/final collapse of the dollar as long as possible. Right?
Wrong. As sophisticated readers already know, the Federal Reserve recently announced a gratuitous, “open-ended”, additional money-printing program of approximately $500 billion/year. This massive infusion of yet more dollars into the global economy is all dedicated to buying the worst financial feces from the balance sheets of the Wall Street crime syndicate.
Think of the U.S. dollar as the Titanic. Instead of trying to patch-up the Titanic as it began to sink to the bottom of the ocean, we have the Federal Reserve dynamiting more holes in the hull. GET A FREE TREND ANALYSIS FOR ANY STOCK HERE!
Readers need to fully grasp the three trends which are all rapidly/simultaneously destroying the value of the U.S. dollar:
a) Exponentially increasing U.S. deficits are requiring exponentially increasing money-printing as all this new dollar-denominated debt is issued. This alone must result in hyperinflation, the only question being when.
b) The switch from the dollar to the renminbi must result (sooner or later) in a panic-flight out of the dollar – and also U.S. hyperinflation.
c) Gratuitous money-printing from the Federal Reserve to the Wall Street crime syndicate now exceeds $1 trillion per year in 0% “loans” and simple hand-outs.
Out of the three trends above, the only one which is not entirely self-explanatory is “b”. The move from the dollar to the renminbi must become a stampede, precisely because of the economic parameters previously outlined.
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The U.S. and (nearly) all of the West are dying economies. Permanent near-zero interest rates, and the suicidal insanity of “competitive devaluation” proclaim this to the world. Gigantic, unsustainable deficits make debt-default merely a formality now for nearly all Western nations. Thus in a world of crumbling (paper) currencies the West’s paper must collapse faster.
This, in turn, must result in one of the most basic forms of human behavior in markets: the desire to flee assets falling in value (Western paper currencies), and gravitate toward what is rising in value (in relative terms): the renminbi. As this herd-behavior steadily builds, a stampede is inevitable.
The global economy is now telegraphing a message for any/all with the sense to pay heed to it:
Will the last dollar-holder out the door please turn off the lights…?
Written By Jeff Nielson From Bullion Bulls Canada
Jeff Nielson is from Canada and is a writer/editor for Bullion Bulls Canada www.bullionbullscanada.com. He has a personal background in law and economics. Bullion Bulls Canada provides general macro-economic and political commentary, since the precious metals markets are among the most complex (and misunderstood) in the world.
Bullion Bulls Canada also provides basic coverage of Canadian precious metals mining companies. Canada is the global leader in mining exploration, and Canadian-listed mining companies (on the Toronto Stock Exchange and Venture Exchange) are responsible for the majority of the world’s most-promising discoveries.
Thanks to: http://jhaines6.wordpress.com