Deathblow to the Dollar

The future is sealed, and it’s not a matter of ‘if’ but ‘when’. If you’ve been paying attention to the news of lately, you will have noticed a lot of predictions for September, 2015. Could the experts be on to something? As far as a specified date is concerned, we’ll soon see.

 

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The world is entering a new economic era—one that won’t be defined by America.

This past March marked a radical turning point for the global economy, particularly the United States’ economic dominance.

China proposed the launch of the Asian Infrastructure Investment Bank (aiib)—a new, Chinese-run international bank specifically designed to challenge U.S. global economic leadership. America tried to convince other nations not to agree to join. But it failed—even with its closest allies.

For the U.S., it was an unmitigated disaster.

It should be a “wake-up call,” to a “new economic era,” wrote former Treasury Secretary Larry Summers.

The world essentially closed ranks and turned its back on America.

“The battle of wills between Beijing and Washington over a China-sponsored development bank for Asia is turning into a rout,” wrote the Washington Times. “[T]he Obama administration has found itself isolated and embarrassed as its top allies lined up this week to join the proposed Asian Infrastructure Investment Bank” (March 18).

And sadly, it was America’s most important ally that led the defection.

The World Turns

The story begins with a 2013 speech by newly crowned Chinese leader Xi Jinping. He outlined the creation of a new international investment bank where nations could pool money to invest in the developing world. China would provide $50 billion in seed money and retain up to 50 percent ownership.

This was not a simple public relations effort aimed at helping China’s Asian neighbors. In fact, Xi Jinping was up front about the bank’s purpose: It would compete with the U.S.-dominated World Bank and Asian Development Bank. The New York Times later called it a “direct threat” to the post-World War ii financial system dominated by the U.S.

But few in Washington paid it much heed—at first. Policymakers refused to believe that America’s allies would even consider joining such an obviously anti-American effort.

Then, last year, a strange thing happened. Australia announced it would join China to become a founding member of the bank.

America was shocked. Australia is one of America’s closest allies.

Why has the world so dramatically spurned America?

According to the Australian, President Obama turned the World Bank into a tool to push his climate-change agenda. The bank was curtailing loans to developing nations to build coal-fired power plants and pushing them to buy more expensive types of power generation they could not afford. Into the resulting climate of resentment stepped China.

According to this narrative, Europe and the rest of the world just rushed through the gates to get a piece of the $50 billion pie, which has since increased to $100 billion, and which, due to the power of fractional reserve lending, will ultimately equate to more than $1 trillion worth of activity. China says it envisions $6 trillion worth of projects over the next few years.

But the World Bank has always been a political tool. Europe’s and America’s other allies have resisted joining Chinese initiatives before.

So what happened?

The Writing Was on the Wall

It has become impossible to ignore China’s rise. In 2010, China overtook the U.S. to become the world’s biggest energy consumer. It doubled its energy usage in just 10 years. And in the past, being the world’s biggest consumer of fossil fuels was synonymous with being its dominant economy. Now it is the world’s largest energy producer too. That same year, China passed America to become the world’s largest market for motor vehicles. Last year it became the world’s largest importer of agricultural products. It consumed more cement in the past three years than America did in the entire 20th century. From its insatiable appetite for iron and copper to its unrivaled imports of gold bullion, China consumes more resources than anyone else. And no wonder: China produces 54 percent of the world’s textiles. It produces 95 percent of the world’s rare earth elements. Twenty-six nuclear power plants are under construction—almost half as many as currently exist in the U.S. The list goes on.

But here is what the world is finally recognizing. On a per-capita basis, Chinese consumption is still just a fraction of the typical American’s or European’s. China is going to get bigger and more powerful. A lot bigger. A lot more powerful.

In October, the International Monetary Fund released the latest numbers for global gross domestic products. It estimated that when you adjust the national economic output to account for purchasing power within each nation, China produced $17.6 trillion worth of “real” goods and services—compared to America’s $17.4 trillion.

For the first time since World War i, America was arguably not the leading economic power on the planet.

The world has changed—and almost nobody in America noticed.

But outside America, nations are scrambling to catch a ride on the rising Chinese juggernaut. Or at least get out of the way.

Payback

Yet for Britain there may have been an additional motive.

Starting from practically his first day in office, President Obama sought to diminish America’s relationship with Britain. There are many examples: Sending the Churchill bust home; calling the Falklands the Malvinas; dismissing with royal protocol.

When then Prime Minister Gordon Brown came to America to show support for its new president, he was treated like a leader of an inconsequential banana republic.

British papers considered it a national humiliation and embarrassment. The Daily Telegraph boiled: “We get the point. … We’re just one of many allies and you want fancy new friends. Well, the next time you need something doing, something which impinges on your national security, then try calling the French, or the Japanese, or best of all the Germans” (March 4, 2009; emphasis added throughout).

Well, “next time” arrived.

But while the pushback from Britain might have been personal, it was strictly business for most of America’s other allies.

Alternative System

In June 2014, the U.S. Justice Department fined French bank bnp Paribas $8.9 billion for using dollars to facilitate trade with Cuba and Iran, even though the bank was not breaking any French law. America didn’t like that it was helping these nations, so the bank was forced to pay up or be locked out of the U.S. money system—a financial death sentence.

The bank paid. As did Britain’s Standard Chartered Bank, Germany’s Commerzbank and Switzerland’s ubs, among others.

Arnaud Montebourg, France’s finance minister, told the Financial Times that the U.S. policy is “economic warfare.”

You might agree that it was appropriate for America to target foreign banks doing business in countries America is sanctioning. It is ironic that America is now eliminating sanctions on Iran and Cuba, just months after collecting record fines and pushing foreign banks to leave Cuba. But the undeniable result of this and similar actions is a world looking for a new system that avoids the dollar—and U.S. control.

Enter China.

The global embrace of the aiib is a massive coup for China. It is a huge step toward making the yuan a reserve currency that could potentially compete with the dollar.

A week after the British announced they would join the aiib, the Chinese state-run Xinhua news agency jubilantly opined: “Welcome Germany! Welcome France! Welcome Italy!” You can envision the grins.

America wasn’t smiling though. Pushback hurts.

The swift Road to Destruction

China is on the cusp of launching its long-awaited international payment system. Chinese officials say it could go live in September or October. The system will allow foreign banks to conduct transactions in yuan instead of dollars and transfer funds across international borders without using America’s swift payment system.

If successful, the newly created China International Payment System (cips) will remove the biggest hurdles to internationalizing the yuan. It will cut costs, reduce processing times, and simplify the transactions associated with obtaining and using yuan. Reportedly, 13 Chinese banks and seven foreign banks are now testing the system.

Purchasing international goods in yuan will soon be as simple and inexpensive as using the dollar. Reuters compared the creation of cips to a “worldwide payments superhighway” for the yuan.

It’s true that global yuan usage is still a fraction of the dollar’s, but China’s move to create its own competitive version of America’s swift system is a huge piece of infrastructure going into place to allow the yuan to grab global market share from the dollar.

And that could mean that life in America may be about to radically change.

A New World

Reserve currency status is golden. It gives America special privileges and enormous power. It lets Americans borrow money at lower rates than their Asian and European counterparts. It subsidizes their standard of living. It allows politicians to hand out generous social welfare packages, and it gives American corporations an important leg up on their foreign competitors.

When economic trouble strikes, America is able to crank up the printing presses and flood the economy with dollars—and the world has little choice but to keep accepting them and using them. This lets America boost its economy without experiencing many of the negative consequences normally associated with “quantitative easing.” The rest of the world bears the burden.

This has been called America’s “exorbitant privilege.” Or as U.S. Treasury Secretary John Bowden Connally Jr. famously told a group of European finance ministers, the dollar “is our currency, but it’s your problem.”

But the world is finally taking action to fix this problem.

As well-known investor Jim Rogers said in January in a video posted on his personal website, the dollar is a “terribly flawed currency .… People are looking for alternatives.” He explained: “The U.S. is the largest debtor nation in the history of the world. Never has a nation ever got into this much debt, and it’s getting higher and higher every day.

“Washington is spending and borrowing even more and not doing anything about it. No nation would be able to get out of this without a crisis. …

“What will need to happen for the U.S. dollar to lose reserve status? More of what is already happening .…

“Even our friends are starting to say it is out of control. The [South] Koreans do not have too much choice but are saying it is not going to work. … The Chinese and the Russians … are looking for something to use besides the U.S. dollar in their trades and in their reserves.”

Now, China is openly challenging America. And many of America’s closest allies—Britain, Germany, Italy, Australia, New Zealand, France, Taiwan—are voting their approval.

The infrastructure is being built for a world without the United States.

It is a sign that although the U.S. dollar may appear strong right now, its long-term fundamentals are swiftly eroding. And with it, American power and prosperity.

Biblical prophecy is explicit in forecasting America’s decline. Beyond that, it foretells exactly which power will replace the U.S. as the world’s preeminent economy—and includes a chilling description of the frenzy of participation it will arouse from greedy and unprincipled investors and merchants all over the planet. It is truly a horrifying picture of the post-American world.

The groundwork for that world is being laid today. The blows to America’s economic might are descending rapidly and forcibly. Brace yourself: A new economic age is about to begin.

Full article: Deathblow to the Dollar (The Trumpet)

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