We warned about this in our Pentagon research back in late 2008 and early 2009 but there were plenty of skeptics. We emphasized the risk in the 2012 NY Times bestseller, Secret Weapon. In Chapter 9, we made a strong case that China could dump their Treasury bond holdings and work fervently to establish the Yuan as a reserve currency alternative to the American dollar. We pointed out how multiple Chinese sources were planning for this and labeled it “financial warfare.” We made it clear that this would prove deflationary for China but said “If China can tolerate such deflation and if it can transition effectively, it will be sitting in the shade.”
While we knew then that the time had not yet arrived for China to make her move, we also knew it was just a matter of time. Starting in 2011, we began to address the risk of financial warfare in this Blog. Just look back at this February 2011 post where we argued that China had a long-term view and a five-year plan:
Most people don’t even realize we have an actual war being fought — one that has been ongoing for over a decade. Most people also believe that our economic downturn is part of the usual economic cycle and will return to normal. This couldn’t be farther from the truth. Fact of the matter is, the US Dollar’s days are numbered and America is doing very little to defend it.
In late 2008, when the U.S. Treasury bond seemed the safest investment in the world and the dollar once again reigned supreme as a safe haven, we predicted a Phase Three attack. At the time, we said that the way things would play out, so-called experts would say that it was just a natural and inevitable result of global events. Never mind that these would be the same people who dismissed the concern only a short while earlier. We have documented all of this repeatedly in our final report for DoD (Economic Warfare: Risks and Responses published in June 2009), our book Secret Weapon (www.secretweapon.org) and in this Blog. We explained well in advance that the BRIC nations would call for the end of the dollar as reserve currency, piling on to similar expressions from the IMF and UN. We stated without hesitation that the US Treasury would lose Triple-A status even as Timothy Geithner said it could never happen.
Now, the alarm bells are ringing louder than ever before. But, the policymakers are ignoring the handwriting on the wall, lulled into complacency by lower interest rates paid by our Treasury. Let’s be clear. This is not an “all clear.” Just today, we received some powerful research by Citigroup titled The “Frozen Hell” of a High Deficit, Low Rate Environment. Here are some of the insights that support our concerns:
“As was the case for a decade in Greece, low government bond yields delayed recognition of a problem. The effects on investment spending, employment and income never produced are more difficult to measure than any obvious interest rate spike related to large deficit
Greece’s budget and external imbalances went undisciplined by markets for a full decade. For how long could the U.S.?”
Full article: The Death of the Dollar (Kevin Freeman / Global Economic Warfare)