Is China Ready To Pull The Plug?

China has been tip-toeing towards this for years, and has openly admitted on numerous occasions that they plan to institute a break from U.S. debt and the dollar in due course. Anyone who continues to argue that a Chinese decoupling from America’s economy is impossible at this point is truly beyond hope. Though increasingly more rare, news on China’s push to drop the U.S. still leaks out. Recently, a top advisor to China’s central bank let slip that a plan is in place to begin “liquidating” (yes, they said liquidate) their U.S. Treasury bonds as soon as possible, and reposition national investments into more physical assets:

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011987/china-to-l...

But let’s step back for a moment and pretend China hasn’t told us exactly what it is going to do time and time again. Instead, let’s look at the fundamentals.

The primary concern in China right now is inflation. Because China does not yet have the ability to export its fiat to other markets the way the U.S. does, its own liquidity injections in the face of the credit crisis have led to severe price increases. In August alone, overall inflation was rated at 6.2% (always double government produced numbers to get true inflation). Food prices jumped 13.4%, while meat and poultry jumped 29.3%. Because these numbers are around 1% lower than in previous months, the Chinese government has prematurely proclaimed a “cooling period”:

http://www.telegraph.co.uk/finance/china-business/8751482/China-inflation-cools-...

With harsh inflation continuing unabated, eventually, the Asian nation will be forced to enact abrupt policies. This will likely take the form of a strong Yuan valuation, or a “floating” of the Yuan. A sizable increase in the value of the Chinese currency is the ONLY way that the government will be able to combat rising prices. By increasing the buying power of its citizens, the government allows them to keep pace with rising prices, and eases the tension within the populace which could otherwise lead to civil unrest. For China to ensure that a floating of the Yuan will lead to a much higher value, their forex and treasury holdings will have to fall. Period.

A dumping of the dollar will give the Chinese room to breath, and this space will be needed very soon. The debt ceiling deal made by Congress in the aftermath of the credit downgrade left the rest of the world unimpressed. While the MSM tries to make us forget that this event ever occurred, most foreign investors have not. Markets are anxiously awaiting an announcement from the Fed for further liquidity injections. If this announcement is not made after meetings next week, then it will certainly be made before the end of the year. Ironically, the same quantitative easing that investors are clamoring for today is liable to become the final signal for China to cut its losses and separate from U.S. securities completely. China has been positioned for many months now to take such measures…

Lights Out…

Delusions of Chinese dependency on the U.S consumer still abound, and those who suggest a catastrophic dump of U.S. debt and dollars in the near term are liable to hear the same ignorant talking points we have heard all along:

“The Chinese are better off with us than without us…”

"China needs export dollars from the U.S. to survive…”

“China isn’t equipped to produce goods without U.S. technological savvy…”

"America could simply revert back to industry and production and teach the Chinese a lesson…”

“The U.S. could default on its debts to China and simply walk away…”

“The whole situation is China’s fault because of their artificial devaluation of the Yuan over the decades…”

And on and on it goes. Though I have deconstructed these arguments more instances than I can count in the past, I feel it my duty to at least quickly address them one more time:

U.S. consumption of all goods, not just Chinese goods, has fallen off a cliff since 2008 and is unlikely to recover anytime soon. China has done quite well despite this fall in exports considering the circumstances. With the institution of ASEAN, they barely need us at all.

China is well equipped to produce technological goods without U.S. help, and if Japan is inducted into ASEAN (as I believe they soon will be), they will be even more capable.

America will NOT be able to revert back to an industrial based economy before a dollar collapse escalates to fruition. It took decades to dismantle U.S. industry and ship it overseas. Reeducating a 70% service based society to function in an industrial system, not to mention resurrecting the factory infrastructure necessary to support the nation, would likely take decades to accomplish.

If the U.S. deliberately defaults on debt to China, the global reputation of the dollar would implode, and its world reserve status would be irrevocably lost. We won’t be teaching anyone a “lesson” then.

Yes, China currently manipulates its currency down, but then again, so does the U.S. though quantitative easing. Both sides are dirty. Taking sides in this farce is pure stupidity...

Now that all that has been cleared up (again), the primary point becomes rather direct; the reason it is difficult to predict an exact time frame for an American collapse is because all the pieces are in place to trigger an event right now! There are, of course, stress points within the system that set a time limit, even on global banks and China, but a full spectrum catastrophe is not only a concern for some distant future. Every element needed for the so called “perfect storm” is ever present and ready to ignite at a moments notice. The destructive potential coming from China alone is undeniable. Everyday that the spark is subdued should be treated as a gift, an extra 24 hours of education and preparation. This is how close we are to the edge. It is not for us to be alarmed, but to be ready, and ever aware.






http://www.alt-market.com/articles/266-is-china-ready-to-pull-the-plug