For several years, stories predicting the collapse of the U.S. dollar have been floating in the blogosphere, only shrouded in enough facts to win over the most conspiracy-minded Americans. Unfortunately, some of the more extreme rhetoric has caused observers to miss the glaring threat staring us right in the face – the People’s Republic of China.
China, responsible for more worldwide trade than any other country on the planet, currently possesses more than a trillion dollars of U.S. debt. When you look at that big national debt clock, rest assured that a healthy chunk of it is owed to the Chinese. Much of this debt is due not to real estate holdings or bailout schemes, but a scheme of China’s own device which included stockpiling American currency and then loaning it back to us at outrageously low interest rates.
This is all well and good, but cautious Americans might be permitted to wonder what happens when China decides that it’s done playing nice with the United States. This isn’t as much of a distant, hazy possibility as some in the mainstream media would have you believe. In fact, it’s already begun to happen. In November of last year, the People’s Bank of China declared that they were going to stop accumulating foreign reserves. In other words, they were going to stop buying U.S. debt because, after all, we’re not a country in the habit of paying down the principal. Combine this with China’s efforts to persuade trade partners to abandon using the U.S. dollar as trade currency and you have some major waves in the system. Waves that spell trouble for the U.S. economy and the strength of the dollar worldwide.
The balance of power has shifted to the communists. In the face of U.S.-imposed sanctions on Iran, China was able to make a killing trading cheap consumer goods to the Iranians in exchange for oil. They have also exploited the sanctions by putting almost 100 Chinese-owned businesses on Iranian soil. This isn’t just in the oil market, either; these businesses are in other industries like transportation and construction. Even as the U.S. starts tentatively reaching out to Iran for assistance against the ISIS terrorists, there’s little question that a healthy, stable Iran-China relationship is bad for our future prosperity.
If China is done accumulating U.S. currency, what will they stockpile instead? Some of the more frightening signs point to gold. Not even the wisest currency experts can venture a guess as to how much gold China already has in their reserves, but most economists agree that they have long surpassed the U.S. federal government’s own production rate. In another decade, they could have a larger stockpile as well. None of this means anything if China stays the course, but if they manage to get more countries on board with abandoning the U.S. dollar as a primary trade currency, demand will vanish and interest rates will skyrocket. Should that come to pass, the U.S. dollar may be in for a devastating loss in value.
What does that mean for you? Look for conservatives who have shown a voting record consistent with a tough approach to Chinese dealings. Look for those that go beyond the rhetoric. Oh, and if you feel inclined to buy a few gold bars now and again, you might want to do that too.