Economics, Free Pom, Multilateral Investment Strategies
How China Is Deleveraging From The USD (Freepom)
By JC Collins
Reader Thoughts On “How China Is Deleveraging From The USD (Freepom)”
Robert Liou JC- thanks for sharing this. Question- you seem to be advocating for a relatively stable transition from a unilateral to a multi-lateral monetary system where the RMB plays a bigger part.
However, does all of the outstanding accumulated debt affect this transition from occurring in a peaceful manner? US public debt has gone parabolic, increasing from ~$8T before 2008 to ~$18T currently. This does not include the present value of Medicare, Medicaid, SS, etc. which is over $80T.
The last time the US ran a budget surplus was 1969, and this was for about $30Bn. We do not appear to have a true surplus since then. Raising interest rates by 1% results in an annual debt service expense increase of about $300Bn. Therefore, it does not appear likely the US can ever payback its debt?
Continued: China also has increased their public debt from ~$8T in 2008 to ~$32T currently. Unlike the US debt, however, most of this debt is owed within its system. However, it appears more likely that this debt will be defaulted/ forgiven, rather than paid back?
My question is- how does this transition occur with debt loads this great? It it possible to have a peaceful transition with all of this debt default looming? Thanks, Rob L (POM subscriber)
JC Collins Rob, there will be some volatility for sure. Even some bankruptcies and defaults. Sovereign debt restructuring will become a bigger topic in the months and years to come. But I would think it will relate more to 2nd tier players.
When it comes to the US debt, it doesn’t need to be paid off. That’s not the point of the debt. It’s all about debt management. In that regard, today the American debt-to-GDP ratio is around 104%.
After WW2 it was over 140%. With a depreciation of the dollar, and an increase in exports, equating to domestic job growth, the debt-to-GDP ratio should adjust accordingly. Remember, there is a reason China has invested so heavily in US factories, banks, etc..
On the geopolitical front, we are seeing the balance of power shifting, just like the reserve accumulation. I do not see a major war, but I can see the possibility of regional wars between proxy players, such as Iran and Saudi Arabia. All the big players want this monetary transition to happen. It is likely this will be enough leverage to keep a lid on big war.
Dane A great post JC and accompanied with a wonderful SOUA last night that has parts that are so…..POM! Here are a couple extracts from the State of the Union Address last night.
“We live in a time of extraordinary change – change that’s reshaping the way we live, the way we work, our planet and our place in the world.”
“We did not, in the words of Lincoln, adhere to the “dogmas of the quiet past.” Instead we thought anew, and acted anew.”
“Anyone claiming that America’s economy is in decline is peddling fiction. What is true – and the reason that a lot of Americans feel anxious – is that the economy has been changing in profound ways, changes that started long before the Great Recession hit and haven’t let up.”
Here is the entire SOUA from the White House as prepared for delivery.
Speedspirit Along with thoughts on the SOUA is the fact that the audit the FED bill failed to gain enough support among legislators. I suspect that even if there is wrong doing on the part of the FED it would be too detrimental to the economy and the stability of the world to unveil now.
I would also like to state the President is a puppet controlled by Wall Street and what he has to say is double talk. The words have two meanings and what seems like positive affirmations are also declaring our enslavement if left unrestrained. I would guess that just like no one listens to main stream media these days no one is really listening to the President anymore. What’s his rating approval less then forty something percent?
Peter With only 2 terms I am not surprised you have to kow tow to institutions that have been around 10 times that in order to try and get things done. I mean what’s 2 terms at the moment – the average time of one boom , bust cycle?
viriato67 I have read some comments where Big Oil Companys are complaining about low oil prices which are damaging profits.
Do you think JC, that it is a hegelian argument for justify possible takes over o mergers in a near future among the seven ó eight big west oil companys, given that prices have some room be lower? It seems….so, at least to me. Best Regards.
Gails Waters JC I understand there is as many as a billion naked shorted, counterfeit shares being sold into the US market DAILY!
This has being happening daily for a very long time so the accumulation has got to be in the trillions
How does this mess get cleaned up, any thoughts? GW
shawn Michael I’ve been wondering that myself
Tony Graupp Greetings JC; Here’s what Bloomberg’s Ken Hoffman has to say about
China’s financial “”MESS””
Peter First I understand about investing in gold in a stable environment, however volatile, but stable. But I have never understood how people think that gold will get them out of an unstable environment unless you have grown up and forged a controlling stake in such an environment ie criminal underworld.
I have been in some tight situations when doing any trade in some parts of Africa and gold would not have always been the strongest currency. I say this only to remind you that all systems need balancing and if you look at anything long enough it all begins to sparkle… Precioussss:-) .
Tony read JCs free publication re engineering the dollar for a more balanced view on the pom analysis. There he offers a few alternatives one in which even gold plays apart.
Tony Graupp Greetings Peter; I think I can understand what you are saying…
BUT, on the other hand there has to be some subliminal reason why China is buying up & hoarding so much gold…
The Shanghai Gold Exchange supposedly processed for sale over 2500 tonnes of gold last year…
That’s more gold than the free world produced, as China does not export any gold [while being the largest producer of gold]… I don’t know the reason for them doing it… “”BUT”” I’m sure we’ll know at some point in the near future.. Tony