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Say you're an
up-and-coming superpower wannabe with dreams of dominating your neighbors and
intimidating everyone else. Your ambition is understandable; rising nations
always join the "great game", both for their own enrichment and in
defense against other big players.
But if you're
Russia or China, there's something in your way: The old superpower, the US,
has the world's reserve currency, which allows it to run an untouchable
military empire basically for free, simply by creating otherwise-worthless
pieces of paper and/or their electronic equivalent. Russia and China can't do
that, and would see their currencies and by extension their economies
collapse if they tried.
So before
they can boot the US military out of Asia and Eastern Europe, they have to
strip the dollar of its dominant role in world trade, especially of Middle
Eastern oil. And that's exactly what they're trying to do. See this excerpt
from an excellent longer piece by Economic Collapse Blog's Michael Snyder:
China
and Russia are Ruthlessly Cutting the Legs Out From Under the US Dollar
China and
Russia are not the "buddies" of the United States. The truth is
that they are both ruthless competitors of the United States and leaders from
both nations have been calling for a new global currency for years.
They don't
like that the United States has a built-in advantage of having the reserve
currency of the world, and over the past several years both countries have
been busy making international agreements that seek to chip away at that
advantage.
Just the
other day, China and Germany agreed to start conducting an increasing amount
of trade with each other in their own currencies.
You would
think that a major currency agreement between the 2nd and 4th largest
economies on the face of the planet would make headlines all over the United
States.
Instead, the
silence in the U.S. media was deafening.
However, the
truth is that both Russia and China have been making deals like this all over
the globe in recent years. I detailed 11 more major agreements like the one
that China and Germany just made in this article: "11
International Agreements That Are Nails In The Coffin Of The
Petrodollar".
A few of the
things that will likely happen when the petrodollar dies....
·
Oil will cost
a lot more.
·
Everything
will cost a lot more.
·
There will be
a lot less foreign demand for U.S. government debt.
·
Interest
rates on U.S. government debt will rise.
·
Interest
rates on just about everything in the U.S. economy will rise.
So enjoy
going to "the dollar store" while you can.
It will turn
into the "five and ten dollar store" soon enough.
Some thoughts
Snyder goes
on to note that both China and Russia are accumulating gold, which will
protect them from the coming currency crisis and give the ruble and yuan greater legitimacy in global trade. In Jim Rickards' book Currency
Wars, he tells the story of financial war games conducted by the US military,
in which one of the scenarios was a Russian gold backed currency that
challenged the dollar. We're apparently not far from that plan becoming
feasible.
The US spends
a big chunk of its $700 billion a year defense budget on dominating the
Middle East in order to force the trading of oil in dollars. Let that trade
be diversified into several currencies and the demand for petrodollars goes
way down. Central banks and global corporations will sell part of their
dollar holdings, sending the dollar's exchange rate into a tailspin. This in
turn will make it harder for the US to finance its military empire/welfare
state.
The net
result: America becomes Spain, no longer able to simply whip out the monetary
credit card to cover its overspending. We'll have to live within our means,
cutting maybe $3 trillion a year in government largesse (including the growth
in unfunded entitlements liabilities).
Cuts on this
scale can't be accomplished smoothly, as Europe is discovering. So in this
scenario the coming decade will be even messier than the last one, with
"Occupy" movements shutting down cities and every election
producing incumbent massacres. A combination of higher prices for necessities
and lower wages will demote much of the middle class to "working
poor."
Meanwhile,
China and Russia will reap the rewards of stronger currencies, and will
divide (or share) control over their part of the world. It's hard to know who
to feel sorrier for, Americans who thought they could depend on government
programs for a middle class lifestyle, or the neighbors of China and Russia
who will see the relatively light hand of the American empire replaced with
something far more atavistic.
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