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The Real Reason Russia and China Are Dumping U.S. Debt

Lonely Hermit

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The Real Reason Russia and China Are Dumping U.S. Debt
The Real Reason Russia and China Are Dumping U.S. Debt
MONEY MORNING STAFF REPORTS, Money Morning • June 22, 2015

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In the early 20th century, Jacob Schiff of investment house Kuhn, Loeb & Co. in New York asked his London associate Sir Ernest Cassel how to ensure the Dominican Republic wouldn't renege on its debts.

Cassel's response: "Your marines and ours."

This conversation highlights the worrying relationship between U.S. bankers and international financiers with the U.S. government and military. It was one of many instances explored in author Ron Chernow's history of J.P. Morgan.

And while these stories may seem like apocryphal retellings of darker episodes in U.S. financial history, one characterized by predatory trusts and robber barons, we haven't changed much since.

The dollar is a weapon. One that is backed by U.S. military might.

That has been shown to be the case throughout U.S. military history with Iraq, Iran, Russia, and any other number of U.S. adversaries that the U.S. Treasury seeks to cripple by shutting them out of international markets and financing.

But the U.S.'s financial foes aren't taking it anymore.

They want to bring an end to this financial weaponization of the dollar.

And in doing so, they are going to do whatever it takes to both diminish the dollar's role as a reserve currency and introduce a new international payments system to settle global transactions…

Countries Team Up to Take Down the U.S. Dollar
You see, when the dollar reigns supreme, countries like China and Russia unwittingly find themselves paying for U.S. military expansion.

Russia and China receive payments for their goods in dollars when they export to the United States. They can either choose to let those foreign currency reserves sit at their account at the U.S. Federal Reserve, or they can buy U.S. Treasury bonds, which are denominated in U.S. dollars, and earn some interest. And with rates as low as they are, even those returns are becoming paltry.

And what do these countries get for financing the U.S. deficits?

"When the U.S. payments deficit pumps dollars into foreign economies, these banks have little option except to buy U.S. Treasury bills and bonds," Michael Hudson, distinguished research professor of economics at the University of Missouri-Kansas City, wrote in his 2010 book, The Bubble and Beyond.

With that influx of dollars, "the Treasury spends on financing a hostile military build-up to encircle the major dollar recyclers – China, Japan, and Arab OPEC oil producers. These governments are forced to recycle dollar inflows in a way that funds U.S. military policies in which they have no say in formulating."

It's this unavoidable financing of U.S. military adventurism that prompted the so-called "dollar-recyclers" to unite in a front to dethrone King Dollar.

We see it with organizations like the Shanghai Cooperation Organisation, made up of China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan.

The 2009 summit in Yekaterinburg, Russia, between these six nations – which also invited noted dollar adversary Iran as well – was telling, as Hudson further recounted in his book. They had come together to discuss mutual aid.

U.S. meddling was to be absent in the administration of this aid – as was the dollar.

And it was just a month before that at a G-20 summit, former Russian president Dmitry Medvedev called on India and China to join his nation in an "increasingly multi-polar world" – a world without the dollar as the reserve currency.

Dollar hegemony, backed by U.S. military might, has been the cornerstone of the global financial order ever since the candid talks between those two powerful investment bankers took place in the early 1900s.

And more than a century later, the enemies of the United States are pushing back.

"A lot of U.S. debt is owned by foreigners. Who owns it?" Jim Rickards, the Financial Threat and Asymmetric Warfare Advisor for both the Pentagon and CIA, told Money Morning in an interview.

"China, Russia, other countries – countries that are not necessarily our friends."

He added, "They can dump it when they want to. Well, guess what, that's actually what's been going on."

Since November 2013, when China held its largest holdings of U.S. debt, they have shed about $53.3 billion worth of U.S. Treasuries – about 4% – to $1.26 trillion. Russia has dumped $109.2 billion in U.S. debt to cut back its holdings to $66.5 billion – more than 60% – since that number peaked in July 2010.

We're seeing an attack on our U.S. Treasury in a global attempt to thwart the dollar's supremacy in international markets. The damage is going to rattle the financial system and could wipe out as much as $100 trillion in wealth across the world.

Rickards has been one of the louder voices in the financial community warning of the dollar's demise for years. And he's finally revealing how you and your money can emerge from this onslaught unscathed…
 

anon45

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I presume you are talking currently/ in the next 5 years, and not 10-20 years in the future.
What could Russia and China realistically do, and what alternative do they bring? The Yuan?:lol: The Ruble?:rofl:

SDR?:rolleyes:

I won't even say the E word.
 

LeveragedBuyout

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@Chinese-Dragon @LeveragedBuyout
Hey guys hearing rumors in net that Russia and China are attacking the US dollar reserve currency status and there is going to be global financial reset ?
Is there any major distress in world financial market ?

Short version:

Russia can't dump the dollar, because its trading counterparties demand that trades be transacted in hard currencies (USD, EUR). China can't dump the dollar because it runs a mercantilist trade policy, and the US financial system is the only one deep enough and liquid enough to accommodate China's massive excess savings.

That said, the decline of the USD will help the US tremendously, so no need to take these threats seriously.
 

Spectre

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Short version:

Russia can't dump the dollar, because its trading counterparties demand that trades be transacted in hard currencies (USD, EUR). China can't dump the dollar because it runs a mercantilist trade policy, and the US financial system is the only one deep enough and liquid enough to accommodate China's massive excess savings.

That said, the decline of the USD will help the US tremendously, so no need to take these threats seriously.

All true and excellent points however the points OP made are not completely unjustified but none of that matters as Yuan/Ruble are not really what you call top shelf currencies.

I can see them having some relevance in bilateral trades b/w Russia and China but not much in international finance.

To pose any realistic threat to USD following needs to happen:

1. India - Brazil - Russia - China - South Korea - Japan - Australia need to dump dollar reserves and refuse any and all transactions in USD which essentially means no trade with USA and other countries insisting on dollar transactions

India - South Korea - Japan - Australia will never do this for some obvious reasons -

a. There is no credible alternative. Euro is the closest but then again EURO is itself beset with many issues. You never know when will another Greece Happen and using Euro kind of defeats the objective of dumping dollar :)

b. Lack of complete convertibility and state control/manipulation of currencies like Yuan makes other countries jittery of holding Yuan reserves.

c. Strategic realities will never see alignment of India - Japan - Brazil with China/Russia against US.

2. Default by US - Unthinkable it is like a loop. The faith in dollar of other countries allows US never to default. They can always print more and as long it is the transnational currency it's value in trades will stay constant. So in a nutshell US needs to default to loose it's status but it's status ensures it will never default :) I can see how that makes other countries squirm at US audacity. It is unfair but then life is often that way

3. Flight to Quality: Everyone needs a safe - box to park their reserves in case of turbulence in markets. US dollar happens to be the most obvious one due to it being the most liquid currency in the world. Thus it doesn't matter that what markets are in recession be it US itself. Money will go US Treasuries.

All my above points suggest that Dollar is on positive feed-back loop. Anything which happens only makes it stronger.

Short of voluntary relinquishment of USD as international transaction currency by US treasury by blocking access to USD and shutting down their banking system nothing will impact Dollar.

Regards
 
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Basel

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Can creation of new International currency by countries like China, Russia, Brazil, Iran would help reduce dollar's dominance?

I m not talking about replacing it, just reducing dependence on dollar by world, will that happened?
 

Spectre

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Can creation of new International currency by countries like China, Russia, Brazil, Iran would help reduce dollar's dominance?

I m not talking about replacing it, just reducing dependence on dollar by world, will that happened?

Very difficult, it will be a slow and steady project spanning decades of constant and conscious effort to undermine dollar by major mercantile nations.
 

Nicky G

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Ultimately, you need a world war and huge geo-strategic realignment to have the USD dumped as the reserve currency.

China, Russia are simply shedding dollars they don't need. Hurting the value of dollar hurts China's export driven economy too.

Can creation of new International currency by countries like China, Russia, Brazil, Iran would help reduce dollar's dominance?

I m not talking about replacing it, just reducing dependence on dollar by world, will that happened?

USD became the reserve currency post Bretton Woods agreements when major economies agreed to do business in dollars and the rest of the world followed. Moreover, financial institutions such as WB and IMF work in dollars.

For any currency to challenge USD, not only would there need to be very high incentives but you'd need institutions parallel to IMF/WB - the BRICS bank some claim is a step towards that by China and Russia but its at this stage in its infancy.
 

Basel

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Very difficult, it will be a slow and steady project spanning decades of constant and conscious effort to undermine dollar by major mercantile nations.

But its possible. Dollar have also took decades to be on today's position.
 

Spectre

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But its possible. Dollar have also took decades to be on today's position.

Every thing is possible, probability of any future event is never zero. There will be no one happier than me if hegemony of USD is broken but wishful thinking is not the way forward.

As I have stated in my earlier posts, for dollar to decline, the institutions and countries supporting it have to decline much more and become irrelevant to international finance. I don't see that happening within next three or four decades and that is what my life span is. So if anything happens after that I am least bothered about it.
 

gambit

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Short version:

Russia can't dump the dollar, because its trading counterparties demand that trades be transacted in hard currencies (USD, EUR). China can't dump the dollar because it runs a mercantilist trade policy, and the US financial system is the only one deep enough and liquid enough to accommodate China's massive excess savings.

That said, the decline of the USD will help the US tremendously, so no need to take these threats seriously.
Geeez...:rolleyes:

Another comment by someone who knows what he is talking about. Hello...Did you not get the memo that we are tired of seeing informed posts from experience ?
 

LeveragedBuyout

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Geeez...:rolleyes:

Another comment by someone who knows what he is talking about. Hello...Did you not get the memo that we are tired of seeing informed posts from experience ?

Indeed, which is why I probably won't post anymore on PDF after Labor Day, and confine myself to lurking. I admire your long years of patience here, but PDF is just not a good fit for me. Good luck and happy hunting to you and all of the other quality users here.
 
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Nobody would accept any currency except USD for now. And the case for USD keeps getting stronger by the day:

1) Yuan - nobody trusts China and their currency control/manipulation, so no
2) Rouble - there is nothing to show Russia won't go bankrupt. They'd rather accept payment in barrels!
3) Euro / Swiss Francs / Pound Sterling - too much political posturing and economic turmoil in Europe

Chinese and Russians with money are actually BUYING US dollars (yes, cash), stuffing them in suitcases and bringing them into the USA because any other place is too risky.

Forget about Chinese century. It is still very much a US century.
 

gambit

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Indeed, which is why I probably won't post anymore on PDF after Labor Day, and confine myself to lurking. I admire your long years of patience here, but PDF is just not a good fit for me. Good luck and happy hunting to you and all of the other quality users here.
I do not take these yay-hoos seriously in the first place. Most of these guys can barely balance a checkbook, if they live in a country that is prosperous enough to have a banking system, let alone actually worked in high finance, been in the military, and/or traveled to other countries. To me, I do not participate to change their minds, I usually know what is a person's view about a subject from a few posts, rather, my focus is on the silent readers.

Anyway...Good luck to whatever Internet adventures you may have planned. Just poke your head back in once in a while and (intellectually) smack a few heads if you can.
 

BuddhaPalm

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Anybody still holding dollars at the end is the chump! Good to see China and Russia making somebody else the chump. America is about to implode with gun battles everywhere. Fun to watch :pop:
 

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