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Topic: In other news ...
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Mdot21 · « **Reply #14686 on:** March 18, 2022, 05:25:57 PM »

(from 2018)

Not long ago, there was a popular joke in China that went something like, “Who is Xi Jinping?”

The answer was, “The husband of Peng Liyuan,” the famous singer Xi is married to.

Today, Xi is China’s president. He leads 1.4 billion people. And he’ll likely be the most powerful person in the world soon.

Trump’s tariffs are part of a larger, escalating battle between the US and China.

China is rapidly displacing the US as the dominant global power. This shift is inevitable. China’s economy will be twice as large as the US economy by 2030.

This leaves the US with limited options…

1) It could kick back and let China displace it as the most powerful country in the world.
2) It could start a military war with China.
3) And it could push the current trade battle into an all-out economic war against China.

I think a full-blown economic war is the most likely. Under President Trump, it’s all but certain.

That said, the Trump administration seems to underestimate China’s position—in both the short and long term.

For decades, the US has been able to exclude virtually any country it wants from international trade. Right now, if one country wants to trade with another, it basically needs US permission first.

That’s because (for a short while longer) the US dollar is the world’s most important currency. The US Navy also dominates the world’s oceans, controlling most major shipping lanes.

But China is building a new international system. Eventually, it will let China and its trading partners totally bypass the US.

History’s Biggest Infrastructure Project

The New Silk Road is the centerpiece of China’s new plan.

In the coming months and years, it will include high-speed rail lines, modern highways, fiber optic cables, energy pipelines, seaports, and airports. It will link the Atlantic shores of Europe to the Pacific shores of Asia.

China expects to have its New Silk Road fully up and running by 2025.

This is history’s biggest infrastructure project. The whole point is to completely re-draw the world economic map. If it’s successful—and it most likely will be—China will dominate Eurasia.

President Xi announced the $1.4 trillion plan in late 2013. When it’s done, a train leaving Beijing will be able to reach London in only two days.

Keep in mind, the Chinese are careful long-term planners. When they make a strategic decision of this magnitude, they totally commit.

Take their road system, for example. Between 1996 and 2016 China built 2.6 million miles of road, including 70,000 miles of highway. In just 20 years, it built far more highway than the US has in its entire existence.

In other words, the Chinese get things done. They have the political might—along with the financial, technological, and physical resources—to make the New Silk Road happen. With iron-willed President Xi at the helm, I have no doubt they’ll pull it off.

Not long from now, the New Silk Road will help China unseat the US as the world’s dominant global power and totally upend the geopolitical paradigm.

But before that happens—within the next couple of weeks, actually—China is introducing a way for anyone who buys or sells oil to opt out of the US-dominated global monetary system.

Why the Dollar Is Different Than the Peso

Most investors know that oil is the largest and most strategic commodity market in the world. It dwarfs all other major commodity markets combined.

Every country needs oil. And, for a short while longer, they need US dollars to buy it. That’s a very compelling reason to hold large dollar reserves.

This is the essence of the petrodollar system, which has underpinned the US dollar’s role as the world’s reserve currency since the early 1970s.

Right now, if Italy wants to buy oil from Kuwait, it has to purchase US dollars on the foreign exchange market to pay for the oil first.

This creates a huge artificial market for US dollars.

In part, this is what separates the US dollar from a purely local currency, like the Mexican peso.

The dollar is just a middleman. But it’s used in countless transactions amounting to trillions of dollars that have nothing to do with US products or services.

Since the oil market is so enormous, it acts as a benchmark for international trade. If foreign countries are already using dollars for oil, it’s just easier to use dollars for other international trade, too.

In addition to nearly all oil sales, the US dollar is used for about 80% of all international transactions.

This gives the US unmatched geopolitical leverage. The US can sanction or exclude virtually any country from the US dollar-based financial system at the flip of a switch. By extension, it can also cut off any country from the vast majority of international trade.

The petrodollar system is why people and businesses everywhere in the world take US dollars. Other countries have had little choice about it, until now…

China’s “Golden Alternative”

China does not want to depend on its main adversary like this. It’s the world’s largest oil importer. And it doesn’t want to buy all that oil with US dollars.

That’s why China is introducing a new way to buy oil. For the first time, it will allow for the large-scale exchange of oil for gold.

I’m calling this new mechanism China’s “Golden Alternative” to the petrodollar.

Ultimately, I think people will look back and see the Golden Alternative as the catalyst that killed the petrodollar.

Here’s how it will work…

The Shanghai International Energy Exchange is introducing a crude oil futures contract denominated in Chinese yuan. It will allow oil producers to sell their oil for yuan.

China knows most oil producers don’t want a large reserve of yuan. So producers will be able to efficiently convert it into physical gold through gold exchanges in Shanghai and Hong Kong.

Countries around the world will have a genuine, viable way to opt out of the petrodollar system. Now is the time to position yourself to profit.

Gold Will Soar

With China’s Golden Alternative, a lot of oil money will flow into yuan and gold instead of dollars and Treasuries.

I think the price of gold is going to soar.

If we assume that just half of Chinese oil imports will be purchased in gold soon, it translates into increased demand of well over 60 million ounces per year—or more than 55% of gold’s annual production.

Of course, China won’t be the only country using the Golden Alternative. Anyone will be able to.

The increased demand for gold is going to shock the market. That’s why I think the price of gold will soar.

As the petrodollar dies, gold will be remonetized… and China will be another step closer to displacing the US.

Mdot21 · « **Reply #14687 on:** March 18, 2022, 05:27:13 PM »

(from 2018)

[color=var(--sa-text-color-1)]Yes, The Petro-Yuan Is A Threat To The U.S. Dollar[/font][/size][/color]

Summary

The US dollar enjoys a special privilege in the world due to its dominance in the global oil trade.
The agreement that created this dominance was predicated on the United States being the largest oil importer in the world, which is no longer the case.
China is rolling out a new gold-backed yuan oil contract next month as part of its attempt to replace the US dollar's dominance of that commodity trade.
Given the US's rise as a potential energy exporter and other factors, China may succeed in this goal.
If the dollar loses its privileged status, it will likely lead to inflation and rising interest rates in the USA along with difficulty maintaining the current standard of living.

I recently encountered a blog post by respected commentator Mish Shedlock entitled, "[color=var(--sa-link-color)]Petro-Yuan Futures Launch In March: Ignore The Hype, It's A Good Thing
[color=var(--sa-link-color)]Petro-Yuan Futures Launch In March: Ignore The Hype, It's A Good Thing[/iurl]." In this article, Shedlock argues that the new futures will pose no threat to the US dollar as the global reserve currency even if the futures do result in oil being priced in yuan. While Shedlock does certainly make some interesting points, I do disagree with his overall conclusion. This article will explain why.[/size]

[/font][/size][/color]

Shedlock's Argument
First of all, I would suggest reading the original article linked above to get a full grasp of Mr. Shedlock's argument. The discussion here will merely be a short summary of the initial article along with my conclusions about it.
In short, Shedlock states that it does not matter what currency oil is valued in as all currencies are basically interchangeable. He does however believe that we may be nearing the end of the days of the Middle East selling their oil for US dollars but that has nothing to do with the launch of the petro-yuan oil futures. Rather, it is a direct result of the shale oil boom in the United States, which could turn the United States into a net oil exporter by the end of the decade and thus the country would no longer need to import oil from the Middle East.

Shedlock concludes however that this would have little impact on the US dollar's status as a reserve currency and that the United States would be better off as an exporter of energy than with oil continuing to be priced in dollars.

The Rise Of The Petrodollar
In order to understand the flaws in this argument, it is important to understand how the United States got into the position of controlling the world's primary reserve currency. It has its roots in a 1944 conference held at the Mt. Washington Hotel in Bretton Woods, New Hampshire that was attended by 730 delegates from all 44 Allied nations. After 22 days of deliberation, the delegates eventually devised a monetary system in which the United States dollars would be directly convertible into gold and all other currencies would be pegged to the dollar.

As the United States owned approximately two-thirds of the world's gold at the time, this system made sense and it put the gold standard into place as fiat currencies were widely considered to be one of the root causes of the second World War. This also resulted in the US dollar becoming the reserve currency since all other currencies were pegged to it (and the dollar itself was directly convertible into gold).

However, in the 1960s, the United States had a growing trade imbalance and a rapidly growing public debt due to its declining dominance of the world's economic output and expenses related to the Vietnam War. This, combined with monetary inflation due to Federal Reserve policies, resulted in the US dollar being increasingly overvalued. Some foreign nations were becoming increasingly disenchanted with the privilege that this situation provided to the United States compared to its partners in the Bretton Woods system.

Some nations, led by France, began to convert their dollars into gold, putting pressure on the gold reserves of the United States to the point where only $3.2 billion worth of actual gold was backing $14 billion held by foreign central banks. In 1971, West Germany left the Bretton Woods system and both France and Switzerland demanded physical gold in exchange for their dollars.

Finally, in August 1971, President Richard Nixon suspended the convertibility of US dollars into gold in an attempt to remedy these problems. While it did stop the problem of declining gold reserves, it also sparked widespread speculation against the dollar due in part to the high trade deficits, mounting debt load, and high unemployment in the United States at this time.

This led to its own problems, including a high inflation rate in the United States. This also led to problems with international trade since foreign currencies were appreciating so rapidly that it was difficult to price goods appropriately. The United States began to look for a solution for these problems.

In 1973, Secretary of State Henry Kissinger negotiated an agreement with Saudi Arabia, the largest oil exporter in the world then as now. In the agreement, the Kingdom would require all sales of its oil to be paid for in US dollars and in exchange the United States would provide Saudi Arabia with weapons and protection. As the United States was its biggest customer at the time, the arrangement made sense. Other oil exporting nations followed Saudi Arabia's lead on this out of convenience and soon the international oil trade was being conducted in dollars.

This generated artificial demand for US dollars globally since nations that imported oil were essentially forced to maintain holdings of US dollars in order to pay for their needed oil. It also led to a growing stockpile of US dollars in oil exporting nations. This setup makes the dollar more valuable than it would otherwise be due to the artificial demand.

Petrodollar Recycling
This process of paying for oil using US dollars has also led to a phenomenon known as petrodollar recycling. As already mentioned, the fact that oil importing countries were paying for their oil using US dollars resulted in growing stockpiles of dollars in the central banks of those countries that export oil, in particular the OPEC nations, Norway, and Russia. In many cases, this was more money than these nations could efficiently invest in their own economies.
The logical thing for these nations to do then was invest in US dollar-denominated assets abroad, especially US Treasuries. This influx of money into treasuries increased the demand for them and held interest rates down, thus allowing the US government, businesses, and individuals to borrow money more cheaply than they otherwise could. Thus, the United States was able to enjoy a higher standard of living than it could otherwise afford.

Enter The Petro-Yuan
The agreement with Saudi Arabia that established the US dollar as the dominant currency in international trade was created at a time in which the United States was both Saudi Arabia's largest oil purchaser and the largest oil importer in the world. However, things have changed since that time. In April 2015, China [color=var(--sa-link-color)]supplanted the United States[/iurl] as the largest oil importer in the world. China is also Saudi Arabia's biggest oil buyer. The communist nation has already begun to use some of its leverage with the Kingdom and has put some implicit pressure on it to begin settling oil purchases with the yuan.[/size]

The Saudi riyal is also one of only a handful of currencies that is directly convertible into yuan. China already actively conducts business with two other major oil exporting nations, China and Russia, using yuan. It is interesting to note that both of these countries have been targeted by the United States for economic sanctions over the past few years.
China has now doubled down on its move to increase or even supplant the use of the US dollar in the oil trade with its planned launch of oil futures denominated in yuan on the Shanghai and Hong Kong exchanges next month. The Chinese government apparently admits that many global businesses, individuals, and nations may be hesitant to embrace the idea of trading real resources for a heavily government-controlled currency, which is why the yuan used in these contracts will be directly convertible into gold, similar to the US dollar prior to 1971.[/font][/size][/color]

This is a move that I predicted in several articles published here when I noticed that China was seemingly importing far more gold than the official figures were indicating. This feature could certainly make these contracts much more accepted than Shedlock seems to believe.

It is, after all, not hard to imagine a scenario in which an oil exporter would rather have a gold-backed currency (or even physical gold itself) than a fiat currency from an increasingly erratic, money printing nation with out of control public debts and deficits. That alone could allow this new contract to rapidly become the new standard in the oil trade, particularly with the prospect of the United States no longer being an oil-importing nation.

End Results
Should the petro-yuan supplant the US dollar as the standard currency in the oil trade, it will have a few effects on the United States economy, none of them good. The first of these is that oil importing countries will no longer have to maintain a stockpile of US dollars in order to purchase oil. Thus, the demand for US dollars will likely decline and this would cause the value of the US dollar to decline relative to other currencies. All else being equal, that would cause the inflation rate in the United States to increase, perhaps dramatically.

A second effect that the rise of the petro-yuan would have is that the OPEC and other oil exporting nations would no longer be accumulating large surpluses of US dollars to reinvest in US treasuries. Instead, these nations will be accumulating stockpiles of yuan and possibly gold. While these assets could still conceivably be invested in US treasuries, there is no guarantee that these nations would do this and it could result in declining international demand for Treasuries, which would cause prices to fall and rates to rise.

This would not only increase borrowing rates for the US Government and further strain the federal budget, but would result in higher borrowing costs across the economy including mortgages, corporate debt, auto loans, and student loans. Higher interest rates cause economic slowdowns, which is why the Federal Reserve raises rates near the top of an economic cycle.
In his article, Shedlock states that other countries will continue to hold US dollars by virtue of the nation's large trade deficit with the rest of the world. While he is correct, that alone would not be enough to provide the US dollar with the privileged status that it enjoys today by virtue of its dominance in the oil trade. Simply receiving US dollars when Americans purchase imported goods does not produce artificial demand internationally for the currency. It also stands to reason that the US trade deficit will decline as a result of the nation becoming an energy exporter, resulting in the supply of dollars leaving the country declining.

Conclusion
China has been seeking to supplant the US dollar's privileged status in international finance for quite some time. The communist nation's newest move to introduce a new yuan-denominated oil contract backed by gold is only the latest step in its long-term efforts. Unfortunately, this may be the step that succeeds, particularly if the United States does become an energy exporting nation. If this happens, the US dollar would become just another currency and this would make it harder for the federal government to run high deficits like it has been over the past fifteen years and likely lead to both higher inflation and higher interest rates in the country.

utee94 · « **Reply #14688 on:** March 18, 2022, 05:34:45 PM »

China is at war with us, for sure. But that's an extremely optimistic view of their prospects.

Here we sit just a few years later, and a global pandemic is bringing China to its knees. The rest of the world is suffering too, of course, but this just shows how delicate the balance must be in order for China to prosper and thrive.

And despite their apparent beliefs to the contrary, China simply can't do it without the US. They need the largest consumer nation in the world, to keep on consuming.

They are incorrect in their assumptions that the US can't just simply cut them off and cut them out. We've already discussed how China isn't really a low cost nation anymore-- the US has numerous options for cheap production, options that come without the baggage inherent to any dealings with the CCP.

Mdot21 · « **Reply #14689 on:** March 18, 2022, 05:48:31 PM »

Quote from: utee94 on March 18, 2022, 05:34:45 PM

China is at war with us, for sure. But that's an extremely optimistic view of their prospects.

Here we sit just a few years later, and a global pandemic is bringing China to its knees. The rest of the world is suffering too, of course, but this just shows how delicate the balance must be in order for China to prosper and thrive.

And despite their apparent beliefs to the contrary, China simply can't do it without the US. They need the largest consumer nation in the world, to keep on consuming.

They are incorrect in their assumptions that the US can't just simply cut them off and cut them out. We've already discussed how China isn't really a low cost nation anymore-- the US has numerous options for cheap production, options that come without the baggage inherent to any dealings with the CCP.

will China become the largest consumer nation one day though? they have over a billion more people than us. My god I you're right and US can delink itself from China. As much problems as US has and as stupid as I think our foreign policy is sometimes, I really don't want to live in a world where the US isn't the dominant power in the world. Would suck to have to live in a world that the CCP rules.

longhorn320 · « **Reply #14690 on:** March 18, 2022, 05:58:37 PM »

To separate ourselves from depending on China we have to have a Federal government thats not in bed with China which mainly means our President

bayareabadger · « **Reply #14691 on:** March 18, 2022, 06:58:25 PM »

Quote from: utee94 on March 18, 2022, 05:34:45 PM

China is at war with us, for sure. But that's an extremely optimistic view of their prospects.

Here we sit just a few years later, and a global pandemic is bringing China to its knees. The rest of the world is suffering too, of course, but this just shows how delicate the balance must be in order for China to prosper and thrive.

And despite their apparent beliefs to the contrary, China simply can't do it without the US. They need the largest consumer nation in the world, to keep on consuming.

They are incorrect in their assumptions that the US can't just simply cut them off and cut them out. We've already discussed how China isn't really a low cost nation anymore-- the US has numerous options for cheap production, options that come without the baggage inherent to any dealings with the CCP.

In some ways, it strikes me as an unserious war. They spent a lot of time chasing mercantilist goals. Which is to say, they subsidized our consumption to a degree.

And if the money flows like it does, they might just be left with hundreds of useless empty airports.

bayareabadger · « **Reply #14692 on:** March 18, 2022, 07:01:04 PM »

Quote from: longhorn320 on March 18, 2022, 05:58:37 PM

To separate ourselves from depending on China we have to have a Federal government thats not in bed with China which mainly means our President

I'm curious the context of this.

longhorn320 · « **Reply #14693 on:** March 18, 2022, 07:31:31 PM »

Quote from: bayareabadger on March 18, 2022, 07:01:04 PM

I'm curious the context of this.

Youre not familiar with the payments made from Chinese companies to Biden's son or the emails that make it obvious that Biden received some of it? Really?

Mdot21 · « **Reply #14694 on:** March 18, 2022, 07:32:29 PM »

10% held by H for the big guy.

FearlessF · « **Reply #14695 on:** March 18, 2022, 07:34:33 PM »

Quote from: bayareabadger on March 18, 2022, 07:01:04 PM

I'm curious the context of this.

really?

i'm not

longhorn320 · « **Reply #14696 on:** March 18, 2022, 07:34:45 PM »

Quote from: Mdot21 on March 18, 2022, 07:32:29 PM

10% held by H for the big guy.

there ya go

longhorn320 · « **Reply #14697 on:** March 18, 2022, 07:39:50 PM »

Quote from: FearlessF on March 18, 2022, 07:34:33 PM

really?

i'm not

https://nypost.com/2020/10/15/emails-reveal-how-hunter-biden-tried-to-cash-in-big-with-chinese-firm/

Mdot21 · « **Reply #14698 on:** March 18, 2022, 07:40:29 PM »

Hunter Biden: What was he doing in China and Ukraine?

https://www.bbc.com/news/world-54553132

MaximumSam · « **Reply #14699 on:** March 18, 2022, 07:44:54 PM »

Hunter Biden is a businessman. (This is blanket cover for any shady stuff that ever comes up. If I've learned anything over the past few years, I've learned that)

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Topic: In other news ...

Mdot21

Re: In other news ...

Mdot21

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utee94

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Mdot21

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longhorn320

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bayareabadger

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bayareabadger

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longhorn320

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Mdot21

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FearlessF

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longhorn320

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longhorn320

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Mdot21

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MaximumSam

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