The Chinese fill up America with goods that their own people would love to have. From their perspective, which I have read in News China on many occasions, is that the Chinese people want what Americans have – no news there! If you believe in peak oil, or in peak everything as is now becoming more popular, then there is simply not enough of everything for the Chinese to have what Americans have. So what can be done to satisfy the growing demands of the Chinese people?
On Sept. 7th, blogger Charles Hugh Smith on his Of Two Minds website wrote:
“global trade and currency flows are incredibly imbalanced, and rebalancing them is impossible without profoundly disruptive structural changes to the global economy. The entire system that every nation depends on is based on the U.S. being the sole “importer of last resort,” and the Grand Bargain to sustain domestic employment everywhere but the U.S. requires the U.S. to hold the “reserve currency” which it prints and distributes as payment for the vast flood of others’ surpluses.
Get rid of the fiat dollar and you also get rid of structural surpluses exported to the U.S.
Get rid of structural surpluses exported to the U.S. and you end up with global depression and political instability.
That’s why the dollar “works” and cannot be replaced, short of replacing the entire global Capitalist economy: “the world’s reserve currency” and the ability to absorb the world’s surplus production are inseparably bound. Get rid of one and you also get rid of the other. That would spell the end of all export-dependent mercantilist economies. “
I thought, wow, that is exactly what China would want to do to level the playing field with the Western World. They now have significant infrastructure and could have the reserve currency. The USD “works” for those it benefits the most, the recipients of all those ‘surplus goods’, and moving to a gold-backed security would work best for those that dollar does not benefit as much. The Chinese have enough paper dollars to buy all the gold miners in the world and could quickly create a fractionally backed gold Renminbi/yuan. Doing so would very quickly make China the dominant economic player in the world. It would be a dangerous move in the short term, but history is full of dramatic changes.
There will obviously be a lot of drama while the global currency plays out and I suspect that regardless of whether or not a new gold backed security evolves, the price of gold will go significantly higher from here. The Chinese have told their people to buy gold. I doubt they did so without a long term goal in mind.
Shaun Larocque for Rockenomics
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