Over the past few months, there has been a steady uptick in the number of countries dumping significant portions of their dollar holdings. This is causing many people to worry whether or not the US economy is in for a massive shock sooner, later, or somewhere in between.
While American corporate media outlets either ignore the developments entirely or claim that there is nothing to worry about, the reality is that the dumping of the dollar is a process that is clearly underway. More than that, it appears it is a process that is at least partially coordinated by a number of countries that have been targets of American sanctions and financial bullying in the “post 9/11 world.”
Thus, while corporate media outlets ignore the vanishing dollar dominance and reassure their hapless audience that everything is fine, alt media outlets are predicting a second Weimar Republic, this time in North America.
But what is really going on with the recent dollar dumping? Who is actually dumping the dollar and what kind of effects could we really expect to see in America if the dollar is truly abandoned?
Who Is Dumping The Dollar?
Since the dollar currently enjoys its status as the world’s reserve currency, it is constantly being bought and sold by nations across the entire planet. This arrangement is essentially what is keeping the dollar strong even after the United States embraced neo-liberal Free Trade policies that saw the greatest economic system the world has ever known turned into a shell of its former self. This arrangement allows the United States to sell its “debt” to the rest of the world, which other countries are willing to buy because of the stability of the American governmental system and the fact that America is still an economic powerhouse.
But as the US stretches its military and financial forces thin in the course of expanding its empire across the world, the collapse of that empire looms and, with it, increasingly jittery feet from countries desiring to make prudent financial decisions. For countries tired of being victims of the empire, those who desire a “multipolar” world, and those seeking to expand their own empires, however, the smell of blood is wafting through the air.
China, the emerging and competing empire, has already started the process of dumping the American dollar in a careful and coordinated fashion. This is particularly concerning since China holds so much of America’s debt and so many US dollars. If China dumped all of its holdings at once, America would likely enter a new financial crisis. Fortunately for Americans, however, such an immediate move would also throw China into a crisis which is most likely the main thing holding China back.
But make no mistake. China is moving forward with the plan of relieving itself of the dollar. After all, the country recently inked a deal to trade oil in yuan instead of the dollar.
“Mainland it is laying the ground for the Belt and Road Initiative, and China is even sweetening the pot by offering swap facilities to local countries to promote the use of the yuan,” Stephen Innes, Head of FX Trading for OANDA in Asia Pacific told RT.
Indeed, it appears that developing country-to-country trading mechanisms are emerging as well which will eventually subvert the US dollar as the world reserve currency. Interestingly enough, the development of such a system is a result of aggressive Americans sanctions and financial bullying over the past few decades.
The United States maintains sanctions on all of its target nations such as Iran, Syria, North Korea, Russia, and others. But the US also threatens its “allies” with sanctions if they dare act rationally on the world stage or refuse to follow American dictates. As a result, America is sanctioning itself into isolation and creating a world where it has taken its ball and gone home so many times that the rest of the kids realize it’s possible and even easier to just play the game without the American bully on the field.
India is also slowly moving away from the dollar. Recently, it announced that it would be paying for the Russian S-400 system (important in its own right) and settling the payment in rubles, not dollars.
But it’s not just the development of country-to-country financial/trading mechanisms. Other countries have been slowly dumping the dollar outright. In fact, China has done that also. Take a look at a recent report from RT detailing how China just dumped the largest amount of Treasuries in 8 months. The article states,
In September, China’s share of US Treasuries holdings had the highest decline since January as ongoing trade tensions with Washington forced the world’s biggest economy to take measures to stabilize its national currency.
Still the biggest foreign holder of the US foreign debt, China slashed it’s share by nearly $14 billion, with the country’s holdings falling to $1.15 trillion from nearly $1.17 trillion in August, according to the latest data from the Treasury Department. The fall marks the fourth straight month of declines. China is followed by Japan, whose share of US Treasuries fell to $1.03 trillion, the lowest since October 2011.
Washington has accelerated the Treasury issuance to avoid potential growth in the federal deficit due to the massive tax cut pushed by President Donald Trump, as well the federal spending deal approved by the government in February.
Chinese purchases of US state debt have been decreasing over recent months. The latest drop comes on top of the escalating trade conflict between Beijing and Washington over trade imbalance, market access, and alleged stealing of US technology secrets by Chinese corporations. So far, the US has imposed tariffs on $200 billion of Chinese goods and Beijing retaliated with tariffs on $60 billion of US goods and stopped buying American crude.
China has been steadily dumping US dollar holdings over the past several months and Japan has followed suit. As RT reported last month,
China and Japan – the two main holders of the US Treasury securities – have trimmed their ownership of notes and bonds in August, according to the latest figures from the US Treasury Department, released on Tuesday.
China’s holdings of US sovereign debt dropped to $1.165 trillion in August, from $1.171 trillion in July, marking the third consecutive month of declines as the world’s second-largest economy bolsters its national currency amid trade tensions with the US. China remains the biggest foreign holder of US Treasuries, followed by long-time US ally Japan.
Tokyo cut its holdings of US securities to $1.029 trillion in August, the lowest since October 2011. In July, Japan’s holdings were at $1.035 trillion. According to the latest figures from the country’s Ministry of Finance, Japanese investors opted to buy British debt in August, selling US and German bonds. Japan reportedly liquidated a net $5.6 billion worth of debt.
Liquidating US Treasuries, one of the world’s most actively-traded financial assets, has recently become a trend among major holders. Russia dumped 84 percent of its holdings this year, with its remaining holdings as of June totaling just $14.9 billion. With relations between Moscow and Washington at their lowest point in decades, the Central Bank of Russia explained the decision was based on financial, economic and geopolitical risks.
Turkey is also backing away from the dollar, having dropped out of the “top-30 list of holders of American debt.” This probably has more to do with Turkey finally coming to the realization that the US was engaging in “hamburger diplomacy” and has no real allegiance to Turkey accept as a vassal state. The failed military coup in the country and the US arming of Kurdish forces in Syria have done nothing but push Turkey toward Russia.
India remains in the top 30 holder list but it has cut its holdings for five straight months.
As would be expected, Russia has been consistently moving forward not only to dump the dollar in a responsible manner but also to make its financial system more distinctly Russian and less dependent upon the whims of the Anglo financier arrangement. Again, RT writes,
One of Russia’s largest banks, VTB is seeking to decrease the share of US dollar transactions at home as locals are choosing the Russian ruble over the greenback.
“There is one interesting thing I wanted to highlight. Since the beginning of this year, people seem to be less interested in making dollar deposits or taking out dollar loans, compared to ruble-denominated deposits and loans. We believe this to be an important step towards the de-dollarization of the Russian finance sector,” said VTB head Andrey Kostin at a Kremlin meeting with President Vladimir Putin.
According to Kostin, VTB experts have drafted a package of proposals designed to further promote the ruble in international settlements. “I think that we need to create our own financial tools. This would serve as an additional safeguard for the Russian financial sector against external shocks, and would give a new impetus to its development,” Kostin added. The financial tools Kostin mentioned are floating Eurobonds, shares and other derivatives that are now used only in the West.
Russia has been seeking the ways of decreasing the dependence on the US currency after Washington and its allies imposed sanctions against Moscow in 2014. In May, President Putin said Russia can no longer trust the US dollar-dominated financial system since America is imposing unilateral sanctions and violates World Trade Organization (WTO) rules. Putin added that the dollar monopoly is unsafe and dangerous for the global economy.
It is important to remember that Russia has also dumped $47bn worth of Treasury bonds, dumping nearly half of its holdings at once.
What Happens If The Dollar Loses Its Status?
So why is this concerning? What would happen if the dollar loses its status as the world’s reserve currency?
The truth is, no one fully knows exactly what such a situation would look like and it would depend on a number of factors such as how quickly the dollar is abandoned by the world, the action taken by the US government in response, and the economic situation of the country once the dollar is unseated.
Despite mainstream claims, we’ve never really been in this specific situation before. Other countries have seen their currency used as the de facto world reserve but, when their time was up, there were also many other factors at play and the world financial system was less intertwined than it is today.
Still, although we may not know the specifics, we do have a general idea of what would happen.
First, Americans are going to lose the convenience of being able to use their currency just about anywhere in the world, both on a business and individual level. That’s not such a big deal on the individual level though it may cause a few hiccups for mid-sized businesses.
Second, interest rates will most assuredly go up. This is going to make it harder for businesses and individuals to pay back any loans they may have received to start or maintain their businesses, buy a home or car, and it will stifle economic growth and it is going to make more people hesitate to request those loans knowing that interest rates will be so high.
Third, and perhaps the most dangerous, is the potential for widespread inflation and devaluing of the currency. Loss of world reserve status will undoubtedly lower the value of the dollar. The question, however, is whether that devaluation would occur slowly over a period of years or even decades or whether it would take place within months, weeks, or days. Obviously, the former would be preferable if the dollar does have to be unseated because it would at least allow time for Americans to brace themselves and to prepare and innovate for the coming devaluation that would gradually get worse. In some cases, American exports might even be helpful for some American exports (though not helpful in terms of wages – competing via lower living standards is a race to abject poverty). But at least a slow burn would allow for Americans “in the know” to stock up on food, attempt to pay off their debts, arm themselves, and make prudent financial decisions in anticipation.
A quick and sudden loss of reserve currency status, however, would bring about an immense crisis that virtually no one is prepared for. As Webster Griffin Tarpley wrote in his article “The Second Wave Of The Depression – Hyperinflation Likely,” published in 2009,
The next wave is likely to involve a worldwide dollar panic. Using ballpark figures, we can say that there are about $4 to $5 trillion sloshing around the world in the form of hot money, US Treasury securities, Euro dollars, and various forms of zeno-dollars. Japan has about a trillion, China almost $2 trillion, and so forth. It is naturally very unwise for a developing country like China to hold so many dollars rather than using them to purchase needed infrastructure and capital goods, and the Chinese leaders are now very uncomfortable with their own foolish decision, which was of course taken under heavy US pressure. But the point is that this $4.5 trillion overhang is by its very nature exceedingly unstable. Every country that holds large sums of dollars or US treasury bonds is nervously eyeing every other such country to see if they show signs of bolting for the exit. Up to now, so far as we know, no large holder of dollars has attempted to reduce its exposure to the battered greenback by dumping these dollars on the international market. If anyone did so, would cause a true universal financial panic which would create chaos and mayhem not just in the United States and Great Britain, but in the vast areas of the rest of the world as well. This is concretely how hyperinflation could now very well arise: if one or more US creditor nations attempts to abruptly lighten up on dollars, the value of the US currency could undergo a catastrophic collapse, and that would spell runaway hyperinflation on the US domestic front.
The numbers are a decade old but the concept is still there.
That being said, given that the United States has used its status as a method of financing itself into maintained prosperity, the loss of that status would remove that privilege. Instead, the United States would be forced to either knuckle under to the dictates of the financiers that will have the country on its knees or do what it should have done all along – nationalize the Federal Reserve and begin issuing credit stimulus and imposing across-the-board tariffs on imports.
It would be nice to hope for the best and prepare for the worst but, as things appear today, we might want to start preparing much more than hoping. The US economic system, partially as a result of becoming an empire with all its requisite destabilizations and wars, mostly a result of Free Trade, and partially a result of private central banking among a host of other factors, has been sacrificed on the altar of globalism. Aggressive behavior on the financial, political, and military fronts has thus created a world seething with anger and hatred at the United States, who is now willing and able to begin weakening the dollar dominance in hopes for the creation of a new “multipolar” world out of the ashes of the old “American” one.
There are no signs that anyone in the American government is either prepared to defend against the dollar collapse or to prevent it. In fact, all signs point to the possibility that such a collapse is desired by the Anglo-financier community.
In other words, the best time to prepare is today.
This is the reason that Tramp, sorry Trump is sucking up to the Saudis. If they start selling their oil for other than the US dollar, the American people are totally FRELLED
So, it that in your opinion GOOD of TRUMP, but BAD for him to do????? What would the other candidate have done in the same situation, any better, any different?????
I understand every point made in this article, and it all sounds logical. But I do not have enough knowledge of international finance to give this premise a “sanity check.”
So how can I know how concerned to be about so many countries dumping the dollar?
To me, the most reliable indication that this is a major threat is the fact that the mainstream media have given it almost no coverage at all!
What this means is domestically produced goods will stay about the same pricewise at least for a while, while imported goods will see sharp rises due to the dollar losing value as well as tariffs. Something seldom addressed about our debt money system and the brenton woods agreement is that most of the “developing economies” of the world will crash if the US doesn’t carry a huge trade imbalance with the world. When fewer nations trade in dollars the external velocity of US money slows greatly and the “developing economies” must find another currency to trade in or their economies grind to a halt. Brenton woods ensured the transfer of wealth from the USA to the rest of the world, concentrating wealth only in the globalists hands.
On top of all this is another, and to me a more concerning issue, which I quote for you here;
“on October 1st, 2018 the net liquidity injection from the combined balance sheets of the Fed, ECB and BoJ went to zero vs $100b per month in Q4 2017. A few days later Jay Powell reminded everyone that they will continue on their rate hike path to maybe above neutral. We know what’s happened to stocks this month…”
There’s no way you can remove $100b per month from the global economy and not have a rather large effect on the global economy. All those companies that got bailouts and used that tax payer cash to buy back their own stock (artificially increasing the value of their stock) are now going to have to pay the casino for their gambling losses. They bet and they lost, and a few of these companies are closing plants and laying off thousands of workers.
In summary, even if Russia, China, Japan, and all the rest of the foreign countries with vast US dollar holdings did not cash in their US chips, due to the actions of the world central bankers unplugging the 100b life support system that gave the global economy the illusion of life, the global economy was doomed.
They have trillions, but are dumping billions? Seems more like a trickle. According to the treasury.gov link provided, the global total for, Major Foreign Holders of Treasury Securities, went from 6.186 trillion in January, to 6.223 trillion in September. Unless I read it wrong, that seems like that was an increase. Belgium, Singapore, Korea, Norway, Canada all increased there holdings.
I wouldn’t worry about any of this, our own federal reserve, and the popping of the money bubble in the stock market, will destroy the dollar long before any foreign countries do.
Please start covering the economic expertise and advice of Dr. Ron Paul. If your aim is to give your readers solid economic and international financial information, Dr. Paul really is the best source.
And with your coverage, you can also help to get the most important message out to an even wider audience about what’s really going on — and viable, peaceful, prosperous solutions of practical reality.
Also, review and recommend the excellent economic and financial expertise of Dr. Tom Woods, Jr., and you can’t go wrong including Dr. David Stockman.
These people are practical money realists, not Keynesians, as almost all mainstream “economists” are. They lay open the deadly flaws and incongruities of the lofty, deceitful, impractical, ultimately destructive philosophy of Keynesian fractional reserve and central banking with no-value paper, rag, and ink (and for a very long time, now, only “cyber currency” — computer generated zeroes and ones, completely imaginary!) money, showing how dangerous it really is, what effect it actually has on economies globally, and why.
And they offer practical, workable, prosperous and peaceful solutions to this insanity that props up and exacerbates 99.999% of the chaos and conflict afflicting this world, and that is soon, as highlighted in this article, to violently afflict us, throwing us into devastation, destruction, real predation by our own neighbors, starvation, and poverty.
The time to make positive changes is now. History shows, over and over again — excellent, writ-large illustrations in just the 20th century — what this Keynesian banking philosophy will inevitably bring, if not stopped.
Anyone who thinks Orwell’s novel, Nineteen-Eighty-Four, is just a work of fiction, should read it again, carefully, with today’s headlines and our ever-disappearing liberties and freedoms itemized and compared alongside it.
Thanks for the article.
Not an economic viewpoint but a rant in lower-case …
Since the military is losing its ability to back-up the fiat dollar, start closing the six-hundred to a thousand military or more bases around the world and consolidate our own “fortress”. Acknowledge our current allies will be pragmatic and not side with us. We have been in an economic, cultural, etc. ‘war’ for a long time but have not realized that and been losing. Try to gain the moral high ground since it beats the operational, strategic and tactical levels of war. (See William S. Lind). Stop busting nation-states since it only creates a vacuum for stateless forces to fill in, and try to work with other nations because of that. Stop trying to be the policeman of the world with entangling alliances fighting other peoples’ wishes. And stop giving our allies our technological secrets which they sell. Let them do their own R&D. Expect politicians to sell you down the road with Eminent Domain to the new middle class and then retire in Switzerland leaving you holding the bag, so why trust them all? Bring back factories to our shores so we can make things cheaply for the Wal-Marts and the rest of the world. What goes around, comes around, sort of a ‘blowback’ looking like a spent-force. With talk of asteroid mining and da Popa willing to baptize E.T. like it is 1492 all over, “…strange days, indeed, mama …”. Make randy Newman’s song “Political Science” our national anthem and G*d forbid if SHTF, then ask the next day “Gee, that’s terrible. Who could have done that?”. It will be globally understood. (All this is on the Internet, so it must be true.).
Of course, just kidding. Too much caffeine.
Quote from article above “In other words, the best time to prepare is today.” … and learn Mandarin Chinese.
Nobody on this planet is going to challenge the dollar unless there is a Bretton Woods directive to do so.
What Wheeler is fumbling around with and attempting to impart, is the fact that the “Bank For International Settlements” is financing every single transaction on the face of the earth.
Nobody on this log has ever even heard of the BIS or the Bretton Woods accords.
Wheeler’s diatribe on the global currencies is like somebody trying to describe how wet water is …
There’s no need to be disparaging. You can disagree without insulting a person who is writing for me. Really, the ad hominem attacks take away from what was probably an insightful comment.
This is optimistic wishful thinking. Iran, Russia, China… a host of reasonably powerful countries have begun implementing petrochemical transactions in currencies other than the dollar. Such deals develop their own momentum and will unquestionably migrate to other resources and products traded internationally. Remember when Britain ruled the world and we stole their patented weaving technology? Nobody could challenge the pound, the denominated currency for world trade. They had military spread all over the world, controlled all kinds of geographical entities. Then along came the Great War, and they were bankrupt, though it took the Second World War for the country to actually disintegrate. We are pretty much where they were, save for the fact that it didn’t take two massive wars for us to get there. Instead, our disintegration is the product of more modern forces, and the factors of hatred of our international aggressions which further motivate people to act hostilely to our arrogant impositions.
Aside from your abusive disparagement of those of us who may possibly not be as uninformed nor just plain stupid as you suggest, what factual information can you present that ACCURATELY represents the present situation? The BIS no longer controls ALL international exchange despite your claim. That makes your first assertion wrong. And while that drift has started small – as does most change – it portends grave issues for the US in future, as countries already estranged from us find refuge in other international transaction payment devices. Remember when that famous guy whose name I forget said that he foresaw a need for no more than perhaps a dozen computers in the entire world? You aren’t viewing the future any more accurately than he did.
For my own clarification since I’m not familiar with economics.
If “no one on this log has even heard of the BIS or Bretton Woods accord” is the Bretton Woods mentioned above in Josh’s post the same.
Is the “anglo community” similiar to the BIS or Bank of London?
Perhaps a directive has been given?
For amusement since Orwell’s book has recently been mentioned twice on Organic Prepper in the few days, it may be “1984” was in honour of the British Socialist Fabian Society’s one hundred year anniversity, January 4, 1884 (or, 1-4-1884, if 4+4=8, then 1,1,8,8,8, one’s and eight’s, dead man’s hand). H.G. Wells was also a member, author of the “Time Machine”, a story of one group feeding off another, cattle or sheeple. G.B. Shaw was another member of the society, who was interested in eugenics. “LSD” Huxley was Orwell’s teacher. Fun bunch. Makes “1984” look more like a blueprint.
Apologies for the frivolous posts.
Aldous Huxley, author of “Brave New World”.
… last post and cup of coffee.
Regarding the Fabian H.G. Wells “Time Machine” where one group below ground feeds off the dummed-down above group of basically ‘cattle’ or chattle/sheeple or more to the point ‘slaves’, nowadays ‘human capital”. Think of the merchant shipping class of colonial Providence, Rhode Island who created the Bermuda-Rum-Trade and it’s easier to get your mind around a ‘directive’ to cut off the dollar and the useless eaters who depend on it and move onto a more lucrative consumer class. Business-wise it makes sense.
This is the first time I entered your site. I have heard of the prepars, but never took much action. I am 73, and went back to work because it is useful and lucrative. I have invested in chickens, bees and fruit trees. Wish I had mountain land in New Hampshire, but I make due in Western Mass. I worship God with the Mennonite community, but convincing them to make some preparation for their own future is very difficult. I look at a Christian’s work ethic as common sense. Don’t ask God to do for you on every level what you can easily do for yourself. He is a very present help in time of trouble, but why make one’s own trouble!