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China’s rise, America’s fall

Will the rise of China mean the fall of America?  In a word, yes. Although decline might be more accurate.

Why do I think this?  Because China is about to launch the PetroYuan and when it does the demand for dollars and for dollar denominated debt will shrink. When it does, I question whether the world will be so sanguine about the level of debt that America carries. If that happens then the value of the dollar is in question.

At the moment no matter what level of debt America carries, other countries need dollars. Dollars to pay for oil, since oil is traded in dollars.  Dollars for their financial system so their banks can settle contracts for goods and services traded in dollars.

But over the last few years China has been systematically putting in place everything it needs to launch the Yuan as not only a rival to the dollar in trading and settling oil contracts but as a rival to the dollar as the world’s reserve currency.  At the moment the only rival to the dollar is the Euro. I think it fair to say the relationship between the two currencies and their issuing powers, has been… ‘delicate’.  The news that Sadam Hussein was going to start trading his oil in Euros came just a few months before America and its lap dog GB, decided Sadam was a threat to world peace and went to war with him.  Something similar happened to Colonel Qaddafi.

Under Qaddafi Libya’s currency was backed by the country’s large holdings of gold and silver. This had allowed Qaddafi to finance, for example, the entire construction of the Great Man Made River without going to Western banks for a single loan. Libya was debt free and owned its own resources and infrastructure. Obviously a very unsatisfactory state of affairs for any third world country to get ideas so far above their station.  Worse, he had a very public plan which he had laid before the Pan African Congress, to create a pan African currency backed by gold and silver to be launched by 2023. It was not too long before Hilary Clinton arrived in a freshly bombed Libya and crowed to CBS, “We came, we saw, he died.” Charming woman. I was only surprised she didn’t say “Mission accomplished.”

Libya and Iraq were small enough, that their pretensions to threaten the hegemony of the dollar and have the jumped up arrogance to think they could trade their own resources in their own currency or a currency of their choice, could be dealt with by shock, awe and death. I think China might not be so easily dealt with.

China’s plans for the replacement of the dollar and the positioning of their own currency are very like Libya’s. China too has had the idea to back its new settlement and perhaps one day its reserve currency, with gold.  And China is not alone. Russia has been a part of the BRIC group with an interest in the plan. Russia, like China has been a very large buyer of gold.

As reported just a few weeks ago by the Irish Independent,

…the Bank of Russia has more than doubled the pace of gold purchases, bringing the share of bullion in its international reserves to the highest of Mr Putin’s 17 years in power, according to World Gold Council data.

In the second quarter alone, it accounted for 38pc of all gold purchased by central banks.

The article goes on to explain how purchasing gold has meant that Russia has not had to buy foreign currencies.  For foreign currencies think Dollars.

The gold rush is allowing the Bank of Russia to continue growing its reserves while abstaining from purchases of foreign currency for more than two years.

China and Russia have very large holdings of gold between them. China actually produces 12% of the world’s gold and keeps much if not most of what it produces. The new Petro Yuan will be backed by Gold,  Something the IMF decades ago, said no paper currency should have.  A clear break with the Bretton Woods Dollar-world agreement.

Who will use this new currency?  Over the past few years a network of bilateral agreements has been created around China and Russia. Back in 2012, in an article called   A new Reserve currency to challenge the dollar – What’s really going on in The Straits of Hormuz, I pointed out that not only had China and Russia agreed to bypass the dollar and trade direct in their own currencies but that,

the India Times reported that India was talking to Iran about moving out of dollar settlements so as to be able to buy Iranian oil despite a US embargo. India said it was discussing settling in Gold. Remember, India has just signed a settlement agreement with China to use the Yuan.

Remember also, Russia recently eclipsed Saudi as the number one supplier of China’s oil. And if I remember correctly Angola was number two. Promoting perhaps the recent state visit this year of Saudi’s King Salman to see Mr Putin. As The Guardian put it,

Saudi king’s visit to Russia heralds shift in global power structures
King Salman agrees new areas of cooperation with Vladimir Putin on first official trip by Saudi monarch to Moscow

In addition Japan and China have agreed to trade in Yuan, by-passing the dollar, as has Iran. They are now trading their oil in Yuan or euros, but not the dollar. Ever wondered why Iran is ‘the axis of evil?  It’s because they don’t use the dollar.

Then came the news in 2015 that Qatar had opened the first and so far only financial centre in the Middle East, for trading and clearing oil, gas and anything else, in Yuan. China’s ICBC is the central banking concern in the hub, allowing any Middle Eastern country to trade oil and gas and settle in Yuan. In the previous few years China’s trade with Qatar had tripled.  And now, guess what? Qatar has been declared by the US to be a sponsor of terrorism and US allies in the gulf , led by Saudi, have begun to blockade Qatar’s trade.  Hmm.  Any pattern emerging?

The problem for the US is how much debt is too much for any country or business? Clearly it is not any magic figure or particular debt to GDP ratio. America and China carry huge debts and no one has balked…yet. How much debt you can carry is a function of debt to the estimated future productive  capacity of the country in question. That creates the demand for its currency and the demand for the currency creates a market and demand for debt denominated in that currency.

At the moment the US can carry a huge debt load because everyone needs dollars to trade oil. And China can carry a huge debt because everyone needs yuan to buy the goods whose production was off-shored to China by our globalist leadership.

But what happens to demand for Dollars and dollar debt when, not if, oil starts to be traded less and less in dollars?  I suggest the world’s appetite will diminish quite quickly. As it does so, the world will start to see US debt in a different light.  While the opposite will happen to China. And this is what interests me and makes me think China has a plan.

At the moment China also has a very large debt load. I have argued that the Central Chinese authorities have not got the control they would like to have over the growth of that debt. Of course I have no inside information. But the on again/ off again attempts of the Chinese central authorities to deflate its housing-debt bubble and its quite out-of-control shadow banking lending suggests, to me at least, that the central authorities have not and can not control the level of debt being accumulated by provincial governments, their off-book, arm’s length financial vehicles, regional banks, property developers and the vast, largely unregulated trade in wealth management vehicles.

Chinese debt already overflowed once back in the 90’s. Four companies were created to take the debt off the banks’ books and trade it away. Decades later these companies still exist and still have the bad debts from the 90’s hanging around. You will see headlines telling you how those companies have been doing well, making money. Suggesting their trade in bad chinese debt has been going well. The reality, if you dig a little deeper, is that those companies lobbied for and were given permission to engage in ‘proper’ banking activities. Which meant they began to make their own loans – to property developers.  As the property bubble continued to inflate over the last decade and a half they have ridden it and that, not trading the old bad-debt, is why they have made a profit.  But now those ‘bad’ banks, have themselves started to find some of their own loans going bad. In any hard-landing or financial paroxysm the ‘bad-banks’ will need to be rescued by a new bad banks. Bad banks for bad banks is not really a solution.

I think the Chinese authorities can see this. It doesn’t take a genius after all.  What can they do?  Well if you already have a huge debt problem and know many of them are going to go bad and will do so overnight in the event of another global banking crisis, and know you are not able to reign it all in, then a very tempting alternative would be to get the world to agree that you can carry  more debt – a lot more.  And what could help convince the world? Well if your currency could become far more sought after, that would be peachy.

And so I think the long standing Chinese goal of making the yuan an important international currency which China, and Hong Kong in particular, have been working towards for years, has now taken on a far greater import and urgency.  I think the Chinese central government’s  best way of avoiding a politically disastrous  domestic debt implosion is to get the Yuan to be used as a settlement currency for oil and not long after that to become a de facto rival to the dollar as the world’s reserve currency.

Recently I argued at length with a military analyst who disagreed that China would risk such a break with America. Too dangerous he felt. China, he pointed out has such huge holdings of American debt. He argued that the Chinese would prefer to work alongside the dollar.  I feel that even if the Chinese would prefer to ‘work alongside’ the dollar, this  will prove very difficult if not impossible. Once a flow of countries and trade moves away from the dollar there will be a momentum the Chinese will not be in control of.  Cooperation between dollar and Yuan as clearing and reserve currency, especially for oil, will be like trying to dock two super-tankers in a high sea.  In theory possible. In practice – not going to work.

As for Chinese holdings of US debt – I think the advantages of avoiding a domestic debt implosion and projecting the Yuan to world centre stage, will outweigh the losses. I also think, If I were the Chinese, I would imagine a scenario where the dollar does begin to look vulnerable. Its value begins to be questioned, nations holding dollars and dollar debt will feel America’s profligate indebtedness is a global danger. They will blame America. How wonderful then, for China to arrive and say to a worried world, on the edge of a huge crisis, “Fear not, we have thought ahead and can offer you the use of a new currency – one backed by GOLD not paper debts. We are here to save you. To offer a ride on a sound ship as an alternative to the rotten and leaking ship you have been riding on.”  China will be able to position their rise not as an aggressive act, not as trying to destabilise the world, but as trying to save it, from the collapse of an internally divided, corrupt, aggressive and indebted America.

America’s decline will be both financial and political. Financial due to the recalibration of what the world thinks of America’s debt load, and therefore their confidence in and need for the dollar. Political, because America has got used to being able to enforce its foreign policy through sanctions and embargoes. But once oil and other goods and the nations trading in them, no longer need the dollar for their trade, and do not have to use US clearing or custodial banks, then this power evaporates.

Try to imagine the shift in power when Wall Street’s banks are no longer guaranteed top position as the world’s custodial banks and Manhattan’s Southern District Court (Wall Street’s court)  is no longer in a position to dictate to whole nations via decisions upon Wall Street Custodial banks, what debts those nations and their custodial banks must pay and to whom.  The whole edifice of Bilateral Investment Treaties and the trade agreements they sit inside, depends for enforcement upon the US banks being the custodial banks and the Southern District court’s rulings being able to tell those banks what they must do.  Take that power away, which will happen if the dollar is no longer pre-emininent, and America will no longer be able to enforce its foreign policy or world view via economic sanction.

I think the main US banks will be positioning themselves to try to bridge this decline by having a major presence in Hong Kong. They are all already there but will be working to be part of the new Yuan-world of trade and clearing.

Of course this is speculation. But it seems to me the underlying evidence of the previous decade makes it worth thinking about.

If I am in any way correct then I think other things follow.  I think the House of Saud knows it’s future is in question. I have written a lot about how I see Qatar rising to rival Saudi. Qatar not Saudi has the Yuan clearing house.  Saudi is late to the party.  Can Saudi risk being seen to move away from its traditional ally, America?  If it does, too quickly, and signs yuan trade deals it risks falling as soon as Americal turns its back.  If it doesn’t move quickly enough it risks being completely eclipsed by Qatar,  having to go to Qatar cap in hand to trade its oil with Russia and China.

I see the political changes within the House of Saud as signs of the internal struggles to decide which way to go.  I personally think the House of Saud will fall.

I also think the position of Israel under its present leadership is also very fragile.  Israel needs Saudi.  While they may seem to be on opposite sides, in many ways they are on the same side.  If the House of Saud falls or changes allegiances from America to Russia/China then Israel will become even more isolated than it is.  And of course if America is eclipsed and does enter a period of decline, then Israel will go with it.

If any of the above is near the mark, will it mean the end of America? Of course not. American’s will still work and sleep and raise their children like everyone else.  But the pre-eminence of the dollar and American finance will decline as the stock of dollar denominated bonds and debt agreements expires, and with it the power and wealth of many of America’s elite. How that decline will sit alongside America’s still overwhelming military power I don’t know.

Of course what I have suggested above is merely speculation but  personally I think another debt crisis will happen, because never ending QE and Central Bank debt buying cannot go one for ever, and what China does in the next few months could very well destabilise the whole unstable system.   Many people will suffer and lives will be blighted. But I wonder if, when we all look back from a decade or a generation after, if we won’t think it lucky the crisis did finally come and the system we have been slaving under since 2007 as well as those who have forced it upon us for their own enrichment, were called to account.

It is difficult to accept that such historic changes could occur.  But history has not ended despite what some have claimed. Rumours of History’s end have been, in my opinion, greatly exaggerated. History is very much alive and happening to us, now. We are, as the Chinese saying goes, living in interesting times.

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65 Responses to China’s rise, America’s fall

  1. David Morey October 25, 2017 at 3:36 pm #

    Thanks David, great to read something so interesting and thinking about the long term and the bigger picture, and does not mention the scuffle over which elite do you want to suffer that is Brexit.

    • paul clayton October 25, 2017 at 5:16 pm #

      Thank you for this analysis David.

      A great re-positioning appears to be taking place in the US right now, with the Mannafort / Podestas / Clinton / Obama / Wasserman / Holder / Lynch mob being thrown under the bus (as Trump hinted last week). Might elements of the US Deep State be clearing the decks for a rapprochement with the Sino-Russian axis and a chance to share in the One Belt One Road project? That has got to be a mouth-watering prospect, now that the dollar’s mid- to long-term decline is baked in.

    • Golem XIV October 29, 2017 at 11:44 am #

      Hello David and you too Paul, good to hear from you both . Hope you are keeping well.

  2. steviefinn October 25, 2017 at 7:53 pm #

    Venezuela has stopped accepting dollars in payments for oil, which could perhaps be added to your comprehensive collection of factors that collectively illustrate the writing on the wall, which hopefully certain parties will eventually accept with some good grace.

    • Golem XIV October 29, 2017 at 11:45 am #

      Thanks Steve I’d forgotten about poor old Venezuela. But I fear they will be forcibly brought back to the dollar fold.

  3. Andrew October 26, 2017 at 6:51 am #

    I’ve become a fan of Jeremy Snider, his blog is here

    http://www.alhambrapartners.com/

    I think he is right that the Euro-dollar is causing China problems.

    https://www.macrovoices.com/300-jeffrey-snider-eurodollar-university-part-1

  4. Roger Lewis October 26, 2017 at 7:57 am #

    https://wattsupwiththat.com/2017/10/25/imf-head-on-climate-we-will-be-toasted-roasted-and-grilled/comment-page-1/#comment-2646454

    Legarde pushing the AGW Global Warming Narrative reported on Watts Up With That today. Upticks in CLimate Stories and developments on the Petro Dollar are quite common.
    I am certain that the two things are not unrelated.

    rogerglewis Your comment is awaiting moderation.
    October 25, 2017 at 11:51 pm
    Things are really hotting up on the Future Prospects of the Petro Dollar. Climate Change particularly the AGW CO2 Narrative is clung to with religious zeal and promoted by Finance Elites, why is that?
    China are rolling out the Petro Yuan, backed by gold.
    http://www.golemxiv.co.uk/2017/10/chinas-rise-americas-fall/

    The IMF wish to cling to the Petro Dollar hegemon this is best done by having the Carbon Based Dollar.
    http://letthemconfectsweeterlies.blogspot.se/2014/04/roger-lewis-guitarist-at-lilagatubandet.html

    Gold had much religious significance in early civilisations, it was spread in foundations of the Delphi Temple, for instance, connecting a monetary commodity to a religious cult is nothing new.
    http://theconquestofdough.weebly.com/the-ingredients-of-political-economy.html

    Heres where the CARBON CULT GETS INTERESTING.
    http://letthemconfectsweeterlies.blogspot.se/2011/09/leconomista-mascherato-is-carbon.html

    The little-discussed Brandt Plan and various post-2008 Crash Central Bank position papers show what guides Legardes public comments.

    http://letthemconfectsweeterlies.blogspot.se/2017/04/mc-namara-tillerson-woods-world-bank.html

    Climate Politics is wrapped up in Debt based money politics and the basis of Capitalism Expect an uptick in Climate Propaganda the Banks really can not afford to let the Absurd narrative go.
    http://letthemconfectsweeterlies.blogspot.se/2017/09/propaganda-why-silly-stuff-works-just.html

  5. Roger Lewis October 26, 2017 at 7:57 am #

    https://www.youtube.com/watch?v=aNvYwP0j-kY

    Smart Grid , Cashless Society, Totalitarian Global Order?

  6. Roger Lewis October 26, 2017 at 11:05 am #

    For a one-stop collection of links and videos to the geo politics of the Petro Dollar and past reserve currencies, I have made a website for my novel The Conquest of Dough.
    http://theconquestofdough.weebly.com/

    • Andrew October 27, 2017 at 3:28 am #

      Isn’t the petro-dollar really the Euro-dollar?

      • Golem XIV October 29, 2017 at 11:54 am #

        Hello Andrew, In many ways yes. In the sense that what is called the Eurodollar is simply dollar debts transacted outside of the US – in this case mainly in London. You could also talk of the Hong Kong Dollar. But the name really only refers to the place and jurisdiction where the trades are happening. The thing about the Eurodollar – perhaps why it has been left alone – is that it is not regulated in terms of leverage etc in the way other currencies are. The Euro Dollar market is considered to be far more leveraged and far less regulated than other markets.

        • Andrew October 29, 2017 at 8:11 pm #

          Isn’t the euro dollar created by a bankers pen? Thats what Milton Friedman told us.
          US banks moved to Europe outside US banking regulation and created basically derivatives with no reserve requirements.

          Snider starts 24 minutes into the above link.

          • Andrew October 30, 2017 at 1:04 am #

            Jeremy Snider on China. He may be wrong but I have a friend who was a successful banker, he told me, ‘follow Snider, he’s as close as you will get to the truth’.

            “The dollar short applies to China more than any other country on Earth. To pay for everything that has already made its way to that country, Chinese banks have had to borrow those dollars primarily from eurodollar banks trading on eurodollar markets.”

            http://www.alhambrapartners.com/2017/10/26/chinas-dedollar-bonds/

  7. Kevin October 26, 2017 at 10:07 pm #

    Max Keiser: YouTube

    US ‘Empire of Debt’ will go to war to stop emergence of petro yuan

    https://www.youtube.com/watch?v=wqAd59Bjk70

  8. Kevin October 27, 2017 at 9:25 pm #

    I hope this relates to America’s fall, but i couldn’t resist putting it out here.

    The Guardian wrote a disparaging leader comment about conspiracy theories called,’The Guardian view on conspiracy theories: convenient fictions’, and it smirked at people who believe in them, so I wrote this in the Guardian’s Comment is Free section underneath:

    ‘The biggest conspiracy theory going about at the moment is that the Russians hacked the US general election.’

    The Guardian moderators soon afterwards removed my comment. You see, only silly people hold conspiracy theories, not sensible lefties like The Guardian. But where are the facts for the Russian hack, The Guardian, and how did my comment not abide by community standards?

    Jonathon Freedland has just wrote an article called:

    ‘Conspiracy theories such as JFK distract from the real threats we face’

    So I put out my comment again. I will see how long it lasts.

    • Roger Lewis October 28, 2017 at 8:08 am #

      https://off-guardian.org/category/community-standards/ looks like a job for Captain Off Guardian.

      The Pidgin Poem Complots of Mischief and the original paper he wrote on Conspiracy Theoris is very good.
      http://letthemconfectsweeterlies.blogspot.se/2017/08/complots-of-mischief-charles-pidgen.html
      Charles Pigden
      In David Coady (ed.), Conspiracy Theories: The Philosophical Debate. Ashgate. pp. 139-166 (2006)
      Abstract
      In Part 1, I contend (using Coriolanus as my mouthpiece) that Keeley and Clarke have failed to show that there is anything intellectually suspect about conspiracy theories per se. Conspiracy theorists need not commit the ‘fundamental attribution error’ there is no reason to suppose that all or most conspiracy theories constitute the cores of degenerating research programs, nor does situationism – a dubious doctrine in itself – lend any support to a systematic skepticism about conspiracy theories. In Part 2. I argue (in propria persona) that the idea that there is something suspect about conspiracy theories is one of the most dangerous and idiotic superstitions to disgrace our political culture.
      Keywords Conspiracy Theories Coriolanus situationism Fundamental attribution error David Hume

      https://philpapers.org/rec/PIGCTA

    • Golem XIV October 29, 2017 at 12:26 pm #

      I wish I could say I was surprised by what you say about The Guardian. Labelling everything that lies outside of what the professional media report and believe as being a ‘conspiracy theory’, is just lazy. I am sure those who questioned the long series of official inquires about Bloody Sunday or Hillsborough, or WMD or sexed up dossiers, or what was and was not going on at Porton Down, or what the US military was doing in Laos or Cambodia, to name just a very few, were all ‘conspiracy theories’ until it was eventually proven that official denials and accounts were all false.

      I have come to feel that The Guardian like the rest of the mainstream media has come to see its job as protecting its chosen political/economic world view from those who question it. Those who question it are variously ‘deplorable’, misinformed or even worse – ‘populists’.

      The English Revolution began when the Crown lost control over the printing presses. Our present leadership does not have control of all the ‘printing presses’ and they are not sure what to do about it.

      More power to your pen.

      • Kavy Kevin October 29, 2017 at 11:56 pm #

        I read sometime back that many of the socialists within the establishment, like in the Labour Party and the what’s left of the leftwing press, have grown comfortable with the status quo because they earn reasonable wages and now they are quite happy for the neoliberal system to carry on.

        Gilad Atzmon says how the left nowadays has become obsessed “identity politics” and rather than confronting the ruling elite they squabble amongst themselves about LGTB issues, transgender rights, woman’s rights, etc. Now any advanced, compassionate society will become more sensitive towards the needs of minorities, which were often in the past neglected or worse, persecuted, but the Guardian nowadays seems to be full of this type of news with no real serious politics. The world could be drifting towards WW3 but no mention of this in the Guardian. No discussion either of the US Military-Industrial complex which wants constant wars because that’s how it makes its profits. The big serious issues of the day aren’t discussed.

        You will notice how the Guardian always criticises Venezuela as a dictatorship and a leftwing experiment gone wrong, but no mention of how the US and the old Venezuelan elite ruined Venezuela’s economy to create a unhappiness with the government, and how the old guard deliberately start all the violence.

        I go for my news nowadays to the Russian sites and they are fantastic. RT, New Eastern Outlook, Sputnik, and Strategic Cultures. You would think Putin was a liberal looking at these sites, but he’s not, they just contain sensible politics and the important issues of the day. And Carib Flame is good too, a Central American site.

        • Golem XIV October 30, 2017 at 12:29 am #

          I agree that much of the established left wing is comfortable. In my opinion the left has become as globalist as the right. And for me Globalisation is the problem.

          Thank you for the suggested news outlets. I had not heard of some of them Will take a look.

  9. Spartacus Rex October 28, 2017 at 6:05 am #

    If I may ask a simple question David,

    Do you really believe that China,
    the Country which invented Paper Currency,
    as well as the illogical game known as
    Rock, Scissors, Paper
    (in my Rules, Rock is a Paper Weight & Flattens Paper. I never lose, LOL)

    as well as being the biggest Intellectual Property Thief,
    Bootlegging / Counterfeiter on the entire Planet
    is somehow miraculously going to Con
    the rest of the World into believing that
    “You can Trust us now” ?

    Seriously?

    Cheers,
    & All the Best to you & yours

    Proverbs 4:7

    Rex

    • Golem XIV October 29, 2017 at 12:31 pm #

      Hello Rex,

      Please don’t think I am some sort of apologist for the Chinese regime. I have written extensively about the problems within China and the lack of central control. Will the world ‘trust’ China? I doubt it. I think it will be a matter of balancing/d
      hedging risks between a dollar regime that people have less and less faith in and another currency tied to another potentially rising power. I think people will bet both ways. But that both way bet may be enough radically alter the balance of power.

      The more the US has sought to use its control over global finance and custodial banking to project its foreign policy the more those countries they target want an alternative and the more attractive it is to China and Russia to provide it.

      It’s a possibility I think it is worth thinking about.

      • Spartacus Rex October 30, 2017 at 8:00 am #

        Well David,
        I tend to think it boils down to will people be inclined to stick
        with the devil they know, or swap same for one they don’t.

        As long as Central Banks worldwide can continue to blatantly
        engage in counterfeiting via “fractional reserve” lending
        and now most bank reserves are merely toxic debt
        yet somehow afforded a ‘Mark to Myth’ ability to hide their insolvency,

        then Banksters will continue to dictate ‘Foreign Policy as well as their
        relentless march towards “globalism”

        To imagine any knight in shining armour will appear out of that cabal
        of larcenists, and somehow right the world for us common folk,
        is merely wishful thinking & a pipe dream imho.

        When people finally get fed up with “currencies” and prices denominated by such, then perhaps they will return to using Real Money of Coins minted in Gold & Silver, and once again enjoy stable prices and the ability to preserve their wealth.

        Cheers!

        Rex

        • Golem XIV October 30, 2017 at 10:04 am #

          Morning Rex,

          I agree about the vast and seemingly endless abuse of fractional reserve that has sustained the market and the banks. But don’t get me wrong – I don’t see China as any sort of knight coming to save people. I think China is just being opportunist within a disastrously corrupt system.

        • Golem XIV October 30, 2017 at 8:37 pm #

          In reply to your second post –

          I had not read those articles. I have now and think they are good. He and I seem to be roughly arguing along similar lines I think. He seems to see the same re-alignment of power and allies as I do. And we see eye to eye on what it will mean for the dollar and America’s power.

          I have two thoughts – first I do not think anyone will insist on payment in gold in the sense of gold being shipped from one place to another. Though I could well force China opening a vault where gold could be moved from one ‘shelf’ to another. I think the main thing for China and its allies and customers is for it to extol the virus of having a currency ‘backed’ by gold.

          Second, I found his time-line of UK actions really interesting. I hd not paid enough attention myself. But considering what he shows the UK has been doing it occurs to me that perhaps the UK is trying to engineer an agreement with China for London to work in partnership with Hong Kong to house what we might call a EuroYuan market for trade in Yuan outside of China exactly as London has done the EuroDollar market.

          It would be a very considerable coup for The City. Be a poke in the eye for Frankfurt, and could be attractive to the Chinese.

          • Spartacus Rex October 31, 2017 at 7:24 am #

            Morning David,

            What I found interesting in Alasdair’s Oil for Gold article
            was his reference to Sir Halford Mackinder’s thoughts regarding
            what he referred to as the “World Island”,
            and when it comes to geopolitics,
            I am a firm believer in the Rule of K.I.S.S.
            (Keep It Simple Sherlock)
            & the old adage, “ He who owns the gold, makes the rules”.

            Simply put,
            Oil is Energy which is consumed,
            whereas on the other hand
            Gold is Energy which is stored.

            How the educated people of “Western” so-called “Advanced Nations”
            could be so brainwashed and duped by the globalist Banksters
            into believing the Gold is merely some barbaric relic
            serving no purpose in a modern economy,
            and sit by idly while those in the “World Island”
            are accumulating and stacking Gold, like there is no tomorrow
            staggers the logical cognitive skills of most sane individuals.

            Perhaps some in the U.K., still even think Gordon Brown was a genius when he sold the bulk of the Country’s Gold at less than $300 per Ounce.

            As far as any consolation prize being salvaged via a chance to give
            Frankfurt “a poke in the eye”,
            it appears that the Globalists still give Germany a considerable edge over either the U.K., or the U.S. in the matter.

            There is a website used by Intelligence Agencies such as MI6, CIA, etc.,
            which collects data and projects global outcomes.
            It is called Deagle.

            Curious if you have heard of it, or check in on same routinely?

            Here is the latest projection on Same concerning certain Countries, and consider what such predicts for GDP and Populations for Year 2025:

            China:
            http://www.deagel.com/country/China_c0044.aspx

            U.K.
            http://www.deagel.com/country/United-Kingdom_c0209.aspx

            Germany
            http://www.deagel.com/country/Germany_c0078.aspx

            U.S.
            http://www.deagel.com/country/United-States-of-America_c0001.aspx

            and here is the Link if you should like to look up any other Country to compare:
            http://www.deagel.com/country/forecast.aspx

            It would appear that even the Globalists are quite aware of how steep the toll coming due and which will be extracted some time in the next eight years is ultimately going to be for us and our children.

            Cheers,
            & all the best to you and yours David.

            Rex

  10. John October 28, 2017 at 8:10 am #

    Nice analysis David, but I have a question. Why do we still keep saying ‘U.S. banks’ since they have no allegiance to the U.S. other than using the U.S. as a hired gun? Sure, many are headed by English speakers and there are Americans amongst their ranks, but I think they have proven that they’ll sell their grandmother to stay in power.

    • Golem XIV October 29, 2017 at 12:34 pm #

      Hello John,

      I agree to an extent. I continue to say “american’ banks mainly because of the power of the US judiciary, mainly through the Southern District of Manhattan, to use its power over US banks to project US foreign policy. How loyal those banks will be to the US I don’t know. As I said above I am sure they will be trying to position themselves to play both and all sides. Eventually Washington will have to decide finally and for all whose side they are on, who they serve – the banks or the people.

    • John G November 1, 2017 at 9:02 am #

      They are US banks because they deal in $US which can only exist either as credits in a Federal Reserve account or as paper notes (which were swapped for credits in a Fed account by a US bank).

  11. c1ue October 29, 2017 at 6:33 pm #

    A number of points brought together the author, but the conclusion is not very strong.
    For one thing, it is not a binary choice between petrodollar and petroyuan.
    The petrodollar existed in no small part because the US was the largest importer of oil for many years.
    However, China is now the largest importer of oil – both due to China’s increased consumption and the US’ decrease in imports due to domestic US oil production via fracking.
    Furthermore the amount of oil imported by the US which doesn’t come from Canada or Mexico/Latin America is dramatically decreasing. Overall American oil imports are down over 25% peak to present – the majority of import decreases are due to a near halving of OPEC imports.
    I’d also point out that RMB presence by central bank reserve or as a % of trade is ridiculously low – particularly considering how much trade China engages in. The euro is about par, the yen is super low but the Japanese peg their currency vs the dollar so the provenance doesn’t really matter.
    China just having the RMB assume a proportion of central bank reserves and/or percentage of world trade on par with China’s overall participation in world trade, itself, would be an enormous shift but one without overt geopolitical power struggle.
    The assumption the above author has made is that there can be only one.
    I don’t know if I agree with that.

    • Golem XIV October 29, 2017 at 7:59 pm #

      Hello c1ue,

      Thank you for your thoughtful reply.

      I don’t think there has to be only one reserve currency. I just think there is a large group within the US ruling elite who will not be happy that, with the Yuan as a real rival (if China does in fact do what they say they are going to), the US will not have a free hand to project and impose its foreign policy so easily via its currency and banks.

      Personally I had thought it quite likely the Chinese would wait until the next crisis hit before launching the Yuan. But perhaps they think it prudent to launch in preparation.

      I agree the RMB is at present low. I just thin it will grow and do so fairly quickly if this project goes ahead. I also think the importance of the move is not going, at least not at first, to be global in its reach. I don’t, however think that matters. What will matter is where it is launched and where it has its effect – namely in the Gulf.If it takes we could find a great deal of the world’s oil and gas being traded in Euros and Yuan rather than dollars.

    • John G November 1, 2017 at 7:29 am #

      “The petrodollar existed in no small part because the US was the largest importer of oil for many years.”
      Exactly. Oil exporters to the USA get paid in $US.
      Mystery solved.
      There really is no such thing as the petrodollar.
      While China has a trade surplus with the USA it either has to be happy to hold those dollars or spend them.
      Neither scenario indicates that it would put up gold for oil.
      That oil is mostly traded in $US has little baring on the US economy.

  12. OpenThePodBayDoorsHAL October 29, 2017 at 10:22 pm #

    Just a few opinions:
    1. Chinese do not care at all about their pile of USTs because they got the good stuff in return: gleaming new ports, airports, factories, highways, telco, rail, and the lion’s share of the world’s manufacturing
    2. Last guy out of the gold standard got crushed, just like the first guy in to a new gold (or oil) standard would get crushed, everybody else would just print their local money, exchange for yuan, and get free gold or oil.
    3. Can’t compare Chinese banking to banking elsewhere. The PBOC tells banks how much they will emit as credit, their quota. Use it or lose it. There is no loan underwriting, solvency, analyses on ability to service debt. THIS is the amount you WILL lend. Entities unable to service the debt can easily be turned into fully state-owned and nobody would blink an eye, they’re COMMUNISTS. Debt for equity swaps. You can’t apply Western measures like capital adequacy, loan loss reserves etc.

    • Golem XIV October 29, 2017 at 10:46 pm #

      Hello HAL,

      1) I agree completely.
      2) I agree there would be a temptation to cheat. But I think using it mainly for Oil transactions and doing so via Qatar’s clearing house will prevent a great deal. I also think the other main players have a lot to gain by policing deals themselves. So I’m not sure it can’t be done.
      3) I agree that you can’t compare their banking with ours. So while Western Banks have fallen over themselves to have a presence in Hong Kong and to get licensed in China I agree they will not want to move there or be under Chinese ‘regulation’.. Its why HSBC has remained in the UK and USA. But I don’t agree with you about the amount of control and power the central authorities have. It seems to me they have far less power than is sometimes assumed. I argued this in a bunch of articles. “The New Revolutionaries” and “Making the New Sub-Prime”.

  13. Roger Lewis October 31, 2017 at 5:25 pm #

    http://letthemconfectsweeterlies.blogspot.se/2017/10/missing-clues-first-time-around-careful.html Strangely I revisited this old Post earlier and was struck by the discussion on EROEI from way back then.
    I think that when Rex Says.
    Simply put,
    Oil is Energy which is consumed,
    whereas on the other hand
    Gold is Energy which is stored.

    The second part of this Aphorism is absurd. It reifies an abstract belief around intrinsic Gold Value and projects it onto a physical reality which Gold simply can not perform but which Oil or some other Useful commodity, say lanthanides can perform. Gold does have industrial applications and so do diamonds but their imaginary belief based value far exceeds its use value.
    I do think Gold and Silver both have a large role to play in grounding an energy-based monetary metric back into the “real world” but the old hinted at importance of EROEI makes the more recent study I have been doing on Dr Tim Morgans´s SEEDS index at his Real Energy Economics Blog very worthwhile, whilst I kick myself not having taken up the queue at a much earlier opportunity.

    http://letthemconfectsweeterlies.blogspot.se/2017/10/seeds-gdp-old-measures-and-new.html

    http://letthemconfectsweeterlies.blogspot.se/2017/09/energy-economics-miixing-debt-apples.html

  14. John G November 1, 2017 at 3:28 am #

    ” Because China is about to launch the PetroYuan”

    No it isn’t. This story does the rounds of the gold bug sites every so often.
    It is nonsense.
    Unless the Chinese leadership have been taking LSD without anyone noticing.

    • Roger Lewis November 1, 2017 at 6:10 am #

      https://asia.nikkei.com/magazine/20170914/Business/China-aims-for-dollar-free-oil-trade This story is everywhere The Chinese Central Bank chairman published this 2009 paper and the BRICS development bank are two other solid institutional indicators of the intention of China to move away from the Dollar and also Russia are moving away from SWIFT. That Russian Gold Reserves have increased hugely is a matter of record as it is for China Also. No LSD required, a pair of reading glasses perhaps?http://letthemconfectsweeterlies.blogspot.se/2017/10/cashless-society-blockchain-global.html
      http://letthemconfectsweeterlies.blogspot.se/2017/08/its-geo-politics-not-economy-stupid.html
      Zhou Xiaochuan: Reform the international monetary system
      Essay by Dr Zhou Xiaochuan, Governor of the People’s Bank of China, 23 March 2009.
      http://www.bis.org/review/r090402c.pdf

      Reforming the international monetary system in the
      1970s and 2000s: would an SDR substitution
      account have worked?
      Robert N McCauley and Catherine R Schenk
      http://www.bis.org/publ/work444.pdf

      • John G November 1, 2017 at 7:07 am #

        So, no empirical evidence whatsoever of a gold backed Renminbi oil trading system.
        The idea is just absurd. Why would they?
        This is just a narrative that gold bugs are pushing to excite the rubes.
        These are the same gold bugs that were pushing the hyperinflation!!!!!!!!! buggy when QE started.
        Load of bollocks.

        • Golem XIV November 1, 2017 at 11:49 am #

          Hello John G,

          You could be right that it turns out to be just a rumour. I have written for the last 7 or so years about the possibility and logic of the Chinese challenging the dollar as both a settlement currency and as a de facto reserve currency. I do think both moves make great sense for China and do think there is ample evidence that the central authorities, often though Hong Kong, have been putting in place the necessary steps to achieve it.

          But I was surprised that they might go ahead and do it now and risk it being seen as an aggressive act that might well trigger the next banking and debt crisis. I had thought it much more sense for them to have everything place but to wait until the next crisis begins and then launch the Yuan as oil settlement and reserve competitor – allowing them to spin the story as one of ‘coming to the rescue’.

          Just for the record I am not a gold bug.

          Please post again. I am interested to hear more of your thinking.

          • John G November 3, 2017 at 7:35 am #

            I just don’t agree that there is any such thing as a settlement currency or a reserve currency post Bretton Woods.
            That most oil is traded in $US helps Wall St banks in that they get to create the bank credit is all.
            The Chinese realise that paying for real goods and services with electronic credits in bank accounts is a good deal. Being the largest economy in the world should be enough to convince the much smaller OPEC nations that Renminbi holdings are as good as US$ holdings.There is no need for any gold.
            But the Chinese still have to spend their US$ holdings on something that they want.

        • Golem XIV November 3, 2017 at 11:45 am #

          Hello John G,

          I agree with you that the Chinese will of course still need dollars if they want to buy stuff made in America. All I am saying is that if oil and gas are no longer traded in dollars then they and everyone else will need far fewer. And they will need more of whatever currency those and other commodities are traded in. This will effect the balance of who holds how much of what currency and whose debt. And that I think will have bog effects on both the dollar and the Yuan and the debt levels of the issuing countries.

          As for being gold backed – in a way I agree with you – it is not really ‘needed’. But I do think the Chinese and Russians will make a thing of saying ‘their’ settlement system ‘is backed by gold’. I also think when traders and nations are concerned with the fragility of fiat currencies, especially those where they see that private and central banks have printed up vast amounts of debt instruments and derivatives in a particular currency, then they may feel they should spread their risk by moving trade and holdings to the new currency.

          I’m not saying I know this will happen. Of course I don’t. All I am saying is that the Chinese and Russians do seem to have been carefully putting in place all the necessary agreements and components for this to happen.

          • John G November 3, 2017 at 9:37 pm #

            “I agree with you that the Chinese will of course still need dollars if they want to buy stuff made in America.

            The Chinese run a massive trade surplus with the USA. That is the source of their $ holdings. Their difficulty is spending them.

            ” And they will need more of whatever currency those and other commodities are traded in. This will effect the balance of who holds how much of what currency and whose debt.

            I don’t see it as an issue. Traders borrow the money for the trade into existence from commercial banks. Government holdings are generally used as an exchange rate tool.

            As for being gold backed – in a way I agree with you – it is not really ‘needed’. But I do think the Chinese and Russians will make a thing of saying ‘their’ settlement system ‘is backed by gold’.

            Only for those traders who want gold. I don’t think there are many. Gold is a relic.

            I also think when traders and nations are concerned with the fragility of fiat currencies, especially those where they see that private and central banks have printed up vast amounts of debt instruments and derivatives in a particular currency, then they may feel they should spread their risk by moving trade and holdings to the new currency.

            Central banks do’t create currency that way. Government deficits create the currency that buys the debt instruments.
            If I don’t want to hold the trading currency I can easily exchange the currency I do want to hold into that currency when I need to. Or I can get bank credit from a bank in the country of the trading currency.

            I’m not saying I know this will happen. Of course I don’t. All I am saying is that the Chinese and Russians do seem to have been carefully putting in place all the necessary agreements and components for this to happen.

            Are they moving away from trading in $US? Yes.
            I don’t think it will have the effect that a lot of people do.

            These $ out there have little effect on the real economy.

  15. steviefinn November 2, 2017 at 10:32 am #

    O/T, but perhaps some good news that I state very cautiously, in a very you never know it could maybe be a precedent for future trade deals – let’s hope so anyway :

    “WASHINGTON, D.C. – Trade experts and constitutional scholars from the left and the right, who battle over most issues – including the North American Free Trade Agreement (NAFTA) joined together at the National Press Club today to support the elimination of Investor-State Dispute Settlement (ISDS) from NAFTA. Corporate lobbying groups have shrilly attacked an administration proposal to limit the corporate protections in NAFTA provided by the ISD regime and its related substantive investor protections”.

    https://www.citizen.org/system/files/case_documents/press-release-isds-press-club-event-oct-2017_0.pdf

    • Golem XIV November 2, 2017 at 1:27 pm #

      Wow. That could be a very valuable start of something. Thanks for posting it.

      • steviefinn November 2, 2017 at 5:26 pm #

        Fingers tightly crossed.

  16. steviefinn November 3, 2017 at 2:21 pm #

    Perhaps this is a sign of another aspect of decline in the US, which perhaps could result in a more progressive Democrat party. Not as yet reported by the Guardian or NYT which is probably quite telling – Donna Brazille appears to have thrown Clinton & to a lesser extent Obama under the bus & highlighted the apparent takeover of the DNC by the corporate Dems led by the Clintons, in what could be described as money laundering.

    Donna has perhaps seen the writing on the wall in terms of the eventual downfall, with other aspects such as Wasserman Schultz’s legal problems & perhaps other likely litigation that could beset the Clinton court…..should get very interesting:

    https://www.politico.com/magazine/story/2017/11/02/clinton-brazile-hacks-2016-215774

    http://therealnews.com/t2/story:20366:Rep.-Tulsi-Gabbard-on-Donna-Brazile%27s-DNC-Bombshell

  17. Kevin November 3, 2017 at 9:02 pm #

    Ed Balls said recently at a Positive Money lecture that the less the government is involved with the economy the better. This a a typical neoliberal/ neoclassical line which we have had drummed into us for over 40 years after the rot first started with Thatcher and Reagan in the 70’s, but it turns out not to be true at all. Neoclassical economics has been funded and backed by the over class and it has paid off well for them at the detriment of our society

    Jeff J Brown is an American writer who has lived in China for many years. He recently article about China saying that the government owns all the land and 100% of all the large industry and banking leaving only 30% of the economy in private hands to make high turn over low profit margin products, like consumer electronics. He says China is still a mostly communist country and the leadership recently reaffirmed its commitment to Karl Marx.

    http://www.unz.com/article/how-can-western-capitalism-beat-this/

    Excerpt:

    How Can Western Capitalism Beat This? That’s the Rub, It Can’t, by Jeff J Brown.

    I grew up in Oklahoma, USA, ground zero for God, guns, gays and the sanctity of unfettered individualism and jungle capitalism: cowboys, cattle, wheat, churches and oil wells, all gleefully stolen from exterminated Natives. The whole process of getting to my current informed and enlightened awareness was akin to climbing an arduous summit, with a howling occidental hurricane blowing against my face. This is why I am so patient with friends, family, colleagues and strangers, when talking about their convictions and beliefs about how humanity works. With all due respect, most of them are still at base camp, at the bottom of that propaganda mountain, which is no fault of their own. They all grew up behind the Great Western Firewall and are just as brainwashed as I was for about 55- of my 63-year life.

    In June, 2017, an instructive meeting took place between California Governor Jerry Brown and Chinese President Xi Jinping. While talking about climate change, the topic of high speed trains (HST) came up. Governor Brown supposedly lamented that his state has not been able to build even one puny HST line, since his governor-father began pushing for it back in the 1950s.

    Why? While China is zeroing in on 30,000km of HST track, more than the rest of the world combined, along with hundreds of architecturally inspiring train stations to serve them, California has 2,000 lawsuits fighting its proposal. Why? Greedy capitalists and their purchased government employees and representatives are fighting each other for the loot, like cannibals in a kill pit of corruption, while selfish citizens are putting their individual interests ahead of the greater good. The latter is called NIMBY, Not in My Backyard.

    In the West, NIMBY is worn like a badge of honor to express Euranglolanders’ sense of freedom and independence. Meanwhile, with communism-socialism’s mantra of harmony, sharing, cooperation and stability for the greater good, the Chinese are laughing all the way to a much higher standard of living and better quality of life.

    Western capitalism talks and Chinese communism-socialism walks – no it flies at 350 kilometers per hour in a bullet train.

  18. David Morey November 5, 2017 at 6:32 pm #

    http://www.eurasiareview.com/21102017-socialism-land-and-banking-2017-compared-to-1917-analysis/

    Thoughts? Life in the UK would certainly be very different if we had not allowed the credit boom, imagine homes being much more affordable, wages not drained by high mortgage and rent costs? Imagine no big money to be earned in financial industry only more modest prospects from providing real goods and services, everyone working pretty modest hours. We pay a very high price to maintain the levels of inequality the current system produces.

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