Friday, January 13, 2012

How China Can Turn the U.S. into a Third World Country Overnight

As I have commented below, it's clear that the U.S. is pushing Iran into a corner.

I have pointed out in Will the Strait of Hormuz Turn Into the Next Pearl Harbor?  the U.S. is cutting off all options for Iran in the same manner the U.S. did to Japan before Japan attacked Pear Harbor.

Paul Craig Roberts, a former Assistant Secretary of the US Treasury and former associate editor of the Wall Street Journal, appears to be thinking my way on the situation. He writes:
What we are witnessing is a replay of Washington’s policy toward Japan in the 1930s that provoked the Japanese attack on Pearl Harbor. Japan’s bank balances in the West were seized, and Japan’s access to oil and raw materials was restricted. The purpose was to prevent or to slow Japan’s rise. The result was war.
Most alarming is that Roberts see this potentially developing into a U.S. nuclear attack on Iran:
Despite the hubris in which it wallows, Washington understands the vulnerability of its Fifth Fleet in the Persian Gulf and would not risk losing a fleet and 20,000 US naval personnel unless it was to gain an excuse for a nuclear attack on Iran. A nuclear attack on Iran would alert both China and Russia that they could suffer the same fate. The consequence would be that the world would face a higher risk of nuclear armageddon than existed in the mutually assured destruction of the US-Soviet standoff.

Washington is getting all of us in over our heads. Washington has declared the “Asia-Pacific” and the South China Sea to be areas of “America’s national interest.” What sense does this make? It makes the same sense as if China declared the Gulf of Mexico and the Mediterranean Sea to be areas of China’s national interest.
As Roberts clearly recognizes, the U.S. is on some kind of mad attempt at controlling the world.

The attempt to isolate and shutdown Iran's central bank, is most assuredly  something China and Russia are monitoring closely. It is a signal as to the vulnerability of their dollar holdings and holdings of dollar denominated assets. Clearing and dealing in dollars and, thus, having to play by Washington's rules will provide much incentive to develop a non-dollar exchange among China, Russia, Iran and many other countries.

In other words, many foreign countries may decide to ditch the dollar as a reserve currency.

One key is China, since they hold some $1 trillion in US Treasury securities. This has always been viewed as an Achilles heel for the Chinese. Who could absorb such a large quantity of securities if they decided to sell? China would face huge losses. Or would they? Roberts makes the very important point that the Federal Reserve would step in an print dollars to prop up the Treasury market, otherwise interest rates would go through the roof. Roberts explains the situation this way:
When you get right down to it, Washington’s tough talk is nothing but a silly pointless provocation of Washington’s largest creditor. What if Washington’s idiocy causes China to worry that Washington and its UK and European puppets will seize its bank balances and refuse to honor China’s holdings of $1 trillion in US Treasury bonds? Will China pull its balances from the weak US, UK, and European banks? Will China decide to strike first, not with nuclear weapons, but by selling its $1 trillion in Treasury bonds all at once?

It would be cheaper than war.

The Federal Reserve would have to quickly print another $1 trillion dollars with which to buy the bonds, or US interest rates would shoot up. What would China do with the $1 trillion in newly printed paper? In my opinion, China would dump it all at once in the currency market, because the Federal Reserve cannot print euros, UK pounds, Japanese yen, Swiss francs, Russian rubles, and Chinese yuan with which to buy up its newly printed currency.

The US dollar would take a beating. US import prices–which now include, thanks to offshoring, almost everything Americans consume–would rise...

We, as Americans, need to ask ourselves what all this is about? Why is our government so provocative toward Islam, Russia, China, Iran? What purpose, whose purpose is being served? Certainly not ours.
Bottom line: U.S. global belligerence, to the point of attempting to shut down Iran's central bank, makes the U.S. very vulnerable to a massive global run out of U.S Treasury securities and the dollar. Like a  vulnerable bank, the U.S. Treasury is extremely susceptible to a run. It's only a matter of the suckers waking up. And the U.S. government is doing everything it can to wake the suckers up.

China doesn't have to sell all its securities in one day. It can move much slower, just sell month after month, but the eventual results would be the same. The Federal Reserve would have to do a lot of printing. The dollar would collapse on foreign exchange markets and the run out of the dollar by central banks around the world would begin. Dollars by the billions would hit U.S. shores and price inflation would be dramatic.

Things don't have to play out this way, but U.S. government bullying actions around the globe are increasing the probability of this scenario---as if the U.S. doesn't have enough price inflation problems developing on the horizon.


  1. Are they really so stupid? Or is something far more sinister at work?

    If you're not a conspiracy theorist, then you ain't payin' attention!!!

    1. Nah, they're just stupid. Ancient Rome and many other empires did the same thing. Was there some sinister conspiracy to destroy their empires too?

    2. Yeah, you're probably right. I thought Nixon was smart. Evil, but smart. Then Watergate. Dumb.

    3. Typically the political leaders are just stupid but the guys pulling the strings may have some nefarious plans.

    4. Capn Mike, Watergate had nothing to do with stupidity by Nixon. It was a bloodless coup, as Nixon threatened the military-industrial complex with his opening to China.

      Put your tin foil hat back on and read, 'Silent Coup' by Colodny and Getlin. Fascinating, and convincing, to me.

  2. Thank you for the insightful article. I just recently wrote an article on the 14 currency swap agreements China has made with other nations. China is preparing for a rainy day, I just wonder how near we are to that day.

  3. Iran is no nest of angels, but the now total insanity of the US government is beyond scary.

    All people involved making the decisions are stupid lunatics and that does not bode well for the future.

  4. You cite Paul Craig Roberts as stating, regarding the 1930s, that sanctions against Japan were to obstruct japan's rise. Western governments have been imposing sanctions, starting wars and otherwise acting aggressively against other countries, especially Middle Eastern and Asian countries, for the past century as ways to prevent their economic progress, societal development and independence. I think it's an ego thing with the politicians and central planning bureaucrats who have been running things all these years. And economically, it's kind of like how Big Business lobbies for government regulations to restrict prospective smaller competitors' rise to the top.

    And regarding Capn Mike's questioning whether our government people are that stupid as to deliberately start things that will end up backfiring and sinking America even more, The Daily Bell has two articles suggesting that it is all on purpose, that they WANT the U.S. to crash as an excuse for One World Government rule.

    I think it's really been an ego thing with individual politicians who like power and control, but not necessarily a "conspiracy."

  5. Our government is out of control, no doubt. Sociopathic neocons are running the country and they're gonna get us all killed.

  6. "Despite the hubris in which it wallows, Washington understands the vulnerability of its Fifth Fleet in the Persian Gulf and would not risk losing a fleet and 20,000 US naval personnel unless it was to gain an excuse for a nuclear attack on Iran. "

    No way would this happen. Nukes are very old school weaponry when compared to the highly accurate targeted weapons they have today. The biggest issue with using a nuke in anything but a purely defensive roll is the mess and problems they leave behind after the war. They essentially make the spoils of war worthless and create massive refugee problems which mean nation building is impossible. This of course ignores the grotesqueness and moral controversy of a country that would use a nuclear weapon in a tactical offensive mode.

    I realize that to the public the nuclear weapon is viewed as the ultimate weapon in warfare, but it really isn't. While they certainly will destroy a large area of above ground structures, they do very little to earthend shelters which Iran has plenty of (most countries do) and they are extremely inefficient in taking out specific targets. The targeted weapons on the other hand, like the "bunker buster" are far more feared by the foreign military establishment then the nukes.

    1. Nukes come in lots of sizes and flavors nowadays. So, unfortunately, the U.S. and Israel have many options.

      Remember that 'neutron bomb'? Looks like we may have been using them in Fallujah:

  7. I anoint Paul Craig Roberts captain obvious. Haven't we all known this for years?

  8. Im sorry i don't understand how central bank sanctions work? How does the US sanction the Iran central bank? Just by simply not doing business with them their currency got destroyed? Can come one explain that to me?

  9. China is far more dependent on the Us and the dollar than the US is dependent on China. China will not do anything radical.

    The recent Iran-Russia agreement to buy and sell oil in rials and rubles can be interpreted in many ways. One way is that they are setting up a situation where Europe, Japan and India can support the US boycott of Iran but continue to buy Iranian oil (in US dollars) from Russia and also selling to Iran (including nuclear supplies) through Russia. In the end Iran and Russia collect their dollars and buy what they need in dollars, the US boasts that most nations have signed on to its Iranian boycott, and those same signed-on nations can continue business as usual. Ho-hum.

    Headlines do not supply the back stories. And most countries, especially China, want stability.

  10. @Anonymous 7:09am They actually sanction anyone who does business with Iran's central bank. So corporations have a choice. They can buy oil from Iran, but they can't sell oil (or anything else) to America or any client state of America.