Tuesday, December 27, 2011

Dollar Replacement Project takes huge step forward - Japan chooses China

Huge news this week: Japan and China announced direct currency swaps, completely bypassing the USD/FRN. Additionally, Japan agreed to buy and sell Chinese bonds, essentially monetizing the Chinese government debt on the international market. (See summary article here http://www.businessweek.com/news/2011-12-27/japan-turns-activist-on-reserves-as-global-economy-rank-slips.html)


Obviously, this is WAAAY bigger than Chinese-Russian agreements. Japan's economy is huge and powerful (what, number 3 in the world, I think), and they used to be considered a staunch American ally.

Effects of Dollar Replacement

When the USD is no longer used as a reserve trade currency:

--all those "international dollars" will come back to the U.S. shores, unleashing a wicked huge inflation.
-- Additionally, foreign manufacturers will no longer need to dump goods on the US market to earn trade dollars, meaning things will no longer be sold here as cheaply (even ignoring the effects of the inflation).
--Finally, the US will have to balance its budget(s), since foreigners will no longer need to recycle their trade dollars by purchasing bonds


Needless to say, it is difficult to calculate the effects on the US economy if we have to balance our trade account and balance our federal budget. Then throw in the difficulties of fighting a huge currency inflation, and paying off a huge debt.... yikes

Initiating a currency devaluation seems like a good solution, but don't count on our moneyed powers to do that. As always, Jubilee remains the best solution, but the Debt Masters would rather stay on top, even if that means riding everyone else into the ground...

1 comment:

buskerbayarea said...

I agree 100%! I've been advocating for a time of Jubilee for the past year. Hopefully you're already aware of Jubilee USA: http://www.jubileeusa.org/ They have been having some success at minimizing debt in developing countries. Anyway, I'd love to develop a bit of dialogue with you if interested.