China holds more U.S. government debt than any other country in the world. They currently hold more than one trillion U.S. dollars.
Beginning in 2007, China began to get worried.
What if the U.S. collapsed? What if dollars suddenly became worthless? Could they really afford to hold onto $1 trillion forever? If China was worried in 2007, they were downright panicky in late 2008, as it seemed a total financial collapse was imminent in America.
China held massive amounts of U.S. dollars, but they couldn’t sell them without causing a huge drop in the dollar’s value. What’s more, China still needed dollars to buy oil.
Yet, China understood it was extremely risky to continue buying and holding dollars, so they began to diversify by buying up massive amounts of gold and other precious metals. China bought 490 tons of gold in 2011—twice the amount they bought in 2010.
And their gold-buying binge doesn’t seem to be letting up anytime soon. In the first six months of 2012, they’ve already bought 383 tons of gold. At that pace, they’d acquire 766 tons of gold by the end of this year. (In July 2015 China reported they owned 1658 Metric tons of Gold, most world Banks believe this to be well under-reported of China’s true holdings).
More importantly, China is following in Iraq’s footsteps. Just as Iraq had planned to trade oil in euros, China began to explore the idea of bypassing the dollar by trading oil directly with oil-producing countries.
You see, while the U.S. was willing to attack a small country like Iraq, I don’t see any way that the U.S. would attack a country as large and powerful as China, especially when you consider that China produces most of the consumer products purchased in the U.S.
By trading directly with oil-producing countries, China would then be able to off-load dollars before they became worthless—and still have access to as much oil as they want.
The U.S. Dollar Has Officially Been Dethroned
Let’s be clear: China’s plans are no longer just plans. (In Oct 2015 China was officially added to the basket of reserve currencies, thus they have made a great initial stride in their strategy to replace America and become the world’s reserve currency).
They are now reality. As of September 2012, China and Russia reached an agreement and formally announced that they would begin trading oil directly. Russia will provide oil to China, and China will pay for the oil—not with U.S. dollars—but with yuan.
While this announcement has not been widely publicized, it spells the end of the petrodollar. In other words, the U.S. dollar is the world’s reserve currency in name only.
Now that China and Russia have abandoned the petrodollar, other countries like Iran, India, Argentina, and Brazil are expected to soon follow China’s lead.
And there is nothing the United States can do to stop it!
But it gets worse…
QE3—to Infinity and Beyond!
As oil-producing nations dump the U.S. dollar in favor of other currencies, demand for dollars will likely plummet. No longer will nations need billions of dollars on hand to buy oil.
And yet at a time when demand for dollars is already drying up, the Federal Reserve is printing more money than ever before!
You see, back in early 2009, in the depths of the financial crisis, they told us that the first round of quantitative easing (QE) would solve all the problems. But it didn’t.
Then came QE2 in late 2010. We were told billions more were needed to stimulate the economy. Obviously, QE2 was not effective either.
QE3 finally arrived in September 2012. But this “final” round of quantitative easing is very different from its predecessors. That’s because QE3 authorizes the Fed to buy $40 billion of mortgage-backed securities every month until the economy gets better.
This means that QE3 will never end. (If at first you don’t succeed, fail, fail and fail unlimitedly again!)
As QE3 pumps billions of dollars into the U.S. economy each month, we will see inflation begin to take hold. I already see the price of gas and food increasing. This will get worse with each month that passes.
So Let’s Put This All Together…
- China could be getting ready to dump their U.S. dollars. Their new trade agreement with Russia practically guarantees that other oil-producing countries will soon be dumping dollars, too.
- At the same time, the Fed is creating new money at an astonishing rate. This money is already causing inflation.
- Demand for U.S. dollars is going down.
- The supply of U.S. dollars is going up.
This can only lead to one possible outcome…
Mention the word “hyperinflation” and most Americans scoff.
Hyperinflation is something that only happens in places like Weimar, Germany or Zimbabwe—but not the United States!
We hate to burst your bubble, but hyperinflation is nearly inevitable at this point. We’ve crossed the Rubicon and there’s no going back. Just look at the price of corn and wheat—they’ve skyrocketed a whopping 18.5% and 39.5% respectively since the beginning of 2012 alone!
And hyperinflation couldn’t come at a worse time.
Real incomes in the U.S. are declining. The average American family makes less money today than they did a year ago. (This has continually dropped in each of the last 4 yrs., what is the common denominator in that equation?)
What’s more, the official U6 unemployment rate (which includes people who have given up looking for work and people who want full-time jobs but who are stuck with only part-time jobs) has held steady for months at about 15%.
The unofficial shadow statistic unemployment rate (which includes the long-term unemployed) sits at 22%! (These are stats the government would rather not discuss)
A dollar that has been dethroned…falling incomes…persistent unemployment rates… and rising prices of necessities like gas and food…these are all the ingredients necessary for…
Make no mistake. The Ponzi scheme called America is about to reach critical mass. The fuse has been lit. And there isn’t much time left.
When the Ponzi scheme finally explodes, the economic carnage that follows could happen almost instantly.
There are many who believe it will happen far faster than the fall of Rome.
And it will be much, much bigger than the banking collapse of Iceland in 2008.
And while America’s collapse may not happen in one literal hour, it will happen so fast that most people will have no time to react.
Already we’re seeing major cracks in America’s economic foundation.
In a single day, on October 31, 2011, the commodities brokerage firm MF Global collapsed, wiping out $1.6 billion in customer money.
MF Global’s case was unprecedented. The company literally stole money straight from customers’ accounts. (The CEO of this company was President Obama’s Jobs Czar and he still isn’t under indictment or in jail for this theft)
In many ways, MF Global represents the rotten underpinnings of the American financial system. When the Ponzi scheme finally gives way, it will collapse as quickly as MF Global did. One day, it existed—and the next day, it was gone.
“I Have Unwittingly Ruined My Country.” (all current politicians on both sides of the aisle)
It is truly remarkable that the Federal Reserve has been able to continue running its Ponzi scheme for as long as it has.
While most people have been oblivious, many people throughout history have seen the Fed for what it is—including the President that authorized its creation.
After Woodrow Wilson signed the Federal Reserve Act into law in 1913, he later lamented, “I have unwittingly ruined my country.”
He was right. Now, we have reached critical mass in the Ponzi scheme
How prepared are you for the economic destruction that could rip through every town, city, and state in the U.S.? And how prepared would you be if one morning you wake up to discover that the dollars in your wallet are close to worthless?
Most Americans are painfully unprepared.
As with all economic disruption based events there is a silver lining for those who counter-intuitively seek out the proper strategies to survive and profit from any fiscal disaster. In Pt 3 we will discuss this possibility.