Baltimore, Maryland
February 6, 2015

Oogedy boogedy boogedy boo…

For the past 100 years, a recent Washington Free Beacon article by Bill Gertz suggests, China has been secretly manipulating the United States into helping Beijing replace the U.S. world order with a communist-led economic and political system.

Over the decades, Michael Pillsbury, author and China analyst for every presidential administration since Nixon, tells Gertz, “Chinese leaders lulled presidents, Cabinet secretaries and other government analysts and policymakers into falsely assessing China as a benign power deserving of U.S. support.”

It all started in 1955, says Gertz, when Mao Zedong “put forth the widespread misbelief that China is a poor, backward, inward-looking country.”

1955 China? Poor? Must’ve of been a real hard sell.

After that, the tale goes, U.S. altruism toward its fellow nation in despair was a slippery slope leading to a multidecade decline. China sapped cash, technology, military expertise and geopolitical clout from America slowly.

It’s a scary yarn. “Of course” Jim Rickards told me when I mentioned the article to him, “you always have to take this with a grain of salt, because it's Pentagon budget time in Washington, so some scare tactics are always in order to support appropriations.”

Heh. That sounds more like it.

“I wish Washington, liberal and conservative, spent as much time working on the financial threats as they do on these kinetic and strategic ones,” Jim concluded. He’s earned grumbling rights, too. Jim’s been spinning his wheels with Pentagon, CIA and Treasury types for years, trying to wake them up to the dollar’s inevitable fate. So far, no luck.

Case in point: If you Google “Russia,” “U.S.” and “war” together, you get 335 million results. Saber rattling makes for sexy headlines.

Google instead “SDR,” “U.S.,” “yuan” and “IMF” together and you get just 398,000 results.

Search “IMF,” “U.S.” and “veto” together and you get even fewer -- 416,000 results.

Let’s take ’em in reverse order…

In 2010, the International Monetary Fund furnished reforms that would give emerging markets, especially China, a bigger role in its decisions. A reflection of the times a-changin’. As of yet, the U.S. Congress hasn’t voted to approve the changes, so the proposals have been in limbo.

Sandbagging, as always, has its limits. Managing director Christine Lagarde is now threatening to take away the U.S. power to veto the IMF’s decisions -- something the U.S. uses to strong-arm policy.

To boot, the yuan is now among the top five trading currencies in the world. Zurich, Sydney, Seoul, Paris, Luxembourg, London, Frankfurt, Singapore and Hong Kong all have clearing centers for the currency.

All in time for the IMF’s May review of the currencies that will make up its special drawing rights -- the “Spooky New Money” that Jim thinks will replace the dollar as world reserve currency.

As if to make Chinese de-dollarization seem all but certain, Business Insider points out that “China's outbound investment will soon surpass the amount invested inside the country… Not only is China on the verge of becoming a net exporter of capital, it has already overtaken its Western counterparts as a primary source of credit for the developing world. From this financial prominence, it will likely want to exercise political influence, too.

“In other words, China's foreign investment is coming soon to a country near you! And it's going to change the entire world.”

Hmmn.

We understand if you find talk about the dollar’s demise as the world reserve currency strange at a time when the greenback is at its strongest:

Hardly anyone noticed on Tuesday, but The Wall Street Journal illustrated just how “safe” the U.S., and, by extension, the dollar, is for your investments. Reporter Josh Zumbrun explained that by 2025, the federal government will be paying 300% more to service the national debt than it pays today. Six years from now, those interest payments will equal projected U.S. defense spending.

Pfff… 100 years of Chinese manipulation? More like American self-mutilation.

Good thing “deficits don’t matter.”

Enjoy your weekend,

Peter Coyne
The Daily Reckoning