Is the Dollar on Life-support?

ASIATIMES Report “China is intervening in forex markets to soak up dollars, invest in Treasuries and effectively pay the bill of US fiscal stimulus.”

But why would China try to prop up the dollar? Remember, China’s strategy is to manage a peaceful decline of the United States. its strategy is to wait for the rotting apple to fall on its own rather than to shake the tree risking the wrath and fallout of a Samson seppuku.

See also 1; US Treasury Secretary Yellen and China’s vice premier talk about cooperation and economic recovery 2; China can help US out of its inflation trap

By DAVID P. GOLDMAN / JUNE 15, 2021

NEW YORK – Hating China may be the only thing that American politicians agree about, but China remains the prop and support of the American economy.

Americans can’t spend the trillions of dollars that their federal government has poured out in “stimulus” payments without Chinese imports. And the American Treasury can’t finance its projected US$2.3 trillion deficit – not without substantial pain – unless China recycles its nearly $500 billion trade surplus with the United States into US government bonds.

The US is perilously short of money, and China is flooded with money from its trade surplus. There’s nowhere else the US can raise the money it needs except China, unless it prints more money. What economists once called “Chimerica” – the symbiosis of an American economy that borrows and imports with a Chinese economy that lends and exports – is back with a vengeance.

China’s apparent support for the US dollar has a double impact. It supports the imperiled Treasury bond market, and it also keeps Chinese goods cheap for US consumers. That has a significant impact on US inflation: America’s trade deficit is deepening while import prices are rising.

Life Support Systems Cartoons and Comics - funny pictures from CartoonStock

This will happen not because Biden is well disposed towards China, or because he planned to cut a deal with China, or because a cabal of China-friendly American business persuades him to do so, but simply because he is short of money and China has lots of it.

A forensic analysis of market data suggests that all of this already is happening. China is to thank for the buoyancy of the US Treasury bond market despite a sequence of inflation shocks. China appears to be intervening in the foreign exchange market to prevent its enormous trade surplus from driving down the dollar’s exchange rate against the Chinese renminbi (RMB), and then reinvesting the proceeds of intervention in American money markets.

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I would [[or wouldn’t]] be surprised to learn that the US Treasury and the PBOC have worked this out in some kind of tacit policy agreement. The current is so strong that the US is being caught up in a Sinocentric vortex of trade and capital flows whether it likes it or not.

Eventually, US-China policy will adjust to the misery of America’s present circumstances.

“Mene Mene Tekel Upharsin.”

“Be afraid,” says David Goldman. “Be very afraid.”

~ by Joel Huan on June 17, 2021.

2 Responses to “Is the Dollar on Life-support?”

  1. US Treasury Secretary Yellen and China’s vice premier talk about cooperation. So in return, according to David Goodman, China is buying the US Dollars to prop up its deficits. Is there another quid pro quo? Is TikTok and Wechat now off the hook as part of their undercurrent deal?

  2. Reblogged this on The Most Revolutionary Act and commented:
    China’s apparent support for the US dollar has a double impact. It supports the imperiled Treasury bond market, and it also keeps Chinese goods cheap for US consumers. That has a significant impact on US inflation: America’s trade deficit is deepening while import prices are rising.

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