Friday, February 17, 2023

China Attacks USD - Vox Popoli

 The largest foreign holder of the US dollar openly calls for other nations to stop enabling the USA’s debt-speding:

The world’s two largest foreign holders of US treasuries, Japan and China, continued to pare down their holdings of US debt in December, data from the US Treasury Department showed on Wednesday. Foreign holdings of US treasuries declined in 2022. Japan’s holdings also dropped by $224.5 billion specifically, while China’s holdings were down by $173.2 billion to $867.1 billion, the lowest since May 2010.

For a long time, changes in China’s holdings of US debt have been a topic of great concern, which is seen by some as a measure of the state of China-US relations. Yet, there is no need to complicate China-US relations with China’s reduced holdings of US treasuries. The reasons behind China’s recent reduction of its holdings of US debt are mainly economic considerations, as the problems in the US economy and the changes in bilateral economic and trade relations have increased the need for China to pursue diversification of its foreign exchange reserves.

To be clear, while China has reduced its holdings of US debt, it doesn’t change the fact that US treasuries remain an important part of China’s foreign exchange reserves. China is still the world’s second-largest non-US holder of US treasuries, because the US dollar remains the world’s most important currency for trade settlement and a safe-haven for investors seeking security amid the changeable markets. Besides, US sovereign debt has the highest and the most stable credit rating.

But nowadays these factors are changing.

US economy, debt mean other nations must diversify reserves, Global Times, 17 February 2023

Make no mistake. This public call to the BRICSIA nations to reduce their dollar reserves is a form of unrestricted warfare in action. China is in the process of doing to the US economy what the IMF has repeatedly done to third world governments since the 1960s, which is encourage them to enter a debt trap, become dependent on the IMF, and then seize the national assets used as collateral.

(NB: Before the smart boys jump in to make an erroneous “correction”, note that while Japan holds more US treasuries than China, China’s total dollar holdings are nearly four times greater than Japan’s. The former is a subset of the latter.)

While there is no actual collateral at risk here, what China has done is made the US economy dependent upon the Chinese willingness to subsidize it. This is why the USA can’t afford to financially sanction China the way it has sanctioned Russia, and why China has a financial gun to the US federal government’s head that is distinct from whatever control it directly exerts over politicians it has managed to buy or otherwise corrupt in various ways.

Live by the debt-dollar, die by the debt-dollar. Once an empire loses its reserve currency status, imperial decline tends to come swiftly. Consider the examples of the Venetian ducato, the Dutch guilder and the British pound if you want to contemplate likely timeframes and outcomes.

This appears to be another sign that China is getting closer to opening the Asian front of World War III.