How the Chinese Will Establish a New Financial Order

How the Chinese Will Establish a New Financial Order

By Porter Stansberry

For many years now, it’s been clear that China would soon be pull­ing the strings in the U.S. financial system.

In 2015, the American people owe the Chinese government nearly $1.5 trillion.

I know big numbers don’t mean much to most people, but keep in mind… this tab is now hundreds of billions of dollars more than what the U.S. government collects in ALL income taxes (both cor­porate and individual) each year. It’s basically a sum we can never, ever hope to repay – at least, not by normal means.

Of course, the Chinese aren’t stupid. They realize we are both trapped.

We are stuck with an enormous debt we can never realistically repay… And the Chinese are trapped with an outstanding loan they can neither get rid of, nor hope to collect. So the Chinese govern­ment is now taking a secret and somewhat radical approach.

China has recently put into place a covert plan to get back as much of its money as possible – by extracting colossal sums from both the United States government and ordinary citizens, like you and me.

The Chinese “State Administration of Foreign Exchange” (SAFE) is now engaged in a full-fledged currency war with the United States. The ultimate goal – as the Chinese have publicly stated – is to cre­ate a new dominant world currency, dislodge the U.S. dollar from its current reserve role, and recover as much of the $1.5 trillion the U.S. government has borrowed as possible.

Lucky for us, we know what’s going to happen. And we even have a pretty good idea of how it will all unfold. How do we know so much? Well, this isn’t the first time the U.S. has tried to stiff its foreign creditors.

Most Americans probably don’t remember this, but our last big currency war took place in the 1960s. Back then, French President Charles de Gaulle denounced the U.S. government’s policy of print­ing overvalued U.S. dollars to pay for its trade deficits… which allowed U.S. companies to buy European assets with dollars that were artificially held up in value by a gold peg that was nothing more than an accounting fiction. So de Gaulle took action…

In 1965, he took $150 million of his country’s dollar reserves and redeemed the paper currency for U.S. gold from Ft. Knox. De Gaulle even offered to send the French Navy to escort the gold back to France. Today, this gold is worth about $12 billion.

Keep in mind… this occurred during a time when foreign govern­ments could legally redeem their paper dollars for gold, but U.S. citizens could not.

And France was not the only nation to do this… Spain soon re­deemed $60 million of U.S. dollar reserves for gold, and many other nations followed suit. By March 1968, gold was flowing out of the United States at an alarming rate.

By 1950, U.S. depositories held more gold than had ever been assembled in one place in world history (roughly 702 million ounces). But to manipulate our currency, the U.S. government was willing to give away more than half of the country’s gold.

It’s estimated that during the 1950s and early 1970s, we essentially gave away about two-thirds of our nation’s gold reserves… around 400 million ounces… all because the U.S. government was trying to defend the U.S. dollar at a fixed rate of $35 per ounce of gold.

In short, we gave away 400 million ounces of gold and got $14 billion in exchange. Today, that same gold would be worth $620 billion… a 4,330% difference.

Incredibly stupid, wouldn’t you agree? This blunder cost the U.S. much of its gold hoard.

When the history books are finally written, this chapter will go down as one of our nation’s most incompetent political blunders. Of course, as is typical with politicians, they managed to make a bad situation even worse…

The root cause of the weakness in the U.S. dollar was easy to understand. Americans were consuming far more than they were producing. You could see this by looking at our government’s annual deficits, which were larger than ever and growing… thanks to the gigantic new welfare programs and the Vietnam “police ac­tion.” You could also see this by looking at our trade deficit, which continued to get bigger and bigger, forecasting a dramatic drop (eventually) in the value of the U.S. dollar.

Of course, economic realities are never foremost on the minds of politicians – especially not Richard Nixon’s. On August 15, 1971, he went on live television before the most popular show in Ameri­ca (Bonanza) and announced a new plan…

The U.S. gold window would close effective immediately – and no nation or individual anywhere in the world would be allowed to exchange U.S. dollars for gold. The president announced a 10% surtax on ALL imports!

Such tariffs never accomplish much in terms of actually altering the balance of trade, as our trading partners simply put matching charges on our exports. So what actually happens is just less trade overall, which slows the whole global economy, making the impact of inflation worse.

Of course, Nixon pitched these moves as patriotic, saying: “I am determined that the American dollar must never again be a hos­tage in the hands of international speculators.”

The “sheeple” cheered, as they always do whenever something is done to “stop the speculators.” But the joke was on them. Within two years, America was in its worst recession since WWII… with an oil crisis, skyrocketing unemployment, a 30% drop in the stock market, and soaring inflation. Instead of becoming richer, millions of Americans got a lot poorer, practically overnight.

And that brings us to today…

Roughly 40 years later, the United States is in the middle of anoth­er currency war. But this time, our main adversary is not Europe. It’s China. And this time, the situation is far more serious. Our nation and our economy are already in an extremely fragile state. In the 1960s, the American economy was growing rapidly, with decades of expansion still to come. That’s not the case today.

This new currency war with China will wreak absolute havoc on the lives of millions of ordinary Americans, much sooner than most people think. It’s critical over the next few years for you to understand exactly what the Chinese are doing, why they are doing it, and the near-certain outcome.

Regards,

Porter Stansberry

(This is an adaptation of an article that was originally published in Porter’s Investment Advisory.)

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The article was originally published at internationalman.com.

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Montefrio

“In 1965, he took $150 million of his country’s dollar reserves and redeemed the paper currency for U.S. gold from Ft. Knox.”

Not so: the gold was held at the NY Fed and I saw part of the moving operation.Typically at that time, foreign exchange swaps were carried out by moving the gold from one nation’s “bin” to another, never leaving NY Fed custody. DeG wanted his nation’s metal and he got it. It did NOT come from “U .S. gold from Ft Knox”. It was French gold all along and was duly shipped out in quite the operation.

The Agora Group touts (get your $99 copy now at a special price for you my friend!) have lots of things to sell you: get yourself one of those “Ye Olde Wine, Cheese and Polo Pony” plots of land now! Sheesh!

robert h siddell jr
robert h siddell jr

The US economy is supporting 110 million on Welfare and 8 Million Unemployed vs the Thin Blue Line of 1.2 million Active Duty and 1.3 million Reserve Military. The Left side of this cart is 118 million non-producing consumers and the Right side is 2.5 million soldiers. Unless we fix the Welfare/Warfare cart, it’s going to crash the country bad into the Left ditch real soon; but, stay tuned to see if the Welfare Maggots can overcome the New Age Military in a Civil War over the spoils for survival…until the Chinese, Russians, BRICS etc come knocking on the door to collect what we owe them.

Wip
Wip

“Keep in mind… this occurred during a time when foreign govern­ments could legally redeem their paper dollars for gold, but U.S. citizens could not.”

Is this true? I thought 1971 is when the gold window closed for citizens.

TPC
TPC

I always say ‘bring back tariffs’ however I wish to make a distinction:

I would like to see tariffs on countries whose competitive advantage is slave labor.

AnarchoPagan
AnarchoPagan

TPC,

The “slave labor” bit makes great rhetoric, but doesn’t affect the economic argument against tariffs. Imagine Japan opens a fully-automated widget factory; zero labor costs! How exactly does it make the US wealthier to refuse to buy widgets from them cheaper than we can make them ourselves? Labor conditions in other countries might be appalling from a humanitarian perspective, feel free to organize voluntary boycotts, but tariffs are always and everywhere a coerced transfer of wealth from domestic consumers to politically-favored domestic producers.

Persnickety
Persnickety

I can’t find where in the “article” it is explained how the Chinese will establish any new financial order. You know, what the title promised? Can anyone else find it for me? Seriously!

TPC
TPC

@AP – If you can find another way to incentivize US corporations to bring their jobs back home let me know, traditionally tariffs were a good way.

I don’t particularly like the idea, but I’ve yet to come up with a better one.

yahsure
yahsure

I have read that the Chinese had to create so many new jobs each month that they really need the U.S. to help them out with our purchasing. Besides that,We help pay for their new war ships.
I also read(maybe here) That China was using whatever worthless U.S. Dollars they have to buy physical things,Even at a loss, So they get something besides worthless paper.
It will all eventually fall apart,It is just a matter of when.

Anonymous
Anonymous

TPC,

That’s what I usually refer to as Equitable Trade.

Trade based on worker work conditions and lifestyle parities instead of lowest wages. That would remove the (low wage) advantage of those living in throw away worker working conditions and tar paper shacks with tin roofs.

I’ve been calling for it for several decades now, but no one seems to pay me any attention.

Doesn’t surprise me they don’t, I’m pretty much just a common man nobody, not some kind of big deal public figure..

AC
AC

FTA: “The root cause of the weakness in the U.S. dollar was easy to understand.

The Federal Reserve created more dollars than there was gold to back them, at the $35/ozt. peg. Nixon just nailed shut the coffin holding the pretense that $35 were actually worth one troy once of gold.

The root cause of the weakness of the US dollar probably has more to do with Keynesian economics, and its pathological focus on short term goals, combined with inept people in policy making positions – both in the government, and in the Federal Reserve system.

Westcoaster
Westcoaster

I would sure like to see some legislation that “favored domestic producers”. Over the past 30 years the “favor” has been running in the other direction. We sure as hell need to slap tariffs on goods produced by slave and near-slave labor, and make these fucking multi-national companies pay their taxes.

Desertrat
Desertrat

FDR outlawed citizen ownership of gold coins and bullion April 5, 1933. You could keep jewelry and (IIRC) $100 in coins.

The decline of the dollar in post-WW II years began with LBJ’s “guns and butter” Vietnam policy. We spent money overseas on Cold War efforts beginning with Truman. By Nixon’s time, foreign countries were awash in dollars.

After 1971, US government spending took off with hardly any limits.

AnarchoPagan
AnarchoPagan

@Westcoaster,

You do realize that if you’re not working for one of the “favored domestic producers”, you’re paying for the benefit of those that are, but not deriving any benefit from it yourself?

ottomatik
ottomatik

AnarchoP. – ” you’re paying for the benefit of those that are, but not deriving any benefit from it yourself?”
Would not the “favored domestic producers” be paying middle class workers to produce? How do you figure we would not derive any benefit from higher levels of domestic employment? It seems to be better for that payroll money to “slosh” around here Vs. building a strong(er) middle class in China, and enriching the top percentage here(sort of), at the expense of our middle class engine.

ottomatik
ottomatik

West- “goods produced by slave and near-slave labor”, its not just this, the goods are produced in absolutely deplorable environmental conditions, fucking filthy.
So its not only labor arbitrage, it’s environmental arbitrage, it’s the furthest thing from “Free Trade” you could imagine. After the slaves spend 100 hours in one week for 50 bucks, and the factory pumps out all of the chemical waste directly into the flaming river, the ‘owners’ send the goods here virtually duty/tariff free.
Vs.
A middle class entrepreneur here in America has to pay virtually the highest government mandated minimum wages in the world coupled with government mandated health insurance and match government mandated SSI, coupled with following some of the strictest government mandated environmental restrictions. Then that Entrepreneur sends the goods there and they slap on a hefty tariff/duty, that our Government negotiated, and calls it “Free”.
Yes, free, free money for the Multinationals/Globalist, prison sex for the serf bitches here.

Anonymous
Anonymous

ottomatik,

Note I said “if you’re not *working for* the favored producers”; naturally some of the benefit does flow to the employees. It seems to me self-evident that the goal of an economy is not for money to “slosh around” but (simplifying here) to maximize the quantity of consumer goods; tariffs don’t do that.

ottomatik
ottomatik

AP- For me, our shared economic goal should be the highest levels of economic opportunity with the widest American population participation possible. This is my American Dream, not the 3rd World Government Dependent population of Debt Serf’s, that we are apparently flirting with.

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