Deus Ex Machina

"This is the generation of the great LEVIATHAN, or rather, to speak more reverently of that mortal god, to which we own under the immortal God, our peace and defense." -Thomas Hobbes: Leviathan

Global Economic Rip-off Schemes Going On Today (Part I: The US Dollars and Triffin’s Dilemma)

In the world today, there are basically two major global ripping off schemes going on, one, with the US and the rising foreign developing nations, two, with the West and the banking and financial corporations.

The first one is due to the fact that the US has decided to let their currency be the world’s global reserve currency which leads to what is known as “Triffin’s Dilemma”. It is a theory which says that any nation whose currency is the world’s reserve currency must incur a negative balance of payment and balance of trade. The economic logic is simple, if the US dollars is the world’s reserve currency, then the demand for US dollars would be high, pushing up the price of the US dollars (which means that you will need to use more of your local currency to buy US dollars). Thus, the US goods becomes less competitive on the global market, and foreign imports become cheaper (for those who don’t get it, your bit of US dollars can buy more foreign currency, thus, foreign goods would be cheaper relative to your US dollars since with the same US dollars you can buy more foreign cash and thereby foreign goods, the same logic holds in the reserve direction, US goods becomes much more expansive since foreign nations will need to use more of their local currency to buy US dollars, and thereby their US goods will be more expansive.)

Thus in effect, the world, especially China, is simply bleeding the US dry of its economy and cash. This is why almost everything now in the US is “made in China”. The Chinese sells their goods to the US and the US simply pays them in US dollars which they want and the Chinese stores the money in their reserves.

Obviously the US cannot be perpetually bleeding money, it would run dry eventually and incur debts, and also its economy cannot keep shrinking. Unfortunately the world wants this scheme to continue, they want to milk the US for as much as possible while they use the export profits to build their own country and reserves. Thus, to continue to prop up the system and prevent the US from going under, foreign governments, with their cash freshly harvested from the US economy, simply pumps part of their money back in the US via loans by purchasing US government bonds and debts. Thus, on paper, these foreign nations are still as rich as ever, possessing US government bonds and debts which the US must eventually pay back, the cash which leaves their treasuries and enter into the US leaves as loans, not gifts. The US gets a lifeline in terms of debts and continues hobbling along for the world to continue milking the cow.

Naturally the US cannot keep accumulating debts, eventually they’ll run out of money even to finance their own debt interest, and foreign governments do not possess an endless supply of cash to lend the US, they will need some of their profits from the US to finance their own domestic policies and needs. Eventually, foreign governments will be either unwilling or unable to lend anything to the US, and the US will need to cannibalise its own economy to finance its debts. This would trigger a massive economic meltdown called a “stagflation”, which basically means an economy which is shrinking and stagnant and yet whose inflation is rather high. The high inflation rate is due to the fact that the US government must keep printing money to keep being the world’s reserve currency, the shrinking economy is due to the fact that the US must cannibalise its own economy by taxation or cutting spending to finance its debts.

This is why the Chinese are keeping a secret as to how much of their reserves are still held in US dollars. They are now slowly trying to protect themselves from the shock of a US collapse when it eventually occurs. And this is why the Russians are also starting to buy gold. It’s only a matter of time before this rip-off scheme implodes and the US currency becomes worthless.

A foreshadowing of this could be seen in the early postulation of the Triffin’s Dilemma, which predicted that the post-WWII Bretton Woods system would collapse. Basically, the Bretton Woods system is where the US currency would serve as the world’s reserve currency, but the US dollars itself was backed by gold which was set at a certain price. Thus what foreign governments did was to buy massive amounts of US dollars and convert them into gold. Since the US dollars was clearly inflated, it’s supply having dramatically risen to meet global demand, thus the price of gold should be higher than the set price, but it is not. Thus a massive amount of gold left the US before President Nixon ended the Bretton Woods system once for all.

Triffin’s Dilemma also predicted the collapse of the US dollars after the fall of the Bretton Woods system, but it did not materialise simply because foreign governments have been propping the US economy with loans and debts to keep the machine chugging along. But eventually, this cannot continue indefinitely, as recent financial hiccups have revealed, and then…

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This entry was posted on May 27, 2014 by in Uncategorized.
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