The inevitable transfer of exorbitant privilege

The world needs a global currency of some sort in order to facilitate trade.  Let's face it, if some Japanese person tried to buy goods from the average American using Yen they wouldn't get very far.  Americans do not know how to value foreign currencies and, increasingly, foreigners are learning how foolish it is to value American currency.  Yes, when the USA gets into economic trouble we just go to the printing presses.  It seems (and is for a while) such an easy way out that it's hard to avoid.  Besides, the bankers can say they are doing it for the good of the world, etc.

At this point we have gone back to the inflation well so often that other countries are tired of it.  They are now working as hard as they can to get out of our fraudulent currency system (I wish I could call it money but it doesn't pass the test of being a reliable store of wealth/buying power).  China is making deals with Brazil and with Iran and with Russia and even with their WW2 enemy Japan.  They want to cut the USD out of the trade loop where it isn't needed.  They realize that it was artificially crammed down their throats and they want out.

But how to do it without collapsing global trade?  The answer is not that difficult.  Just go slowly.  Don't get angry, don't get goaded into a fight.  Just do the right thing over time and before you know it the dollar scam will collapse in on itself.  But what is the right thing?  If China thinks it's going to replace the dollar with the Yuan then it is crazy.  There are many technical reasons and some "people" reasons why not.  First, there are not enough Yuan in existence.  But perhaps more importantly, people do not want to jump out of the frying pan into the fire. 

I like the cable company analogy here.  You don't switch service providers for the heck of it.  The new guy HAS to offer a better deal, especially if he's had a hazy past.  It can't be just 5% better.  10% won't do it either.  It has to be at least 25% better of a deal and if there is a shady past involved the cost premium needed to drive transition could be much higher.

When it comes to the global reserve currency, all people really want to know is that its controller is not ripping them off.  But if China just tried to convince everyone to use Yuan instead of dollars there would be fear that China would just rip them off instead of the US.  Also, China has to be careful.  The US military is a huge and fearful organization and US politicians can easily convince themselves that China trying to take over the money reins for the world is a destabilizing force (meaning US will lose power and control in the deal).  They can easily decide that China is a threat to world security and start a war in order to "put them back in their place for the good of the world".  Trust me, the con men running the show think exactly this way, no stretch of the imagination needed.

So China has to walk softly and China HAS to gain support of the world such that, if the US objects to a new Chinese-driven global reserve currency strategy, it cannot turn into war without that war being the USA against everyone else.  China has to, in essence bribe the world somehow.  But what could China offer as  a better deal than the US when it comes to managing the global money supply?  There is one thing, and one thing only that could possibly fill this need: China needs to drive toward a gold backed global exchange currency.  You know, honest money like Ron Paul is always talking about.  This would not be one that China owns, at least not at first.  Remember, slow by slow, not all at once.  Moving too quickly will start WW3.

As a first step it would be enough of a win for China simply for the US to have lost the exorbitant privilege of printing up money almost without consequence.  If China were to create some sort of GlobalTradeCurrencyUnit (not, not, NOT the Yuan) and back it 100% with a massive, internationally audited gold supply then who in their right mind would not want to use that to pay for global trade?  And if they used that then the people who are now using dollars would no longer need those dollars, would they?  Why would they hang onto dollars that the USA gets to debase if there is a fair and honest alternative?

And so, this is what I would be doing if I were China.  I would be amassing a monster gold reserve, one big enough to equal or eclipse the 8,000 tonnes that the USA supposedly has.  And when I had all of that gold in hand I would launch the new GlobalTradeCurrencyUnit and invite everyone to participate.  If China did that, the world would un-a$$ US dollars like there was no tomorrow in favor of this new, honest currency.  It would collapse the debt Ponzi of the USA and eliminate its global power hegemony overnight.

The caveat here is that China will have to be well behaved while this is happening and they will have to keep up the good behavior until the new system takes root and is globally accepted.  If they didn't then there would be too much fear about giving China the reins.  China needs to show self-control in tense situations for several years (like the US did during WW2) in order to gain the trust of the world.

Given the above, is it any wonder that rumors are circulating around a massive Chinese gold purchase program?  Add 6000 tonnes to what China already has and it will be pretty close to the US stockpile of 8000+ tonnes.  With that on the table, consider the remarks that Romney has been making about China all along -  that they are guilty of "currency manipulation" and that he will start trade wars with them in punishment.  Since the US is the biggest currency manipulator in the history of man, Romney's hollow remarks must have some purpose other than achieving justice. 

Everyone knows that economic attacks on countries are a political mechanism for attempting to overthrow the government of said countries.  The hope is that  the suffering of the people will cause revolt from within.  If I were con man Romney and I saw China building a massive stockpile of gold then I would pick a fight with them in the name of justice.  Of course, it would really be in the name of greed and dishonesty but these guys simply argue that the end justifies the means.

If Romney wins and if he picks a fight with China then know in advance that it has nothing to do with currency manipulation or justice.  It will have to do with China trying to escape the money con that the USA has been running since Bretton Woods.  It will be for the same reason that we invaded Iraq: to put down a regime which had rejected the almighty US dollar in favor of being able to keep the wealth created by their labor instead of letting Uncle Sam steal it "for the greater good".  If Obama starts getting tough with China then it will be for the same reason.  Obama and Romney are basically the same con game operators.  They just have slightly different cover stories.

Of course, if China ever got the reins it would start cheating on the money supply eventually.  The inflation game is too good of a something-for-nothing racket not to cheat.  Humans do not possess the will power needed to keep the straight and narrow.  Besides, every other group of con men who ran a global empire got benefit from doing it and in time China would follow suit.  They would lie, cheat and steal with the best American con men because that's what governments do.  They would never be happy with just having things be fair.  They would want to make an economic weapon out of it just like all the other con men did before them.

Meet the new boss, same as the old boss.