American Bear, Chinese Bull

The International Monetary Fund (IMF) has released its World Economic Outlook, and by 2016 China’s economy is projected to exceed that of the United States by $200 billion.  I read an article that described our relationship with China as if China were Bill Gates, and America represented the jocks that bullied him in high school (1980’s).  China has done all of the work, evident in the over abundance of ‘made in China’ products that have became commonplace in the United States.  While it is easy to sit back and criticise their government’s authoritative position through population control and internet censorship; we simply can’t deny the facts from a fiscal perspective.  The US debt is spiraling, and we’ve passed $14 trillion at a record pace.  At the end of December the total foreign holdings of US Treasury debt was at a record high $4.44 trillion.  China holds over 26%, roughly $1.16 trillion invested.  China has been in negotiation with Russia to instill a channel for the two currencies to trade against each other in the spot inter-bank markets.  This is a clear indication that they are seeking to move away from the U.S. Dollar World Reserve that the markets currently use (the U.S. Dollar is the monetary unit used to price gold and oil).  If the global economy were to devise another Reserve Currency system America would NOT be able to print money at the rate we do.  This is horrible news for America given our spending habits.  Still, I am not sure of the reality of the threat when the economic conditions are coupled with military strength and the impact that has on behavioural economics, however that will be addressed and analysed much further in coming blogs.  Nevertheless, it is undoubtedly a bad sign for America that the people who have ‘invested’ in us so heavily are seeking new methods to avoid our currency. 


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