There Is a Lot of Bull in the China Shop

China is breaking everywhere you look.

DonkeyHotey [ CC BY 2.0

Much is being said in the alternative press about the dollar finally being taken down along with US hegemony by China and Russia. Some of it is true, but China is no longer the powerhouse it briefly became. I’m not saying it was just a flash of gold in the pan, but Central Planning has darkened China’s own days considerably.

If you’ve lived longer than a snowflake, you probably remember the days when the Chinese were transporting their crops to market on ox carts while the rest of us were using semis. So, to be sure, the transformation of China, in major part due to free trade agreements that came under the Bush presidencies and earlier trade breakthroughs in the Nixon administration, remains an entire leap in history ahead of where China was when I was growing up, and we all referred to it as a “third-world country” and offered to send the food we didn’t like at dinner time to the starving kids in China. China seemed somehow to leap right over second-world, into full first-world participation in the few decades to follow.

China became the fastest-growing economy in the world in good part due to US corporations moving there and giving away a great deal of the technology and trade secrets to prophet from cheap labor. China grew brazen in its new strength and started seeking its own hegemony. Let’s not pretend it is merely altruistic all of a sudden and just wants to protect the world from US dominance.

Many nations would love to see the US downgraded from that role, and some are looking to China to be their champion; however, China clearly seeks to become the new world hegemon with all of the exclusive trade agreements it has been leveraging around the world over the past decade. China’s growth even made it somewhat of a savior from the Great Recession as its strong economy created a lot of demand for products from other countries, as well as cheap labor for parts and raw materials for their own products. It looked “swell.”

This present decade — the 2020’s — however, has not been going so roaringly well for China. Since it invented a virus at the end of the last decade and shared it as a gift to the entire world, starting with itself, China’s bright future has darkened considerably. Sure, the clock has not been turned back to drive China backward down the paths of history to ox carts, but its attempt to launch a central-bank digital currency has soured since it chose to weaponize its own CBDC as a way of attacking Covid, and its attempt to turn the yuan into a global trade currency has been walking backward along with its economy. Meanwhile, the dollar has rarely ever been stronger against the proverbial “basket” of other currencies.

That may be to the chagrin of those who are always predicting the dollar’s decline, and I have no doubt the dollar is in gradual decline, due to weaponization and gross mismanagement, but the problem for those who want to see it supplanted is that a lot of other horses are on faster trucks headed to the glue factory. So, as measured against basketfuls of other currencies, the dollar has been on a raging assault lately due to the Fed’s tightening.

That shouldn’t be surprising, since it was years of profligacy by the Fed (practically free Fed funds) that gradually took the dollar down in value compared to other currencies and then down in buying power even within the US due to high inflation. Now, as the Fed raises its own interest and rolls off its own holdings in dollar bonds, raising their interest, to combat the inflation the Fed forced into being, the dollar has been climbing the mountain back toward king of the hill, price inflation not withstanding.

As I said in my editorial this morning, there are rarely any straight lines to anything in economics, and that is the case in the recent dollar wars. The dollar is up, it’s down, depending not just on all of the Fed’s massive misjudgments, but based on the missteps of others; and that is where China has been thwarting its own desire to see the yuan rout the dollar.

The remainder of this extra-edition article that explains how badly and why China is falling in stature is exclusive to the paid subscribers who support all of the writing here, but I wanted everyone to start noticing that China is in a lot of trouble that it has created for itself, as expressed in a number of headlines this week, and that the yuan is losing “currency,” even as the BRICS nations have started adopting it as a partial replacement in global trade to the dollar.

(Note that those nations — Brazil, Russia, India China, and South Africa (or was it Sidney, Australia, a realm of its own reckoning as a cohort of Canberra in the world of Covid craziness) still use dollars and lots of them with the exception of Russia. Even in those nations, the yuan is not the dominant currency, which I’ll come to below.)

Death to the dollar does not come easily. It fights back even as others suffer their own self-inflicted wounds. And, believe me, the article below points out those self-inflicted wounds for China and its currency are MANY and are deep.