It is no secret that China is replacing the U.S. dollar with its own currency in more and more of its bilateral trading. It’s apparent to all that the renminbi will soon have (at least) a co-equal status with the dollar as the global “reserve currency”. Yet what is rarely if ever discussed in the mainstream media are the enormous economic repercussions of a world suddenly awash with a massive glut of surplus dollars.
In most respects economics mirrors one of the basic principles of physics: for every action there is an equal-and-opposite reaction. If farmers produce a bumper-crop of wheat and supply soars, then the price falls. Similarly, if (for some reason) the demand for wheat suddenly collapsed, the price would also fall – as both a jump in supply and/or a plunge in demand result in the same state: abundant/excessive supply. And the consequence of excessive supply is always a fall in price.
This economic “physics” applies in an identical manner to the world of currencies…eventually. In a global economy ever more corrupted by serial market-rigging; nowhere is this manipulation more blatant than in the world’s forex markets. Indeed, the world’s nations have openly declared that they are all competitively engaged in currency-manipulation; as denoted by the euphemistic term “competitive devaluation.”
For new readers, let me quickly summarize the (for lack of a better word) “principle” behind competitive devaluation. Through destroying the value of one’s own currency, the wages of workers (in real dollars) are driven steadily toward zero, and so (supposedly) this will allow a nation to under-cut its trade partners and export more goods.
The sick joke here is that with all nations destroying the value of their currencies (and the wages of their workers) simultaneously, no nation gains any “advantage” and the wages of workers are being destroyed for no reason whatsoever. This does, however, produce the paradigm of all currencies simultaneously falling in value, only the rate of decline of this paper-destruction varies....
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