For myself and many others back in the 2008/09 period, it seemed obvious what China should to do from an entirely nationalistic perspective on the grand geopolitical chessboard. With the reputation of the U.S. laying in tatters following a gigantic financial collapse and an utterly embarrassing, unlimited taxpayer bailout of the criminals that caused the crisis, the entire world (including Americans) was looking for something else. Something new, something more lawful. Something more just and more stable. The U.S. dollar and the Federal Reserve System had been exposed and entirely discredited in many people’s minds. One of history’s most bold and monumental geopolitical moves was ripe for the taking. China could attempt to back its currency with gold, something I discussed with Max Keiser in a May 2010 interview. Immediately, capital flows would flood into the country, Chinese consumer purchasing power would explode and a rebalancing of their economy would experience a traumatic, but monumental and necessary shift. They could have announced such a plan and then implemented it slowly and with safety nets for manufacturers. It wouldn’t have been easy, but the window of opportunity was open. Instead, they did nothing, and now I think it’s too late.
I think there are two obvious reasons why the Chinese authorities failed to take bold action on the world stage. First, many of the wealthiest billionaires and elites in China have benefited greatly from so-called “free trade” partnerships with the West. The ponzi relationship in which we print pieces of paper and give it to them for manufactured goods has resulted in fabulous fortunes for the Chinese power players. Not to mention their existing personal, social relationships with Western elites. So why rock the boat?
The second reason has to do with the likely political and social turmoil that would have resulted from such a move. The enormous economic rebalancing from such a power play would financially ruin many people during the transition period. Some of them might be locally powerful figures who could then rile up newly unemployed peasants and the conditions for revolution would be ripe. That’s not to say this would be the outcome, but pulling off such a grand move would open up the political situation to such a risk. A risk no one in power was willing to take. So they didn’t.
There is a third possible reason, and that is the U.S. quietly threatened China militarily if they attempted such a move. This is certainly possible as well.
All of these questions were on my mind back on May 2012 when I wrote an article titled: China Better Have a Plan. Here’s a passage from that piece:
The fact that the Central Planners in China are basically standing around like deer in headlights as their economy plunges into the abyss is nothing short of astounding. Sure they have lowered the bank Reserve Requirement but so what? That is an epic joke of a move in light of the gargantuan problems that economy is facing, and is blatantly pathetic in its irrelevance. I’m not going into detail for the thousandth time why China’s economy is nothing more than a Keynesian Centrally Planned house of cards on steroids with mal-investments that make the U.S. housing market look benign. I have done that too many times over too many years to exert energy on that topic once again. That said, what I do want to do is look back at the post 2008 period and try to figure out why they never really took polices to rebalance the economy away from fixed asset investment toward consumption. In fact, not only did they not rebalance but they doubled down on the prior strategy! Well now the chickens have come home to roost and we are about to find out if China has any real “long term” plan to get themselves out of this mess.
Ultimately, what I think the authorities in China decided to do was let the U.S. hang itself. The Chinese elites didn’t want to be held responsible for the collapse of the U.S. dollar or the world monetary system. So instead, they decided to wait it out, buy gold and prepare to take over on the world stage once the monetary system imploded in on itself. This seemed like a reasonable plan, but they didn’t anticipate one very, very important thing. They didn’t anticipate Bitcoin.
Bitcoin is the monetary equivalent of some genius programmer coming to the global chessboard, picking it up over his or her head and then throwing it on the floor, scattering the pieces all over the place. This is why I and so many others were shocked that the control-freaks in China were seemingly supportive of it. I believe this was the result of some very forward thinking and brilliant Chinese entrepreneurs seeing the technological achievement for what it is and convincing others of its incredible potential. However, that didn’t last long. Why?
My theory is that there is a very powerful nationalistic element in China with a laser focused goal of becoming the next global empire. They want all that the U.S. has. Military might to make other countries bend to their will. Funded via an unlimited, globally accepted printing press money with which billions of clueless serfs can be controlled and manipulated. Basically, they want to run the next Federal Reserve System of the world. Obviously, Bitcoin throws a gigantic wrench into such plans.
What really gets under my skin is when gold bugs cheer China’s move to push the renminbi forward as the new global currency. Personally, I bought gold and silver and continue to hold it because I see the inevitability of the current monetary order’s collapse. That doesn’t mean I want a foreign nation with less political freedoms than we have to be in charge of the next global reserve currency. Nor does it mean I want China to run a new gold standard. We all know that such a ploy would be used to gain reserve currency status (just as we did at Bretton Woods), and before long you’d no longer be able to redeem your notes for metals. Then before you realized what happened, Americans would be under the thumb of a Chinese Bernanke. You want that? I don’t.
This brings me to the main reason I have supported Bitcoin and continue to support it. Bitcoin brings the concept of decentralized, peer-to-peer currencies into the human consciousness. It separates money from the state. The reason bureaucrats can’t understand Bitcoin is because all they understand is power and control, and Bitcoin’s purpose is to distribute those things. Bitcoin, or whatever may come after it, represents a huge opportunity for our species to grow up and take responsibility for something as significant as money. It also represents a great opportunity for the U.S. economy. With China flatfooted and confused, we should be pushing Bitcoin and things like it every step of the way. U.S. entrepreneurs are perfectly positioned to lead the way in the evolution of money and also do some good for the world. Policy players and thought leaders in the United States should ignore the insane ramblings of Paul Krugman and ask themselves one key question. If you agree that the current monetary system is doomed to failure, what would you prefer, a Chinese Federal Reserve System or decentralized, peer-to-peer alternatives? My choice is clear.
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