It has been clear for years that China would soon be pulling the strings in the US financial system, writes Porter Stansberry in the Daily Wealth.
After all, the American people now owe the Chinese government nearly $1.5 trillion.
I know big numbers don't mean much to most people, but keep in mind...this tab is now hundreds of billions of Dollars more than what the US government collects in ALL income taxes (both corporate and individual) each year. It's basically a sum we can never, ever hope to repay – at least, not by normal means.
Of course, the Chinese aren't stupid. They realize we are both trapped.
We are stuck with an enormous debt we can never realistically repay...And the Chinese are trapped with an outstanding loan they can neither get rid of, nor hope to collect. So the Chinese government is now taking a secret and somewhat radical approach.
China has recently put into place a covert plan to get back as much of its money as possible – by extracting colossal sums from both the United States government and ordinary citizens.
The Chinese "State Administration of Foreign Exchange" (SAFE) is now engaged in a full-fledged currency war with the United States. The ultimate goal – as the Chinese have publicly stated – is to create a new dominant world currency, dislodge the US Dollar from its current reserve role, and recover as much of the $1.5 trillion the US government has borrowed as possible.
We reckon we have a pretty good idea of how it will all unfold. How come? Well, this isn't the first time the US has tried to stiff its foreign creditors.
Most Americans probably don't remember this, but our last big currency war took place in the 1960s. Back then, French President Charles de Gaulle denounced the US government policy of printing overvalued US Dollars to pay for its trade deficits...which allowed US companies to buy European assets with Dollars that were artificially held up in value by a gold peg that was nothing more than an accounting fiction. So de Gaulle took action...
In 1965, he took $150 million of his country's Dollar reserves and redeemed the paper currency for US gold from Ft. Knox. De Gaulle even offered to send the French Navy to escort the gold back to France. Today, this gold is worth about $12 billion.
Keep in mind...this occurred during a time when foreign governments could legally redeem their paper Dollars for gold, but US citizens could not. And France was not the only nation to do this...Spain soon redeemed $60 million of US Dollar reserves for gold, and many other nations followed suit. By March 1968, gold was flowing out of the United States at an alarming rate.
By 1950, US depositories held more gold than had ever been assembled in one place in world history (roughly 702 million ounces). But to manipulate our currency, the US government was willing to give away more than half of the country's gold.
It's estimated that during the 1950s and early 1970s, we essentially gave away about two-thirds of our nation's gold reserves...around 400 million ounces...all because the US government was trying to defend the US Dollar at a fixed rate of $35 per ounce of gold.
In short, we gave away 400 million ounces of gold and got $14 billion in exchange. Today, that same gold would be worth $620 billion...a 4,330% difference.
Incredibly stupid, wouldn't you agree? This blunder cost the US much of its gold hoard.
When the history books are finally written, this chapter will go down as one of our nation's most incompetent political blunders. Of course, as is typical with politicians, they managed to make a bad situation even worse...
The root cause of the weakness in the US Dollar was easy to understand. Americans were consuming far more than they were producing. You could see this by looking at our government's annual deficits, which were larger than ever and growing...thanks to the gigantic new welfare programs and the Vietnam "police action." You could also see this by looking at our trade deficit, which continued to get bigger and bigger, forecasting a dramatic drop (eventually) in the value of the US Dollar.
Of course, economic realities are never foremost on the minds of politicians – especially not Richard Nixon's. On August 15, 1971, he went on live television before the most popular show in America (Bonanza) and announced a new plan...
The US gold window would close effective immediately – and no nation or individual anywhere in the world would be allowed to exchange US Dollars for gold. The president announced a 10% surtax on ALL imports! Such tariffs never accomplish much in terms of actually altering the balance of trade, as our trading partners simply put matching charges on our exports. So what actually happens is just less trade overall, which slows the whole global economy, making the impact of inflation worse.
Of course, Nixon pitched these moves as patriotic, saying: "I am determined that the American Dollar must never again be a hostage in the hands of international speculators."
The "sheeple" cheered, as they always do whenever something is done to "stop the speculators." But the joke was on them. Within two years, America was in its worst recession since WWII...with an oil crisis, skyrocketing unemployment, a 30% drop in the stock market, and soaring inflation. Instead of becoming richer, millions of Americans got a lot poorer, practically overnight.
And that brings us to today...
Roughly 40 years later, the United States is in the middle of another currency war. But this time, our main adversary is not Europe. It's China. And this time, the situation is far more serious. Our nation and our economy are already in an extremely fragile state. In the 1960s, the American economy was growing rapidly, with decades of expansion still to come. That's not the case today.
This new currency war with China will wreak absolute havoc on the lives of millions of ordinary Americans, much sooner than most people think. It's critical over the next few years for you to understand exactly what the Chinese are doing, why they are doing it, and the near-certain outcome.
