We have been warned. Interestingly, the official warning from Beijing is the same one we have given for five years and again very recently when we said "Forget the Shutdown, Our Next Problem is the Dollar." Make no mistake, our dollar is in the crosshairs. While many will no doubt blame our own policies for the dollar's attack, we have demonstrated repeatedly that we are in a global economic war. Well before our debt spiraled out of control or we had threats of a government default based on political stalemate, enemies of the United States were planning economic attacks to take us down. We've explained, with help from Torsten Mann, how in 1982, when the U.S. debt was substantially lower (actually around $1 trillion vs. $17 trillion today), the KGB/Soviet plan was to use economic weapons to undermine us during an "era of global democratic peace." Then, in 1998, when the debt was actually declining (and just before the Office of Management and Budget was to predict that all Federal debt would be PAID OFF by 2010), former KGB (and current friend of Putin) Igor Panarin predicted the collapse of America due to our debt "pyramid scheme." A year later, the Chinese PLA (People's Liberation Army) explained how financial warfare could bring down a superpower like America.
Of course, we have made a serious mess of things ourselves. Our debt to GDP ratio has skyrocketed, due in part to two wars in the Middle East and the bin Laden plan's to have us die economically a "death by 1,000 cuts." And, we have made some serious policy mistakes. In fact, over the past two years alone, our Federal debt has increased TWICE as fast as GDP. That is simply amazing and hard to comprehend. In other words, in the past two years, the Federal government has borrowed and spent $2.405 trillion and our GDP has grown less than $1.2 trillion AFTER the war expenditures wound down. But, do not be deceived. There is an active plan to undermine America economically. Just because we have fallen into a trap does not mean we should remain unaware of the global economic war underway against us. Yes, we have a debt problem. It will be infinitely harder to resolve if we are under economic attack. Don't forget that Putin attempted to get Chinese cooperation in a 2008 plan to undermine America. He failed then but since he has enhanced his efforts with new Chinese cooperation.
Don't be lulled to sleep by those who say that China will NEVER hurt the dollar because they have so much invested in it. This isn't reality. The plans to replace the dollar have been in the works for more than a decade. While China apologists insist that the Communist government will always support the dollar as world's reserve currency, this does NOT square with what our research and contacts say. We even have evidence that elements in the Middle East are prepared to side with China against the dollar. Now, we have further evidence from official Chinese sources that we have been right all along. This time, however, the word has made international news headlines calling for a de-Americanised world. How to do it? Dump the dollar.
Read the following quotes from the current Chinese official News Agency editorial (as reported in the International Business Times) very carefully:
"As US politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanised world," the editorial said.
"… the cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising debt ceiling has again left many nations' tremendous dollar assets in jeopardy and the international community highly agonised," the agency said.
As the first step in creating a de-Americanised world, all nations must try to shape an international system that respects the sovereignty of all nations and ensures the US keeps out of the domestic affairs of others, Xinhua said.
"The developing and emerging market economies need to have more say in major international financial institutions including the World Bank and the International Monetary Fund, so that they could better reflect the transformations of the global economic and political landscape," the editorial says.
It also called for an end to the use of the US dollar as the international reserve currency, a step that would ensure the international community could maintain a safe distance from the side-effects of domestic political turmoil in the United States.
Then go back and read the whole editorial: http://news.xinhuanet.com/english/indepth/2013-10/13/c_132794246.htm.
Now, remember this from Qiushi, an official Journal of the Communist Party as published in December 2010:
When faced with an aggressive U.S., how should China respond? The article "Cast Away Illusions; Prepare for Struggle" that Mao Zedong published on August 14, 1949, is still applicable to today's situation: Our wishes to persuade the imperialists and those who are against China to be kindhearted and repent are fruitless and will never come to pass. The only way is to organize forces to fight against them. One fundamental principle that we must follow is the strategy, "If friends come, treat them with wine; if jackals come, we have shotguns for them."
1. Economic Warfare. Of course, to fight the U.S., we have to come up with key "weapons." What is the most powerful weapon China has today? It is our economic power, especially our foreign exchange reserves. The key is to use it well. If we use it well, it is a weapon; otherwise it may become a burden. Counting on the fact that the U.S. dollar is the international currency, the U.S. government has increased the number of dollars in circulation, leading to its devaluation. The countries with high reserves in dollars will suffer, but the U.S. itself loses nothing. However, for this to be true there is a premise. Someone must purchase those excess dollars they printed. If no one purchases them, then they will only be circulated domestically, inside the U.S., and cause inflation. In order for the countries with foreign exchange reserves in the U.S. dollar to restrain the U.S. from over-issuing U.S. currency, they must act together and not buy U.S. dollars. There are two ways to achieve this. The first is for all these countries to reach a consensus and act together as one. The second is if one country takes the lead, does not buy U.S. dollars, and other countries then follow. Which alternative should China choose? The first tactic requires countries with foreign exchange reserves to reach a consensus. China, Japan, the U.K., India, and Saudi Arabia are all countries with high foreign exchange reserves. Japan is constrained by the Japan-U.S. Security Treaty and will not break away from the U.S., so the probability of Japan cooperating is very low. Great Britain has always followed the U.S., so the probability that it will cooperate with China is also pretty low. There have been recent changes in Britain's political structure. Prime Minister Cameron has adopted a new strategy toward China that increases the possibilities for cooperation, making it a more likely player than Japan. Also, the U.K.'s foreign exchange reserves, which are market adjusted instead of sovereign funds, are to a large extent subject to market impact. India has stayed closely allied with the U.S. in recent years, and Obama promised to support India for a permanent membership in the UNSC. Thus, the probability for India to cooperate with China is also not great. India's purchasing power of foreign exchange reserves is very limited anyway, so it cannot influence the overall situation much. Saudi Arabia does not have much political interest in the U.S.; its purchase of foreign exchange reserves is purely commercial. So they are more likely just to follow the market. Based on this analysis, it is very unlikely that China and these countries would ever reach a consensus. Therefore, we are left with the second option, which is to take the lead in affecting the market for U.S. dollars. This approach is market-driven, so others will not be able to easily blame China. It is a good solution, and also we will not owe anyone anything for the favor of becoming our partner. The key issue is that China must have people who understand the market well and are good at using the market at the right time to impact the exchange rate of the U.S. currency. Of course, the most important condition is still that China must have enough courage to challenge the U.S. currency. China can act in one of two ways. One is to sell U.S. dollar reserves, and the second is not to buy any U.S. dollars for a certain period of time. The first option may cause the U.S. dollar to devalue, so China must consider whether it can take a loss resulting from the depreciation of the U.S. dollar. However, the U.S.'s over-printing currency will also cause the dollar to depreciate and will cause the foreign exchange reserve to shrink even more in value. Thus, in comparison, we will probably end up losing less. For the second option, if we do not buy the U.S. debt, what should we buy instead to increase our foreign exchange reserves? Options are the Euro, the British sterling, Japanese yen, Indian rupee, Russian ruble, and Brazilian currency. At the same time, buying the debt of these countries will help promote good relations and economic and trade cooperation between China and these countries. It will enhance China's economic influence in these countries. Therefore, this is a highly cost-effective tactic, and, more importantly, China is the biggest buyer of U.S. debt. China's actions will have a demonstrable effect on the market. If China stops buying, other countries will pay close attention and are very likely to follow. Once the printed excess dollars cannot be sold, the depreciation of the dollar will accelerate and the impact on Americans wealth will be enormous. The U.S. will not be able to withstand this pressure and will curtail the printing of U.S. currency. The dollar will then appreciate. Most importantly, through this, China's foreign exchange reserves will no longer be "the meat of the Tang-dynasty monk"  for the U.S. Instead, they will become a major economic force to constrain the U.S. The key to success is that China needs to have enough courage and determination to take the U.S. pressure. This is exactly what we need. It just shows how much the U.S. needs China. The more pressure we can take, the more successful this strategy. It will indicate that this "weapon" is highly effective and the U.S. will start to fear us.
2. Financial War. The fact that the U.S. dollar is the world's reserve currency makes the U.S. a financial superpower. Currently, China's increased share in the International Monetary Fund and its increased voting rights are a very big step forward. The problem is not that the value of this share is expressed in U.S. dollars, but that it would be best if the share could be expressed in RMB. Therefore, for China to challenge the position of the U.S. dollar, it needs to take a path of internationalization and directly confront the U.S. dollar. The path of internationalization can be done in four ways. First, use Hong Kong as a springboard to increase the payment of the amount and the issuance of RMB bonds; there has been much progress, but not enough; we should believe in the popularity of the RMB in the international community. Second, using the huge foreign exchange reserve as a guarantee, we can issue RMB bonds globally, allowing other countries to use RMB as their foreign exchange reserve; we can consider setting up a central foreign exchange bank, specializing in the deposit and lending of foreign exchange reserves and related financial services. The huge foreign exchange reserves serve the same role as gold, to ensure that offshore RMB can be exchanged for foreign currency at any time. Third, create an international version of the Chinese securities market to attract foreign companies. Participants can buy the securities with RMB or foreign currencies. Overseas companies that are listed can raise funds in yuan or other currencies. Then the listed companies or a foreign exchange policy can determine the specific proportion of RMB or other currencies. Fourth, establish an international currency trade center, allowing world currencies to trade, forming an international financial market and a foreign exchange market. Specific trading rules and the national currency trade volume can be adjusted according to market demand. China's 30 years of history of reform and opening up show that the Chinese government and its people's understanding and application of the market mechanism and free trade will be on par with the U.S. and other Western countries. China's ability to grasp the laws of the market and the ability to control economic trends are not inferior to those of Western countries. The market mechanism can propel the internationalization of the RMB, rather than relying on government negotiations. We fully trust the Chinese government's capacity to handle the market and the regulations. If these four suggested actions can be implemented smoothly using the market mechanism, the RMB will become the world's reserve currency, putting pressure on the U.S. dollar and undermining U.S. financial strength.
Bottom line: The call to end the dollar as reserve currency is not new and is not simply due to the current DC stalemate. It has been in the works for some time. Only now, our situation makes us more vulnerable to attack than before. We are in a global economic war. We have just been warned by China.