The Day The Dollar Dies

The Trumpet

America’s financial Pearl Harbor is coming

December 6, 2015, 3 p.m. HKT, Hong Kong

Twenty-one men representing China’s most powerful institutions file into a conference room atop the icc Tower looming over Victoria Harbor. The Politburo Standing Committee has mustered the ceos of China’s four largest banks, Sinopec, and several other state-owned multinationals, plus officers from the Central Military Commission and a pair of academics from China’s top technology universities.

The general secretary formally opens the meeting. “As you know, the United States of America continues to manipulate its currency,” he begins. “It is devaluing its dollar, which steals away trade and reduces the value of its debts. The Standing Committee manages the yuan’s value to protect our manufacturing base and support employment.”

The secretary leans back ever so slightly to say what everyone in the room already knows, and the reason why they are here. “Three days ago, the Federal Reserve System announced its sixth quantitative easing policy in the past seven years.”

And now, the marching orders.

“The Central Politburo Standing Committee of the Communist Party has agreed that it is time to use every financial measure of the People’s Republic to preserve the state of its economy. It has approved liquidating the government’s holdings of U.S. treasuries.”

The order from the stone-faced secretary sounds broad, even bland. But it means very specific, very powerful things to each man in this room. It means pulling the trigger on a huge number of massive initiatives. And it’s backed by more than a trillion dollars.

The Chinese economy will suffer some collateral damage as well, but the decision has finally been made. To encourage and to enforce the point, the secretary concludes with a proverb: “Good medicine tastes bitter.”

He could’ve used a different one: “Wait long, strike fast.”

December 7, 9 a.m. EST, New York

It’s a normal day on Wall Street. Markets are up after last week’s Fed announcement of QE6. Thanks to this latest round of money-printing, gold is holding at $2,000 per ounce, oil is $95 per barrel. The dollar index is steady at 82.

Squawk Box is running a story saying China’s new East Asian free-trade zone seems to have been fast-tracked. Mongolia, Vietnam, Cambodia, Thailand and China’s recently reincorporated province of Taiwan are all sending signals that they’re suddenly ready to sign up. Trade will be conducted in Chinese renminbi. An Associated Press story getting some play quotes an unnamed official from Japan’s Ministry of Finance saying that since most of Japan’s trade is now with China, it too will eventually be forced to join the East Asian Prosperity Cooperation. Even Australia is considering participation. The markets yawn. 

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