Are Trump and China about to Checkmate the Anglo-American Establishment?
So…….the increasing tension over the North Korean situation is prompting the Trump administration to threaten ending trade with nations who are doing business with the regime of Kim Jong-Un.
Allow me to explain.
China is the biggest trading partner of North Korea. But China is also a huge trading partner of the United States, and just happens to hold the largest amount of USD denominated Treasuries outside of the Federal Reserve.
This massive accumulation of USD by the People’s Bank of China provides one of the most challenging aspects of transitioning the international monetary system from the traditional unipolar USD framework to the desired multi-currency and multilateral framework.
Under a situation where America stopped trading with China because of an engineered problem with North Korea, the Chinese would be forced into quickly diversifying those reserves so they weren’t cut off from the international trade market.
In previous posts over the years we have reviewed how the substitution accounts of the International Monetary Fund could be used to facilitate the large diversification of USD denominated reserves which have built up since the Bretton Woods agreements of 1944.
Dealing with these reserves is proving to be challenging for both America and China. The use of substitution accounts provides the best path forward. How quick such an action could be taken would depend upon the agreement of all involved.
In theory, the substitution accounts would serve as the clearing house for USD denominated reserves. China would transfer those reserves into the substitution accounts of the IMF in return for SDR. The exchange would be made at rates which reflect the value and term of each Treasury held by China.
Such an exchange would not have a negative influence on the USD at first. It would give both China and America the time needed to progress in additional multilateral mandates while continuing to reverse the imbalances of Bretton Woods and deal with some geopolitical situations.
This diversification would shift USD liquidity from the banks of China to the IMF. As such, the IMF would become the biggest holder of US debt outside of the Federal Reserve. The importance of such a move should not be lost on readers. What the Obama administration, and the overall Anglo-American establishment, have attempted to avoid by delaying IMF reforms, can be accomplished with one strategic move by Trump and Beijing.
The legitimate expansion of the SDR as a reserve asset would begin and nations would realign with the emerging realities of trade and reserve accumulation. The effects of such a move on American trade and the domestic economy can be offset by increasing trade in other areas. The narrative about renegotiating NAFTA and other trade deals is becoming more constant. All such renegotiations will facilitate the macro changes to the international monetary system and the role of the USD.
The upcoming budget talks in Congress over the debt limit in America will also play an important role in the path forward. China, as one of the big financiers of American debt, will have a lot to say about trade and Treasuries in the coming weeks. Threatening to end trade with China on the eve of debt-limit discussions should be understood as something different than what the mainstream media is presenting.
Big moves are in the works, and large capital flows could shift over the next few months. Everything happening now is building cause and purpose for the new emerging multilateral framework. Things may appear chaotic and threatening, but the narrative requires a sense of panic and frustration for the full transition to progress.
North Korea could also serve multiple purposes, as moves against Iran could be justified if some sort of attack takes place on the Korean peninsula. The argument would be that the world stood by while the North developed nuclear capabilities, and the lesson learned is that the world should not allow the same to happen with Iran, especially considering their so-called threats against Israel.
You can almost hear the narrative on television now. – JC
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JC Collins can be contacted at firstname.lastname@example.org