Australia recently announced a deal struck with China where they will trade and settle in local currencies WITHOUT the use of dollars. This type of deal is now becoming more common as the writing on wall for all to see is that no one wants to be “stuck” with dollars. This poses a problem, a big problem for the U.S. as demand for dollars is falling off a cliff at the same time supply (by necessity) has exploded. This situation of course was evidenced last year as the Fed was “forced” to buy nearly 70% of Treasury issuance… because there were no other buyers. In a sense this is becoming a self-sustaining circle where the Fed must purchase a larger percentage of issuance …because investors (trading blocs) see the oversupply and step back further.
There is one last leg left to the chair that should it break, the whole tent will come down. As explained by Jim Willie in his article “USDollar: Ring-Fenced & Checkmate,” were Saudi Arabia to decide to accept anything for their oil OTHER THAN dollars the game will be over. The “petro” dollar invented by Henry Kissinger back in 1973 is wobbling with the world doing deal after deal that excludes dollars, Saudi Arabia would be the last straw. As Jim Willie points out, the BRICS development bank (funded by US Treasuries) will supplant both the IMF and World Bank as funding for future global infrastructure of all types.
Think about why this is happening. First off, the U.S. Treasury market pays little to no interest at all. At the same time they are being issued and over issued faster than demand; FAR faster. Then to top it all off the Fed has “faked” price and yield by printing the money to “sop up the slop.” If you were a foreigner would you not look at this situation and see that you must either use these Treasury bonds (dollars) now while they still “spend” or… get stuck with the hot potato? Besides, if you have already figured out that you were duped and that your Treasuries can nor will ever be “paid back,” what is the downside to “using” them now by pledging them to build out infrastructure (real stuff)?
This simply illustrates the mindset of “spend it while you can” which by the way is ALWAYS the mindset that sets off hyperinflation within fiat systems. What has and is happening in Cyprus also has the smell of “spend it while you can.” As Cyprus has been described as the “template” for Europe (and ultimately Britain and the U.S.), the aim apparently is to get the populace to SPEND. The old central bank fear of “pushing on a string” has gone terminal where money supplies exploded while velocity (turnover) dried up just as fast or faster. This I believe is what the failure in Cyprus is all about, get the money moving! The problem? Once money starts to “move” it won’t stop and will only accelerate without any brakes!
In their infinite wisdom (total panic) the central banks have apparently decided that QE doesn’t work if the excess money just gets parked. So… why not start a bank run? Why not reinforce the idea of “spend it while you can?” From here, this could really move quickly as computers will do the running and spending whereas in the past it would be done by humans. Will Cyprus be the spark? Will it require another combustion somewhere else like Spain, Italy or Portugal? Could Saudi Arabia change their allegiance to the Sino/Ruso side? Australia just did… and they speak English… was anyone listening? Spend it while you can!