what happens when the US is no longer the "flight to safety"?

[kenmoremmm]

i don't have any opinions. just curious to see what everyone else thinks when china rules the world's currency.

[hodedofome]

We’ll cross that bridge when we get to it. It’s a belief that’s been around a while but hasn’t happened yet.

If you believed Jim Rogers and Peter Schiff you would have not invested  in US stocks for 10 years and missed out on the best stock market in the entire world.

[harvestbook]

Then I hope I'm half right by holding 50 percent US/50 percent international.

[Travis]

i don't have any opinions. just curious to see what everyone else thinks when china rules the world's currency.

By saying "when," you've expressed an opinion.  You think it's going to happen.

China's currency only recently became legitimate enough for foreign exchange.  They are a very long way off from being in a position to challenge the US Dollar as the reserve currency. 

[ChpBstrd]

i don't have any opinions. just curious to see what everyone else thinks when china rules the world's currency.

By saying "when," you've expressed an opinion.  You think it's going to happen.

China's currency only recently became legitimate enough for foreign exchange.  They are a very long way off from being in a position to challenge the US Dollar as the reserve currency.

It's not so much about how far up the Chinese have to go as it is about how far down the U.S. could descend.

The dollar is worth about 5% less since the new tax law passed a few months ago. Our recent history of wars and financial crises make the Chinese look like the more responsible party. With our tax "reform" it's fair to say we're one Iraq-sized war away from an Argentina-style debt spiral.

If they had sufficient internal demand to float their currency and allow free trading of it, the shift would occur. Whose currency would you rather own? The producers or the debtors? From the producers you can buy stuff. The debtors will sell you more debt.

https://fred.stlouisfed.org/series/DTWEXM

[Travis]

i don't have any opinions. just curious to see what everyone else thinks when china rules the world's currency.

By saying "when," you've expressed an opinion.  You think it's going to happen.

China's currency only recently became legitimate enough for foreign exchange.  They are a very long way off from being in a position to challenge the US Dollar as the reserve currency.

It's not so much about how far up the Chinese have to go as it is about how far down the U.S. could descend.

The dollar is worth about 5% less since the new tax law passed a few months ago. Our recent history of wars and financial crises make the Chinese look like the more responsible party. With our tax "reform" it's fair to say we're one Iraq-sized war away from an Argentina-style debt spiral.

If they had sufficient internal demand to float their currency and allow free trading of it, the shift would occur. Whose currency would you rather own? The producers or the debtors? From the producers you can buy stuff. The debtors will sell you more debt.

https://fred.stlouisfed.org/series/DTWEXM

And yet everyone still buys our debt.  Our economic status is less of a factor if there is no viable alternative.  The fad thing to discuss a decade ago was how the Euro was going to supplant the Dollar as the big currency because our economy was such a wreck.  How has that turned out for Europe? You say we're a war away from economic collapse.  The war and the spending that goes with it hasn't ended yet.  Compare our debt in 2004 to today. It's gone up just a bit.  What you suggest could happen, but it's certainly not happening tomorrow or the day after that.

[maizefolk]

It takes an awful long time to convince investors that they aren't at risk of the sudden imposition of currency controls when you have a long and recent history of such controls.

Also, keep in mind that while China's national government debt is substantially lower than the US federal government's debt, chinese corporate debt (a lot of it loaned to state-owned enterprises) dramatically exceeds US corporate debt as a percent of GDP, and chinese local government debt is extremely high and rising rapidly to the point where the chinese government stopped even putting out numbers for local government debt after 2014.

[Paul der Krake]

China is a long way from being taken seriously as a country. The rest of the world puts up with them because of trade, but that's not enough.

You need rule of law with predictable courts, a mature economy, and a strong soft power. Right now, it's 0/3. Maybe the day will come when immigration trends are reversed and the best and brightest move to China instead of leaving it. Until then, it's much ado about nothing.

[Leisured]

Good post, Paul. China has yet to learn to fit in with the rest of the world, as we saw when China seized a lot of territory in the South China Sea. I assume that China would see nothing wrong in the US seizing the whole Caribbean, on the principle that you can do what you like in your sphere of influence. China is, I think, the longest running civilization in the world, but, surprisingly, still has a lot to learn.

A century ago, an island off the coast of Europe the size of Idaho had the strongest currency in the world, and still has a strong currency.

[FI4good]

when the USA is no longer a flight to safety then that money will go some place else .

Americans living in america , invested in american firms will probably see some loss but mostly the currency will slide , so your relative wealth to other americans will be the same but foreign travel, goods or resources not made in the USA will be more expensive. You'll probably get a better return in usd on gilts / treasury bonds .

The usd dropping 10% to the euro since trump got in has been a pain but that is what it's like being an international investor .. i made 22% gains from the USA the other year in GBP because of the slide in GBP . overall i'm ok . i own great multi national firms with diversely denominated income streams based in great countries. i don't plan on changing anything .

[PDXTabs]

i don't have any opinions. just curious to see what everyone else thinks when china rules the world's currency.

I think that China has printed more money than the US since the 2008 crisis. I agree that the US dollar might stop being the world reserve currency. I don't agree that it will be replaced with the Renminbi. I would think the Euro?

[HermanCain]

hard power, the US beats China competely, and will continue to indefinitely. soft power, well...go watch the most recent pacific rim.

china's problems moving forward are much, much larger than america's. aging population, competition from abroad for cheaper labor, poorly developed cultural exports, unstable corporate sector (debt, etc), immature financial sector, political institutions that are so repressive, as soon as people can leave, they do. in the future, africa may become the manufacturer of the world, as their labor will be much cheaper than china's. china will then be an aging place whose principle exports were designed, controlled and ultimately profited upon by western firms.

[fattest_foot]

I'd say as soon as China can patrol all of the world's oceans is when that'll happen.

As is, the only thing allowing free trade in the world is the US protecting shipping lanes.

In short, the US isn't in any danger of being overtaken anytime soon.

[harvestbook]

I'd guess it will be like what they say about bankruptcy-- it happens slowly and then suddenly.

[ChpBstrd]

All the reasons proposed above for why the status quo won't change are restatements of the status quo. The status quo is why the status quo will be forever.

Debt: China's internal debts are rather opaque, but they do not owe external creditors 104% of their GDP. Chinese semi-communism is a different system; debts are resource redistributions.
Competition for cheapest labor: Setting up a factory in Haiti or Somalia is a lot harder than getting a measure of the wages in those lands.
Aging population: The U.S. and Europe are right there with the Chinese. India has a younger population than China, but there's not much talk about them dominating the world.
Hard military power: Are we saying the country with both the world's greatest manufacturing capacity and largest population could not raise a military that could compete with the U.S, which lost four navy ships in the last couple of years to collisions, lost all the technology in the F35 due to Microsoft Windows, got beat by illiterate and ragtag insurgents in Vietnam, Iraq, and Afghanistan, and lacks the internal discipline to buy a toilet seat for less than $500? They'd kick our ass if they wanted to.
Foreign policy / seizing territory: The U.S. exists on entirely seized territory. The U.S. also invaded much of the world during the 20th century. The list is too long to fit here.
Strong soft power: China is that country sending a flood of investment into Africa and Latin America while the U.S. invests in its own banks.
A mature economy: Like, they can manufacture cutting edge microprocessors, have cities full of skyscrapers, bullet trains, megacities, etc...? China's GDP was 11.2 trillion two years ago, roughly equal to U.S. GDP in 2003 and closing in fast.
Rule of law / predictable courts: Ask a black person in the 20th century - the heyday of American ascension - how trustworthy the police and courts were. I would argue legal perfection is not a prerequisite to becoming the world's dominant empire, financially or militarily.
Currency controls: Are we saying the U.S. does not take steps affecting the value of its currency, such as buying its own debt, printing dollars, controlling laundering, and setting interest rates?
Can patrol the world's oceans: Ships can't be built by the world's manufacturing capital? Or maybe they could just buy a massive navy for a trillion or so of their US treasury holdings?

[Radagast]

First, it is not a binary thing. Japan and Germany and a number of other countries are also "flights to safety" right now.

Second, a large number of countries will have to trust China more than they do the US. China's age-old political structure is essentially institutionalized corruption, and even the current anti-corruption stuff is merely concentrating corruption to flow to the very top, just like in ancient times. Countries will not view China as the preferred "flight to safety" unless they are coerced or are themselves quite corrupt.

[maizefolk]

Debt: China's internal debts are rather opaque, but they do not owe external creditors 104% of their GDP. Chinese semi-communism is a different system; debts are resource redistributions.

Neither does the USA. If we're only looking at external creditors not domestic ones, the US federal debt is only about 35% of GDP.

A mature economy: Like, they can manufacture cutting edge microprocessors, have cities full of skyscrapers, bullet trains, megacities, etc...? China's GDP was 11.2 trillion two years ago, roughly equal to U.S. GDP in 2003 and closing in fast.

Cutting edge microprocessors are one of the few things China has consistently failed to manufacture. China has been trying to grow a domestic competitor to Intel or AMD for years without success.

Rule of law / predictable courts: Ask a black person in the 20th century - the heyday of American ascension - how trustworthy the police and courts were. I would argue legal perfection is not a prerequisite to becoming the world's dominant empire, financially or militarily.

Dominant empire is very different from "the place people stash their money for safekeeping in difficult economic times." The USA has its share of warts, but a very long track record of respecting due process for people who have money.

Currency controls: Are we saying the U.S. does not take steps affecting the value of its currency, such as buying its own debt, printing dollars, controlling laundering, and setting interest rates?

Nope, we're not saying that. But none of those things are currency controls. Currency controls are "you can only take $1,500 worth of RMB out of China a day, and only $15,000 worth of RMB total per year." Which is quite literally the rule for people with money in China at the moment.

And trust me, rules like that are a huge disincentive for storing more of my net worth in Chinese bank accounts/bonds/etc.

[Radagast]

i don't have any opinions. just curious to see what everyone else thinks when china rules the world's currency.

I think that China has printed more money than the US since the 2008 crisis. I agree that the US dollar might stop being the world reserve currency. I don't agree that it will be replaced with the Renminbi. I would think the Euro?

Why can't there be several reserve currencies, and countries can choose their favorite of the day or diversify?

[ender]

The usd dropping 10% to the euro since trump got in has been a pain but that is what it's like being an international investor .. i made 22% gains from the USA the other year in GBP because of the slide in GBP . overall i'm ok . i own great multi national firms with diversely denominated income streams based in great countries. i don't plan on changing anything .

It's worth pointing out too that the Euro overall dropped fairly significantly vs the USD from 2014 to Trump's election around the Brexit timeframe.

In fact, other than 2015/2016 (around Brexit again), the Euro is still fairly low compared the USD over the last 10 years. The current exchange rate is considerably lower than the pre-2014 timeframe.

[MustacheAndaHalf]

US Treasuries are the most traded instrument in the world.  At any time, it's very easy to buy or sell, regardless of time zone.  Replacing that doesn't happen without a suitable replacement.

Currency markets feature the Euro as the #2 currency, not the Chinese Yuan.

[Travis]

All the reasons proposed above for why the status quo won't change are restatements of the status quo. The status quo is why the status quo will be forever.

The status is remaining quo until there is a better alternative.  You gave a list describing China's potential.  Until they do those things they're right where they are now - barely trusted as a financial institution. 

From your list:

Debt: China's internal debt is opaque. If you want to put your money in a bank, it helps to know its financials.

Currency controls: Every nation with its own currency should have the ability to inflate or constrict its supply.  That's part of a stable modern economy. Where China and the US have differed is that the dollar floats in value relative to other currencies on an open market. Until recently the Yuan was worth specifically what the Chinese government said it was worth making it difficult or downright toxic to foreign trade and investment.

Mature Economy: You can't take China's raw GDP numbers at face value. They've pumped up their output through cheap government backed loans that have created a real estate crisis that looks an awful lot like what Japan put itself through 20 years ago.

Aging population: Nice straw man with India.  Nobody here is suggesting they're trying to take over the world, but rather China's ability to handle the economic instability of more elderly people than workers and whether the GDP and tax base can support it. This variable alone may doom Japan in a couple generations.

Rule of Law: Are you really suggesting there's a comparison between the racially-based imbalance that sometimes happens in our justice system to a country that almost has no accountability in its government?  When the US was knocking down a lot of racial barriers in the 1960s and 70s, China was imprisoning and killing millions for the crime of being educated and a perceived political threat.

Hard military power: You describe China's potential to build a global military. They have the potential, but they have no intention of doing so.  Being able to project your political will and protect your strategic assets are important in being a dominant economic power.  It's not the most important thing and swinging the big stick too often is detrimental to the global economy, but the reach is important.  China only wants to militarily control its immediate surroundings while we patrol the rest of the world.

[Paul der Krake]

Despite the American public's best efforts at squandering goodwill on the world stage in the last 20 years, the US still has enormous influence and friends (who are happy to criticize, as friends do). The US exports countless iconic brands, movies, music, sports. The NY Times is sold in every medium-sized city in the world. US elections are heavily scrutinized and front page news everywhere in the world. The dollar is the de facto currency of dozens of developing countries. English is the lingua franca of business and diplomacy.

China is a country associated with cheap manufacturing, greasy take out food, and panda bears. It has a huge internal market that struggles to take hold anywhere else, and is downright hostile to incoming trade. Its GDP per capita is one-fourth that of Mississippi. The language is a nightmare to learn. Hardly anyone dreams of moving there, and even fewer do.

All of this could change, but I'm not holding my breath.

[Leisured]

Dominant empire is very different from "the place people stash their money for safekeeping in difficult economic times." The USA has its share of warts, but a very long track record of respecting due process for people who have money.

Good point maizeman. I live in Australia and we have seen big rises in property values in our larger cities, partly due to rich Chinese getting their money out of China. Same for rich Russians and Middle Easterners buying property in Europe, particularly London.

Switzerland is a small country which has been a safe haven for money for a long time.

China's potential military power is not as great as it seems. China borders Russia to the north and South East Asia to the south, so as has to keep back much military force as insurance. The US is separate from most of the rest of the world by sea, has a friendly country to its north, and Mexico to the south is not a military threat. Britain is an island, so was fairly safe from invasion in its heyday.

[bwall]

Right now if I change $100,000 USD into Chinese Yuan and put it into a bank in China, I cannot change the money back to USD and send to the USA without government approval. So, China still has decades before it's currency will be seen anywhere close to 'reserve' status.

The Yuan has almost no convertibility (see above). South Korean Won, South African Rand, New Zealand Dollar and Chilean Peso are decades ahead of the Yuan in just this measure alone.

[hoping2retire35]

I'll finish maizeman's critique.

Hard military power: Are we saying the country with both the world's greatest manufacturing capacity and largest population could not raise a military that could compete with the U.S, which lost four navy ships in the last couple of years to collisions, lost all the technology in the F35 due to Microsoft Windows, got beat by illiterate and ragtag insurgents in Vietnam, Iraq, and Afghanistan, and lacks the internal discipline to buy a toilet seat for less than $500? They'd kick our ass if they wanted to.

Trying to control another country is tough; 19 year olds can barely control themselves. Destroying an advanced country is something this country has been doing for 100+ years. 19 year olds like destroying things.

Foreign policy / seizing territory: The U.S. exists on entirely seized territory. The U.S. also invaded much of the world during the 20th century. The list is too long to fit here.

What is the point here? The Han dynasty took a lot of territory; so did the Ming. The American colonies were largely depopulated when Europeans started moving. This is old news and does nothing to destabilize either country.

Can patrol the world's oceans: Ships can't be built by the world's manufacturing capital? Or maybe they could just buy a massive navy for a trillion or so of their US treasury holdings?

Who would they buy it from? It is one thing to manufacture a cheap widget that breaks the moment it is pushed a little and to manufacture an air craft carrier that won't sink.

[Million2000]

Here is a relevant article to our discussion, China is launching RMB denominated oil futures. Most oil is traded in USD, there has been a push over the past few years to move away from USD involved transactions for oil (see Turkey-Iran oil trade). China and Russia are all for this for obvious reasons. While not in this article I've read about China proposing a special "trading currency" to the gulf states based on gold with support from Russia (Russia while hating the US doesn't particularly like China hegemony either, would rather trade in gold than RMB). I think there are various schemes afoot to supplant the petrodollar. The question is how much power and trust does the US have with our gulf state allies. Will the Saudi's support moving away from the dollar even though we've spent billions, maybe trillions protecting their realm? Where internationally they float their Aramco IPO might be an indication.

https://www.bloomberg.com/news/articles/2018-03-25/china-s-oil-futures-are-finally-here-what-you-need-to-know

I also recall reading China buying commodity exchanges in London for precious metals. The speculation is that the aim is to have the commodities traded in RMB instead of USD.

I don't see US decline as inevitable (though it's hard not to these days), but unless China has an internal breakdown I see them slowly supplanting us as the main super power on the planet. They'll need to come a long way to do that, but they are well on their way.

[bwall]

Where internationally they float their Aramco IPO might be an indication.

I don't see US decline as inevitable (though it's hard not to these days), but unless China has an internal breakdown I see them slowly supplanting us as the main super power on the planet. They'll need to come a long way to do that, but they are well on their way.

The Saudi's will float their Armco IPO on the only exchange that will have them; the one in Saudi Arabia. They don't want the scrutiny it would take to list on any other exchange.

The Chinese might be rising, but they are not well on their way to supplanting the USA as a super power. The oil futures market link you sent doesn't even mention if the contracts will be in CNY or CNH. Google the difference between the two.

[maizefolk]

Right now if I change $100,000 USD into Chinese Yuan and put it into a bank in China, I cannot change the money back to USD and send to the USA without government approval. So, China still has decades before it's currency will be seen anywhere close to 'reserve' status.

The Yuan has almost no convertibility (see above). South Korean Won, South African Rand, New Zealand Dollar and Chilean Peso are decades ahead of the Yuan in just this measure alone.

Yup. This is what the term "currency controls" means. And even after they leave, just the suspicion that a government might think about reimposing them in the future is essentially a deal breaker when companies and countries are deciding what foreign currencies to hold their reserves in.

[Million2000]

The Saudi's will float their Armco IPO on the only exchange that will have them; the one in Saudi Arabia. They don't want the scrutiny it would take to list on any other exchange.

That's a real possibility but I don't think that's what they desire. The trend there is more for openness, at least while Mohammad bin Salman is the effective head of state and the Neom project is being undertaken.

The Chinese might be rising, but they are not well on their way to supplanting the USA as a super power. The oil futures market link you sent doesn't even mention if the contracts will be in CNY or CNH. Google the difference between the two.

China's (and Russia's) goal is to remove the US dollar from it's role as the world's reserve currency, in the end I don't think it matters much what currency they use for oil futures, as long as it's not USD. But by all means google the difference yourself and explain the nuances to us.

[maizefolk]

China's (and Russia's) goal is to remove the US dollar from it's role as the world's reserve currency, in the end I don't think it matters much what currency they use for oil futures, as long as it's not USD.

Honestly, no, that's not true at all.

China's goal on the currency stage is to have their RMB treated as the equal of the dollar (or maybe even better). If everyone was use euros, or russian rubbles, or congolese francs they would be equally upset about the RMB not being considered to be, and treated like, like one of the top currencies in the world.

[GuitarStv]

China is a long way from being taken seriously as a country. The rest of the world puts up with them because of trade, but that's not enough.

You need rule of law with predictable courts, a mature economy, and a strong soft power. Right now, it's 0/3. Maybe the day will come when immigration trends are reversed and the best and brightest move to China instead of leaving it. Until then, it's much ado about nothing.

1/3.

https://www.cfr.org/backgrounder/chinas-soft-power-initiative
https://www.politico.eu/article/china-soft-power-offensive-confucius-institute-education/
https://www.cfr.org/backgrounder/chinas-big-bet-soft-power

[KTG]

In recent decades, there have been other currencies that have risen and fallen, each time with peeps stating it was the end for the dollar, but each time the dollar prevails. There is a reason for that. There is also a reason these usurpers don't last long either. And China will be no different. China will never be a free and open society under this government, and the only way that will change is a revolution. And China does have a history of violence within its borders which is why in 1000s of years, its never been really successful in expanding and taking over surrounding areas, even with a massive number of people. This is why the communist government has ruled with an iron fist, it does fear its own people and how quickly things can unravel if things start to go down hill. As in, the economy.

As the US is competitive, I think its in our nature to always have a rival, and right now we've pinned China to fill that role. But China has some serious issues with little experience in handling. And very much prefers to keep face and show that things are going according to plan even when they are probably not. Look at their GDP. They completely make these numbers up. And who can validate them? The only way is to track what materials are imported into China, but even that doesn't provide exact numbers. I think what will happen is that there will be a slow rot, and every measure to cover it up used  to the point where an event can no longer hold things back and the flood gate will open. It will be job loses mixed in with a massive housing bubble which will bring people into the streets through spontaneous protests.

China's economic rise was built by American and European companies whoring themselves out to sell products in China. Having to turn over the blueprints, technology, and training to the Chinese has put them where they are today. And that is starting to change thank god, even if not fast enough for me. And when companies start moving manufacturing from China to cheaper places, which will eventually happen as it always does, it will buckle the system. What keeps Xi up at night? Creating jobs. That should tell you something.

In the US, if we don't like the government, we can cause a revolution by voting. In a country where there is only one party and the masses do not have a say in who will run the country, they will only have one direction to vent. And it will not end well.

I have no doubt in my mind, that when that end comes, China will collapse on itself like the deck of cards it is built on.

Now will there be a war in the South or East China Sea? Maybe. Will the Chinese really be a military threat to the US with the exception of going nuclear? No. The US will be masters of conventional war for some time. Using insurgencies or wars against guerrillas as a benchmark for how capable the US military is isn't a fair assessment. These wars have had to have been fought with one hand behind the back typically because of their close proximity to civilians. When it comes to China's copy and paste crappy aircraft carriers or undefendable islands, you will see how refined the US military 'system' is. The US will be a global power for a long time simply by default, whereas China will be a regional one at best. Especially since no one around them really likes them. There will always be countries in the region that will want to have their expansion checked. The US doesn't have that problem.

[Paul der Krake]

China is a long way from being taken seriously as a country. The rest of the world puts up with them because of trade, but that's not enough.

You need rule of law with predictable courts, a mature economy, and a strong soft power. Right now, it's 0/3. Maybe the day will come when immigration trends are reversed and the best and brightest move to China instead of leaving it. Until then, it's much ado about nothing.

1/3.

https://www.cfr.org/backgrounder/chinas-soft-power-initiative
https://www.politico.eu/article/china-soft-power-offensive-confucius-institute-education/
https://www.cfr.org/backgrounder/chinas-big-bet-soft-power

I didn't read anything in those articles that supported the idea of a strong international soft power, just attempts at improving what they have and dominating their small neighbors.

[tooqk4u22]

i don't have any opinions. just curious to see what everyone else thinks when china rules the world's currency.

By saying "when," you've expressed an opinion.  You think it's going to happen.

China's currency only recently became legitimate enough for foreign exchange.  They are a very long way off from being in a position to challenge the US Dollar as the reserve currency.

It's not so much about how far up the Chinese have to go as it is about how far down the U.S. could descend.

The dollar is worth about 5% less since the new tax law passed a few months ago. Our recent history of wars and financial crises make the Chinese look like the more responsible party. With our tax "reform" it's fair to say we're one Iraq-sized war away from an Argentina-style debt spiral.

If they had sufficient internal demand to float their currency and allow free trading of it, the shift would occur. Whose currency would you rather own? The producers or the debtors? From the producers you can buy stuff. The debtors will sell you more debt.

https://fred.stlouisfed.org/series/DTWEXM

And the US$ is down about 11% from the end of 2016 and is up about 12% from 2014.   What's the point? 

[Prairie Stash]

Answer to the title:

Then you'll do exactly what every Canadian already does. We invest some locally, then invest the rest in US and other international funds. If the US isn't a good haven for my cash, I'll invest in China.

I have some in Europeon funds, the Euro, already, it's not like I couldn't just skip America altogether already.

[dougules]

One word - diversification.  I'm market weighted between countries the same as I am between companies.  If people decided they liked euros or yen better, my mutual funds are already earning plenty of euros and yen right alongside the dollars.  And even if you don't own international stocks, most big US-traded companies are earning lots of euros and yen, too. 

If the US was no longer the "flight to safety," there would be obvious downsides, but there would be upsides, too.  American exports would get cheaper, and it might help the little guy in the US.  Also, all of the yen and euros flowing into your mutual funds would go quite a bit further when exchanged into dollars. 

And specifically on China, I don't see them becoming the favorite unless things change significantly.  There's a reason the market has weighted Chinese stocks at a whopping 3% of world market cap.  I don't think any sane foreigner would trust their current government to be fair and impartial. 

I wouldn't count the US out at all.  We're good at reinventing ourselves when the chips are down. 

[bwall]

KTG: +1.

You explain it very well. Especially how job creation is Xi's major headache and will be for a long time to come.

Right now, the Chinese are holding about $3 trillion in USD denominated debt. However, we control the printing presses that make USD, not them. We could devalue the currency overnight, rendering every dollar they hold worthless. We have zero reason to do this. However, if we fought a hot war with them, then that calculus might change. And, they are acutely aware of this, too.

[Jrr85]

Here is a relevant article to our discussion, China is launching RMB denominated oil futures. Most oil is traded in USD, there has been a push over the past few years to move away from USD involved transactions for oil (see Turkey-Iran oil trade). China and Russia are all for this for obvious reasons. While not in this article I've read about China proposing a special "trading currency" to the gulf states based on gold with support from Russia (Russia while hating the US doesn't particularly like China hegemony either, would rather trade in gold than RMB). I think there are various schemes afoot to supplant the petrodollar. The question is how much power and trust does the US have with our gulf state allies. Will the Saudi's support moving away from the dollar even though we've spent billions, maybe trillions protecting their realm? Where internationally they float their Aramco IPO might be an indication.

https://www.bloomberg.com/news/articles/2018-03-25/china-s-oil-futures-are-finally-here-what-you-need-to-know

I also recall reading China buying commodity exchanges in London for precious metals. The speculation is that the aim is to have the commodities traded in RMB instead of USD.

I don't see US decline as inevitable (though it's hard not to these days), but unless China has an internal breakdown I see them slowly supplanting us as the main super power on the planet. They'll need to come a long way to do that, but they are well on their way.

China has already screwed the pooch with their one child policy.  They are going to get old before they get rich, which is going to prevent them from becoming the world's super power.  If you are looking for somebody to supplant the U.S., India I guess is where your money should be, as they at least have the population. 

It's going to be interesting to see what happens as the U.S. and western europe basically deal with their entitlement crises at the same time.   

[HermanCain]

On an extremely broad scale, the US has some advantages baked into it that no other country has. This is on a very fundamental basis, I think most prominently:

1. Dual coasts for naval power projection. By having two coasts on the most prominent oceans, we are essentially a bridge between the old world occident and the new world orient. But this has power ramifications. Since we are the undisputed king of the oceans, our "sphere of influence" is a really, really really large area. This is true power projection: the sheer command the US has over the operations of the world is not in dispute. This is a baked-in power structure that, if you look at the world map, can't be replicated. China has one coast (and US-armed Japan is right there). Russia is essentially landlocked. Brazil has one coast. India sorta has two but in a regional ocean. The US has two coasts with undisputed power projection. This matters.

2. Maturity of institutions. Our markets, institutions, etc. are generally time-tested and very old. Yes, there are the Lehman Bros of the world, but our institutions strive to have "cultures" that keep them perpetuating. This includes the federal government.

3. Extensive natural resources, including farmland. This is all located in a geographically nice place to grow food. We are not at the mercy of another nation for our food. India, China and Brazil come close but India's is inefficiently used (and rightly won't just kick small farmers off their land), Brazil's soil isn't as good, and China barely feeds its population with its resources. We really do have the best farmland. https://www.nrcs.usda.gov/wps/portal/nrcs/detail/soils/use/?cid=nrcs142p2_054011

Our weaknesses:

1. People here don't really like each other lately, it seems. I chalk it up to a commercially-driven, purposely polarized, unethical news/social media ecosystem that unethically is designed to be engaging but toxic. Shame on them.

2. Our population has shown a poor propensity for critical thinking, in spite of our education spending. I don't need to explain this one.

3. Almost everyone here is fat. It's actually good for the healthcare system if people die quickly of an infarction, but still, it kind of depresses me, since it's totally in our control with intelligently designed cities, etc.

[Gondolin]

Using insurgencies or wars against guerrillas as a benchmark for how capable the US military is isn't a fair assessment. These wars have had to have been fought with one hand behind the back typically because of their close proximity to civilians

Have their been *any* wars since 1950, fought by any country, that do not share these charactestics? In the Long Peace of the atomic era, is a major ground war even possible?  Warfare has changed since 1948 and I would argue that how you do against guerrillas is one of the only valid benchmarks in the 21st century.

[Travis]

Using insurgencies or wars against guerrillas as a benchmark for how capable the US military is isn't a fair assessment. These wars have had to have been fought with one hand behind the back typically because of their close proximity to civilians

Have their been *any* wars since 1950, fought by any country, that do not share these charactestics? In the Long Peace of the atomic era, is a major ground war even possible?  Warfare has changed since 1948 and I would argue that how you do against guerrillas is one of the only valid benchmarks in the 21st century.

KTG's comment ignores a few important things to keep in mind:

1. We are masters of conventional ground warfare; however, that's not something we do a lot of.
2. Our track record with guerilla warfare is absolutely something we should be graded on. We do it a lot, and it sucks up more than its fair share of our GDP making it relevant to this discussion.
3. Using #1 to say we'd wipe the floor with China is apples and oranges. Pitting thousands of tanks against each other on an open plain and pitting dozens of ships against each other are not the same discussion. Especially when China is heavily invested in anti-ship missiles to make up for their lack of carrier-based aircraft.
4. "China will only be a regional power at best." I agree; however, they don't want or need to be a global power on the scale of the US to meet their goals.  This is one of the reasons why I don't think of them as a threat to the dollar as a reserve currency.

[KTG]

KTG's comment ignores a few important things to keep in mind:

1. We are masters of conventional ground warfare; however, that's not something we do a lot of.
2. Our track record with guerilla warfare is absolutely something we should be graded on. We do it a lot, and it sucks up more than its fair share of our GDP making it relevant to this discussion.
3. Using #1 to say we'd wipe the floor with China is apples and oranges. Pitting thousands of tanks against each other on an open plain and pitting dozens of ships against each other are not the same discussion. Especially when China is heavily invested in anti-ship missiles to make up for their lack of carrier-based aircraft.
4. "China will only be a regional power at best." I agree; however, they don't want or need to be a global power on the scale of the US to meet their goals.  This is one of the reasons why I don't think of them as a threat to the dollar as a reserve currency.

Well, I don't know if I was ignoring, but I was thinking of a US-China conflict specifically, when others were using Iraq 2003, Afghanistan, and Vietnam as examples. And those wars were fought in a way that a typically expected war with China would not be fought.

If there was a military conflict between the US and China, it would happen in either the South China or East China seas. In the South, it could start over the Scarborough Shoal (Obama himself told China there would be war if the Chinese built up an island there), or in the East if Japan and China go at it over the Senkaku Islands, or worse, if the Chinese tried to invade Taiwan.

In any of these cases, the war would primarily be one of a combined Navy/Air campaign. In that case, you would have artificially created islands that would be easy to isolate and bombard. Knocking out the airfields doesn't offer a lot of value as they are typically easy to repair. But these islands don't have a lot of real estate, and loss to the other infrastructure would render them useless. Without bases to refuel, the Chinese can't threaten US navy assets or refueling tankers around the first island chain. Then it becomes an issue of having an inexperienced navy going up against the most experienced in the last 100 years, and the US has lots of anti-ship missiles too. So you are talking about military assets, far from civilian population centers, being on the receiving end of US cruise missiles, bombers, stealth fighters, and so on. So no, there would be no contest. And no-where to hide.



Not to say there wouldn't be US casualties, just saying that at the end of it, the US Navy would be there, the Chinese one would not. They would be unable to venture from port and essentially be what the German navy was in WWI and WWII.

There would be no tank-vs-tank battles in open country as the US trying to invade the most populous country in the world is a no-brainer, but there wouldn't have to be. There is also no way the Chinese would even be able to cross the Taiwan Straight unless they obliterated Taiwan first. Taiwan has a ton of US weapons and even if the Chinese could manage to ferry some troops from the mainland to Taiwan without sinking in the ocean, they wouldn't be able to do much except get shot up on the beaches. I doubt the US would even need to base troops there, except as a show of solidarity. (The US by law has to defend Taiwan).

And finally, strategy wins short wars, logistics wins long ones. No one is more of a master at logistics than the US military. We have some 800 bases of various sizes overseas.

https://www.politico.com/magazine/story/2015/06/us-military-bases-around-the-world-119321

[ChpBstrd]

1) The self-assurance of the term "masters of conventional warfare" reminds me of the British redcoats who stood, in lines, wearing bright colors, and all fired/reloaded at once, getting cut to pieces by the hit and run tactics of US Revolutionary War guerilla Francis Marion. The British considered such tactics immoral and undignified. Soldiers were supposed to fight in fields, and in lines! It seems like after a century or so of dominance, it is natural for any nation's military to become so bureaucratic and entrenched in the tactics of yesteryear that they get left behind. The US has been defeated in 3 consecutive guerilla wars. Yet our tactics were last changed in World War 2.

2) Glad to see the discussion pivot to resources. Wars are lost when one side runs out of soldiers or money. The US's fiscal position constrains it from escalating any given fight. We would have to withdraw or surrender when our currency/economy collapsed. FWIW, China will never run out of soldiers (and thus, one might argue, resources either).

3) Sending aircraft carriers with short range aircraft against long range anti-ship missiles is a perfect example of applying WW2 tactics against modern technology. More generally, becoming dominant at any given strategy/technology is dangerous if done for too long, because that situation sets up the incentive for one's enemies to undermine and out-innovate it.

4) It's odd to guess that a billion people want humble things. If human nature applies everywhere, China will develop into an empire, grabbing resources, establishing the modern equivalent of colonies, and defending their trade routes. I would not pit human nature and the repetitive cycles of history against some concept of the Chinese personality.

[KTG]

1) The self-assurance of the term "masters of conventional warfare" reminds me of the British redcoats who stood, in lines, wearing bright colors, and all fired/reloaded at once, getting cut to pieces by the hit and run tactics of US Revolutionary War guerilla Francis Marion. The British considered such tactics immoral and undignified. Soldiers were supposed to fight in fields, and in lines! It seems like after a century or so of dominance, it is natural for any nation's military to become so bureaucratic and entrenched in the tactics of yesteryear that they get left behind. The US has been defeated in 3 consecutive guerilla wars. Yet our tactics were last changed in World War 2.

Again, there is a difference in conduct when you are attacking an enemy in a population center, as opposed to a military facility on a small island in the middle of the ocean.

2) Glad to see the discussion pivot to resources. Wars are lost when one side runs out of soldiers or money. The US's fiscal position constrains it from escalating any given fight. We would have to withdraw or surrender when our currency/economy collapsed. FWIW, China will never run out of soldiers (and thus, one might argue, resources either).

The may never run out of soldiers, but they have a finite number of naval vessels. Their aircraft also will have limited range beyond their coast. Meanwhile, some of the US's take off and land from the US mainland.

BTW, China attacked Vietnam in 1979 and were beaten badly while the bulk of Vietnam's best troops were in Cambodia.

3) Sending aircraft carriers with short range aircraft against long range anti-ship missiles is a perfect example of applying WW2 tactics against modern technology. More generally, becoming dominant at any given strategy/technology is dangerous if done for too long, because that situation sets up the incentive for one's enemies to undermine and out-innovate it.

Who's to say what tactics the US Navy uses? I am sure they are well-aware of the issues you mention. They have far more information available to them on the capabilities of the Chinese than you and I could hope to have. Desert Storm was a conventional war, and while you can argue the fact that it ended prematurely, the Iraqi's got smashed and by 2003 still hadn't recovered.

4) It's odd to guess that a billion people want humble things. If human nature applies everywhere, China will develop into an empire, grabbing resources, establishing the modern equivalent of colonies, and defending their trade routes. I would not pit human nature and the repetitive cycles of history against some concept of the Chinese personality.

Not sure what you mean by the last sentence, but remember that everyone located around China really doesn't like them. There are animosities going back hundreds of years. The US doesn't have those issues. We have two neighbors and two massive oceans on either side. China has to spend a lot of resources protecting its borders from India, Russia, and assets in the South China sea, which are in dispute with other nations in the area. And who those countries relying on? The US.

[Travis]

I don't want to turn this into a tit for tat tactics discussion, but I wanted to clarify one point.  Aircraft carriers are basically artificial islands that are a lot easier to sink than actual islands.  China knows we outclass them in open water, so being in range of their land-based missiles is the most dangerous part of the scenario.  They're heavily invested in this particular capability.  Some of our Pacific commanders have gone on record saying there is a genuine concern that we'd run out of missiles before they ran out of things that needed to be hit in order to protect our fleet.

Getting back to the wider discussion, China is a serious oil importer.  It takes a lot of fuel for your military to be the away-team and except for a few ships spending some time near the Horn of Africa, the PLAAN doesn't venture far from the South Pacific.  We have a mixed record in our recent wars, but the fact that we can afford to put an army or a navy anywhere we want at any time is a big part of the economic stability role we have.  It's not just about being threatening. If something big happens in the world that genuinely requires our presence (or someone asks for us) - we're there. I imagine that should have a reassuring effect on some volatile markets.

[KTG]

Yes aircraft carriers are much easier to sink than islands but they also move. And are actually the fastest warships in the US fleet.

I am assuming you guys are referring to the DF-26 ‘carrier killer’ China has, but that missile is essentially a super long range scud. It cannot hit moving targets. You’ll see those launched a Guam long before they hit any US ship. Maybe if the carrier was already wounded and sitting idle, but honestly the current  would probably be enough to cause the DF-26 to miss. And that’s assuming you’ve got some spotter providing coordinates.

Chinese subs are also noisy. And torpedoes only have a range of 10 miles. So when the picket line picks up a sub, the carrier can literally speed away.

But like I said, it isn’t like the US wouldn’t have casualties, but when all said and done, there would only be one navy remaining. It’s going to come down to mobility on the open ocean and the Chinese can’t match the US there.

[Gondolin]

But like I said, it isn’t like the US wouldn’t have casualties, but when all said and done, there would only be one navy remaining.

You're right about the victor but, you're talking tens of thousands of U.S. combat deaths. The kind of casualties that the US has not seen since WW2.

The fact is that when sailing within X nm of the Chinese mainland, US ships are sailing at risk. The Navy hasn't had to sail at risk since 1945 and, needless to say, it is causing some consternation. The Navy can "win" but, boy, does that SAG get shredded up pretty good.

[TheAnonOne]

With the entire PLANET maturing into 1st world countries the USA will eventually be caught up in certain ways by other nations.

This isn't necessarily a bad thing. It doesn't require a massive downfall either.


War, in ways, will be less common due to increased trade between all nations. (optimist in me, but peace has been on the rise around the world since the industrial revolution, ignoring WW1-2)

[Travis]

I am assuming you guys are referring to the DF-26 ‘carrier killer’ China has, but that missile is essentially a super long range scud.

Not talking about ballistic missiles, but rather their cruise missile capability that has been in the works since the 1990s in order to put up a wall around Taiwan.  Our carriers might be able to stay out of range of certain places, but the rest of the surface fleet is vulnerable if it plans on being close enough to fire its own weapons.

[ChpBstrd]

In WW2, the US went from having a small navy and an industrial base obliterated by the great depression to the world's biggest navy in a matter of what... 4 years?

How fast could China build ships with no legal constraints, no net debt, many times more people, and much greater industrial capability? How fast could they replace their noisy subs with quiet ones? How fast could their cruise missiles get onboard systems that help them find the ships? Look ahead a few years. The status quo always changes.