Quick update for inflation watchers. The Associated Press is now reporting that China is continuing its dumping of U.S. treasuries. In June, China reduced it's holdings of U.S. treasuries by 2.7%. China sold $24 billion worth to lower their reserves to $843.7 billion. So what does this mean? China is buying Euros and losing faith in the U.S. dollar. They don't believe that it can maintain its value. Does this mean that the U.S. dollar will collapse soon? Not necessarily, because as long as you need U.S. dollars to buy oil, the dollar will have a place as a reserve currencies. I think the real death of the dollar will come from the oil producing countries.
Here's a scenario.
1. Iran prepares to fuel its nuclear reactor.
2. Israel destroys the reactor.
3. Iran launches counterattack against Israel.
4. Israel responds with a large scale bombing attack.
5. Middle East turns against Saudi Arabia for allowing Israel to use its airspace.
6. Several OPEC nations back Iran.
7. U.S. is forced to defend Israel and Saudi Arabia.
8. Many OPEC nations refuse to sell oil in dollars.
9. There's a world shortage of oil.
10. The U.S. Dollar loses its value. Oil prices skyrocket. China and Japan accelerates their dumping of the dollar.
11. The U.S. trucking industry collapses.
12. Food prices rise in the U.S.
13. World War 3 and/or total economic collapse.
Now, I'm not saying that this will happen, but this is how the U.S. dollar could die. You tell me what you think.
The China reduces holdings of Treasury debt in June
Hyperinflation happens when overseas holders of assets denominated in the currency decide that there is too much money being printed and it is time to go. The Fed is printing money to force interest rates low. When foreigners dump US T-bills and treasury assets, all of that money will flood back into the US. We have no way but to monetize that flood. When that happens, hyperinflation will be here in a big way.
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