You don't understand what I said, without US, there WILL NOT BE A WORLD ECONOMY, since 56% of all countries reserve, including China, are USD.
Think about it like this, US Bankrupt, USD worth nothing, first we talk about direct hit, roughly 60% of 3 trillion Chinese Federal Reserve will become toilet paper overnight. And then the 1.2 or 1.4 trillion bond the Chinese are holding become toilet paper overnight. And you can't have toilet paper in your federal reserve, which mean you need to substitute it with something else, the only thing you can substitute is with your own currency. China only has 2 trillion worth of RMB in circulation, so you can do one of the two things.
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1.) Put all the RMB back into Central Bank, so there are no panic withdraw, that mean you can't spend any money.
2.) Print the double amount of RMB to put it in central bank, which mean you inflated your currency 100%
There were another way, which is to stack your central bank with some other currency, but as I mentioned, up to 60% of world forex reserve is USD, when it go busted, this don't just affect China, this is going to cascade down to EVERY COUTNRY IN THE WORLD THAT HAVE USD IN THEIR CENTRAL BANK.
So either one of those 2 options are shit, you are looking at restricted spending for number 1, and major inflation on number 2. And that is the direct impact, now let's talk about indirect impact?
How are you going to exchange money from one person to another? You go thru bank, right? I mean, you don't go meet that person face to face and give him/her the money, well, you can do that, but most people do it via bank. Bank don't hold nearly enough money for everyone that made deposit, you are talking about 10-30% money they held and now you may ask, how USD come into play? First of all, the international clearance rate for a single day is $6.8 Trillion USD. China industrial sector worth around 10 trillion USD. That's ALL THE VALUE of China manufacturing base put together, that's doesn't worth 2 days of currency settlement. So going back to your bank. You deposited money in one bank and then the other person taking it out, while you may say that just one number come down and one number go up, but behind the scene, there are 3 transaction that 2 bank made.
1.) Debit money from your account
2.) Transfer said money to the destination bank
3.) Credit money from the target account.
Then the other person withdraw. Now. If this is the same bank, that's fine, because it run on the same system. But if you are smart and have an keen eye for things, you will notice if this is a different bank, it usually takes 24 to 48 hours to clear, and you may wonder why? Because bank don't control their money, the central bank does, when you talk about money at bank level, it's not paper money, it's call a line of credit, it is something like a bloc of money Central Bank assigned to a local bank so they can use it to do stuff, like this. But the issue is, for every buy order, you need a sell order, and you may not have enough buy order to offset the sell order,
What does it mean? say I use Bank A and you use Bank B both bank in China, I send you 500RMB, so for bank A, they lose 500RMB from my account, and Bank B make 500 RMB in their account so they can pay you. But money don't materialise out of thin air, in a perfect circumstance, someone would be doing the same thing from Bank B to Bank A, (ie someone pay someone else 500RMB from Bank B to Bank A) that will offset my transaction and nothing changes. But we aren't in a perfect world, there may be transactional deficit between banks, so how you balance the bank line of credit? You don't use RMB to balance it, because you need that to be constant thru out, otherwise you destroyed some of your own currency if it is more, or you make new currency if it is less. So say Bank A need 540 billions RMB to settle a days transaction, Central Bank won't give them 540 billions RMB, instead they will sell 540 billion worth RMB into USD and use it as a hold over and settle the line of credit this way, so you don't damage your own currency value, and when you have another bank that have the currency going the other way, you then buy the RMB back from USD and thus balancing your book. That is why it take you 24 hours to 48 hours to clear an interbank transfer. And again, which currency do you think China have in its forex the most? And if you have USD in China central bank becoming toilet paper overnight, then first of all, you can't do any transfer, and if you do, it is going to be a very long buying/seling order, it may take you 10 days or may even be a month to clear an inter-bank transaction, think about it, if you are a worker in China, your boss tell you, you go work this month, and you get pay next month, what would you think?
And then it get to international transfer, this is not going to happen if USD worth nothing. Because of this graph.
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So what did we learn here? If USD went bust, you can sell anything overseas, and it will take you months to get paid for anything you do.......
www.nbcnews.com
