What if, instead of taking the bait from Washington, China targets Washington's Archilles heel -- the dollar's role as reserve currency -- and decides it is cheaper to dump one trillion dollars of US Treasury debt on the bond market than to commit to a 30-year arms race? To keep the price of Treasuries from collapsing, the Federal Reserve could print the money to buy the bonds. But if China then dumps the printed one trillion dollars in the foreign exchange markets, Washington cannot print euros, British pounds, Russian rubles, Swiss francs, and other currencies in order to buy up the dollars.
Frantic, Washington would try to arrange currency swaps with foreign countries in order to acquire the foreign exchange with which to buy up the dollars that, otherwise, will drive down the dollar exchange rate and destroy the Federal Reserve's control over interest rates.
But if the Chinese don't want the dollars, will other countries want to swap their currencies for the abandoned US dollar?
Some of Washington's puppet states will comply, but the wider world will rejoice in the termination of Washington's financial hegemony and refuse the offer.
Sooner or later the dollar will collapse from Washington's abuse of the dollar's role as reserve currency, and the dollar will lose its "safe haven" status. US inflation will rise, and US political stability, along with America's hegemonic power, will wane.
The rest of the world will sigh with relief. And China will have defeated the superpower without an arms race or firing a shot.
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