Dollar Collapse on fast forward as Japan allies with China

Huge news this week: Japan and China announced direct currency swaps, completely bypassing the USD/FRN. Additionally, Japan agreed to buy and sell Chinese bonds, essentially monetizing the Chinese government debt on the international market. (See summary article here http://www.businessweek.com/news/2011-12-27/japan-turns-activist-on-reserves-as-global-economy-rank-slips.html)

Obviously, this is WAAAY bigger than previous Chinese currency swap agreements, such as with Russian. Japan's economy is huge and powerful (what, number 3 in the world, I think), and they used to be considered a staunch American ally.

Is it a coincidence that Japan also announced the end of military exports prohibitions to Communist countries??? (see http://www.japantimes.co.jp/text/nn20111227x3.html) The approval for military technology export to previously-banned Communist countries is not just a repudiation of the tight US-Japan military alliance, it is a direct threat to one of the few pillars of strength left for the American economy: military exports.


The Nasty Effects of Dollar Replacement

When the USD is no longer used as a reserve trade currency:

--all those "international dollars" will come back to the U.S. shores, unleashing a wicked huge inflation (I estimate in the range of 150-200%).
-- Additionally, foreign manufacturers will no longer need to dump goods on the US market to earn trade dollars, meaning things will no longer be sold here as cheaply (even ignoring the effects of the inflation).
--the US will have to balance its trade budget, since we will have to trade actual goods for imports, rather than dollars
--the US will have to balance its government budget, since foreigners will no longer need to recycle their trade dollars by purchasing bonds

Needless to say, it is difficult to calculate the effects on the US economy if we have to balance our trade account and balance our federal budget, rapidly, at the same time. Then throw in the difficulties of fighting a huge currency inflation... And paying off a huge debt.... yikes

As always, Jubilee remains the best solution (cancelling all debt & revaluing the currency, essentially hitting the reset button on the economy), but the Debt Masters would rather stay on top, even if that means riding everyone else into the ground...