Recently Robert Zoellick, World Bank president, has been quoted to say that gold standard will eventually win in modern "currency wars" (the situation when national economies instead of supporting proclaimed world globalization, lower national currenncy rates compared to reserve currency, US dollar, to support domestic exporters and manufacturers, i.e. protectionism policy). Reaction of financial institutes heads and financial analysts was rather harsh only after mentioning the tabooed subject: "WTF he's talking about?! STFU, moron!" =) Later due to pressure, I presume, he kinda took his words back, saying he was misunderstood or whatever.
Why is that? Let me bring you to 1972, when Richard Nixon visited China and had a meeting with Mao Zedong. Even prior to that since late 1950s the relations between two Communist parties of USSR and CPR have experienced a major break up. Since the time Chinese leaders decided that they'll gain more benefits if they will cooperate with the West, intentionally heating up situation between China and USSR that eventually lead to few borders conflicts in 1969. Those conflicts didn't lead to anything major on military field (Soviets just tested brand new Grad launchers on poor Chinese soldiers), but they mark the beginning of drastic change in politics and economy situation. Chinese leaders began to incorporate Chinese economy into US-lead Western world. Simply put, Mao said to Nixon: "Invest into our economy! We have shitload of human resources, absolutely cheap. We'll manufacture, while you'll consume, consume, consume. And we'll both benefit out of it!". So was it. Around the same exact time, in 1971 Richard Nixon has announced that they completely refused from gold standard, thus destroying Bretton Woods system and forming new one where US dollar became the only reserve currency, so Federal Reserve was able to emit unlimited amount of dollars that were supported with nothing.
When US industry growth has slowed down and eventually stalled completely, during the period known as Reaganomics the system of so called "financial capitalism" was finally formed with all appropriate institutes, created during Bretton Woods system after WW2 to support and regulate, such as IMF (what I call "goods distribution system", that distribute huge amount of "cheap" money through credit and financial institutes in order to "consume, consume, consume" through stimulation of demand) and WTO (organization that institutionalized a division of labour system, so every nation know it's place in consumer pyramid, where China took the place of world-sized factory of consumer goods). Notably such economists as Alvin Toffler and later Francis Fukuyama began to make big deal out of GDP as a primary index in macroeconomics analysis. In 90s they've formulated a superficially economic but essentially ideological theory known as innovation (aka intellectual or post-industrial) economy, which basically postulates "The End of History" idea, at the same time being such amount of bollocks, that even the most vulgar interpretation of Karl Marx's social-econimic formation theory pale in comparison. Later on the theory was completely destroyed by independent market analysis companies such as in McKinsey report issued in 2001, but it seems few kept attention and still believe in newly created God.
Back on topic, so why such opposition to Zoellick words? With the course of time credits became cheaper and cheaper when eventually they hit 0% during World Economic Crisis of 2008, which triggers the system, that was mainly supported by expansion to new markets, endless consumption and demand stimulation thanks to financial instruments, to crumble, when there were no new markets left. Return to gold standard not only means that gold will go sky high in price immediately, but return of US and as matter of fact every economy into IMF "distribution system" to crumble to it's actual size. It's not important what analysts you choose to believe, most of them (among sane ones) estimate a trillion worth of financial bubbles in US economy. If prior to 1970s the share of financial deals in national GDP were around 5-10%, now it's whooping 50-60%. It means that there're financial bubble that worth trillions of USD, which is few orders of magnitude bigger than actual goods manufactured. Return to gold standard means that US and world economy will return to it's actual size, around $5-6 trillion in case of US. There're no precedent in world's history when such drastic change in average citizen well-being didn't lead to serious consequences in political and social life, basically middle-class around the world will extinct.
What does it all mean for Chinese? In 90s they've missed their great chance to stimulate domestic demand and create big marketing outlets in China that could potentially support or soften an impact in fall in demand abroad. FYI in Europe big markets of industrial goods consumption were created in 1820-40s in Britain, and a bit later in France and Germany, in late XIX - early XX century in US and in 1920-1940s in USSR etc. So unless Chinese will able to find some extraterrestrial markets to sell their "Made in China" goods to martians, or Chinese economy is all but doomed to shrink in size. The size of actual shrinkage will greatly correlate to fall in demand in US (25% of world GDP (PPP) consumption after all) and so called "golden billion" in years to come. At this point demand is falling at average speed of $0.5 trillions monthly. Given there're 700-800 million people in China who still live in natural and petty goods (peasant) economy, they just aren't good subsitution for average Joe in US or Western Europe who consumes a lot of useless junk. They are NOT consumers at this point and to create such huge market inside country will take decades. But still even with expected drop Chinese economy will de jure become biggest economy in the world (de facto it's already biggest if you write off financial bubbles of gargantuan size that is doomed to burst sooner or later).
This perspective adds a substantial layer to recent and inevitable future US-Chinese political games.
