China may default on silver contracts.

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China may default on silver contracts.

I looked and did not see this article posted elsewhere so I thought that I would post it here and also ask a question (or 3) about it.

Ted Butler said this in his commentary

 http://www.investmentrarities.com/ted_butler_comentary.shtml

"The threat from China that it may default on contracts that back the concentrated COMEX short position raises the stakes immensely. "

The way I read this is that JP Morgan is on the hook for massive silver short contracts on Comex. They hedged their position by getting contracts for silver from China. Now China says they may default and not deliver.

1.   Do I have this right?

2. If so, does this not mean that silver should spike up in price?

3. Do you think that this is only "saber ratling" from a peeved China about all the manipulation or do you think this is real?

Ken

 

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Re: China may default on silver contracts.

I don't know why the link did not show properly - try again.

 

http://www.investmentrarities.com/ted_butler_comentary.shtml

 

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Re: China may default on silver contracts.

How deep does the rabbit hole go......

http://www.cnn.com/2009/WORLD/europe/09/05/G-20.geithner/index.html

 

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That's not all China might default on.....

Thursday, September 3, 2009

CHINA AND THE BUZZ OF A PENDING BANK DEFAULT

Let’s put the pieces together here. Just this past weekend China announced that State Owned Enterprises (SOEs) will be allowed to default on commodity derivative contracts. Think of that. China has given the green light and authorized the defaulting on commodity derivative contracts.

This story broke over the weekend but has not gotten much mainstream media attention on this side of the pond. (North America). The only inference to it was the talk or “buzz” on the Wall Street floor that another bank was rumored to be close to defaulting. As Art Cashin of UBS Securities indicated in the video clip I posted earlier, normally when a market sells off on a rumor and the rumor turns out to be false, the market will tend to correct itself. IT DIDN’T.

The Reuters report cited 6 foreign banks that received letters indicating that the Chinese State Owned Enterprises would be given the green light to default on their derivatives.

A look at what a derivative actually is may be useful here. A Derivative is a financial instrument that is derived from some other underlying asset, index, event, value or condition. Rather than trade or exchange the underlying itself, derivative traders enter into an agreement to exchange cash or assets over time based on the underlying. A simple example is a futures contract: an agreement to exchange the underlying asset at a future date. Commercial and investment banks make up the foundation of the over the counter (OTC) derivatives market. Investors use derivatives to protect against risks, such as sudden changes in price or value of the underlying asset. Others tap derivatives to take on extra risk, in the hope of extra gains.

Well China owns billions of these products and it has finally come to light they have had enough of having the value of their derivatives manipulated by the manipulation of the price of the underlying asset. They have finally woken up to the fact that these derivatives have been bundled together like junk in a manner that resembles the mortgage backed derivatives that brought down the world markets last year.

Back to Reuters.  Some of the State Owned Enterprises that stated their potential intentions to default were Air China. China Eastern and Cosco. Mainly in part because they took major derivatives losses over the past year but also, concerns are arising that the derivatives that they were sold by these foreign institutions are garbage, underwater and may never see the light of day. So why continue to pay for them? So the concern in the financial world is that holders of these losing products may just walk away, not unlike a home owner with a $600,000 mortgage on a home valued at $475,000 deciding to just hand in their keys. However, read on...this has nothing to do with morgtgage backed products.  This time, the concern may be over Oil.

They (Reuters) cited 6 foreign banks.Where the story gets really intriguing is that among the major derivatives providers according to Reuters but also widely known in the industry, are Goldman Sachs, UBS and JP Morgan.

Here is the looming problem. These products are worth billions. One report that a good friend of mine did showed that if Goldman Sachs for example were to take this one up the rear, they could stand to lose 15 billion dollars. (This number is by no means confirmed)

An important history lesson is needed here. “Potential default” was the concern that sparked and prompted the most recent economic crisis. These intricately weaved products along with highly speculative CDOs and CDSs began to fall apart when the bubble that was in large part significantly contributed to and created by the financial institutions that were packaging this junk started to fall apart.

Imagine the impact for a brief moment if you will, on the impact to the financial landscape if China were to say “we are walking away” from those products. I would imagine that China, being the biggest purchaser of US debt, could surely collapse the US institutions that were at one point deemed too big to fail if they decide to go ahead with this plan.

This is why I don’t take tonight’s news that China purchased 50 billion dollars of IMF bonds lightly. In fact, I take it very seriously. This is why I take the buzz on the floor over the past two days very seriously as well as I do the incredible spike in Gold today. Most importantly, I do not take lightly the recent 25% correction we have seen in the Chinese Stock Market. Can all these events be interconnected some how? Is the Chinese stock collapse giving us a hint?

The Reuters story came out on Mon Aug 31, 2009 at 7:42am EDT. I find it quite interesting that the mainstream media did not take this more seriously. Reuters reported that the above noted Chinese companies have already issued letters to the banks. The Reuters article cites 4 clear points.

• State-owned firms may default on commodity hedges - report

• Bankers dismayed, confused by report; seek more details

• Lawyers question legality of the move

• Traders suspect lurking losses may have prompted warning (Adds analysts comments)

Analysts are fearing that if these three big companies came out and spelled out their losses and dismay at these products then this might prompt other large Chinese corporations to do the same.

Let’s take a closer look at the companies that have been mentioned in these news articles out of China. They are Air China, China Eastern and Cosco. If you ask me, this conundrum might have to do with oil. I deduce from this that if there is a problem brewing it has everything to do with their Oil Derivatives business.

Here’s a brief overview of what might happen should these companies, and others, default. The banks, namely Goldman Sachs, J.P. Morgan and from other accounts possibly Deutsche Bank will find themselves LONG on oil futures with no customers on the short side of the derivatives. This will most likely lead the banks to sell the excess oil futures without a care for the price. This is no different than what happened when Bear Stearns was forced to sell off their gold futures in March of 2008 which then resulted in a sharp downturn in the price of Gold.

Reuters stated:

Spokespersons at Goldman Sachs (GS.N) and UBS (UBSN.VX) declined comment, and media officials at Morgan Stanley (MS.N) and JPMorgan (JPM.N) were not immediately available for comment. All are major global providers of commodity risk management.

We have yet to hear their commentary. A Chinese statesperson was quoted as saying “"If we were among the banks receiving that letter, we would be very angry.” You bet your bottom dollar. You don’t think the firms listed above are angry, or, are they frightened that if the Chinese State Owned entities start taking affirmative action it could theoretically bring down some of the biggest remaining names on Wall Street?

Remember Reuters initial story was titled Beijing's derivative default stance rattles market. Read it thoroughly for more information.

Then, read the story that broke last Saturday to get a clearer perspective before the political and corporate spin started to enter the story. China warns banks on OTC hedge defaults –report.

“BEIJING, Aug 29 (Reuters) - Chinese state-owned enterprises (SOEs) may unilaterally terminate derivative contracts with six foreign banks that provide over-the-counter commodity hedging services, a leading financial magazine said.

 

 

China's SOE regulator, the State-owned Assets Supervision and Administration Commission (SASAC), had told the financial institutions that SOEs reserved the right to default on contracts, Caijing magazine quoted an unnamed industry source as saying.”

On September 1, 2009 Reuters said that the Banks, not the commodities would be at risk if China followed through.

Yes, legal battles would ensue should this happen and we can also expect to have Chinese political figures downplay the story in an effort to avert panic. However, if they can prove that these derivatives or the underlying asset was manipulated in a manner to profit the bank that issued the product then that may even do more damage than the default themselves.

Perhaps the “buzz” on the floor is indeed true. Perhaps we are going to see action that could annihilate one of the biggest Wall Street firms ever.

If there is one thing I have learned of late is that when the Chinese speak, we must listen. Their list of allies is ever growing and they are simply fed up of having to swallow the US garbage that has turned out to be toxic and dangerous to their highly controlled and coveted state owned enterprises.

I leave you with these thoughts that I alluded to above. The Chinese market has corrected 25%. This news broke this past weekend. New York saw a sharp sell-off on Monday. Buzz of a bank default hit the floor. The rumor did not abate and the selling intensified. The selling carried over into Tuesday. Gold, a classic hedge against troubled times has broken out to the upside, China has purchased 50 billion in IMF bonds and has been questioning the US dollar now for upwards of a year. China was up 5% overnight and Gold has continued to climb this morning.

Where there is smoke there is often fire.

_______________
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Re: China may default on silver contracts.

Hmm. I read this.

All I can say is that the possibility is there. And I'll reiterate my position that sometime in my lifetime (I'm 43, just turned 43 yesterday), silver prices will absolutely explode.

Why am I so sure?

Because I have researched the fundementals exhaustively.There are 270,000 metric tons of mineable Ag known by the USGS. The base reserve, that is, the total Ag in the Earth's crust, is 570,000 metric tons. But the 300K ton difference is not economically feasible for recovery. Therefore to extract it the cost of production will go way way up.

Furthermore, ~ 75% of all Ag mined is exacted along with Ni, Cu, Fe, Zn and other metals. As these base metals become more difficult to extract, the remaining Ag costs will need to increase to offset extraction costs and provide incentive.

BUT....

when?

Heck if I know. The game players are so hell bent on keeping PM's down in price, and have been so effective at it that it might take 30 years.

Timing this thing is impossible. Absolutely impossible. I do not recommend Ag if you're thinking that you're going to see massive profits in the short term. I personally just don't see it. However, having some in your SHTF portfolio might not be a bad idea.

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Re: China may default on silver contracts.

Imagine the carnage it would cause if the Chinese went ahead with a default on silver or anything else for that matter. 

The thing that really strikes me as so "dangerous" is all the IP, hardware and general know how the west has been prepared to give to China just for the sake of saving a few $s, €s, £s or what ever.  wow!

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Re: China may default on silver contracts.

I wonder if instead of defaulting, the Chinese will simply sell back the toxic waste to America threw the Fed printing more money and having China buy more short-term treasuries with the printed cash. Sounds good for gold prices. Surprised were not at 1500 after hearing all the printing going on  in the Fed. The story of the schell game is spreading threw the internet like wildfire. One has to wonder just how long this B.S can go on without real trouble spreading to the markets. I wonder what they will pull out of their bag of tricks (scams) next?

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Re: China may default on silver contracts.

kenc and Damnthematrix,

Thanks to you both for bringing this to our attention. Disturbing is the word that comes to mind. If I were in the position of the Chinese I would be angry!

DavidC

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Re: China may default on silver contracts.

Sorry to be the bearer of a cold bucket of water, but I take these Chinese threats to be nothing more than threats.  If they renegged on any kind of derivatives contracts, it would tank the Chinese financial markets and send their economy into a tailspin.  They would be blocked from all major global derivative exchanges and would have no way of hedging their commodities contracts by way of futures markets.

Maybe there is something I am not understanding here, but based on what I think I am understading, such action by the Chinese would be suicidal.

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Re: China may default on silver contracts.
Morpheus wrote:

And I'll reiterate my position that sometime in my lifetime (I'm 43, just turned 43 yesterday), 

Hey Pete, we have the same birthday (Sept 5th) and just two years apart....small world or I mean small Matrix Laughing

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Re: China may default on silver contracts.
Farmer Brown wrote:

Sorry to be the bearer of a cold bucket of water, but I take these Chinese threats to be nothing more than threats.  If they renegged on any kind of derivatives contracts, it would tank the Chinese financial markets and send their economy into a tailspin.  They would be blocked from all major global derivative exchanges and would have no way of hedging their commodities contracts by way of futures markets.

Maybe there is something I am not understanding here, but based on what I think I am understading, such action by the Chinese would be suicidal.

That's my take on it, Patrick . . . . What we have here is economic deterence . . . guaranteed mutual destruction if either side opts for the nuclear option  . . . Of course, that isn't to say it couldn't happen.

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Re: China may default on silver contracts.

I think China may be saying two things. 

First, this could be a shot across the bow of J.P. Morgan Chase, BoA and Citibank who together hold over 80% of the reported derivative positions.  There have been complaints by some of their derivative partners that claim they were snookered with complicated (misleading) contract language.  For example:

JPMorgan sued by Erie School District  - "The Erie School District is claiming JPMorgan fraudulently collected $1.23 million in fees as part of the district's swap deal in September 2003, when the district used the swap to refinance $37.3 million in bonds.  The district said the fee should have been about 10 times less, or no more than $128,000.  The district is claiming JPMorgan and the bank's Erie-based broker at the time, David DiCarlo, colluded on the swap deal with Investment Management Advisory Group Inc."  And, "Alabama’s state school construction authority won’t make payments to JPMorgan Chase & Co. due under a derivative deal until a federal court rules on the state’s lawsuit seeking to have the contract thrown out.

And, JP Morgan Sued by City of Milan (Italy) for Derivatives Losses - An Italian prosecutor wants UBS ($UBS) , Deutsche Bank ($DB), Germany's Depfa and JP Morgan ($JPM) and 14 managers and clerks to face trial on charges of fraud against the city of Milan. And, Municipalities Sue Financial Firms, Allege Price-Fixing in Derivatives - Class Actions Filed.

The fraud doesn't end there as many are accusing the big derivative players of manipullating commodioty pricing.  Note what was said in damthematrix post #3 - "Well China owns billions of these products and it has finally come to light they have had enough of having the value of their derivatives manipulated by the manipulation of the price of the underlying asset. They have finally woken up to the fact that these derivatives have been bundled together like junk in a manner that resembles the mortgage backed derivatives that brought down the world markets last year."

The amount of derivatives fraud is a major issue.  China and many others were pushing for regulations, reserves and better guarantees.  It appeared obvious that regulation was needed.  Wall Street, however, seems to disagree:

Bloomberg:  Wall Street is suiting up for a battle to protect one of its richest fiefdoms, the $592 trillion over-the-counter derivatives market that is facing the biggest overhaul since its creation 30 years ago.  Five U.S. commercial banks, including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp., are on track to earn more than $35 billion this year trading unregulated derivatives contracts. At stake is how much of that business they and other dealers will be able to keep."

China may be saying, don't try that stuff with us, we won't pay.  And who could blame them?  I suspect I'm not the only person happy to hear China tell the big banks on wall street where to get off.  And this leads to the next thing China may be saying.

If you won't regulate the derivatives markets that we participate in, we will

This from The Atlantic Wall Street Derivatives Face Great Wall In China - "China intends to make it very difficult for foreign banks to participate in its derivatives market. That would be a huge blow to the potential profits that foreign banks might hope to make off derivatives in the rapidly growing Chinese market.  Another provision that the Journal explains would allow Chinese banks to more easily back away from their derivatives exposure to foreign banks as a result of loan defaults anywhere in their business. The motivation here stems from the financial crisis and Chinese banks getting burned by Wall Street exposure. Think Lehman Brothers.  Of course, I'd argue that Wall Street really only has itself to blame on this one. It lost Chinese banks money, and they don't intend to let that happen again.

I think we are seeing a shift occurring with China becoming the dominant financial power.  As long as China is a creditor nation and the west remains creditor nations, China can re-write many of the old rules.  This may become dangerous as the west will blame China for many of our woes.  And, if the west can't use their economic leverage they may resort to military threats and covert operations. 

Larry

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Re: China may default on silver contracts.

Getting better all the time!

 

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Re: China may default on silver contracts.

FB. Gotta totally disagree with you on this one.

I think, based on the events, often unreported, of the past several years, that China is decoupling itself from the US and European markets. It's long-term focus appears to be to develop it's 1.3 billion consumer units and the other billion or so that surround it.

I think it might be dangerous to assume that "China needs us".

Cause' she sure as hell seems hellbent on solving that problem.

It wouldn't surprise me to see China "shock the global system" in order to shatter western hedgemony. Sure, she'll take a hit, but can survive it better than any western nation.

For example, China's been buying up key commodities such as copper, zinc, iron, farmland (Madadascar anyone?), gold, silver.  Beating the US at their own game with oil and gas pipelines in the M.E. And developing very strong relations with resource rich Africa.

I'm not going to announce that this is a faite compli' (sp?) But I do think it is a harbinger of things to come.

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Re: China may default on silver contracts.

Mods, please turn the echo feature off.

Thank you.

Thank you.

Embarassed

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Re: China may default on silver contracts.

Hello Morpheus,

Let me be clear:  The Chinese want to win.  They are aggressive.  They are hard working.  And, those in power run a command-economy.

They also fear what may happen if all of a sudden they have 1.3 billion people rising up against them.

So, while they may want to use the "nuclear" option, it is very unlikely that they will.  By "nuclear", I mean causing a global financial meltdown that brings everyone to their knees, including them, even though they may be first ones to rise from it.

The simple fact is that if they do, those in power may not be around after China rises back up.  So causing a global meltdown is just not in the best interest of those in power.

Also, I think we need to be very careful about what may be said by a one-off party leader.  I have no doubt these pronouncements are planned and intentional, but the reason they have some low-ranking official make them is so that the rest of us can fret while at the same time the leaders above that person can dismiss the remarks later if they want to.  It's a very good manipulation or trial-balloon tactic, the Chinese use it all the time, and so do a lot of other countries and administrations (including our own). 

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China is the Dumb Money

Morpheus,

I too, respectfully disagree with the perception that China is the smart money of international trade. Would they have 2 trillion of our worthless dollars if they were? When the dollar rises and commodities fall, China won't look so smart. 

My inflation adjusted 2 cents.

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Re: China is the Dumb Money
JAG wrote:

Morpheus,

I too, respectfully disagree with the perception that China is the smart money of international trade. Would they have 2 trillion of our worthless dollars if they were? When the dollar rises and commodities fall, China won't look so smart. 

My inflation adjusted 2 cents.

Fair enough. Let me address both you and FB.

I think China is shrewd as hell. So, I partially agree with FB that a nuclear option (all at once meltdown) would cause so much domestic upheavel that they'd have to employ draconian policy to control their people.

By the same token I have to disagree with you that they are not "smart money". I wouldn't underestimate them. Why have a shooting war with the US when you can slowly destroy them by holding a trillion or so of their debt and then using it for a multitude of purposes such as:

1. Making the tail wag the dog.

2. Devaluing our currency in an slow,  carefully thought out measure of financial warfare,

3. Use it to transfer global economic hedgemony to SE Asia.

China's ruthless. We all know that.

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Re: China is the Dumb Money

Morpheus,

In all honesty, I don't know what the hell is going to happen, but I am always very cautious about assuming "the obvious" or the "conventional wisdom". 

Keep in mind that the US approaching 1929 was in much of the same position that China is in today.  It was the world's largest creditor and largest producer.  That didn't seem to help.

 

 

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Re: China is the Dumb Money
Farmer Brown wrote:

Morpheus,

In all honesty, I don't know what the hell is going to happen, but I am always very cautious about assuming "the obvious" or the "conventional wisdom". 

Keep in mind that the US approaching 1929 was in much of the same position that China is in today.  It was the world's largest creditor and largest producer.  That didn't seem to help.

 

 

That's reasonable. While you broached the subject might we agree on two reasonable operating ideas?

Conventional wisdom is often a cowpie with frosting and a cherry on it to "dress it up", and...

THE HERD IS ALWAYS WRONG. LOL

Sorry buddy, didn't mean to blow your eardrums out. Emphasis you know.

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Re: China may default on silver contracts.

Farmer Brown wrote:

Keep in mind that the US approaching 1929 was in much of the same position that China is in today.  It was the world's largest creditor and largest producer.  That didn't seem to help.

Hi Farmer Brown, I have to disagree.

The United States was not a creditor nation in 1929, we had already given the power to issue and control our currency to the international banking cartel.  Any money the United States may have been lending would first have to be borrowed from the Federal Reserve.  The U.S. was in deep in debt to the Federal Reserve in 1929 and went bankrupt in 1933.

China on the other hand has no national debt, instead they have foreign wealth funds accumulated from years of budget surpluses.  The big difference is that China as nation has no need to borrow from private banks, they control and issue their own currency.  China is making its industrial base grow while our is sinking.  They are making less cheap junk and are instead pursuing major manufacturing; autos and alternative energy systems, computers and batteries, etc.

Bloomberg - Stocks in China rose the most in six months, driving the yen and Treasuries lower, on speculation the government will adopt measures to boost equities after the Shanghai Composite Index fell into a bear market.  "The contribution of China to the global growth recovery story is massive," said Michael Ganske, head of emerging markets strategy at Commerzbank AG in London. "That's part of why everybody is so obsessed."

General Motors said on Sunday it has agreed to set up a light commercial vehicle production venture with major Chinese automaker FAW Group, with total investment of 2 billion yuan ($293 million).  "For us in China, this is an important complement to the rest of our portfolio," Kevin Wale, president and managing director for GM's China operations, told reporters in a conference call.

GM is no longer investing in the US.  They are not creating any new jobs in the U.S., instead is is eliminating jobs.  GM is moving to Asia. And we will eventually lose all power over GM which will be owned by China eventually.  The United States does very little strategic planning (other than military adventures) while China is playing chess.

While Goldman Sachs, Morgan Chase, Citibank, etc, rob the American people, China remains nationalistic and does not allow foreign private banks to pillage their people.  China has lot's of problems and the collapse of our economy would be very costly but if this is an economic war they are surely winning.

Larry

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Re: China may default on silver contracts.

Larry wrote:

The United States was not a creditor nation in 1929, we had already given the power to issue and control our currency to the international banking cartel.  Any money the United States may have been lending would first have to be borrowed from the Federal Reserve.  The U.S. was in deep in debt to the Federal Reserve in 1929 and went bankrupt in 1933.

China on the other hand has no national debt, instead they have foreign wealth funds accumulated from years of budget surpluses.  The big difference is that China as nation has no need to borrow from private banks, they control and issue their own currency.

Larry,

Could you elaborate on this statement? How does the cited difference in the money creation process eliminate the possibility of deflation in China's future?

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The Secret of China's Miracle Economy

Never mind Larry, I found the source of your contention:

The Secret of China's Miracle Economy: The Government Owns The Banks Rather Than The Reverse by Ellen Brown

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Re: China may default on silver contracts.

JAG wrote:

Could you elaborate on this statement? How does the cited difference in the money creation process eliminate the possibility of deflation in China's future?

Hi Jeff,

There is a subtle but huge difference between China and the U.S. in terms of economic fundamentals.  Let me take a stab at explaining it in a general way.

United States 

  1. The U.S. borrows every dollar needed beyond income, from private banks, individuals and intergovernmental holdings.  Every dollar created comes from debt.
  2. Loans from private banks -  The U.S. prints bonds (securities) that pay interest, and use them as collateral to buy Federal Reserve notes.  The banks may be in the U.S., or they could be in China, Japan, etc. 
  3. Loans from individuals -  Individuals (mutual funds, insurance companies, etc.) may buy bonds, which is essentially a loan.
  4. Loans from intergovernmental holdings -  The U.S. government borrows money from "intergovernmental holdings;" which include our Social Security Fund, Medicare, Pensions, etc.
  5. Collecting taxes to pay the principal + interest on government loans -  It wasn't a coincidence that income tax and and the Federal Reserve came within months of one another in 1913.  The I.R.S. collects federal taxes to pay the debt, just over 1/3 of all collected taxes goes to paying the interest alone on the national debt.

The really odd part is that with the loans listed above as numbers 3 & 4 (loans from individuals and intergovernmental holdings); the holders are simultaneously debtors and creditors (if they are U.S. citizens/entities).  For example, the government borrows from our social security fund, then we have to pay it back.  It looks to me like this is a hidden tax and usury.   

China

  1. When China needs money, they may create it, free from debt.
  2. China has no national debt, only national wealth.
  3. China will soon be selling bonds.  They don't need the financing, they're doing it for other reasons explained below.
  4. China has no national debt and which could eliminate the need for national taxes. 

Note:  Number 3 above,  If China doesn't need to borrow money, why are they preparing to issue bonds?

BBC - China to sell yuan bonds abroad -  "China has announced its first sale of government bonds in yuan outside the mainland.  The sale is a milestone as China opens up its financial markets and promotes its currency as a world benchmark.  The government will sell 6bn yuan ($880m; £534m) of bonds in Hong Kong to "improve the international status of the yuan," the finance ministry said.  

"They are not issuing the bonds for financing purposes," said Ben Simpfendorfer, an economist at Royal Bank of Scotland. The aim is ultimately internationalisation of the yuan and Hong Kong is a laboratory for that"

Our system is collapsing in debt that has become a giant parasite sucking the life out of the people and commerce.  There is only one reason for our national debt - because we choose to borrow instead if issue our own money.

China's system was in place years before the communists took over.  It was a big success and the communist government kept most of it.  The idea was brought to China by Dr. Sun Yat-sun (considered the father of modern China, admired by nationalists and communists alike).

He copied the model from Lincoln's greenbacks that were used in the United States to pay for the Civil War while maintaining a prosperous and growing economy.  In the 1860's, Yat-sun lived in the U.S. and was "a protege of a group of American nationalists of the Lincoln/Carey faction" -  Web of Debt by Ellen Brown

No big surprise, China copied it from us.  They changed an important part of the system that drags it down from it's greater potential.  The communist government adds a huge bureaucratic load and they rule the system from behind closed doors, they are accountable to no one but themselves (hey wait a minute...sounds like the federal reserve!). 

Imagine that powerful economic engine under the hood of a democratic republic instead of communists. 

Larry

 

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Re: China may default on silver contracts.

Larry,

Thanks for the response, but I'm afraid I don't see the logic of your argument.

Within our given context, what difference does it make if the respective economies are in debt to the Fed, or in debt to the Chinese government? Debt is a precondition to deflation, no matter who issues it. To come to the conclusion that China is somehow immune to a deflationary spiral because their debt is created by a government entity instead of a private entity seems mistaken at best. 

From the article cited in my previous post (#22), Ellen Brown states:

The People’s Bank of China estimates that total loans for the first half of 2009 were $1.08 trillion, 50% more than the amount of loans Chinese banks issued in all of 2008.

The Chinese economy is indebted to its government, and significantly so. You stated that in 1929, the US economy was indebted to the Fed. As I have never seen any government that was truly a representative of those it governed, I don't see how there is much difference between these two situations.

(edit:spelling)

DrKrbyLuv's picture
DrKrbyLuv
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 1995
Re: China may default on silver contracts.

JAG wrote:

Within our given context, what difference does it make if the respective economies are in debt to the Fed, or in debt to the Chinese government?

Jeff, 

If you're talking about private or corporate debt, I agree, it may not matter who you are borrowing from.  My post was about sovereign nations that have the power to issue and control their own money as opposed to borrowing every dollar from a private banking system. 

The private banks are not lending their money.  They are not backing up the money they lend.  So why does a sovereign nation borrow from them?  What value are they adding to justify their take?

Here's the skinny.  Every new U.S. dollar (federal reserve note) is issued as debt through private banks.  China issues it's own money - no outside lenders needed nor wanted.  No national debt.  No need for Goldman Sachs, J P Morgan Chase, Citibank, etc. 

Larry

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