Wikileaks Discloses The Reason(s) Behind China's Shadow Gold Buying Spree

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Wikileaks Discloses The Reason(s) Behind China's Shadow Gold Buying Spree

http://www.zerohedge.com/news/wikileaks-discloses-reasons-behind-chinas-...

Wondering why gold at $1850 is cheap, or why gold at double that price will also be cheap, or frankly at any price? Because, as the following leaked cable explains, gold is, to China at least, nothing but the opportunity cost of destroying the dollar's reserve status. Putting that into dollar terms is, therefore, impractical at best, and illogical at worst. We have a suspicion that the following cable from the US embassy in China is about to go not viral but very much global, and prompt all those mutual fund managers who are on the golden sidelines to dip a toe in the 24 karat pool. The only thing that matters from China's perspective is that "suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB." Now, what would happen if mutual and pension funds finally comprehend they are massively underinvested in the one asset which China is without a trace of doubt massively accumulating behind the scenes is nothing short of a worldwide scramble, not so much for paper, but every last ounce of physical gold...

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yep...

Yep.  I believe it.  Having a lot of gold will be a good thing at some point.  Wish I had a pile of gold.  A pile.  A pile I could crawl up and sit on top of.  Something the size of a pallet of sod would work just fine.  In the meantime if I were the Chinese and had all those dollars I would be sending some of them on gold.  Gold to hold.  Launching a currency backed by gold would be a powerful thing in a world of fiat currencies and over spending welfare states.  People talk about a war with the Chinese.  They don't need a war to beat us.  All they have to do is wait and we will beat ourselves.  It is just like the cold war.  We just waited and the Soviet Union beat itself.  If the Chinese wait we will beat ourselves.  If we do not get a handle on spending they will not have to wait very long - a few years.  Most Americans don't even know what a reserve currency is or how it benefits them.  There will be a collective poop in the pants about one month after the dollar was replaced as the reserve currency of the world.  Every single person in America will know what it means then.

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China gold

 There is no way out for the Chinese economy since it imports most of its energy. There were only three Chinese research papers by the Chinese scholars in my Google search about peakoil. And they all miss the point by talking about oil reserve instead of consequence of peakoil

Chinese is the biggest food importer in the world today. The air,water and land are mostly polluted and inhabitable from American standard. To me it is a wasted land.  The Chinese gov. print 4 trillion money to flood the market during the finance crisis of 2008. Thus the Chinese has much less income than the Americans but their food cost is higher than the americans'. How long will such society can bond together? 

I don't know how much gold can help the Chinese. It is a wrong move for the average Chinese to buy gold. They should buy U.S dollar to hedge renminbi and stock up rice first. They can't eat gold.

 

 

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Hmm...

The Wikileaks-revealed cable from April 28, 2009 is merely a transmittal of an EXCERPT of a Chinese news article. So while interesting, I wouldn't consider it a "smoking gun" admission when it's pretty much known that China is expanding it's gold reserves as a result of dollar decline and to safeguard themselves.

Now if it were a secret admission from say, some senior Chinese government official to an American counterpart at the embassy, I think it would have a bigger impact.

3. CHINA'S GOLD RESERVES "China increases its gold reserves in order to kill two birds with one stone" The China Radio International sponsored newspaper World News Journal (Shijie Xinwenbao)(04/28): "According to China's National Foreign Exchanges Administration China's gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB."

Poet

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Re: Yep

People talk about a war with the Chinese. They don't need a war to beat us. All they have to do is wait and we will beat ourselves.

I've said this before. If the Chinese want to become part of the new world reserve currency, along with the rest of the BRICS, all the have to do is dump their 350 billion dollars of US treasuries on the market. The bond market would instantly collapse and the dollar along with it. The Chinese would make their money back in no time at all.

They have us by the balls not the other way around.

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Johnny Oxygen wrote: People
Johnny Oxygen wrote:

People talk about a war with the Chinese. They don't need a war to beat us. All they have to do is wait and we will beat ourselves.

I've said this before. If the Chinese want to become part of the new world reserve currency, along with the rest of the BRICS, all the have to do is dump their 350 billion dollars of US treasuries on the market. The bond market would instantly collapse and the dollar along with it. The Chinese would make their money back in no time at all.

They have us by the balls not the other way around.

JO,

Sorry but that is totally short-sighted and ignores what is in the best interest of China.  Even if they could do what you think they are capable of doing, it would ruin - no - destroy, their economy.  If they dumped US Treasuries, the RMB would go through the roof, and their export-based economy would fall through the floor.  Factories would close, unemployment would skyrocket, food shortages and civil unrest would abound, and they would probably lose control of the non-core Chinese regions (which is well over 50% of the geographic region we call "China").  In the meantime, the FED would probably pick those Treasuries up at bargain levels and life in the US would go on pretty much the same for the time being.  Also, since the US pretty much just buys crap from China, and not food or energy, I really do not see why we are so "dependent" on them. 

I really do not understand the fear of China or the awe with their so-called economy, which is totally engineered, centrally-planned, and even more distorted for the public's consumption than our own BLS and other agency figures.

China has built an entire economy mostly upon one thing:  the manipulation of their own currency.  In order to maintain its competitive edge (which boils down to compete on price only), China must keep its currency low against the dollar.  The only way to do that when you are running a trade surplus is by printing more of your own currency just so you can buy/sterilize all the dollars coming in, and then use those dollars to invest in US Treasuries. 

So, this whole imbalance which is most manifest in huge Chinese dollar holdings is in reality the mirror image of the currency depreciation and devaluation (and outright theft really) they have imposed on their own people just to keep their currency low.  In other words, their dollar holdings are their own creation.  If they had allowed their currency to appreciate the moment they started to run a trade surplus, this never would have happened.  Those dollars instead would have stayed in the US or gone to the next 3rd world upstart economy.  Of course, the Chinese didn't want that.  They chose this outcome and the US let them do it.

Now both countries are very much screwed, but believe me, the Chinese are just as screwed as the US is, perhaps more.  Here are just a few reasons why:

China must import food to feed its people.  The US can feed itself twice over, at least.

China has 1.4 billion people.  The US population of 330 million is really the equivalent of a Chinese rounding error when computing their own population.  Of those 1.4 billion, some 700 million live at poverty levels.  Try imagining what it's like keeping 700 million (twice the US population) poor, hungry people from riotiong when food runs out, and you may begin to get an inkling of the kind of pressure Chinese authorities live under every day.  Maybe if they just tried free market capitalism without distortions, their people could feed themselves, but of course, that would be thinking way too outside the box for most communist party central planning engineers.  So, they'll continue planning until it doesn't work and everything breaks. 

China is composed of a coastal core region, where the culturally and economically dominant Chinese people live, and several enormous swaths of land, which do not share Chinese culture and wealth like the coastal regions do, and which historically have bounced in and out of the "Regime" depending on when coastal China was strong and when it was not.  Coastal China will do almost anything to keep those regions from breaking away.  These regions include Tibet, which you may have heard about.  They serve as buffer zones for coastal China and are strategically very important, but otherwise produce little.  Part of China's planning includes making sure these regions do not break away or "cause trouble".  Would like to see how they manage that after they "dump" Treasuries and destroy their own economy. 

The US on the other hand, is pretty well culturally unified. There are political and religious sectors, but nothing like what is seen in China or other parts of the world for that matter.  Speaking of which, I heard that a former German chancellor today claim that the "Unites States of Europe will happen - it just needs time" or something to that effect.  I couldn't disagree more.  Europe will never be like the US because it is culturally way too stratified.  The Czechs, Hungarians, Romananians, Germans, Polish, Slovenians, Slovakians, are DIFFERENT peoples with way too different cultural values  and customs - and those are just a few of the most stratified.  They should also celebrate these differences and keep them - that's what makes the world a great place!  What they need to keep are open borders and free trade.  They'd be better off with independent currencies and no fiscal union - ever!

Anyway, China is the biggest white elephant the world has ever seen, in my opinion.   Others see a threat.  I see 1.4 billion people exporting crap to the rest of the world just fast enough so as to not starve.  I also see a 1.4 billion person disaster waiting to happen and a country that came very very late to the cheap energy party but is building a cheap-energy dependent nation.

 

 

 

 

 

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Whew! Now I can sleep at night

 

So, Farmer Brown:

What you are essentially saying is that China is just as screwed as the US and Europe if not more so.

Gee, that makes me feel better.

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earthwise wrote:   So,
earthwise wrote:

 

So, Farmer Brown:

What you are essentially saying is that China is just as screwed as the US and Europe if not more so.

Gee, that makes me feel better.

Well, there may not be a lot to feel good about, but there are things to feel less bad about, and imagining unecessary doomsday scenarios like the dumping of US Treasuries by the Chinese, is one thing I wouldn't waste an ounce of sleep over.

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Farmer Brown wrote: If they
Farmer Brown wrote:

If they had allowed their currency to appreciate the moment they started to run a trade surplus, this never would have happened.  Those dollars instead would have stayed in the US or gone to the next 3rd world upstart economy.  Of course, the Chinese didn't want that.  They chose this outcome and the US let them do it.

I recall having this same conversation about 3 years ago....same conclusion then. 

Thanks for the nice recap FB!

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Sorry but that is totally

Sorry but that is totally short-sighted and ignores what is in the best interest of China.  Even if they could do what you think they are capable of doing, it would ruin - no - destroy, their economy.  If they dumped US Treasuries, the RMB would go through the roof, and their export-based economy would fall through the floor.  Factories would close, unemployment would skyrocket, food shortages and civil unrest would abound, and they would probably lose control of the non-core Chinese regions (which is well over 50% of the geographic region we call "China").  In the meantime, the FED would probably pick those Treasuries up at bargain levels and life in the US would go on pretty much the same for the time being.  Also, since the US pretty much just buys crap from China, and not food or energy, I really do not see why we are so "dependent" on them.

First off I'm not saying China will do it I'm saying they could if they wanted to.

China along with many other countries is fully aware that the all fiat currencies are going to take a hit. They are also aware of the current currency wars. My point is that China knows its going to take a big loss on US treasuries and it knows the game can't go on forever.

China is leveraging its loss in US treasuries with gold and the purchase of hard assets like mines and arable land outside of China. The US dollar will continue to sink until it has depriciated so much that there is no possible way for China to break even on their investment. At some point losing 30% of your investment or losing 50% won't matter much. The writing is on the wall. The Dollar is no longer the world reserve currency. Now a power vacuum exists and who doesn't want to have a piece of the new world reserve pie? IMO that is what the whole BRIC union is about.

You say the FED would pick those treasuies up at bargain prices but you miss the point. No one will wants them. Faith is lost in them and what would the FED use to purchase them? More debt/money?

I'm not saying that we are dependent on China nor are they dependent on us. I'm saying that China doesn't need the US or its debt any longer. They have bigger more long term plans.

Don't forget China is a communist country. They don't need to placate anyone or be democratic in anyway. What the leaders say goes and if people don't like it so what?

Your assumption that China produces crap I think is a bit out dated. Their technology is moving along at a much better rate than our is. They have a sea of people that will work much cheaper than most parts of the world whether they work by circumstance or are forced to.

 

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  Johnny Oxygen wrote:First

 

Johnny Oxygen wrote:

First off I'm not saying China will do it I'm saying they could if they wanted to.

I do not even think they could do it if they wanted to, for the reasons I outlined.  It would destroy their economy and in doing so, would crash commodities and global equities, igniting a mad dash for safety worldwide - most likely propping up the safest asset in the world, US Treasuries.  Only gold would perhaps do better, though I am not even 100% sure of that.  In 2008 only US Treasuries went up - everything else went down.

Quote:

China along with many other countries is fully aware that the all fiat currencies are going to take a hit.

Well, they should - they have one of the "fiatest" of the fiat currencies!  Look, I know the US is screwed, I am not arguing that.  But please don't make it sound as if the Chinese are Swiss bankers!  That's one of the things that drives me crazy about the "China bugs".  China is a cauldron of duplicity, simmered in darkness, spiked in opium to keep you from realizing your organs are being carved out of you while you enjoy the pleasantries being touted before you.  In my opinion, they make the Fed look like hard working honest brokers who only want the best for you!

Quote:

They are also aware of the current currency wars. My point is that China knows its going to take a big loss on US treasuries and it knows the game can't go on forever.

I fully agree with this statement, since they are a front-line warrior in the currency war arena.  I also agree they know they will take a hit on US Treasuries, but not because they are going to try and tank them.  They know they will take a hit bec the only way the US can pay is by devaluing its currency or by austerity that would be so massive, China's exports would suffer greatly.

Quote:

China is leveraging its loss in US treasuries with gold and the purchase of hard assets like mines and arable land outside of China. The US dollar will continue to sink until it has depriciated so much that their is no possible way for China to break even on their investment.

See here is where I have to disagree strongly.  It's not really an "investment" when the way you obtained it is by printing your own fiat currency in order to buy it.  It's more of a stolen item gone bad than an investment.  Their people produced the dollars - by exporting goods to the US.  The Chinese government then stole the dollars from their own  people by printing worthless Yuan and forcing their people to accept the Yuan for dollars, at a predetermined rate, in order to keep the Yuan artificially low compared to the dollar.  This and this only is what has allowed China to accumulate such ridiculous levels of dollars.  They rendered the normal currency-exchange laws that would normally reverse such trade imbalances powerless and have as much if not more  to blame for this mess as the US.  Here is a good article by Michael Pettis who can explain the situation much better than I.

So I really don't care if the Chinese don't get to break even on their so-called investment.  It was an investment as ill-gotten as they come.  Of course, the US is to blame as well for allowing this to happen in the first place.  They probably should not have allowed China into the WTO in the first place. 

Anyway, now that we are where we are, the only thing that really bothers me is "China bugs" who talk about China as if they were a legitimate, honest player deserving of fair play when they are nothing but.

Quote:

At some point losing 30% of your investment or losing 50% won't matter much. The writing is on the wall. The Dollar is no longer the world reserve currency. Now a power vacuum exists and who doesn't want to have a piece of the new world reserve pie? IMO that is what the whole BRIC union is about.

Then please send me all your dollars.  I can PM you my account details.  Comon! - The dollar is still the world reserve currency.  I totally agree that it's days are numbered, or at least they should be, but you are getting waaaay ahead of yourself saying that!  I'd be more worried about the Euro, and I sure wouldn't touch Yen.  What else is there with the kind of liquidity necessary?  The answer is NOTHING.   There are currencies worthy of holding/investing in - but they do not have the liqudiity necessary.   Like it or not, Uncle Buck has squirrelled into every financial nook and cranny on planet Earth and it will be very hard to replace it, especially since everything else is just as bad or worse!  The BRIC currencies are all fiat - why would they be any better?!  And even if they were to back their curencies with gold, I know I at least would not trust them.  We'll be back to where we started in no time.  Physical gold is the only currency worth the name.  Everything else are just games, and those games are usually won by the people who write the rules - that means not you or me. 

Quote:

You say the FED would pick those treasuies up at bargain prices but you miss the point. No one will wants them. Faith is lost in them and what would the FED use to purchase them? More debt/money?

Exactly.  More debt.  That's what the system is based on.  I'm not saying I agree with it or that it is sustainable.  I was merely pointing out that even IF China pressed a shotgun to its own left temple and dumped UST's, and even IF nobody else wanted them, the Fed could still pick them up by printing dollars and hold the price up.  Of course, that entire scenario would be an utter disaster, but my point is that the US has a ready and proven mechanism to handle these things, as disruptive and ultimately painful as it may be.  China on the other hand, would be destroying itself and would get almost nothing in return for the pain it would go through.

Quote:

I'm not saying that we are dependent on China nor are they dependent on us. I'm saying that China doesn't need the US or its debt any longer. They have bigger more long term plans.

If that were true, they wouldn't continue to keep the Yuan artificially low.  Like Dr. Martenson's most recent post, Actions Speak Louder than Words.  Well, the Chinese love to bellyache about US debt, but they just love to keep buying dollars by printing Yuan and then using those to buy UST's.  When they stop doing that, maybe I'll pay attention.  Until then, that's the only game they know. 

Quote:

Don't forget China is a communist country. They don't need to placate anyone or be democratic in anyway. What the leaders say goes and if people don't like it so what?

Even communists and other dictators have to feed their people.  Just ask Mubarek, Ghadaffi, the former USSR, and an ash heap of other rulers who finally pissed their people off enough and created conditions so horrid, that they decided to risk death than to accept living under their regimes any longer. Also, heed special attention to China's mostly-ignored cultural and geographic realities, that I pointed out previously.  It's not exactly an "I-say-jump-you-ask-how-high" command economy everywhere.  There are winners and losers and for most of China's history, the outer regions have not been part of China.  If the USSR couldn't keep it together, I see no reason why the Chinese could expect to do any better. 

Quote:

Your assumption that China produces crap I think is a bit out dated. Their technology is moving along at a much better rate than our is. They have a sea of people that will work much cheaper than most parts of the world whether they work by circumstance or are forced to.

When you're poor and starving, deciding to work for peanuts is an easy choice. 

If they're producing higher-quality goods now, I haven't seen them.  My most recent dissapoinitng puchase was a set of plastic ice-trays.  They broke in 100's of pieces upon first use.  If you can't even make an ice tray, you're not very far up the tech scale.  My recently intalled curtains started to fall apart for no apparent reason.  Turned out they're from some factory in China.  I'm out $3,000.  I have a list of crap I've bought with the made in China label that has lasted much less than their US Treasuries will last. 

 

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I suppose you are saying I'm

I suppose you are saying I'm a "China Bug".  I don't really know what that means but I don't have a fondness for China and I don't think that the "Chinese are Swiss bankers". Did I say something to imply this?

China is the second largest economy with a GDP of around 5.47 Trillion and a debt to GDP of about 96%.

America has a GDP of about 14 Trillion and debt to GDP is about 94%.

If you look at it in this light would a 350 billion dollar loss really 'destroy' China's economy? I don't think so. But a move like that would crush the US bond market and most likely finish of a dollar that is already on its knees. In regards to:

..most likely propping up the safest asset in the world, US Treasuries.

If you really believe that I just don't know what to say.

...They know they will take a hit bec the only way the US can pay is by devaluing its currency or by austerity that would be so massive, China's exports would suffer greatly.

You know if the US stops buying Chinese goods there are plenty of other people who will pick that slack. Its a myth that without the US buying China's stuff that they would fold, just not true.

even IF nobody else wanted them, the Fed could still pick them up by printing dollars and hold the price up.  Of course, that entire scenario would be an utter disaster, but my point is that the US has a ready and proven mechanism to handle these things, as disruptive and ultimately painful as it may be.  China on the other hand, would be destroying itself and would get almost nothing in return for the pain it would go through.

Is there really a proven mechanism to handle these things? You know its not sustainable so its not 'proven' and it doesn't 'handle' anything. China would gain immensely. It would crush the dollar, wipe out a good portion of its debt, become a part of the new reserve currency, be able to buy oil in a revalued yuan instead of dollars and become the number one economy in the world all for 350 billion. Sweet deal.

If that were true, they wouldn't continue to keep the Yuan artificially low.  Like Dr. Martenson's most recent post, Actions Speak Louder than Words.  Well, the Chinese love to bellyache about US debt, but they just love to keep buying dollars by printing Yuan and then using those to buy UST's.  When they stop doing that, maybe I'll pay attention.  Until then, that's the only game they know.

They will stop. Right now they are buying time. They sell more treasuries through purchases than they buy so they are really getting rid of them. Ever day they do that they save money but the day will come when they cut the cord and it will be the US that suffers not China.

China has its social issue it will have to deal with here in the future but breaking from the US is the least of their worries. They don't need or want us anymore.

If they're producing higher-quality goods now, I haven't seen them.  My most recent dissapoinitng puchase was a set of plastic ice-trays.  They broke in 100's of pieces upon first use.  If you can't even make an ice tray, you're not very far up the tech scale.  My recently intalled curtains started to fall apart for no apparent reason.  Turned out they're from some factory in China.  I'm out $3,000.  I have a list of crap I've bought with the made in China label that has lasted much less than their US Treasuries will last.

LoL

Well they got your money didn't they? Darn clever those Chinese.

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China

I am not a China bug.  On the other hand, by holding large amounts of US treasury instruments they do have some control over the US active treasuries market - we could be in a lot of trouble if they decided it was in their best interest to exercise some of that control.

While it is true they are artificially holding down there labor costs as compared to the US and Europe, that will not work forever.

I saw some data on Chinese investments over the last year and it looked to me like they are slowly reducing their holdings in USD (in its various forms) and are buying up natural resources around the world - especially in South America and Africa.  I think that is a really smart move.  The Chinese are smart.  They wiped out our manufacturing middle class quite easily.  Now they are buying up natural resources to ensure their ability to continue to obtain these resources at reasonable prices.  Sounds like a good plan to me.  Take your dollars and buy physical resources.  Good plan.  I would do the same thing if I was them.

 

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Just to chime in on the China-US thing....

I agree with FB in the sense that China dumping US Treasuries as a sole strategy will probably hurt them just as much as us if not more.  Doing it while trying to hold onto their cheap-Yuan/cheap-export economy would certainly be like putting a shotgun to their own head.  However, I think it MIGHT work to their benefit as part of a larger strategy.

One potential example: combine a dumping of Treasuries with a coordinated strategy of retooling most of their economy away from producing ordinary consumer products and towards things like building better (lower-energy) local infrastructure, more renewable-energy products for export, and especially the production of military arms and equipment (for selling to various parties in the increasing number of conflict zones and in preparation for their own expansionistic goals).  The overall goal would be to weaken the US both financially and geopolitically and upset the status quo enough to where they can expand to greatly influence or control weaker resource-rich or strategic areas in Asia and maybe even Africa.  IMO China's leadership can't stay in power without substantial and continued growth (could probably say the same about most nations huh?), and if they see a global financial collapse coming they may assume they wouldn't survive if they stay the course.  A strategy of Western destabilization followed by Chinese expansion gives them a chance to stay in power, albeit at the expense of other nations and millions of people (given their track record I don't expect that will bother them).  A mixed policy of aggressive trade, scapegoating convenient enemies, military and/or economic conquest, and outright colonization (voluntary or mandatory) of Chinese citizens abroad may be their only way to continue growth and reduce societal stresses and dissatisfaction at home.  The last, and perhaps most important, benefit may be that by devastating the US economy and influence over the world, a good deal of oil and energy consumption can be freed up, giving China and some of the world a temporary reprieve from the effects of Peak Oil.  But to have even a chance at this they need to reduce America's economic and military might.  A dumping of US Treasuries would go some ways towards accomplishing the first, and the economic aftershocks combined with the current US overextension of military power and inconvenient shortages of rare earth mineral exports (used for many modern military equipment/armaments) may serve to greatly diminish US military strength in a few years.  As long as they manage to not provoke the US military directly during that time, they might pull it off.  Let the US bleed itself dry in its military entanglements and afterwords move in to take advantage (economically or militarily) of the newly created power vacuum.

But.... this only works if China makes a willing and coordinated effort to separate themselves from many aspects of the current status quo.  I'm not entirely convinced they will make such a gamble; either the fear of the unknown or a lack of sufficient control over their various industries and local powerbrokers may keep them from such an action.  Plus their own banking system is largely a mystery and suspected to have serious problems, perhaps serious enough to destroy their economy before they have a chance to retool and redirect it.  But at the same time they've got to see that with stalling growth and rising food prices their days are likely numbered if they keep the current course, and as a (sort of) command economy such a huge economic direction change might be possible.  Now as a long-term solution it sucks because they'll only be able to keep going as long as there are more resources and wealth to take, but since most other alternatives generally involve their political elite relinquishing or losing power I think that wouldn't stop them.   

So yes, China's hardly the unstoppable juggernaut.  But a starving tiger?.... perhaps.  I guess time will tell which way kitty decides to go. 

- Nickbert

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JO, It is clear we disgaree

JO,

It is clear we disgaree on the (so-called) threat posed by China.  Let's just leave it at that.  Also, I wouldn't believe their GDP figures for a second.  They are even more fabricated than US numbers.

I do want to clear up one thing:  when I call UST's the "safest asset in the world" I am referring to two things: 

The first is the fact that the issuer can print more dollars anytime it wants.  Not every country has that privilege, and the reality is it is impossible for the US to default because of this.  Of course, default can and most likely will come (if we stay on the current path) in another way, and that's by devaluing the currency.  However, the dollar has already lost 95% of its value, and so far it's still the world reserve currency, so I wouldn't hold my breath.

The second thing is, I am also more specifically referring to US Treasury bills.  Those are 30-180 day bills that pay nothing, but because of their short duration, they are also as risk free as anything can get, without being a gold nugget in your shoe.

Look at the flattening of the yield curve lately.  Wealth is  rushing into US debt, like it always does in times of risk aversion.  That is because US debt is the only debt in the world issued by the world reserve currency issuer & is printable by the issuer at a moments notice.  It's not a fair system - in fact it's outright theft in my opinion, but that's the system we have and that's the way it works.  Central Banks back their own confetti with US confetti.  Therefore, in times of stress, market participants go to Confetti #1 and damn the torpedos.  It's just the way it works.  Everything is a derivative of the US dollar.  In times of risk, wealth migrates to de-derivatized forms.  Just like Dr. M talks about primary forms of wealth (referring to land and such), there is also a primary financial form of wealth and it is the US dollar.  It is an undeserved left-over effect of Bretton Woods, but it still pervades the financial universe we live in.

Of course, there are many who will claim that Gold is the primary financial form of wealth.  That may be true, but right now we are still living in a fiat world.  And yes, it is possible that when the next crisis hits, that gold won't go down like it did last time, but I think that is wishful thinking.   There is more damn leverage in the system than any one of us can probably fathom.  We don't know how much deleveraging will be forced upon market participants this time around, but we do know, or at least I believe, it will be orders worse than the last go-around because we are no longer talking about large banks, but about entire countries, and maybe even one very important currency.  Since gold went down last time, I expect it to go down even more this time.  In the meantime, USTs will go up.  That is why I call them the safest asset in the world (again, short of an Au rock in your shoe). 

After the deleveraging is complete, I will take all my beliefs and burn them in a trash heap, because I have no idea what the world will look like then.   For now, in this confetti backed world we live in, it pays to have confetti because that's what's used to pay when liquidity runs dry.  Gold probably will be the only thing to come out the other side, but it won't be overnight and I believe there will be excellent opportunities to get some at better proices.

It's really not that strange to believe in confetti.  Societies have held all sorts of absurd beliefs before - from sacrficing virgins into volcanoes, to trading Manhattan for a couple of trinkets.  As they say, when in Rome...

And finally, yes, the Chinese are very smart and they've stolen and continue to steal plenty of money from unwitting consumers, but since they have destroyed any and all possibility of trust with this one potential customer (and I would suspect many others), I am now on a never-ending lookout to avoid Chinese made products.  That is a tall order, since they have infected just about every supply chain there is, but its just a second-hand instinct for me now (which ocassionally fails as my recent dissapointments prove).  If they expect to take over the world economically, they really may want to look at other ways of winning consumers. 

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nickbert
Status: Diamond Member (Offline)
Joined: Jan 14 2009
Posts: 1207
On an amusingly twisted side note...

.... last year when visiting Mongolia I discovered something interesting.  Being a heavy trade partner with China, I figured all of the same China-made goods we see here would be available there in Mongolia.  Well, the answer is yes and no.... they do get a lot of stuff from China, but all too often it's even worse quality than the stuff the US and Europe gets.  So it turns out by Chinese standards, we in the West are getting the 'good stuff'.  Hard to imagine isn't it?  I'm guessing many of the other surrounding developing Asian nations probably experience the same thing regarding Chinese-made consumer goods.  So cheer up, in the West we aren't getting "Crap" from China.... we're getting "Crap Plus"! 

- Nickbert

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maceves
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Posts: 281
best trick

Don't forget the best trick in the arsenal---seeding population into new areas.  Works every time.

Population is their biggest problem and their biggest asset.  Move people into new areas where they simply  outnumber, outvote, and overwhelm the natives.  Consider that there are so many more men than women, it seems like a pleasant choice and very nonviolent and nonthreatening.

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nickbert
Status: Diamond Member (Offline)
Joined: Jan 14 2009
Posts: 1207
Re: best trick
maceves wrote:

Don't forget the best trick in the arsenal---seeding population into new areas.  Works every time.

Population is their biggest problem and their biggest asset.  Move people into new areas where they simply  outnumber, outvote, and overwhelm the natives.  Consider that there are so many more men than women, it seems like a pleasant choice and very nonviolent and nonthreatening.

You got it.  That's exactly why I mentioned colonization; ease the population stresses while at the same time expanding influence.  As an example, Han Chinese now outnumber ethnic Mongolians in the Inner Mongolia Autonomous Region of China, which I have to figure was China's plan from the beginning to better assimilate the region into China.  This is likely why the independent nation of Mongolia to the north has stringent immigration limits; such a country with not even 4 million people could be easily overwhelmed by the masses of China, where a few million people is a trifle.

Depending on China's ultimate goals and the way geopolitical events play out, I would not be surprised if one or more unstable countries in Africa becomes unofficial Chinese possessions through a combination of mass immigration, buying out of the local political elite, and maybe military presence in the guise of "protecting foreign investments".  Particularly if said countries have good agricultural potential and/or oil resources.

- Nickbert

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Johnny Oxygen
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Posts: 1443
China's yuan to become reserve currency -Nigeria c.bank chief

China's yuan to become reserve currency -Nigeria c.bank chief

Tue Sep 6, 2011 5:53am GMT
 

 

 

 

 

BEIJING, Sept 6 (Reuters) - It is inevitable that the yuan would grow into a global reserve currency one day, Nigeria Central Bank Governor Lamido Sanusi said on Tuesday.

Sanusi, who is in Beijing, made the remarks a day after he said that Nigeria's central bank plans to diversify its $33 billion in foreign exchange reserves away from the dollar by switching a tenth of the stockpile into yuan .

Sanusi said Standard & Poor's downgrade of its U.S debt rating last month made it more urgent for Nigeria to diverisfy its reserves, which are mainly invested in the dollar .

Posted today by Sax Player

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Farmer Brown
Status: Martenson Brigade Member (Offline)
Joined: Nov 23 2008
Posts: 1503
Johnny Oxygen
Johnny Oxygen wrote:

 

China's yuan to become reserve currency -Nigeria c.bank chief

Tue Sep 6, 2011 5:53am GMT
 

 

 

BEIJING, Sept 6 (Reuters) - It is inevitable that the yuan would grow into a global reserve currency one day, Nigeria Central Bank Governor Lamido Sanusi said on Tuesday.

 

 

Sanusi, who is in Beijing, made the remarks a day after he said that Nigeria's central bank plans to diversify its $33 billion in foreign exchange reserves away from the dollar by switching a tenth of the stockpile into yuan .

 

 

Sanusi said Standard & Poor's downgrade of its U.S debt rating last month made it more urgent for Nigeria to diverisfy its reserves, which are mainly invested in the dollar .

 

Posted today by Sax Player

This is fantastic news!  Does this mean I'll actually stop receiving emails from daughters and other heirs of Nigerian Generals who merely need me to deposit $10,000 with them so I can share in their $2 million inheritance?  I mean now that they're off the $ bandwagon, and since I don't hold Yuan, well, those emails should stop.  That is fantastic news indeed! 

Seriously, do you really think there isn't anything we don't know about that may be going on between oil-rich-corrupt-to-the-teeth Nigeria and commodities-in-general--but-especially-energy-starved China that might lead to a Nigerian central banker making these kinds of comments while in Beijing?  And is there any credibility at all to these comments coming from as corrupt a place as Nigeria?

I don't mean to criticize everything that your posting. but I've got to call a spade a spade and this is just silly. 

 

 

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Johnny Oxygen
Status: Diamond Member (Offline)
Joined: Sep 9 2009
Posts: 1443
Farmer Brown wrote: Johnny
Farmer Brown wrote:
Johnny Oxygen wrote:

 

China's yuan to become reserve currency -Nigeria c.bank chief

Tue Sep 6, 2011 5:53am GMT
 

 

 

BEIJING, Sept 6 (Reuters) - It is inevitable that the yuan would grow into a global reserve currency one day, Nigeria Central Bank Governor Lamido Sanusi said on Tuesday.

 

 

Sanusi, who is in Beijing, made the remarks a day after he said that Nigeria's central bank plans to diversify its $33 billion in foreign exchange reserves away from the dollar by switching a tenth of the stockpile into yuan .

 

 

Sanusi said Standard & Poor's downgrade of its U.S debt rating last month made it more urgent for Nigeria to diverisfy its reserves, which are mainly invested in the dollar .

 

Posted today by Sax Player

This is fantastic news!  Does this mean I'll actually stop receiving emails from daughters and other heirs of Nigerian Generals who merely need me to deposit $10,000 with them so I can share in their $2 million inheritance?  I mean now that they're off the $ bandwagon, and since I don't hold Yuan, well, those emails should stop.  That is fantastic news indeed! 

Seriously, do you really think there isn't anything we don't know about that may be going on between oil-rich-corrupt-to-the-teeth Nigeria and commodities-in-general--but-especially-energy-starved China that might lead to a Nigerian central banker making these kinds of comments while in Beijing?  And is there any credibility at all to these comments coming from as corrupt a place as Nigeria?

I don't mean to criticize everything that your posting. but I've got to call a spade a spade and this is just silly. 

 

 

er....just thought it was interesting. Not trying to make any point.

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JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Amen Brother Brown
Farmer Brown wrote:

JO,

It is clear we disgaree on the (so-called) threat posed by China.  Let's just leave it at that.  Also, I wouldn't believe their GDP figures for a second.  They are even more fabricated than US numbers.

I do want to clear up one thing:  when I call UST's the "safest asset in the world" I am referring to two things: 

The first is the fact that the issuer can print more dollars anytime it wants.  Not every country has that privilege, and the reality is it is impossible for the US to default because of this.  Of course, default can and most likely will come (if we stay on the current path) in another way, and that's by devaluing the currency.  However, the dollar has already lost 95% of its value, and so far it's still the world reserve currency, so I wouldn't hold my breath.

The second thing is, I am also more specifically referring to US Treasury bills.  Those are 30-180 day bills that pay nothing, but because of their short duration, they are also as risk free as anything can get, without being a gold nugget in your shoe.

Look at the flattening of the yield curve lately.  Wealth is  rushing into US debt, like it always does in times of risk aversion.  That is because US debt is the only debt in the world issued by the world reserve currency issuer & is printable by the issuer at a moments notice.  It's not a fair system - in fact it's outright theft in my opinion, but that's the system we have and that's the way it works.  Central Banks back their own confetti with US confetti.  Therefore, in times of stress, market participants go to Confetti #1 and damn the torpedos.  It's just the way it works.  Everything is a derivative of the US dollar.  In times of risk, wealth migrates to de-derivatized forms.  Just like Dr. M talks about primary forms of wealth (referring to land and such), there is also a primary financial form of wealth and it is the US dollar.  It is an undeserved left-over effect of Bretton Woods, but it still pervades the financial universe we live in.

Of course, there are many who will claim that Gold is the primary financial form of wealth.  That may be true, but right now we are still living in a fiat world.  And yes, it is possible that when the next crisis hits, that gold won't go down like it did last time, but I think that is wishful thinking.   There is more damn leverage in the system than any one of us can probably fathom.  We don't know how much deleveraging will be forced upon market participants this time around, but we do know, or at least I believe, it will be orders worse than the last go-around because we are no longer talking about large banks, but about entire countries, and maybe even one very important currency.  Since gold went down last time, I expect it to go down even more this time.  In the meantime, USTs will go up.  That is why I call them the safest asset in the world (again, short of an Au rock in your shoe). 

After the deleveraging is complete, I will take all my beliefs and burn them in a trash heap, because I have no idea what the world will look like then.   For now, in this confetti backed world we live in, it pays to have confetti because that's what's used to pay when liquidity runs dry.  Gold probably will be the only thing to come out the other side, but it won't be overnight and I believe there will be excellent opportunities to get some at better proices.

It's really not that strange to believe in confetti.  Societies have held all sorts of absurd beliefs before - from sacrficing virgins into volcanoes, to trading Manhattan for a couple of trinkets.  As they say, when in Rome...

And finally, yes, the Chinese are very smart and they've stolen and continue to steal plenty of money from unwitting consumers, but since they have destroyed any and all possibility of trust with this one potential customer (and I would suspect many others), I am now on a never-ending lookout to avoid Chinese made products.  That is a tall order, since they have infected just about every supply chain there is, but its just a second-hand instinct for me now (which ocassionally fails as my recent dissapointments prove).  If they expect to take over the world economically, they really may want to look at other ways of winning consumers. 

Thank God there is still somebody around here that thinks for himself, instead of just constantly regurgitating the marketing of the herd. 

There is no need to speculate on what may or may not be happening a half a world away to cause the price of gold to go parabolic, when we have the proof right before our eyes.....GLD is now the world's largest ETF, surpassing the S&P 500 ETF two weeks ago.

Parabolic price action is market-ing , in its most effective and fundamental form. Buyer beware, the herd approach-ith.

Thanks FB for restoring my faith in this community.

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