In the wake of the Fed’s promise of 23 March to print money without limit in order to rescue the covid-stricken US economy, China changed its policy of importing industrial materials to a more aggressive stance. In examining the rationale behind this move, this article concludes that while there are sound geopolitical reasons behind it the monetary effect will be to drive down the dollar’s purchasing power, and that this is already happening. More recently, a veiled threat has emerged that China could dump all her US Treasury and agency bonds if the relationship with America deteriorates further. This appears to be a cover for China to reduce her dollar exposure more aggressively. The consequences are a primal threat to the Fed’s policy of escalating monetary policy while maintaining the dollar’s status in the foreign exchanges.
By Michael Pento – Re-Blogged From PentoPort
In the aftermath of WWII the American economy was that shining city on a hill. After saving mankind from the Nazi’s, America had the only intact manufacturing base and was the repository for most of the world’s gold. Those circumstances propelled the US dollar to world’s reserve currency status. And for the past seventy years, this status has been the cornerstone for America’s power base and hegemony around the globe.
But the 1960’s ushered in a time of great fiscal mismanagement. President Johnson’s dual wars on poverty and Vietnam led to worldwide distrust about the greenback’s purchasing power in relationship to gold. This eventually led to Nixon’s baneful decision to close the gold window, which untethered the exchange between gold and the dollar.
By Bill Holter – Re-Blogged From http://www.Gold-Eagle.com
We have watched for years as China grew in strength economically, financially and militarily. They have pre-positioned themselves by making trade deals, setting up credit facilities and even an alternative clearing system to the West’s “SWIFT”. We also know China has been gobbling up global mine supply of gold for going on 10 years now. As I’ve written in the past, just using the back of a napkin, it can be surmised they now have hoarded 20,000 tons or more compared to the “supposed” 8,133 tons held by the US.
It is clear China has meticulously readied themselves to take the role of world leadership from the U.S. but do they really want the responsibility AND burden of issuing the reserve currency? This has always been the question and the answer from logical thinkers is “no”. No, because we (and of course China) have seen the result of the “burdens” that comes along with the privilege of issuing the reserve currency. I must confess, I too did not believe China would desire or even accept the responsibility of reserve currency status. I now believe this thought is mistaken! I will explain shortly.
By Charles Thorngren – Re-Blogged From http://www.Gold-Eagle.com
Whistleblowers run a two-pronged battle – on the one hand they are lauded for their honesty in exposing wrongdoing in the fields in which they are involved – on the other, they are hated and despised for their actions by those who want to cover misdeeds, or preserve the status quo.
The world of finance has a long history of such characters – some, like Michael Lewis, the ex-bond salesman from Wall Street, who worked for Salomon Brothers in the 1980s and exposed the work practices and ethos which subsumed banks and trading houses – have made their fortunes by such whistleblowing.
Others, like Hervé Falciani, an employee of HSBC’s Swiss private bank, who opened the door onto the bank’s money laundering techniques, and gave details of the hidden accounts of 130,000 wealthy individuals to the tax authorities, was jailed for 5 years for his activities.
By Alasdair Macleod – Re-Blogged From http://www.Gold-Eagle.com
Now that gold has become overbought on Comex, the price is vulnerable to being trashed, yet again, by the too-big-to-fail banks. It is a familiar operation in gold futures markets, where speculators buying contracts protect themselves with stop-losses. All the TBTF banks need is a pause in the speculator’s buying and a little good news (bad for gold). Ideally, the active contract will be running into maturity, so the speculators are forced to put up or shut up: in other words, sell the contract, roll it into another later maturity, or stand for delivery.
Bearing in mind these speculators are running highly leveraged positions, greed turns to fear on a sixpence. The TBTF banks will have supplied the speculators with their longs by going short. From the moment you go long, you are trapped in a trader’s version of Hotel California.
By Michael Pento – Re-Blogged From http://www.Gold-Eagle.com
China’s economy and markets have been defying the laws of economics since 2009. Amid a worldwide financial crisis during that year, they managed to grow their economy by 8.7%. But that growth was fueled by a $586 billion dollar government stimulus package, which was followed by an additional $20 trillion dollars in new construction spending over the next seven years.
China’s economy became the envy of the world as the economy expanded through the edict of government to build massive cities that were mostly vacant. In fact, estimates are that 52 million homes in China are currently vacant and 90% of those empty units were purchased for investment purposes.
By Frank Holmes – Re-Blogged From http://www.Gold-Eagle.com
I want to begin with a quote from a recent Cornerstone Macro report that succinctly summarizes the research firm’s view on growth prospects in emerging markets, China specifically. Emphasis is my own:
Our most out-of-consensus call this year is the belief that China, and by extension many emerging markets, will see a cyclical recovery in 2016. We understand the bearish case for emerging markets on a multiyear basis quite well, but we also recognize that in a given year, any stock, sector or region can have a cyclical rebound if the conditions are right. In fact, we’ve already seen leading indicators of economic activity and earnings perk up in 2016 as PMIs have rebounded in many areas of the world. That is all it takes for markets, from equities to CDS, to respond more favorably as overly pessimistic views get rerated. And like in most cyclical recoveries that take place in a regime of structural headwinds, we don’t expect it to last beyond a few quarters.
There’s a lot to unpack here, but I’ll say upfront that Cornerstone’s analysis is directly in line with our own, especially where the purchasing managers’ index (PMI) is concerned. China’s March PMI reading, at 49.7, was not only at its highest since February 2015 but it also crossed above its three-month moving average—a clear bullish signal, as I explained in-depth in January.
By Bill Holter – Re-Blogged From http://www.Gold-Eagle.com
Many of us have waited for today, April 19, as we anticipated the new Chinese daily gold fix and the opening of the ABX physical exchange. Some may be disappointed, others, ecstatic. I will say I am personally pleased because it was almost exactly as I suspected.
Much has happened over the last couple of weeks — and a lot of it has to do with “truth” being exposed. The “markets” are no different. China, in my opinion, is simply trying to aid in markets determining prices of gold and silver.
Last Friday we got horrifying (from a contrarian standpoint) COT numbers with nearly record numbers for commercial shorts. With history as any guide, gold and silver should have already been slaughtered, they have not been. In fact, we now have silver and gold at nearly one-year highs and mining equities exploding. Yesterday saw a dozen or more juniors up 25%++ for the day!
As I have maintained, I believe today’s action will become more frequent with the Shanghai physical demand pushing prices higher. I believe they lit the first candle of truth today, other candles will follow until the light switch gets flipped on. COMEX/LBMA will either go along in price or they will be arbitraged completely out of inventory. As I wrote several weeks back, “what good is a contract that cannot perform”? It is very possible China will let this “stew” for a while and allow the markets time to adjust to real and free pricing …only then do I see China coming out with a gold backed yuan. If they were to do that today, it would be a declaration of war on the U.S. hegemon, if they wait, they can have cover and say “hey, it was global free markets that pushed gold out of sight”.
As mentioned above, commercials are very short gold and silver now…and they have lost $billions just today. Maybe they continue to throw paper at gold and silver, but Shanghai ain’t buyin’ it! No matter what the apologists say, COMEX can and will default when they can no longer deliver metal. They say “cash settlement” is not a default …who are they kidding? This is the rally you never sell …until you are offered a different “paper” (one that is backed by something, anything) that can be trusted. China may be making this offer in the near future!
By Bill Holter – Re-Blogged From http://www.Gold-Eagle.com
Many people believe the Chinese are on the cusp of replacing the U.S. in many fashions, I believe this myself. There are others out there who believe the Chinese economy and financial markets will crash and burn with all the rest when the derivatives chain finally breaks, I don’t disagree with this either. Let’s look at what the Chinese have done, what they are doing and where they may end up. The spoiler is this, I believe you can equate the Chinese to where the United States stood in the late 1920′s and early 1930′s.
Oil prices are falling. Since last summer, when crude oil was selling for $106 a barrel, black gold has fallen almost 40% to $66 and change. Is this good or bad, and what (who) is causing it?
I’ve been reading reports that the Saudis and OPEC have been ramping up production for several months, and they most recently refused to cut production to support the price. The reason being suggested is that they want to kill off competition from the oil sands industry and allow for future monstrous profits.
While there is a certain pizzazz that goes with this reasoning, it defies all economic logic. The Saudi oil costs next to nothing (yes, literally) to produce. If the are forcing the price down, then they and OPEC are foregoing Billions of Dollars of profits now.
Their hope would be that the competition would be utterly destroyed. However, if oil sands production stops, what would keep it from restarting once price recovers? Nothing! Yes, the ownership of the wells might change hands due to bankruptcy of some companies, but the new owners already would have functioning wells that would need the figurative switch to be turned back to “ON.”
The Greens and their democratic vassals may be anti-energy, but how would making already cheap fossil fuels (compared to Wind and Solar) even cheaper be good for the Greens. As we’ve seen, when the price goes back up, so does oil sands production.
There are reports that Russia is being devastated by the low oil prices, since they rely so heavily on resource exports, chiefly oil and gas, to earn hard currency to pay for their imports. Again, it sounds plausible.
But, several facts show this is more nonsense. Recently, the Russian Ruble has fallen 35+% since last summer, so in Ruble terms, the Russians are getting the same price for their oil.
The Russians don’t need the “Hard” Dollars anyway; they have $165 Billion in treasuries sitting in their foreign reserves, which they’d like to get rid of. (They tried, and maybe that’s the real reason for US sanctions against Russia, and not Ukraine, which they used to own.)
And again, they don’t need the Dollars because they have been running massive trade surpluses in recent years. Maybe their balance of payments will shift closer to neutral, but things are much different than they were when the Soviet Union was run into bankruptcy over oil.
Russia recently inked a deal with Europe mostly for natural gas to keep the people in the Eurozone from freezing to death this winter, even though Europe is participating in the US declared sanctions. And Russia also inked a deal to send China the oil that they need.
Much of these exports either are being priced in Gold, or the Dollars paid are going for immediate purchase of Gold. Again, Russia hates the Dollar.
China definitely benefits from lower oil prices, since it imports most of the oil it needs. Aside from the Russian oil pact, China has been active making deals for natural resources all over the globe. It’s not unreasonable to think that an agreement with the Saudis included an incentive for them to allow oil prices to fall, damaging the United States.
The Chinese have been buying Gold with both hands for a decade, and various estimates put their holdings at perhaps 10,000 tons, which is 2,000 tons more than the (unaudited since 1954) US stash of Gold. Their recent bilateral agreements on trade specifically have avoided the use of the US Dollar.
The time may be here when the Chinese are ready, willing and able for the Renminbi (yuan) to replace the US Dollar as the world’s premier reserve currency. Explicit Gold backing for their money would improve their credibility, and probably will happen within 5 years.
When US Dollars cease being the reserve currency, and world trade starts to be denominated in Renminbi, Gold, or local currencies, then the $3+ Trillion of US Dollars held as foreign reserves by foreign Central Banks becomes much less (completely?) unnecessary.
A rush to sell Dollars around the world would herald a very difficult situation for the US Dollar and for the domestic US Economy. This appears to be inevitable, and we need to put our country’s economic house in order now, to moderate the bad effects as much as possible. Chief among what the US needs to do is:
- Bring federal spending into balance (or surplus) with revenues
- Allow the Free Market to set interest rates so that the real Price of Money can be used in business decisions
- Stop shooting ourselves in the foot with stupid anti-energy policies and other over-regulation, which hinder US economic growth.
Foreign Policy doesn’t operate in a vacuum. It also depends on the policies of other countries.
China – once backward and secretive – has become a global economic power. Having passed Japan a few years ago, China’s GDP is a close 2nd to the US, but on a Purchasing Power Parity basis, China’s GDP is number one.