Do you remember back in the late 1980’s when “Japan is going to take over the world” was all the rage? The Japanese had so much money that they bought US gem properties such as Pebble Beach and Rockefeller Center only to lose them just a few years later as their borrowed “pump” money started to dry up. Now, enter China, they have supplanted Japan as the biggest creditor to the US and our largest “trade for Dollars” partner.
If you look at the Chinese stock market, it looks very much like Japan’s did back in 1993 or so, it is down some 70% from the 2007-08 peak and now making new lows. Their trade surpluses and industrial productions are down no matter “what” they say officially, all you need to do is look at the electricity use to know that they too are entering recession with the rest of the world.
The huge amount of US Treasury securities owned by the Chinese is a well known fact but not one that many have connected the dots with yet. We do know that the Chinese have definitely slowed their purchases of Treasuries but “no big deal” seems to be the reaction as we have “The Bernank” and his ability to print and buy. I ask, what happens if the Chinese become sellers of this horde of Treasuries? There are several scenarios where this could happen. What if they were FORCED to sell to protect their own domestic economy and repatriate capital? Or worse, what if they decided to use their Treasuries as a financial weapon against the US and sold bonds en masse to create or force interest rates higher? What if they did this in conjunction with turning all of their Renminbi deals on full force and shunning Dollars altogether?
I ask these questions because China is certainly not Japan. Japan has been and is a US puppet that has done everything that we’ve asked of them, China is no one’s puppet. In fact, if you look back over the last 12 months or more, China has been quite boisterous about US over indebtedness, the dangers of the Dollar being backed by nothing and over printed, AND the virtues of Gold as money. No, China is not Japan for the simple reason that Japan rarely spoke about Gold (maybe because they have a huge cache under the Palace) while China rarely misses a chance to talk about it as they know that it’s our Achilles heel. China has become the biggest global producer of Gold and none of it is allowed to exit their borders. Added to this fact is that China is now a very close second place in the consumption of Gold to India and rising quickly. One other small (sarc) detail is that China is not levered nearly to the extent as Japan has been and is. I guess the best way to put it is that Japan facilitated our insanity and China is “resisting” it.
“Resisting” it may be an understatement. China knows better than anyone the dangers of a fiat currency as they invented paper currency and over the years have blown up more fiat schemes than you have fingers and toes. In my opinion, China has slowly but surely gotten itself to the position it is now in, namely our adversary in a global economic and financial war! They have acquired and built their own “button” where they can push it and literally blow up our Treasury by forcing rates higher at a time that we are unable to pay. They have purchased the London Metal’s Exchange for the ham sandwich figure of just over $1 billion and plan to move the exchange to within their borders. Now, we hear rumors of a huge and out sized purchase of Gold in the works of up to 6,000 tonnes. Rumor? Yes. Substantiated? No, but…it does make perfect sense and if you ever have played chess before, a perfect move if they make it.
Follow this through, China is our biggest creditor and can dictate our interest rates (higher) if they wish by simply hitting the “sell” button. They have slowly but surely replaced our manufacturing base with a new, state of the art one of their own. They have been circling the globe for several years securing and purchasing the rights to the raw resources and materials necessary to supply this manufacturing base. They have done this using contracts written in Renminbi terms and thus pushing the Dollar aside. They now have their own metals exchange and one must wonder whether or not some of this huge rumored purchase is meant to back the exchange? Or…whether it is meant to back their currency? But…but…such a purchase would blow the price of Gold to the stratosphere wouldn’t it? Yes, which, IF the Gold is actually present inside of Ft. Knox, West Point etc. will not necessarily be a bad thing…unless…it’s not there.
I believe that what China has done for the last ten years was “training” to get themselves in the best shape possible to call our bluff. They, in my opinion are about to wage war without firing a single bullet (hopefully). Could it be that the Chinese believe our vaults are empty and our investment banks (JP Morgan et al) are short? I think we will all know very very soon as the physical stresses in the markets come to a head. One last set of questions, do you think that the Chinese give a rat’s ass whether their stock market is “down” and making new lows? Do you think the level of the stock market is important to US authorities? Is the price of Gold more important to the Chinese or how many ounces that they hold? Is the Gold price more important to US authorities or how many ounces that they hold? Answer these questions correctly and you too can have your very own “99 year plan”!