"The Chinese have made no secret of their disdain for current American economic policy and what they see as the inevitable destruction of the dollar. That they would be moving to diversify out of the greenback shocks precisely no one, and gold is one logical landing place for all those bucks. We suspect that’s exactly what is happening, behind the scenes as well as center stage." -- Doug Hornig, Financial Sense
In my last article, I have already made the point that the Chinese govt. has chosen the gold markets as one of its primary battlefields against the affects of US economic policy and the dollar. And as I have already described in other articles, if China can wrest control of the gold price away from the US govt manipulations, the flawed US dollar must eventually and naturally fall. So here is just a short summary and roundup of what we know so far about China's activities versus America's economic policies:
So here is just a short summary and roundup of what we know so far about China's activities versus America's economic policies:
- On September 28, 2009 the Chinese government will begin to issue Yuan Bonds for the first time. These bonds are set to compete directly with US Treasuries and will represent another 'safe haven' for investors and central banks to store their savings. This will be the first time that US Treasuries will have a direct and effective competitor.
- According to a MarketWatch article, China has pulled all her gold bullion holdings from London and is moving them to a new high Security location near the airport in Hong Kong. This may be China's own attempt to start her own bullion market in the Far East. This action also clearly restricts and damages the London Bullion Market's gold leasing capabilities.
- There are many reports that the Chinese govt is investing heavily in her own gold mines, and is currently carefully buying all her own gold. China is, in effect, secretly hoarding gold. Thus Chinese government policy appears to be moving away from buying US Treasuries and discreetly moving more towards accumulating gold as their main store of savings' asset.
- China appears to be returning to a partial gold standard. If China controls the gold markets as well as backs her Yuan with gold, the strength and stability of the Yuan will be untouchable and unassailable when compared to other world fiat currencies. This policy is primary for the success of the Beijing Defence.
- China's own sovereign wealth fund -- China Investment Corporation(CIC) -- has spread its investments out rapidly and very effectively, investing around the world mainly in extractive commodity industries. The CIC has alot of weight to throw around -- $300 billion -- and, amongst others, has been investing heavily in the oil and precious metals markets. Effectively, China's CIC fund is dumping dollars for gold and other more worthy hard asset investments now.
- China has recently abolished all restrictions on its populace buying gold or silver bullion. It is now easier to buy gold in China, than in America.
- The Chinese are also rumoured to soon be putting much tighter restrictions on the export of gold and silver outside of China.
- According to a Caijing article, a spokesperson for China’s state-owned Assets Supervision and Administration Commission – the regulator and nominal shareholder for state-owned enterprises (SOEs) – told six foreign banks that SOEs reserve the right to default on any derivative contracts they so choose. So who's gonna argue? A rare slap in the face for Wall Street.
- And not only China, but other world central banks are now busy buying gold to protect their own national wealth and savings.
Another aspect to consider here is that other world creditor nations from both the BRICs and the Middle East will be watching all this very keenly -- and, if the Beijing plays are successful, these countries are bound to jump in and adopt the self-same economic tactics and strategies of the Beijing Defence. It seems that the Chinese could have many allies here.
But these Chinese tactics will no doubt be looked upon by many as an out and out attack on the American economy. But perhaps this is not the case at all, since you really cannot blame the original financial crisis on Chinese economic policy. However, perhaps China knows for sure something that we do not -- that both the American dollar as well as her economy have much worse to come. And since China's economy is so linked to America's economic machine, it would seem pertinent for China to make some sort of economic defense for her own people. In fact, this Chinese economic defense has been initiated for exactly the same reasons as to why all American citizens are hurting right now economically -- because of atrocious US economic doctrines and a highly inflationary dollar.
In an interesting, but perhaps disturbing footnote to the Thunder Road Report, Paul Mylchreest comments that in Latin America, where he has been living for 25 years, for the first time he can remember, locals are now preferring their own currency to U.S. dollars. He goes on to finish with this comment:
"If a fellow with no education, a poor diet, and inadequate medical treatment living at 3,500 metres above sea level can figure out that the US dollar is undesirable as a store of wealth, how much longer do you think it can last as the world's reserve currency?"