China paper urges new currency order after "financial tsunami"

[FRED]

China paper urges new currency order after "financial tsunami"

We've been tracking the standoff of Economic M.A.D. between China and the US since April 2006. After little apparent stress on the surface of the relationship, the events we anticipated are now occurring with alarming speed. We expected China to make its currency move at some point in this crisis but not this soon.

China paper urges new currency order after "financial tsunami"
Sept. 17, 2008

BEIJING (Reuters) - Threatened by a "financial tsunami," the world must consider building a financial order no longer dependent on the United States, a leading Chinese state newspaper said on Wednesday.

The commentary in the overseas edition of the People's Daily said the collapse of Lehman Brothers Holdings Inc (LEH.P) "may augur an even larger impending global 'financial tsunami'."

The People's Daily is the official newspaper of China's ruling Communist Party, and the overseas edition is a smaller circulation offshoot of the main paper.

Its pronouncements do not necessarily directly reflect leadership views, but this commentary by a professor at Shanghai's Tongji University suggested considerable official alarm at the strains buckling world financial markets.

China's central bank earlier this week cut its lending rate for the first time in six years, a move analysts said was aimed at bolstering the economy and the battered stock market.

"The eruption of the U.S. sub-prime crisis has exposed massive loopholes in the United States' financial oversight and supervision," writes the commentator, Shi Jianxun.

"The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States." more...

AntiSpin: We had inside information two months ago that China was in discussions with other central banks to develop an alternative currency regime in the face of the ongoing dissolution of the dollar-based system. This is the first trial balloon, floated at arm's length from officialdom by a Chinese government sanctioned academic, much the way sanctioned academics in the US are brought out to propose policies that are poplar with the ruling party. It may be followed by a statement by a government official directly connected to the Chinese government.

The important part of this announcement is this: "...create a diversified currency and financial system and fair and just financial order that is not dependent on the United States."

Them's fighting words! Time for China to pull the plug on the USA? Let's see what the European's say in response.

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[jk]

Re: China paper urges new currency order after "financial tsunami"

i'm not sure that china is ready to make the yuan freely convertible and give up capital controls. that would be a very big move, indeed. in such a scenario, many assume the yuan would rise sharply, but would domestic holders of the currency want to diversify internationally and thus drop the currency instead?

[Supercilious]

Re: China paper urges new currency order after "financial tsunami"

AntiSpin: We had inside information two months ago that China was in discussions with other central banks to develop an alternative currency regime in the face of the ongoing dissolution of the dollar-based system. This is the first trial balloon, floated at arm's length from officialdom by a Chinese government sanctioned academic, much the way sanctioned academics in the US are brought out to propose policies that are poplar with the ruling party. It may be followed by a statement by a government official directly connected to the Chinese government.

aNTIsPIN^2 : My information is that the preliminary talks flopped completely in spite of commitments to explore further the posiibilities.

The Chinese wanted to have a cake and eat it too. They wanted to be the Big Financial Brother who in fact decides all price control policies. Basically they wanted to propose a "modern" COMECON decorated with a lot of lipstick. The main reason for which the discussions collapsed was that in a group that constitutes a zero sum game you can't have every player winning. And nobody wanted to draw the short stick.;)

I don't see how those talks can go into anything viable. But the intentions are laudable

Chavez wants to do something similar in Latin America, based on a Venezuela-Cuba-Ecuador "financial power triangle"... you know to destroy the imperialist stronghold ... further the victory of socialism ....
(If Chavez really wants to build a socialist society maybe he should learn a thing or two from Ben & Henry )

Unfortunately for him, it seems the big boys in the area (Argentine and Brazil) are too pragmatic for that folly, looking more into assembling some kind of EEC (or some sort of proto -EU) model, which is to be pushed ahead slowly and carefully (the axis "de force"is of course made out of Brazil and Argentine ) :

http://www.reuters.com/article/marke...36676820080907

BUENOS AIRES, Sept 7 (Reuters) - Argentina and Brazil will sign a pact on Monday that will abolish the dollar in bilateral trade seen hitting $30 billion this year, Brazilian President Luiz Inacio Lula da Silva said in an interview published on Sunday.
The initiative, announced in September 2006 and which had been expected to come into effect in July 2007, seeks to reduce exchange rate costs and simplify bilateral trade between the south American neighbors.
The pact will be signed in Brazil on Monday, when Argentine President Cristina Fernandez attends a bilateral summit -- an initiative that could later be extended to other members of South American trade bloc Mercosur.
"On Monday we will sign an agreement with President Cristina (Fernandez de) Kirchner that will officially launch the use of reais and pesos in our trade exchange," Lula told Argentine newspaper Clarin in an interview.
"We are going to abolish the dollar as a currency in our trade."
He said he wanted Brazil and Argentina's trade balance to be more balanced. Argentina had a $2.7 billion trade deficit with its larger neighbor Brazil in the first half of the year.
"The trade balance should be a two-way street," he said. "There has to be certain balance: one can have a small difference, one year a trade deficit and the next a surplus."
"It is not in Brazil's interest that there be a big trade surplus in Brazil's favor."

No immediate danger here ....

[marvenger]

Re: China paper urges new currency order after "financial tsunami"

any talk about IMF, Wold bank being dismantled?

[Pascal]

Re: China paper urges new currency order after "financial tsunami"

Fred or EJ,

Jim Sinclair has predicted for some time that the dollar end game will be a new U.S. currency with a link to gold. Because of this he believes that a 1980 style gold peak and crash is unlikely. Instead Jim believes there will be a peak in gold of at least $1650 followed by a perpetual plateau.

Another viable alternative I suppose would be a substantial devaluation of the dollar and its replacement as the world's reserve currency by some new "world currency" for international transactions.

My apologies if you've already answered this question elsewhere but does iTulip have a favored theory on what the currency end game is likely to be this time?

Thanks

[we_are_toast]

Re: China paper urges new currency order after "financial tsunami"

If the dollar is going to be backed by gold, and a rough estimate of M3 is $13.5 trillion, and the government has 8133 tons of gold, let me get my calculator; that would be $51,923.08/ounce.

WOW! The mother of all bull markets is just beginning!

[algerwetmore]

Re: China paper urges new currency order after "financial tsunami"

But $51 k an ounce, really? Is that before or after the government confiscates through hyperinflation?

[Pascal]

Re: China paper urges new currency order after "financial tsunami"

I'm doing Jim Sinclair a disservice by trying to quote him and probably garbling it but, if I recall correctly, the "new dollar" that he foresees will not be truly backed by gold. Instead it would be set at some pre-determined ratio.

I probably should have linked to one of his articles but have been too lazy to find it.

[phirang]

Re: China paper urges new currency order after "financial tsunami"

If the dollar is going to be backed by gold, and a rough estimate of M3 is $13.5 trillion, and the government has 8133 tons of gold, let me get my calculator; that would be $51,923.08/ounce.

WOW! The mother of all bull markets is just beginning!

Contrary to what John Williams and the amateurs will tell you, M3 is NOT a useful indicator in a world with off-balance sheet securitization.

[Supercilious]

Re: China paper urges new currency order after "financial tsunami"

Contrary to what John Williams and the amateurs will tell you, M3 is NOT a useful indicator in a world with off-balance sheet securitization.

Correct! And IMHO Jim Sinclair completely misses the point:

Jim Sinclair has predicted for some time that the dollar end game will be a new U.S. currency with a link to gold. Because of this he believes that a 1980 style gold peak and crash is unlikely. Instead Jim believes there will be a peak in gold of at least $1650 followed by a perpetual plateau.

We may see very well gold at $1650 ore even more, but there will be no "perpetual plateau" only an unbelievable crash IMHO everything that happens now it is done in order to remove completely gold as a class of power-money.

Then and only then, power-money will exclusively consist of US treasuries and only US treasuries or nationally issued certificates of US treasuries deposits.

What that means should be obvious for everybody....;)

[phirang]

Re: China paper urges new currency order after "financial tsunami"

Correct! And IMHO Jim Sinclair completely misses the point:



We may see very well gold at $1650 ore even more, but there will be no "perpetual plateau" only an unbelievable crash IMHO everything that happens now it is done in order to remove completely gold as a class of power-money.

Then and only then, power-money will exclusively consist of US treasuries and only US treasuries or nationally issued certificates of US treasuries deposits.

What that means should be obvious for everybody....;)

I really love your insights "symbols", and your are an indispensable asset to itulip, but I fail to see the thesis behind US treasuries dominating FX.

Could you provide a schematic for how your situation would work? I am intrigued by this theory

P.S: EJ, can you provide a thread explaining why M3 is irrelevant, so we don't have to hear about it anymore?

[Guest]

Re: China paper urges new currency order after "financial tsunami"

Correct! ... Jim Sinclair completely misses the point ... everything ... now is done in order to remove completely gold as a class of power-money. ... power-money will exclusively consist of US treasuries ....;)

I really love your insights "symbols" - EJ, can you provide a thread explaining why M3 is irrelevant, so we don't have to hear about it anymore?

Heh, Phirang and $#* are sounding just a little too flashy here with that self assurance schtick. "What John Williams and the amateurs will tell you" and "why Jim Sinclair completely misses the point". You lads seem to display all of the gaudy panache of a couple of the storied young hedge fund traders (except your Wall Street cousins seem to be taking a drubbing at the moment).

You have no better an idea of how this will work out than the rest of us. US Treasuries "engineered" as the "new power money"? Yeah right. Everything occurring now in gold is being "engineered" by a banking cartel? Doubtless a brilliant, probingly insightful call. "M3 is complete trash as any kind of useful indicator" because the ever glamorous "off-balance-sheet securitization" handily plugs up the valuation mismatch between gold and 13.5 trillion USD? A breathtakingly audacious theory.

What a lot of fluff and puffery. John Williams and Jim Sinclair have been around the block so many more times than either of you that your comments would probably not even raise their eyebrow in tentative interest. This kind of glamorous sounding tall talk does not readily convince. Either you've got a new US sponsored power money, or the "power money" has to be "invented" by some other entity. Wow, the US sponsored "treasuries power money" sounds like the odds on winner here, don't it?

And you posit that transition occurs fluently and deftly puts gold back in the box at the tail end of the world's first 40 year experiment with a global fiat currency? You guys must be soaring right up there with the eagles with this kind of insight! According to your feverish imaginations, this US securities denominated power money will institute a new monetary reign which will be a "coup de grace" that echoes back in paradigm busting terms, down through the elapsed 5000 years of monetary history. What a pair of geniuses.

For one thing, we_are_toast is a lot more modest than either of you (does not breezily dismiss John Williams and Jim Sinclair which would put one on one's guard to begin with), and what's tucked away in his observation is that some sort of reckoning with gold beyond the "superspike" will be hard to finesse after 40 years with a global fiat-unit for senior currency.

If the dollar is going to be backed by gold, and a rough estimate of M3 is $13.5 trillion, and the government has 8133 tons of gold, let me get my calculator; that would be $51,923.08/ounce

[sadsack]

Re: China paper urges new currency order after "financial tsunami"

I really love your insights "symbols", and your are an indispensable asset to itulip, but I fail to see the thesis behind US treasuries dominating FX.

Could you provide a schematic for how your situation would work? I am intrigued by this theory

P.S: EJ, can you provide a thread explaining why M3 is irrelevant, so we don't have to hear about it anymore?

IMHO "symbols" is recently on a sarcastic streak of the magnitude of Jonathan Smith's "A Modest Proposal."

Smith proposed, at the height of the 19th century Irish potato famine, that the English could reconcile their mercantilist philosophy with their Christian faith by feeding the starving Irish children in order to fatten them up for slaughter - Smith's harangue anticipated "Soylent Green" by over a century . . .

Much like Lukester, "symbols" is grappling with the topography here on iTulip. I personally applaud both of them; I only fear that they have been severly abused elsewhere (much like the treatment Bart received on Mish's blog), and therefore need time to adjust to the slower pace of deliberation here.

I don't deny that there is intellectual inertia on iTulip. To it's credit, however, the degree of this inertia is much lower than comparable sites.

Just for perspective - it took 13 years from the 1776 revolution for the 13 colonies to figure out what kind of government they wanted to have. If the near existential crisis facing this country is to be believed, a comparable period of protracted debate will need to be "endured" . . .

EDIT:

"symbols" is probably a euphemism for a 4-letter expletive. If so, I sympathize. I was nearly losing my mind at the possibility of the impending SHTF scenario late last year, and it's taken me this long to get to the point where (Holy Grail reference) "I got better . . . "

[Guest]

Re: China paper urges new currency order after "financial tsunami"

IMHO "symbols" is recently on a sarcastic streak of the magnitude of Jonathan Smith's "A Modest Proposal."

Sadsack - can you be a little less arch and oblique here perhaps? I will smack my forehead in dismay, if you can evidence to me where I have overlooked any latent or overt "sarcasm" in "symbols" contributed "insight" above.

" Grappling with the topography here on iTulip." As for the rest of your comment, perhaps were it any more oblique it would come to be circular. Pray tell, which topography are you referring to, and which end of it am I grappling at? A previous devastating clarification perhaps which I have stumbled past unawares, that M3 is utterly useless as a broad inflation trend indicator? These musings are far too "sophisticated" for me. [ indeed, so "sophisticated" as to be floating with their feet a couple of inches off the ground ].

[phirang]

Re: China paper urges new currency order after "financial tsunami"

Sadsack - can you be a little less arch and oblique here perhaps? I will smack my forehead in dismay, if you can evidence to me where I have overlooked any latent or overt "sarcasm" in "symbols" contributed "insight" above.

" Grappling with the topography here on iTulip." As for the rest of your comment, perhaps were it any more oblique it would come to be circular. Pray tell, which topography are you referring to, and which end of it am I grappling at? A previous devastating clarification perhaps which I have stumbled past unawares, that M3 is utterly useless as a broad inflation trend indicator? These musings are far too "sophisticated" for me. [ indeed, so "sophisticated" as to be floating with their feet a couple of inches off the ground ].

If you sell securitized debt you raise M3 => wtf.