China drives another nail into the coffin of the $ !

[Bundi]

Re: China drives another nail into the coffin of the $ !

I generally post stuff to provoke thinking...sometimes contrarian to the mainstream meme. That is what the two anecdotes and the chart in my two recent posts on this thread were intended to do. I am not a research technician for iTulip members...if my lack of absolute detail ("proof") causes you to disagree with the examples or the conclusions I draw from it, so be it. We'll just agree to disagree.

More than half the locomotive is made in the USA, including the final assembly (the USA government infrastructure loan funding requires that). Siemens, a German headquartered company which has been going through some very troubling times recently, alone employs more than 60,000 people in the USA.

I highlighted the fact that this locomotive has "69 local suppliers representing 60 cities and 23 states in the USA. Now it's entirely possible that all these suppliers are providing Siemens with nothing more important than paper clips and photocopy toner...but if I had to make a guess Siemens USA is getting those from China and the USA suppliers to the project are providing something with a bit more heft and substance.

Hello GRG55,

Thanks for this and the many other posts. I appreciate your contrarian approach and welcome the thought provoking debates. I am much more positive on the U.S. than perhaps I was 3-4 years ago and have in recent times, grown to appreciate this country more than I ever had prior to the s..t storm of 07-09. Thank you for voicing some very rational and personal experience based perspectives on the USA with respect to the many other areas of the world. You have been kind enough to point out a number of the underlying strengths of the US economy and over the very long term these are encouraging.

Here of late I have noticed that some of my friends are in experiencing an improvement of sorts in their overall day to day. Some are now a few mortgage payments ahead due to picking up some extra hours at the shop while another just concluded a long process of consolidating his family’s debt into a new mortgage and also got a check for his time. He is feeling better about things so I don’t probe too deeply into the long term ramifications of that decision, none of my business. Another just got a +20% increase in salary for the same job with another vendor offering the same service. In each case, these individuals have remained in the work force but for a brief period following 08. Many of these improvements are possible due to the US recovery and the overall currently favorable point in the economic cycle. Others I know are flailing about after having been downsized, in some cases more than once. In these cases where a wrinkle or two appears on a resume, they are not in a good way and it is painful to see. Nonetheless they soldier on, often with a wife and kid or two as the motivation.

Still others that had made a run prior to 08 are feeling all kinds of improved from 3-4 years ago. Some of them in private equity oriented roles as is the son of your family friend. Of course we all know there is an uneven recovery underway but we also know (at least I do) that life isn’t fair and if you don’t like it you best get busy working harder and smarter to make the best of it.

My long winded point is that human nature being what it is, USA good or USA bad depends a great deal on where you sit right here and now. I don’t mean to sound preachy; I know you certainly get this.

My problem (well one of them, there are many) is that I ultimately default to the big picture analysis although am of course also influenced by my situation here and now. In other words, in order to characterize a system, I try and measure or quantify the degree of good or bad within it. I suppose that in economic terms and by extension to some degree also in social terms, a nation is measured by the degree of productivity generated through its socioeconomic system.

A question that I find to be extremely thought provoking is whether or not the US socioeconomic system, as it is currently structured and in light of other well documented external factors, is actually increasing productivity, in the aggregate. I say in the aggregate because I don’t necessarily view labor costs, “adjusted for productivity” as an actual measure of productivity although it certainly can be, just not necessarily. By productivity, I don’t mean price to cost, I mean value to cost. This may be an esoteric and personally convenient way to think of productivity and it may fly in the face of appropriate economic or business practice. I don’t actually know but it seems to me the most relevant way to think of productivity value at the total system level.

If the US is, all things considered, enhancing productivity value, we here within its borders should rejoice. This strikes me as a true restructuring and one that offers longer term upside despite near term adjustments.

If the US is, all things considered, not enhancing productivity value, well that would suggest the favorable cycle timing and perhaps nonproductive recovery tailwinds are perhaps more meaningful than any underlying restructuring that is also taking place. This would not be so good but even so would not necessarily preclude a return to productivity enhancement down the road.

Taking this a step further, it would be more meaningful to ask this not just about the US alone as it and other nations don’t exist in economic isolation. A more comprehensive approach would be to ask this question of the global economy and also of the US versus any other important nation or nations.

It is the answer to these questions that I care most about.

I am not asking for a response to these comments, assuming they even make sense but sharing them because you have helped me to think differently about these questions and I appreciate your inputs a great deal.

[c1ue]

Re: China drives another nail into the coffin of the $ !

the USA government infrastructure loan funding requires that

I think this is the key point: it isn't that the US is becoming competitive so much as this project followed a standard mercantilist playbook.

Yes, there is certainly significant investment going on with the switchover from coal to natural gas.

Is this, plus a short term shale oil bonanza, enough to compensate for an economy that was generating hundreds of billions of dollars in revenue from internet company scams (Y2K + internet 1.0), real estate scams (housing bubble + MBS), and defense (post 9/11 'interventions')? Let's not forget as well the significant (tens of billions) that went into alternative energy (and continues to be plowed in).

That's the important question.

[coolhand]

Re: China drives another nail into the coffin of the $ !

A few of us on iTulip try to link current information with previous discussions on the same topic...instead of cluttering up the site with numerous new threads on the same topic. There's very little that hasn't been discussed more than once before over the years that iTulip has existed, and sometimes it's useful to go back and see how things have evolved over time.

I've been a skeptic about China for some time, and especially the nonsense about China "taking over the world" and permanently displacing the USA. That's how this thread started...a debate about China's rise at the USA's expense. Over the years I have pointed out a few times on other threads that the talk about mercantile China becoming the new global powerhouse was reminiscent of all the chatter about mercantile Japan "becoming the new global powerhouse" in the late 1980s. And we all know how that turned out. Today we may be in the early stages of another one of those "history rhyming" situations.


All I would ask iTulip members to do is "zoom out", shut off the mainstream bullhorn and kazoo for a moment, and examine two things: how the restructuring of the USA economy is advancing and what a mess that China is now in. In the case of China, huge misallocations of capital, enormous disparities of wealth, institutionalized corruption on a breathtaking scale, and a very serious erosion of its sole advantage - abundant & cheap labour - both from immediate cost and intermediate term demographics. The latest hit to China's cheap labour is the collapsing currencies of its EM neighbours, which is lowering their externally priced labour cost at China's expense.

China is going to have to engineer a remarkable improvement in its labour productivity (unlikely) or lower the exchange value of the yuan (which should finally shut-up the nitwits who have been yabbering that the yuan will be the next reserve currency). Until some combination of these two things happen, China will lose market share, especially in the largest consumer market in the world, the USA. Not surprisingly, the nation best positioned to take it away from them in the USA, is the USA.

USA companies did not stand still just because D.C. is politically paralyzed and Wall Street remains as corrupt as ever. They have used the Fed's low interest rates to issue long-term corporate bonds at interest rates never seen in our lifetimes (very cheap cost of money for them) and they are now pretty well positioned with fortress-like balance sheets in most instances to weather the next downturn, whenever that may come...much better than the last one.

It is the public sector that is now in trouble. In the USA, much of Europe, and large chunks of EM. China, which is entirely a public sector economy, is not exempt.

To lower the value of the yuan China will have to contemplate increasing its foreign exchange reserve balance (e.g. buy more Eurobonds and Treasuries). Who knows exactly how this is all going to play out...but the confident forecasts of the pundits and USA-bashers continue to look very suspect to this observer.

I started the first of my recent posts on this thread with that old saw "What goes around, comes around"...and I think that is exactly what is happening.

If TPTB thought that the global currency system was going to change, they would want to start moving production into the nation whose currency would suffer the biggest devaluation ahead of time as that nation would become the world's cheapest producer.

Who is that? The USA. The petrodollar system is breaking down (Syria anyone?). When it does, the US is going to be cheaper to produce goods than anywhere else. Of course, it will be wildly more expensive to import anything (still 10m b/d of oil anyone?)...that oil will stop flowing to the US & flow to those nations whose currencies strengthen as oil is no longer priced in dollars - those with positive trade balances & the gold.

So the good news is yes, mfg is coming back, & yes there will be more jobs. The bad news is that these will not be the $30/hr mfg jobs with full benefits that were here 20 years ago. They will be $10-15/hr, no benefits.

This currency system shift will increase production in the US (as we work off our debts) & increase consumption in China, BRICS & Germany (as they enjoy their savings.)

[coolhand]

Re: China drives another nail into the coffin of the $ !

A few of us on iTulip try to link current information with previous discussions on the same topic...instead of cluttering up the site with numerous new threads on the same topic. There's very little that hasn't been discussed more than once before over the years that iTulip has existed, and sometimes it's useful to go back and see how things have evolved over time.

I've been a skeptic about China for some time, and especially the nonsense about China "taking over the world" and permanently displacing the USA. That's how this thread started...a debate about China's rise at the USA's expense. Over the years I have pointed out a few times on other threads that the talk about mercantile China becoming the new global powerhouse was reminiscent of all the chatter about mercantile Japan "becoming the new global powerhouse" in the late 1980s. And we all know how that turned out. Today we may be in the early stages of another one of those "history rhyming" situations.


All I would ask iTulip members to do is "zoom out", shut off the mainstream bullhorn and kazoo for a moment, and examine two things: how the restructuring of the USA economy is advancing and what a mess that China is now in. In the case of China, huge misallocations of capital, enormous disparities of wealth, institutionalized corruption on a breathtaking scale, and a very serious erosion of its sole advantage - abundant & cheap labour - both from immediate cost and intermediate term demographics. The latest hit to China's cheap labour is the collapsing currencies of its EM neighbours, which is lowering their externally priced labour cost at China's expense.


To lower the value of the yuan China will have to contemplate increasing its foreign exchange reserve balance (e.g. buy more Eurobonds and Treasuries). Who knows exactly how this is all going to play out...but the confident forecasts of the pundits and USA-bashers continue to look very suspect to this observer.

I started the first of my recent posts on this thread with that old saw "What goes around, comes around"...and I think that is exactly what is happening.

No, that's not what China would have to do. All China would have to do is announce on a Sunday night: "Hello, we used to peg the yuan to the USD. From now on, we will peg it to gold at the equivalent rate of $50,000/oz. Good night."

Check to Washington. The next morning, oil priced in dollars opens at $200/bbl on international markets as oil traders grasp what has just occurred - the Chinese (the largest trade partner of the world) just replaced UST's with gold as the reserve asset of choice.

That morning, Russia announces they will only accept gold bullion for their 10m b/d of oil, in the amount valuing gold at $50,000/oz. Iran & Brazil echo the sentiment. India, with its 31,000 tons of gold in country, announces it will pay $50,000/oz for gold from its citizens & suddenly has the gold to afford lots of cheap oil (oil priced in gold hasn't moved since 1971.)

US industrial, energy & ag related equities open up 15-20%; consumer discretionary indices crash by 30%.

Watch what China (& everyone else) has been doing. The yuan will NOT be the next reserve currency. One needs a sovereign bond market to have that, & no one's is big enough to do that. China has been buying gold - lots of it.

Then read about John Maynard Keynes "Bancor" proposal from Bretton Woods in 1946 & substitute "gold" every place you see the word "Bancor."

The problem with assuming that the Emerging markets are screwed b/c the US is allegedly tightening is assuming that this will be just like 1982 & like 1997, even though the EM's are the net creditors to the developed world, have war chests of reserves to defend their currencies & massive gold reserves that they can use to defend their currencies, is that to believe the EM's are screwed b/c the US is tightening means i have to believe the EMs are stupid. That's usually a bad sign.

The EM's are screwed by US tightening IF they cannot leave the USD system. In 1982 & in 1997, that wasn't true. Nowadays, not only can they, but they are taking step after step after step to do exactly that, yet most Americans ignore it b/c "it would be so catastrophic, they don't want to think about it." Sounds a lot like what I heard about housing in 2006-07.

[GRG55]

Re: China drives another nail into the coffin of the $ !

I think this is the key point: it isn't that the US is becoming competitive so much as this project followed a standard mercantilist playbook.

Yes, there is certainly significant investment going on with the switchover from coal to natural gas.

Is this, plus a short term shale oil bonanza, enough to compensate for an economy that was generating hundreds of billions of dollars in revenue from internet company scams (Y2K + internet 1.0), real estate scams (housing bubble + MBS), and defense (post 9/11 'interventions')? Let's not forget as well the significant (tens of billions) that went into alternative energy (and continues to be plowed in).

That's the important question.

I don't see anything wrong with public sponsorship, through loans, for public transportation infrastructure (or utilities, etc.). Where I have a problem is public sponsorship of the risk capital, and then a so called "privatization" by selling it off cheap once the investment risk phase is over. That's just crony capitalism.

[GRG55]

Re: China drives another nail into the coffin of the $ !

No, that's not what China would have to do. All China would have to do is announce on a Sunday night: "Hello, we used to peg the yuan to the USD. From now on, we will peg it to gold at the equivalent rate of $50,000/oz. Good night."

Check to Washington. The next morning, oil priced in dollars opens at $200/bbl on international markets as oil traders grasp what has just occurred - the Chinese (the largest trade partner of the world) just replaced UST's with gold as the reserve asset of choice.

That morning, Russia announces they will only accept gold bullion for their 10m b/d of oil, in the amount valuing gold at $50,000/oz. Iran & Brazil echo the sentiment. India, with its 31,000 tons of gold in country, announces it will pay $50,000/oz for gold from its citizens & suddenly has the gold to afford lots of cheap oil (oil priced in gold hasn't moved since 1971.)

US industrial, energy & ag related equities open up 15-20%; consumer discretionary indices crash by 30%.

Watch what China (& everyone else) has been doing. The yuan will NOT be the next reserve currency. One needs a sovereign bond market to have that, & no one's is big enough to do that. China has been buying gold - lots of it.

Then read about John Maynard Keynes "Bancor" proposal from Bretton Woods in 1946 & substitute "gold" every place you see the word "Bancor."

The problem with assuming that the Emerging markets are screwed b/c the US is allegedly tightening is assuming that this will be just like 1982 & like 1997, even though the EM's are the net creditors to the developed world, have war chests of reserves to defend their currencies & massive gold reserves that they can use to defend their currencies, is that to believe the EM's are screwed b/c the US is tightening means i have to believe the EMs are stupid. That's usually a bad sign.

The EM's are screwed by US tightening IF they cannot leave the USD system. In 1982 & in 1997, that wasn't true. Nowadays, not only can they, but they are taking step after step after step to do exactly that, yet most Americans ignore it b/c "it would be so catastrophic, they don't want to think about it." Sounds a lot like what I heard about housing in 2006-07.

(Your thesis) Looks like a bad trade to me:

[coolhand]

Re: China drives another nail into the coffin of the $ !

(Your thesis) Looks like a bad trade to me:

It isn't a trade. You don't trade the end of currency system. Since 2011, the US dollar index has risen against a bunch of shittier currencies...some of those currencies are shittier b/c of the way the system is structured.

The question becomes do you think that these nations, who are now engaged in well over 50% of real economic production in the world (v. 15% in 1982) are going to let the paper & derivative pushers in Washington & NYC crash their real economies into the ground?

And assuming you do believe that (I don't, b/c they spent the last 15 yrs accumulating $6.4T in reserves & massive gold holdings), why do you think that those Emerging Mkt nations, who left the US banking system insolvent for 15 years in 1982 when they crashed, won't do much worse damage much faster to the US banking system this time, which is only being supported by QE?

And if that's the case, then we're left with a case where the system will collapse if it keeps going (more QE) or if it stops (taper.) It doesn't matter. Perhaps you think that for the 1st time in history, the majority economic producers of real goods & services will allow their production to be priced in the fiat currency of the biggest debtor nation in the history of the world. Maybe you're right, maybe it's different this time. I don't think it is.

And so now that we've ruled out the impossible (IMO), what we're left with, no matter how improbable, must be the truth - the petrodollar system that has lasted 42 years is dying. It's dying of lack of economic US industrial production to support it; ZIRP interest rates & too much debt.

The only card left for the US to play is war...perhaps the US could start a global conflict against Russia & China somewhere, for some trumped up reason...you have any idea where that might be happening?

And if that happens, you think the Russians will keep taking dollars for their oil? You think the Chinese will take dollars for their goods (rare earths, computer chips, WMT trinkets, etc.)?

My advice is if you think there is going to be a war in Syria soon, I would keep your gas tank full & go Xmas shopping now...b/c if we get into it w/ Russia & China over Syria, by Xmas, you won't be able to afford to WMT for gifts, which is fine b/c WMT's shelves will be empty anyway.

[coolhand]

Re: China drives another nail into the coffin of the $ !

And yes, gold prices have fallen since 2011...but if no one thinks the petrodollar currency system is dying, why are the major creditors of the world all stockpiling gold? Why would a creditor stock pile gold if the dollar is so good longer term?

The reason is that they know the dollar's days are numbered as reserve, so they better have something that will hold its value against oil & food long term.

You and I are actually arguing two sides of the same coin. Production is coming back to the US in dribs and drabs, but our trade deficit is still massively negative. For there to be real progress on this front, the US has to lose reserve status. Then the production will come flooding back. and the infrastructure investment that will take place here will be staggering...you ain't seen nothing until you've seen the # of jobs created by $300 oil (fracking, export pipelines & terminals, domestic public transport)...

[EJ]

Re: China drives another nail into the coffin of the $ !

It isn't a trade. You don't trade the end of currency system. Since 2011, the US dollar index has risen against a bunch of shittier currencies...some of those currencies are shittier b/c of the way the system is structured.

The question becomes do you think that these nations, who are now engaged in well over 50% of real economic production in the world (v. 15% in 1982) are going to let the paper & derivative pushers in Washington & NYC crash their real economies into the ground?

And assuming you do believe that (I don't, b/c they spent the last 15 yrs accumulating $6.4T in reserves & massive gold holdings), why do you think that those Emerging Mkt nations, who left the US banking system insolvent for 15 years in 1982 when they crashed, won't do much worse damage much faster to the US banking system this time, which is only being supported by QE?

And if that's the case, then we're left with a case where the system will collapse if it keeps going (more QE) or if it stops (taper.) It doesn't matter. Perhaps you think that for the 1st time in history, the majority economic producers of real goods & services will allow their production to be priced in the fiat currency of the biggest debtor nation in the history of the world. Maybe you're right, maybe it's different this time. I don't think it is.

And so now that we've ruled out the impossible (IMO), what we're left with, no matter how improbable, must be the truth - the petrodollar system that has lasted 42 years is dying. It's dying of lack of economic US industrial production to support it; ZIRP interest rates & too much debt.

The only card left for the US to play is war...perhaps the US could start a global conflict against Russia & China somewhere, for some trumped up reason...you have any idea where that might be happening?

And if that happens, you think the Russians will keep taking dollars for their oil? You think the Chinese will take dollars for their goods (rare earths, computer chips, WMT trinkets, etc.)?

My advice is if you think there is going to be a war in Syria soon, I would keep your gas tank full & go Xmas shopping now...b/c if we get into it w/ Russia & China over Syria, by Xmas, you won't be able to afford to WMT for gifts, which is fine b/c WMT's shelves will be empty anyway.

For our next article we have investigated a counter-development to the dollar demand crash story that we call: "Cash Property Purchase Frenzy of China's High Net Worth Class: Getting out of Dodge."

Seems that the average Chinese of means and above has for the last two years or so been buying a tangible asset safe house, so to speak, for their wealth mostly in the U.S. but also in other countries with strong rule of property rights law. They are purchasing property 100% cash and placing title in a safe deposit box. The event that they are hedging, so they tell us, is the eventual fall of The Great Wall of Money (our term, not theirs) followed by capital controls imposed by the CCP and CCP confiscation of wealth of the wealthy in order to reflate the domestic economy. If one is expecting such a crisis, the time to get one's money out of the country is when one can.

When do they think this may occur? Apparently at any time.

[coolhand]

Re: China drives another nail into the coffin of the $ !

For our next article we have investigated a counter-development to the dollar demand crash story that we call: "Cash Property Purchase Frenzy of China's High Net Worth Class: Getting out of Dodge."

Seems that the average Chinese of means and above has for the last two years or so been buying a tangible asset safe house, so to speak, for their wealth mostly in the U.S. but also in other countries with strong rule of property rights law. They are purchasing property 100% cash and placing title in a safe deposit box. The event that they are hedging, so they tell us, is the eventual fall of The Great Wall of Money (our term, not theirs) followed by capital controls imposed by the CCP and CCP confiscation of wealth of the wealthy in order to reflate the domestic economy. If one is expecting such a crisis, the time to get one's money out of the country is when one can.

When do they think this may occur? Apparently at any time.

I look forward to reading it.

With that in mind, I would encourage the iTulip community to watch the 12-minute video at this link:
http://safeshare.tv/w/jkbxcFMkyu

If the "Chinese Great Wall of Money" could disappear at any time, given that emerging markets are now > 50% of global GDP & the vast majority of depositors at the EM's experiencing currency runs right now being foreigners (per AEP in UK Telegraph):

"[F]oreigners bear 90pc of the currency risk in Malaysia, 81pc in Thailand, 79pc in Korea and 74pc in India. So let them take the haircut. Should these countries take that course, they will inflict a deflationary trade shock on the West. The eurozone is in no fit state to handle that. Nor is Britain."


...it is not going to take long for any event that you describe as possible "at any time" in China to catastrophically impact the West...so it is interesting that the link above reviews the actual laws that the US, UK, EU, NZ & Canada already have IN PLACE that place BIG FIRM DERIVATIVE COUNTERPARTIES ABOVE DEPOSITORS IN THE CAPITAL STRUCTURE OF WESTERN BANKS.

I put the above in all caps b/c if you are right about China EJ, I cannot stress enough that one MUST GET ANY ASSETS ABOVE THE $250K DEPOSIT LIMIT OUT OF THE WESTERN FINANCIAL SYSTEM.

When do we think this is possible? Well, GS just bought $500m in GLD (which I'm sure they already exchanged for physical bullion) in 2Q13; that means GS turned "seller" of the system in 2Q13. In 2007, GS turned "Seller" of the housing market in mid-2007...the world began imploding within 9 months (Bear Stearns) & was on the verge of collapse within a year.

Flooding money out of the EM's when they are the majority of global trade into USD's b/c of the USD's perceived safety is running the playbook from last time...it's the financial equivalent of building the Maginot Line, running out of the frying pan straight into the fire.

Watch what the big guys are doing - GS, Germany, China, Russia, EU...they either have or are buying massive quantities of physical gold bullion. Even the Chinese citizens that you reference EJ understand what money is infinitely better than the average American. So they are exchanging it for hard assets en masse...

Seems like perhaps impossible is about to happen again...(1st a nationwide housing bubble bursting, now a global currency system reset.)

[GRG55]

Re: China drives another nail into the coffin of the $ !

And yes, gold prices have fallen since 2011...but if no one thinks the petrodollar currency system is dying, why are the major creditors of the world all stockpiling gold? Why would a creditor stock pile gold if the dollar is so good longer term?

The reason is that they know the dollar's days are numbered as reserve, so they better have something that will hold its value against oil & food long term.

You and I are actually arguing two sides of the same coin. Production is coming back to the US in dribs and drabs, but our trade deficit is still massively negative. For there to be real progress on this front, the US has to lose reserve status. Then the production will come flooding back. and the infrastructure investment that will take place here will be staggering...you ain't seen nothing until you've seen the # of jobs created by $300 oil (fracking, export pipelines & terminals, domestic public transport)...

The folks buying gold don't trust their OWN national currency. And that applies to the Chinese yuan, not just rupees, rupiahs, lira, rands and reals. And they don't trust their government not to confiscate, directly or via depreciation, some portion of their liquid assets...hence the desire to get out of the local currency in bank accounts and into gold, which can be hidden or smuggled out of the country much more easily.

It has nothing to do with the US Dollar...if they could legally convert their money into US Dollars and get it out of the country via the banking system they would do that instead. Talk to any Argentinian about what they did to avoid the repeated devaluations of their national currency over the past couple of decades and you'll understand why I disagree with your assertions. The decisions people make today has to do with the circumstances today, not the extended multi-decade ending of the existing US$ based global monetary system

[coolhand]

Re: China drives another nail into the coffin of the $ !

The folks buying gold don't trust their OWN national currency. And that applies to the Chinese yuan, not just rupees, rupiahs, lira, rands and reals. And they don't trust their government not to confiscate, directly or via depreciation, some portion of their liquid assets...hence the desire to get out of the local currency in bank accounts and into gold, which can be hidden or smuggled out of the country much more easily.

It has nothing to do with the US Dollar...if they could legally convert their money into US Dollars and get it out of the country via the banking system they would do that instead. Talk to any Argentinian about what they did to avoid the repeated devaluations of their national currency over the past couple of decades and you'll understand why I disagree with your assertions. The decisions people make today has to do with the circumstances today, not the extended multi-decade ending of the existing US$ based global monetary system

I agree with your assertions as it relates to individuals. But you think the German Bundesbank asked for its gold back from the US because they didn't trust the Euro? That Chavez asked for his gold back because he didn't trust his own currency? He's sitting on the most valuable currency the world has ever seen, oil...he's hedged for the future, but he just wants to make sure he controls the wealth that represents his historical production.

China? I am being told they are buying all the gold they can get their hands on, & "even if it's not official demand, it's official demand." My source said that's b/c nothing happens in China without the gov't approving it.

Russia? Why has the Russian gov't continued to add to their stockpiles of gold bullion monthly?

Global central banks, who have purchased gold every year since 2009?

GS, who said "SELL GOLD" in 2Q but then BOUGHT $500m of gold in a move eerily reminiscent of when they were screaming "BUY HOUSING" in 2007-08 while they were busy unloading all their mortgage paper & then shorting as much housing-related debt as they could? So you're trying to convince me that GS is buying gold b/c they don't trust the dollar?

When gov'ts & CB's add to their gold reserves, it's NOT b/c they distrust their own currencies. They distrust the system. As we saw in 2008, GOV'TS, CB'S, GS ARE ALL THE SYSTEM. When the SYSTEM takes actions that suggest they don't trust THE SYSTEM, people should pay attention...

I'm not talking about individuals looking to avoid a currency crisis like in Argentina or Eastern Europe in the past 25-30 years...I totally agree with you about that. And to be sure, that is going on now too. But IMO, the big story is that THE MAJOR CREDITORS OF THE CURRENT SYSTEM ARE TRYING TO GET OUT OF THE SYSTEM...why?

I think this email chain highlights why, in particular, EJ's post & the link I posted...if there are $700T in derivatives against $70T in global GDP, guess what? The system is insolvent. If the big banks have $700T in derivative exposure against $9T in deposits & $25B in FDIC insurance, & the law says derivative claims are senior to depositors, guess what your deposit at JPM is worth? NOTHING!!!!

What do you think the price of gold does in that scenario? I think we got a clue in Cyprus - Cyprus got a 3-yr, $9B loan from the ECB (at presumably close to 0%), and Cyprus gave the ECB 10 tons of gold. That is ~$28,000/oz.

Where would you want your gold in a scenario where $9T in deposits gets turned into equity in worthless banks & gold is now valued at $28,000/oz to recapitalize the system? The Germans, Venezuelans, Russians & Chinese are telling you that they don't want it in the NY banks...surprise, surprise, no one trusts them...I can't imagine why.

Why would GS be buying $500m of gold while they were screaming SELL? Do the math. That's about 11 tons, or 45m oz, of gold. At $28,000/oz, guess what - GS has capital of $1.2T...voila! The US gov't, they have capital of $7T...

See where this is going?

This is why I said "you can't trade the end of a currency system." The fact is that if I am right (I am nearly convinced I am, unless the world finds significant sources of new, cheap easy to reach oil - the GAGFO tie-in), I don't care WHEN this system ends...if it ends in my lifetime, gold prices are going to rise 20x nearly overnight...gold will outperform everything else by a wide, wide margin...just like it has since 1971.

[BadJuju]

Re: China drives another nail into the coffin of the $ !

I just wish this damn job I am supposedly starting would start. I need to accrue more gold.

[c1ue]

Re: China drives another nail into the coffin of the $ !

I don't see anything wrong with public sponsorship, through loans, for public transportation infrastructure (or utilities, etc.). Where I have a problem is public sponsorship of the risk capital, and then a so called "privatization" by selling it off cheap once the investment risk phase is over. That's just crony capitalism.

I don't have a problem either - the US government is well within its rights to demand such participation in return for US government loans, though naturally this standard is not adhered to for other nations impeding 'free trade'.

But that was not my point. My point was that this particular example isn't necessarily representative of any form of 'back to the US' manufacturing.

Apple isn't moving its assembly operations to the US - it is moving them to Taiwan.

[Milton Kuo]

Re: China drives another nail into the coffin of the $ !

But that was not my point. My point was that this particular example isn't necessarily representative of any form of 'back to the US' manufacturing.

Apple isn't moving its assembly operations to the US - it is moving them to Taiwan.

Apple has announced intentions of manufacturing Macs in the USA although the company doing the manufacturing work could be Taiwanese (either Foxconn or Flextronics).

http://allthingsd.com/20130522/apple...uilt-in-texas/

“We’re investing $100 million to build a Mac product line here in the U.S.,” Cook said. “The product will be assembled in Texas, include components made in Illinois and Florida, and rely on equipment produced in Kentucky and Michigan.”