Is that a BRIC thru the window?

[GRG55]

Re: Is that a BRIC thru the window?

China has a very poor human rights record. US' human rights record in enforcing its currency monopoly ain't exactly enviable either...watch the beginning of "Argo."

However, if China succeeds in leading towards a gold settlement, "bancor" model (Keynesian, ironically!), then China will succeed in a big step towards the democratization of economic production & the ending of the socialist welfare state...

"China" and "democratization" in the same sentence is an oxymoron...

[don]

Re: Is that a BRIC thru the window?

Jim Rickards weighs in . . .

[coolhand]

Re: Is that a BRIC thru the window?

"China" and "democratization" in the same sentence is an oxymoron...

Since 1971, issuance of the reserve currency has been a monopoly where only one nation can print it & everyone else has been forced at the barrel of a gun to earn it through trade. That is the reality of the system we are in. It has been a great system for most of us here in the US, in much the same way that life was great for everyone on the Death Star in Star Wars (it's been a disaster for the working classes, & more recently, the US middle class.)

10 years ago, a UST given to a creditor nation via trade bought 50 barrels of oil. Now that # is 9 barrels. Ditto gold - in 2003, 4 oz, in 2013, 0.8 oz. Americans call this a great trade deal, proof of American superiority. Everyone else in the world (and many religious texts) call it something else - theft, after the fact.

But they knew the game going in - it worked for them b/c it allowed them to steal our factories, jobs, intellectual property, etc. Now that they have it all & rates have fallen to 0% in the US, the game doesn't work for them any more.

So to answer your statement - relative to a system in which everyone must underprice their goods to earn dollars through trade at the barrel of a gun held by the monopoly printer of dollars, a system where nations must compete on their own merits in the global marketplace & either receive or have to give up gold based on the merits of their own relative trade performance sounds quite a bit more democratic, no?

[coolhand]

Re: Is that a BRIC thru the window?

If this is your idea of a socialist welfare state, I'd hate to see your idea of a capitalist free market society.

46m Americans on food stamps.

US gov't owns stakes in 2 of 3 major domestic car companies.

US gov't is biggest payor of healthcare nationally.

US gov't is biggest provider of retiree benefits.

US gov't is biggest student lender.

US gov't is biggest housing lender.

US Federal spending is 25% of US GDP.

Exactly how is the US not a socialist welfare state?

[coolhand]

Re: Is that a BRIC thru the window?

46m Americans on food stamps.

US gov't owns stakes in 2 of 3 major domestic car companies.

US gov't is biggest payor of healthcare nationally.

US gov't is biggest provider of retiree benefits.

US gov't is biggest student lender.

US gov't is biggest housing lender.

US Federal spending is 25% of US GDP.

Exactly how is the US not a socialist welfare state?

And let's not forget that the US gov't backstops the entire banking system.

[coolhand]

Re: Is that a BRIC thru the window?

Very interesting, coolhand. Using your hypothetical price of $20,000/oz, which is approximately 15 x the current price in dollars, is it accurate to assume that the prices of oil, food, and anything else priced in USD would also go up by a factor of 15? Could prices rise even higher as a result of more oil being consumed by China? Would prices for items produced in the U.S. go up as much as for imported items? Could the U.S. sustain itself in this event, and for how long?

I barely know how to wrap my mind around this scenario, much less how to phrase my questions in an intelligent manner.

IMO, the price of everything would rise in dollars, but not as much as gold. We are in a debt deflation. Once the world gets into a position of too much debt, the history books are extremely, extremely clear about how it eventually plays out. The price of everything falls v. gold. Or, put alternatively, the system is recapitalized by gold...note ECB's #1 asset is gold. That isn't an accident. It wasn't an accident that Cyprus put gold up as collateral in March.

This is why so many make bad choices about "inflation or deflation." EJ has always been dead right on this. Over the course of this cycle, will get inflation in dollar terms (political choice) & deflation in gold terms (economic reality.)

You want to own as much gold as you can, IMO, until it recapitalizes the system. Then you can sell it, buy productive assets & put a note in your will to your grandchildren & great grandchildren to remember to buy gold ahead of the next global sovereign debt crisis (which occur at regular intervals that are so far apart that they only occur once everyone that personally remembers the last one is dead) - ie 1930's.

[shiny!]

Re: Is that a BRIC thru the window?

IMO, the price of everything would rise in dollars, but not as much as gold. We are in a debt deflation. Once the world gets into a position of too much debt, the history books are extremely, extremely clear about how it eventually plays out. The price of everything falls v. gold. Or, put alternatively, the system is recapitalized by gold...note ECB's #1 asset is gold. That isn't an accident. It wasn't an accident that Cyprus put gold up as collateral in March.

This is why so many make bad choices about "inflation or deflation." EJ has always been dead right on this. Over the course of this cycle, will get inflation in dollar terms (political choice) & deflation in gold terms (economic reality.)

You want to own as much gold as you can, IMO, until it recapitalizes the system. Then you can sell it, buy productive assets & put a note in your will to your grandchildren & great grandchildren to remember to buy gold ahead of the next global sovereign debt crisis (which occur at regular intervals that are so far apart that they only occur once everyone that personally remembers the last one is dead) - ie 1930's.

Thanks, coolhand. I always appreciate your insights.

[coolhand]

Re: Is that a BRIC thru the window?

Thanks, coolhand. I always appreciate your insights.

You're welcome, thanks for the kind words! Now if I could just get my kids to say that...

[shiny!]

Re: Is that a BRIC thru the window?

You're welcome, thanks for the kind words! Now if I could just get my kids to say that...

You'll never get your kids to say that. Your grandchildren, OTOH...

[touchring]

Re: Is that a BRIC thru the window?

"China" and "democratization" in the same sentence is an oxymoron...

Also, ironic is that gold as a currency has never been popular in China since the ancient times. Silver and copper were the preferred currency and gold is mostly used for jewelry and for that matter, gold as a jewelry is in fact not as popular in China as compared to India, the rest of Asia, or even Europe and the US.

Jade on the other hand is more sought after because the Chinese believe that jade brings good luck and wards off evil spirits.

http://www.bloomberg.com/news/2013-0...reen-gems.html

Hong Kong jewelry collector Dennis Sun has been buying jade for three decades. Lately, it has been harder to snag the perfect piece as mainland Chinese buyers drive prices through the roof.

A Chow Tai Fook Jewellery Group Ltd. employee arranges jade jewelry on display in one of the company's retail stores in the Central district of Hong Kong, China. Photographer: Jerome Favre/Bloomberg

At a Christie’s auction in May, he watched a jadeite ring sell for about HK$20 million ($2.6 million), or five times its estimated price. Last month, he bought a jade bangle for almost HK$1 million even though the color and quality weren’t all had hoped for.
“The prices went up so high, if I don’t buy it now it’ll only get more expensive later,” he said.

The value of the precious gem is surging with China’s wealthy snapping up jade necklaces, rings and bracelets as long-term investments. They are counting on the stone’s steady ascent to provide safety as Shanghai’s stock market languishes, much of the bond market remains closed to retail investors and even gold prices have plunged.

[GRG55]

Re: Is that a BRIC thru the window?

Since 1971, issuance of the reserve currency has been a monopoly where only one nation can print it & everyone else has been forced at the barrel of a gun to earn it through trade...

Where did you get the idea there is some sort of "monopoly" on the creation of US Dollars? Every bank in the world that lends in US Dollars creates more of that money...and there's a lot of them.

Indirectly so does every nation that pegs its local currency to the US Dollar...and there's a lot of those too. Including all of the Gulf Arab oil exporters and, of course, the yuan, which the Chinese for all practical purposes keep closely aligned in a very narrow range to the US Dollar.

I suggest less Kool-Aid and more California Zinfandel.

[coolhand]

Re: Is that a BRIC thru the window?

Where did you get the idea there is some sort of "monopoly" on the creation of US Dollars? Every bank in the world that lends in US Dollars creates more of that money...and there's a lot of them.

Indirectly so does every nation that pegs its local currency to the US Dollar...and there's a lot of those too. Including all of the Gulf Arab oil exporters and, of course, the yuan, which the Chinese for all practical purposes keep closely aligned in a very narrow range to the US Dollar.

I suggest less Kool-Aid and more California Zinfandel.

So then why has the Fed been forced to lend money to European banks throughout the EU crisis?

The answer is that other central banks cannot create new dollars, only the Fed. If that was the case, then other nations could simply print their dollars for oil like the US, which they cannot, which is why de Gaulle called it our "exorbitant privilege"; it's why Sec Treas John Connolly called it "our currency, but your problem."

[BadJuju]

Re: Is that a BRIC thru the window?

Coolhand, that sounds more like corporate welfare to me. Student loans aren't welfare. People relying on basic subsidies to feed themselves because the economy is so fucked doesn't make it a welfare state.

[lektrode]

Re: Is that a BRIC thru the window?

now dont go pickin on coolhand, mr juju - he's a very valuable contrast to the 'conventional' POV
and eye personally like to see him and GRG duke it out - so lay off and let them argue the finer points of this stuff.
you get plenty of opportunity to get yer .02 in here, and we like your (millenial gen input) too.

[don]

Re: Is that a BRIC thru the window?

Watch what China does with US debt, not what it says

By Ambrose Evans-Pritchard Economics Last updated: October 15th, 2013




So much for the hot rhetoric from Beijing questioning the creditworthiness of US debt and consigning the US dollar to the dustbin of history.

The latest data shows that China's foreign reserves soared by $163bn in the third quarter to $3.66 trillion, one of the biggest jumps ever.

Mark Williams and Qinwei Wang from Capital Economic called the rise "astonishing". They estimate that China's central bank must have bought $70bn of foreign bonds last month in a frantic bid to hold down the currency.

We won't know for a while where the money went, but a big chunk must have gone into US Treasuries. So bear that in mind when you read the Xinhua claims that the US debt ceiling fight "has again left many nations' tremendous dollar assets in jeopardy and the international community highly agonised."

Or when it says:

A new world order should be put in place, according to which all nations, big or small, poor or rich, can have their key interests respected and protected on an equal footing. To that end, several corner stones should be laid to underpin a de-Americanised world.

Talk, talk, talk.

China's soaring reserves expose the truth. (And no, excess reserves are not a sign of strength, they are a sign of a deformed economy). Beijing is not in fact opening up its capital accounts and preparing to let the market decide the exchange rate.

The good news for China is that is no longer an emerging market in any meaningful sense. It was a safe haven during the great summer squall that hit India, Indonesia, Turkey, Brazil, South Africa, Ukraine, Serbia, et al. China did not suffer capital flight. It suffered a surge of very unwelcome capital inflows.

But there is a darker side to this. For all the talk of reform, China still refuses to give up its mercantilist trade policy. It is holding down the yuan to cling onto global market share and protect the wafer-thin margin of its exporters, not always successfully.

I have grave doubts about the new consensus view that China is roaring back. There is a high chance that this will fizzle out. You can see from Simon Ward's money data at Henderson Global Investors that China's money supply has rolled over:

Click to enlarge


Mr Ward's measure of six-month real M1 growth is an early warning for the economy, roughly six months ahead. So it points to a fresh slowdown over the late winter/early spring. Be prepared.

In any case, the recent burst of growth has been driven almost entirely by reverting to the bad old ways of top-down investment in heavy industry, and excess credit (yet again), as both the IMF and World Bank hinted in their latest reports.

The economic "efficiency" of debt has collapsed. Each extra yuan of loans now yields just 0.18 yuan of GDP growth. The credit cycle is played out. Debt has jumped from $9 trillion to $23 trillion in five years, reaching 200pc of GDP. Keeping it going is playing with fire. The experts in Beijing know exactly what this implies, but they can't easily stop it. Political vested interests are at play.

Zhiwei Zhang from Nomura has published a note, "China: Why the Economic Recovery is Unsustainable", citing seven reasons why the latest expansion is unhealthy and doomed to wilt like a failed souffle.

The one that struck me most was the finding in the IMF's Article IV report that China's full fiscal deficit (including local government) was 7.4pc of GDP last year. It was 9.7pc excluding land sales, which should be exclude because that sort of funding is a Ponzi scheme.

This is actually worse than the US, as you can see from the chart below:



This does not mean that the wheels will fall off the Chinese economy. What it does show is how far the Chinese growth model is living on borrowed time. All the low-hanging fruit has been picked.
It will be a much harder slog from now on.