Friday, November 22, 2013

China Is Getting Closer To Pulling The Plug On The Dollar

"...the reason for living was to get ready to stay dead for a long time" - Addie from, "As I Lay Dying by William Faulkner
Many of you are aware by now that China has been methodically eradicating the use of the dollar in its bi-lateral trade with most of its largest trading partners.  It has put in place large yuan-based currency swaps which are now used to settle trade with most of Asia and some large western hemisphere countries, including France and the UK.  You are also aware of the enormous amount of gold that China has been importing and accumulating (LINK, for example).  It's funny how research and investment analysts can find the data to prove this but somehow the World Gold Council and the GFMS seem to be unable to find it.

It looks like China is now getting ready to take the next step in "unplugging" the U.S. dollar as the world's reserve currency:

The People’s Bank of China said the country does not benefit any more from increases in its foreign-currency holdings, adding to signs policy makers will rein in dollar purchases that limit the yuan’s appreciation - LINK
I have been thinking for quite some time - dating back to 2003, to be exact - that China's end game, "check mate" move would be to eventually eliminate the dollar from its trade activities and roll out a new currency that would be backed by gold.  At the same time China would implement a huge revaluation of gold in yuan terms in order to establish the necessary market value of its gold hoard to create an effective backing of the new currency.  Now, of course, it won't happen exactly like this but in order to envision how a global currency reset will occur we need to think along those lines.   However the mechanism is effected, the result will be a massive devaluation of the dollar.  This is something that we all know is an inevitable event and that the natural forces of the market would eventually enforce,  but something that the U.S. elitists have been deferring  by means of insidious political and military-based  coercion.  And in order for it occur it will likely require that China tosses a straw on the camel's back in order to help the natural market forces override the U.S. repression of them.

There's really no way of determining a time-frame for the actual event so please don't ask me my view of when it will happen.  What I will say is that we can observe certain "environmental" signals to let us know whether its sooner or later.  Based on the blatant and extreme corruption exhibited by our political and business leaders and based on what I sense is desperation and unrest being reflected by a growing number of dissatisfied middle class people ("middle class" here is defined as anyone who does not have enough liquid wealth to buy their own politician, so 99.9% of us),  I suspect that "the event" is a lot closer than most us can possibly discern.

And it looks like the U.S. dollar and the American way of life is getting ready to stay dead for a long time.


  1. I think at the 11th hour there will be an agreement between all the major players to find a solution to the debt and revaluation of currencies. The entire system is too interdependent on each major player. China has it's problems with debt also, and other countries who have resources need a place to sell them. The U.S. is still 300 million consumers and will still need materials and finished goods. The final nail in the coffin is still a ways away.

  2. Silver Certificates and Counterfeit Mobs

    So instead, below is a speech from JohnF from 1961. There is plenty in it that is as timely now as it was then, if not more. It contains as many, if not far more, potential offenses against the then-PTB (who are very likely the same as or very similar to the current PTB). When thinking about men like JohnF, I am reminded of the need for inspiring, thoughtful and honest leadership. The increasingly declining quality of the ‘facsimilies’ thereof that are served up to us (as opposed to rising up from among the people), has gotten to be alarming as the decades rolled on.

    I am not sure that a single, charismatic orator upon whom all the hopes and aspirations of a nation can be projected is necessarily the best idea – there are more than a handful of very negative examples of such personality cults. Yet examples of ethics, morals, convictions, humanity and courage are needed in every society, and we can no longer look to our ‘leaders’ to display such values.

    Despite not REALLY having come into the job merely of his own talents and skill, to me JohnF would be among the examples of executives who truly held the office with an attempt to represent, empower and protect the populace. Enriching himself and circle seemed less a priority. That his family continued to have a higher-than-average incidents of deaths due to causes other than ‘natural’ seems to speak for itself. It's reasonable (if perhaps sentimental) confirmation of the fact that their views and activities were ruffling the wrong sort of feathers. Lone (and lonely) deranged gunmen apparently are quite common in society, just waiting for the opportune moment to wake up one day to coincidentally change history…

    While I remain hopeful that all of our societies are capable of generating such leadership – the timing of this gets more remote and less likely by the day. Societies are known for being able to sustain what ultimately prove to be unsustainable development models longer than individual humans can stay alive… Yet worthy leaders can only present themselves to a knowledgeable, active populace. Despite the (seemingly) glacial pace of this process, I would argue that he spread of knowledge in the populace is beginning to speed up. Let's hope it happens fast enough.

  3. Check out the antics of TurboTaxy Timmy in crashing the system in 2008:

    The Fed's holdings of Treasury debt peaked in August 2007 at $790 billion, and over the next 17 months the Fed sold off more than $300 billion of those holdings. That's right, in the middle of the worst liquidity crisis in decades, with banks folding and with Congress handing out tax rebates, the Fed was pulling liquidity OUT of the banking system.

    but what's this? check out the U-Turn in Fed assets held:

  4. Nicaragua canal boosts China power
    By Arnie Saiki

    Since it first opened in 1914, the Panama Canal has provided the primary shipping conduit linking the Pacific and Atlantic Oceans through the Americas. And in that time, it has also represented US dominance in the region. Even after the canal passed entirely into Panama's control in 1999, the United States has maintained a strong military presence in the region, establishing its continuity as the region's key economic and political player.

    All that is about to change.

    China's role in the development of this canal is partly about expanding its global trade. But it's also a way for China to push back against Washington's militarized "Pacific Pivot", as well as the US drive to establish a Trans-Pacific Strategic Economic Partnership (commonly shortened to Trans-Pacific Partnership, or TPP) that seeks to contain China's global economic growth.

    Unless China is willing to adopt rules that will rewrite its regulatory and investment laws to conform to the standard of this agreement - for example, by curtailing its state-owned investments and opening its state-owned enterprises to Wall Street investment rules - China will remain outside the TPP.

    According to a recent press release by the United Nations Conference on Trade and Development, China's tremendous investment in many African countries has driven up FDI in Africa, defying the global trend. In Nigeria alone, China's investment rose from $75 million to $1.2 billion between 2004 and 2010. The United States, while still a much larger investor, has been unable to match the growth of China's investment in resource-rich developing countries.

  5. Great post Dave, thank you.

    Signs of $USD hegemony waning are all around us. I disagree, however, that an 11th hour solution will be reached. This will primarily be a $USD revaluation (devaluation) and I think many overestimate the importance of $USD reserves held by foreign central banks. Why would China try to force this devaluation on the dollar when it is already happening? Why be "the bad guy" when credibility will be so vital after the dollar crash? I think a gold backed Yuan is unlikely as the world will have learned a valuable lesson about having a single, dominant (world's reserve) currency. The end of the dollar as we know it is a good example of the triffin dilemma. The chinese surely know this. I think we need to look to the Euro (the currency not the political union) as a model for the future. The Euro has a single mandate of close to but not over 2% inflation with gold marked to market as a (the) reserve asset. The last thing the world needs is a new dominant reserve currency.

  6. The era of small wars for the US is coming to an end. The next one will be major with Russia and China. I believe that the US will have a humiliating defeat - Russia will contest us militarily and China will have the economic advantage. I bet Obama will try to create some war as the economy goes sour. Bush put us into two which kept jobs available. Except we have non-leadership here. It's going to look like Germany after its loss of WWI.

    walmart is giving out flyers saying "pre-black friday sale". first time I've ever seen one.

  7. Chinese gold demand and the World Gold Council’s estimates

    The conclusion is that between them gold absorbed by private sector purchases in Hong Kong and China amount to at least 2,130.7 tonnes in the first nine months of this year, or 2,841 tonnes annualised. This compares with the WGC’s estimates from their quarterly Gold Demand Trends of only 818.6 tonnes for the same period, or 1,091.5 annualised. Given the hard evidence of Hong Kong and SGE statistics it appears that the WGC’s figures substantially understate the true position. Furthermore, any analysis of gold demand will fail to account for the increase in gold ownership not constrained by national boundaries.

    Estimates of China’s demand also exclude government purchases of gold in foreign markets, and gold that may have been acquired and imported by wealthy Chinese from foreign locations without going through Hong Kong or the SGE. So without taking into account these extra factors China and Hong Kong’s combined imports from the rest of the world exceeds all other mine supply by at least 580 tonnes on an annualised basis.

    It now becomes clear that without significant leasing by Western central banks total Asian demand could not be satisfied at current prices, because there is no evidence of material selling by existing holders of above-ground stocks, with the exception of ETF liquidation which is minor compared with the amounts involved.

  8. Dave, as a Chinese, I highly doubt the Chinese government would launch a gold-backed CNY. Inflation and printing are in the genes of every government including the Chinese. You can look at how the M2 in China increases exponentially. However, I believe gold will play an important role in China' reserve and that's for sure.

  9. There's a ton of websites out there.
    And yet, upon reflection, I can't think of a single one that gives me more insight per minute reading.

    Dave, If you ever think you're posting into a vacuum and don't have an impact ... stop.
    Your pithy thoughts cut thru events like a knife in butter.

    1. Thanks anonymous - appreciate the feedback

    2. Anonymous speaks for the majority of us here (not including the occasional troll that occasionally crawls out from under a bridge to make some snarky remark.)

      You present what is really going on, the action on the street (main street, not Wall Street/fantasyland) and let us know what we are seeing with our own eyes and living through is real, not the propaganda put out by DC.

      Just as the prophet of old was the lone voice crying out in the desert, you are one of the few voices of sanity in an insane world.
      You not only warn us of the economic mess happening now and will happen later, you do so without using scare tactics, you are not trying to sell us survival gear or precious metals or the like, you present your facts and information and leave it up to each of us to decide what to do for ourselves.
      By avoiding the temptation to sell your readers stuff and steering clear of Armageddon talk, you gain a respectability and trustworthiness that few gold bulls can attain.

      Thank you Dave for all you do and then some.

  10. very interesting communication just posted over at jsmineset on asian demand, gold storage facilities, and attempts, which sinclair suggests are about to be realized, to break the COMEX paper stranglehold.

  11. The Shanghai Futures Exchange (SHFE) may price its crude oil futures contract in yuan and use medium sour crude as its benchmark, its chairman said on Thursday, adding that the bourse is speeding up preparatory work to secure regulatory approvals.

    "China is the only country in the world that is a major crude producer, consumer and a big importer. It has all the necessary conditions to establish a successful crude oil futures contract," Yang Maijun, SHFE chairman, said at an industry conference.

    Yang's presentation slides at the conference stated that the draft proposal is for the contract to be denominated in yuan and use the type of medium sour crude that China most commonly imports.

  12. Anyone see Armstrong's latest lies & hysterical rants?
    The way he's screeching now like a stuck pig tells me we must be very close to something never seen before.
    It doesn't help knowing that now over the past 2 months or so I can find with no effort on many sites the apparition clearly well-shaped now appearing right in front of his lying eyes that he will never draw attention to:

    Not sure of the time horizon, but looks to be about 1 year at most.
    Maybe Old Yeller will give it the final boost after Bennie gets TF outta Dodge.

    1. M.A. seems to struggle with sanity at times but I thought this post on Friday was excellent.

  13. China extends self-defence perimeter!

  14. Could the Rothschild dynasty influence China to the extent that the game hasn't changed , only the players moving the game pieces have ?

  15. Über-warehouses for the ultra-rich
    Ever more wealth is being parked in fancy storage facilities. For some customers, they are an attractive new breed of tax haven
    Nov 23rd 2013

    This new addition to one of Europe’s busiest air-freight hubs will not hold any old goods, however. It will soon be home to billions of dollars’ worth of fine art and other treasures, much of which will have been whisked straight from collectors’ private jets along a dedicated road linking the runway to the warehouse.

    The world’s rich are increasingly investing in expensive stuff, and “freeports” such as Luxembourg’s are becoming their repositories of choice. Their attractions are similar to those offered by offshore financial centres: security and confidentiality, not much scrutiny, the ability for owners to hide behind nominees, and an array of tax advantages. This special treatment is possible because goods in freeports are technically in transit, even if in reality the ports are used more and more as permanent homes for accumulated wealth. If anyone knows how to game the rules, it is the super-rich and their advisers.

    Because of the confidentiality, the value of goods stashed in freeports is unknowable. It is thought to be in the hundreds of billions of dollars, and rising. Though much of what lies within is perfectly legitimate, the protection offered from prying eyes ensures that they appeal to kleptocrats and tax-dodgers as well as plutocrats. Freeports have been among the beneficiaries as undeclared money has fled offshore bank accounts as a result of tax-evasion crackdowns in America and Europe.

    The concept is an old one.

    Several factors have fuelled this buying binge. One is growing distrust of financial assets.

  16. The Iranian agreement reached yesterday kind of upset the Saudis with the way the US handled it. China is now importing more oil from the Saudis than the US does. Makes sense for Saudis to shift from US petrodollar to Chinese Peking Duck currency.

    It really seems that what were our allies, somewhat bought and paid for, are getting more aggravated at us and are wishing privately or not so privately they can do a "job" on the US--why ally with us if we do not take care of them and buying them off with dollars is not the same as it was 30 -50 years ago.

  17. COOL do it soon ..Gold Silver copper needs to go up it has been supressed by the corrupt Banks emphasis mine !!!

  18. you are really outdoing yourself Dave!
    i'm seeing your articles on some heavyweight sites.
    Keep up the good work, my friend.

  19. Faucets at $1,000 Abound as Home Equity Spigot Opens: Mortgages

    A year ago, New Jersey contractor Michael Mroz’s customers were focused on saving money when renovating kitchens and baths, he said. Now, with a resurgence of home equity lending, they’re ready to pay for the best.

    “People don’t want granite countertops -- they want marble costing at least 25 percent more,” said Mroz, owner of Michael Robert Construction in Westfield, an affluent town less than an hour’s commute to Manhattan. “Money is so cheap today, people can splurge on $1,000 faucets.”