Daily WebLogs

Email, Print, Share. CLICK HERE.

China trying to spend dollars while still worth something

Jul 22, 2009


China has been quietly purchasing a lot of gold lately, and one particular deal has been kept completely private in order that it not show up on the market statistics. With all their talk about abandoning the dollar as a world currency and substituting "a basket of currencies" in its place, they obviously want the Yuan to be the lion's share of that "basket."

Back in 1944 when the US government had more gold than any other nation on earth, the dollar became the world currency. It looks to me like China sees that as a history lesson. If you want your own currency to dominate, the best argument is to have the most gold.

But they are still awash with money from their exports, and they know that they need to spend it soon before the value of that money (mostly dollars) degrades, due to recent US monetary policy. Their biggest problem is that they want to buy companies that have real value, and those are often "strategic" and thus off-limits. They were blocked from buying into Rio Tinto in Australia. Yet they were able to gain control the Panama Canal in 1999 and became its "Gatekeepers."


The fact is, we want to buy those cheap products imported from China, but we don't want them to be able to buy anything of real value from us. Ideally (from the American perspective), they would purchase manufactured goods from us, instead of buying the raw materials to make those goods and sell them to us. If they would buy manufactured goods, our own work force would not be so unemployed. But why buy high-priced goods from us when they can manufacture stuff so much more cheaply using Chinese workers?

There does not seem to be any real solution to the problem, without dethroning the god of free trade.

Many corporations are now claiming some good profits in the second quarter of 2009, and these are being touted as "the beginning of the end of recession." The problem is, these profits are mostly due to "cutting costs" (i.e., laying off more people and/or sending the jobs to cheaper labor overseas). These are not long-term solutions. These things only mean that the problem will get worse in the next year as fewer American consumers have the money to buy anything.

So don't be fooled by the political rhetoric. They are now talking about the FBA (Future Bailouts of America) coming out to about $24 TRILLION. Nearly all estimates are under-estimates in the end.

Meanwhile, back at the Treasury, sales of US bonds are going better than expected, though not great. Some say that the statistics indicate that the Federal Reserve has begun to set up foreign bank accounts through dummy companies, in order to funnel money through them to buy US Treasury notes. In other words, since other countries are slowing down the pace of buying our debts, and the Fed does not want to appear to be openly "monetizing the debt," they appear to be monetizing the debt in an underhanded way, so as not to alarm investors.

Such underhanded practices do not solve the problem, but add to it. Even so, they figure they can postpone problems and make the system crash on someone else's watch. Everyone has been postponing the problems for a long time, but eventually it always comes due. How long can they continue this, I don't know. But each new postponement puts the world economy into a more precarious position, requiring less and less of a nudge to bring it all crashing down.

I wonder if perhaps an Israeli attack on Iran might prove to be the trigger point.

There is at least one European government that is putting in orders for millions of potassium iodate tablets, and pressing for delivery in October. Britain's Sizewell nuclear plant is in the news, as they are taking steps to provide people in their area with potassium iodate in case of nuclear accident.

"The Sizewell nuclear power station in Suffolk is the focus of controversy as a pill which can protect against some radiation is made available for the first time.

"This summer, for the first time, families living within 2.4km of Sizewell will be given potassium iodate to store at home as a precaution against radiation leaks.

"The tablets are being paid for by Sizewell Nuclear Power Plant and will be distributed by Suffolk coastal District Council."


India has also been in the market.


They are getting worried as the political situation deteriorates in the Middle East, and their tensions with Pakistan make them even more nervous.

Potassium iodate is the most inexpensive way to protect the thyroid gland in case of nuclear exposure. I call it "cheap thyroid insurance." Like any other insurance policy, you hope you never have to use it, but if you do, you'll be glad you had it. And right now the probability is getting pretty high that the Israelis will attack Iran's nuclear facilities, and only God knows what sort of chain reaction that will cause with their allies--China, Russia, Syria, and others. One thing is certain . . . it would not be a limited "surgical" attack on an Iranian nuclear facility. It could not possibly end there. It would almost certainly trigger a broader war in the Middle East that could have consequences world-wide.

We appear to be nearing a major focal point in history, and this could well be the time that Isaiah 29:1-6 and Jer. 19:11 will be fulfilled (destruction of Jerusalem) and the casting out of "Hagar" (Jerusalem, Gal. 4:25-30).

I am not writing this to frighten anyone, any more than Jesus talked about these things to frighten His disciples. If these things cause you to fear, then your faith is yet imperfect, and the solution is to work on building your faith, not to ignore the realities of world history. These things are going to come, ready or not. It is better to be ready than not. But Jesus said in Luke 21:28,

"But when these things begin to take place, straighten up and lift up your heads, because your redemption is drawing near."

Sharing / Blog Info

Category: Financial
Blog Author: Dr. Stephen Jones