China announced on Sept. 6, 2012 that any country that wishes to sell Crude Oil using its currency, the Renminbi, can do so. The next day Russia announced it will sell China all the Crude it wants and will not expect to be paid in $US.
These actions struck a Mortal Blow, whose consequences are not yet fully evident, to the US Dollar as the World’s Reserve Currency, and thus to the future Economic Health of the U.S., a blow which will eventually impel it toward Third World status.
Formerly a main source of strength of the $US was the arrangement with Saudi Arabia whereby Crude would be sold only in US Dollars. Since the World had to have Saudi Crude, it had to have $US. Not so anymore.
China and Resource-rich Russia are ascending economically while the US and Western Europe are in an Economic Decline.
Couple that New Power Reality with another New Reality, the Accelerating Decline in Purchasing Power of the Main Fiat Currencies, the $US and the Euro, when measured against Key Tangible Assets.
The recent decision by The Fed and ECB to print unlimited amounts of their Fiat Paper, was ostensibly to help revive Economies, but in reality is designed to relieve the Mega-Banks of more of their Toxic paper.
Thus the Major Fiat Currency Issuers, – the U.S., Japan, and Eurozone – are engaging in a race to depreciate their Currencies. In light of this “Race to the Bottom,” two asset classes will, and already are, appreciating in Fiat Currency Terms, and will serve as Inflation Antidotes for Profit and Protection.
They are the Monetary Metals, Gold and Silver, and the Tangible Assets which get used up – Crude Oil and Essential Foods. The wise have already begun to accumulate Physical Gold and Silver, and to invest in Agricultural Production.
China, now the World’s largest Gold producer, is increasingly a Physical Gold importer. And they are increasingly buying Food and Energy properties and producers around the World. And Central Banks around the World are increasing Gold Holdings. The Korean CB increased its Gold Holdings by 20% and Paraguayan CB by over 90%, both in July alone! (See Notes 1 and 2 below regarding Deepcaster’s specific recommendations.)
Similarly, Silver demand is skyrocketing due to increasing use in electronics, medical, and solar energy applications, among others. As with Gold, China has turned from a net exporter to a net importer.
As demand for Food and Energy continues to increase, propelled by the 80 Million persons added to the World’s population each year, expect Conflicts over Resources to continue to increase. Witness Japan’s and China’s conflict over Islands claimed by both.
The “Winners” will be those who follow The Golden Rule: Those who have the Gold (and the Energy and Agricultural Assets) Make the Rules. N.B. China is the USA’s largest creditor and wields considerable Financial, Economic, and Strategic Clout over Japan. Consider this Delightful Note from The Telegraph, U.K.:
“A senior advisor to the Chinese government has called for an attack on the Japanese bond market to precipitate a funding crisis and bring the country to its knees, unless Tokyo reverses its decision to nationalise the disputed Senkaku/Diaoyu islands in the East China Sea.”
“Beijing hints at bond attack on Japan”
Ambrose Evans-Pritchard, The Telegraph, 9/18/2012
The 21st century Power Reality of Resource Conflicts has begun.
Another Power Reality is MainStream Media News Manufacturing and Disinformation Dissemination. So far as financial and economic news is concerned, the flow of Disinformation has if anything intensified. Presumably to stave off a rush to Inflation Assets, the MainStream Media has disseminated The Fiction that the U.S., and certain others, are deleveraging. That is a Myth. Consider:
“In the second quarter of this year:
- Consumer credit in the US grew by 6.2%, the highest pace in nearly five years;
- US non-financial credit market debt grew by 5%, the highest pace in nearly four years;
- Total household debt increased 1.2%, the highest pace in over four years;
- US treasury debt has increased 110% in four years;
- After contracting by 1.2% in the first quarter, state and local borrowing is now up 0.8%
“The numbers don't lie. Genuine deleveraging would imply a reduction in debt, especially non-productive debt. Genuine deleveraging would see market prices determined by fundamental forces of supply and demand, not by government intervention, manipulation and inflationism.
“Instead, we get a profound form of 'mission creep' by central banks, whose policies are now destroying the very same economies they are nominally tasked with protecting.
“In the words of veteran analyst Jim Grant, the Fed has evolved well beyond its origins as a lender of last resort and not much else, and now is fully engaged in the business "of steering, guiding, directing, manipulating the economy, financial markets, the yield curve..."
“It is a wholly specious argument to suggest that the creation of trillions of dollars / pounds / euros / yen out of thin air will not ultimately be inflationary; it is like saying that storing an infinite amount of tinder next to an open flame does not constitute a fire hazard.
“Admittedly, the explicit inflationary impact of historic monetary stimulus will not be fully visible until those trillions are circulating in the economy in private exchanges between buyers and sellers-- rather than squatting ineffectively in insolvent banks' reserves. But financial markets are nothing if not capable of anticipating future trends.”
“The Greatest Trick the Devil Ever Pulled”
Tim Price, SovereignMan.com, 9/24/2012
In fact, Price Inflation is Intensifying already (e.g. 9.3% in the U.S. already [see Note 3 re. Shadowstats]) as the International Economy continues to slow. Stagflation is the name of this Reality (first visible in the 1970’s), and we now approach Hyperstagflation. Investor Antidotes to the foregoing are:
- Maintenance of accurate information flows.
- Long Positions in Monetary Metals and Tangible Assets that get used up such as Crude Oil and Essential Food Commodities.
September 27, 2012