Posted on 01/23/2007 9:18:46 AM PST by Tolerance Sucks Rocks
Some very worrisome news came out of China this Saturday — but it got a little more than a blip in the U.S. press.
At a high-level financial conference this past weekend, China’s Premier Wen Jiabao said, “China would actively explore and expand the channels and methods for using [its] foreign exchange reserves.”
Considering that the bulk of China’s reserves are in U.S. dollars, it should send tremors about the future of the greenback.
The dollar has been reeling in recent years. A shift by China out of dollars — as Wen is hinting — could be catastrophic.
China’s reserves recently surpassed Japan’s — now exceeding $1 trillion. Some 70% of these reserves —– more than $700 million — are in dollars.
Interestingly, The Wall Street Journal carried this critical story on page A7 of Monday’s editions with this pleasant spin headline: “China Shift on Reserves Isn’t Likely to Hit Dollar.”
Perhaps I am missing something. China keeps most of its reserves in dollars — and its leader just announced they plan on diversifying their portfolio. This means it won’t affect the dollar?
It is of note that the Financial Times placed its report on the China development smack in the center of Monday page one. Why would U.S. media wish to play down such an important item?
While we believe that in the short-term the dollar may not be hurt — the item should send tremors down the backs of U.S. dollar investors planning to hold the greenback over the long-term.
The Journal reported that Wen’s statement was the “highest-level confirmation yet that China is thinking actively how it can use its reserves, which have increased by more that six times since 2000 and made China one of the worlds largest holders of U.S. Treasury bonds.”
Later the article observed that, ". . . currency traders are hypersensitive to any signs Beijing is losing its appetite for the U.S. currency.”
The FT went on to observe, “This policy switch opens the way for China, which has been largely passive in managing its money to establish an agency akin to Singapore’s government."
As I wrote in my Financial Intelligence email in December and in our sister publication, Financial Intelligence Report, as the U.S. dollar depreciates, China is actively reviewing its holdings of gold.
When China resumes, or even announces its intention to resume, its purchases of gold, expect the price of gold to respond, as we have constantly warned, possibly in a major manner.
Of course, we believe it is not in China’s short-term interests to disrupt the currency markets or the U.S. dollar, of which it holds some $700 billion.
But, in the longer-term, we believe China will use all its strengths, including economic and military to further its path towards super power status.
In this respect, we note last week’s news (given a low profile in our mainstream media) that China had shot down one of its own defunct satellites, 500 miles out into space, at the same height as U.S. military satellites. What sort of message does that send to any observant investor or military strategist throughout the world?
To us it means that China is already on the march to super power status and is our main challenge, even in times of peace.
We urge our readers and investors to pay great heed to the recent announcements and especially actions of the Chinese, even if buried deeply in our news media.
We believe that China’s actions are set to influence such key items as the U.S. dollar (and therefore U.S. interest rates), world commodity prices, gold, and U.S. defense strategy and spending.
If you want to protect your portfolio and wealth in the coming years ahead, I suggest you read some of our recent Financial Intelligence Report issues, including:
And, they need every penny of that to keep all the bad loans in check.
Could this crisis article be any more vague? Can someone translate that for us economic dummies? Where do I shift my retirement mutual funds?
Some of us got the word. Silver is up from $12.80 to $13.20/ ounce. thats 3% in a day.
{shrug}
China should consider making an offer for Taiwan. $700 billion cash down and the rest in regular payments until the balance of payments is balanced.
At a high-level financial conference this past weekend, China’s Premier Wen Jiabao said, “China would actively explore and expand the channels and methods for using [its] foreign exchange reserves.”
Considering that the bulk of China’s reserves are in U.S. dollars, it should send tremors about the future of the greenback.
This is one of those "you can't satisfy them" things. Now the guys who've been demanding that China change its policy for years are suddenly going to start complaining that China has changed its policy.
The goldbugs are sure going to be all atwitter, that's for sure. But, one thing many fail to realize is that we've spent over $400 billion (with a "b") prosecuting our war in Iraq. In comparison, to some in China, the ability to wage war by unconventional means, an economic war, could be just as valuable. So, $700 billion with a "b" is not necessarily an unbearable cost.
Do not understand why this country constantly ignores the writing on the wall.
>> Could this crisis article be any more vague?
Maybe, but the author would have to really, really try...
>> Where do I shift my retirement mutual funds?
I'll send you my bank routing number and checking account number by FReepmail. ;-)
But seriously, I went to "moneynews.com" and didn't see any obvious signs of goldbuggery or anything, so it's hard to tell *what* they're up to.
>> China... wage war by unconventional means... $700 billion with a "b" is not necessarily an unbearable cost.
I'm not sure what you're implying. "Economic war" as in triggering raging USD inflation, rendering their $700 billion in dollar denominated debt worthless? Or what?
Triggering an economic collapse could have value to a nation that is not truly capitalist, is all I'm saying. Chinese cash reserves are not the whole picture here, either. If they want to wreck us, we've pretty well handed them the keys.
Pump and Dump ?
>> Chinese cash reserves are not the whole picture here, either.
That's true. There's a LOT more to it.
>> If they want to wreck us, we've pretty well handed them the keys.
I'm assuming that you mean "Handed them the keys by our spendthrift ways, lack of work ethic, focus on speculation vs. production, etc.". All these are problems, indeed. But...
1) We're a pretty resilient bunch, we Americans. And we have a booming economy and significant resouces (natural and human) ourselves. We may have some tough lessons to learn on the road to making the changes we need to make, but I'm confident we'll adapt as necessary. I wouldn't bet against us.
2) The Chinese are NOT the Muslims, in the sense that they have a strong self-preservation instinct. Sure, they want (maybe even expect) to be the dominant world power "someday" -- as they have been before -- but they aren't about to savage their own economy just to put us down. Furthermore, they have significant unsolved problems of their own: a mountain of bad debt in their banking system, enormous pollution problems, a huge number of really poor people, etc. -- minus the freedom to move quickly to solve them. On the other hand, the US has enjoyed freedom for so long that the whole darn mob of us, over the long haul, adapts almost organically to threats like China. Remember when the Japanese were going to own US back in the eighties?
Please excuse my Reagan-style optimism. I don't mean to be Pollyana about the very real problems we face. But I'm really not that scared of China, economically speaking.
If they wreck us, who's gonna buy $300 bln (with a B) worth of plastic crap a year from them? (Almost half of their "reserves").
We want our cheap crap from Wal-Mart.
Did we have any debt to the countries we fought in WWII at the time we entered the war? If so, what happened to that debt? Did we just declare it null and void because of the war? Just curious.
Straw man argument. That's not the policy I have wanted China to change. Nor is it the policy other critics of our coddle China policy have wanted to change. Rather, we wanted to force China to change the policy that caused the accumulation of the $$ reserves--ie pegging the yuan to the dollar.
But we made our choice as a nation. Our leaders decided in the last two administrations to tolerate China's economic warfare on us in the pegging of the dollar and the yuan. And now we begin to live with the consequences.
It's no coincidence this has happened when we are up to our neck in Iraq and right after a successful Chinese ASAT test and right after the Chinese proved we can't track their subs.
So, what do we do now? If we slap tarrifs on every Chinese oriented product (as we should have done years ago) until they unpeg the yuan, I think it's war in the Straits of Taiwan and they just let us know we have no eyes in the sky and we can't track their subs. OTOH, if we do nothing, the dollar goes in the tank. We have the china lobby in America to thank for where we are. Great job guys!
This sounds like a George Soros operation.
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