LewRockwell.com
ANTI-STATE•ANTI-WAR•PRO-MARKET
Ginormous Financial Shift Underway in the World
November 10, 2014
Here is what is happening:
1. The US is involved in a financial war against Syria, Ira and Russia, by reducing the price of oil to below break even. This frees-up billions in the consumer economy.
2. China is buying cheap oil by the boat loads and is switching its primary source from Iran to Nigeria.
3. Japan (read below) is switching from investing US dollars it earns by selling cars and cameras from US Treasury Bonds (which are earning less than 2%) to investing in the stock market. Japan now holds $1.2 trillion of US Treasury bonds that are almost worthless now as they will likely never be repaid. This is a monumental change. Japanese companies have been buying each other’s stocks to prop up prices. This will create a crisis for the US which is living on borrowed money to pay for military, Medicare and Social Security. Will the US just create phony electronic money now? If you follow what I am saying here, the stock market might soar while the federal government collapses.
4. See the second article below. It is written by Chriss W Street and published at BREITBART. It is the best explanation of what is going on in the world today and it says China is ready to dump its $1.3 trillion in US Treasury Bonds. Couple that with the shift from US Treasury Bonds to stocks by Japan and you have a ginormous financial tsunami about ready to hit the US. That is the reason why demand for gold and silver coins is very strong from the US Mint while gold and silver prices are being shorted by the bullion banks to stave off a bank run that would value gold over paper money. China is trying to weaken its currency so its goods are cheaper on the open market to buoy up its faltering economy.
Make your investment decisions accordingly.
Bill Sardi
http://www.zerohedge.com/news/2014-11-06/gold-yen-central-banks-and-endgame
1. The US is involved in a financial war against Syria, Ira and Russia, by reducing the price of oil to below break even. This frees-up billions in the consumer economy.
2. China is buying cheap oil by the boat loads and is switching its primary source from Iran to Nigeria.
3. Japan (read below) is switching from investing US dollars it earns by selling cars and cameras from US Treasury Bonds (which are earning less than 2%) to investing in the stock market. Japan now holds $1.2 trillion of US Treasury bonds that are almost worthless now as they will likely never be repaid. This is a monumental change. Japanese companies have been buying each other’s stocks to prop up prices. This will create a crisis for the US which is living on borrowed money to pay for military, Medicare and Social Security. Will the US just create phony electronic money now? If you follow what I am saying here, the stock market might soar while the federal government collapses.
4. See the second article below. It is written by Chriss W Street and published at BREITBART. It is the best explanation of what is going on in the world today and it says China is ready to dump its $1.3 trillion in US Treasury Bonds. Couple that with the shift from US Treasury Bonds to stocks by Japan and you have a ginormous financial tsunami about ready to hit the US. That is the reason why demand for gold and silver coins is very strong from the US Mint while gold and silver prices are being shorted by the bullion banks to stave off a bank run that would value gold over paper money. China is trying to weaken its currency so its goods are cheaper on the open market to buoy up its faltering economy.
Make your investment decisions accordingly.
Bill Sardi
http://www.zerohedge.com/news/2014-11-06/gold-yen-central-banks-and-endgame
Gold, Yen, Central Banks and the Endgame
Japan is frantically trying to stop its deflationary trap and its
immense debt burden. The population is aging and prospects look dire.
On Halloween (great timing) the Bank of Japan threw the kitchen sink at
the problem by announcing that they would increase their QE from ¥60-70
trillion, to ¥80 trillion ($700 B) and would increase its purchases of
ETF and REIT’s. In addition, Japan’s
$US1.2 trillion Government Pension Investment Fund will dramatically
rebalance its portfolio away from bonds and into stocks.
These actions have depreciated the Yen versus the dollar by about 5%
since the announcement and have created about an 8% jump in the Nikkei.
If you extend the time period to the summer, the Yen is down about 13%
while the Nikkei is up about 10%.
CHINA APPEARS READY TO DUMP ITS U.S. TREASURY BONDS
Chriss W Street August 12, 2014 Breitbart
Although investors hang on every comment by
Federal Reserve Chairwoman Janet Yellen to get insight on the direction
of interest rates and what it means for the economy and asset prices,
the real power to determine U.S. interest rates may be in the hands of
China, according to Lombard Street Research. Facing an overvalued currency that
is hurting corporate profits and slowing growth, China appears ready to
dump its $1.3 trillion in U.S. Treasury bonds to drive U.S. interest
rates up and strengthen the dollar.
The secret to China’s
spectacular growth beginning in the early 1990s was devaluing its
currency to the U.S. dollar from 2.8 Chinese yuan to 8.7 yuan. The
devaluation cut the cost of Chinese labor by 68% and launched the cheap
labor manufacturing boom. Exports as a percent of GDP grew from about
13% in 1994 to 39% of GDP in 2007.
With the export boom causing huge labor demand, approximately 200 million rural Chinese moved to cities from to 2000 to 2007. During the period, China’s Shanghai Stock Index vaulted 330%, while the U.S. S&P Index was only up 11%.
However, since 2006, the Federal Reserve and both the Bush and Obama administrations have pursued weak-dollar policies by
pushing interest rates down. This caused the exchange rate of the
dollar to weaken and the yuan to strengthen from 8.3 yuan to 6 yuan to the dollar. The +28% currency increase hammered Chinese competitiveness, and exports fell from 39% to 26% of GDP of the Chinese economy.
China tried to slow the fall of the dollar by increasing its holdings in U.S. Treasury bonds from $400 billion in 2007 to $1.33 trillion at
the end of 2013. Despite spending almost a trillion dollars on U.S.
Treasury purchases, the weak-dollar policy caused the Shanghai Index to
fall by 38%. During the same period the U.S. S&P Index rose 199%.
As the overvalued yuan caused
China export competitiveness to evaporate, China has tried to
“rebalance its economy” to avoid massive unemployment by shifting to
service industries. However, “an expensive currency in a world of weak
demand makes it impossible for China to rebalance its economy without a
collapse,” according to Lombard.
China’s $1.3 trillion of U.S. Treasury bonds sounds like 7% of the $17.7 trillion U.S.
federal debt outstanding, but a third of the debt was supposedly
“purchased” by the U.S. government to back Social Security and other
purposes. Of the net U.S. public debt outstanding, China owns about one
in every seven dollars of U.S. Treasury Bonds.
“For a long time the threat that Beijing might sell US Treasuries rang
hollow, but no longer,” according to Lombard. “Growth trouble across
the Pacific may have a much bigger impact on US yields in 2015 and 2016
than the expected pace of US central bank tightening” from the Federal
Reserve, they argue.
The People’s Bank of China in November of 2013 announced it was ending its purchase of U.S. Treasury bonds. When China sold $48 billion in
Treasuries in January, the yuan weakened by 5% to 6.3 yuan to the
dollar. China has recently been intervening in the foreign exchange
market to prevent the yuan from strengthening.
Although the International
Monetary Fund estimates that the yuan is still 5-10% undervalued,
Lombard believes that China’s currency is 15-25% overvalued to the U.S.
dollar. The easiest way for China to solve the overvaluation problem
would be to “liberalize capital flows” by removing restrictions that
limit Chinese investments to bank savings accounts and real estate. But,
according to Lombard, “if Beijing opened the flood gates, asset
diversification would cause huge outflows that would swamp inflows.”
Such action could trigger a Chinese banking crisis.
A smooth sale of its U.S. Treasury bond portfolio by China would push up U.S. 10-year Treasury bond yields by up to ½% and
U.S. interest rates by about 1%. The People’s Bank of China could
intervene in the currency markets to smooth the yuan’s decline. This
action “would slow but not derail the US recovery.”
However, yuan devaluation and
higher U.S. rates would be a lethal combination for the Eurozone
competitiveness. Most European countries have modestly improved their
trade positions with China thanks to softer consumer spending, which has
capped imports. A much weaker yuan and higher U.S. interest rates would
devastate peripheral European economies that compete with China for
lower value-added manufacturing.
The weakening of the U.S.
dollar that began in 2007 may have precipitated the 2008 global
financial crisis. China would prefer to not start another international
currency crisis. However, desperate to weaken the yuan to restart growth
and support employment, China, Lombard Street Research believes, will
soon start dumping U.S. Treasury bonds.
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