Financial topics

[Reality Check]

If I understand my history correctly, and I may not,

The United States Dollar during the 1920s, 1930s and 1940s became the worlds reserve currency because the United States was the last country standing with a currency backed by Gold or Silver ( at least for the purpose of paying off foreign holders of U.S. Dollars ).

China might seek to do something similar by establishing their currency as backed by some physical commodity, rather than defined in terms of the paper currencies of other countries.

This would allow them to dump other currencies and investments based on other currencies ( like U.S. treasury bonds ) from their foreign reserves without destroying the Chinese currency in the process.

http://www.forexblog.org/2010/03/chines ... tinue.html

[OLD1953]

Trade always balances in some fashion, which is why I say there is always a goat in every group of trade relationships. Some entity or group of entities will get the short end of the stick.

The trade deal had to balance somehow, or the US dollar would have been driven to lows that would have ended the trade and possibly resulted in war. The Chinese could have bought vast quantities of US goods, but they didn't want to do that, they wanted to build their own industries. Certainly, that's the classic trade example, they send us 5000 boxes of tshirts for one box of VLSI chips, but that classic relationship totally ignores evolution and self interest (as well as graft, crime, theft, fees, inspections for protectionism, regulations -IOW, ignoring reality) and also ignores the speed of adaptation in the market. The Chinese paid for their end of the trade imbalance by buying bonds, a direct means of financing what they wanted, and directly detrimental to the US. Had they instead bought US goods, they'd have improved the US economy. By buying paper, they prevented the US from building up as trade grew. Now that the economy has crashed, they are taking possession of US property. Planned or just moving with the times, the results are the same, China got much stronger and the US got much weaker.

[Reality Check]

Trade always balances in some fashion, which is why I say there is always a goat in every group of trade relationships. Some entity or group of entities will get the short end of the stick.

The trade deal had to balance somehow, or the US dollar would have been driven to lows that would have ended the trade and possibly resulted in war. The Chinese could have bought vast quantities of US goods, but they didn't want to do that, they wanted to build their own industries. Certainly, that's the classic trade example, they send us 5000 boxes of tshirts for one box of VLSI chips, but that classic relationship totally ignores evolution and self interest (as well as graft, crime, theft, fees, inspections for protectionism, regulations -IOW, ignoring reality) and also ignores the speed of adaptation in the market. The Chinese paid for their end of the trade imbalance by buying bonds, a direct means of financing what they wanted, and directly detrimental to the US. Had they instead bought US goods, they'd have improved the US economy. By buying paper, they prevented the US from building up as trade grew. Now that the economy has crashed, they are taking possession of US property. Planned or just moving with the times, the results are the same, China got much stronger and the US got much weaker.

And the trade surpluses for China continue growing ( and trade deficits for U.S. continue growing ) to this day,
even though China has stopped buying additional U.S. debt:
http://www.census.gov/foreign-trade/balance/c5700.html
http://www.davemanuel.com/charts2/china ... _debt.html
http://www.treasury.gov/resource-center ... ts/mfh.txt

[Higgenbotham]

All of the above ground gold is estimated to be worth about $8 trillion at today's price. About $4 trillion of that is probably in a form that is either ready for shipment as bank reserves or could be made ready for shipment in short order. It would be my estimate that if China were to buy about $1 trillion worth of gold on the open market over 1-4 years, the price of gold would roughly triple, which would mean they would get about 4% of the world's above ground gold for $1 trillion. Yes, it could be done, looking at it purely from an economic standpoint.

Neither Vince nor I were limiting such purchases to just Gold. Vince mentioned Silver.

There's a lot of gold value above ground, but less of other things. I didn't mention silver because there's so little of it above ground.

To make a large transfer of dollars to tangibles in a short time, gold would be the best way to do it. Like I said, from a purely economic standpoint, it is feasible. I don't think it is feasible from a war preparations standpoint. That's just an uninformed opinion, though the wikileaks intercept from the Beijing embassy indicates the concern.

As far as purchasing and stockpiling other materials like copper, aluminum, etc., that are used up, that would have to be done over many years.

[vincecate]

All of the above ground gold is estimated to be worth about $8 trillion at today's price. About $4 trillion of that is probably in a form that is either ready for shipment as bank reserves or could be made ready for shipment in short order. It would be my estimate that if China were to buy about $1 trillion worth of gold on the open market over 1-4 years, the price of gold would roughly triple, which would mean they would get about 4% of the world's above ground gold for $1 trillion. Yes, it could be done, looking at it purely from an economic standpoint.

The first big buyers will get better prices than the last big buyers. I think we will get more than a factor of 3 increase in gold in the next few years. I think they will wish they had done it.

[Reality Check]

There's a lot of gold value above ground, but less of other things. I didn't mention silver because there's so little of it above ground.

To make a large transfer of dollars to tangibles in a short time, gold would be the best way to do it. Like I said, from a purely economic standpoint, it is feasible. I don't think it is feasible from a war preparations standpoint. That's just an uninformed opinion, though the wikileaks intercept from the Beijing embassy indicates the concern.

As far as purchasing and stockpiling other materials like copper, aluminum, etc., that are used up, that would have to be done over many years.

I will have to defer to your superior knowledge on this.

I have no clue.

[Reality Check]

It would be my estimate that if China were to buy about $1 trillion worth of gold on the open market over 1-4 years, the price of gold would roughly triple, which would mean they would get about 4% of the world's above ground gold for $1 trillion.

I would point out that the price of Gold has already more than tippled since it's low point in the 90s.

It is probably up by a factor of 4 or 5 since it's low point during the last 20 years.

[aedens]

http://www.thenation.com/article/invert ... itarianism

Insert political kill switches of acounts and the narrative "corzines" goes on.
Carlisle buys options house for physical and nominal gains.
Grandchildren are generational debt slaves.
http://www.marketshadows.com/2012/10/16 ... sses-cafe/

When do they figure out they are second natives.
http://confoundedinterest.wordpress.com ... age-reits/
Water, Wheat, Weather then and only then look.

http://www.youtube.com/watch?v=EpF1AP7g ... re=related
So come all ye young men who are building castles!
Kindly state the time of the year and join your voices in a hellish chorus.
Mark the precise nature of your fear.
Let me help you pick up your dead as the sins of the father are fed

http://www.youtube.com/watch?v=v6oKiK1K ... re=related castles are burning
To big to manage is on. TBTM @citi

[Higgenbotham]

I think we will get more than a factor of 3 increase in gold in the next few years.

Under the conditions Bernake has created a panic could easily happen. If that happens, gold could overshoot its value by a lot. As brought up previously, the paper dollars are gold backed about 40%, in theory, based on what the Fed claims is on their balance sheet, which would put a maximum price on gold of about $4500. But if people panic and don't believe the dollar supply will grow slowly or that the dollar will really be backed by that gold, then the price can go a lot higher. Bernake has taken unbelievable risk in my opinion, like a drunk on a high wire.

[aedens]

It is larger than Bens thesis. This has been a prelude only H. Remember our top down scaling discussion.
I think they consider themselves ready to reduce scope and reset the risk tables. Its been on...
The base is in rough shape. To early to claim any effective culture changes one way or the other.
The rot is so bad even decent company's are seeing the scope. This started on the tear ups we noted
and correct measures had to be attained. I would truly mark these days the final weigh of scales.
http://www.bls.gov/news.release/pdf/cpi.pdf