Europe Debt Crisis

For the past few weeks, the media has been focusing on Greece and its sovereign debt problems. It seems like the mainstream media has finally caught up with the trouble in Europe.  

As expected, the politicians succumbed to printing money and borrowing and bailing Greece out. It would have been a wise option to let Greece go bankrupt, because this will give a signal to investors that the EU is serious about building a strong Euro currency. But of course, politicians always don't like this option.

Now that the EU (the US is gonna join in the bailing too) is bailing Greece out, there will be more countries asking for assistance - Portugal, Spain, Italy and Ireland. 

Investors have been getting out of Euro into the perceived safe haven of USD, but they will soon realise that the US is in worse shape than Greece. The USD has been strengthening against the Euro, but people are mistaking this for a real strength in USD. If the USD is fundamentally strengthening, gold price would have been dropping. Gold price has held steady around the $1100 level for the past few months, and it breaks $1,200 a few days ago.

The entire world is in debt, and it will never be able to repay all its debt. NEVER. It is just mathematically impossible. Our debt-based monetary system has eventually shown its fatal flaws. The weakest link falls first, and then there will be a cascading domino effect on the other nations. 

This whole system will implode on itself spectacularly. The question is whether we can position ourselves to profit from this. In a few years' time, there will be a huge transfer of wealth from currency holders to those holding real assets such as precious metals, especially silver. So, be prepared for it!

Well done Obama

The feel-good president just passed the Healthcare bill. Well done, another mind-boggling crazy spending program. The US cannot afford it. This is irresponsible and immoral, because ultimately the public, both current and future generations, will have to pay for it.

Well, on the brighter note, this will accelerate the collapse of the USD. And hopefully the people can understand the flaws of the currency quickly and move towards a sounder currency sooner rather than later.

So much stupidity is going on that I am just too lazy to explain them all.

Economic Warfare

We are now witnessing the opening salvos of an economic warfare between the US and China. Whether politically-motivated or just trying to err on the side of caution, China is declaring that it will start selling off the riskier US-denominated debts - those not guaranteed by the US govt/treasury. 

So the US still thinks that it can dictate what China should do. In reality, they should be very afraid of China, and listen to what the Chinese has to say, and pay attention to what the Chinese can do. The Chinese can easily screw the US by mass-selling their US-debt holdings, and stop buying US debts. It is already happening. China's US debt holdings have begun to drop last year. And now the Chinese government is getting its people to sell off more US-debts.

What this means for US: More and more dollars flooding the market (as if Helicopter Ben is not enough), and a real chance of hyperinflation. Well, even without this Chinese action, Helicopter Ben will make sure that hyperinflation happens.

Today, I read in the papers a comment by an economic Nobel Laureate Joseph Stiglitz that people are over-reacting to US debts, that the US can easily avoid debt-default just simply by printing money. Is he nuts? This is exactly the kind of Keynesian garbage that 99% of the earth's population has been brain-washed into believing. This guy is missing a point here. Sure, the US can print and print, but by doing this, they are still going to default: through inflation. Their currency will be so worthless by then.

The US will default at current trajectory. It has defaulted before. The most obvious in recent history being the default in 1971, when the US told the world that the USD is no longer redeemable for gold. The world has trusted the USD to be as good as gold, which is why they allowed the Bretton Woods system to exist in the first place. But alas, things are not to be.

The recent focus on Greece is just a distraction. Soon, people will start noticing that the US is in an even bigger hole.

China, for one, has already noticed this long ago. And they know they have the economic trump card to make US bleed massively. After such a long time, they finally declared the obvious: sell US debts.

And so it begins..

I'm a farmer!

Just started work in an aeroponics farm today! It's a great chance to study agriculture.

Next 10 years = years for precious metals and agriculture commodities! The bull run should last even longer for agriculture.

I am also in the process of setting up a company dealing with silver bullion, with a friend. Our website - in addition to silver bullion products - will contain educational information on what money really is, how money comes about, and what the banks and the governments around the world are doing to our money in the modern world. More details will be posted later!

On another note, I've recently watched Obama's State of the Union address too. It's the same old stuff. No fundamental changes to the way the economy functions. Only on-the-surface changes which he thinks are real changes. And then he outlined some contradictory plans too: Ever-increasing spending, tax cuts for the majority of the nation, more borrowings, and at the same time talking about getting the budget deficit under control.

The US can only fund its $3.8 trillion in spending plans for this year with $2.4 trillion in tax revenues. Where will the other $1.4 trillion come from? From foreign lenders, and from the printing press. But with China already scaling back in their lendings (and starting to sell US denominated debts), and other nations following suit, the printing press will become a much more viable option.

Note that I use the word 'spending', because the US are not investing their money.

This is the madness of Keynesian Economics. Spend your way out of trouble! Too bad they will soon realise that a national budget is no different from a household budget.

It would be interesting to watch his State of the Union address again one year from now and see what he has to say.

Why China Sells Bonds, US has no exit strategy

http://sg.news.yahoo.com/ap/20100124/tbs-as-china-bank-of-china-618743b.html

China has $2.4 trillion in reserves. It has so much cash that it does not know what to do with it! Why then, do they need to sell bonds (or debts)? Definitely not because they need more cash.

They are preparing the world for the coming decline of the USD. With the reckless inflationary policies of Washington, the world has been gearing itself up for the day when the USD is no longer the world reserve currency. For decades, trades around the world has been done in USD. This demand for USD has allowed the politicians in US to spend recklessly, thinking that it can go on forever, thinking that the model of consumption by the US and production by the rest of the world is sustainable. Now it's all coming to an end.

China is selling bonds to increase the liquidity of the Yuan. It is as obvious as that! The Chinese know that they are going to be the next economic superpower, eclipsing the US, and they are preparing the world for it!

The US commercial real estate looks set to burst next. When that happens, we can expect the politicians there to print even more money. This dose of money may prove to be fatal, the final straw for their dollar. Bernanke keeps saying that he has an exit strategy. He thinks that he can stimulate the economy and then exit. This will never be possible. Once the stimulus is removed, all the propped-up bubbles will collapse again. The best exit strategy is not to stimulate at all! All that he has done is to stimulate the collapse of the dollar.

The subprime crisis was caused by Greenspan and Bush. Interest rates were lowered to 1% back then. And budget deficit was around $200 billion if I recall correctly. With these, they created this monster of a subprime bubble, and the worst recession since the Great Depression. Fast forward to today, and we see interest rates at 0%, and budget deficit of more than $1 trillion!! Imagine the chaos that is to come. It's madness.

I have no sympathy for Bernanke and his Washington and Wall Street cronies at all. They have destroyed Americans' lives and the value of the Dollar. I would really love to see their faces when the next crisis hits.

Does China need US demand? Why is China not letting its Yuan go up?

Here's a 2nd post in a day, a continuation of the previous post. Seems like there's a word limit on blogger posts.

The Chinese need not sell to the US. The issue is not with demand, but rather, supply. And the Chinese has no problem with supply. Demand need not be stimulated. Anyone will desire a big house, a big car, a plasma TV, good food, a private jet, and the likes! If the USD falls in value and they stop buying from the Chinese, the Chinese can now consume their own goods.

Why is China not letting its Yuan go up?

People say that China is doing this so that it will give their exporters an edge. A lower Yuan means that the Chinese goods are cheaper and more competitive in the global market. Also, the Chinese may need some time to develop their own domestic market, so that they will be less reliant on exports to the US. But maybe this is just half the story.

I guess maybe the Chinese are just buying time to get rid of their USD bonds, the $800billion in USD that they hold. If the Chinese let the Yuan appreciate now, it will mean that the USD drop a lot. It will mean that 1/3 of their reserves get wiped out. And it will mean the Chinese lose a lot of money. If you have been immunised to this sort of figure, here's something to put things into perspective: the US took 200 years to build up its monetary base to $800billion!

I think the Chinese knows that the USD only has one direction to go, and that is downwards. So the faster they sell away all their US debts, the faster they let their currency appreciate, the better it will be. But they are delaying this, maybe because of lack of political guts, or perhaps they are just buying some time for themselves first.

Principle of Conservation of Purchasing Power, US Consumption, US-China-Gold Dynamics

A lot of people argued that the US is the engine of growth for the world. They consume what the world produces, that is why we have so much prosperity. People will say that without the US consuming, the world will hit a great Depression. So the world has no choice but to keep on lending to the US, and then the US use that money to buy from the rest of the world.

Well yes, this scenario is somewhat true, but only decades ago. It is totally different now. Even if the USD falls today, even if their demand falls, it is not going to matter to investors who know where to put their money. Even if the world falls into a great Depression because the US can no longer buy all the world's stuff, it is not going to matter to these investors. Stocks may crash everywhere, markets may go down everywhere. But the one thing that will not get destroyed is this: purchasing power.  Purchasing power is like the Principle of Conservation of Energy in the laws of Physics. We should have the Principle of Conservation of Purchasing Power in Economics too (do we already have this? I'm not sure about this, but a quick search on Google returns no relevant results). Maybe people will understand things better that way.

Purchasing power will never get destroyed even if stock markets crash, or even if the world trade gets reduced by 30% or 50%. Purchasing power merely gets transferred from one place to another. Yes if the US falls, we all will be affected, including China. But the Chinese Yuan will have so much more purchasing power. Just simply by printing money and borrowing like crazy, the US is transferring its own purchasing power to other parts of the world. The other nations don't even have to do a thing! And imagine what the Chinese Yuan will be worth once their government lets it appreciate. The smart investors will invest in things that will increase their purchasing power. And one glaring obvious place to be in is China. 

From my rants in my previous post, we all know that the economic power of the world is migrating from the US into China. When the USD falls, US can no longer buy that much goods anymore. The Chinese will be able to enjoy the fruits of their labour. They will be able to consume the stuff that they produce, instead of having to ship them all to the gluttony of the US.

Well of course, when the US crashes, the whole world will be affected, including the ordinary Chinese people. There may be temporary hardship for the Chinese. But I think their government is smart, and they are developing their domestic market right now so that they won't be too reliant on exports to the US. Hopefully they will make it in time to lessen the adverse impact on their own market. For the rest of us, oh well, better put our money in places where the purchasing power will be magnified!

If China can trade all their $800billion of USD right now for gold, they will do it in a heartbeat. The problem is that this sum is too huge, and they will cause a lot of disturbance in the gold market. And another problem is that there are not enough people who want to buy the USD from them, and there are not enough people who want to sell gold to them.

There has been a lot of complains from the US that the Chinese are artificially suppressing the Yuan. What will happen if the Chinese actually appreciates the Yuan? The US will be doomed right now. The Chinese suppress the RMB by selling their RMB for USD. Selling more of RMB means the 'price' of RMB goes down. When China stops selling their RMB for USD, the 'price' of RMB rises, the 'price' of USD falls. So right now if the Chinese heeded the US' call for them to stop supressing the Yuan, the US will just be meeting its doom faster. Is this all just a theatrical act by the US? They 'need' the low Yuan to further perpetuate their bubble, not a high Yuan. Maybe they don't know what they are really talking about.