China to make a play on our currency and gold

In my last post, I asked where my country has gone.  In this one, I try to explain how our dollar will fail against the Chinese currency.

Learn Chinese

Do you speak any Chinese?  Better learn some.  You see, it won’t be long until China is the dominant economic world power.   I mean within months, not years.  First of all, if you don’t know that we have an enormous trade deficit with China and that we owe them over 1.5 TRILLION dollars, then stop reading this and smack yourself six times to help you wake up.

Interestingly, when we throw a number like 1.5 trillion dollars out there, most of you will yawn and go back to watching reruns of 24 on your TV.  1.5 trillion dollars is more than the government collects each year from individual and corporate income taxes.  It is hundreds of billions of dollars more.  Billions?  What’s that anyway?  Well, if you had only one billion in the bank making only 1% interest on your money each year, you would make almost one million dollars in interest every five weeks.  You would be able to purchase a million dollar home almost every month and NEVER touch the principal.

You could pay 200 employees about $50,000 annually off of the INTEREST alone.  And that’s just ONE billion dollars.  We are talking about 1,500 billion dollars that we owe the Chinese government and that number grows exponentially every single month.  Do I have your attention yet?

Our inability to pay

It is true that we will never be able to repay China for our outstanding debt.  That also means that China knows that they will never be able to collect on our outstanding debt.  So, what kind of “debt collection” measures is China getting ready to employ to get paid back what we owe them?  They are going to try to make the Chinese currency the world’s currency, replacing the dollar as the world standard.  Right now the Chinese and their State Administration of Foreign Exchange are making a play on the U.S. Dollar.

How do we know this?  Well, the U.S. has an untold policy of trying to stiff the very countries that loan us money.  We do it by inflating our dollars to the point that they are worthless and thus, don’t owe anything.  Here’s how it works.  Inflation makes one dollar today worth less than one dollar tomorrow.  So, if I lend you one dollar and then you give me one dollar back in a year, then I don’t actually have a dollar’s worth at the end of a year.  Thus, inflation destroys value.

So, China has to figure out a way to make sure that when they loan us $1.00, they get back $1.00 (or more.)  So, how’re they going to do that?

The Chinese Play on our money

The Chinese have been not-so-quietly buying up hordes of gold and in June of this year, they’re opening their own Gold exchange.  Currently, the global price of gold is controlled by just five “bullion banks” in London.  The world’s markets operate off of the prices that these banks set by buying and selling gold twice a day at fixed prices.  Thus, if you wanted to manipulate the price of gold, you would only have to have influence over these five banks:  Societe Generale, Barclays Capital, Deutsche Bank, HSBC and Bank of Nova Scotia.

It is impossible to say whether someone is deliberately suppressing the price of gold, but there is a great deal of evidence to suggest that it is happening.  One main piece of evidence is that gold, being a precious metal, doesn’t have nearly the volatility as silver –  another precious metal.  Both should at least have similar up and down movement in the open marketplace.

How the Chinese will make their play

The Chinese will be launching PAGE in June of this year.  PAGE stands for Pan Asian Gold Exchange.  Since they have been hording HUGE amounts of gold, the Chinese will have a much larger gold backing than the COMEX or London Gold Exchanges do.  Currently, the American and London gold exchanges hold 10% in gold.

Since China will have the most gold and will be backing their currency, the yuen, with this gold, then they will end up with what the market sees as the most stable currency in the world.  Their trades on their PAGE will be more stable than our dollar.  From there, they will be able to literally take over the world’s currency overnight.  Once they start trading, gold prices should skyrocket as well.

Shouldn’t have fallen asleep in Econ 101.

How America Fares

I wish that I could tell you that we live happily ever after once this goes down.  I can’t.  The problem is that the dollar will lose it’s place as “the most stable currency” in the world and China will emerge as the economic victor in this battle.    So, how does China reclaim the money that it lent to the U.S.?  Great question.

Here is how our debt and borrowing system works in a nutshell.  Trying not to get crazy complex with this.

• You want to borrow money to buy a house. You ask a bank.
• The bank is allowed to lend 10 times the amount of deposits they have.  Thus, if a bank has $100,000 in deposits it is allowed to lend $1 Million out.  How can it lend more than it has?  It borrows from the Federal Reserve.
• The Federal Reserve loans money to banks.  Where does it get it’s money?  By issuing bonds.
• The Chinese buy the bonds giving the Fed the money to lend.

Played all the way through, you can see that the Chinese already own the mortgage on your house.  Here is the scary sidenote.  If the Chinese already own the bonds that provide the money to lend to banks to lend to you and I, then when they are ready to fully collect, what could they take?  Everything that has a loan on it.  Your house.  Your car.  It may not be an actual China man that shows up, but they can take it if you don’t have the ability to pay the note.  Will they take it?  I’m not quite sure.  I have never lived in a country where the money system completely failed.  I don’t know what happens to loans and mortgages with that kind of failure.  What I do know is that you should be prepared.