CHINA’S HUGE US DOLLAR RESERVES BEGIN TO DROP

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A quick review of important economic news: as the Israelis rush us towards the Apocalypse, we must also keep an eye on the Derivatives Beast and its adventures here. China is preparing to replace the US as the major world trading/currency power. This is inevitable, of course. They wanted this back in the mid-1980’s when the leadership finally figured out how international trade and the floating currency business operates. Just as other groups exploited this flawed, stupid system, the Chinese have mastered it and now, are preparing to take control of it.

Bloomberg 

China’s foreign-exchange reserves dropped for the first time in five years as a result of the global financial crisis, Market News International reported, citing Cai Qiusheng, head of the investment management bureau under the State Administration of Foreign Exchange.

The current figure must be lower than the peak of about $1.9 trillion, Cai told a trade forum in Beijing over the weekend, the English-language wire service said. He didn’t specify which period he was referring to or give a figure.

When it ballooned to $2 trillion and global amounts ballooned to over $4 trillion, the US should have taken this as a warning sign.  Always, these things are symbols, not actual things.  They delineate what is going on.  They are clues.  What is a ‘clue’, anyway?

 

This is from a very ancient story about the Minotaur and the Maze.  The ‘clue’ was a literally a ball of thread. If you followed it, you could find your way out of the Maze after fighting the Minotaur.  The Minotaur had these horns which we also call ‘the horns of Dilemma’.  The horns where we are trapped.  Like in, from a frying pan into the fire sort of traps.  The sudden upsurge in global FOREX reserves holding more and more dollars was a warning sign.  This showed us clearly that the free trade nonsense was causing such disorders and imbalances, the only way to keep it going was for all our traders to hold more and more dollars in their FOREX reserves!

 

The IMF knows this.  It tracks this and could see how, after the latest ‘free trade’ rounds, the US was in such dire straits, the only way to keep trade growing was for ALL nations that trade with the US to hold tremendous debts and dollars.  This is now collapsing. If China is unwinding its dollar-FOREX reserves, Japan is also doing this.  And all other nations are now doing this.  Just like the unwinding of the Japanese carry trade, this unwinding is vast and powerful.  The force behind it is growing, not weakening.  

 

Right now, the biggest trade surplus nations who are losing trade with the US are unwinding this FX mess slowly and carefully.  But it has its own force!  Soon, this tiny leakage will open up a bigger and bigger hole in the dam holding back many trillions of US dollars parked in many FX funds across the planet. When this dam suddenly gives way, all world trade will cease, totally.  We are far from finding the bottom here.  We are at the beginning, not the end, of this collapse.

 

Senior official: Renminbi likely to be used as currency for forex reserves_English_Xinhua

 

China’s currency, Renminbi, is likely to join other international currencies to be used for forex reserves by other economies, according to Wu Xiaoling, former vice governor of the country’s central bank and now the deputy head of the financial and economic committee under the top legislature.

    Wu made the remarks in her article carried by the latest annual issue of the leading business magazine Caijing.

    Wu wrote that China should make preparations in its economic structure and its financial regime for its currency to be internationalized….In China’s neighboring countries, there were calls for the yuan to be used to settle bilateral trade payments, she said. China has signed settlement agreements with eight neighboring countries, including Russia, Mongolia, Vietnam and Myanmar, assuming a voluntarily choice of settlement currency, she added.

 

Asia, by far and away, holds the most FX dollars.  And they can’t restrain the flow any longer.  Money is like liquid stuff: it has to flow.  It can evaporate.  It can stagnate.  It can rush forwards.  It can turn red.  It has many characteristics of not only water, but is intimately tied to sex and emotions.  There are many romantics out on the internet who are convinced that if we cling to the golden rock, we would not have panics or depressions.  

 

Gold has nothing to do with any of that. Nor does it prevent wars.  Far from it!  It does stop INFLATION.  Inflation, though, is only one of the dire goddesses in the Cave of Wealth and Death.  Depression is actually the worse sister goddess.  She spawns wars and revolutions as well as killing and starving millions of people.  She has been forgotten for a while due to global inflation caused by the US producing too much ‘liquidity’, i.e., allowing everyone to make debts with dollars so long as Asian traders held enough of these debt dollars in sacred FOREX temples. 

 

This is what is now collapsing.  After the borrowers in the US began to default.  After the US banking system cracked up and crashed.  After the Japanese carry trade abruptly ended in the summer of 2007.  All these things are happening because the liquidity of the present system is no longer being dammed up in Asia.  It is now flowing downhill.  And downhill is into the new dark pool: ZIRP. 

 

The Chinese recognize this ZIRP system for what it really is: the only way for the West and Japan to transform depression into inflation.  How is that?

 

Simple!  If the central banks give away money and we only have to pay the principal and even not that, we can borrow to infinity!  This will regain us the waters that used to flow from the banks of Japan and the US into our own pockets!  We get inflation back!  Of course, this will be total inflation.  And this is where gold does step in: it expresses inflation early on.  The dollar is falling while gold and oil are both climbing.  

 

Gold does NOT reflect inflation.  It reflects fear.  But oil: it IS inflation!  All global inflation surges always appear in public in oil.  Unlike assets and stocks which reflect the ease of gaining loans so one can spend future money today, oil doesn’t depend at all on the money supply!

 

This is MOST IMPORTANT: people think inflation comes from money making via lending.  To a small extent, it does.  But if major banks can squirrel away trillions of trade dollars in FOREX reserves, we have no inflation.  But when OIL goes up in price, all of these central banks  and trade economies must buy oil at higher and higher prices.  Since oil prices trigger prices of all energy products to rise from coal to wood to gas, etc, this means all systems needing energy to function will either see profits fall or prices rise and this triggers an economic tornado like the one we saw last year.

 

To raise the price of oil is easy as pie: create war tensions in the Gulf and Middle East.  Have countries in the ‘stans’ of Eurasia go crazy.  This causes oil prices to shoot upwards.  Russia wants this and is supplying military equipment for this purpose.  And then there is Israel: they chose this moment, when oil was super-cheap, to launch a new war.  The price of oil is now climbing!

 

Britain’s GDP will decline at fastest pace since the 1940s – Business News, Business – The Independent

 

The UK economy looks set to contract at its fastest pace since the 1940s next year, according to a report by an independent group of economists.

 

The Centre for Economics and Business Research (CEBR) expects the UK’s gross domestic product to decline by 2.9 per cent in real terms over the next year, the biggest annual fall since 1946, when the country faced mass de-mobilisation after the Second World War. Business investment – forecast to collapse by more than 15 per cent in 2009 – is pegged to pose the biggest risk to the economy while household expenditure is expected to fall by 1.8 per cent in the New Year.

 

The slow death of England beginning in 1914, continues.  After a century, by 2014, England will be one of the planet’s basket case countries.  This is the fate of all global empires when they dumb down.  Instead of facing reality in 1919, England sought to dominate the earth, again!  The empire expanded. And collapsed from 1936-1970.  One by one, all the provinces were either freed or fell to invaders from other, stronger empires.  Instead of facing reality, the British made up propaganda stories about how they were fighting for ‘freedom’ when they were really fighting to keep populations enslaved by Britain, just for example.

 

Or, as a global empire, they pretended their war with Germany was a big, mean Germany attacking a small, valiant island. Rather than Germany attacking the world’s biggest empire.  The US uses this sort of childish propaganda, too.  ‘Why are people attacking us?’ we whine.  ‘We aren’t doing anything evil.’

 

Well, today, yet again, a nation subsidized and armed by the US is blowing up barely armed civilians in Gaza just like we are doing in Afghanistan.  

 

Bloomberg.com:

 

Vietnam’s central bank devalued the dong by 3 percent to help exporters after the Southeast Asian economy expanded at the slowest pace in nine years and the trade deficit widened.

The State Bank of Vietnam fixed the reference rate at 16,989 dong per dollar, versus 16,494 yesterday, according to its Web site. Policy makers maintained a currency band that allows the dong to rise or fall 3 percent a day, said Nguyen Quang Huy, director of the regulator’s foreign-exchange department.

 

Everyone is trying to weaken their currencies.  But if oil is beginning to climb again, this can be fatal.  Hyperinflation is obvious, isn’t it?  We are in a duality world now: everything will be either hyperinflation or ZIRP.  This yin/yang mess means there will be increasing instability and wider and wider spreads between trade partners as well as chaos in banking.

 

Economy ‘on knife-edge’ as Japan faces deflation fear – Times Online

 

Japan’s economy — the second-largest in the world and a barometer of global consumer demand — was described yesterday as being “on a knife-edge” amid fears that it might plummet into deflation within months.

The warnings, which come from senior private sector economists and from the Japanese Government, follow a Boxing Day release of dismal industrial, consumer and employment data.

Within hours of passing a record 88 trillion yen (£660 billion) budget, senior government sources told The Times that Japan would “inevitably” be forced to adopt new measures to halt the meltdown. The country’s spiraling economic crisis arises primarily from the sudden halt in American consumption and the acute slowdown in the flow of components and goods throughout Asia. The strong yen has savaged the competitiveness of Japanese goods such as cars and electronics at a critical moment.

 

japan can’t cope with a strong yen.  The Chinese are satisfied with this response.  Most news services don’t review the obvious past: in July, 2007, Japan and the other G7 nations were absolutely HOWLING at China to raise the value of the yuan while at the same time, giving Japan a pass when the yen was 120 to the dollar and dropping against the yuan and the euro.  So China decided it was time for the yen to get stronger.  This little detail is ignored by nearly everyone.

 

The Japanese are desperate for the old status quo.  ‘Liquidity’ in the West depends on the Japanese carry trade.  No one wants to admit this since it wrecks the entire premise and philosophical underpinnings of the entire G7 enterprise!  So everyone pretends to be clueless.  This is a GAME.  Played so the public can’t figure out what is going on here.

 

BBC NEWS | Europe | Putin says ‘cheap gas era’ ending

 

Mr Putin said the cost of extracting gas was rising sharply, therefore “the era of cheap energy resources, of cheap gas, is of course coming to an end”.

The Gas Exporting Countries Forum (GECF) meeting in Moscow has agreed a charter and plans for a permanent base.

Some observers say the GECF may develop into an Opec-style producers’ cartel.

This speculation increased with the news that the charter had been adopted and that GECF leaders had agreed to establish permanent offices in Doha, Qatar….The EU gets 42% of its gas imports from Russia, mostly via pipelines across Ukraine.

 

Now, not only oil will be a source of headaches, so will gas.  The coal retaining pool spill in Tennessee shows us that all alternative energy systems have risks.  EPA: Rivers high in arsenic, heavy metals after sludge spill – CNN.com, The sludge is now polluting everything for miles around. 

The agency said it found “several heavy metals” in the water in levels that are slightly above safe drinking-water standards but “below concentrations” known to be harmful to humans.

“The one exception may be arsenic,” the agency said in a letter to an affected community. “One sample of river water out of many taken indicated concentrations that are very high and further investigations are in progress.”

Oh, the spill wasn’t all that bad except for deadly arsenic!  And drinking THAT accumulates over time and kills all living things.  Isn’t that splendid?  The rush to make energy for cooling and heating homes and running our lights has spawned these toxic coal burning plants that also are adding dangerous gases to our atmosphere.  Aren’t we fortunate that the sun has suddenly gone quiet?  

 

The shale oil production areas are equally toxic.  The waste water pools are so poisonous, the industry has to have faux guns go off to scare away waterfowl who die nearly instantly when they swim in these deadly waters.  Why are we so anxious to destroy this planet?  As the Israelis and Palestinians battle over postage-stamp size plots of land, we are poisoning vast acres of prime planetary systems!  

 

And this is part of the continuing contradiction of life on our planet.

 

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