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YuanWe have mentioned in many previous posts that eventually the ultimate value of all fiat money is exactly zero. The operational word here being eventually. Up to this point, this was all futurecasting; playing with known truths and dusting crystal balls. This is no longer the case for the USD. China is making sure of it.

It is no secret that China has a deeply seated hatred for US, as most civilized (and many un-civilized) countries also have. And with very (excellent!) reasons.

The difference is that they are doing something revolutionary about it. They are taking small steps to ensure the demise of the USD. Those steps are now becoming more and more clear and what is more important, they are accelerating. There is no longer any doubt and no way to stop the upcoming change.

IN GOLD CHINA TRUSTS

It is not absolutely clear what exactly is in the mind of Chinese leaders, but it had to do with gold, in a very big manner. Consider the following facts:

  • Chinese people and Chinese leaders have been accumulating gold ever since the 70's. Why? Everybody believes that China is irreversibly set on fiat currency. But if this is the case, why accumulate Gold in vast quantities?
  • It is no longer possible to track how much Gold is China accumulating because very recently China enabled direct import of Gold into Bejing. There is still plenty of Gold flowing into China through Hong Kong, but plenty more is going directly to the capital. Why? Why would China take steps to ensure nobody can trace their Gold purchases? What are they hiding?
  • China stopped reporting Gold reserves. Why? What are they hiding?
  • China's Gold reserves are estimated to be higher than of other "industrialized" countries, yet China continues to buy more and more. Why?
  • China just expanded globally the Shanghai Gold Exchange which trades in physical Gold (primarily). In this manner they are de-coupling themselves from the so-called London market (also dealing in physical gold) and Comdex (dealing primarily in derivatives). Why? Why have a global physical Gold exchange in China? Would it be because it confers China increasing amounts of control over physical Gold?
  • China is the world's largest producer of Gold, yet, they not only do not sell this Gold, but they purchase more. Why? Why is the Chinese government systematically accumulating Gold?

THOSE OBSOLETE USD's

Step by step, China is undermining and making the USD obsolete. Consider these facts:

  • A new security system between Asia, Russia and Iran has been proposed. This system excludes the US and the EU.
  • China and Russia signed the biggest natural gas contract in history, and it is not denominated in USD but in Rubles and Yuans. To this effect, they set up a swap facility to exclude the USD.
  • There is a new agency in Russia and China that rates Rubles and Yuans hence enabling transactions to be performed entirely without USDs.
  • China has many commercial agreements with BRICS countries and EU which are not denominated in USD.
  • China and the BRICS have also created an alternative to the World Bank and a fund for financial crisis that entirely excludes USDs.
  • It is rumoured that China convinced Rusia to force Gazprom (the giant natural gas company) to push for payments in EUR instead of USD as originally agreed.

THE FUTURE IS NOT GREENBACK

The US economy is one on the weakest in the world, and it weakness is based on the monstrous debt that they have accumulated (you can see the figures in our Special Projects section).

However, more importantly than debt is the unique position of the USD following the Bretton Wood agreements. The US can print almost as many USD's as they wish simply because other countries accept them as "assets". In other words, the US continually exports inflation.

However, all this is coming to an end. The Chinese are making sure of it.

As more and more countries switch to other currencies they will be demanding less and less USD's. This means that the US won't be able to export as many USD's as in the past. Which means that they won't be able to export inflation. Which means that the true historical printing volume of USD's will be revealed with devastating consequences. Can you say hyperinflation? Economic crash? Depression? No recovery?

All this spells gloom and doom for the USD and hence the US. This spells the dawn of a new power: China.

BACK TO GOLD

It is clear that the Chinese government is "out to get" the US (economically speaking), and by all measures so far they will be able to manage it. Which brings us back to Gold. What most so-called economic analysts keep saying is that China will never become a true economic power because its entire economy is based on the Yuan which is a fiat currency. Whoever, what if? What if the Yuan does not represent the Chinese end game? What if Gold represents the ultimate end game? If this would not be the case, why would China take all the physical Gold accumulation steps described above? Remember, as paper money begins to lose its value Gold's will begin to increase. For the Chinese (even traditionally) Gold is not a matter of "money" but a matter of "wealth". For Chinese people, Gold is only Gold if it is solid; all this "paper" Gold is only for "trading" but never for wealth. If this is indeed the Chinese end game, then this is indeed check mate. The USD is doomed.

As the Chinese curse goes, we will indeed see interesting times ahead for the USD.

CONCLUSION

We have mentioned in other articles our views on Gold. Buy gold. Most common coins. Store them. Forget about them. It would seem that this is indeed very sound advice for the times ahead of us. Interesting times indeed!

But then again, it is entirely your choice. Make it a good one.

Note: please see the Glossary if you are unfamiliar with certain words.

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