Darrell

China Urges Citizens to Buy Gold and Silver

A lot of dollars are held by foreign investors as protection against their own currency. The investors acquired their dollar holdings in an era when the dollar was the only currency used as legal tender for international transactions. We are in a new era, but the mine set of these investors are still fixated on the past era.

China is doing the prudent thing: informing their citizens that they should reduce their dollar holdings now while it is still accepted as legal tender by the world’s central bankers.

For the last several years, Russia government leaders have been encouraging their citizens to exchange their dollar holdings for gold; In America and Canada, commentators, such as you, have been telling investors for years and years to convert as much dollars as possible to gold and silver as this is the true currency and the only currency that can withstand the ravages of inflation.

In my view, China is rather late to the game in recognizing gold and silver as a currency, but not too late in warning their citizens to convert their dollars and/or other currencies into gold and silver.

Step Back and Take a Big Picture Look at the U.S. Dollar

Definitely, I think our interest rates on savings will finally be higher than the inflation rate. This will come about because over 50% of the dollar supply is help by foreign investors, foreign institutions, central banks, etc.

In most instances, foreign dollar holders are saving their dollars and not spending or investing it. These dollar holders are content to hold their dollars in non-interest bearing accounts or interest bearing accounts that offer below inflation rate of return.

As your charts point out this era is coming to an end and people want a real rate of return on their dollar holdings; otherwise they will dispose of their dollar holdings and invest in activities that will give them a profit on their investments.

In most cases they will invest in opportunities in their own country.

My predication: expect American savers to receive above inflation rate interest on their savings, American investors to be countered by those who need capital and expect our government to finally understand that its activities must be funded on a “pay as you go” basis.

Once these forces are in place, expect America to take a preeminent role in global commerce.

Is California in Need of a Bailout?

The main cause for the California budget crisis is the fact that the dollar is functioning as a national currency and as a global currency.

Because the dollar is a global currency it is accepted as legal tender in most countries; meaning that one can use their dollars to buy goods, services and/or assets in most countries in the world.

And Central banks have become the storehouse for excess dollars.

The world economy has to accept the dollar no matter what; thus hiding the fact that our government has printed way more dollars that is economically needed. Because the dollar is a global currency, resource misallocations can be resolved by printing more currency rather than by prudent fiscal management of resources.

If our dollar was a only a national currency we would not have overpaid government workers, nor would we have generous fringe benefits for government workers, and many programs and activities that are currently funded, would not have seen the light of day. Our political leadership will be forced to live within a budget.

The dollar will be replaced by a global currency that will be regulated by policy wonks whose decisions will be free of national influence.

Our government, and every other government, will have to manage their government programs with limited funds. So it doesn’t matter if social unrest occurs, the problems that caused the social unrest will have to be resolved through community input.

Roger Wiegand: After Bitter Winter, Brace for Spring Meltdown

Yellowhoard, you are correct about China, they are putting their cash hoard to productive use; China intent is to create a sustaining wealth creating society that can support itself. China may make incorrect invest decisions during this transition process, but they are steadfast in their goals and I expect them to rebuild their society in the manner they choose, and not in the manner of think tank policy makers.

It is unfortunate for us that our leadership thinks, since our dollar is accepted as legal tender in most countries in the world, we are a wealth producing society that is so prosperous that it is producing excess capital. The exact opposite is the truth.

Best to you.

On March 18 Yellowhoard wrote:
I suspect China will spend their dollars on dams, highways, airports, water projects, etc...the kinds of things that we should be doing.

They will buy fewer US bonds and more natural resource assets.

This will result in higher prices here for raw materials and higher interest rates here as well.

Then, we will get the bill for this spendfest.

With big time inflation, higher interest rates and massively higher taxes, at best, we will have massive unemployment and the food riots won't be too destuctive to civil order.



On Mar 18 11:01 AM Darrell wrote:

> Yellowhoard, don’t you know that all the debt that our government
> owes to the rest of the world is dominated in dollars? If China,
> Russia, or any other country wants us to pay off our debt, all the
> Federal Reserve has to do is issue more dollars. So instead of holding
> a bag of debt one will be holding a bag of dollars.
>
> And forget about foreign dollar holders not buying any more treasuries;
> what are they going to do with their dollar holdings? One can do
> one of three things with their dollars or any other currency: spend
> it, invest it, or save it.
>
> If your goal is to preserve your capital, then invest it in wealth
> creating opportunities. Best to you!

Roger Wiegand: After Bitter Winter, Brace for Spring Meltdown

Yellowhoard, don’t you know that all the debt that our government owes to the rest of the world is dominated in dollars? If China, Russia, or any other country wants us to pay off our debt, all the Federal Reserve has to do is issue more dollars. So instead of holding a bag of debt one will be holding a bag of dollars.

And forget about foreign dollar holders not buying any more treasuries; what are they going to do with their dollar holdings? One can do one of three things with their dollars or any other currency: spend it, invest it, or save it.

If your goal is to preserve your capital, then invest it in wealth creating opportunities. Best to you!

Energy, Inflation and Gold

Mkreisel evaluation of the US strategy on currency is correct: the world’s central bankers accept the dollar as legal tender for commercial transactions within their country. This means that Americans can go any where in the world and exchange the dollar for goods, services and/or assets.

Our politicians have developed into moralist and passed laws that prevent oil exploration on offshore California, in the Rockies, and other areas of the country where damage to the environment could occur if exploration activities took place,

Meanwhile the world central banker’s are stockpiling dollars at a rate not seen since the beginning of currency exchange system. What are they going to do with this currency hoard?

One thing is for sure our government will not allow the central bankers to use their dollar stockpiles in a way that would damage the US economy. So yes, buy commodities, but be sure that mines are in friendly countries.