China's Torpedo Play: Yuan Set to Replace Dollar in Asia

This is going to change the world-economy big time. Just in from News Kontent: The Yuan will soon replace the dollar as the new Asian regional reserve currency. This also confirms that China now will probably dump a large amount of her trillions of reserve dollars and Treasury Bills - a horrific prospect for America with dangerous economic and dollar impacts.

Whilst stumbling over the internet in search of some news I came across a detailed article on the Asia News website headed "Chinese Yuan Set to Replace Dollar". I was somewhat stunned at this headline. This article describes that Beijing is introducing a serious currency experiment - because of the dollar's volatility and unreliability - to aid in the stability of the Asian economy. But in the Asian News article, it is fairly clear what China's intentions are - which is to completely decouple both China and Asia from the American dollar and introduce the yuan as the regional reserve currency. My guess is that other Asian governments will fall over themselves to join with this new reserve currency. This will be horrific news for America and all Americans, since it is now apparent that China(and eventually all Asia) will have little further use for the sick US dollar in this heavyweight economic region. This implementation of the yuan as the regional currency of Asia is also entirely legal - ever since Nixon trashed Breton Woods by decoupling gold from the dollar in 1971(And this is what initiated the US government's Treasury Bill/Debt exchange standard for the world). So, soon Asian members of this new reserve currency will be able to buy raw materials and commodities like Food and Oil for yuan in Asia. Ouch!! That's really going to hurt the greenback…

With the likelihood of China, Russia, Korea, Taiwan and Japan all eventually joining and also dumping large quantities of their reserve dollars in favour of the yuan currency, which will severely weaken dollar demand and therefore weaken its value, the outlook seems pretty grim for the future of the American economy. And with all those trillions of dollars coming home to roost in America, there is now nothing that the US government will be able to do to avoid inflation, or - much more likely - hyperinflation.

This is a very clever economic - as well as political - play by China and has to be admired. She is offering not only a way out for Asia in this current financial crisis - and thereby making alot of friends, but also this will enable Asian countries to decouple completely from both their feckless US dollar dependency as well as from American financial influence in the region. Interesting to realize that China will now be able to force other countries to pay her own National Debt through her own yuan Treasury Bill/Debt exchange cycle, with the eventual likelihood of the American government also contributing significantly by buying vast quantities of Yuan Treasuries. I confess that I find this possible turnaround hilarious. My, how the tables will have turned!! The Big Currency Boot will soon shift onto a Chinese foot it seems. And how can the US government possibly complain, since they have been using this same Treasury/Debt exchange mechanism for the last 38 years to so unsuccessfully pay back America's own debts?
And so much for all those CNN and Fox News economist babblers who have all been insisting that China "desperately needs" the American Markets, that China and all reserve dollar holding countries will always contribute - via US Treasury purchase - towards payment of the US National Debt forever, no matter what state the dollar is in. China, by her own actions, appears to have declared otherwise. My simple question here is: Why the hell should China or any other country pay for another country's debts? I really couldn't care less what the Keynesian or Monetarist economic explanations and reasons are for doing this - another way of putting it is - Why should just America have all the economic advantages of other countries and dollar reserve holders paying back her huge debt? Doesn't this monetary practice lead to rather lop-sided "free-trade"? It really is about time America found her own monetary feet with regard to the dollar and her massive Fiscal Debt(now $65 trillion, still rocketing skywards and heading for Mars), otherwise the dollar's demise will continue to denude all respect for the American government. I guess China has been thinking along much the same lines, don't you think?

I hope Timothy Geithner reads this, since everything he's been saying about China's currency is both laughable as well as hypocritical (As if the US government - via the beloved Fed - hasn't been selfishly manipulating the dollar for decades now for its own advantage, give me a break. For some honest background here - read Murray Rothbard's "The Case Against The Fed"). His recent critical words on China's currency are not so much an open threat to China, as a thinly veiled and tepid bluff. America's government simply doesn't have the political intelligence, respect or economic puff left to convince anybody. This article basically shows that China (and perhaps the rest of Asia) are now plainly unwilling to tow that heavy financial burden of costly lop-sided, support for the American economy any longer. And perhaps with good reason, as I've tried to explain in this piece (And no folks, I'm not a Commie). This turn of events has all arisen because of atrocious foreign and economic planning on the part of the US government - there is squarely no one else to blame and surely no-one else responsible, who have quite obviously misjudged and mishandled the Financial Crisis, Oil, The Fiscal Deficit, The Dollar and most of their foreign diplomacy abroad. Their huge self-feeding assumptions, spurred and supported by their incessant see-through propaganda and over-numerous shadow-agendas by successive US governments, have simply exceeded their capability to lead the world with any degree of perceived economic credibility or fairness from their own leadership position. Economic Selfishness, Greed and Hypocrisy is a bad combination, and never ever works politically or economically.

This news is also particularly odd in another respect. After I read this news on the Asia News website - I immediately (as I always do) went on to four of the top UK newspaper websites and searched their archives for this news in order to verify it. I also searched all the major US newspapers for this news. Not a peep. Even Reuters had nothing on this news. Evidently the Western media has been quietly and desperately suppressing the news of this new Asian regional currency development - possibly because of further fear of damaging the western financial markets. My guess is that the little-understood, illusive spectre of 'market confidence' has known about this piece of news for some time now, and is acting entirely appropriately.

Pity it has to be such bad news… Source
Update here: Chinese Political Advisors Propose Speeding Up Reforms To Make Yuan An International Currency

Things Aren't as Bad as You Think, They're Probably Worse

By David Schectman

Why is it so hard for most investors to understand that the problems at hand cannot be solved and that the US dollar and all dollar denominated assets are on the verge of a terrible tumble?

I think that there is a simple answer to this question. First of all, money managers, stock brokers and the Wall Street gang are touting a recovery of the economy and of the stock market by later this year. They are urging investors to "stay the course" and urge investors to take a long-term view. Stocks will come back, they say. The economy will rebound, they say. Yes, they will be right, I say, when I can dunk a basketball! We all like to dream...

...I say the recovery, when it finally arrives, and I suggest that it will be more like 3 to 5 years minimum down the road, will be weak at best. Meanwhile, the stock market is in grave danger of losing another 50% from where it now stands. I have pointed out many times in the past that, according to Dow Theory, the stock market will bottom when stocks are offered at great values. That is NOT the case even now. The price to earnings ratio and dividends are at least twice as high today as they should be at a market BOTTOM. Think 3500 Dow or lower.

As far as the myth that stocks are a great place to have your money for long-term investing - earlier this week Richard Russell wrote, The Dow's extreme high, recorded in 2007, was 14,164. As I write the Dow is below 6800. The Dow is now selling at less than one-half its peak price. This represents a horrendous loss in a period of less than two years. My interpretation of this violent action is that we are probably heading into another Depression. I don't know how far the Dow is fated to fall, but I do know this -- the stock market is still far away from the values that existed at previous major bear market lows.

Watching the stock market action, I'm getting the feeling (my instinct) that we're heading into chaotic times. We're going to see things that the most recent three generations have never seen or even imagined.

Over the last year I've been warning my subscribers that there's a "hard rain a'comin." The hard rain has now arrived, but it isn't showing up yet in the economy. It will -- I think by the end of the year.

My advice again is to get in cash and gold, and get out of debt. Don't buy anything that will cost you money to carry.

In July, 1932, in the depths of the Great Depression, the Dow collapsed to 41 a low not seen since then. In October 2007 the Dow peaked at 14164. The halfway level of the entire climb from Dow 41 to Dow 14164 is 7082. As I am writing this newsletter, the Dow is at 6870, 212 points BELOW 7082, the halfway level of that prodigious climb.

In other words, the Dow has given back more than half of all its gains since the bottom of the Great Depression. This shows you the mind-boggling damage that decimated the market since 2007. No one is immune. Even Warren Buffet's Berkshire Hathaway lost half its value, so far, in this brutal bear market! And Warren Buffett is now warning us that the US economy will be "in shambles" for the rest of 2009.

When I talk in a negative manner to my friend he usually says "Do you mean we are going to all live in caves?" No, I have never said that, but I do believe that the standard of living in American is going to atrophy by at least 25% to 30% and many Americans will re-visit the 1950s life style. I grew up in the 1950s in Minneapolis and lived in a small two bedroom house (cost $14,500) with one air conditioner (a small window unit), one small black and white TV and one 5 year old car (paid for in cash, of course) for my parents, and my brother and me. I walked 2 miles each way to high school, even in 30 below weather. Truth be told, I didn't have any idea that I had it so bad. We all did fine. We ate well and were well dressed. We were middle class. That was not exactly "Third World" living standards, but it was a far cry from today's McMansion, adorned with multiple large screen TVs, 3 luxury cars in the garage, annual warm weather vacations, every imaginable electronic gadget and all the trappings. The problem is that this elevated standard of living was based on credit. Very few people bought their cars and toys for cash. Very few people put down 20% or more on their mortgage. People tend to live from paycheck to paycheck and are solvent as long as they have two big incomes coming in and can meet the monthly payment schedule. Let just one of the two family incomes go by the wayside and soon the house of cards starts to tumble. You can see it happening all around you with huge increases in credit card defaults and millions of people walking away from their homes.

For a number of weeks now, more than 600,000 people per week have joined the ranks of the unemployed. A large number of them lost high paying jobs, jobs that they will never replace in kind. Professional people, business owners and executives are scrambling to find any work - any kind of a job in order to put food on the tabl e and delay the inevitable when they run out of savings and have to leave their home. My wife's grandparents lost their home in the 1930 owing but $450 on the mortgage. Her grandfather, a wonderful man, never recovered from the loss of their home. He rarely ever smiled after that experience.

In 1982, my wife and I both lost our (high paying) jobs and were on the verge of bankruptcy. I can tell you first-hand how demeaning and depressing it is to lose a job and not be able to find another. Fortunately for me, I landed a job in the precious metals industry and my life turned around in a hurry. But where will the millions of recently unemployed people go to find another middle class paying job? Would you like to support your life style on $10 an hour? Those are the only jobs out there - if you are lucky enough to find one. What will people do when their benefits run out and their savings are gone? This is a human tragedy of epic proportions.

How can the economy recover without millions of new high paying jobs? Where will the jobs come from? How can we compete with Third World countries and their low wage scale? I speak with my oldest granddaughter honestly about her future. I urge her to study hard and very carefully pick a profession that offers a reasonable future. Medicine, engineering, health care. There are a few areas where good jobs can be had, but for most Americans, the middle class will be but a memory. We will have a two class society - a small percentage of very wealthy people (with a huge tax burden) and everyone else. This is the end of the American Dream. God, I hate to write that, but for most Americans it is a fact. The next generation will not live better than we did, and just getting by will be difficult for them.

One of the reasons that I am obsessed with accumulating as much physical gold and silver as possible is so I can give my grandchildren a better chance to succeed. They will need all the help that they can get. If you have the same concerns, do not risk your capital by staying in dollars or dollar denominated stocks. Your losses will be severe and there will be no way to make it up. Gold and silver, on the other hand, are getting ready to explode in price. $2,000 gold in less than 24 months is a reasonable starting point and silver should top $50 an ounce in that environment. That's just for starters.

David Schectman - CEO, Miles Franklin - 1-800-255-1129 Source