I think by now that anyone who’s paying attention understands that the United States is a broke entity (in many aspects). If you disagree with this then I would say that you are entitled to your own opinion …and good luck with that. In fact, the markets have gotten so large (not to mention lopsided) that the Federal Reserve itself is now dwarfed in size. Yes they now have over a $4 trillion balance sheet that grew by the necessity of sopping up bad debt and assets from the banking system, but this is still very “small” in relation to the monsters they must fight every single day.
2008 was over 5 years ago, rather than wringing out the bad debt, the blight of over leverage has spread further. China who was “in the game” in 2008, has become a huge player and just in the 4th quarter alone last year levered up another $1 trillion. Much of this leverage has been done by arbitraging the yield difference between dollar and Yuan interest rates and attracted “hot money.” It is important that you understand this, much (probably the majority) of the capital inflow into China is/was hot money that can change its mind in a moment’s notice. It looks like the “moment” was 6-8 weeks ago as a credit crunch in China has begun and is in the early stages.
As much of the credit creation involved financings through commodities and real estate markets, this is where the “unwinding” will be and already is being felt. Housing sales were down 18% last month in China, 6 different cities have initiated “bailout” programs to support the real estate markets and prices are dropping. If you look at it from a broad perspective, China is going through what the U.S. did in 2007. A credit crunch has begun, they are in the early stages of bail outs, growth is slowing and the defaults are sure to follow.
None of the above is a surprise or breaking news but I do have a few questions. Will China do the same thing that the U.S. did from 2008 on and bankrupt their own treasury? I highly doubt it. My guess is that China will try to “ease the fall” initially until they see just how big the problem is and then let the load go over a cliff for Mother Nature to sort out. I know that there will be those out there that disagree with this thought process but I don’t think it is too far off.
I have written several times in the past what my theory of the big picture (China) is, I believe that now, right now is the ideal time to bring it up again. I say “right now” because we have events converging that argue for “change.” We can see the credit crunch forming and asset prices just beginning to fall. We also know that China and Russia are expected to make a big energy deal announcement this week and we also just recently found out that gold flows (courtesy Koos Jansen) out of London have slowed dramatically. I know, what the heck do any of these have in common? Follow me through, this is what I think.
I believe that the West is now hitting the bottom of the barrel (remember that pre ’60 U.S. fabricated gold has been turning up on world markets), the flow from London has slowed dramatically yet China is still hungry for gold. China has a credit crunch beginning; they are aligning with the Russians and Iranians (and Saudis?) on energy deals. The other side of the equation, the U.S. is just now showing signs of serious inflation setting in, particularly food. We also have “backed down” twice in the last 6 months with both Syria and the Ukraine. This does not show strength and is not any sort of confidence builder. I would also like to strangely add to the mix that the Pope has made a public statement about “income equality.” I say “strangely” because I think it fits as you’ll see in a moment.
OK so let me tie this up. I firmly believe that a re set is close at hand. I believe that the U.S. will lose much power and the standard of living will be decimated by a minimum 25%. I believe that the Chinese “played the game” of debt long enough to vacuum up a large percentage of the world’s gold and also to put and build infrastructure into place. I don’t believe that they even care if the current financial system collapses in a heap. I think that they expect it and they have “built” what they believe will be necessary for maybe the next 50 years with current roads and bridges “to nowhere” and “ghost towns” …leading to somewhere and becoming occupied. They also now sit on the largest hoard of gold in the world. They stand to benefit more than anyone else should the decision be made to revalue to another much higher level. I mentioned “The Pope” above; the Vatican is also a very large holder of gold and stands to benefit from a revalued gold price. Is it possible that the “income equality” he spoke of will come along with a benefit for the church’s holdings?
I do want to mention that I have read theories where China will use their newly acquired gold (along with legacy gold from dynasties gone by) to either back or ratio back their currency? Will Vatican gold also be used as collateral for a new currency? I bring up the Vatican because they are a very big holder of gold yet many forget them. I am not trying to offend anyone by mixing religion with business but it is what it is, the Vatican is a big gold holder, we are talking about “money” (which gold is) and the Pope did just recently make his public statement regarding income equality. Could it be that the world would like to use “SDR’s issued by the IMF to be used as a reserve currency?” Could it be that the world would like the IMF to actually become “international” as opposed to a U.S. puppet agency? Could Vatican gold be used as collateral by a truly “international” IMF and lend support and value to the SDR? Curious to say the least. If any of my theory is correct then the plans were made long ago. One must wonder what was said between The Pope and then President Jinping when our president visited both of them. It is possible that he knows the answers too much of this already. I know that much of this is merely hypothesis but The Vatican is a very large holder of gold which means that they cannot be forgotten regarding the topic of a re set.