There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
- Ludwig Von Mises. 1949
UK Financial markets woke up to the news on October 6th that Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading. Moving instead to a basket of currencies including the Japanese Yen, Chinese Yuan, the euro, gold and a new unified currency planned for nations in the Gulf Co-operation council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar. Nine years into this new century we are witnessing the erosion of financial power that is the United States as the balance of power shifts to the East. For those of us fast asleep and not paying attention this shift of power began sometime ago but built up momentum under the Bush administration. So what does this mean? Oil will no longer be priced in US dollars within nine years. Also I expect more tension between Beijing and Washington over influence and oil in the Middle East. China has warned of a economic war with the US as they battle for power in the region. They (the Chinese) consume more oil incrementally than the US because its growth is less energy efficient. The transitional currency in the move away from dollars, according to the Chinese banking sources, may well be gold. To have some idea of the wealth in the Middle East the countries signed up hold an estimated $2.1 trillion in dollar reserves. Such is America’s economic weakness brought on by the banking crisis and recession they have recognised the shift in economic power. The current US deficit stands at $1.6 trillion and is expected to hit $9 trillion in the next decade. Where as China’s economy will grow at 10% per year compared to America’s 2% China will soon be the world’s largest economy, and largest creditor nation a position enjoyed by a pre-eminent America in the 1950’s. So how will we get this basket of currencies to pay for oil? China will become the largest consumer of oil, which will help push trading in it and other commodities towards a “basket of currencies”.
America on the other hand is the world’s largest debtor and can no longer look at the dollar being the world’s only reserve currency. To put it into context China has helped bailout some of America’s and Europe’s banks and the West should avoid spats and arguments as the Chinese hold some $3 Trillion dollars in foreign assets whilst not wanting to see the collapse of the dollar they themselves have to tread very carefully as they unload some of these holdings. Europe and US are calling for China to devalue the Yuan and this is something they (China) will not rush into.
Bear in mind as I mentioned Beijing needs to reduce its dollar holdings, but if it does so too quickly it will bring about the very devaluation it fears. This explains why Chinese officials appear to want this transition to take place gradually over the next decade.
As investors took note of the dollar’s weakness they rushed to the safe haven of gold. As I write we have seen two days of record gold prices, Gold futures hit a new peak of $1,049.70 an ounce Wednesday, while the spot price of gold also hit a record high of $1,048 an ounce.
The days of paper money are numbered take heed and move into gold, silver where you can. Australia has signaled a move away from low interest rates with the central bank raising rates by 0.25%. The US and Europe will probably hold low rates for a further 6 months but investors and the markets concerned about the US’s crippling debt pile and potential inflation worries expect the gold price to edge higher over the coming months.
- Ludwig Von Mises. 1949
UK Financial markets woke up to the news on October 6th that Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading. Moving instead to a basket of currencies including the Japanese Yen, Chinese Yuan, the euro, gold and a new unified currency planned for nations in the Gulf Co-operation council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar. Nine years into this new century we are witnessing the erosion of financial power that is the United States as the balance of power shifts to the East. For those of us fast asleep and not paying attention this shift of power began sometime ago but built up momentum under the Bush administration. So what does this mean? Oil will no longer be priced in US dollars within nine years. Also I expect more tension between Beijing and Washington over influence and oil in the Middle East. China has warned of a economic war with the US as they battle for power in the region. They (the Chinese) consume more oil incrementally than the US because its growth is less energy efficient. The transitional currency in the move away from dollars, according to the Chinese banking sources, may well be gold. To have some idea of the wealth in the Middle East the countries signed up hold an estimated $2.1 trillion in dollar reserves. Such is America’s economic weakness brought on by the banking crisis and recession they have recognised the shift in economic power. The current US deficit stands at $1.6 trillion and is expected to hit $9 trillion in the next decade. Where as China’s economy will grow at 10% per year compared to America’s 2% China will soon be the world’s largest economy, and largest creditor nation a position enjoyed by a pre-eminent America in the 1950’s. So how will we get this basket of currencies to pay for oil? China will become the largest consumer of oil, which will help push trading in it and other commodities towards a “basket of currencies”.
America on the other hand is the world’s largest debtor and can no longer look at the dollar being the world’s only reserve currency. To put it into context China has helped bailout some of America’s and Europe’s banks and the West should avoid spats and arguments as the Chinese hold some $3 Trillion dollars in foreign assets whilst not wanting to see the collapse of the dollar they themselves have to tread very carefully as they unload some of these holdings. Europe and US are calling for China to devalue the Yuan and this is something they (China) will not rush into.
Bear in mind as I mentioned Beijing needs to reduce its dollar holdings, but if it does so too quickly it will bring about the very devaluation it fears. This explains why Chinese officials appear to want this transition to take place gradually over the next decade.
As investors took note of the dollar’s weakness they rushed to the safe haven of gold. As I write we have seen two days of record gold prices, Gold futures hit a new peak of $1,049.70 an ounce Wednesday, while the spot price of gold also hit a record high of $1,048 an ounce.
The days of paper money are numbered take heed and move into gold, silver where you can. Australia has signaled a move away from low interest rates with the central bank raising rates by 0.25%. The US and Europe will probably hold low rates for a further 6 months but investors and the markets concerned about the US’s crippling debt pile and potential inflation worries expect the gold price to edge higher over the coming months.
