Saturday 16th February 2008 12:19 p.m.
It's been an utterly tedious week in the gold market, so this is a weekend rant, not to be repeated. On Monday 11th, I wrote about the 2008 Beijing Olympics in China and how it might be perceived in the Western world. I am suggesting that 'the West' will be in a dangerous economic recession at the same time as all the recession-hit Americans, British and Europeans are watching the brand new cities and stadiums in China on their TV sets. This phenomenon will be a key in moving trillions of $ of investor money out of the Western world and into the new 'New World' of Asia, as the Western world itself sees inexorable hyperinflation in costs and deflation in assets. It will be a key mood change in the world, highly significant if you believe Bob Prechter at the Elliott Wave website and his theories of Socionomics.
Later this week, we have seen the inevitable Western propaganda response. Firstly, we saw Steven Spielberg having a fit of conscience (do these people have one?) over the Chinese involvement in the situation in Sudan-Darfur. He has now withdrawn from his 'creative input' into the Beijing Olympics. Now why might this be? I hope he has donated all fees received so far to a charity sending relief aid to Darfur. I wonder if he has? Meanwhile, the English Daily Express tabloid newspaper is highlighting the human rights abuses in China - as if they are something new - it's a big country; it's an old regime!
You can see that our politicians (including media personalities like Spielberg who are part of the same set) might now be making their move to try to sabotage the Beijing Olympics. Why were they generally so pro-China up until last week and now they have turned against it? Look no further for the answer than to the recent revelations of systemic fraud in the entire American and Western World's financial system. It is now necessary for the Western politicians / Wall Street / media establishment to make a hit against China because the situation is going out of their control. The momentum is moving towards Asia too quickly - before these people have had the opportunity to take their investment money out of the West and put it into Asia/China. They have to hit the Beijing Olympics hard now in order to slow down that momentum and allow more time for them to move their investment money more gradually from West to East - to try to initiate a retrenchment/recession in China and a takedown in their political and economic momentum to give some breathing space and keep the situation under their control. Their hand is being forced because the utter state of corruption of the Western financial markets and the paper US$ standard system is being revealed to the world in all its glory sooner than expected.
A similar takedown was achieved with the Asia crisis of 1997-1998, which was simply an act of economic warfare by America against South Korea, Taiwan and the other 'Asian Tigers' who were in rapid growth mode until some overleveraged financings there allowed the Western credit ratings agencies to downgrade their debt almost instantaneously from AAA grade towards 'junk' status, meaning that most investment money had to be moved out of there almost immediately to meet investment regulations that forbade many funds to hold junk debt.
Now, the Americans would love to do that to China but they can't. Instead the credit ratings agencies are well behind the curve in admitting that most AAA rated American debt may be junk and never to be repaid in real terms. Furthermore, China holds a trillion dollars (that's $1,000,000,000,000 folks!) in reserves, much of that in US Government bonds. They could sell a chunk of that and drive interest rates in the West through the roof, crashing the property markets instantly and strangling the consumer if it came to the point of playing hardball. They don't want to do that yet because they want to use Sovereign Wealth Funds to move into productive assets (companies, natural resources) and also buy up as much of the key assets of America as they can, whilst diversifying gradually away from the US$ paper junk that pays a dismal 2% to 4% yield (1.9% on 2 Year Treasury Notes!), while the US$ debt principal drops 20% a year on the foreign exchange markets. It's just a terrible investment so holding it must be a political move. The Chinese are chess payers, yes?
So, is the gradual diversification out of the paper US$ by China and the gradual movement of Western investment money from the moribund G7 countries towards industrial Asia going to be interrupted by a dose of economic warfare? Watch this space! You won't read this anywhere else because I might be wrong, but don't bank on it.