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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

 
Commentary Of The Month
March 13, 2014
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GOING AGAINST THE U.S. DOLLAR

By Michael Snyder

In order for our current level of debt-fueled prosperity to continue, the rest of the world must continue to use our dollars to trade with one another and must continue to buy our debt.  Of course the number one foreign nation that we depend on to participate in our system is China.  China accounts for more global trade than anyone else on the planet (including the United States), and most of that trade is conducted in U.S. dollars.  This keeps demand for our dollars high, and it ensures that we can import massive quantities of goods from overseas at low cost.  As a major exporting nation, China ends up with gigantic piles of our dollars.  They lend many of those dollars back to us at ridiculously low interest rates. 

At this point, China owns more of our national debt than any other country.  But if China was to decide to quit playing our game and started moving away from U.S. dollars and U.S. debt, our economic prosperity could disappear very rapidly.  Demand for the U.S. dollar would fall and prices would go up.  And interest rates on our debt and everything else in our financial system would go up to crippling levels.  So it is absolutely critical to our financial future that China continues to play our game.

Unfortunately, there are signs that China has now decided to start looking for a smooth exit from the game.  The central bank of China has announced that it is "no longer in China’s favor to accumulate foreign-exchange reserves."  That means that the pile of U.S. dollars that China is sitting on is not going to get any higher. In addition, China has signed a whole host of international currency agreements with other nations during the past couple of years which are going to result in less U.S. dollars being used in international trade.

This week, we learned that China started to dump U.S. debt during the month of December.  Many have imagined that China would try to dump a flood of our debt on to the market all of a sudden once they decided to exit, but that simply does not make sense.  Instead, it makes sense for China to dump a bit of debt at a time so that the market will not panic and so that they can get close to full value for the paper that they are holding. As Bloomberg reported the other day, China dumped nearly 50 billion dollars of U.S. debt during the month of December. China, the largest foreign U.S. creditor, reduced holdings of U.S. Treasury debt in December by the most in two years. 

So if China is not going to stockpile U.S. dollars or U.S. debt any longer, what is it going to stockpile? It is going to stockpile gold of course.  In fact, China has been voraciously stockpiling gold for quite some time, and their hunger for gold appears to be growing. According to Bloomberg, more than 80 percent of the gold that was exported from Switzerland last month went to Asia.