China's manufacturing sector activity shrank in March for a fifth successive month, with the overall rate of contraction accelerating and new orders sinking to a four-month low, the HSBC flash purchasing managers index showed on Thursday.
There is no way China gets out of this without a major economic and stock market decline.
The current government may not even survive.
If China is crashing and I cannot doubt it, then commodity prices will not be going higher.
ReplyDeleteBut if they do crash, how will that affect the US economy? It will be disastrous. In such a situation, tinkerers of monetary and fiscal policy know how to do only 2 things: print money and deficit spend.
DeleteAnd if China is no longer buying US Treasuries to finance the US government's shenanigans, you're left with monetary policy, i.e. printing money. The USD crashes and commodities do in fact go higher, at least relative to the dollar.
If there is still confidence in the dollar at that point, which is unlikely, global prices will rise as well.
However the power vacuum left by the dumping of the dollar as the world's currency will see some country try to fill the void, but imo gold will become the standard of intl exchange once again, possibly led by China itself, who has massive quantities of gold and is basically planning ahead for all of this. See my reply below.
"The current government may not even survive."
ReplyDeleteThey won't go quietly. Expect a major war to erupt.
It's already happening.
Delete" Beginning in 2008, China's local government loans exploded from $235 million to $1.6 TRILLION"
"China averages 493 mass protests EVERY DAY"
and 14 other interesting facts about China: http://www.businessinsider.com/facts-about-china-2011-9#beginning-in-2008-chinas-local-government-loans-exploded-from-235-million-to-16-trillion-2#ixzz1mStIzAfO
What are the most likely ramifications of a China collapse to the Bernanke boom?
ReplyDeleteCommodities will be going higher. Sure there will be demand destruction but there's already signs of that happening and basic material prices are still climbing.
ReplyDeleteI think the ruling reason for climbing prices will continue, ie Fed printing.
Stansbury Research thinks China's Yuan is going to become the world's next reserve currency, thanks to massive secretive gold purchases. They intend to make their currency backed by gold.
ReplyDeleteYou can see the video here: http://www.stansberryresearch.com/pro/1202CHINAPT2/WOILN327/PR
Essential points to take away:
The Chinese have 1.5 Trillion dollars in US dollar reserves (over 100% of our annual corporate and individual tax revenue). They know the US dollar's role as the world's reserve currency is coming to an end. They want to get out of holding these dollars, but don't know how to do it.
They will end up buying gold with that money. This will do 2 things:
a) Increase the demand for gold and send the price per ounce of gold skyrocketing, both by basic supply and demand and by the psychological effects of a Chinese vote of confidence on gold;
b) The opposite holds true for the dollar: both the supply and demand of selling the US dollars on the exchange rate of the dollar and the psychological effects that a vote of no-confidence in the dollar will have.
China already became the #1 buyer of gold in the world in 2011. Although it is doing this secretly so as not to kickstart points a and b mentioned above. They actively promote gold ownership to its citizens, something that virtually no other country on earth does.
China is also the #1 producer of gold, and every single ounce of gold produced in China must be sold back to the government by law. It produces around 300 tons of gold per year, over 50% more than the world's second largest producer, Australia.
In 2009, China announced suddenly that its gold reserves had increased by 75%. This was because of secret purchases of gold b/w 2003-2009. This moved them to the 6th slot of the list of countries with the most gold reserves.
In June 2012, China will open up the Pan Asia Gold Exchange (PAGE).
Why are they doing all of this?
1. Diversify away from massive holdings of a foreign currency backed by nothing but a foreign government's promise
2. Establish a world-class currency, backed by as much gold as possible, to act as an integral or leading currency in world trade.