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Guest Post: China, Inflation & Gold: China Created Paper Money And Paper Money Then Created Inflation

Tyler Durden's picture


From Darryl Robert Schoon of 321 Gold

China, Inflation & Gold: China Created Paper Money And Paper Money Then Created Inflation

Ralph T. Foster in his invaluable book, Fiat Paper Money, The History and Evolution of Our Currency, writes that paper money made its first appearance in Szechwan, a remote province of China early in the 11th century.

Because of a shortage of copper coins,
provincial officials had begun circulating iron coins; but the
difference in value and weight between the two metals caused unexpected

As Foster writes: [housewives needed] one and one-half pounds of iron [coins] to buy one pound of saltPaper
was the answer. People began to deposit their iron money in money shops
and exchanged deposit receipts to transact business

The money shops’ deposit receipts then
began circulating as money. But the money shops soon issued more deposit
receipts than their supply of coins and by 1022, confidence had eroded in both the notes and the supporting iron money [and] government authorities closed the private note shops.

When the Chinese government intervened,
the government quickly discovered the advantages paper money - at least
to the issuers. The Sung dynasty immediately banned the issuance of
paper notes by private money shops and on January 12, 1024, the Sung court directed the imperial treasury to issue national paper money for general use.

In the beginning, the imperial treasury
backed its paper notes with cash coins equal to 29% of the paper money
issued. Eventually, however, the Sung, like each succeeding dynasty,
would print far more money than it actually possessed in backing.

The consequent loss of confidence in paper money caused Chinese scholars to
question the nature of money...Ye Shi (1150-1223) spoke out against
excessive amounts of what he called “empty money” when he observed how
paper inflation hurt the
economy; and scholar Hu Zhiyu (1127-1295) concluded
that only backing gave paper value and blamed the retreat from
convertibility for the loss of public confidence.. paper money, the
child, is dependent on precious metals, the mother. Inconvertible notes
are therefore “orphans who lost their mother in childbirth”.
(page 19)

For the next 600 years, succeeding
dynasties would each attempt to utilize the advantages of paper money
and avoid its disadvantages. Not one dynasty was able to do so. All
attempts to use paper money ended in runaway inflation and dynastic

By 1661, China finally learned its lesson
and the new Qing dynasty officially outlawed paper money. Regarding
China’s 600 year experiment, Foster writes:

Over the course of 600 years, five
dynasties had implemented paper money and all five made frequent use of
the printing press to solve problems. Economic catastrophe and political
chaos inevitably followed. Time and again, officials looked to paper
money for instant liquidity and the immediate transfer of wealth. But
its ostensible virtues could not withstand its tragic legacy: those who
held it as a store of value found that in time all they held were
worthless pieces of paper.
(page 29)

Today, almost 1,000 years after paper
money first appeared and 350 years after China banned its use, China’s
is again issuing excessive amounts of paper money; and, once again,
paper money’s initial prosperity is about to give way to inflation and
economic chaos in the celestial kingdom.

Southern Weekly, a Chinese language publication, recently noted: China
has not only been the country that prints money at the fastest rate but
also been the country with the largest money supply in the world in the
past decade. China’s M2, a broad measure of money supply, was up 19.46%
at the end of November from a year earlier...This compares with 3.3%
and 2.5% of annual M2 growth in the US and Japan respectively over the
same period…

China's money supply, M2-to-GDP ratio over
the past decade is the highest in the world. The nation with the
longest history of excessive money printing and consequent inflation has
clearly forgotten its past. The past, however, has not forgotten China.


Asian nations, China and India in
particular, have a long history with gold. Precious metals as a hedge
against chaos is deeply embedded in Asian cultures and when chaos takes
the form of inflation, gold is the default hedge; and, today, inflation
is on the rise.

China raised interest rates for the
third time since mid-October ahead of a report forecast to show
inflation accelerated to the fastest pace in 30 months.
- February 8, 2011, Bloomberg News

This has profound implications for the
price of gold. As inflation continues to increase, the buying of
physical gold by the Chinese will send the price of gold skyrocketing.
In fact, it has already begun.

On February 2nd, the Financial Times reported: Fears
of inflation have also driven demand for gold as a retail investment…
Precious metals traders in London and Hong Kong said on Wednesday they
were stunned by the strength of Chinese buying in the past month. “The
demand is unbelievable. The size of the orders is enormous,” said one
senior banker, who estimated that China had imported about 200 tonnes in
three months.

On February 8th, Karen Maley in Australia’s Business Spectator discussed this growing phenomenon in her article, China’s gold tsunami: It’s
not hard to understand the growing Chinese enthusiasm for gold.
Officially, China’s inflation rate was 4.6 per cent in December, but
many believe the actual inflation rate is considerably higher. But
Chinese savers earn a paltry interest rate of 2.75 per cent on one-year
deposits, which means that they face negative real interest rates.

Faced with these dismal returns,
Chinese households and businesses have been pouring money into physical
assets, such as food, real estate, and commodities as a hedge against
inflation. Chinese authorities are now trying to quell property market
speculation by making it more difficult for buyers to get bank finance
for their second and third investment properties, and have begun
experimenting with property taxes in some cities.

This has caused Chinese investors to
turn to gold. According to the Sprott newsletter, China, which is
already the world’s largest gold producer, imported more than 209 metric
tons of gold in the first ten months of 2010 alone. This compares with
the estimated 45 metric tons it imported in all of 2009.

2011 IS HERE

The response to the 2008 global collapse
set in motion an even greater danger - runaway inflation. In 2009 world
governments attempted to offset the global collapse in demand with
historic levels of liquidity. The excessive printing of money has now
led to higher prices.

Prices, especially food prices are rapidly rising. Tyler Durden,, makes this point with stunning clarity: One
of the benefits of America finally seeing what Zimbabwe went through as
it entered hyperinflation, ignoring for a second that the Zimbabwe
stock market was the best performing market, putting Bernanke's
liquidity pump to shame, is that very soon everyone will be naked, once
companies finally realize they have no choice but to pass through
surging input costs. And while some may be ecstatic by the S&P's
modest rise YTD, it is nothing compared to what virtually every single
agricultural product has done in the first month of 2011. To wit: Corn
spot up 7.76%, wheat up 5.63%, Rice up 10.08%, Hogs up 10.16%, Sugar up
5.64%, Orange Juice up 3.33%, and cotton.... up 17.08%. That's in one

Rapidly rising food prices have already
contributed to governments falling in Tunisia and Egypt. Other
governments, well aware of the risk that inflationary food prices pose
to their continued rule, are now stockpiling food to prevent further

This buying will only drive the cost of food even higher: Jim
Gerlach, of commodity brokerage A/C Trading, said: "Sovereign nations
are beginning to stockpile food to prevent unrest." "You artificially
stimulate much higher demand when nations start to increase stockpiles."

"This is only the start of the panic
buying," said Ker Chung Yang, commodities analyst at Singapore-based
Phillip Futures. "I expect we'll have more countries coming in and
buying grain.
- Read here


Even the hardened paper boys on Wall
Street are aware of inflation’s impact on the price of gold. The
meteoric rise of gold in the late 1970s was caused by rapidly rising
prices. In the last decade, however, gold began moving steadily higher
as did all commodities in a disinflationary atmosphere. That, however,
is about to change.

With gold already moving higher, the
increasing inflationary impetus will send the price of gold far beyond
its present price. Gold’s spectacular ascent in the 1970s is now about
to be dwarfed.

Last night, I, Ralph T. Foster, our wives
and another couple had dinner together and the topic turned to the
future price of gold. There was agreement that while its ascent was
certain, gold’s ultimate price was a matter of pure conjecture since the
reference points used to value that price would be virtually worthless
pieces of paper money.

History is the context within which our
present circumstances present themselves. Of late, change has been so
rapid that many believe the past is merely that which preceded the
present. They are wrong.

History is about to repeat itself, albeit
in a new iteration. Paper money’s journey to the west and back again is
about to reach its fatal climax. Paper money’s ten-century drama is
almost over; and while a new and better era will replace it, the
collapse of the present era will be unprecedented in magnitude.

h/t John


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Wed, 02/09/2011 - 23:12 | 948320 Zero Govt
Zero Govt's picture

Yep leave anything in the economy, like money supply, to a bunch of crones in a central planning committee (instead of a free competitive market) and you're 100% guaranteed the outcome... a complete fuk up

Wed, 02/09/2011 - 23:23 | 948350 thefatasswilly
thefatasswilly's picture

"Free competitive market" led to the current central planning committee.

"Freedom" is one of the most overrated concepts in existence, because people are far too stupid to hold on to it.

Wed, 02/09/2011 - 23:33 | 948380 tmosley
tmosley's picture

White just gets dirty and becomes black eventually, therefore black is better, even if you want white, and white is better in every way.

That's awesome logics right there.

Wed, 02/09/2011 - 23:35 | 948386 thefatasswilly
thefatasswilly's picture

. . .

I didn't say that. I only said that "white" is overrated. I didn't even compare "white" and "black."

Don't try to ridicule my logic when you can't even get reading comprehension down.

Thu, 02/10/2011 - 00:38 | 948507 tmosley
tmosley's picture

Freedom is overrated because freedom leads to not freedom, therefore, we should pick something other than freedom, ie slavery to start out with.

Excellent logic there.  Don't criticize my "reading comprehension" when you fail at basic logic.

Thu, 02/10/2011 - 01:29 | 948589 thefatasswilly
thefatasswilly's picture

. . . please point out where I said that we SHOULD pick something other than freedom. In addition to this, do you really see the world in such black and white absolutes? Do you not realize that there is more than right / wrong? Us / them? Think outside of your fucking western, Christian, black/white mindset, Jesus fucking Christ. You are a simple minded fool.

Once again, ALL I said is that freedom is overrated (and that it necessarily transforms into fascism).

Also, once again, brush up on your reading comprehension, holy shit. Fucking idiot.

Thu, 02/10/2011 - 03:11 | 948670 Michael
Michael's picture

"The collapse of the present era will be unprecedented in magnitude."

Let me repeat myself for the thousandths time;

The complete and total economic collapse of the USA and the rest of the world is a mathematical certainty.

The next collapse will make the great depression look like a picnic.

Thu, 02/10/2011 - 03:25 | 948680 Michael
Michael's picture

What really makes me laugh is when the cretins on cretinNBC drone on and on endlessly with CEOs with their outlook for the future and their five years plans. The world will be going up in flames and they will refuse to deviate from their overlords script.

Thu, 02/10/2011 - 12:31 | 949570 MSimon
MSimon's picture

The fundamentals - power plants - agriculture - sanitation - manufacturing capability and capacity - medical capability - are not too bad.


Once the current fiat money is junked for something sounder - or the Fed stops the presses - we will go through some (a LOT) pain and wind up OK. Lots of new technology in the works.

Thu, 02/10/2011 - 08:22 | 948825 ColonelCooper
ColonelCooper's picture


The toxins in your prastic rice are making you more berrigerent than normal.  Kindly go fuck yourself.

Thu, 02/10/2011 - 10:57 | 949160 thefatasswilly
thefatasswilly's picture

1) If you want to make fun of my English, please consider that my third language is, in all likelihood, better than your first.

2) Can't find any way to attack my ideas, so try to attack my race? Good one, roundeye.

Thu, 02/10/2011 - 00:35 | 948500 A Nanny Moose
A Nanny Moose's picture

enjoy servitude, sunshine. Since Gummint requires the consent of the??? is our fault. But it still requires consent.

Thu, 02/10/2011 - 03:14 | 948672 Michael
Michael's picture

Freedom's just another word for nothing left to lose.

Thu, 02/10/2011 - 05:55 | 948752 Zero Govt
Zero Govt's picture

Freedom is what you make of it, authority is what others want to make of you

Thu, 02/10/2011 - 08:01 | 948806 nmewn
Thu, 02/10/2011 - 05:03 | 948727 Insert witty title
Insert witty title's picture

Hi willy,

I think you would enjoy Hayeks 'The Constitution of Liberty' because in the early chapters he explains beautifully how freedom is important NOT because everyone is going to take advantage of it, probably for the reason you lay out in your post.

However Hayek proposes that we need freedom because ALL of society benefits from only a few individuals taking advantage of it. The freedom to think new thoughts, try new things, introduces innovations into society that EVERYONE benefits from, even if not everyone takes advantage of the freedoms nor even values them, we all get lightbulbs, the internet, cars, looms, fire and the wheel. A lack of freedom means a lack of progress.

Anyway I won't have explained it as eloquently as Hayek, but its a brilliant book and worth looking at.

Thu, 02/10/2011 - 09:15 | 948901 Cash_is_Trash
Cash_is_Trash's picture

Hayek is the shit!

Eat shit Lord Keynes.

Thu, 02/10/2011 - 11:00 | 949176 thefatasswilly
thefatasswilly's picture

"The freedom to think new thoughts, try new things, introduces innovations into society that EVERYONE benefits from . . ."

I actually agree. The problem is, the world is about to united / divided into an orwellian trinity of dictatorship. Freedom is long gone. I barely had a taste of it; my predicament is quite possibly the worst of any generation to have existed, or will exist.

The old fuckers on this website got to grow up and live free. I got cockteased without being able to take advantage of it. Future generations won't even know what freedom is, so they won't understand that they are enslaved.

Thanks for the book recommendation, though. Will definitely check it out.

Thu, 02/10/2011 - 12:28 | 949557 Insert witty title
Insert witty title's picture

Yes I'm 31 and am very very scared of the future. Its going to slip into an orwellian nightmare, or a devastating war. But i'm not that bright so its likely i'm wrong.

You will enjoy the book, its a long term project for me, i read a few sections at a time, then drift on to something else and back again, but its one i always come back to.

best of luck, maybe we'll get lucky

Thu, 02/10/2011 - 19:56 | 951395 thefatasswilly
thefatasswilly's picture

It's going to be biochemical / cyberspace / actual space war, then orwellian division of power.

Yes, we might get lucky and live :P

Wed, 02/09/2011 - 23:25 | 948364 Mad Max
Mad Max's picture

Yep leave anything in the economy, like money supply, to a bunch of crones in a central planning committee (instead of a free competitive market) and you're 100% guaranteed the outcome... a complete fuk up

And thus we have the complete "fuk" up that is the current US economy.  A product of a byzantine and corrupt central planning process.

Wed, 02/09/2011 - 23:37 | 948394 New_Meat
New_Meat's picture

0 Govt- you said 'Crones' and through thousands of translations that has become "Cronies".


- Ned

Thu, 02/10/2011 - 05:44 | 948490 Zero Govt
Zero Govt's picture


the free market doesn't need anything, it is a self-regulating mechanism, no Govt or committee required

if you want to see what central committees and Govt does to markets I suggest you look at US banking, healthcare, property and education, all total fuk ups and all utterly bankrupt

this brings you fully up to date with the bleeding obvious

Thu, 02/10/2011 - 08:46 | 948852 weinerdog43
weinerdog43's picture

"the free market doesn't need anything,..."

Wrong.  Just like sports, there needs to be an umpire to ensure the rules are enforced.  Without rules, it's Calvinball.

Thu, 02/10/2011 - 09:13 | 948897 Zero Govt
Zero Govt's picture

Wrong. The free market has 2 referees already in place, the consumer and the seller. Via 2 mechanisms, the competition mechanism and the pricing mechanism, consumer 'referees' the supplier and vice versa.

Namely if Wal-Marts offerings this week are too expensive you can choose (power) Cost Co.

There is no 3rd referee needed, such as a bunch of arseholes in a committee trying to put a spanner in the workings of the market (see US Govt subsidies of healthcare, education and the biggest disaster of the US Govts making, US property).

The free market is 100% self regulating, a constant liquid state of churn, flux, innovation and improvement 

Thu, 02/10/2011 - 09:19 | 948909 Cash_is_Trash
Cash_is_Trash's picture

Just like sports, there needs to be an umpire to ensure the rules are enforced.

The justice system could function on a profit-loss equation as with a buyer and seller. I wish to agree with Zero Govt by saying that no government is better than a little government.

Are we entering the discussion of anarcho-capitalism? If so, MURRAY ROTHBARD trumps all arguments.

Thu, 02/10/2011 - 10:56 | 949158 Zero Govt
Zero Govt's picture

I tend not to follow intellectuals, i find the street and a street markets provide all the ideas, questions and answers required to understand the planets workings. 

Regards Judiciary it, like Govt, is a monopoly power structure, it doesn't work, and is more of the 'baggage' we carry as society for centuries and it too is for the dustbin (i hope!)

Free society and free markets are both self-regulating through natural laws, adding middle-men or police/regulators/judges/law/lawyers/Depts (see all the baggage?) has not changed anything in society for any good

Go to a US town where its Govt has gone bankrupt and has lost its police etc. Does anarchy break out? Nope, we fall back into a natural order as we've been for thousands of years and just get along like a herd of buffalo or flock of birds. We never needed a 3rd party or middle-men (parasites) we call Govt to work our markets or society. We are self-governing and self regulating as any species on the planet does

The idea we need another agent to make us responsible or civil is a liberal nonsense if not a parasitical scare story to herd us. The biggest lie probably ever told

Thu, 02/10/2011 - 11:04 | 949192 thefatasswilly
thefatasswilly's picture

You think in a vacuum. It's as if you don't understand that time is always burning.

Once again, "free market capitalism" inevitably leads to "central planning committee."

Thu, 02/10/2011 - 12:31 | 949508 Zero Govt
Zero Govt's picture

intellectuals and academics think in a vacuum, they detach from 'the street' which is why their thinking goes up their rectum. All that exists is the individual and how we interact with the herd, it is the herd that keeps us in check through natural (animal) rules. Govt has changed precisely nothing about this natural order. 

All authority structures are failures, they usually apply rules nobody wishes to obey and worse authority serves itself (see law, an industry built on serving its own financial interests rather than its supposed role, dispensing 'justice' whatever that is)

If you think free markets lead to central planning first see where central planning got you (bankruptcy of China, USSR, North Korea etc).

Free markets revolve by themselves, companies appear, mature and die like any other life form. Markets are self perpetuating through the constant churn of new enterprise changing the rules and pushing aside the old established businesses. It's a natural lifecycle like a forest.

Ask central planners like Stalin, they could not work out who was 'orchestrating' capitalism in the West that was leading to its success. It probably never occured to a central planner to ask why they were so crap too! It's because of the competition mechanism, it weeds out the shit but being a central monopoly committee you never come against higher IQ's that put you to the sword as happens in the free market.

Central committees get progressively dumber without any competition to keep them sharp/honest. Ask Ben Barnanke, he can't even define inflation poor sod and few of the Fed Chairman know what they're talking about (ditto all Govt Depts)

Central planning (Govt) the biggest failure mechanism ever devised, the dumbest institution in any country.

Competition, you simply can't beat it (as Russia, China, Cuba and North Korea found out)

Thu, 02/10/2011 - 19:58 | 951399 thefatasswilly
thefatasswilly's picture

. . . are you a fucking idiot? Reply to what I said and don't just spew preplanned bullshit.

For an example of my argument, look at the United States of America. Argue against that, please. I never said that central planning is better or worse than free market, dimwit.

Thu, 02/10/2011 - 22:59 | 951951 Zero Govt
Zero Govt's picture

are you retarded, I've already mentioned the US and central planning, here's a recap; your property sector is in fuking chaos because of Washingtons quangos (Fanny and Freddie); your education system is in chaos with students in $1 Trillion of debt; your over-regulated banking is totally bankrupt; wherever Washington subsidies your farmers they cause food inflation and food riots; your money supply is a criminal ponzi scheme of debt-based money; your military-industrial complex is the most expensive on the planet but keeps getting its arse whipped by small amateur under-funded forces (Viet Kong, Iraqi militia, Taliban); and to top it all the central planners, central committees and central Depts of Washington are way too thick to work out they're totally bankrupt and have spent America into hell.

What do you like about Govt??? It's the dumbest most corrupt institution in every country! The only thing that works in any country free enterprise (food, clothing, technology, illegal drugs, anything black market etc). Anything Govt touches (or subsidises) turns to crap  

Thu, 02/10/2011 - 12:08 | 949464 Jean Valjean
Jean Valjean's picture

You are partly right but you are not mentioning the "key".  That is "free market money".  Unless we are allowed/demand to choose our currency, rather than have a currency forced upon us, the rest of the free market won't work in the long run.

Thu, 02/10/2011 - 12:22 | 949534 Zero Govt
Zero Govt's picture

Yes i agree with a free competitive market in money, competition is the ONLY way to deliver any product or service of worth and the only mechanism that forces failure of the old way and brings in better ways.

Monopoly money (central banking) systems follow the path of all monopolies, they deliver crap and trash the system (see 95% destruction in the value of both Sterling and the US Dollar over past 80 years, the ECB's Euro will only last 15 years tops!)   

Thu, 02/10/2011 - 09:44 | 948964 Translational Lift
Translational Lift's picture

You forgot a few along with their hundreds of sub-agencies (Depts.) most of which could/should be eliminated thus saving $Trillions.

Trade Adjustment Assistance for Firms
Federal program providing financial assistance to manufacturers affected by import competition.

Thu, 02/10/2011 - 10:59 | 949169 snowball777
snowball777's picture

Ah yes, the never-ending bleating of the excluded middle.

Who will enforce your contracts?

How will you keep what's yours...yours?

Why does the military use 'central planning', if it's sooo useless?


Thu, 02/10/2011 - 14:10 | 949987 Zero Govt
Zero Govt's picture

Buyers ands sellers in the main do not require contracts, a handshake is usually enough and its built on relationships, not pieces of paper and lawyers in my experience.

Regards keeping what's mine mine same as it ever was, tending to it. The worst we face in society is the odd petty theft or robbery. So what? Beats the 30-60% of robbery of our income by the parasitical criminals of the State.

Finally regards the military being centrally planned it's the sam result as any other: crap. The most effective fighting forces are small and flexible (see SAS). Send 6 SAS into a jungle and you throw 120 of your regular army boys in and I'll bet you it ain't the army platoon coming out alive!

Take Vietnam, Iraq, Afghanistan I (Russian invasion) and Afghanistan II (US-UK invasion). All are mighty military centralised forces against smaller flexible force. The mighty force 'wins' for 1 month then loses the occupation (over time). The Taliban are poor (out-spent $1m to $1), out-gunned and out-numbered. But they beat the back Russians and they'll beat our dumb forces back too as soon as we run out of pissing our money away over there due to bankruptcy here.  

War is like the free market. You can dominate with a big force but over time smaller forces tear you to shreds attacking from numerous angles of weakness. You can stand on an anthill and 'dominate' it for about 1 minute, but after 3 minutes you're being nipped to pieces and have to fuk off.

Small, smart and flexible (like the internet) always beats big central and dumb (like mainframes) over any length of time. 1 big central brain is always dumber than 100 smaller brains, that's why the big dumb US Govt will attack the internet and over time get taken apart and fail completely.

See also the US Govts complete slaughter against the small flexible (illegal) drugs industry. The US Govt hasn't even made a dent in the free market trade in illegal drugs. They have lost the battle day in day out for decades. They're so big and dumb they can't even find the battlefield!!!

Wed, 02/09/2011 - 23:13 | 948322 Atomizer
Atomizer's picture

It's not easy to build new infrastructure in Africa.

Thu, 02/10/2011 - 09:26 | 948918 Cash_is_Trash
Cash_is_Trash's picture

Fuck Africa.

Can you think of any continent on earth that receives more foreign aid?

How about they legalize capitalism and get their asses to work.

How about we legalize capitalism in America and let the to-big-to-fails go bankrupt and complete the creative destruction process with renewal?


Wed, 02/09/2011 - 23:15 | 948329 umop episdn
umop episdn's picture

by 1022, confidence had eroded in both the notes and the supporting iron money

Not only did the Chinese learn about the folly of paper money a thousand years ago, they also learned of the folly of iron money. A strong enough magnet on store premises kept the customers from ever leaving the shop with their money.

Thu, 02/10/2011 - 09:29 | 948921 Cash_is_Trash
Cash_is_Trash's picture

Perhaps neodymium was in use back then.

Then again, they currently mine upwards of 90% of rare earths.

Wed, 02/09/2011 - 23:21 | 948347 Ecoman11
Ecoman11's picture

Don't forget Silver! Keep on eye on this new Tweeter that reports daily silver sell outs on the web.!/Silver_Watchdog

It seems like inventories of brand name 100oz bars are being depleted daily.

Thu, 02/10/2011 - 00:10 | 948443 traderjoe
traderjoe's picture

I just checked Apmex - they only have 165 - 100 oz bars left in stock. A couple of weeks ago I think the number was closer to 1000. And while they have recently been listing some bars as in stock with deferred delivery dates, all of these brand names are now "out of stock". 

Wed, 02/09/2011 - 23:22 | 948349 old naughty
old naughty's picture

The Universal wisdom says the [Renewal] chaos starts from an old kingdom. So the rioting Egypt is perhaps only an overture? The impolsion will begin from where it all started?

Wed, 02/09/2011 - 23:25 | 948362 eigenvalue
eigenvalue's picture

Forget about gold and silver. Go long wheat, corn and soya bean and screw the Chinese!

Thu, 02/10/2011 - 00:27 | 948482 DoChenRollingBearing
DoChenRollingBearing's picture

Go all of the above.

DBA and JJG are food ETFs, "paper food".

Thu, 02/10/2011 - 08:19 | 948820 New_Meat
New_Meat's picture

but you can't eat "paper food."

dang, couldn't resist ;-)

- Ned

Thu, 02/10/2011 - 09:15 | 948900 JonNadler
JonNadler's picture



you beat me to it

Thu, 02/10/2011 - 11:40 | 949343 DoChenRollingBearing
DoChenRollingBearing's picture

POW!  Got me guys!

Floom (falls to floor)!

Out by TKO!

Thu, 02/10/2011 - 02:24 | 948643 topcallingtroll
topcallingtroll's picture

I just dumped 200 lbs of corn in the woods behind my house. My small part in this war on the chinese peg.

Thu, 02/10/2011 - 03:02 | 948665 New World Chaos
New World Chaos's picture

That's a little less food to help your neighbors when TSHTF, and a little less food for people in Africa who had nothing to do with this.  Besides, the Chinese peg isn't really the problem- the global Power Elite are the problem, and starving the poor is bonus points for them.  If you really want to cause trouble, buy silver.

Thu, 02/10/2011 - 08:25 | 948828 ColonelCooper
ColonelCooper's picture

Nah.  He's feeding the deer which will feed him later.  It's an investment.

Thu, 02/10/2011 - 11:02 | 949183 snowball777
snowball777's picture

A very poor one, from the standpoint of EROI.

Thu, 02/10/2011 - 05:23 | 948739 savagegoose
savagegoose's picture

you cant eat ... oh wait nvm.

Wed, 02/09/2011 - 23:25 | 948363 cjbosk
cjbosk's picture

Inflation?  Funny cause last I checked wages are dead or dropping, housing in the shitter and jobs picture worsening. Goining to be hard to get inflation with the above.

Prop desks and hedge funds blowing pricing out of the water on soft commodities etc. shouldn't be mistaken for inflation, as they are very different.  If fuel hits $5 per gallon this year, the economy will shit the bed and you won't have one lick of inflation to be found anywhere because we'll drag the BRIC's down with us like a bad WWF match!

Lastly, they're printing money like crazy here in the U.S. because the fed is deathly afraid of deflation and the Japanification of America.  Since there's absolutely zero velocity to QE1, 2, 20 et. al. it's unlikely that inflation will arise as the deleveraging of the globe is a much larger and stronger force that we'll be dealing with for the next decade if there's anything left.

Wed, 02/09/2011 - 23:38 | 948395 meizu
meizu's picture

if oil hits $5, any product produced or transported using oil will be more costly to produce, so inflation would be inevitable regardless of how shit the economy will be.

Thu, 02/10/2011 - 03:13 | 948663 The Rogue Economist
The Rogue Economist's picture

Way to late to tackle this comment with the beating that it deserves. Quick answer: you're confusing wage and monetary inflation. You're not understanding the non-smooth nature of hyperinflating commodities versus simultaneous deflation in credit derived assets. You're missunderstanding just how quickly the delta of money velocity can change, and you really need to read up on the dollar carry trade before assuming that QE has zero velocity. And yes, we're in a deflationary period, but only when you use gold as the baseline measurement. Rogue

Thu, 02/10/2011 - 02:59 | 948664 Snake
Snake's picture


Thu, 02/10/2011 - 03:37 | 948684 Hook Line and S...
Hook Line and Sphincter's picture

You get price inflation not only from end user demand cjbosk, but also from rising input costs...

oh yes, and don't forget that as long as supply is shrinking faster than demand; food, energy, and______ (you can fill in the blank) prices will increase.

Wed, 02/09/2011 - 23:27 | 948367 NOTW777
NOTW777's picture

Rep. Chris Van Hollen, the ranking committee Democrat from Maryland, defended Bernanke’s approach.

“I commend you and your colleagues at the Fed for using various forms of monetary policy to promote maximum employment and stable prices,” Van Hollen said.

Read more:
Thu, 02/10/2011 - 00:24 | 948476 gwar5
gwar5's picture

I threw up in the back of myy throat when I heard Van Hallen do that. Sick joke.

Especially since it came right after Paul Ryan asked some penetrating questions.

Thu, 02/10/2011 - 00:24 | 948477 dogbreath
dogbreath's picture

how does he get the taste of the condoms out of his mouth

Thu, 02/10/2011 - 08:28 | 948830 ColonelCooper
ColonelCooper's picture


Wed, 02/09/2011 - 23:37 | 948393 Harmonious_Diss...
Harmonious_Dissonance's picture

Holy fuck!! Gold make you horny some?!

Thu, 02/10/2011 - 00:42 | 948517 gwar5
gwar5's picture

Viagra - $10

Hooker in Vegas - $100

1 year testosterone supplements - $1000

Seeing a guy with a thousand penis fixer-uppers worse off than you - Priceless

Wed, 02/09/2011 - 23:36 | 948388 Harmonious_Diss...
Harmonious_Dissonance's picture

Blythe masters created the derivatives, then high-tailed it over to the commodities side of bankstering! This was in 2007, so now we have banks driving up prices of everything thanks to QE2. What will be money in 25 years? Well who's to say, but my bet: Gold & Silver. Eurozone has 11,000 tons?? China has 3,000. China has no gold muscles to flex, I can understand why they might desire more

Thu, 02/10/2011 - 00:04 | 948422 Spalding_Smailes
Spalding_Smailes's picture


-Product innovation accelerates with the first interest rate swaps, currency swaps, zero coupon bonds, and variable rate financing.
-Secondary market expands to include short dated bank paper.
-Savings and Loans borrow at 3% and lend at 6%, giving rise to the 3/6/3 Rule (borrow at 3%, lend at 6%, golf at 3:00).  But this makes S&L's highly susceptible to interest rate volatility.
-No ISDA standards for interest rate derivatives contracts. Transactions are highly customized.
-Trading desks are formed to trade interest rate products, requiring capital to hold trading portfolios, and setting off a wave of bank consolidations.


-Oil prices fall, causing rapid defaults of petroleum-backed loans.
-Foreign emerging market governments "de facto default" by suspending payments (Eastern Europe, Latin America).  U.S. banks refuse to write the loans off based on the theory that governments can always print money to pay off sovereign loans.
-U.S. Savings & Loan Crisis begins. S&Ls begin defaulting en masse.
-Mortgage Backed Securities (MBS) market starts at Solomon Brothers (read Liars Poker).  
-First pooling of credits sold to institutional investors.  First synthetic credit comprised of repayments from MBS loan pool, rather than single borrowers.
-Asset Backed Securities (ABS) market starts with credit card and auto loan portfolios.
-Rise of Michael Millkin, junk bonds, and synthetic high yield debt.
-Joel Stern & Stewart, University of Chicago, Economic Value Added: Quest for Value introduces the concept of EVA.  Debt is treated like equity, encouraging companies to borrow as much as possible if the value generated is positive.  Gives rise to the concept of unlimited capital and calculated use of leverage and aggressive capital structures.  Increased leverage and risk follows.


-First Credit Default Swaps (CDS) and Collaterized Debt Obligation (CDO) structures created by JPMorgan, led by Blythe Masters.
-JPMorgan leads industry transformation away from relationship banking towards credit trading.  Goal is higher returns without assuming buy and hold risk.
-Accounting and regulatory arbitrage generates significant revenues.
-Shifting of credit risk off bank balance sheets by pooling credits and remarketing portfolios, and buying default protection after syndicating loans for clients.  


-Single name CDS market takes hold and starts to grow.
-KMV model (quantitative correlation analysis) relates balance sheet debt vs. market value of debt vs. probability of default.  In 2001 KMV model shows Enron is BBB-C rated when S&P rating shows AA.  KMV model proves to be more accurate than preceding default models.
-Rise of Financial Guarantors.
-New strategy = build portfolios of debt securities, then package and sell off tranches based on default probabilities.  Slice and dice to generate revenue for bank, customized risk/return profiles for investors.  
-ABS, CDS, emerging market debt all wrapped and sold off in tranches.


-Basket portfolio trading begins.
-Buying and selling the entire debt capital structure takes hold.
-New CDS contracts allow hedging below-investment grade and high yield loans.
-ISDA updates its CDS confirmation document and supplements to reflect market needs.
-CDS market becomes increasingly standardized and volume increases significantly.


-Volume of CDS contracts trading ($100 billion) far exceeds volume of cash bonds ($30 billion), creating a risk of price squeeze on defaulted bonds used for physical delivery.
-First cash settlement CDS terms used to avoid dangers of physical settlement.
-End of boom causes waves of growth company defaults.  Investors realize the increasing importance of credit protection.
-Rating arbitrage strategies gain popularity, taking advantage of time delay in rating agency downgrades and upgrades using CDS contracts for speculation.
-Credit Linked Note (CLN) market in Europe grows rapidly, paving the way for rapid CDS growth.


-CDX index created by dealers. 
-JP Morgan and Morgan Stanley issue CDS indexes.
-Creation of CDS on tradeable credit indices causes massive leap in transaction volumes (100%+ per year).
-Internet revolution and the rise of distributed computing makes complex mathematics easier.  Structured credit can now be done from anywhere on the planet, reducing capital demands and allowing smaller players and emerging markets to enter the sector.
-Rise of Hedge Funds: Number of funds increases from 4000 in 2002 managing $2 trillion to 8000+ managing $4 trillion.  This creates intense demand for new structured products with higher yields.  
-Quiet deconsolidation wave begins with "outsourcing" of risky strategies by investment banks to separate entities formed for the purpose of generating higher yields.  Also exposes the industry to potential wave of credit default risk.
-Greater number of products, but less liquidity means higher transaction revenues but potential liquidity crises ahead.  
-Questionable risk management of complex strategies, interlocking ownership, high leverage, and secrecy of hedge fund industry lays the groundwork for potential market shocks.



-Industry-specific indexes developed:  CMBS, ABS (ABX), High Yield (100 names)
-Counterparty risk expands to include broker-dealers, multinational corporations, hedge funds, insurers.
-Large money center banks with huge balance sheets no longer needed to anchor new debt issues due to the broad availability of credit derivative risk transfer products.
-Credit derivative volume has expanded exponentially to roughly $26 trillion, according to ISDA.
-BASEL II drives increasing compliance to minimize credit risk, market risk, and operational risk.
-FASB 133 and IAS 39 compliance emphasizes high dependence on credit default models.
-Consolidation of Guarantors drives up competition and drives down risk premiums in new bond issues.
-Increasing movement toward cash settlement/auction pricing of defaulted credits upon credit event to "avoid the squeeze."
-Markit, CDX, and iTraxx are now standard pricing sources, further enabling broad trading of credit derivatives.
-Chicago Mercantile Exchange (CME) considers listing standardized single name CDS contracts to create the first large retail market.
-DTCC clearing system development increases speed of trade clearing and settlement, reduces costs and operational risks.
-Notional value of single name CDS outstanding now $19-25 trillion versus $40 trillion in bonds.
-Dura default and auction in November 2006 goes smoothly, showing the value of improved standardized industry procedures and clear documentation.
-Hedge fund counterparty risk remains.  Large broker-dealers still exposed, as they lend to hedge funds through their prime brokerage arms.
-Permanent Capital Vehicles (PCVs) are formed to invest in credit markets.  Investment money is locked up for 5 years or more, which allows managers to do longer term arbitrage, capital structure, and cycle plays.

Thu, 02/10/2011 - 00:41 | 948514 tmosley
tmosley's picture

The cut-an-paste troll strikes!

He has no mind, no ability to think for himself, so he simply cuts and pastes to ease the pain.

Thu, 02/10/2011 - 01:25 | 948582 Spalding_Smailes
Spalding_Smailes's picture

No, it's so fools like yourself have no retort ... Turn off glee and start reading about dollar denominated debt.

Also, get ready for another drop in gold .... Doz' guyz at william blair not so stupid.



Thu, 02/10/2011 - 02:02 | 948627 Attitude_Check
Attitude_Check's picture

Is that the light-weight paper kind, or the heavy metal kind?

Thu, 02/10/2011 - 08:31 | 948834 ColonelCooper
ColonelCooper's picture

Spalding either can't or won't acknowledge a difference.   He also doesn't understand the concept that you don't sell gold, you spend it.  Or, that "goldbugs" are patient and secure, while he is not.

Thu, 02/10/2011 - 09:23 | 948915 Bicycle Repairman
Bicycle Repairman's picture

Smailes, what is your point?

Thu, 02/10/2011 - 00:01 | 948428 Atomizer
Atomizer's picture

The Ministry of Propaganda continues the positive spin. In the end, the lie will be exposed for what it is. I pray for the safety of those who contributed to the lies & deception. The J6P peasants will not be kind to you. Deep inside, your discomfort doesn't rest easy. Tomorrow is a new day. Honesty, integrity, and sound ethics will impact future generations. Make the right choice!!

Lastly, they won't stand at your side to protect your family, you know this and so do I.



Stop Spending Our Future - The Crisis



Thu, 02/10/2011 - 00:04 | 948431 mynhair
Thu, 02/10/2011 - 00:36 | 948503 PY-129-20
Thu, 02/10/2011 - 00:14 | 948453 Triple A
Triple A's picture

I'm finally seeing all the increases in prices at the fast food joints. Everything jumping 20 to 40 cents. I think inflation is here and only going to get worse.

Thu, 02/10/2011 - 02:28 | 948646 trav7777
trav7777's picture

seein it in the grocery stores too

Thu, 02/10/2011 - 03:41 | 948688 Hook Line and S...
Hook Line and Sphincter's picture

inflation is OK as long as it happens between my legs once in awhile. 

Thu, 02/10/2011 - 06:04 | 948756 Sudden Debt
Sudden Debt's picture

You need Bernanke to create inflation over there?

Maybe you should watch a bit MORE PORN!


2 hours of porn a day will do the trick ;)

Thu, 02/10/2011 - 00:17 | 948457 mynhair
mynhair's picture

The older they got, the fatter Anne got, and the softer Nancy's face got.

I grew up with these bitchez.......but they are worth more.  Damblit!

Thu, 02/10/2011 - 00:30 | 948491 gwar5
gwar5's picture

Me too, but I was very young and precocious at the time.


Thu, 02/10/2011 - 00:17 | 948459 RobotTrader
RobotTrader's picture

So far, stocks like NFLX, PCLN, BIDU, AAPL, etc, have been the ultimate hedge against inflation.

They have outperformed pretty much everything.

And no "collectible" tax rate on the gains, either.

Thu, 02/10/2011 - 00:33 | 948496 DoChenRollingBearing
DoChenRollingBearing's picture

The "collectible" tax is a complete POS, a contemptable tax that discriminates against savers.

.gov, .irs  and .congress rot in Hell.

Thu, 02/10/2011 - 02:17 | 948637 topcallingtroll
topcallingtroll's picture tell 'em.

Thu, 02/10/2011 - 03:54 | 948694 DaBernank
DaBernank's picture

Repeat after me, "Gold is not a trading vehicle." I like a good momentum trade as much as the next guy (DTLK thanks Money McBags!) but physical gold is a different animal. There's only a tax to pay if you sell your physical gold for fiat currency - by the time I'm motivated to sell my physical, reporting the sale to the IRS will be the least of my worries.

Thu, 02/10/2011 - 08:36 | 948841 ColonelCooper
ColonelCooper's picture

Welcome to the Beating your Head against a Brick Wall Club.

No matter how many times you say it, you will be accused of having sold at massive losses, the blood spurting from your ears being evaporated by blowtorches before it hits the ground.

Of course if gold is up, nobody will be here to point out that you're making money.

Thu, 02/10/2011 - 04:58 | 948723 JonNadler
JonNadler's picture


Nobody is going to fall for the "collectible tax" thing anymore. There's only so much you can get out of a tuth destortion.


Just keep posting nudies and keep the gold bugs away from the coin shop an from the realization that if they buy and sell at a a coin shop there's no collectible tax

Thu, 02/10/2011 - 00:19 | 948463 mynhair
mynhair's picture

Issaquah suxs!  And always has.

Thu, 02/10/2011 - 00:21 | 948471 RobotTrader
RobotTrader's picture

Since June 2010, the Dow has also been a top performing hedge against inflation.

Thu, 02/10/2011 - 00:27 | 948484 raya123
raya123's picture

Wrong, there's no volume on the DOW so can't be viewed as a hedge of anything.  Strictly market manipulation, plain and simple.

Thu, 02/10/2011 - 03:57 | 948699 DaBernank
DaBernank's picture

You can't eat the DOW.

Thu, 02/10/2011 - 00:29 | 948486 Misean
Misean's picture

As long as you don't sell. Or need cash flow.

Thu, 02/10/2011 - 00:33 | 948495 Spalding_Smailes
Spalding_Smailes's picture

Robo -


Did you buy CHK in Dec... ?

Thu, 02/10/2011 - 00:41 | 948513 Rusty Shorts
Thu, 02/10/2011 - 00:45 | 948521 tmosley
tmosley's picture

How has the rent in your mother's basement been?

22% in a year is SHIT.  I'm up 100% from physical silver.  You've been in and out of how many stocks?  How much have you lost to transactional costs?

Everything.  Enjoy your sixth bankruptcy in five years.

Thu, 02/10/2011 - 02:14 | 948634 topcallingtroll
topcallingtroll's picture

Ok so you are 100 percent silver? Break down your allocation. Lets see how things.go the next two years.

Thu, 02/10/2011 - 04:37 | 948714 BigDuke6
BigDuke6's picture

young john thomas mosely has been in a fighting mood these last few days on ZH. 

maybe been sweating on being 'all in' on silver....


tell us what march holds - people are getting edgy and that dow chart makes me edgy.

i need something to take the edge off....

Thu, 02/10/2011 - 01:33 | 948594 jomama
jomama's picture

lol. classic!

Thu, 02/10/2011 - 05:24 | 948740 Ham Wallet
Ham Wallet's picture

I love this selective idiot.  Hey, robotrader, wanna tell me who won the 2009 World Series???  Why judge this chart by April when Robo had the insider call of June, bwahahahahahahaha.   What's two months to a brilliant guy like Robo?   He was on top of it in reality, not internet monday morning quarterbacking, guaranteed.

Thu, 02/10/2011 - 05:27 | 948741 Kina
Kina's picture

The Zimbabwe stocks were the greatest hedge against inflation.......

Thu, 02/10/2011 - 08:23 | 948826 anvILL
anvILL's picture

Does equities hedge against inflation?
Charts says "yes" so I must say "yes".
Anyone who says "no" must be drunk than me right now.

However, does equities hedge agains hyperinflation and government stupidity?
Despite its extreme nominal return, Zim Industries says "no" so I say "no".

Thu, 02/10/2011 - 11:06 | 949195 snowball777
snowball777's picture


Being the world's tallest midget may get you a blue ribbon, but it still won't pull chicks.

Thu, 02/10/2011 - 00:24 | 948472 mynhair
mynhair's picture

Moving down to Puallip,

(I was Seattle, can't spell those outlyiers)

Thu, 02/10/2011 - 00:27 | 948479 gwar5
gwar5's picture

I've stockpiled staples already and have a farmer who grows 300 acres of corn next to my property and no fence.


Thu, 02/10/2011 - 00:27 | 948483 Windemup
Windemup's picture

Hey, China also created fireworks and gunpowder.

Thu, 02/10/2011 - 00:31 | 948492 mynhair
mynhair's picture

met John at a friend's BBQ.

John, for you, even if you are deef:


Thu, 02/10/2011 - 00:43 | 948512 mynhair
mynhair's picture

Wish I could make that much from my uncle's death.

I never said Stevie wasn't a whore, did I?


Thu, 02/10/2011 - 00:47 | 948523 mynhair
mynhair's picture

More Gold hopefull tunes...

Thu, 02/10/2011 - 00:47 | 948527 Rusty Shorts
Thu, 02/10/2011 - 00:52 | 948533 zaphod
zaphod's picture

"gold’s ultimate price was a matter of pure conjecture since the reference points used to value that price would be virtually worthless pieces of paper money."


If the dollar does collapse, or there is at least a mini-crisis, with 50 ounces of physical gold you will be able to buy a very nice house on a very nice piece of property, free and clear with no mortgage. Just look at valuations in Germany after their currency fell.


That is how people will value physical metal if the paper fractionalization disappears, in terms of property.......


Thu, 02/10/2011 - 04:12 | 948706 Hephasteus
Hephasteus's picture

You're missing the point.

A bill is a promise to pay. A promise of service.

Gold is a payment vehicle.

When someone fulfills whatever goods or service obligation they agree to. You extinquish your end of the bargain with gold. That person is then able to contract goods and obligations of service with it.

There's no difference if you use gold or dollars or tally sticks. It all can become voluntary service to each other with any vehicle. The problem with fiat (forced legal ) currency is not it's worthlessness. The problem is it's abuse to garnish goods and service. Those who monopolize it monopolize all force and justice. Counterfeit it to their benefit. And in the case of the dollar as reserve currency hijack through the gold market goods and services in every country and force legal fiat system through the swap spread.

This hijacking is eclipsing everything. We live in a world of walmart who makes 3 to 5 percent margins on a sale while states make 9 percent and credit card companies make 1.5 to 3 percent on the transaction that involves goods that are settled throught he international bank of settlement at a hijack rate of a few percent before you even enter this meat grinder. The force components are simply eating the voluntary components alive like maggots.

The worthlessness of dollars is not what is collapsing it. It's the yoke of burden it forces on every particapant in the system that has killed it.

It's run through strawman hijackings of authority. A few people calling themselves a municipality or a state. A few people calling themselves a federal government. Or in the case of the soros gang or the club of rome and bank of international settlements and IMF a few people hijacking lower strawmen into another strawman and calling themselves a world.

Thu, 02/10/2011 - 00:55 | 948537 simon says
simon says's picture

Don't tell the Chinese author of Southern Weekly about the shadow banking leverage in the US ---  that would make the growth rates on US "total" money supply put China's to shame.

Thu, 02/10/2011 - 01:02 | 948547 Lazane
Lazane's picture

Spaulding, it would seem by your outlandish outline the that the 1999 repeal of Glass Steagall really got the bankster's balls rolling in their newly found brokerage and investment playgrounds. I just can't take this bankster bs any longer, if it does not come out of the earth, I do not want it. 

Thu, 02/10/2011 - 01:20 | 948572 chump666
chump666's picture

ZH, Greece is heating up again re: protests.  Check your wires, remember May 6th 2010 flash crash...Greece was the pre-curser.  Cept now, a inflation contagion is kicking into gear.

Money on, this will roll down those overbought indexes, that and China crash coming 6mths or so.

Thu, 02/10/2011 - 01:22 | 948575 JW n FL
JW n FL's picture

* China sent 40 auditors to scour Citi Shanghai books

* Wikileaks cable shows Citi told US officials about audit

* Citi called the 2007 audit "hostile" and "intrusive"

* Citi said China sought "knowledge transfer"

WASHINGTON - China used its regulatory powers to scour the books of Citibank Shanghai in a "hostile" and "extraordinarily intrusive" 2007 audit that appeared primarily aimed at controlling Citi's growth and uncovering its secrets to success, the bank's top China executive at the time told U.S. officials.

The charges were contained in the cache of 250,000 U.S. diplomatic cables obtained by the anti-secrecy group WikiLeaks that Reuters has reviewed.

The Citi case underscores the high level of scrutiny that foreign companies face in China, particularly in the financial sector, and it provides a window into complaints from U.S. companies and trade negotiators that China conducts intellectual property theft and forced technology transfers.

Thu, 02/10/2011 - 01:57 | 948620 Snidley Whipsnae
Snidley Whipsnae's picture

"uncovering [Citi's] its secrets to success"

Not really a secret to Citi's success... buy some politicians, get regulatory capture, create bs paper products, buy some ratings agencies, dump the crap making lots of dollars on transaction costs and front running customers, get politicians to spend taxpayer money to bail out the mess. Nothing new here.

The Chinese are already aware of how Citi and other Wall St banks operate. Obviously, the Chinese auditors were looking for accounting scams that screw the Chinese Gov or it's citizens. Maybe the Chinese have some real regulators.

Thu, 02/10/2011 - 02:32 | 948652 trav7777
trav7777's picture everything else, they are looking to find out how to steal then replicate what a company is doing.  China wants these techniques so that THEIR banks can perform the same scams to make the CCP cronies money.  That is the single thing they give a fuck about.

They don't care if the entire freshwater supply on the planet is a smoldering cesspool of industrial runoff, if the air is unbreathable, the SOLE purpose of China, Inc. is to enrich the executives of the State corporation

Thu, 02/10/2011 - 06:13 | 948763 Lord Koos
Lord Koos's picture

Industrial espionage should not be confused with the ultimate goals of the Chinese government.  If you don't play by the rules in China you get a bullet in the forehead.  Of course Chinese banks could do the same shit if they thought they could get away with it.

Thu, 02/10/2011 - 09:39 | 948945 Snidley Whipsnae
Snidley Whipsnae's picture

You have discovered that human nature is the same regardless of the culture/society where it lives.


Thu, 02/10/2011 - 01:33 | 948595 dalkrin
dalkrin's picture

Forget the currency peg, we are both in the same boat when every monetary authority on earth is dealing in fiat currencies. 

I was reading an account of the hyperinflation to hit Weimar Germany, but I couldn't finish, the numbers and stupendous upheaval made my viscera churn. 

When the steam runs out of this modern experiment in flying free of any value anchor, it won't just be one Chinese dynasty collapsing, but the entire global edifice of trade as we know it.  Front-run the masses to the coin shops.

Thu, 02/10/2011 - 01:46 | 948610 Snidley Whipsnae
Snidley Whipsnae's picture

Great post Tyler...

"This buying will only drive the cost of food even higher: Jim Gerlach, of commodity brokerage A/C Trading, said: "Sovereign nations are beginning to stockpile food to prevent unrest." "You artificially stimulate much higher demand when nations start to increase stockpiles."

The Chinese are used to fiat currencies becoming useless as a means of transaction, and they certainly have good reasons not to trust paper as a store of value. 

As long as the Chinese see rising prices in food, real estate, and fuel, they will continue to trade fiat paper for PMs.

China's citizens took 200 tons of physical gold off the world markets in the last 3 months. At this rate how long can the paper suppression schemes continue? Large premiums over spot are appearing in Asian countries. How long until many 'fails to deliver' occur at a large western metals exchange?

Technical analyists, here is your chance to chart the course for us... Figure the run rate of gold pouring into India, the large oil exporters and the Asian Countries and show us a chart of when supply from all physical sources cannot keep up with demand from purchasers of physical gold. Assume that the central banks are not going to sell physical gold at this time.  Thanks.

Thu, 02/10/2011 - 02:02 | 948619 topcallingtroll
topcallingtroll's picture

In every financial measure possible china is in a much worse position than the usa. The mother of all real estate bubbles with erie china ghost cities seen from google earth, a population that spends 40 pervent of income on food. Completely insane real estate prices that make our real estate prices look normal, inefficient companies that dont survive without an unfair peg, corruption that makes our bankers look like angels, and an entire world that doesnt like them except for russia venezuela and iran. They have poisoned and cheated everybody, not just us. This is why i laugh when people say that china has the upper hand. Their government wont survive a recession much less a crack up boom or depression. Keep pissing on them Ben. It doesnt matter what they do now they are finished. The recent pm hoarding hoarding is a sign of desperation.

Thu, 02/10/2011 - 02:06 | 948630 JW n FL
JW n FL's picture

Something curious was noted this morning on CNBC Europe: namely a reference to an article in the Shanghai Financial News, according to which China is quietly (or not so quietly) trying to orchestrate a 30% drop in real estate prices, in the form of a "Thunder attack" which combines increased purchase costs, property taxes as well as the rise in interest rates. If proven true, this is a major flashing red sign of just how out of control inflation, especially property and real estate, is in China, and that future CPI readings (not the official Politburo number, but that which people actually have to live with) will be getting progressively worse. Also, for the government to step in with such a drastic measure, it must mean that the discontent on the ground must be approaching a fever pitch.

From Shanghai Daily News (apologies for the Google translation from simplified Han - we ask any native readers to provide a better translation):

Thu, 02/10/2011 - 02:38 | 948636 hambone
hambone's picture

Posing a question - I must be missing something?

US needs to roll and create about $5T annually in Treasuries ($3T rolling over/yr based on $15T debt @ 5yr average maturity + $2T in new issuance).  That is $100B a week total.  Fed "only" has $900B Jan through June w/ POMO and rollover (that's bout $50B a week).  Who's going to buy the other $50B / weekly now through June...and then $100B+ weekly after that???  And at what rate?  There are Trillions the second half of '11 and $5T+ missing in '12 at anything like these rates to keep this going w/o QE3 or interest rates (and interest payments) going substantially higher (like $750B/per anum interest cost at long term average of 5%)?

I'd think we can't do QE3 without making the world burn w/ inflation but can't not do QE3 without interest rate explosion eating 1/3rd of all tax revenue?  Something bigs gotta be coming???  Again, obviously I've completely missed something here???  Either we're t-minus 4 months from interest rate shock or an impending March or April QE3 bigger than QE2 and attendant complications either way???

Am I the only one taking Hendry's advice and panicing???

Thu, 02/10/2011 - 02:28 | 948645 props2009
props2009's picture

Breaking news China again lets Yuan float against the dollar.


Thu, 02/10/2011 - 02:28 | 948647 Snidley Whipsnae
Snidley Whipsnae's picture

"Who's going to buy the other $50B / weekly now through June...and then after that???"

Great Britian was accumulating US Ts at fast pace even though they are bankrupt. I have not checked recently to see how many they continue to purchase.

There are many conduits available for the Treasury to off load Ts. After all, a large amount of Ts are sold to 'others' and we do not know who they are.

Some countries might continue to purchase US Ts for many reasons and they probably do not want their citizens to know that they are doing so...Like the recent uproar by some Chinese about the continuation of ChiGov T purchases. The flow of funds are as big a fantasy as the CPI and employment numbers.

Thu, 02/10/2011 - 02:51 | 948658 hambone
hambone's picture

Ok, so where do they get the dollars?  Don't think the Brits or Caymen islands personally print their own and don't think they have big reserves (save for large exporters).  So what is the mechanism for the transfer of dollars to other CB's?  Dollar swap lines?  And how do these get "created"?  Fed conjures new money?  Lotsa lotsa new money? 

Any idea how this gets accounted for?  Where are we looking to see the next stealth QE in action?  Are both CB parties just printing currency adnauseum and swaping it out indefinitely and that works from an accounting perspective?  But if they spend our to buy T's...what do we do with theirs?  Just a credit on the books?  And when it comes time to roll over we repeat? 

Thu, 02/10/2011 - 09:37 | 948936 Snidley Whipsnae
Snidley Whipsnae's picture

Excellent questions all. However, there is a great deal that the Fed does not disclose nor will they stand for an audit. I cannot answer questions that are hypothetical nor about a Fed and foreign central banks that operate behind closed doors. We all have the same questions that you pose. We are all looking to solve a mystery...and we have very few clues.


Thu, 02/10/2011 - 03:11 | 948669 mynhair
mynhair's picture

Money McBags can piss off:  I want

Thu, 02/10/2011 - 03:13 | 948671 mynhair
Thu, 02/10/2011 - 03:18 | 948674 steveo
steveo's picture

Supposedly China will help Australia make profits, so the theory is.   But right now I think the AUD is heading to the wood shed, down.

First, I have another full-on version Market Analysis report with audio, and watchlist trade ideas.    The real deal for you, for free.   Linked here with permission of Breakpoint Trades.  Check it out.

Thu, 02/10/2011 - 04:49 | 948718 im7tou
im7tou's picture

The key is the economy of china was directed by the govt, resulting in being lack of efficiency.  

Thu, 02/10/2011 - 06:09 | 948760 Lord Koos
Lord Koos's picture

You obviously don't understand the Chinese government, which is extremely efficient.  There aren't the many layers of bureaucracy and approval that exist in a democracy.  When the central Chinese government decides to renovate a neighborhood, the bulldozers show up the next day.  They need no permits, no congressional approval, & there are no pesky regulations. The problem in China is the corruption.

Thu, 02/10/2011 - 05:05 | 948730 JonNadler
JonNadler's picture

Owning gold causes cancer and penis size shrinking.

Robot, BiggerDickus, AppalinSmells am I right?

Thu, 02/10/2011 - 05:30 | 948742 props2009
props2009's picture


Thu, 02/10/2011 - 05:47 | 948748 props2009
Thu, 02/10/2011 - 05:53 | 948751 shortus cynicus
shortus cynicus's picture

We can't ignore fundamental caps for rising prices in agriculture products. And there are three of them:

  1. Methanol industry has reached negative gains level, so they have no interest in buying more wheat, and they are huge consumer. Federal government can not bail them out by increasing subsidy.
  2. Producing meat costs 9 times more food what humans could consume directly. So we may easily deleverage by factor 9.
  3. Many of agriculture products are not really so necessary - who give a shit about cocoa or sugar if he is hungry? Cotton may be also replaced by low-cost synthetic products. All that counts is wheat, corn and rice, and we have caps mentioned above for wheat and corn.

Blythe started this race in 2007. Do you trust her? At some point she will sell it all to the governments fighting food riots, of course in exchange for gold reserves, and after that, prices will magically fall like a stone - officially because of "lack of snow in the summer" of course !

In the long term, food will cost more than in the past, it's clear. But I don't trust Blythe and her "financial products".


Thu, 02/10/2011 - 09:14 | 948899 Snidley Whipsnae
Snidley Whipsnae's picture

In addition, food will cost more than in the past because there are more souls on the earth to feed.

Expanding population, meet limited resources.

Tragedy of the commons... Anyone consider how many people would now inhabit the earth if no person had ever died in a conflict? If no famine had ever occured? If no plague had ever wiped out a large per cent of the population?

The current trend of too much food in developed countries, and consequently too many obese people, is an abberation.

Hunger, punctuated by short bursts of plenty, is the normal state of all species.

It would not hurt the top ninety per cent of income earners in developed countries to miss a few meals. Perhaps this would negate the need for stomach staples, heart stints, and an endlessly expanding health care system prescribing pills for all.

Thu, 02/10/2011 - 06:00 | 948754 Lord Koos
Lord Koos's picture

The Chinese may have invented paper money, they invented gun powder too, but in both cases, leave it to western civilization to take the idea to the lethal limit.

Thu, 02/10/2011 - 07:17 | 948787 props2009
props2009's picture

New Jersey rating cut. Here comes bear raiders. Watch 2011. 

It is happening: S&P downgrades another municipality in US, New Jersey

Thu, 02/10/2011 - 07:45 | 948799 props2009
props2009's picture

Does Bill gross think we are all fools. After front running the QE2 in Nov, he is now advocating that Muni bonds short is a far fetched idea. He actually says that US states are great value.

Thu, 02/10/2011 - 08:08 | 948815 Tense INDIAN
Thu, 02/10/2011 - 08:38 | 948843 FurQ
FurQ's picture

Maybe I'm being stupid but if china is exporting stuff for profit and converting the proceeds into RMB and if foreign investors are investing in rmb assets, would n't this account for the increase in money supply?

Thu, 02/10/2011 - 09:29 | 948924 Snidley Whipsnae
Snidley Whipsnae's picture

You have set up a circular, chicken or egg first.

If so much money had not been created by the Fed would foreign investors have the funds to invest in China/rmb?

Interest rates set below what a truly free market would set interest rates at leads to extremely speculative borrowing which leads to excess money creation by borrowers/banks which leads to misallocation of capital seeking return on investment in a market where little return exists. See bubble, housing bubble, tulip bubble, et al.

This is all the result of some entity, in this case the Fed, thinking that it knows better than Mr Market what interest rates should be.

In truth the Fed now has interest rates very low in an attempt to recapitalize the banks that the Fed put in jeapordy by destroying regulations that worked fairly well... but the banks lobbied for the destruction of the regulation...knowing that the government would bail them out when they collapsed. The entire system is FUBAR, iows.

Thu, 02/10/2011 - 12:28 | 949556 FurQ
FurQ's picture

I agree, but I think whoever is running the chinese central bank deserves some culpability as well as Bernanke, at least Bernanke owns up to the printing he's done, china could be printing trillions we dont know about that ends up in regional banks that dont report to anybody, we dont know the levels of regional debt, for all we know china could be more veraged than US hence year on year 10% "growth"

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