China
Richard Russell snippet
Dow Theory Letters
Jan 20, 2011
January 18, 2011
-- Does anyone know what China really wants and in which direction
China is going?
The Russell answer, : China wants to
be the most powerful financial power on the planet. Note that
I said China wants to be a "financial power," not a
military power. Militarily, China simply wants to neutralize
the US, and be on a military level with the US. China knows that
nobody can win the next major war between super-powers (both
sides would be utterly destroyed).
China's initial financial strategy --
to make the yuan (renminbi) the world's leading currency. China
wants the yuan to take the place of the US dollar in world trade
and they want the yuan to be the world's reserve currency. China
is going about this in slow, deliberate steps.
First, China is making strategic alliances
with a long list of nations. This means that they will trade,
using currency swaps in China's currency, the yuan. This will
result in eliminating trade in US dollars. The Chinese alliances
include Malaysia, Belarus, Hong Kong, Indonesia and more recently
Brazil and Argentina.
China is also moving to create currency
swaps with the Arab nations. More ominously, this means that
China ideally wants oil quoted and traded in yuan rather than
as it is currently quoted and traded -- in dollars.
What's behind China's new strategies?
The fact is that China has been smarting under many decades of
bad-mouthing and disrespect. China is a nation of 1.3 billion
hard-working people, a nation pulling itself out of deadening
poverty and fast-becoming the leading economy of the world. Today,
no trend or major deal is transacted without considering it's
affect on China or China's affect on the transaction.
It's obvious that China wants the yuan
to be the world's new reserve currency. Ask yourself this --
if you are dealing with a currency, would you rather deal with
the currency of a nation with a huge hard-working population,
a nation with the largest reserves on the planet -- or would
you rather deal with the currency of a nation drowning in debt,
a nation whose currency is in a multi-decade decline,
and a nation which is steadily losing its productive and manufacturing
capabilities?
The next step in the progression is for
China to make its yuan convertible. China wants the yuan to take
the place of the dollar. It wants the yuan to be the world's
leading trading and safe-haven currency. More than that, China
is in a headlong rush to build its reserves of gold. Recently,
China asked the IMF to create a new reserve currency, a mix of
three or four leading currencies with the yuan and gold as two
of its components.
China quietly has become the world's
largest producer of gold. Furthermore, China's leaders have been
urging their people to accumulate gold.
Unlike the US, China sees gold as a symbol
of power and prestige. I believe that China is thinking that
in due time, it will back the yuan with part-gold, thereby making
the yuan far preferable to the US dollar, which is backed by
nothing tangible. Today. the dollar is backed only by the "full
faith and credit" of the US government.
So it's interesting and rather frightening,
while the US creates billions (trillions) of dollars out of computer
transactions, all in an effort to save its banking system, China
is spending part of it giant dollar hoard to buy up the resources
of the earth. China already has a near-monopoly in rare earths.
China is buying mining companies where ever it's feasible. China
is buying arable land in South America and Africa. If it's a
valuable resource, if it's for sale, China wants to buy it.
All this is happening while the US debates
the suitability of gays being in its armed forces.
Item,
River Court City, Goldman Sachs' headquarters in London, has
just been bought by China through a company called "Chinese
estates."
Item,
Tim Geithner and Hillary Clinton continue to berate China and
tell China what it should be doing. China is doing exactly what
it wants and what serves its own interests, and surprisingly,
China is not interested in the plans that the US has for it.
Housing:
China's leaders are worried about the housing bubble that has
formed in China. In an effort to let the air of the bubble, China
has increased its bank reserves and raised its benchmark interest
rates. Thus has resulted in a sharp drop in its stock market.
Below is a chart of the Shanghai Composite Index as of
Friday's close.
###
Richard Russell
website: Dow
Theory Letters
email: Dow Theory Letters
Russell Archives
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