"China's foreign exchange reserves have not increased for almost two years...."
The Califia Beach Pundit provides an extraordinarily canny assessment of Chinese monetary policy, its dollar peg, foreign exchange accumulation, and gold's commodity price:
China's decision in early 1994 to peg the yuan to the dollar was a key factor driving China's growth, since it brought Chinese inflation rapidly down to the level of the U.S. The prospect of a stable currency not only reduced inflation and its multiple distortions, it also increased the market's confidence in China, and helped boost investment in the country since it all but eliminated foreign exchange risk. Indeed, since the yuan has only appreciated against the dollar since 1994, foreign investors benefited from strong Chinese growth and yuan gains. China was the boom of the century.
Image courtesy of Pandawiki.net
Massive inflows of foreign capital seeking to benefit from rapid Chinese development essentially forced the BoC to buy over $3 trillion of foreign exchange, with a commensurate increase in the Chinese money supply. Converting capital inflows into yuan is the only way foreign capital could actually enter the economy, because you can't build a factory or hire workers with dollars—the dollars need to be converted to yuan, and it is the proper role of the BoC to buy those dollars and issue new yuan in the process. Yet despite massive forex purchases, which relieved pressure on the yuan to appreciate, the BoC still had to allow the yuan to float irregularly upwards. A stronger yuan helped to keep the inflationary pressures of rapid growth under control.
As I explained in this post, it now appears that this process of forex purchases and yuan appreciation is at an end. This is a big deal. China's foreign exchange reserves have not increased for almost two years, and the yuan has been stable against the dollar for the past two or three months. Capital flows and trade flows appear to have reached some kind of equilibrium, just as Chinese and U.S. inflation have converged.
... China's central bank started buying up capital inflows in earnest in early 2001, right about the time that gold was hitting a multi-year low. This came to an end in early 2011, as net capital inflows approached zero, and shortly thereafter gold peaked. Both forex purchases and the price of gold increased by many orders of magnitude over roughly the same period.
Is there a plausible explanation for the strong correlation between these disparate variables? I think there is, but I can't say so with authority.
Don Luskin ... argues that the outstanding stock of gold is relatively fixed—growing only about 3% per year—but that the demand for gold has jumped by orders of magnitude since China, India, and other emerging markets have enjoyed explosive growth and prosperity gains. In other words, the number of potential buyers of gold has risen much faster than the supply of gold, so naturally gold's price has increased. This is not a story about massive money printing and hyper-inflationary consequences, it is a story about a one-time surge in the demand for the limited supply of gold.
There has been considerable speculation by savvy observers -- such as financier and author James Rickards -- that "China this year or next will announce a tripling or quadrupling of its gold reserves after acquiring the metal surreptitiously." As Evans-Pritchard observes in the UK Telegraph, "It is no secret that China is buying the dips, seeking to raise the gold share of its reserves well above 2pc. Russia has openly targeted a 10pc share. Variants of this are occurring from the Pacific region to the Gulf and Latin America."
The FT observed in late 2011, central banks are net buyers of gold for the first time in 20 years.
Will America start prospering again — as it has not prospered for over a decade? Likely yes. But not without a fight. Now that Jim DeMint has raided Steve Moore from the Wall Street Journal that card might be Heritage Foundation vs. the White House. Could be big.
John Holdren, now Obama’s White House science advisor, 40 years ago termed America “overdeveloped.” Holdren co-authored a 1993 book, Human Ecology: Problems and Solutions, with Anne and Paul Ehrlich reportedly saying that, “A massive campaign must be launched to restore a high-quality environment in North America and to de-develop the United States….” (Emphasis supplied.)
As a soldier of France, no one knew better than Professor Jacques Rueff, the famous French central banker, that World War I had brought to an end the preeminence of the classical European states system and its monetary regime, the classical gold standard. World War I had decimated the flower of European youth; it had destroyed the European continent’s industrial primacy. No less ominously, the historic monetary standard of commercial civilization had collapsed into the ruins occasioned by the Great War. The international gold standard -- the gyroscope of the Industrial Revolution, the common currency of the world trading system, the guarantor of more than one-hundred years of a stable monetary system, the balance wheel of unprecedented economic growth -- all this was brushed aside by the belligerents.
Publisher's Note: Originally released in June/July of 1991, this detailed report discusses Jacques Rueff's economic theories and applies them to modern economic events.
By John D. Mueller
A Rueffian Synthesis
LBMC’s integrated approach to economic forecasting can fairly be called “the Rueffian synthesis.” It would be more modest to call it “a” Rueffian synthesis, since that would allow for other Rueffians who might conceivably quibble about our application of Rueff’s ideas. But it appears that, apart from LBMC, there are no other Rueffians in the world – even in Rueff’s native France – using Rueff’s ideas as a basis for economic prediction.
"Commercial banking grew out of the desire (inspired by the profit motive) to conserve cash (gold) and by means of credit to provide financial elasticity and growth in the commercial process of exchange. That is, all producers (sellers) who desired true money (gold), instead of the short-term secured credit bills – promissory notes of their customers (the buyers) – could, through the mediation of goldsmiths-turned-bankers and bill-merchants-turned-bankers, obtain real money by discounting their bills of exchange for gold with the emerging commercial bankers of early modern Europe. The combined institutions of stable money and secured credit enabled commercial civilization to make of the entire world the only closed economy."
Argentina is floundering. Brazil is struggling. Colombia is growing. Colombia is now the third largest economy in Latin America, according to Capital Economics. The Wall Street Journal’s Darcy Crowe and Taos Turner wrote recently: “After Argentina’s economy dwarfed Colombia’s for decades, economists say the trend reversed in January as the...
One of the themes for the Akan gold counterweights is the electric mudfish.
Image courtesy of AfricanMasks.info
Spark From The Deep by William Turkel has this to say about the fish upon which this counterweight is modeled:
The electric catfish also played an important role in the west African kingdom of Benin, which...