China needs to feed 1.3 billion, 20% of world population and has not developed adequate infrastructure to do so–it is still agrarian and has water, drought and enviromental problems, thus they are buying food production elsewhere in Africa, Australia, Canada and the US (Smithfields) This will produce a conveyor belt of vittles to the middle kingdom while ridding itself of their $1.3 trillion in FRNs. They will not be reliant on the US to feed them.
But they will consider their dollar reserve as sunk costs after using the US as a dumping site for Chinese goods while spending US Reserves to buy up anything of value, from gold and silver, to water rights, food production, African production, land and petroleum production.
China must feed about 1 billion peasant population and give the strivers access to middle class. Their capital base must grow to satisfy the monetary needs of a rising middle class and a hungry lower class. But problems arise with their mega banks, liquidity, SHIBOR rates skyrocking and instability in the shadow banks. That could be a real disaster. Fast economic growth without the corresponding population growth to absorb it won’t work well. The rest of the world are in recessions and depressions and that includes the US, Europe and Japan. What markets are left? Internal? Only to the degree that the population has access to credit and can consume the goods and services. That means a great deal of debt to fund this internal growth. It did not work well here since out growth has been debt based not based in real economic growth.
We offshored 40,000,000 jobs and real income has not risen in 30 years, corresponding to and with China’s growth. But China is not omniscient or omnipotent.
Their one child policy has been a disaster with little Emperors and a country that is growing old before it grows rich. If it can’t correct that with a population boom this country is expected to have 150,000,000 labor shortage in 25 years. This a a real problem that has made Japan a basket case. China must increase population to ‘FIT’ into the government sponsored and forced increase in their own FIAT machine, running as fast as ours but with half the GDP size.
If China sees the Yuan value increase 10% to the dollar they have to have the population and income to absorb the cheaper imports. But I dont think this will help keep inflation down in China because their demand coupled with massive amounts of FIAT will increase inflation. My thoughts are that China will slowly work to undermine the US since our policies are anti growth and anti business, almost as if we are committing economic suicide. In the world of politics and economies, if your foe is committing suicide then just step back and let them or it kill themselves. It’s like the Repubs letting the Dem and Obamacare gut the Dems and POTUS.
As for knowing what China and its leaders are thinking and doing, we need to deal with transparency. There is little, since their tea leaf readers and speakers are as obtuse and opaque as ours and then some. They’ve had 5,000 years of history and a very long dynastic model that has been in place for centuries. The families that rotate into and out of power are still the overlords to China that have been in place for centuries. The present ones do not want to tip their hand or give the western powers knowledge of their plans until they are ready. They have said they do not want to accumulate more FRNs.
So be it . Done deal. They may not need more since they can print their own and once the YUAN becomes an alternate reserve currency they can print to their heart’s content, backing their currency with at least 20,000 metric tons of gold. Not 10,ooo or 5,000. At least 20,000.
Most of these Chinese dynasties last upwards of 4-5 centuries before another takes its place. We probably have little clue to what really goes on in China’s decision making, even to what it’s real GDP is now, its real growth rate (3, 7 or 10%?), its gold holdings (my guess is 20K metric tons mininum), strength of its banking enterprises (poor in many cases). We will find out something as to their gold reserves when they complete the ring-fence of the western world (US-centric). 65% of world population and 35% of world GDP is signing on to the Yuan currency and bond linkages.
They have tried to launch a capitalist Adam Smith growth model but are beset with a crony communistic fascist model that still rewards corruption, theft and bribes. Some of those tactics and means are old as the hills. Maybe they will outgrow that sort of system in time but for now it appears to work and fit their cultural norms, as painful as they are.
We are accumulating some of the worst of these models (corruption, theft, murder and bribes) but the Chinese leaders are masters at this. They need to keep their people in line. They also remember the predations of the Western world as readily as we refight the Civil war. While they need to fight some rear guard actions against the power structures that exist in China they must focus their attention to the world wide economic and currency battles. Resources are becoming increasingly scarce in China (water, food and oil)
Those old wounds are fresh given the Chinese think in centuries and they were just given a gift by the UN and our State Department. The new agreements allowing sanctions lifted from Iran if Iran promised to play well with others in the ME, this will remove the motives and maybe the means for Israel (allying itself with Saudi Arabia) to attack Iran.
A masterful stroke that simultaneously defangs Israel, keeps Syria safer from western attack, jumpstarts Iran with reduced sanctions, and allows the Russians, Syrian, Iranian, Pakistanis and Afghanistan to build that pipeline to China. China needs this petro and with Iran back in play, Israel would be a pariah if it attacked, even if Saudi Arabia paid them to do so. SA tried to pay us to attack Syria but Putin defanged that strategy by removing the WDM issue. Brilliant move that and it left Obama without a ME strategy, showed the world BHO is toothless and gave the ME to the other side. Saudi Arabia is now making trade and petro pacts with China, potentially using Yuan as a currency exchange mechinism. The dollar is going to get hammered due to that and in short order. But China moves in 10 year regimes and 5 year plans. Those started 1 year ago. Jinping has 9 years to work his strategies.
Transparency is an interesting thing. In my world there is a saying. Buyers and liars and sellers are yellers. Most people, when involved in loans and the purchase of real estate, make a lot of noise and run their BS 24/7 But everyone has their magic number. I think about the Kennedy assassination. Lots of noise and shouting. Most of those who were the minor level mainsprings of this action are now dead. But Kissinger, Zbig, G Gordon (??) Daddy Bush, Rockefeller are still alive. They will never talk. They are part of the top team and there is something in spycraft that represents a truism. To remain a member of the club you keep your mouth shut. If you don’t, you are excommunicated, killed or put in a box somewhere, never to be seen again.
That’s one of the reasons there has not been a peek in Ft Knox for nearly 60 years. Empty of gold? Probably. Or spoken for 5 times over and that situation, if it’s a fact, would be a real crap storm since the claimants are probably central banks. Germany’s 300 tons of gold? Pfah Get lost Merkel. The emperor’s golden threads are just dross. No one will get to see what’s there, move along.