THE CURRENCY WAR AND WHAT IT MEANS TO YOU, Part 2

August 29 2015  April 28 2013

“I believe that banking institutions are more dangerous to our liberties than standing armies . . . If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] . . . will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered . . . The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” — Thomas Jefferson — The Debate Over the Recharter of The Bank Bill, (1809)

“During times of universal deceit, telling the truth becomes a revolutionary act.” George Orwell

INTRODUCTION

This is Part 2 of the Series. This is a 2 Part series as described below:

Part 1

The first is a background covering the concepts of money, free banking, currency, the gold standard and how the US gold backed banking system worked between 1840 and about 1913.

Part 2

This will cover the origin of the fiat dollar; the Chinese goals of replacing the dollar with the Yuan as a gold backed currency; China’s apparent game plan to reach this goal; the status of their implemented plan; the fall of the fiat dollar; and some predictions as to what will happen when the Chinese announce their gold backed Yuan.

 

Thomas Jefferson was right again. The national Bank was created in a manner that private individuals owned it. It took Andrew Jackson to kill the 2nd bank in the 1840s by not renewing its charter. Lincoln established another central bank because he had to have money to pay off the war debts. From the 1840s to 1913 we had virtually no inflation and full employment. On top of that, by 1913, the nation was close to being debt free – no national debt at all. The bankers reentered in 1913 with the creation of the Federal Reserve Bank (FED) whose charter was to control inflation and keep full employment. History shows that this cartel of bankers have failed miserably. Currently we have 23% unemployment and 49 million on food stamps. Finally, we are printing money in a manner that will lead to inflation and possibly hyperinflation. On the other hand, the FED did what their owners expected – they increased the debt from virtually zero to today’s mammoth obligation. Further, they enabled debt for individual households. In 1913, bankers were not making a lot of money since the owners of the FED make income based on the interest of loans. With the FED, they actively work with the Congress who is their willing bedfellows. In turn, the Congress always gets as much money as they need for any project they wanted. If you want a “bridge to nowhere”, the FED will fund it. This was the “understanding” between the FED and Congress. In this manner, the Congress could bring home “the bacon” for its constituents to win votes in the next election and thereby keep themselves in office. This is a historical view of what is happened in the last hundred years.

Problem

This article discusses the problem that the Federal Reserve has created in conjunction with the Congress for the American Republic. In the last 100 years, we have transitioned from a Gold standard system to a 100% fiat based system. It was done gradually by FDR removing gold as a money by means of the government recalling all gold in 1933; and Nixon completely removing us from the gold standard in 1971. For 42 years, we have been on a 100% fiat currency system.
For almost 100 years, America’s debt has increased from zero to the point where it is now not sustainable and not payable. Today, America has approximately $17 trillion in stated national debt but this is only the top of the iceberg. The true size of the iceberg is closer to $200 trillion in mostly unfunded obligations. In addition, there are lenders at the gate who want to be paid, deserve to be paid and will try to be paid. China is the biggest lender. In recent years, China has created a loan of approximately $2.0 trillion to the United States. They bought U.S. Treasuries. China now has a problem of how to cash those in and collect. They have tried to collect by using some of that money in different ways. To collect, they only had 3 alternatives, which were:
• Direct collection, which would cause the U.S. financial system to collapse, the nation to go bankrupt and either default or print more paper that would set the stage for hyperinflation. The U.S. does not have the money and would have to create it by printing it thereby adding to the money supply, which in turn primes the economy for hyperinflation.
• Fund hedge funds and buy into the U.S. stock market. They tried this in 2008 and lost. They bought into Blackstone investors and lost 70% – so they stopped.
• Attack the base of the problem, which is the FED’s fiat dollar. To do this, they would have to replace the fiat dollar with a gold backed Yuan. They need partners in this effort and it now appears that they have them in Saudi Arabia, Russia and the Rest of the World (ROW) who are cooperating in this effort. As evidence, they are the kingpin for the BRICS. It turns out that the ROW is tired of imperial wars that protect international banker assets but get them killed. They are signing bilateral agreements with China, Russia, Iran, and India that enable them to use their currencies rather than the US dollar for these agreements. This week, Iceland signed one with China.

True U.S. Debt

Most people have not paid attention to the true level of US debt. The Wall Street Journal in its November 26, 2012 addition carried an article by Chris Cox and Bill Archer labeled, “Why $16 trillion only hints at the true US debt”. They point out that the $600 billion fiscal cliff currently discussed in the 2013 budget is small in comparison to the challenge of the US government unfunded pension and health-care liabilities which remain offstage. If the government prepared an accurate balance sheet, it would list the off balance sheet liabilities for the government. These would include the following:
• Treasury debt issued to the public
• Federal employee pensions
• Post – retirement health benefits
• Unfunded liabilities of Medicare and
• Unfunded liabilities of Social Security
They refer to a Fiscal Policy Institute and that the discussions focus on year budget deficits and associated accumulated national debt. We currently have $15.96 trillion national debt and a 2013 planned budget deficit of $1.3 trillion. We also have the FED printing another $1.1 Trillion non-payable stimulus debt called Quantitative Easing. This means that this year, we will accumulate $2.4 T in additional debt making it $18.4 trillion at the beginning of 2014. This contrasts with the $9.0 trillion when Obama came into office. He has been a catastrophe.
The actual liabilities for Social Security Medicare and federal employee’s future retirement benefits currently exceed $87 trillion. A as of December 31 2011, the annual expense for Medicare and Social Security was $7 trillion. As of the Trustees report in April, the net present value unfunded liability in of Medicare was $42.8 trillion and Social Security of $20.5 trillion. This totals $150.3 trillion unfunded debt. These figures are so high that the capacity of the global capital markets could not handle it. They point out that it would require $8 trillion in tax collections annually just to service the debt. The problem with that is that the total adjusted gross income of all individuals in the United States in 2006 was only $5.1 trillion. The adjusted tax income of corporations in America approximately $1.5 trillion. It appears as if America has an income not great enough to pay off any of this debt.
The size of this debt and the lack of income to pay it off present a major problem to any government such as China that want $2.0 trillion back from an insolvent debtor.

Chinese Solution to Their Collection Problem

The Chinese approach to this collection problem was to create a new state agency called “State Administration of Foreign Exchange” (SAFE). The Chinese have publicly stated that their goal is to create a new dominant world currency that displaces the US dollar as the world currency.

A little history is useful here. In 1965, Charles de Gaulle of France took $150 million in French money and bought US gold from our treasury/Fort Knox. It was priced at $41 / oz. Today it is worth $12 billion. Spain then redeemed $60 million and other nations were following suit. During the 50s and early 1970s, the US gave away two thirds of the gold resources or about 400,000,000 ounces for $14 billion. Today this is worth about $700 billion or 50 times as much. History will show that this was an incompetent political blunder – – – or collusive theft. That history has yet to be written.

The cause of the blunder was the decision to go for “guns and butter” which weakened the US economy. On August 15, 1971, Nixon removed the US from the gold standard. Today, 42 years have passed and the US is in the middle of another currency war. However, this time, the adversary is China and this is far more serious because in the 60s, the economy was growing and we still had manufacturing. Today it is declining as evidenced by:
• GDP grows at less than 2% and possibly negative this year;
• Unemployment is approximately 23% with about 35 million people out of work and growing;
• food stamps are received by approximately 49,000,000 people with government plans to take it to 60 million people;
• interest rates for treasuries are less than 2% implying no return when one considers inflation; and
• Taxes are going up and national debt is going up to $2.4 trillion per year (FED – $1.1 T and Deficit $1.3T)
It now appears that the Chinese will wreak havoc on the lives of millions of Americans of the next few years. It is wise for you to understand that the Chinese are doing, how they are doing it and the outcome that will most likely result.

China has another solution, turn fiat $2 trillion asset into hard assets. They have gone about the world and are buying up gold mines, land, putting in transnational rail roads and probably using some of the $2 trillion asset hoard.

China’s Gold Accumulation Plan

For more than 30 years, China has sold more than it is imported. As a result, China has stockpiled trillions of US dollars. How does this work? The Chinese business sells items to the United States. Walmart alone has 500 manufacturing plants in China. In return for the items, they get dollars, which are given to the Chinese government, this Chinese central bank people called the Peoples Bank of China, PB OC. The Chinese central bank pays the producer in Yuan at a fixed rate. In short, the Chinese people do the work and the Chinese government keeps the dollars at a good rate. This “profit” for the state is converted into projects and gold. In addition, China is the world’s largest gold producer. All the production goes to the state and is paid for in Yuan. They produce on average 300 tons / year and this has been going on for 30 years. Thus, they added, unannounced, 9,000 tons of gold to their reserves.

Let us look at the history of gold reserves. In 1980, the Chinese currency reserves were $2.5 billion. Now they stand at $3.2 trillion that they admit to. On the other hand, they have 9,000 tons from 30 years of accumulation. At $1,500/ oz., 9,000 tons of gold is worth 43.2 trillion or the total should be $46.4 trillion. Of course, we do not know with certainty that 100% of the gold mined went into the national bank reserves. That is just what they report. This would be enough to meet their goal to create a new international currency. They have accumulated dollars and now face the problem, “What to do with all that currency?” In the past, they bought US treasuries, notes and bonds to the tune of $1.2 trillion.

Their next biggest chunk is in Euros. However, these bonds earn virtually zero interests since the politicized central banks continue to print money, which drives the interest rate down. If the Chinese sold their positions, the prices would go way down and so they are stuck. As a result, they did not sell treasuries but started a true three-pronged approach of:

(1) Not buying any more treasuries;
(2) Started speculating in the stock market just before the 2007 crash. They bought 10% of the Blackstone group and a similar stake in the Morgan Stanley group. Blackstone is down 46% and Stanley is down 70%.
(3) Therefore they went back to the fixed income treasuries, Fannie Mae and Freddie Mac mortgages that are considered safe but are subject to inflation. SAFE is not a speculation. It works to protect the safety of Chinese foreign exchange reserves.

China and Gold

In 2011, China became the number one importer of gold in the world by beating India, the historical leader in gold buying. Today, China is the world leader producer in gold. They produce 50% more gold than the 2nd Pl., Austria. Law must sell every ounce produced in China back to the government.

The Chinese are working to back their currency with gold. Today:
• China is the fastest-growing nation on earth;
• China has the largest cash reserves on earth;
• China’s Yuan International currency is backed by gold. Its Renmindi it backed by customer deposits in its banks. The banks are only allowed to make loans equal to 80% of those deposits.
• China may have the world’s largest gold reserves.
China knows that when other nations are printing fiat paper and China is backing their currency with gold that this fact alone could catapult them to world power status.

How China Came to Dominate the Gold Market
First, one must recognize that it is in the best interest of fiat currency nations to suppress gold as an alternative to their paper. Second, if any currency such as the one is backed by gold than international trade will gravitate to that currency. For this reason, China adds 300 tons of its own production to its gold reserves each year. In 2009, China announced that its gold reserves increased 75% due to its secret purchases over a period of six years. This moved them into the sixth position with the world with the countries that had gold reserves. Their goal represents about 2% of the reserves when the United States and Germany hold 70% of the reserves in gold. Many people question whether there is any gold left in Fort Knox because our government and Congress have refused to audit the reserves since 1953…

The Mining Journal in November said that it expects China to amass 5,000 tons of gold within five years or by 2016. China buys gold and now they are buying gold mines. They offered to buy Jaguar Mining for $785 million or about 77% more than its current market value. They recently bought Norton goldfields in Australia. It is a fact that if one looks at gold in storage and gold reserve, then China may already be number one nation in the world gold reserves. However, the Chinese realize that you really be number one, they must establish the world’s leading gold exchange and regulate it honestly. They have done that.

China Plans to Change the Way Gold is Traded
Today, five bullion banks control the price of gold, of Nova Scotia, Barclays, Capital One, HSBC and Société General. It is a matter of record that from 1961 to 1968 these banks suppressed the price of gold. Today’s price of gold suggests that the manipulation continues. How can one conclude that? This is how. Gold is a commodity and commodities usually fluctuate through plus or -5%. For instance, oil has shown such volatility 80+ times in 10 years whereas gold has shown volatility only 10 times in the same period. In the future, China will not allow naked shorts on the gold market.

The Chinese government encourages its citizens to own gold. They can buy gold in any bank. In June 2012, China opened the pan Asian gold exchange (PA GE). It has been operating as an exchange since that date. This exchange is a direct competitor to the London metals exchange and the COMEX in New York. These exchanges back purchases with 10% margin. PAGE is expected to have a much higher margin. As a result, eyes will be on the influence of the Chinese exchange rather than in New York. The prices will be set there rather than behind closed doors to benefit the few in London or New York.

The Chinese endgame is here. They have done their homework and executed well.
They have two currencies. The Yuan is used in international trade and is 100% convertible to gold. The Renminbi is used internally within the country and is backed by customer deposits in its banks.

They have announced that the Yuan is convertible with gold. The Chinese bond market is growing rapidly. The Chinese bonds will be the most valuable bond in the world because they are backed by gold. The FED treasuries will now drop and might even disappear over time. The bond markets of the world will be reshaped virtually overnight in the near future.

The impact on the dollar will be catastrophic. .Investors and investment will flow into China because their Yuan and National bonds will be backed by gold. Investors will sell U.S. treasuries and convert to Chinese bonds. Eventually, the dollar will lose its international reserve status as the Yuan gains its status. Then, the U.S. will have to determine how it will handle $17 trillion in debt with a currency no longer being a reserve thereby enabling further debt

Your protection is simple – – – own physical gold

About Raven

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