China’s Divestment of Oversized Currency Reserves Threatens to Dethrone Dollar

The People’s Bank of China (PBOC), China’s central bank, holds a vast amount of foreign currency in reserve. At the end of 2012, China’s hoard stood at $3.3 trillion and rising, a 700% increase since 2004 and enough to purchase the gold reserves of every central bank on Earth twice over. China’s reserves are far and away the largest of any central bank.

Most of China’s foreign exchange reserve comes from the country’s huge trade surplus. Global demand for Chinese goods provides a stream of foreign currency into manufacturers and suppliers. Businesses in turn deposit the dollars, euros, pounds or yen in exchange for Chinese yuan, and the foreign notes end up at the People’s Bank of China. China also accumulated foreign currency to maintain the yuan at an artificially low rate of exchange. A low exchange rate keeps the price of Chinese exports low and reinforces trade surpluses. Through 2010, China pegged the renminbi to the dollar. Since then, valuation is tightly controlled within a small range.

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Online Privacy Sacrificed in Name of Security

For every technological advance that man makes, there occurs a concurrent, or sometimes subsequent, shift in how humans interact with their world. This was true when fire was discovered, when the automobile was invented and, most recently, when the Internet became ubiquitous in most households.

For some, the Internet is the path to freedom, understanding and knowledge. For others it is feared, suspected and requires intense scrutiny and control.

Of all the issues raised by the advent of the Internet, security and privacy are two of the most divisive. For technology companies like Google and Yahoo, the need to increase and mine ever increasing amounts of personal data on individual users is preeminent. For governments, the fear of subversive activities motivates a desire for increased regulation and oversight. For users the fear of loss of privacy is a constant worry.

The current battle between Google and the European Union (EU) illustrates the tug-of-war between these three parties.

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Dictatorship of the Dollar Product of Past

America.

When the word is spoken, the United States of America comes to mind. Yet America titles an entire hemisphere, divided into both north and south, which is promptly forgotten by the legacy media. Not only are the lesser-debt-riddled western countries richer, they are many times more exciting. Then outgoing Chinese president Hu Jintao originally called “the present U.S. dollar-dominated currency system a product of the past,”and the “dictatorship” of the dollar swipe came from Venezuela’s Hugo Chavez.

Despite varying cultures and geographic locations, nations of all stripes are encouraging one another to move away from trade in dollars. Southern American nations in particular, just like families globally, have sought independence from the silent tax of the ubiquitous dollar, a tax which is currently set to increase alongside the rate of increasing supply.

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Jong-Eun Needs Uncensored Communication and Price Discovery to be Economic Giant

It is possible with the same freedom of choice in money that U.S. citizens struggle for, North Korea could meet the new ambitious goals laid out by its new young leader, including to become an “economic giant.” As the U.S. already achieved this goal decades ago, it is worth considering how it was done: A foundation of sound money was the most important factor in both U.S. development and now its degradation. As F.A. Hayek would say to the North Koreans:

All those who wish to stop the drift toward increasing government control should concentrate their efforts on monetary policy

Jim Rogers, a fund manager with a classical economics perspective, often speaks of how quickly lines on a map change, and he has expected good to come for the Korean Peninsula. In many ways, Rogers has been right again; good has come to pass.

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New Hong Kong Silver Contract May Reveal Physical Short

The Chinese Gold & Silver Exchange Society (CGSE) recently announced its intention to initiate another deliverable physical silver contract, with trades denominated in the Hong Kong dollar.

GSGE is the authorized spot market in Hong Kong for physical gold and silver, and delivery will have a 956 oz. (30kg) minimum compared to the 5000oz. minimum at the COMEX in New York.

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Canadian Housing Bubble Follows Trend-Setting U.S.

Do you know what Canada, the U.S., China and Ireland all have in common? If you guessed that they have all experienced, or are currently experiencing, a housing bubble, give yourself a gold star. As all bubbles ultimately do, the Canadian housing bubble is on the path to bursting. The good news, according to recent CIBC (Canadian Imperial Bank of Commerce) reports, is that Canadians are in much better shape than their neighbors to the south—despite the fact that the U.S. household debt as a percent of disposable income barely touched 130% at the peak of the bubble, whereas the Canadian ratio is above 160% and climbing.

According to CIBC economist Benjamin Tal, the thing that makes Canada’s housing bubble different from the catastrophic U.S. real estate bubble that burst in 2006 is borrower profiles.  

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I Have A Dream: Green Nuclear Energy

Back on February 9 we wrote Understanding the Uptrend in Wealth Cycles describing the Kondratiev long-term price cycle. Near the end of the article we cite the “white swan” event that will punctuate the economic upswing as the cycle turns from winter, to spring, and then to summer.

The White Swan: Molten-salt cooled carbon-negative thorium nuclear power.

In other words, continual, limitless degradation of the economy and our "blue marble" is not inevitable—this little-known energy technology holds the promise of prosperity for both humanity and Earth.

We put up a 4-minute clip on the subject, and reported again in June on Chinese progress toward a zero-pressure molten salt reactor that will consume thorium. Let’s rewind.

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Hugh Hendry Eclectica Asset Management on Gold

In the past we have written about gold and silver mining stocks, but in this fresh clip from today's Buttonwood Gathering, asset manager Hugh Hendry of Eclectica explains his position on the miners, gold itself, and the more broad situations of China, Japan, the U.S., and the E.U.

A refreshing and logical thinker, Hendry was also featured by us in a short video blog: Greece Leaving Euro Is Path to Redemption, in which he says that Greek bankruptcy is at least a remedy, rather than patching symptoms to the detriment of those being squeezed to pay for the patches. Of course, all of this was to the horror of the other commentators.

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Germany Brings it Home - Gold Repatriation as Stocks Scare

The German Bundesbank is now concerned with acquiring their physical gold, while other central banks are busily investing the cash they create into stocks (see the Banks of Japan, Israel, and the indirectly Federal Reserve-funded plunge protection team). Meanwhile, risk appetite in markets has reached extreme levels, according to the Barclays chart below.

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Dollar Unnecessary in Iran Stealth Oil Trades

In Southeast Asia, nestled in the South China Sea, lies Malaysia. Just slightly larger than New Mexico and established in 1963, Malaysia is not typically the first location that comes to mind when thinking of international intrigue. Nevertheless, that is exactly where this Ian Fleming style story of international finance takes place—a story that at its heart is another piece of the tale of the death of the U.S. dollar.

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