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China pumping Yuan into global markets faster than the Federal Reserve has been printing dollars

March 14, 2013 Richard Russel’s Remarks:

I see that government regulators are investigating the pricing of gold. Seems some of the overseas banks are indulging in hanky panky with gold. Ye gads, can we believe any pricing for anything these days? With the Fed manipulating the stock market and the economy and now a “group of banks” messing around with the gold price, what’s left to believe?

As for gold, it is fluctuating (up one day, down the next) as it contemplates closing above 1600 for the April contract. Obviously, those central banks that are now accumulating gold are not anxious to drive the metal higher, and if gold shows signs of strength, I am betting that the large accumulators switch to selling just enough to keep the price down.

China is looking at the gold ETFs as an opportunity to collect huge hoards of gold in one fell swoop. Beneath the quiet and dull action of gold, a fierce battle among the accumulators is going on.

”If China is one of the largest holders of Forex reserves and had the largest savings of any nation, why did they feel the need or desire in 2005 to begin issuing Yuan denominated debt? Why begin borrowing capital from foreign creditors? They certainly didn’t need the money. Why were they moving away from export dependency and building a consumer base? And why attempt to proliferate their currency? Yuan circulation had to eventually increase in valuation. Didn’t the Chinese want their currency cheap so they could maintain export superiority? What did the Chinese know in 2005 that we didn’t?”

“Well apparently, they were either psychic, or someone gave them advance warning. They knew that there would be a crisis in American consumption and this would lead to a severe reduction of imports, which is why they began to insulate themselves. They knew that there would be considerable devaluation in the dollar, which is why they converted much of their long-term Treasuries to short-term Treasury bonds so that they could dump with far more ease, and they knew the IMF would be promoting special drawing rights as a new reserve, replacing the dollar, which is why they have been spreading the Yuan everywhere, earning them favor with the global bankers and inclusion in the basket of currencies. In fact, China has been pumping Yuan into global markets even faster than the Federal Reserve has been printing dollars.”

“China is flooding the system with Yuan! This means only one thing. China is no longer seeking to maintain the traditional relationship it has had with the US. To make my case even clearer, I would point out that China has not only become the world’s largest gold producer, but also the largest gold buyer, recently surpassing India. Official estimates place China’s gold purchases in 2012 at around 800 tons, an astonishing increase in their stockpile. China is being groomed as an alternative economic engine in opposition to the US, and this will lead to an eventual dump by China of the Greenback. To put it simply, the dollar is going to lose its world reserve status very soon.” (All the above is condensed from an article by Brandon Smith, courtesy of Jim Cook’s Investment Rarities.)

Question — Russell, why are you writing so darn much about China and world reserve currencies?

Answer — I’m writing so much about China’s ambitions because I believe this will be the leading financial story over the coming two years (and actually, maybe less than two years).

I have already explained why China’s Communist leaders are planning to have China take the place of the US as the world’s new leader. The Communist leaders’ main desire is to remain in power. They plan to do it by raising the PRIDE of 1.4 billion Chinese. Remember, for over a century the world literally spat on the “lowly Chinese.” The Chinese were treated almost as slaves in the early days of the American West. But suddenly, China has become a world economic power. However, if the Communist leaders can transform China into THE LEADING WORLD POWER, they will have the full backing and blessing of a previously scorned and downtrodden population.

This, I believe, will be the biggest story since World War II. And I’ve resolved to put my subscribers on top of this story.

Question — OK, it’s an interesting story. But what can we do about it?

Answer — First, you can be fully aware of this gathering story. Second, you can prepare for a lower standard of living. And you might own some silver and gold in small, tradeable quantities.

I’ve written that to be a world leader, a nation must have (1) an impregnable world class military, (2) a huge store of gold, and (3) the world’s reserve currency. Two of these is not enough. The world’s leader must have all three.

Lastly, remember I’m an optimist. As an optimist, I hope (pray) this whole situation does not end with the US and China at war. War between two nations which both have nuclear capabilities is unthinkable.

As the currency wars intensify, people will have less and less conviction that fiat currencies will hold their purchasing power. Once this idea gains wide acceptance, I believe that an increasing number of worried investors will seek the safety of silver and gold — or anything of tangible value. In the meantime, the rising level of equities will provide a diminishing return in the way of dividends. Thus, rising equity prices will represent diminishing values. Ultimately, people will seek anything that will maintain its purchasing power. That “something” will be precious metals. I also think there will be increasing pressure on our politicians to allow gold and silver to be used as money (although the Fed will fight this tooth and nail).

I well remember (back in the 1970s) our battle to allow Americans to own gold. I foresee the same type of battle to allow silver and gold to be legal tender. Ultimately, the truth will come out, and Americans will demand the right to protect themselves against Fed-sponsored inflation (loss of purchasing power). This is the reason why the Fed is so anxious to fudge the statistics — in order to “prove that there is no inflation” (that is, if you disregard the climbing price of food and energy).

It really is incredible — to protect their jobs at the Fed and to protect their positions of power, the people who work at the Federal Reserve, including Fed Chairman Bernanke, will “sell their own people down the river towards a world of diminishing purchasing power.”