Shanghai gold boss wants super-sovereign currency for post-crisis times

[Dan Warnick + 6,100]

There has been a fair amount of discussion on the forums about this.  And also about government's and trader's motives.  What do you all think about the possibility of this taking off?

Shanghai gold boss wants super-sovereign currency for post-crisis times

There's more to the article, but here's the first part of it:

SHANGHAI (Reuters) - The president of the Shanghai Gold Exchange (SGE) called for a new super-sovereign currency to offset the global dominance of the U.S. dollar, which he predicted would decline long term, while gold prices rally.

FILE PHOTO A sales assistant displays a 1000 gram gold bar as an investment for a customer at Caibai Jewelry store, in Beijing, China, August 6, 2019. REUTERS/Jason Lee 

 

Concern has mounted among some market participants over the dollar-denominated system as the U.S. Federal Reserve cut interest rates to near-zero and embarked on unlimited quantitative easing to contain the economic damage of the coronavirus pandemic.

The measures have helped to drive gold prices to more than seven-year-highs this month, while the dollar has been range-bound. Wang Zhenying, who heads the world’s largest physical spot gold exchange, said in an interview the gold gains should be sustained, but ultimately a new kind of currency was needed.

“Future global trade needs a super-sovereign currency system under which no single country has the power to freeze the international assets of another country,” said Wang, who held senior roles at China’s central bank, which supervises the SGE.

[Hotone + 412]

24 minutes ago, Dan Warnick said:

There has been a fair amount of discussion on the forums about this.  And also about government's and trader's motives.  What do you all think about the possibility of this taking off?

Shanghai gold boss wants super-sovereign currency for post-crisis times

There's more to the article, but here's the first part of it:

SHANGHAI (Reuters) - The president of the Shanghai Gold Exchange (SGE) called for a new super-sovereign currency to offset the global dominance of the U.S. dollar, which he predicted would decline long term, while gold prices rally.

FILE PHOTO A sales assistant displays a 1000 gram gold bar as an investment for a customer at Caibai Jewelry store, in Beijing, China, August 6, 2019. REUTERS/Jason Lee 

 

Concern has mounted among some market participants over the dollar-denominated system as the U.S. Federal Reserve cut interest rates to near-zero and embarked on unlimited quantitative easing to contain the economic damage of the coronavirus pandemic.

The measures have helped to drive gold prices to more than seven-year-highs this month, while the dollar has been range-bound. Wang Zhenying, who heads the world’s largest physical spot gold exchange, said in an interview the gold gains should be sustained, but ultimately a new kind of currency was needed.

“Future global trade needs a super-sovereign currency system under which no single country has the power to freeze the international assets of another country,” said Wang, who held senior roles at China’s central bank, which supervises the SGE.

You should listen to Jim Rickards.  This was recorded 7 months ago and more relevant than ever today!

Also check out the post by Anthony Okrongly, linked below.  He is pretty smart and was one of the first persons on this forum to call out the impact of CV19.

 

Edited April 28, 2020 by Hotone

[Dan Warnick + 6,100]

Pretty gutsy (for lack of a better term) move by the Chinese, wouldn't you say?  I mean they don't have the best image right now, especially when it comes to stability and trust?

[Hotone + 412]

50 minutes ago, Dan Warnick said:

Pretty gutsy (for lack of a better term) move by the Chinese, wouldn't you say?  I mean they don't have the best image right now, especially when it comes to stability and trust?

This was proposed by the former Bank of England governor, Mark Carney, in August 2019, because the monetary system is already broken.  He proposed that a new digital currency be created and backed by a large group of nations.

Our Malaysian former Prime Minister also proposed an Asian currency linked to gold, even earlier in June 2019. Dr. Mahathir argued that such a currency would promote regional stability.

https://www.nst.com.my/business/2019/06/495202/malaysias-dr-mahathir-goes-gold

You are right, a new currency should be created, but it should not be dominated by the Chinese.  It should either be backed by gold or by a proportional representation of nations based on shares of world trade.

Edited April 28, 2020 by Hotone

[Marcin2 + 725]

My opinion:

- President of SGE would not say this without blessing from CCP,

- but this could be also interpreted in the narrow sense: he wants publicity about gold and his exchange, he is just gold bug. SGE is the largest trading place for physical gold.

- and mind you gold is not performing well long term. In 2010 US dollars still a lot below maximum,

- for US current very bad tax and foreign trade position: US dollar as a reserve currency is important, cause US can print dollars in nearly unlimited supply,

- the position of Euro is the major problem for US since Eurozone was created. US tries to break this up but is too weak and most of all lacks strategic planning. They should give real royal treatment to Italy, spend a lot of money to get them out of Eurozone, the best solution, give them 1 trillion US dollars of financing, whatever.

Problem of Euro existence is that China and Russia could move to Euro as a temporary reserve currency for foreign trade in 2020s, due to weaponization of US dollar (but only if things will go really bad)

- China is not a problem for US dollar till late 2020s, cause China thinks long-term and they know technology is the key to hegemonic success. With top technology and largest economy: reserve currency comes naturally.

- EU and China goals are different:  EU just wants to print Euro and have NIRP but China wants hegemony.

 

Edited April 28, 2020 by Marcin2
typo

[0R0 + 6,251]

5 hours ago, Hotone said:

This was proposed by the former Bank of England governor, Mark Carney, in August 2019, because the monetary system is already broken.  He proposed that a new digital currency be created and backed by a large group of nations.

Our Malaysian former Prime Minister also proposed an Asian currency linked to gold, even earlier in June 2019. Dr. Mahathir argued that such a currency would promote regional stability.

https://www.nst.com.my/business/2019/06/495202/malaysias-dr-mahathir-goes-gold

You are right, a new currency should be created, but it should not be dominated by the Chinese.  It should either be backed by gold or by a proportional representation of nations based on shares of world trade.

It should not be a currency.

Should have no governance. 

Should be anonymous

Should be tangible and interchangeable with a digital representation. 

Should be immune from government interference. 

Should have parallel private financial currencies such as real bills and tokens issued at will by individuals and companies. 

Should not allow governments to issue national currencies different than those commercially accepted. 

Should not be a single standard but a multiplicity with no legal backing. Not a gold standard, but an as you will standard.

Everything else is suboptimal. 

 

Thus would not be something China supports. 

 

[footeab@yahoo.com + 2,190]

4 minutes ago, Marcin2 said:

- EU and China goals are different:  EU just wants to print Euro and have NIRP but China wants hegemony.

🤣🤣🤣

Yea right.  Everyone wants Hegemony.

***** Gold is useless as a currency.  Or to back a currency.  There is not enough.  Every gram of gold would have to be valued at ~100,000X what it is today.  As for backing a currency... likewise USELESS, as everyone can just make giant claims about how much Gold they have and no one can check it.  Thus their borrowing against **** themselves 🤣**** can be whatever they wish.  You end up with nothing but Fiat currencies anyways. 

Gold only worked when it was Physically handled/traded by average people with Silver as its step brother.  Problem: Enormous amounts of silver have been found which makes silver near useless as a step brother.  Need something else.  --> Oil/oil products is truly the only solution.  Why?  World runs on oil.  No matter what some envirowacko says.   I suppose you could go with Uranium...

PS: Australia would LOVE gold to become a currency.... and everyone would be invading them as they have no population worth mentioning.

[nsdp + 449]

26 minutes ago, 0R0 said:

It should not be a currency.

Should have no governance. 

Should be anonymous

Should be tangible and interchangeable with a digital representation. 

Should be immune from government interference. 

Should have parallel private financial currencies such as real bills and tokens issued at will by individuals and companies. 

Should not allow governments to issue national currencies different than those commercially accepted. 

Should not be a single standard but a multiplicity with no legal backing. Not a gold standard, but an as you will standard.

Everything else is suboptimal. 

 

Thus would not be something China supports. 

 

This would be an open door to criminals, oligarchs and money laundering activity,

[0R0 + 6,251]

26 minutes ago, Marcin2 said:

My opinion:

- President of SGE would not say this without blessing from CCP,

- but this could be also interpreted in the narrow sense: he wants publicity about gold and his exchange, he is just gold bug. SGE is the largest trading place for physical gold.

- and mind you gold is not performing well long term. In 2010 US dollars still a lot below maximum,

- for US current very bad tax and foreign trade position: US dollar as a reserve currency is important, cause US can print dollars in nearly unlimited supply,

- the position of Euro is the major problem for US since Eurozone was created. US tries to break this up but is too weak and most of all lacks strategic planning. They should give real royal treatment to Italy, spend a lot of money to get them out of Eurozone, the best solution, give them 1 trillion US dollars of financing, whatever.

Problem of Euro existence is that China and Russia could move to Euro as a temporary reserve currency for foreign trade in 2020s, due to weaponization of US dollar (but only if things will go really bad)

- China is not a problem for US dollar till late 2020s, cause China thinks long-term and they know technology is the key to hegemonic success. With top technology and largest economy: reserve currency comes naturally.

- EU and China goals are different:  EU just wants to print Euro and have NIRP but China wants hegemony.

 

This is no secret and the "plan" has been public for 20 years. 

The US does not care about the Euro so long as it can clear anywhere. If the EMU takes the Euro to clear internally only, then the US would take clearing away from Europe and London and leave Europe to the reduced liquidity it would face. 

The "weaponization" of the dollar was an outcome of the OECD harmonization schemes to capture tax cheats. It is the EU cooperation that formed the tracing facility which makes the system controllable and individual accounts identifiable. It is very costly to implement and has resulted in SWIFT losing 20% of its participants in the last decade. The system clears all internationally traded currencies including the offshore yuan . The US controls it because the system complied with its claim that it is under US authority since it clears dollars. 

There is a terrific amount of nonsense circulated around the issue of currency. I know, and have circulated plenty of it myself. 

What China wants and what China can have are two different things. Its economy does not produce an excess, its population is too expensive to sustain, its economic management by the CCP is counterproductive to its own future. The repeated crackdowns by Xi and the hardliners on the private economy have stopped its advancement and re-consolidated activity around the SOEs, which are essentially a waste of space.  China is in economic reverse since 2013. Its strategically driven growth is not necessarily economically viable. To go by Michael Beckley's analysis, it is no longer producing enough excess. Primarily because of a lack of quality early education and affordable high school education and the low quality of its interim level universities. Only the narrow permanent first tier city kids get a 

There is no country today, including the US that can initiate a reserve currency system because the US position at the end of WWII is not repeatable. As the transition to another alternative system is not doable without US initiation, it will not happen.

The internationalist scheme to bankrupt the world's nations via the insane "shelter in place" into needing a "rescue" from the IMF in the form of an SDR, is of course entirely contrived, and the IMF and the SDR are no panacea for the overhang of debt on the world. As Jim Rickards points out repeatedly, there is a solution. It is utterly trivial and does not require any international negotiation or treaty, just have the Fed give a bid for gold at whatever price it needs to reach enough dollar printing to resolve the dollar deflation problem. The dollar hole in the international financial system that China mindlessly inflated in the decades before, is collapsing the system that now has become too aged to demand all that it can supply and provide a positive real return to existing investors. It must have a prolonged period of negative real interest rates, but not negative nominal rates, it needs either a prolonged inflation or a rapid step wise hyperinflation such as can be produced by the "gold bid" scenario. 

China is not everyone's trading partner because it is profitable, it is because the CCP wants to create economic dependencies and is willing to sacrifice its people's living standards, health, education, and future in order to reach that position. In its current trend, China is heading towards the same kind of internal collapse that it keeps pointing that the West would undergo because of its leverage. China has managed to lever itself more than the West by quite a margin,  and is always a small spark away from hyperinflation as its money supply to GDP is 3 times that of the US and 2.5X that of EMU. It's financial problem is both similar to the Western problem in the overhang of debt, but far worse, because it already also produced an overhang of cash that has prevented the system from unwinding itself. The US in particular, and EMU as well, can double the money supply in quick order and NOT create an inflation of substance because of the global overhang of dollar debt Euro debt and Yen debt. China however, is one slip away from having the Yuan be replaced with barter of rice bags and canned goods internally and gold and foreign currencies abroad. 

 

[0R0 + 6,251]

3 hours ago, nsdp said:

This would be an open door to criminals, oligarchs and money laundering activity,

It is an open door. Period.

Do you give control to the air you breathe to your national governments because it might be used by criminals, forest owner barons, and air launderers?

 

[Jan van Eck + 7,558]

That neat photo of the polished gold bar reminds me of the time that Jean Drapeau, the mayor of Montreal, started off a lottery to finance the 1976 Montreal Olympics.  The tickets were ten bucks each and the prize was this big gold bar, worth a lot.  So the day of the Drawing comes up and Drapeau has the gold brought to a stadium in an armored car with a hefty police escort toting submachine guns, all for the show  (the French really love that stuff).  

The winner is called and he sorties up to the stage to receive his big gold bar.  After shaking hands with the mayor, he starts to saunter off "Stage Right" and nonchalantly tosses that gold bar up in the air, the idea being to have a little fun.  And he drops it on the downstroke, so has to bend over to pick it up, gives it another air toss, and strolls off!  The crowd roared in approval. They just loved it. 

Yup, gold has lots of value.  Especially for show!

[Jay McKinsey + 1,490]

4 hours ago, 0R0 said:

It should not be a currency.

Should have no governance. 

Should be anonymous

Should be tangible and interchangeable with a digital representation. 

Should be immune from government interference. 

Should have parallel private financial currencies such as real bills and tokens issued at will by individuals and companies. 

Should not allow governments to issue national currencies different than those commercially accepted. 

Should not be a single standard but a multiplicity with no legal backing. Not a gold standard, but an as you will standard.

Everything else is suboptimal. 

 

That's the funny thing about anarchy. The only way for it to work is if everyone follows the rules.😀 You say it needs to be tangible, so made out of atoms. Which atoms do you think would work?

[Jay McKinsey + 1,490]

12 hours ago, Dan Warnick said:

while the dollar has been range-bound

Some market participants call this stability. If there is one thing that this disaster has proven is that USD is truly the world's reserve currency.

[Dan Warnick + 6,100]

2 hours ago, Jay McKinsey said:

14 hours ago, Dan Warnick said:

while the dollar has been range-bound

Some market participants call this stability. If there is one thing that this disaster has proven is that USD is truly the world's reserve currency.

How did that get attributed to me?  I didn't say that.

[Jay McKinsey + 1,490]

3 minutes ago, Dan Warnick said:

How did that get attributed to me?  I didn't say that.

It is from the article that you posted. Sorry I should have noted that.

The measures have helped to drive gold prices to more than seven-year-highs this month, while the dollar has been range-bound. Wang Zhenying, who heads the world’s largest physical spot gold exchange, said in an interview the gold gains should be sustained, but ultimately a new kind of currency was needed.

Edited April 29, 2020 by Jay McKinsey

[Dan Warnick + 6,100]

4 hours ago, Jay McKinsey said:

It is from the article that you posted. Sorry I should have noted that.

The measures have helped to drive gold prices to more than seven-year-highs this month, while the dollar has been range-bound. Wang Zhenying, who heads the world’s largest physical spot gold exchange, said in an interview the gold gains should be sustained, but ultimately a new kind of currency was needed.

Thanks.

[Marcin2 + 725]

13 hours ago, footeab@yahoo.com said:

🤣🤣🤣

Yea right.  Everyone wants Hegemony.

Not everyone only 2 countries CAN potentially be HEGEMONIC in next 50 years : US and China; But also India in 2 generations if they by some miracle change their system of governance.

***** Gold is useless as a currency.  Or to back a currency.  There is not enough.  Every gram of gold would have to be valued at ~100,000X what it is today.  As for backing a currency... likewise USELESS, as everyone can just make giant claims about how much Gold they have and no one can check it.  Thus their borrowing against **** themselves 🤣**** can be whatever they wish.  You end up with nothing but Fiat currencies anyways. 

I agree, but somehow people like gold's shine. Gold is like aircraft carrier groups for superpowers, on 1 hand we know that they does not matter in the larger set up of things, but on the other hand aircraft carriers is a facade of real power. All the worlds gold is worth only 8 trillion dollars.

Gold only worked when it was Physically handled/traded by average people with Silver as its step brother.  Problem: Enormous amounts of silver have been found which makes silver near useless as a step brother.  Need something else.  --> Oil/oil products is truly the only solution.  Why?  World runs on oil.  No matter what some envirowacko says.   I suppose you could go with Uranium...

PS: Australia would LOVE gold to become a currency.... and everyone would be invading them as they have no population worth mentioning.

 

[Marcin2 + 725]

10 hours ago, 0R0 said:

China is not everyone's trading partner because it is profitable, it is because the CCP wants to create economic dependencies and is willing to sacrifice its people's living standards, health, education, and future in order to reach that position. In its current trend, China is heading towards the same kind of internal collapse that it keeps pointing that the West would undergo because of its leverage. China has managed to lever itself more than the West by quite a margin,  and is always a small spark away from hyperinflation as its money supply to GDP is 3 times that of the US and 2.5X that of EMU. It's financial problem is both similar to the Western problem in the overhang of debt, but far worse, because it already also produced an overhang of cash that has prevented the system from unwinding itself. The US in particular, and EMU as well, can double the money supply in quick order and NOT create an inflation of substance because of the global overhang of dollar debt Euro debt and Yen debt. China however, is one slip away from having the Yuan be replaced with barter of rice bags and canned goods internally and gold and foreign currencies abroad. 

 

@0R0 please look at the aggregated balance sheet of Chinese banking system, just for once and read about the historical roots of East Asian saving habit. And later about construction of Chinese economy financing structure.

You are probably refering to M2, it is not Chinese fault that they like to save, and Chinese government backs this habit by certain policies. Chinese bank deposits are about 200 trillion yuan at present this is 220% of their GDP.

Chinese economic growth is and was always financed mainly through bank credit, they are like continental economies (Germany, France). They are still building vast physical infrastructure and productive fixed assets of the companies.

What hyperinflaton, why ?

They are the only G20 country with still prudent monetary policy - this is a fact , it is just the level of interest rates vs inflation of these countries. And they do not print money in overdrive like EU or US (it is called Quantitative easing, if I am still up to date with all these nice euphemisms)

China still needs homes for 300 million of new urban dwellers, and much better infrastructure for 1 billion people.

Just some numbers : they need the magnitude of 20,000 km of metro lines and only have 7,000 km if I remember correctly. They have 130,000 km of railways and they need 280,000 km.

The fact that the next country on the list the United States has in total 1,600 km kilometres of metro lines, gives you some idea what we are speaking about.

 

 

Edited April 29, 2020 by Marcin2
typo

[Anthony Okrongly + 114]

22 hours ago, Hotone said:

You should listen to Jim Rickards.  This was recorded 7 months ago and more relevant than ever today!

Also check out the post by Anthony Okrongly, linked below.  He is pretty smart and was one of the first persons on this forum to call out the impact of CV19.

 

The solution to this is already in place, it just needs to be activated. I have written about it elsewhere for the past year.  It's called IMF "Special Drawing Rights" or SDR.   It's a basket currency issued by the International Monetary Fund that is backed by (if I remember correctly) 5 National currencies.  USD, China Renminbi, Euro, English Pound, and Japanese Yen. I'm sure Russia is trying to get into it as - and they probably will... 

This basket currency is made of Percentages of each national currency... So it could start with 90% USD and much less of each of the others and transform over time into 30% USD and 70% of the others. It's the ultimate fig leaf currency. It is backed by nothing other than the "global economy." SDR's are already used to give loans to nations.  When the U.S. wanted to give money to the Ukraine to buy weapons from U.S. manufacturers to defend themselves against Russia the loan was done in SDR. That way Russia couldn't say the US gave Ukraine money.  The US didn't give them money the IMF did.  (Fig Leaf)

Every true collapse occurs when the thing you were CERTAIN could never break... breaks... In 1930's it was the banks and stock markets. In 2008 it was housing.  In 2020's it will be the FED.  In each instance a larger institution caught the one that was breaking.  IMF SDR will be the mechanism through which the collapse of Western Capitalism will be arrested... this includes Europe and Japan as well. In exchange for being bailed out the West will sell a large part of their future to the east (China), and make China a larger part of the world sovereign currency. 

This isn't a conspiracy theory.  It's not a war.  It's not some secret society.  It already exists.  It's part of the International Monetary Fund charter and it's used on a regular basis. Most importantly SDR's are part of the SWIFT global financial transaction system. So they can be controlled and not allowed to be given to countries under sanctions or other penalties (Iran, Venezuela). 

National currencies will remain the same. Your $100 bill will still have Benjamin Franklin on it.  But it will be backed by SDR's instead of the FED. It will be backed by a combination of Euro's, Yen, Renminbi, Pounds, and Dollars. I know lots of people think we are going back to gold... we aren't   Can gold be added to the basket?  Sure... but it won't be. Why would China add gold (which it has to buy) when it can just add Renminbi (which it can print from thin air).  That's what China wants, the ability to print a reserve currency from thin air. England wants it too, since they are out of the Euro. It will internationalize all debt and give the world another 40-60 years before the final collapse. 

What does this change in the U.S.?  It changes inflation and interest rates. USD become a secondary currency that is free floating against the SDR (which is the international reserve currency and the currency international trades are closed in). We will start out very strong because we are very strong, but it will slowly eat away at our ability to control interest rates and inflation denominated in USD. Once we are in we won't be able to extract ourselves... although in 40-50 years we might try. 

(added note) This is good for international peace for everyone to be in the same boat. And it's flexible.  India can be added.  It's less good for U.S. economic/military hegemony. But, I think it might be useful if we cut the $600 billion military budget anyway. It's not worth the costs. 

Edited April 29, 2020 by Anthony Okrongly

[Gini + 7]

Mark Carney mentioned something similar about a year ago, except it was a super-sovereign cryptocurrency -> https://www.forbes.com/sites/billybambrough/2019/08/31/the-bank-of-england-governor-proposed-a-radical-competitor-to-bitcoin-and-the-us-dollar/#747d8785f034

[Marcin2 + 725]

A few observations about reserve currencies and their future:

- SDR: : U.S. dollar 41.73%, euro 30.93%, renminbi (Chinese yuan) 10.92%, Japanese yen 8.33%, British pound 8.09%.^[8]

So as you can see Chinese economy is underweighted, Japanese is more or less OK, and British economy is overweighted.

This causes the first problem, and there is not solution to this problem of composition of SDR cause relative power of the economy is not just GDP but many other factors.

- Reserve currency cannot be any composition of currencies cause in the future the relative competitiveness of different countries changes, and we are faced with the classic problem of EUROZONE. Nations should not have common currency and not common fiscal policy: no go in current world, nobody wants global government.

- In EUROZONE Italian, Spanish or Greek economies could be saved just by devaluation of national currencies, but they cannot do this cause they all have EURO: the same would be with any other similar global currency.

Important note: whever the currency would be paper, coin or electronic impulse or shell engraved with signs does not matter, as long as it cannot be counterfeited.

My prediction:

Importance of both GBP and JPY will decrease in relation to USD, EUR and CNY.

GBP would lose a lot after Brexit, London would be just 1 of many European financial capitals, I think Frankfurt am Mein would be main beneficiary.

Importance of CNY would increase with rising economy and technological competitivenes of China.

From late 2020s/early 2030s I think we would have 3 main reserve currencies with relative importance of USD and EUR diminished and CNY increased, but USD still would be first, I am not sure about 2nd and 3rd place.

Edited April 29, 2020 by Marcin2
typo

[0R0 + 6,251]

3 hours ago, Jay McKinsey said:

That's the funny thing about anarchy. The only way for it to work is if everyone follows the rules.😀 You say it needs to be tangible, so made out of atoms. Which atoms do you think would work?

Gold silver platinum rhodium palladium iridium oil Nat Gas. The market will have them compete. One of them, likely gold, since economies don't tank when gold is sequestered in large quantities for financial use (though we wouldn't need much),  The economic burden of using other materials had been a problem. 

Someone suggested oil, oil had been the basis for the dollar, its tangible backing, since the mid 1970s deal with Saudi. Hadn't been perfect. The oil backed money is a falling marginal utility money which necessarily declines in value if supply or substitution come in. Which is what happened. 

3 hours ago, Marcin2 said:

You are probably refering to M2, it is not Chinese fault that they like to save, and Chinese government backs this habit by certain policies. Chinese bank deposits are about 200 trillion yuan at present this is 220% of their GDP.

 

As I explained before, savings are not reflected in M2 relative to GDP. They are reflected (1) in lower prices, (2) in lower real interest rates, (3) in assets to GDP, of which M2 is a small segment everywhere but in China. What it reflects in China is that there is no real bond market and the private economy is not funded from the official bank sector but from the shadow banking system. Only mortgages are bank funded in the private market. 

The fact of high and rising M2 to GDP is a reflection of rapid credit expansion, particularly artificial credit expansion driven by distorted credit policy over decades. The clearest indicator was that of the single interest rate that did not allow banks to distinguish between borrowers of differing credit quality. Second was China's Taylor rule interest vs the official rates which has been at half or less. 

China is not alone in having had credit bubbles. Japan has had a really big one and it collapsed. Putting the economy into zombie form. China has been zombified since 2013, and is solidly in the negative total factor productivity area. Meaning that additional capital expenditure is reducing GDP/capital and lacking improvement in GDP/worker proportionate to capital. Comparing the structure of the Debt/GDP (just official credit) to GDP/capita (time sequence is generally shown in rising GDP/capita over time, except during contractions following credit crises). China is now at 280% Debt/GDP for end 2019 after the start of another credit impulse to paper over the Bank crisis triggered by Baoshang Bank's collapse. 

 The years following the crisis due to over-leveraged economy are always slow growth and show contraction and deleveraging shared with money printing, which zombifies the economy, e.g. Japan. 

China's TFP is not as "good" as it appears on the chart since GDP is overstated. 

 

The China bu bubble is not what we had seen prior to 2011, but what happened later as the incredible stimulus of the financial crisis period to 2011 waned and the economy did not power itself back on, but had only grown when credit was pushed out the door by policy. 

What you see today in China in the way of progress is narrowly contained to continued real estate expansion and technology sector productivity which continued growing rapidly to 2018, and has since flattened since China's CCP policy makers intervened in it towards the China 2025 plan, diverting expensive tech talent resources to unproductive strategic policy work. 

[0R0 + 6,251]

4 hours ago, Marcin2 said:

They are the only G20 country with still prudent monetary policy - this is a fact , it is just the level of interest rates vs inflation of these countries. And they do not print money in overdrive like EU or US (it is called Quantitative easing, if I am still up to date with all these nice euphemisms)

 

China is massively printing up money in QE to 2019. They don't publish numbers since then, but other numbers that are still published indicate a higher printing rate. 

The Chinese have printed MORE than the EMU, US, Japan, UK put together during and after the financial crisis. Over the last 2 decades they printed up 85% of the increase in global money supply, while that matched with GDP growth prior to the financial crisis, it has departed from it since then and the distance keeps growing.

China's monetary policy is extremely wild, dangerous and desperate.

China QE was 3 times bigger than the Fed's, You are simply so purely wrong as to be lying. Any semblance of prudence in Chinese banking or monetary affairs has died long ago. They are acting like Chavez' Venezuela.

 

Stop reading China ministry of propaganda talking points and relate to the reality.

[0R0 + 6,251]

3 hours ago, Anthony Okrongly said:

The solution to this is already in place, it just needs to be activated. I have written about it elsewhere for the past year.  It's called IMF "Special Drawing Rights" or SDR.   It's a basket currency issued by the International Monetary Fund that is backed by (if I remember correctly) 5 National currencies.  USD, China Renminbi, Euro, English Pound, and Japanese Yen. I'm sure Russia is trying to get into it as - and they probably will... 

This basket currency is made of Percentages of each national currency... So it could start with 90% USD and much less of each of the others and transform over time into 30% USD and 70% of the others. It's the ultimate fig leaf currency. It is backed by nothing other than the "global economy." SDR's are already used to give loans to nations.  When the U.S. wanted to give money to the Ukraine to buy weapons from U.S. manufacturers to defend themselves against Russia the loan was done in SDR. That way Russia couldn't say the US gave Ukraine money.  The US didn't give them money the IMF did.  (Fig Leaf)

Every true collapse occurs when the thing you were CERTAIN could never break... breaks... In 1930's it was the banks and stock markets. In 2008 it was housing.  In 2020's it will be the FED.  In each instance a larger institution caught the one that was breaking.  IMF SDR will be the mechanism through which the collapse of Western Capitalism will be arrested... this includes Europe and Japan as well. In exchange for being bailed out the West will sell a large part of their future to the east (China), and make China a larger part of the world sovereign currency. 

This isn't a conspiracy theory.  It's not a war.  It's not some secret society.  It already exists.  It's part of the International Monetary Fund charter and it's used on a regular basis. Most importantly SDR's are part of the SWIFT global financial transaction system. So they can be controlled and not allowed to be given to countries under sanctions or other penalties (Iran, Venezuela). 

National currencies will remain the same. Your $100 bill will still have Benjamin Franklin on it.  But it will be backed by SDR's instead of the FED. It will be backed by a combination of Euro's, Yen, Renminbi, Pounds, and Dollars. I know lots of people think we are going back to gold... we aren't   Can gold be added to the basket?  Sure... but it won't be. Why would China add gold (which it has to buy) when it can just add Renminbi (which it can print from thin air).  That's what China wants, the ability to print a reserve currency from thin air. England wants it too, since they are out of the Euro. It will internationalize all debt and give the world another 40-60 years before the final collapse. 

What does this change in the U.S.?  It changes inflation and interest rates. USD become a secondary currency that is free floating against the SDR (which is the international reserve currency and the currency international trades are closed in). We will start out very strong because we are very strong, but it will slowly eat away at our ability to control interest rates and inflation denominated in USD. Once we are in we won't be able to extract ourselves... although in 40-50 years we might try. 

(added note) This is good for international peace for everyone to be in the same boat. And it's flexible.  India can be added.  It's less good for U.S. economic/military hegemony. But, I think it might be useful if we cut the $600 billion military budget anyway. It's not worth the costs. 

The SDR is not going to work as planned because its relationship to outstanding debt is such that it will destroy the other currencies outside the creditor currencies JPY and Euro, driving the dollar down, and breaking the export economies. Besides which it will have a problem in that it puts global credit more tightly into London and NY jurisdictions as  it takes Yuan and Euro credit with it.

It will not buy 40 years. It will just implode immediately with enormous bid/ask ratios. 

The IMF has an anonymous SDR cryptocurrency network that can go around SWIFT. Which is the driver for the panic over the CV19 virus and the intensely perverse policy response to it of lockdowns, intended to wreck economies. That attack on the dollar is not going to work. The stronger likelihood path is Jim RicKard's "rip cord" policy response of the Fed and other CBs bidding up gold as their money printing mechanism rather than buying more debt which is just extending the imbalances over time. I would be surprised if the IMF isn't sidetracked into the ditch and its institutional existence comes into question.

 

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2 hours ago, Marcin2 said:

- SDR: : U.S. dollar 41.73%, euro 30.93%, renminbi (Chinese yuan) 10.92%, Japanese yen 8.33%, British pound 8.09%.^[8]

So as you can see Chinese economy is underweighted, Japanese is more or less OK, and British economy is overweighted.

This causes the first problem, and there is not solution to this problem of composition of SDR cause relative power of the economy is not just GDP but many other factors.

- Reserve currency cannot be any composition of currencies cause in the future the relative competitiveness of different countries changes, and we are faced with the classic problem of EUROZONE. Nations should not have common currency and not common fiscal policy: no go in current world, nobody wants global government.

- In EUROZONE Italian, Spanish or Greek economies could be saved just by devaluation of national currencies, but they cannot do this cause they all have EURO: the same would be with any other similar global currency.

That is an astute observation. That was precisely why the Bretton Woods fixed exchange rate system broke down and the last adherent to it, the US had to go off the gold standard. 

I don't believe China will have a much greater weighting since its major source of forex these days are the financial adjustment of global portfolios to match the new China weightings in the MSCI global indices.