Last week a MAJOR news story hit the air waves. The impact of this story will be felt for years to come, yet if you only listened to the main stream media you would never know it. The Peoples Bank of China released a statement last week indicating the following:
“It’s no longer in China’s favor to accumulate foreign-exchange reserves”
The impact of this statement, which was said by Yi Gang, a deputy at the central bank of China is staggering. It is mind-blowing that this isn’t the major headline of every financial publication available. What the Peoples Bank of China is saying is that it is not in the best interest of China to continue to accumulate US debt and stockpile US reserves. If China steps out of this market, the United States is in serious trouble. The FED is already the largest purchaser of US treasuries. A sad but very real fact (this is akin to paying off a credit card with a credit card). If China steps out of this market, the FED is going to have to monstrously increase their QE program.
Citizens of China should rejoice this news. This means the Yuan is going to drastically appreciate in price. The cost of goods are going to drop and their huge savings that they have accumulated are going to rise in price, thus increasing the standard of living for its citizens. Is China now ready to stop subsidizing the standard of living for US citizens at their own expense? It appears so.
At the same time, the amount of gold China is importing into the country is hitting record levels and is set to increase again next year! Clearly they have decided they have had enough and are gearing up to be a major player in the currencies market. Perhaps even replacing the US dollar as the reserve currency of the world in years to come, something I believe they will be quite capable of doing once they announce the true amount of their gold reserves (a number which I believe is strategically understated).
The US government is not going to take this news lightly and will desperately do everything they can to hold onto power. This is part of the reason I believe this news story is getting no media traction in the United States. ”See no evil, hear no evil” appears to be their motto. To that I say good luck.
- Source, Sprott Money Blog: