China Reported Planning To Back the Yuan With Gold

This is an interesting article for several reasons, not the least of which is that it is from a Russian publication and perspective, reflecting on the possible actions of China in the evolution of the global reserve currency regime.

As you know Russia is promoting a rethinking of the post Bretton Woods monetary system through their chairmanship of the G20 this year.   There are other shoes to drop yet from that.

I suspect that China is playing chess here, or perhaps more appropriately the game of 'Go,' and not checkers. So snap judgements about what they are doing and why they are doing it are probably going to be fairly shallow.  Most professionals and so-called experts are blinded by the status quo, lost in their own jargon and assumptions.  There are many mechanics, but fewer systems thinkers. 

Every action that is public masks a myriad of moves and countermoves done off the board and in quiet.  Most who comment fail to grasp this because of cultural predilections.

Thoughts about capitalists selling rope do come to mind among other things relative to the short term and self-serving, stupidly greedy nature of the markets these days.  But to borrow a phrase, economic power grows out of the barrel of a gun.  It can call most hands.

Among other things the price discovery mechanism for gold currently resides with the Anglo-American financial establishment, which has been fairly shameless of late in shoving prices around the plate using paper leverage, and fixing key prices at will whether they reflect reality or not.   That will have to be addressed.  And I suspect it is well underway.

The terms of 'redeemability,' if any, are obviously of paramount importance in such a value reference to gold, as well as currency markets that are notorious for predatory practices, whether one wishes to acknowledge the rigging or not.

I am giving this more thought and will have other things to say about it in the future.  But these are undeniably interesting times.

China reportedly planning to back the yuan with gold
July 17, 2013 special to RBTH Asia Pacific

Recent media reports suggest that Beijing is considering backing the yuan with gold. This decision, if taken, will likely affect China's economy and may trigger a new wave of the global economic crisis. For Russia, however, such a scenario may have its benefits.

According to media reports of early July, the People's Bank of China is mulling the possibility of phasing out the dollar as the reference currency for the yuan exchange rate, and to start using gold as the reference point.

The reports have not been confirmed officially, but analysts are warning that the step, if taken, will weaken the yuan and destabilise China's already troubled economy, ultimately provoking a new bout of the economic crisis worldwide.

Beijing's possible move to back the yuan with gold would not be meant as a strategic measure to strengthen the national currency and increase its attractiveness as an investment medium. Rather, it would be a flaunt aimed at demonstrating to the world (and to the USA in particular) that China is capable of taking the risks associated with a departure from the dollar standard. Experts warn however that, apart from benefiting no-one, such a decision may actually have catastrophic consequences.

Separating the yuan exchange rate from the US dollar may further weaken the American currency in the long run; in addition, China's monetary policy would become very much restricted, believes Evgeny Nadorshin, chief economist at AFK Sistema.

"The yuan will start fluctuating severely against the dollar and other major reserve currencies. This will affect the Chinese economy, which currently has serious problems as it is: the export revenues are falling, and the statistics for freight traffic and electricity consumption indicate a significant slowdown in business activity," says Aleksandr Golovtsov, head of the research department at UralSib Asset Management.

Given the current economic recession in China, backing the yuan with gold may further worsen the situation. In essence, China is running the risk of launching a new wave of the global economic crisis, experts concur...

Read the rest of the article here.

Der Spiegel: Ex-President Jimmy Carter Condemns Surveillance State, Praises Snowden

This is a rough translation of an article that appears in Der Spiegel.

NSA affair: Ex-President Carter Condemns U.S. Snooping
By Gregor Peter Schmitz, from Atlanta
17.07.2013 – 13:59 Uhr

Ex-President Carter: "The invasion of privacy has gone too far"

The Obama administration has tried to placate Europe's anger over their spying programs. Not so ex-President Jimmy Carter: The Democrat Carter sharply criticized U.S. intelligence policy. The disclosure by the whistleblower Snowden was "useful."

Former U.S. President Jimmy Carter was in the wake of the NSA spying scandal criticized the American political system. "America has no functioning democracy," Carter said Tuesday at a meeting of the "Atlantic Bridge" in Atlanta.

Previously, the Democrat had been very critical of the practices of U.S. intelligence. "I think the invasion of privacy has gone too far," Carter told CNN. "And I think that is why the secrecy was excessive."

With regard to the NSA whistleblower Edward Snowden, Carter said his revelations were "likely to be useful because they have informed the public."

Carter has repeatedly warned that the moral authority of the United States has declined sharply due to excessive curtailment of civil rights. Last year he wrote in an article in the "New York Times" that new U.S. laws have allowed "never before seen breaches of our privacy by the government."

The entire article in German can be found here.

Here is the only article I was able to find in English that discusses the same interview I believe.  There were some others but they only talk about Carter's comments on the Zimmerman trial.

Gold Daily and Silver Weekly Charts

Benny made it perfectly clear in his Humphrey Hawkins testimony today that QE, in whatever forms and permutations, is here to stay at least for this year. And when the Fed expands its Balance Sheet, it is most certainly 'creating money,' although as I have said often enough 'printing' is a colloquial expression of the same sentiment.

Thank you very much for clarifying that for all the learned economists Ben.  Your occasional honesty in Congressional testimony is a nice change of pace for a disgraced profession.

• Q: Are You printing money?
• Bernanke: Not literally.

and

• Bernanke: If the Fed were to tighten policy, the economy "would tank."

Ben tended to point a finger at the inept and ideologically purblind Congress for the obstacles to growth.  And in addition to a hearty 'hear, hear,'  I would certainly include the Obama Administration.  The lack of genuine reform is appalling.  But what else can we expect from those stewards of bad governance caught up in a credibility trap which they helped to create.

Gold and silver were obviously hit with a bear raid in honor of Bernanke's testimony. What else would we expect from a thoroughly corrupted financial system? Intraday commentary on that here.

SP 500 and NDX Futures Daily Charts - Earnings With Revenue Misses

After the bell Intel and Amex and IBM all hit their earnings but missed on revenues.

Look for that to be a recurrent theme given the lax accounting standards and weak aggregate demand in the US economy.

I think we are in for some downside in stocks, but perhaps not yet.