DON’T EXPECT CHINA TO CATCH THE FALLING PIANO OF THE US ECONOMY
AUGUST 25, 2012
Here is a good example of Reverse Gresham’s Law. China is pushing out the dollar, fleeing the reserve currency of the world while the Euro death spirals into irrelevancy. The wealth of the west is moving towards Asia as China builds a currency backed by gold.
China’s buying up commodities, mines, gold, silver and anything else it can to buffer itself from what it sees as an economic and financial collapse of the West.
Since no one can predict how bad the fall will be, China and its Eastern partners are preparing for the worst. China is also acquiring vital allies in the BRIC nations; ones that are resource rich and not so happy with the hegemonist West. Australia, South Africa and even Japan will join in (if Japan survives the fallout from Fukushima). Hope for the best; plan for the worst.
China will probably pick up the pieces as European countries and the Euro fails. The Euro and Dollar failures are classic textbook examples of Gresham’s law and since currency (real money) abhors a vacuum, China is doing whatever it can to protect its economic interests while filling this monetary void. The Chinese know how to read history. They made a lot of it, along with the painful experience of paper money failures of their own. I admire them even though it means we will be suffering. Its just the way things tend to work out.
There’s going to be a lot of pain to go around since Europe is China’s largest trading partner and we are right behind them. I think China sees that it must build a lifeboat for 1.3 billion people. To do otherwise would be insane. With Europe in recession with some parts , such as Spain, Greece and Portugal in a depression, China will have to take its lumps. The degree of pain will be a function of how quickly and well it puts its house in order and puts its currency in the forefront of the world financial system.
Its population is not entirely self sufficient and resilient but it can take more hits since it has not fallen into the degenerate ways of the FIAT economies of the West. It’s pretty clear China is shedding our dollars as fast as it can without causing a dollar collapse but they still know when to sell a losing proposition such as their trillion plus of dollar holdings. The ongoing losses in the dollar and Euro are sunk costs. If they must be written off they will be, just like the residual costs of a failed investment.
They are not going to bail us out, or Europe for that matter. We are going to be on our own despite Tiny Tim’s begging bowl trips to the Middle Kingdom. They know that it’s imprudent to try to catch falling pianos. But there will be some real bargains once the crash happens. They simply wait for the opportunity and swoop in.