Thursday, January 13, 2011

The Yuan Invades US Shores and Portugal “Clears a Major Hurdle”

1/13/2011 Portland, Oregon – Pop in your mints…
The world turns.  Things must move forward.  What must happen will happen, all on its own perfect schedule.  The schedule for certain large events, which is what most humans in the modern world observe closely, is more often than not an absolute mystery.  This frustrates many.  Jesus did not tell us exactly when He will return so that we could schedule an alert on our iPhone, He simply told us that His return is certain and that we must watch for signs and prepare ourselves accordingly. 
In the same way the Market is telling us that the days of the US Dollar's worldwide dominance in commerce will come to a close.  When will it occur?  If we knew, we would be rich.  The truth of the matter is that nobody, not even the authorities who pretend to have supreme control over the world's currencies, knows when the tipping point will occur.  But we are beginning to see many signs.
The latest signal of the beginning of the end of US Dollar dominance comes in the form of the New York and Los Angeles branches of the Bank of China offering accounts denominated in Yuan, or Renminbi (RMB or CNY) to US customers.
Meet Your Friendly Neighborhood Bankers!
The Chinese plan is obvious.  Why risk a military invasion when a currency invasion will be much less costly and much more effective?  Recall the words of Mayer Amshcel Rothchild, which we have pondered here before:
"Give me control of a nation's money and I care not who makes the laws"
Our guess, and it is only an educated guess, is that China has had enough of the US exporting its inflationary policies on to its shores and is just beginning to show that two can play at the game of currency warfare.  Now that the Tidal Wave of inflation is returning to US shores in the form of a Dollar and Yuan Tsunami, things are bound to get interesting.  Geithner continues to jawbone about the Yuan being intentionally undervalued against the dollar.  Our humble advice to the Treasury Secretary, be careful what you wish for as you may get the overnight Yuan appreciation you are looking for which will cause a hyper-inflationary event in your own currency zone.
Taking our eyes off of the Pacific shore just long enough to look across the Atlantic and the rotting old world of Europe, we see that Portugal was able to stick another bunch of unfortunate investors with its latest bond issue.  They are lending money for 3 to 9 years at less than 7% interest to a government that can only hope to tax wine and tourism in a failed effort to work its way out of a fiscal fiasco.  Not a good bet, in our opinion but there is so much currency floating around the world that it must go into something, no matter how hopeless the prospects.  The news declares this event as Portugal "clearing a major hurdle."  Here at The Mint we see it as $1.25 Billion of pocket change being thrown into a beggars cap.  Any way you slice it, Greece and Portugal are bankrupt by default and the Irish made a bad move backing their banks.  Italy and Spain are rapidly wasting centuries of savings.  Can the Euro survive its members' debt problems?
Perhaps the more pressing philosophical question for those of us in North America is, "Can the US Dollar survive a D-Day style invasion launched by the Chinese Yaun on its shores?"  This question should be quickly followed by the more practical questions:  "Where can I open up a Yuan denominated account?" And "Where can I learn Mandarin?"
Stay Fresh!
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Key Indicators for Thursday, January 13th, 2011

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.