A Russian analyst named Dmitry Kalinichenko recently penned a brilliant article entitled “Grandmaster Putin’s Golden Trap”. The original article was written in Russian and subsequently translated into English. Some of the translation’s language is a little rough, but it all makes sense.
Part of his article discussed the significance of a recent announcement by China:
“China recently announced that it will cease to increase its gold and currency reserves denominated in US dollars. . . . [W]hen this statement translated from financial language, it reads: ‘China stops selling their goods for dollars.’
“The world’s media chose not to notice . . . .
“The issue is not that China literally refuses to sell its goods for US dollars. China, of course, will continue to accept US dollars as an intermediate means of payment for its goods.
“But, having taken dollars, China will immediately get rid of them and replace with something else in the structure of its gold and currency reserves. Otherwise the statement made by the monetary authorities of China loses its meaning: ‘We are stopping the increase of our gold and currency reserves, denominated in US dollars.’ That is, China will no longer buy United States Treasury bonds for dollars earned from trade with any countries, as they have previously.”
In other words, China won’t lend any more currency to the US government. China hasn’t stopped taking dollars. China hasn’t tried to dump all the dollars it’s already accumulated in its foreign reserves. But China has stopped adding more fiat dollars to its pile of foreign reserves. As soon as any new fiat dollars come to China, they are spent, primarily, to buy gold.
China has thereby reduced and perhaps ended the US government’s access to additional Chinese credit.
• In A.D. 2011, Standard & Poor’s downgraded the US government’s credit rating from AAA to AA+. If S&P had been honest, the gov-co’s credit rating would’ve been downgraded much further. Nevertheless, that downgrade meant the US government’s access to credit was reduced and/or made more expensive, and fewer nations or institutions were willing to lend to the US government.
In A.D. 2014, the Federal Reserve “tapered” and then stopped QE. That meant the Fed has stopped openly functioning as creditor for the US government.
And now, insofar as China refuses to increase it’s holding of US Treasuries, China is also refusing to provide additional credit to the US government.
Implication: the US government is running out of creditors and has less access to borrowed funds.
Over the past several years the US economy has declined (last November’s Black Friday sales were down 11% as compared to last year’s). That decline suggests the following:
• Despite the government’s “happy daze” economic statistics to the contrary, the real number of unemployed may be John Williams at ShadowStats.com denies that the gov-co’s “official” unemployment rate (less than 6%) is accurate. John believes the real unemployment rate is over 20% ;
• The resultant demand for more welfare dollars is rising;
• Government welfare costs are rising;
• Increased unemployment and a slowing economy mean that tax revenues are falling;
• Government finances are being squeezed between lower tax revenues and higher costs;
• As seen with its falling credit rating, the Fed’s termination of QE3 and declining access to Chinese credit, the US government has less access to credit.
If the government has rising costs, falling tax revenue and diminished access to credit, it has only three choices: 1) cut costs ; 2) admit bankruptcy; or 3) spend savings.
• If government cuts costs, government will become smaller and less powerful. Cutting costs is the last thing Big Government wants to do—and will do so only in desperation.
If government is forced to cuts costs, government will become even less popular than Obama.
I.e., if government cuts pensions, the senior citizens will scream. If government cuts welfare, minorities will scream. If government cuts back on “free” healthcare, much of the nation will scream. If government cuts back on defense spending, the military might not scream but they will holler and perhaps expose the US to foreign adversity which our impoverished military may be unable to confront.
If government cuts military costs, we may become a paper-dollar tiger.
• Declare bankruptcy? Seriously?
Who’d believe that it was even possible for the almighty US government to be bankrupt? Not many. A government bankruptcy seems too fantastic to be believed.
However, some do believe the US government has been bankrupt ever since if refused to redeem domestically-held gold certificates with physical gold coins after A.D. 1933.
Others claim the gov-co has been bankrupt since A.D. 1968 (when government stopped redeeming silver certificates with physical silver coins).
Virtually everyone who explores the idea that government is already bankrupt agrees that this bankruptcy started no later than A.D. 1971 when President Nixon stopped redeeming foreign-held paper dollars with gold and reduced the paper dollar to a pure fiat currency.
Former Congressman James Trafficant (Ohio, Dem.) was quoted in the Congressional Record (March 17th, A.D. 1993, Vol. 33, page H-1303) as saying:
“Mr. Speaker, we are here now in chapter 11. Members of Congress are official trustees presiding over the greatest reorganization of any Bankrupt entity in world history, the U.S. Government. We are setting forth hopefully, a blueprint for our future. There are some who say it is a coroner’s report that will lead to our demise.”
Congressman Trafficant clearly believed our government was bankrupt.
Nine years later, Trafficant was convicted on corruption charges, and became the second member of Congress to be expelled since the Civil War. Some believe Trafficant’s conviction was based in part on the animosity he invoked by exposing the government’s bankruptcy in A.D. 1993.
We can debate whether the US government is near to or is already in bankruptcy, but there’s little doubt that the gov-co will deny, deny, deny being bankrupt as long as there are microphones to speak into.
Governmental bankruptcy may be a fact, but it will almost certainly never be a publically-admitted fact.
• If we assume that, since A.D. 2008, government’s income has fallen, expenses increased, and access to credit declined, we might wonder how government made ends meet for the past six years? If tax revenues and access to credit have fallen, and expenses have increased, where’d government get the cash to make up the difference?
A: The money that compensated for that deficit presumably had to come, at least in part, out of savings.
Of course we’d like to suppose that if the government was spending any savings, it would be spending its own savings.
Q: But, isn’t the US government broke? And if so, where could the government find any savings?
A: Three sources come to mind: 1) So-So Security trust funds; 2) Government employee pension funds; and, 3) the national treasury of 8,200 tons of gold.
It’s common knowledge that the gov-co has been looting the So-So Security trust fund for decades. The funds that each of us contributed to So-So Security weren’t saved for our retirement but were instead instantly “loaned” to the Federal Government in return for government bonds (paper promises to pay). Reportedly, the SS trust fund no longer includes money in a bank account, but now consists of several rooms full of filing cabinets stuffed with government bonds.
Point: It’s common knowledge that government has been looting the funds that were supposed to be saved in the So-So Security Trust fund. If government will loot the SS trust fund, what savings are safe from government confiscation?
• I can’t say for sure that the government has also already begun to loot government employee pension funds or the gold treasury. But I can say that, given that the SS trust fund has already been looted, it wouldn’t be surprising to learn that government has also begun to loot government pension funds and/or the gold treasury. If government hasn’t yet looted those “savings,” it’s reasonable to suppose that they will.
• I’m especially intrigued by the possibility that the gov-co has been secretly selling off our gold treasury to support the illusion of government solvency. If that’s true, once the Treasury’s gold is gone, the world will eventually figure it out and the price of gold will soar.
The fact that Germany asked to receive 300 tons of gold that it was owed by the US-government/Federal-Reserve—but that gold couldn’t be returned—is good evidence that the US gold treasury may already be empty. Those “savings” have probably been sold off by the gov-co. So far, the world hasn’t generally understood or cared about the implications of empty gold vaults—but it will.
Implication: The emperor is nude. The gov-co is insolvent. The government is facing rising costs, falling revenue and diminished access to credit. Something’s got to give.
As the world realizes that the US government is bankrupt, it will also realize that the US dollar is intrinsically worthless and destined to die in inflation. I.e., the US dollar must inevitably fall and the price of gold must rise.
• Finally, if government has looted the savings found in So-So Security, and is likely to have started or even finished looting government employee pension funds and the US gold treasury, it’s reasonable to suppose that gov-co is already making plans to loot the bank savings accounts of private individuals.
If so and if you’re in cash, you’ll probably be looted by inflation. If you’re in pension funds, those funds will probably be looted by confiscation. If you’re bank accounts that are easily discovered and accessed by government, you’re in line to be looted by seizure of your savings.
Given government’s apparent bankruptcy and unbridled appetite for spending any money it can find, you’d do well to find a medium for storing your wealth that can’t be easily found, inflated or confiscated by the feds.