China is in the midst of a ‘State visit’ to the U.S. but this time China will get a state banquet.   This implies a changed attitude to China by the U.S.   It is clear to all today that there is unlikely to be a real confrontation between the two nations anymore.   If there were to be a war between the two it is most unlikely to be an economic/financial one, not a military one.   China is racing to be the number one economic world power and the U.S. is retreating from that position, slowly but surely.   Each day, the power of the U.S. to dominate or even influence China falls slightly.   Each day the power of China to influence and eventually dominate the global economy grows.   At this moment in time China owns around half of U.S. Treasuries.   They are already in a position to hurt the U.S. very badly, should they want to.   But it is not in the interests of China to do that.   China is empire-building and doesn’t want to be distracted from that.   They appear to be on a winning road already.   China’s is on the rising road and will soon pass the U.S. going the other way.

The reality of China and the U.S.
Last week we published an article on the advent of the Yuan as a global reserve currency.   We believe this event is the most significant event to appear on the global monetary scene.   It overshadows the Eurozone debt problems because it will change the monetary world significantly.   We don’t believe for one second that the euro will collapse.   The euro will receive considerable investment from China overtime at a time when it is needed most.   China realizes that as an alternative to the U.S. dollar, the euro is needed in the global monetary system.   By investing in the world’s two most powerful trading blocs, China is gaining a foothold that may well swing the [financial] balance of power towards itself, in time.      Neither of these two blocs will be able to do without China’s investments shortly.   Such dependence protects China as much as it weakens the Eurozone and the U.S. 

As to the threat of military action from either side, we believe that China will not even move towards a confrontation.   Tacit support for South Korea and a withdrawal of support for North Korea against a considerable softening of U.S. support for Taiwan may well be discussed in the visit of China to the U.S.   Any confrontational moves may well be softened by the use of the United Nations as a mediator.   The battle for power will be limited to the international trade and monetary scenes, we believe.   

Will the Yuan appreciate?
Senior U.S. Senators are again threatening to legislate against China’s ‘management’ of the yuan.   By now most of us see this as a display of testosterone and unlikely to sway China in the least.   Chinese wages have to move to the same level as those of the U.S. [whether by falling wages in the U.S. or rising wages in China] before international trade is on a level playing field.   A change in the exchange rate of the yuan to the dollar is not likely to dent China’s global trade competitiveness one iota.   China has made it clear there will be no change in its stance.   As we pointed out in our last article we expect to see a sufficient quantity of Yuan sent into world markets from China to hold it steady or weaken in a ‘free float’.   It is part of a very large global strategy unfolding now.   To those who doubt this, ask yourself, “If Chinese exporters price their goods in the yuan or even in the other global currencies, what will happen to the dollar?”

How will the Yuan affect Gold
For a number of years now, China has been developing its gold market.   Huge precious metals warehouses are now situated in Hong Kong next to its very efficient Airport there.   Recently China expanded the number of gold importers permitted to import gold to China.   China’s banks have developed gold distribution centers throughout the major cities of China.   The Chinese public can see the benefits of owning gold by the price rises it has seen in the gold price over those years.   The government itself is accumulating its own local gold production as well as encouraging its citizens to buy gold.   If there was any intention of re-valuing the yuan, then the Chinese public could well see this as a betrayal of investors by the government.   No, we have no doubt that we will not see a rising yuan.   We have stood by this forecast for the last two years, in the face of foreign pressure on the yuan to rise.   Instead, we continue to expect the gold price to perform, in the yuan, much as it does in the U.S. dollar now.   For that reason and because of the ongoing development of China and the growth of a huge middle class in China, for the foreseeable future, we see a steady growth in the rise of gold investments in China. 

Chinese visit to the U.S.
Whether it is the Obama Administration or any other we expect the change in attitude towards China by the U.S. as being one where both seek mutually beneficial policies.   Despite the change in the fortunes of the two nations, there will be a desire to quietly adjust to the situation by both sides.   And these adjustments will be huge.   Just as Britain in the last century started as the number one world power and had to slip well down the ranks, so the U.S. will see the beginning of a similar process in the next couple of years.   The greatest change in that process will be the shrinkage of the use of the U.S. dollar as the use of the yuan grows rapidly. 

To that end it is abundantly clear already that any opposition to the growth of the Yuan in global trade by the U.S. will be disruptive and particularly harmful to the interests of the U.S.A.   As part of this process, it is inevitable that the U.S. will not oppose the use of the yuan as a petro currency, in sales of oil to China.   We cannot see China accepting the pressure to keep using the dollar to impact on its oil imports, just as it is now using the Ruble and the Yuan in its oil trade with Russia already.   Be ready for considerable change in the future.

Will China promote the use of gold in the world’s Monetary System?
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Over the past several years I’ve repeatedly given you major warnings on several critical issues affecting all of us.

Chief among them have been the ongoing devaluation of the U.S. dollar … the phenomenal rise of China and emerging markets … how the seeds of inflation were being sown … and warnings of imminent rampant price rises in food, energy and consumer staples.

Today, I’m going to tie them all together for you. And you will see that not only am I right as rain, but all of the above is happening now in spades.

First, let’s take a look at the U.S. dollar. Since the end of 2001, the U.S. dollar has lost 37.9% of its purchasing power against a basket of currencies. That’s bad enough. The problem right now is that the U.S. dollar’s bear market is not over, not by a long shot.

In addition to the Fed printing at least another $600 billion of fiat money — as you well know by my recent writings — China is about to give Washington what it wanted all along — a much weaker dollar against the Chinese currency.

All you have to do to understand this is look at the motives behind it. Washington believes the U.S. economy needs a major dose of inflation. To get asset prices moving higher and to get consumers to start spending money again, out of fear that prices will be higher in the future.

Right or wrong, that’s what Bernanke wants … that’s what Washington wants … and that’s what they’re going to deliver to you. Come hell or high water, they are going to inflate prices by deflating the purchasing power of the dollar, even if it hurts tens of millions of savers and makes life very difficult for the poor.

Don’t get me wrong. I am not siding with Washington. I am just accepting reality for what it is. Until our leaders accept ideas like the ones I presented in my September 20, 2010 column titled 10 Steps to Save America …

And place a moratorium on ALL debt, then monetize all debt, issue every American citizen bearer-coupons … a new currency … and equity shares in a newly re-organized U.S. government — inflation through a dollar devaluation is coming, big time.

And China is about to help Washington. You see, China needs the opposite of what Washington wants. Washington wants inflation, but China wants some deflation, to cool off price rises, and to increase domestic consumption by giving its currency more buying power for the country’s 1.35 billion consumers.

Like yin and yang, Washington and China are tied together. Beijing knows this, and that’s why I’ve been warning you to start aggressively preparing for a Chinese yuan that increases in value versus a U.S. dollar that keeps losing purchasing power.

But for those who claim a little “deflation” for China will spell the end of the country’s rip-roaring economic growth, and for other emerging markets, I say think again.

Emerging Markets Are The Future

The fact of the matter is that more than 20% of the world’s population is Chinese. One out of every five people.

And when taken together, fully 84% of the world’s population — 84 out of every 100 people — live in emerging markets. Economies and societies that are just about where the United States was in the late 1800s — and in just the first phase of their explosive rise higher.

Indeed, consider the following facts just published by the London office of PricewaterhouseCoopers. Allowing for price differences of the same goods between countries …

• China will overtake the United States as the world’s largest economy as early as 2018, just seven years from now.

• Combined, the economies of China, India, Russia, Mexico, Brazil, Indonesia and Turkey will eclipse the economies of the developed G-7 nations in just nine years, by 2020.

Personally, I believe those estimates to be conservative. I believe China will eclipse the U.S. economy less than seven years from now. The reasons are simple: Even if Washington and the Federal Reserve get what they want and can inflate the U.S. economy — it will be based on devalued dollars, not real economic growth.

So the U.S. economy at best, will remain stuck in the mud in real terms, and more likely, sinking in quicksand. While a revalued Chinese yuan — and strengthening emerging market currencies — combined with the wants, needs and desires of 84% of the world’s population, or nearly 5.89 BILLION people, will drive emerging market economies higher.

Think about that again in terms of what it means for the United States. For every U.S. citizen alive today, there are nearly 19 people in emerging markets.

So even if China revalues its yuan higher, and other Asian currencies rise as well, I highly doubt it’s going to dampen any economic growth in emerging markets.

Emerging Inflation

Quite to the contrary, with newly found purchasing power, those living in emerging markets will be able to BUY MORE GOODS AND SERVICES, pushing inflation even higher than what would otherwise be expected by a tsunami of fiat dollars being printed by Mr. Bernanke and the Federal Reserve.

All you have to do to see this emerging inflation is look at what’s happening to the prices of key commodities …

• Soybeans are up more than 202% since late 2009; 55% in the last six months.

• Wheat, up 48% in the last six months.

• Corn, up 68% in six months. Oats, up 69.8%.

• Copper, up 55%; Platinum, up 110% in just over a year. Palladium, up 103% in 11 months.

• Cotton, up an amazing 234% just since last March, to a 150-year high. Cotton prices have risen so much that apparel manufacturers will be passing on the price hikes in what promises to be the biggest price increases in clothing in at least 20 years.

Yes, commodity prices, I have been warning, are overbought in the short term and due for some pullbacks.

But don’t kid yourself and don’t let anyone kid you: The only deflation that exists in the world right now is in the purchasing power of the U.S. dollar and the euro.

The U.S. Dollar And Euro Are Doomed!

BOTH currencies are doomed. Both the European and U.S. economies are in a quagmire — in fact, a depression — that will last for years. While emerging markets, especially China, continue to rise.

The well-chronicled 500-year East to West and West back to the East civilization cycle shift is here, now.

No one, no matter how much power he or she has, and no country, no matter how powerful, will be able to stop it.

There’s another aspect to all this that I would like you to think about, and I believe is absolutely critical that you understand: The financial crisis that began with the real estate sector in the United States is not, and will not, lead to a crisis in capitalism.

Rather, it’s leading to the exact opposite: The collapse of big government and socialism.

Think about it: Europe’s governments are reeling. So is the euro currency and the European Union itself. In the United States, the federal government is not only broke, it’s under siege. So, too, are municipalities.

Meanwhile, in nearly every emerging market we are witnessing the power of the free market take root, driven by the newly emerging and “let loose” souls of 5.88 billion people.

You’re not going to stop any of these trends. But you have the power to protect your money, your investments, the purchasing power of your savings, your children’s and grandchildren’s — by spreading the word … understanding what’s happening, and seeking out alternative and uncommon ways to invest your money.

God bless and best wishes,

Larry

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.

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Uberbearish Barron’s Roundtable

The uranium (XUX-FT68.25—-%)market is crackling again, set afire by China’s quest to secure nuclear fuel. And after watching the price of the radioactive metal crater for much of the past three years, investors are once again optimistic.

“Uranium is in a new bull market,” says Rob Lauzon, a portfolio manager who oversees energy investments at Middlefield Capital Corp.