How China is going to make you poor… or rich.

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Sometime in the not-too-distant future, China is going to do something, that will likely directly steal up to 40% of your wealth… IF, you do nothing about it.

It is probably going to affect you, your job, your family, your investments, your savings, your retirement, your home, and your whole future.

What happens, will be like the earthquake that happens 5 miles down on the floor of the Pacific Ocean, that lifts the ocean floor a few feet on one side of the tectonic plate, and that event will not be felt for hours, days or even weeks later. Hardly anyone will notice it immediately. Nobody will wake you up one morning, and say you need to do ‘X’, and no-one will protect you from what is going to happen.

That surge of water, will start out slow at first, but with gathering strength, it will travel across the ocean, and as the sea becomes shallower towards the shore, so the wall of water will rise – higher and higher, until like a Tsunami it eventually crashes ashore. Like the Tsunami, that created the Fukushima disaster in 2011, nothing will be the same ever again.

Interest rates around the world, will probably rise a little at first, then alarmingly. Mortgage rates will go up in the U.S., Europe, and Britain, as the value of the dollar, then your currency –  falls.  House prices – which have risen so much in recent years – will fall, perhaps by 40% in many areas, and as much as 60% or more in the worst affected areas, and the economic turnaround, that so many have pinned their hopes on, will grind slowly to a halt, and possibly even reverse. Bond prices will plummet. And the stock-market will lose the gains made in recent years.

Nothing will stop this, and there isn’t anything you can do to stop it.

A decade in the making, this event will disrupt many aspects of normal British, European and American life, with potentially devastating results.

The United States is stuck with an enormous debt, that they can never realistically repay… and Britain and Europe are almost as bad. China (by far the US’s largest creditor), now holds nearly $1.5 trillion worth of loans to the federal government, and is stuck with an outstanding loan they can neither get rid of, nor collect on. The Chinese and the Americans realize they are both trapped in a mutually executable stranglehold, and neither can easily let go.

So the Chinese government is now taking a somewhat secretive and radical approach.

Maybe you don’t care about international debt, currency wars, or battles between the world’s most powerful central bankers. (And if so – why have you read this far?) But this is one time you should.

There’s one very important reason for you to be concerned about what China is planning next. This plan will extract enormous sums from both the United States government, and ordinary hard-working, mortgage paying, credit-card spending people like you.

And you may be thinking, “How could the Chinese government actually keep something as big, important and potentially game-changing as this a secret?”

Well, the truth is, they haven’t.

And pretty soon, the world will see that China has been playing the U.S. like a fiddle.

For more than a decade, the Chinese government has published reports about the existence of this secret program in official, state-controlled newspapers and wire services. Officials have even publicly demanded more money for its development.

In fact, in early 1990s, the Chinese government began quietly laying the groundwork for their new financial weapon, making a series of dramatic changes to their financial system. The moves were announced in China’s official newspaper, but were barely noticed in the West. In a review of hundreds of articles in a historical database, the only mention was a 148-word item published in the Wall Street Journal on October 1st, 1993.

In 2000, they made the development official as part of China’s Quinquennial [five-year] plan, the country’s most important policy document. China’s CCTV called it a “pivotal year”.

A top private sector official with close ties to the government program called the developments from 2000-2008 “staggering.” Then came the biggest announcement

In April 2009, Chinese officials shocked the world with their announcement of the advancement of this new financial weapon, which had all but doubled its capabilities in six years, taking its place as one of the most powerful weapons of its kind in the world.

In 2011, the People’s Daily – an official propaganda mouthpiece for the Communist Government – reported plans for the program to accelerate even further.

In January 2013, a senior Chinese official was quoted by Bloomberg as saying the already powerful financial weapon was “too small” and should be built up further.

And, in October 2013, the Chinese government made its most shocking statement yet. The government used an editorial in its state-run news agency, Xinhua, to call for a “de-Americanised world” – a thinly veiled message about its intent to use this new and radical weapon against the United States – and with it – Europe and Britain.

But here’s what the Chinese government DOES NOT want you to know and what most major news outlets are afraid to tell you…

I believe that China could unveil this powerful “secret weapon” sometime in late 2014 or early 2015, but probably when they’ve achieved their interim goal of 10,000 tonnes. (All gold imported, is currently re-cast into 1Kilo bars)

Some financial commentators have said China’s financial attack will be “an earthquake.”

Business Insider called it “the elephant in the room” for one of the world’s most powerful market forces.

The Huffington Post wrote, “It’s amazing how little of the wider public are aware of what China is really up to here.”

Barron’s reports that the idea that China is developing this “ultimate stealth weapon” – once limited to a few obscure blogs – now “has a mainstream following.”

The US. government has essentially backed the Chinese into a corner, and they have left them no choice. The main thing the Chinese have kept secret is just how big their secret weapon is.

It is revealed in government documents that must be published, by law, in Hong Kong (now a Chinese territory) and by looking at where billions, even trillions of dollars are being shifted inside China – As any journalist will tell you, “Follow the money.”

Many believe we’ll see a major shift in the world’s monetary system. We will probably see a precipitous fall in the U.S. stock market, and a major disturbance of the U.S. mortgage and bond markets.

Most people are either too young to know, or too old to remember this, but the US., experienced something similar (although on a much smaller scale) in the late 1960s and early 1970s

After World War II, the U.S. dollar was actually backed by something real – instead of just a government promise. Back then, their currency was backed by real gold, and as a result, the U.S. government-owned two-thirds of the world’s gold – over 20,000 tons.

It wasn’t just a powerful national asset… It also formed the basis of the world’s financial system.

Every world currency was defined in terms of the dollar. And the dollar, in turn, was defined as 1/35th of an ounce of gold. In other words, it took 35 dollars to buy one ounce of gold.

This was supposed to keep the US., government from money-printing: Since dollars could literally be exchanged for gold, the government couldn’t just print all the money it wanted.

After the Kennedy administration, the Fed and the Treasury, asked the European Central Banks, to help prevent the dollar price of gold bullion on the open market from rising above $35.20. That is, whenever the free market price of bullion threatened to hit $35.20 the United States and the West European central banks would sell gold. If the price of bullion fell below $35 an ounce, they would buy gold.

But France would be the first to leave this pool.

It began in 1965, when French President Charles de Gaulle in a speech in February of that year, said that the US. owed the rest of the world a duty of care, to maintain its currency in parity with the agreed dollar price, and to not produce too many dollars. He later took $150 million of his country’s dollar reserves, and demanded that the paper currency be exchanged for U.S. gold from Ft. Knox.

(Here he predicts the crisis in 1965)

Of course, De Gaulle was simply doing the rational thing. even though he knew it would financially hurt so close an ally.

In 1971, De Gaulle actually sent a French battleship to New York, loaded with $191 million in cash to withdraw gold from the New York Federal Reserve bank vault.

And France was not alone. Spain also, redeemed $60 million of U.S. dollar reserves for gold. And many other nations followed suit. By March of 1968, gold was flowing out of the United States at an alarming rate.

It’s estimated that during the 1960s and early 1970s, the US., essentially gave away about 2/3rds of the nation’s gold reserves – around 400 million ounces.

And the news didn’t stop there…

On August 11th 1971, the British ambassador in Washington received instructions from London to redeem $3 billion of gold from the United States Bullion Depository at Fort Knox.

Then just four days later, August 15th, 1971, President “Tricky Dickie” Nixon, made an announcement that would send shockwaves around the world.

He announced to the American population, that he would “Close the Gold Window – Temporarily” and this Temporary Suspension notice has lasted 43yrs – so far.

Within about three years, America was in its worst recession since WWII, with an oil crisis, skyrocketing unemployment, a 30% drop in the stock market, and soaring inflation. And millions of Americans got a lot poorer, practically overnight.

In Britain in 1973, Labour Unions such as the Mineworkers, and Electricity power generation unions went on strike. Power cuts became commonplace as the three-day week took its toll on the British economy.

Inflation raged, reaching 26.9% in late 1974, just as the new Labour and Liberal government started their period in office – the Lib-Lab pact… Does this sound vaguely familiar?

By the end of the decade, Britain was watching helplessly, as government workers tried to maintain their living standards, and bodies piled up in morgues, while council workers let rubbish pile up over 3-4 feet high in London’s streets.

Shell Tanker drivers were the first to then beat the government’s pay restraint agreements, followed quickly by Ford’s car workers, and others would follow.

And the events of the 70s will probably be repeated, as that is EXACTLY what China is doing today, except this time, the stakes are much, much higher, because China is a much more powerful adversary.

China is now engaged in a fully-fledged “currency war” with the United States and the U.S. dollar.

China isn’t hiding this fact at all. A top Chinese central banker recently told China’s official, state-run news agency that the country is “fully prepared” for the coming currency war.

The ultimate goal, as the Chinese have publicly stated, is to create a new financial system, to dislodge the U.S. dollar from its current reserve role. Doing so will enable the Chinese to get back as much of that $1.5 trillion that the U.S. government has borrowed.

And here’s the most important part…

Understanding how the Chinese will execute this “currency war” over the next few years will likely mean the difference between the opportunity to make extraordinary sums of money, and potentially losing a fortune.

For the past 30 plus years, China has piled up a MASSIVE amount of U.S. dollars and other foreign currency reserves.

At first, the dollar inflows were small because trade between the two countries was tiny. In 1980, for example, China’s foreign currency reserves stood at approximately $2.5 billion. But since then, the amount of foreign currency held by the Chinese government has gone up nearly every year… and now stands at $3.7 TRILLION.

That’s a 146,300% increase! It’s simply astonishing, to look at the chart of the increase in currency reserves since the early 1980s…

When a Chinese business earns dollars by selling overseas, it hands that money over to the People’s Bank of China (or PBOC, the country’s central bank), in exchange for Chinese currency (called either the ‘Yuan’ or the ‘Renminbi’) at a fixed rate.

The group that manages these massive reserves is the “State Administration of Foreign Exchange” or SAFE.

And for the past few years, SAFE has had one big problem: What to do with so much money?

What SAFE decided to do with most of these reserves is to buy U.S. government securities (notes, bills, and bonds). Since 1980 their currency reserves have ballooned by 146,300%. Digest that figure…

China knows that as long as the US., continues to print and borrow unfathomable amounts, their U.S. dollar holdings will be worth less and less.  So the Chinese want to trade their depreciating dollars for any “real” asset they can find that will better hold its value.

In 2013, SAFE did something absolutely remarkable.

They opened an office on Fifth Avenue in New York. This office had one purpose: “To invest in private equity, real estate and other U.S. assets.”

Not paper promises, but real things with real value that can’t be manipulated.

“The move by [SAFE], which oversees the world’s largest stockpile of foreign-exchange holdings, comes as it steps up its diversification away from U.S. government debt,” the Wall Street Journal reported.

Chinese companies are wise to this strategy, too. In 2012, the Chinese conglomerate Dalian Wanda bought AMC theaters for $2.6 billion. In September 2012, a Chinese company bought America’s largest pork producer, Smithfield, for a whopping $7 billion.

And now they have changed their target. Starting from a low base, the Chinese have been quietly accumulating Gold, to the point that in 2011, China became the world’s biggest Gold producer – producing 400 tons per year, and the world’s biggest consumer, importing more Gold than India, which has for generations been the world’s biggest consumer of Gold.

And every single ounce that gets produced in China – whether it’s dug out of the ground by the government or by a foreign company – must by law be sold directly back to the government.  Not one ounce legally leaves their shores.

I believe China is trying to “corner” the gold market. Remember: “He who owns the gold, makes the rules.”

Richard Russell, a great financial historian, recently wrote: “China wants the Renminbi to be backed with a huge percentage of gold, thereby making the renminbi the world’s best and most trusted currency.”

The scale of China’s gold initiative is unprecedented in world history. This alone should make YOU take notice. And, China is signalling that the currency wars of the past decade are changing. Soon, the battle will be influenced by gold.

Here in Britain, America and Europe, Politicians and Central Bankers cling to the notion that their experiment with floating exchange rates and unbacked currencies will somehow save the day – but China suffers from no such delusion. It is voting with its wallet that the experiment has failed. It is preparing for the demise of the U.S. dollar, and with it the British Pound, and the Euro.

And what the Chinese government is doing right now will affect nearly EVERY Briton, European and American, in a big, big way.

Over the next few years, this may cause some assets to skyrocket, and others to plummet. Even if you decide to buy some gold itself, you need to know what to buy and this will obviously have major implications for you and me.

I believe with 100% certainty that the Chinese are now clearly on a path to accumulate as much gold as possible – as much as 10,000 tonnes, so that one day soon they will be able to restore the convertibility of their currency into a precious metal,  just as they were able to do a century ago when the country was on the silver standard.

And China’s increased gold reserves will act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the Renminbi. [RMB – China’s currency].

China’s entry into the World Trade Agreement meant they have to float their currency by 2015, and the strength of that currency will depend to a large extent on how it is perceived on international currency exchanges.

China imports food, wheat, metals, oil and gas from all over the world, and a weak currency would sky-rocket inflation in the country, making angry Chinese people turn on their government in riots and with major social unrest. A strong currency will make food and raw materials cheaper, and Chinese autocrats fear the uprising of 1.4 billon people more than they fear anything or anyone else – which is why they crushed the Tiananmen Square riots with such ferocity in 1989.

In November 2010, China signed a currency deal with Russia for bi-lateral trade in their respective currencies, and in July 2014, signed a deal to buy Russian Gas. China has signed similar currency agreements with a rising number of other countries – UAE, Australia, Hong-Kong, Turkey, Japan, South-Africa, and Brazil to name but a few. And as of 19th March 2014, China added in the New Zealand dollar, as China begins trading in the national currency of yet another trading partner.

In a November 2010 report, HSBC, reported that by 2015, fully 50% of Chinese trade with emerging nations, will be conducted in their own currencies.

And to fully internationalize, their currency, China is importing over 100 metric tons of gold a month through Hong Kong. As Reuters reported, “China’s net gold imports from Hong Kong hit a record high of 136.185 tonnes in March. 2013”

Net Imports through Hong Kong exceeded 100 tons a month almost every single month in 2013.

They also imported well over 1,000 tons of gold from Hong Kong alone in 2013 – not including Shanghai. That number is up from 2012, when China imported a record 834 tons – in turn, nearly double the imports in 2011.

This data, of course, comes from the Census and Statistics Department of the Hong Kong government. The Chinese government, on the other hand, does not make such information public.

As Mineweb puts it: “China also imports gold through other routes, and total import figures now look likely to be nearer 2,000 tonnes. Some analysts put them even higher.”

When China last reported their gold reserves in 2009, they had “official” holdings of 1,054 tons. They’re now importing nearly double that amount in a single year.

And that doesn’t include the Gold purchased from the mining outfits that Chinese investment houses own outside of China, nor the alleged purchases from artisanal miners throughout sub-Saharan Africa, reputedly at 40 tonnes per month.

And as Business Insider put it last year, “China’s undeclared official gold reserve purchases remains an elephant in the room in the gold market with very little coverage of or analysis of the People’s Bank of China’s quiet and un-transparent accumulation of gold.”

China even had the audacity to partner with a U.S. company as it builds the gold stockpile that will torpedo the dollar. A company called Coeur d’Alene mines is selling gold produced at a huge new Alaskan mine directly to the Chinese.

“The gold concentrates produced at Kensington will be processed by China’s largest gold producer China National Gold through an agreement that is the first of its kind between a state-owned corporation of the People’s Republic of China and a U.S. precious metals mine,” Mineweb reports.

Keep in mind, Coeur d’Alene isn’t doing anything unpatriotic. They’re just selling their gold where it’s most in demand – China.

In fact, China offered the company a very sweet deal. Most gold producers have to wait 3 months while gold is processed and refined to receive payment. Coeur d’Alene is getting paid just seven days after shipment for raw “gold concentrate.”

Of course, not every ounce of gold that’s imported goes directly into the People’s Bank of China’s storage vaults. Some of it goes to industrial uses, individual investors, and China’s flourishing  jewelry trade almost exclusively in 24 carat gold.

But no one knows how much the PBOC is absorbing. I believe it is at least 5,000 tonnes in total, since 2009, but could be as high as 7,000 tonnes.

What the markets do know is that China is importing thousands of tonnes and exporting ZERO. Every ounce of gold that goes into China stays there, like a black-hole, it just swallows up all that goes there..

And the Chinese government is now in the process of quietly buying up part or all of dozens of the best gold mining companies around the globe.

The government basically has a slew of investments in the gold markets, which it reveals as little information about, as possible.

For example, very few investors realize that China National Gold Group Corp (CNGGC) owns circa a 40% stake in an overseas investing arm, China Gold International. Resources Corp (listed in Toronto: CGG).

China National Gold Group is trying to vacuum up gold assets in Canada, Australia and Africa. Its latest move is a potential bid to take over the $1.7 billion Platreef mine in South Africa from a Canadian company, Ivanhoe Mines.  It also bought a 95% stake in another Canadian company, Mundoro Mining, a few years ago.  Even tiddler companies like Mwana Africa – quoted on the AIM Market in London, received a large investment for its Zimbabwean operations from the Chinese Gold investment community and investing in infrastructure to enable these reserves to be got to market – Chinese markets…

Most investors also don’t know that the China Investment Corporation, which manages $575 billion worth of government money, has major stakes in some of the best mining companies in the world, including:

* Anglogold Ashanti: 100,000 shares

* Kinross Gold Corp: 250,000 shares

* Gold fields Ltd: 350,000 shares

* Teck Resources: 101 million shares

Forbes ran a story following China’s 2009 announcement that stated China could amass some 5,000 tons of gold over 5 years. I would not be surprised if China amasses double that amount.

And, Jim Rickards, the currency expert who called China’s coming gold announcement “an earthquake,” believes they’ve already surpassed 5,000 tons.

He told an interviewer on RT:

“I have spoken to a number of sources in Asia. I’ve spoken to a number of people who are very close to the physical market, I’ve done my own investigations, etc. Every time I have an estimate and try to verify it, what I get back is that I’m wrong on the low side.”

The point is, when you look at the gold China already has in reserve… and look at what it controls that’s still in the ground… the Chinese might already have more gold than any other nation on Earth.

And , the Chinese government is reinventing both their own internal gold markets and also the international gold markets as well. Over the last few years they’ve purchased the London Metals Exchange, home of Gold and other metals buying, for over 120 years.

Also, in 2011, the Chinese made available the first yuan-denominated spot gold contract, called the Renminbi Kilobar Gold. Dow Jones MarketWatch reported that analysts see it as “a step toward making the Yuan a global reserve currency.”

In 2012, the Shanghai Gold Exchange (SGE) became the largest trading platform for physical gold in the world.

And in the last two years, they bought the LME for $2.1 billion, and even the former Headquarters of Chase Manhattan Bank – Chase Manhattan Tower, built in the 1950s by David Rockefeller.

What you might also not know, is that the building houses the largest gold vault in the world. Longer than a football field and anchored to the bedrock five stories beneath the city’s streets – and stong enough to withstand a nuclear hit.

How much more evidence do you need?

And when the inevitable happens, the price of gold will soar in all currencies. And now that more than 7/9ths of the world’s silver’s usage is for industrial use, the limited amount of available silver for investment purposes, will mean that when Gold rises, as it inevitably must, the silver price will be like it is attached on an elastic band to Gold’s coat-tails.

You can get a fuller picture of this in “The Coming Battle – 2013”, and you can still buy silver at VAT free prices from Here. And many expect silver to be an even better investment than Gold, with a climb towards a 10:1 price ratio between Silver and Gold a distinct probability – ten ounces of silver equal to one ounce of Gold.

Once China announces its Gold reserves, the blue touch-paper will have been lit, and the explosion that follows, is all but guaranteed.

Gold will rise inexorably like it did 40+ years ago, and silver, platinum, and other commodities will follow suit, including: wheat, corn, oil, gas, tin, lead, copper and all the other precious, and semi-precious metals that make up this modern world, and for a time, it will be hell, before the world adapts, just as it did almost 6, and 40 years ago.

But those banks that have extended mortgages in their tens of thousands, since 1998, may be forced to go to their respective depositors, investors and capital markets, “Cap in hand” or face the same fate as Bear Sterns and Lehman Brothers in 2008. The bail-outs of 2008, will become “Bail-ins” as happened in Cyprus. Money on deposit in these banks will become just part of the capital base of the Bank. Your deposits, will be their deposits, and the so-called insurance of governments on depositor’s money may be un-backed as governments are unable to cope in a world where Gold or silver has to back the currency.

And if you look at the image below, the chart of the Gold price, in the last fourteen years, is almost identical in shape to the chart of the mid-1960s to 1970s.  And if the chart continues its replication, until 1980 and beyond… then you should be able to guess where the Gold price is heading next.

Image

The time to act is now.

W.

Until next time…

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