Wonder what she has to do with it?
What this is is "bullionism".
A crude form of mercantilism practiced by and eventually leading to the impoverishment of 16th Century Spain.
What will happen is that the US currency will probably lose its reserve currency status. While the Yuan will be backed by gold, we still need to see what kind of currency policy their central bank will use. Will the amount of currency in circulation be controlled and volume is only inflated upon acquisition of new amounts of precious metal in its vault or will they just inflate it as their central bankers feel and just maintain their current stockpile.
If the former, then I think it's disastrous not only for the US, but also for Europe and Japan. We will go into hyperinflation while their currency will just adjust to its new found market value. Prices of goods in China for Chinese consumers will actually drop for them as their currency value adjusts to the their metal reserves backing it. It may be chaotic at first so I believe that they may need to issue an official precious metals backed currency to slowly replace their yuan with the new value pegged at the current price of gold.
Eventually goods prices will adjust to its new found value in China. The bad is news is that as the prices of gold continue to rise, so will their products. And since we have no currency on the gold standard, the exchange rate of currency will adjust to the spot price of gold, the current balance of payments of different countries, fiscal policies and how much of the foreign country's product will China want to import.
As the US is in a shambles fiscally, we will be at the mercy of the spot price of the precious metal China used to back her currency and how dependent are we to Chinese imports. Also if this move eventually dislodge the dollar as the preferred currency reserve, this will add pressure to its value possibly leading to hyperinflation until the currency collapses.
At least that's how I see it for the former.
Reading he comments below, it is amazing how so many Ron Paul supporters/austrian economists miss what this is about.
It is "bullionism" (mercantilist wealth accumulation) and has nothing to do with hard currency.
Don't be so coy Sierra!
I predict China will experience unprecedented inflation over the next 5 years. We'll see who's right.
Only our money holes benefit.
Free includes debt-free!
KISS and occam = China has looked at the economic picture and sees no more long term gain from the trade deficit situation. It's ready to restructure, has built up enough reserves for short term austerity, and believes that the West (in terms of warfighting) will be at their biggest disadvantage now, sort of distracted by the middle east and debt politics.
Now, if there is to be war, the disadvantage is to the first strike because both powers lack the steady support of their populace. Whoever strikes first loses. But, someone may be forced to strike first as their strategic advantages diminish over time.
The U.S. has significantly more Navy and Air Force, and ~100 times the nuclear arsenal. There wouldn't be any "war" against China (they'd be obliterated and they know it.) Your comment is misinformation
We'd win a total war, but would the public support a total war against a non-aggressor because of monetary policy (which exposes the hypocrisy of our economic policies)?
That's the point, if the West strikes first to intimidate, and China doesn't overreact, and is steadfast, the public won't support the war. Then, consumption falls out and the West will have bigger problems. This would also strengthen the CP tremendously.
However, if China is goaded into a false-flag event, or overreacts, the public will lose their s*&T - you'll hear narratives about how America was down on the ropes, it was going to be a Chinese century, not anymore - and the the CP will fall quickly. Oh many few thousands will die, but the war will be decisive.
What's the profit in that. It is destructive not productive.
We could just pay them what we owe them. Time to do a buyback?
Of T-bills? Isn't the FED the big owner of debt, and won't the debt be double what it was before Bush in just a couple of years?
I think the we owe China our future thing is kind of old news? Maybe, I need an update.
seems they've sold off a little itty bit of their holdings, and the FED has bought a lot, but the overall exposure is close to what it was 10 years ago.
There wouldn't be nuclear war at first. The Bank which runs both countries would prefer a long, drawn out conflict with maximum lending to both sides, and maximum casualties.
They may nuke after the war begins to threaten them.
"[...] coupled with the Chinese moving to back the yuan with gold"
Who is Keith Barron's source?
I have to downvote this for the blatant editorializing of the headline.
Maybe if you stare at her long enough, you will believe in anything.
but you have to look at it like a game of chess. sometimes you must sacrifice your best piece in order to win. China will take a big hit. but we will take a bigger one.
they have absolutely no incentive to peg their currency to gold
what did the US do for decades? and they have no incentive for their currency to become the world reserve currency where they can export their inflation around the world, which allows them to print money and spend it on Arms etc. to run the world?... lmao... think.
Aside from the minimal cost savings due to no conversion costs, the U.S. only benefits from being the reserve currency because we need other nations to hold our debt. We import more goods than we export so we require a higher demand for our currency. If we weren't the reserve currency, we likely wouldn't be able to buy anything. So why don't you think? Why is that not an issue for China? Thinking cap on..
what happens when oil and all other major commodities are selling in yuan?
Then they would technically be considered the reserve currency.. What's your point? The rest of the world wouldn't be forced to only trade in yuan, if they did it would be because they chose to or had to in order to trade. China could do that now without being the reserve currency by refusing to accept any other currency for their goods, essentially creating the same effect.
And easing can spur recovery right?
It could just be that European, American, Japanese, and BRI economies are as weak as they have ever been.
If China 'loses' from this, who wins? Germany is the only country that could possibly come out ahead - if it decouples from the Euro. And it's not large enough to compete with China.
American banks will literally collapse as the bottom falls out from under consumption. The ONLY path will be hyperinflation, even neocons will agree that it's necessary, blaming China. Even without war, war rhetoric will be employed by politicians. You'd see 'Taiwan Straights' drills, which China should ignore. In fact, imagine if Taiwan declared independence, and China said: "You know what, we don't care". It would pull the rug out from under the Western elites, talk about a long con...
True, China would have to restructure, and begin to consume its own stuff, and start to lean more on its own human capital. But maybe Beijing thinks now is the time for that. What if maintaining the current system would mean never restructuring? And if their currency is gold-based it will become the global reserve overnight. China could backstop the austerity by importing from Asian tigers and Germany for a few years.
They have been stockpiling natural resources.
I have no idea if this rumor is remotely true, but I can imagine that the conventional wisdom about China's trade position might be not completely true.
Even if they understand all pros and cons, the Communist Party wise central planners would not cut the branch they sit on.
*** At soon as China demands gold for its products, foreign-owned factories and capital will move to other countries overnight.
The factories are there, the workers are there. More than ever, Chinese manage and operate these facilities.
Your comment might have been true during the flood of production to China. But hasn't a limit been reached. True, factories are still being moved to China, but most of the transfer has been accomplished right?
If anything, a gold-backed Yuan would mean China could afford to buy from those countries to which the factories would move.
What capital? US dollars? What will they buy, in the short-run, if not goods from China?
It's complicated, but the ceterus paribus arguments are failing because the global situation is unprecedented.
I've failed to believe that China is content to remain at the bottom of the totem pole as the West implodes itself economically. While it is to their advantage, perhaps they'll tolerate it. At some point, once they feel it's not in their long term interest, and the majority of short term gains have been made, they'll switch strategies.
"If anything, a gold-backed Yuan would mean China could afford to buy from those countries to which the factories would move."
Who will set the exchange rate?
In any case (government or market setting the conversion rate), China would be left without gold. US and others can print their local paper and buy Yuan/gold at the pre-inflated price.
If China bans the exchange of other paper currencies for gold and keeps only sound Yuan, then it may work internally and for international barter, but then China exports would be reduced to a miniscule size.
(You see, it is China central bank who would supposedly do the exchange for gold. Think - what will China government do with all foreign paper? They can buy land and property in foreign lands, but those countries can put a limit via local laws. But even if they buy land and property, government wont be able to produce much out of that.)
Paper Yuan can be used in other economies. I'm not talking about the US, I'm talking about Vietnam, Thailand, Korea.
During uncertain times, hoarding gold is a rational move. But gold standard puts chains on the flexibility of wise central planners to manage others.
+++ Gold is good, but one or several countries (with sound money) can NOT trade for long with a group of cheaters (countries on FIAT.)