Some credence has been given to my last paragraph of yesterday piece
by the news late yesterday that Italy's finance minister Tremonti
appealed to China's Investment Corporation last week to buy the next
wave of Italy's debt due on 15 September. The news apparently rallied
Wall Street share prices last night.
This oughtn't really to be a surprise. Italy's recent attempt at an
austerity plan is even more likely to cause country-wide strikes and
a collapse of its government than the present predicament in Greece.
No-one knows the outcome of the discussions. Furthermore, there's
unlikely to be any sort of public disclosure at any time. More than
likely, though, the fragility of the Eurozone is now so extreme that
some deep understanding will have to be reached, and China will have
to make some very important decisions. From China's point of view,
the Eurozone can't be allowed to collapse if it's all possible. The
Eurozone is not only an important source of import goods (high grade
machine tools, engineering know-how and luxury cars, etc mainly from
Germany), but the Euro itself is an important currency ally against
the ever-cheapening American dollar.
Also, if the Eurozone collapses, and many European banks are
devastated, then the effect on American banks (holding substantial
European liabilities) is such that America would likely plunge
instantly into a deep depression. China wouldn't want that to
happen. It's one thing for America to slide slowly into recession,
as it is patently doing right now, but it's quite another if America
unleashes yet more quantitative easing and devalues the dollar at an
even faster rate. From China's point of view, America and the
Eurozone must both survive somehow for as long as possible until both
accept the necessity of a world-wide stable trading currency which
China has been calling for for years.
Of the two problematiques, America is by far the more intransigent
for psychological reasons. Just as the opinion-setters of England
(politicians, civil servants and the media) experienced in the 1930s
in trying to adjust to its governmental debt and the demise of the
British Empire (and the necessity of constantly devaluing the pound),
so America is experiencing the same today. America was probably at
its peak of power in the 1960s at the time of taking on the
communists in Vietnam -- and losing -- and it's been downhill all the
way since then despite its still numerous military bases in many
countries. Its last big episode of invading Iraq, but now having to
leave the country with even more problems than it had before (with
Sunni terrorism of Shias running amok and without, as yet, America
getting a drop of oil from Iraq's massive undeveloped oilfields in
the north), together with America's increasing humiliation in
Afghanistan by the Taliban, all this eloquently demonstrates that
America must now adopt a more humble role in the scheme of things
just as England had to (most of its intelligentsia anyway).
If America continues with its dollar-printing strategy, thus
maintaining prime-mover advantage in cheapening its exports and
subsequently throwing increasing inflationary strains on China and
the rest of the emerging world, then it will be punished, just as
England was. It won't be China that will do the punishing. It will be
the whole world market through the agency of scores of central banks
around the world, mainly of the emergent countries, which are now
buying gold as their ultimate safe foreign exchange reserve. Since
1999, this increasing necessity has already produced as smooth an
accelerating price curve as any scientist could wish to see from an experiment.
The price rise is due to go vertical by this time next year. Before
then, at levels of gold prices that will become approachably
convenient to one country after another, governments will decide to
back their currencies by the amount of gold in their central banks.
And here the same prime-mover advantage will obtain. Those countries
who are the earliest to do so might well suffer a brief hiatus of
trade while their trading partners adjust but will very quickly
benefit while the free market price of gold continues to rise. There
won't be a panic crash in the gold price. There will be a more or
less panic flattening out. There will be a reversion to the
illogical, but yet status-driven, centuries-old obsession with gold
that will once again stabilize our financial systems and prevent
money inflation for good and all (just as happened in England all
through the 19th century).
But just a final word to those steady-staters who, like me, think
that the advanced countries are already becoming locked into a
particular urban-dense way of life that will last for a very long
while (while some of the other countries -- but by no means all --
catch up), a non-inflationary world currency doesn't mean
stultification. Man's frontal lobes are too curious for that. We will
always be making discoveries and will always want to make more.
There's no reason why, in a world in which the mass of everything we
need by way of consumer goods will be made, freighted and sold by
automated methods, we should not also gradually carry out
infrastructure changes that will lead to a sustainable economic
future that will be friendly to nature and the amazingly fascinating
world it displays about us.
Keith
Keith Hudson, Saltford, England http://allisstatus.wordpress.com/2012/08/
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