China Threatens to Pull Pin on Global Economic Hand Grenade

A senior adviser to the Chinese government has called for an economic attack on Japan’s bond market to crash the yen and drive the country into submission, reported the Telegraph on September 18.

The threat comes as Japan and China vie over ownership of the Senkaku group of islands located between the two nations.

Jin Baisong, who holds a position at a branch of China’s Commerce Ministry, noted that China has become Japan’s most important creditor. China should use its $230 billion of Japanese bonds “in the most effective manner” and ignite a budgetary debt bomb in its eastern neighbor, he said.

He also indicated that China should starve Japan of rare earth elements. China supplies around 95 percent of the world’s rare earth metals, which are used in many hi-tech applications including military machinery. “It’s clear that China can deal a heavy blow to the Japanese economy without hurting itself too much,” he said.

Jin’s threats may be directed at Tokyo, but America should take note because they could just as easily be aimed at the Red, White and Blue—and maybe they are.

Under President Obama, America has publicized its Pacific Maritime strategy as the cornerstone of its defense policy. Under this reorientation of American power, America is working to string together the various smaller Pacific nations into an economic and military alignment against China. In this context, America has often referred to its ally Japan and its many islands as its “unsinkable aircraft carrier” in the region. Japan is America’s most important Asian ally.

If America does not strongly back Japan, it risks having its Pacific strategy revealed as an empty shell. If China can force Japan to back down, it will be a huge signal for other Southeast Asian nations to submit to China. Japan’s only other choice would be rearmament. To this point, Japan has opted for a small military in exchange for American support. If U.S. support is ever seen as unreliable, Japan will be forced to re-militarize. A rearmed Japan will be much more independent and less America-centric in its policies.

Yet America has to be very careful in its dealings with China too. America conducts 2½ times more trade with China than it does with Japan. The U.S. federal government has also borrowed a whopping $1.3 trillion from China (and Hong Kong). China also owns another half trillion or so in other U.S. dollar debt assets.

China has its fingers on the pin of a much bigger hand grenade.

And there is no doubt that China considers America’s debt as a weapon to be used too. Back in 2007, Xia Bin, a cabinet-rank minister, stated that China’s foreign reserves should be employed as a “bargaining chip” in trade talks with the U.S. That same year, as China and America hammered out a trade deal, He Fan, an official at the Chinese Academy of Social Sciences, went even further, warning that China could obliterate the greenback if it so desired. “China has accumulated a large sum of U.S. dollars. Such a big sum … contributes a great deal to maintaining the position of the dollar as a reserve currency,” he said. If China’s central bank is forced to dump its U.S. currency, it “might lead to a mass depreciation of the dollar,” he said. China’s state media describes China’s huge dollar holdings as a weapon. In the past, it has referred to America’s debt pile as China’s “nuclear option,” indicating Beijing could easily trigger a dollar meltdown of massive proportions if it needed to.

America faces some tough choices. Watch to see how its massive debt leads to a weakness that will alienate its allies. America is about to lose a lot more influence within the Asia Pacific. Whether China drives Japan into submission, or causes Japan to seek military independence from Washington, America risks being effectively driven back to the beaches of Darwin and Pearl Harbor.

China has got its fingers on a global economic hand grenade, and things may be about to get ugly.

Full article: China Threatens to Pull Pin on Global Economic Hand Grenade (The Trumpet)

QE3: Dollar Killer

Until recovery or destruction of the Dollar. As surely as the sky is blue, the latter will happen. QE3 is the nail in the coffin. When was the last time you borrowed your way out of debt?

If you really want to know what is going on in the economy, ignore what the Fed says and watch what it is does.

So what is the Fed doing? Bernanke’s announcement says the Fed will now spend a whopping $40 billion per month—$480 billion per year—purchasing mortgage-backed securities from the big Wall Street banks.

He says this is an effort to push down mortgage rates and get more people buying and building houses, and thus create jobs. If this is the best the Fed has to offer, America is in big trouble. Mortgage rates are already at historic lows, and people are not buying houses. Pushing record low rates a few fractions of a percent lower won’t do much. What is more likely to happen is that the big banks will finally have an opportunity to unload all their garbage subprime-mortgage-backed securities at the expense of taxpayers. This is probably the real unspoken motive.

But if that part of the Federal Reserve’s announcement wasn’t shocking enough, what it said next should blow your socks off. The Fed said it was writing itself a blank check for how much it could spend until the labor market improved “substantially.” It gave itself no predefined limit on how long, or on how much it could spend under this new QE3 program. It is completely open ended. It can go on forever.

Printing money to buy things is “Zimbabwe policy.” We all know what happened to Zimbabwe when it tried this. Eventually it cost Zimbabweans billions of dollars to buy a banana. This is where the QE road leads.

It is happening already. Within just a few hours of Bernanke’s statement, the dollar had lost over half a percent in value. On Friday it lost more than half a percent again.

In two days, the dollar lost more than a percent of its value. And that was due to just the announcement. The dollar printing has barely started.

The Federal Reserve’s QE policy will drive the dollar “through the floor,” says Peter Schiff, ceo of Euro Pacific Capital.

“This is a disastrous monetary policy; it’s kamikaze monetary policy,” Schiff told cbnc. “The dollar … is going to be in free fall at some point … ultimately there’s going to be a currency crisis.”

America needs to prepare for massive economic upheaval. America’s top banker has signaled that it is quantitative easing or sudden death for the economy. There is no choice. If the money printing stops, America stops. But that means the dollar is going to get killed. QE will destroy the dollar, and America’s standard of living.

Tough times are coming.

Full article: QE3: Dollar Killer (The Trumpet)