Trend: China is buying assets – commodities, land, mines, corporations, rare earths, and gold – with the excess dollars it has accumulated from exporting goods to the US.
Richard Russell describes why China is on a buying spree: to get rid of the excess dollars being devalued by the Fed policy of money creation. China is using these dollars to purchase tangible assets that will grow in value as the dollar declines.
I'll be following the China strategy. This is a potentially huge trend.
Excerpts from Richard Russell's comments are below.
The battle to save economies goes on. The feared enemy is deflation. How do you conquer deflation? Deflation, by definition, represents an insufficient amount of money dealing with too great a supply of goods. So the Bernanke solution is tried -- create trillions in new money. Urge consumers to buy, buy, buy. And bury deflation in a rising tide of fiat money.
But wait -- there's a problem. When you create all this new money you are also creating mountains of debt. How do you pay off this debt? You can renege on it (unthinkable) or you can refinance it (push the pay-off out to as many years into the future as possible) or you can systematically inflate it away. The easiest and time-tested way -- inflate it away.
At some point, so much fiat 'junk' money is created that people no longer trust it. That's the situation China is in now, with its $1.7 trillion hoard of US dollar-denominated securities. So what does China do? It decides to swap its US dollars for anything intrinsic. And that means that China is buying commodities, land, mines, corporations, rare earths, gold, anything of intrinsic value with fiat money that it earned from the US. China is very smart. It doesn't just dump its US securities, which would wreck the market. Instead, it uses its dollars to buy something of intrinsic value. In this way, China solves two problems. It gets rid of dollars, and it buys assets at bargain prices. Assets that it knows it will need in the future.
Maybe you and I should be doing the same thing.