Tuesday, May 25, 2010

Real Money



From Bloomberg:


An expected revaluation of the yuan would make gold more appealing to Chinese investors by reducing its price for holders of the currency and potentially fueling concern about inflation, UBS AG said.

“First and foremost, gold will become cheaper in yuan terms, and this should stoke additional interest in the yellow metal,” Edel Tully, London-based analyst at the bank, wrote in a report. “And if the yuan revaluation is interpreted as a signal of government confirmation that inflation is indeed a problem, this would likely boost gold’s appeal.”

...

China may allow the yuan to appreciate by June 30 to curb inflation while avoiding a one-time jump in value that might slow exports, a survey of analysts showed. Gold consumption in China may double within the next 10 years as the nation’s economy continues to expand and increase national wealth, the World Gold Council said on March 29.


In a related story, also from Bloomberg:


U.S. Treasury Secretary Timothy F. Geithner told Bloomberg Television in an interview that he’s “as confident as I’ve ever been” that China has a growing incentive to let the yuan gain against the dollar. Revaluing the yuan is “absolutely” in China’s long-term economic interest, Geithner said.

China is committed to preserving stability in the northeast Asian region, U.S. Secretary of State Hillary Clinton said today in Beijing, at the end of the Strategic & Economic Dialogue.


What about our nation's long term economic interests? Weakened U.S. dollar + massive U.S. spending + increased gold mining production in China + regional Asian instability = A position of extreme weakness for the United States. How long will China continue to buy our debt, at least without demanding a higher rate of return?


We will never have sound money as long as politicians are in charge of its value.

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