SoT Market Update: China’s Yuan Devaluation: Bracing For Impact

Note:   Below this commentary is a Shadow of Truth “Market Update” in which Rory and I discuss possible reasons – besides the obvious – for why China is devaluing its currency. 

China began devaluing its currency two nights ago in a move that took the markets by surprise, judging from the reaction of the U.S. stock market and the precious metals.  While there are many obvious reasons for China to devalue its currency in relation to global currencies, ultimately I believe it’s China’s strategy of bracing for the impact of a global economic depression and the collapse of highly overvalued stock and bonds markets globally.  The latter of which resulted primarily from U.S., Japanese, European and Chinese money printing in unprecedented size and scope.

I find it amusing how analysts and the media in the U.S. are constantly pointing at Japan, Europe and China to demonstrate relative economic weakness and financial overvaluations.   In fact, when Rory and I were in the middle of recording our discussion on this issue, Marketwatch dispatched this article:   China could trigger the biggest financial rout since 2008.

With the media and most financial analysts it’s always the straw that broke the camel’s back that was the cause of a catastrophe, not the fact that the camel’s back was already insidiously overburdened with destructive weight…

But let’s look at this in the context of the overall, big picture.

This could be the black swan everyone one has been straining to see.  I view China’s move differently than desperation on China’s part.  I think it’s a brilliant defensive move by China.  Yes,  China has issues but the issues are no different or worse than the issues infecting the U.S. system.

While the financial “Einsteins” in this country point toward China’s massive sovereign debt, corporate corruption, market overvaluations and $15 trillion “shadow” banking system, no one puts the assertions in the context of the same issues in the U.S.  Using combined public, private and contingent liability debt of at least $200 trillion, the U.S. has by far the largest debt obligations in the history of the known universe. The U.S. “shadow” banking system is estimated to be in excess of $24 trillion.

Everyone overlooks this: China has a massive sovereign “cushion” of $3.6 trillion in foreign currency reserves PLUS god knows how much gold.  The U.S. has neither to cushion the blow coming.   A friend of mine stated it elegantly:  “China is bracing for impact.”   The U.S. is not prepared for impact.  “Impact” = the economic depression and financial collapse hurling toward the world.

Here’s another aspect to what China is doing that everyone seems to forget:  China started taking measures to deflate their bubble roughly a year ago.  They’ve raised certain bank lending rates and they’ve raised capital reserve ratios.   The U.S. has continued to intervene fully in U.S. markets and it’s continued keep the bubbles here inflated.

I believe China’s move was to hasten the process of deflating its own bubbles before everyone else’s bubbles blow-up by market forces. The people in China own gold.  The people in the U.S.?   Mortgage, auto, credit card and student loan debt.

China is getting the ball rolling on the inevitable.  A prisoner’s dilemma of sorts in which China is the first to spill the beans as means of minimizing the consequences on its system when the global financial collapse hits the system – again.

13 thoughts on “SoT Market Update: China’s Yuan Devaluation: Bracing For Impact

  1. Gold is worthless if it can’t move as a currency. The wealth is in the movement and the US has the turnstile in the real-time measure that we call the USD.

    Was this all baked into the cake with the formation and the demise of Bretton Woods going right back to 1944 ?

    1. You been hitting the Jack Daniels hard tonight? Sure sounds like that. Either that or your experiencing hallucinations from meth withdrawal

      1. Looks like we now know the answer why the SGE imported 298 tons in 3 days … IMO, insiders knew devaluations were imminent so they thought they’d pick up a few ounces before the devaluations … now lets see what the Chinese middle class does over the next couple/few months.

  2. Dave,
    Great show Dave although it is all getting a bit depressing. Those who thinks’ gold is worthless better start paying attention because it is the only money that is talked about in the bible. “honest weight and measure” nothing against atheist’s. Each to his own.

    1. Red …

      Yes … especially now that bullion trades with flexible value and expandable liquidity, all thanks to the USD bullion measuring stick.

      Did you think the dollar was simply a currency ?

      1. Look dude, your theories on “flexible value bullion” are idiotic. If you think you’ve “disproved Einstein” or found a new way to split the atom then start your own blog and “educate” the world. I’m not going to post your hallucingenic drool in this forum. If you have value-added, productive comments then they will be posted. Otherwise go builder your own sandbox.

  3. I think it’s all about buying time. China realizes that the more time they have to buy gold, sell treasuries and establish unilateral trade agreements the better they will be in the new system. Why wouldn’t China want a strong dollar during this process as they are sitting on $3.6T in treasuries?

    I really don’t understand why people are so depressed about the metals right now. If you purchased them because you believe they are real money and other people will realize what is happening at some point, who cares that they are cheap right now. I, for one, am happy that I can pick up more at these prices and I really believe my family will be better off in the future because of my actions. I try to keep a positive outlook because I think that Dave is 100% correct when he says “enjoy what you can while you can.” The real hard times are coming and buying metals on the cheap isn’t really a bad deal in my mind; furthermore, we all have a front seat to the greatest show the world has ever seen. It’s like watching the most interesting game of chess ever played right before our eyes. Of course there will be winners and losers, but I like to think that the people like Dave and other’s that read this blog are on the right side. Time will tell.

    Good luck everyone and try to stay positive.

    1. Well said, Q. It’s a mixed bag – on one hand wanting to prolong and enjoy our current lifestyles (if we like our current status) and on the other hand wanting this shit show to get going already. We all know it’s coming, so the waiting around is agonizing.

      I think we will benefit when things get “real.” There’s something to be said about making stark decisions and dealing with reality first hand. Nothing will be sugar coated. Everything will go under the knife. It might not be fun, but at least we’ll be tasked with important stuff to do and this is liberating. I think this will be especially true for young people who are currently lost in the matrix.

      There will finally be roles for young men to take an active helpful stance. They will be needed to help guard their communities and do manual work. People will finally find purpose, albeit on a survival level. We can build from there.

      1. I agree that there will be some good to come out of all of this. I am looking forward to people working together again instead of people sitting on their phones all the time and doing everything in their power to never be present.

        There will truly be all sorts of opportunity for new ideas and new businesses.

        I think believe that it’s a big problem in the precious metals space that so many people are waiting for some terrible event. Precious metals are great investments to save for your families future, even if the world never falls apart. Silver, in particular, is a spectacular vehicle to create a dollar cost average plan. It’s also harder to spend precious metals as you actually need to find a buyer and get rid of something you love.

        I really go about my day as normal. I am positive most of the time. If we really want to make a difference in our community and bring more people on board, the worst thing we can do is run around telling new investors that the world is coming to an end. We should be positive and, when the time presents itself, tell the people we care about why we own the metals. Hell, I for one, just love owning precious metals and I don’t care if my investment choices don’t pay off for another 10 years.

        Look around you. It’s all an illusion of prosperity financed with debt. We all know in our hearts that something is wrong, and that something is that we watch people “save” debt and accumulate debt and call it “wealth”. Everyone knows this is absurd, but we are told by society that it’s not crazy at all it’s actually success. When this insanity ends, we will be more than compensated for our choice to forego interest and productive investments for honest money. Just don’t lose sight of what you know to be true and all of this will work out in due time. Q

  4. To the Rooster,
    No I don’t think the $US is currency. It is a dishonest debt instrument designed by the state monopoly on credit to steal and redistribute wealth. When people realise that mankind is incapable of creating honest contract they will heal to the power of natural money because again, you better start paying attention, because if you don’t your about to be bitch slapped by the Universe, or God if you happen to believe like me.

  5. Dave, I have to respectfully disagree with you on China acting “defensive”. Their own government could had de-pegged from the dollar from the very beginning and allow to appreciate, perhaps even enforce a 100%-backed banking system, thereby letting their own citizens keep their wealth. Instead, they took the same monopolistic path as the U.S. did and made fractional-reserve banking legal. The real difference (besides your warranted points on them owning gold and raising reserve standards) is that the Chinese didn’t enjoy world-reserve status. But mark my words, if History was reversed (China having reserve-status) they would be in the same predicament we are in.

    Putting History aside, I think the recent moves by China are entirely different. Threatening to prosecute sellers, currency devaluation, etc, these are moves of desperation, not calculated strategies. It may be true that the government was preparing for a crash, but the market cannot be controlled…only fooled. Rather, I think that the Chinese miscalculated how delicate their financial-con game really was, and had a change-of-heart in the last minute when the crash got out of hand. You can plan anything under the sun, but real life has a way of ruining even the best laid ones.

    That’s my two cents anyway. Very good discussion, otherwise, Dave. Just one question though: how do we know that it’s the Chinese government, and not its citizens, who is the primary buyer of precious metals?

    1. But you could see the peg as a defensive measure, too. Look at how the ruble got attacked last year and how other currencies have been attacked. Might the chinese have decided that the best way to avoid the U.S. and its proxies attacking the yuan to be pegging it to the dollar?

Leave a Reply

Your email address will not be published. Required fields are marked *

Time limit is exhausted. Please reload CAPTCHA.