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Gold and Energy Advisor's Real Wealth

Real Wealth #229  05/26/2009

China's Dollar Trap: Obama "We're Out Of Money"


 Dear Subscribers,

The Financial Times of London has a fascinating article entitled “Beijing is caught in 'trap' over dollar” By Jamil Anderlini in Beijing. The article includes a couple key passages I think are worthy of consideration...

“China's official foreign exchange manager is still buying record amounts of US government bonds, despite Beijing's increasingly vocal fear of a dollar collapse, according to officials and analysts.

“In recent months, senior Chinese officials, including Premier Wen Jiabao, have repeatedly signaled their concern that US policies could lead to a collapse in the dollar and global inflation.

“But Chinese and western officials in Beijing say China is caught in a "dollar trap" and has little choice but to keep pouring the bulk of its growing reserves into the US Treasury, which remains the only market big enough and liquid enough to support its huge purchases.”

The thing to keep in mind is the Federal Reserve and Treasury are intentionally bringing the value of the U.S. Dollar down in order to increase the cost of imports and lower the cost of our exports to foreign buyers.

This approach on re-valuing the U.S. Dollar is a smoke and mirrors alternative to Cap and Trade legislation that doesn’t have the support needed to pass, even in this left wing controlled Congress. The key question is: How long will China put up with seeing their growing dollar reserves decline in value?

The Financial Times article points out what we’ve told you in the past: the composition of China’s foreign reserves is a state secret, but the most widely accepted estimates put their dollar reserves at about $1.95 Trillion. That would amount to approximately 70% of their foreign exchange reserves.

I remain convinced that as the dollar declines, the Chinese will add to its nation’s gold reserves and become increasingly belligerent and confrontational with the United States.

Meanwhile, over the weekend, the Drudge Report featured a picture of President Obama with the quote “We’re out of Money”. This was a quote from a holiday interview conducted by C-SPAN host Steve Scully.

“SCULLY: You know the numbers, $1.7 trillion debt, a national deficit of $11 trillion. At what point do we run out of money?

OBAMA: Well, we are out of money now. We are operating in deep deficits, not caused by any decisions we've made on health care so far. This is a consequence of the crisis that we've seen and in fact our failure to make some good decisions on health care over the last several decades.”

Of course, Obama is not including off book debt accumulated in the War on Terrorism,  Iraq and Afghanistan; but he also makes no reference to the fact that we will accumulate  over $1 Trillion in additional debt for at least the next 8 years. Yet, he’s still determined to add spending on health care.

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Bottom line: Congress, The Federal Reserve, Treasury and the President are telling you the value of the dollar is going down. We are still in the very early stages of a dollar devaluation that will lead to first, a new record high in gold and later, a monetary panic that will send gold to $2,500 and $5,000 an ounce.

Make sure you have physical gold that you can access in an emergency and in your IRA. My staff is a just a phone call away Toll Free at 1-866-697-4653 or 561-750-1716.


James DiGeorgia

Gold & Energy Advisor

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