By John Galt
July 10, 2011
About 3 hours ago, before midnight Eastern Time, the following headline from Xinhua, the Chinese news agency, hit the wires:
China’s H1 trade surplus down 18.2 pct
The reason this story is important is that it clearly does provide a glimpse into the support the Chinese are providing for commodity markets around the world. A month ago in these pages yours truly warned of this with flooding in southeast China and droughts through many of the agriculturally important areas of the country. Fast forward to Friday’s story in the Wall Street Journal titled China’s Hunger for Corn Turns Market on Ear, and the support for agricultural commodities, copper, gold, silver, and selected base metals, especially tin, and the logic is inescapable; the world is on the precipice of a commodity war.
The reduction in Chinese purchases of long dated U.S. Treasuries was the first hint that the program of repatriating their dollar dominated reserves was about to shift. The creation of their own strategic oil reserve much larger than the American version along with a dedication by the central bank in China to increase its gold reserves added more fuel to the fire. The change in domestic climate and the unwillingness of the U.S. government to show any substantive support for the currency simply provided an out for the Chinese to buy, store, and use more overseas commodities while their nation continues the process of modernizing.
Expect shortages and higher prices in this country soon as we are the designers of our own demise as long as we remain married to a fiat currency system.
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