G&G Associates Tax & Financial Consulting
China’s World Domination Has Already Begun
Karibu (Welcome) G&G Readers,
As I sit here at my hotel in Quito, Ecuador after attending this live and invest seminar the news is the same here in South America. “The Dollar is in trouble and you best to protect yourself and your portfolio.” I can write until I’m blue in the face, but if you fail to take action it’s not because you haven’t had ample warning.
China is gearing up to replace the U.S. as the major financial power on earth. At the same time, it’s quietly making plans to replace the dollar with its own currency, the Chinese renminbi (a.k.a. the “yuan”).
In other words, the dollar’s days as a world reserve currency are numbered.
If the dollar lost this elite status, our lives as U.S. citizens would change dramatically. Not only would the dollar’s value freefall, but we would face terrifying inflation. Everything you buy would cost at least 30%–40% more.
If you haven’t seen the video “The Day the Dollar Died,” do so ASAP:
As you read further, I’ll tell you what steps China is already taking to replace the U.S. — and the dollar — as the major financial power. I’ll also explain why China could be the trade that will make or break your portfolio over the next decade.
The Chinese Move Quickly Against the U.S.
Last year, I first wrote to you about how China was making strategic alliances with other nations to cut the dollar out of their trading. At that time, China made these currency swap agreements with six different nations. The Chinese quietly signed these agreements with Hong Kong, Indonesia, Malaysia, Belarus, and then Argentina. Then our very savvy financial opponents added Brazil, and quickly became Brazil’s number one trading partner.
A currency swap agreement simply means two countries agree to use their own currencies for trading, without involving the dollar. You see, most countries convert their currencies to U.S. dollars before trading with any nation.
But by signing swap agreements, the Chinese discovered a way to effectively replace the dollar in trading. This gives the Chinese a wider distribution of the renminbi.
Now the word is Chinese leaders are negotiating with Arab states to create more currency swap agreements. The rumor is that China wants to remove the dollar from all oil trades.
That’s HUGE folks. It means the dollar is losing its status as the “oil currency” too.
For the moment, oil contracts around the world are settled in the world’s reserve currency — the dollar. However, Brazil and China cut the dollar out of their oil trades. Oil trades between the Arab states and China soon won’t involve the dollar either.
Those are two strikes on the dollar as the reserve currency.
At the Same Time, the Yuan Is Quietly Gaining Strength
At the moment, the Chinese renminbi is not a free-floating currency. This means the market does not determine the renminbi’s value like most other currencies (including the dollar and euro). Instead, the Chinese artificially manipulate their currency to keep its value low.
It’s a huge point of contention between China and the United States. U.S. Treasury Secretary Geithner likes to blame all our problems on the Chinese’s manipulated currency. (Notice: He wants the dollar to be weaker against the Chinese renminbi and yet he calls for a “strong dollar.”)
Mr. Geithner is wasting his breath. The Chinese will revalue their currency when it benefits China, and not before. And it’s a short-sided crusade at best anyway. Pushing up the Chinese currency will bite the U.S., not China.
Recently China quietly allowed the renminbi to start appreciating against the dollar. Slowly, over the next couple of years it will continue to let it gain in strength.
As that happens, the dollar will weaken.
And the Chinese will also have less use for our U.S. Treasuries, denominated in sinking dollars. We will lose our biggest foreign investor, who has been financing our ever-growing $13 trillion debt. Yet another financial blow to the U.S.
“Give Us Another Reserve Currency!”
The Chinese have made their intentions for a new world reserve currency very clear.
In 2009, they asked the International Monetary Fund (IMF), for a new world reserve currency based on a basket of currencies called the SDR (or special drawing rights).
Then in 2010, China asked the IMF to include the renminbi in this SDR basket of currencies.
The IMF, which is largely composed of U.S. funding, told the Chinese “No, not until the renminbi is free floating.”
Once again the U.S. tries to flex its muscles to get the Chinese to float their currency, this time through the IMF. But the Chinese aren’t buying it. Yes, they will allow greater appreciation in 2011. But, going forward, they won’t free float their currency until they are good and ready to do so. If I were to guess, I would say around 2013.
Introducing the Trade of the Decade
Eventually, the deficits in the U.S. will bring the U.S. dollar down to its knees. But long before that happens; investors will replace the dollar with the most logical choice for the next reserve currency. Mark my words that will be the Chinese renminbi.
As an investor, the best thing you can do to protect yourself is to keep buying up the currencies that will profit from this major shift in power. Specifically, all smaller Asian currencies including the Singapore dollar, Indian rupee and the Australian dollar.
But more than that, I believe just buying and holding the Chinese renminbi will reward you over the long-term. Now this is definitely a long-term currency play. In fact, it won’t truly pay off until the Chinese allow their currency to free-float.
But the best time to buy is early, while it’s still selling at a discount.
If you are a (G&G Investment Society) GGIS Portfolio member, you are already positioned to take advantage of the Chinese’s rise to power in the currency market. If you aren’t a GGIS subscriber, it’s not too late to join.
Again, this war for currency domination has already begun. Make sure you’re investing on the winning side. I believe most Americans are in for a huge shock in the next few years. Most will lose a lot of money and those who are prepared are set to make huge gains. The good news is that it is fairly easy and inexpensive to protect yourself, and even make quite a bit on your savings as these events unfold.
To find out how to protect yourself and profit from China’s move on the market… sign up today to become a G&G Investment Society (GGIS) today.
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Until the next time,
Ankh Uja Snb (Life, Health, Strength),
Asar Gary Gray
Tax & Financial Consultant, RFC
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LEGAL NOTICE: This work is based on SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. Nothing herein should be considered personalized investment advice. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.