U.S. Treasury Renminbi Bonds By JC Collins
May 7, 2014 Marbles Game By JC Collins
Carney was a tool but had the largest steel marbles on the block. The “steely” was the most sought after and traded of all the marbles, and Carney was a grand collector.
Myths were born from his ability to bully smaller kids into trading their one or two heavy spheres for ten or twenty smaller and bland marbles. At one point I was certain that he had all the steelies in a 1 mile radius.
The afternoon laughter was usually broken by his emergence from the alley and into the field where we kids met every Saturday for the traditional game of marbles. With his girth and weight he would trample the smaller of the lot and settle at the highest edge of the ring.
Everyone hated playing with Carney because you would never win, even if you did. It was a lose-lose proposition which many refused to participate in.
Eventually a small grouping of kids joined together and began to avoid Carney altogether. They would randomly change the location each Saturday and start earlier in the afternoon.
With each passing weekend Carney became more upset and angry over missing the games, not because he couldn’t expand his collection of steelies but because he was left out of the game altogether.
A method of separating Carney from his steely collection was soon devised. For each weekend which he wished to play, he had to trade back one large steely for smaller and less valuable marbles. Though not pleased about this at all, his choices were simple now that a group had taken up defense against him.
One, he could continue to bully and unfairly trade with the other kids in order to expand his already large steelie collection. Or two, he could trade fairly and still be allowed to play the game with the others.
With the kids no longer divided, Carney’s choice was clear. The feeling of isolation and being left out was more impactful than the feelings of unwarranted reward. For what was the real value of his steely collection if nobody else wanted to play a game that involved them.
Never once in our childhood understanding of events did we question the fact that the real value of the marbles was provided by the parents who would give us the assorted bags and send us on our way.
So focused on beating each other and transferring marbles amongst ourselves that we never thought to consider where the marbles were actually coming from.
As we continue on into adulthood there isn’t much that changed. Marbles are replaced with money and we have no idea where it came from. We just seeked to acquire more of it and trade with it.
The mechanism of how the U.S. Treasury issues dollar denominated bonds which are purchased by the Federal Reserve and foreign central banks is never fully understood by a very large percentage of the population.
It works the same in every country.
But can the U.S. Treasury issue bonds denominated in another countries currency? Say the Chinese Renminbi?
The short answer is yes.
How do we know this?
Simple, it was done before.
In 1978 the faith in the U.S. dollar was at an all time low and many countries were afraid that the dollar was becoming a bad store of value.
Considering the debt process of money creation, once the Federal Reserve starting printing mass amounts of money in 1944 to stuff the central banks around the world in support of the reserve currency status, the Treasury needed to continue issuing bonds so the process wouldn’t fall flat and collapse the larger economy.
These bonds were called Carter bonds and were denominated in German marks and Swiss francs. The intent was to continue attracting foreign investments into Treasuries.
At the time many countries, including U.S. ally Japan, felt that the Treasury was attempting to inflate the debt away by devaluing the dollar. With increased money printing, being debt creation or expansion of credit, comes higher inflation. The more money you print, and the faster you print it, the faster inflation increases.
Faster inflation will eventually lead to negative real interest rates which in turn is a method of transferring debt away from investors and back to the government.
This is the QE money printing taking place at the Federal Reserve. With more QE we have seen higher inflation in the countries which hold Treasury debt.
The taper, designed flawlessly, is now transferring that devalued debt back to the government. In turn, as the debt comes home, gold is going the other way. Its a trade back, just like the steelies that Carney unfairly acquired from the other players.
One of the first posts I made here on PoM was titled China to Purchase the Federal Reserve. The essay got a lot of attention and has been well circulated around the internet.
As prosperous as it first sounded, many things have happened since to suggest that the thesis may not have been that far from the mark.
To help understand what type of process could facilitate this business transaction, here’s an article from 2012 titledFed Clears Way for Chinese Firms to Buy US Banks.
The purchase of the JP Morgan building by a Chinese firm has been well covered. The important thing to remember about this deal was that no one saw it coming until it was announced.
The same can be expected in the coming months as larger US bank purchases by Chinese firms are announced and the takeover of industry openly commences. See post The New American Industrialization.
China has so heavily invested in Detroit that its now being wondered if that city will be the first Chinese American city in the new financial and industrial age that is upon us.
When the Fed taper reaches zero I would suspect that we will see some dramatic moves in bond denomination. Western gold reserves are depleting at the similar rate as the taper. The balance between gold reserves and dollar debt is where the future tales are foreshadowed.
Many are selling fear oriented scenario’s based on economic collapse and dollar calamity. It is reasoned that hyperinflation will strike America and send prices skyrocketing.
But inflation has been a constant since 1913. It’s commonly acknowledged that the method of measuring inflation has been manipulated along with all the other economic indicators, none more so than gold, silver and oil.
In the post The Greatest Game I suggested that gold and stock markets will collapse when the financial system completes the inevitable transition to the multilateral SDR system.
Perhaps I am also guilty of using the word collapse but in the article and subsequent comments I make plan that few will notice much of a difference once the transition is complete.
In regards to gold, the big steely, we have seen the prices go up as QE was increasing. As the taper has unfolded we have seen the price of gold come down.
The other scenario we hear a lot about is that gold will rise to atmospheric levels when the dollar collapses. The dollar has already collapsed. Or is collapsing as we speak.
This is why inflation numbers are manipulated. This is why gold prices are manipulated. This is why the Fed is now tapering.
This is why the gold has already mostly gone East. This is why China is purchasing US banks and investing in American industry.
And this is why prices for goods are already going up in America, and have been for the last few years. Its just that there is little discussion about it.
The so-called collapse already happened. It’s just that no one noticed because it was hidden within QE and taper numbers, along with zero interest rates, high gold prices, and manufactured inflation metrics.
We are much closer to the final act of this financial system reset than many realize. Watch for the end of the taper. It approaches.
Like Carney having to trade his steelies back, the U.S. Treasury will soon be issuing Renminbi denominated bonds to secure investor confidence in America.