The Importance of China
by Doug Casey, Casey Research
Typically, the G-20 Summit is about as interesting and exciting as watching grass grow. Perhaps that's why, hoping few were paying attention, two former communist adversaries selected a recent G-20 meeting in London to announce a plan that, unbeknownst to the rest of the world, had been secretly brewing for years.

It all started back in 2003. Deep behind the shadow of Chairman Mao's mural, communist insiders began worrying about the safety of their massive U.S. holdings, which at that time were around $403 billion (almost 25% of China's GDP).

With U.S. military spending topping $404 billion borrowed dollars, plus careless monetary policies coupled with a $3.9 trillion national debt, the Chinese forecasted that the United States was on its way to destroying the dollar.

So the Chinese did what any sane investor would do. They devised a plan to protect their assets starting with...

ONE THOUSAND TONNES OF GOLD.

The first part of their plan unfolded recently when China shocked the world by revealing that they control over 33.89 million ounces of gold for monetary purposes. That’s an increase of 75% in Chinese gold holdings over the past six years!

By making its purchases through its State Administration of Foreign Exchange (SAFE) instead of the People’s Bank of China (PBOC), China managed to accumulate more than 1,000 TONNES of gold... without anyone even raising an eyebrow.

And then came the shocking G-20 announcement: After months of behind-the-scenes maneuvering, the Chinese and Russians along with several of their crony nations, have proposed ...

Dumping the U.S. dollar as the world's reserve currency.

On the surface, the communists have politely positioned their proposal as simply a "practical" adjustment in currency. But it's much more than that. They're scared to death that the continued stupidity of the United States government could bankrupt them!

Consider these understated comments by Chinese Premier Wen Jiabao at a recent news conference: “We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.”

As the Wall Street Journal reported, China's call to replace the dollar as the world's standard, "reflects developing nations' growing unhappiness with the U.S. role in the world economy." It's really no wonder. We're in the midst of what could be a perfect storm of currency collapse and the likelihood of an inflationary spiral brought on by the mass printing of currency throughout the world.

The result is that we could soon see the dollar collapse down to 20% or 30% of its current value.

That means in terms of buying power, your life savings could be worth a fraction of its current value. Unless you take action now, everything you've saved and worked hard for could be virtually wiped out... and your plans for a comfortable retirement a distant memory.


"But aren't we in a recovery?"
The Chinese aren't buying it, and neither should you.

The recent run-up of the stock market may have some drinkers of the government's "Kool-Aid" convinced that everything is fine and the recovery is well under way. But the recent surge in stocks won't last. In fact, a close look at the facts reveals that recent proclamations of progress are just more white-washing of the truth. For example:

Some banks have reported 4Q profits, but ...

192* banks have collapsed since the crisis began, including 140 in 2009 and 37 so far in 2010. Last year was the first time since 1992 that more than 100 failed. Many predict total failures will exceed 1,000. *As of 3/17/10

GDP was positive in the 4th quarter, technically signaling we’re out of the recession. But the truth is...

Income tax receipts are falling. Businesses are reluctant to hire. Quarterly profits are more from cutbacks and layoffs than from increased sales.

$3.5 trillion is sitting in money market accounts supposedly ready to be spent and invested. But ...

Americans just aren't buying. Personal bankruptcies were 27.9% higher than last year and 8.9% higher than last month. 36 million Americans, almost 1 in 8, receive food stamps, a record high for the country.

Job losses were fewer in January than December. Big deal...

January was the 25th straight month of job losses, with employers shedding another 20,000 jobs. And as The Associated Press reports, " the Great Recession has eliminated 8.4 million jobs. That’s the most of any recession since World War II as a proportion of total payrolls.”

Home prices in some parts of the country appear to be stabilizing. In reality...

The Wall Street Journal reports that foreclosures are still rising at a rate of 1 every 13 seconds. The average new home has been on the market for 12.9 months. It would take at least two years to absorb current vacancies.

The truth is, the U.S. economy is a house of "bailout" cards. No matter how neatly disguised by the government's smoke and mirrors, it's a house destined to collapse.

When it finally does come tumbling down to reality, the Chinese are not about to let their massive U.S. holdings – now more than $1.6 TRILLION – be taken down with it. They want to back their investments with something more reliable.

And so should you.