Sasha Cekerevac: I think it’s interesting how people, including the mainstream media, discuss an issue without truly understanding what it really means. It seems that skimming the surface is good enough these days, as no one seems to want to dig a little deeper.
One example is the recent reports from Chinese Premier Li Keqiang, who stated that the Chinese economy must grow at least 7.2% per year in order to limit the unemployment rate at four percent. (Source: “China Premier warns against loose money policies,” Reuters, November 5, 2013.)
As we all know, the Chinese economy is extremely important. As the second-largest nation in the global economy, its ability to manage the Chinese economy and prevent it from weakening further is quite important.
China’s Premier warned against creating even easier monetary conditions within the Chinese economy, as additional money printing could lead to even higher levels of inflation. Currently, the total credit supply is now in excess of $16.4 trillion (or 100 trillion yuan), approximately twice the size of its entire Chinese economy.
With the global economy still quite weak, China has had trouble exporting. It is now trying to transition the Chinese economy from export-led to domestically oriented, reducing its reliance on the global economy.
At least, that’s the story on the surface…
Here’s what troubles me: the Chinese economy is slowing, we all know that, yet all of its money printing so far has led to a total amount of credit supply twice the size of its entire economy.
So, what has all of this money printing really done?
It’s caused people in the Chinese economy to react by essentially trading their paper currency for hard assets like real estate and gold bullion. They don’t know how long the paper money will hold its current worth as inflation continues rising; therefore, they are rushing to trade it in for something solid, like gold bullion. And we all know that China is one of the biggest buyers of gold bullion.
And as much as they would like to see lower levels of inflation, the main goal for the leaders in the Chinese economy is to prevent unemployment. Even if that means printing money, they will continue to do so. That means continued buying in hard assets.
What happens when it all ends?
It’s difficult to say, and timing is always tough to call. Can the total credit supply increase to three times or four times the size of the Chinese economy? Perhaps, but I foresee those business people involved in profiting from the excess money supply will continue to trade their paper yuan into gold bullion and other hard assets.
Because the situation in the global economy is weak and the Chinese economy continues to undergo change, the one constant is that gold bullion will remain valuable.(...)Click here to continue reading the original ETFDailyNews.com article: How Growing Chinese Credit Signals Long-Term Opportunity In GoldYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
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