Australian Money Forum

[wulfgar]

There is a concrete barrier looming in the distance. That is the China Syndrome. That is when China must pull the pin on its breakneck inflation of its money supply. Or fall into a morass of destructive speculation and political revolt.
I'd say they will time this for after the Olympics. They have a stage show to put on and don't want reality to get in the way of that. Reality will have to wait.
The fiscal leadership of the west in well aware of the danger. And have made some efforts to ready the market with increases in the interest rate. Which is slowing the car down, before it hits the Chinese Wall.
But it now seems they have chickened out. So step on that gas pedal and aim for the wall.
It will be sudden deceleration death. Price inflation will go haywire and great pressure will be present for sudden draconian interest rate rises.

[wulfgar]

Price inflation will go haywire and great pressure will be present for sudden draconian interest rate rises.

The above is the secret of the Chinese contribution to the scheme. It is their productivity, which is called "price deflation" by Central Banks. Which why the consumer governments have been getting away with monetary inflation for so long.

By their own mandate Central Banks have little choice but to attempt to deal with price inflation by cranking rates.

However if the Fed fails to do this. Then the greenback is dead.

And this the secret of how we get a great depresssion. With a collaspe of the greenback, the world may have to chase Euro's for liquidity.
Pure contraction of the world money supply, pure deflation.
That is the problem with monetary inflation. It works until the fiat medium goes to zero. Then you get the deflation. When the wheelbarrow carrying the money is worth more than the toilet paper in it!

[Miller]

By their own mandate Central Banks have little choice but to attempt to deal with price inflation by cranking rates.

Why? Why would they change anything??? The longer it lasts the more powerful and untouchable China becomes. To me both US and China must be happy about the current situation. At least they both don't really have much choice. They might squabble showy but the deal has been made.

[wulfgar]

Where there is a will there is a way!

Sure Miller, one can have the will to push on the accelerator. But it goes no where if there is no petrol in the tank.

Understand this, 85 million barrels of oil are available daily. You know what this means. If you order or demand 120 billion barrels of oil per day, you don't get it. Understandee?
Oil is still the most convenient and cheapest source of energy. Basically there is only so much to go around. It's importance to industy goes beyond just cheap energy. Power to weight ratio is also important. And last but not least, the conversion of oil to material products. Itself a huge energy saving exercise. Particually platics! Look around you carefully Miller and check how many products are oil dependant.
Practise that which Americans are notoriusly bad at. Observation!
Take oil out of the equation and poof! goes your lifestyle!


Simple Miller, China can only expand production if it gets more oil. But hey, while China produces wealth on 8 million barrels a day. Americans consume wealth on 20 million barrels a day.

This is what the invasion of Iraq was all about. The belief that oil production could be expanded in Iraq. This vision was flawed for two reasons.
1. The Iraqis are fighting like demons to keep what is theirs.

2. The oil story in Iraq, was not as good as expected. ME fields are not the stuff they once were!

It's called capacity constraint!

In 1950 the entire world used 10 million barrels per day. Now the US uses double that by itself alone!
Our consumer lifestyle which has been on the up and up for 60 years, is running out of puff.
So who gets the energy?
It is believed that oil production could be increased to 120 million barrels per day in years to come. But to do so means taking energy away from other areas to produce increasingly expensive oil. But after in reachs this mythical figure, that is the end. It declines to nothing to be never seen again.
Presently the Chinese are working their buts off supplying western markets with cheap goods. They do this to monopolize market production and supply of raw materials. When that monopoly is entrenched enough. They will pull the carpet out from under the western consumer.
Do you think they supply the cheap goods, for reasons of charity?

[greenback]

China may be the big supplier of consumer goods today but yesterday it was Korea, and before that Japan. If they revalue the yen upward in a big way the dollars will flow to a new slave labor force, S America for example. Inflation has been the order of the day since the late sixties and I don't imagine it will cease until we are in a similar state as Zimbabwe. Why? Because inflation benifits the rich, deflation, like in the great depression, benifits only precious metal holders

[wulfgar]

A factor in this sort of thing Greenback, is the size and unity of a particular market.
One of the factors in the US rise to power was that it was a large organized state. Besides the factor that it became the largest world supplier of oil in the early days. Placed against Europe which had been the center of world production, but had little native oil. And was a series of disunited nations warring upon each other.
China's development is a different order of scale from Korea or Japan.
Large markets are important in the scale production of goods.

But the element that has Bush Jr. worried, even though he is too dumb to figure it out. Is the market enfrancising of a larger number of the worlds people. In recent history the goodies of the earth have been limited to a trillion or so first worlders. 2.4 billion Indians and Chinese have decided that they want a slice of the good life.
Some of the earth resources exist in limited supply. Above all energy. There is only so much oil to go around. More demanding it, will mean less for each.
A mother was complaining to me about the price of oil. She had to pay for her teenage sons usage, as he did the trip each day to an elite private school. Hmmm! I always walking to school myself! The fact is, there is only so much oil to go around.
When got 5 billion slaving for 1 billion. But that is a very different picture from 1 billion slaving for 5 billion.
It is at this point your idea faulters, Greenback.

Inflation is a big issue Greenback. As it is, it benefits those on the top of the money food chain over those on the bottom.
But this is not ideal. Money to be useful is to be neither inflationary or deflationary. Money is best something neutral in value. So it benefits no party over another. It's purpose is provide accurate market information. But this is not what is happening!