Whilst the US government worries about the military threat of Russia, and the trade deficit with China, they show no concern for the real problems. To understand what is really happening, all we need to do is to Follow the Money. The flows of real money reveal where global economic power is moving.
The US has not had a real budget surplus for almost 60 years and has run balance of payment deficits every year since 1975. A country that lives above its means for over half a century is technically and economically bankrupt. Its debt should have zero value and so should its currency. But the US has skilfully avoided bankruptcy so far by having the reserve currency of the world and being the biggest military power.
THE WORLD’S MOST INDEBTED COUNTRY
Both Russia and China can see the writing on the wall. They understand that the world’s most indebted country cannot solve its debt problem by issuing more debt. That is why Russia, China together with India are buying most of the global gold production every year.
In May 2018 Russia added another 600,000 oz or almost 20 tonnes to its gold reserves. Since January 2018, when Trump became president, US debt has increased by 6% or $1.1 trillion to $21.1 trillion whilst Russia has added another 9 million oz of gold and are now holding $80 billion of gold reserves.
THE WORLD WILL NO LONGER FINANCE US EXCESSES
The Case for Gold
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So whilst the US economy is taking the road to perdition, Russia knows that the only money that will survive is gold. Just like it always has! The world has for years financed US debt by buying US treasuries. But we are now seeing a marked change. Many countries are currently liquidating US debt paper. They know what will happen to US debt and are trying to get rid of their holdings in an orderly manner to avoid treasuries crashing together with the dollar. This is what will happen at some point in the next 1-3 years. Global investors will panic out of dollar denominated bonds leading to a crash of both the US currency and dollar debt.
The Chinese know this but their US treasury holdings are so large that they need to go slowly in order not to shoot themselves in the foot. In the end China is likely to take a major loss on its dollar treasury holdings but that is the price they have been willing to pay in order to build up its economy and manufacturing sector by financing US deficit spending. Simultaneously China has invested heavily in the resource sector in most parts of the world. China understands that commodities are massively undervalued compared to the bubble asset markets. At the same time, China has continued to buy a major percentage of annual goldmine production since 2008, taking total Chinese purchases to 16,000 tonnes.
SELL US TREASURIES – BUY GOLD
For anyone who wants to Follow the Money, just look at the chart below how Russia is dumping US treasuries and adding to its gold reserves every month. Because Russia knows that gold will surge and US treasuries crash.
From insignificant gold holdings in 2007, Russia today has $80 billion of gold. And since 2010, Russia’s US treasury holdings have gone down by 89% to $20 billion today.
And just look at China and India. Their gold purchases in the last ten years amount to 25,000 tonnes. This is virtually the total global gold mine production during that period. These countries understand what will happen to the financial system and to most currencies. So again Follow the Money.
