Collapsing global economy, imploding financial system: China has only one option

    

The title is of course a little misleading because China has many options, none of which except one in my opinion will actually work. Options to what exactly you ask? Options to a collapsing global economy and an imploding financial system which will surely affect China as much as anywhere else, but with one caveat. I take these events as a given, others do not but betting against an outright panic and global bankruptcy is betting against pure mathematics itself.

Let's back up a little bit and look at where China is currently. They are the second largest economy in the world (maybe the largest, we can't really know because the numbers here, there, and everywhere are made up). China is by far THE largest manufacturer in the world and also an enormous exporter. China is also in a three horse race as to who owns the most U.S. Treasuries with Japan and unbelievably the Federal Reserve itself. They have an oversized shadow banking system which has already been shown as fraudulent in several cases regarding copper, zinc and lead as "collateral" (or not).

The Chinese also have a stock market bubble boiling that makes the tulip craze look tame. Because of sheer size of the country, they are opening something like four million brokerage accounts per month. In recent days they have had several stocks hit new highs only to drop 50-60% or more in just one day. In fact, they had one company stock hit a new high and then go to ZERO the following day because it was discovered their books were cooked to a crisp.

We also know China is a huge importer of gold AND the largest producer of gold in the world. NONE of their production ever leaves their borders. There have been estimates of gold tonnage held by many. Alisdair Mcleod believes they may have 25,000 tons or more, I personally believe it is possible if you include legacy or "elders" gold. Others believe the number is closer to the 5,000 ton range. My belief is that 10,000 tons is a justifiable number and very easily proven, if this is true, much of it had come from the U.S. and other Western sources and thus depleting the reserves.

I assume the number is 10,000 tons or more, this is a safe number in my mind. I think it is also a safe bet to say the U.S. has sold a minimum of one half of "our" gold which would leave about 4,000 tons. If this is the case, there is already a new world order where China has as much gold as numbers 2, 3 and 4. Looking backwards in time, after the Bretton Woods agreement, the U.S. had every incentive to keep the "price" of gold down at $35. This is so and evidenced by the old saying "it's as good as gold". The saying originally came about as a description of the dollar. As it turns out, the dollar was NOT as good as gold, in fact it was not as good as anything, even a cup of coffee. The dollar was overprinted and abused (inflated) by politicians (the Fed) in order to hide anything and everything "bad". This worked until we hit the wall, let's call this wall "debt saturation". Now, the process is reversing and will end in a massive deflation versus real money while fiat currencies follow their issuers into insolvency.

Getting back to China, whenever they do make an announcement of how much gold they have, the yuan will appreciate greatly versus all fiat currencies. Many will pooh pooh this thought because "China will never do that, they will kill their own manufacturing base". Let me answer this before moving forward. The Chinese are very smart people, they can see the West is hitting the debt wall. They also know that as the wall is hit and markets begin to implode, their "customers" are going to have an even harder time buying Chinese produced goods. In fact, they already know this. They already know this is happening and can see it in their trade figures ...which is why they recently formed the AIIB and are working feverishly to open the "old silk road" trade route! They are simply lining up new customers from one end of the silk road to the other!

I have hypothesized many times in the past, China has built out their infrastructure and even "ghost cities" using credit. Once the credit markets begin to default, they will be left with "stuff", in place and will last for the next 50 to 100 years. Roads, bridges, buildings, airports, ports, etc., you name it they have already built it. And yes, their stock market will crash, their real estate market is already softening, in reverse and declining. I am not saying it will be all rosy, to the contrary, there will be bankruptcies galore in China... with a caveat. The "government" of China will go through this liquidation phase with the most gold in the world.

Moving forward, since China will be hurt badly as investments default, I believe they will re price their gold higher initially. I believe marking their gold higher in terms of yuan will be their only option. They will be forced to in order to "recapitalize" themselves (and their banking system) and begin to fill in the black holes created by defaulted U.S. Treasuries and other "assets" held. You see, not only is the old saying "he who owns the gold makes the rules" true, it is also true that he who owns the gold has the ability to PRICE IT.

This has been true for so many years as the U.S. (the West) has wanted low gold prices as a show or display that their fiat currencies were "good". Now, as the curtain goes down on the West, China will want a very high gold price in yuan for when the curtain rises again. A gold price maybe even higher than it should be will give the PBOC more power initially AND will allow them some room to inflate and grow. Please notice I am only talking about China in this paragraph. As for the dollar and other Western currencies, they will be revalued downward versus the yuan which gives gold priced in dollars a double whammy of re pricing.

Let's tie this all together and look at the old silk road and the trade route China is focusing on. It goes from Asia, through the Middles East and into Europe. Could this be why various European nations are repatriating their gold? Not only because they have lost trust in their custodian but they also know China will put an emphasis on gold holdings in the future? What do many Asians hold as money? Yes, Gold. Indians? Gold. Arabs? Again gold. The point I am trying to make is the "old silk road" might as well be called the "yellow brick road" and one paved with gold from beginning to end! It seems to me, the only ones who don't understand this or even disagree are Westerners and in particular, Americans. Our standard of living is about to pulled right out from under us while violently proclaiming "it can never happen". I would say, it should have already happened but has not because we still had a few kilos left to supply the paving crew of the "Wizard of OZ paving company".

The above was finished midday on Saturday, since then two new pieces of news have come out. First, China announced it is setting up "the world's largest gold fund". They will earmark $16 billion to purchase physical gold. If you do the math, this is around 500 tons or about 20% of global production. By calling it "the world's largest gold fund", maybe China is saying they do not believe "GLD" is real? Just an observation.

In the latest piece of news, ran an editorial piece pointing out that China already lends more to Africa and Latin America than the World Bank and IMF combined. Is this posturing "for" the Chinese before the IMF readjusts the SDR? Seemingly disconnected pieces to the puzzle, don't bet on it!

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Ukraine's interior minister calls for full blockade of Donbas

© Valery Sharifulin/TASS

    

Ukraine's Interior Minister Arsen Avakov said on Thursday there was a need to fully separate the territories of the East-Ukrainian Donetsk and Luhansk regions controlled by militia forces.

"We'll have to fully close the line of contact [separating the militia units and the forces loyal to the government in Kiev - TASS] to close it for everything," he said in an interview with agency.

"That's my radical viewpoint," Avakov went on. "In a junta-like style, the way we do it. Let's shut the contact line. Let them cross it on foot or in small cars but without any goods. As for the goods, let them get everything from Russia."

"We'll set out two or three positions of critically vital imports Ukraine has interest in, coaking coal for instance I don't know because I'm not an expert," Avakov said. "And let's say definitive 'no' to all other things. The population will be allowed to cross over to the Ukrainian side and to buy foodstuffs, which they will then take back home in their hands or in their private cars, but no trucks!"

"You wanted independence and friendship with Russia? You're welcome, Russia is right across the border," he said. "Or do you want to live by the Ukrainian laws because you are Ukrainian? OK, we have the Minsk accords, here you are. Our border guards will take control over the border, and then we'll clear out everything ourselves."

The accords reached in Minsk in September 2014 and February 2015 say in clear terms the Kiev government is to restore all the economic and social ties with the self-proclaimed unrecognized Donetsk and Luhansk People's Republics.

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'Breaking wave' cloud formations disturb Earth's magnetic field surprisingly often say scientists

© University Corporation for Atmospheric Research, Benjamin Foster

    

What is referred to as "breaking wave" cloud patterns in our atmosphere reportedly disturb Earth's magnetic field (or magnetosphere) surprisingly often - more often than scientists previously thought, according to new research.

The phenomenon involves ultra low-frequency Kelvin-Helmholtz waves, which are abundant throughout the Universe and create distinctive patterns - which can be seen from Earth's clouds and ocean surfaces, to even the atmosphere of Jupiter.

"Our paper shows that the waves, which are created by what's known as the Kelvin-Helmholtz instability, happens much more frequently than previously thought," co-author Joachim Raeder of the University of New Hampshire (UNH) Space Science Center within the Institute for the Study of Earth, Oceans, and Space, said in a statement. "And this is significant because whenever the edge of Earth's magnetosphere, the magnetopause, gets rattled it will create waves that propagate everywhere in the magnetosphere, which in turn can energize or de-energize the particles in the radiation belts."

In fact, data shows that Kelvin-Helmholtz waves actually occur 20 percent of the time at the magnetopause and can change the energy levels of our planet's radiation belts.

So why is this important? Well, first of all, Earth's magnetic field protects us from cosmic radiation. Not to mention these changing energy levels can potentially impact how the radiation belts either protect or threaten spacecraft and Earth-based technologies. But the UNH team presses that their discovery is less about the effects of so-called "space weather" and more about a better understanding of the basic physics of how the magnetosphere works.

"It's another piece of the puzzle," Raeder said. "Previously, people thought Kelvin-Helmholtz waves at the magnetopause would be rare, but we found it happens all the time."

Kelvin-Helmholtz instability waves - named for 19th century scientists Lord William Thomson Kelvin and Hermann von Helmholtz - can be seen in everyday life, such as in cloud patterns, on the surface of oceans or lakes, or even in a backyard pool. The distinctive waves with capped tops and cloudless troughs are created by what's known as velocity shear, which occurs when a fluid or two different fluids - wind and water, for example - interact at different speeds to create differing pressures at the back and front ends of the wave.

Though these waves are ubiquitous in the Universe, their abundance was not known until scientists used data from NASA's Time History of Events and Macroscale Interactions during Substorms (THEMIS) mission, which launched in 2007 and provides unique, long-term observations.

The results are described further in the journal Nature Communications.

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Methodist Church in Britain exposes child sexual abuse scandal spanning decades

© Reuters / David Ryder

    

The Methodist Church in Britain (MCB) published a damning report from an independent inquiry on Thursday, which found nearly 2,000 incidents of physical and sexual abuse going back as far as 1950.

The inquiry was carried out by Jane Stacey, former deputy chief executive of the children's charity Barnados, and took three years to complete its findings.

It considered all cases that ministers and members of the church could remember as well as those for which there were written records. These included cases that were carried out within the church and those that were reported to the church, but which occurred away from it.

The 1,885 cases identified included sexual, physical, emotional and domestic abuse including cases of neglect. Some 26 percent of cases were carried out by actual church ministers, and in 61 of these the police were involved, including six ongoing police investigations.

Allegations of sexual abuse made up the largest number of cases. One of the cases involved the grooming of teenage girls on Facebook, while another involved a minster allegedly making sexual advances on children.

One victim of sexual abuse who responded to the survey told the the MCB initially covered up the allegations.

"I have learnt that it is impossible to recover from sexual abuse when no-one recognizes the seriousness of it. My Church did not want a scandal, my parents did not want a scandal. I was left to feel worthless and devalued, while the man was left to get on with his life and for all I know repeat the crime with someone else. I was emotionally and physically devastated," the victim said.

The MCB, which commissioned the inquiry, has issued a statement saying it wishes to be open about what has happened and put in place stronger safeguards and procedures so nothing like it happens again.

Rev Dr Martyn Atkins, the general secretary of the MCB and secretary of the Methodist Conference, admitted the church had "not always listened properly to those abused.

"I am certain that the Methodist Conference will want to resolve to do all in its power to improve its systems to protect children, young people and adults from abuse within the life of the church and on church premises, and to review them diligently on a regular basis," he said.

"That abuse has been inflicted by some Methodists on children, young people and adults is and will remain a deep source of grief and shame to the church," he added.

A law firm, representing some of the people who suffered abuse and which is taking legal action against the church, said minsters had taken advantage of some of society's most vulnerable people.

"It has taken my clients over 30 years to have the courage to come forward with their allegations of abuse against the Methodist Church. It must never again be the case that the reputation of institutions takes precedence over the welfare of society's most vulnerable," said Nichola Marshall, head of international abuse at the Leigh Day law firm.

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'Epic' flooding on Alaska's Dalton highway near Deadhorse

© Loren Holmes / ADN
The Dalton Highway is washed out south of Deadhorse on Thursday, May 21, 2015.

    

Unprecedented flooding continues to interfere with daily operations on the North Slope oil patch after surging waters wiped away swaths of the Dalton Highway and isolated a section of Deadhorse, the jumping-off point for the sprawling industrial region.

"This is just epic," said Mike Coffey, commander of the unified incident command, a response team consisting of the state, the North Slope Borough and oil companies. "People who have been here for decades say they've never seen anything like it."

The state has estimated the costs of the damage and repairs since March at $5.1 million. The federal government may pay for much of that, since the icing and flooding on the highway has been declared a disaster, said Coffey, the director of state transportation maintenance and operations.

© Loren Holmes/ADN
A washed down stop sign

    

The event was caused by heavy summer rains followed by extensive freezing this winter, trapping the water in place, then a rapid spring warmup that has brought record temperatures to the region.

"It's kind of a perfect storm for things to go south," said Coffey.

Viewed from the air for some 20 miles south of Deadhorse, the highway and elevated trans-Alaska pipeline appear like spines above a sea of water, with the Sagavanirktok River tumbling in white currents across sections of the highway. One section of severed road appears to stretch a half-mile long.

It's impossible to know the real cost of the damage since many sections of the gravel road are still swamped with water. It's also impossible to know how long until the highway is opened, said Coffey.

"The best guesstimate is the high water is expected to last another four days," he said. Officials hope repairs can begin immediately after that.

The trans-Alaska pipeline -- and the oil flowing through it that produces the bulk of state revenues -- isn't threatened, said Michelle Egan of Alyeska Pipeline Service Co.

The flooding has been expected since March and April, when portions of the Dalton became an icy luge course with meltwater on top of it, forcing the state to temporarily close the sole road to the North Slope.

A washed out section of the Dalton highway

    

At the time, hundreds of supply truckloads were put on hold and fuel tanks had to be flown in and hauled across the frozen tundra on "rollagons" -- big-wheeled freight trucks. Gas prices skyrocketed, doubling to almost $10 a gallon.

After that closure, North Slope operators and contractors bulked up on supplies, expecting more flooding with the spring melt. They got it after the river, which empties into the Arctic Ocean on the east side of the highway, began pouring across it, with two major breaches at about 15 and 20 miles south of Deadhorse.

Earlier this week, the floodwaters threatened the airport, forcing the state to excavate large chunks from the road that were already eroding in order to create an outlet.

The waters trapped three of Deadhorse's numerous camps -- elevated gravel pads supporting buildings and equipment.

Three inaccessible work camps

    

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Russia and Venezuela agree on massive $14 billion oil & gas investment deal

© Reuters / Miraflores Palace / Handout via Reuters
Venezuela's President Nicolas Maduro (R) and Rosneft Chief Executive Igor Sechin shake hands during their meeting at Miraflores Palace in Caracas, in this May 27, 2015.

    

President of Venezuela Nicolas Maduro says his country has reached an agreement with Russia, which will see investment of $14 billion in the oil and gas sector over the next few years.

The agreement was reached between the Venezuelan state oil firm, PDVSA (Petroleos de Venezuela) and the Russian oil giant, Rosneft, after talks in the South American country's capital, Caracas, between Maduro, the president of PDVSA, Eulogio Del Pino, and the president of Rosneft, Igor Sechin.

"We had a great meeting and agreed on investment of over $14 billion," said Maduro in a television address, following a meeting with Sechin. He added that the funds would go towards doubling Venezuela's oil production.

The meeting between Rosneft and PDVSA: Oriented to increase crude production in the Hugo Chavez Frias field.

According to the Venezuelan president, the investment will be used to develop the so-called Orinoco Belt, which runs through the northeast and into the Caribbean Sea. The belt holds some of the largest crude oil reserves in the world. The two countries will also look into developing the Latin American nation's gas sphere.

PDVSA had set an ambitious target to try and double the country's oil production to 6 million barrels a day by 2019, which is 8 million tons a year. The figure in 2014 was just 1.6 million tons per year. Four million of these barrels are expected to come from the Orinoco Belt. However, Maduro did not provide any details of how the investment plan would be put into practice.

The company also mentioned that Rosneft had proposed an increase of its stake in its subsidiary, Petromonagas. The Russian company currently owns 16.7 percent, but offered to increase this to 40 percent, which is the maximum allowed for a foreign partner in a joint oil venture in Venezuela.

During a visit to Moscow in January, during which Maduro met with President Vladimir Putin, the Venezuelan head of state mentioned that the two countries would increase the number of joint exploration projects.

"We have agreed to step up the investment and participation of Russian companies and their share of joint ventures in the Orinoco oil belt and other projects. This will expand investments in stocks and oil production," Maduro said on January 15. He also added that the two nations had agreed to share technology.

The Orinoco oil and gas basin is has more than 250 oil and 19 gas fields. The world's largest deposits of heavy oil, the Junin and Carabobo are located in the west of the area. The oilfields in the Orinoco oil basin and offshore gives Venezuela the world's largest-known reserves.

Rosneft has already been involved with PDVSA in projects in the Orinoco Belt after a deal was signed in September 2012 to develop the Carabobo 2 in the southern part of the belt. The Russian state-controlled oil giant agreed to invest $16 billion in the project.

Meanwhile, in November 2014, Rosneft and PDVSA signed a new contract for the supply of oil and gas, with the documents stating that the Russian company would receive 1.6 million tons of oil and 9 million tons of oil products within a five-year period.

Rosneft is currently take part in five oil extracting projects in Venezuela.

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Biden opens mouth: US won't accept idea of global 'spheres of influence'

© Reuters / Yuri Gripas

    

The US rejects the idea of any nation claiming a sphere of influence, Vice President Joe Biden told a Washington think tank, arguing that the crisis in Ukraine was about the principles and values of the West and international order.

"We will not recognize any nation having a sphere of influence," the vice president said during a speech at the Brookings Institution on Wednesday. It remained unclear whether the remark applied to US influence around the globe, or referred only to Russia, China and other countries.

"We will not recognize any sphere of influence." VP Biden speaking at Brookings about Obama policy towards Russia and Ukraine.— Martin Indyk (@Martin_Indyk) May 27, 2015

Asked by AP diplomatic correspondent Matt Lee to clarify the remark, State Department spokesman Jeff Rathke did not quite know how.

"What we see when we look around the world are places where we desire to improve our contacts with countries," Rathke said, acknowledging that other countries might do the same. "What is important is that those relations develop on the basis of mutual interest, mutual respect, without coercion, and to the benefit of the peoples of the countries involved."

"I don't really think the description of that as a 'sphere of influence' is particularly apt in those kinds of cases," Rathke added.

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Biden described the conflict in Ukraine as crucial to the future of NATO, the EU and the West in general, something that called for leadership "the kind our parents and grandparents' generation delivered."
Allowing the Kremlin to establish a "fiefdom" in Ukraine, he said, would only fan the flames of Russian ambition.
Biden blamed any humanitarian issues in Ukraine on Russia, reiterating US support for the government in Kiev. He has traveled to Ukraine three times over the past year, he said, and talks to President Poroshenko and Prime Minister Yatsenyuk about once a week, on average.
According to the vice president, the US has provided $470 million to Kiev in economic assistance, not counting the billions in loan guarantees if Kiev "continues on the path of reforms" they promised to deliver.
The US needs a Ukraine that "cannot be bribed, coerced or intimidated," Biden said, one that would someday serve as an example to Russians of what Western values and institutions can accomplish.
In the Vice President's narrative, the US tried to be a friend to Russia and bring it into the "world of responsible nations" through institutions such as the World Trade Organization and the NATO-Russia Partnership. He said that process was going well between 2009 and 2012, during the Medvedev presidency, but blamed President Vladimir Putin for setting Russia on a different course since.

.@VP on Putin: He'll push as far as he can, but he's a practical guy. In our interest & his interest to cooperate in Iran. #BidenAtBrookings — Brookings (@BrookingsInst) May 27, 2015

However, Biden also said that all politics was personal, and that the US would continue working with the Russian leadership wherever Moscow's help could benefit US interests, citing the example of nuclear talks with Iran.

"We're not looking for regime change, or any fundamental alteration of circumstances inside Russia," Biden said. "We're looking for [Putin] to, in our view, act rationally."

Meanwhile, NATO Secretary General Jens Stoltenberg addressed the Center for Strategic and International Studies (CSIS) in Washington, where he accused Russia of "nuclear saber-rattling" he called "unjustified, destabilizing and dangerous."

"Russia is a global actor that is asserting its military power," Stoltenberg said. "We regret that Russia is taking this course. Because when might becomes right, the consequences are grave."

The remarks come just two weeks after Secretary of State John Kerry met with his Russian counterpart in Sochi and urged the leadership in Kiev to "think twice" before re-igniting hostilities, frozen by a ceasefire arranged in February at the Belorussian capital of Minsk.

Forces loyal to the government in Kiev have since resumed artillery attacks on civilians in the Donetsk and Lugansk regions, in territories that have refused to recognize their authority since May 2014.

State Department's Rathke insisted that "overwhelming majority of the ceasefire violations" were committed by "Russian [sic] and separatist forces," but that he was "not familiar" with reports of civilians killed by Ukrainian shelling.

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