by Chris Marcus, Miles Franklin:
While certainly there’s a lot of attention placed on the growing weakness in the U.S. dollar, the conditions in the rest of the world are not entirely dissimilar.
The Eurozone and Japan are currently maintaining negative interest rates, and the signs of trouble in the Emerging Marketscontinue to appear. Particularly in Argentina and Venezuela, where both of the local currencies are experiencing their own concerns.
And while China has the advantage of being a creditor nation with a growing reserve of precious metals, it’s not exactly as if conditions there are perfectly ideal either. Friend and fellow analyst Jason Burack of Wall Street for Main Street speaks often about the credit bubble that has been inflated in China, and recently there was a report from a government-backed Chinese think-tank that warned of a potential financial panic in the Chinese market.
“A leaked report from a Chinese government-backed think tank has warned of a potential “financial panic” in the world’s second-largest economy, a sign that some members of the nation’s policy elite are growing concerned as market turbulence and trade tensions increase.
Bond defaults, liquidity shortages and the recent plunge in financial markets pose particular dangers at a time of rising U.S. interest rates and a trade spat with Washington.”
So it is very well possible that a credit event in China could be the spark that sets off the global debt crisis. Or it could be one of the other Emerging Markets that’s experiencing trouble that serves as the spark. Or it could still well be the United States that experiences financial chaos first that then spreads elsewhere.
Perhaps in an ideal world it would be easy to determine which event happens first and sets off the chain reaction of dominoes that fall in response. But while there are some that may attempt to trade the timing of the specific events, what has always appealed to me about gold and silver is that you get to remove the most challenging part of the equation. The timing.
Because as far as I can see, regardless of which nation is the first to experience the seminal Minsky moment, gold and silver are still positioned to be very much in demand. Because what all of this points out, is that as past the point of no return as the U.S. dollar and financing system is, most of the developed nations in the world are in a similar position.
Remember that if you have an event such as the Italian government defaulting on its bonds, not only does Italy have to deal with the consequences, but the banks and foreign governments that hold many of the bonds also suffer losses. Same with a Deutsche Bank default. Which is why you hear so much about the “contagion” effect. Which in my opinion is well justified given the current market dynamics that exist.
So while China does have advantages in relation to the United States, such as its manufacturing base, and perhaps also it’s general mindset on financial and political policy, conditions there are still hardly perfect.