Chinese Renminbi: the new USDollar?

http://www.gata.org/node/8961/print

In the be-careful-what-you-wish-for category, Congress, US Treasury Secretary Geithner, Fed Chairman Bernanke, the Obama Administration, along with the blessing of the G-20 countries, have accused the Chinese of manipulating their currency down in order to maintain unfair export competitiveness. The international banking community doesn't realize it's the Fed that is manipulating the USDollar, in a similar desperate attempt to devalue the greenback, and that the Chinese are merely pegging the Yuan to the USDollar. Hence, if the Fed stopped debasing the USDollar, the Yuan would also stop its devaluation trajectory.

But the unintended consequence of appreciating the Yuan would include the Chinese dumping US Treasury bonds from their reserves (i.e. Chinese sales of US Treasuries would devalue the USDollar and appreciate their native currency, the Yuan). This dumping would cause US Treasury bond prices to crash and cause yields (and interest rates) to soar. This would completely eliminate any chance the US has of a recovery from an already fragile economy.

Again, US government economists and policymakers are chasing their tails, and don't realize their latest "solution" will only create much bigger problems down the road.

Dow/Gold ratio

I'm looking for the Dow/Gold ratio to reach 4, which means gold could rise to $1350/ounce and the Dow Jones Industrial Average drops to 5400.

Gold is a store of value that doesn't pay any rate of return (interest). However, there is no counterparty risk, as it is accepted as payment anywhere in the world.

When times are good, we look to stocks to give us capital appreciation and dividends. When times are bad, we revert to gold to protect our purchasing power against inflation, and preserve our asset values in a deflationary environment.

Right now we're at a ratio of 7.5. Look at the historical charts and you'll see during the depths of the Great depression, the ratio was 2:1. However, during the 1980 recession, the ratio was 1:1.

I don't even want to think about this possibility, but it has happened before.

Remember, nothing goes up or down in a straight line--expect high volatility. But don't be on the wrong side of this move. Consult your financial advisor, if he/she still is employed.