You are here

He''s that bullish: McEwen would bank all Goldcorp''s production if he could

Section: Daily Dispatches

8:40p ET Tuesday, September 28, 2004

Dear Friend of GATA and Gold:

China's English-language daily newspaper, China
Daily, today published a major opinion essay by
the head of the economics department of China
Foreign Affairs University. He argued that China
stands to suffer huge losses if it continues to
hold most of its foreign exchange reserves in
U.S. dollars, and he advocated converting those
dollar reserves into euros and hard assets, such
as oil. Gold isn't mentioned here but it hardly
needs to be.

If this essay represents the views of the Chinese
government, its implications for the dollar, other
currencies, commodities generally, and gold
particularly are enormous on the eve of this
weekend's G7 meeting in Washington, to which
a Chinese delegation has been invited.

In any case, the essay signifies that the Chinese,
who lately seem to be doing most of the work of
the world, understand very well what is going on
even if most Westerners don't, despite the fair
warning issued a hundred years ago by Kipling:

....And the end of the fight is a tombstone white
....With the name of the late deceased,
....And the epitaph drear: "A fool lies here
....Who tried to hustle the East."

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Crisis looms due to weak dollar

By Jiang Ruiping
China Daily
Tuesday, September 28, 2004

http://www.chinadaily.com.cn/english/doc/2004-09/28/content_378317.htm

Many international institutions and renowned scholars
have recently warned that the possibility of a U.S.
dollar slump is increasing and may even lead to a new
round of "U.S. dollar crisis."

Since China holds huge amounts of
U.S.-dollar-denominated foreign exchange reserves,
the authorities should consider taking prompt measures
to ward off possible risks.

It is still too early to conclude if the U.S. dollar is heading
toward a crisis. But it is an indisputable fact that it has
gone down continually. Its rate against the euro, for
example, has dropped by 40 percent since its peak
period and it lost 20 percent of its value against the euro
last year alone.

It is becoming more and more evident that the possibility
of a further slump of the U.S. dollar is increasing.

From a domestic perspective, the worsening fiscal deficit
will put great pressure on the stability of the U.S. dollar.

In 2001 when the Bush administration was sworn in, the
United States enjoyed a US$127.3 billion surplus. The
large-scale tax cuts, economic cool-down, invasion of
Iraq, and anti-terrorism endeavours have abruptly turned
the surplus into a US$459 billion deficit, which accounts
for 3.8 percent of the US gross domestic product (GDP).

By the 2004 fiscal year, the U.S. government's
outstanding debt stood at US$7.586 trillion, accounting
for 67.3 percent of its GDP, which exceeds the
internationally accepted warning limit.

The deteriorating current account deficit of the United
States is another factor menacing the future fate of the
dollar.

In recent years, the U.S. policy that restricts exports
of high-tech products, coupled with overly active
domestic consumption and the oil trade deficit caused
by rising oil prices, has deteriorated the U.S. current
account balance. This poses a great threat to a stable
U.S. dollar.

During the 1992-2001 period, the average U.S. current
account deficit was US$189.9 billion. In 2002 and 2003,
however, the figure soared to US$473.9 billion and
US$530.7 billion respectively. Experts predict that
following its increasing imports in the wake of its
economic recovery and continuing high oil prices, the
United States will hardly see its current account
balance improve.

Given the huge U.S. current account deficit, the U.S.
dollar, if it is to remain relatively stable, must be
backed up by an influx of foreign direct investment
(FDI).

In 1998, 1999 and 2000, FDI that flowed into the
United States was US$174.4 billion, US$283.4 billion
and US$314 billion respectively. Starting from 2001,
however, global direct investment began to shrink and
U.S.-oriented direct investment also decreased. In
2003, FDI into the United States was 44.9 percent
less than that in the previous year.

The decrease in FDI will put more pressure on the
U.S. dollar, which has been endangered by the huge
U.S. current account deficit.

Internationally, the Japanese government's intervention
in the foreign exchange market may become less
frequent following the gradual recovery of the Japanese
economy.

To deter the Japanese yen's appreciation and promote
exports, the Japanese government used to intervene in
the foreign exchange market to keep the yen at a
relatively low level. In 2003 alone, it put in 32.9 trillion
yen (US$298.76 billion) to purchase the U.S. dollar.
The intervention constituted a major deterrent to U.S.
dollar devaluation.

As the Japanese economy fares better, the Japanese
government tends to back away from the market. Since
April, it has not taken any steps to swing its foreign
exchange market.

Another factor behind the risks of a U.S. dollar slump
is the weakened role of the so-called "oil dollar."

Given the deteriorating relations between the United
States and the Arab world, quite a few Middle Eastern
oil-exporting countries have begun to increase the
proportion of the euro used in international settlement.
Reportedly Russia is also going to follow suit.

If an "oil euro" is to play an ever increasing role in
international trade, the U.S. dollar will suffer.

In China's case, its rapidly increasing foreign exchange
reserve will incur substantial losses if the U.S. dollar
continues to weaken.

At the end of 2000, China's foreign exchange reserve
was US$165.6 billion. By the end of 2002, it rocketed
to US$286.4 billion before it soared to US$403.3 billion
by the end of 2003. By the end of June this year, the
reserve was registered at a staggering US$470.6 billion.

About two-thirds of the reserve is dominated by the U.S.
dollar. As the dollar goes down, China will suffer great
financial losses.

Experts estimate that the recent U.S. dollar devaluation
has caused more than US$10 billion to be wiped from
the foreign exchange reserve.

If the so-called U.S. dollar crisis happens, China will
suffer further loss.

The high concentration of China's foreign exchange
reserve in U.S. dollars may also incur losses and bring
risks.

The low earning rate of U.S. treasury bonds, which is
only 2 percent, much lower than investment in domestic
projects, could cost China's capital dearly.

Due to high expectations of U.S. treasury bonds,
international investors used to eagerly purchase the
bonds, which leads to bubbles in U.S. treasury bond
transactions. If the bubble bursts, China will suffer
serious losses.

Moreover, since the Chinese trading regime requires
its foreign trade enterprises to convert their foreign
currencies into yuan, the more foreign exchange
reserves China accumulates, the more yuan the
Chinese authorities will need to put in the market.
This will exert more pressure on the already serious
inflation situation, making it harder for the central
authorities to conduct macro-economic regulation.

Besides, investing most of its foreign exchange
reserves in U.S. treasury bonds also holds great
political risks.

To ward off foreign exchange risks, China needs to
readjust the current structure, increasing the
proportion of the euro in its foreign exchange
reserves.

Considering the improving Sino-Japanese trade
relations, more Japanese yen may also become
an option. During the January-June period this
year, the proportion of China's trade volume with
the United States, Japan. and Europe to its total
trade volume was 36.5 percent, 28.6 percent and
37.4 percent, respectively.

Obviously, seen from the perspective of foreign
trade relations, the U.S. dollar makes up too large
a proportion of China's foreign exchange reserves.

China could also encourage its enterprises to "go
global" to weaken its dependence on U.S. treasury
bonds.

And using U.S. assets to increase the strategic
resource reserves, such as oil reserves, could be
another alternative.

--------------

The author is director of the Department of
International Economics of China Foreign Affairs
University.

----------------------------------------------------

To subscribe to GATA's dispatches, send an e-mail to:

gata-subscribe@yahoogroups.com

To unsubscribe, send an e-mail to:

gata-unsubscribe@yahoogroups.com

----------------------------------------------------

RECOMMENDED INTERNET SITES
FOR DAILY MONITORING OF GOLD
AND PRECIOUS METALS
NEWS AND ANALYSIS

Free sites:

http://www.jsmineset.com

http://www.cbs.marketwatch.com

http://www.mineweb.com/

http://www.gold-eagle.com/

http://www.kitco.com/

http://www.usagold.com/

http://www.GoldSeek.com/

http://www.GoldReview.com/

http://www.capitalupdates.com/

http://www.DailyReckoning.com

http://www.goldenbar.com/

http://www.silver-investor.com

http://www.thebulliondesk.com/

http://www.sharelynx.com/

http://www.mininglife.com/

http://www.financialsense.com

http://www.goldensextant.com

http://www.goldismoney.info/index.html

http://www.howestreet.com

http://www.depression2.tv

http://www.moneyfiles.org/

http://www.howestreet.com

http://www.minersmanual.com/minernews.html

http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html

http://www.goldcolony.com

http://www.miningstocks.com

http://www.mineralstox.com

http://www.freemarketnews.com

http://www.321gold.com

http://www.SilverSeek.com

http://www.investmentrarities.com

http://www.kuik.com/KH/KH.html
(Korelin Business Report -- audio)

http://www.plata.com.mx/plata/home.htm
(In Spanish)
http://www.plata.com.mx/plata/plata/english.htm
(In English)

Subscription site:

http://www.lemetropolecafe.com/

http://www.hsletter.com

Eagle Ranch discussion site:

http://os2eagle.net/checksum.htm

Ted Butler silver commentary archive:

http://www.investmentrarities.com/

----------------------------------------------------

COIN AND PRECIOUS METALS DEALERS
WHO HAVE SUPPORTED GATA
AND BEEN RECOMMENDED
BY OUR MEMBERS

Blanchard & Co. Inc.
909 Poydras St., Suite 1900
New Orleans, Louisiana 70112
888-413-4653
http://www.blanchardonline.com

Centennial Precious Metals
3033 East 1st Ave., Suite 403
Denver, Colorado 80206
www.USAGold.com
Michael Kosares, Proprietor
US (800) 869-5115
Canada 1-800-294-9462
European Union 00-800-2760-2760
Australia 0011-800-2760-2760
cpm@usagold.com

Colorado Gold
222 South 5th St.
Montrose, Colorado 81401
www.ColoradoGold.com
Don Stott, Proprietor
1-888-786-8822
Gold@gwe.net

El Dorado Discount Gold
Box 11296
Glendale, Arizona 85316
http://www.eldoradogold.net
Harvey Gordin, President
Office: 623-434-3322
Mobile: 602-228-8203
harvey@eldoradogold.net

Investment Rarities Inc.
7850 Metro Parkway
Minneapolis, Minnesota 55425
http://www.gloomdoom.com
Greg Westgaard, Sales Manager
1-800-328-1860, Ext. 8889
gwestgaard@investmentrarities.com

Kitco
178 West Service Road
Champlain, N.Y. 12919
Toll Free:1-877-775-4826
Fax: 518-298-3457
and
620 Cathcart, Suite 900
Montreal, Quebec H3B 1M1
Canada
Toll-free:1-800-363-7053
Fax: 514-875-6484
http://www.kitco.com

Lee Certified Coins
P.O. Box 1045
454 Daniel Webster Highway
Merrimack, New Hampshire 03054
www.certifiedcoins.com
Ed Lee, Proprietor
1-800-835-6000
leecoins@aol.com

Miles Franklin Ltd.
3015 Ottawa Ave. South
St. Louis Park, Minn. 55416
1-800-822-8080 / 952-929-1129
fax: 952-925-0143
http://www.milesfranklin.com
Contacts: David Schectman,
Andy Schectman, and Bob Sichel

Missouri Coin Co.
11742 Manchester Road
St. Louis, MO 63131-4614
info@mocoin.com
314-965-9797
1-800-280-9797
http://www.mocoin.com

Resource Consultants Inc.
6139 South Rural Road
Suite 103
Tempe, Arizona 85283-2929
Pat Gorman, Proprietor
1-800-494-4149, 480-820-5877
Metalguys@aol.com

Swiss America Trading Corp.
15018 North Tatum Blvd.
Phoenix, Arizona 85032
http://www.swissamerica.com
Dr. Fred I. Goldstein, Senior Broker
1-800-BUY-COIN
FiGoldstein@swissamerica.com

----------------------------------------------------

HOW TO HELP GATA

If you benefit from GATA's dispatches, please
consider making a financial contribution to
GATA. We welcome contributions as follows.

By check:

Gold Anti-Trust Action Committee Inc.
c/o Chris Powell, Secretary/Treasurer
7 Villa Louisa Road
Manchester, CT 06043-7541
USA

By credit card (MasterCard, Visa, and
Discover) over the Internet:

http://www.gata.org/creditcard.html

By GoldMoney:

http://www.GoldMoney.com
Gold Anti-Trust Action Committee Inc.
Holding number 50-08-58-L

Donors of $750 or more will, upon request,
be sent a print of Alain Despert's colorful
painting symbolizing our cause, titled "GATA."

GATA is a civil rights and educational
organization under the U.S. Internal Revenue
Code and contributions to it are tax-deductible
in the United States.