Too much debt, too much borrowing and too much consumption.

So the printing presses have been fired up by the Bank of England through measures such as Quantitative Easing (Printing money). Huge Stimulus packages and spending programmes undertaken by governments across the western hemisphere desperate to stop the great unraveling. The US, UK, Spain, Portugal, Greece, Ireland, Italy, Japan amongst many other nations, all on the brink under massive amounts of debt.

It is important you understand Keynesian principles we were taught at school may have been misguided. 

“There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as the final and total catastrophe of the currency involved”

Ludwig Von Mises 1949 (Austrian School of Economics)

You will start to see dizzying price increases everything from consumable goods, petrol, food, utilities, taxes. Wages will reduce or stay flat, more people will be made redundant, more businesses will be unable to operate and so the death spiral will begin as our currency devalues.

What future will we leave our children? What happened to working hard? Saving for our retirement? Buying only what we can afford? Living within or below our means?

Money has to have three essential functions in that it must act as a:-

1. Unit of Currency

2. Medium of Exchange

3. Store of value (In other words it should not be inflated at will)

Most people do not understand the crisis. It has however happened before, with the likes of the Weimar Republic.

“Those who do not learn from history are doomed to repeat it”

When Governments can no longer steal your prosperity by direct and stealth taxes, it resorts to the hidden tax, inflation. (Deficit spending and printing money). This destroys your purchasing power and savings.

Paper currency or (fiat currency i.e backed by nothing but a promise) is not a store of value. Traditionally only gold and silver have proven able to deliver this essential function. The supply of gold and silver can not be inflated at will whereas Fiat currency can. It is true that Gordon Brown sold off our gold reserves at less than $300.00 an ounce, today it is well over $1,000.00 and set to rise further.

Why the United States of America and China effects everyone on the planet.

Power is central to everything and a fundamental shift has already taken place. The United States in the blue corner and China in the red. Both heavily engaged in economic, intellectual, social and political warfare. Everyone else is stuck in the middle. The situation looks like it will deteriorate even further as the accusations start to increase. You can already see this with the threat of protectionism. Beijing has been blamed for manipulating its currency. As a result the US threatens to go to the World Trade Organisation. China denies this and accuses the US of politicising the downfall of the Anglo-Saxon financial system. Beijing has threatened to retaliate and impose trade sanctions. This is what happens when the global financial system falls off the edge of a cliff, everyone starts to lose their composure.

The US economic attack backfired with disastrous consequences when US captains of industry as advised by their lawmakers first looked at China. They viewed the Chinese as extra consumers they could sell to. They thought they could get them to buy all the goods, the same as they had done with their own domestic base.

We in the West must consume with no end in sight. Perpetual growth! It is important you understand, that our politicians have to keep the Gross Domestic Product figures looking good. This keeps us the electorate feeling good if confidence and therefore order is to be maintained. GDP is defined as “the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports.” Here lies a really big, but obvious problem. There is a huge trade imbalance!

What the US forgot to take into account is the Chinese are part of the eldest civilisation on earth. It is a prerequisite that with age usually comes great wisdom. They possess philosophies that over thousands of years have been deeply ingrained into the fabric of their society. They have mastered the art of patience and timing.

The Chinese have had the time to study and exploit our weaknesses it’s worthy of remembrance. Our politicians sooner or later will have to come clean. Most citizens in the West know something bad has happened but can’t quite get their heads round it let alone attempt to explain it.

Instead of China consuming western goods, as a counter strategy they turned their hand to manufacturing and have used this as an economic weapon. They knew they could produce just about everything at a fraction of the cost and furthermore produce those goods we in the West consider to be consumable. This was a disaster for us. As a result we desperately needed to revise our plans or face ruin. Western companies were forced to shut down their manufacturing plants (with the exception of Germany) and open new ones on Chinese soil enticed by the seduction of cheap labour. Lower costs means increased profits, means increased share values, equals satisfied shareholders.

It is important to remember the Chinese don’t consume like there will be no tomorrow. They have no choice but to save for their retirement. They know that one day tomorrow will arrive and it very nearly has. They aren’t allowed to have large families and as a result must rely heavily on there own ability to fund their retirement.

China now holds the purse strings.

The most magnificent sleight of hand has just taken place and what’s even more impressive it occurred without a single shot being fired in anger. The United States of America once the largest, most powerful, creditor nation on earth has been reduced in a matter of just a few years, to the largest debtor nation on earth.

In effect China now funds the United States. Whilst she is sinking, Beijing is encouraging her citizens to buy as much gold, silver as they can get their hands on, nearly 1.2 billion hands and many dollars with which they can use to do this. Whilst at the same time the funding oxygen that is supplied to the United States is slowly being turned off, but not so much it damages China’s interests or risks direct reprisals by the US.

What was that famous quote by founder of the Rothschild Banking Dynasty?

“Give me control of a nations money supply and I care not who makes her laws”

It is an understatement that China has engineered one the greatest economic defeats and has done so without ever firing a single shot. They always knew that America’s military dominance was down to their unrivalled economic supremacy for you can’t have one without the other. To try and challenge the US militarily would be pointless but exploit their weakness (the economy) eventually they will fall under their own weight of debt. Achilles the Greek hero of the Trojan War knew this all too well.

“The pen really is mightier than the sword”