China-Strengths and Weakness

What is China's greastest strength and weakness? Its vast population. Over the last 10 yrs, China has mobilised its citizens and migration from subsistence farming to urbanite continues to impress even the most hardened skeptic. However, as the mass of people move up the economic food chain, their demands increase-starting with food. Is it any surprise that the US has thus mandated bio fuel use to increase. Did they not know the damage the use of bio fuels would have on the developing and poor nations? Of course they did, but they need to slow the China economic miracle. Using food as a weapon is not new and it will continue. The developed nations spend the least amount as a percentage on their food bills. While the developing nations spend a much larger percentage on their food. An army marches on its stomach comes from the Napoleonic times and it still holds true. The US can not stop the Chinese and Indians from advancing their economies, but they can make life more miserable for their leaders as the cost of food skyrockets. Resource wars are starting to erupt. Why is the US stockpiling oil? Are they going to attack Iran? Maybe, but they know they are printing useless pieces of money and they are buying as many hard assets as possible. Why are futures contracts settling above cash prices? Because the buyers actually want the product and the paper shorts are unable to deliver. Most futures contracts get settled for cash, not actually delivery. However the system is breaking down as the physical buyers are starting to overwhelm the paper sellers. Gold is going to be last commodity to accelerate as the political significance of gold will be paramount with the PTB. Consummables are going to outperform-copper, zinc, oil, nat gas, corn etc.

As the 'all powerful' Fed meets this week, talk is that 25 bps will be cut to put the FF rate at 2%. The spin will be that the worst is over and the Fed is being prudent. Reality is that any more cuts will ignite a commodity rally. The nations of the world realize they have been duped over the last 10 yrs taking USD for their valuable resources-now they are nationalizing assets and kicking US firms out-witness Big Oil in Venezuela. More to come in other jurisdictions in other commodities-witness mining in Ecuador. The barter system could return as the USD reserve currency gets called into question. The power of the US military only keeps the power of the USD viable, but the lack of result in Iraq is depleting the USD power.