China’s banks use gold as legal currency

Collins: They will get some money but there’s going to be a lot of strings attached, and it’s not going to be a lot of money. It’s not going to be nearly enough to move the needle on any type of European debt situation.

Over here they say, yeah, China we’d like to give a little money so we have face, it looks like we have big power; but, at the end of the day, how can we justify a country that has such a low level of GDP per capita bailing out nations with very high levels of GDP per capita, and people retiring at 50, 55 years old?

So, they’ll get a little bit of money but it won’t be nearly enough of what they need to move any kind of needle in terms of their debt issues.

Press TV: I’m making a prediction that China makes a play for Italy’s gold because Italy has 2,500 tons of gold. It’s the biggest position in Europe. Why wouldn’t China, who’s starving for gold bullion with 1,000 tons – they’re looking to acquire 5,000 tons to be competitive with the US – why wouldn’t China, because they were rumored to be bailing out Greece at some point but, of course, Greece only has 110 tons of Gold, why wouldn’t China make a play for Italy’s gold and say ‘we want that 2,500 tons of gold and in exchange we’ll float some kind of lending facility to you’? What are your thoughts on that?

Collins: If we look at history, that’s happened many, many times. You know, right before the Lend-Lease Act in World War II, the first thing the US did was have the British send all their gold over. So we could easily see that happen today. I don’t know if we’ll ever hear about it in the press but it could easily happen.

And you could easily make the case that America will have to send gold reserves over to China at some point as well.

Press TV: OK, so clearly gold is now back in play after many decades of being off the table considering the “barbarous relic” by John Keynes. Now it’s suddenly in vogue, once again, as people realize that these trillions of dollars of debts that can’t be paid won’t be paid, and we’re going to recalibrate the global currency grid. In a recalibration of the global currency grid, how do countries like China, Russia and Iran come out of that?

Collins: Well, I think they’re all different. I like China’s position because when the global financial system eventually reboots, they have the factories. They have the engineers. They have the productive capabilities. They have the relationships with the developing world of import-to-commodities. They won’t need to export so much – you know, loaning money to a country that can’t afford it to buy their goods. But I think, eventually, they’ll be ok.

Russia, I’m not an expert in but they are very highly dependent on gas and they need to diversify their economy.

And I like China’s chances, eventually, when the global financial system reboots.

Press TV: Alright, let’s talk about the Chinese rating agency. We hear a lot about Moody’s, Fitch & S&P. Occasionally, we hear from Dagong which is the Chinese rating agency – they downgraded US debt, and now they’re threatening to downgrade US debt again if Ben Bernanke officially begins quantitative easing 3. Do you see this debt and currency war heating up, Dan?

Collins: Yeah. Dagong has downgraded the US currency twice. There will, no doubt, be a third time. I believe not only will Dagong do this but, globally, rating agencies will also, eventually, continue to downgrade US as well.

If anyone just takes the time to do the math behind the debts the US has run, it’s absolutely inescapable. And I imagine at some point, the US debt will, once we get past these European issues, however that works out, the focus will turn to places like the United States and Japan.

Press TV: Alright. Let’s go back to Europe for a second. There is a lot of hostility from the German population toward bailing out debtor nations. The Chinese population, you touched on this briefly about the GDP ratio on outputs and comparison. So, the Chinese population, I would imagine, is not so keen on bailing out the big nation of them all, the biggest debtor of them all, the United States. Or, is that not the case?

Collins: No, that is the case. The Chinese population is definitely against bailing out countries. Some of the op-ed pieces I’ve read in the media here, they actually say these countries aren’t poor. They cry “we’re poor, we’re poor; we need money”. But in reality, all they have to do is collect their taxes and cut back on spending.

Their living standards are much higher than the average Chinese living standards. So it’s absolutely insane to think that China could actually bail out people.

Press TV: Right, but China has never-the-less funded the American economy now for more than a decade as part of the “vendor-financing scheme” that’s gone on between China and the US. China lends America money which keeps interests rates low enough for American consumers to buy Chinese made goods, and that money ends up going back to China.

At some point, that relationship is going to break because the US simply can’t sustain itself any longer. China loses its biggest export market, what happens then? Do they allow the UN to appreciate? Do they focus on internal demand from its own consumers? How does the breakup of that symbiotic relationship between US and China, once it’s broken, what happens in China?

Collins: You know, the US is actually their second largest trading partner, now only the EU. Exports out of China consist of about four percent of their GDP. So, obviously, if we have a complete dollar collapse and the US goes down, they can’t buy anything, everyone’s going to suffer. There’s no way you can escape that.

As I mentioned, at that time, if the financial system does reboot, China will focus here on the domestic market. The domestic market here is much, much larger than people give it credit for. The Chinese vehicle market is twice as large as the American market. These aren’t exports. These are vehicles sold here domestically in China.

Over the short-medium timeline, we will see China continue to increase the Renminbi. I think it’s been bad policy on their part to keep it too low for too long. It’s encouraged over investment in factories, and it’s discouraged the service sector.

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