U.S.–China Currency Spat Threatens Treasury Auction, Powers Gold

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Timothy Geithner’s first major fumble as incoming Treasury Secretary could be a big one. Accusing your number one creditor of tampering with their currency in a very public way is downright dumb. Especially when the country you’re making accusations from is the most notorious manipulator of currencies, commodities, derivatives and precious metals in the history of humanity. And with a major Treasury auction coming up this week, don’t be surprised if China decides to vent its displeasure by boycotting the sale. . . It is that awareness and its associated anticipation that is lighting a fire under and giving serious legs to the gold and silver markets this week.

Timothy Geithner’s first major fumble as incoming Treasury Secretary could be a big one. Accusing your number one creditor of tampering with their currency in a very public way is downright dumb. Especially when the country you’re making accusations from is the most notorious manipulator of currencies, commodities, derivatives and precious metals in the history of humanity.

And with a major Treasury auction coming up this week, don’t be surprised if China decides to vent its displeasure by boycotting the sale. And if China doesn’t buy, there are a lot of other sovereign investors who are going to pass on this most fragrant of U.S. exports.

It is that awareness and its associated anticipation that is lighting a fire under and giving serious legs to the gold and silver markets this week. If that does indeed come to pass, it will be the catalyzing event that both sends gold to $1500 before the summer, and sends the U.S. Dollar index to below 50 in the same time frame.

While admittedly a brazen statement, there are interesting developments to support it.

Barack Obama has now hit up Congress for $1 trillion in bailouts, with the caveat that he might be back for more before that bill even wends its way through the legislative process. There’s only one thing that can prevent Obama from achieving his goal more effectively than congressional resistance – an empty bank account and the cutting up of the national credit card.

If U.S. Treasury auctions begin to fail, not only will the U.S. be incapable of kiting checks to itself – it will trigger a global flight to safety in gold and silver, while initiating a stampede for the exits in U.S. denominated assets. Foremost among those will be Treasuries.

The problem is that there is a Mexican standoff developing, where the world’s biggest holders of U.S. T-bills are nervously eyeing each other across the oceans, waiting to see who is sidling up to the sell trigger. The entire worth of the United States dollar is predicated on a confidence that is rapidly becoming ethereal. When that confidence transforms thoroughly into panic, the dollar will collapse so fast it will make the Weimar inflationary period look like so many feathers swirling in a gentle breeze.

This will be the event that plunges the United States into the deepest depression in its history, and will essentially be the catalyzing event that dethrones America from its position of number one in the world in ALL things, and transform the citizenry into a nation of beggars.

The only hope for Americans with any net worth left whatsoever, is a flight NOW to gold and silver coins and bullion, followed by producing miners, with a healthy smattering of advanced quality junior precious metals explorers thrown in for maximum leverage.

There are factors to consider, however, before rushing off to the bullion shop. The United States government has demonstrated in the past a commitment to maintain the con game of U.S. Dollar value at all costs.

This means that there may yet be cards up the sleeve of the American Economic S.W.A.T. team that have not yet been revealed, and like a Trojan virus, may yet visit fresh misery on global financial markets who may somehow be forced to prolong the delusion of U.S. Dollar value a little bit longer.

What shape exactly such tactics might take is up for speculation, but among them could be some weird new financial instrument that one arm of government sells to another, creating the illusion of a self-financing entity…sort of like financial perpetual motion. It can’t exist according to the laws of physics, but natural laws are not applicable in the airy-fairy universe of American finance.

Come to think of it, NO laws seem to have any bearing on the myriad ponzi crimes flying out of Washington these days.

The single potential saving grace visible from this viewpoint is the fact that, so far, Barrack Obama has demonstrated an unassailable commitment to his convictions. And his past transgressions in the form of populist policy decisions might now be cast in the light of acceptable compromise. He’s sticking to his guns on the biggest issues. Reversing Bush’s pro-greenhouse gas policies at a time when the very industry that will be hurt by such policy is suffering mightily is courageous and laudable.

Sticking his finger in the eye of anti-abortionists so very thoroughly is also, regardless of your stance on the issue, symptomatic of a man of firm conviction and singular determination. Such a man might, just might be able to negotiate an orderly revaluation of the global reserve currency without the defiance, arrogance and belligerence that characterized the previous administration.

If Barack Obama can impress the world with such unwavering integrity, he might transform the gathering disaster into the incredible opportunity it is to remind the world what they love about America and Americans: The single-minded unity, determination and innovation that characterizes the historical chutzpah of this country when the going gets tough.

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