It's hard to believe that, two years later, China is still leaving so much of its gold with the Federal Reserve Bank of New York and the Bank of England when even little Venezuela has publicly figured out the gold price suppression component of the Western fractional reserve banking system and is attempting to repatriate its gold from the Bank of England and various Western bullion banks:

It is not in China's interest at this time to essentially destroy the US economy by demandiing its Gold. It will eventually happen.

I'm not so sure about that. China has a big problem that the USA doesn't have: the ability to feed its population. I would think wheat, corn and soybeans figure just as prominently in Chinese calculations as the price of gold or the US/RMB exchange rate.

I believe all this attention on gold, currencies and so forth misses an essential point: that the leading nations of the world ALL depend on foreign trade for vital economic inputs. There was a time not so long ago when the US made soft loans to the USSR so they could buy US wheat. I see a similar symbiosis today between China and the US. China needs to keep its people working and to do that they need export trade. There's only a few markets capable of absorbing thier output, the US being the largest. I see Chinese support of the US dollar as a kind of vendor financing. They know they won't get full price for their products when all costs are factored in, but as long as it keeps people employed it doesn't matter because the alternative is too bleak to contemplate.

I think Chinese posturing around the value of gold and the dollar is a sign of weakness, not strength. A purely cynical view (such as mine...heh) sees US dollar debasement as a form of economic warfare designed to limit Chinese growth - essentially keeping them in an export dependant box. The Chinese government contributes to this through their own inability to cede the economic and political control needed to develop a robust internal market. To do that, incomes have to rise to the point where workers can afford to buy the things they produce (Henry Ford), but that has a side effect of generating political demand for less government control, something the CCP is reluctant to do. Look how long it took them to get from Deng's Four Modernizations to where they are now, and it's still a Potemkin Villiage with only a tenth of the population truly participating.

In all-out economic warfare, China, not the USA will be the loser. The US can replace cheap Chinese labor with Mexicans (already happening) and they have a robust supply of energy from both untapped domestic sources and Canada. Frankly, by focusing obsessively on China, geo-political sleuths may be missing the elephant in the living room: Russia. They have far fewer mouths to feed, a much larger resource base, access both politically and economically to western Europe, and are regrouping around the old soviet/KGB nexus.

As in markets, so in politics: when the crowd gets behind something, it's often wise to take the other side of the bet.

ebear