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Money printing is worse than bad sushi!

Today we watched a video of the Chinese demolishing dozens of high-rise apartment blocks per government mandate, the video is here.

This implosion video reached us on the same day that China’s largest real estate development company Evergrande seems ready to also implode its balance sheet. 

Here is a story from Reuters with a video on the topic of Evergrande preparing to file for bankruptcy.

Some readers may be old enough to remember when investors feared that China was wasting money by constructing apartment blocks and cities that would never be used.

Circa 2011 this debate over ghost cities drew interest from all over the globe. The phrase Ghost City was a dramatic way to say that people could drive for miles amongst these brand-new apartment towers in which not a soul was living.

Here is a video about China’s ghost cities.

 China’s centralized, communist-based structure and lack of property rights made it possible for the government to expropriate the homes. Also, the land which existed before construction started.

And some even applauded the government for building affordable housing. Which would later be used by millions of people moving from the farms into cities for factory work.

However, others disdained government interference within the economy and complained about how these towers could only be built with government guaranteed debt. This was because interest rates were too low and the government interference also meant that the money allocated to projects that would otherwise be unsustainable.

Government Interference in the Economy and Money Printing

It was well known that local government officials wanted to demonstrate the vitality of their economy through the demonstration of continually higher GDP figures. Thus did whatever it took to make sure that these projects were built!

These ghost cities helped fuel China’s GDP double-digit GDP growth. This growth came at a cost though –  the misallocation of capital due to government interference is now starting to crumble.

At the heart of all this growth was a ballooning central bank balance sheet. From 2000, when China joined the WTO until 2013, China’s central bank balance sheet grew almost 900%.

When exports are much higher than imports, companies deposit foreign currency into their Chinese banks. Those banks then hand out local renminbi which circulates within the economy.

China’s Central Bank Balance Sheet Chart

Government interference in the economy and money printing isn’t like eating rotten sushi. When rotten sushi is consumed, the consequences are felt almost immediately. 

When it comes to money printing and government interference causing harm to the economy, there is no puking on the same day like with rotten sushi. It can take decades for the consequences fully felt.   

Government interference and overreach are very visible in China’s controlled economy. But it is very prevalent in other economies as well.

The continued printing and reach of the central bank aren’t going away anytime soon.

Chinese government officials would do whatever it took to meet their goals, and the ECB (European Central Bank) President Draghi’s infamous “whatever it takes” speech of 2012 is very much the same story. 

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Not only does the ECB continue to operate by this principle. So does the Bank of England, the US Federal Reserve, and Bank of Canada. 

The WSJ reported this week that there are House Democrats pushing for Biden to “reimagine a Federal Reserve focused on eliminating climate risk and advancing racial and economic justice” when making the decision on the Federal Reserve Chair when Chair Powell’s term is up in February.

The politicians or bankers who fund these previous mistakes are never around when the truth comes out and buildings get blown up.

Effect of Money Printing on the Economy

And government statistics rarely get the update to reflect the wasted money and effort spent many years before.

Do you think some government economists in China will go back into the archive?

Reduce the GDP bump circa 2011 enjoyed by the construction of those buildings now demolished? Neither do we. 

But that is the main point of money printing. To hide the current dire situation, spending today what should be saved for tomorrow.

Since no one in government ever takes time to account for the past wastage. They are never forced to reconcile the track record of bad decisions against the mantra of fake it until someone else is left holding the bag.

Although like rotten sushi the consequences aren’t immediate. Money printing is like rotten sushi. Eventually, it will cause major illness, and the more consumed the worse the consequence. 

From the Trading Desk

Stock Update:

***Silver coins for Ireland – Delivery and Storage at new lower premiums’****

Silver coins are now available for delivery or storage in Ireland and the EU with the lowest premium in the market.

Starting as low as spot plus 30% for Silver Britannia’s & Silver Philharmonics starting at 32%. 

Silver Britannia’s for UK delivery or storage are still available at the lowest premium in the market also (which includes VAT at 20%).

Purchase these online. 

We have also recently added gold 250-gram & 500-gram bars.

These are available for storage and delivery starting at spot plus 3.2% for the 250-gram bars & 3.1% for the 500-gram bars. 

Excellent stock and availability on all gold coins and bars with 1oz bars at a very competitive 3.75% over Spot. 

Krugerrands are currently the lowest premium on 1oz coins at Spot plus 5.5%. 

Gold Britannia’s 1oz coins start at 6.5% over the spot. 

Silver 100oz and 1000oz bars are also available VAT-free in Zurich starting at 8% for the 1000oz bars and 12.5% for the 100oz bars. 

Please see below our extended trading hours. 

** We have extended our opening hours. Phone lines, online ordering, and WebChat are now open until 09:00-22:00 (Europe/Dublin) USA 09:00 to 17:00 EST**

Market Update:

We have seen a strong take up in our silver coins both in the UK and Ireland.

The gold 250-gram bars are proving popular too.

Volume wise has been consistent with an 80% buy-through rate.

 Price wise, gold is back below its 200-day MA and stuck in a tight side ways trading range.

Investors still believe the Fed will start to roll back its massive stimulus later this year and the CPI report out yesterday (see more on that below) still favours more of a risk on approach.

 We also had the ECB meeting last week and what we got from the ECB policymakers, they are cautiously optimistic. 

However, one Executive Board Member Isabel  Schnabel was more hawkish saying ‘The Market may be overestimating risks to the global growth outlook’. 

A tweet below from David Morgan yesterday caught our attention regarding the CPI number released on the 14th of September.

It shows how the playing around with the headline numbers and stripping out everything we need on a day-to-day basis (rent, groceries, and gas prices), inflation is just fine! 


15-09-2021 1801.40 1796.95 1302.95 1297.40 1523.62 1520.40
14-09-2021 1788.65 1792.75 1289.26 1292.39 1513.56 1516.67
13-09-2021 1787.85 1793.90 1293.87 1296.09 1516.63 1520.33
10-09-2021 1799.90 1794.60 1297.55 1293.91 1519.30 1516.44
09-09-2021 1795.35 1788.25 1299.12 1292.01 1517.61 1513.57
08-09-2021 1797.95 1786.00 1306.57 1297.53 1521.25 1511.49
07-09-2021 1810.75 1802.15 1310.26 1307.10 1525.01 1520.65
06-09-2021 1823.85 1821.60 1318.10 1317.02 1538.05 1535.06
03-09-2021 1812.05 1823.70 1309.39 1316.53 1526.11 1534.46
02-09-2021 1815.15 1812.55 1316.53 1311.74 1532.17 1528.52

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