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Does China Have Enough Gold To Move Toward Hard Currency?

Date: Sunday, November 18, 2018 10:20 AM EDT

Are the Chinese Keynesian?

We can be reasonably certain that Chinese government officials approaching middle age have been heavily westernized through their education. Nowhere is this likely to matter more than in the fields of finance and economics. In these disciplines there is perhaps a division between them and the old guard, exemplified and fronted by President Xi. The grey-beards who guide the National Peoples Congress are aging, and the brightest and best of their successors understand economic analysis differently, having been tutored in Western universities.

It has not yet been a noticeable problem in the current, relatively stable economic and financial environment. Quiet evolution is rarely disruptive of the status quo, and so long as it reflects the changes in society generally, the machinery of government will chug on. But when (it is never “if”) the next global credit crisis develops, China’s ability to handle it could be badly compromised.

This article thinks through the next credit crisis from China’s point of view. Given early signals from the state of the credit cycle in America and from growing instability in global financial markets, the timing could be suddenly relevant. China must embrace sound money as its escape route from a disintegrating global fiat-money system, but to do so it will have to discard the neo-Keynesian economics of the West, which it has adopted as the mainspring of its own economic advancement.

With Western-educated economists embedded in China’s administration, has China retained the collective nous to understand the flaws, limitations and dangers of the West’s fiat money system? Can it build on the benefits of the sound-money approach which led it to accumulate gold, and to encourage its citizens to do so as well?

China’s economic advisers will have to display the courage to drop the misguided economic policies and faux statistics by which it will continue to be judged by its Western peers. If it faces up to the challenge, China should emerge from the next credit crisis in a significantly stronger position than the West, for which such a radical change in economic thinking undertaken willingly is impossible to imagine.

Post-Mao Financial and Monetary Strategy

Following Mao Zedong’s death in 1976, the Chinese leadership faced a primal decision over its destiny. With Mao’s demise, the icon that forcibly united over forty ethnic groups was gone. It was the end of an era of Chinese history, and it had to embrace the future with a new approach. Failure to do so risked the fragmentation of the state through civil disobedience and would probably have ended in a multi-ethnic civil war.

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