I Hate To Burst Your Bubble, But Inflation In The Yaun Aint Nutin' But Trouble

China only officially raised interest rates one time last year but in December of 2010 for sixth time they raised the Reserve Ratio Requirement to a record 19 percent. It is 10 percent in the United States. For some background, the ratio is that amount of money that a bank must hold in ratio to it's liabilities (i.e. deposits). China uses the RRR as an inflation-fighting tool and if China was a Mortal Kombat avatar it would be the easiest move to make: Rawr, Raise that ratio again. The problem is it doesn't appear to be working as of November inflation is at 5 percent.

This must come as a surprise to most people as the unlimited China growth dragon flys high in the minds of most Americans; whi regard China as some type of super economy that holds America hostage not with fire but with T-Bonds. They about $2 trillion of them. We use this money to finance operations; they use it to peg the value of the Yuan (RMB) to the dollar. If China were to dump Treasuries it would hurt us but it would crush them. Unlike China, the Untied States isn't a fairy tale.

But this story is popular in Asia and if you watch movies from the 1980s you'd think that Japan by now would be our feudal overlords but in fact they have been mired in deflation and no-growth for decades now.

The problem is that rising inflation in China in commodities like food and gas kill their nascent consumer sector which is barley a fetus tight now. It also kills jobs. China has a jobs policy ever since Tienanmen Square in order to quell protests and riots But if the current pat keeps up, China will burst big time, just like the Tulip bubble back in the 1600s. Tulips once went from being worth thousands of dollars in today's money to being worth, well, the price of a tulip.

From Peter Tasker, in a Financial Times article:

"The China story that has been sold so skilfully all over the world is simply another version of the “new era” thinking that has characterised every investment mania from the South Sea bubble to the dotcom frenzy

"If China were to follow Japan, the next stage would be labour strife and inflation. The best way to avoid that outcome would be a radical tightening of the current super-easy monetary policy. But that would risk a serious slowdown and probably necessitate a large revaluation of the renminbi – both anathema to Beijing. Meanwhile, China’s reliance on a cheap currency is helping to fuel a trade war, in the words of the Brazilian finance minister."

I fear the biggest threat right now in finance comes from China and it's mania. Whole cities sit empty. The South China Mall is the titanic of commercial properties built to be the best and in the end nothing but a sunken shell of dreams too big to have been dreamt.

The point is, is that, if you belief China story, you will be in for a big surprise this year as inflation finally bursts what is just an illusion an Potemkin village used to impress the masses and make people believe wealth and power exists were this is really nothing. Funny, thing is now China is offering the Yuan to U.S. traders something before that would be unthinkable. But things are happening fast so before you go buying a bunch of Yuans, you might want to consider building a fireplace in order to keep you warm because you will lose all your money and need those Yuans to keep warm.

Rare earths...the latest investment fad sure to make you money in the short term in my get in, get out philosophy.

REE, SHZ, XING. You want to make money. There: that's how you do it. I'd get out of commodities and especially metals, that's a dangerous game there now with ll these asset purchases taking place. I've never seen bond move like this before. Phew. Mortage rates jump a percent in month. Ouch, homeowners, sorry you just 10 percent of your ass--et.

The Irish aren't going gentle into that goodnight, they are going to rage, rage against the IMF plight

The much maligned bailout package forced on the now vassal state of Ireland by the EU and IMF may not come to fruition, sources say. And by sources I mean the Irish Times. The Labour Party is in staunch opposition to the package which will force draconian cuts in spending and lower the minimum wage to what amounts to $10.13/hr, which is still $3 more than here. Hmmm. That's, uh, something to ponder in and of itself. Anyhoo, if Labour gets its way the Irish may remain independent just yet. And if you think I'm being hyperbolic, go ask an Argentinian what he or she thinks of the IMF. You may want to learn some Spanish first and practice your running as you're going to need to get out of there faster then Speedy Gonzalez can say, rápido (run).

The Silver Brick Road

Silver has been shining as an investment opportunity as of late haveing risen as high as $31 from its $18 an ounce price a couple months ago. The historical ratio for an ounce of silver to and ounce of gold is 15-1, which is glaring different from now: the ratio is about 60-1. So, this make it potentially a huge investment and everyone is talking about it. With good reason: its risen 67.6 % this year. But, I wouldn't go investing just yet. I'm no expert; I'm just a journalist who reads a lot and finds economics fascinating.

But, there is one metal that is going under the radar: palladium. It's risen nearly 90 % this year and its only going further up, up and away. Why you ask? Simple. In those far off lands of India and China, who have booming middle classes, women don't want silver and they don't want no gold; they want palladium jewelry. And, it's alos cheaper to use then platinum in catalytic converters, and we're going to need a lot more of that car part thanks to the huge destruction of used cars in the cash for clunkers program last year. Thousands of cars were destroyed. New ones and new converters will be needed. Hey, this is just one man's view. Don't shoot the messenger.

The Part-time recovery

It seems the unemployed, who are constantly berated as being pretty lazy people who hate work, are leading the trend in actual job growth cause it's all part-time, baby. Well, not all. Two-thirds of job growth since 2008 is part-time and those part-timers, just like the unemployed, must be living a life of lazy luxury with their annual $20,000 income. (Source: BLS) In other news, the economy netted a whopping 39,000 jobs in Novmebr; at that rate we will see employment back at its 2007 level sometime between 2039 and never.