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\u00a0 \u00a0 \u00a0 \u00a0 \u00a0In the face of the massive economic crisis in Europe, it is very easy to forget that there is an even larger economic elephant in the room.\u00a0 <\/span>However, recent action by the Chinese has once again brought this issue to light.\u00a0 <\/span>While the United States avoided default narrowly several months ago, they did not reduce their major deficit spending.\u00a0\u00a0 <\/span>Consequently they appointed a \u201csuper committee\u201d to find areas where budget cuts could be made to fix the deficit.\u00a0 <\/span>The Republican\u2019s response was to cut spending in several areas while the democrats suggested more tax increases.\u00a0 <\/span>This disagreement has lead to a deadlock.\u00a0 <\/span>No one can agree and no one is taking action.<\/span><\/p>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span>As usual the media has missed one of the most critical pieces of news in the last several weeks.\u00a0 <\/span>The chairman of Dagon, the largest credit rating agency in China, came out in an interview with al-Jazeera on Sunday morning stating that it is extremely likely that US debt will be downgraded even further.\u00a0 <\/span>Over the past year China has downgraded US debt from a high AA+ down to A in two separate downgrades.\u00a0 <\/span>While most media focused on the S&P\u2019s downgrade, China\u2019s downgrade is far more important.\u00a0 <\/span>They are the largest foreign buyer of US debt and account for a third of all foreign held debt securities of the US.\u00a0 <\/span>They are also a major holder of US currency, which means what they think is potentially the most important factor of all when it comes to managing the US debt crisis.<\/span><\/p>\n \u00a0 \u00a0 \u00a0 \u00a0 \u00a0The Chairman of Dagon went on to say \u201cThe measures available to them [the US] cannot be effective so they have another way out which is to depreciate the US dollar, to print more money,\u201d<\/span><\/p>\n \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Asked directly if he believed another ratings cut was inevitable, Guan replies: \u201cI think so.\u201d<\/span><\/p>\n \u00a0 \u00a0 \u00a0 \u00a0 \u00a0He goes on to say: \u201cWe are continuing to monitor this closely. First of all we need to look at this year\u2019s economic growth and then predict next year\u2019s trends. If in the year 2012 the overall projections are not very good, meaning that the sources of payment \u2013 and liabilities \u2013 are bad and cannot be changed, or change for the worse, then we will lower the rating once again.\u201d<\/span><\/p>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span>If China is anywhere close on their projections, QE3 cannot be far around the corner.\u00a0 <\/span>The US cannot afford to lose a major buyer of their debt like China.\u00a0 <\/span>While QE may be delayed, it cannot be postponed indefinitely.\u00a0 <\/span>The inevitable result will be additional printing or \u201cdigitizing\u201d of money, which can only have one final outcome, inflation.\u00a0 <\/span>As a result, precious metals will most certainly do well in the event of QE3 in the short-term, provided that no major dip in the stock market occurs at the same time.<\/span><\/p>\n \u2014<\/span><\/p>\n Josh Renfro<\/span><\/p>\n President & Founder<\/span><\/p>\n Lone Star Bullion LLC<\/span><\/p>\n \u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":" \u00a0 \u00a0 \u00a0 \u00a0 \u00a0In the face of the massive economic crisis in Europe, it is very easy to forget that there is an even larger economic elephant in the room.\u00a0 However, recent action by the Chinese has once again … Continue reading