Chinese Commodity Financing Deals (CCFD)

This Koos Jansen is hot:

While commodity financing [round tripping] deals are very complicated, the general idea is that arbitrageurs borrow short-term FX loans from onshore banks in the form of LC (letter of credit) to import commodities and then re-export the warrants (a document issued by logistic companies which represent the ownership of the underlying asset) to bring in the low cost foreign capital (hot money) and then circulate the whole process several times per year. As a result, the total outstanding FX loans associated with these commodity financing deals is determined by: 

• – the volume of physical inventories that is involved

• – commodity prices

• – the number of circulations

Our understanding is that the commodities that are involved in the financing deals include gold, copper, iron ore, and to a lesser extent, nickel, zinc, aluminum, soybean, palm oil and rubber. 

This activity so distorts actual trade numbers that it must be near impossible to know what is actually going on.  Perhaps one reason for the rules on the new Foreign Trade Zones in China is to narrow the flow so as to ease the tracking of what is going on.

Marxists love facts, so this practice must be aggravating.  And the Chinese bankers know their economics, as opposed to USA bankers, who are clueless:

Some examples of how state-owned banks promote gold, from the Agricultural Bank China:
Physical gold is both a commodity and a financial product. It can be a gift or collection and may serve as an important investment vehicle for realizing preservation and appreciation. With a distinctive preservation function, physical gold is powerful to defend against inflation.

And gets into the act, advising mom and pop:

From ICBC:
☆ Considerations1. Do not stop when gold price is low. Gold price may go up or down depending on the political and economic conditions and many other factors. Only by constant accumulation will the overall investment cost be reduced.2. Persistence is the key. Investment risk is reduced by the average cost, the longer the investment period, the better in mitigating the impact of the fluctuation in gold price. When the market rallies, the gain will be protected and increase the investment. 

Goal?  Every Chinese a Central banker.  And the end-game:

The State Council’s strategy is to import as much gold as possible and export nil in order to build a strong economic and financial security barrier for China.

The ChiComs know from economic disaster, and along with the Russians and Moslems are preparing for the coming disaster.  We are a usury/credit-based economy, terribly malinvested and misallocated.  We are already beat. The countries who have people who join our efforts to destabilize their countries, and follow our economic advice, delivered by the son of a vice-president, like the Ukraine, are cast into war and poverty, as they outlaw gold buying.  What goes around comes around. Your way out is self-employment and extend credit at no interest to your customers.

In deflation, gold and silver is a great hedge (it will go down in price too, but it will hold its buying power)  And more important, it makes the currency upon which it is built stronger, vis a vis the dollar.

Don't bother buying gold or silver, Uncle Sam will just steal it, again.  (Only int'l traders were allowed to have it.) Get self-employed.

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