By MoneyMorning.com.au
While the banking system of the Western world is slowly collapsing from the weight of debt on top of it, the BRIC nations – Brazil, China, India, and Russia are putting gold, silver, iron, and real assets at the heart of their balance sheets. They are reducing the amount of Western debt they own and building a solid metal core.
Bloomberg reports that India has floated the idea of a “BRICS bank“. According to the report:
India has proposed setting up a multilateral bank that would be exclusively funded by developing nations and finance projects in those countries, two government officials with knowledge of the matter said.
The plan has been circulated to the countries in the so- called BRIC group — Brazil, Russia, India and China — as well as to South Africa, an Indian government official said. A Brazilian government official confirmed the proposal.
The plan will be discussed among developing nations alongside the meeting of Group of 20 finance ministers in Mexico City this weekend, the Indian official said, asking not to be identified by name as the proposal isn’t public and is in the early, exploratory phases.
Maybe the Indians are tired of dealing with the International Monetary Fund (IMF) and the World Bank. America and Europe control them. You see what they’ve done to Greece: selling the Greeks into years of lower living standards and poverty in order to prevent bankers from losing money. If that isn’t a sign to set up your own system, I don’t know what is.
You can be sure silver and gold will be part of the BRICS bank, if there ever is one. According to Mineweb, an official at the Bombay Bullion Association said India could drive the silver price up to US$60 by importing close to 5,000 tonnes of the metal this year. Given the cheap silver price and the almost certainty that Europe’s debt crisis is going to get a lot worse, this move makes total sense.
Eric Sprott puts it in perspective:
It shouldn’t surprise anyone to see those lenders [non-G6 members) piling into alternative assets that have a better chance at protecting their wealth, long-term. This is likely why China reduced its US Treasury exposure by $32 billion in the month of December. This is also why China, which produced 360 tonnes of gold internally last year, also imported an additional 428 tonnes in 2011, up from 119 tonnes in 2010.8
This may also be why China’s copper imports hit a record high of 508,942 tonnes in December 2011, up 47.7 percent from the previous year, despite the fact that their GDP declined at year-end. Same goes for their crude oil imports, which hit a record high of 23.41 million metric tons this past January, up 7.4 percent year-over-year. The so-called experts have a habit of downplaying these numbers, but it seems pretty clear to us: China isn’t waiting around for next QE program. They are accelerating their move away from paper currencies and into hard assets.
I’m not sure I agree that all hard assets are going to preserve the value of money as well as gold and silver. In fact, I’m not sure hard assets will be immune from the forces of debt deflation. They certainly won’t be. You will face losses on them too.
But at the end of the day when you own something real and have possession of it, it’s a lot more useful than a piece of paper that represents somebody else’s promise to pay. More investors are looking to own real things, or at least the shares of companies that extract and sell real things. That’s an investment trend worth noting, and worth trying to take advantage of in the coming years.
The Western world has turned its financial system into a corrupt cesspool that rewards deceit without work. The financial system – along with the rule of law, sound money, low taxes, and free trade – was one of the attributes that gave the West a huge competitive advantage over the last 300 years.
If that advantage is gone, and if the global financial system will change radically in the coming years, it’s going to mean a huge amount of disruption at the very least. The old debt-based system could stick around for years, eroding the value of your savings and chewing away your time. Or it could blow up.
In the meantime, about the only thing you can do is keep thinking about protecting yourself as best you can. The shift in economic and financial power is also an opportunity. And Australia is uniquely positioned to take advantage of that transition.
Dan Denning
Editor, Australian Wealth Gameplan
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