Preparing The Bazooka

For the second time this week, as you rip that greasy melon of yours away from that disgusting thing you call a pillow, Asian stocks tradied higher, led by Chinese equities, as European stocks are opening and traded higher and now the US equity indices rise. Why is that? As we discussed earlier this week, when China's PBOC (Beijing's central bank) implemented a broad program of stimulus across credit markets meant to support that nation's real estate and stock markets, there would likely be more help than that on the way.

Well, there will be. The 24-man Chinese politburo, which is led by mainland President Xi Jinping, pledged to "issue and use" sovereign debt to enhance and increase the "role of government investment. The politburo also pledged to increase aid to unemployed individuals having trouble finding jobs. This came one day after promising a one-time cash "helicopter drop" to Chinese residents currently facing unemployment or hardship.

Additionally, the politburo called for further interest rate cuts and an even lower reserve requirement for Chinese banks than what the central bank had already implemented this week to work alongside this expansion of fiscal policy to support the world's second largest economy. While there was a broad promise here to rely upon increased fiscal policy, there were no specific numbers released just yet. State news agency Xinhua quoted at least one official (which I read at the Financial Times) saying "We should increase the intensity of counter-cyclical adjustment of fiscal and monetary policies."

One thing seems obvious to this old dog... Mainland China was faced with either experiencing a significantly weaker economy or a substantially weaker fiat. it looks to me like for now, Beijing has chosen the fiscal firehose with the help of coordinated monetary policy. Readers should not forget that the BRICS will meet in October in Russia. This way Russian President Putin can attend without putting himself at risk. Will there be some kind of coordinated move made to create a new asset-backed internationally used currency?

I don't know.

Maybe the BRICS, at least lay the groundwork for some kind of cooperation that provides for these nations, a way around reliance upon the US dollar as a reserve currency that places less of a priority upon the value of their home currencies internationally but allows them to trade from a position of strength. Remember, if the people in a semi-closed economy believe in the value of fiat, it then holds value for those people. Fiat is backed by faith and faith alone. Pay attention here, gang. Something different is afoot, and it may not (will not) be positive for the global place of the US home currency or its ability to export inflation.