Banking Crisis MK II

[Red Phoenix]

Just found this after putting 'too big to fail' into google. What do you think of it? Could be right, or not?

 

Global Collapse of the Fiat Money System: Too Big To Fail Global Banks Will Collapse Between Now and First Quarter 2011

 

When Quantitative Easing Has Run Its Course and Fails

 

by Matthias Chang

 

Readers of my articles will recall that I have warned as far back as December 2006, that the global banks will collapse when the Financial Tsunami hits the global economy in 2007. And as they say, the rest is history.

 

Quantitative Easing (QE I) spearheaded by the Chairman of Federal Reserve, Ben Bernanke delayed the inevitable demise of the fiat shadow money banking system slightly over 18 months.

 

That is why in November of 2009, I was so confident to warn my readers that by the end of the first quarter of 2010 at the earliest or by the second quarter of 2010 at the latest, the global economy will go into a tailspin. The recent alarm that the US economy has slowed down and in the words of Bernanke “the recent pace of growth is less vigorous than we expected” has all but vindicated my analysis. He warned that the outlook is uncertain and the economy “remains vulnerable to unexpected developments”.

 

Obviously, Bernanke’s words do not reveal the full extent of the fear that has gripped central bankers and the financial elites that assembled at the annual gathering at Jackson Hole, Wyoming. But, you can take it from me that they are very afraid.

 

Why?

 

Let me be plain and blunt. The “unexpected developments” Bernanke referred to is the collapse of the global banks. This is FED speak and to those in the loop, this is the dire warning.

 

So many renowned economists have misdiagnosed the objective and consequences of quantitative easing. Central bankers’ scribes and the global mass media hoodwinked the people by saying that QE will enable the banks to lend monies to cash-starved companies and jump start the economy. The low interest rate regime would encourage all and sundry to borrow, consume and invest.

 

This was the fairy tale.

 

Then, there were some economists who were worried that as a result of the FED’s printing press (electronic or otherwise) working overtime, hyper-inflation would set in soon after.

 

But nothing happened. The multiplier effect of fractional reserve banking did not take off. Bank lending in fact stalled.

 

Why?

 

What happened?

 

Let me explain in simple terms step by step.

 

1) All the global banks were up to their eye-balls in toxic assets. All the AAA mortgage-backed securities etc. were in fact JUNK. But in the balance sheets of the banks and their special purpose vehicles (SPVs), they were stated to be worth US$ TRILLIONS.

 

2) The collapse of Lehman Bros and AIG exposed this ugly truth. All the global banks had liabilities in the US$ Trillions. They were all INSOLVENT. The central banks the world over conspired and agreed not to reveal the total liabilities of the global banks as that would cause a run on these banks, as happened in the case of Northern Rock in the U.K.

 

3) A devious scheme was devised by the FED, led by Bernanke to assist the global banks to unload systematically and in tranches the toxic assets so as to allow the banks to comply with RESERVE REQUIREMENTS under the fractional reserve banking system, and to continue their banking business. This is the essence of the bailout of the global banks by central bankers.

 

4) This devious scheme was effected by the FED’s quantitative easing (QE) – the purchase of toxic assets from the banks. The FED created “money out of thin air” and used that “money” to buy the toxic assets at face or book value from the banks, notwithstanding they were all junks and at the most, worth maybe ten cents to the dollar. Now, the FED is “loaded” with toxic assets once owned by the global banks. But these banks cannot declare and or admit to this state of affairs. Hence, this financial charade.

 

5) If we are to follow simple logic, the exercise would result in the global banks flushed with cash to enable them to lend to desperate consumers and cash-starved businesses. But the money did not go out as loans. Where did the money go?

 

6) It went back to the FED as reserves, and since the FED bought US$ trillions worth of toxic wastes, the “money” (it was merely book entries in the Fed’s books) that these global banks had were treated as “Excess Reserves”. This is a misnomer because it gave the ILLUSION that the banks are cash-rich and under the fractional reserve system would be able to lend out trillions worth of loans. But they did not. Why?

 

7) Because the global banks still have US$ trillions worth of toxic wastes in their balance sheets. They are still insolvent under the fractional reserve banking laws. The public must not be aware of this as otherwise, it would trigger a massive run on all the global banks!

 

8 ) Bernanke, the US Treasury and the global central bankers were all praying and hoping that given time (their estimation was 12 to 18 months) the housing market would recover and asset prices would resume to the levels before the crisis. .

 

Let me explain: A House was sold for say US$500,000. Borrower has a mortgage of US$450,000 or more. The house is now worth US$200,000 or less. Multiply this by the millions of houses sold between 2000 and 2008 and you will appreciate the extent of the financial black-hole. There is no way that any of the global banks can get out of this gigantic mess. And there is also no way that the FED and the global central bankers through QE can continue to buy such toxic wastes without showing their hands and exposing the lie that these banks are solvent.

 

It is my estimation that they have to QE up to US$20 trillion at the minimum. The FED and no central banker would dare “create such an amount of money out of thin air” without arousing the suspicions and or panic of sovereign creditors, investors and depositors. It is as good as declaring officially that all the banks are BANKRUPT.

 

9) But there is no other solution in the short and middle term except another bout of quantitative easing, QE II. Given the above caveat, QE II cannot exceed the amount of the previous QE without opening the proverbial Pandora Box.

 

10) But it is also a given that the FED will embark on QE II, as under the fractional reserve banking system, if the FED does not purchase additional toxic wastes, the global banks (faced with mounting foreclosures, etc.) will fall short of their reserve requirements.

 

11) You will also recall that the FED at the height of the crisis announced that interest will be paid on the so-called “excess reserves” of the global banks, thus enabling these banks to “earn” interest. So what we have is a merry-go-round of monies moving from the right pocket to the left pocket at the click of the computer mouse. The FED creates money, uses it to buy toxic assets, and the same money is then returned to the FED by the global banks to earn interest. By this fiction of QE, banks are flushed with cash which enable them to earn interest. Is it any wonder that these banks have declared record profits?

 

12) The global banks get rid of some of their toxic wastes at full value and at no costs, and get paid for unloading the toxic wastes via interest payments. Additionally, some of the “monies” are used by these banks to purchase US Treasuries (which also pay interests) which in turn allows the US Treasury to continue its deficit spending. THIS IS THE BAILOUT RIP OFF of the century.

 

Now that you fully understand this SCAM, it is left to be seen how the FED will get away with the next round of quantitative easing – QE II.

 

Obviously, the FED and the other central banks are hoping that in time, asset prices will recover and resume their previous values before the crisis. This is a fantasy. QE II will fail just as QE I failed to save the banks.

 

The patient is in intensive care and is for all intent and purposes brain dead, although the heart is still pumping albeit faintly. The Too Big To Fail Banks cannot be rescued and must be allowed to be liquidated. It will be painful, but it is necessary before there is recovery. This is a given.

 

Warning:

 

When the ball hits the ceiling fan, sometime early 2011 at the earliest, there will be massive bank runs.

 

I expect that the FED and other central banks will pre-empt such a run and will do the following:

 

1) Disallow cash withdrawals from banks beyond a certain amount, say US$1,000 per day; 2) Disallow cash transactions up to a certain amount, say US$10,000 for certain transactions; 3) Transactions (investments) for metals (gold and silver) will be restricted; 4) Worst-case scenario – the confiscation of gold AS HAPPENED IN WORLD WAR II. 5) Imposition of capital controls etc.; 6) Legislations that will compel most daily commercial transactions to be conducted through Debit and or Credit Cards; 7) Legislations to make it a criminal offence for any contraventions of the above.

 

Solution:

 

Maintain a bank balance sufficient to enable you to comply with the above potential impositions.

 

Start diversifying your assets away from dollar assets. Have foreign currencies in sufficient quantities in those jurisdictions where the above anticipated impositions are least likely to be implemented.

 

CONCLUSION

 

There will be a financial tsunami (round two) the likes of which the world has never seen.

 

Global banks will collapse!

 

Be ready.

 

 

Global Collapse of the Fiat Money System: Too Big To Fail Global Banks Will Collapse Between Now and First Quarter 2011

[Travis Bickle]

Scary. Glad iv got no fuckin money.

[FrenchEyeGlass]

i cant be arsed reading that at the moment, but what i can tell you is that "too big to fail" is a very very good book.

 

Read it.

[sir roger]

I've a mate whose main hobby is having all kinds of financial articles e-mailed to him & he has maintained since the last slump that there is another coming that will make that one seem like an insignificance.

 

I'd go into more detail, but I tend to glaze over when he shows me powerpoint presentations on the Chinese and US economies.

[Section_31]

The situation in Ireland is pretty worrying.

 

To think people still defend our brand of capitalism is unreal, when the evidence is all around us of what a destructive force it is in its present guise.

 

When they explained in typical Sky News layman's terms before how Ireland got into such a mess - i.e cheap loands to construction firms who built, and built, and built and HOPED that they could see for more and more money each time, that buyers and sellers could buy and sell for more and more money everytime'. It made me think, 'hang on, that's fucking stupid, sooner or later someone is going to realise no one of you actually have any real money.'.

 

If I can think that, don't tell me the experts in the city didn't know this day would come. They did, but they were looking after number one, they wanted short term gains and in the process put everyone's long term futures on the line. That's what this brand of capitalism does, that's what happens when y ou condition people to look out for themselves, and only themselves.

 

 

 

The cost of bailing out the Republic of Ireland's stricken banks has risen to 45bn euro (£39bn), opening a huge hole in the Irish government's finances.

 

The increased cost will see the government run a budget deficit equivalent to 32% of GDP this year.

 

The cost includes a bill of up to 34bn euro to rescue the worst-hit lender, Anglo Irish Bank.

 

The government said it would now have to rewrite its budget to cut borrowing more quickly in the coming years.

 

But Irish finance minister Brian Lenihan defended the action, saying Anglo Irish Bank was too big to fail.

 

Continue reading the main story

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The Republic had previously committed to bringing its budget deficit down from 14.3% of GDP last year to 3% by 2014.

 

In a statement, Mr Lenihan said he still intended to meet that target, indicating huge fiscal tightening over the next four years.

 

'Huge damage'

 

Mr Lenihan defended the cost of the bail-out measures, which will cost the Republic's two million taxpayers the equivalent of 22,500 euros each.

 

"The bank had grown to half the size of our annual national wealth, so clearly the failure of a bank on that scale would do huge damage to the local economy here in Ireland," he said in an interview with the BBC.

 

Continue reading the main story “

Start Quote

Ireland's roughly two million taxpayers are picking up the tab for tens of billions of misplaced private bets”

End Quote

 

Stephanie Flanders

 

Economics editor, BBC News

 

--------------------------------------------------------------------------------

Stephanomics: The 32% question

The Irish economy - once known as the Celtic Tiger - grew rapidly on the back of a property boom, fuelled by massive lending from the banks.

 

But when this collapsed, and lenders were unable to repay, the Irish banking system was plunged into crisis.

 

The cost of bailing out Anglo Irish could now cost between 29.3bn euros and 34bn euros in a worst-case "stress scenario", the government said.

 

That is up from the estimate of 22-25bn euro given last month.

 

The BBC's business editor, Robert Peston, said the equivalent of about a third of the Irish economy had gone into supporting the banks:

 

"If you added together all the capital provided to Ireland's banks by various arms of the state, taxpayer support to those banks in the form of capital injections is around 30% of GDP."

 

He said that would compare with around 6% of GDP in the UK for the equity injected into Royal Bank of Scotland, Lloyds and Northern Rock.

 

There will also be up to 7.2bn euros of additional support for Allied Irish Banks (AIB), which will in effect be nationalised.

 

Further help - of 2.7bn euros - will also be given to the Irish Nationwide Building Society.

 

 

Click to play

Click to play

Finance Minister Brian Lenihan said Anglo-Irish was a 'systemic threat'

The Bank of Ireland was not deemed to need any extra support.

 

Despite the size of the numbers involved, the latest news on the bail-out was welcomed by some market analysts.

 

Padhraic Garvey, rate strategist at ING, said: "I think the market needs to know and here it is."

 

This reassurance was reflected in a slight fall in the Republic's cost of borrowing, which had hit record levels earlier in the week.

 

However, others doubted this would be the last such announcement.

 

"Alas I don't think we have final figures. We've had about four 'final figures' for Anglo [irish]," said Brian Lucey, economics professor at Trinity College Dublin.

 

'Better health'

 

The Irish economy has faced one of the deepest recessions in the eurozone, with its economy shrinking by 10% in 2009.

 

The latest GDP figures showed it contracted by 1.2% for the second quarter. Greece's GDP dropped by 1.5% in the same period.

 

In an interview with the Financial Times, Mr Lenihan stressed that the country's financial health was better than other peripheral eurozone economies, saying it had borrowing already lined up to service debts and cover public services until the middle of 2011.

 

"We are not obliged to go to the markets. We are not under a clear and present constraint," he told the paper.

 

Mr Lenihan said the country would cancel its bond auctions in October and November and would not return to the bond markets until early in 2011.

 

The European Union's monetary commissioner, Olli Rehn, said he doubted that Ireland would need emergency aid from the fund established earlier this year by the EU and the International Monetary Fund to save Greece from bankruptcy.

 

There had been speculation that the Irish government would need such help - a suggestion rejected by the government.

[1_robbo]

Never too late to start buying gold bullion, inflation proof wealth,

CoinInvestDirect.com

 

Thats why every other advert on tv and radio is "We buy your gold" and "Cash for Gold"

 

Gold has trebled in price in the last 5 years and will continue to rise, glad i started buying at the right time.

 

Silver has even more potential and is looking like its starting to break.

 

Research Gold/silver ratio and Silver price suppression.

 

Get buying silver bullion coins Suppliers of silver Maple, British Silver Rose, American Eagle, Sunshine coins and Bars

 

Thank me in due course........

[Section_31]

Never too late to start buying gold bullion, inflation proof wealth,

CoinInvestDirect.com

 

Thats why every other advert on tv and radio is "We buy your gold" and "Cash for Gold"

 

Gold has trebled in price in the last 5 years and will continue to rise, glad i started buying at the right time.

 

Silver has even more potential and is looking like its starting to break.

 

Research Gold/silver ratio and Silver price suppression.

 

Get buying silver bullion coins Suppliers of silver Maple, British Silver Rose, American Eagle, Sunshine coins and Bars

 

Thank me in due course........

 

I'm not interested in your gold. I am however, extremely interested in negotiable bearer bonds.

 

[Red Phoenix]

Never too late to start buying gold bullion, inflation proof wealth,

CoinInvestDirect.com

 

Thats why every other advert on tv and radio is "We buy your gold" and "Cash for Gold"

 

Gold has trebled in price in the last 5 years and will continue to rise, glad i started buying at the right time.

 

Silver has even more potential and is looking like its starting to break.

 

Research Gold/silver ratio and Silver price suppression.

 

Get buying silver bullion coins Suppliers of silver Maple, British Silver Rose, American Eagle, Sunshine coins and Bars

 

Thank me in due course........

 

 

 

Yeah I think I remember seeing this on The Money Masters. A select few crashed the market then once money was worthless they bought up all the gold and had all the wealth. (think that's right anyway.) That's also why it was illegal to have over a certain amount of gold, so that they could have it all returned to them in certain ways. Would have to watch the documentary again to work it out, gotta admit it's still hard to understand the whole thing.

 

So saying that if you'd bought up gold to be secure when the big crash happened in the 20's/30's in America, you'd have to return it by law anyway.

[Byrnie]

It's history repeating itself as far as banking crisises are concerned. It has been happening throughout history, the men behind the curtain control the money.

 

Take America for example, the Federal Reserve is about as federal as the Federal Express, it's a private company. The money men loan money to the US government at interest. The Federal Reserve has the power to determine the direction of the use of money in the US economy. Shouldn't the Federal Reserve be under treasury?

 

They have created a bailout bubble and the Federal Reserve, who cause the problem then are the ones who get asked to fix it. They loan the government more money and encourage them to increase spending, when really the government should be cutting spending.

 

We have a global economy that is based on spending borrowed money, it is turning into an inflationary recession and there are only one set of people who benefit. The bankers are basically controlling the world.

[dennis tooth]

All very true the economy is unrecoverable which makes all the fannying round by Camertron and the Clegginator worthless, all they are doing is making it worse and worse. Can't wait this will be like the fall of the Berlin wall overnight unpredictable and the markets will just suddenly stop. all will be zero.

 

Get ready.

[King Emlyn]

[Section_31]

I find it mildly amusing that we now have a Tory chancellor who said during a pre-election debate 'we need to start making things in this country'.

 

Irony meter well and truly overloaded.

 

It's mad how the yanks and Europe can even attempt to rebuild their economies and yet still continue with the farcical situation of continuing to allow their best companies, technology and industry to hemorrhage out to China and the east.

 

The west will never be a force again until it engages in some kind of economic protectionism, and if that means people have to save up a few weeks for a telly or a pair of shoes (like they used to) then so be it.

[Whollier]

I'm stocking up with Spam, tinned peaches and a few good books to read while the Apocalypse unfolds outside my windows.

 

But until the dreadful day arrives, I suggest we maintain a few old-fashioned British virtues such as keeping a stiff upper lip and filling the unforgiving minute with sixty seconds worth of distance run.

[dennis tooth]

Get your money out the banks and into a credit union of something although it will likely be completely worthless anyway. Also worth noting there is only enough food to sustain the population in this country to last about 1 month. Spam it is then.

[Whollier]

Don't forget the jars of Piccalilli to add relish and piquancy to the global meltdown.

 

Spam on its own is too dry and disagreeable to be consumed without a side dressing. That's what concerns me most. Whether condiments and relishes will still be available in the New World Disorder. I suppose we'll be reduced to the inferior own-label stuff.

[Guest Scaramanga]

I read the OPs post and I must admit, I got bored halfway through. Not because it wasn't interesting, just because I didn't understand a fucking thing about it.

 

Never have understood money markets/shares/banking, it's too complicated. Maybe thats the problem.

 

Section_31 mentioned the pre-election debate regarding manufacturing industry in this country.

 

I read an article recently that explains how Germany is the 2nd biggest manufacturer and exporter in the world, only just behind China (and I mean only just) yet still has problems with it's balance sheet because it's hampered by the Euro. I can dig out the link if anyones interested and it explains it a lot better than what I can.

 

I remember reading another article many years ago that warned of US national debt becoming much greater than US GDP and that the US economy would collapse under the strain of it's own debt. This was estimated by analysts to be the point where China reached global hegemony between 2012-2014.

 

Americans sometimes have a slender grasp of history and they would do well to remember that one of the contributory factors that saw Great Britain go from de facto global superpower to 2nd rate player, was an out of control defence budget that even multiple countries can't afford.

 

Interesting point by 1_Robbo but if this is to be some sort of economic "armageddon" then surely gold is fucking worthless if nobody can afford to buy it from you?

 

Personally, I couldn't give a fuck. I don't have and i've never had any money anyway....

[Section_31]

I read the OPs post and I must admit, I got bored halfway through. Not because it wasn't interesting, just because I didn't understand a fucking thing about it.

 

Never have understood money markets/shares/banking, it's too complicated. Maybe thats the problem.

 

Section_31 mentioned the pre-election debate regarding manufacturing industry in this country.

 

I read an article recently that explains how Germany is the 2nd biggest manufacturer and exporter in the world, only just behind China (and I mean only just) yet still has problems with it's balance sheet because it's hampered by the Euro. I can dig out the link if anyones interested and it explains it a lot better than what I can.

 

I remember reading another article many years ago that warned of US national debt becoming much greater than US GDP and that the US economy would collapse under the strain of it's own debt. This was estimated by analysts to be the point where China reached global hegemony between 2012-2014.

 

Americans sometimes have a slender grasp of history and they would do well to remember that one of the contributory factors that saw Great Britain go from de facto global superpower to 2nd rate player, was an out of control defence budget that even multiple countries can't afford.

 

Interesting point by 1_Robbo but if this is to be some sort of economic "armageddon" then surely gold is fucking worthless if nobody can afford to buy it from you?

 

Personally, I couldn't give a fuck. I don't have and i've never had any money anyway....

 

Comment of the year.

 

The Chinese and Americans are in a weire kind of symbiosis at the moment. I read an article about a year ago which said China now ownes so many US Treasury bonds that it could collapse the US economy at ANY time. But that if it did, its economy would also collapse because the number one buyer for all its cheap shite is - you guessed it - the fat US consumer.

 

I started a thread about how fucking stupid Globalisation was but I wonder if there's method (as far as the US ruling class is concerned) in the madness? I wonder if China is being allowed to have its day in the hope the emerging middle class will depose the Communist regime, and that the US is taking the hits in the hope this happens - much the same way it took the hits in the 80s by spending massive amounts of money on nuclear weapons in the hopes of making the Soviet Union implode financially.

[Guest Scaramanga]

Comment of the year.

 

The Chinese and Americans are in a weire kind of symbiosis at the moment. I read an article about a year ago which said China now ownes so many US Treasury bonds that it could collapse the US economy at ANY time. But that if it did, its economy would also collapse because the number one buyer for all its cheap shite is - you guessed it - the fat US consumer.

 

I started a thread about how fucking stupid Globalisation was but I wonder if there's method (as far as the US ruling class is concerned) in the madness? I wonder if China is being allowed to have its day in the hope the emerging middle class will depose the Communist regime, and that the US is taking the hits in the hope this happens - much the same way it took the hits in the 80s by spending massive amounts of money on nuclear weapons in the hopes of making the Soviet Union implode financially.

 

Your comment about the symbiotic nature of the US and Chinese economies (i read a pretty similar story regarding Chinese foreign currency reserves, in respect to the US dollar) is the only thing that makes me slightly sceptical of US foreign policy with respect to their stance with the Soviet Union in the 80's.

 

There was definitely a different attitude towards communist countries in the 80's than there is now. Though maybe thats because there was a very real threat of nuclear destruction back then or maybe there's just too much money changing hands between powerful people?

 

Completely agree regarding globalisation, we are doomed to repeat this series of events with the next third world country with cheap labour ad infinitum unless we change the way we do business.

[dennis tooth]

Thing is people don't realise, they might say I never had any money but as you can see by the banking 'crisis', it doesn't matter they will pile it on you as debt. To keep the rich, rich.

[Byrnie]

Thing is people don't realise, they might say I never had any money but as you can see by the banking 'crisis', it doesn't matter they will pile it on you as debt. To keep the rich, rich.

 

You are spot on. It isn't a crisis for the rich, never has been and never will be. They control the money so they can create situations like this. Banking crisises are only beneficial to certain people. History repeats itself again and again and wll continue to do so.

[cosmo]

I remember reading the black swan by Nassim Nicholas Taleb a few months before the banking crisis and thinking how could i make money through a banking collapse but then just left it. How i regret that decision now.

 

I can recommed his book and website, he makes a lot of sense. Well he does to me anyway.

 

http://www.fooledbyrandomness.com/

[1_robbo]

Gold will continue to rise as the monetary system collapses.

Wealth will return to precious metals as it always has throughout history.

The gold/silver ratio is currently approx 60:1 so gold has 60 times the value of silver.

It should be approx 16:1 as was in the old monetary value when paper fiat money was supposed to be backed by precious metals.

This ratio comes from the fact there are 16 times as much (mineable) silver in the earths crust as there is gold.

In the past you could exchange an ounce of gold for 16 oz of silver.

Therefore right now silver should be 16 times less than gold.

Gold is breaking record highs almost daily and will continue to do so, silver WILL break the suppressed prices soon and is showing signs of doing that now ( rising daily)

Silver is approx $22 p/oz currently, using the correct ratio silver should be over $80.

Physical silver has been dumped onto the market to suppress these prices.

The interesting fact is that there is a worldwide shortage of silver needed for industrial application, whereas 90% of all gold ever mined still exists in some form, most silver has been dumped in landfill in your old Tv's phones etc

Analysts think the gold silver ratio should be much closer than 16:1 due to these facts, meaning Silver has the potential to match gold.

Would you prefer real "money" in the form of silver and gold which will always have real value,or worthless bits of paper.

Look at Zimbabwe in 20 years there currency went from being worth more than the dollar to 1$ being equal to 1 million Zimbabwe dollars thanks to hyper inflation, the now use trillion dollar notes.

You probably think that couldn't happen in the west ?

There is a unique opportunity now to invest worthless paper money into physical precious metals that you won't get in our lifetime again.

I stress Physical metals and NOT gold certificates etc, the banks have already sold off many more times the amount of gold they actually have.

 

And no i am not a crackpot ......

[1_robbo]

[Section_31]

Was reading this before.

 

Fears of Chinese land grab as Beijing's billions buy up resources - Asia, World - The Independent

 

China is pouring another $7bn (£4.4bn) into Brazil's oil industry, reigniting fears of a global "land grab" of natural resources.

 

 

State-owned Sinopec clinched the deal with Spain's Repsol yesterday to buy 40 per cent of its Brazilian business, giving China's largest oil company access to Repsol Brasil's estimated reserves of 1.2 billion barrels of oil and gas. The whopping price tag for Repsol Brasil – which values the company at nearly twice previous estimates – is a sign of China's willingness to pay whatever it takes to lock in its future energy supplies and avoid social unrest. It will give the company enough cash to develop all its current oil projects, including two fields in the Santos Basin.

 

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The Repsol deal is not China's first in Brazil. In February last year, Sinopec stumped up a $10bn loan to Petrobras, the state-owned oil company, in return for guaranteed supplies of 10,000 barrels of oil every day for the next 10 years.

 

It also follows a slew of similar deals across the world. While much of the developed world is baulking at its debts in the aftermath of the financial crisis, China has continued a global spending spree of unprecedented proportions, snapping up everything from oil and gas reserves to mining concessions to agricultural land, with vast reserves of US dollars.

 

This year alone, Chinese companies have laid out billions of dollars buying up stakes in Canada's oil sands, a Guinean iron ore mine, oil fields in Angola and Uganda, an Argentinian oil company and a major Australian coal-bed methane gas company.

 

"China is rich in people but short of resources, and it wants to have stable supplies of its own rather than having to buy on the open market," Jonathan Fenby, China expert and director of research group Trusted Resources, said.

 

But it is a strategy causing anxiety elsewhere in the world. Rumours in recent weeks that China's Sinochem may make a bid for Canada's Potash Corporation raised fears that the Middle Kingdom would corner the global market for fertiliser.

 

Similarly, when BP's share price plummeted after Barack Obama's criticisms in the wake of the Gulf of Mexico oil spill, there was concern that the company would be driven into the hands of the Chinese.

 

More explicitly still, when the aluminium giant Chinalco was trying to buy Anglo-Australian Rio Tinto last year, television ads protesting against the scheme from no less than the Senate opposition leader bellowed "Keep Australia Australian".

 

"Chinese acquisitions are increasingly on the political radar," said Robin Geffen, the chief executive of Neptune Investment Management, which runs a leading China investment fund. "The pinch points come when people feel that supplies affecting national security could be threatened by China buying them all up."

 

Contrary to the conspiracy theories, China is not looking for world domination. It has seen economic growth averaging a massive 10 per cent for the best part of three decades, and although it is expected to drop into the high single-digits in the coming years – in response to a dip in export demand – the natural resources required to support even slightly moderated growth are an overwhelming priority.

 

China is already the second-largest oil consumer in the world and far outstrips its domestic supplies. Neptune estimates that it will need to buy two companies the size of BP each year for the next 12 years to meet its growing domestic energy demand. Demand for electricity alone is growing each year equivalent to Britain's entire output.

 

"These are massive, massive numbers," Mr Geffen said. "The deal with Repsol today, and all the others we have seen in recent years, are wholly strategic, to nail down what they estimate future demand will be."

 

But, despite the concerns that China is cornering the market and will push up prices, the developed world also has a vested interest in China pursuing a successful strategy.

 

Notwithstanding qualms about a change in the global balance of power, China's continued economic growth has been vital to hauling the world out of recession – and will continue to do so for the foreseeable future. The threat from political instability if Chinese growth stalls has similarly global implications. "The whole world needs China to have these resources to help pull us out of recession and avoid local unrest," said Ian Sperling-Tyler, a partner and oil and gas expert at the consultancy Deloitte.

 

But concerns remain about China's involvement in politically difficult countries, particularly in Africa. China is not squeamish about the politics of its business partners. It follows a simple formula, offering premium prices and massive infrastructure investments in return for long-term concessions for key resources. There are several well-documented deals on the continent – including a recent $2.5bn tie-up with Britain's Tullow Oil in Uganda and off-shore production in Angola and Nigeria. And the positive impact is evident in spanking new infrastructure including hospitals, ports, and road and rail links being built with the influx of Chinese money.

 

But China is also involved in some of Africa's more controversial countries. It came in for widespread criticism in 2008 for arms sales to war-torn Sudan, a major trade partner, and its alleged refusal to help resolve the humanitarian crisis in Darfur. It has also been accused of paying multimillion-dollar backhanders in return for African leaders repudiating Taiwan at the UN, although nothing has ever been proved. And because the majority of the deals are done on a government-to-government basis, there is no way to be clear on the extent of the relationships.

 

Michael Klare: This expansion has not gone unnoticed in Washington - Commentators, Opinion - The Independent

 

There's a battle going on over the future of US policy and strategy. For now the focus is on terrorism and Afghanistan. But when that winds down, all eyes will be on China and its rush for resources.

 

 

President Obama sees the risk. He talked with China's President, Hu Jintao, about co-operating in developing renewable energy. But the pressure to procure resources is greater than the incentives to develop renewables. The US military is divided on the issue. The Army and the Marines see terrorism as the greatest threat, but the Navy believes China's growing resource dependency on Africa and the Middle East explains its naval build-up and that the US must expand its own navy.

 

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China is not intending to be a threat. It needs a vast amount of resources to maintain its economic growth – it will need twice as much oil by 2030 as it does now. Most of it is imported and it will need to come from the same places that the US gets its oil from. That will be seen as an economic threat – and a military one in some eyes.

 

The US and China will be the major players. In the past few weeks, military exercises have been conducted under the rubric of the Shanghai Co-operation Organisation, Peace Mission 2010. This is an attempt by China to exert its strategic power in central Asia and the China Sea region.

 

China and Japan have been in dispute over a couple of islands in the past two weeks. The islands are of no use, but the area contains a lot of offshore oil and gas. In the western hemisphere, China is relying largely on market forces and is not following up with its military. China is very aware that Brazil is America's backyard.

 

In Africa it's another story. China's quest to control resources is often followed up with military ties. This poses a challenge to the US, which has responded by stepping up its own military presence. Africom (the US African Command) was established in 2007, and though its head does not say so, people in Washington say it is a response to China.

 

What is different today is that the scale of demand for resources is greater than ever, thanks to the spread of industrialisation to much larger parts of the world. Supply is not growing fast enough to meet the demands.

 

Michael Klare is professor of peace and world security studies and the author of 'Rising Powers, Shrinking Planet'

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Double post.