Now, Jim Rogers has said this many times and I agree with him: economic leadership is shifting once more and the next 100 years will see Asia taking over the reigns of global economic leadership and he expects China to take the lead.

This is why I have also shared my views with friends that my favourite currencies, apart from gold, are the RMB and the Indonesian Rupiah. I’ve a bit of all three and intend to accumulate more gold. The RMB and the Rupiah are fiat currencies like the US$ but they have not been abused and are not as flawed. The RMB is backed by enormous reserves and the Rupiah is the currency of a country with abundant natural resources which the world demands. Untouched by CDOs, these countries’ banks were unscathed.

The Chinese economy is large and dynamic. However, it has to undergo a huge behavioral and structural transformation for the Chinese to consume more and to rely less on exports. Why do I say this? Let us look at Indonesia. It has a population of 240 million, a far cry from China’s 1.6 billion, and private consumption forms 60% of its GDP. In China, private consumption forms only 36% of its GDP.

Many might or might not know this but “China’s consumption-to-GDP ratio has dropped by nearly 15 percentage points since 1990 and continues to deteriorate in the aftermath of the financial crisis. The sources of China’s low consumption rate are both behavioral and structural.” This was in a recent report by McKinsey.

Asia might be the future economic powerhouse of the world and China might become the leader but the journey has only begun. The transformation will take time.

The Federal reserve is doing this in order to keep interest rates from rising. While this is a admirable position to take. The manner to which they are keeping interest rates low is just a ticking time bomb. Sooner or later the interest rates will rise and when they do, look out! I believe it is very possible we may return to the hyper inflation of the 1980’s. I truly hope that I am wrong on this point. High inflation will have a very stagnating effect on the economy as a whole. Companies will not borrow to expand and thus another leg down for the economy is very possible.

Another effect of the government buying its own debt is the implications on the dollar. What the federal reserve has essentially done is to print more money. Trillions of it. Well if there are more dollars floating around, each singular one becomes worth less. The price of gold is already reflecting this by making new highs above $1000 on a regular basis. The price if crude oil will also rise since our dollar is worth less.

So far there has been cooperation of the current dollar policy by foreign central banks in China and the Middle East. The question will become whether they will continue to support this policy down the road. At the current time, foreign buyers purchase a large portion of our debt. In the neighborhood of 40-50%. If they decide to change their bond purchasing policy, it will have a deleterious effect on interest rates.