No Rare Earths for You, USA!

Tue, Jan 25, 2011 - 9:14am

Hey USA, China say if you continue to print more US Dollars, there’s no soup, err Rare Earths for You!!!!!

As Chinese President Hu Jintao visits the US this week, and the Wall St Journal just released an Op-Ed about how US politicians should attack him for China’s recent restrictions on REE exports leaving China, it’s important for investors to understand where REEs fit into the global macroeconomic picture and how China is holding all of the cards and how it is wielding its current monopoly on Rare Earths.

Many of you are already aware just how unhealthy the US/China trade relationship is, but this article will try to show where REEs fit into that entire puzzle. Hint: They are more important than the majority thinks, especially as larger scale wind and solar farms are being planned by China and other countries.

Currently, it is my belief that REEs are being used as a political retaliation tool by China as the US continues to intentionally print far too many US Dollars for China’s liking.

It is unstated US Treasury and Federal Reserve policy to intentionally print an excessive amount of US Dollars to try and force China to take off its Dollar Peg. This is resulting in excessive inflation in China as they import the inflation from our money printing due to their Dollar Peg. I have heard that inflation is already over 20% there!

Political and economic leaders in the federal government believe that if China revalues its currency rapidly, it will bring key manufacturing jobs back to the US quickly. This is a dangerous card for the US to be playing as China is our chief creditor and the largest holder of US debt by any foreigner. The US continuing to print money is a very dangerous gamble that they won’t eventually create hyperinflation and that they won’t anger the Chinese to a point where the Chinese refuse to buy any of our US Treasury debt going forward. The Chinese cutting back even a little bit of buying US debt puts the country one step closer to trouble.

I am of the opinion that to counter the money printing, China is trying to send a clear message to Washington that they will hurt some of the US’ best and most profitable companies like Apple, Boeing, GE and others that rely on a steady REE supply.

The Chinese have already used REEs as a political weapon against Japan for retaliation for the “fishing boat incident” back in October.

That unexpected counter by the Chinese has literally sent Japanese conglomerates scrambling all over the globe to countries like Vietnam, India, Brazil, Mongolia and remote parts of Canada in just the last few months to try and secure a safe and reliable REE supplies from outside China. Big money investments and offtake deals with Molycorp and Lynas have already happened.

The question is, why haven’t US companies like the ones I already mentioned along with others followed the prudent steps these Japanese corporations have made to protect themselves from an over-dependence on cheap Chinese supply as they have been getting from China for over 15 years?

I think US REE policy will (again) be incredibly mishandled if we try and strong arm the Chinese into backing off their export quotas. We need to do what many experts on this sector, including the DOE in its recently released Critical Metals Strategy report, states and quickly develop a domestic REE supply here in the US to protect our profitable corporations higher up the value chain that plan on increasing their REE usage as more and more innovations are found in the lab to grow the industry.

I wouldn’t blame the Chinese for completely cutting off the US from any REE supply and more and more evidence is appearing that this could be likely in the not too distant future as the Chinese need all of their own production for many different uses inside China. They still control the industry and it’s not the Chinese fault that US corporations are not being prudent and acting quickly to secure safe supply from outside China.

About the Author

Private Investor, Co-Founder of Wall St for Main St, LLC
wallstformainst [at] gmail [dot] com ()