Economics, Politics, and the revenge of B.A. Baracus and Run DMC

Fresh off Peter Schiff's appearance on the Daily Show and WSJ reporting his potential Senate run, it seems that other politicians are slowly coming around to warning about our country's economic woes in similar fashon. Consider Mark Kirk of Illinois in a Fox News interview, fresh off a trip with leaders in China:

KIRK: There was an honesty moment when Secretary Geithner was in Beijing University giving a speech. He said, Your investments in a trillion dollars worth of U.S. debt are secure, and the audience laughed at him. It's very un-Chinese to do, to embarrass a speaker in public, but I think it reflected a growing concern in Beijing.

VAN SUSTEREN: And I guess we should point out the reason why they're concerned, the Chinese, why they care so much, is because they hold all -- a significant portion of our debt.

KIRK: Right. China has leant about $300 billion to the U.S. for Fannie Mae and Freddie Mac -- they're very worried about that -- another $700 billion in Treasury bills. And they're particularly worried about the Fed's new policy of buying Treasury debt because they're worried that one part of the federal government is buying another part of the federal government's debt. Sounds like printing money, and that means that if you hold dollar-denominated debt, all those investments will be worth less because you'll be repaid in printed dollars.

The most revealing statement by Kirk, however, is this:

Well, they already are beginning to hedge. I think they expect quite a bit of inflation in the United States next year. So they made a major investment. They funded a second strategic petroleum reserve, and they plan to buy $80 billion worth of gold. That's two Fort Knoxes. Both of those investments only make sense if you expect significant dollar inflation.

Two Fort Knoxes worth of gold. Either China is crazy, or crazy smart. By my calculation, $80 billion dollars of gold (at today's spot price) equals 83.6 million troy ounces of gold. That equals over 2,600 tonnes, which is more than a full year's worth of global gold production. If they follow through with such a purchase, it will have an incredible impact on global supply and demand. I wish I could time travel back to middle school and make the investment argument to my parents when pleading(with no success) for a spectacular gold rope chain back in the day. Any bets on how long before Chinese President Hu Jintao is rocking a dookie rope?