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Gold To Be Remonetized

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Interesting interview with John Butler over the future and eventual re-monetization of Gold. Butler claims there is a massive financial earthquake to come with paper currencies are repudiated. 2008 was only a fore-shock.

The German Bundesbank under the Constitution can go to court if it feels the German currency (i.e euro) is under threat from the ECB. In that case the markets would immediately react negatively and the “shit would hit the fan”. In other words, the future of the euro may well be in the German Bundesbank’s hands.

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Bundesbank’s Report To German Court Could Torpedo Draghi’s OMT

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Draghi’s great plan to buy bonds of struggling eurozone countries through Outright Monetary Transactions (OMT) has taken a massive knock. A report issued by the Bundesbank on friday, to the German court which has yet to give its consent to OMT,  is damning to say the least.  The following line from the report says it best “It is not the duty of the ECB to rescue states in crisis”.

The hardline central bank – known as the temple of monetary orthodoxy – told Germany’s top court that the ECB’s pledge to shore up Italian and Spanish debt entails huge risks and violates fundamental principles. “It is not the duty of the ECB to rescue states in crisis,” it wrote in a 29-page document leaked to Handelsblatt.

  The Bundesbank unleashed a point by point assault on every claim made by ECB chief Mario Draghi to justify emergency rescue policies – or Outright Monetary Transactions (OMT) – unveiled last summer to stop Spain’s debt crisis spiralling out of control.

The Draghi plan mobilized the ECB as lender of last resort and led to a spectacular fall in borrowing costs across the EMU periphery, buying nine months of financial calm. The credibility of the pledge rests entirely on German consent. Analysts say the crisis could erupt again at any moment if that is called into question.

“The report borders on economic warfare,” said Harvinder Sian from RBS. “We think there is going to be fear and dread in the market that the court will reject OMT.”

The document said OMT entails the purchase of “bad bonds”, violates ECB independence and entails a high risk of heavy losses in the “not unlikely” event that debtor states are forced out of EMU.

 

It said Greek debacle had shown that conditions cannot be enforced, and, in any case, is “very questionable” whether it is desirable to drive down the borrowing costs of profligate states.

To cap it all, the Bundesbank said the ECB has no mandate to uphold the “current composition of monetary union”. Its task is to uphold price stability and let the chips fall where they may.

While the Bundesbank’s president, Jens Weidmann, has openly criticised the Draghi plan before, the aggressive language in the report shocked economists. The document was submitted in December but was not revealed until Friday.

Germany’s constitutional court will rule on the legality of the bond rescue plan on June 12. It gave a provisional go-ahead last September for other parts of the EMU rescue machinery, but limited Germany’s bail-out share to €190bn (£160bn). Crucially, it warned that the Bundestag may not alienate its tax and spending powers to any supra-national body or be exposed to “unlimited” liabilities.

“If the court rules against OMT, it means the end of the euro. The stakes are so high that I don’t see how they could just pull the trigger,” said Mats Persson from Open Europe.

He said the Draghi plan is a legal hot potato because it is, by definition, unlimited. “The previous rulings by the court have all been predicated on this point.”

German historian Michael Stürmer said the tough report is a bid by the Bundesbank to “reassert its primacy”. “They have told the ECB in no uncertain terms that it is exceeding its mandate. Angela Merkel may be smiling because this helps her set limits in Europe.”

Prof Sturmer said the forthcoming ruling – wider than just the Draghi plan – is “much more serious” than last September’s judgment, limited to an injunction brought by eurosceptic groups. “This is about issues of sovereignty. I don’t think the Court will dare to issue a ruling before the elections in September. They will procrastinate,” he said.

The court has some jurisdiction over ECB policy because it intrudes on the German Grundgesetz, or Basic Law. “Once the ECB starts bailing out states it is moving into dangerous waters,” he said.

The court made a glancing reference to OMT in September, stating that ECB bond purchases “aimed at financing the members budgets is prohibited, as it would circumvent the ban on monetary financing”.

The bond markets ignored the leaked report on Friday, confident that the court will once again find some formula to avert a crisis. It could cite a clause in the Lisbon Treaty stating that the ECB has a duty to “support the general economic policies in the Union”, which would include saving the euro.

“They might refer the case to the European Court but that would leave the Sword of Damocles hanging over the market for another two years,” said David Marsh, author of books on the Bundesbank and EMU. “I think use of OMT is practically impossible until this is resolved.”

Sovereign bond strategist Nicholas Spiro said markets are “sick and tired” of the eurozone debt crisis and have stopped paying attention to the detail. “There is this ravenous hunt for yield and they think there is all this money coming from Japan. But it has long been unclear whether OMT is real or just a myth, and the eurozone’s underlying economic crisis is still getting worse. The window of opportunity created by Draghi has been wasted.

“If the court sides with the Bundesbank in any way the whole house of cards could come crashing down.”

Source: The Telegraph

NY Fed Does Not Have Germany’s Gold

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According to the Bundesbank press release 16th Jan 2013, the Bundesbank is planning a phased relocation of 300 tonnes of gold from New York to Frankfurt as well as an additional 374 tonnes from Paris to Frankfurt by 2020. James Turk asks why take 7 years for Germany to get its gold back from New York when it should be able to get it back in 7 weeks, unless it was never there.

The Bundesbank made another suspicious statement when it claimed that it would leave its remaining gold reserves in New York untouched because it is a major trading centre, but this clearly in not true. Most of the trading is done through London and Zürich.

Today James Turk told King World News that the German gold is being held hostage by the Fed.  Turk also believes that one portion of the Bundesbank’s press release was particularly misleading.  Turk reveals the reality of what is taking place with Germany’s gold, and it’s not what the mainstream media and the Bundesbank are telling people.

 Here is what Turk had to say in this extraordinary interview:  “It’s quite clear that the German gold is being held hostage.  They are not getting what they want.  They are getting what the Federal Reserve is telling them they can have.  The fact that they are doing it over 7 years rather than 7 weeks, is just an indication that gold probably isn’t in the Federal Reserve, and the Federal Reserve doesn’t want to have to go out and buy it overnight to fulfill the German demand.  They are trying to stretch it out as long as possible in order to keep gold prices controlled.”

“I mean you can do 5 tons at a time on an airplane shipment.  A few hundred shipments and you can have that (1,536 tons of) gold back (in Germany) in a matter of weeks.  The only possible conclusion you can make is the gold isn’t there. 

You can do what France did back in the 1960s….

“You send over a couple of ships and bring the gold back to your country that way. 

When Charles de Gaulle asked for his gold out of the Federal Reserve, it didn’t take 7 years.  He got it right away.  But back then the gold was in the Federal Reserve because it wasn’t going out in the leasing and lending program that governments have been using in recent years in order to keep the gold price suppressed.

Recently, the Audit Committee of the Bundestag (their parliament),  has been requesting that the Bundesbank actually audit the gold because it has never been audited, and presumably is never going to be audited.  So the Bundesbank is in a tough spot.  The gold is not there, but they have the pressure to audit it and bring it back home. 

The fact that they (Fed) are not sending the gold back right away, to me is just a clear sign the German gold is being held hostage.  It’s potentially a powder keg here in terms of how the gold market is positioned at the moment because there is so much paper (claims on gold) out there, relative to so little physical, that a lot of paper gold is going to be defaulted upon.

 It will be interesting to see whether this leads to other central banks also asking for their physical gold.  And more importantly, since there are so many paper (claims on gold) in the various gold ETFs around the world, it will be interesting to see whether the institutional investors are starting to recognize what the central banks are doing, and take some of that GLD and all of the other ETF paper and start saying, ‘Look, I don’t want shares, I actually want ounces.  Deliver me the physical metal.’

There is another point here, Eric, that needs to be considered.  The Bundesbank made this announcement, but I think they were just trying to put it out in the best possible light.  I believe they were trying to stretch for reasons in order to explain why they are still leaving physical gold in New York.

They said, for example, that New York is a trading center for physical gold.  That’s not true.  It’s not been a trading center for physical gold ever since 1933, when the gold was confiscated by Roosevelt and all of the physical gold trading went to Europe.

That’s why in the physical market you talk about London or Zurich.  You never talk about New York because there is no physical gold trading in New York.  It’s just a bogus excuse you see in this announcement.  It’s just more evidence to me the gold isn’t there.  It’s been taken out of the vault and used surreptitiously in order to try to cap the gold price.”

Source: King World News

German Growth Rate For 2013 Drops Massively

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The Bundesbank massively cut its growth forecasts for 2013 for the German economy from previous estimate of 1.6% down to 0.4%. Such a huge drop in growth forecast shows even the mighty German economy which has benefited from a weak euro is now feeling the pressure. Its the last thing Merkel needs as she faces an election next year with a weakened economy and a growing bill for bailing out the rest of Europe. Couple that with the TARGET2 imbalance and a strong possibility of Italy or Spain needing a bailout, she could be facing an angry electorate.

germanThe German economy could slam into reverse this winter as the crisis in the eurozone intensifies, the country’s central bank warned yesterday.

The Bundesbank slashed its growth forecasts in an abrupt reversal for Europe’s powerhouse economy. It now expects Germany to grow by 0.7 per cent this year and just 0.4 per cent next year.

It was previously expecting growth of 1 per cent in 2012 and 1.6 per cent in 2013.

But the Bundesbank added that there was a risk of recession – defined as two quarters of contraction in a row – this winter. ‘There are indications that economic activity may fall in the final quarter of 2012 and the first quarter of 2013,’ it said. Germany has been the key driver of an otherwise moribund eurozone.

Experts warned the country’s slump is ‘a big reality check’ and casts doubt over the future of the single currency. Any setback in the eurozone, Britain’s major trading partner, raises the risk of a new recession here. The Bundesbank blamed the crisis crippling the eurozone for the downturn amid signs that German patience with struggling economies such as Greece and Spain is wearing thin. ‘Germany cannot prosper alone,’ it said. ‘It has a particular interest in the welfare of its partners.’

The gloomy analysis came a day after the European Central Bank warned that the 17-nation eurozone will remain mired in recession until late next year. ECB president Mario Draghi said a ‘gradual recovery’ will not start until ‘later in 2013’ as the region lurches from one crisis to the next. The eurozone sank back into recession over the summer as the malaise in peripheral states spread to Germany and France.

The German government put on a brave face in response to the Bundesbank forecast. A spokesman for Chancellor Angela Merkel said: ‘The government is cautiously optimistic that we’ll keep growing.’

Source: Daily Mail

 

 

Is Spanish Bank Run Panicking ECB Into Bond Buying Scheme?

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It will come as no surprise that in light of Spain’s woes, capital has been leaving Spanish banks in droves. In July 5% of the country’s entire asset base (€74 billion) left the country. That’s over 17% in just over a year. The most likely place for those banks to come up with the cash has been selling sovereign bonds. The question remains has this prompted Draghi in recent weeks to make comments about doing “what it takes”.

A need to raise cash to meet those withdrawals may have prompted the recent bond sales, as other assets owned by banks – mainly loans and mortgages – are far less liquid. Spanish bank bond holdings are dominated by Spanish government debt, but also include those of other countries.

So where does this leave Mario Draghi? While Spanish banks are selling SPGBs, Spain has 8 bonds auctions planned in the next 6 weeks. Draghi is under serious pressure to get aggreement on a sovereign bond buying scheme. 

…..while Mario Draghi is furiously trying to come up with a bond buying plan that is endorsed by Germany, Buba and Weidmann, all of whom have, to date, said, “9-9-9”, regardless of what the final construct is, whether it includes the ECM, EFSF, and/or ECB buying bonds directly, the key distinction is that no monetary authority can buy bonds in the primary market, as that is a direct breach of Article 123/125, and absent a thorough revision of the Maastricht Treaty, investors will dump as soon as the ECB starts breaking the rules unilaterally. Certainly bonds can be monetized in the secondary market, but someone has to buy them from the government. And if Spanish banks are unable to stem the deposit outflow, there is simply no practical possibility for banks to be buying SPGBs in the primary market even as they are forced to dump them in the secondary market.

In other words, the ECB may or may not surprise next week, but unless the Spanish public is convinced its banks are safe, and the remaining EUR1.5 trillion in Spanish deposits do not explicitly remain within the Spanish bank system, anything Draghi does will be for nothing.

As for next year, the requirement to sell even more SPGBs increases by 40% on this year while competing with Spanish banks dumping bonds. The monster continues to grow. We already know from Mark Grant that Spain’s real debt/GDP figure is closer to 134%.

All in all, the total amount of gross bond issuance from Spain in 2013 could be in excess of EUR 120bn. That is around 40% higher than this year, 10-20% higher than in 2009 and almost four times larger than the average amount of Spanish bond issuance recorded in the previous four years.

 As far as another LTRO, its unlikey to suceed as Spain is fresh out of collateral.

…and the inevitable LTRO X, which the ECB will have to do in order to provide additional funding to Spain, which unlike before, however, will no longer work as Spain and the rest of Europe, are out of eligible collateral, meaning the ECB will have to get the Buba to agree to even more last minute rule changes to keep Spain “solvent.”

So, the pressure is on Draghi to push through with his Bond Purchase Plan. In fact it has been reported that he has number of options but rushing it through by giving only 24 hours to digest it before debating a solution. Serious pressure!

Sept. 1 (Bloomberg) — The euro area’s 17 national central bank governors will have about 24 hours to digest European Central Bank President Mario Draghi’s bond-buying proposal before they start debating it, three officials said.

The ECB’s Executive Board will send a list of options for the bond-buying program to the governors on Sept. 4, a day before the Governing Council convenes in Frankfurt, the central bank officials said yesterday on condition of anonymity because the plans aren’t public. The meeting concludes on Sept. 6, after which Draghi holds his regular press conference. No single policy option has emerged as preeminent, the officials said. An ECB spokesman declined to comment.

The lack of a clear preference, the complexity of the issue and the shortage of time increase the risk that Draghi won’t present a detailed plan next week, according to economists at Commerzbank AG and JPMorgan Chase & Co. The ECB may choose to hold back some details of the plan until the German Constitutional Court rules on the legality of Europe’s permanent bailout fund on Sept. 12, two of the officials said.

The battle between Draghi and Weidmann of Buba is a serious roadblock for the ECB’s plans. Another resignation from the Bundesbank would apply pressure to Merkel and with elections coming up next year and an ever ailing economy, Merkel and Germany has little room for manoeuver for backing the ECB’s Bond Purchasing Scheme. Best of luck Draghi 😉 

Mr Weidmann, the only ECB council member opposed to ECB president Mario Draghi‘s plan to buy bonds in some shape or form, has decided to remain in his post to defend his position at next week’s policy meeting, ‘Bild’ reported. The second resignation of a Bundesbank boss in as many years would send shockwaves through the markets and make it much more difficult for Chancellor Angela Merkel to soften her stance towards bailouts for countries such as Ireland.

Her room for manoeuvre ahead of next year’s general election is already shrinking as the German economy rapidly slows down. The Bundesbank has repeatedly made clear that it has deep misgivings about the ECB’s determination to press ahead with such a scheme.

Mr Weidmann’s predecessor as Bundesbank chief, Axel Weber, quit last year in protest at the ECB’s previous, now-dormant bond-buy plan. Juergen Stark, a former ECB chief economist, followed him out of the door. Earlier this week, Mr Weidmann told ‘Der Spiegel‘ magazine that bond-buying can become “addictive”, like a drug.

He added: “I hardly believe that I am the only one to get stomachache over this.”

 
Source: Zero Hedge, San Francisco Chronicle, Irish Independent

Rift Grows Between ECB and Bundesbank

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Super Mario looked quite smug with himself  after pumping over €500 billion of cheap money into eurozone banks through LTRO2, but not everyone is happy with him. The ECB balance sheet has swelled lately but not with quality collateral. In fact the Bundesbank is growing very concerned that Draghi is increasingly accepting low grade collateral and this is no way fixing the crisis, just pushing it further down the tracks. Super Mario basked in his own glory at the G-20 meeting in Mexico and boasted “The euro is now a safer place than it was at the time of the last G-20 summit in Cannes,” he said.

Only two days before Draghi made his G-20 presentation, Jens Weidmann, president of Germany’s central bank, the Bundesbank, spoke at the Mexico summit, and he had an entirely different message for his listeners. “The crisis cannot be resolved solely by throwing money at it,” he said.

There is a rift among top-ranking officials at the ECB, and it also extends between the majority of the ECB’s Governing Council and the Bundesbank. First, two leading German ECB officials — chief economist Jürgen Stark and Bundesbank President Axel Weber — resigned because the monetary authority was buying up sovereign bonds from Greece and Portugal. Then Weber’s successor Weidmann objected to the ECB’s purchase of government bonds from heavily indebted Italy.

Idea is good, but conditions are very generous

Now, Weidmann is rebelling against the manner in which Draghi is giving European banks one new cash injection after another. Although Weidmann admits that the measures are basically correct, their conditions are “very generous,” he complains — and expresses his total opposition to this policy in the jargon of the central bankers: “This can particularly become a problem if banks are discouraged from taking action to restructure their balance sheets and strengthen their capital base.”

……

Last week, the conflict escalated to a new level. Weidmann complained in a letter to ECB President Draghi that the central bank was accepting increasingly lower-grade collateral in exchange for its cash injections. This poses a danger, he warned, as the central banks in the north of the euro zone are owed ever growing amounts of money by their counterparts in the south. If the euro zone broke apart, the Bundesbank would be left holding a good deal of its bad debt from so-called TARGET2 loans, which currently amount to some €500 billion ($660 billion), he warned.

Bundesbank now concerned eurozone may break up.

TARGET2 refers to the central banks’ internal payment system, which has accumulated massive imbalances during the course of the euro crisis. These inequalities aren’t problematic as long as the monetary union remains intact. So far, the Bundesbank has always played down this risk. But Weidmann’s about-face is a “disastrous signal,” say ECB executives because, for the first time ever, the Bundesbank “is no longer ruling out a break-up of the euro zone.”

With low interest rate loans and inflation kicking in the ECB along with the FED are hoping that people will spend money rather than saving. This would help the economy to recover. Why deal with the problem of debt when you can spend your way into the next bubble and worry later 😉

now that statisticians are registering the first signs of inflation. In February, the inflation rate in the euro zone didn’t decline, as expected, but instead rose by 2.7 percent, primarily due to the rising price of gasoline. Furthermore, on other markets where investors like to speculate with cheap money from the central bank, prices are currently rising — in the German real estate sector, for example.

……

There’s simply too much money around. Indeed, all concerns are pushed aside on the stock and commodity markets and investors are buying like mad. Ever since the announcement of Draghi’s cash injections, the German stock index, the DAX, has risen by 20 percent — and prices for copper, aluminum and zinc have also increased sharply. The price of oil has jumped by 15 percent and a fine ounce of gold costs roughly 10 percent more than it did two months ago.

If additional cheap loans of this type are granted to banks, “there’s a big danger that new bubbles will form on the commodity markets,” says Eugen Weinberg, a commodity analyst at Commerzbank. He says the recent stock market rally is already “alarming.”

Source: Speigel

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