June 28, 2014
December 25, 2012
We finished December with a large takedown of both gold and silver by the central banks cartel but already the COMEX is showing signs of strain in coping with demand in silver. Banks with short positions (used to suppress the price) are unlikely to be covered in 2013 and so there is likely to be a failure on the COMEX.
Matterhorn Asset Management’s Lars Schall has released an excellent interview with GoldMoney’s Alasdair Macleod, discussing the latest take-down of the metals post QE4, the outlook for gold and silver, and cartel manipulation of the metals.
Macleod states that massive amounts of physical gold and silver have been flowing to Asia, and that the latest bank participation report indicates massive problems are brewing for the banksters in the COMEX silver market. With cartel shorts near a record at just under 300 million net ounces, yet with the silver price substantially lower than the 2011 high, Macleod believes that we are quite likely to have a failure on COMEX and in the silver market in particular.
Regarding the latest bank participation report, Macleod states that commercial shorts are at record highs, yet NO SILVER IS AVAILABLE!:
“Bank shorts are at or near record levels. And what is interesting is that with the prices of gold and silver well below the all-time highs there are no profit-takers in the market to sell contracts to close their shorts. And in silver it is very, very alarming. This leads me to think that we are quite likely to have a failure on COMEX and in the silver market in particular.
If you have a failure in silver on COMEX then that is going to affect the gold futures market as well. The West’s central and commercial banks have suppressed the price of both gold and silver by supplying central-bank gold and increased short positions, making prices far too cheap. The result has been a massive transfer of gold and silver to Asia. This is the relevance of the point that you have been raising about Central Banks gold holdings, and it is also going to bring into question the solvency of the bullion banks who are short.
So, I think that while it may not be obvious to many people at the moment, when we look back at the fourth quarter we will see that the conditions were in place for a huge bear squeeze, for silver in particular. I would assume that the short position in gold is more controllable so long as Western Central Banks continue to make bullion available to the bullion banks that are short either on COMEX or with LBMA. But silver is different, nobody has it for sale. There is no silver around.”
Macleod goes on to state that gold will be remonetized, and the process is already well underway:
“I suspect that the Chinese Yuan will play a big role in Asia. What they’re doing with Iran is interesting. They’re settling net balances in gold and gold is being re-monetized in that sense. And I think that China has accumulated a lot more gold than they officially tell us. So they have the potential to use gold as money. I can see gold being re-monetized in the loosest sense for the largest internal market the world has ever seen. Believe me, it’s happening now.”
Macleod also states that the upcoming physical silver crisis at the COMEX will result in a suspension of silver trading at the COMEX, and a reset massively upwards in the price of silver:
“You’ve got the banks’ short position on COMEX which cannot be covered. According to the most recent bank participation reports, the banks are short of nearly 300 million ounces of silver. When you bear in mind this is an industrial metal, the vast bulk of silver consumption from mining and recycling supply goes into biocides, solar panels, electronics, et cetera. You have only 100 million ounces annually left over for investors. The short position for the banks on COMEX is three times that 100 million ounces.
There’s no way this can be covered without a price rise sufficient to kill off significant industrial demand, because there are no strategic reserves to draw on. The only country which might have strategic reserves is China but otherwise there are no reserves. And I think that the only way in which the banks’ shorts could be closed out is after a price hike which would lead to billions of dollars of losses for these banks. There will be a market crisis, and I think that they will have to suspend trading in silver and agree a settlement procedure for long and short contracts. And if that happens, it will be well over $50 an ounce. But remember, other exchanges will continue to price silver if Comex suspends, which will not help Comex resolve the problem if the price continues to rise elsewhere.”
On another question, Macleod was asked about Yuan as the next reserve currency being backed by gold :
“We must also understand that the dollar is for security reasons not something they want to use for their international trade settlements. Remember that every dollar transaction done in the world is reflected in a bank account in New York. So, the Chinese want to get away from the potential control and the intelligence information that it gives America. They want to use a different settlement medium.
Now, they agreed about 10 years ago with the Russians to set up the Shanghai Cooperation Organisation (SCO), and the last unsatisfied objective of the SCO is to have a common trade settlement system between the members of the SCO, which at the moment are Russia, China, and the various “stans” in middle-Asia. But interestingly, the next wave of members who will join are India, Iran, Pakistan, Mongolia and Afghanistan (as soon as NATO has left). So you’ve really got the bulk of Asia’s four billion people and they’re going to be settling cross-border trade not with the dollar but with something else. They need to be gold-rich to give confidence to their currencies. I suspect that the Chinese Yuan will play a big role in Asia. What they’re doing with Iran is interesting. They’re settling net balances in gold and gold is being re-monetized in that sense. And I think that China has accumulated a lot more gold than they officially tell us. So they have the potential to use gold as money. I can see gold being re-monetized in the loosest sense for the largest internal market the world has ever seen. Believe me, it’s happening now.”
October 26, 2012
Fresh from the story this week that the German Courts have order a stock take of the gold reserves, more stories are arriving that in fact Germany’s overseas gold reserves are not there. On the latest Kesier Report, Max and Stacy discuss (9:15min) a report from GATA that German gold in London was sold at the USA’s request and in exchange, Germany took title to gold stored in vaults in the USA (having title to gold is not the same as physically owning the stuff). This allowed the Bundesbank to technically claim ownership of the gold although vulnerable to rehypotication.
James Turk further backed this up in an interview with King World News saying:
“The entire German gold hoard was gone because it had been leased into the marketplace. Meaning, the vaults holding German gold were emptied by 2001 because of the Bundesbank leasing activities.”
“Half of the gold they (the Germans) leased themselves. The other half of Germany’s gold hoard was eventually leased into the market as well through complicated swaps with the US. But the reality is that as of 2001, all of that German gold was gone. Meaning all German gold worldwide, which was supposed to be stored in vaults, the vaults were emptied of German gold and the gold was leased into the market.”
“It’s uncertain if any of that leased gold has ever been returned to those vaults. Meaning, the vaults which are supposed to be storing the German gold hoard may still be empty.”
Originally 11 years ago Turk wrote of the missing German gold in an article called “Behind Closed Doors”. Under normal circumstances the FOMC censors its minutes but on one occasion it failed to do so properly, enabling Turk to gleam some interesting information into the Fed’s activities.
James Turk 2001 – This past December in “The Smoking Gun” I provided substantive proof that the Exchange Stabilization Fund was intervening in the gold market. From publicly available reports prepared by the Federal Reserve, I established that the weight of gold held as a component of the US Reserve Assets has been changing, and that these changes – some of which are of significant size – result from activity by the ESF. These Federal Reserve reports conclusively demonstrate that the ESF has been intervening in the gold market since at least 1996.
Though these Federal Reserve reports make clear that the ESF is involved in the gold market up to its ‘earmarks’, a lot of people remain skeptical. I don’t know why that is. It is worth noting that many of the most obstinate skeptics who deny US government involvement in the gold market live overseas and have little, if any, experience or understanding of the way the US government really works. But even Americans find it difficult to accept that the US government intervenes in the gold market. Ironically though, they readily admit that the government intervenes in the debt markets, foreign currency markets, and according to a growing number of people, even in the US stock market. It is therefore most baffling that they do not concede the ESF’s involvement in the gold market.
Maybe people are skeptical because they haven’t bothered to take the time to read the Federal Reserve reports for themselves. Maybe it’s because it’s easier to accept the word of some government bureaucrat who denies ESF involvement in the gold market than it is to seek out and look for the truth. Maybe they don’t want to believe that the US government is lying to them when Treasury official after Treasury official denies any involvement by the ESF in the gold market. I don’t know. Or maybe it’s because they think that government officials work for the American people – and not for vested interests – in their deliberative sessions behind closed doors. Wouldn’t it be refreshing if we could peek-in behind those closed doors to see what really is being said?
The reality is that very little emerges from behind closed doors, and the minutes and transcripts of closed-door sessions that do make it into the public domain contain redactions that blank out the ‘good parts’ – the revealing statements. But what if someone forgot to redact one of those ‘good parts’? Too fantastic to be true? Well, sit down, take a deep breath and carefully read what follows.
A few weeks ago Reg Howe contacted me and asked my view on something he had discovered. He wanted a second opinion on this discovery, just like I contacted him for a second opinion after I came across the Federal Reserve reports showing the ESF’s gold related activity.
When I read what Reg showed me, I was stunned. But at the same time, it was clear to me what I was reading and what had happened. A transcript of the Federal Reserve Open Market Committee has been released for which somebody forgot to get his or her red pen out. Someone forgot to redact some very revealing words about the ESF and its activity with gold. Here’s what was said. [See the transcript from the January 31st 1995 meeting.]
MR. MATTINGLY. It’s pretty clear that these ESF operations are authorized. I don’t think there is a legal problem in terms of the authority. The [ESF] statute is very broadly worded in terms of words like “credit” – it has covered things like the gold swaps – and it confers broad authority. [Emphasis added]
Please read the above statement again, and maybe even a third and fourth time. This statement, which I can only assume was inadvertently not redacted by the FOMC Secretariat, confirms what we already know, but the US government has all along refused to admit – that the ESF is involved in the gold market. In fact, the authority of the ESF is so broad that “it has covered things like the gold swaps”. In other words, the authority of the ESF is so broad it has even been used to authorize “gold swaps”.
That Mattingly’s remark passed without comment by anyone in the FOMC meeting implies that everyone knew exactly what he was referring to.
Click here to read more of the transcripts. Moreover, the ESF was set up in such a manner that the ESF is a slush fund beyond Congressional oversight.
It can be used to ‘get around’ most anything (i.e., it can skirt normal governmental procedures). No wonder so many people want to do away with the ESF. There is no room for it in our democratic process. It is not subject to the normal checks-and-balances so carefully crafted by the Founding Fathers that have proven over time to be so essential for control within the federal government. The ESF is the antithesis of the American foundation of representative government because it subjects a free people to an unconstitutional governmental force. Still not convinced? Here are some more excerpts:
MR. LINDSEY. My second question has to do with our credibility. I don’t know what questions to ask, and I hope you will help me out in that regard. I have this document in front of me, which includes a page entitled “What is the Exchange Stabilization Fund?” The document came from Treasury International Affairs. I gather it was written by them. I have written enough of these to know what you do, and that is to tell your point of view. Paragraph 3, not to mention the dots indicating an omission in paragraph 2, got me a little nervous. Paragraph 3 says these holdings in the ESF are used to enter into swap arrangements with foreign governments, to finance exchange market intervention, to provide short-term bridge finance, etc., and all these things are great. So, basically paragraph 3 is establishing that this is not unprecedented. My question would be: Do we do all these nice things if it’s not in support of the dollar? Is this unprecedented with regard to the fact that we are supporting another currency?
The ESF doesn’t have to notify Congress about anything in advance. It is under the sole authority of the Secretary of the Treasury and the President, and they can do “gold swaps” without any Congressional approval, which brings up an important point I made in “The Smoking Gun”.
It is becoming increasingly clear as more and more evidence emerges that the Secretary of the Treasury does not answer questions concerning the ESF because he, but not his underlings, know to what extent the ESF is engaged in gold related activity. His underlings can say that the ESF is not involved in the gold market because as far as they know, what they say is true. However, we now have sufficient evidence proving that the ESF is indeed involved in the gold market. Therefore, the Secretary of the Treasury does not respond to letters asking questions about the ESF and its activity in the gold market. He can’t answer them truthfully without ‘spilling the beans’. He obviously knows everything about what really is going on within the ESF, in contrast to his underlings. Or at least most underlings because it appears that one of them is in there up to his elbows washing ESF laundry. His name is Ted Truman.
From the FOMC transcripts it is quite apparent that Ted Truman has a special role. He went on to say in the minutes
MR. TRUMAN. It is obligated only in the sense that they have one other swap arrangement with the Bundesbank.
Swap arrangement with the Bundesbank.
Wouldn’t it be interesting to know what this swap arrangement with the Bundesbank entailed? What is the nature of this swap? Is it a Dollar/Deutschemark swap facility? Or is something else being swapped, like gold perhaps?
Gold being swapped with the Bundesbank? It’s an outrageous thought. Or is it? I have already established that the ESF is very much involved with gold. The only thing I haven’t established is with whom the ESF has those gold swaps that Virgil Mattingly was talking about.
Let’s put one and one together here to see if we can come up with an answer. According to Virgil Mattingly, the ESF has authorized gold swaps, presumably in the recent past (circa 1995). According to Ted Truman, the only outstanding swap facility of the ESF (circa 1995) other than the one established for Mexico is their facility with the Bundesbank. Ergo, the ESF has a gold swap facility with the Bundesbank.
“Gold Bullion Reserve” to “Custodial Gold”.
It’s an interesting proposition, and one that fits well with another newly discovered fact. Some very interesting sleuthing by Mike Bolser, who has been assisting Reg Howe in his lawsuit against the BIS, has revealed that the Treasury has made a small but very significant accounting change. Mike noticed that the Treasury Department has changed the designation of nearly 1700 tonnes of inventoried gold at the US Mint’s facility in West Point, New York (approximately 21% of the total US Gold Reserve) from “Gold Bullion Reserve” to “Custodial Gold”.
The August 2000 Status Report on US Treasury Owned Gold stored at West Point has a designation of “Gold Bullion Reserve”. But the September 2000 and subsequent status reports inexplicably designate this same gold that is stored at the US Mint in West Point as “Custodial Gold”.
This change was made without explanation, so rather than let the matter remain unexplained, Mike diligently contacted the Treasury asking what seemingly are two uncomplicated questions. Would the Treasury please explain why they made this change, and what does this change in designation mean with respect to the ownership status of the gold at West Point?
They are simple questions, but perhaps they touch too close to a nerve. Not surprisingly, the Treasury so far has not responded to Mike. I have some views on what Mike discovered, and why the Treasury is so quiet about it. I think this change in asset classification is related to the ESF gold swaps. Here’s my thinking.
The change Mike spotted possibly occurred as a result of accountants looking at the financial statements of the US Mint being prepared for its annual report ending fiscal year 2000. Note that the previous director of the Mint (Phillip Diehl) resigned in early 2000, so this was the first annual report signed by the new director (Jay Johnson). If there is one thing that government bureaucrats do well, they take great pains to call things by their right name. To do otherwise would put their job in jeopardy if something under their responsibility came under Congressional scrutiny, and it was subsequently determined that the name assigned to something was incorrect or misleading.
Therefore, this change in the descriptive label for nearly 1,700 tonnes of gold at West Point from “Gold Bullion Reserve” to “Custodial Gold” was purposeful. It happened for a reason. This conclusion is all the more plausible because the Treasury did not change the classification from “Gold Bullion Reserve” to “Custodial Gold” to describe the gold stored in Fort Knox or at the US Mint in Denver. Maybe new US Mint director Johnson saw something he didn’t like. What could that have been?
I’ve already put one-and-one together to establish that the ESF has “gold swaps” with the Bundesbank. It therefore does not require much conjecture to add one supposition to the equation by concluding that the gold in West Point has been swapped with gold owned by the Bundesbank, thereby necessitating its reclassification from “Gold Bullion Reserve” to “Custodial Gold”. Here’s what I think has happened.
The Treasury Department wanted to make gold available to some bullion banks. This statement is based on my basic premise that several of the big banks have gold books that are hopelessly imbalanced. By having borrowed short and loaned long, these banks have in their quest for profits imprudently fallen into the alluring but usually fatal banker’s deathtrap – a mismatched loan book. But what’s worse for these banks, it is even more difficult and treacherous to try extricating themselves from this particular deathtrap because they haven’t mismatched their loan book of dollars, which we all know can be created by the Federal Reserve ‘out of thin air’ if dollars are needed to bailout banks from a deathtrap predicament. Instead, these banks have mismatched their gold book. And no one – not even the Federal Reserve – can create gold out of thin air.
So given this reality about the nature of gold, the Treasury had to turn elsewhere to find the gold necessary (1) to keep these banks from defaulting on their bullion obligations arising from their mismatched gold books in an environment where metal had become increasingly difficult to come by and/or (2) to keep the gold price low so that the likelihood of default by the banks would be lessened, even though metal would remain tight because fabrication year after year was exceeding newly mined supply. Rather than accept the bitter pill that certain banks were about to default on their bullion obligations, the Treasury looked for alternatives and found one – they put their hand into the till, until recently known as the Gold Bullion Reserve at West Point. They swapped this gold with the Bundesbank. I’ll explain how they did it, but let’s first consider the practical aspects of this transaction.
In all likelihood, these particular bullion banks needed gold in Europe where their obligations were originally established. There is very little gold lending in New York. It is a practical problem to ship the gold out of West Point without raising the alarm of government auditors. It is costly too. Also, it is likely that some of the gold in West Point is coin-melt from the 1933 gold confiscation. Even if it could be smuggled out of the West Point vault into the market without raising suspicions, the alarm bells would go off at the refiner and soon thereafter in the market because everyone knows that only the US government has coin-melt bars. The appearance of coin-melt bars in the market would immediately raise suspicions that the US Gold Reserve was being dishoarded, an outcome that the Treasury would obviously take steps to avoid in concocting its scheme because the US Gold Reserve cannot be depleted without Congressional approval. Therefore, one is faced with the practical considerations of overcoming these hurdles, but the answer is relatively simple.
The Treasury has gold in West Point. The Bundesbank has gold in Europe. The Treasury cannot directly do a deal with the Bundesbank because unlike the ESF, the Treasury is subject to Congressional oversight. So instead the Secretary of the Treasury and the President decide to use the ESF to set up a swap line for gold with the Bundesbank.
By so doing, the gold in the Bundesbank’s vault in Europe becomes ESF gold, to do with as they please – i.e., the ESF lends this metal to bailout certain bullion banks. And the Bundesbank now owns the gold in West Point, which as a result was purposefully re-classified from Gold Bullion Reserve to Custodial Gold because the Treasury no longer owns this gold, having swapped it out through the ESF in exchange for gold in Europe owned by the Bundesbank. Case closed. The mystery of the abnormally low gold price is solved. The ESF did it.
The abnormally low gold price is the result of the mounting irrefutable evidence that the ESF is deeply involved in the gold market, and I do mean deep. They are involved in some 1,700 tonnes worth because that is the weight of gold stored in West Point, which was probably being swapped at the rate of a few hundred tonnes per year from circa 1995 through 2000. There are two other tidbits that I would like to share with you that add even more validity to this supposition.
First, a couple of months ago I was analyzing the 1998 and 1999 balance sheets of the ESF. Being an ex-banker, I know a little bit about accounting, including where to find the big holes through which the proverbial truck can be driven. And suffice it to say, I found one of those, which could suggest that in these two years 975 tonnes of gold came into the market from the ESF. Interestingly, after reaching this conclusion, I wanted to test it. So I called a top gold market expert whose supply/demand analyses are second to none, and who believes that gold from the US reserves has been coming into the market for several years.
Without telling him about my analysis of the ESF balance sheet, I asked him how much gold he thought came out of the Treasury/ESF in 1998 and 1999 in total. His response was 1,000 tonnes, a mere 25 tonnes difference from what I deduced from the ESF financial statements. When I told him this, that we had both reached the same conclusion from different sources, he chuckled but was not in the least bit surprised, being so convinced that the Treasury/ESF has been a major source of metal for years. I have thoroughly reviewed his supply/demand numbers since 1994 and have determined that as much as 2,000 tonnes of gold from the US reserve may have entered the market in order to make the gold price as low as it is, which leads me to the second tidbit that I would like to share with you. It is just as intriguing.
Source in Europe confirms Bundesbank empty gold vault.
This same individual told me several months ago about some astonishing intelligence he had learned from a source in Europe. He told me that the Bundesbank’s gold vault was empty, which seemed so preposterous that I found it hard to believe. He also admitted that this news startled him when he learned about it, and that he did not have an adequate explanation for it. He knew that the Bundesbank was an active lender of gold, but he had a difficult time accepting the possibility that all 3,400 tonnes that it owned had been loaned. Yet he was confident that his source had provided him with accurate information.
We now know what has happened. The Bundesbank has loaned 1,700 tonnes, one-half of its 3,400 tonnes reserve; the other 1,700 tonnes were swapped for gold in the US reserves, requiring the change in the West Point vault from Gold Bullion Reserve to Custodial Gold. In other words, the Bundesbank’s vault is empty because one-half of their gold is stored in West Point not Europe, and the other half has been loaned out.
Despite the irrefutable proof that the ESF is involved in the gold market, two questions remain unanswered. First, what’s the ESF’s motive? Unfortunately, we just don’t know for certain.
Many, including me, claim that it is to use gold to provide the liquidity needed to bailout some big banks that have imprudently grown their gold books by recklessly expanding credit and mismatching their asset/liability maturities. These banks are the ones with the unusual – some say abnormal – derivative activities that are named as co-defendants in Reg Howe’s suit against the BIS. That this list includes Germany’s largest bank may explain why the Bundesbank would agree to participate in this gold swap scheme. It was bailing out one of its own.
Others claim the ESF aims to manipulate the gold price to make inflation numbers look better than they really are by keeping the gold price artificially low. And there are some who argue that the US government, acting at the behest and under the instructions of the big banks, aim to destroy their combined arch enemy – gold, regardless of the fact that the gold mining industry would be destroyed along with it.
This last theory is not outlandish. It has currency because gold is the world’s only free-market money. In contrast to national currencies, all of which circulate only because of government fiat, Gold’s value derives from everyone who understands that it has usefulness as money. And governments and banks don’t like the fact that while they can manipulate gold for a time – and as have we have seen in recent years, even a long time – they cannot in the end control the price of gold anymore than they can control the price of a Picasso painting. The value of a Picasso is determined by the free-market, and so too is gold. In short, you and I give gold its value – not the central banks, not the US government or any other government, either acting alone or together. But the US government either has not yet learned – or refuses to admit – this reality that its power to control gold is limited, which is an inexplicable conclusion unless you accept the notion that governments have short memories and need to relearn what logic says they should have learned from experience.
If logic prevailed, the US government would have learned from its ill-fated attempt in the 1960’s to keep the price of gold abnormally cheap at $35 per ounce that the market determines gold’s value. But instead, the US government is about to learn that it cannot keep a manipulated ‘floating-rate’ gold price from rising any more than it was able to keep the manipulated ‘fixed-rate’ gold price from rising thirty years ago. The free-market rate of exchange between dollars and gold will prevail, eventually repeating today what happened in the 1970’s after the artificially low $35 rate was no longer tenable – the gold price will skyrocket higher. It is well worthwhile keeping in mind that the gold price rose nearly three-fold in the eighteen months after the fixed-rate price was abandoned in August 1971.
Then there is the second unanswered question. To what extent is today’s exceptionally low gold price the responsibility of certain bullion banks, which have cheapened gold by extending gold credit to such an extreme, and the ESF, by perpetuating this scheme? This question too does not have an answer, at least not yet. But as the truth about the ESF’s involvement in the gold market continues to emerge and become more widely known, the price of gold is destined to rise to a more normal level, just like it did after August 1971. The high price that gold eventually achieves will indicate how badly certain bullion banks and the ESF have damaged gold mining companies and the gold industry.
In conclusion, while we don’t know whether any of these motives for manipulating the gold price that I ascribed to the US government are accurate, one point is clear and cannot be denied. The US government cannot claim that the ESF is not involved with gold. We now have the irrefutable proof that establishes beyond any reasonable doubt that the ESF is indeed involved in the gold market. We know this for a fact because of our peek behind closed doors.
So time will tell when the Germans complete their gold reserves audit.
Source: King World News
August 30, 2012
Egon von Greyerz has issued a few warnings on this topic and again during an interview with King World News issues another warning to investors that their assets are not safe during the coming collapse. His points below make for common sense reading.
“I’m seeing how massive amounts of money are within the system, and people think they are safe, but they are not.” Greyerz, who is founder and managing partner at Matterhorn Asset Management out of Switzerland, also warned, “This is the illusion that people are living under, and it’s very sad. That’s not going to be the case. The banks are going to close if there is a problem, and people are not going to get access to their assets.”
Here is what Greyerz had to say: “Right now the markets are in a waiting game. They are waiting for Bernanke’s Jackson Hole speech tomorrow. They are (also) waiting for the German court decision which is on the 12th of September. This is to decide if they are going to approve the ESM (European Stability Mechanism), which replaces the EFSF.”
“Now, the EFSF is running out of money, they’ve only got about $200 billion left. Spain and Italy, only, will need about $700 billion. We know for a fact that the eurozone and Southern countries are in desperate need of additional funds.
The US is (also) running a deficit of almost $1.5 trillion a year, plus they are increasing the unfunded liabilities by more than $10 trillion a year….
“So the US is running major deficits and money printing today. Will they announce official QE at Jackson Hole or not? It’s totally irrelevant. It’s going to make no difference whatsoever. The world economy will need massive amounts of money to survive. Whatever these guys say or decide in the next few weeks won’t make any difference. It (money printing) is going to come anyway.
Central banks are massively over leveraged.
These central banks are now leveraged to the hilt. The Bank of England is leveraged 100 times. So if they lose 1% (on their bets), they will lose everything. The Fed is leveraged 55 times. So a 2% loss, they’ve lost their capital. The ECB is leveraged 40 times.
So every central bank is massively exposed. On top of that, governments are borrowing massive amounts of money. So worldwide money is being created on a daily basis.”
100 years of creating debt and it will end in the system collapsing.
“What is interesting here is in the last 100 years we have created so much debt. For the first approximately 50 years of the last century, every additional $1 of debt in the US created $4.60 of (additional) GDP. In the last 10 years, every new dollar of debt has created 6 cents of GDP.
And for the last few years we are getting negative returns. It will still end in the same way, sadly, which is a collapse of the system. All of the assets that were financed by the credit bubble will collapse, in real terms, in the next few years. In real terms, that is against gold, they will collapse.
Note in the chart below from ZeroHedge, how the dollar has lost so much of its purchasing power over the last 100 years since the Fed took charge. In the previous 100 years it remained stable. The dotted line shows the periods when gold convertibility was suspended.
What is so remarkable about this chart is that the dollar’s purchasing power was still the same on the eve of the founding of the Fed as it was at the beginning of the 19th century. Clearly the decision to abandon the gold standard has hastened the collapse of the dollar’s value – at the point where the chart ends, 7 cents of the purchasing power of the gold-backed dollar of yore were left. Since then we have actually arrived at a paltry 4 cents.
So much for ‘stable prices’ under the fiat money regime – it has produced a 96% decline in the currency’s purchasing power over the past century, in contrast with the perfect preservation of purchasing power during the century preceding the founding of the Fed.
Gold may not protect you unless you have possession of it.
But even if you have gold you’ve got to worry about the counterparty risk. I was recently speaking to an American investment bank. They buy gold for their very high net worth clients, and they store it with major bullion banks. I asked (them), ‘Well, what about the counterparty risk?’ They responded, ‘There is no problem whatsoever because the gold is segregated, and creditors are totally protected.’
This is the illusion that people are living under, and it’s very sad. That’s not going to be the case. The banks are going to close if there is a problem, and people are not going to get access to their assets. We have seen the cases of Lehman, MF Global and Sentinel.
Sentinel was a company that went bust. There, like in MF Global, segregated assets were used by the bank, or the financial institution, as security for trading with other major banks. So the segregated funds were not segregated at all. Recently there was a court decision saying that the banks have the right to use the assets, i.e. the stocks or the bonds or whatever other assets (customers) have, as security for their credit lines they are granting to these firms.
What I am saying to investors is protect your counterparty risk. You are not safe within the financial system, even if you are told you are. There is only one way to protect yourself, and that is to store your assets, what we are talking about is mainly gold and silver, outside of the banking system.
You have to have direct control of it. I’m seeing how massive amounts of money are within the system, and people think they are safe, but they are not.”
Source: King World News
July 19, 2012
It should come as no surprise that China, the world’s largest gold producer and buyer should want to become a major gold trading center. The Wall Street Journal has reported such plans after being briefed by an insider.
The Wall Street Journal was briefed about China’s plans by “a person involved with the matter.” The paper reports that “the move could increase liquidity and help Beijing gain stronger pricing power for key commodities like gold”.
China is the largest consumer and now the largest producer of gold in the world and has aspirations to become a major gold trading center on a par with London and New York. China is also the fifth largest holder of gold reserves in the world after the U.S., Germany, France, Italy (see table).
Clearly they have ambitions far beyond a major Gold trading center but as a worlds reserve currency, possibly even THE worlds reserve currency.
Chinese officials have spoken of China’s aspirations to have gold reserves as large as the U.S. in order to help position the yuan or renminbi as a global reserve currency. Indeed, it would be only natural for China to aspire to have their currency become the global reserve currency in the long term.
In the longer term, being a major gold trading center would make China a more powerful financial and economic player and indeed could allow them to influence commodity and other important market prices. Indeed, Reuters reported that becoming a major gold trading center “would boost the country’s clout in setting global prices”.
The journal reports that “Beijing’s tight grip on commodities trading and rigid capital controls are among the obstacles in the way.”
The move is also part of the broader financial reforms that Beijing has launched in recent weeks, loosening some of the restrictions on securities investment and allowing banks to price loans at cheaper rates than in the past, that seek to grant market forces a bigger role in both the economy and the capital market.
The moved proposed by market officials would expand trading of precious metals from designated exchanges to the country’s vast interbank market, according to the person involved. The Shanghai Gold Exchange has released draft rules for such interbank precious metals trading, which will include spot, forward and swap contracts for the commodities, said the person.
At the moment, producers, consumers and investors can trade only spot and futures contracts in gold and silver on the Shanghai Gold Exchange and the Shanghai Futures Exchange, respectively.
Due to limited membership on the two exchanges, many investors, including banks, aren’t able to directly trade the precious metals on the exchanges.
The draft rules were jointly developed by the Shanghai Gold Exchange, which is the world’s biggest marketplace for spot gold trading, and the China Foreign Exchange Trading System, a central bank subsidiary that oversees onshore currency trading.
Plans are afoot to get around this and expand gold trading.
According to the draft rules, the authorities are aiming to launch the interbank trading on Aug. 31, starting with gold contracts, said the person.
That would make gold the first commodity to trade on the interbank market.
The authorities will introduce a “market maker” system for the planned precious metals trading—the first time the system will be used to trade a commodity on the interbank market—with transactions done on an over-the-counter basis as compared to the exchange-based pricing mechanism.
Market makers are firms that stand ready to buy and sell a product at a publicly quoted price to facilitate trade.
An over-the-counter market would allow investors, in this case banks, to trade in large quantities that far exceed the Shanghai Gold Exchange’s current trading volumes, analysts said.
According to the draft rules, banks are allowed to use the new precious metals contracts in the interbank market for proprietary trading only.
The Shanghai Gold Exchange is inviting banks, mostly members of the exchange, to submit applications to take part in the trading, said the person, who expects most major and midsize banks to participate.
The move to let banks become market makers also shows the authorities’ desire to give such better-established and more sophisticated institutions more power in setting prices for major commodities, a common practice in developed markets, said Jiang Shu, senior precious metals analyst at Industrial Bank Co.
Current restrictions and capital controls remain an obstacle to China becoming major gold trading center and to the renminbi becoming an accepted global reserve currency.
The move by China to expand precious metals trading to their glowingly important and vast interbank market is important and another step towards China becoming an economic power on the world stage and one that will rival European nations and the U.S.
June 27, 2012
Another country joins the growing list of nations to drop the dollar for trading with another nation. In the case of Chile, it has done a deal with China to trade in the growing popular renminbi. Its another kick in the stones for the US dollars reserve status which is losing ground in world trade.
For simplicity’s sake here is the full list of “bilateral” arranagements in the past year as presented previously: “World’s Second (China) And Third Largest (Japan) Economies To Bypass Dollar, Engage In Direct Currency Trade“, “China, Russia Drop Dollar In Bilateral Trade“, “China And Iran To Bypass Dollar, Plan Oil Barter System“, “India and Japan sign new $15bn currency swap agreement“, “Iran, Russia Replace Dollar With Rial, Ruble in Trade, Fars Says“, “India Joins Asian Dollar Exclusion Zone, Will Transact With Iran In Rupees“, “The USD Trap Is Closing: Dollar Exclusion Zone Crosses The Pacific As Brazil Signs China Currency Swap.”
China and Chile agreed Tuesday to upgrade their bilateral ties to a strategic partnership, and double trade in three years.
Chinese Premier Wen Jiabao and Chilean President Sebastian Pinera announced Tuesday the establishment of China-Chile strategic partnership and the completion of negotiations on investment-related supplementary deals to a bilateral free trade agreement.
China would like to be actively engaged in Chile’s infrastructure construction and work with Chile to promote the development of transportation networks in Latin America, said Wen.
Meanwhile, Wen suggested that the two sides launch currency swaps and expand settlement in China’s renminbi.
China appears to be getting all its ducks lined up before it makes it final move. The question is, how much of the renminbi will be gold backed?
So to summarize, the list of countries that China is transacting with directly (that we know of), and bypassing the USD entirely, is as follows:
- and now, Chile
In other words, it looks like the BRICs already have their “bilateral” arranagements all sorted out, and are now quietly moving into other suppliers of key resources with swap deals, all without any mention of the word “dollar.”
How soon until China re-dips its toe in Europe with a modest “bailout” nobody can refuse in exchange for a simple caveat: you get paid in renminbi?
June 22, 2012
There has been many headlines over the last year from countries agreeing to drop the US dollar when trading with each other but ZeroHedge has managed to sum it very well as the latest headline to hit us is the currency swap deal between Brazil and China. This makes Brazil the largest country yet to agree to swap currencies with China.
When the US Dollar is ultimately dethroned as the world’s reserve currency (and finally gets rid of all those ridiculous three letter post-Keynesian economic “theories”) nobody will have seen it coming. Well, nobody except for the following headlines: “”World’s Second (China) And Third Largest (Japan) Economies To Bypass Dollar, Engage In Direct Currency Trade“, “China, Russia Drop Dollar In Bilateral Trade“, “China And Iran To Bypass Dollar, Plan Oil Barter System“, “India and Japan sign new $15bn currency swap agreement“, “Iran, Russia Replace Dollar With Rial, Ruble in Trade, Fars Says“, “India Joins Asian Dollar Exclusion Zone, Will Transact With Iran In Rupees.” And while the expansion of the “dollar exclusion zone” was actually quite glaring to anyone who dared to look, one thing was obvious: it was confined to Asia. No more courtesy of the following FT headline: “Brazil and China agree currency swap.” More: “Brazil has provided a vote of confidence in China’s efforts to promote the renminbi as a reserve currency by becoming the biggest economy yet to agree a swap deal with Beijing. Brazil and China announced the R$60bn (US$29bn) local currency swap after a bilateral meeting between Wen Jiabao, the Chinese premier, and Dilma Rousseff, Brazil’s president, on the sidelines of the Rio+20 environmental summit in Rio de Janeiro.”
How many headlines are needed to get the message, the US Dollar is in decline ?