“In times of stress, be bold and valiant.”
Horace 65 BC-8 BC
The Financial Times published an article Sunday revealing details of a BIS study and statements by the BIS chief economic adviser, calling it "a pre-emptive blast before the banks launch their own lobbying effort on June 10."
Bankers’ ‘doomsday scenarios’ under fire
Yesterday, from this FT article, Zero Hedge observed a possible rift between the BIS and the $IMFS, stating, "Curiously one entity that has decided to take on this "fire and brimstone" head on and to warn the general population to ignore the bankers "doomsday scenarios" is the bankers' bank, the BIS."
Bank Of International Settlements Warns To Ignore Banker "Doomsday Scenario" Fearmongering And Racketeering
In his latest newsletter, William Buckler describes how the $IMFS has been pushing the ECB to print faster, more like the FED...
Fresh from his trip to China, US Treasury Secretary Geithner spent two days in Europe. His “mission” (which he accepted with open arms) was to urge the European Union to translate the 750 Billion Euro bailout package they announced on May 10 into “action”. Mr Geithner is not pleased that while the money has been promised, little if any of it has yet been actually spent.
“What markets want to see is action”, said Mr Geithner, “the big lesson of the US financial crisis was that you have to act quickly and with force.”
What has been seen as the sovereign debt crisis which has evolved in Europe this year is an almost carbon copy of what was seen in the lead up to and the aftermath of the Lehman bailout in late 2008. The difference is that the European
“powers that be” were far more reluctant to bite the bailout bullet than were their counterparts in the White House, the Treasury and the Fed in September/October 2008. The Europeans took more than five months to finally cave in and announce that they were going to drown the situation in newly created paper. In the US, the deed was done over a weekend.
But German publication Der Spiegel tells us that it's not all 'cumbaya' in Europe over this printing...
The European Central Bank has been buying up Greek bonds by the bucketload, even though Athens is already getting money from an EU rescue fund. German central bankers suspect a French plot behind the massive buy-up -- after all, it gives French banks the perfect opportunity to get rid of their Greek assets.
The senior members of the German central bank, the Bundesbank, regarded Axel Weber with a look of anticipation. What would Weber, the Bundesbank president, say about the serious crisis that had them all so worried, they wondered? And what did he intend to do about it?
Weber said nothing and, as some who attended the meeting report, even his facial expression was inscrutable. The Bundesbank president remained stone-faced...
By buying up Greek debt, the ECB keeps the prices of the bonds artificially high. French banks, in particular, benefit from this policy because it enables them to sell their Greek bonds to the ECB, as an inexpensive way of cleaning up their balance sheets. France's banks and insurance companies have a total of about €80 billion in Greek government bonds on their books.
German banks, on the other hand, are not potential sellers, because they have made a voluntary commitment to Finance Minister Wolfgang Schäuble to hold their Greek bonds until May 2013.
Thus, in a roundabout way, the Bundesbank, by spending €7 billion to purchase the Greek securities, has already made a substantial contribution to bailing out banks in neighboring France.
It was ECB President Jean-Claude Trichet, a Frenchman, who, in an alarming and provocative speech, initiated the extensive euro rescue package that was approved on the weekend of May 8-9. And it was Trichet who yielded to massive pressure from French President Nicolas Sarkozy and, soon afterwards, violated a long-standing ECB taboo, namely that the central bank should never buy its member states' debt. This, however, was precisely what Sarkozy had demanded of his fellow European leaders, including German Chancellor Angela Merkel.
Weber, the Bundesbank president, voted against this measure in the ECB council and criticized it the next day in an interview with the German financial newspaper Börsen-Zeitung. For a central banker, this is a very clear signal of dissatisfaction. But the Bundesbank president faces a dilemma, because he hopes to take over as ECB president when Trichet's term expires next year. The general consensus in the German government is that if he continues to fight against the purchase of the bonds, his prospects for securing the top ECB post will dwindle.
But many German central bankers expect Weber to remain steadfast and not give in...
Every morning, the so-called Market Operations Committee (MOC) of the ECB analyzes the situation. The committee, whose members the ECB does not identify, supports the central bank in its monetary policy affairs, foreign currency transactions and the management of currency reserves...
The Bundesbank's representative on the MOC is Joachim Nagel, head of the central bank's markets department. In closed-door sessions, he and his fellow committee members determine when and for what amounts the ECB and the euro-zone central banks, in concerted actions, buy up the government bonds of highly indebted euro countries to support their prices and thus maintain yields at a tolerable level.
The central bankers have informally agreed on what constitutes this tolerable level. The MOC's goal is to manipulate the markets in such a way that bond prices level off at the values that were in place on April 9, before investors, fearing that the governments could default on their bonds, launched into a massive sell-off of the securities...
German Central Bankers Suspect French Intrigue
Slightly off topic (but not really), Axel Weber and the Bundesbank have a history of protecting German gold reserves from profligate disposal. (See the first two speeches linked here.) This is a trait that may also be shared by the BIS. (See: "The Gold Man" at the BIS)
Regular readers know that ANOTHER, clearly a European central banking insider (at least to me it is clear), told us about a definite coolness between the BIS and the US dollar support faction (US/UK/IMF/Wall Street), what I term the $IMFS, as far back as late 1997. On this topic, the following is a post that might be of interest to some of you. Posted by Capt. Goodvibes here...
A little detour into some speculation on my part here, but the resignation today of German president Kohler has caught my attention.
Köhler became president in 2004 and was elected for a second five-year term in 2009. The former head of the International Monetary Fund was the first non-politician to become German head of state. He is a member of Merkel's conservative Christian Democrats and was nominated for the presidency by the CDU with the backing of their coalition partners, the pro-business Free Democrats.
As a former IMF head, it may be that he is/was a dissenting voice within the German government, in the context of the thoughts of Another. Another's contention was that there were essentially two competing spheres of influence in the economic world:
1. $IMF (US/UK/Japan)
2. BIS (Europe/Saudi/China etc.)
The IMF faction support a move to SDRs to replace $US as world reserve currency, should change be needed.
The BIS faction favour instead a move to Gold, physical, free market. And ECB mark their gold reserves to market.
Date: Sat Mar 07 1998 13:19
ANOTHER (THOUGHTS!) ID#60253:
A Noble Purpose, This Oil For Gold
In a very real "currency sense", oil will be devalued in terms of gold. As one makes a currency weaker by increasing the money units per ounce of gold. Oil will become very cheap in gold, as the amount of gold paid per barrel will fall dramatically as compared to today's ratio. There will be much more than enough gold worldwide to quantify a "world oil currency". To that end, the world paper "reserve currency" at use in that time, will continue to be traded for oil at an extremely low price relative to today. The only change will be the addition of a "unit of real value" added to each trade, a "world oil currency", gold! However, in terms of today's currencies, gold will be "upvalued" to perhaps $10,000 to $30,000 an ounce. So as not to rewrite what is already an excellent piece on this coming readjustment, I will repost part of Mr. Allen ( USA ) 's perfect article on the subject along with his requested changes per his :
Date: Mon Dec 15 1997 11:06
Allen ( USA ) ID#246224:
Date: Sun Dec 14 1997 18:59
Allen ( USA ) ( More ruminations re: ANOTHER's recent posts ) ID#255190:
Last one on this topic until more ANOTHER posts. I'm not sure that it would be necessary to have that large a cabal in on the "offer" of oil for gold. Given the rather small market in gold in comparison to oil/currencies it would only take one or two well endowed oil states to pull this off. Here's why.
Let's say the Saudi's have been accumulating gold through the back door ( approx. 5,000 tonnes ) . They sell say 20 Mln Bbl oil a day. Close enough. At one ounce of gold per thousand Bbl oil that's 10,000 ounces of physical gold per day. That's a lot of physical gold.
The first few moments after the Saudi's proposal to trade oil for gold at a very steep discount of 1000 Bbl/oz ( approx. 1.5% of current US$ price ) there would be roars of laughter. One fast thinker after another would think "Hey. I buy some gold at $300/oz, trade for oil to receive 1 Mln Bbl, then sell the 1 Mln Bbl for US$ 10 Mln. Net profit is
$10,000,000-$300,000=$9,700,000. Easy money." .
Everyone at once turns to the gold market to buy, which promptly shuts down. Now no one is laughing. Because everyone realizes that gold is now worth at least $10,000 per ounce and no one is prepared for that revaluation. Whoever has gold now has 66.67 times the purchasing power in that stockpile. What appeared to be a stupid offer has now become a complete revaluation of all gold stockpiles vs all currencies. [...]
Mr. Allen ( USA ) ,
Another thanks you for this thinking. It should be read by everyone with an interest in this area. It should also be studied by students wishing to learn of market dynamics. We also offer this piece as an addendum to the above, also by the same author.
Date: Mon Dec 15 1997 10:49
Allen ( USA ) ( Quick Note to JTF re: 23:05 post - US$ oil float ) ID#246224:
US$ price of oil is floating. The "proposal" to offer oil for gold at say 1000 Bbl/oz is far below the present float price in US$. The gold market is SO SMALL that if the oil nation that made this proposal was pumping enough oil the gold market would be swamped by oil buyers who were looking to make a few ( !! ) US$ on the discrepancy in price. In effect this would revalue gold by inserting an entire different group of buyers into the gold market who have ALOT of money.
The 'timing' of Kohlers exit just seems suspicious, is all I'm saying.
At this particular point, when one never knows what may be about to happen next.
Another small story brought to my attention by Capt. Goodvibes was this...
JEDDAH, Saudi Arabia (AFP) - German Chancellor Angela Merkel landed Tuesday in Saudi Arabia for talks with King Abdullah after calling for Gulf nations to help press Iran over its nuclear drive, a German official said.
Merkel flew into the Red Sea port of Jeddah for a day of meetings on bilateral and regional issues and a visit to the country's new co-educational science university.
She arrived from Abu Dhabi, where she called on the United Arab Emirates and Gulf countries to encourage a nuclear-free Iran and support Middle East peace efforts.
"When we look at the regional situation and the situation of the UAE, we can see how strong the interest for a peaceful solution in the Near East is, but also for an Iran that does not look for nuclear weapons," she told reporters.
"Gulf countries and in particular the UAE play an important role in the peace process in the Middle East and of course in relation with Iran," the German leader said.
Germany's secretary of state for the economy, Bernd Pfaffenbach, told AFP that Iran figured prominently in a meeting between Merkel and the Emirati president, Sheikh Khalifa Ben Zayed Al Nahayan.
Talks in oil giant Saudi Arabia were expected to focus on similar issues when Merkel meets with King Abdullah and his court late Tuesday.
Merkel in Saudi Arabia after raising Iran sanctions in UAE - Jordan Times
And here's one last story of stress I'll leave you with. From the Sunday Times, Greece urged to give up euro...
THE Greek government has been advised by British economists to leave the euro and default on its €300 billion (£255 billion) debt to save its economy.
The Centre for Economics and Business Research (CEBR), a London-based consultancy, has warned Greek ministers they will be unable to escape their debt trap without devaluing their own currency to boost exports. The only way this can happen is if Greece returns to its own currency.
Greek politicians have played down the prospect of abandoning the euro, which could lead to the break-up of the single currency.
Speaking from Athens yesterday, Doug McWilliams, chief executive of the CEBR, said: “Leaving the euro would mean the new currency will fall by a minimum of 15%. But as the national debt is valued in euros, this would raise the debt from its current level of 120% of GDP to 140% overnight.
“So part of the package of leaving the euro must be to convert the debt into the new domestic currency unilaterally.”
Greece’s departure from the euro would prove disastrous for German and French banks, to which it owes billions of euros.
McWilliams called the move “virtually inevitable” and said other members may follow.
“The only question is the timing,” he said. “The other issue is the extent of contagion. Spain would probably be forced to follow suit, and probably Portugal and Italy, though the Italian debt position is less serious.
“Could this be the last weekend of the single currency? Quite possibly, yes.”
Please discuss. Connect dots. Add dots. Subtract dots.
Oh, and welcome to June, the month of stress relief.