“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.
www.the-privateer.com
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...
Kohler speculation.
A little detour into some speculation on my part here, but the resignation today of German president Kohler has caught my attention.
german-president-resigns-effective-immediately
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.
Another said:
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.
Sincerely,
FOFOA
54 comments:
McWilliams comments on his predicted exit of Greece from the Euro
"The only question is timing..."
Sound exactly like the propaganda one would expect on behalf of the $IMFS, under the circumstances.
"A currency union is strongest without fiscal union. Then countries are no different from companies. If they borrow and cannot pay back, investors lose money. The currency is unaffected."
Greek myths and the euro tragedy
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.
Who here thinks that the ECB has been preparing French banks for a Greek exit?
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.
I doubt it.
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.
Köhler has been giving Merkel a hard time in keeping the euro together. He was a possible future contester for her position and recently put up some criticism on her actions in defending the euro. There was an interview in Der Spiegel a few weeks ago that I think I've posted here somewhere. On the other hand Köhler was of the same political party as Merkel and his resignation is not really a political boost for her.
Besides that I recently read somewhere that Europe is the largest contributor to the IMF. Are we sure it still is as pro USA as it was in the time of A/FOA?
Speech by Lorenzo Bini Smaghi, Member of the Executive Board of the ECB.
Here is some discussion.
They have to do with the particular institutional construction of the euro area, which is built on two pillars.
One is the monetary pillar, which is supported by an independent central bank with a clear price stability objective. This implies that the ECB will not use an inflation tax to reduce the real value of government debt. Euro area governments have thus to rely on budgetary measures to address their own fiscal problems. These measures are difficult to adopt, especially in countries with fragile political systems, such as those with minority governments or weak leadership, or where growth is projected to be slow due in particular to lost competitiveness or heavy reliance on external borrowing. Financial markets are testing each country, one by one, to see whether they are willing to adopt the necessary budgetary measures, starting with those which seem to be facing the greatest hurdles to consolidation.
Let me digress briefly on this point. Some may think that the fact that the ECB cannot use the inflation tax to bail out Governments is a weakness of the euro area’s construction, because it obliges some countries to make fiscal adjustments earlier than others. In my view, this is a strength. To believe that an inflation tax can solve the problem posed by the mounting public debt is an illusion that some people like to cultivate...
...The second pillar of the euro area construction concerns the economic and fiscal dimension. It was based on four key assumptions. The first was that markets would exert strong pressure on euro area fiscal policies. The second assumption was that if the first assumption were insufficient to discipline public finances, then the Stability and Growth Pact, based on monitoring, peer pressure and sanctions, would do the job. The third assumption, reinforcing the previous ones, is that if a member of the euro area were unable to implement sound fiscal policies, it would be left to its own devices. The final assumption was that national economic policies would be geared to ensure convergence among euro area economies, within a strengthened single market.
These assumptions turned out to be misplaced...
...The unique nature of the euro area institutional framework and the policies implemented by some of its members offer explanations for why the crisis erupted. I will not dwell too much on how the crisis developed and why it took so long to find a solution. The reasons are mainly political. They are not exclusive to the euro area, but are part of life in all democracies, where the trade-offs between the short-term costs and the long-term benefits of optimal solutions are difficult to perceive for the average taxpayer, and sometimes even for their elected representatives...
...What is clear is that Europeans have found out during this crisis that sharing a common currency entails much deeper links than they might have initially thought. Monetary Union is to some extent also a political union and subject to the challenges that such unions face, possibly even on a larger scale...
..The IMF[!], the euro area governments, the Greek government and the ECB however take a different view...
...Let me add that I have not read a single page on what a (partial) default of an industrial country would mean for the country itself, for the euro area and for the global economy. It’s often been stated – or should I say assumed? – that there is such a thing as an “organised” or “orderly” default...
...This is not to say that it’s going to be an easy ride. But what’s the alternative? Is it politically more palatable for a government to default? How would the millions of Greek savers react if suddenly they found out that part of their savings is worth substantially less? Would any government get away with it?
More from the gold man: ECB’s Noyer Attacks Rating Agencies’ Role In Euro Debt Crisis
yes Martijn, the designers of the euro didn't take account of politicians' stomachs - probably the most important factor. After all, it doesn't matter what system you have in place if the people running the system aren't interested in maintaining its integrity.
One oddball scenario that occurred to me is a default by all the Club Med economies and the formation of a new trading bloc where financially disgraced countries participate. I assume a default would lead to various penalties by the financial community such as refusal of future credits and so on, so it might be preferable for these economies to trade amongst themselves. After all at some point in the future, the number of these bad economies may well outnumber the good ones.
I was just reading the comments under the article about British economists suggesting Greece exit the euro. One comment indicates the Greeks never wanted the euro in the first place.
The expansion of the EU is something I have found very odd. Whenever there is a campaign in a potential EU candidate state the EU pays for oodles of advertising encouraging citizens to vote yes. But where is the no campaign? Is that a fair contest?
Call me a conspiracy nut if you wish. That kind of campaigning stinks to high heaven of a political expansionist elite with an ego-centric agenda to me.
I suspect the Eurozone folks and BIS, ECB are fully aware of Sun Tzu's Art of War:
"All warfare is based on deception.
Hence, when able to attack, we must seem unable;
when using our forces, we must seem inactive; when we
are near, we must make the enemy believe we are far away;
when far away, we must make him believe we are near.
Hold out baits to entice the enemy. Feign disorder,
and crush him."
Yeah.
And China seems to be fully in on the "game" too. That move of suggesting that they were worried about their Eurozone holdings was classic.
Fofoa, if it is June the you are 1/2 ok with prediction that this is the year of buck :o)
If Merkel is on board then she does not have much time, just untill next election...
Ho ho Gordon. You have a lot of faith in our politicians.
I think Sun Tzu also said strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.
I think the Germans urged the rest of the ECB to let the euro drift lower for this moment.. as a compensation for the germans to pay up for the PIIGS... Competitive devaluations... with freegold working behind the curtains for europe... Gold and gold receivables now 59 % of ECB reserves....marked to market
Uncle sam is watching this with disbelief.. but unable to act against it
"Tactics without strategy is the noise before defeat. "
That would be the condition of the US right now.
the moneyhoneys at CNBC are screaming that the euro is doomed and those lousy europeans don't have their house in order... Has anyone heard about austerity in the us ?
If deficits don't matter, why is the state collecting taxes (marc faber)
IMF is selling gold, central banks manipulating the euro. Lots of moving parts now, careful something doesn't break.
miked,
"Call me a conspiracy nut if you wish. That kind of campaigning stinks to high heaven of a political expansionist elite with an ego-centric agenda to me."
+100
The final ratification of the Treaty of Lisbon turned the EU into a nation state. Everyone from the President down is nominated by committee. No elections for these positions. They rapidly began upgrading the EU diplomatic missions aqroubnd the globe to full Amgassadorial status.
"yes Martijn, the designers of the euro didn't take account of politicians' stomachs - probably the most important factor."
-100
In setting up the ECB the waywardness of politicians was high on the agenda. The ECB mandate is monetary stability. In other words to protect the Euro. They do not have any of the (phoney?) mandates that other Central Banks have such as full employment, inflation targetting etc.
Martijn posted a great quote above:
"A currency union is strongest without fiscal union. Then countries are no different from companies. If they borrow and cannot pay back, investors lose money. The currency is unaffected."
As FOA said while Another was posting:
"Basically, this is the direction the Euro group is taking us. This concept was born with little regard for the economic health of Europe. In the future, any countries money or economy can totally fail and the world currency operation will continue. What is being built is a new currency system, built on a world market price for gold." (My emphasis)
http://www.usagold.com/goldtrail/archives/another4.html
8/10/98 Friend of ANOTHER
"In setting up the ECB the waywardness of politicians was high on the agenda."
Yes Costata, perhaps I could have said it better. But how often has the EU imposed the fines they are supposed to? From what I see fines get imposed on the small members but France, for example can run deficits exceeding the limits year after year without punishment.
Agreed, a common currency where constituent countries can go bankrupt is a good thing, but the euro started off on the wrong foot with all countries' bonds being valued as a homogeneous block. Now investors are pricing in the difference but it's too late for the market to impose constructive discipline.
gold hits its highest in India Yesterday Rupees 19000/- ever
That's Rupees 19000/- for 10 grams
I got a call from my friend yesterday telling me he was going to go buy gold because the sister of his friend, who works at the greek mint, told him that they were printing up euros for September circulation. I dont know how valid this claim is but my friend went to the bank yesterday, paid off all his debts and vendor bills and pumped the rest in gold.
Sorry, that's supposed to say "printing up drachmas" not euros
Just bought my 1st physical gold. A Swiss 20 franc Vreneli coin....for $256 (well 293chf actually) from UBS bank in Luzern.
I just walked in and asked what they had. She said only vrenelis at the moment, but I don't know if that is the norm...The UBS welcome desk guy snuck over to me when he heard what I was asking for and gave me a card of a local gold coin dealer he is obviously friends with...just incase I needed more info...
Does having gold in bullionvault and also some gold vrenellis count as having a diversified portfolio??!! haha
Cheers!
miked,
"....it's too late for the market to impose constructive discipline."
Is it too late for gold to impose constructive discipline?
Hey Sutski.
As you live in Switzerland better check this guy out: Ebay.de...
I got a load of such coins from him, very reliable seller. Prices are usually cheaper than what you paid. But that is valuable only if you buy a few or more.
discord at ecb
http://www.reuters.com/article/idUSLDE65018L20100601
* Weber opposition "like blaspheming in public"
* Conspiracy theories developing along national lines
Iran announced it is going to sell $45 billion of its Euros and use the proceeds to BUY GOLD. How many other countries -- countries more two-faced than Iran -- are doing the same thing while expressing their support for Europe's fiat currency?
http://www.reuters.com/article/idUSLDE65115U20100602?type=marketsNews
"Is it too late for gold to impose constructive discipline?"
That was kind of my point in our other discussion. I think yes it is too late. We are probably doomed to a hyperinflation with hard money at the end, rather than hard money coming at some point in the middle to save us all.
My reasoning behind that is that in the absence of a hyperinflation, gold would have to rise too far above historical levels of equilibrium to pay the debts off.
ie players will not accept gold in full settlement because nobody would be able to dispose of gold later in large quantities at such a high price..... but revalued gold could solve part of the problem.
IMHO the US will never accept a gold standard, nor freegold. It is one thing to argue it is a natural birthing process and forced upon it (frog boiling analogy) and another altogether to suggest the US capitulates willingly to the handcuffs. When GS is writing articles about SDRs and the Swiss are holding meetings with the IMF on reserve assets you can bet that there are 5 different soft fx alternatives structures - perhaps with a small hard component whereby the US/central bank peers may have some supply / demand / control comp. advantage - that have been devised and are action ready.
Note the IMF/Washington Consensus washes ashore greece this am in the announcement that there will be "asset saels" in the form of water and rails. Didn't China/Russia offer to preemptivily fund such "Privatizations" well before the run on CDS. I think so.
Little has been made of the North Korea incident, but it is somewhat curious that the very defense of Japan PM - that the South Korea incident provides the basis for invalidating a promise on moving US Okinawa basing agreements - led to his resigning this am. Good timing for the US, bad timing for Japan, which economically is setting up nicely as an easy firewall for the US dollar - look how easy it was to set off the greece/peripheral europe issues.
Perhaps that is why the ratings agencies were out again warning on the Japan debt (UK as well), whilst the US/geithner/bernanke push ever more BOJ/Fiscal pumping. Which is it? And coincidentally the candidate for PM replacement likes a weaker JPY. Fx wars on.
Interesting how the US spends several years to investigate a Navy seal punching a hostile in Iraq - recently cleared - and yet is able to construct a 400 page dossier on the NK/SK sinking incident in a matter of weeks. The Russians and the Chinese apparently do not agree with the findings and have called for their own investigations.
On that matter of Iran, this gadfly refuses to bend. Today they are selling EUR and buying gold (bit like the Russians and the Chinese). Perhaps the axis of evil needs to be expanded to our labor provider
Might that Israeli incident have something to do with distracting attension from reports of nuke subs entering the Persian Gulf along with reported US sub?
And then those footnotes like the Santos win in Columbia - the US backed "law and order" candidate and protege of Uribe. Furthermore the Iraq parliment verified the election results that give favor to US backed Allawi and his secular sunni following.
Just more incoherent data points
IMPORTANT NEWS: World currency unit intended to rival U.S. dollar for supremacy.
A new currency is intended to challenge the U.S. dollar as the world's foremost reserve currency. The WOCU, short for world currency unit, was actually launched by London-based WDX Organization in September 2009, but only seems to be gaining recognition now. Its value is determined as a derivative of the exchange rates of the world's top 20 currencies, as measured by GDP, in order to reduce the risk associated with exchange rate fluctuations. The new currency is similar to the International Monetary Fund's special drawing rights (SDR), which the IMF uses as a reserve asset to supplement the currency reserves of its member states. Both Russia and China have been pushing for the world to switch to a new currency.
@ miked;
If you are planning to hyperinflate Chinese dollar assets into oblivion, then you have to revalue gold such that Chinese gains on gold offsets their loss on on dollar assets:
Chinese are reported to have 1054 tons of gold.
http://en.wikipedia.org/wiki/Gold_reserve
This is 1054e6/31.10348~33.89e6 ounces.
Chinese government holds 895 billion dollars worth Treasury Bonds.
http://www.treas.gov/tic/mfh.txt
Dividing (895e9/33.89e6) , we find 26,000 dollars per ounce, which is the "entry" level "freegold" price. Since, all the bondholders would have been decimated, the purchasing power parity of this "price" might well be in the thousands of dollars.
@Tekin: so if Chineses are smart enough, they will say they have miscounted and in reality have only 10 tons of gold. The price will be 2,6 mil. USD per oz. then. Good deal for China.
I consider your calculation more hilarious compared to what FOFOA concluded in Reflection article.
Yeah guys. Nobody is going to work out who owes what to who and revalue gold to that level.
What is the point really? As soon as it's all said and done gold will drift back down to its equilibrium level and the Chinese will still have a bunch of overvalued poo on their balance sheet.
@ miked
Yeah guys. Nobody is going to work out who owes what to who and revalue gold to that level.
Well, the Chinese could make this calculation and enter into the physical market and drive the price into level which resuscitates their balance sheet into life.
@ stibot
I read this argument from A/FOA/Belgian some time ago. They did not make a calculation but sketched the basic idea. They also tied the central bank (Washington) gold agreement into this scheme, if I remember correctly. That is: Europe sold some of its gold to China so that, Chinese would find this gold revaluation play attractive.
"Well, the Chinese could make this calculation and enter into the physical market and drive the price into level which resuscitates their balance sheet into life.
This strategy works fine if you consider a snapshot in time at the revaluation event. But what happens afterward when supply and demand come into play? Nations with too much gold will start selling to even things up and the long term supply/demand dynamics will ensure gold will return to normal levels relative to other assets like housing.
If selling gold lowers its price, and if this causes a deterioration of the balance sheet, why would any nation sell it?
Nevertheless, I agree with you that the business cycles would not be abolished, since the central banks are driving the business cycle.
Most probably, at some point, pendulum would swing to financial assets. The total value financial assets would begin to increase as the total value of gold reserves remains almost unchanged. Dow/Gold ratio is a good tool to monitor this development. At the inflection point, it would be prudent to shift into financial assets.
I expect the central banks to slow down (the financial asset production) initially, since the generation living in this turmoil would constantly be monitoring the developments.
These swings into real and financial assets are the only tools these bankers have. They wait for a long time before repeating their tricks, so that most people do not remember what had happened. Since the average life span is increasing, I expect the business cycle (Kondratieff wave) to lengthen.
Iran, Middle East, Hmmm... then it is the liliputans, lemmings with the right mindset who collectively do the needed job. All people living in EU reading the news about Iran diversifying into bullion should take a note and think what will happen now... I am still wandering how the market will react. The game seems to be more readable day by day (thought more surprises come in).
At miked,
The point, which FOFOA and others have repeated ad infinitum, is that THERE IS NO EQUILIBRIUM PRICE FOR GOLD!
You can analyze all the ratios, formulas, and calculations that you want. You can look at all the past stock prices, monetary supply growth, debt levels, population growth, tea leaves, etc., that you want. It doesn't matter what price you think is rational. Gold has no "rational" price. It is a wealth reserve for savings, with no objective way to price it (such as a price-earnings ratio).
You are looking at things from a central planner's perspective, very similar to the old Soviet leaders - how many cars to produce? How many nails, as opposed to screws? How many houses in each city? They looked at population growth, state of existing production, Sears Roebuck catalogues, etc. Are these factors reasonable? Yes, but only the sum of each individual's choices can ultimately reach the correct decision, i.e., any decision other than the market's is arbitrary and is likely a malinvestment.
Furthermore, the knowledge problem is even greater with regard to gold, due to its inherent qualities. For a brief discussion why, please read the article FOFOA linked to just the other day , in the same post in which you were commenting. I don’t agree with everything in that two-part article by John Law, but it gives an excellent discussion of how “There is no obvious equilibrium to which the gold price must converge” and how this makes gold a completely different analysis than stocks, real estate, debt, etc.
So what does this mean? High price gold, and whether it’s going higher or lower from that “snapshot in time,” does not depend upon “supply/demand dynamics,” as you erroneously claim. Again, housing and its role as a wealth reserve is completely different from gold and its role as a wealth reserve. Please read the article.
And about the Chinese or anyone else sitting down and working out a global balance sheet of who owes what to whom, again you are thinking from a central planner’s perspective. I assure you, the Chinese will have a very good idea of what they are owed and what they will accept in return. And so will many other giant creditors. That is the essence of the market – each individual taking stock of his own situation and reaching a subjective valuation that may differ from everyone else’s subjective valuation.
No King But God
@ No King But God
Very well said. I had tried to make the same point about ratios, formulas, and calculations in the previous post's comment section.
All but the very obstinate would understand FOFOA's repeated conjectures about the future price of gold.
Interesting that Iran is buying USD and gold. http://www.reuters.com/article/idUSLDE65115U20100602?type=marketsNews
I like the last line...
"The liquidity of both the euro and the dollar and the difficulty of switching large portfolios to other currencies mean there are no alternatives to them in the near term, the sources in Brazil, India, Japan and South Korea said in separate interviews."
"In the near term" indeed.
according to adrian douglas and harvey organ, they think the comex has a good chance of being blown up this month.
another said
There are only two threats to the world fiat currency system at present. The oil states could stop buying US$ for oil and drop all paper gold for real bullion. Or, the masses could buy up all the physical supplies thereby breaking the OIL/GOLD/US$ bond.
The open interest in JUN gold is 6,497 contracts or 0.65 Mozs. With the delivery notices issued the total gold standing for delivery could be 2.5 Mozs. BINGO! This is 77% of the dealer inventory of gold! We have never seen anything like this before. This is stunning. I don’t see how the dealers are going to handle this demand. They will be left with almost nothing. This could be the breaking point for the Comex. Watch this space.
Cheers
Adrian
"All but the very obstinate would understand..."
I think this demonstrates adequately who of us is obstinate. And a tad arrogant. Are you saying I don't understand what I have read? I had already read the article you posted. Your line of argumentation is akin to those who say we cannot use logic and physical evidence to support a thesis that God does not exist. What will be next? The writings of Another were only meant to be an allegory and not a prediction, perhaps?
@ No King but God
"And about the Chinese or anyone else sitting down and working out a global balance sheet of who owes what to whom, again you are thinking from a central planner’s perspective"
I was making the same point in saying this will never happen. Governments cannot set the gold price at some arbitrary level too far from where it belongs without expecting to go broke supporting it in the future.
"THERE IS NO EQUILIBRIUM PRICE FOR GOLD!
And deficits don't matter, I suppose? Adam smith must be turning in his grave :)
There is a price for all kinds money determined by supply and demand. Even US dollars and gold.
The demand for money is determined by a trade-off between holding money versus other assets, and the interest those assets will pay.
@ Tekin
"If selling gold lowers its price, and if this causes a deterioration of the balance sheet, why would any nation sell it?"
Isn't that the point of Freegold? To have a freely floating gold price? You could also ask why the Chinese would ever sell their US Treasuries. There is considerable fear they will do it - because they are overvalued. If gold is overvalued then why not sell it before someone else does? First mover advantage.
At miked,
Thought it best to reply here so as not to distract from the current post.
We agree about one thing, at least – “Governments cannot set the gold price at some arbitrary level too far from where it belongs without expecting to go broke supporting it in the future.” This is what governments have done to date – spent themselves broke, using our money, trying to suppress gold below where the market would otherwise take it. I don’t believe that FOFOA, however, has ever argued that governments in Freegold would have to actively support/manipulate the gold price to take it or keep it higher. It has been his contention all along that this would be an inevitable, market-driven evolution, and not a designed, planned manipulation forced upon us. So it appears to me that you are looking at this issue completely backwards. Please correct me if I have misunderstood your perspective.
Also, what does the Keynesian argument that deficits don’t matter have to do with the statement that there is no objectively identifiable equilibrium price for gold? I have certainly never endorsed that Keynesian nonsense.
Finally, I believe I misspoke in my earlier comment, and I apologize if this misled you. I said that “High price gold, and whether it’s going higher or lower from that ‘snapshot in time,’ does not depend upon ‘supply/demand dynamics,’ as you erroneously claim.” I was really trying to get at the situation from a stocks versus flows perspective. Of course the price is driven by supply-demand dynamics, but primarily with regard to the existing stocks, and much much much less so with regard to annual production (i.e., flows). I am not sure if the article you said you had read (when replying to Greyfox) was in reference to the one I cited, but please read it if you can and have not already. Much of this regarding the stocks-flows dynamic and no objectively identifiable equilibrium price is very clearly and concisely explained in that John Law article.
The reason this is so important is that you compare gold to housing. The supply of housing is easily expanded or contracted as needed. Gold, however, is vastly more stable, and new production/mining cannot be brought on line anywhere near as easily. The price must therefore move sufficiently to coax existing stock out of the hands of owners, but as we’ve seen and as the article discusses, a rising price of gold can also further accelerate demand.
So if governments don’t have to manipulate the market to keep the price of gold high, and new supply cannot readily come on the market in sufficient size to flood it and drag the price down, then it seems most logical that the price would not crash, but rather “levitate” at its new stratospheric level. You seem to find such a high price irrational, but only because you are arbitrarily comparing it to certain prior and present “snapshots in time.” You know, not that long ago in human history, people would have found it irrational for the world to place the overarching importance on oil that today’s economy does. Has that stopped the world from building an economy reliant upon it?
No King But God
From the middle of the interview :
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/6/3_Bill_Fleckenstein.html
Hello No King But God
Thanks for the clarification. In reply to you and with my own clarification:
"I don’t believe that FOFOA, however, has ever argued that governments in Freegold would have to actively support/manipulate the gold price to take it or keep it higher"
Take a look here in the comments section: http://fofoa.blogspot.com/2010/04/life-in-ant-farm.html in FOFA's reply to Frycook:
"It's called imputability. If the CBs wanted to, they could put out the offer to buy and sell any and all gold at $50,000 per ounce. How much gold do you think they would get flowing in? The answer is they would get less than you think, because that price would be instantly imputed across the globe as long as the offer was credible.
And the very action of making the offer would expose the collective consciousness to certain realities that had been previously marginalized. The amount of cash ultimately printed would not be sufficient for the inflation that you mentioned. If it was the Fed that did this instead of the BIS, the final result would probably be a run on the US gold at that price.
"
To be fair he's not saying it would happen. My problem is that I cannot see a market driven dynamic that would raise the gold price to a level to pay off total debt. Why would it rise to such a level on its own? The gold price is driven by supply/demand characteristics which are connected to the amount of debt (money) in the system, but indirectly as gold is still traded as a commodity and not the money base.
"Of course the price is driven by supply-demand dynamics, but primarily with regard to the existing stocks, and much much much less so with regard to annual production "
Agreed. My calculations were made with the stocks and I only posted the production tables so I could calculate the stocks.
"So if governments don’t have to manipulate the market to keep the price of gold high, and new supply cannot readily come on the market in sufficient size to flood it and drag the price down, then it seems most logical that the price would not crash, but rather “levitate” at its new stratospheric level. You seem to find such a high price irrational, but only because you are arbitrarily comparing it to certain prior and present “snapshots in time.” You know, not that long ago in human history, people would have found it irrational for the world to place the overarching importance on oil that today’s economy does. Has that stopped the world from building an economy reliant upon it?"
Yes, this I cannot understand. Under a gold/money standard the stock of gold represents the stocks of assets in the economy. Whether that economy is based on potato farming, oil or Star Trek teleport systems, gold will still encompass it all and certain things will remain more or less constant - such as the proportion of wealth held in investments like stocks and housing. That was the basis of my estimate of the gold price based on the market capitalization of the stock market in 1900 and now. Very approximate I agree, but anchored in reality.
Don't get me wrong. If physical gold does increase 100 times in value it would please me no end!
@kewl
Nice one. I just used the "buy it now" button (or as it should be called the "buy gold now" button) so will see what it comes out at on the CCard statement...
haha I love buying gold bullion on credit!! hehe
At miked,
Thanks for the reply – you seem to be much quicker at getting these out than me! I’ll break this reply up into several comments for ease of reading and replying.
First, with regard to your quote of FOFOA’s reply to Frycook, FOFOA is not making a blanket statement that Freegold must be driven by governments and will simply be a market manipulation on their part. You have to take his reply in context, especially in light of the rest of his voluminous explanations of the market-driven nature of Freegold.
Frycook was wondering how the BIS could claim to have the power to initiate the Freegold process (as A/FOA wrote). FOFOA was simply showing a way that, if the BIS was left with no other options, it could expose the whole dollar/paper gold charade and show the world how highly that it, and many other giants, value physical gold. FOFOA was not saying that this is the only way, nor that it is likely to happen. Governments, modern economists, and the media have worked overtime for many years to suppress gold in the mainstream consciousness. But if a credible giant, whether private or government, were to pull back the curtain on a sufficient scale, things could change rather quickly. However, this is nowhere near the same thing as saying that Freegold would therefore be a government manipulation requiring constant intervention to maintain it. Rather the opposite conclusion should be drawn – it has taken constant government intervention to oppose it!
No King But God
At miked,
Part 2.
Let’s look at your statement that “I cannot see a market driven dynamic that would raise the gold price to a level to pay off total debt. Why would it rise to such a level on its own?”
Your belief/doubt seems to be built upon two fundamental assumptions. Please correct me if I am mistaken, but this is how I perceive them. One, you see gold as a commodity, or alternatively, you don’t believe that its treatment by the mainstream as such will change. Two, you believe that the relative importance of stocks/equities and housing/real estate, both now and within the past hundred years or so, as a wealth reserve is likely to continue into the future (i.e., your “proportion of wealth held” statement). I disagree with these assumptions.
Let’s look at it this way. Oil is a building block of the modern, global economy. It enables transportation, i.e., mobility of goods, people, and capital through physical space. This is of inestimable benefit to a free market. But what enables the mobility of capital through temporal space, i.e., time? I would argue that gold is best suited for this. It is the most inherently suited of all God’s elements to accurately, safely, and with great stability, transfer savings from the past and present to the future. I don’t believe God gave us gold as a mere commodity. It is a financial tool intended to preserve savings for future deployment, and free of government intervention it performs this role better than any other potential rival, such as stock, bonds, real estate, etc.
No King But God
At miked,
Part 3.
What does this have to do with your proportion of wealth held statement? Again, you are narrowly focusing on a snapshot in time that I would humbly argue is not at all representative of much of history, and most likely not of the future either. How important were stocks/equities to most of humanity throughout history? Of very little significance. Most savers or other holders of wealth throughout history, instead of subjecting their capital to the risk of inflation, counterparties, changing consumer demand, poor management, etc., simply held whatever wealth they had as gold (or some other similar precious metal). Most people today are not well-equipped to battle inflation and all these other risks by investing in stocks or real estate. But to resist the ravages of inflation, they are forced to seek a wealth reserve that will hopefully provide a return sufficient to preserve their savings, but they are forced to invest in something they do not understand! This is very different from the past, where they could simply hide a few gold coins somewhere, and then watch those gold coins actually rise in purchasing power. How smart/educated do you have to be to do that?
So I believe that your assumption that the proportion of wealth held in stocks, real estate, etc., over the past hundred years will remain relatively constant in the future is unfounded in history or theory. If gold becomes a true wealth reserve, then its importance (and therefore relative proportion of wealth held in it) will rise dramatically and many others will likely fall dramatically in real terms. Some things held as wealth reserves will likely no longer be seen in that way, at least not to the extent they have been recently. Furthermore, some things held as insurance will no longer be seen that way. The most important of these is likely the derivative market.
If paper derivatives melt down, then a 100 times increase in the real value of gold is not so farfetched. Using your number of a current $5 trillion valuation for all gold ever mined, then 100 times that number is $500 trillion. Depending on the source, $500 trillion could be less than half of the existing derivatives market. And this valuation multiple doesn’t even account for all the other asset and debt markets. So yes, if gold becomes a true wealth reserve, then it seems to me that super high multiples are very possible.
Anyway, I hope somewhere in my rambling I have made some sense.
No King But God
Jim Willie latest from Gold Eagle editorials
http://www.gold-eagle.com/editorials_08/willie060310.html
Enjoy
Let's go to china.. and look at the piles of usd .. gee...the paper guys will tell you.. that's the problem.
Let's assume that these chinese are have 5 % gold reserves...
If the price of gold X20.. they have not lost any buying power
Hello No King But God
Thanks for your reply. I think we've both said most of what we need to say and we understand each other's perspectives now.
Just one last question. Why do you believe gold will need to rise to a value to cancel out all the debt?
What if only 30% of the debt was bad and that 30% was taken as a haircut? What if the other 70% was reduced slowly through hard work and cuts and honest repayment schedules? Where does that leave gold?
Or another scenario in the same vein. Derivatives are declared gambling and unenforceable (think tulip bubble), and gold is used to pay down some but not all of the other debt. Should we not be looking at such huge increases in the gold price?
Here's a dot.
Vietnamese banks offering interest on gold deposits - http://www.gata.org/node/8741
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