David Simon: A Festival of Dangerous Ideas

In winning, the one percent strips capitalism of what made it work in practice during the 20th century.

And in ruthlessly pressing their advantage, and corrupting the system that has served them, they may bring about their eventual self-destruction. We have any number of examples of this in history and literature.

Why the Fed and the US Government Confiscated Gold in 1933, And What They May Be Doing Now

"He who does not punish evil commands that it be done."

Leonardo da Vinci

I believe that this example of how the Fed and the US government 'directed' gold to preferred parties prior to a major revaluation is even more relevant now than I did when I first wrote about this in 2009.

As you know, I think that a new 'Bretton Woods' will be reconstituted at some point, and what we are seeing right now is a vigorous 'negotiation of terms' between the Anglo-American banking cartel and the developing countries, or at least those that cannot be cowed by force. The wild card is why China has been included so graciously and so deeply in the scheme, and what role they are expected to play.

This has been referred to here and other places for some time now as the 'currency war.'

There is plenty of propaganda, also known as semi-official 'advice,' being put forward in support of the various intentions of the worldly powers. China is clearly urging its people to buy gold for themselves, and the West is encouraging its people to turn their gold over to the Banks. To expect China to act in the interest of the Western peoples is a bit too altruistic to be credible.

And while I do not expect a 'hard confiscation' of gold and silver, given the likelihood of credible resistance at least in the States, I do think that expecting a 'bail-in' to occur, even from so-called allocated assets in storage in a few countries in the Banks' sphere of influence, from the US and the UK to their former colonies and client states, to be increasingly possible.

If this is correct, then the public of America and the UK, not to mention Europe and Japan, may be in for what is colloquially referred to as 'a royal screwing.' That is so dark that it seems to be almost impossible, inhuman. It would be taking money from innocent people, especially the poor and the weak, to bailout the Banks and the thoroughly corrupt monied interests. But based on what we have seen, it is certainly not out of the question.

Let's see how all this plays out.

The Last Time the Feds Devalued the Dollar to Save the Banks
14 January 2009

We dipped once again into the Federal Reserve Bulletin Publication from June, 1934 to take a closer look at the growth of the monetary base, and found an interesting graphic that shows the accounting for the January 1934 devaluation of the dollar and the subsequent result on Bank Reserves in the Federal Reserve System.

As you will recall, the Gold Act, or more properly Executive Order 6102 of April 5, 1933, required Americans to surrender their gold coinage and certificates to the Federal Reserve Banks by May 1, 1933. There were no prosecutions for non-compliance except one benchmark case which was brought voluntarily by a person who wished to challenge the act in court.

After a substantial portion of the gold was turned in by US citizens and taken from their bank based safe deposit boxes, the government officially devalued the dollar from 20.67 to 35.00 per ounce in the Gold Reserve Act of January 31, 1934.

The proceeds from this devaluation were used to provide a significant boost to the Federal Reserve member bank positions as shown in the first chart below.

The inflation visited on the American people because of this action helped to take the CPI as it was then measured up 1200 basis points from about -8% to +4% by the end of 1933. To somewhat offset the monetary inflation the Fed also contracted the Monetary Base which served the nascent recovery in the real economy rather poorly and is viewed widely as one of a series of policy errors.

Considering that the actions did little for the employment situation this was painful medicine indeed to those who were dependent on wages.



Fortunately at the same time FDR was initiating the New Deal programs which, despite continual opposition from a Republican minority in Congress, managed to provide a small measure of relief for the 20+% public that was suffering from unemployment and wage stagnation.

People ask frequently "Will the government seize gold again?"

While there is no certainty involved in anything if a government begins to overturn the law and seize private property, one has to ask for the context and details first to understand what happened and why, to understand the precedent.

Technically, the government did not engage in a pure seize of private property, since at that time the US was on the gold standard, and much of the gold holdings of US citizens were in the form of gold coinage and certificates.

Governments always make the case that the currency is their property and that the user is merely holding it as a medium of exchange. The foundation of the argument was that the government required to recall its gold to strengthen the backing of the US dollar against the net outflows of gold for international trade. The devaluation helped with this as well, since dollars brought less gold for trade balances.

People also ask, "Why didn't the government just revalue the dollar without trying to recall all the gold from the American public?"

The answer would seem to be that this would have been more just, more equitable recompense for the public. The Treasury could have purchased gold from the public to support its foreign trade needs.

But it would have left much less liquidity for the banks.

One can make a better case that the recall of the gold, with the subsequent revaluation to benefit a small segment of the population in the Banks, was a form of seizure of wealth without due compensation. Hence the lack of active prosecutions.

So, will the government take back gold again to save the banks by devaluing the dollar?

Highly unlikely, because they not only do not need to this, since the dollar is no longer backed by gold, and is a form of secular property except perhaps for gold eagles, but they do not have to, because they are devaluing the dollar already to save the banks.

This time the confiscation of wealth to save the banks is called TARP. (And QE I&II, financial asset inflation, and gold leasing and suppression with the soft confiscation of price manipulation. - Jess).

If one thinks about it, US Dollars are being created and provided directly to the banks to boost their free reserves significantly, at a scale comparable and beyond to 1933-34.

The confiscation of wealth is being spread among all holders of US dollars and dollar assets, foreign and domestic, in the more subtle form of monetary inflation.

Granted, the government must be more opaque to mask their actions in order to sustain confidence in the dollar while the devaluation occurs, but this is exactly what is happening, and all that is required to happen in a fiat regime.

There is no need to seize widely held exogenous commodities like gold and oil, but merely dampen any bellwether signals that a significant devaluation of the dollar is once gain being perpetrated on the American people in order to save the banks.

Its fascinating to look carefully at this next chart below.



First, notice the big drop in gold in circulation of 9.8 million ounces, or roughly 36% of the measured inventory at the end of 1932. Think someone was front-running the dollar devaluation? We suspect that the order went out to start pulling in the gold stock to the banks.

The reduction in gold in circulation AFTER the announcement of the Gold Act in April would be about 3.9 million ounces, or roughly 22% of the gold remaining in circulation in March 1933.

Considering that all gold coinage held by banks in the vaults was automatically seized, the voluntary compliance rate is not all that impressive. We are not sure how much of this was being held in overseas hands by non-US entities.

But beyond a doubt, there was an unjust, if not illegal, seizure of wealth by requiring citizen to turn in their gold to the banks, which was then revalued at the beginning of 1934 by 69% from 20.67 to 35 dollars.

It would have been much more equitable to devalue the dollar and to change the basis for dollar/gold first, before requiring private citizens to surrender their holdings. But of course, this would have lessened the liquidity available for direct infusion into the Federal Reserve banks.

Gold Daily and Silver Weekly Charts - December Continues to Play Out

"The powers of financial capitalism had a far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert by secret agreements arrived at in frequent private meetings and conferences."

Caroll Quigley, Tragedy and Hope

Gold and silver did not get hit hard on a Non-Farm Payrolls day. Film at 11.

If you look at the Comex inventory report below, you can see that they have bucked up the deliverable inventory to almost 700,000 ounces.  And they have managed to knock down the December open interest a bit as well.

Ok guys, time to start moving that bullion, and letting more actual deliveries take place.  It looks like you will have December covered. 

As for February, who can say.

The Shanghai Gold Exchange says that it intends to attract more foreign investors with new products.

Have a pleasant weekend.

SP 500 and NDX Futures Daily Charts - Stocks Rise On Peachy Jobs Report

Stocks rose sharply on better-than-expected Nonfarm Payrolls report.

What happened to all the fear about the taper?

The tape will be painted into the year end. There are a lot of hedge fund and trading desk bonuses at stake.

Have a pleasant evening.

Gold Daily and Silver Weekly Charts - Non-Farm Payrolls Tomorrow

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage."

John Kenneth Galbraith

There was intraday commentary on the leverage against deliverable gold on the Comex here.

Gold was under some renewed downward pressure today ahead of the Non-Farm Payrolls report tomorrow.

About 10,000 ounces of gold were added to the deliverable inventory at the Comex yesterday.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Up Is Down and Down Is Up

GDP came in better than expected for Q3 this morning.

Stocks were shaving off points as concerns about 'the taper' were floating around the pool.

Tomorrow is the Non-Farm Payrolls and expectations are leaning higher.

Have a pleasant evening.

Comex Deliverable Gold Still Out On the Tails of Leverage at 57 to 1

"Jim, lad, there be consequences an' then there be consequences. Devil take 'em all, says I, and pass aft the rum."

Robert Louis Stevenson, Treasure Island

The ratio of potential claims to deliverable gold remains at an extreme of 57 to 1, despite the pricing antics designed to shake off the standing longs, and to scrape out physical supply from wherever it can be had.

But the leverage remains quite high in what is normally a big delivery month of December. That so few longs have yet to be filled with physical bullion is interesting.

January is a non-active month.

So we will probably see continued volatility, more price bluffing maneuvers, and more disinformation from hangers-on, hired help, and useful idiots.  

The shorts are trapped, and it is just a matter of time until they have to let go and allow the price to rise. And the odd thing is that the producer/merchants have already read this and have shifted their shorts to the 'smart money.'

I think for now the gold bears' goal is for the bullion banks and hedge funds to get through the big December delivery month without breaking anything or losing control of price, even if they have to allow it to rise towards the end of year to permit more gold to come to delivery.  

And the Banks keep encouraging the funds to take those shorts on to the limit.  Hoo hah.

What is lacking is a major player who is willing to call them out.  So far the game is 'working' for everyone on the short term.  Those who want it are getting bullion on the cheap, and those who want to take their short term money are getting paid.

It will be an interesting month. I will be surprised if there is a resolution, and as you know I do not expect a Comex default, although a technical de facto default is always a possibility, as a fail to deliver and a force majeure. Not to put a fine point on this temporally, the Comex may be like the Battle of Stalingrad, but the Shanghai Gold Exchange is Kursk.

More likely the jokers will continue to try and bluff through year end and close their books, and regroup in January if they can make it without allowing the price to rise too far. They may keep doubling down and increasing their leverage. What could go wrong? This is how an LTCM and MF Global happens. They are a bit hard to predict because of the obvious opacity, but also because it takes some player or some incident to send them tipping over.

But it does seem to be in a spiral now as the physical offtake to Asia and strong hands continues. Most of the world sees the gold leasing scheme for what it is, even if those in the fog of the Anglo-American banking cartel do not. There the status quo maintains its studied silence, while the flacks continue to put up their smokescreens for their cronies and patrons. And it is hard to believe that there are those in official positions who are not aware, and providing support for this both directly and indirectly.

What a funny system of price discovery this is.  With a few minor variations, the ending seems almost inevitable. 

And yet we keep coming back to this place, again and again.  Wickedness is resilient, persistence, but the virtue and vigilant righteousness of the people seems to ebb and flow.

"Gentlemen! I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country.

When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin!

Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, (bringing his fist down on the table) I will rout you out."

From the original minutes of the Philadelphia bankers sent to meet with President Jackson February 1834, from Andrew Jackson and the Bank of the United States (1928) by Stan V. Henkels

Comex and Shanghai - Gold and Silver Deliveries Compared Over the Last Five Years

I asked Nick of Sharelynx if he could wrangle up some comparison charts between the Comex and Shanghai for our inquiring minds.

Interestingly enough, Shanghai dominates in gold delivery, but Comex does reasonably well for silver over the last five years.    The new charts are shown below for both metals.

Comex delivered a total of 1,025 tonnes of gold, whereas Shanghai did 8,655.  And in the case of Comex much of their delivery had never left the warehouse complex until recently.  It went into customer storage and came back on a trade.  In Shanghai the gold must leave the warehouse.

In the case of silver, Comex has delivered 15,165 tonnes whereas Shanghai has done only 3,266.  But if you look at the Shanghai trend it is obviously growing at an accelerating rate in silver.

Interestingly enough, the delivery ratio of silver to gold at the Comex is about 15:1.  Again, we have to allow for the round trips that occur.

In the case of Shanghai the silver to gold ratio is skewed heavily to gold.  Gold seems to be the metal for China.   But that skew appears to be lessening in the past couple of years.

A comparison of the recent trends shows that the Comex is relatively light on deliveries whereas Shanghai seems to be accelerating

As a reminder, the London Bullion Market Association is the bigger Western delivery exchange, but its records are not yet available to us for analysis like this.

The source of these charts is the master data wrangler, Nick Laird.