Gold Daily and Silver Weekly Charts - The US Dollar: Keeping Up Appearances

Ron Paul: "I had a Federal Reserve Board Chairman testify before the committee that the gold standard had some merits but it was unnecessary because central bankers have now learned how to manage a Fiat currency in a manner in which it would mimic the gold standard. Would anybody care to comment about where the flaw is in that thinking?"

Mr. Lehrman: "I am anxious to comment on that, Dr. Paul. Under--and I must say Mr. Greenspan made the same insipid remark. Mr. Greenspan and Mr. Bernanke will have to then explain why it was that two of the greatest booms in American history, and two of the greatest panics and busts in American financial history, occurred under their 25-year watch..."

Mr. Grant: "The failure of AIG is so instructive in this respect. AIG, this immense insurance company with this ever so brilliant financial products group, didn't do one thing. It didn't mark its positions to market. Finally came the day of judgment and it argued with Goldman Sachs about what these things were worth, AIG said 100 cents on the dollar, Goldman Sachs said not close, Goldman Sachs won that debate and AIG failed.

As with AIG and Goldman Sachs, so it is today with the United States and its Asian trading partners. We never clear our trades. Our dollars go there, and they come right back here. We run twenty five consecutive years of debts on a current account and there will be for us, as there was for AIG, a moment in truth in which we must settle."

U.S. House of Representatives, Committee on Financial Services, Testimony of March 17, 2011

The US will settle, in paper dollars.  And if the payment is insufficient, they can always create more.

That is the long and short of it, and the sophistry of modern money.  Because the value of the money is self-referential, it is in essence a literal confidence game.  The dollar is worth what we say it is, and it is worth it because we say it, without regard to other opinions and considerations to the contrary. And as long as people believe this, or even pretend to believe this even if they don't but are afraid of the consequences of their disbelief, the dollar hegemony is secure.

Money is a matter of force and confidence; and when confidence wavers, force must provide. Force can take many forms, from persuasion to deception and even compulsion.

So the appearance of solidity and confidence must be maintained no matter what.   It must, as apparently Messrs. Greenspan and Bernanke have said, must 'mimic the gold standard.'  And they are right.  Caesar's wife must be above reproach, and the fiat dollar is the dowager queen of empire.

That is why the chat board gimmickry of the platinum coin was such a remarkably dangerous folly. Even given that money is a somewhat specialized area of study, it was shocking that a distinguished economist like Paul Krugman did not seem to understand it.  I could attribute that to a moment of political weakness. 

But the rest of the world did understand exactly what was happening, and held its breath.  Would the US dare to cynically impugn the basis of its debt, even by implication? 

Perhaps the greater question, such silliness as trillion dollar platinum coins aside, is how far the Anglo-American financial system is willing to go to keep up the appearance and dignity of a stable global reserve currency in the dollar, even while the dollar is being used and abused by the financiers like a 12th Avenue hooker?

I think you know that I believe that the paper metals markets are an accident waiting to happen, particularly with regard to silver.

It appears that the exchange and the regulators are managing the markets with reckless disregard for their soundness.

So let's see what happens.

Smith: Why I am Leaving Goldman Sachs

"And remember, where you have a concentration of power in a few hands, all too frequently men with the mentality of gangsters get control."

John Dalberg Lord Acton

This is an interesting commentary not only on Goldman but on the entire Anglo-American banking cartel as well. An executive at the 'bank' has resigned in moral revulsion.

But Wall Street need not fear those who refuse, in acts of conscience, to participate in the looting of customers and the abuse of the public trust. There are always others more than willing and eager to take their place.   Siewert, Former Geithner Aide, Heading To Goldman.

The reaction from Wall Street is that Mr. Smith, a ten year veteran, sounds naive. Dick Bove just told one of the giggling spokesmodels that if Goldman rips off its customers, and the suckers keep coming back for more, then that is the stock to buy. They are just that good.

Let's not get too misty or wax romantic about this. Goldman Sachs was a major corrupting force that contributed to the collapse and Depression of the 1930s, earning their own chapter in John Kenneth Galbraith's The Great Crash of 1929, In Goldman Sachs We Trust.

Greg Smith's comments on leadership are spot on. The tone of an organization is heavily influenced, if not set, by the behaviour and the policies of the leadership. And the part that character and honesty play in this has somehow been forgotten, abandoned.

"A genuine leader is not a searcher for consensus but a molder of consensus."

Martin Luther King

I can advise Mr. Smith that if he is disgusted at the behaviour on Wall Street, he ought never to go to Washington, which is replete with those who would do anything for power.

When it comes to 'ripping off their clients,' the politicians of the past twenty years are the real professionals. Not only thieves, but rapists and torturers and conmen.  

And this is why the relationship between the corporate sociopaths and the government, known colloquially as crony capitalism, is such an historically recurrent theme. Heart speaks to heart.

This Republican primary is one of the most disgusting spectacles of pandering and deceitful cynicism that I can remember. And the Democrats and their faux reformers are little better. MF Global and the lack of investigations and prosecutions in times of general financial fraud prove that.

Corruption is the coin of the realm. And the nation suffers.

"The preposterous claim that deviations from market efficiency were not only irrelevant to the recent crisis but could never be relevant is the product of an environment in which deduction has driven out induction and ideology has taken over from observation.

The belief that models are not just useful tools but also are capable of yielding comprehensive and universal descriptions of the world has blinded its proponents to realities that have been staring them in the face. That blindness was an element in our present crisis, and conditions our still ineffectual responses.

Economists – in government agencies as well as universities – were obsessively playing Grand Theft Auto while the world around them was falling apart."

John Kay, An Essay on the State of Economics

And that is why there will be no sustainable recovery, but instead, the whirlwind.

NYT
Why I Am Leaving Goldman Sachs
By GREG SMITH March 14, 2012

TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for...

It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail...

Read the rest here.

BIS In 380 Tonnes of Gold Swaps; Organized Looting of Sovereign Wealth; No Confidence

"Manipulation can only go so far…..especially when gold is reverting to its primary function which is as a currency in its own right or as means to substantiate existing currencies." Richard Henley Davis

These swaps have significance because of the speculation that the public sale of gold by the IMF, which was secretive and selective, was not a legitimate sale to raise funds, but a means of bailing out the bullion banks who had taken gold previously on lease and sold it into the public markets, but were unble to return it because of the tightness of supply in the physical bullion market, increasingly disconnected from the NY based paper market.

Several private bullion buyers, including Eric Sprott, are reported to have made firm and well priced offers to buy large tranches of gold from the IMF, only to be curtly turned away as 'ineligible.' The IMF is selling at the prices they determine ex-market to the people to whom they wish to sell. It appears that they, and certain European central banks, may be managing this through BIS.

Just as Gordon Brown sold England's gold at artificially low prices to bail out the bullion banks in NY and the City, so the IMF and its constituent members are selling the public stores of gold, largely from a few developed western nations, to support what essentially appears to be a crony capitalist banking fraud involving the secretive sale of public assets at artificial prices with the gains pocketed by a few state-sponsored banks.

"Gold swaps are usually undertaken between monetary authorities. The gold is exchanged for foreign exchange deposits (or other reserve assets) with an agreement that the transaction be unwound at an agreed future date, at an agreed price. The monetary authority acquiring the foreign exchange will pay interest on the foreign exchange received. Gold swaps are typically undertaken when the cash-taking monetary authority has need of foreign exchange but does not wish to sell outright its gold holdings (at least not on their own books - Jesse). In that manner, gold is a leveraging device. Gold swaps sometimes involve transactions where one of the parties is not a monetary authority (usually it is another depository corporation). Gold swaps between monetary authorities do not usually involve the payment of margin."

Repurchase Agreements, Securities Lending, Gold Swaps and Gold Loans, An Update - IMF

Some parties have mistakenly asserted that since a swap is not a lease for accounting purposes, which is quite correct, then the gold could not have been sold. That is just a simplistic misconception. A swap transfers the benefits of the assets from one party to another for a period of time in exchange for interest paid, generally on forex received. Its does not sell the property but it transfers the mineral rights for a time, if you will.

The party that then holds that gold asset can just hold it, or they can utilize it in some way, such as leasing it out for a period of time to another party, like a bullion bank, who can subsequently sell it. These types of 'three way deals' were very commonly seen when Lehman and Bear Stearns started to unravel and they needed ot be unwound, and were a key component of the whole issue of hidden counter party risks. Remember that?

So on the books of the first party there are in fact no leases or sales shown, just swaps of varying duration and terms. But the swap has delivered an asset, in this case gold, into the hands of a party who may have no qualms about leasing that asset out to a third party to obtain funds, and that third party is likely to sell it. I would of course agree that this does not PROVE anything. How can it when the books of some of the parties are still opaque, and audits rarely conducted to verify ownership. But after what we have just seen over the last three years in these games of asset merry-go-round, how can anyone just blatantly dismiss that can and likely is happening, where there is an easy profit to be made. Especially considering the past history of transactions between the bullion banks and the central banks.

Personally I would view this report as bullish for the price of gold, since it is past history, and almost certainly an indication of concerns about Comex offtake. In other words, shortages are appearing, and fresh sources of bullion are becoming increasingly difficult to find.

John Brimelow reports that:

"The news of the day, of course, was the discovery by the Virtual Metals analyst (Matthew Turner) that the BIS engaged in what appears to have been the biggest gold swap in history prior to the end of their FY end on March 31st.

Thebulliondesk.com (first of the wire services to report) says:

“In its 2010 annual report, the BIS said that "gold, which the bank held in connection with gold swap operations, under which the bank exchanges currencies for physical gold," stands at 8,160.1 million in special drawing rights, equivalent to 346 tonnes this year, up from nil in 2009.

While the data is relevant to the end of BIS’ 2010 financial year in March, data posted to the International Monetary Fund and carried by Bloomberg show the swap still growing in April, analyst Andy Smith of Bache Commodities noted.

To now, this implies a swap of about 380 tonnes from the end of 2009, he said in a report.”

The new Washington Agreement, which started at the end of last September, allowed signatories to engage in gold derivative transactions for the first time in a decade. Very convenient.

Although none of the major bullion banks (actual or potential CB counterparties) will want to discuss this, the high probability is that much of this gold was actually sold into the market. Very likely this accounts for the contra-seasonal slump of gold in December, which it will be recalled was neither preceded by the usual loss of physical premiums nor accompanied by the usual open interest action.

This in effect means the end of the Washington Agreement restraint on CB gold selling, at a time when several signatories are in bad shape. Most likely this is what caused the selling pressure in gold today, especially after the NY open."

As we have most recently seen with the bloated CDS and CDO credit markets, long standing control frauds can cause quite a splash when they inevitably collapse. We need to bear this in mind when the governments start making their excuses, once again, for taking the 'necessary actions' to support the banks for the good of the people, from whom they have once again stolen billions to provide a fat living for their friends and themselves.

I have been wondering, as I am sure that you have as well, Why Now? Why did the IMF and BIS 'throw the kitchen sink' at the gold bullion market at this particular time?

I think the answer can be found in the setup of the market. Gold was knocking on the door of resistance at $1260, a key point that could have triggered a break away rally. At the same time, according to figures provided in his daily Comex commentary, there were an extraordinary number of contracts standing for delivery in silver and especially gold. Indeed, if the numbers are correct, a breakaway rally would have encouraged almost 2 million ounces of gold to be demanded of the Comex, a call on their 2.64 million ounces of dealer supply that could have literally 'broken the bank.'

As Volcker and Greenspan have both said, the central banks must stand ready to sell gold into the market to prevent its price from rising and displacing the confidence of the markets in the power of the central banks to manage their currency markets.

Economists are debating the reason why individuals and businesses are saving, and not spending money as a response to the Federal Reserve programs.

Here is a comment I wrote in response to an essay by Brad DeLong in the recent issue of The Economist, Why Are Firms Saving So much? I am not editing it here, and since it was done as an only draft, please bear with its somewhat raw form.

"Private firms and individuals are saving too much. DeLong seems to think they are being irrational, because they are doing so out of fear of a commercial credit crunch.

I think this is partly true. But some of the savings activity by companies (and individuals) is obviously because they are not seeing the turnaround in the economy that would give them the confidence to build up their capacity and inventories. They clearly fear another downturn based on what they are seeing.

Now, Mr. DeLong dismisses this, presumably because there is a central bank called the Fed, and it owns a printing press, and stands ready as a lender of last resort.

I think businesses know this, and the attitude and condescension is wholly unnecessary and distracting from the real issue.

Businesses, and individuals, simply do not believe that the Fed is interested in them, as opposed to let's say, the too big to fail banks. For whatever reason, Bernanke has blown his credibility, and done so most likely by talking a better game than he has played as the lender of last resort to the general economy, and not to a select circle of cronies, among which are not the local and regional banks, and certainly not commercial business.

The other fact, although I confess that I cannot prove it with data, is that the banks have troubles of their own, and prefer to use a portion of their funds for speculation, especially those TBTF fellows who are sitting on a lot of dodgy paper.

And finally, what has really changed in an economy that was almost wholly dependent on stock bubbles and mortgage fraud, and a consumer saturated with debt?

So, history stories notwithstanding, the solution to this might be a little closer to home than one might imagine otherwise from reading Mr. DeLong.

The efforts of the Fed and Treasury have NOT been focused on the locus of commercial transactions between private companies and individuals. Rather they have been preoccupied with the speculation in financial derivatives and paper assets that have little or no real connection anymore to the economy. So how can one even wonder that the people have lost faith in this effort?

Only if one assumes that they are irrational fools, incapable of understanding economics because they, after all, lack the necessary credentials and PhD's, as the Federal Reserve fellow so recently observed."

Despite all their dissembling and market antics, I think the Fed's worst fears are coming true. The people of the US are losing confidence in the Federal Reserve and its economic policies, and those of the Treasury which has badly mishandled the banking crisis. The problem is that Washington is talking to New York, and assuming the rest of the country will accept whatever it is they choose to do.

Crunch time is coming, and it will not be pretty. A loss of confidence and a hoarding of funds in savings is a prelude to Gresham's Law, and the first whiff of what I would have never expected could occur: hyper-inflation, preceded by a terrific market crash in late September. That is just how bad that the policy errors of Summers and Bernanke have been, and how badly the Congressional plutocrats have misunderstood the will of the people and failed to enact reforms.

It is going to be a long, hot summer.