China, World Reserve Currencies, the SDR, and an Emerging 'Gold Standard'

“Gold has worked down from Alexander's time. When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory.”

Bernard M. Baruch

I thought this was interesting, particularly given the source of the interview at Bloomberg News.

It is short and so a little bit of a light touch perhaps, but a nice overview nonetheless.

 

One little point of fact I would raise is that the comparison of China M2 and the US M2 is not the whole story.  Since China is not a particularly international currency their M2 is probably a significant subset of their overall issuance. 

 

But in the case of the US, M2 does not account for 'eurodollars', which the Fed intentionally stopped tracking some years ago 'to save money' and thereby stopped issuing M3 figures.  This is a significant factor for the world's reserve currency as you might imagine, and a glaring omission in the validityof the comparison.

A key factor would be their price peg mechanism vis a vis the dollar, and any redeemability features.

They must approach this carefully, because the Anglo-American Banks and Funds will be using every trick of the trade if the yuan becomes less restricted, whether it is tied to gold or not.  

 

If they price it too cheaply, and the gold is redeemable, I can see the great flow of gold from West to East reversing to fill the pockets of the naked shorts.

But if they price it too highly, they cold do some damage to the value of their currency for international trade. I am not saying that they can't do it. And I do see them taking many of the steps required to do this sort of things well.

 

The inclusion of China as a reserve currency for global trade and the SDR has been a bubbling issue for a while.

 

The kind of 'pure fiat regime' we have had in place since 1971 is an historical secular event compared to the great stretch of monetary history. Typically the valuation of an enduring, widely used currency is tied to something external that disciplines its creation. 

But that is history, and our new masters of the universe are beyond the limits of human nature, like gods unrestrained, at least in their own minds and theories.

I should add again that I am not so sure about the power and reach of a gold standard at this point, given the exceptionally fraudulent and distorted nature of the financial system and the devious natures of unreformed, felonious denizens. 

 

Moral hazard is the rule of the day and the intentional mispricing of risk almost a benchmark.  I am sure the global financiers are already planning on how exploit such a development in their paper markets.

 

Our economists and bankers may have their faults, but they are the Michael Jordans of financial fraud.

What Is Happening With Gold: Russian Economist Mikhail Khazin - Of Volatility and Collars

There are some interesting observations contained in this excerpt of a recent interview with Russian economist Mikhail Khazin.   He is not speaking on behalf of the Russian government, so we must take his opinions as we may from a private individual observing things from a different corner of the world.

 Here is a bio of Mr. Khazin.

I found some particular interest in his views on the price of gold, and the approach of Russia and China in buying physical gold on the world markets, without attempting to break the leverage of the paper gold markets directly. 

This would of course lead to increasing volatility in the price of precious metals until a market break provides the opportunity for the paper and physical market to converge.  Mr. Khazin believe this will be triggered by the bursting of the next financial bubble. 

Whether this scenario should actually come about is a matter of some speculation.  I do not know what Russia and China will do, and how the West might respond. So we should look carefully at the accumulation of gold by Russia and China, and the general buying patterns of other central banks as well.

One might expect the speculative exchanges to take some steps to protect themselves from increasing volatility, such as establishing trading collars or limits, in the price of gold and silver.  Oh my.

This is just a brief portion of an interview covering a number of topics. You may read the entire interview here.

 

"It had been clear to many economists for a long time that the role of gold in the world will grow and, most likely, will return to its position as a single measure of value. In particular, we wrote about the current crisis back in 2004 in our book The Decline of the Dollar Empire and the End of the Pax Americana. There's a whole chapter devoted to the role of gold and its manipulation.

However, Russian economic leaders close to the IMF ignored this position at the time. This only began to change in the last couple of years. China has been serious about gold for almost the entire last decade and is now actively preparing for a potential transition to a 'gold standard,' at least in economic relations between the so-called 'currency zones' which, in our opinion, will emerge after the single world dollar system falls apart.

But Russia and China cannot stop these manipulations, because the price of paper gold is determined on the speculative dollar markets. They can’t provide 'leverage' that would be comparable to that of major U.S. banks that have access to an unlimited issuing resource. The only thing they can do is increase the gap between the price of 'paper' and 'physical' gold by constantly buying the latter on the world markets.

Of course, this increases the instability in the global gold market and creates potential losses for the main 'gold dealers' who work with the Federal Reserve on leasing programs, but the degree of imbalances has not reached a critical value yet. It seems to me that the sharp rise in gold prices will start after the burst of the next 'bubble' in the US stock market.

With regard to the potential price of gold, as I wrote back in the early 2000's, it is determined by a 'fork,' the lower limit of which is the gold price in 1980, when it had its local peak after the dollar was decoupled from gold (USA default) in August 1971, and the upper limit of which is the purchasing power of the dollar in the early twentieth century, when gold was actual money. Today this 'fork' (in current dollars) is seen somewhere at the level of $ 4,500 - $ 15,000 per Troy ounce."

Currency Wars: The Plot Thickens

"International discord over Ukraine does not bode well for the settlement of differences over the IMF’s future. Though the G7 is excluding Russia from its number, in retaliation for its action in Crimea, this does not amount to isolating Russia. There has been no suggestion that Russia be excluded from the G20.

The USA and its allies have suspected that several other G20 members would not stand for it. This suspicion was confirmed yesterday when the BRICS foreign ministers, assembled at the international conference in The Hague, issued a statement condemning ‘the escalation of hostile language, sanctions and counter-sanctions’. They affirmed that the custodianship of the G20 belongs to all member-states equally and no one member-state can unilaterally determine its nature and character. In short, their statement read like a manifesto for a pluralist world in which no one nation, bloc or set of values would predominate...

It now seems unlikely that the USA will complete (or, indeed, begin) legislative action on the IMF reform by the 10 April deadline the BRICS have set. The odds are moving in favour of a showdown at the G20 finance ministers’ and central bank governors’ meeting due in Washington on that date...

Beijing leaders have long dreamt of displacing, or at least dethroning, the US dollar from its reserve currency role. US dominance of the IMF is one of several effective bars to the achievement of such a goal. The kind of action Russia is advocating, the BRICS wresting control of the IMF in despite of US veto power, might have some appeal.

That would mark the end of the unified global monetary system that has developed since the IMF was founded in 1945, to be replaced by a bloc of fiat currencies in the developed countries and a system in the emerging sector where currencies were linked to drawing rights in some new international fund, possibly with some material backing. (gold, silver, and possibly commodities - Jesse)

It seems unlikely that convertibility between these monetary systems could be maintained for long. Consequently, the 10 April meeting is shaping up as a potentially critical juncture in world economic history."

Paul Mylchreest, A Critical Juncture

Paul Mylchreest published this essay over at ZeroHedge this evening, and it is worth a read, as Paul is connecting some fairly important dots for us. I doubt that many traders will really understand the implications of what he is saying, without even having read the comments. Good traders often take a highly focused, very detailed, but narrow and short term view of things, and this is both their strength and their weakness. It deserves a broader stage, but it is unlikely to get it when the major media remains willfully blind.

I had not thought of a dual system previously, in which the Anglo-Americans and their allied states decide to go in one direction, maintaining their hegemony around the dollar and the euro, and the rest of the world going in another. It would be inherently unstable, and throw the global credit and forex markets into a somewhat chaotic state. But then again, who could have predicted the folly of a loosely associated set of nations adopting a single currency without the rigor of monetary transfers and fiscal union with which to balance the system.

This is not likely to be a singular event, but part of an evolutionary change in the makeup of the international monetary system that has been developing for years. At some point things will begin moving more quickly, and change may come in an avalanche of events that will leave most analysts gaping in disbelief.

When do you think the American Revolution began, on 4 July 1776?  Such great turns in human events happen over long periods of time.  But, in retrospect, there are always critical junctures in the process of change, with hard positions taken, and opportunities for peaceful evolution lost.

"All successful revolutions are the kicking in of a rotten door."

John Kenneth Galbraith

And since the grand failure of the Soviet state, nothing has grown more corrupt and self-serving than the ring of corporations and crony capitalists that have become the post Bretton Woods banking cartel. It has begun to consume itself, and to kill its own. The economic hitmen have finally come home.

But predicting 'when' is difficult in matters such as this. What starts the avalanche, what sound triggers the slide, which snowflake proves to be too much?  When is enough wealth and power— enough?

Certainly the events in the Ukraine are difficult to understand without a broader geo-political and economic context, except in the most facile and jingoist of caricatures of different perspectives. They are barbarians, and hate us for our freedom, the wonders of our financial engineering, and the beauty of our culture. We are the liberators. We bring loans and economic progress. We come in peace. Look on our works, ye mighty, and despair.

"Although U.S. Navy and Marine forces generally operate on a regular cycle of deployments to European waters, they rely on a network of permanent bases in the region, especially in the Mediterranean. These should be retained, and consideration given to establishing a more robust presence in the Black Sea. As NATO expands and the pattern of U.S. military operations in Europe continues to shift to the south and east, U.S. naval presence in the Black Sea is sure to increase."  Project For the New American Century, 2000

We are not the makers of history. We are not gods. We are not even the sovereigns of our own passions and delusions and fears.

We who forget history are its victims.

Renewed Calls From China For a Global Super-Currency To Replace "Bretton Woods II"

They are talking about a 'super-currency' for international trade, and not to replace any currencies for domestic use.

I have been reporting on this for quite a few years. It is a movement whose time has come as the US dollar reserve currency falters, and the Fed expands the monetary base for domestic concerns. 

You can click on either of the subject headings at the bottom of this blog entry, and all of the past postings with those subjects will be selected for your reading.

The major countries will no longer tolerate the monetary manipulation with the global currency in the same unilateral manner with which Nixon changed the Bretton Woods agreement back in 1971 by ending dollar convertibility to gold, rather than devaluing against it.

For lack of a better alternative or term, I settled on the SDR, made up of a new basket of currencies and commodities, almost certainly including gold, and quite possible silver, if China, Russia, et al. have their way.

Right now the nations are in the 'negotiation stage,' with the Anglo-American banking cartel putting up a strong resistance for any changes to their 'exorbitant privilege.'  I would not be surprised to see more forex and precious metal games played as the Lords of Finance flex their monetary muscles.

And then there is the question of the tangled web of rehypothecation of bullion without public disclosure.  It could prove to be very embarrassing to some.

But change is coming, one way or another.

China Daily
Replace dollar with super currency
By Michael Barris in New York,
Fu Jing in Brussels and
Chen Jia in Beijing
2014-01-29 09:04

The World Bank's former chief economist wants to replace the US dollar with a single global super-currency, saying it will create a more stable global financial system.

"The dominance of the greenback is the root cause of global financial and economic crises," Justin Yifu Lin told Bruegel, a Brussels-based policy-research think tank. "The solution to this is to replace the national currency with a global currency."

Lin, now a professor at Peking University and a leading adviser to the Chinese government, said expanding the basket of major reserve currencies — the dollar, the euro, the Japanese yen and pound sterling — will not address the consequences of a financial crisis.

Internationalizing the Chinese currency is not the answer, either, he said.

Lin urged the international community, especially the US and European Union, to play a leading role in currency and infrastructure initiatives. To boost the global economy, he proposed the launch of a "global infrastructure initiative" to remove development bottlenecks in poor and developing countries, a measure he said would also offer opportunities for advanced economies.

"China can only play a supporting role in realizing the plans," Lin said. "The urgent thing is for the US and Europe to endorse these plans. And I think the G20 is an ideal platform to discuss the ideas," he said, referring to the group of finance ministers and central bank governors from 20 major economies.

The concept of a global "super currency" tied to a basket of currencies has been periodically discussed by world leaders as well as endorsed by 2001 Nobel Memorial Prize-winner Joseph Stiglitz. A super currency could also be tied to a single currency, but the interconnectedness of world financial markets and concerns about the volatility that can occur as a result of the system being tied to one currency have made this idea less popular...

Arguments in favor of a global currency resurfaced during October's US budget impasse, which forced the government to shut down.

"It is perhaps a good time for the befuddled world to start considering building a de-Americanized world," a Xinhua News Agency commentary said on Oct 14. The piece argued that creating a new international reserve currency to replace reliance on the greenback, would prevent government gridlock in Washington from affecting the rest of the world.

In March 2009, China's central bank governor, Zhou Xiaochuan, called for the creation of a new "super-sovereign reserve currency" to replace the dollar. In a paper published on the People's Bank of China's website, Zhou said an international reserve currency "disconnected from individual nations" and "able to remain stable in the long run" would benefit the global financial system more than current reliance on the dollar.

On that note, David Bloom, global head of FX research at HSBC, said US monetary policy change "will bring fluctuations for emerging countries' currencies and lead to financial instability".

Chen Wenling, chief economist at the China Center for International Economic Exchanges, a government think-tank, said, "A supranational currency may be a new direction for development of the global financial system. It also requires different countries to cooperate in coordinating macroeconomic policies..."

Where We Are At In the Global Precious Metals Markets - A Framework

"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake.

Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K."

Edward 'Steady Eddie' George, Governor Bank of England 1993-2003

The general hypothesis I have put forward over a period of time at this café is that with the spike in the price of gold up to $1900, the central banks of the West became greatly concerned, and opted for a lower price, and a more orderly rise.  And so the price of gold was smacked down into a trading range between $1540 and $1780 through the various price and market operations of some central and bullion banks in what we can think of as a gold pool.

As you may recall, the great sea change was that central banks turned from being net sellers to net buyers of gold, slowly over a ten year period from 2000-2010 approximately.  This change of policy was not uniform, but driven largely from the emerging and re-emerging nations. It ought not to surprise us. No fiat currency has survived for long in historical terms, and even fewer as the world's reserve currency, unless backed by an unassailable empire. They will fall to Triffin's Dilemma, and the decay of power to self-serving and short-sighted corruption. 

Forces similar to those that are working against the EU monetary union, without a comprehensive political union, are working against the dollar global reserve currency, on a much larger and slower paced scale.  This is why a global currency issued and controlled by one central entity tends to presume a one world governance, or at least a cohesive governance of a rather large piece of it.  It is not incidental to their financial goals.

In late 2012 the Deutsche Bundesbank requested, albeit under some domestic political duress and after a polite request to audit the gold was deferred, to have the return of some portion of their nation's gold from its wartime home in New York and Paris.

The NY Fed responded with a rather surprising timeline of seven years for the return of what ought otherwise be a fairly doable amount of gold, despite what the Lord Haw Haw's of the Western gold pool might otherwise have you believe.  The gold pool is a consortium of central banks, bullion banks, and purveyors of paper gold in various unallocated forms who are beholden to a vested interest in a very powerful status quo.

In their desire to control the price of gold, the gold pool has leased out a fair amount of their national bullion holdings to the bullion banks, who in turn sold it into the markets to hold down the price.  A rising price was risky for the confidence of their paper money, and rising demand placed a strain on their ability to supply additional gold to supplement what the miners could produce.   And so it appears that Germany's gold was unavailable.

With the unfortunate circumstance of the gold of the German people threatening their deal to maintain confidence in their currency arrangements,  the central/bullion banks of the West were once again 'staring into the abyss.'   

How could anyone even imagine that government sources, who traffic in public confidence, could allow such a thing to happen, to blatantly abuse their powers, and prevaricate to the public?  It would be a tremendous loss of face, and personal career risk.  And so absent a whistleblower, the goal is to keep the game going at all costs.

So starting in late 2012, a major push began to manage physical gold away from the West's ETFs,  to relieve the short term supply constraints, which involved driving the price lower, and once again mobilizing the troops to talk the metal down.  Please notice the difference in the inventory of silver and gold, both of which had comparable price declines.

This gambit worked to some extent in the West, but overall it failed, miserably.  Demand for physical bullion skyrocketed in the East, as Asia took advantage of the lower bullion prices to increase their official/private offtake of bullion.  The West rehypothecates, but Asia takes.  And that taking presents a heavy toll to a highly leveraged trade.

Apparently the people of Asia for the most part did not agree with the Western economists and brokers that gold was undesirable, for whatever reasons they hold, with a strong basis in human history I should add.  Let's call it a difference of opinion amongst 'peers.'

In a very real sense we should remember that gold is gold, and the price of gold is more like a currency exchange rate than the price of a commodity.  And so one can think of this entire scenario as a major defense of the dollar at some ideal exchange rate to gold, in much the same manner that the Bank of England sought to defend a particular valuation of the pound.

So here we are today, with gold at a level somewhat below $1250 and silver at $20.  And the Comex deliverable gold is at record lows, and indications, albeit somewhat difficult to obtain, of continuing strains for producers (e.g. miners) to continue adding to supply, in the face of a shrinking discretionary market for physical gold (scrap, ETFs, exchanges).  And those who are managing the floats in the market, the unallocated, forward sold, and rehypothecated, are fundamentally shitting their pants, and seek to sit in it with smiling faces lest they give their vulnerable positions away.

The gold pool can rehypothecate and leverage physical gold by multiples into paper, and outright create it with naked short selling.  And they can sell this paper in bulk at whatever they wish in the markets which they control. And they can use positional advantage and their media to bully boy anyone who dares to question this into silence.  But they cannot print gold bullion and deliver it to Asia, which quite frankly does not care what they say. 

In general this is what is referred to at the divergence between the paper and physical gold markets.  It is what happens when 'semi-official' forces endeavor to set an artificially low price in a market that involves some physical commodity which is in a somewhat limited supply.  It tends to become more limited as a result. 

But the supply of paper gold is not limited, especially where things like position limits and leverage are given the wink and a nod behind a wall of opaque obfuscation. And like the reckless fools that they are, they decided late in 2012 to press their advantage hard, with shock and awe, and they are failing.

So this is why I think things will unravel in a manner similar to the London Gold Pool's operation which sought to set an artificially low price.  How exactly this will unravel is a matter of much conjecture.  I doubt it will break at the source of the paper gold, given the power the insiders have over the rules and information there.  Rather, there is more likely to be a strain at some physical delivery source that will cause the current pool to back up the price higher to some more sustainable level.  What that will be I cannot say.

What is driving this current dynamic is what is called the 'currency war,' which is shorthand for a difference of opinion amongst the world powers over the existing global currency trade regime, and the trustworthiness of the financial system that supports it.

China, Russia, Brazil, Venezuela et al. have lined up their interests against the Anglo-American banking cartel which rides the wave of dollar hegemony.  

If you think about this a bit, how would you feel if China's yuan was the world's currency, in which your country held its savings, and with which it paid for important and useful things like oil.  And what if China decided it could print as many yuan as it liked for its own purposes, thank you very much, and distributed them as they wished to its favorite banks and friends.  You would not like it one bit, it would make you rather uneasy, especially if the Chinese mouthpieces in academia started talking about trillion yuan platinum coins to resolve their own internal political corruption.

So, the most likely outcome is a compromise, in which a basket of currencies and a commodity or two like gold, are bundled together into an artificial currency for world trade.  This way no one country, or group of countries, held the 'exorbitant privilege' of owning the world's currency. 

Quite to the point, I think much of what we are seeing now is the 'negotiation stage' of this process.  It is not so much a question of outcome, but rather, of price.  What is to be included and at what valuation to the various world currencies.  I would be stunned if there was a return to an actual gold standard.  I would prefer to see the price of gold float freely without an official government valuation or the thinly disguised monkey shines of the Comex.  But such antics seem to be de rigueur in most financial markets as we have recently learned.

As you might imagine, the existing power structure might choose to continue to fight this rather aggressively, since there are no such enjoyable privileges as exorbitant ones.  Especially if there is a partnership between the political and financial class to maintain their privilege for themselves and their favorite one percent of their constituents.  But they must also contend with their waning power, and significantly low approval and discontent at home.  Pushing questions of one's authority are ill-advised when you cannot be sure of the answer.

And perhaps the biggest unspoken risk-that-must-not-be-named is the credibility trap.  What will the people say if they discover that the Bankers have taken their gold in order to give it to their banking cronies for short term profits?  Yes they will wrap it in rationalizations, excuses, jingoism, and personal immunities, but when the cards fall on the table, the thefts will be uncovered.

So here we are.  Those who think they know what will happen next probably have not given it sufficient thought.  I have a range of ten scenarios, in four major groupings, that are all fairly plausible.  There are some very large exogenous variables involved that no one can predict with much accuracy.

Perhaps some day I will categorize them more cleanly and attempt to lay them out. But for now it is enough work to know what to look for. Watch the UK as I have said, as it may be a bellwether for various reasons of size and composition, and continental Europe, to see if they will accept the role of a 'patsy' for the Gold Pool.   And of course watch China and Russia, and the areas of tensions around them.

What happens next is that one way or the other change will come. Of that I am sure.

China Claims To Already Have the Third Largest Gold Reserves in the World

It should be noted that this report is sourced from 'ScrapMonster.' I have found it on the webpage for the Shanghai Metals Market. The numbers in this article do not agree with the latest reported number for China from the World Gold Council, which by the way is hopelessly out of date. 

More importantly, there is no IMF report that I have been independently been able to find that discloses this information.   If this story below is true, then it is quite the news piece, since details on China's gold holdings are of great interest to many. The number in the story below is credible, which first sparked my interest in it.

Let's see if the Chinese confirm or deny this, or more likely, continue to say nothing and buy.

Here is a recent news item about this controversy from Bloomberg:

"After adjusting for net imports from Hong Kong and domestic output, the figure is closer to 5,086 metric tons [central bank holdings plus private gold holdings]. When taking away gold uses for jewelry, industrial and other categories and adding implied bar demand to central bank holdings, the figure is likely closer to 2,710 mt.

"China would need 10 years for its gold holdings to catch up to the U.S., based on adjusted Chinese consumption for jewelry, industrial and other uses and using implied bar demand as the primary driver of incremental central bank additions. Based on run rates during 2013, China may have added 622 metric tons of bars to its central bank holdings, after adding 380 mt in 2012."

This news item below is purportedly what China is willing to 'officially report,'` that they have expanded their official gold reserves by 76%, to 2,710 tonnes.   If this is accurate then China is now just behind the US and Germany, which say that they hold 8,133.5 and 3,391.3 tonness respectively.  China has already surpassed Italy and France. 

Given the 2,710 tonne figure I have to wonder if the author of the Scrapmonster piece picked it up from Bloomberg and then ran with it.  It would make some sense, although Bloomberg does not mention anything about the IMF.

There is some controversy regarding the disposition of Germany's gold, much of which is held outside that country, as you would know if you frequent this café.  More on that later.

 Privately there is a great deal of speculation that the heavy flows of gold through Shanghai are not merely going to the public market in China, but are also helping to fill their central bank reserve vaults even further than they will admit. 

As you may recall, China is encouraging its people to place some portion of their personal wealth in precious metals.

It is easy to sneer at goldbugs, those who find a refuge from abusive monetary policy in the traditional safe haven of precious metals, but it quite another thing to tell the 800 pound gorillas in the global market, China and Russia among them, that they do not understand anything about risk and money. 

Agree with them or not, they are making their case for what they think will happen in the future of global money, and are putting some of their own sizable wealth down on the table to back it up.  And if the models of a few academic economists do not agree with them, they really do not care.  They have their own economists, and their own interpretations of history, and their own needs and agendas.

And there are other countries who are now desperately seeking to bring their gold home from the custodial storage in New York, which is an artifact of World War II and the Cold War.  And some of them, like Germany are finding that it is not so easy to persuade the New York Fed to return it.  We can only wonder why.

These are central banks, who seem to be managing their national affairs with quite an informed and determined outlook towards the future. To completely ignore the implications of this, which to me seem quite clear, is nothing short of willful blindness.  If we just shut our eyes and say no, then the change will not affect us.  Except that the smart money is already on the move behind the scenes.

There is an ongoing debate happening now among the nations' bankers about the suitable replacement for the de facto Bretton Woods II arrangement which bases global trade settlements on the fiat dollar, no longer tied to gold since Nixon made a unilateral decision to shut the gold window.   They have made public statements about what they would prefer to see adopted, and Russia made this discussion a formal topic during its G20 chairmanship last year.

It has been a long time coming. But change is going to come. It always does.  And it may wash over those who stubbornly refuse to even admit that it is happening.

Shanghai Metals Market
China Expands Gold Reserves, Surged Past Italy & France in Ranking
By Paul Ploumis
Jan 15, 2014 08:36 GMT

BEIJING (Scrap Monster) : Claiming to have vaulted France and Italy in terms of gold reserves, China has announced that they have expanded their gold reserves by 76 %, thus becoming 3rd largest gold reserves in the world. According to the voluntary reporting system of IMF which monitors international gold reserves, China’s gold reserve have increased from the last reported holdings of 1,054 Tons in 2009, April to 2,710 metric tons currently.

China claims to have surged past Italy which has current holdings of 2,451.8 tons of gold reserves followed by France having 2,435.4 tons. The accurate reports released by the World Gold Council Data has placed US at the first position of world ranking for holding largest gold reserves which is 8,133.5 tons. The percentage of foreign reserve in gold in US is 75.1 %. Germany holds the second position with 3,391.3 tons of gold reserves.

In order to acquire the position, the Central Bank of China had added 622 tons of gold last year which was a massive boosting from the 380 tons of 2012 estimate. China had surged several nations to become the largest producer of gold. It has boosted its gold reserve without purchasing gold from global bullion market. While most of the major gold producing nations are reporting the decline of production, China remains to increase the production.

India Paying an Equivalent $1,565 Per Ounce For Physical Gold Bullion

“Let us not, in the pride of our superior knowledge, turn with contempt from the follies of our predecessors. The study of the errors into which great minds have fallen in the pursuit of truth can never be uninstructive...

Hitherto no difficulty had been experienced by any class in procuring specie for their wants. But this system could not long be carried on without causing a scarcity. The voice of complaint was heard on every side, and inquiries being instituted, the cause was soon discovered. The council debated long on the remedies to be taken, and [John] Law, being called on for his advice, was of the opinion, that an edict should be published, depreciating the value of coin five per cent below that of paper.

The edict was published accordingly; but, failing of its intended effect, was followed by another, in which the depreciation was increased to ten per cent. The payments of the bank were at the same time restricted to one hundred livres in gold, and ten in silver. All these measures were nugatory [pointless] to restore confidence in the paper, though the restriction of cash payments within limits so extremely narrow kept up the credit of the Bank.

In February 1720 an edict was published, which, instead of restoring the credit of the paper, as was intended, destroyed it irrecoverably, and drove the country to the very brink of revolution...”

Charles MacKay, Extraordinary Popular Delusions and The Madness of Crowds

When the Reserve Bank of India and the government tried to staunch gold imports by increasing duties and limiting supply in order to help their western central bank counterparts, who were deeply embarrassed by their inability to return Germany's gold, the experiment in currency controls had the effect of making the premiums paid for actual gold jump to 21.6% over western paper 'spot' prices.

What good is a 'spot price' for gold if it is just a construct derived from the paper gold price on the increasingly gold deficient Comex, and not from a physically transacting market?  And what good is a price set on a so-called physically transacting market like the LBMA if it is done in secret, with leverages said to be approaching 100 to 1?

Recent revelations about the manipulation of price benchmarks, from LIBOR to derivatives to basic commodities, seem to have knocked the efficient market hypothesis into a cocked hat, which is where it always belonged, if the dustbin was full.   Markets are naturally efficient to the extent that men act naturally like angels. 

Here is an interview that Tekoa da Silva recently conducted with an Indian gold dealer about the future of demand for physical gold in India, which he believes will be strong, and more importantly, why.

Let's see, if one region of the world is willing to pay, for substantial amounts, a 21% premium for a physical commodity that is easily transportable, what might an astute economist predict would happen?

The 'average person' might expect them to predict a substantial flow of that commodity from west to east.   And that does seem to be the case if one looks at the data which is available.  Gold Seen Flowing East As Refiners Recast Bars For Asia.

These days, however, far too many economists, analysts and pundits see what they have been told to see, by whomever is paying them.  Academia, politics, and the media are not naturally efficient, for the same reasons as markets.

Is it any surprise that in a culture that glorifies personal greed and the arrogance of power, virtue is in scarcity and deceit becomes routine?   Bad behaviour can drive out the good, until a system or culture can become a festival of shamelessness, and a feast for predators.

India is not an isolated example.  The situation is simply worse there for the moment because some Indian officials are historically compliant to Anglo-American interests.  But China, Russia, Latin America, and the Mideast are increasingly less complacent to be so ill-used these days.

Change is happening.  And there may be some significant volatility associated with this historic difference of objectives and opinions about what value is, and how and by whom it is set.

Currency Wars: Salinas-Price On the Changing Tempo and Tenor of the Growth of International Reserves

"The only resource against political disorders that had been known till then was the concentration of power. Solon undertook to effect the same object by the distribution of power. He gave to the common people as much influence as he thought them able to employ, that the State might be exempt from arbitrary government. It is the essence of Democracy, he said, to obey no master but the law. Solon recognised the principle that political forms are not final or inviolable, and must adapt themselves to facts; and he provided so well for the revision of his constitution, without breach of continuity or loss of stability..."

John Dalberg Lord Acton, History of Freedom in Antiquity

My long time friend Hugo Salinas-Price has shared some uniquely interesting observations on the growth of international paper reserves, which have been largely constituted of claims on debt, often pinned to the US dollar because of its international reach. And with all such fertile and insightful thinking it provokes more thought in others.

In this article he observes that the appetite for sovereign Treasury debt, and other forms of private debt such as mortgages and consumer credit, may not be keeping pace with the issuance of these forms of debt.

I think that with respect to price that this is a foregone conclusion in light of the Fed's QE III. The whole point of this exercise is to ensure that the current pricing is not sustainable without a non-market priced subsidy from the Fed, hopefully until some point that the markets reach some sort of self-sustaining equilibrium.

One of my key theses has long been that this equilibrium cannot occur without major systemic reforms.  The factors that created the problem were not incidental, but fundamental to changes that occurred during the 1990's in particular, with deeper roots back to 1980.  There was a decade long effort to overturn the New Deal Reforms that had allowed for the long stability that the financial world largely enjoyed in the post-WW II era.  These reforms were overturned by greed and corruption of power, and so here we are today.  We cannot go forward without returning to more transparent, honest markets that operate with a bias towards justice, and not bowing to right as defined and sanctified by might.

Modern monetary theorists would postulate that none of this is a problem, because the issuance of money based on debt is not necessary in the first place. All the debt can be repurchased through the direct issuance of money by a sovereign at any time. The proposal of the 'trillion dollar platinum coin' illustrates that principle in action.

But while technically true, there are two important facts that impinge on the wonders of such a brave new monetary world, besides the obvious problem of the ability of concentrated power to corrupt such Utopian arrangements, almost from their inception.  I keep asking, 'where is the flywheel' meaning where is the check and balance on the monetary issuance?  Quis custodes custodiet?

The first obstacle is that such money issuance system of almost unrestrained fiat works best where all the market participants are forced to operate according to the centralized rules. They will accept the money at stated value because they simply have no other choice, no other options.  Given Gresham's Law, if you think about this for a while, it becomes very apparent that this is the case. Fiat of this level of discretion must have the absolute force of law, without viable competition or substitute. 

Money is what we say it is, and is worth our stated official price.

I think we have enough historical examples of how well this works in practice. I saw it up close in both Russia and Czechoslovakia before and during the final collapse of the Soviet System.

In the world as it is, there is really no one world currency, issued by a centralized all-powerful entity, that essentially creates money from nothing, distributes it as it pleases, and dictates its value to all.  At least there is no such system yet, although it is certainly the objective of more groups than you might care to imagine.

In the case of a non-self-sufficient economy, there is the inescapable issue of trade and travel with other economies, that are not under the control of the central authority.

So the second great problem is that in the world as we have it today, oil and natural gas and certain essential commodities are significant factors when considering the international currency regime. In quite a literal sense, the US dollar is the petro-dollar, and control of the world's currency regime requires a strong influence over the world's oil and gas supply first and foremost.

If the US was truly energy self-sufficient, then the issue of trade and tariffs and money would be much simpler.  This would not be the case for some other entities without its geographic reach and the rich variety of its resources.

The other imported products are much more discretionary, and the domestic economy would most likely even prosper under a greater emphasis on self-sufficient production. Although the issue of reform would still remain because of the broken system of wealth distribution along lines of unequal power and undue influence over law to the detriment of justice.

It would have repercussions on international relations no doubt, but that is economic power by other means and would be dealt with through the usual alliances and cooperative ventures that could be denominated in other than a domestic currency.   This arrangement calls for the growth of large areas of common interest, or spheres of interest if you will,  that are able to achieve resource self-sufficiency.

The sophists will seek to dismiss what I am saying here as a paean to the gold standard. I wish to state again, categorically, that it is not. I am not proposing any solution at all, but merely attempting to draw up some outlines around the problem, what might be termed a systems analysis and requirements.

Gold does have some remarkable qualities that make it quite suitable for use as money. No one can create it, it is enduring, and relatively stable in terms of growth. As an external standard it is almost ideal. There is little wonder that diverse societies have gravitated towards gold and things like it down the long corridor of time.   And yet it does have one drawback: gold alone cannot enforce honesty on a corrupted system.  The recent growth on paper of the rehypothecated gold supply is one case in point.

There is no secret to creating a workable system.  I know I could do it, and many other people could so as well and perhaps much better.  The problem is that people of power do not wish to have a good system. 

There will be no good and sustainable monetary system easily reached for the same reasons that this generation of leaders can no longer create and put forward fair and workable laws for their own country.  They are overcome by ego and greed.  They wish for a system riddled with loopholes and personal advantage for them and their friends. So this is what is produced.   And until this changes, progress and change will be spattered with misery and blood, as it has so often been in the past. 

If there is any key point I wish you to take and hold in your minds and hearts it is that there is no such thing as a perfect, self-regulating monetary system. There could only be such an ideal model if men and women were angels, perfectly rational and reliably virtuous.

And like wealth the distribution of reason and virtue is very uneven, and so all systems must rely on a continuing effort and bias towards equal justice for all. And this has inescapable requirements for the design of the system.  Among these are transparency and the rule of law.   And the assumption that there will always be those who will be actively attempting to subvert the system, some bluntly, and some quite cleverly.

Money is power, and power corrupts.  So no system can succeed by its own design if its reins are held in the hands of mortal people, with all their weaknesses and failings.   So the system must account for this, and accommodate change and judgement as well as the balance of justice.

This was the great innovation of the US Constitution, the balance of power and its ability to change and evolve through law, with its commitment to justice and equality as an ideal, integrated into its construction, even though imperfectly by imperfect men of their time.  This is what made it such a bright star on the darkened horizon of human endeavour, a hymn to human freedom.  And look what they've done to our song.

It will be fascinating to see how this evolves. Will we see the creation of an SDR like monetary instrument based on a basket of items and currencies not under the control of a single power bloc? 

Will the world evolve into three or four powerful trading blocs, each with their own currency arrangements? Will the current dollar hegemony continue on until the collapses, and the what could have been an evolution will be a more sudden monetary revolution in which great wealth is destroyed, transferred and created anew?

We do live in interesting times.  And inescapably, these questions are now being addressed in the ongoing struggle for monetary power in what some have called the currency wars.

06 September 2013

Stalling growth of international reserves

Hugo Salinas Price

I have kept track of International Reserves (excluding gold) for many years, with data helpfully provided every week by Doug Noland, at prudentbear.com, who obtained the information from Bloomberg.

Here is the graph I have elaborated with data since 1948, when there was still a modicum of reason operating in the financial world.

Lately, I worked out a graph showing in more detail the growth of these reserves in the period from August 2005 to August 30, 2013.

I draw your attention to the slump in reserves which took place during the year 2008-2009. It was an ugly period, financially.

Then, notice the slowdown in growth of reserves during the past two years (24 months).
Finally, notice that growth in reserves has stalled in the last few months of this year. Growth appears to be topping-out. Since April 13, when reserves passed the $11 Trillion mark at $11.082 Trillion, in the four months to August 30, they have only increased by $86 billion – 0.78%

If the growth in reserves registered from August 2009 to August 2011, which averaged $1.5 Trillion yearly, had continued from August 2011 to August 2013, international reserves would now be over $13 Trillion; as it is, they are stalled at just over $11 Trillion. $2 Trillion are missing!
International reserves have two sources of growth:

1. Accumulation of Bonds (mainly Euro and Dollar Bonds) in central banks of the exporting nations, which come about due to export surpluses with which the exporters purchase bonds issued by the importing countries.
2. Accumulation of interest earned on the bonds, re-invested in bonds.

The international reserves are thus a measure of the credit which the exporters are willing and able to grant the purchasers of their exports.

If international reserves are not growing, but stalling out, this means that the exporting countries are not extending further credit, for whatever reasons, to the importing countries, mainly the US and the Euro Zone.

Born of the liberation of the world’s money from the shackles which tied it to gold under Bretton Woods, the world’s great credit-expanding machine is slowing down. $2 Trillion in international reserves have not been generated in the last 24 months. The cause must be a decline in international trade, through which enormous export surpluses of the East were sold to the West on credit, and the East received bonds for the extended credit. The market for government bonds of the West has been the eastern exporting countries, which have used their vast export surpluses to invest in western bonds.

If the exporting countries – the East – are slowing down on bond purchases, it most likely means they have less surplus left with which to purchase the bonds. Of course, they might have generated surpluses and used them to invest in the “Emerging Markets” – another name for what used to be called the Third World. Perhaps they are buying up the underdeveloped and chronically deficit-ridden Third World? That may be, but such a policy could hardly account for a $2 Trillion slow-down in growth of international reserves.

A $2 Trillion market for bonds has not materialized in the last two years; it is no wonder that the Fed has stepped in with QE to purchase the bonds which must be sold to keep the US Government in operation, not to mention to stave off utter collapse if the word were to spread that “There is no market for US and Euro Bonds at the volumes that the sellers require!”

The US and the Euro Zone are finding that they cannot float further credit in the exporting countries. This is a serious condition; the West depends on a market which will accommodate its expansion of credit – a market for its government bonds – for without that continual expansion the whole house of financial cards comes crashing down.

There appears to be no further market where the US and the Euro Zone can float their bonds. The only recourse is to monetize their government debt (QE) and that means monetary inflation.

The consequence of monetizing debt will have to be rising interest rates.

If the government debt were not monetized, US and Euro Zone bonds would have to be thrown on the world market, but – who would purchase them? Interest rates would skyrocket, even if there were possible buyers, which is doubtful.

As it is, the US can only continue to monetize government debt. Higher dollar interest rates are inevitable and will cause further government deficits; the debt overhang in both the US and Euro Zone is so great that a rise of a few points in interest rates will explode the deficits, and so on and so forth.

Bottom line: Stalling growth in International Reserves tells me that a world financial collapse is in the offing.

Please draw your own conclusions.

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds - Rehypothecation Ponzi

Thin premiums remain the order of the day for the gold and silver holding trusts and funds.

Citi analyst Tom Fitzpatrick sees gold appreciating $2,000+ from here.  I think quite a bit of that sort of move could happen more quickly than most might imagine.

I think quite a bit of this recent gold action is taking place on the public stage, but is being driven by private talks amongst the monetary powers that be.

There should be little doubt that a replacement for the US dollar reserve currency is being seriously considered.  Especially after the manner in which a few doubtful words cast by Bernanke about QE was able to send world markets into a swoon overnight.

There are those who would discredit gold and silver as being too volatile for inclusion in a basket of currencies that would become the international trading unit of exchange.

And at the same time, there is a strong move by some countries to back their currencies in gold at least partially.  They have to proceed carefully because if the price is set too low, the Western banks would swoop in and arbitrage it heavily. 

One thing that is lacking today for gold and silver are reliable price setting mechanisms that are not subject to manipulation and fraud by those who hold little of the metal itself, or who have re-hypothecated it many times over.

"Hypothecation is the practice where a borrower pledges collateral to secure a debt or a borrower, as a condition precedent to a loan, has a third party (usually an affiliate) pledge collateral for the borrower. The borrower retains ownership of the collateral, but it is "hypothetically" controlled by the creditor in that he has the right to seize possession if the borrower defaults. A common example occurs when a consumer enters into a mortgage agreement, in which the consumer's house becomes collateral until the mortgage loan is paid off.

Rehypothecation is a practice that occurs principally in the financial markets, where a bank or other broker-dealer reuses the collateral pledged by its clients as collateral for its own borrowing.

You may find this article by modern monetarist Peter Stella to be interesting:   What Economists Need to Know About the Modern Money Creation Process

In it Mr. Stella describes how the banking system routinely pledges the same piece of collateral over and over again without a properly risk adjusted diminution of value. No wonder the housing market is in such a mess, with the concept of title to property having been reduced to a financialized abstraction.

"In the traditional money creation process, collateral consists of central bank reserves; in the modern private money creation process, collateral is in the eye of the beholder. Here is an example.

A Hong Kong hedge fund may get financing from UBS secured by collateral pledged to the UBS bank’s UK affiliate – say, Indonesian bonds. Naturally, there will be a haircut on the pledged collateral (i.e. each borrower, the hedge fund in this example, will have to pledge more than $1 of collateral for each $1 of credit).

These bonds are ‘pledged collateral’ as far as UBS is concerned and under modern legal practices, they can be ‘re-used’. This is the part that may strike non-specialists as novel; collateral that backs one loan can in turn be used as collateral against further loans, so the same underlying asset ends up as securing loans worth multiples of its value. Of course the re-pledging cannot go on forever as haircuts progressively reduce the credit-raising potential of the underlying asset, but ultimately, several lenders are counting on the underlying assets as backup in case things go wrong."

If you think that this has not been done in the gold market you are kidding yourself.  Rehypothecation is not an aberration but a fundamental principle of the modern money creation process. It is what attracts the 'hot money' because it offers the opportunity to keep levering up. And this is why gold and silver have found little favor, if not intense dislike, amongst the modern financiers, except in its most diluted paper form, because it resists their attempts at ponzification.

As an aside, the re-hypothecation of collateral is still a massive problem in the banking sector.  The same collateral has been pledged innumerable times.  If any of the collateral should fail, as we had recently seen in the housing sector, the domino effect becomes the great bank-killer as balance sheets turn to shredded paper. 

And this is why the entire banking system seized when Lehman failed, because they did not know whom they could trust, since they were caught up in a daisy chain of control fraud. 

One solution is for a non-profit oriented entity to come in and buy the dodgy paper with public money, to pledge to expose no crimes, and to provide cheap money to the banks to keep their game of musical chairs going.  But that still does not restore honesty and stability to the system.  Indeed, while the scheme continues to generate outsized easy profits for the participants, going slowly on reform is the order of the day.  No matter how one might choose to rationalize it as prudent caution.

How ironic that what had been called real money 'since the time of Alexander the Great' is shunned and denigrated by those in the modern money business.

“Gold has worked down from Alexander's time... When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory.”

Bernard M. Baruch

These are interesting times for those who enjoy studying money, aberrant human behaviour, the changing fashions of ideas, and incredible madness of crowds.

Note:  From time to time I do have positions of size in some of the instruments listed below.  I do not take positions in GLD and SLV.  That is a personal choice, and not an endorsement or advice.

Currency Wars: Russia's Proposal for the Post-Bretton Woods II Global Financial System

"The great enemy of clear language is insincerity. When there is a gap between one's real and one's declared aims, one turns as it were instinctively to long words and exhausted idioms, like a cuttlefish spurting out ink.

In our age there is no such thing as 'keeping out of politics'. All issues are political issues, and politics itself is a mass of lies, evasions, folly, hatred, and schizophrenia.

When the general atmosphere is bad, language must suffer."

Eric Arthur Blair

The dollar reserve system has been struggling, if not failing, in stages for at least ten years now.

There have been a series of financial crises since the mid-1990's that are related to the strains of an unsustainable reserve currency system which is no longer able to 'emulate the gold standard,' as ex-Fed Chairman Greenspan described it. 

This situation is a macrocosm of the failings of the Eurocurrency zone as it is presently constituted.

I believe that the ultimate solution will be to migrate global trade to a super-currency, constituted of a basket of currencies and most likely a metal or two, gold and silver. I have been calling it the 'SDR' but that is only a representative description. It is unlikely that 'ownership' of such an important instrument will be given to the IMF unless its management is opened up to a broader representation of countries and their interests.

This relieves the 'owner' of the currency from the need to run trade deficits in order to support the expansion of global trade, and allows them great freedom in pursuing domestic monetary policy without risking the global markets. cf Triffin's Dilemma.

There is a strong push from the Anglo-American banking cartel to maintain the status quo, for what are surely selfish reasons. A strong dollar and the dollar as reserve currency is a powerful tool of financial and political policy, even though it may take a toll on some segments of their own domestic economy. The bankers benefit, and the politicians are somewhat captured by their well-funded lobby. And so we have a bifurcated economic structure in the financialized economies of the US and UK. And this suits the financial elite quite well, but hardly anyone else.

This has come to resemble a form of financial neo-colonialism.  And I hardly think that this is an overstatement of the situation, especially if one considers the meme of 'economic hitmen.'  But this involves more than just the currency.  It includes the interwoven apparatus of the World Bank, the IMF, the Federal Reserve and its clients, the dominance of multinational TBTF banks that enjoy strong government subsidies, the three major US credit ratings agencies, and the NY-London metals complex. And this Frankstein's monster is tottering badly, but seeking to sustain itself at all cost.

So let's see how this goes. Expect the fog of war to remain, and perhaps thicken.  I have rarely read more economic misinformation than I have read with regard to money and exchange rates and the current issues facing the world's economy today. Discourse has been polluted by self interest and corruption.

 But now that moe people are waking up to this, I would look forward to additional recognition and discussion of the ongoing currency war. But I doubt most of it will make much sense until there is another crisis and the day of reckoning arrives. To paraphrase a saying, those who are capable of an oligarchy are capable of the perjury to sustain it.

You might click on some of the category links at the bottom of this posting to obtain past articles on these subjects.

Russia's Plan For The BRICS To Dismantle The Dollar System
By Valentin Mândrăşescu, Editor of Reality Check @ The Voice of Russia
May 12, 2013 at 3:38PM

Former commodity trader, economist, journalist. Nomadic lifestyle. When not in Moscow, he can be found travelling across Eastern Europe. Areas of interest: world economy, East European politics, and the theory of propaganda.

The status of the US dollar as the world reserve currency gives the US a number of advantages over other countries. The world’s most important commodities are priced and traded in dollars, even if most of these commodities are not produced in the US. The fact that the world’s financial system is based on the dollar allows the Federal Reserve to export inflation to other countries, while the Federal Government runs a huge deficit with impunity.

So far, only China has been active in challenging the dollar supremacy. The internationalization of the yuan is an official priority of Chinese leaders. Currency swap agreements with major trade partners like Brazil, France, or Australia are small but important steps in the Chinese strategy. Changing the world financial system is not an easy task and certainly a very challenging undertaking for China. Now, it seems that Beijing has found an ally in the Kremlin. And there appears to be a consensus between the BRICS countries: the urgent necessity to dismantle the dollar system.

A week before the recent BRICS summit in Durban, the Kremlin administration has silently produced a document which describes the Russian strategy in the context of BRICS cooperation. The document makes for a fascinating read for anyone brave enough to plow through the dense Russian legalese. The strategy has been designed in the “inner circle” of Vladimir Putin’s team, so it is safe to assume that it represents the official view on the BRICS future...

Read the entire article here.

Currency Wars: Chinese Gold Rush and American Pravda

Sometimes there is a juxtaposition of stories that is just too striking.

Here is a piece that appeared today in the People's Daily Online.  It presents some interesting information on the buying of gold in China during the most recent fluctuation in price.

As I seem to recall, China holds so many US dollars that if they tried to convert them into gold and silver, they couldn't.  Well, not at anything near today's prices.  And their bond selling would certainly stress the Fed's Balance Sheet. 

Those in the know who were able to position themselves for such a move could make quite a bit of money out of it, especially if they could keep it quiet.  But if some major insiders were to demand their metal from the hypothecation schemes of the bullion banks it would create some short term traffic jams and delivery problems.  High leverage makes for a tough and often volatile unwind.  

One might even see a few bullion banks with major outflows from their bullion storage as servile managers and brokers leak the word, over cocktails and canapés, to favored customers with significant financial deposits at the firm overall.  As Jeff Sachs says, that is the way it is these days on Wall St.

And with the right finesse, it could be used to recapitalize some Banks who were positioned with leverage in derivatives.  It has a similar feel to the two step operation that FDR used in recapitalizing the Banks by revaluing gold against the dollar after taking it from the public.  It was public money then and within the purview of the state; it is private property now, at least to the extent that it has not been 'bailed in' and rehypothecated away.

As for the second story, the G20 conference on Global Finance in Transition and Reinventing Bretton Woods begins next week.  And the discussion of replacements for the US dollar reserve system, which is so near and dear to the Anglo-American banking cartel, are high on the topics to be discussed.  The BRICs are growing increasingly unhappy with the financial status quo, and the exorbitant privilege of a single country controlling the world's reserve currency and thereby having the ability to promote their domestic ends with it.

They would like to replace the existing international trade regime with something more broadly based on a basket of currencies and precious metals like gold and silver.  How do we know this?  Because they have said so.  And the dollar mouthpieces will object, pointing to the metals' recent volatility.

As George Orwell once remarked 'we have now sunk to a depth at which restatement of the obvious is the first duty of intelligent men.'

And before one unctuously dismisses the news in the People's Daily as statist messaging,  which by the way I am sure it often is, here is an interesting piece on the craven and tarnished performance of the corporate media, Our American Pravda.  It is a bit uneven, but an interesting read nonetheless.

When the Anglo-American media does get inexplicably involved in something, other than the real news and the trivial diversions they so enjoy, and even when they are inexplicably silent in the manner of the dog that does not bark,  one suspects that the moneyed classes see an opportunity for profit in it, and the public interests be damned.  Their designated role is to keep quiet and 'bail-in.'

As the fiatscos of relativistic monetary theory like to say, a currency is all consensus.  Money is what we say it is, is worth whatever we say it is, and goes wherever we command it to go.   And fiat means never having to say your are wrong, if you have enough power on your side to bend truth to will.

Even if you do not believe that there is a currency war, quite a bit of the rest of the world does -- and they are holding a lot of votes. 

Perhaps currency war is a misnomer.  At times this appears less like a conventional difference of intentions among nations, and more like the internecine power struggles amongst competing crime families that often do not cleanly divide themselves by political boundaries.  So the common person, mark, and pawn is often given to ask, 'is our side on my side?'

What this all means for us is interesting times, and never a dull moment.  Change is in the wind.

Enjoy

Shanghai Daily
Housewives' gold rush keeps price from falling
By Wang Yanlin
08:21, May 02, 2013

A "TUSSLE" to determine gold prices has connected two groups of people who could hardly be more different - Wall Street moguls and Chinese housewives, with the latter turning out to have the edge.

According to Voice of China radio program, one of this year's most popular phrases may be "Chinese housewives" - as a major force which reportedly spent 100 billion yuan (US$16 billion) over the past two weeks purchasing 300 tons of gold and thus helping to sustain gold prices at US$1,468 an ounce.

The Chinese gold rush has prevented short selling, where gold is sold and then bought back when prices fall. The practice was seen as a possible bid to shore up the US dollar - gold is often regarded as a means of safeguarding wealth against a weak dollar - and to maintain stable interest rates in the US...

Some critics said the fall in gold prices was a well-planned scheme drawn up by investment bankers to bolster the US economy, as two days before the price slump, Goldman Sachs released a research note saying gold's prospects for the year had eroded and recommending investors to sell short.

Before Goldman Sachs, investment banks including Barclays, Societe Generale and Deutsche also projected gold had ended its 12-year bullish performance. Societe Generale even predicted an outright crash, saying "gold may have had its last hurrah."

On April 13, China National Gold Group, the country's biggest gold producer, slashed the bullion price from 313 yuan per gram to 298.5 yuan per gram, the lowest level in two years.

This triggered the enthusiasm of Chinese shoppers, who swarmed into jewelry shops desperate to get their hands on a bargain. In most Chinese cities, gold bars were selling like hot cakes and some even reported empty inventory during the May Day holiday...

The number of Chinese gold buyers and the money they spent caught out those investment bankers who had bet on prices continuing to fall.

"A large rebound in gold prices is unlikely barring an unexpected sharp turn in the US recovery," analysts at Goldman Sachs had written in its research note.

But to their disappointment, gold prices rose by more than 10 percent yesterday compared with that on April 16...

Read the entire story here.

Related: Currency Wars

Reinventing Bretton Woods: Global Finance In Transition - Currency Wars - Exorbitant Privilege

As you may recall, Bretton Woods was the name of the conference, taken from its location, that set up the post World War II international currency arrangement with the US dollar as the reserve currency of the world. It was based on a dollar convertible in gold.

When Nixon arbitrarily shut the 'gold window' in 1971 the world entered a reserve currency system of purely fiat dollars, often called Bretton Woods II.

There are a number of theories that suggest that such a system is not sustainable, for many of the same reasons that the euro is not sustainable. 

And as some have remarked, the control of a currency by a small group of men operating in private is an exorbitant privilege.

But putting that aside, the BRICs in particular are not happy with the existing arrangement which has been slowly falling apart for some time as the Federal Reserve imposes its domestic needs and policy on what is intended to be the rest of the world's currency. It finds itself in much the same position as is Germany in the EU.

I have addressed this many times before, suggesting that the eventual outcome may be a reconstituted SDR-like instrument based upon a broader basket of currencies and the inclusion of gold and perhaps silver as well.

The Anglo-American banking cartel are fighting this at every turn, because as we know to control the world's currency brings remarkable power. I suspect quite of bit of the hysterical antagonism against gold and silver is tied up in this.  And an ardent desire to 'cover up' some of their past shenanigans.  Germany should put pictures of its gold on milk cartons.

It is possible that they will thwart the objectives of this effort and most likely this conference. And what will happen then is a continuing fragmentation of the world into regional trading zones and spheres of influence.

This may be used as a reason to propose a one world government, that will be similar in composition to the European Union and controlled by a few elite politicians and their bureaucrats. 

We are eyewitness to one of the great events of economic history, and if anything it is remarkable how few economists and politicians understand what is happening. They are firmly embedded in their theory, and too often are willfully blind. 

Let us free markets from regulation, the Banks from restraint of law, and the money creation process from the bindings of oversight and transparency, and we will reach new pinnacles of prosperity.

I find that a well educated layman with a grounding in history and the practical side of finance and business has a better understanding of what is going on than the great bulk of theoreticians whose models are heading quickly towards the dustbin. I just read a strikingly good letter from my friend Hugo Salinas-Price, that proposes a basic model for regulating international trade.

And I told him it would get nowhere, even though it was probably directionally correct, and about as good a start as many I have seen. The status quo and their hounds would rise up against it, because they are not ready to accept change.

They will produce many weighty and learned papers that 'prove' that it is wrong. And they will twist and torture the data to serve their ends no matter what the data may actually say.  The Rogoff-Reinhart scandal is not an outlier in what is a generally disgraced profession.  But these are signs of the times, where there is little downside and enormous profits for deceit in the obsessive pursuit of money and power, at least for the exorbitantly privileged.

Money is power, and those who love power above all seek to control any and all changes to its structure, for their own ends.

Global Finance in Transition conference to take place in Istanbul


On May 7-8, 2013, Istanbul (Turkey) will host the Global Finance in Transition conference. The event is organized by the Central Bank of the Republic of Turkey jointly with the Reinventing Bretton Woods Committee and the Russian Ministry of Finance.

Representatives of G20 finance ministries and central banks, international organizations, research institutions and businesses will take part in the conference. Head of Turkey's Central Bank Erdem Basci, Deputy Minister of Finance of Russia Sergei Storchak and Executive Director for the Reinventing Bretton Woods Committee Marc Uzan will give the opening remarks at the conference.

Five panel discussions are planned as part of the event. They will cover the international financial architecture, in particular, changes in the flow of global investments, local bond markets and growth in emerging economies, incentives and determinants of investment and other issues.

In addition it is expected that new instruments and incentives for making the global financial system safer will be suggested during the forum.

You may visit the conference web site by clicking here.

Related:

Currency Wars Part II
Currency Wars
Russia Stockpiling Gold Likely For a New Trading Currency
Devaluing the Dollar, Against What?
What Will the World Reserve Currency Become?

This is the lesser known entry in the private contest that spurred Shelley to write his famous Ozymandias.

"In Egypt's sandy silence, all alone,
Stands a gigantic Leg, which far off throws
The only shadow that the Desert knows:
I am great Ozymandias, saith the stone,
The King of Kings; this mighty City shows
The wonders of my hand. — The City's gone,
Nought but the Leg remaining to disclose
The site of this forgotten Babylon.

We wonder, and some hunter may express
Wonder like ours, when through the wilderness
Where London stood, holding the wolf in chase,
He meets some fragment huge, and stops to guess
What powerful but unrecorded race,
Once dwelt in that annihilated place."

Horace Smith, Ozymandias, 1818