Currency War: 140 Years of Monetary History in Ten Minutes

Like most complex subjects reduced to a ten minute summation, there are plenty of nuances lost here, and one might certainly take issue with some of the conclusions. And the perspective of the discussion is largely centered on the US and Europe.

Nevertheless, I like the succinct overview of certain key events in recent world monetary history that lead up to the situation in which we find ourselves today.

Since most people are abysmally ignorant of where we have been, perhaps that is a good place to start once again, for those of you who have not heard this previously.

I would have liked them to have dealt with the gold confiscation and revaluation of 1933, in which FDR used the nation's gold to recapitalize the banking system, and changing the nature of the US currency while devaluing it, but that might have become over complicated. Most do not understand it for what it was, a currency transformation.

People tend to discuss money from an emotional basis, and that is understandable. I don't consider myself a 'hard money' person per se. At this point I would merely wish governments to leave gold and silver alone, and allow them to function as a private market force, co-existing with whatever currency schemes they choose to set up. The monetary authorities struggle with this concept, because they inevitably seem to abuse the currency system and resort to increasing amounts of fraud and force. This is not a facet of government, but of bad government.

I am not in favor of a 'gold standard' for that reason now, because that would merely allow governments to once again monopolize the metals and set the prices artificially in order to control them. Gold cannot cure the corruption in the current political system, and could quickly be turned into a force for more repression. Better that the metals exist as free market alternatives for those who may choose them.

After listening to this presentation, one can surely understand why the central banks both fear and covet gold. It resists their wills, but has a natural tendency to be seen as money.

I do think that the nature of gold, and how it has been used as money over thousands of years, illustrates several important qualities that any sustainable monetary system must emulate and approximate. Those who dabble in monetary theory would do well to understand them.

De Gaulle's words are quite important, and I am glad they include that piece in which Charles de Gaulle speaks to the 'exorbitant privilege' of the US Dollar. The principled objection he is raising is the same question being raised by the BRICs today, and the resolutions being discussed behind the scenes are quite contentious over some of these very issues.

As you know, I suggested one solution would be an SDR, but reconstituted with a more contemporary and inclusive weighting system, together with a mechanism that does not permit the IMF to issue amounts of SDRs at will. The problem is that the IMF is dominated by the status quo and the Banks, and really no single class of people is capable of wielding that sort of discretionary power well for any period of time. So I don't see that happening yet, because an acceptable version of it is being fiercely resisted by the Anglo-American banking cartel. They are content to continue with their looting of the system for the foreseeable future.

Money is power, after all, and greed will too often refuse to relinquish any power or claim willingly, even to its own destruction. The American abuse of financial power for political purposes is causing a bifurcation in global finance, along the expected fault lines, and it will be interesting to see how that develops. 

Gold Daily and Silver Weekly Charts

Derivative: A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.

If collateral collected to protect against the risk of counterparty default has been rehypothecated, then it may not be readily available in the event of a default. This, in turn, may increase system interconnectedness and procyclicality, and could amplify market stresses. Therefore, when collateral is rehypothecated, it is important to understand under what circumstances and the extent to which the rehypothecation has occurred; or in other words, how long the collateral chain is.

The gold that left HSBC yesterday turned up in the storage vaults of Scotia Mocatta today.

There were no reports of deliveries or other movement in the warehouses.

The US markets, including the Comex, are almost like a showcase now I think, a kind of Potemkin village of value, a child of the corporate financial state.

Look at all the pretty bullion, see it trade. Look at the prices. But if you wish to buy some, go to Asia and be sure to take delivery.

Even with stocks, it seems to be a web of paper bets, of interconnecting obligations to deliver.  It is an exchange traded, derivative world.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Wanna Take You Higher

With low volatility and not much in the way of volume or selling pressure it is a relatively trivial exercise for the big trading desks to keep floating prices higher on the technicals.

Not much is expected in the way of economic news until the end of the week.

Have a pleasant evening.

 

NAV Premiums of Certain Precious Metal Trusts and Funds

Very modest premiums to say the least.

I have taken a modest position in Silver Wheaton last week which is not normally commented upon here.

I am still anticipating another shelf offering in PSLV at some point to raise their cash levels back to more comfortable levels. But they are under no duress to do the deal given their existing levels which are adequate for their cash requirements, but are still a bit historically low.

Gold Daily and Silver Weeky Charts - Better Call Saul

It is hard to miss the price capping and manipulation on the metals market at the Comex, unless one does willfully so. And there are certainly those who do, and I suspect you know who they are.

There was little action on the metals front last Friday as the clearing and warehouse reports below demonstrate. The action has shifted to the East.

I expect the markets to unravel their story about the future somewhat slowly over the summer. This goes for stocks, bonds and commodities. We are seeing a great reckoning between reality and the will to power.

If anyone is near to a fiduciary responsibility for the obligations for gold and silver bullion delivery, or even large positions of naked shorts in stocks, and they do not personally have title and possession of the metal or the equities, I would probably suggest that they get out or start lawyering up now, with a well thought out Plan B involving offshore accounts and domiciles.  You can always try for a Presidential pardon later on.   I suspect it will become the fashionable thing to do.

If this convoluted system of asset rehypothecation starts breaking bad it is going to make MF Global look like a church picnic.  'Everyone was doing it' is not an unassailable defense, and 'I had no idea what was going on'' only works for those with very lofty connections and office.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Apple Splits 7-1, An Otherwise Sleepy Day

Apple's seven-for-one stock split took place today.

The split will allow Apple to take its message around the professionals and institutions directly to the retail investor who will now consider Apple 'more affordable.' It would also make it more palatable for that great stock Judas goat, the Dow Industrials average.

I figure the market will top out this summer, sometime around 2000 on the SP 500 futures or perhaps a bit of an overshoot. I don't know how long it will take to get there, and we may see a minor correction first. We are working off a funny kind of a stock formation that will lead to an unsustainable level unless it corrects back to the more sustainable trend.

This is barring any exogenous events which will tend to spin the market according to their own force. As the market reaches loftier levels ahead of the real economy, it becomes increasingly vulnerable, less robust. Or as Taleb might say more 'fragile.'

So we will see how it progresses, and will be able to determine if we are seeing a classic handoff of pumped up stocks to mom and pop near a top, or just an ongoing campaign by the Fed to inflate asset bubbles and reward their cronies with paper assets, while starving the real economy.

Have a pleasant evening.

Gold Daily and Silver Weekly Charts - Negative Interest Rates Have Arrived

"We have been silent witnesses of evil deeds; we have been drenched by many storms; we have learnt the arts of equivocation and pretence; experience has made us suspicious of others and kept us from being truthful and open; intolerable conflicts have worn us down and even made us cynical.

Are we still of any use? What we shall need is not geniuses, or cynics, or misanthropes, or clever tacticians, but plain, honest, and straightforward men. Will our inward power of resistance be strong enough, and our honesty with ourselves remorseless enough, for us to find our way back to simplicity and straightforwardness?”

― Dietrich Bonhoeffer, Letters and Papers from Prison

Negative interest rates are a stealthy confiscation of wealth and of savings from those who are less equipped to protect themselves against it.

The policy makers seek to compel people out of their savings and any safe havens, and into the unreformed paper asset markets of Wall Street, so they can be sheared and then slaughtered.

Have a pleasant weekend.