Posts Tagged ‘Fiat Currency’
October 7, 2011 12:47 -0400
We can’t recall ever having spoken a kind word about Barack Obama, nor do we even imagine him capable of saying or doing something that might bring us around. However, we do not – repeat, do not – blame him for the terminal state of the economy. It was headed irretrievably into a Second Great Depression long before he took office, and the things he has tried so far to forestall a day of reckoning are, for the most part, the same things that any president, Democrat or Republican, would have tried. Nothing would have worked, of course, because the deflation that the U.S. and the rest of the world have been trying so desperately to counteract is drawing irresistible force from an imploding derivatives bubble valued notionally at nearly a quadrillion dollars. Small wonder, then, that a relatively puny stimulus effort amounting to mere trillions of dollars has bought us only time, not growth, and done so in a way that will burden future generations with more debt than they will be able to service, let alone repay.
To be sure, a solution has always lain well outside the boundaries of political discussion. The best we could have hoped for was a legislative sausage pleasing to the tastes of Harry Reid and John Boehner alike. But nothing those two could conceivably have agreed on would have brought the economy around. Nor would a change at the top have helped. Put someone else in the White House not handicapped by Mr. Obama’s timidity, incompetence and cluelessness – New Jersey Gov. Chris Christie is our idea of the right guy for the job – and even he would have failed to slow the country’s slide into deepest recession, let alone reverse it. For in fact we face 30% unemployment, a wave of bank failures that will rival the 1930s, and a real estate washout that will double the devastation that has already occurred. All of this is coming, and even though a President Christie, in the heat of the banking crisis of 2008-09, might have proffered the only correct answer – i.e., let the banks fail, allowing the markets to clear and the economy to right itself – it is inconceivable that he could have sold this course of non-action to Congress.
What Will Be ‘Money’?
And so, we can only wait nervously for the trigger event that will cause the economy to implode, unsanctioned. There is no predicting when this will occur, but the May 2010 Flash Crash provides strong reason to think that it will be mostly over – at least, the digital-financial part of it – in time for the evening news. The morning after, the desperate concern of nearly every American will be…money. It doesn’t take a rocket scientists to recognize that credit cards will no longer be the coin of the realm at that point. And just what might be? Silver and gold coins would be our guess, along with what little U.S. currency happens to be circulating when the music stops. If you are not prepared for something like this now, you ought to be. We’ll conclude with a link to the best book we’ve read to help you get ready, Sean Brodrick’s The Ultimate Suburban Survivalist Guide.
Read the entire article HERE.
by Tyler Durden
07/26/2011 18:01 -0400
Morgan Stanley has released its comprehensive quarterly metals outlook update for Q3, which while traditionally furiously wrong in its price targets for the assorted metals under consideration, represents one of the best reference materials for the underlying fundamentals behind each hard asset including base and precious metals, steel and bulk commodities, mined energy, rare earths, even such arcania as zircon and titanium dioxide. We suggest readers avoid the conclusion by Morgan Stanley which ultimately will be based on the firm’s prop trading bias, and instead focus on the key supply/demand mechanics in any given product. For the sake of reference, we break down MS’ outlook on gold, silver due to the special place these hold in the modern geo-political and voodoo economic discussions.
Investment demand is strengthening again…
- Identified and implied investment has become the main driver of demand in the gold market over the past decade and has become essential to absorb the fundamental surplus resulting from mine production, secondary supply, any net sales from central banks and producer hedging, and the long-term decline in jewellery fabrication demand.
- As the transparency of reporting of bar hoarding demand has increased along with the growth in physically backed ETF demand, the depth and structure of the physical investment market has become more visible. In our view, assessing the sustainability of this investment flow has become critical to the gold price outlook.
- According to GFMS, total identifiable investment demand for gold reached a record 1,514t in 2011, or 1,675t if implied investment demand is included, for a new annual record of US$66bn.
- More dramatic growth in investment demand for gold can be pinpointed to 2008-09 and the global financial crisis, which raised serious concerns about a debt deflationary spiral and the long-term purchasing power of the world’s major fiat currencies, especially the US dollar and the Japanese yen.
…as sovereign debt concerns highlight fiat currency risks
- More recently, a sharp rise in inflationary pressures partially driven by a surge in oil prices since February 2011 and the growing risk of sovereign debt default in peripheral countries of the Eurozone have given added impetus to investment demand growth as the fear of sovereign debt contagion has also raised questions over the long-term future of the euro.
- Even more recently, the impending threat of technical default by the US government if the government debt ceiling is breached, and the associated risk of a sovereign debt rating downgrade if a satisfactory long-term debt reduction program is not established have added to investor concerns about the long-term outlook for US treasuries and “risk-free assets.”
- In these circumstances, we expect the long-running bull market in gold will receive further impetus, even if there is no return to QE in the US. However, QE3 is a potential further upside risk to prices in the current environment.
- A further illustration of the growing quasi-monetary role of gold in the current global financial environment has been the persistent trend in official sector sales from net selling to net buying, a trend that we expect to continue, especially now that the sale of the IMF gold tranche has been completed.
- We have increased our annual gold price forecasts by 8%, 22% and 24% for 2011, 2012 and 2013 respectively to US$1,511/oz, US$1,624/0z and US$1,550/oz.
Global supply / demand
May 2011 correction has reduced risks of demand destruction…
- As GFMS observed in the 2011 World Silver Survey published for the Silver Institute, silver’s “hybrid” precious and industrial nature leads to links with gold, copper, and the CRB index, which can vary greatly.
- In the course of 2011, silver’s precious metal status and therefore its links with gold have been strongly reinforced by investors’ preference to hedge systemic financial risk, rising inflationary pressures, and resurgent political risk in MENA through a cheaper vehicle with characteristics similar to gold as a store of value.
- Driven by a spectacular rally between late March and May led by retail investors, the gold:silver ratio narrowed sharply, reaching its lowest point since October 1980 in early May 2011 at 30:1.
- Closing prices for silver at the peak of the rally in late April 2011 at US$48.70/oz came within 1.5% of the all time high established in January 1980 during the Hunt brothers’ squeeze. Successive increases in the Comex margin requirements then saw prices trade between US$33 and US$36/oz and the gold:silver ratio stabilize around 40 to 44:1.
…helping sustain investment demand going into 2012
- In our view, the 2,000t outflow of silver from ETF funds that has followed this correction is likely to be temporary, as all of the drivers for the initial 3,500t surge in ETF inflows between September 2010 and late April 2011 are still in place.
- Furthermore, the lower trading range for prices since the crash in early May should be an incentive for investors to return to the physical investment market now that the impact of the violent correction has largely been discounted.
- Investor sentiment should also be encouraged by evidence of strongly rising fabrication demand, especially in the brazing alloy/solder and jewellery markets, which are forecast to grow by 8.2% and 3.7%, respectively, in 2011.
- As a result, we have made significant upgrades to prices throughout the forecast period. For 2011, we now expect an average price of US$36.21/oz, up 15% from our previous forecast, and in 2012 we see prices averaging US$36.90/oz, 30% higher than our previous estimate.
- For 2013, we have raised our forecast 32% to US$32.98/oz.
Global supply / demand
Read the entire article HERE.
by JS Kim
Chief Investment Strategist
June 6th, 2011
Please find below my interview with Max Keiser and our discussion regarding the Greek crisis and continued banker price suppression and manipulation schemes executed against gold and silver to prop up the US dollar and prevent a US dollar collapse. Max raises the issue of the European Parliament’s move to accept gold from EU nations as collateral as reported on Zero Hedge here, which I believe is a step towards making gold acceptable as money for the purposes of debt repayment. However, this step is nothing new as Bankers have long been known to make loans in weak currencies and demand repayment in much stronger currencies before, even when dealing with fiat currencies. For example, the World Bank, which has long dispensed loans in US dollars to struggling nations, started a program in the early1990s whereby it asked nations to repay their USD loans in local currencies, fully aware of the fact that the US dollar was falling against many global currencies very rapidly. The World Bank aggressively instituted this “we lend you money in junk US dollar fiat currency and repay us in better currency” program in 15 different currencies in the early 1990s and aggressively pushed it further in the 2000s. So it is no surprise at all that the European Parliament has extended and refined this World Bank program for their own use into a “collateralize your debt with real money (physical gold) but continue to take out loans in our junk fiat currencies”.
I also discuss the shenanigans of the gold/futures silver market with Max. Here is the link to the evidence and the letter I sent to CFTC Commissioner Bart Chilton in late summer of 2008 of Banker fraud in the gold futures markets and his reply to me. Mr. Chilton replied that the enormous arbitrage opportunities daily for several months in the summer of 2008 of $20, $30, $40 and $50 an ounce higher prices of gold futures in Asia versus the New York COMEX was due to Chinese banker manipulation of gold prices higher and not due to Western banker manipulation of gold prices lower. You can read, in that same article, my further line of questioning of Mr. Chilton’s response that went unanswered by the CFTC. Furthermore, I discuss with Max the recent shenanigans in gold and silver futures markets where nearly 99% of all daily transactions for the month of May, 2011 consisted of paper for paper swaps in the form of EFP (Exchange of Futures for Physical) and EFS (Exchange of Futures for Swaps). While at first the Exchange of Futures for Physical transaction may sound legitimate in name, all legitimacy disappears when one realizes that paper may be substituted for the “physical” component of this transaction.
Exchange Rule 104.36 enacted on February 18, 2005, which allows for the substitution of gold ETFs for physical gold, states that the “physical” part of the transaction “need only be substantially the economic equivalent of the futures contract being exchanged” and that “the purpose of this Notice is to confirm that the Exchange would accept gold-backed exchange-traded funds (‘ETF’) shares as the physical commodity component for an EFP transaction involving COMEX gold futures contracts, provided that all elements of a bona fide EFP pursuant to Exchange Rule 104.36 are satisfied. Thus, acceptable gold-backed and exchange-traded ETF funds include, but are not limited to, the iSharesCOMEX Gold Trust (ticker: IAU), which began trading on the American Stock Exchange on January 28, 2005.”
GATA’s Adrian Douglas first brought to my attention Exchange Rule 104.36 in his article, “Commodity Exchanges Can Dump Gold Debts on ETFs”, prompting me to search the CFTC database even further. My search revealed a further amendment to the “exchange of future for physical” transactions enacted onMarch 11, 2005. This amendment stated that “for purposes of this Rule 414, the term ‘Related Position’ [Physical] shall include, but not be limited to, a security [a group or basket of securities], an option, [or] any commodity as that term is defined by the CEA or a group or basket of any of the foregoing. The Related Position [Physical] being exchanged need not be the same as the underlying of the Futures transaction being exchanged, but the Related Position [Physical] must have a high degree of price correlation to the underlying of the Futures transaction so that the Futures transaction would serve as an appropriate hedge for the Related Position [Physical].” This amendment not only opens up PM ETFs as substitutes for the “physical” component of a gold/silver futures transaction but even other metal ETFs or physical metals that have a “high degree of price correlation” to gold and silver.
Furthermore, remember that an EFP transaction can be used to either initiate or liquidate a futures position. Thus, from this amendment, though not specifically mentioned, it is obvious that SLV shares could be used in an EFP transaction to represent the “physical silver” part of a futures transaction. If you look at my below diagram, this may also explain why a huge number of spread positions in the gold/silver futures markets are initiated from time to time in the COMEX. I have illustrated how an EFP in silver futures may work below:
In recent months, the number of EFP transactions in silver AND gold, as opposed to the number of contracts settled in cash or settled in physical delivery, has exploded. When the majority of gold/silver futures transactions daily consist of EFP and EFS transactions versus cash settlement or physical settlement, this points to a pronounced manipulation of this market and an absence of any true price discovery in gold/silver futures markets.
ZeroHedge recently reported that JP Morgan was one of the largest owners of the likely bogus SLV ETF, holding 3,600,000 shares as of the end of the 2010 fiscal year calendar. ZeroHedge also reported that bullion banks, in early May, moved 20% of COMEX physical silver out of the registered category that is available to satisfy requests for physical delivery and into the eligible category that is not “eligible” for physical delivery. Scottia Mocatta followed this significant move by transferring 186,000 of their physical silver ounces from registered to eligible as well. JP Morgan, as of the May 27th CME report, held ZERO ounces of registered silver in the COMEX vaults.
In the meantime, selling of SLV shares reached an all time high in May. What does this all mean? I’m not quite sure I have the full answer yet as I keep digging, but I’m quite certain that whatever is going on in these paper for paper swaps in the gold/silver futures markets on the COMEX is not kosher and an attempt to hide physical shortages of precious metals that exist versus the open interest numbers in gold/silver futures. The CME makes it very difficult to compile stats regarding EFS and EFP transactions because while they provide a running total of month-to-date transactions for gold/silver futures contracts settled in cash and settled through physical delivery, they do NOT provide a running total of EFS and EFP transactions month-to-date in their daily metal reports nor do they respond to any requests for such information. When one of my staff members wrote the CME and inquired if running totals were available each month for EFS and EFP transactions in gold/silver futures, the CME staff answered no. Thus, one of my staff compiled the daily totals for EFS and EFP transactions for the month of May by pulling every daily report for gold/silver futures. This is what the totals looked like from May 2 to May 26, 2011.
For gold futures, from May 2, 2011 until May 26,2011, 0.01% of transactions settled in cash, 0.27% settled in physical, 78.22% consisted of EFP and 21.50% consisted of EFS (for a combined 99.72% of all gold futures transactions in EFP and EFS). For silver futures, from May 2, 2011 until May 26, 2011, 0.19% settled in cash, 0.93% settled in physical, 85.39% consisted of EFP, and 13.49% consisted of EFS (for a combined 98.88% of all silver futures transactions in EFP and EFS). Thus these paper for (possibly) paper swaps, if that is indeed what is happening in the EFP transactions, are casting huge distortions in the price of gold and silver to the downside.
Read the entire article HERE.
By JAVIER DAVID
APRIL 29, 2011
Wall Street Journal
NEW YORK—Investors wasted no time in sending the dollar to new three-year lows after the Federal Reserve gave them little reason to support it.
Weak U.S. growth and unemployment data quickened the dollar’s fall. Initial employment claims jumped back above the 400,000 level in the latest week. Meanwhile, gross domestic product data showed that economic growth slowed sharply in the first quarter, led by surging food and energy costs that sent a key gauge of inflation, the personal consumption expenditures (PCE) price index, soaring to its highest level in nearly three years.
Late Thursday, the euro was at $1.4821 from $1.4794 late Wednesday. The dollar traded at ¥81.54 from ¥82.04, while the euro was at ¥120.85 from ¥121.37. The U.K. pound bought $1.6640 from $1.6636. The dollar fetched 0.8733 Swiss franc from 0.8738 franc, plunging to a new record low.
The ICE Dollar Index, which tracks the U.S. dollar against a trade-weighted basket of currencies, was at 73.12 from 73.519, its lowest level since July 2008.
The Australian dollar, helped by rising interest-rate expectations and surging oil, rose to a new 29-year high at $1.0920 from $1.0872 late Wednesday.
The Federal Open Market Committee’s decision Wednesday to maintain its bias toward cheap credit loomed larger than ever for the beleaguered U.S. currency. At a time when traders are nervous about global inflation and rewarding the currencies of countries that raise interest rates, the dollar has lacked any yield advantage.
In a much-anticipated news conference, Fed Chairman Ben Bernanke tracked the FOMC statement and did little to deter dollar bears, who have profited from anti-dollar bets for months and appear willing to continue the rout.
“The FOMC statement, forecast changes and press conference all added up to a continuation of the dual-mandate mantra” of maximizing employment and maintaining stable prices, said Ken Dickson, investment director of currency at U.K.-based Standard Life Investments, which manages $250 billion in assets.
“Under this approach, easier monetary conditions will continue near term and the current weaker dollar trend looks likely to extend further,” Mr. Dickson added, given the landscape of weak employment and sluggish growth.
The immediate beneficiaries of the Fed’s easy money predilection have been the surging euro and pound. Both the euro zone and the U.K. are on a path toward tighter monetary policy, which has pushed both of their currencies to their highest levels against the dollar since late 2009.
The yen strengthened broadly after the Bank of Japan kept both its policy rate and size of its Asset Purchase Program (APP) unchanged. This encouraged some investors that had expected more liquidity—which would weaken the currency—to unwind some of those positions.
But more liquidity is the last thing the dollar needs. The Fed’s controversial asset purchases have helped bid up risk-related assets like stocks, but surging gold and a relentlessly strong Swiss franc indicate some investors are still nervous about global risks.
Meanwhile, the disappointing U.S. jobless and growth figures are raising eyebrows. The Fed is due to end its quantitative easing program at the end of June. While market watchers aren’t entirely sure of what will come next, weakening data may spur talk of a new round of easing, which would likely trigger a new round of dollar weakness.
Ronald S. Temple, a portfolio manager at Lazard Asset Management, said the Fed should preserve the option of easing anew to ward off more weakness in the economy. “We are moving from a secular era of adding to leverage to a secular era of deleveraging, and the Fed needs to have those tools at its disposal,” he said.
Read the entire article HERE.
by Robert Lenzner
Mar. 27 2011 – 1:20 pm
It’s a sign of the times, when gold and silver are making new highs in precious metals markets and investors everywhere are worried about the value of their paper money.
Those old coins in the bottom of your attic trunk just got marvelously valuable, if two full-page ads in the NY Times today is any proof. You are asked to bring your old Buffalo nickels. I used to have some, but they are long gone.
Try to find those old silver quarters and dimes or pre-1966 paper money in “Brand New Condition” and you could collect a small fortune–a very small fortune. Up to $300 for a $100 bill.
You’re also being invited to bring in wrist watches (up to $70,000 for a Patek Philippe, $20,000 for a Rolex), sterling pitchers, flatware and candlesticks, gold wedding bands ($100), diamonds (1 carat, $4,000), even costume jewelry, or wheat pennies (whatever they are) at 20% over face value.
Five days at eight hotels in NYC area sponsored by Anderson, Carter, Bascom & Assoc., who warn “You should not clean your coins! You may hurt their value!
Under the heading “Important Economic Information” there is the suggestion that high prices for your gold and silver may not last forever. “We have studied the investment and collectibles markets for decades, and in the past during times of economic uncertainty (which is happening now), there have been dramatic price declines in many areas of the jewelry, coin, and collectible markets.”
Hmmm! I’d like to know when this economic certainty is coming. Doesn’t seem too likely to me, what with global markets, spiking food and fuel prices, political instability, sovereign debt issues, radioactive nuclear plants, and the need to get the U.S. budget into balance.
Read the entire article HERE.
By JAMES GRANT
New York Times
Published: November 13, 2010
BY disclosing a plan to conjure $600 billion to support the sagging economy, the Federal Reserve affirmed the interesting fact that dollars can be conjured. In the digital age, you don’t even need a printing press.
This was on Nov. 3. A general uproar ensued, with the dollar exchange rate weakening and the price of gold surging. And when, last Monday, the president of the World Bank suggested, almost diffidently, that there might be a place for gold in today’s international monetary arrangements, you could hear a pin drop.
Let the economists gasp: The classical gold standard, the one that was in place from 1880 to 1914, is what the world needs now. In its utility, economy and elegance, there has never been a monetary system like it.
It was simplicity itself. National currencies were backed by gold. If you didn’t like the currency you could exchange it for shiny coins (money was “sound” if it rang when dropped on a counter). Borders were open and money was footloose. It went where it was treated well. In gold-standard countries, government budgets were mainly balanced. Central banks had the single public function of exchanging gold for paper or paper for gold. The public decided which it wanted.
“You can’t go back,” today’s central bankers are wont to protest, before adding, “And you shouldn’t, anyway.” They seem to forget that we are forever going back (and forth, too), because nothing about money is really new. “Quantitative easing,” a k a money-printing, is as old as the hills. Draftsmen of the United States Constitution, well recalling the overproduction of the Continental paper dollar, defined money as “coin.” “To coin money” and “regulate the value thereof” was a Congressional power they joined in the same constitutional phrase with that of fixing “the standard of weights and measures.” For most of the next 200 years, the dollar was, in fact, defined as a weight of metal. The pure paper era did not begin until 1971.
The Federal Reserve was created in 1913 — by coincidence, the final full year of the original gold standard. (Less functional variants followed in the 1920s and ’40s; no longer could just anybody demand gold for paper, or paper for gold.) At the outset, the Fed was a gold standard central bank. It could not have conjured money even if it had wanted to, as the value of the dollar was fixed under law as one 20.67th of an ounce of gold.
Neither was the Fed concerned with managing the national economy. Fast forward 65 years or so, to the late 1970s, and the Fed would have been unrecognizable to the men who voted it into existence. It was now held responsible for ensuring full employment and stable prices alike.
Today, the Fed’s hundreds of Ph.D.’s conduct research at the frontiers of economic science.“The Two-Period Rational Inattention Model: Accelerations and Analyses” is the title of one of the treatises the monetary scholars have recently produced. “Continuous Time Extraction of a Nonstationary Signal with Illustrations in Continuous Low-pass and Band-pass Filtering” is another. You can’t blame the learned authors for preferring the life they lead to the careers they would have under a true-blue gold standard. Rather than writing monographs for each other, they would be standing behind a counter exchanging paper for gold and vice versa.
If only they gave it some thought, though, the economists — nothing if not smart — would fairly jump at the chance for counter duty. For a convertible currency is a sophisticated, self-contained information system. By choosing to hold it, or instead the gold that stands behind it, the people tell the central bank if it has issued too much money or too little. It’s democracy in money, rather than mandarin rule.
Today, it’s the mandarins at the Federal Reserve who decide what interest rate to impose, and what volume of currency to conjure.
The Bank of England once had an unhappy experience with this method of operation. To fight the Napoleonic wars of the early 19th century, Britain traded in its gold pound for a scrip, and the bank had to decide unilaterally how many pounds to print. Lacking the information encased in the gold standard, it printed too many. A great inflation bubbled.
Later, a parliamentary inquest determined that no institution should again be entrusted with such powers as the suspension of gold convertibility had dumped in the lap of those bank directors. They had meant well enough, the parliamentarians concluded, but even the most minute knowledge of the British economy, “combined with the profound science in all the principles of money and circulation,” would not enable anyone to circulate the exact amount of money needed for “the wants of trade.”
Read the entire article HERE.
James Grant, the editor of Grant’s Interest Rate Observer, is the author of “Money of the Mind.”
Author Darryl Robert Schoon
Posted Jul 14, 2010
When the end-game began, gold was $35 per ounce. Today, gold is $1200. When the end-game is over, gold will be far higher.
Midway through 2010 we are approaching the end of the end-game, the resolution of the monetary imbalances that began in 1971. For more than 2500 years, gold was money: but, in 1971 that changed. After 1971, money was no longer connected to gold. For the first time in history, money had no intrinsic value.
After the Bretton Woods Agreement in 1945 until 1971, the world’s currencies were anchored to the US dollar which was convertible to gold. Thus, directly or indirectly, all currencies could be exchanged for gold; but on August 15,1971 the US cut the ties between the US dollar and gold; and all currencies became fiat.
It was as if someone removed a pin from the axle of international commerce when the US dollar was no longer convertible to gold. Previously, the US dollar was linked to gold, and other currencies were linked to the dollar. Everything was stable. It is no longer so. Once the pin connecting gold and paper money was removed, everything changed. The axle of international commerce began to vibrate and lately it’s been getting much worse. The fear is that the wheels are now about to come off.
- Page 9, How to Survive the Crisis and Prosper in the Process
THE BEGINNING OF THE END-GAME
The cutting of ties between money and gold set in motion the extreme monetary instability that was to characterize the 1970s. In 1960, the US prime rate was 5 %. At the end of the decade, the rate was 6.75 %. But when money became fiat in 1971, US rates became extremely volatile, vacillating between 4.50 % and 21.50 % during the next ten years.
In my article America at the Crossroads and the War on Gold, I pointed out the role of former Fed chairman Paul Volcker in destabilizing the monetary system. Believed by most to be a “hard-money hero”, Volcker was, in fact, the very opposite.
Volcker, as under-secretary of the Treasury in 1971, played a critical – and largely unknown role – in the removal of gold from the international monetary system and is therefore responsible for much of the monetary chaos which has since ensued:
From 1969 to 1974 Mr. Volcker served as under-secretary of the Treasury for international monetary affairs. He played an important role in the decisions leading to the U.S. suspension of gold convertibility in 1971, which resulted in the collapse of the Bretton Woods system. read here.
Appointed as Chairman of the Federal Reserve by President Carter in 1979, Volcker was at the helm when inflationary forces he had earlier unleashed almost destroyed the US economy in 1979-1981.
Volcker’s draconian raising of interests rates in 1980 was necessary to quell the inflationary fires he had lit in 1971; and although successful, Volcker’s role is not dissimilar from others who put out fires they themselves start.
THE END-GAME ACCELERATES
While it was Paul Volcker who set the end-game in motion, it was Alan Greenspan, his successor at the Fed, who would greatly accelerate the process by putting US financial markets beyond the reach of government regulators.
Volcker was replaced by Greenspan as Fed Chairman because Volcker wouldn’t dismantle existing financial regulations as desired by the Reagan White House and Wall Street investment banks. As Nobel Prize winner Joseph Stiglitz later explained:
Paul Volcker, the previous Fed Chairman known for keeping inflation under control, was fired because the Reagan administration didn’t believe he was an adequate de-regulator.
In Alan Greenspan, Wall Street got the Fed chairman they wanted, someone who would provide them with an unending flow of central bank credit and who would turn a blind eye as to what they would do with it. Alan Greenspan was Wall Street’s wet dream come true.
During his 19 year tenure as Fed Chairman, Alan Greenspan ushered in an era of loose credit producing massive profits for Wall Street along with two of the largest bubbles in history, the US dot.com and US real estate bubbles.
Greenspan with consummate political timing resigned as Fed Chairman just before his extraordinary credit bubble collapsed. However, a third, even larger bubble which Greenspan nurtured, still has yet to burst. This is the government bond bubble, by far now the largest bubble in history
The enormous government bond bubble was “Fed” by the excessive issuance of credit made possible by the removal of gold from the monetary system, thereby allowing governments to freely borrow what they had just printed.
Once Volcker controlled the fires of runaway inflation in 1980/1981, the issuance of government credit and debt exploded upwards under Greenspan’s tenured aegis at the Federal Reserve.
This soon-to-be fatal rise in US debt would not have been possible had the US dollar been tied to gold. This is why both bankers and governments who profit and live by debt oppose a return to the gold standard or any attempt to again tie their currencies to gold.
“…a gold standard and a redeemable currency…enables a people to keep the government and banks in check. It prevents currency expansion from getting ever farther out of bounds until it becomes worthless…”
Professor Walter E. Spahr, Chairman of the Department of Economics, NYU, 1927-1956
Banker John Exter, present when Volcker cut the ties between the US dollar and gold, later commented on the consequences of Volcker’s historic decision: The final link between the dollar and gold was broken. The dollar became nothing more than a fiat currency and the Fed [and especially the banks] were then free to continue monetary expansion at will. The result..was a massive explosion of debt
Today, the debt is due and owing and repayment is increasingly in doubt. Economics isn’t rocket science. It’s cause and effect and since the introduction of debt-based money, the primary cause of economic expansion has been credit.
The consequence of credit is its deadly effluvia, debt; and when the issuance of credit can no longer service or roll-over constantly compounding debt, parcus nex, economic death, otherwise known as the end game, ensues.
The enormous amount of government debt – total sovereign debt now totals $34 trillion dollars – can never be repaid. The end of the end-game will come when investors collectively realize this is so. That realization has not yet happened. When it does, for most it will be too late.
Read the entire article HERE.
By Nicholas Larkin, Claudia Carpenter and Millie Munshi
May 24 (Bloomberg) — Speculators are buying gold faster than the world’s biggest producers can mine it as analysts forecast a 27 percent rally that may extend the longest run of annual gains since at least 1920.
Exchange-traded products backed by bullion added 41.7 metric tons in the week to May 14, the most in 14 months, data from UBS AG show. China, Australia and the 15 other largest mining nations averaged weekly output of 41.6 tons last year, researcher GFMS Ltd. estimates. Even though prices have fallen 4.6 percent to $1,191.65 from a record $1,249.40 an ounce May 14, the median in a Bloomberg survey of 23 traders, analysts and investors shows it will reach $1,500 by the end of the year.
Buying accelerated as the MSCI World Index of 23 developed nations’ stocks tumbled as much as 16 percent since mid-April and the euro weakened to a four-year low against the dollar. Holders of ETPs, including George Soros and John Paulson, accumulated a record 1,938 tons by May 21, eclipsing all but four of the biggest central-bank holdings.
“You could see gold go up another $1,000,” said Evan Smith, who helps manage $2 billion at U.S. Global Investors Inc. in San Antonio and in 2006 correctly predicted that gold would reach $700 within two years. “All of the turmoil and problems we’ve seen in Europe is just another reminder that there’s a lot of value in gold as a safe haven.”
The risk to gold bulls lies in economic growth, which should buoy the prospects of metals linked to industrial demand, such as copper and silver. The world economy will expand 4.2 percent this year, the International Monetary Fund said April 21, raising its January projection from 3.9 percent.
Astor Asset Management LLC, with $520 million under management, held as much as 10 percent of its assets in the SPDR Gold Trust, the biggest ETP backed by bullion, according to Bryan Novak, managing director of the Chicago-based company. The firm sold the stake in the first quarter.
China, the biggest consumer of industrial metals, will expand 10.1 percent this year, more than three times the pace of the U.S.’s anticipated 3.2 percent gain, according to as many as 77 economists surveyed by Bloomberg.
“The feeling now is as we move into the expansion phase of economic growth, we want to be diversified in economically sensitive metals,” Novak said. “We’re not negative on the economy now.”
‘Afraid of Debasement’
While gold is favored by investors when the dollar weakens and inflation gains, the metal can also advance at other times. Gold rose 5.8 percent in 2008 as U.S. consumer prices gained 0.1 percent. The metal added 18 percent in 2005 when the U.S. Dollar Index, a measure against six counterparts, advanced 13 percent. Gold rose 8 percent this year as the U.S. Dollar Index jumped 11 percent. U.S. consumer prices dropped in April.
“People are afraid of the debasement of all the currencies,” said Peter Schiff, president and chief global strategist for Darien, Connecticut-based Euro Pacific Capital, whose clients have more than $2 billion in assets. “What’s surprising is that gold is still as low as it is,” he said, predicting $5,000 to $10,000 an ounce in the next five to 10 years.
Since the last week of April, ETPs have been adding bullion at a pace not seen since the first quarter of 2009, in the wake of the collapse of Lehman Brothers Holdings Inc. Buying rose as European policymakers agreed on an almost $1 trillion emergency loan package to prevent sovereign defaults.
Half the Peak
Assets in gold-backed products increased 18.3 tons last week, according to UBS data. The bank revised its estimate for the previous week’s holdings.
Gold is still at half the peak set in 1980, after adjusting for inflation. Then, prices rose to $850, equal to $2,266 today, according to a calculator on the website of the Federal Reserve Bank of Minneapolis.
Supply from mines, which peaked in 2001, fell in five of the last eight years, data from London-based GFMS show. Companies are digging deeper to extract dwindling reserves, with mines in South Africa extending as far as 2.35 miles (3.8 kilometers) down.
Investment, including bars and coins, almost doubled to 1,901 tons last year, exceeding jewelry demand for the first time in three decades, according to GFMS. Jewelry will jump 19 percent to 2,100 tons this year and industrial use 8 percent to 398 tons, Sydney-based Macquarie Group Ltd. says.
Muenze Oesterreich AG, the Vienna-based mint that makes the Philharmonic, the best-selling gold coin in Europe and Japan, on May 12 said it had sold 243,500 ounces since April 26, more than the 205,300 ounces sold in the entire first quarter.
Central banks and governments are also buying gold, adding 425.4 tons last year, for a combined 30,116.9 tons, the most since 1964 and the first expansion since 1988, data from the World Gold Council show. Official reserves of central banks and governments may expand by another 192 to 289 tons this year, according to CPM Group, a research and asset-management company in New York.
The net-long position in Comex futures, or bets on higher prices, is within 13 percent of the record reached in November, U.S. Commodity Futures Trading Commission data show. The most widely held option gives owners the right to buy gold at $1,500 an ounce by December, data from the bourse in New York show.
Economists’ outlook may be too rosy, said Michael Pento, chief economist at Delta Global Advisors in Holmdel, New Jersey, who correctly predicted the 2008 commodity collapse. Some investors judge that a debt crisis in Greece may spread elsewhere in the euro zone, including Spain and Portugal.
“The second half of this year will likely show very anemic growth on a global basis,” he said. “The crisis in Greece is going to spread to Spain and it’s going to be very difficult to deal with. They are bailing out debt with more debt and it isn’t sustainable. It’s a wonderful scenario for gold.”
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