- Looks and sounds familiar right? This was published in 1934 by Chicago Tribune. It is totally accurate today too!
- I have been a gold bug since Oct last year. It is quite apparent to most people who follow the gold market that something is not right. Demand has soar 3-5 folds but gold price on the COMEX is languishing. I tend to agree with GATA that COMEX futures gold price is highly manipulated/suppressed.
- Gold dropped more than 2% yesterday after the G20 meeting. I should be sad right? Not at all. As Jim Rogers said: “If gold price falls I will buy some more, if it rises I will buy some more.” Of course, I much rather it falls so that I can buy at a cheaper price.
- You can only suppress gold price for so long. The more you suppress the price, the greater the shortage will be. It is quite evident that a major blowout is building in the gold market. If central banks like ECB, Bank of England, FedRes… wish to dump gold at such low prices, I am quite sure there are many many many gold bugs just waiting for the chance to mop up the supply.
- China has US$2 T to spend, to sell its USD holdings and treasuries. It has indicated it will buy 4000 tons of gold. Of course, they will do it quietly using 3rd parties to hide and protect themselves. Otherwise, gold will skyrocket and they will be forced to buy at a higher price. It is no secret that Russia and Middle East countries are also buying. So for all those banksters, central banks…etc.. who wish to dump their physical gold stock: Go ahead ! Make my day! You will be like the gold idiot Gordon Brown who sold off more than half of Britain’s physical gold stock at about US$250/ounce. (Brown’s £2 billion blunder in the bullion market)
- So did the ECB bailout Deutsche Bank and COMEX? Avery Goodman reports :
On Tuesday morning, gold derivatives dealers, who had sold short in the face of a fast rising gold price, faced a serious predicament. Some 27,000 + contracts, representing about 15% of the April COMEX gold futures contracts remained open. Technically, short sellers are required to give “notice” of delivery to long buyers. However, in reality, buyers are the ones who control the amount of gold to be delivered. They “demand” delivery of physical gold by holding futures contracts past the expiration date. This time, long buyers were demanding in droves.
In normal times, very few people do this. Only about 1% or less of gold contracts must be delivered. The lack of delivery demand allows the casino-like world of paper gold futures contracts to operate. Very few short sellers actually expect or intend to deliver real gold. They are, mostly, merely playing with paper. It was amazing, therefore, when March 30, 2009 came and passed, and so many people stood for delivery, refusing to part with their long gold futures positions.
On Tuesday, March 31st, Deutsche Bank (DB) amazed everyone even more, by delivering a massive 850,000 ounces, or 850 contracts worth of the yellow metal. By the close of business, even after this massive delivery, about 15,050 April contracts, or 1.5 million ounces, still remained to be delivered. Most of these, of course, are unlikely to be the obligations of Deutsche Bank. But, the fact that this particular bank turned out to be one of the biggest short sellers of gold, is a surprise. Most people presumed that the big COMEX gold short sellers are HSBC (HBC) and/or JP Morgan Chase (JPM). That may be true. However, it is abundantly clear that they are not the only game in town.
Closely connected institutions, it seems, do not have to worry about acting irresponsibly, in taking on more obligations than they can fulfill. Mysteriously, on the very same day that gold was due to be delivered to COMEX long buyers, at almost the very same moment that Deutsche Bank was giving notice of its deliveries, the ECB happened to have “sold” 35.5 tons, or a total of 1,141,351 ounces of gold, on March 31, 2009. Convenient, isn’t it? Deutsche Bank had to deliver 850,000 ounces of physical gold on that day, and miraculously, the gold appeared out of nowhere.
The announcement of the ECB sale was made, as usual, dryly, without further comment. There was little more than a notation of a sale, as if it were a meaningless blip in the daily activity of the central bank. But, it was anything but meaningless. It may have saved a major clearing member of the COMEX futures exchange from defaulting on a huge derivatives position. We don’t know who the buyer(s) was, but we don’t leave our common sense at home. The ECB simply states that 35.5 tons were sold, and doesn’t name any names. Common sense, logic and reason tells us that the buyer was Deutsche Bank, and that the European Central Bank probably saved the bank and COMEX from a huge problem. What about the balance, above 850,000 ounces? What will happen to that? I am willing to bet that Deutsche Bank will use it, in June, to close out remaining short positions, or that it will be sold into the market, at an opportune time, if it hasn’t already been sold on Tuesday, to try to control the inevitable rise of the price of gold.
The size and timing of the delivery of Deutsche Bank’s COMEX obligation is suspicious, to say the least, when taken in conjunction with the size and timing of the ECB’s gold sale. It is circumstantial evidence that the gold used by Deutsche Bank to deliver and fulfill its COMEX obligations, came directly or indirectly, from the ECB.
I’d sure like to know what the ECB’s “alibi” is. If I were an investigator for the Commodities Futures Trading Commission (CFTC), assigned to determine whether or not gold short sellers are knowingly violating the 90% cover rule, I’d be questioning the hell out of the ECB staffers, as well as employees in the futures trading division of Deutsche Bank. There is certainly enough evidence to raise “reasonable suspicion”. Reasonable suspicion is all that one needs to start a criminal investigation. It should be more than sufficient to prompt the CFTC, as well as European market regulators, to start a commercial investigation of the potential violation of regulatory rules by both the ECB and one of the world’s major banking institutions.
- See also :
NYSE Runs Out of 1 Kg Gold Bars ?
Max Keiser – Gold Price Suppression and Central Banks Buying Gold !
GATA – Gold Price Manipulation
Russia Backs Return to Gold Standard To Solve Financial Crisis
- What is the true agenda of the 2 April G20 meeting? Not what the MSM tells you. The real agenda is a new world financial order, new monetary system and it is the drive towards world government. The plan seems to be the creation of a supra national financial regulatory body… world central bank… world currency?? The drive towards a 1 world currency may take an additional step of creating 3 regional currencies for : Europe, Asia and Americas. Will the IMF or BIS play the role of the supra national central bank? Will America be placed under the financial supervision of this bank? In effect a controlled bankrutptcy, chapter 11 ? Draw your own conclusions.
- I am of similar opinion to Larry Edelson on the G20 meeting. Most of the MSM reports on the meeting are propaganda. The real reasons are too market sensitive to be made public. The USD is on its way out real soon as world reserve currency. After the meeting, USD dived 1-3% against most currencies. Larry Edelson opines in this most excellent article :
April 2, 2009: The Beginning of a New World Monetary System
In recent issues, I’ve warned you about the massive forced currency devaluations and asset reflation scheme in the works at the highest levels of governments and central banks worldwide.And judging by recent comments from international leaders, the plan seems to be picking up momentum.
Undoubtedly, the spotlight at today’s G-20 meeting will be on what leading finance ministers and central bankers plan to do about the global financial sewage. What you won’t hear much about, though, will be the secret meetings hidden from the media to forge a radical overhaul of the world’s monetary system.
The real goal of the G-20 meetings: Creation of a new financial order based upon drastically new units of paper or fiat money to help wipe the world’s debt ledgers clean.
How? By systematically and progressively devaluing existing currencies, especially the U.S. dollar, and re-inflating ALL asset prices. If the plan shapes up as I think it will, my current target for gold of $2,270 could turn out to be ultra-conservative. Depending on how the new currencies are structured, we could ultimately be looking at $5,000 gold … or even higher!
Over the next few weeks, I recommend you keep your ears tuned to the media for phrases like “new financial architecture” … “new monetary system” … the “rules of the game” … “Bretton Woods II” … and other financial speak. They are essentially the cover words that will ultimately spell a dramatic change in the value of money. And while the planning stages will occur behind closed doors, already the public cries for a seismic shake-up of the world currency structure are becoming louder and louder …
- French President Sarkozy recently declared, “We must rethink the financial system from scratch, as at Bretton Woods” … and that it’s time to “ change the rules of the game.”
- British Prime Minister Brown touts “a new global financial order,” describing this as a “decisive moment” for the world economy to adopt a “new Bretton Woods.”
- European Central Bank council member Ewald Nowotny calls into question the “centrality of the U.S. dollar” and further states that the U.S., Europe, and Asia are developing a “tri-polar global currency system to replace the current dollar-centric reserve structure with more centers of gravity.
- At the recent World Economic Forum, Russia’s Prime Minister Putin explains that “Excessive dependence on a single reserve currency is dangerous for the global economy.
- The People’s Daily , the official newspaper of the Chinese Communist Party and the unofficial mouthpiece of the Beijing government, warns of the threat of a “financial tsunami” and urges action. “ The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States.
- On March 19, the United Nations Commission on Reforms of International Finance and Economic Structures, chaired by the 2001 Economics Nobel Prize-winning economist, Joseph Stiglitz, recommended that the dollar be replaced as the world’s reserve currency.
- On March 23, the People’s Bank of China (PBOC), China’s central bank, proposed replacing the U.S. dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.
Changing the value of a currency is nothing new. Government officials have talked the talk before. Treasury Secretary Donald Regan floated the idea in response to the Latin American debt crisis in 1982. The next year, when the French franc nosedived with three successive devaluations, it was President Francois Mitterrand’s turn to call for “a new Bretton Woods.”
Then, spurred by the emerging-market financial troubles of 1997-98, British Prime Minister Tony Blair opined, “We should not be afraid to think radically and fundamentally … We need to commit ourselves today to build a new Bretton Woods for the next millennium.”
In the past, whenever an international financial crisis crops up, authorities in high places have often referred to a new Bretton Woods “solution” (i.e., changing the value of paper money). This time, though, given the Great Depression II, it looks like the current generation of leaders is ready to walk the walk. Indeed, they may have no other choice.
The First Seeds of Major Global Currency Tampering — The 1933 London Monetary and Economic Conference
The concept of changing the world’s monetary system to wipe bad debts clean and to start anew with a fresh ledger or balance sheet, if you will, is not new. It dates back to Roman times when emperors successively devalued the Roman denarius to wipe out debts and spark asset inflation. More recently, emerging economies have engaged in chronic currency devaluations to deal with their mountains of debt. But surprisingly to most analysts, the industrialized world has also tried to “change the rules of the game,” which is central-bank speak for altering the value of paper money.
And interestingly, the most famous historical precedent — almost an exact analogy to today’s emergency G-20 meetings — was a little-known but critically important meeting in 1933, called the London Monetary and Economic Conference.
At the depths of that Great Depression, the world’s leading economic ministers met to find a cure for the global depression … just like they’re doing today. But when finance ministers, central bankers and government leaders met in London to work out a plan, President Franklin Roosevelt changed his mind at the last minute and refused to attend. By most historical accounts, he had decided that there was no time to bicker with other nations and that action needed to be taken immediately.
So instead of attending the meeting, Roosevelt declared a bank holiday for four days, closing all banks in the country — largely to stem an outflow of gold, but also so federal examiners could inspect them and declare them fit for duty. Those that failed the inspection remained closed permanently. More importantly, Roosevelt issued the famous Executive Order 6102 confiscating most all privately-owned gold by Americans, taking America officially off the gold standard, banning gold exports, and devaluing the U.S. dollar by 40 percent against gold to stem the deflationary spiral of the Depression.
Aside from the location of the meeting, there are tantalizing similarities between that 1933 Conference and next month’s G-20 meeting …
- Then as now, the global economy was in tatters from an international financial crisis.
- Then as now, the global economy was suffering from massive debts gone bad and deflation.
- Then as now, the main thrust of the 1933 initiative was to clear the deck of debt by changing the value of paper money.
I didn’t expect President Obama, Fed Chairman Ben Bernanke, or Treasury Secretary Geithner to put a kibosh on today’s G-20 meeting, as Roosevelt did at the London Monetary and Economic Conference. The reason: Back in 1933, the U.S. was a creditor to the world. So Roosevelt had the leverage to basically take the world by surprise and go it on his own.
In contrast, the U.S. is the world’s largest debtor today. If America even thought about trying to go it alone, it would end up very alone indeed … as our creditors around the world would then threaten to stop financing our debt needs, causing the U.S. economy to truly implode.
Bretton Woods, 1944
In 1944, 44 Allied countries met at the Mount Washington Hotel in Bretton Woods, New Hampshire. Their objective was to formulate a plan to stabilize international exchange rates in the aftermath of World War II and help indebted European countries survive. Thus, a new monetary system was born.
The system they came up with, which went into effect when the war was over in 1945, established fixed exchange or “pegged” rates for currencies to the U.S. dollar and in terms of gold.
Member nations were required to establish parity of their currencies to the dollar and to the “gold peg” and maintain exchange rates within plus or minus 1 percent of parity by intervening as necessary (buying or selling) in the foreign exchange markets.
The official price of gold was fixed at $35 an ounce. The agreement also established the International Monetary Fund (IMF) to bridge temporary imbalances of payment and the World Bank to provide loans and grants for economic development.
The problem: Bretton Woods was not immune to manipulation. For instance, while the U.S. maintained a commitment to convert dollars into gold, many other countries didn’t. So the system essentially broke down. In 1971, President Richard Nixon “closed the gold window” of the U.S. Treasury for good by unilaterally terminating the convertibility of dollars into gold.
Although the dollar was cut from the gold standard, the greenback managed to remain the world’s reserve currency, largely because of the massive economic growth the U.S. experienced. But now, as ground zero for the worst financial crisis since the Great Depression, all that is obviously changing. Hence the calls for a new Bretton Woods, which means, at its core, a new monetary system.
The 1985 Plaza Accord: Coordinated International Action
As I’ve just explained, deliberate official devaluation of currencies is nothing new. Ancient kings and emperors often skimped on the gold and silver content or simply made coins smaller while saying they were still worth the same to skim extra wealth for their coffers. Nowadays, it’s much easier. Without the restraint of a gold standard or any other tangible backing, governments can simply crank up the printing press and create more money out of thin air. It’s a fine line to walk, though, because overdoing it leads to a crisis of confidence in the currency (Zimbabwe comes to mind). Sometimes, however, the system drifts so far out of whack that unilateral action isn’t enough. Then cooperation among nations is required.
The Plaza Accord of 1985 serves as a good example of coordinated currency manipulation. The main purpose of the agreement among France, West Germany, Japan, the United States, and the United Kingdom was to devalue the dollar versus the Japanese yen and German mark. This was done to restart the global economy following the recession of the early ’80s and help reduce the U.S. current account deficit. And it worked: The dollar fell 51 percent against the yen over the next two years.
Today, we are again facing a major, worldwide epidemic. Deteriorating economic conditions in the U.S., Japan, China, Germany, and elsewhere are virtually forcing nations into competitive devaluations to stimulate growth. It’s become a “race to the bottom” to see who can drive their currency the lowest, to help their current account balance. The result is a flood of fiat paper money such as we have never seen before. The potential for disaster in this free-for-all melee is not lost on the G-20 ministers and bankers. That’s why I’m certain they plan a coordinated devaluation of world currencies en masse rather than each country going it alone.
Fast-Forward to the Present: The G-20′s Secret Debt Solution
While world leaders might talk about a “New World Order” in global economics, they give few details of how this might be accomplished. However, picking through the clues they’ve dropped and connecting the dots to fill in the missing parts, I’ve formed what I believe is the most plausible scenario of how the G-20 plan will shape up.
I unveiled this theory in my November 13 column of Money & Markets at the time of the first G-20 summit. It startled and shocked many readers as it spread across the Internet, quoted by numerous websites. I know I’ve already spelled out the mass devaluation proposition in-depth with you. But let me review the highlights here again. I believe that the G-20 will agree to …
- Actively intervene in the forex markets to depress the dollar’s value, thereby re-igniting asset inflation and alleviating debt burdens.
- Ultimately create three new monetary units (new dollar, new euro, new pan-Asian currency), to eventually replace the dollar as the world’s sole reserve currency.
- Establish a new fixed-rate currency regime, abolishing the present floating rate foreign exchange structure.
- Re-calibrate currency values to a common basis of value, most likely involving gold.
- And implement the currency overhaul via the IMF.
As far-fetched as this scenario sounds, it’s no wild speculation on my part. I arrived at these conclusions by methodical, inductive reasoning, examining the facts, and following their trail to the logical conclusion.
Think it can’t happen?
The historical record I’ve described shows that such a scenario is not only possible, but entirely credible and predictable given the behavior of governments in similar circumstances in the past.
The longer term forecast that the world will end up with three reserve currencies is based on references by various influential parties to a “tripartite” or “tri-polar” system. That would diversify reserve currency duties among the three major currencies instead of relying on just one, the dollar.
I suspect the names of the new currencies will be changed to divorce them from any stigmas attached to the current ones and to make the devaluation easier to sell. People would certainly not be happy with a new “dollar” that’s worth only one-tenth of their old dollar (ditto for the euro and yen).
And by resurrecting the Bretton Woods fixed-exchange structure, officials eliminate currency speculation, which often throws trade balances into chaos suddenly and unexpectedly. With no up-down spreads, speculators would have no interest in currencies, theoretically ensuring stable exchange rates indefinitely.
Please don’t misunderstand: I do not foresee a return to the gold standard. There’s simply not enough gold available, at any price, for the world to go back to a gold standard. Plus, it’s too restrictive, and central bankers and politicians abhor being handcuffed by an outside force. So the world is not headed in that direction.
For savvy investors who understand the process of currency devaluations, there’s no need to bet on the return of a gold standard. Instead, all you need to know is that the process of a deliberate devaluation of the dollar has already largely begun … that the world’s monetary system can and will be changed … and that through the process of changing the value of money, debts can be effectively and largely forgiven … and asset prices, albeit artificially, re-inflated.
How high would the price of gold ultimately go? How would currency devaluation and the concomitant inflating away of debts impact other asset prices, such as real estate and stocks?
My Answers …
The ultimate high for gold depends on how much of the U.S. debt the policymakers decide to “forgive” through reflation. No one knows for sure what will be decided upon. But a little simple math based on just the debt position of the U.S. gives you an idea …
To monetize only 10 percent of the U.S.’s mountain of bad debts, gold would be priced a shade over $5,300 an ounce. Ultimately, I expect the G-20 will monetize at least 10 percent of U.S. debt, which would send gold rocketing to more than $5,300 an ounce.
Anyone who doesn’t own gold in this environment is foolhardy.
Indeed, I suspect 10 percent is the minimum the G-20 would consider effective. It’s entirely possible, albeit not at once, that debt monetization will eventually exceed 20 percent of U.S. debts. How will this impact other assets prices? Virtually all asset prices — from real estate to stocks — will be inflated higher as debt levels are effectively forgiven in part by currency devaluation.Yes, that means real estate prices in general will head higher longer term. And it also means that someday we will be staring at a Dow, along with other major stock indexes here and across the globe, that explodes higher in value as earnings and assets get revalued in a devalued currency.
But that’s not a good reason to run out and buy real estate or stocks in general. The markets and the economy have many other problems to work out before it becomes reasonably safe to start diversifying and employing your cash to invest for the “Great Re-Inflation.”
However, there is no substitute for owning gold at this stage. Anyone who doesn’t own the yellow metal in this environment, even if I am dead wrong about the ultimate end game of the G-20′s hidden agenda, is foolhardy.
My view: Do not let go of your core gold holdings, under any circumstances.
- FASB is ‘easing’ the Mark to Market rule to essentially allow all these insolvent banks to price all their toxic assets at whatever price they view as proper, ie Mark to Fantasy. This is seriously bad news for transparency and accountability.
- Suppose a bank buys an asset which cost US$1 B a year ago and the price of similar/same asset goes down to US$100M currently. In fair value accounting using mark to market principle, the asset bought at US$ 1B should be priced at US$ 100M in the books. This means that this bank has suffered a US$ 900M paper loss and the balance sheet, profit and loss statement must reflect it as such.
- But in allowing banks to escape from this mark to market rule, banks can price toxic assets at whatever. How then can you trust their financial statements? How then do you assess whether they are adequately capitalize or otherwise?
- It is bad enough that alot of these toxic derivatives are placed under off balance sheet items to hide them. Now with this rule change, it is almost as good as legalizing fraud. America is going from bad to worse. These banksters and their cronies are taking over the country big time. They are sending America down the road to 3rd world country status with dubious rules and regulations.
- Bloomberg reports :
The Financial Accounting Standards Board, pressured by U.S. lawmakers and financial companies, voted to relax fair-value accounting rules that Citigroup Inc. and Wells Fargo & Co. say don’t work when markets are inactive.
Changes to fair-value, or mark-to-market accounting, approved by FASB today allow companies to use “significant” judgment in gauging prices of some investments on their books, including mortgage-backed securities. Analysts say the measure may reduce banks’ writedowns and boost net income. Firms could apply the changes to first-quarter results.
House Financial Services Committee members pressed FASB Chairman Robert Herz at a March 12 hearing to revise fair-value, which requires banks to mark assets each quarter to reflect market prices, saying it unfairly punished financial companies. ….
Banks rely on competitors’ asset sales to help determine the fair-market value of similar securities they hold on their own books. FASB’s staff conceded the March 17 proposal led to a “presumption” that all security sales are “distressed” unless evidence proves otherwise. Such an interpretation might have let financial firms ignore transactions in valuing assets.
FASB staff said banks should only disregard transactions that aren’t “orderly,” including situations in which the “seller is near bankruptcy” or needed to sell the asset to comply with regulatory requirements. The staff said in a report today it was not FASB’s intent “to change the objective of a fair-value measurement.”
Fair-value “provides the kind of transparency essential to restoring public confidence in U.S. markets,” former Securities and Exchange Commission Chairman Arthur Levitt said in an interview yesterday.
Levitt is co-chairman, along with former SEC head William Donaldson, of the Investors’ Working Group, a non-partisan panel formed to recommend improvements to financial regulation.
“The group is deeply concerned about the apparent FASB succumbing to political pressures,” he said. Levitt is a senior adviser at buyout firm Carlyle Group and a board member at Bloomberg LP, the parent of Bloomberg News.
- Nicholas Jones opines :
The Final Truths, Motives, and Profit Opportunities
Marked to market accounting allows us some transparency. Removing FAS 157 is absurd and criminal. The whole argument behind removing marked to market is that these assets are perceived to be worth more down the road than their current value. This is simply not the case. These ideas are based on the same ridiculous scenarios that Obama based the budget deficit on (tax revenues in an economy that will decline by 1.2% in 2009 and grow by 3.6% in 2010…funny). The “theoretical” asset values are established on a completely unrealistic economic outlook; I mean it’s not even close. When it’s all said and done, the banks will be lucky to get 5-10 cents on the dollar. They will probably be better off finding willing buyers now than they will in 18 months.
So here’s the real reason why the government will ban marked to market accounting. By removing marked to market, the banks will no longer have to claim the associated unrealized losses on the derivatives; and marking them to magic (mark to model) will reduce the losses from writing the derivatives down. It’s just another way to hide the assets from the balance sheet. Another aspect of marking the CDS to magic is that the Fed will be able to grow its balance sheet (already surpassed $2 trillion) faster and more efficiently. I fully expect the Feds to grow their balance sheet by 4 or 5 multiples from current levels.
The President, Congress, Fed, and Treasury sure talk about bringing transparency, but actions speak louder than words. They have their twisted reasons. Like everything else the government mettles in, the imbalances they create are really opportunities to make money. For the above mentioned reasons, by banning marked to market you can fully expect the banks to start churning out a couple of profitable quarters. The pundits will proclaim the recovery is on, which is really the ultimate goal of the government. Markets will rally and Obama will say I told you so. Then there’s people like you and me who recognize it for what it is and take this opportunity to profit. This false rally will be a great time to get short the financials. It’s a second chance for everyone who missed the massive downside move the first time.