Gold standing: a 1960 Fed guard in protective metal overshoes keeps an eye on some of its bullion. Congressmen once sent an investigator to its vault to ‘check it was there’
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Friday, October 9, 2009
Got Gold?
Gold standing: a 1960 Fed guard in protective metal overshoes keeps an eye on some of its bullion. Congressmen once sent an investigator to its vault to ‘check it was there’
Read Entire Article
China's Gold Investors Undeterred by High Prices
BEIJING/SHANGHAI (Reuters) - Gold might be a luxury most can live without when times are hard, but for cautious investors in China, the world's top producer and consumer of bullion, it has become a matter of necessity.
Jewelry sales might take a hit in China after prices hit a record high of $1,043.45 an ounce on Tuesday, but amid ongoing economic uncertainty, many in the financial community still prefer bullion to bonds, analysts said in comments made before the record was struck.
The government itself -- also looking for a safe haven for its foreign currency reserves -- is also likely to increase its gold holdings, which now officially stand at 1,054 metric tons.
"Consumption in China is expected to rise, as it is supported by expectations of inflation, and I also believe the government will increase its reserves," Yao Haiqiao, president of Longgold Asset Management, said.
Only around 1.6 percent of China's forex reserves is held in gold, and that figure is expected to rise, Sun Zhaoxue, chairman of the China Gold Association, said earlier this year.
World gold prices have broken the $1,020 per ounce barrier for the first time since March 2008 as investors seek a safe haven from uncertainty about the world economy and the dollar. While some have warned the price might not be sustainable, Chinese buyers are still expected to remain active.
"Consumers are sensitive about the prices, so rising gold prices will definitely hit purchases in India and China. We have seen a rapid drop in India's jewelry consumption in the first half so a similar story could be happening in China," said Zoe Wang, analyst with Shanghai CIFCO Futures.
"But in terms of investment, purchases are rising, as more people are using gold as a hedging tool. Such purchases will obviously increase in China."
China is already the world's biggest gold producer, and in the first half of this year, consumption of the precious metal also became the highest in the world, overtaking India.
Albert Cheng, Far East managing director at the World Gold Council, said Chinese gold purchases for investment reached a record high of 70 metric tons in 2008.
With jewelry sales expected to fall -- even in the biggest market of China, the only one to show any growth in 2008 -- it is investment purchases that continue to drive up prices.
"The Chinese buy more gold bars in banks while Indians buy more jewelry," said Longgold's Yao.
Read Entire Article
Jewelry sales might take a hit in China after prices hit a record high of $1,043.45 an ounce on Tuesday, but amid ongoing economic uncertainty, many in the financial community still prefer bullion to bonds, analysts said in comments made before the record was struck.
The government itself -- also looking for a safe haven for its foreign currency reserves -- is also likely to increase its gold holdings, which now officially stand at 1,054 metric tons.
"Consumption in China is expected to rise, as it is supported by expectations of inflation, and I also believe the government will increase its reserves," Yao Haiqiao, president of Longgold Asset Management, said.
Only around 1.6 percent of China's forex reserves is held in gold, and that figure is expected to rise, Sun Zhaoxue, chairman of the China Gold Association, said earlier this year.
World gold prices have broken the $1,020 per ounce barrier for the first time since March 2008 as investors seek a safe haven from uncertainty about the world economy and the dollar. While some have warned the price might not be sustainable, Chinese buyers are still expected to remain active.
"Consumers are sensitive about the prices, so rising gold prices will definitely hit purchases in India and China. We have seen a rapid drop in India's jewelry consumption in the first half so a similar story could be happening in China," said Zoe Wang, analyst with Shanghai CIFCO Futures.
"But in terms of investment, purchases are rising, as more people are using gold as a hedging tool. Such purchases will obviously increase in China."
China is already the world's biggest gold producer, and in the first half of this year, consumption of the precious metal also became the highest in the world, overtaking India.
Albert Cheng, Far East managing director at the World Gold Council, said Chinese gold purchases for investment reached a record high of 70 metric tons in 2008.
With jewelry sales expected to fall -- even in the biggest market of China, the only one to show any growth in 2008 -- it is investment purchases that continue to drive up prices.
"The Chinese buy more gold bars in banks while Indians buy more jewelry," said Longgold's Yao.
Read Entire Article
Thursday, October 8, 2009
Gold and Economic Freedom, Reinterpreted for the 21st Century
(SmartKnowledgeU)I do not profess that the main structural arguments of the following essay are mine. Rather they belong to a rather famous former Chairman of the US Federal Reserve named Alan Greenspan as noted in his rather seminal 1966 essay titled “Gold and Economic Freedom”. However, I have taken the specific arguments of that very prescient essay and modified and reinterpreted them to fit into the contemporary situation of our current global and financial crisis (that it its core, is a monetary crisis). It is clear that at some point after his appointment to the Chairman of the US Federal Reserve in 1987, Alan Greenspan turned his back on the very structural beliefs about gold’s inextricable connection to freedom that he championed some twenty years earlier. However, Greenspan’s failure to uphold the ideals he once championed does not invalidate their keen insight and validity. Today, these very ideals are especially pertinent to the impending economic catastrophe we face today, despite the continued three-ring circus of government, Central Bankers, & corporate executives that continually tell us that the financial crisis has bottomed.
Today, due to the proliferation of fragile and confusing financial instruments called derivatives and the fraudulent nature of our fractional reserve banking system, hundreds of billions, and more likely, trillions of more dollars exist than claims on real assets and goods. The comparable analogy would be if, as an Apple store owner, I sold the same 100 Apple desktop computers to 10,000 clients. As long as no more than 10 of my customers required delivery in any given year, then my business could operate for many years without this fraudulent scheme ever being exposed. However, the instant my clients collectively decided they wanted to take delivery of all 10,000 computers in the same month, my ruse would be exposed and my business sentenced to a fate of bankruptcy. Almost all of us would agree that this would be an insane way to run a business yet we readily accept the fact that all major banks in every modern, developed nation run their businesses in this very manner. However, the development of such a situation would be next to impossible with the institution of a true gold standard and this is why Alan Greenspan once made the timeless statement that economic freedom and gold are inseparable.
A true gold standard would operate as follows. The introduction of any new supplies of money into the global economy would necessitate the equivalent purchase of gold to be stored as reserves to back them. Thus, if the power to print money was returned to the US government as explicitly stated in the US Constitution, Article 1, Section 8, and the US Treasury wished to print $1 trillion new US dollars, such an action would require the purchase of an additional $1 trillion of gold to back the new dollar supply. Of course there is not enough gold in the world to back all the trillions of dollars that exist in our current monetary supply unless gold were to be revalued somewhere in the vicinity of USD $10,000 an ounce, or perhaps even north of this figure. Or perhaps the standard would have to be a silver standard or a hybrid gold/silver standard. For the sake of a hypothetical argument, however, let's examine how a gold standard keeps money “honest”. Once a new supply of $1 trillion was printed, every new dollar would be a claim on a portion of the US Treasury’s gold reserves, not just an empty piece of paper backed by the “full faith and credit” of the US government, as is the case today.
Because there is a cost to printing new supplies of dollars under a gold standard, the primary driver of monetary supply expansion would consequently become the sustainable expansion of real goods and services, NOT the speculative whims of a few powerful banking families that wish to drive up prices of unsustainable assets such as subprime mortgages, derivatives, dangerously overvalued stock markets, and rigged commodity markets for their own benefit. Inevitably, under our current fraudulent monetary system, such actions occur and lead to what the media erroneously terms as “bubbles” and which financial “experts” misinterpret as natural economic cycles. In reality, “bubbles” are grossly distorted unsustainable valuations of assets driven by the speculation and the monetary policies of the financial oligarchs that control the US Federal Reserve, the Bank of England, and the European Central Bank. This is why “bubbles” always burst. By the purposeful creation of bubbles, the financial oligarchs that create them increase their riches, and then plunder the wealth of their fellow citizens when these bubbles inevitably burst. This accomplishes two important goals for the financial oligarchs.
(1) Since they create every capital market bubble in every major economy, inevitably, they understand exactly how to profit from these markets, and they increase their wealth and power substantially as these bubbles grow;
(2) Since most citizens don’t understand the extreme fragility of the bubbles the financial oligarchs create and instead interpret the bubbles as bull markets that cannot end, when the bubbles inevitably burst, this action conveniently strips wealth and power from the classes that reside below the financial oligarchs and stifles any chance for real opposition and dissent to their power.
It is the perfect con game.
A monetary system that is backed by a true gold standard, however, would never sustain an expansion of monetary supply to fund risky assets that have a high risk of blowing up and becoming worthless, because in doing so, the financial oligarchs undermine their own assets. This is why they killed the gold standard in 1971. Under a true gold standard, it would have been impossible for this current global financial and monetary crisis to materialize, and here’s why. If banks continue to print new dollars backed by gold to support the purchases of risky assets, bank loans are inevitably paid back either slowly over time or not at all. Consequently, under a gold standard, banks curtail new lending by raising interest rates because they understand that the dollars they currently hold have greatly increased in risk in comparison to the real gold that backs them. Thus a gold standard successfully limits the greed driven behavior of banks and actually successfully stops further creation of ticking time bomb financial assets such as subprime loans. In the case where a bank refuses to curtail its risky behavior and continues to finance new loans for the purchase of risky assets, then a gold standard allows for their bluff to be called by any dollar owner. In other words, if a bank continues to expand the monetary supply to such an extent that many more dollars exist than claims on real goods, as people realize that banks are creating new money to finance risky assets that are likely to blow-up, people will either
(1) Demand gold in exchange for their dollars, or presuming that all other major global currencies are also backed by a gold standard;
(2) Exchange their dollars for another currency that they deem has not been diluted by the gold standard upon which that particular currency operates.
If scenario one materializes, and people demand gold in return for their dollars, the bankers realize that they will be granting a real asset to the people in return for receiving a devaluing asset that they are helping to devalue. Under this scenario, banks will do everything in their power to retain their gold reserves and thus will increase interest rates to contract monetary supply and renew the currency’s strength. Such actions would then serve to stop the run on their gold reserves.
If scenario two materializes, and people flood the market with US dollars by selling them to purchase other currencies that have maintained an honest gold standard, then again, banks would combat the devaluation of their own dollar holdings by raising interest rates, contracting the US dollar supply, and ensuring that the dollar’s strength returns to the equivalent strength of its rival currencies.
Thus, a gold standard automatically regulates monetary supply and monetary strength and there is absolutely no reason for Central Banks to exist and to allow Central Bankers to artificially deflate and inflate money for their own self-interests to the detriment of all other citizens. If one can understand that gold helps establish a free market where growth in sustainable goods and services drives monetary expansion, and not greed and speculation as is the case today, then it is easy to realize that not only is gold is linked to economic freedom as Alan Greenspan stated, but that it is also inseparable from the much broader concept of freedom itself.
However, a true gold standard is not even necessary to regulate integrity and honesty in the global monetary system. The world gold standard that existed before it was ended by President Nixon in 1971 under the advice of then deputy under-secretary of monetary affairs Paul Volcker and US Treasury Secretary John Connally, win fact, not a true gold standard, but a “pseudo” gold standard. It was a “pseudo” gold standard because banks were allowed to create more dollars than the value of their gold reserves. However, even under a “pseudo” gold standard, the above principles I described above would still automatically regulate free markets with little need for monetary policy decisions from Central Banks. In the event that banks attempted to execute fraudulent schemes under a gold standard, their scramble not to lose their gold reserves could still cause sharp recessions, but these recessions, due to the self-regulatory nature of such a monetary system, would likely be very short in nature and consequent economic recovery quick. Thus, a “pseudo” gold standard or “pseudo” gold/silver standard, though far from being perfect, is still much more preferable than the fraudulent monetary system we currently utilize today that allows financial oligarchs to create prolonged deep depressions and to destroy the wealth of the middle class.
People, ignorant of gold’s long history as a store of money, still erroneously believe gold to be a barbarous relic with zero intrinsic value. Today, hundreds of millions of people still ask, “What makes gold so valuable that it should back our monetary system?” Again, the lack of understanding about gold’s role in creating a free and honest monetary system is due to the fact that gold can call the bluff of the financial oligarchs, and they have done everything in their power, including the purposeful spread of misinformation about gold to prevent people from calling their bluff. The spread of this knowledge threatens the very power of the financial oligarchs so they ensure that people do not understand the basic tenets of Greenspan's "Gold and Economic Freedom" essay. It is not by mistake that gold has been used as a form of money for centuries and that, as a form of money, it has outlasted numerous other forms of paper money and even numerous other commodities once employed as money. Whereby ancient civilizations have used many different commodities over time such as corn, wheat, beads, clothes, etc. and instituted them as a means to barter for goods and services, it is by no mistake that ancient Egypt and the Roman Empire, civilizations that endured for long periods of time and required a more efficient form of money, eventually settled upon gold.
Gold has many qualities that make it ideal for use as money that other valuable commodities such as diamonds, platinum, rhodium, wheat, rice and oil all lack. Gold is a sufficiently rare enough metal to command a high value, it is extremely malleable and therefore easily divisible for use as money, it is uniform in quality, it is durable so retains its quality over time, and it has very little industrial use and thus is not consumed in any significant quantity over time. Though gold’s detractors continually spread misinformation about gold having zero intrinsic value and the US dollar as the only valid form of money, this argument is actually backwards. It is the dollar that has zero intrinsic value while the intrinsic value of gold has been well defined for centuries. All fiat money, whether the US dollar, the Japanese yen, the Euro, the Pound Sterling, the Icelandic Krona, or the Brazilian real, only has value because it is backed by the full faith and credit of their respective governments. Today, we know that the counterparty risk of all major global currencies is tremendous. Gold, however, has zero counterparty risk.
Ever since the financial oligarchs convinced US President Nixon to end the pseudo gold standard in 1971, there have been no limitations on any Central Bank in the world in regard to their ability to increase monetary supply, and to deflate and inflate currencies at will. Translated another way, this means that there is no way for any citizen of the world to ensure that their Central Bank does not enact monetary policies that unfairly tax and devalue their savings. Quite literally, our modern monetary system allows no means for citizens to prevent the theft of their savings by Central Banks. If one had $1,000,000 in their bank account in 2001, and today, in 2009, could only purchase half of the goods and services that he could have purchased with that money in 2001, it matters not if:
(1) the $1,000,000 retained the same purchasing power up until now but half the purchasing power was lost as a result of a 50% tax imposed by the government today, or
(2) if the 50% loss in purchasing power was a result of a 50% devaluation of the US dollar during the last 9 years.
Central Banks don’t want you to understand that their devaluation policies are equivalent to robbing citizens of their wealth. Alan Greenspan himself stated in 1997 US Congressional testimony that "price increases are really the same thing as depreciation of the currency.”
Various arguments that have been levied against gold’s relevancy as a form of money, such as gold is worthless because one cannot eat gold if one is hungry, or Warren Buffet’s infamous statement that gold is a terrible asset because “it won’t do anything between now and then except look at you” are arguments devoid of any logic. One cannot eat US dollars either if one is hungry, and diamonds won’t due anything other than glitter and look at you either. I imagine that Buffet’s statement about gold is a jab at gold’s extremely limited usefulness in industrial applications, yet it is this very “limitation” that has led multiple civilizations over many centuries to adopt gold as a form of money. To the very contrary of Buffet’s core argument against holding gold, why would anyone would want to own a fiat monetary asset that has a value not determined by the sustainable growth of societal goods and services, but a value determined by the whims of financial oligarchs that can deflate and inflate it at will? Maintaining your hard earned money in the form of dollars, pounds and Euros and allowing Central Banks to devalue them day after day, year after year, is truly an argument devoid of all logic.
When considering the recent International Monetary Fund (IMF) request to Asian Central Banks to flood their markets with liquidity, the heads of Asian Central Banks would be well served to become a student of the Great Depression before making any decision to do so. After World War I, Great Britain began to lose excessive amounts of its gold reserves due to the Bank of England’s refusal to revalue the British pound - gold conversion rate despite greatly expanding British pound monetary supplies during the war. Explained simply, in order to finance the war, the Bank of England had printed massive supplies of British Pounds without an equivalent increase in their gold reserves. Consequently, when the war ended, Britain had the same amount of gold backing a greatly increased supply of British pounds.
Simple math dictated that Britain had to devalue their pound or commit fraud by maintaining the same British pound-gold conversion ratio that existed pre-WW I. The Bank of England chose fraud over honesty, and citizens in turn, called the Bank of England’s bluff and began to convert their pounds into gold. When this happened, the Bank of England called on their sister Central Bank, the US Federal Reserve for assistance. Rather than raising interest rates to contract their own monetary supply and strengthen the British Pound in this manner to restore the pre-WWI British pound-gold conversion ratio, the Bank of England call upon the US Federal Reserve to flood the United States with dollars, much as the IMF is now calling upon Asian countries to do. According to Alan Greenspan, “The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates. The Fed succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process.”
Today, if the Asian Central Banks comply with the IMF's request, since we are not on a gold standard and there are no runs on a country’s gold reserves to prevent, the IMF’s request is meant to stop the rapid devaluation of the Euro, the British Pound and primarily the US dollar. If the Asian Central Banks foolishly comply with the IMF’s request, they should be forewarned that the end result of their actions will be to destroy their own economies as well.
In 1998, Mr. Greenspan stated, “You don’t have a free market. Central banks determine the money supply, not the market…We are not on a gold standard because leaders of the 20th and 21st centuries don’t want a market that functions in that manner.” The IMF’s request is driven by the desire of the world’s financial oligarchs to keep a fraudulent monetary system alive so that they can retain their power. Were the world to return to a gold standard or a combined gold/silver standard today, increases in global supplies of major currencies would be dictated by real sustainable economic growth of global economies and claims on currencies would be backed by real assets, not the untrustworthy empty promises of governments today. If we educate millions of people regarding gold’s central role to freedom, Central Banks cannot continue to keep financing bailout plans that ultimately steal significant wealth from their citizens. In fact, because there is no gold to lose under our current unsound monetary system, this is precisely the reason why large US banks had no problem continuing to feed growing bubbles of fraudulent assets such as subprime mortgages, asset backed commercial paper, etc. In the end, they knew that they would be bailed out with taxpayer money, and there was no "house gold" to lose. Thus, billions of profits could be made by risking not their own assets, as would be the case under a gold standard, but by risking only the assets of the people.
French philosopher Voltaire once said that as long as people believe in absurdities, they will continue to commit atrocities. Belief that freedom and an unsound fiat monetary system can coexist is one such absurdity. As result of this absurd belief, atrocities, such as the ongoing global hunger crisis from rising food prices that are a direct result of devaluing currencies, can develop.
Under our current fiat monetary system, the financial oligarchs that control the world’s central banks will continue to feed speculative bubbles because there is no way for the people to call their bluff other than exchanging one form of fraudulent money for another form of fraudulent money. The IMF Special Drawing Rights (SDRs) of a basket of fiat currencies is another absurd proposed "solution." What makes a basket of four or five fiat currencies backed by nothing fundamentally better than one fiat currency backed by nothing? In reality, when commentators say that the US dollar is backed by the "full faith and credit of the US government", do you know who is the "government"? Look in the mirror and you will know. In reality, when the Feds say "government", they mean you, for if they need to print more money so the government doesn't go bankrupt, the government will increase your taxes to raise more money for government transfer payments and to pay the interest on the money the Feds print. People that tried to protect themselves from dollar devaluation through the use of currency hedges discovered the futility of doing so at the end of last year and the beginning of this year when Euros, British Pounds, and Australian all plummeted by 25% to 30% in a matter of weeks. If the World Series of Poker operated under the same rules as our current monetary system, the richest man or woman to enter the tournament would win every single tournament. No matter his hand, if there was no way to call his bluff, he could raise the pot every round to such rich levels that he could force all other players to fold even under the occasions when he held the weakest hand. Even a poker game is more honest than our monetary system for it allows other players to expose bluffs and walk away victorious.
Under our current monetary system, there is no means to call the bluff of Central Bankers by using other forms of fiat money. The only way to call the Central Bank’s bluff is to buy gold and silver. Understanding this, it is easy to deduce why Central Banks, despite holding loads of gold in their own private reserves, continually attack gold, discredit its role in our monetary system, and seek to drive its price down. If masses of people were to discover and understand the true value of gold in a sound monetary system, then calling the bluff of our current fiat monetary system and causing it to collapse would be possible.
By: J.S. Kim
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Today, due to the proliferation of fragile and confusing financial instruments called derivatives and the fraudulent nature of our fractional reserve banking system, hundreds of billions, and more likely, trillions of more dollars exist than claims on real assets and goods. The comparable analogy would be if, as an Apple store owner, I sold the same 100 Apple desktop computers to 10,000 clients. As long as no more than 10 of my customers required delivery in any given year, then my business could operate for many years without this fraudulent scheme ever being exposed. However, the instant my clients collectively decided they wanted to take delivery of all 10,000 computers in the same month, my ruse would be exposed and my business sentenced to a fate of bankruptcy. Almost all of us would agree that this would be an insane way to run a business yet we readily accept the fact that all major banks in every modern, developed nation run their businesses in this very manner. However, the development of such a situation would be next to impossible with the institution of a true gold standard and this is why Alan Greenspan once made the timeless statement that economic freedom and gold are inseparable.
A true gold standard would operate as follows. The introduction of any new supplies of money into the global economy would necessitate the equivalent purchase of gold to be stored as reserves to back them. Thus, if the power to print money was returned to the US government as explicitly stated in the US Constitution, Article 1, Section 8, and the US Treasury wished to print $1 trillion new US dollars, such an action would require the purchase of an additional $1 trillion of gold to back the new dollar supply. Of course there is not enough gold in the world to back all the trillions of dollars that exist in our current monetary supply unless gold were to be revalued somewhere in the vicinity of USD $10,000 an ounce, or perhaps even north of this figure. Or perhaps the standard would have to be a silver standard or a hybrid gold/silver standard. For the sake of a hypothetical argument, however, let's examine how a gold standard keeps money “honest”. Once a new supply of $1 trillion was printed, every new dollar would be a claim on a portion of the US Treasury’s gold reserves, not just an empty piece of paper backed by the “full faith and credit” of the US government, as is the case today.
Because there is a cost to printing new supplies of dollars under a gold standard, the primary driver of monetary supply expansion would consequently become the sustainable expansion of real goods and services, NOT the speculative whims of a few powerful banking families that wish to drive up prices of unsustainable assets such as subprime mortgages, derivatives, dangerously overvalued stock markets, and rigged commodity markets for their own benefit. Inevitably, under our current fraudulent monetary system, such actions occur and lead to what the media erroneously terms as “bubbles” and which financial “experts” misinterpret as natural economic cycles. In reality, “bubbles” are grossly distorted unsustainable valuations of assets driven by the speculation and the monetary policies of the financial oligarchs that control the US Federal Reserve, the Bank of England, and the European Central Bank. This is why “bubbles” always burst. By the purposeful creation of bubbles, the financial oligarchs that create them increase their riches, and then plunder the wealth of their fellow citizens when these bubbles inevitably burst. This accomplishes two important goals for the financial oligarchs.
(1) Since they create every capital market bubble in every major economy, inevitably, they understand exactly how to profit from these markets, and they increase their wealth and power substantially as these bubbles grow;
(2) Since most citizens don’t understand the extreme fragility of the bubbles the financial oligarchs create and instead interpret the bubbles as bull markets that cannot end, when the bubbles inevitably burst, this action conveniently strips wealth and power from the classes that reside below the financial oligarchs and stifles any chance for real opposition and dissent to their power.
It is the perfect con game.
A monetary system that is backed by a true gold standard, however, would never sustain an expansion of monetary supply to fund risky assets that have a high risk of blowing up and becoming worthless, because in doing so, the financial oligarchs undermine their own assets. This is why they killed the gold standard in 1971. Under a true gold standard, it would have been impossible for this current global financial and monetary crisis to materialize, and here’s why. If banks continue to print new dollars backed by gold to support the purchases of risky assets, bank loans are inevitably paid back either slowly over time or not at all. Consequently, under a gold standard, banks curtail new lending by raising interest rates because they understand that the dollars they currently hold have greatly increased in risk in comparison to the real gold that backs them. Thus a gold standard successfully limits the greed driven behavior of banks and actually successfully stops further creation of ticking time bomb financial assets such as subprime loans. In the case where a bank refuses to curtail its risky behavior and continues to finance new loans for the purchase of risky assets, then a gold standard allows for their bluff to be called by any dollar owner. In other words, if a bank continues to expand the monetary supply to such an extent that many more dollars exist than claims on real goods, as people realize that banks are creating new money to finance risky assets that are likely to blow-up, people will either
(1) Demand gold in exchange for their dollars, or presuming that all other major global currencies are also backed by a gold standard;
(2) Exchange their dollars for another currency that they deem has not been diluted by the gold standard upon which that particular currency operates.
If scenario one materializes, and people demand gold in return for their dollars, the bankers realize that they will be granting a real asset to the people in return for receiving a devaluing asset that they are helping to devalue. Under this scenario, banks will do everything in their power to retain their gold reserves and thus will increase interest rates to contract monetary supply and renew the currency’s strength. Such actions would then serve to stop the run on their gold reserves.
If scenario two materializes, and people flood the market with US dollars by selling them to purchase other currencies that have maintained an honest gold standard, then again, banks would combat the devaluation of their own dollar holdings by raising interest rates, contracting the US dollar supply, and ensuring that the dollar’s strength returns to the equivalent strength of its rival currencies.
Thus, a gold standard automatically regulates monetary supply and monetary strength and there is absolutely no reason for Central Banks to exist and to allow Central Bankers to artificially deflate and inflate money for their own self-interests to the detriment of all other citizens. If one can understand that gold helps establish a free market where growth in sustainable goods and services drives monetary expansion, and not greed and speculation as is the case today, then it is easy to realize that not only is gold is linked to economic freedom as Alan Greenspan stated, but that it is also inseparable from the much broader concept of freedom itself.
However, a true gold standard is not even necessary to regulate integrity and honesty in the global monetary system. The world gold standard that existed before it was ended by President Nixon in 1971 under the advice of then deputy under-secretary of monetary affairs Paul Volcker and US Treasury Secretary John Connally, win fact, not a true gold standard, but a “pseudo” gold standard. It was a “pseudo” gold standard because banks were allowed to create more dollars than the value of their gold reserves. However, even under a “pseudo” gold standard, the above principles I described above would still automatically regulate free markets with little need for monetary policy decisions from Central Banks. In the event that banks attempted to execute fraudulent schemes under a gold standard, their scramble not to lose their gold reserves could still cause sharp recessions, but these recessions, due to the self-regulatory nature of such a monetary system, would likely be very short in nature and consequent economic recovery quick. Thus, a “pseudo” gold standard or “pseudo” gold/silver standard, though far from being perfect, is still much more preferable than the fraudulent monetary system we currently utilize today that allows financial oligarchs to create prolonged deep depressions and to destroy the wealth of the middle class.
People, ignorant of gold’s long history as a store of money, still erroneously believe gold to be a barbarous relic with zero intrinsic value. Today, hundreds of millions of people still ask, “What makes gold so valuable that it should back our monetary system?” Again, the lack of understanding about gold’s role in creating a free and honest monetary system is due to the fact that gold can call the bluff of the financial oligarchs, and they have done everything in their power, including the purposeful spread of misinformation about gold to prevent people from calling their bluff. The spread of this knowledge threatens the very power of the financial oligarchs so they ensure that people do not understand the basic tenets of Greenspan's "Gold and Economic Freedom" essay. It is not by mistake that gold has been used as a form of money for centuries and that, as a form of money, it has outlasted numerous other forms of paper money and even numerous other commodities once employed as money. Whereby ancient civilizations have used many different commodities over time such as corn, wheat, beads, clothes, etc. and instituted them as a means to barter for goods and services, it is by no mistake that ancient Egypt and the Roman Empire, civilizations that endured for long periods of time and required a more efficient form of money, eventually settled upon gold.
Gold has many qualities that make it ideal for use as money that other valuable commodities such as diamonds, platinum, rhodium, wheat, rice and oil all lack. Gold is a sufficiently rare enough metal to command a high value, it is extremely malleable and therefore easily divisible for use as money, it is uniform in quality, it is durable so retains its quality over time, and it has very little industrial use and thus is not consumed in any significant quantity over time. Though gold’s detractors continually spread misinformation about gold having zero intrinsic value and the US dollar as the only valid form of money, this argument is actually backwards. It is the dollar that has zero intrinsic value while the intrinsic value of gold has been well defined for centuries. All fiat money, whether the US dollar, the Japanese yen, the Euro, the Pound Sterling, the Icelandic Krona, or the Brazilian real, only has value because it is backed by the full faith and credit of their respective governments. Today, we know that the counterparty risk of all major global currencies is tremendous. Gold, however, has zero counterparty risk.
Ever since the financial oligarchs convinced US President Nixon to end the pseudo gold standard in 1971, there have been no limitations on any Central Bank in the world in regard to their ability to increase monetary supply, and to deflate and inflate currencies at will. Translated another way, this means that there is no way for any citizen of the world to ensure that their Central Bank does not enact monetary policies that unfairly tax and devalue their savings. Quite literally, our modern monetary system allows no means for citizens to prevent the theft of their savings by Central Banks. If one had $1,000,000 in their bank account in 2001, and today, in 2009, could only purchase half of the goods and services that he could have purchased with that money in 2001, it matters not if:
(1) the $1,000,000 retained the same purchasing power up until now but half the purchasing power was lost as a result of a 50% tax imposed by the government today, or
(2) if the 50% loss in purchasing power was a result of a 50% devaluation of the US dollar during the last 9 years.
Central Banks don’t want you to understand that their devaluation policies are equivalent to robbing citizens of their wealth. Alan Greenspan himself stated in 1997 US Congressional testimony that "price increases are really the same thing as depreciation of the currency.”
Various arguments that have been levied against gold’s relevancy as a form of money, such as gold is worthless because one cannot eat gold if one is hungry, or Warren Buffet’s infamous statement that gold is a terrible asset because “it won’t do anything between now and then except look at you” are arguments devoid of any logic. One cannot eat US dollars either if one is hungry, and diamonds won’t due anything other than glitter and look at you either. I imagine that Buffet’s statement about gold is a jab at gold’s extremely limited usefulness in industrial applications, yet it is this very “limitation” that has led multiple civilizations over many centuries to adopt gold as a form of money. To the very contrary of Buffet’s core argument against holding gold, why would anyone would want to own a fiat monetary asset that has a value not determined by the sustainable growth of societal goods and services, but a value determined by the whims of financial oligarchs that can deflate and inflate it at will? Maintaining your hard earned money in the form of dollars, pounds and Euros and allowing Central Banks to devalue them day after day, year after year, is truly an argument devoid of all logic.
When considering the recent International Monetary Fund (IMF) request to Asian Central Banks to flood their markets with liquidity, the heads of Asian Central Banks would be well served to become a student of the Great Depression before making any decision to do so. After World War I, Great Britain began to lose excessive amounts of its gold reserves due to the Bank of England’s refusal to revalue the British pound - gold conversion rate despite greatly expanding British pound monetary supplies during the war. Explained simply, in order to finance the war, the Bank of England had printed massive supplies of British Pounds without an equivalent increase in their gold reserves. Consequently, when the war ended, Britain had the same amount of gold backing a greatly increased supply of British pounds.
Simple math dictated that Britain had to devalue their pound or commit fraud by maintaining the same British pound-gold conversion ratio that existed pre-WW I. The Bank of England chose fraud over honesty, and citizens in turn, called the Bank of England’s bluff and began to convert their pounds into gold. When this happened, the Bank of England called on their sister Central Bank, the US Federal Reserve for assistance. Rather than raising interest rates to contract their own monetary supply and strengthen the British Pound in this manner to restore the pre-WWI British pound-gold conversion ratio, the Bank of England call upon the US Federal Reserve to flood the United States with dollars, much as the IMF is now calling upon Asian countries to do. According to Alan Greenspan, “The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates. The Fed succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process.”
Today, if the Asian Central Banks comply with the IMF's request, since we are not on a gold standard and there are no runs on a country’s gold reserves to prevent, the IMF’s request is meant to stop the rapid devaluation of the Euro, the British Pound and primarily the US dollar. If the Asian Central Banks foolishly comply with the IMF’s request, they should be forewarned that the end result of their actions will be to destroy their own economies as well.
In 1998, Mr. Greenspan stated, “You don’t have a free market. Central banks determine the money supply, not the market…We are not on a gold standard because leaders of the 20th and 21st centuries don’t want a market that functions in that manner.” The IMF’s request is driven by the desire of the world’s financial oligarchs to keep a fraudulent monetary system alive so that they can retain their power. Were the world to return to a gold standard or a combined gold/silver standard today, increases in global supplies of major currencies would be dictated by real sustainable economic growth of global economies and claims on currencies would be backed by real assets, not the untrustworthy empty promises of governments today. If we educate millions of people regarding gold’s central role to freedom, Central Banks cannot continue to keep financing bailout plans that ultimately steal significant wealth from their citizens. In fact, because there is no gold to lose under our current unsound monetary system, this is precisely the reason why large US banks had no problem continuing to feed growing bubbles of fraudulent assets such as subprime mortgages, asset backed commercial paper, etc. In the end, they knew that they would be bailed out with taxpayer money, and there was no "house gold" to lose. Thus, billions of profits could be made by risking not their own assets, as would be the case under a gold standard, but by risking only the assets of the people.
French philosopher Voltaire once said that as long as people believe in absurdities, they will continue to commit atrocities. Belief that freedom and an unsound fiat monetary system can coexist is one such absurdity. As result of this absurd belief, atrocities, such as the ongoing global hunger crisis from rising food prices that are a direct result of devaluing currencies, can develop.
Under our current fiat monetary system, the financial oligarchs that control the world’s central banks will continue to feed speculative bubbles because there is no way for the people to call their bluff other than exchanging one form of fraudulent money for another form of fraudulent money. The IMF Special Drawing Rights (SDRs) of a basket of fiat currencies is another absurd proposed "solution." What makes a basket of four or five fiat currencies backed by nothing fundamentally better than one fiat currency backed by nothing? In reality, when commentators say that the US dollar is backed by the "full faith and credit of the US government", do you know who is the "government"? Look in the mirror and you will know. In reality, when the Feds say "government", they mean you, for if they need to print more money so the government doesn't go bankrupt, the government will increase your taxes to raise more money for government transfer payments and to pay the interest on the money the Feds print. People that tried to protect themselves from dollar devaluation through the use of currency hedges discovered the futility of doing so at the end of last year and the beginning of this year when Euros, British Pounds, and Australian all plummeted by 25% to 30% in a matter of weeks. If the World Series of Poker operated under the same rules as our current monetary system, the richest man or woman to enter the tournament would win every single tournament. No matter his hand, if there was no way to call his bluff, he could raise the pot every round to such rich levels that he could force all other players to fold even under the occasions when he held the weakest hand. Even a poker game is more honest than our monetary system for it allows other players to expose bluffs and walk away victorious.
Under our current monetary system, there is no means to call the bluff of Central Bankers by using other forms of fiat money. The only way to call the Central Bank’s bluff is to buy gold and silver. Understanding this, it is easy to deduce why Central Banks, despite holding loads of gold in their own private reserves, continually attack gold, discredit its role in our monetary system, and seek to drive its price down. If masses of people were to discover and understand the true value of gold in a sound monetary system, then calling the bluff of our current fiat monetary system and causing it to collapse would be possible.
By: J.S. Kim
Read Entire Article
Ben Bernanke's Congressional Road Block
Congress of the United States
Washington, DC 20515
10/7/09
Chairman Chris Dodd
US Senate Committee on Banking, Housing, and Urban Affairs
534 Dirksen Senate Office Building
Washington, DC 20551
Dear Chairman Dodd and members of the Banking Committee,
We are writing to ask you to postpone the confirmation of Ben Bernanke until the Federal Reserve releases documentation that will allow the public and the Senate to have a full understanding of the commitments that the Federal Reserve has made on our behalf. Without such an understanding, it is impossible to know whether Chairman Bernanke is fit to serve another term and fulfill the Federal Reserve’s dual mandate to ensure price stability and full employment. A list of said documentation is enumerated below.
Since 2007, the Federal Reserve has expanded its balance sheet by $1.2 trillion and taken on substantial credit, interest-rate and foreign exchange risk. It has lent immense sums to some financial institutions against overvalued collateral, while refusing to lend to others with no clear standards as to who was rescued and who was not. It has set up holding companies using no-bid contracts, and guaranteed substantial liabilities of Citigroup, all the while keeping information about its actions secret from the public and Congress. This is in stark contrast to the analogous period in the 1930’s, when the Reconstruction Finance Corporation fully disclosed loans and collateral to Congress.
Today, big banks are being bailed out and have a substantially lower cost of capital through an implicit government backstop even as Americans themselves are seeing their pay cut. This lower cost of capital – at government expense – coupled with increased scarcity of credit is resulting in the banks recapitalizing by charging American consumers higher credit costs, including record overdraft fees and much higher credit card rates.
As you know, the Federal Reserve has a chartered mandate of both price stability and "full" employment. Since 2002, the Bernanke joined the Federal Reserve board has aligned himself with Alan Greenspan’s activities, the incomes of Americans have actually declined in absolute terms, with incomes projected to decline a further 5% in 2009. One quarter of all mortgage holders owe more than they own, with that number projected to rise to nearly 50% by 2010. Consumer asset prices, most importantly housing, continue to fall, and unemployment continues to rise. This raises real questions about Bernanke’s tenure as Federal Reserve chairman, and about where trillions of dollars have gone.
Federal Reserve secrecy must be understood in the context of an intellectual dogma which Alan Greenspan inculcated into the fabric of the Federal Reserve and the economic profession, and which has severely harmed ordinary Americans. Bernanke’s "Great Moderation" speech in 2004 didn’t even consider the idea that the economy was becoming more unstable, even as risks were being built into the system by the politics he encouraged. He ignored evidence of a crisis, saying in 2007 that the turmoil was contained to subprime mortgages, ignoring the bankruptcy of over 100 mortgage originators, and the clear evidence the crisis would spread. Now, even as the crisis is said to be subsiding, we still do not have credit markets that are able to function without substantial government support, we have not addressed institutions that are "too big to fail" which the Fed oversees, bank credit availability is again shrinking (posing risk of further increasing already high unemployment), and toxic assets in the system on the books of both private banks and the Federal Reserve have still not seen price discovery.
Chairman Bernanke’s policy-making errors might be chalked up to errors of judgment, and it’s possible to argue that he has been chastened by the last few years of turmoil. What is more disturbing is how the Federal Reserve has refused to disclose the details of its commitments to the bankers who came close to destroying the economy. The Bernanke Fed’s execution of its dual mandate cannot be judged without consideration of those commitments, which would require the Fed to disclose documents which it still contends the public has no right to see. Specifically, we ask that you postpone the confirmation of the Chairman until after the Federal Reserve discloses:
(1) Information that Bloomberg reporter Mark Pittman has requested via a Freedom of Information Act Request on the Bear Stearns rescue and that the Federal Reserve is contesting in the courts,* and which Manhattan Chief US District Judge Loretta Preska has ordered be turned over by the Federal Reserve.
(2) Information that Rep. Grayson requested in February at a hearing and the follow-up letter on which institutions received the $1.2 trillion added to the Federal Reserve’s balance sheet, how much each institution received, and what was promised in return.
(3) All Federal Reserve documents that went to Attorney General Andrew Cuomo’s office relating to the Bank of America/Merrill Lynch merger in which potentially illegal and coercive activity might have occurred, as well as all Federal Reserve documents relating to the lawsuit pursued by the Merrill Lynch shareholders in the US District court for the Southern District of New York.
(4) Transcripts of all Open Market Meeting Minutes up to and including that of June 2009, transcripts of which are normally withheld from the public for five years.
(5) Full disclosure of all terms and conditions of all off-balance sheet Fed Transactions in the past three years.
The Federal Reserve must become transparent and open with Congress and the public about its behavior during the financial crisis. Thank you for your consideration of this matter.
Best,
Alan Grayson, Member of Congress
Ron Paul, Member of Congress
Cc: Richard C. Shelby
Tim Johnson
Robert F. Bennett
Jack Reed
Jim Bunning
Charles E. Schumer
Mike Crapo
Evan Bayh
Mel Martinez
Robert Menendez
Bob Corker
Daniel K. Akaka
Jim DeMint
Sherrod Brown
David Vitter
Jon Tester
Mike Johanns
Herb Kohl
Kay Bailey Hutchinson
Mark Warner
Jeff Merkley
Michael Bennet
*For all securities posted between April 4, 2008 and May 20, 2008 as collateral to the Primary Dealer Credit Facility, the discount window, the Term Securities Lending Facility, the Term Auction Facility (the "Relevant Securities"), we request copies of:
1. All forms of other documents submitted to the party posting the Relevant Securities as part of the application for the loan;
2. All receipts and other documents given to the party posting the Relevant Securities as part of the application for the loan;
3. Records sufficient to show the names of the Relevant Securities;
4. Records sufficient to show the dates that the Relevant Securities were accepted and the dates that the Relevant Securities were redeemed;
5. Records sufficient to show the amount of borrowing permitted as compared to the face value, also known as the "haircut";
6. Records sufficient to describe whether valuations or "haircuts" for the Relevant Securities changed over time;
7. Records sufficient to show the terms of the loans and rates that the borrower must pay;
8. Records Sufficient to show the amount that the Federal Reserve has accepted of each of the Relevant Securities;
9. Records sufficient to show which, if any Relevant Securities have been rejected as collateral and the reasons for the rejection;
10. All databases and spreadsheets that list or summarize the Relevant Securities; and
11. Records, including contracts with outside entities, that show the employees or entities being used to price the Relevant Securities and the conduct the process of lending.
Read Entire Article
Washington, DC 20515
10/7/09
Chairman Chris Dodd
US Senate Committee on Banking, Housing, and Urban Affairs
534 Dirksen Senate Office Building
Washington, DC 20551
Dear Chairman Dodd and members of the Banking Committee,
We are writing to ask you to postpone the confirmation of Ben Bernanke until the Federal Reserve releases documentation that will allow the public and the Senate to have a full understanding of the commitments that the Federal Reserve has made on our behalf. Without such an understanding, it is impossible to know whether Chairman Bernanke is fit to serve another term and fulfill the Federal Reserve’s dual mandate to ensure price stability and full employment. A list of said documentation is enumerated below.
Since 2007, the Federal Reserve has expanded its balance sheet by $1.2 trillion and taken on substantial credit, interest-rate and foreign exchange risk. It has lent immense sums to some financial institutions against overvalued collateral, while refusing to lend to others with no clear standards as to who was rescued and who was not. It has set up holding companies using no-bid contracts, and guaranteed substantial liabilities of Citigroup, all the while keeping information about its actions secret from the public and Congress. This is in stark contrast to the analogous period in the 1930’s, when the Reconstruction Finance Corporation fully disclosed loans and collateral to Congress.
Today, big banks are being bailed out and have a substantially lower cost of capital through an implicit government backstop even as Americans themselves are seeing their pay cut. This lower cost of capital – at government expense – coupled with increased scarcity of credit is resulting in the banks recapitalizing by charging American consumers higher credit costs, including record overdraft fees and much higher credit card rates.
As you know, the Federal Reserve has a chartered mandate of both price stability and "full" employment. Since 2002, the Bernanke joined the Federal Reserve board has aligned himself with Alan Greenspan’s activities, the incomes of Americans have actually declined in absolute terms, with incomes projected to decline a further 5% in 2009. One quarter of all mortgage holders owe more than they own, with that number projected to rise to nearly 50% by 2010. Consumer asset prices, most importantly housing, continue to fall, and unemployment continues to rise. This raises real questions about Bernanke’s tenure as Federal Reserve chairman, and about where trillions of dollars have gone.
Federal Reserve secrecy must be understood in the context of an intellectual dogma which Alan Greenspan inculcated into the fabric of the Federal Reserve and the economic profession, and which has severely harmed ordinary Americans. Bernanke’s "Great Moderation" speech in 2004 didn’t even consider the idea that the economy was becoming more unstable, even as risks were being built into the system by the politics he encouraged. He ignored evidence of a crisis, saying in 2007 that the turmoil was contained to subprime mortgages, ignoring the bankruptcy of over 100 mortgage originators, and the clear evidence the crisis would spread. Now, even as the crisis is said to be subsiding, we still do not have credit markets that are able to function without substantial government support, we have not addressed institutions that are "too big to fail" which the Fed oversees, bank credit availability is again shrinking (posing risk of further increasing already high unemployment), and toxic assets in the system on the books of both private banks and the Federal Reserve have still not seen price discovery.
Chairman Bernanke’s policy-making errors might be chalked up to errors of judgment, and it’s possible to argue that he has been chastened by the last few years of turmoil. What is more disturbing is how the Federal Reserve has refused to disclose the details of its commitments to the bankers who came close to destroying the economy. The Bernanke Fed’s execution of its dual mandate cannot be judged without consideration of those commitments, which would require the Fed to disclose documents which it still contends the public has no right to see. Specifically, we ask that you postpone the confirmation of the Chairman until after the Federal Reserve discloses:
(1) Information that Bloomberg reporter Mark Pittman has requested via a Freedom of Information Act Request on the Bear Stearns rescue and that the Federal Reserve is contesting in the courts,* and which Manhattan Chief US District Judge Loretta Preska has ordered be turned over by the Federal Reserve.
(2) Information that Rep. Grayson requested in February at a hearing and the follow-up letter on which institutions received the $1.2 trillion added to the Federal Reserve’s balance sheet, how much each institution received, and what was promised in return.
(3) All Federal Reserve documents that went to Attorney General Andrew Cuomo’s office relating to the Bank of America/Merrill Lynch merger in which potentially illegal and coercive activity might have occurred, as well as all Federal Reserve documents relating to the lawsuit pursued by the Merrill Lynch shareholders in the US District court for the Southern District of New York.
(4) Transcripts of all Open Market Meeting Minutes up to and including that of June 2009, transcripts of which are normally withheld from the public for five years.
(5) Full disclosure of all terms and conditions of all off-balance sheet Fed Transactions in the past three years.
The Federal Reserve must become transparent and open with Congress and the public about its behavior during the financial crisis. Thank you for your consideration of this matter.
Best,
Alan Grayson, Member of Congress
Ron Paul, Member of Congress
Cc: Richard C. Shelby
Tim Johnson
Robert F. Bennett
Jack Reed
Jim Bunning
Charles E. Schumer
Mike Crapo
Evan Bayh
Mel Martinez
Robert Menendez
Bob Corker
Daniel K. Akaka
Jim DeMint
Sherrod Brown
David Vitter
Jon Tester
Mike Johanns
Herb Kohl
Kay Bailey Hutchinson
Mark Warner
Jeff Merkley
Michael Bennet
*For all securities posted between April 4, 2008 and May 20, 2008 as collateral to the Primary Dealer Credit Facility, the discount window, the Term Securities Lending Facility, the Term Auction Facility (the "Relevant Securities"), we request copies of:
1. All forms of other documents submitted to the party posting the Relevant Securities as part of the application for the loan;
2. All receipts and other documents given to the party posting the Relevant Securities as part of the application for the loan;
3. Records sufficient to show the names of the Relevant Securities;
4. Records sufficient to show the dates that the Relevant Securities were accepted and the dates that the Relevant Securities were redeemed;
5. Records sufficient to show the amount of borrowing permitted as compared to the face value, also known as the "haircut";
6. Records sufficient to describe whether valuations or "haircuts" for the Relevant Securities changed over time;
7. Records sufficient to show the terms of the loans and rates that the borrower must pay;
8. Records Sufficient to show the amount that the Federal Reserve has accepted of each of the Relevant Securities;
9. Records sufficient to show which, if any Relevant Securities have been rejected as collateral and the reasons for the rejection;
10. All databases and spreadsheets that list or summarize the Relevant Securities; and
11. Records, including contracts with outside entities, that show the employees or entities being used to price the Relevant Securities and the conduct the process of lending.
Read Entire Article
Wednesday, October 7, 2009
China Calls Time on Dollar Hegemony
You can date the end of dollar hegemony from China's decision last month to sell its first batch of sovereign bonds in Chinese yuan to foreigners.
(Telegraph)Beijing does not need to raise money abroad since it has $2 trillion (£1.26 trillion) in reserves. The sole purpose is to prepare the way for the emergence of the yuan as a full-fledged global currency.
"It's the tolling of the bell," said Michael Power from Investec Asset Management. "We are only beginning to grasp the enormity and historical significance of what has happened."
It is this shift in China and other parts of rising Asia and Latin America that threatens dollar domination, not the pricing of oil contracts. The markets were rattled yesterday by reports – since denied – that China, France, Japan, Russia, and Gulf states were plotting to replace the Greenback as the currency for commodity sales, but it makes little difference whether crude is sold in dollars, euros, or Venetian Ducats.
What matters is where OPEC oil producers and rising export powers choose to invest their surpluses. If they cease to rotate this wealth into US Treasuries, mortgage bonds, and other US assets, the dollar must weaken over time.
"Everybody in the world is massively overweight the US dollar," said David Bloom, currency chief at HSBC. "As they invest a little here and little there in other currencies, or gold, it slowly erodes the dollar. It is like sterling after World War One. Everybody can see it's happening."
"In the US they have near zero rates, external deficits, and public debt sky-rocketing to 100pc of GDP, and on top of that they are printing money. It is the perfect storm for the dollar," he said.
"The dollar rallied last year because we had a global liquidity crisis, but we think the rules have changed and that it will be very different this time [if there is another market sell-off]" he said.
The self-correcting mechanism in the global currency system has been jammed until now because China and other Asian powers have been holding down their currencies to promote exports. The Gulf oil states are mostly pegged to the dollar, for different reasons.
This strategy has become untenable. It is causing them to import a US monetary policy that is too loose for their economies and likely to fuel unstable bubbles as the global economy recovers.
Lorenzo Bini Smaghi, a board member of the European Central Bank, said China for one needs to bite bullet. "I think the best way is that China starts adopting its own monetary policy and detach itself from the Fed's policy."
Beijing has been schizophrenic, grumbling about the eroding value of its estimated $1.6 trillion of reserves held in dollar assets while at the same time perpetuating the structure that causes them to accumulate US assets in the first place – that is to say, by refusing to let the yuan rise at any more than a glacial pace.
By Ambrose Evans Pritchard
Read Entire Article
(Telegraph)Beijing does not need to raise money abroad since it has $2 trillion (£1.26 trillion) in reserves. The sole purpose is to prepare the way for the emergence of the yuan as a full-fledged global currency.
"It's the tolling of the bell," said Michael Power from Investec Asset Management. "We are only beginning to grasp the enormity and historical significance of what has happened."
It is this shift in China and other parts of rising Asia and Latin America that threatens dollar domination, not the pricing of oil contracts. The markets were rattled yesterday by reports – since denied – that China, France, Japan, Russia, and Gulf states were plotting to replace the Greenback as the currency for commodity sales, but it makes little difference whether crude is sold in dollars, euros, or Venetian Ducats.
What matters is where OPEC oil producers and rising export powers choose to invest their surpluses. If they cease to rotate this wealth into US Treasuries, mortgage bonds, and other US assets, the dollar must weaken over time.
"Everybody in the world is massively overweight the US dollar," said David Bloom, currency chief at HSBC. "As they invest a little here and little there in other currencies, or gold, it slowly erodes the dollar. It is like sterling after World War One. Everybody can see it's happening."
"In the US they have near zero rates, external deficits, and public debt sky-rocketing to 100pc of GDP, and on top of that they are printing money. It is the perfect storm for the dollar," he said.
"The dollar rallied last year because we had a global liquidity crisis, but we think the rules have changed and that it will be very different this time [if there is another market sell-off]" he said.
The self-correcting mechanism in the global currency system has been jammed until now because China and other Asian powers have been holding down their currencies to promote exports. The Gulf oil states are mostly pegged to the dollar, for different reasons.
This strategy has become untenable. It is causing them to import a US monetary policy that is too loose for their economies and likely to fuel unstable bubbles as the global economy recovers.
Lorenzo Bini Smaghi, a board member of the European Central Bank, said China for one needs to bite bullet. "I think the best way is that China starts adopting its own monetary policy and detach itself from the Fed's policy."
Beijing has been schizophrenic, grumbling about the eroding value of its estimated $1.6 trillion of reserves held in dollar assets while at the same time perpetuating the structure that causes them to accumulate US assets in the first place – that is to say, by refusing to let the yuan rise at any more than a glacial pace.
By Ambrose Evans Pritchard
Read Entire Article
Tuesday, October 6, 2009
The End of the Dollar Spells the Rise of a New World Order
This radical proposal is a reflection of a changing economic world
(London Independent) Last autumn's global financial crisis set off an economic earthquake. And we are still feeling the tremors. The latest sign of the ground shifting beneath our feet is our report today of plans by Gulf states, China, Russia, France and Japan to end their practice of conducting oil deals in US dollars, switching instead to a diverse basket of currencies.
It is not hard to see the motivation for oil exporters to move away from the dollar. The value of the US currency has fallen sharply since last year's meltdown. And fears are growing, in the light of a spiralling US government deficit, that a further depreciation is likely. They do not want to sell their wares in return for a currency with an uncertain future.
It is also easy to see why China would like a world trading system that is underpinned by other currencies as well as the dollar. For the past decade Beijing has been recycling the proceeds of its giant national trade surplus into purchases of US government bonds and other dollar-denominated assets. China too stands to make a significant loss if the value of the dollar falls. For China, however, the timing is much more sensitive. Beijing needs to reduce its dollar holdings, but if it does so too quickly it will bring about the very devaluation it fears. This explains why Chinese officials appear to want this transition to take place gradually over the next decade.
But the significance of this development goes much further. Since the end of the Second World War the dollar has been the bedrock of world trade. The pre-eminence of the American currency flowed naturally from the economic dominance of the US. Virtually everyone traded with America so it made sense to use their currency.e
Read Entire Article
(London Independent) Last autumn's global financial crisis set off an economic earthquake. And we are still feeling the tremors. The latest sign of the ground shifting beneath our feet is our report today of plans by Gulf states, China, Russia, France and Japan to end their practice of conducting oil deals in US dollars, switching instead to a diverse basket of currencies.
It is not hard to see the motivation for oil exporters to move away from the dollar. The value of the US currency has fallen sharply since last year's meltdown. And fears are growing, in the light of a spiralling US government deficit, that a further depreciation is likely. They do not want to sell their wares in return for a currency with an uncertain future.
It is also easy to see why China would like a world trading system that is underpinned by other currencies as well as the dollar. For the past decade Beijing has been recycling the proceeds of its giant national trade surplus into purchases of US government bonds and other dollar-denominated assets. China too stands to make a significant loss if the value of the dollar falls. For China, however, the timing is much more sensitive. Beijing needs to reduce its dollar holdings, but if it does so too quickly it will bring about the very devaluation it fears. This explains why Chinese officials appear to want this transition to take place gradually over the next decade.
But the significance of this development goes much further. Since the end of the Second World War the dollar has been the bedrock of world trade. The pre-eminence of the American currency flowed naturally from the economic dominance of the US. Virtually everyone traded with America so it made sense to use their currency.e
Read Entire Article
The Demise of the Dollar
In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading
In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China's former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. "Bilateral quarrels and clashes are unavoidable," he told the Asia and Africa Review. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."
This sounds like a dangerous prediction of a future economic war between the US and China over Middle East oil – yet again turning the region's conflicts into a battle for great power supremacy. China uses more oil incrementally than the US because its growth is less energy efficient. The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.
The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. "One of the legacies of this crisis may be a recognition of changed economic power relations," he said in Istanbul ahead of meetings this week of the IMF and World Bank. But it is China's extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America's power to interfere in the international financial system – which has prompted the latest discussions involving the Gulf states.
Brazil has shown interest in collaborating in non-dollar oil payments, along with India. Indeed, China appears to be the most enthusiastic of all the financial powers involved, not least because of its enormous trade with the Middle East.
By Robert Frisk
Read Entire Article
In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China's former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. "Bilateral quarrels and clashes are unavoidable," he told the Asia and Africa Review. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."
This sounds like a dangerous prediction of a future economic war between the US and China over Middle East oil – yet again turning the region's conflicts into a battle for great power supremacy. China uses more oil incrementally than the US because its growth is less energy efficient. The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.
The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. "One of the legacies of this crisis may be a recognition of changed economic power relations," he said in Istanbul ahead of meetings this week of the IMF and World Bank. But it is China's extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America's power to interfere in the international financial system – which has prompted the latest discussions involving the Gulf states.
Brazil has shown interest in collaborating in non-dollar oil payments, along with India. Indeed, China appears to be the most enthusiastic of all the financial powers involved, not least because of its enormous trade with the Middle East.
By Robert Frisk
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