The Swiss have been known for many things. They are renowned chocolate and watch makers as well as financiers. They are well known as a very low crime society where nearly everyone has a gun (maybe this is why crime is low?) but their greatest claim to fame has been their “neutrality. They did not participate in either World War I or WWII. They did however do business with both sides during World War II and profited handsomely. If you recall, many accounts they had held went unclaimed for years because many of the “depositors” were killed during the holocaust.
Swiss bank money repaid to Holocaust victims
When the settlements were made some 15+ years ago, the survivors and heirs received “paper” settlement for their gold deposits. It is also highly likely Switzerland still has untold tons of gold in their vaults from the Nazi Germany regime which was stolen from overrun people and even nations. I bring this up because it is important you are fully aware that Switzerland “knows” gold. Not only do they know gold, they know which is better, paper or gold …which is why they reimbursed claims with paper rather than gold.
With the above in mind, the Swiss National Bank as you know were very big “supporters” if you will of the European paper currency unit, amassing nearly 600 billion euros on their balance sheet. They shook the financial world last week when they announced a drop to the peg floor of 1.20 after publicly confirming it just three days earlier. In fact, the ripples (unintended consequences) have yet to fully play out or be disclosed as derivatives of all sorts were affected.
We asked the question “why”, last week. Why did they drop the peg, especially after confirming it just 72 hours earlier? The common sense reason was because they had to. Euros were piling up on the SNB’s balance sheet with the current 60 billion per month more staring them right in the face. Why accumulate more of something the issuer publicly and purposely wants to dilute?
Fast forward less than one full week and another, maybe the BIGGEST piece to the puzzle has emerged! It appears the Swiss may have been given an offer they couldn’t (shouldn’t) refuse? It was announced yesterday that the Chinese and Swiss have agreed to opening a “renminbi hub” based out of none other than Zurich.
Do you think this deal just came out of the blue? Did the Chinese request, or offer, a renminbi hub AFTER the Swiss announced the end of their euro peg? Or, do you believe the louder Mr. Draghi became and the closer the date of QE announcement came, the Chinese and the Swiss were meeting behind closed doors? As an earth shattering side note, the Chinese publicly and formally also announced yesterday of their intentions for the yuan to be an internationally traded currency!
The obvious takeaway from these announcements is twofold. One we could have certainly speculated on, the other a surprise. First, it is and has been common sense that the yuan (renminbi) was going to eventually become an internationally tradable currency with the speculation of eventually becoming “a” if not “the” reserve currency. This, we could have expected, the timing though was unknown. The not so obvious take and maybe just my own opinion, the Swiss just took and changed sides! I know this is a big statement so I will try to explain my thinking here.
The Swiss surely had to know when they dropped their peg, speculators, financial institutions and even some central banks would be offside and take losses, BIG losses. They could have dropped the peg differently. They could have even moved the peg slightly and not forecast further moves. In other words, they could have made the move slower. They chose not to and according to Christine LaGarde, they gave no prior notice to the IMF. I was not sure last week but now, after the Swiss/Chinese alliance I believe her. I believe this was a bolt of lightning out of the blue to the Western banking system and probably a shot across the bow by the Chinese.
Going just a bit further, the Swiss have actually injured the Western financial system with their overnight and sudden move. Derivatives have taken hits and very well could have set off a chain reaction behind the scenes …which have not yet surfaced? They did this AND moved Eastward at the same time. In my opinion, the Swiss “know” the direction where the power structure is moving. You see, Switzerland has “re” refined several thousand tons of gold over the last few years. They know where the gold came from, they know they received London good delivery gold, they know they recast this gold into “kilo” bars which is good delivery in the East …and they know where they shipped all of this gold. You would not have to be as bright and precise as the Swiss to understand what is happening. They have seen the flow, done the math and watched as “power” (gold) has been moved from West to East.
Before finishing I would like to comment on their “neutrality”. The Swiss have always been connected to the Anglo banking and financial systems. Over the last 3-5 years they (the Swiss financial institutions) have been attacked time and again by Washington DC. with new rules and regulations, FATCA being the obvious. Their institutions have been blackmailed and strong armed into breaking secrecy laws which stood for well over a century. Do you think they liked or enjoyed this? Would they have changed their practice unless they were forced to? Of course not.
So, “what’s in it for them” you ask? This is easy! Switzerland by allying with China is simply following “the power”. They will also be doing business in a “respectful” manner with the Chinese rather than with the disrespect they have worked under with the West. They also will now have another way to transact business, they will be entitled to and even enticed to use the new clearing system that Russia has formed… and not under the watchful eyes of SWIFT! As a speculation on my part, I believe the Swiss fully understand “what” it is that is coming. They can see as well as we can, the collapse is coming. A banking collapse, a derivatives collapse, a trade “war” and collapse, and a currency/credit collapse. If it is obvious to people like us who are not plugged in, it is more than obvious to them being at the heart of global finance. I believe they are simply positioning themselves ahead of collapse and “gittin’ out while the gittin’ is good”! I might add, they are doing this on their own terms and timing, not terms, conditions and timing which are forced on them!
In my opinion, when we look back at what the Swiss are doing and have done, we will simply look at it as “the Swiss did what they had to do and what was best for the Swiss”. They have changed sides so to speak and done so in a front running and hands on manner. This is simply Switzerland doing what it does best …business!
Regards, Bill Holter
It’s 2:30 AM MST Friday morning, on my “day off.” However, I couldn’t sleep because too much is going through my head – as I digest the second “financial big bang” in just a week’s time. Many more are coming this year – perhaps as early as Monday, following Sunday’s Greek elections; and no doubt, several will be of the “black swan” variety. As discussed in yesterday’s MUST LISTEN audio blog, the two guaranteed to “rock the world” are the inevitable “Yellen Reversal” – i.e., when Janet Yellen admits the U.S. needs more QE as well; and, more calamitous yet, when the surging dollar forces the Chinese to de-peg the Yuan. In other words, whilst the Swiss National Bank and ECB got the party started this week, it’s not even 7:00 PM on New Year’s Eve. I have little doubt “midnight” will be reached in the not too distant future, perhaps this year; and when it does, Richard Russell’s expectation of the end of the gold Cartel – or as I deem it, the “New York Gold Pool,” will be forever destroyed.
“There is a giant secret stirring under today’s market. China, India, Russia and almost every central bank is buying physical gold. I’m guessing that within another year, physical gold will be swept off the market.”
Masked by unprecedented PPT support of global equity markets – to ensure Mario Draghi’s “QE suicide” is perceived positively – is the stark fact that the announcement failed miserably. What terrifies me most, and was unquestionably interpreted likewise by the world’s big money, was just how transparent the ECB’s desperation was. To wit, in “leaking” a €50 billion/month program a day earlier, and watching the Euro fail to fall lower than the eleven-year low versus the dollar of 1.16, the ECB, like chickens with their heads cut off, said “oh my god, it’s not enough! Let’s do €60 billion instead – and for good measure, lower the TLTRO loan spread to ZERO, to ensure banks borrow for free!” I mean, these are the stewards of the world’s most widely utilized currency – acting like terrified children, and playing god with the life’s savings of hundreds of millions of people. Or more appropriately, billions, given the widespread, horrifying ramifications of stirring up the global “final currency war” to DEFCON .
Yes, the “Dow Jones Propaganda Average” rose 259 points yesterday – although you’d have to be brain-dead to not realize the moved was entirely due to PPT support, via the same “dead ringer” algorithm I’ve written of for three years. And yes, similar European goosing (and hyperinflation fears) caused European stocks to surge to a record-high P/E ratio. And naturally, gold’s advance was maniacally capped at the Cartel’s latest “line in the sand” at the key round number of $1,300/oz; with the high of the day achieved at – yep, you guessed it – the 12:00 PM EST “cap of last resort” I identified a decade ago.
However, the “footprints of failure” were as big as those of the Sasquatch – starting with the fact that a parabolic surge in the dollar index caused gold to explode worldwide. By day’s end, the Euro had collapsed all the way to 1.134, whilst the dollar rocketed 1.8% higher, to a new 12-year high. Consequently, Euro and Rupee gold are now just 16% from their all-time high, whilst Canadian and Australian gold are just 10% from theirs, to name a few high profile currencies. That said, the day’s “big winner” was Yen Priced gold, which officially achieved a new all-time high. Cumulatively, such movements will cause dramatic, parabolic growth in worldwide physical demand; until ultimately, Richard Russell’s forecast is met – and then some!
Of course, the horrifying plunge in global currencies following the ECB’s lunatic announcement – which, like the recent Japanese expansion of Abenomics, was made despite no visible crisis – is only a small part of the abject failure demonstrated yesterday, front and center. Remember, the main reason the Draghi claims these draconian actions to be necessary is the need to stop “deflation”; but judging from how markets other than PPT-goosed equities traded, the polar opposite reaction occurred. In other words, whilst MSM headlines focus principally on the stock surge – conveniently ignoring the global Precious Metals surge, of course – the most important moves of the day occurred in the commodity markets, which plunged further into the abyss. To wit, the CRB commodity index fell another 1.3%, to within 9% of its 2008 spike low, led by a 2.5% plunge in copper – or as I deemed it last year, ” Dr. Death” – and a 2.8% crude oil nose dive.
To that end, I noted yesterday how the Fed is desperately trying to goose equities, bond yields, and oil ahead of next Wednesday’s FOMC meeting, in order to have a “position of strength” in its desperate goal of maintaining the illusion of a potential rate tightening. Well, after pushing WTI crude up to $49/bbl early in the morning, it plunged all the way back to $46.30/bbl by day’s end; and even after the “convenient” death of Saudi King Abdullah died right after the market close caused prices to spike (for what reason, I have no idea), as I write early Friday morning prices have dipped back down to $46.50/bbl. Worse yet, as I write – it’s now 3:15 AM MST – copper has plunged another 1.2% to $2.53/lb; and get this, the dollar index is up another 0.7%, to an incredible 94.90 – as the Euro is down another cent, to 1.1228, another 12-year low. Per the chart below, the Euro is clearly headed to its all-time lows below parity, en route to its inevitable dissolution in the coming years – or perhaps, months. And putting the cherry on the cake of Central bank failure, the blatant Fed rate goosing of the past two days has decidedly failed; with the 10-year Treasury yield having peaked at 1.96% yesterday morning (from 1.77% 36 hours earlier) – and as I write at 3:45 AM MST, nearly “round-tripped” all the way back to 1.80%!
Speaking of Central bank failure, just two days ago I highlighted how even the lackey MSM is turning tail, in viciously attacking Central bank policies on the heels of the catastrophic Swiss National Bank actions. On Monday alone, the New York Times, Bloomberg, and CNBC published scathing articles criticizing the Swiss National Bank and ECB; and following yesterday’s announcement, Reuters “joined the herd” in noting how “central bankers lurch from ‘whatever it takes’ to ‘whatever next.’ Better yet, Wall Street joined in as well, with none other than Societe Generale – the French bank that will undoubtedly be one of the first to demand a bailout when Europe collapses – claiming “since the ECB’s QE will fail, it will need to be increased to €3 Trillion (i.e., tripled), and include stocks.” However, the coup de gras came at the hands of William White, the former Chief Economist of the Bank of International Settlements – of GATA fame, for in 2005 claiming the BIS’ primary goal is “the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful.” In claiming “QE in Europe is doomed to failure, and may draw the region into deeper difficulties,” he screamed to the world that the Central banking cabal is coming apart at the seams – as said “final currency war” turns nuclear.
That said, these statements pale compare to the “most ominous quote of the year” from U.S. Commerce Secretary Penny Pritzker; fittingly, made from the annual Davos, Switzerland conference of the world’s most sociopathic bankers, politicians, financiers and industrialists. For the past three years – and particularly throughout the past three months’ historic currency crash – I have “shouted from the rooftops” of the calamitous political backlash an exploding dollar will provoke amidst the backdrop of a plunging global economy; let alone, its dramatically negative impact on the earnings of the multi-national corporations that run America. In other words, just as the Chinese are being pushed toward “de-pegging” the Yuan to avoid it rising too sharply (yes, I believe it will fall if de-pegged, for the same reason all currencies are falling versus the dollar), the U.S. government cannot, and will not, allow the dollar to continue rising. Quite ironic, wouldn’t you say, as the “code name” for the past two decades of gold suppression was Robert Rubin’s “strong dollar policy?”
Anyhow, when asked whether a climbing greenback could drag down U.S. trade and economic expansion, Pritzker said “it’s a factor, and something to keep an eye on.” As regards to said “final currency war,” no more ominous words could be spoken – irrespective of how innocuous they appear at the surface. In this case, I’ll defer to Zero Hedge’s analysis thereof, describing exactly what is going on behind the scenes.
“(The political and economic impact of the dollar’s surge) is something Pritzker knows too well. So the question is – how long until she speaks to none other than Jack Lew, who in turn conveys a message to Janet Yellen, forcing her to ‘patiently’ remind the market the U.S. never has, and never will, decouple from the rest of the world; and that, unless the US wants to go straight from 5% Obamacare-boosted ‘growth’ to recession, it too will have to join the devaluation party. Moreover, considering that everyone is now long the dollar, the macro devastation that would result if the Fed pulls an SNB and surprises the market (with additional QE), will be one for the generations.”
So there you have it, in a nutshell. The global economy is collapsing; the “final currency war” has reached its terminal stage; and the political and geopolitical backlash is about to be unleashed full force. Consequently, no matter what Central bankers do, four-plus decades of monetary sin have sentenced the entire world to “death by deflation“; which, what do you know, CNN, too, just posted an eviscerating article about.
In a world of historic, parabolic debt accumulation; and Central banks void of both credibility and “dry powder,” the near-term ramifications will be horrifying. As gold and silver are not “commodities” but the world’s only real money, they are rocketing higher in all currencies; as in the 1930s and 2008-09, proving their historic safe haven status. It won’t be long before gold (and eventually, silver) trades at an all-time high in all currencies; and lastly, “dollar-priced gold” when the Big Kahuna, the Federal Reserve, joins the overt devaluation party.
Consequently, we at the Miles Franklin Blog can only plead with you to protect yourself whilst you still can; which, if you wisely choose to do, we hope you’ll give us a call at 800-822-8080, and “give us a chance” to earn your business.
Andy Hoffman, precious metals market analyst and media director at Miles Franklin (milesfranklin.com) joins us on Reluctant Preppers, in the wake of the Swiss Bank un-pegging its currency from the Euro, to warn us that 2015 will be a watershed year that will impact each of our financial lives in a big way!
CLICK HERE to listen!
THE SHADOW OF CRISIS
Please click on link below
January 22, 2015
|Andrew Hoffman – Central Banks Cowardly Go Where None Have Gone Beforefrom Financial Survival Network
As you now know, Europe is set to announce a new QE program. I wish these money printing rocket scientists would call it like it really is, outright monetization but then again the average non thinking person might ask questions? The leak yesterday said the size would be 50 billion euros per month, or more (it turned out to be 60 billion). Thinking about this from a far away view, we can glean a few hilarious aspects.
First, let’s look at “size”. If the program is “only” (more was expected) 60 billion euros per month, this will amount to around 720 billion additional euros outstanding a year from now. From a “money perspective”, this amount is far less than the QE 3 the Fed just publicly (privately maybe not) ended and smaller than the current Japanese operation. The markets may view this as “smaller than hoped for”, I of course have a different perspective. If we add up the production of all gold globally from the mines, we come to a ballpark number of a whopping $100 billion. Compare this to the (newly devalued) figure of 720 billion euros and we can round this off to just over $900 billion. So, in just one year, Europe will create nine times the amount of trash currency as the entire world creates of gold …in one year! The ECB plans to purchase this amount of debt for two years, nearly $2 trillion worth!
Going just a step further, let’s look at this $100 billion worth of gold which is produced annually. I am going to tell you that as far as the “world” is concerned, there is NO new gold produced! How can I say this? All you need to do is look at how much gold just China and India combined take off the markets each year. The answer is “all of it”! Actually, that’s not true unless we add the phrase “and then some”! So from a size standpoint, Europe is proposing to create nine times the amount of currency as new gold is produced, yet none of the gold even hits the market to add to the current stock. Yes I know, there will be those amongst you who say this is wrong. But is it really wrong if 100%+ of new gold supply gets devoured and vaulted by China and India never to see the light of day again? Yes it is “stock” but it will never in our lifetimes “flow”!
Let’s now look at few of the other “little snags” in this European brainchild. First, can Europe handle more debt collectively and what about the ones who cannot? The ECB is proposing a “one for all and all for one” strategy when it comes to responsibility to this debt, will the Germans agree to this? What will happens when push comes to shove and countries with no financial wherewithal just shrug their shoulders when they cannot make the debt service payments? Does this mean that Germany becomes the “one for all”? Wasn’t it just a couple of years ago the PIGS debt was on the verge of collapse and rates were skyrocketing? Have they really healed their balance sheets or do they now have MORE debt and HIGHER debt ratios? Are we to believe they are now safer? One last thought, the ECB is the central bank to Europe, should they really be prompting their flock into issuing more of the poison that caused the problem in the first place?
Another question becomes, what about Greece? Will the ECB purchase their bonds? What if Greece’s elections finish and the winning party decides to hold the ECB ransom “restructure our debt or we will default …or just take our ball and leave”? How is this going to be handled? Another aspect going back to “size” is that the 720 billion euro QE will be three times or more the size of current issuance, isn’t this the reason the Fed was more or less forced to stop QE …because they were taking too much collateral out of the system? Will this force banks to purchase lower credit quality debt in their reserves or does it just mean interest rates all throughout Europe will be negative? Does this mean investors will “pay” interest to insolvent deadbeat nations like Portugal, Spain and Italy amongst others? I know it sounds quite strange to have to pay interest on your lent money to an insolvent entity, but this is where we are headed!
While we are on the topic, what about “negative interest rates”? To begin with, if you think about it negative interest rates cannot last forever or even for a long time because it means the lenders in the end will lose all their money. (From a humorous standpoint, maybe this is a good thing because at least they lose all their money “slowly” rather than all at once!) Also from a Mother Nature standpoint, only the very best money does not need to pay interest, all the rest do and the interest rate is decided by the risk of creditworthiness and strength of currency. In this instance, they are all the same sloppy currency but Greece is not Germany even if they do both begin with a G. If negative interest rates were normal, borrowers would end up with everything and lenders would become extinct.
Also, wouldn’t this hurt the banking sector in another way than just making collateral impossible to find? Wouldn’t the smart ones just go into their bank and withdraw everything and hoard the cash which wouldn’t require the constant haircut of negative rates? What does this say about velocity?
All of the above questions and thoughts were things the Swiss have thought about for years. The “commonality” was a problem for them and they decided not to join the EU in the first place. Now, the Swiss National Bank has looked at this current scheme and decided to cut their losses. Why should they continue to purchase euros if they know the official policy is to debase and ultimately ruin them? The Swiss have made a decision, my topic for tomorrow will be “The ‘neutral’ Swiss seem to have chosen sides” as they announced a new renmimbi hub based in Zurich. Do you think they might have known about this last Thursday when they pulled the plug (peg) on the euro?
One more question or two before we finish, why does Europe even need to do this now anyway? Hasn’t their currency already substantially weakened versus the rest of the world and grossly versus the Swiss? Isn’t this “REALLY” what QE is all about? Weakening your currency faster than your neighbor so you can steal his market share of exports?
In reality, Europe is playing Russian roulette with a fully loaded gun! Their currency is already weak, yet they want it weaker. They are already broke, yet they want to become broke(r). Rates are already substantially negative but apparently not negative enough. Good (if you want to call it that) quality collateral is already scarce, yet they want to take more from the banking and shadow banking systems. Germany is already not in such a good mood as to what has already been done, yet the ECB wants to rub salt in the wound of the very core of Europe.
In my opinion, this announcement of QE is a very bad choice and very poor experiment. QE has not worked anywhere else in the world, why will they be any different? Before they even announced this they had already received two very important and fully negative votes. The Swiss have abandoned them and gold has exploded higher and broken out to the upside. Maybe they are more fearful of the market hearing Mr. Draghi say “we were just kidding”? He has promised this bazooka for several years and jawboned the markets higher each time it looked like full out collapse was imminent. Now they will fire this so called bazooka, the worst possible immediate outcome would be for their markets to spasm downward in response. Speaking of “response”, isn’t it curious the ECB “leaked” 50 billion euros yesterday? I am here to tell you, they floated that trial balloon because they were fearful of the response. When the market didn’t go spastic, they upped it another 10 billion for good measure! The ECB is in a panic, otherwise no “leak” would ever have appeared. They have lost control, they know it, it is only a matter of time before the markets realize it.
We have already experienced huge volatility which has certainly made some participants insolvent. As I see it, this new episode lays the track towards even more volatility. High volatility in a system that’s quite low on liquidity and quality collateral in the first place is a toxic recipe. This will definitely not end well though it may end very abruptly when it does!
Q: The question I have been exploring and wondering is: When the inevitable dissolution of our current global economy comes to its fiat end; will our economy replacement be IMF based, or BRICS based?
Of course, there are a lot of variables, but my sense of it is: the control of the economy will go towards the IMF! I lean towards this conclusion because the TPTB will want to maintain some form of control. Towards the end of their reign the TPTB will have enough awareness to usher in the new control mechanisms while they still have the ability too.
Although, I do hear a lot of talk about China and its gold holdings and all the agreements they have been making with other countries (mostly from Miles Franklin, thank you very much), but IMF seems too obvious.
The two main sources of information I read and listen too is: Miles Franklin, thank you David, Bill, and Andy, and King World News. You are both gold coins.
David Shectman’s Answer:
Thank you for your praise. We appreciate it!
You could build any scenario you wanted to here. My guess, and it is only a guess, is that China will be part of any new currency system as will the US. There is a good chance that gold will also be a part of it too, but at a much higher revalued price.
The IMF uses SDRs as an intra-central bank reserve currency. They may add the Renminbi to the basket.
The value of the original SDR was initially defined as equivalent to 0.888671 grams of fine gold which, at the time, was also equivalent to one U.S. dollar. After the final collapse of the Bretton Woods system with Nixon closing the gold window 1971… in 1973, the SDR was redefined as a basket of fiat currencies. Today the SDR basket consists of the 4 fiat currencies: the euro – Japanese yen – pound sterling – and U.S. dollar. Note there are 31.1034768 grams of gold in 1 troy ounce.
Since 1973, the IMF ‘s SDR has lost over 95% of its value to Gold bullion. No matter how technocrats or the mass media dress up SDRs in convoluted financial speak, it is basically just another fiat currency folks.
Q: Hi! I understand that at least one big bank has purchased a large amount of silver. What do you think their intention is? I was wondering if they would bump the silver on the market if the price gets to high. That would make them a nice profit and drive the price down.
Thank your so much for your news letter. I look forward to it everyday and have withdrawals on the weekend.
Andy Hoffman’s Answer:
That is pure speculation, likely from Ted Butler. There is absolutely no evidence to believe that; and to the contrary, my good friend Steve St. Angelo wrote recently of why this is highly unlikely…
Also, when referring to “banks” like JP Morgan, you should realize that at this point, they are more arms of the government (or “partners,” so to speak) than private firms. To them, gold and silver are principally competitors of the fiat currency system they dominate – to be squashed like bugs. They may well be buying metal secretly – as “insurance” against what they know is coming. However, if they were, it would be very unlikely to be in the form of 1 oz coins bought from the Treasury.
P.S. Just go to the website if you’re having withdrawals, as my (and Bill’s) countless podcasts are uploaded as well!
Q: Bill, your “Ponzi Scheme and You” article was excellent. Thanks for taking the time to take us through the system. I fear the answer is yes, but are CDs vulnerable to bail-ins, even if the banks are FDIC insured?
And if so, how would that work? Would the entire CD would be appropriated by the bank never to be repaid?
Bill Holter’s Answer:
Thanks so much for the kind words! There is no definitive answer to this question as we do not know how the regulators will react. Hopefully the FDIC limits would hold up and anything under those limits would be covered. Anything over the limits will be fair game, you may lose some, or all of this amount and it may take years to sort it out. Under the scenario of a systemic banking failure, the FDIC is hopelessly under-capitalized and cannot make good on over 1% of what they supposedly “cover”. That said, in a collapse type event, you must also wonder about the purchasing power or value of dollars.
Dollars are credit based and only as good as the issuer …a bankrupt Treasury! I believe having only funds in the bank you know you will need to pay bills and the rest in some sort of hard asset/money (gold and silver) is a more sound strategy. Why gamble the FDIC can perform and your dollars will retain value? The odds are neither will occur. Hope this helps.
Normally I don’t try to answer the question to a title until the end of a writing and after providing some evidence for the conclusion, I will today. The answer to today’s title is easy, flat out, when central banks loose trust in each other you can pretty much expect chaos because of the loss of confidence! Before laying the case out for you, please remember we have been living in a system where “confidence” is not just everything, it’s the ONLY thing!
Recently we have seen several “coordination” fractures amongst the central banks themselves. It really started in late 2012 when Germany decided to ask the Banque du France, Bank of England and the Federal Reserve for some of their custodial gold back. This of course has been followed by the Dutch repatriating 120 tons in November and the Belgians and Austrians pondering the same actions. Why? Why are foreign central banks repatriating their gold held in London and New York? The answer is really simple, “trust”, or lack of it. You see, they can do math as well as we can. They know how much gold is produced globally from the mines and they also know how much gold is being taken off the market by China et al. After doing the most very basic of math, they know the “excess” gold is coming from “somewhere” and as I have been saying for several years now, that “somewhere” has to be the only place it exists in such large quantities …Western vaults!
The Germans who are a very meticulous society announced 85 tons of gold received (repatriated). In their announcement, they made clear that “all serial numbers matched”, however, they did not specify last year at this time regarding those measly 5 tons received. They took a lot of heat (including from yours truly) for melting down the bars. This time around, they assure us the serial numbers all matched and all bars were assayed, weighed and inspected. Why? Why such a detailed statement and why bother assaying if the serial numbers matched? I could write an entire article on this but suffice it to say, they wanted to make sure the “conspiratorial crowd” had no fodder. But, why include that all bars were inspected and assayed? Do they not trust the U.S. Fed? Do they really believe the Fed would go through the trouble of putting correct earmarks and serial numbers on golden covered tungsten? Do they really not trust the Fed or are they just trying to take any sticking points away …and in the process “implying” they don’t trust the Fed? Enough said.
Another area where “trust” looks to be breaking down is in the various central bank policies. Switzerland just broke ranks last Thursday and we received news after the close on Friday that Denmark has followed “negative(r)” interest rates. What Switzerland just did was what is best for Switzerland, NOT what is supposedly best for the central bank cabal. In essence, they pushed rates further negative and said we will not be buying any more euros. In other words, they announced they will no longer underwrite QE for Europe. Denmark followed and is basically saying the same thing.
We also heard from Japan (who’s economy is definitely in shrinking mode), they will not be employing any further QE than is already in place. Is this in step with a united central bank front? Maybe it is because the U.S. Fed wants you to believe they will be tightening later in the year. Is the plan to have Europe announce further QE monetizing later this week and take the baton from Japan? I suspect this is the plan but it has the same flaw discovered in the U.S. and then Japan, they will be taking too much “collateral” (there’s that word again!) out of the system which will actually tighten credit rather than loosen it. The next question of course is “who is next” with further QE? This answer is either the U.S. or, more likely ALL central banks still within the ranks!
I do want to mention Russia and more importantly China. These two have hooked up and in the case of Russia, dollars will no longer be used. China will have a difficult time avoiding all dollar transactions but they will surely be using less. As far as their central banks are concerned, they will skip to their own beat and not the one of the IMF nor the BIS. They will do what is best for them, not what is best for the Western central banks. Both Russia and China are courting and trying to pick off weak Western allies one by one. Russia is using energy while China is using other trade. The important thing to understand is their central banks are not part of the united front and in fact they (Russia in particular) are trying to divide and conquer the front.
I decided to write this piece because a “united front” is what has kept the coalition together for the last 6 years. The coalition has now been broken by the Swiss (and Danes). “Trust” and thus confidence are the only things that have held the game together for this long. The little guy knows “something” is wrong but for most part cannot put his finger on exactly what it is. If the man in the street begins to see infighting and quarrelling between central banks, he will have a further glimpse as to what is wrong. More importantly, if the populace sees clearly that trust between central banks is broken, then why should he “trust” also?
Taking this “trust” process just one step further, what will happen in another 2008 scenario? By this I am asking what will happen when financial institutions distrust one another and credit freezes up again? The last time around, the central banks stepped in and declared “you can trust US, so you can trust your counterparty”. I submit to you, another 2008 event is a mathematical certainty with just one caveat …if the central banks do not trust each other and are in an “every man for himself” mode, systemic confidence itself will fail this time around!
Please understand the “whole” of the above is about the creators of currency. Trust and confidence are necessary for their programs to work. Gold on the other hand does not have these issues because gold is no one’s liability and not created by man. Gold (and silver) require real work, real capital and real labor to “make”, once “made”, trust is never an issue! In fact, with what is surely coming, it is this very topic of “trust” which will separate gold (and silver) from all other monies!