central banks intervene on gold and US dollar ...
again you can't find this stuff in mainstream 'western' financial media ...
(snip)"Apr 3, 2008
AsiaTimes
A conspiracy against gold
By Chan Akya
The full-scale attack on gold by global central banks officially began with the provision of swap lines by the Bank of England and the European Central Bank (ECB) to the US Federal Reserve in the days following the rescue of Bear Stearns. In effect, the emergency provision of liquidity to the financial system has been aimed at re-inflating the US economy by creating exactly the same kind of unnecessary and irresponsible lending that caused the latest mess.
There are necessarily two elements to this story that must be understood separately: first, the need to preserve the US status quo as is being suggested by the world's central banks, and second, the mechanisms aimed at restoring the purchasing power of fiat currencies - in effect pushing gold off its perch.
As I have written in recent articles, the death of the US dollar (see The dead dollar sketch Asia Times Online, March 4, 2008) as the global reserve currency elicited a search for suitable alternatives, with the putative contender the euro being dismissed pretty much out of hand by most people (see Euro-trash Asia Times Online, March 11, 2008).
Into this vacuum, investors globally found that the sole store of purchasing power was something of value that central bankers couldn't manipulate for their own dirty ends, namely gold. That created a huge problem of sorts for the global economy, because a collapse of faith in fiat currencies - so called because their value rests entirely on a stated nominal denomination rather than any notion of intrinsic purchasing power - also means the unwinding of the global financial system. Simple translation: these central bankers would no longer have any power through their inane market policies to wreak destruction willy-nilly.
A secondary and perhaps more lethal result of investors flocking to a fixed-value currency like gold would be to reduce the velocity of the global financial system to essentially zero as gold doesn't lend itself to value manipulation.
In the finance-based economy of the US and Britain, if not the rest of Europe, this collapse in monetary system velocity would be the equivalent of a thousand bank runs: simultaneously. This was the key stake that the US was playing for, ie to avoid a complete destruction of risk-taking in the economy that would in turn paralyze the unreal economy of excessive consumption that underpinned it.
What did Europe have to fear from all this - after all, wouldn't the destruction of the US system of capitalism provide a boost for its own alternate method, namely market socialism? Why then should the ECB and others help the Fed instead of letting it slide to its own doom?
The answer is that no one really wants to live in Europe, not even the Europeans: thanks in equal part to the stupidly high tax rates and low economic dynamism prevalent in these economies. These explain the low birth rates across the continent, which have pushed most countries (eg Italy, Spain, Germany as well as all the Scandinavian countries) into sub-replacement demographic trends.
Simply put, as a bunch of old people sitting around like the Japanese, the folks in Europe need the US consumer to continue buying their ridiculously expensive goods because they couldn't really do much of it themselves. This is also the reason that the Bank of Japan has been anxious to support the policies of the US Fed, even when it hasn't been asked for any explicit support. The exporters' lobby in Japan has been screaming blue murder ever since the Japanese yen slid below 120 to the US dollar for its spin-off effects on the rest of the economy.
The second reason for the ECB (and the Bank of Japan) to want to help the US Fed, as I referred to in the previously cited article, was the simple fact that European banks (and their Japanese counterparts) held most of the subprime junk originated in the US.
The reason for them to purchase these US assets was the paucity of domestic assets due to the lack of intrinsic consumption in most European economies, which in turn reduced the opportunity for banks to lend. European banks had and still have more to lose from the collapse of the US financial system than even the US banks. In effect, the ECB wasn't trying to save the US; it was actually trying to save Europe when it offered to help the Fed.
Mechanism to reinstate the US dollar
Have you heard of the alcoholic who promised you that the best cure for his hangover was to drink a bit more alcohol? This is the same position of the US economy today, where the Fed is bravely attempting to re-inflate the economy and in effect create the same spiral that contributed to the most recent market eruptions. What I wrote last year in "Cracks" in credit (Asia Times Online, August 25, 2007) has certainly come to pass, as the increasingly aggressive behavior of the central bankers shows.
As most goods have seen their prices rise in US dollar terms, the best way out for global central bankers is to inflate the value of the dollar again. This in turn reduces demand for gold. Now, if the US actually makes anything useful, central banks could act in concert to increase the demand for that widget, and in turn boost the US economy.
Unfortunately, the US doesn't really make anything anymore, except lousy cars and delayed airplanes. What it does create a lot of is, in contrast, something that requires a leap of faith - namely financial risk. The description of the US economy as a giant stack of people selling inflated housing to each other, while simplistic and slightly exaggerated, isn't too far off the truth. This financial risk though needs to be parlayed to the rest of the world so that US consumers can buy real goods such as washing machines made in South Korea and toasters made in China.
The mechanism to kill off gold as a viable substitute for the US dollar rests essentially on taking a number of steps that are designed to reassert the primacy of financial risk in portfolios. Remember that most of the world's openly traded gold is owned by the likes of pension funds through their alternate investment arms in a choice that vastly irritates central banks for reasons I mentioned above.
Following the rescue of Bear Stearns and opening up its balance sheet to all comers, the Fed has effectively underwritten the biggest parts of the US financial system. Investors looking at these banks and other institutions are now confronted with a simple paradigm of an asset that has fallen a long way from its highs of last year, but will never reach nil value because the Fed stands in the way to catch a falling knife. This is what I call moral hazard - unintended insurance of risky activities by people who really should know better.
Thus, when Lehman announced a share issue on Monday, March 31, it was rapidly oversubscribed because, ignoring the fears of a mere two weeks ago, no one really expects another US investment bank to go bust again. The equity subscription to Lehman also opens the floodgates for credit investors to come running back to the financial sector where credit spreads have dramatically tightened to highlight the reduced bankruptcy risks. Don't forget also that with the increased capital at their disposal, US investment and commercial banks will be indulging in a new bout of financial asset purchases aimed at restoring their profitability.
Increased demand for assets such as equities and credit diminishes the demand for alternate assets such as gold. A return of confidence in the US dollar takes the sheen off the prices of commodities, and helps engineer a slow increase in the purchasing power of the US dollar.
At least, that's the theory.
Where it will fail
So far so good - but try as they may, the fact of the matter is that the rest of the world will find it difficult to buy any US financial asset that isn't implicitly or explicitly guaranteed by the US government. In turn, increasing the amount of financial guarantees could well imperil the credit standing of the US government itself, which is already stretched from years of fiscal mismanagement and budgetary blowouts.
That is what virtually ensures that the US economy will go down the same path as Japan, ie as growth prospects diminish, the chances of attracting new immigrants goes down and with it the potential for generating further consumption in the economy. As de-leveraging and de-consumption bite hard, the US will find that its inability to actually make things will stand in the way of any economic revival.
When that happens, I rather suspect that the world will not want to own any US financial risk, thereby starting the cycle of last year all over again. The economy, in effect, will have to suffer from a Chinese death by a hundred cuts.
So where does this leave gold? Not in a good position for the immediate future, I am afraid. As the world tries to re-inflate and stock market enthusiasm once again blinds all investors, it is but natural for gold and other precious metals to suffer. The fact that, rather than any meaningful economic improvement, it is the machinations of central banks that caused this slide will come as cold comfort for gold bugs. "(snip)
Re: central banks intervene on gold and US dollar ...
Only ignorants believe Gold's value as a monetary system. I'll post something within a day why that is such a case.
Since there are more ignorants in this world, I won't discount Gold's value shooting up because of that. Fundamentally, Gold has no value except for jewellery and some devices.
The problem with reading shady web-sites is you get fed into this misinformation, lies withouth giving you the complete picture.
That is worse than no information.
Yes, there is no one source of truth. So, ultimately you have to do your own thinking. But, the worst thing you could do is believe into someone's ignorance
Re: central banks intervene on gold and US dollar ...
Xan, if gold didn't have any monetary value, why would it be going through the moon, and why would the CBanks interfere? If nobody cared about it, nobody would do anything to stop it from going higher. Higher gold prices = no trust in the financial system. When banks collapse and your electronic credits freeze, what do you think you will take to the pawn shop to buy food? And the pawn shop owner WILL find the cash to pay you...
Of course, if you don't have any, it's a different story...
Have you heard how some Jews saved their lives during WW2?
Re: central banks intervene on gold and US dollar ...
Quote:
Originally Posted by
Adelina
Xan, if gold didn't have any monetary value, why would it be going through the moon, and why would the CBanks interfere? If nobody cared about it, nobody would do anything to stop it from going higher. Higher gold prices = no trust in the financial system. When banks collapse and your electronic credits freeze, what do you think you will take to the pawn shop to buy food? And the pawn shop owner WILL find the cash to pay you...
Banks didn't intervene to Stop Gold Prices.
Banks intervened to solve a liquidity issue. The World GDP = $50 Trillion. Feds around the world needs to save this $50 Trillion economic engine.
They don't care about pesky Gold prices. Gold is like pennies in the gutter for the Feds.
Of course if you have a one eyed view about Gold, everything revolves around Gold and you think the Big Bad guys are manipulating every part of it.
You think Ben Bernanke is going to bed worrying about Gold prices?. No, he goes to bed worrying about Recession and illiquid market. Recession and Illiquidicy is solved by pumping money. I'll very soon explain how
Re: central banks intervene on gold and US dollar ...
It's not a liquidity issue, it's a solvency issue. There is a difference...
Re: central banks intervene on gold and US dollar ...
Quote:
Originally Posted by
Adelina
It's not a liquidity issue, it's a solvency issue. There is a difference...
When it comes to banks they are the same. You tackle liquidity problems, you tackle solvency.
Re: central banks intervene on gold and US dollar ...
Quote:
When it comes to banks they are the same. You tackle liquidity problems, you tackle solvency.
essentially true, unfortunately for US savers / taxpayers ! The fed's dropping of interest rates, combined with 'handing' banks freshly printed US dollars in exchange for 'worthless' mortgage backed securities, combined with the banks loaning out that freshly printed money to selective loan applicants at high interest rate spreads, combined with banks paying next to zilch in interest rates to savers, does indeed guarantee a major improvement in bank profit margins. Of course the unspoken commentary is that it will be the US taxpayer that ultimately must make good the loss on the 'worthless' mortgage backed securities that the fed now 'owns' instead of the banks, and it is the savers who must take the loss as the paltry interest rate paid on their CD's falls increasingly short of the actual infllation rate / purchasing power decline of their US dollars.
Re: central banks intervene on gold and US dollar ...
After they chew and spit out the the US taxpayer, who are they going to eat next?
Re: central banks intervene on gold and US dollar ...
Quote:
Originally Posted by
Adelina
After they chew and spit out the the US taxpayer, who are they going to eat next?
Their babies?
Quote:
When it comes to banks they are the same. You tackle liquidity problems, you tackle solvency.
eg. Non-borrowed reserves of depository institutions in St Louis < 0
http://research.stlouisfed.org/fred2/series/BOGNONBR
Doesn't this mean the St Louis banks are running on borrowed money? To be considered "solvent", don't you need to be running on your own money?
Re: central banks intervene on gold and US dollar ...
already the case, thanks to 30 year bonds, Social Security Administration bonds etc. which already commit our children to paying enough taxes to fund both these bond payments AND future gov't spending requirements.
Quote:
Doesn't this mean the St Louis banks are running on borrowed money?
that all depends on how one values the supposed $400 billion worth of mortgaged backed securities that the FED has recently accepted as loan collateral for the big investment banks !
Re: central banks intervene on gold and US dollar ...
I didn't agree with much of the original article that started this thread, but...
Quote:
Originally Posted by
xanfiles1
Only ignorants believe Gold's value as a monetary system.
You are mostly right. Ignorants, whomever they may be. Actually, is it a real word??? Sorry, yes, ignorants and over 1,000 years of golds value throughout history.
Re: central banks intervene on gold and US dollar ...
Quote:
Originally Posted by
xanfiles1
Banks didn't intervene to Stop Gold Prices.
Adelina was saying that CENTRAL banks intervened in the gold market. This has happened both openly and behind closed doors for years. As the largest individual holders of gold, central banks are the major operators in the market and so, if they want, can make the game play by their rules.
Re: central banks intervene on gold and US dollar ...
Quote:
Originally Posted by
StuartL
Adelina was saying that CENTRAL banks intervened in the gold market. This has happened both openly and behind closed doors for years. As the largest individual holders of gold, central banks are the major operators in the market and so, if they want, can make the game play by their rules.
If they are the largest holders of Gold, then they should be happy that Gold Prices goes up. No?
Re: central banks intervene on gold and US dollar ...
Quote:
Originally Posted by
Melonie
essentially true, unfortunately for US savers / taxpayers ! The fed's dropping of interest rates, combined with 'handing' banks freshly printed US dollars in exchange for 'worthless' mortgage backed securities, combined with the banks loaning out that freshly printed money to selective loan applicants at high interest rate spreads, combined with banks paying next to zilch in interest rates to savers, does indeed guarantee a major improvement in bank profit margins. Of course the unspoken commentary is that it will be the US taxpayer that ultimately must make good the loss on the 'worthless' mortgage backed securities that the fed now 'owns' instead of the banks, and it is the savers who must take the loss as the paltry interest rate paid on their CD's falls increasingly short of the actual infllation rate / purchasing power decline of their US dollars.
Dropping Interest Rates ==> Making Hoarders to Release Money into the system ==> Printing Money
If you Go back to the Baby Sitting example, Take the case when there were only 10 coupons in Circulation.
What would you do when you Baby Sit and recieve a Coupon?
Because there are very few coupons, you'd want to save it for the day you really need to go out. Pretty much everyone will be thinking that. So, everybody starts hoarding coupons and probably
X's GDP will be 1 Baby Sit / Evening
i.e We are in depression.
So, you have a choice of Keeping the Interest rate high (encourage hoarders) and go into depression or Cut Interest Rates (discourage hoarders) and re-ignite the economy
For a Fed, the choice is obvious and hopefully others may appreciate why Fed Cuts Interest rates
Re: central banks intervene on gold and US dollar ...
Quote:
Originally Posted by
xanfiles1
If they are the largest holders of Gold, then they should be happy that Gold Prices goes up. No?
You would think so wouldn't you. But the job of a central banker is all about currency management and not gold. So they need stability. As a true value of wealth, being measured against gold might not be very helpful.
It is also worth considering that though they are without doubt the largest holders of gold - by a massive distance - the amount of paper currency they have in issue is far, far larger. Their responsibility then is to the paper and not to the asset.
Re: central banks intervene on gold and US dollar ...
So when this gold bull goes out of control, what solution do they have to defend the paper currency? New paper currency? Or new form of currency? When this gold bull is storming all over the world, what happens to other currencies? Will any fiat survive?
Re: central banks intervene on gold and US dollar ...
they dont care bout the papa or dagold
they just wanna eat you
:(
i wouldnt even humour them
theyre playing games with themselves
they own the gold they own the paper theyre interest is focused wherever they please
they do what they want! you dont know them!
Re: central banks intervene on gold and US dollar ...