central banks

Yesterday, Nov 8, 2010, was a day I’ve awaited for 40years, since President Nixon shut down the last vestiges of the gold standard. Yesterday, at last, a respected member of the ruling classes called for a discussion to readopt a modified global gold standard as a lynchpin for the monetary system. Robert Zoellick, World Bank President and a former US Treasury official, says a new system is needed (as called for in HSL for 20 years), using 5 main currencies, with gold as the international reference point for future currency values. He wondrously said “Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.” I couldn’t have put it better and in fact I have put it in those exact words, as has Jim Sinclair and a number of free market analysts.
RZ said “The development of a monetary system to succeed Bretton Wood II launched in 1971, will take time. But we need to begin.” Amen, Mr Z and thank you! Also, thanks to the Financial Times for making this the leading page one headline story, despite their traditional aversion to gold. Ethics won! This story broke in the early AM Nov 8th and halted a correction that began in the gold price, after which gold rose to a new high. The story freaked out ruling politicians around the world who despise gold because it acts as a governor on government spending. After Nixon closed the gold window, government spending and deficits rocketed, as the data charts prove, from that exact moment. Germany, the US Fed, and Trichet of ECB all patted Mr. Z on the head, but said it’s not practical.
What would you expect them to say dear reader? They will fight a gold-linked system, but in the end they will give in, because the system is dying, fast, as the gold price reflects. How good a new system will be, whether it will have only a symbolic link or a strong one, can’t be guessed today, nor how soon. The gold price will tell us. My prediction on Bloomberg TV in Paris a few years ago was that “Gold will force a system change when gold hits $1,650, but that it might need $2,000 to bring a change.” That may still come true, because, as you see in the press today, most political leaders tried to discount Mr Z’s brave, but wise recommendation.
I shall frame this FT front page and hang it on a wall. It was a watershed day.
Harry Schultz

“…Money breeds more money and develops a quality akin to matter – the larger the agglomerations, the greater their gravitational pull or, as the Bible puts it: “unto he that hath shall be rendered and from he that hath not shall be taken away, even that which he hath.”
Indeed, contrary to what they may tell you, the banks never really want their loans to be repaid at all. Just so long as the interest is funded it is in fact to their benefit for the capital to remain outstanding on their books as ‘assets’ and for the debts to be rolled over. Every time the IMF or World Bank extends a line of credit to some impoverished nation, are they being ‘charitable’ therefore or are they simply perpetuating the enslavement?

Second, such a system relies entirely, as do all Ponzi schemes, on the assumption of continued growth, hence its inherent instability. Once that growth is threatened the edifice collapses. Householders in Britain today will appreciate such a phenomenon – the result of ‘leverage’ – only too well: put up 10 per cent for a property and borrow the rest from the bank. That property’s value need rise by only 10 per cent and you have doubled your equity. But on the flip side that value need fall by only 10 percent and you are wiped out.
Which in turn explains precisely why a contraction of a mere 2 or 3 percent in the global economy leads not to a correspondingly minute fall on international stock markets, but to financial Armageddon.

Likewise with the banks – lend ten times more money than you possess and when the economy grows – or at least pretends to grow – Porsches galore, but when the lack of growth is exposed it requires only 11% of the loans on your books (in value terms) to be bad and you are bust. The truth is not that these institutions have suddenly become insolvent therefore, but that they were never really solvent in the first place since the assumptions on which they were founded could not apply in the real world. Simple false-accounting has meant that by rolling over their debts they have been able to keep them on their books as ‘assets’ rather than losses and forestall the evil hour.
There is an overarching name for the process I have outlined – ‘usury’ – and our predecessors from the Ancient and Medieval worlds appear to have appreciated much better than us its ultimate destination: ruin...”

Please click HERE to read the rest of this brilliant article.

Kevin Bambrough and David Franklin of Sprott Asset Management in Toronto argue in an essay just published that central banks no longer have any interest in maintaining the value of their currencies and that, as a result, gold is the only currency that can safeguard wealth.
Their essay is headlined “Beware Counterfeiters” and you can find it at the Sprott Internet site HERE
It has been speculated by many people over the past decade that once we are in the heat of the fire the US Treasury’s gold will be employed in defense of the dollar.
Perhaps this was what some of the Giants were counting on. Before 1971 the dollar was considered to be “good as gold”.
Since then it was considered to be “hard currency” amongst a world full of soft currencies. Perhaps now it will be considered to be “Good as Tungsten“?
I wonder how this will affect the next move from the People’s Republic of China. Hmm….”
Read all about the dark art of tungsten alchemy at FOFOA’s blog HERE
The following charts are provided by the St. Louis Federal Reserve Bank and are automatically updated as the Federal Reserve and the federal government make various statistics public.

They provide an opportunity to regularly monitor important statistical developments. As they are chosen from an immense supply of economic data, they isolate areas of particular interest to the gold owner, i.e. the national debt, money supply, inflation and unemployment numbers, securities held outright by the Federal Reserve, foreign-held debt, adjusted monetary base, etc.

A quick review of the charts as they stand at the moment reveals a brave new world of government finance and central banking. An array of disturbing trends which buttress the principle argument for gold ownership, as a means to insuring one’s assets.

Bookmark this post and come back often to monitor the state of the US economy.

Reform Plan Raises Fears of Bank secrecy

By Edmund Conway
The Telegraph, London
Saturday, January 10, 2009

The Bank of England will be able to print extra money without having legally to declare it under new plans which will heighten fears that the Government will secretly pump extra cash into the economy.

The Government is set to throw out the 165-year-old law that obliges the Bank to publish a weekly account of its balance sheet — a move that will allow it theoretically to embark covertly on so-called quantitative easing. The Banking Bill, which is currently passing through Parliament, abolishes a key section of the law laid down by Robert Peel’s Government in 1844 that originally granted the Bank the sole right to print UK money.

The ostensible reason for the reform, which means the Bank will not have to print details of its own accounts and the amount of notes and coins flowing through the UK economy, is to allow the Bank more power to overhaul troubled financial institutions in the future, under its Special Resolution Authority.

However, some have warned that it means “there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses.”

It comes after the Bank’s Monetary Policy Committee cut interest rates by half a percentage point, leaving them at the lowest level since the bank’s foundation in 1694.

With the Bank rate now at 1.5 percent, most economists suspect that the Government and Bank will soon be forced to start quantitative easing — directly increasing the quantity of money in the economy — in a drastic attempt to prevent a recession of unprecedented depth.

Although the amount of easing is likely to be limited, news of this increased secrecy will spark comparisons with Weimar Germany and Zimbabwe, where uncontrolled use of the central banks’ printing presses ultimately caused hyperinflation.

The Bank said it will still publish details of its balance sheet, but, significantly, the data — the main indicator of the extent of quantitative easing — will not be presented until more than a month has elapsed. For instance, under the new terms of the law, if the Bank were to have embarked on a policy of quantitative easing last month, the figures on this would not be published until the end of this month.

The reforms, which are likely to be implemented later this year, will make the Bank of England by far the most secretive major central in the world, experts said.

In the US, where the Federal Reserve has already cut rates to close to zero and started quantitative easing, the main way to track its purchases of securities and the expansion of its balance sheet is through precisely these same weekly accounts.

“Quite why the Bank has to keep its operations so shrouded in secrecy is a mystery to me,” said Simon Ward, economist at New Star. “This will make it much more difficult to track what the Bank is doing.”

Among the details which will no longer be published are those revealing the extent to which London’s banks are using the Bank’s deposit facilities — a yardstick of pressure in the financial system.

Debating the issue in the House of Lords recently, Lord James of Blackheath, a Conservative peer, said: “Remove [this] control and there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses.

“If we went down that path we would be following a road which starts in Weimar, goes on through Harare, and must not end in Westminster and London. That is the great fear that the abolition of that section will bring about — but the Bill abolishes it.”

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