FIAT vs METAL: DREAMTIME GOLD, THE EURO AND OTHER NEW MONEYS

The ECB is technically insolvent, but we won’t hear that on primetime

By Andrew McKillop
21st Century Wire
July 16, 2011

Once upon a time there was the Eurozone and its all-new hard money, the EURO…

It got off to a good start with a monstrously high forced surrender cash-in rate for the national moneys it replaced: depending on country, around 15 to 25 percent above the euro’s real worth. This yielded several years in the early 2000’s when it wasn’t even necessary to doctor the official inflation numbers, but through a penchant for old ways and traditions, national economic agencies, the European Commission, the ECB and other rightly named players kept on doing it. This made sure that all of its fundamental economic data was absolutely fake, an important aid to launching a now-floundering ‘cuckoo’ fiat money.

KEEPING THE MONEY STRONG

The 1956 Treaty of Rome and subsequent treaties like Maastricht and Nice lectured that governments must leave their central banks alone and not force them to liquidate gold assets. They could play around with SDRs and paper gold behind closed doors at the IMF, but in their home patch the central bank’s role is currency and money supply management, not government financing woes. Making this a lot less than sure by creative interpretation of the founding texts, the creation of the ECB and operation of the Eurozone, recently expanded to 17 countries, included the Protocol of the European System of Central Banks and European Bank, with “ESCB” being the correct name for the Euro zone. 

THE "EURO-FED" : The ECB will not be told what to do by the European Union.

This protocol says in one of its Articles that neither the ECB, nor any national central bank, nor any member of their decision-making bodies will be told what to do by any European Union institution, body or national government. 

Another article prohibits community institutions or governments having what the article calls ‘overdrafts’, or any other type of easy loan facility with the ECB, or with any national central bank. This rather ferocious, seeming limit on selling gold, of course in secret, was easily got around by interpreting it to mean that gold cannot be put up as collateral for loans received by a central bank and passed on to private banks or to its national government- but it can be swapped.

While the IMF’s recent director Strauss-Kahn was surely interested in wife-swapping, his gold-swapping appetite was even stronger, with the IMF’s action in this domain on an extreme high since Strauss-Kahn moved in, during late 2007. Since then, the swapping bug has new and powerful adepts, or competitors, in Europe as the IMF, ECB, the US Federal Reserve and European central banks scramble to invent, shuffle, swap and sell paper gold, buy government debt, and bail out any private banks who belong to the club.

SELLING GOLD

The ECB under another French political nominee, J-C Trichet, lost no time with its Eurozone central banking partners in ignoring these strictures and ran official gold sales rising from around 35 tons a year, to their first high point in 2009 at 142 tons. In 2010 the brakes were slammed, and sales crashed to 6.2 tons. Official reasons given for this nicely underline the schizophrenic balancing act played out by all central banks and the governments they are officially independent from and unrelated to.

On the one hand central banks seek a low and preferably declining gold price, because a low gold price (by money magic) means that fiat paper moneys they also print and circulate will seem relatively stronger in comparison. To help that process, claimed to generate and maintain confidence and trust in their paper moneys, they have to sell gold.

On the other hand if the gold price is rising, they have to buy gold, and by 2010 (in fact long before), gold was showing ugly signs of going only one way: up. Central bankers mulled the dire fact that gold, by 2010, had its best 10-year streak for price growth – since the 1920s – a fateful decade for central bankers, and everybody else after 1929.

The Central Bank Gold Agreement (CBGA) set at the dawn of the 2000’s, sought limited and controlled European central bank gold sales because of concern that uncoordinated selling was destabilizing the gold market and driving down gold prices too far – despite this being what one side of the Jekyll-and-Hyde central banker psyche wants.  In February 2001 gold prices had fallen from their previous record high (in nominal dollars) of $850 an ounce, reached in 1980, to $253. By September 2010 the price had grown to $ 1300, and today is menacing to break out from current levels around $1550 to unknown and exotic new extremes – for central bankers.

By pure schizophrenia therefore, gold selling suddenly became dangerous and unacceptable in late 2010 but well before then, from 2008, national governments were in panic mode on sovereign debt, budget deficits and collapsing private banks across Europe, in the USA, and Japan. They needed huge new amounts of financing, and central banks had no choice but to pony-up liquid cash using the only real hard asset they have: their gold reserves. They were therefore thrust into the purest of all two-way splits: they had to buy (or in fact invent) gold, while they also had to sell both real and invented gold: needing a frenzy of gold swaps.

THE FRAGILE ECB

The ECB could be called the worst possible mix-and-mingle of classic central bank and semi-federal bureaucratic institution. Both secretive and incompetent, it has intensified Europe’s sovereign debt crises by waiting too long to act, then panicking in an unproductive way. The Bank’s hard asset gold and gold related financial resources (called gold-related receivables), are based on its declared gold reserves of 522 tons at end 2010, with a value of less than €20 bn at today’s gold price ($1550 per ounce). With other resources, whose value or present worth is market price-related, its total reserves are in nominal terms about €82bn but its current operations and exposure, notably the buying of Greek debt and loans to Greece, and loans to other PIIGS countries, stood at around 444 billion euro as of June 2011.

The Bank is therefore now leveraged around 23 to 24 times relative to its real capital base, meaning that should the ECB see the value of its assets fall by less than 5 percent, from booking losses on its loans, from purchases of bad government debt in the PIIGS, or from selling gold at one price but then having to buy it back again at a higher price, its entire capital base would be wiped out. To be sure, that is ‘unthinkable’ because the ECB, even more so than most other central banks is ultimately underwritten by taxpayers. In turn this means there is a hidden – and potentially huge – cost of the Eurozone crisis to taxpayers buried in the ECB’s books.

Hefty losses for the ECB are no longer a remote risk. Greece is effectively already in ‘rolling default’  because it does not have the capacity to pay double-digit interest rates on its ballooning debt, as shown by the supposedly disappointing results from each new bail-out package from the EU, ECB and IMF. To date. the ECB has probably taken on around €200bn in Greek assets, in other words well over twice the ECB’s capital base, and as much as 8 times the value of its 500-odd tons of gold at current gold prices. Since value compression from the penny-on-the-dollar forced sale of Greek national assets is predictably ferocious, and investor-speculators operate a classic raid on its assets, encouraged by all the institutional players including the European Commission and European governments, this will cause large losses to the ECB.

Some forecasts put the probable loss for the ECB, only on its Greek operations at around €45 to €65 billion, depending on how deep the write-downs and losses are and how long the crisis drags on.. 

A loss of this magnitude would make the ECB insolvent – meaning taxpayers in the Eurozone 17 countries will have to finance its recapitalisation. Alternatives exist: the Bank could ask Eurozone governments to send it more cash through a capital call on their national central banks, which could sell some of their gold to raise the cash. In theory and almost always in practice when a central bank is recapitalised it will print and issue more money. The ECB would therefore almost certainly print more euro notes and organize more euro coin minting, making it certain the results are inflationary, which is  specially unacceptable for Germany, the strongest economy in Europe, with the second-largest central bank stock of gold in the world. The risk of Germany quitting the euro, or in fact, keeping it for a selected and restricted club of ‘hard money capable’ countries would radically increase. 

THE NUMBERS DON’T ADD UP

Looking at the debt-and-deficit crises of the Europe-USA-Japan threesome it is hard to say which one might be less out of control than the others. Each has its special edge of unreality and uncontrollability, with the USA oppressed by the single biggest debt load, the Europeans having the fastest spreading and most dangerous loss of control, and the Japanese having the oldest and most untreatable hyper-debt.

If we took the total official gold stocks of the world’s 180-plus central banks, or the 15 – 19 European parties to different versions of the CBGA since 1999, and the current gold price which central bankers tell us is extreme high and dangerous, the present total net worth of these two official gold piles is not just tiny, but minuscule in relation to present-day sovereign debt and deficit crises.

If by magical means it was possible to sell the biggest of these two piles, world total central bank gold reserves as reported to the World Gold Council, around one-third of it held by CBGA parties, this would produce about $1500 billion. This is far short of the Obama administration’s annual deficit for 2011. Even the recent and current ECB and IMF bailout of Greece, costing above $250 billion, is one-sixth of that amount – to unsuccessfully bail out the sinking finances of one small country with 11 million inhabitants. Japanese sovereign debt is over $12 300 billion, and growing, most recently by a probable $150 billion hit from the Fukushima disaster, with the same again for tsunami damage.

Question: What can central bank gold stocks do against that ?

Possibly this is known, but also possibly it is too extreme to be understandable – by central bankers and their ilk. Heavy attention in government-friendly and politically correct media has gone to the horse-trading process for shoehorning France’s own Christine Lagarde, a near world class swimming champion in her youth – into the IMF. Europe wants and needs the directing role, because Europeans must invent and swap an awful lot of gold, fast.

Under Strauss-Kahn the “loan portfolio” of the IMF was multiplied from $1 billion in 2006 to around $100 billion today, and the amount of paper  SDRs the IMF could print, allocate and shuffle between member countries were drastically raised, but the numbers remain derisively small compared with the size of the problem.

The next quantum leap in IMF financial resource creation, all of which have a ‘gold handle’ somewhere in their design, might only need to be 10-fold, or 20-fold, we are told by believers to expect ‘good luck’ and to muddle through, but how the IMF could do this trick is still relatively unknown. In the event of failure, we are forced back to the rather gob-smacking scenario of an ‘entirely new money’ being created.

Financial markets, as expected are doing their predictable best to drive the crisis. The US debt ceiling of $14 300 billion sets a nice playing field for political horsetrading and name-calling;  after Greece, market operators in Europe are quaking with music hall fear from their surprise discovery that Italy is a super Greece;  and Japan’s latest weak government is on its way out as national debt racks on and up by as much as $400 billion only since March. Ingredients have fallen into place for a Summer Panic on world stock markets – which is unusual in modern times, but no problem at all if we go back to classic Victorian-era panics.

NEW MONEY

To be sure, both political elites and their well-disciplined media and press supporters will hunker down and try to ignore the crisis, driving financial market operators to new extremes of saying out loud what they want: easy cash and low interest rates. They have the whip hand for exactly that reason. Easy cash and low interest rates has been the only tune in town since 2008 – but the results are unreal. Saying there is no cause for concern is nice or traditional, but the vastest amounts of extra money ever printed in human history has failed to do anything to, or with the real economy: this is more than just alarming.

Today’s crisis is totally unlike the 1979-1980 panic era. This is despite the “Crash of 79” being cited more and more as the likely model for what happens now, featuring the solid-looking precedents of high gold and oil prices, high unemployment, banking sector stress, rising government deficits and falling regimes in the Arab and Muslim world. Today’s crisis has major missing ingredients: high inflation and high interest rates. It also includes ingredients that weren’t present in 1979: the BRICS are big creditor nations today, both China and India are massively industrialising. They have both, like Russia and Brazil, on many times warned they are not happy with the dollar’s constant loss of value. In 1979, sovereign national debt in the OECD countries was often tiny and sometimes nonexistent – Japan for example was a huge net creditor country with the rest of the world.

One new money could in theory therefore come from over the horizon, BRICS Money, but even a moment’s look at the idea shows this neat fantasy is as unreal as the debt-and-deficit crisis of the OECD group. Gold-backed money, an idea that was tried in the 1920s, but resulted in gold prices only rising and the gold-backed moneys of the day folding one by one, is another popular quick solution, among many observers, but would have direct consequences. To work, it would need a cut in world liquidity by let us say 90 percent, to allow each new bill or note to command, equate to and freely exchange with a measurable speck of metallic gold.

Bancor-type money of the Keynesian genre, in fact never really detailed in the ramblings of Keynes but featuring a basket of real resources able to range across the commodities space, could or might be a candidate new single world reserve currency. Massive intervention across global commodity markets would be needed, with a huge risk of price spirals, and crashes in the value of the ‘fiduciary resources’, that is commodity values. Setting up this nice idea would take a lot more than a single day’s work for ex-swimming champ Lagarde at the IMF. 

Other genial-seeming solutions have already come and gone. In particular the Carbon Money trial balloon of 2009, heavily promoted by Strauss-Kahn at the IMF, which folded as fast as it had appeared.

We can unfortunately be sure that financial market operators have their own solution: another 1929. Lemming-like and driven by herd instinct, they are drawn to these kind of events because. In certain market contexts like the present there is one Total Solution: sell everything, except of course gold.

Leads and ideas from the finance sector can be counted on for their apocalyptic-type absence, forcing the question back into the public arena. This unfortunately is not prepared to deal with such a fundamental question. We could or might suggest that No Alternative economics, as some early neoliberals in their heyday right after the crash of 1979 called their first solution of the day – high street bank interest rates gouged to 20% or more in OECD countries – has generated a No Solution crisis in 2011.

The problem may be so special, and so big we can only anticipate and hope for unprecedented solutions. These would likely be forced to include debt moratoriums on some of the biggest economies of the world, starting with the USA, existing moneys would have to be protected from implosion, world prices of key basic commodities would have to controlled – but whatever the solutions, they will have to come fast.

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Gold and Silver Likely to Go Parabolic Due to ‘Global Shockwaves’ if U.S. Defaults

Before it’s News
July 16, 2011

Gold is some 0.5% lower against the U.S. dollar and most currencies today but higher in Australian dollars as the Aussie fell on Australian and global economic growth concerns. Asian equity indices were mixed as are European indices.

Bond markets have seen subdued trading but Greek bonds are again under pressure and the Greek 10-year yield has risen to 17.37% in increasingly illiquid trade.

The dawning reality that the U.S. will be downgraded due to its appalling fiscal position led to new record nominal gold and silver prices yesterday.

Denial regarding the possibility of a U.S. default continues with some analysts denying that such an event is “possible”. Such an event is possible and it grows more likely by the day. US Federal Reserve Chairman Ben Bernanke warned overnight that a default on America’s debt will spark a major crisis and send shockwaves through the global economy.

“The Treasury security is viewed as the safest and most liquid security in the world, and the notion it would become suddenly unreliable and illiquid would throw shockwaves through the entire global financial system,” he told a congressional committee.

US CDS has broken out to the upside and there is the potential for sharp moves up here as was seen in the aftermath of the Lehman and global financial crisis.

The fundamentals for gold and silver could not be better as the outlook for most paper currencies and government paper (sovereign debt) is not good. The precious metals are again being seen as safe haven assets to protect from government profligacy and currency debasement. The risks of a “depression” and currency crises in Europe and the U.S. are rising and this is contributing to significant safe haven demand.

The fact that gold and silver have no counter party risk and cannot default and cannot be debased or printed into oblivion makes them crucial diversifications. Gold, global equities and AAA rated, short dated bonds remain the best way for investors to protect themselves from today’s growing sovereign debt and monetary risk.

Gold, silver, good equities and good bonds will be better than depreciating cash or currencies in the coming years. Real diversification will help protect preserve and grow wealth…

FLASHBACK: 21st Century Wire Reports on Summer Gold Parabolic on May 24, 2011

MARKET FLASH: GOLD PARABOLIC COMING THIS SUMMER

By Andrew McKillop
21st Century Wire
Originally published May 24, 2011

Question: Why could gold go parabolic?

Prices for the Yellow Metal have recently suffered, along with silver, from sudden investor retreat using rationales like ‘inflation is beaten’, the global economy is recovering and the US dollar is getting stronger. Against the overvalued euro, maybe, but against gold the US dollar, euro, yen and almost all other paper moneys only have one way to go:  down.

Gold is a very special market and gold plays a key arbiter role in the unending attempt by the IMF and central banks to bolster and defend the value of “fiat moneys”. Their strategy is simple: push down the price of gold, anyway they can.

With the sudden and spectacular fall of the IMF’s Strauss-Kahn, 18 May, a large number of gold shuffling and swap operations between the IMF, central banks, the ultra-secret BIS and the world’s highly restricted number of authorized bullion banks could have been frozen in mid-air. When the balls hit the ground the collateral monetary damage could be a lot more interesting and much more powerful than what Strauss-Kahn did with his personal playthings in a Manhattan hotel room.

Strauss-Kahn’s sudden ouster comes at a key moment for its biggest debt bailout operations in favour of governments like that of Greece or Portugal, Ireland or Spain, the Baltic states, Iceland and others – who have to run a constant financing operation to save their national private banks, insurance companies and mortgage lenders. IMF austerity cures and forced firesale of government assets, under Strauss-Kahn or any body else, only makes the debt-load financing problem worse. To be sure, the IMF line is things have to get worse before they get better

Other so-called rich countries with similar crisis-level debt loads start with the USA, but at such fantastic rates of new financing need that, since late 2008, the USA is in permanent crisis territory…

SEE FULL MAY 24th REPORT HERE
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SEE ALSO:

The Strauss-Kahn Affair: It’s Now Make or Break Time for the IMF

A NEW DAWN FOR THE IMF: SWITCHING DEBTS TO ASSETS

By Andrew McKillop
21st Century Wire
June 30, 2011

In the gallic joy and media hoopla of yet another French elite politician with almost no knowledge of economics getting the IMF top job, confirming the real role and mission of this fragile institution, its bizarre mutation to financial and economic charlatanism- goes almost unnoticed. The Greek debt crisis however shows this stark and clear.

The IMF and the European Central Bank, with an outgoing French director and an incoming Italian chief, are basically struggling for survival – due to the debt crisis of a country with 11 million inhabitants whose GDP comes in at about 5 percent of EU-27 GDP.

Whoever says IMF and ECB also says ‘US Federal Reserve’, although Ben Bernanke would likely nuance that and distance himself from failed “quantitative tightening” in south-east Europe, to concentrate on failed QE at home.

What the IMF and ECB have cooked up in Europe’s PIIGS, with the second I-for-Italy moving upstage in a dangerous way as the Berlusconi empire and media circus crumbles, is nothing short of ultra Keynesian deficit medicine mixed with ultra Neoliberal austerity cures of the IMF 1980s Third World type. The net result is simple: debt has to become assets. Never mind the ideology because if this gambit fails, the euro will fall and a string of European, US, Japanese and other banking houses will shudder and tremble, 2008-style.

OLD AND NEW

The doctrinal mix-and-mingle running through the veins of global central bankers and their bridges to the political deciding elite – the IMF playing master of ceremonies – has become so confused, so bizarre we could call it an ice cream cocktail with chopped gherkins put through a mixmaster. It was not even born to fail – it was simply not biologically possible, but like dinosaurs… it happened. Using Greece as an online, real time exhibit of leading edge financial engineering, the IMF and ECB, along with the European Union and a few Greek politicians, watched by the US Fed and some very engaged private bankers and finance sector players, are creating one of the most massive debt explosions the world has ever seen. All this with the small assets, and big debts of a small country edging along the Balkans.

But the Greek Ponzi-style debt pyramid grows every day; most media reporting gives rather fakely, exact numbers of the type: “As of 9am Wednesday morning, Greek sovereign debt is 365.2 billion euros”, and a slightly less fantasist number for how much Greece has to receive to cover the 31 days of July: 12 billion euro, roughly $ 1500 for every man, woman and child in the country. With borrowing like that, why work ? The second income has arrived, but of course with strings attached.

All eyes are turning towards French Finance Minister Christine Lagarde, the first woman to run the IMF or any large financial institution.

The latest 12-billion dollop is the last part of the first debt package masterminded by the IMF and the Europeans, with the ECB in the lead but also including the European Commission and major government players, led by Germany’s Angela Merkel who has publicly said she got on fine with Dominique Strauss-Kahn, and will get on fine with Christine Lagarde: it is official.

GREEK FINANCE: WITH STRINGS ATTACHED

The strings attached include the Dr Jekyll part of the two-headed IMF monster: Greece has to perform. It has to achieve 50 billion euro of asset sales, not so easy in a country of 11 million inhabitants operating in the oversupplied Mediterranean package tour business against bankrupt Tunisia and bankrupt Egypt, now selling 8-day holidays at modern hotels, with food and air flights, at around $ 400 per person. With the July monthly instalment from the IMF and the Europeans, the entire Greek nation could ship itself out to Egypt for the month and find something creative to do with the unused assets, back home.

Greece of course also has other assets, like lignite fuelled power plants, toll highways, ports, tanker shipping lines and even a few semi-bankrupt airlines.

The real potential of achieving 50-billion-euro of asset sales in Greece, anytime at all, let alone soon is however rather low – but that doesn’t matter. What is needed is a public attempt at doing it, and here the IMF and its European friends, with their uncertain and perhaps wavering US allies, have stepped back in time to the 1980s Third World debt pantomine, complete with funny noses: all that is needed is a remake of the Club of Paris, bringing worried banks and reassuring IMF officials together, for a debt and asset slaughter, where assets were turned into debts rather fast.

OLD ASSETS, NEW DEBTS

A country like Greece today, or 1980s-style debt strangled Third World countries, or Russia, Argentina and others in the 1990s has so much short-term debt and ever rising interest rates on that growing part of its debt balloon – a lead balloon – that any asset it puts on the block will be depreciated, quick time. The depreciation is rigorously ferocious, something like an aside in a Thorsten Veblen book on cigar puffing, cognac swilling Victorian capitalists. What you thought might bring in 5 billion euros will in fact return 50 million, penny-on-the-dollar style. Under that type of New Reality, austerity has to be Victorian-style, witness a hike in value added tax on Greek restaurant meals from 10 percent to 23 percent: if you have enough cash to eat out, you have enough to pay the IMF and ECB.

Asset sales and state revenue hikes in Greece will therefore, and can only disappoint.

Meanwhile, the debt clock ticks on and up, another bailout will be needed, so more assets have to be sold (even if they dont exist) and the austerity program has to be tightened, again. In the Russian case in the 1990s, national pride took a strange New Capitalist turn: roughly 40 percent of the entire population were de-monetized or moved out of the cash economy for several years. To be sure, this had a rather draconian impact on imports, let alone mortality rates, but even if oil was worth nothing in the 1990s, Russia kept on exporting it along with other Sunset Commodity resources – exactly like Argentina. So Russia pulled through, to a certain extent, leaving Putin with a permanent chip on his shoulder regarding Western capitalist partners and iron will to stay a creditor nation.

Greece isn’t likely to have a resource-led export revenue boom, like Russia, Argentina and almost all the Jekyll-finance 1980s victims of the IMF in low income Africa and other Third World countries. This is Europe, meaning new-style rigour in a new-style post-liberal economy – which as we already said is the most bizarre cocktail crock of loony economic tunes a Martian could imagine. Failure is certain.

Courage has no place at all in that me-too circus, but it could work in the Greek case:  a sudden and dramatic abandonment of the euro with no prior warning would almost certainly succeed, aided by its shock and horror. The reintroduced drachma would spiral to nothing – but then banks, including the global central bank-surrogate, the IMF, and the would-be federal European ECB would understand they had gone too far with their Veblen medicine and themselves were set to lose everything, too. This brings us straight to a fundamental notion embodied in Keynesianism: if you have a big debt and can’t pay, bankers will stay interested in you. If you have a small debt and can’t pay – go away and die or take a stay in prison.

Greece could shift to a street-friendly military regime of the type which (legend says) saved vodka swilling Boris Yeltsin, install a land army agriculture corps and national sea fisheries corps, develop close and friendly relations with other ruined new democracies of the Mediterranean region, and basically refuse to pay its debt.

Playing for time, the new popular regime of Greece would by necessity be populist, and start by ousting all foreign migrant workers from the country, stemming remittance outflows from the country. This again would signal the new popular regime means business. An aggressive financial strategy with all other EU27 nations would also be necessary, carefully using the twin arms of debt default menace, and joint venture asset development promise.

THE POST LIBERAL RECOVERY

The IMF’s present role models and dominant ideology cocktails range from the laughable to the absurd and back again. Even as a gold hoarder and semi-legal trader, operating with the Basle-based BIS, the IMF is a failure and like other new style central banks probably has a lot less physical gold than it claims. All it can offer debt-strapped countries is SDRs and new debt, drawing down and destroying, or depreciating to almost nothing any real assets that happen to fall into its hands.

Recovery is almost officially defined by the IMF as an Act of God, or Inch’allah for the Gulf state petro-monarchies brought onside by the IMF whenever possible.

We can be sure that previous feats of the IMF, especially its decades-long debt financing saga with low income resource exporter Third World countries, would have dragged on even longer – if there had not been a sudden, strong and sustained upsurge in commodity prices. This upsurge was totally expected by almost any analyst able to use a two-dollar calculator, and totally unexpected by the IMF and its ruling elite politician friends. The IMF therefore has a proven track record of being surprised, and will be surprised by what we can call post-liberal recovery.

In Greece, Portugal, Ireland, Spain and across the Med in Tunisia and Egypt this post-liberal recovery is emerging, sometimes quite fast. The restored state, the government, national institutions and national identity all have a post-global economy importance which of course is played down by average government friendly media in presently unaffected countries. This is a dangerous trend for fuddle-along debt financing and austerity miracles, which only fatten the regular gang of charlatans, who in any case will quickly lose their ill-gotten gains on the gaming tables of the global financial casino.

The process is also post-ideology in a major way. Carefully unexplained by dominant media and their business editors, the failed dictators of the Arab world, currently including ben Ali of Tunisia, Mubarak of Egypt, Gaddafi of Libya and al Assad of Syria all played squeaky clean copybook export platform economics, yipped on by IMF-friendly economists and commentators. Inside their countries the story was a lot different. Street resistance was not driven by ideology or by demonstrators waving pictures of Che Guevara – but by citizens sick of not being able to afford to eat and the victims of permanent mass unemployment, casually described by well paid IMF experts as “an adjustment phenomenon”.

Forcing the economy to ground zero, which again is official IMF medicine, drives society to a rapid search-and-select of what counts and what does not. The flimsy global economy and its tinsel promises weigh little, and outright resistance to austerity measures and cures will rise.

The fear of anarchy and revolution in the post-liberal world – and a total loss for global finance players – is now moving up the teleprompter, prompting European, US, Japanese and other remaining defenders of Orthodox ‘no alternative’ economics to throw money at emerging national governments in a string of countries. Played right, Greece might also benefit from this.  

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MARKET FLASH: GOLD PARABOLIC COMING THIS SUMMER

FLASH ANALYSIS
By Andrew McKillop
21st Century Wire
May 24, 2011

Question: Why could gold go parabolic?

Prices for the Yellow Metal have recently suffered, along with silver, from sudden investor retreat using rationales like ‘inflation is beaten’, the global economy is recovering and the US dollar is getting stronger. Against the overvalued euro, maybe, but against gold the US dollar, euro, yen and almost all other paper moneys only have one way to go:  down.

Gold is a very special market and gold plays a key arbiter role in the unending attempt by the IMF and central banks to bolster and defend the value of “fiat moneys”. Their strategy is simple: push down the price of gold, anyway they can.

With the sudden and spectacular fall of the IMF’s Strauss-Kahn, 18 May, a large number of gold shuffling and swap operations between the IMF, central banks, the ultra-secret BIS and the world’s highly restricted number of authorized bullion banks could have been frozen in mid-air. When the balls hit the ground the collateral monetary damage could be a lot more interesting and much more powerful than what Strauss-Kahn did with his personal playthings in a Manhattan hotel room.

Strauss-Kahn’s sudden ouster comes at a key moment for its biggest debt bailout operations in favour of governments like that of Greece or Portugal, Ireland or Spain, the Baltic states, Iceland and others – who have to run a constant financing operation to save their national private banks, insurance companies and mortgage lenders. IMF austerity cures and forced firesale of government assets, under Strauss-Kahn or any body else, only makes the debt-load financing problem worse. To be sure, the IMF line is things have to get worse before they get better

Other so-called rich countries with similar crisis-level debt loads start with the USA, but at such fantastic rates of new financing need that, since late 2008, the USA is in permanent crisis territory.

WHAT HAPPENS NEXT

The near-term gold price target is US$ 2000 per troy ounce, and how this open-crisis price level for the Yellow Metal is reached will itself have powerful impacts on what happens next. Options will include the rushed introduction of an entirely new global reserve currency, itself driving gold prices ever higher, perhaps in a highly compressed time frame, measured in months.

Other options include a crash into recession far steeper than the 2008 crash.

Gold traders and holders including the big ETF’s led by SPIDR can themselves heavily influence the parabolic curve for gold prices through this summer. But central banks, due to the sudden disappearance of Strauss-Kahn and a likely gaping hole in the IMF’s own and real marketable gold reserves may be forced to enter the market and buy-buy-buy. Under this scenario, daily gold price hikes could become glaring signals of what is happening: $25-per-day and per ounce would be a giveaway signal.

To be sure, government leaders worldwide will try to talk down and thwart this gold panic – at the same time as their central banks drive the process.

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SEE ALSO:

The Strauss-Kahn Affair: It’s Now Make or Break Time for the IMF

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The Strauss-Kahn Affair: It’s Now Make or Break Time for the IMF

By Andrew McKillop
21st Century Wire
May 20, 2011

In the wake of the Strauss-Kahn affair, real economic events are fast conspiring to reshape the global financial playing field. What the big player governments on the IMF Executive Board want- and want fast, is action to stave off international financial meltdown. They also need continuing multi-billion dollar action to prevent a return to near-bankruptcy for their big name high-street banks.

Following pre-trial hearings, Dominique Strauss-Kahn was bundled out of the IMF and into a heavily guarded residence surveyed by cameras in every room. For plot theory lovers, these cameras can be contrasted with the alleged claimed cameras in the corridor of the Manhattan Sofitel hotel, able to capture and record images of the panicked and distressed 32-year-old Guniean hotel room cleaner fleeing from the room where Strauss-Kahn had sexually assaulted her, before himself fleeing under the same cameras.

TIME TO FACE THE MUSIC: In the wake of the DSK Affair, the IMF are facing some big strategic decisions.

By 19 May, these hotel cameras simply did not exist, and in the corridor of the room in question had never existed. But never mind! Plenty of other evidence was under preparation or already in the possession of prosecutors and their investigators. Much more serious and real charges had existed against Strauss-Kahn, whose $75,000-a-year entertainment and personal expenses allowance at the IMF rather comfortably covers any paid sex he might have wanted.

Strauss-Kahn’s nice talk for pseudo-socialists about greater accountability and more controls on the global finance industry most surely sounded a little too much like Elliot Spitzer talking, circa 2007, about how he was going to clean up Wall Street. By early 2008 Spitzer fell in a sex scandal where the bit players were staffed from the same high price prostitution rackets Spitzer had been investigating as New York Attorney General. More important, Strauss-Kahn was likely failing in the real key mission of the IMF, but his sudden disappearance creates huge risks of the game plan becoming known.

SUPPRESS GOLD AND SAVE THE SYSTEM 

The IMF and its close-related international financial partner institution, the Bank for International Settlements (BIS) operate with the sort of ironclad secrecy only dreamed of by the bankrupted, downsized and repackaged (that is restructured) Wall Street financial players which Spitzer brushed too hard against.

IMF financial support and bailout operations in 2010 reached about $ 91 billion, compared with about $ 1 billion in 2006. Proposals agreed by the G20 and by the IMF Executive Board since April 2009 target an increase of its total resources by as much as $ 750 billion within one or two years.

  No DSK = no EURO? Speculation persists in the wake of DSK’s resignation.

Doing this is the key challenge for the IMF and whatever director it has. Vastly increasing the IMF’s firefighting role in bailing out governments unable to borrow on global capital markets, like Greece at present, and re-financing weakened private banks by financing national governments which in turn bail out banks in their national territories, is however and in no way sure and certain. The Strauss-Kahn crisis can or might be the opening salvo in an IMF crisis for reasons which are not so complex.

The processes or mechanisms the IMF can draw on to vastly expand its bailouts and financing are few and easy to define. They all feature SDRs on one hand, and gold sales and swaps, on the other. Both are full of risks for the global financial system and economy at this highly weakened moment.

The IMF can encourage national central banks to sell their gold nearly always in secret, or the IMF can print and swap SDRs against gold from the central bank of a country needing emergency help and then secretly sell this gold, often through the BIS. Other financial magic operated by the IMF, with or without the BIS extends into realms as surprising, to some, as real estate and international trade financing on a strictly-for-profit basis. Even less publicized, and just as profitably it likely operates in tandem with the ultra-secret BIS- for recycling hot capital from low income countries and tax haven island states, in a constant IMF self-financing process.

Despite all this, the bottom line since the global financial crisis went critical in December 2008 is these activities are vastly smaller than the size of the problem: national debt financing and saving bankrupt private banks.

SDRs are the special trump card of the IMF because this institution with a highly special and only partly defined role relative to both governments and the global financial system has one rare privilege it shares with governments: printing money, that is SDRs. Inside its 24-member Executive Board the trading of these SDRs is permanent – and usually secret. The plan to establish these “special drawing rights”, the SDRs, was devised on September 29, 1967 by the Governors of the IMF, only a few weeks before the collapse of the London gold pool. At the time it was clear to many observers the intention was to put SDR’s into play in time to overlap the pool’s closure, for the constant key mission of the IMF: protect the value of world currencies, starting with the dollar by preventing gold prices growing further, if they are rising, and pushing them further down, if they are falling.

PREVENTING MELTDOWN

This dawn of SDRs may be little known to most, but for bullion traders and central bankers is a key period and a sombre flashback – in miniature – to the gold and money crises of today. By 1965 the London gold pool was consistently supplying more gold to cap prices than it was able to buy back. The end for the pool started with the devaluation of the UK pound sterling in November 1967, yet again spurring gold purchases. By early December, the gold pool was selling around 20 times its usual amount of gold, and with its Zurich partners was forced to cease forward sales of gold, further intensifying gold demand. Over a few weeks, the pool had laid out more than 1000 tons, and the newly invented SDRs had done little or nothing to stem the panic.

This 1000-ton figure, we can note is close to 40 percent of world total gold mine output in 2010.

In those days, 1000 tons of gold was worth around $1 billion. Today it would fetch about $ 50 billion underlining the general failure of the IMF’s key mission to “protect currencies”, of course spurring ever more desperate attempts to finally succeed. Since the action engaged by the IMF to raise its financing capabilities and maintain confidence in world moneys is always secret the stage of negotiations reached by Strauss-Kahn before his rapid fall is hard to know. To be sure, the subject attracts almost as much comment as what happened at the Manhattan Sofitel hotel, last weekend, but global markets do not have the time to dwell too long on juicy sex scandals.

In recent weeks, heroic behind-the-scenes action has been poured into talking down gold, oil and other commodity prices, and talking up the failing dollar. The blatantly overvalued euro continues to be defended by the European members of the IMF Executive Board, showing rare and total solidarity in their quest to ensure a European takes over from Strauss-Kahn. This could or might however be a lost cause for the de facto US-European bloc, still holding a massive majority of votes inside the IMF, and the power to decide how many SDRs are printed and what central bank gold reserves will be sold or swapped – but kept on the books as still belonging to national central banks.

Current events could now radically speed decisions.

The BRIC (Brazil, Russia, India, China) group, showing a lack of solidarity in jostling to get leadership of the IMF as open as Europe’s solidarity and American neutrality playacting, have very different agenda items in this global quest to prevent an epic financial meltdown. Running trade surpluses, they can finance their national budget deficits and borrow to save their fragile banking systems, as overstretched as those of the USA, Europe and Japan.

The bottom line is that the IMF, as a gold laundering entity using central bank gold may be close to its first double-or-quits crisis point in its 67 year history, and its 44 years of SDR printing.

THE SCENARIOS

It is possible Strauss-Kahn was close to some major breakthrough in recycling government gold, printing SDRs and protecting the paper moneys printed by governments, but whatever his heroic quest, and why he fell, the numbers are stacked against this quest. Taking the approximate current market value of all the gold that has ever been produced, few estimates place this at above $ 5000 billion. US Federal debt growth from December 2008 to April 2011 was about $ 3600 billion. Global “hot capital” flows, grotesquely underestimated by the IMF in its publication, are likely running at no more than $ 250 billion-a-year.

The only solution for Strauss-Kahn, and whoever succeeds him is to invent a new global money. This was the real mission of “DSK” and will be the real mission of whoever steps into his shoes, and does not stay in Sofitel mid-range hotels with low level security on room intruders. The action to produce a new global money – called a reserve currency – will also have to be very fast, due to the debt clock, or time bomb ruthlessly ticking forward.

For a short while the gold bullion market will stay quiet, but daily change of the gold price will increase, and then rise further. Few rational analyses of the right price for gold place it under $ 2000 per troy ounce, and plenty of experts will say this is only the starting gate for a hyper inflation spiral in which national currencies are ground to dust like a black hole swallows and smashes stars. All and any real asset, that is food, energy and minerals can only spiral in price for as long as the global economy struggles forward. After that, the recession implosion will operate, restoring the value of money in a vastly downsized global economy morphing into semi-autonomous national or regional economies.

Preventive action by the world’s few capital surplus countries could start in the very near-term future. The BRIC group could break away from the IMF system by inventing its own BRIC reserve money backed by key commodities, gold, and manufacturing power, but this would need a vast increase of their current low-level coordination of financial and monetary policies.

Not impossibly, the USA facing hyper debt could take its own unilateral action, with well-described and possibly planned actions to erect tariff barriers and heavily limit overseas holdings and use of the US dollar – that is siege economy action in a new era of isolationism marked in the geopolitical domain by abandoning the Afghan war, total disengagement from Iraq and leaving Israel to solve its long and festering problems with the Palestinians all on its own.

In the same way, Europe’s neo-colonial turf war with China and India for control over Africa’s natural resources and growing consumer markets could morph into a war for saving European moneys.

Under any scenario the Strauss-Kahn affair comes at a key moment. Attempts at saving the global economy and world moneys, since the end of 2008, have all failed, raising the stakes and risk each time. What we may now witness is historic change as the IMF’s real situation seeps and leaks out, under the tinsel wraps of just another sex scandal.

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The Strauss Kahn Frame-Up: The Amerikan Police State Strides Forward

Paul Craig Roberts
Infowars.com
May 18, 2011

The International Monetary Fund’s director, Dominique Strauss-Kahn, was arrested last Sunday in New York City on the allegation of an immigrant hotel maid that he attempted to rape her in his hotel room. A New York judge has denied Strauss-Kahn bail on the grounds that he might flee to France.

President Bill Clinton survived his sexual escapades, because he was a servant to the system, not a threat. But Strauss-Kahn, like former New York Governor Eliot Spitzer, was a threat to the system, and, like Eliot Spitzer, Strass-Kahn has been deleted from the power ranks.

Strauss-Kahn was the first IMF director in my lifetime, if memory serves, who disavowed the traditional IMF policy of imposing on the poor and ordinary people the cost of bailing out Wall Street and the Western banks. Strauss-Kahn said that regulation had to be reimposed on the greed-driven, fraud-prone financial sector, which, unregulated, destroyed the lives of ordinary people. Strauss-Kahn listened to Nobel economist Joseph Stiglitz, one of a handful of economists who has a social conscience.

NO MORE HOBNOBBING: Strauss-Kahn has been deleted from elite circles.

Perhaps the most dangerous black mark in Strauss-Kahn’s book is that he was far ahead of America’s French puppet, President Sarkozy, in the upcoming French elections. Strauss-Kahn simply had to be eliminated.

It is possible that Strauss-Kahn eliminated himself and saved Washington the trouble. However, as a well-travelled person who has often stayed in New York hotels and in hotels in cities around the world, I have never experienced a maid entering unannounced into my room, much less when I was in the shower.

In the spun story, Strauss-Kahn is portrayed as so deprived of sex that he attempted to rape a hotel maid. Anyone who ever served on the staff of a powerful public figure knows that this is unlikely. On a senator’s staff on which I served, there were two aides whose job was to make certain that no woman, with the exception of his wife, was ever alone with the senator. This was done to protect the senator both from female power groupies, who lust after celebrities and powerful men, and from women sent by a rival on missions to compromise an opponent. A powerful man such as Strauss-Kahn would not have been starved for women, and as a multi-millionaire he could certainly afford to make his own discreet arrangements.

As Henry Kissinger said, “power is the ultimate aphrodisiac.” In politics, sex is handed out as favors and payoffs, and it is used as a honey trap. Some Americans will remember that Senator Packwood’s long career (1969-1995) was destroyed by a female lobbyist, suspected, according to rumors, of sexual conquests of Senators, who charged that Packwood propositioned her in his office. Perhaps what inspired the charge was that Packwood was in the way of her employer’s legislative agenda.

Even those who exercise care can be framed by allegations of an event to which there are no witnesses. On May 16 the British Daily Mail reported that prior to Strauss-Kahn’s fateful departure for New York, the French newspaper, Liberation, published comments he made while discussing his plans to challenge Sarkozy for the presidency of France. Strauss-Kahn said that as he was the clear favorite to beat Sarkozy, he would be subjected to a smear campaign by Sarkozy and his interior minister, Glaude Gueant. Strauss-Kahn predicted that a woman would be offered between 500,000 and 1,000,000 euros (more than $1,000,000) to make up a story that he raped her. http://www.dailymail.co.uk/news/article-1387625/IMF-chief-Dominique-Strauss-Kahn-feared-political-enemy-pay-woman-allege-rape.html

The Daily Mail reports that Strauss-Kahn’s suspicions are supported by the fact that the first person to break the news of Strauss-Kahn’s arrest was an activist in Mr Sarkozy’s UMP party – who apparently knew about the scandal before it happened. Jonathan Pinet, a politics student, tweeted the news just before the New York Police Department made it public, although he said that he simply had a ‘friend’ working at the Sofitel where the attack was said to have happened. The first person to re-tweet Mr Pinet was Arnaud Dassier, a spin doctor who had previously publicised details of multi-millionaire Strauss-Kahn’s luxurious lifestyle in a bid to dent his left wing credentials.

Strauss-Kahn could just as easily been set up by rivals inside the IMF, as well as by rivals within the French political establishment.

Michelle Sabban, a senior councillor for the greater Paris region and a Strauss-Kahn loyalist said: ‘I am convinced it is an international conspiracy.’

She added: ‘It’s the IMF they wanted to decapitate, not so much the Socialist primary candidate.

‘It’s not like him. Everyone knows that his weakness is seduction, women. That’s how they got him.’

Even some of Strauss-Kahn’s rivals said they could not believe the news. ‘It is totally hallucinatory,’ said centrist Dominique Paille.

‘If it is true, this would be a historic moment, but in the negative sense, for French political life. I hope that everyone respects the presumption of innocence. I cannot manage to believe this affair.’

And Henri de Raincourt, minister for overseas co-operation in President Nicolas Sarkozy’s government, added: ‘We cannot rule out the thought of a trap.’

Michelle Sabban is on to something when she says the IMF was the target. Strauss-Kahn is the first IMF director who is not lined up on the side of the rich against the poor. Strauss-Kahn’s suspicions were of Sarkozy, but Wall Street and the US government also had strong reasons to eliminate him. Wall Street is terrified by the prospect of regulation, and Washington was embarrassed by the recent IMF report that China’s economy would surpass the US economy within five years. An international conspiracy is not out of the question.

Indeed, the plot is unfolding as a conspiracy. Authorities have produced a French woman who claims she was a near rape victim of Strauss-Kahn a decade ago. It would be interesting to know whether this allegation is the result of a threat or a bribe. As in the case of Julian Assange, there are now two women to accuse Strauss-Kahn. Once the prosecutors get the odds of two females against one male, they win in the media.

It has not been revealed how the authorities knew Strauss-Kahn was on a flight to France. However, by arresting him aboard his scheduled flight just as it was to depart, the authorities created the image of a man fleeing from a crime.

The way Amerikan justice (sic) works is that prosecutors in about 96 percent of the cases get a plea bargain. US prosecutors are permitted by judges and the public to pay for testimony against the defendant and to put sufficient pressure on innocent defendants to coerce them into making a guilty plea in exchange for lesser charges and a lighter sentence. Unless the hotel maid has a spell of bad conscience and admits she was paid to lie, or gets cold feet about perjuring herself, Strauss-Kahn is likely to find that Amerikan criminal justice (sic) is organized to produce conviction regardless of innocence or guilt.

On May 16, the day following Strauss-Kahn’s arrest, the US Supreme Court threw its weight behind the Amerikan police state by destroying the remains of the Fourth Amendment with an 8-1 ruling that, the U.S. Constitution notwithstanding, Amerika’s police do not need warrants to invade homes and search persons.

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This ruling is more evidence that every American is regarded as a potential enemy of the state, not only by Airport Security but also by the high muckety-mucks in Washington. The conservatives’ “war on crime” has created a police state, and conservatives, who originally stood for limited government and civil liberty, are euphoric over the expanded and unaccountable powers that a conservative Supreme Court has handed to the police.

On the same day the federal government reached the $14.3 trillion debt ceiling, which forced the Treasury to “borrow” money from federal employee pensions in order to continue funding Amerika’s illegal wars and crimes against humanity. The breached debt ceiling serves as an appropriate marker for a country that has squandered its constitutional heritage and has arrived at moral as well as fiscal bankruptcy.

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Dr. Paul Craig Roberts is the former head of policy at the Department of Treasury. He is a columnist and was previously an editor for the Wall Street Journal. His latest book, “How the Economy Was Lost: The War of the Worlds,” details why America is disintegrating.