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Avery Goodman  

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  • How Germany Can 'Save' The Euro While Limiting Its Liability On Legacy Debt [View article]
    Few Euro banks have much unencumbered physical gold to sell. Mostly, they own paper claims to non-allocated accounts. My understanding is that a 1% stock of that gold is actually kept, in vault, to cover requested redemption. The rest is loaned or sold to third parties, or never purchased in the first place.

    The bullion banks are massive gold debtors, NOT creditors with gold to sell. Their physical gold is encumbered, even though they are contractually allowed to use it in any manner of their choosing, right now. The unallocated accounts, which comprise a vast majority of the world's alleged gold "reserves", will be their undoing.

    European sovereigns, caught in the downward spiral of a crisis of confidence, are not likely to be willing to part with their gold, as before, and will not be able to bail out the bullion bankers. Without that emergency backstop, the bankers will fail to meet their gold obligations, Cash settlement is usually an option under LBMA unallocated account agreements. But, refusing physical redemption requests, in the wake of massive requests for the physical gold, will destroy their credibility.

    The collapse of the Euro, when and if it happens, will also spur demands for delivery of the baskets of gold many large institutional buyers own inside ETFs like GLD. We will learn, at that time, whether or not the critics of such schemes were right, or whether the bankers are actually keeping the proper amount of gold in them.

    The most important point is that physical gold, and not paper, will be demanded in midst of the collapse.of a major reserve fiat currency like the Euro. When and if even one Euro bullion bank collapses for failure to honor redemption requests, the whole paper gold trade will come tumbling down. Gold prices will, at that time, go vertical.

    All this said, the scenario I've just outlined probably lies far in the future. For the moment, it is more likely that Germany will agree to grant a bank charter to ESM, as doing so limits its liability on joint Euro debt to a fixed sum, while allowing the rest of Europe to "put up or shut up" with respect to economic reform practices.
    Jun 28, 2012. 09:15 PM | 2 Likes Like |Link to Comment
  • FDIC Rule Will Return Gold To The Center Of The Banking Universe [View article]
    If gold were removed from the futures markets, it would immediately return to being very stable in terms of being a permanent store of purchasing power.
    Jun 25, 2012. 02:22 PM | 1 Like Like |Link to Comment
  • FDIC Rule Will Return Gold To The Center Of The Banking Universe [View article]
    Just came to mind.
    Jun 20, 2012. 03:06 PM | Likes Like |Link to Comment
  • FDIC Rule Will Return Gold To The Center Of The Banking Universe [View article]
    My understanding is that current FDIC rules allow banks to assign zero percent risk weight to gold bullion held in its own vaults, or held in another depository institution’s vaults on an allocated basis, only to the extent that they are offset by gold bullion liabilities. An example would be a bank keeping gold bars in the vault, while being short an equal amount of gold futures contracts. The same is true in Australia and, probably, in most other countries. See, The proposed FDIC rule does not require an offsetting liability for gold to get a zero risk rating.
    Jun 20, 2012. 01:27 AM | 2 Likes Like |Link to Comment
  • What Happens To Precious Metals And Bank Stocks In A Post-Euro World? [View article]
    I should qualify what I just wrote, because we probably would have had a small housing "bubblelet", even if the Fed had been limited to setting interest rates only for New York. The Federal Reserve Politburo (a/k/a FOMC), probably erroneously set a rate too low even for highly developed regions of the northeastern USA.
    Jun 7, 2012. 09:32 AM | Likes Like |Link to Comment
  • What Happens To Precious Metals And Bank Stocks In A Post-Euro World? [View article]
    No. We are well served by fiscal union. We need the United word in the name "United States" as much as the Europeans need the Union word in European Union. But,
    Central Bank planning, and issuance of irredeemable currencies were not contemplated by the Founding Fathers of the EU or America. Europe might also be well-served by fiscal union in many ways. But, fiscal union will not solve the problem it now faces.

    The problem is the same in Europe as in the USA. The ECB and the Federal Reserve are central banks that use a Politburo-like mechanism to enforce uniform, but often inappropriate, interest rates throughout dissimilar regions. In Europe, a rate appropriate to Germany was applied to Spain. In America, a rate appropriate to New York was applied to Arizona, Florida, Nevada and other states. In both cases, an enormous bubble was blown. Spain, like Arizona, Florida and Nevada needed much higher interest rates. If they had them, from 2000 to 2007, there would have been no housing bubble or collapsing world financial system.

    I am certain that, once the dysfunctional Euro is dealt with, attention will turn to the dysfunctional Federal Reserve Note. The resolution method will be different. The USA will not break up. It is not divided by a long history of political squabbling like Europe. The problem will be resolved, here, by the return of gold into the banking system, to one extent or another, and transformation of the Federal Reserve (if it is continues operating) into a much different institution.
    Jun 7, 2012. 09:06 AM | 3 Likes Like |Link to Comment
  • What Happens To Precious Metals And Bank Stocks In A Post-Euro World? [View article]
    Politics, unfortunately, drive the price of all assets, including precious metals, commodities, and stocks. Political decisions that create public debt, or allow banks to create credit money and create private debt, as well as the choice as to whether or not to print more fiat currency to pay that debt, drives precious metals prices. The price of the product has a more direct and fundamental effect on PM company balance sheets, and stock prices, than anything else.
    Jun 7, 2012. 12:37 AM | 10 Likes Like |Link to Comment
  • What Happens To Precious Metals And Bank Stocks In A Post-Euro World? [View article]
    The death of the Euro does not equal the death of the former member nations of the Euro zone. It simply means a large (perhaps huge) setback. But, all the current Euro nations had people living, working and buying things before the Euro, and will have the same situation afterward.

    The BRIC nations do want the biggest markets for their goods, services and commodities possible. It is very useful to export goods to markets that are ready and willing to pay for them. But, to spend your own money to subsidize a market in order to have a place to sell something? That is not a very smart thing to do. They are better served, if spending hundreds of billions of reals, rubles, yuan etc. to spend it on their own economies, internally stimulating demand, and they know it.

    The Euro zone is dysfunctional and must end at some point. European governments and politicians certainly will engage. The Euro will go the same way as its 19th century predecessor, "Latin Monetary Union". As I remember, it was the tiny Vatican state that started that collapse. So, the experiment will end, one way or the other, after the politicians exhaust all their energies.

    If the ECB start printing more heavily, and it will require about 3x as much printing as America requires, the end will be delayed by many months, if not years. That delay will come at the cost of heavy inflation. When the people object to this situation vehemently enough, the experiment will end, for if it does not, this entire situation will repeat itself, not too far in the future.
    Jun 7, 2012. 12:16 AM | 8 Likes Like |Link to Comment
  • Will Spain Leave The Eurozone? [View article]
    Kvatchik, we will see a "reset" button effectively pushed. It will be a situation analogous to the former Soviet Union, after the fall of "communism". Those who don't prepare now, will become poor for a while. Others will become richer as a result of the changes. The vast majority of good people, however, who do their jobs and pay little attention to economics are likely to get walloped by the long term effect of the poor policy choices that have already been made by the leadership.

    It did not have to be this way, but, now, not even a shift to a free gold standard would stop it. Such a shift would only prevent future huge booms and subsequent catastrophic busts. But, all is not negative There are some big positives.

    New shale fracking technology has brought down the price of natural gas tremendously and made energy cheap in America. Once we adjust to using more of it, this will result in dramatic reduction in the importation and price of both oil and gas, at least after inflation is accounted for. The previous very high cost of energy has been a huge drag on western economies.

    The interconnectedness of the internet is another big plus. Yes, it may allow some high value US jobs to filter overseas. But, the web also allows ideas to spread and be utilized at a very fast rate. Americans are somewhat good at developing technical theories, but exceedingly good at taking the theories developed elsewhere, and putting them into practice in the form of useful products.

    Labor costs for the "impoverished" masses will probably be considerably lower, after inflation, than now, but still higher than other nations. Nevertheless, cheaper labor, combined with the spread of concepts by the web, and the ultra-cheap energy available in the USA and Canada, are likely to result in a lot of the manufacturing of the new products in North America, especially the USA.
    Jun 3, 2012. 04:48 AM | 1 Like Like |Link to Comment
  • Will Spain Leave The Eurozone? [View article]
    An excellent question. Many choose to ignore reality because it is in their interest to do so. This is especially true of the major names in economics, whose employment and income depends on not seeing reality.

    On the other hand, many powerful folks in the financial world see exactly what you see. Their "problem-solving" policy choice is inflation and monetary debasement, hidden inside bureaucratic gobble-de-gook and faux deflationary scares.

    Essentially, they are intent on sticking long-term savers and bond buyers with the bill that results from the excesses of bankers and politicians. As we have seen, that is the quasi-official solution.
    Jun 2, 2012. 08:41 AM | 2 Likes Like |Link to Comment
  • Will Spain Leave The Eurozone? [View article]
    I will say one more thing, Klarsolo, before I give up on you. A transcript from the Pujo Commission of 1911, which was investigating banking trusts, tells us a lot. Here is an exchange between famous banker JP Morgan, and the commission lawyer, Samuel Untermyer, when Morgan was being cross-examined. The exchange went as follows, in pertinent part:

    Untermyer: Is not commercial credit based primarily upon money or property?
    Morgan: No, sir. The first thing is character.
    Untermyer: Before money or property?
    Morgan: Before money or anything else. Money cannot buy it ... a man I do not trust could not get money from me on all the bonds in Christendom.

    The current irredeemable money system is designed to endlessly bailout financiers. It does so to the benefit of persons of bad character at the ultimate expense of users of the currency. By preventing financiers from failing, it insures that men of bad character dominate the economy. Extreme risk-taking pay off while extreme losses are paid by the innocent, by means of long-term currency debasement.

    Persons of weak and bad character thrive under the current regime, while persons of good character suffer. The winners are persons to which JP Morgan would never had made a loan!

    Under the present system, such persons infect all levels of the economy, from the biggest banks to the supposed government "regulators". We do not need more regulation. We need more persons of good character to take the reins of power.

    The capitalist system does not function properly under the current conditions, which is why the world economy is falling apart. Such conditions do not create long-term prosperity, but merely the illusion of it, which will always be swept away amidst a sea of instability and hardships suffered by the innocent.

    That is how we end up in the current insufferable situation. The "free gold" standard remedies this, without a return to the old style of gold standard that uses government to maintain some sort of artificial set conversion rate between gold/dollar, silver/dollar, silver/gold, gold/yen, gold/yuan, etc. convertibility.
    Jun 1, 2012. 03:59 AM | 3 Likes Like |Link to Comment
  • Will Spain Leave The Eurozone? [View article]
    In the article, I noted that gold is probably not the answer for Spain, at this point in time. It would have been the answer years ago, however, and may be the answer in the future once the situation stabilizes, and after larger more economically powerful nations, like the USA, lead the way into the "free gold" standard era.

    There seems to be a lot of confusion between the EU and the Euro. Spain was growing very fast after entry to the EU but BEFORE entry into the European Monetary Union (EMU). History shows that it was not growing nearly as fast, nor was it particularly prosperous during the Franco era. Upon entry into the EU, in fact, Spanish income and per capita GDP were far below the levels of other western European nations, even though, in many cases, its history as a unified national economy has been longer.

    Entry into the EU is not the same as entry into the Euro zone. Staying in the EU is just as essential for long term Spanish prosperity as exiting the Euro zone. The UK, Denmark, Sweden and many other countries are in the EU but not in the Euro zone.
    Jun 1, 2012. 03:08 AM | Likes Like |Link to Comment
  • Will Spain Leave The Eurozone? [View article]
    Klarsolo, if you actually studied the history you are quoting, you would know that the recessions of 1893 and 1907 were tiny blips on the radar screen. They were both normal contractions that facilitated the creative destruction process of capitalism. The "Panic of 1907", for example, lasted about a year and was mainly painful only to the financial class.

    History proves that living standards, for America as a whole, improved dramatically, from 1908 to 1913. Meanwhile, the current Financial Crisis has lasted 5 years, since 2007, and seems to have no end in sight. The economic contractions under the gold specie standard do not compare to the Great Depression, Great Inflation and the current Financial Crisis.

    I might add, yet again, that under the "free gold" standard, you can have, and the Federal Reserve can continue to excrete for you and people like you, as many irredeemable Federal Reserve Notes as it chooses to print. It can set whatever interest rates it thinks are appropriate, for those who make the free choice to use its excretions as "money". But, those who disagree with the current system would have the right to opt out of participation by turning to gold and, perhaps, other precious metals.

    You close your mind to both logic and reason, do not adequately research history you cite, and, as a result, proffer empty arguments for the retention of a failed monetary system, regardless of how badly it performs. Accordingly, expending further time in discussion is not justified.
    Jun 1, 2012. 03:01 AM | 2 Likes Like |Link to Comment
  • Will Spain Leave The Eurozone? [View article]
    Yes. Let's call it a "free precious metals" standard. Both platinum and silver should probably be made legal tender also. Anyone choosing to use them, over gold, would need to consider the volatility that dual use in industry causes.

    A government agency should inspect and assure the purity of privately minted gold, platinum and silver coins, and audit storage vaults. Beyond that, the government should stay out of the precious metals money business. Federal Reserve Notes can and should continue to be legal tender, even after precious metals also become legal tender. They can stay irredeemable and the FOMC can continue to set interest rates, same as now, for anyone who still wants to use them.

    Diamonds can be made in factories and would be not much more useful than irredeemable paper money for that reason. Making diamonds legal tender would not solve any problems. Accordingly, there is no reason to do so.
    May 31, 2012. 04:25 PM | Likes Like |Link to Comment
  • Will Spain Leave The Eurozone? [View article]
    Spain is a low-growth economy at this moment, but that was not the case before. It is a low-growth economy only because of the fact that the economy has been torpedoed by the collapse of a runaway housing bubble. Prior to being hit by the torpedo, and before the housing bubble, it was a young democracy, with ultra high-growth.

    The ECB did vastly expand the Euro money supply during the years in question, though it does not compare to what the Fed was doing through the same period, and certainly nothing compares to what has been done since 2008. A central bank must expand the money supply in order to keep rates at the desired level that the Politburo-like committee sets. They do this by engaging in what are called "open market operations", buying and selling bonds. Such operations differ from overt quantitative easing only in the sense that open market operations are designated as "loans" to banks. Theoretically, they must be paid back someday. In reality, billions and billions of dollars worth of open market operations were endlessly renewed, and the money supply endlessly expanded. They were never paid back, by the Fed's primary dealers, for example, until overt money printing (QE) provided new money to do so.
    May 31, 2012. 04:11 PM | Likes Like |Link to Comment