DoChenRollingBearing
Yellow Jacket
@ PMBug #74,
Hey, Syria! Sell your gold cheap to me!
Hey, Syria! Sell your gold cheap to me!
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An Iranian trade delegation to India has sealed deals to buy shipments of rice, sugar and soybean from the South Asian country, as part of a plan for Tehran to use such pacts with India to get around U.S. financial sanctions on its oil shipments.
India has been unable to pay in full for Iranian oil imports because tightened U.S. sanctions have made it difficult to access U.S. dollars for transactions with Iran. Instead, Iran has agreed to accept payment in Indian rupees and sent a trade delegation to India this week to look for goods to buy with the money it earns. ...
http://online.wsj.com/article/SB10001424052702304070304577393671154450382.html?mod=googlenews_wsj
India isn't kowtowing to American demands.
Yesterday’s big news as far as gold was concerned was a Telegraph report stating that Germany could be about to get into the “cash for gold” business in a big way. Angela Merkel is said to be increasingly favourable to the idea of countries pooling a portion of their sovereign debt into a redemption fund, with the eurozone then taking on a collective obligation to honour this debt. Member states would be obliged to pledge gold and currency reserves as collateral in case they are unable to make good on their obligations.
This so-called “European Redemption Pact” gets around German courts' constitutional objections to “Eurobonds”. It would also allow PIIGS governments to in effect share “Germany’s credit card”, thus lowering borrowing costs in the eurozone periphery and so taking the pressure off of embattled governments in Spain, Greece, Italy and elsewhere. And a big plus point as far as Germany is concerned is that this is no free lunch: if countries cannot honour their commitments, then they will lose their collateral.
But of course, things are never as simple as that. The fly in the ointment here is the always-emotive subject of gold, with many in southern Europe sure to object to the idea of pledging their gold to such a venture. Italy’s sovereign gold reserves stand at 2,451 tonnes – worth €98 billion as of March – while France sits on a hoard of 2,435 tonnes, and Portugal 383 tonnes (Portugal actually owns around 72 tonnes more then the European Union’s second largest economy, the United Kingdom). Having thus far resisted pressure to sell gold in order to shore up state finances, many in these countries will no doubt be wary of this EU take on a “cash for gold” shopping mall kiosk.
This idea bears close attention. If it looks like taking off, it will be yet another indicator that gold is slowly but surely re-entering the financial calculations of governments around the world.
Japan and China will start direct currency trading this week, Tokyo said Tuesday, the first time Beijing has let a major unit other than the dollar swap with the yuan.
The move, which will scrap the greenback as an intermediary unit, comes as China introduces measures as part of a long-term goal of internationalizing its currency to rival the dollar.
The two-way trade will also be allowed to move in a wider range than the narrow band at which the dollar and yuan change hands, Dow Jones Newswires and the Nikkei business daily reported.
China will set a daily rate based on dealer quotes with trade allowed to move within a 3% band above or below that rate, the reports said, compared with a 1% band fixed to yuan-dollar trading.
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Kazakhstan's central bank plans to boost the share of gold in its gold and foreign currency reserves to 20 percent from 14-15 percent, deputy bank chairman Bisengali Tadzhiyakov said on Wednesday.
Tadzhiyakov, who gave no time frame for the move, said last week Kazakhstan planned to buy 22 tonnes of gold from local producers, which at that time he estimated would boost the share of the metal to 15 percent from about 12 percent.
"We will buy from Kazzinc corporation 20 tonnes (of gold) in 2012, and a further 4.5 tonnes from Kazakhmys," he told journalists on Wednesday, reading out updated figures from his report prepared for presentation in parliament.
"The total volume is 24.5 tonnes."
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Brazil and China will sign an agreement in the coming weeks to swap as much as $30 billion in their two currencies, Brazil Finance Minister Guido Mantega said.
The currency swap, worth 60 billion reais or 190 billion yuan, will be the first step in a broader agreement with Russia, India and South Africa to allow members of the so-called BRICS group of emerging markets to pool resources to better weather the global financial crisis, Mantega told reporters yesterday in Rio de Janeiro.
The agreement, which was discussed this week by leaders of the BRICS at a Group of 20 summit in Mexico, marks another step in a deepening trade between the world’s two largest emerging markets. China overtook the U.S. in recent years to become Brazil’s biggest trading partner, though Mantega said yesterday that the $76 billion in bilateral commerce last year, 17 percent of Brazil’s total, is just the beginning.
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SANTIAGO, June 26 (Xinhua) -- China and Chile agreed Tuesday to upgrade their bilateral ties to a strategic partnership, and double trade in three years.
Chinese Premier Wen Jiabao and Chilean President Sebastian Pinera announced Tuesday the establishment of China-Chile strategic partnership and the completion of negotiations on investment-related supplementary deals to a bilateral free trade agreement.
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Meanwhile, Wen suggested that the two sides launch currency swaps and expand settlement in China's renminbi.
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Australia is seeking to deepen trading between the local dollar and the yuan as demand for commodities drives exports to China to record highs.
The yuan's internationalisation “is clearly in the interests of Australian businesses and the broader Australian economy,” Treasurer Wayne Swan, who will co-host a forum on the matter in Hong Kong next week, said today in a statement. “Both governments are very keen to see us deepen and broaden this important market.”
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... In July, Chinese gold imports from HK, after two months of declines, have picked up once more and hit a 3-month high of 75.8 tons. While it is notable that this number is double the 38.1 tons imported a year prior, and that year-to-date imports are now a record 458.6 tons, well over four times greater than the seven month total in 2011 which was 103.9 tons, ...
... the deputy director of the Chinese central bank, the PBOC, said overnight at a conference in Xiamen. What he said is that the financial crisis has shaken confidence in the U.S. dollar. We knew that. What he added is that the sound performance of China’s economy during the crisis boosted demand for yuan. This was also more or less known, although with the Yuan peg it is somewhat difficult to determine objectively. It is what he said last that is most important: "The financial crisis that started in 2008 has provided China with a good opportunity to promote the yuan as a global currency."
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Guido Mantega, Brazil’s finance minister, has warned that the U.S. Federal Reserve’s “protectionist” move to roll out more quantitative easing will reignite the currency wars with potentially drastic consequences for the rest of the world.
“It has to be understood that there are consequences,” Mr. Mantega told the Financial Times in an interview on Thursday.
The Fed’s QE3 program would “only have a marginal benefit [in the U.S.] as there is already no lack of liquidity . . . and that liquidity is not going into production.”
He said it was instead depressing the dollar and aimed at boosting U.S. exports.
As finance minister under President Dilma Rousseff and former president Luiz Inácio Lula da Silva, Mr. Mantega has watched Brazil’s economy move from confident boom to near-stagnation this year.
He cited Japan’s decision this week to expand its own QE program, coming on the heels of the Fed’s decision to launch further QE last week, as evidence of growing global tensions. “That’s a currency war,” he said.
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Deutsche Bank’s report is “Gold: Adjusting for Zero.” It reckons we’re in a situation that is “Zero for growth, yield, velocity and confidence.” It says: “We believe there are nearly zero real options available to global policy-makers. The world needs growth and is willing to go to extraordinary lengths to get it.” It forecasts bluntly that the value of the dollar will plummet in the first half of 2013 to less than a 2,000th of an ounce of gold. It reckons “the growth in supply of fiat currencies such as the USD will remain an important driver.”
That’s just for openers. The report then goes on to assert that gold is misunderstood and doesn’t really belong in the basket of “commodities” used by so many economists. Gold is money, according to the Deutsche Bank. Says it: “We would go further however, and argue that gold could be characterised as ‘good’ money as opposed to ‘bad’ money which would be represented by many of today’s fiat currencies.” It refers to Gresham’s Law and suggests “the undervalued money (good) will leave the country or disappear from circulation into hoards, while the overvalued money (bad) will flood into circulation.”
There follows a discussion that would make Ron Paul blush, though it doesn’t mention the congressman who, with the businessman scholar Lewis Lehrman, has been pushing this issue all these years. Deutsche Bank notes that discussion of the gold standard has become a common theme, a development that “says much about the change in attitudes by investors, many who would have ridiculed the mere mention of such a thing as little as five years ago.” It suggests the talk “perhaps gives a hint as to the desperation of investors.”
In any event, the Deutsche Bank concluded that “[w]hile a gold standard could work,” it remains skeptical that it will be considered. This is owing to what it calls the power of culture. “The world economy has, over the past century, morphed into a highly integrated, government dominated system guided by conventional wisdom (group think),” says the Deutsche Bank. “The self-reliant, individualism of the free market has been left behind in favor of a ‘new age’ of coddled consumerism. Culturally this represents a very powerful force in our view, one which minimizes creative options/solutions to economic impasses.”
* * *
What startles us is that this is being issued by the one of the world’s major banks. It was brought to our attention by James Grant of the Interest Rate Observer, who says when he read it, he could have been knocked over with a feather. For his part, your editor remembers the way gold was dismissed by the then president of the Bundesbank, Karl Otto Poehl, when your editor met with him in Frankfurt. That was a generation ago. When pressed, Herr Poehl suddenly exclaimed that Germany was the second biggest gold holder in the world. It still is, according to one of the many nifty charts in the Deutsche Bank’s “Gold: Adjusting for Zero.” This gives rise to the thought that if America is not going to lead on monetary reform, Germany is in a position to do so. ...
Dr. Cole told Business Insider that the problem created by Ahmadinejad's policies is one of simple economics:
The increased money supply will cause prices to go up, which will eat away the value of the subsidies, and so forth. So, how you get that extra money that the government has to the people without causing hyperinflation is a really tough problem, because the healthy way for an economy to have more money in it would be an increase in productivity.
But there isn't any increase in productivity, it's just an increase in money coming in from the outside. So, that subsidy policy that Ahmadinejad kind of buying people's votes, and so forth, by giving out money, that has caused this inflation.
Read more: http://www.businessinsider.com/actually-there-is-no-hyperinflation-in-iran-2012-10#ixzz28j0OM52Y
Reform of the International Monetary and Financial System
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While the missing markets, imperfect information and nominal rigidities frictions can be tackled — at least in part — by actions taken by individual countries, international policy initiatives will also be needed. This is particularly true for the missing markets and imperfect information frictions, where improved FSNs, co-ordinated efforts to close data gaps and international co-operation on the financial regulatory reform agenda should all be encouraged. While international policy initiatives would also be required to tackle international institutional frictions, the feasibility and/or desirability of doing so is unclear, and it may be preferable to focus international co-ordination efforts on other areas.
Although there is much progress that could be made from efforts to deal directly with the frictions, it is unrealistic to expect to eliminate these frictions altogether. It is therefore necessary to develop a mechanism to deal with the externalities that are a consequence of these frictions — a process which will require more active international policy co-ordination. International co-ordination through the G20 Framework for Strong, Sustainable and Balanced Growth is an important attempt to develop such a mechanism. The Framework is designed to identify and resolve policy inconsistencies among systemically important countries, and if it functions as intended, could result in significantly better global outcomes.
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Under the Gold Standard, the money supply was linked to the availability of gold. Countries with current account surpluses accumulated gold, while deficit countries saw their gold stocks diminish. This, in turn, contributed to upward pressure on domestic spending and prices in surplus countries and downward pressure on them in deficit countries, thereby leading to a change in relative outlays and prices that should, eventually, have reduced imbalances. The credibility of countries’ commitments to pursue this passive monetary policy approach was underpinned by the fact that central banks were under little pressure to help minimise unemployment or to pursue other potentially conflicting domestic objectives at the time (Eichengreen (1996)). There was no formal mechanism to force countries to adjust their domestic policies under the Gold Standard. Instead, they did
so out of convention.
Net capital flows tended to be large under the Gold Standard (Chart 1). However, passive domestic monetary policy responses meant that they were not accompanied by large cross-country policy inconsistencies and so did not pose the same threat to global financial stability as those of today. Table A below, which presents a range of summary statistics on the performance of different IMFS regimes, shows for example that the incidence rate of banking and currency crises in the Gold Standard was much lower than in today’s system. Of course these summary statistics should be treated with caution, as the variables included will also have been influenced by a wide range of third factors — such as globalisation, financial liberalisation and regulation.(1)
The direction of net capital flows during the Gold Standard seemed broadly consistent with the efficient allocation of capital across countries. In particular, these imbalances were associated with ‘downhill’ flows of capital from the older, advanced economies in Europe to more productive opportunities in the younger, fast-growing economies in Asia and the Americas (Kenwood and Lougheed (1999)). Further, private sectors played the dominant role in these capital flows, which is consistent with the notion that economic fundamentals were at work.
Overall, the Gold Standard appeared to perform reasonably well against its financial stability and allocative efficiency objectives, while the internal balance objective was of secondary importance. But the effective sacrifice of this latter objective was the undoing of the Gold Standard, as growing recognition of the need to pursue domestic policy objectives (most notably, to respond to rising unemployment) and achieve internal balance eventually undermined the credibility of the restored Gold Standard in the interwar period. Against the backdrop of increasing concern about domestic objectives, political disputes over war reparations meant that central bank co-operation was not forthcoming when Germany faced a banking crisis in 1931, eventually triggering the collapse of the system (Eichengreen (1992)).
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Forbes said:... what really occurred to contaminate the gold standard’s reputation, keeping it off the policy table for 80 years — longer than even Goldfinger’s ambitions. The contaminating events produced an intellectual trauma that brings economists such as Obama adviser Austan Goolsbee to tweet such nonsensical doggerel as “Roses are red. Violets are pink. Don’t listen to goldbugs. No one cares what they think.”
Goolsbee, along with dogmatic reactionaries such as Paul Krugman, studiously ignore the implications of the utterly damning critique of the fiduciary currency system by The Bank of England last December in its paper titled Reform of the International Financial System. Meanwhile, outside the self-referential Cult of Neo-Keynesianism, in the past two years a dramatic shift in the international elite opinion stream is bringing the gold option back into consideration.
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Printing Money – Price of Gold – Preservation of Wealth
October 9th, 2012 by admin golds
by Egon von Greyerz – October 2012
1. Worldwide money printing continues unabated
2. Just In 10 years $120 trillion have been printed making global debt $200 trillion
3. World GDP has gone from $32 trillion to $70 trillion 2001-2011
4. Thus $120 trillion debt is required to produce a $38 trillion annual increase in GDP
5. The marginal return on printed money is negative in real terms
6. Thus the world is living on an illusion of paper that people believe is money
7. This illusionary paper wealth will implode in the next few years
8. The initial trigger will be the collapse of the world’s reserve currency – the US dollar
9. The dollar is backed by $120 trillion of US government debt and probably NO gold
10. All currencies will continue their race to the bottom and lose 100% in real terms against gold
11. This will create a worldwide hyperinflationary depression
12. All assets financed by the credit bubble will go down in real terms
13. This includes stocks, bonds, property and paper money of course
14. The financial system is unlikely to survive in its present form
15. The banking system including derivatives has total liabilities of around $1.2 quadrillion
16. With world GDP of $70 trillion, the world is too small to save a financial system which is 17x greater
17. This is why there will be unlimited money printing and hyperinflation
18. The only asset that will maintain its purchasing power is gold Click here for chart
19. Gold has been money for 5,000 years and will continue to be the only currency with integrity
20. Western countries’ 23,000 tons of gold is probably gone. See recent article by Eric Sprott.
21. The consequence is that most of the gold in the banking system is likely to be encumbered
22. This means that Central Banks one day will claim it back against worthless paper gold IOUs
23. Thus gold and all other assets within the banking system involve an unacceptable counterparty risk
24. Gold should be held in physical form and stored outside the banking system
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Soros wants to devalue the dollar and see it replaced as the world's reserve currency with a new currency system. In the Rose interview, Soros referred to the reserve status of the dollar in the past tense, as if its demise was already a done deal. ...
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It is unlikely that Soros could collapse the dollar by himself. Nonetheless, he has consistently shown that he can take advantage of economic instability to make billions, while causing the collapse of whatever currency he attacks. And, right now, Soros isn't the only one calling for the demise of the dollar as the world's reserve currency. ...
Germany and China plan to conduct an increasing amount of their trade in euros and yuan, the two nations said in a joint statement after talks between Chancellor Angela Merkel and Chinese Premier Wen Jiabao in Beijing on Thursday.
"Both sides intend to support financial institutions and companies of both countries in the use of the renminbi and euro in bilateral trade and investments," said the text of the statement.
It also said that both parties welcomed investments in China's interbank bond market by German banks and supported the settlement of business in the yuan by German and Chinese banks and the issuance of yuan-denominated financial products in Germany.
Gold has soared past coal as Australia's second most valuable physical export to China, with sales up a whopping 900 per cent for the first eight months of the year, bringing in $4.1 billion.
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Where there were notable developments was in the composition of buyers of US paper, which showed that for yet another month, there has been virtually no buying interest in US paper by the biggest non-Fed holder: China, whose total TSY holdings were $1,154 billion, down $12 billion since the beginning of the year, and down a whopping $125 billion from a year ago. Ironically that other massively indebted country, Japan, which has Y1 quadrillion in its own public debt to deal with, for a debt/GDP ratio will above 200%, continues to load up on US paper, as the biggest paper ponzi scheme continues going ever higher and nothing possibly can get in the way. In fact, as the chart below shows, the difference between total Chinese and Japanese holdings has declined to a record low $32 billion, and will likely see Japan surpass China as the biggest holder of US paper very soon. ...
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According to Barry P. Bosworth, a senior fellow at the Brookings Institution, our two biggest foreign creditors are Japan and China.
Although it may seem as though our debt to these countries renders us a puppet on strings, Bosworth says this fear is overblown. The U.S. market is very important to China's economy, so China would be loathe to do anything that might exacerbate tensions or disrupt trade between the two countries. And the same can be said for Japan. China owns $1.15 trillion of U.S. government debt -- more than any other country -- but U.S. taxpayers actually owe less money to China compared to recent years. China holds 10% of U.S. Treasuries, down from 12% two years ago.
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Wang Xiaotan, China Daily, October 26, 2012
The exchange rate of the yuan hit a 19-year high as it traded at 6.2417 yuan per dollar. Analysts claim that the International Monetary Fund and World Bank’s annual meetings and the American presidential debates contributed to the rise in the value of the yuan. According to a survey conducted by HSBC 77 percent of Chinese companies expect one-third of all Chinese trade to be conducted in the yuan by 2015, and 30 percent plan to use the yuan in investment related activities in the next 12 months. An economist at the Bank of China said, “it’s uncertain whether their appreciation will continue.”
The Chinese government may add more gold to its reserves as the precious metal accounts for a lower share of total holdings compared with the U.S., according to the London Bullion Market Association.
“When comparing China to the U.S., it would seem that in China, gold asset allocation can only go in one direction,” Chairman David Gornall told the association’s annual conference in Hong Kong. “The country has only 2 percent of its reserves in the form of gold compared with the U.S. at 75 percent.”
Gold is on course for its 12th annual advance, supported by central-bank buying and record holdings in exchange-traded products as investors seek to preserve their wealth from weakening currencies.
Gold is set for a 12th annual gain, supported by central- bank buying and record holdings in exchange-traded products as investors seek to preserve their wealth from falling currencies. The People’s Bank of China hasn’t disclosed any changes to its gold holdings since 2009, when it said they’d risen 76 percent to 1,054 metric tons. While the U.S., Germany, Italy and France keep more than 70 percent of reserves in gold, China’s share is less than 2 percent, according to World Gold Council data.
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Anyone who may have been concerned by the slowdown in Chinese gold imports in August, when the country imported "only" 53.5 tons of gold from Hong Kong (down from 75.8 in July), can breathe a sigh of relief. According to the Hong Kong Census Bureau, in September Chinese gross imports soared by 30% reverting to the long-term trendline of 65 tons in gross imports per month, and rising to a total of 69.7 tons. Net imports were 40% less, although that excludes organic Chinese gold mining and recirculation, which is why for all intents and purposes the gross number is the apples to apples one. And using that, Year-To-Date China has now imported a whopping 582 tons of gold, more than the official holdings of India at 558 tons, and which through November has certainly surpassed the holdings of the Netherlands, and make China's gross imports in just 2012 nominally the equivalent of Top 10 largest sovereign holder of gold.
This way at least we know where China is recycling all that vast trade surplus, which incidentally in October just printed, goalseeked or not, at the highest level - $32 billion - since January of 2009. Too bad China no longer recycles all those excess reserves into US Treasury paper (as we showed previously here).
... on November 8, 2012 Zhang Jianhua, an official of the Peoples Bank of China (the Chinese central bank), stated "The Chinese government should not only be cautious of the imported risk caused by rising global inflation, but also further optimize its foreign exchange portfolio and purchase gold assets when the gold price shows a favorable fluctuation."
Our translation of his central banker speak is… China should buy gold on price declines and not buy so many foreign currency bonds.
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From Bloomberg:...
- China needs to add to its gold reserves to ensure national economic and financial safety, promote yuan globalization and as a hedge against foreign- reserve risks, Gao Wei, an official from the Department of International Economic Affairs of Ministry of Foreign Affairs, writes in a commentary in the China Securities Journal today.
- While gold prices are currently near record highs, China can build its reserves by buying low and selling high amid the short-term volatility, Gao writes in newspaper
- China’s gold reserve is “too small”, Gao says
While gold prices are currently near record highs, China can build its reserves by buying low and selling high amid the short-term volatility, Gao writes in newspaper
...one thing that I definitely DO NOT agree with, is his chart, showing average HOUSEHOLD income, in real terms (adjusted for inflation), versus depreciating dollar. Well all is great, on the chart, only he forgots to mention, that in '70 and earlier, it was Dad who was working in the "household", today it is both Ma & Pa working, most of the time - to make ends met. And I don't even know, if all numerous "government" handouts are even counting as "household income" - I guess they do?Excellent article:
http://www.oftwominds.com/blognov12/USD-correlations11-12.html
If the global reserve currency is printing itself into inflation, how does this affect that country versus the global economy?
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If the global reserve currency is printing itself into inflation, how does this affect that country versus the global economy?
The Australian and Canadian dollars, the world’s leading commodity-rich currencies, are being formally classified as official reserve assets by the International Monetary Fund, marking the onset of a multi-currency reserve system and a new era in world money.
In a seemingly innocuous yet highly portentous move, the IMF is asking member countries from next year to include the Australian and Canadian dollars sampled in statistics supplied by reserve-holding nations on the make-up of their central banks’ foreign exchange reserves. The technical-sounding measure, reflecting growing diversification of the world’s $10.5 trillion of reserves, is likely over time to exert wide-ranging impact on world bond and equity markets.
Expanding by two the list of officially recognized reserve assets from the present five — the dollar, euro, sterling, yen and Swiss franc — signals a new phase in the development of reserve money. For most of the past 150 years, the world has had just two reserve currencies, with sterling in the lead until the First World War, and the dollar taking over as the prime asset during the past 100 years.
Sterling — although still the world’s third reserve currency on IMF figures, just ahead of the yen — has been in relative decline since the Second World War. The birth of the euro in 1999 has turned the European single currency into the world’s No. 2 reserve unit, but it is now officially accepted that the dollar and the euro share their role with smaller currencies.
Enshrining in official thinking a development already evident among reserve managers and on private markets, in a sense, does no more than catch up with reality. However, the IMF step has both practical and symbolic importance and will likely promote further asset diversification among official and private asset managers.
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The USD "dies another day":
(...)The Australian and Canadian dollars, the world’s leading commodity-rich currencies, (...)
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