gold: sierra madre time

Good news? Bad news? Or just another chapter in the power struggle between nations. Is this a kind of replay of 1933 when Roosevelt confiscated gold; all  private gold that was in the possession of American citizens had to be turned over to the Federal Reserve Board, the centralized banking warehouse of the Western financial system. The result would be a massive devaluation of the dollar. This confiscation of personal gold stores was resisted by many  in America and around the world as well as many Asian families; It can be considered as one of the catalysts that helped kick-start the onset of World War II and reveals the role of gold in world politics. Is paper currency a sham that could crash and burn, and are even gold certificates a derivative product, without the assets to give them credibility? Maybe some things have not changed too radically since King Solomon’s time….

( see link at end) …It’s because Germany, it appears, wants to make gold the effective currency of the euro zone before the region plunges to the bottom of the seas like a concrete U-boat.

The weakest euro zone countries are tapped out financially and economically. But a few of them are brimming with gold reserves. Take Italy, the euro zone’s third-largest economy. The Italians love gold and it’s stashed everywhere, in their central bank and in their jewellery and safe deposit boxes. At last count, the central bank had 2,451 tonnes of gold, valued at close to €100-billion ($128-billion). That’s not a fortune compared to Italy’s €1.9-trillion national debt, but it’s not bad when Rome is raiding the pantry to pay its ever-rising debt….

---James Rickards:Asian and Russian central banks tend to be the ones buying gold as they do not hold enough relative to the size of their economies and paper money supply. For all its faults, the U.S. has 8,000 tons of gold. China, which has an economy almost half our size and a money supply larger than ours, only has officially a little over 1,000 tons of gold. They have a fraction of our gold for an economy half as large. Clearly, the U.S. is a gold giant while China is a gold pigmy. If I were China, I would be buying all the gold as fast as I could. The problem comes with the market impact of the strong demand. You want to operate by stealth to avoid bidding up the price. You should operate by using agents, banks and other intermediaries to buy the gold for you so the market does not know it is you. It is a delicate game, and I do not blame the Chinese for playing it like they do. I think the central bank buying is not a contrarian indicator, but a very bullish indicator. The people who are buying are the people who do not have enough gold to begin with. They are trying desperately to increase their gold reserves to support the paper money supply. This tells me they think at some point the paper money system will break down.--- Read More: image:

…Germany’s idea is coyly named the European Redemption Pact and it is nothing if not creative. While details are scant, here is roughly how this gilded baby would work. Countries with debts greater than 60 per cent of gross domestic product – the (ignored) limit under the European Union’s Maastricht Treaty – would transfer those debts into a redemption fund, which would be covered by joint bonds. The scheme has been called “euro bonds lite.”…

---China is not seeking after G2, but is willing to build C2, or the two in coordination with the US,” said Chinese State Councilor Dai Bingguo, who is also special representative of President Hu Jintao co-chairing the unfolded fourth round of Sino-U.S. Strategic and Economic Dialogue (S&ED). China and the US will not seek to co-dominate the world or cultivate only the bilateral ties, albeit the increasingly visible importance, but we can be the two in coordination bent on more communication, coordination and cooperation, Dai was quoted as saying on Wednesday, one day prior to the annual talks. His remarks coincide with the call of the Sino-U.S. S&ED for both sides to explore new model of peaceful coexistence , close cooperation and common development. Dai said under new circumstances, China and the United States should promote constructive interactions in Asian-Pacific region as both are of great influence over the region.--- Read More: image:

…Here’s the catch. Countries using the scheme (most would, including Germany, because of generally high debt-to-GDP ratios) would have to cover 20 per cent of their debt with collateral, payable in gold or currency reserves. Default on the payments and you lose your gold. The “sinking” fund would retire the debt over 20 years.

Italy set the precedent in the 1970s, when it was in the midst of one of its blandly regular financing crises and resorted to a gold-backed loan. The loan was quickly paid off, because there was so much political pressure to do so. If the finance minister had forfeited the Italian family jewellery, the entire government would have been embarrassed and humiliated, then turfed from office.

There’s a lot to like about the European Redemption Pact, politically and economically, and a lot not to like if you’re worried that this German-inspired fund is the mother of all potential loot grabs.

On the positive side, the gold bricks are piled up like Lego in central bank vaults. They are unpledged and devaluation-proof, meaning the gold-backed loans would be ultra-cheap – probably 1 per cent. Politically, a gold-backed loan is defensible, in the sense that it’s cheap. The alternative is trying to flog sovereign bonds at crippling yields – 5 to 7 per cent. That, in turn would mean ratcheting up the austerity programs in an attempt to restore enough investor confidence to bring yields down.

The downside, of course, is potential default, which would mean transferring a huge chunk of a country’s hardest, most gorgeous assets – and hence economic power – out of the country. You would have to presume, howeve

hat any country would be ultra careful to make sure it gets the gold back, as Italy did.

The political consequences of the European Redemption Pact are one thing; what the gold-backed loans say about the common currency is quite another. The underlying message is not pretty. Germany, the supervisor of the pact and presumed inheritor of the gold if the loans are not repaid, seems to be saying: We don’t trust the euro as it is; it’s too weak, so give us a stronger gold-backed euro. Doubts about the health of the euro only increased on Friday, with more reports that Spain would formally seek a European bailout for its gutted banks as early as this weekend.

If the ailing European countries accept the gold deal, it would strengthen the euro. If they were to reject the deal, it would hurt the euro. Why? Because rejection, in effect, would state that they can’t muster the fiscal discipline to ensure they get their gold back….

---Chinese auction houses are now selling works at a pace formerly associated with those in London and New York. One company that tracks the fine-art market, Artprice, reported that they were responsible for some $8.3 billion in sales, which would make them the world leader. “We have seen exponential growth by mainland Chinese buyers who were brought up during the Cultural Revolution,” said Henry Howard-Sneyd, Sotheby’s vice chairman for Asian art. “These are successful business people with huge amounts of money at their disposal.” ---Read More:

The European Redemption Pact is a psychological biggie. If it were to happen, it would say that gold is a key central bank reserve and that it can be an effective crisis management tool.

Two questions. If Europe goes for the gold-backed deal in an effort to save its sorry butt, what does this say about the credibility, or lack thereof, of fiat currencies around the world? And would it save the euro from extinction? Desperate times require desperate measures. We can all agree the euro is a pig. A pig stuffed with gold is an entirely different beast.Read More:


( see link at end) …planned wealth distribution and resource allocation, struggle for elimination of economic and political inequalities and class privileges, utilization of human potentials, dominance of the interest of the immediate producers at the workplace and of working people in all spheres of society including control over politics and ideas. Secondly, a Dengist China that is returning to market capitalism based on privatization of ownership, marketization of the means of production and resource distribution, acceptance of economic inequities and political privileges, emphasis on science and technology as the primary productive forces, promotion of the interests of the privileged, professional and entrepreneur classes, and commercialization of welfare and social security benefits.

---... the People's Republic of China, who consider the recent trouble in Tibet to be a result of agents of the Dalai Lama, and those who see the exiled spiritual leader as a source of calm and reason in the current Tibetan crisis, a new voice has emerged in support of the recent Chinese crackdown in the Tibetan capital of Lhasa and neighboring provinces... "One only has to look at the violent protests taking place all over the globe by and for Tibetans to grasp the futility of thinking that religious nationalism can promote peace. Mao was right - religion is poison. His tactics and his policies were abhorrent, but philosophically he was quite correct..." Hitchens has previously been critical of the fourteenth Dalai Lama on a number of issues, from claiming that the Tibetan political and spiritual leader has supported India's testing of nuclear weapons to his association with Shoko Asahara, the leader of a group that released toxic nerve gas in the subways of Tokyo... Richard Dawkins and Daniel Dennet have come out in support of Hitchens' position, admitting that while the political and economic structures of Communism had proven too vulnerable to abuses of power, Communists may have gotten it right on how to deal with religion.---Read More: image:

…This historical transformation from Mao to Deng represents a sharp departure from the past as to national objectives, political agenda, economic development, and, more importantly, ideological convictions. In the era of Mao’s socialism, depending on how one assesses its successes and failures, China was characterized by a historically unique experiment to skip over the stage of capitalism and to bring about a socialist transformation of both the social structure and the consciousness of its people in ways that defied conventional ideological and political norms in established capitalist as well as socialist states. In the current era of Dengist market socialism, China is undertaking a modernization process by embracing capitalist practices, while at the same time incorporating itself into the existing world system. The profound differences between revolutionary socialism’s emphasis on state ownership and welfare, collectivism and egalitarianism and market socialism’s increasing capitalist characteristics: privatization, marketization, class polarization, regional disparities and increasing inequality, have brought about serious contradictions which will have to be tackled sooner or later.

It is observable that events and changes taking place in China since 1976 have resulted in a situation in which the history that my generation
had learned and experienced is being totally rewritten: the Chinese Revolution (1921–1949), which founded the new China, has been assessed by radical reformist intellectuals as a mistake which prevented China from becoming as “developed” as major Western industrial powers. Mao
Zedong, who used to be praised as a great leader, is criticized by them as a “dictator” who created only disasters and was responsible for China’s
backwardness. “Mao Zedong Thought” is often described as being political “madness” or “irrationalism.” The cult of Mao is now viewed as “proof of the persistence of the traditions of oriental despotism or a manifestation of The Chinese Cultural Revolution Revisited  feudal-fascism,” and the Cultural Revolution (hereafter the CR), which not long ago was widely praised as an innovative and revitalizing socialist alternative for China’s development, is described as a “ten year disaster” that was responsible for causing a political and economic catastrophe and for the severe setbacks and the heaviest losses suffered by the party and the country. Chinese socialism, which a short while ago was seen as a revolutionary model worldwide and as an ideological menace by both the US and the USSR, is deemed to be a failure for delaying China’s catching up with the advanced nations, and the history of socialism in China has been “little more than a story of impractical, utopian dreams born from conditions of backwardness.” Read More:

This entry was posted in Feature Article, Ideas/Opinion and tagged , , , , , , , , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>