Friday, June 15, 2012

Will "Coordinated Action" By The Central Banks Be A Revaluation Of Gold?

Quoting W.C.Fields with regard the European press' and politicians' efforts towards investors: "If you can't dazzle them with brilliance, baffle them with bullshit!"

Not all will be baffled, and they will call you on the carpet:

Farage: "The Euro Titanic Has Now Hit The Iceberg"

...and then there are those that will fall hook, line, and sinker for every nugget of disinformation that falls from the lips of the bankers and politicians:

Stocks jumped on Thursday after news major central banks are preparing coordinated action if the results of Greek elections this weekend lead to turmoil in financial markets.

The central banks from major economies will take steps to stabilize markets and prevent a credit squeeze if necessary, Group of 20 officials told Reuters.

"If necessary..."?  So the market rallies yet again on a simple rumor...sigh.


"Coordinated Caction"?  What might that entail were it to occur?

Well first off, I doubt seriously the banks do a damn thing Monday:

Why Joint Central Bank Action Is Unlikely and Won't Work

Speculation that major central banks are planning coordinated action heightened on Friday on a media report that Group of 20 nations are preparing to provide liquidity to financial markets.

But market watchers tell CNBC that this won't happen unless results from this weekend's elections in Greece trigger a "Lehman-type" event, which, they believe is unlikely.

"You will see (global coordinated action) if Greece exits the euro zone and if proves to be a Lehman-type event, and you start seeing a run on the banks across the euro zone," Alastair Newton, Managing Director and Senior Political Analyst at Nomura International, told CNBC on Friday. "You will get action from the Fed and other central banks. But not as it stands at the moment."

Reuters reported on Friday that central banks from major economies stand ready to stabilize financial markets and prevent a credit squeeze should the outcome of Greek elections on Sunday cause panic trading next week. Markets have been volatile this week ahead of this Sunday's elections in Greece, where a victory by the Leftist anti-austerity party Syriza might trigger an exit of the country from the euro zone and spread the turmoil to other financial markets.

U.S. stocks rallied on Thursday on the report, with the Dow Jones Industrial Average and S&P 500 Index both gaining more than 1 percent.

The previous round of easing by the Federal Reserve and European Central Bank (ECB) back in 2008 happened because credit markets basically "froze up" after the collapse of Lehman Brothers, Standard Chartered Bank's Head of FICC (Fixed Income, Currency and Commodities) Research, Will Oswald told CNBC. This doesn't seem to be happening this time round, he said.

"You look at the basis swap market in look at the amount of foreign commercial paper issuance in the U.S., it's all at pretty good levels," Oswald said. "So are you going to get the ECB stepping in right now when the funding markets are not telling us that it's under major stress? It's not a signal at this point."

Even if central banks wanted to come together, it is still not clear that any action will be effective or even possible, because it will not solve the banking crisis in Europe, analysts say. Any solution will need the Europeans to agree on a pan-Europe guarantee on banking deposits, and Germany, the region's biggest economy, is adamant against such a move.

"The real problem is the European Central Bank doesn't have the tools it needs to guarantee the solvency of these (European) banks," Peter Morici, Professor at University of Maryland's Robert H. Smith School of Business, told CNBC Asia's "Squawk Box".

"The Federal Reserve put two trillion dollars into banks. The European Central Bank has to, in a crisis, be empowered to do that by some sort of emergency consensus and take up the role of the Federal Reserve's place in the United States. It simply does not have these powers right now," Morici said.

For any potential coordinated action to work, central banks may need to come up with a far bigger stimulus package than expected, Diane Swonk, Chief Economist of Mesirow Financial said. The ECB and the Federal Reserve have been reluctant to talk about potential action because there are still too many uncertainties "on too many fronts", she added.

"Coordinated effort will require a bigger effect if used to react to, than pre-empt a crisis," Swonk said. "(Central banks) Can't over promise at this stage; [They] don't know what will be needed or if [they] can deliver what is needed."

Don Luskin, Chief Investment Officer of Trend Micro, agrees with Morici that the main issue is the ECB's failure to implement easing measures, not a global coordinated action.

"Now, if you wanted to do something coordinated that would make a difference, let's say they all announced that they're going to do QE ...Well, good luck with that," Luskin said. "If they did, the thing that would be great about that is not that they're all going to do it, but just that the ECB would do it. For goodness' sake, the thing that has to get coordinated is the ECB just has to loosen up a little. That's the issue."

But again,  "Coordinated  action"? 

Let us suppose there is coordinated action among the central banks, but let us also suppose that this action is not what the markets expect...a coordinated revaluation of the value of Gold:

The Golden Truth
It was noteworthy that George Soros, the world's most successful currency speculator, was revealed this week to have tripled his position in gold in the first quarter of this year. That he is a man who knows his currencies is without question. That he chooses gold speaks volumes. - David Galland, Casey Research
I'm confused. I'm not really sure why the world should be in fear of a Greek systemic collapse and exit from the EU/euro LINK . So, while most of the world's hoi polloi chooses to accept news that is fed to them like hungry ducklings with their beaks open waiting to be fed by momma duck (the elitists), I prefer to look under the "hood" of a proposition that, prima facie, seems absurd. Furthermore, unless I'm missing something, the world is being willingly fed a gigantic lie by the elitists.

The proposition is that if the Syriza party wins Sunday's elections, the Greek austerity programs required for and EU bailout of Greece would be abandoned, Greece would exit the EU and reinstate the drachma as its currency. The sum of these events would cause global systemic chaos.

Let's examince the situation. According to wikipedia, Greece is the 32nd largest economy in the world based on GDP and the 37th largest based on purchasing power. Seems somewhat insignificant so far. Greece's nominal GDP is $312 billion. As a percent of total EU economic output - $12.6 trillion in 2011 - Greece represents a miniscule 2.4%. As a percent of total EU+US economic output, Greece represents 1%. 80% of Greece's economy is service based, the rest is agriculture, fishing and industry. Greek sovereign debt is around $450 billion. The U.S. stated Treasury debt outstanding is close to $16 trillion. The U.S. Government issues an additional $450 billion in debt every 3 1/2 months.

Now I'm even more confused. How could the collapse of such a seemingly economically insignifant country in comparison to the rest of the world cause global systemic/financial turmoil? Before you read on, please see this report regarding Greek derivatives: LINK

The Truth of the matter is that the situation with Greece is being used as the cover-job to mask the truth about the catastrophic derivatives exposure of the world's biggest banks. I demonstrated a couple days ago how looking at just Greece in isolation could lead to tens of billions in losses for the biggest banks - primarily JP Morgan - if Greece leaves the EU and reinstates the drachma as its currency.

The fact of the matter is that if proper OTC derivatives regulations and oversight had been in place - more importantly, properly enforced - then the situation in Greece would barely be newsworthy. Zimbabwe went through a financial/monetary collapse a few years ago which culminated in a "do-over" for its curency and most people in the world probably never even heard of Zimbabwe or could tell you where it is. What's the difference between Greece and Zimbabwe? Off-balance-sheet OTC derivatives.

Once again - just like the 2008 bailout of the U.S. Too Big To Fail Banks - we are being fed a gigantic lie by the political and banking elitists. The global financial system is in extreme peril because of the catastrophic loss-exposure embedded in the near-quadrillion OTC derivatives positions of the world's biggest banks, which are primarily U.S.-based. JP Morgan, Citibank, Goldman Sachs, Morgan Stanley, Bank of America, Deutche Bank, HSBC, Credit Suisse, Barclays and Society Generale. Those are your culprits - not Greece.

And the Greek situation - just like the Lehman collapse provided a cover-story for the massive mult-trillion dollar bailout of Wall Street's finest in 2008 - is nothing more than an insidious cover-story to enable the Fed/ECB/BOE to print up and inject several more trillion in paper fiat currency in order to bail out the big banks listed above out of their catastrophic insolvency, rendered largely by moral hazard-enabled investment failures made worse by the layering of 10's of trillions in derivatives over the bad investments.

That's the bottom line and that's the Truth that you will never hear about from any politician or any mainstream media source. And here's what the non-western Central Banks are doing about the political/financial disaster over which they have no control: LINK You'll note that since 2008, the BRIC Central Banks and other peripheral Asian/South American countries have become big net buyers of physical gold (not GLD and not CEF/GTU). The charts in that article do not include China. China not only does not allow the export of the 300+ tonnes of gold internally mined, it is now the world's largest importer of physical gold bullion. In other words, China is aggressively and voraciously accumulating physical gold.

I think the message in that link and the message conveyed by China's actions pretty much tells us all we need to know about the future of the U.S. dollar as the world's reserve currency and the future direction of the price of gold. As the article mentions, gold represents less than 15% of the listed countries' Central Banking reserves. What it does not mention is that one way to make that number a lot larger is for the price of gold to rise substantially in price. Please note that in 1933 the U.S. - with its currency backed by gold - revalued the price of gold by 75% from $20/oz to $35/oz for the specific purpose of instantaneously increasing value of its gold reserves and increasing the ratio of gold as percentage of its total reserves.

I would suggest that eventually we will see a globally coordinated event (which may or may not include the U.S.) that will accomplish the same purpose as was undertaken by FDR in 1933, but on a much larger scale. Please take another look at the opening quote to put my comment in proper context. Have a great weekend everyone.

Got Gold You Can Hold?
Got Silver You Can Squeeze?

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