Why is the Fed so scared of Gold and Silver?
I began the process of preparing for this piece, by going back to some older documents, and videos that I’ve seen, but which have long since been dismissed into my subconscious.
My reason for being interested in this, is largely because I have begun thinking about American hegemony which arose in the ashes of the second world war with its manufacturing industry still intact.
As a result of the Marshall Plan arrangement, a large debt of $12 Billion was created to enable the Europeans to rebuild their shattered economies. (And don’t forget, this was back when we still talked in millions for national economies)
This was owed to the U.S. by European nations, by giving them a line of credit to enable them to purchase American made goods, whilst rebuilding. At the time, America, who had raided the US citizens for their gold, had over 20,500 tonnes of Gold in its various vaults at Fort Knox, and under the Chase Manhattan Building, that the Chinese recently purchased. This gave the Americans the hegemony over Europe, who were the leading nations before that time.
This world hegemony, was cemented when the Soviet Empire collapsed in 1989, with the acceptance by those former communist states, that liberal democracy and private ownership were the way forward. When finally these nations began un-burdening their populations with rules regarding ownership of scarce resources, or manufacturing industries, and sold off these former state owned enterprises, (SOEs) the world was unipolar. And the dollar (formerly backed by gold) had given the U.S. immense advantages, in a world of rapid change.
Back in 1965, President de Gaulle of France told the world, that the current financial system, benefitted the Americans, because whereas the world had to pay for “stuff” such as oil, and food, and manufacturing goods, as well as the immense technological products that America seemed to have in the world of computing etc, with U.S. dollars. The Americans though, could just print up more dollars to buy that stuff. (Those technical advantages it has been argued by some, were as a result of the reverse engineering of captured alien technology, by America’s scientists such as Von Braun, who were former German engineers who departed for U.S. shores, after the fall of Hitler, and who themselves were alleged to have had visitations from the cosmos, but that’s another story, for another day.)
That link though, between America’s gold, and its place as the world reserve currency, ended on 15th August 1971, when President Nixon, got fed up with us Brits, and the French asking for some of their Gold back for pesky dollars, and closed “temporarily” the Gold window, ending the world’s right to return those dollars for something more tangible. The Central Bankers of the Fed, therefore, were keen not to let the world know just how much actual gold they had, as they massaged the books, by lumping together “Gold” and Gold Receivables” in a one line item in their balance sheet statement. In fact one commentator, Jeff Opdyke has already discussed document FT900, as giving clues to this. And Louise Auchincloss-Boyer, had told the world in 1974, that “All the gold in Fort Knox had gone” just days before she fell from her 10th floor apartment window – verdict probable suicide – Nothing to see here…(The Coming Battle)
But in the last few years as the amount of currency created by these banksters has flooded the world, those with an eye to the future have been stealthily, and not so stealthily buying up the ultimate insurance.
In fact the East – China, India and Russia to some extent have been the most avid purchasers, but a report emerged recently from Sprott Money, that now Norway’s and Switzerland’s Central Banks, are joinng the fray, when after the last 20+ years we’ve been led to believe that Gold was a barbarous relic of a bygone era, yet these two central banks, have each printed up $1billion and used it to buy Gold mining companies shares… So, printing up monopoly currency, to buy real assets is not just a Fed trick?
So, Why is the Fed so scared of Gold?
The answer to that question is simple: Gold’s price, tells you all you need to know about the value of currencies…particularly the dollar.
For 5,000 years, Gold has been exchangeable for other things, and money evolved from it, because they could make gold into small pieces for smaller purchases, and those pieces could be made into forms of adornment, making your wealth portable, durable, divisible, fungible and a unit of account, (which is all that real money is).
So, the value of a currency can be measured in gold – and vice versa. One troy ounce of Gold (31.15gms), currently buys around $1,334 of paper currency or circa £1,031 (as at 26th Sept, 2016 – $1.2937:£1) and Silver around $19.40, and those bits of paper and ink buy other things of value too, – oil, copper, tin, lead, bismuth, boron, Lithium, Gallium, Arsenic, and a myriad of other things. Coffee from Brasil, Uranium from Australia, Runner Beans from Kenya, Pop-music from Great Britain, i-Pads and i-Phones from China, Mercedes cars from Germany, and wine from France and Italy. The volume of stuff goes up in line with production and technological advantages, and the number of people producing them. Whilst the number of Dollars, Pounds Yen and Euros, goes up in line with those nations printing presses.
The problem for the American Federal Reserve is that Americans have got used to living on the cheap, and that means having King Dollar. But if other people don’t value that dollar, then they won’t give away as much “stuff” as the Americans would like, and in the final analysis, the value of any currency, is really only worth the amount of stuff it will buy, based on the labour, intellect, and materials, that go into finding or making that stuff… And Gold and Silver, take enormous capital injections, and immense energy and labour, with the appropriate management to find, smelt into doré bars, and finally to refine them into fine bars.
So a currency that is printed up in the Trillions on printing presses or computers, that only the Federal Reserve has access to, means those pieces of paper or electrons, shouldn’t really buy that much, unless they can be exchanged for Gold or some other valuable item from the rest of the world at a rate that is acceptable to both parties; and that is not likely to lose its value as fast as the pieces of paper – and therein lies the problem. America has little gold left. It has been used to manipulate the dollar, but the game is almost over. Dr. Jim Willlie says that the “End is Nigh.”, and dozens of others outside the Fed, and its MSM apparatchiks, agree.
With a gold backed dollar, the U.S. economy would have to compete on a fair basis world-wide, value for value, and not just use “funny money” to buy up scarce resources, or the time and talent of foreigners that have developed and built products. And America, would not be able to afford to station its forces in 147 different countries, nor wage wars on the scale they have hitherto either. And it would appear, the world is waking up to this injustice too…
Here below, Mike Maloney talks to Chris Martenson, and explains in simple terms how the Fed can magic up digital currency, and then use that new currency, to buy up assets that other people have sweated over, thought and laboured over, for huge amounts of time. And that is just not only immoral, but in the Fed, is called “Keynsianism”… And Mike in his inimitable style suggests the FED, is guilty of “manslaughter” at the very least.
Here also, Jim Sinclair, says emancipated gold, will ultimately reach $50,000 oz. It might, I suspect, but we are probably at least half a decade away from that, if not a generation (or two). Though if the SDR gets floated soon and becomes widely available as other currencies collapse, then it may – sooner, rather than later.
In one video, Dr Jim Willie discusseed with Elijah Johnson, the current state of affairs with respect of the American Dollar, and its status on international markets, including a mention I think that should be given wider prominence, a small matter of how the U.S. Navy fleet based in the Persian Gulf is having to pay for its diesel for its warships, with silver, as the Arabs, got tired of the depreciating asset – the dollar., or Treasury Bill, verging on negative yield, as the Fed does everything in its power to stimulate inflation, and more spending… However, for some reason, the video mysteriously disappeared from You-Tube; but Jim Willie suggests that Silver will be the straw that breaks the back of this Financial Camel…
So, what drives the price of Gold?
Obviously the difference between buys and sells, so the demand and scarcity of Gold has a bearing, but unfortunately, so do the paper derivatives used in the manipulation of the Gold price and the ratio of buys versus sells there too.. Which allows the major trading desks of the senior bullion banks, who are largely both the client banks, and owners of the Fed, to control the price to some degree – unless, they have no gold left to deliver, when a large buyer issues a buy order, and requests delivery. Which until now no serious buyer, has been prepared to do, though China, has been hoovering up gold around the world, in increasing amounts, and from its own mines, as well as those it owns overseas direct to its vaults since 2010.
JP Morgan-Chase Bank of New York too has been quietly buying, and has (according to Ted Butler of Butler Research) reputedly bought circa 500 million ounces of Silver – real physical silver, which presumably it will use to make major profits from in the fullness of time, but this might also be used to maintain price stability, if and when the derivatives markets blow up – which is increasingly likely, given the Shanghai Gold Exchange, which is tied to the physical market more closely, because participants must deposit gold (and presumably silver) in order to be able to sell on that marketplace.
This is likely to happen based on other factors.
So what are those other factors?
Those of use who follow commodities markets cannot fail to have noticed that price inflation, and Gold and Silver markets generally follow the currency volumes, which since 1970s, followed the price of oil, and which over a 12 year period from 1995, to 2007 went from circa $12/bbl, to $147/bbl briefly. Gold and silver followed on a little while later, peaking in price in late 2011, as the Fed flooded the world with dollars post the 2008 credit crunch. This action, largely echoed the events in the 1970s, when the oil price rocketed as a result of unrest in the middle-east and North Africa, as political machinations occurred there then too. Later, after the second line Banks went under, and the government, instructed the BoE to increase the money supply by 25%, we had inflation of 26.9% in Britain, and almost 25% in America. Back then we had powerful unions, who ensured their members were protected from these price rises by raising their wages, and industrial unrest reached a peak.
There’s a gold price chart in this piece that compares the 1970s price rises, with those in the period from 2000 to 2014, that shows you how the Gold prices have been shadowing the changes in that period, just circa 10x higher. Which gave rise to my confident prediction back then, that we would see $8,500 for Gold, and $500 for silver back when I first noticed it.
https://moneymatterstoo.wordpress.com/2014/10/28/transition-vamp-or-how-the-crash-will-be-won/
This time, the political changes, and plethora of service industries, has reduced that pressure, as people from Europe and further afield, immigrated into the UK, in large numbers, but as the Brexit vote showed, maybe now the people of Britain from the industrial heartlands, are fighting back, and even I have noted increased pay rates being offered at the bottom end of the pay spectrum as employers battle for the limited supply of labour as supplies from overseas dry up.
So, if the oil price drives the PM markets, what’s happening with oil?
I found this response to an item by Dr. Kent Moors, Professor at Duquesne University, and energy industry commentator, and governmental advisor on energy matters, articulating that the frackers in the American South-West are all leveraged to the price of money (interest rates) as well as the price of oil, so interest rate rises or low oil prices, will cause them to fail, if the price of oil falls much further, to below circa $40. Dr Moors suggested we could see a slew of bankruptcies later this year, as many as 130. I speculated in a previous piece, and even Wickipedia has mentioned this. According to – John England, Vice-Chairman Deloitte LLP, a statement on February 16, 2016 that – roughly 175 companies are at risk of bankruptcy and have more than $150 billion in debt, with the slipping value of secondary stock offerings and asset sales further hindering their ability to generate cash.
A crisis of this size, would help make the glut at the cushing oil terminal, and elsewhere disappear. The response below though has an interestiing perspective. In allowing the price of oil to climb the oil majors face issues, and a commentator obviously by someone close to the action wrote this, and which goes some way to suggesting where the price of oil, and thus where Gold and Silver are going.
http://oilandenergyinvestor.com/2016/09/what-energy-experts-dont-want-you-to-know-about-oil/comment-page-1/#comment-138051
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September 15th, 2016 at 23:03 | #1Reply | Quote – Bob Schubring
I fully expect to see some volatility on the way up. Historically, Saudi Arabia has held the price of oil, such that between 10 and 20 barrels of oil, sold for the exact number of US doilars, that would buy 1 troy ounce of gold in the current-month futures contract. The Saudi Crown would intervene in either the gold or oil markets to achieve a correction, keeping the exchange rate between 10 and 20 bbl oil per oz gold, from 1985 until 2014. Over the past year, that price range shifted dramatically, remaining consistently above 20 bbl per oz and making three sharp peaks above 30 bbl per oz, at which point major trend changes struck oil, gold, silver, and currency markets, usually accompanied by a sell-off of stock. Since it’s record peak of 38 bbl per oz set this year, oil prices have risen against gold.
Any near-term rise in market volatility (eg a 10% correction in the stock market) will push up the dollar price of gold, thereby reversing what Saudi rulers consider a favorable trend. Even the very looniest nut-cases among them, see the futility of throwing away the Gift of Allah (their phrase for oil reserves) to get a wee bit of gold bullion, when by producing less oil, they historically bought more gold for the same amount of oil.
I really don’t think there will be a consensus amongst the Saudi rulers, if oil trades back to 35 barrels per ounce of gold, as the result of continued overproduction and overselling. The hardliners will recognize they cannot defeat the US by giving away cheap oil.
Whereupon, the younger and more pragmatic of King Salman’s brains trust, will focus on allowing spot crude prices to normalize, in time for the ARAMCO IPO. They’ll get that done, (insh’Allah), as soon as hardliners allow it.
What many in that Saudi brains trust actually want, is to acquire some distressed assets of struggling US shale and off-shore producers. The only cheaper place to wildcat for oil, than the New York Stock Exchange, is the office of the US Bankruptcy Trustee…and there will be a bumper crop of such bankruptcies this year. I won’t be at all surprised to see a sharp correction in November, in which crude prices retreat back toward $40/bbl before resuming the climb to the $60/bbl range in 2017.
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So, that suggests we will see a pull-back in the Gold price, until then, before it begins its meteoric rise to our longer-term targets.
Money manager Michael Pento wrote a book a few years ago warning of “The Coming Bond Market Collapse.” All the signs say this calamity is very close. Pento explains, “Global central bank balance sheets have risen from $6 trillion in 2007 to $21 trillion today. That’s the increase in the size of central bank balance sheets. . . . I can prove to you when this bubble breaks, it’s going to be disastrous. . . . Just that they (European Central Bank-ECB) didn’t hint at expanding QE and look at what it has rendered us. That’s proof positive that everything that has happened since the 2008 collapse, that it’s just been artificial and ephemeral in nature. Once central banks even hint at pulling back from their QE programs and ZIRP and NIRP go away, bonds will crash, and when those sovereign bonds crash on a global basis, it’s going to take everything else down with it concurrently.” which will mean people flee into the only safe haven assets left – Gold, Silver and other precious metals.
http://usawatchdog.com/catastrophic-bond-market-collapse-approaches-michael-pento/
In the meantime, those of us interested in shares in the junior commodities space, might be interested in some of the producers that are just about profitable at these low prices, with good resources, and an optimistic future if events turn out for the better. One – ASA Resources, a micro cap, with operations in several countries recently bought a slaughterhouse in South-Africa, which perplexed me, but it will in the longer term provide regular income, and some stability in terms of price, though may take the edge off the commodity space as their Gold and Nickel assets in Zimbabwe are about to erupt.
That said, Zimbabwe’s President Robert Gabrielle Mugabe, is suffering his own problems, as his brand of black socialism (he himself termed himself a Black Nazi) delivers the expected outcomes – a failing economy. Mugabe is now struggling for currency, and only the miners, with producing assets such as ASA, currently producing just short of 60,000oz p.a., are bringing in hard currency. But Mugabe’s problems go deeper. The Police and armed forces, that have traditionally supported Mugabe, are now turning against him, as the economy implodes because of a lack of currency for salaries. In fact hundreds of thousands are fleeing to South Africa, and over 3million have already fled..
When Mugabe goes – however or whenever that is – and at 92, that cannot be before much longer, the value of all profitable businesses will reach their true value. As I’ve mentioned to those that know me, the assets that ASA controls if fair value (i.e. cost price) were met, the company could be a £500-750 million Corporation. Given that it is currently valued at about £32m, that is a great deal higher than its value today.
Good luck and happy hunting.
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Note: We are not investment advisers, and nothing in this should be considered as such. Share Prices can go down as well as up, and you should not risk more than you can afford to lose. You should also take appropriate investment advice from a professional adviser.
Is A Ban On Gold Ownership Coming?
The fightback begins.
August 27th, 2016
With several countries already having negative interest rates in place and more considering a move in that direction, people around the world are becoming increasingly concerned about the possibility of gold ownership being banned, particularly in the West. This would represent a decisive move by those elite who wish to impose a New World Order, where they are the Kings, and we are the subjects, cut-off from one of the last vestiges of safety for investors against the monetary madness unfolding across the planet.
“When you recall that one of the first moves by Lenin, Mussolini, and Hitler was to outlaw individual ownership in gold, you begin to get a sense that there may be some connection between money, redeemable in gold, and the rare prize known as human liberty.”
— Howard Buffett
However, according to reports, at least one nation, is considering backing a new currency with Gold, and from a very unlikely source – Robert Gabrielle Mugabe’s Zimbabwe. The only questions that follow from this are: Where will Mugabe get that gold? And what will he use to acquire it? Legally? By contract? Or by sequestration or nationalisation?
But this right to own Gold, and/or Silver and to use these as money, is under threat all over the world, the Bankers wish to impose their divine right to rule. With anonimity, comes liberty. Only when we have to provide a Chip based card, or have a RFID chip inserted in your arm or provide your identity card, and be part of some vast people database do we give up that liberty. As Mayer Amschel Rothschild (née Bayer) once famously said:
“Give me control of a nation’s money, and I care not who makes its laws.”
And Benjamin Franklin once said:
“Those who give up their liberty for more security neither deserve liberty nor security”
When, we allow those in power to reduce our choice of money to only that which the Bankers will allow, then we become nothing more than serfs, who will be condemned to serve these Banking and Financial wizards.
It is time to take back our freedoms. President Lincoln in his inaugural address said this:
“This country, with its institutions, belongs to the people who inhabit it. Whenever they grow weary of the existing government, they can exercise their constitutional right of amending it, or their revolutionary right to dismember or overthrow it.”
– Abraham Lincoln – Mar 4th 1861
This desire to control us involves, a desire to control countries too, for the furtherance of the globalist goals. This involves forcing multi-culturism on people and extends to member states of Europe, which is why those who objected to this in Britain, voted with such rare clarity.
Here below, the Prime Minister of Hungary, in a speech that has been sub-titled in English for the five-eyes crowd, tells of the real agenda in Europe
IF, we abolish the Nation State, those Bankers and the people who own those Banks, can control the people by controlling the money. If we take back our right to accept money (not just currency) then we fight against domination by a self-styled oligarchy of cabalistic omnipotence.
This video below, lays out in immense detail why we need to have access to precious metals, in the coinage, and in denominations that we can use for everyday purchases – including government payments and payments of taxes.
In times of monetary experiments, gold represents essential insurance.
Governments that destabilize their own currencies have always been aware of gold’s significance in this particular regard. In order to prevent capital flight into gold and the associated further devaluation of their fiat currency, they have banned gold ownership at times throughout history. In the framework of the audacious monetary experiments taking place around the world, potential gold bans due to its safe haven status should be on the investor’s radar screen as well.
Gold buyers need to know what could potentially be in store for them, should governments which regard safe haven currencies as a thorn in their side once again decide to restrict access to them. For this reason we have taken a look at historical precedents.
Roosevelt’s ban of gold ownership
Gold is a safe haven commodity, i.e., it defends personal wealth when legal tender is no longer capable of rendering this service.
In the course of the Great Depression, president FDR (Franklin Delano Roosevelt) signed the Emergency Banking Act of March 9, 1933. As an amendment of the Trading with the Enemy Act of 1917, which prohibited trade between US citizens and declared enemies of the state, the Emergency Banking Act empowered the government to confiscate all gold coins, gold bars and gold certificates held by the population, under the precondition that this was necessary for the protection of the US currency system.
This precondition of course provided plenty of leeway in terms of its interpretation, and consequently citizens were asked just one month later already to hand their gold over to the US government. Compensation was set at the then prevailing fixed gold exchange rate of $20.67 per ounce. Once collected, it was revalued to $35.00 – resulting in a huge 69.3% gain for the Fed.
Due to the government’s inflationary monetary policy, depreciation pressure on the dollar increased quite quickly. in 1934. At the time of the compulsory conversion many Americans accepted the new regulation without demur, as they believed that it would help to improve the economic situation and their money would therefore not be debased.
The penalties for illegal gold ownership were horrendous. There was either a fine of up to USD 10,000 (equivalent to approximately $190,000 today) or a jail term of up to ten years. In spite of this, the population is estimated to have delivered only around 30% of its gold holdings and the black market in gold flourished.
As it was almost impossible to control all households to find out whether they were in possession of gold, holding it was relatively safe. Many US citizens moreover stored gold overseas, such as in Switzerland, or bought numismatic coins, which were exempted from the ban. President Dwight D. Eisenhower subsequently expanded the ban on gold ownership to include gold held abroad and President John F. Kennedy tightened the noose even further. He prohibited the ownership and purchase of numismatic coins that were minted before 1933 as well. In addition, all gold coins stored by US citizens abroad had to be repatriated. The rather flimsy pretext for this was that the government had to protect US citizens against counterfeits.
But silver, silver will be gold on steroids. 75 years ago, after the confiscation of silver from America’s currency, and other nations began the process of taking away our liberty, 5 BILLION ounces were stored in vaults. Those silver ounces have been used over the intervening period, and in the world’s silver vaults now – the NYMEX, the LBMA etc, are barely enough to furnish industry for 3 months, let alone 10 years without mining another ounce. It now has 10,000 uses and counting, with the PV cell, Electronics, Plastics, Glass, Ceramics, Surgical Instruments, Anti-bacterial, anti-fungal and disinfective with hundreds of other uses, and it now comes out of the ground in the ratio to gold of 9:1 compared to the 15 or 16:1 of history. In fact the British Pound Sterling was just that – a pound weight of Sterling Silver (925), and it will never be any cheaper, than it is today.
Other gold prohibitions in the 20th century took a roughly similar course, such as for example in the Weimar Republic in Germany in 1923, in France in 1936, in India in 1963 and even in Great Britain in 1966. The next year Prime Minister Harold Wilson, devalued the British pound from $2.80, to $2.40:£1.0.0.
Not all gold bans were the result of misguided monetary policy. While the ban in the Weimar Republic was tied to the great inflation, in France the reason was capital flight in the wake of the election victory of socialist politician Leon Blum. In India the trigger for the gold ban was capital flight as well, in the wake of the Sino-Indian border war of 1962; in Great Britain it was connected to rising industrial gold demand and the associated increase in the scarcity of gold.
What happened prior to the 20th century? In antiquity and the Middle Ages private gold ownership was often prohibited as well, such as e.g. between 1292 BC and 1186 BC in ancient Egypt. This privilege was reserved to pharaohs and priests, as they performed their religious duties as representatives of the gods. In Sparta gold ownership was prohibited because the population was not supposed to take part in business life at all. In 404 BC gold ownership even became punishable by death and raids on homes were a daily occurrence.
The ancient Romans under Julius Caesar were slightly more modern by comparison: An upper limit for gold ownership decreed in 49 BC can be seen as a reaction to “misguided interest rate policy”. After Caesar suspended all interest payments, Romans started hoarding their money, which was of course not the decree’s intention. The gold ban in the Chinese Empire was also closely tied to monetary policy errors. The Middle Kingdom created fiat money in the 11th Century and in this context immediately prohibited gold ownership. Some years later, a currency reform was enacted in the wake of massive inflation. The intention of the ban was to keep Chinese citizens from saving their wealth with the help of gold. Now, the Chinese government, perhaps reminded of the possible outcome of such a decree, extol their populations to hold between 5-10% of their monies in precious metals.
However, in the context of these gold bans we should keep in mind that gold still had an official monetary role in most of these cases. The Bretton Woods system remained in force almost 30years, from 1944, until 1971, when the Gold Window was closed, though it wasn’t fully abandoned until Dr Henry Kissinger’s discussion wiith King Faisal, to use dollars for the purchase of oil, and only thereafter the global monetary system’s ties to gold were cut completely. As gold no longer plays this important role, a gold ban is less likely, but from the perspective of governments trying to pay down impossible debt loads, not outside the bounds of possibility. However, what IS ever more likely in view of governments’ rising need for revenue is more taxation of gold trading. Governments certainly have the option to lower the attractiveness of investing in gold in this way.
Conclusion
Since gold has currently no official monetary role, a prohibition of gold ownership appears unlikely, but not impossible, especially if any of the major currencies collapses, and the price of precious metals rockets. Repressive measures with respect to gold ownership and trading will only become more likely once the gold boom gains significant momentum and its impact broadens to the point of becoming a veritable gold rush. Such a development would naturally go hand in hand with a loss of confidence in paper currencies.
If voices start to raise the issue that “Similar to cash, gold is used to finance criminal activity.” or that gold “is damaging the economy”, alarm bells will ring. However, in the event of a gold ban, it shouldn’t be expected that governments would be able to confiscate all gold, as this would require conducting comprehensive house to house searches, and thus uneconomic controls. If one wants to be on the safe side, one can purchase gold in forms that have traditionally often been exempted from bans, such as numismatic coins or smaller denominations.
This sense of impending doom though, took on a new urgency in recent days, as a report on the BBC, was made that the German government, suggested to its citizens, prepare for the unexpected. This vague statement, was suggested by some that the reason was because of potential terrorists threats. And the people were encouraged to stock up on food, water, flashlights, money/currency, batteries, sterilizing tablets etc. etc.
But… Is this because in reality, it is rumoured that a certain huge bank is on the brink of failure?
– Reluctant Preppers – In the long run, we are all dead…
But in the meantime, we WILL suffer. (KirkbyAnalytics.com)
After posting this piece, I came across a piece by Hugo Salinas-Price, that made me think, there is hope…
The piece begins as follows:
The Night That Is Upon Us and the Dawn of a New Era – Hugo Salinas Price
A speech by Hugo Salinas Price at the inaugural ceremony of the Fourth Convention of the Association of Mining Engineers, held in the city of Durango, State of Durango, Mexico, on August 25, 2016.
At what point in History does humanity find itself? Where are we? In the course of the past centuries, the study of the physical sciences, born in the 16th Century when the Englishman Francis Bacon established the “Scientific Method”, has had such enormous success and has so greatly influenced humanity, that Science has become a materialist world-religion.
The central problem of our times is that official economists attempt to apply the “Scientific Method” when designing economic policies for governments, and this method is not applicable to human activity. The “Scientific Method” cannot be applied to social concerns, because physical matter and human beings behave in totally different ways. Matter cannot choose, and human beings do choose their behaviour. So, while action applied to matter produces predictable results, action applied to human beings must consider the fact that human being do choose, they do have options, and thus their behaviour cannot be predicted successfully, cannot be quantified nor expressed correctly in equations. The world’s economists ignore this fundamental fact, and so they formulate economic plans for the State that always turn out as counter-productive, because their plans produce results that are always quite the opposite of what they expected.[More…]
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Cheers.
Bloomberg: Russia’s Only Escape From More Deficit Pain Is Economic Growth
Bloomberg – Russia’s Only Escape From More Deficit Pain Is Economic Growth http://bloom.bg/2aWh4Tf
Of course, to grow any economy, and improve the living standards of an economy’s citizens, the economy must grow over and above the growth in population.
When an economy stagnates, but the population does not, the citizens are essentially sharing a cake amongst more people, so all other things being equal, everybody gets a smaller slice – which means they get poorer.
When people invest in businesses, and raise the output of goods and services, the economy grows, and people are richer, but ONLY, if the rate of growth in output is more than the population growth.
This conundrum, is at the heart of economists problems. The rate of growth of the economy.
During the early Industrial Revolution, the increase in automation added lots more goods and freed up people who were moving from agriculture, to industry. These individuals were released from agriculture because it too was mechanising..
In a service based economy, it is difficult to grow the output, because it is more difficult to automate.
A restaurant frees up people from the drudgery of cooking, setting and laying the table, and washing dishes, but it produces not much additional value, because those citizens, cannot improve their own output by not doing these tasks because they are involved in waiting for food, between courses etc..
However, if we replace these waiters and waitresses with automatons, (Artificial Intelligence servers) and an experienced waiter to resolve difficulties, then those staff are released to produce more goods, and services elsewhere. THIS is the way to improve productivity in the economy.
However, when people are released from one industry to work in another, they have to be able to move their skills easily, and in an increasingly technological world, the time to retrain may take years. It is simply not cost-effective to retrain a 55+ year old, if he or she is going to retire perhaps two years after gaining the skills, but has (or would have) taken 4 or more years to gain the necessary expertise.
This is the problem, for economists, and politicians, because money can flow like water from one part of the economy to another, but people don’t move quite so easily.
That is at the heart of the European Union’s (EU) freedom of movement dictum. As one economy expands, people moving in, will dampen wages, and lower output per person. That’s the theory anyway,.
However, large corporations, when they use cheap money to merge with, or to take over in a hostile fashion, other corporations, do not add much value, if the people displaced do not have capital to build businesses, because their savings have been depleted by poor wages, poor interest rates, high taxation or other methods of losing value.
But, in the near future, we are about to see a positive explosion in technological advances, that will likely revolutionize the world economy. Artificial Intelligence, Virtual Reality, Augmented Reality, Robotics, Spintronics, Thorium Energy production, and Solar Energy production coupled with storage technologies to move the energy that hits the Earth during the day, to those parts of the energy demand curve usually later at night, to heat or cool homes, or to drive factories such as Tesla’s Giga-Factory in Nevada.
This factory, which Elon Musk, has committed to producing 500,000 vehicles per annum in, by late 2017, will catapult demand for Lithium Carbonate, critical in building the batteries for his car for everyman. Warren Buffet, who made a major investment in China’s BYD a similar automotive corporation with aspirations to produce huge numbers of electric powered vehicles using Li-ion cells, will also require huge amounts of Lithium Carbonate.
By the end of the year, according to Reuters, BYD should have 10 GWh of battery production capacity, which it expects to increase to 34 GWh by 2020 with a new factory in Brazil—about the same capacity as Tesla’s.
Other Tesla rivals rushing to the battery production scene will be iPhone manufacturer Foxconn and LG Chem, which is already one of the top three battery makers.
Samsung is also hot on the trail, having just acquired Magna’s battery production division.
According to Credit-Suisse, the lithium industry is “poised for significant volume growth,” which could lead to shortages of supply. As a result producers of lithium are set to enjoy significant earnings throughout the decade.
Elon Musk’s aspirations, if met, will require as much Lithium as is currently produced world-wide, and such demand will also be required by BYD, and the other major manufacturers working to catch up, such as: BMW, Mercedes, General Motors, Ford et-al.
“The key drivers of the continued growth in the market are electric vehicles (“EV”), which have been pioneered in Nevada in recent years, but the larger catalyst for global mass market uptakes is EV technology in China.
Deutsche Bank has forecasted that global sales of EVs in 2025 to be 16 million vehicles per annum (current sales are just 2 million).
This increase should lift lithium consumption in EV’s 8-fold from 25-kilo tonnes (Kt) of Lithium Carbonate Equivalent (“LCE”) in 2015 to 205Kt in 2025.
This along with the other increases in global lithium demand is expected to increase LCE demand to around 535Kt of LCE by 2025.
This new demand is being driven by the improved economics of electric vehicles and energy storage products.
In particular in the last five years lithium-ion costs have dropped from US$900/kWh to US$225/kWh.”
In the world, there are essentially 4 major producers of Lithium. Albemarle being the biggest in Nevada, but right next to it, is a junior Lithium explorer, with capital from major investors, who see this as a huge financial opportunity to grow output to meet this expected demand. And at a mere $1.66-1.70 range on the day I was writing this, it values the business at $114.27m (Source: Bloomberg)
Some Lithium miners, are lying about their resources, and others, simply lack the expertise to bring the Lithium salts to production.
From this small company’s web site they have this to say:
[Our Company] has an option to become the largest claims holder with over 15,020 acres (6,078 hectares) in Nevada’s Clayton Valley and land positions both north and south of Albemarle’s Silver Peak mine, North America’s only lithium producer.
Clayton Valley North covering approximately 5,480 acres (2,217 hectares) in northern Clayton Valley, Nevada. The claims are contiguous to private lands and placer claims belonging to the lithium production facility of Albemarle Corporation. Historic drill information and a geophysical survey show the Property covers basin-fill sediments which are similar to the sediments currently producing lithium brines. Two Albemarle production wells lie along the boundary. Two holes are proposed within the Clayton Valley North claims as offsets to the production wells to test the complete stratigraphic section. Drilling and exploration are active in the basin and the permitting process is well established.
[Our Company] has also acquired the Clayton Valley South Expansion, totalling approximately 9,540 acres (3,861 hectares). The property is strategically located between and contiguous with the Silver Peak lithium mine operated by Albemarle Corp. on the northern boundary, the Clayton Valley South project operated by Pure Energy Minerals Ltd to the east and the Neptune property owned by Nevada Sunrise Gold Corporation to the west.
But Eric Anderson, CEO of the lithium engineering consultancy TRU, was bearish on lithium investment as early as 2009, when a flood of new projects were being planned.
“I made this statement that people snickered at—that plants would be built and closed . . . because of the hype surrounding the industry,” says Anderson.
Anderson’s lithium predictions have been largely vindicated. Demand rose more slowly than some expected—still currently between 5 and 10% per year—and new operations have been plagued by problems.
In 2012, Galaxy Resources suspended production at its Mt. Cattlin mine in western Australia. In 2013, RB Energy Inc. opened a new lithium carbonate plant in Quebec, only to suspend operations in 2014.
Nevada-based Western Lithium, which has been repeatedly floated as a potentially convenient supplier for Tesla, has taken shareholders on a very bumpy ride, and is not yet online.
According to Anderson, Western Lithium, like many new lithium operations, simply aren’t working with the right raw materials. Though lithium isn’t rare in the environment, the cost of extraction varies greatly with its concentration and form.
With existing technology and present prices, truly profitable lithium comes only from the evaporation of highly concentrated brine. Those sorts of brine deposits are nearly all in southwest South America, and controlled by established players.
The three biggest lithium producers are Sociedad Quimica y Minera, based in Chile, American FMC Lithium, which controls the ominously-named Hombre Muerte mine (Dead Man Mine) in Argentina, and the U.S. based Albemarle, which recently acquired competitor Rockwood Holdings. Albemarle is developing lithium brine holdings around Magnolia, Arkansas too—the only American deposits that Anderson thinks might make economic sense in the near future.
Together, these three companies provide more than 90% of the world’s lithium, and have absorbed much of the rising demand simply by bringing untapped capacity online.
A dearth of technical talent seems to be another widespread problem. The Bolivian state has faced serious management and technical hurdles in extracting the massive, high-density lithium deposits in the other-worldly salt flat Salar de Uyuni.
Similarly, Chinese producers Quinghai Lithium and Citic Guoan MGL, hoping to exploit sources near Tibet, have experienced major hurdles, and plans to expand Chinese capacity to 60,000 tons a year by the end of this year have been revised downward by half.
Elon Musk however, is eyeing a “complete transformation of the entire energy infrastructure of the world to completely sustainable zero carbon,” and what he’s talking about here is lithium-battery production on a mind-blowing scale.
Tesla is planning to produce more lithium-ion batteries in this factory than in the entire global marketplace combined.
Lithium—the lightest and most versatile of the metals—is the backbone of this exploding battery market.
Lithium is already a key part of our everyday lives, but as batteries become the rule of the day in a new global energy picture, demand for lithium is soaring—and we are only at the beginning of this curve.
Battery manufacturers across the board are moving to lithium because it has the highest electric output per unit weight.
And nowhere will this demand soar more than with the production of hybrid, plug-in hybrid and electric vehicles used by everyone from Toyota, Honda, Nissan, Renault, and Mitsubishi to Ford, Chevrolet and GM.
By the end of the year, according to Reuters, China’s BYD should have 10 GWh of battery production capacity, which it expects to increase to 34 GWh by 2020 with a new factory in Brazil—about the same capacity as Tesla’s.
Other Tesla rivals rushing to the battery production scene will be iPhone manufacturer Foxconn and LG Chem, which is already one of the top three battery makers.
Samsung is also hot on the trail, having just acquired Magna’s battery production division.
According to Credit Suisse, the lithium industry is “poised for significant volume growth,” which could lead to shortages of supply.
As a result producers of lithium are set to enjoy significant earnings throughout the decade.
Therefore, this little company, stands to be able to produce Lithium Carbonate, even quite possibly at the Albemarle facility which we know meets Tesla’s Standards, and it has even been suggested, Musk might be interested in buying the whole company to guarantee Lithium for his Nevada Giga-Factory, and his future plans.
And, the name of this Lithium junior placed to take advantage of this rapid surge in demand is: Lithium X (TSXv.LIX) and LIXXF in the U.S.) .
And remember, we’re not Investment Advisors, so nothing in this piece should be considered a recommendation. Prices of shares can go down as well as up. We do not hold, and have no short-term intentions to do so.
Lehman 2.0 – The End.
Over the last few days, I have been reading, and hearing some concerning stories, that suggest the end of the Dollar as World Reserve Currency is merely weeks, or at most months away.
As of late, certain banks were recently being bailed out, because the banks loaned out currency to people to buy property, which collapsed in price in the aftermath of the 2008 crisis – Italian Banks were the most recent recipients of ECB largesse. But most large Western Banks, are in an impossible position, Deutsche Bank being the most recent one facing the threat of failure, but perhaps even one of Wall Street’s grand-daddy banks.
That bank, even now, according to one economic and geopolitical forecaster is on the brink of failure with a derivatives book of 349:1 leverage on its assets – If you were aware and remember, Lehman Bros, was a mere, a MERE 73:1 when it finally failed.
BUT, as to how this dollar problem has affected the International Trade scene, has remained largely ignored by the financial media and journalists.
Countries who sell to the U.S., have been getting paid in, as one commentator put it – “toilet paper”. Indeed, Fed Chairman Ben Bernanke said as much, at the time of the 08 crisis, when he said that they have a printing press, that can create dollars essentially at zero cost, which means, that that, is ultimately their value. But, those dollars, because of the Bretton Woods agreement, are used to settle International Trade agreements, between for example Saudi-Arabia (for its oil) and India for its I.T. services, or Brazil, and its coffee, in exchange for Australian wine. As a result, China has told the U.S. that the International dollar has to go, and a U.S. treasury dollar has to replace it, but that its value will have to be halved over a period of approximately 2 years.
I hear that circa 20 International Container Ships are anchored off-shore in the Pacific, because the providers of those goods, now do not want the U.S. dollar in payment, and that other reasons are being given for the lack of access to Port Authorities in Los Angeles and points north.
In its place for International Trade, will be the SDR, which will be partly (circa 40%) backed by Gold, as I mentioned in my last piece, the Americans, who have been trying to control the price of Gold on the COMEX, will have to have Gold revalued on International Markets, and as at this particular point in time, the price is under negotiation. However, my finger in the air best guesstimate, would be circa $5,000/oz, with a rise to closer to $10,000 as the world economy adjusts, and people rush to buy.
The revaluation will be an overnight affair, rather as FDR’s gold revaluation took place once it was safely stored at the Fed, after he issued his now famous Executive Order 6102 on 3rd April 1933, confiscating the nation’s gold, forcing Americans to surrender their gold (excluding jewellery) on pain of a $10,000 fine, and/or 10 years in the pokey. Silver was also confiscated the following year. But even then, it is estimated that barely 30% fully complied.
However, because of International Trade, this revaluation of Gold and SDR currency introduction, needs to take place in a safe, secure, standard way to minimize shocks to the world economy, and trade.
In the wider world, all International Trade would now be carried out in SDRs, which would include the Chinese Yuan, and as stated would be valued based on a basket of currencies as per my previous post, but backed ultimately by Gold.
It is not widely known, but there are families in the Far-East, who collectively, like the Rothschilds and Rockefellors, have huge dynastic wealth, which some estimates put at 100,000 to 150,000 tonnes of Gold. (I think this is slightly exaggerated but not by much)
In fact one Japanese Army officer, claims to have discovered some of this wealth hidden, in a cave system, when they invaded other islands and nations in the second world war. A solid gold buddha of circa 24″ high, and weighing hundreds of pounds was one such piece, reputed to have been discovered. Details of all such finds are obviously viewed suspiciously by those behind the veil, and generally have scorn poured on them, in efforts to hide these truths that might embarrass the legal owners, if nothing more than but for their sheer ostentatious displays of wealth.
When these events unfold, the price of both Gold and Silver, and to some extent all commodities, will shoot up on international markets, at least when priced in Fiat currency terms. But derivatives books, will also be affected, meaning banks will undoubtedly be affected. Bank Accounts that in Britain and America are currently backed by insurance, that the British Banking Regulator – the FSA – has been pushing on local radio, and the FDIC supposedly insures for Bank accounts in the U.S., may be “bailed in” as happened in Cyprus, as banks fail, and we are likely to see a change to International trade of the major contracts into the SDR, to make trade more equitable.
America currently has a $500 billion annual trade deficit. Britain too, has just suffered a further imbalance to our trade book, and costs and inflation, can only go one way, if events transpire as I suspect. But at least Brexit, will make things easier for us to adapt as a nation.
In the events leading up to this introduction, we could see an overnight re-valuation of gold, to an unprecedented level, with further rises as those with huge sums of money, rush to transfer their wealth from Federal Reserve Notes, to Gold (and silver). Rumours suggest an initial price of circa $5,000/oz, but if that occurs, we may see a stampede towards precious metals from other asset classes. And what price silver? Possibly $400-$500 per oz.
Which brings me to the other concerning development suggesting these events are moving apace. It has come to my attention that Bank Accounts with large sums of money in them, are being frozen by the Banks, and their “Anti Fraud” departments. Two such acquaintances of mine have informed me that they cannot access their accounts and when questioning this, they have been told, that they are under investigation. Nothing else is divulged. No further information given.
Is this the first step in the events leading up to the re-liquidating of the Western Banking System to stop those with large sums from spreading them around several banks, and thus limiting the FSA’s and the FDICs liabilities? We can at this point but guess…
BUT… are the Banking elite, attempting to ensure that the banks remain in service post crisis? Moving large sums from one account to another, could be the straw that breaks the camel’s back… Is that why access has been frozen?
Imagine for a moment, you are unable to access your bank account, and your salary for a moment…
How would you fare if your Bank-Card and your Credit card stopped working?
How would you buy groceries, purchase milk, bread, fuel for your car? 
Pay the children’s school meals bills? How would you pay the Window Cleaner? The Taxi Driver? The Bus Company? Would these people and companies, still provide their services and goods, on a credit basis until things get back to normal?
For one person, they perhaps could do that, but when the whole local economy is cashless… How do they, and you just survive?
Whilst I am not advocating mass panic, it would be prudent to have available (however you define that) at least one month’s money (currency) at your disposal. If you haven’t bought Gold or Silver, in a reasonable quantity yet, there may be still a little time. Crypto-currencies too, because a banking collapse is a very real possibility, on the scale of 2008 or worse, much worse.
The people of America will feel the pain the hardest, but Britain, Japan and Europe too – excepting perhaps the northern germanic nations, and close neighbours, who will suffer considerably less. We even may see a figure similar to Donald Trump, advocating that he (or she) alone has the solution, all the people need to do is follow them, and then we will have travelled back in time to 1932, when Adolf Hitler arose to great acclaim, and sealed the west’s and his nation’s fate.
Of course, having sufficient staple foods, water, perhaps fuel – like bottles of Gas for camping stoves etc. – tanks of fuel for the car, and candles, matches, canned fruit, vegetables, and batteries as well as water purification tablets, will all make life more liveable, if the SHTF moment arrives.
Time to prepare, and that is not an idle request.
Past the Point of No Return.
This is a tough topic, because people either don’t want to believe it or are not capable of, because they lack the knowledge to comprehend what is being said. If you have read quite a few of my former posts, you will have a better understanding than most. If you have not, you will do what millions of jews did in 1936 in Austria, Poland and Germany as the Nazis began their pogrom. Nothing.
When you understand that the U.S. can only operate based on debt/credit, not physical dollars, you finally see that the USA is a huge Ponzi scheme built on nothing more that their ability to borrow money. Their status as the world reserve currency has allowed them to borrow money that they do not have. Japan, Russia and China have extended and pretended, and now the credit card is maxed out.
The government says that there are 10 trillion dollars sitting in the US Banking system that they can go to and easily withdraw. How can that be true when there only exists 1.4 trillion of real money in circulation (dollars and coins) and more than one half of that is outside the US. This does not include the trillions more that they owe other countries – Japan – $1.4 trillion, China – $1.1 trillion – and goodness knows how much in the Middle-east for the oil money that has been re-circulated into Treasury’s. If the US’ creditors were to all come at once, and ask for their money there would be less than $1 dollar for every $1000 dollars owed.
The world economy will collapse, and that is the way that all great empires based on fiat currencies end. People I talk to like my wife and friends have really no clue what is coming. When I try to talk to them, they just say well we can’t do anything, to stop it, and shut me up.
The video below, is long and it was cut to half of its original length, but it is the single most logical and credible documentary I have ever watched on the future of the US economy, and where the U.S. goes, so goes the world. It makes me furious that the Federal Reserve and the Treasury, decided to bailout the corrupt bankers instead of the citizens.
Instead of bailing out the banks, the Fed could have paid the debt off for every consumer in the country and freed up trillions of dollars for them. Instead they padded the pockets of the banking elite. I wanted to “Try” in a legal sense, someone for dereliction of duty, and Treason. Now, they are setting things up to try one last historic cash grab. Negative Interest rates, Digital only money, or stealing the pensions over certain sums are all possibilities, as well as cut-backs in state and local government support.
The bailouts, drove the stock market to all time highs so that those behind the scenes, can make a killing, by shorting the hell out of it. But they have to have someone to sell to… those on the outside – and guess who THEY are?
I think Donald Trump will not be allowed to take office. If elected (if the election is not stolen) he may be assassinated first. I am over 60 years old and a former Lecturer In Business and Information Technology. I have run several small businesses over the last 30+ years, and I have watched hundreds of hours of video on the economy and financial systems of the world, and done more than 15 years research into past financial failures going as far back as the Roman Empire.
Dr. Paul Craig Roberts is one of the people I have followed, along with Dr Ron Paul, Bill Bonner, Addison Wiggin, Rick Rule, Jim Rickards, Byron King, and many others in this sphere. Theodore (Ted) Butler, of Butler Research who raised the subject of price manipulation in the precious metals markets with Andrew Maguire, the whistle-blower who raised it with the SEC, about the book I produced “The Coming Battle” on the formation of the Federal Reserve, Economics and Finance – had this to say, he said, “It’s an impressive work”.
People do not want to acknowledge that the fall of fiat currencies is nothing new. The phrase “it’s not worth a Continental.” is a hangover from the days when the Southern Confederacy, produced its own currency during the Civil War, which literally became worthless, and the US has made it this far ONLY because they are the reserve currency of the world.
There have been 440 economies based on fiat currencies in modern history… They have all come to the same demise, FAILURE. In fact, the IMF has already discussed with the five major currencies in use around the world to create a new world currency as early as this autumn – the “Special Drawing Right” which will also include the Yuan, and is a system of creating a currency out of the currency basket of the six biggest currencies – The Pound, Yuan, Yen, Euro, U.S. Dollar and 40% Gold. This could be issued by the IMF to governments as early as 1st November.
Having an education in Business and Computer Science with 2 Post-Grad Diplomas in Business Computing and Information Technology, and I taught Quantitative Analysis, Business Law, and the Organisation in its Environment to Business and I.T. students, I do not believe that the US is exempt from the natural laws of economics.
Watch the video; it explains why people have a hard time accepting the true outcome of a situation that has played out the same way again and again throughout history. Research ‘normalcy bias’ and as I said at the beginning, don’t be like the Jews in Europe, who couldn’t believe it would come to that…
I keep hearing from Americans that the US is different. That is true. The US is much deeper in debt than any country at any time in history except post WWII. If you doubt that, watch the entire video. You cannot deny the logic!!
Watch and learn…
And here below, Harry Dent, talks about the future and his demographic analysis.
In the US, 75 million Americans were born from 1947, to 1962, and 8 million other people joined them from overseas. Those 83 million began retiring at age 65 in 2012, though many who were retiring early, sold their stocks, and other investments, as early as 2005. Back in 1974 they were aware of the number of baby-boomers coming through, and brought in the Employee Retirement Income Security Act of 1974 (“ERISA”)., which allowed people to defer their pension entitlements until 70.5 years of age. Since 1947, that means, that next year 2017, all those pension companies, who have not taken their client’s pensions – yet – will be forced to sell their stocks, and buy government securities – annuities – and receive a lump sum, which may be used to perhaps buy assets such as property – but they may also buy Gold and/or Silver.
The stock market, already under duress as those between 65 and 70.5 who are already retiring are selling, and this added number will undoubtedly lead to a sell off in markets if they have not already fallen.
Negative Interest Rates, if they arrive soon, will mean many will opt to buy Gold, Silver and any other asset that is likely to appreciate or provide a yield. Property, normally a high yielding asset has already been bid up to asphyxiating levels, and as Mike Maloney of GoldSilver.com recently commented, that the top of the market – properties over $10m, are already sitting unsold on the markets. Those with the most are usually first to exit the burning theatre… the rest will head for the exits in a great rush – too late, and trample each other in the panic.
Property will probably fall 40-60% in the worst areas, stock-markets will be off 60%+ and the DOW and Gold will probably be a 1:1 relationship, or worse a 1:2… (Dow 5,000? Gold $10,000?)
Jim Rickards thinks Gold could go higher – to $14,000, and historically the Gold:Silver ratio was 15-16:1 for many decades, it rose to 83:1 in recent years as the 5 billion ounces taken out of circulation when silver was demonetised, that has been sitting in bullion warehouses since 1964, was sold off at the rate of circa 100-200 million ounces a year since, driving down the price for 50 years. But now, all that has gone and that deficit will need to be provided by miners, meaning the price will need to go much higher to encourage large investments..
Silver is up 50% from $13.60/oz in November to over $20.41 as I write, but both Gold and Silver may have one last biggish pull-back, I suspect before the Autumn buying season, then we may see another big move higher, or even a short-covering spike, as the commercials, who have been shorting the paper markets the most, have to buy back their paper and take a loss.
Harry Dent believes Gold may visit the $700/oz range, but I will be scooping it up if it does, and I feel the Chinese, Indians, and others in the far-east all 2.9 billion of them, will be joining me.
Italy’s Bank Failures – Triggers the end of the EU?
Bringing Martial Law – to a town near you…
Controversial, I know. But is it really so far-fetched?
Regular readers of this blog, know the European Union (EU) is in a slow motion car-crash, economically speaking. The EU is an economic union made up of 27 countries, plus one heading for the exit. It was put together as the Iron, Coal and Steel Federation in the aftermath of World War II to keep European countries from going to war with one another – again. Its 6 founding members were – Germany, Italy, France, and the three Benelux countries of Belgium, Netherlands (Holland) and Luxembourg. Later, over time, the EEC as it became, grew as Denmark, Spain, Portugal, Greece, Britain and Ireland joined.
Still further on, after the fall of the Berlin wall, it turned into the world’s biggest economic union – the EU as all the former soviet satellite nations became members, in a grand experiment. And, right now, that experiment is going awry.
As you know, Britain voted to leave the EU on June 23rd, which sent shock-waves through the world economy. The “Brexit,” as the journos characterized it, shook financial markets from London to, Frankfurt, to Paris, to New York. It knocked more than $3 trillion from the global stock markets over the following weekend.
Then, things calmed down. Since, global stocks have gained more than $4.5 trillion. The S&P 500 and Dow just hit new all-time highs. Many folks now think things are OK in Europe.
As you will see, things aren’t fine. That’s because Europe now has a bigger, a MUCH bigger problem than Brexit. There are many in the media, who are trying to blame Britain’s current economy on Brexit vote, but in reality, Brexit is a symptom of a much bigger crisis, slowly unfolding.
Italy, Europe’s fourth biggest economy, is slowly crumbling into a full-blown banking crisis.
This isn’t just a problem for Italy. It’s a serious issue for the whole of Europe. Italy’s banking crisis could trigger the end of the EU as we know it. Italy’s banking system is a disaster…
The Financial Times (FT) reported:
“The amount of gross non-performing loans held by the [Italian] banks increased 85 per cent to €360bn in the five years to 2015…
The total stock of bad debts — the most distressed part of the pile — more than doubled over the same period.
Non-performing loans, or “bad” loans, are loans that trade for less than book value.”
According to the FT, non-performing loans currently make up 18% of all of Italy’s loans.
To put that into perspective, at the height of the 2008–2009 financial crisis, U.S. banks had a non-performing loan (NPL) ratio of just 5%. In short, Italy’s banking system is sitting on barrel of gunpowder, smoking a cigarette.
On Friday 22nd, The Wall Street Journal (WSJ) told us how Italian banks got into this mess:
“Bad loans have grown at the astounding pace of €50 billion ($55.05 billion) a year since the 2008-09 financial crisis as banks resisted writing down bad assets. Banks and policy makers awaited a strong economic recovery that would allow debtors to repay more of their loans while providing banks greater profits to cushion write-downs. The recovery didn’t materialize, and the money injected into banks, up to €80 billion, via periodic market recapitalizations quickly dissipated as bank profitability stagnated due to an inefficient, fragmented financial system and near-zero or negative interest rates.”
In other words, Italy’s banking system has three big problems…
1) The banks never really recovered from the financial crisis;
2) Italy’s economy isn’t growing anywhere near fast enough;
3) Negative interest rates at the ECB, are killing their biggest banks.
A few readers will know that negative interest rates are a radical new central banking policy. They basically turn bank accounts upside down. Instead of earning interest on money at the bank, the account holder pays the bank to watch their money.
The European Central Bank (ECB) introduced negative interest rates almost two years ago, hoping this would “stimulate” Europe’s economy by encouraging lending. Today, the ECB’s key deposit rate is -0.4%. That means European’s largest banks must pay €4 for every €1,000 they keep with the ECB.
That might not sound like much. But it’s a huge problem for some of Europe’s banks that oversee trillions of Euros. According to Bank of America (BAC), European banks could lose as much as €20 billion per year by 2018 if the ECB keeps rates where they are.
As a result, Italian bank stock prices have plumetted…
UniCredit SpA (USG.MI), Italy’s largest bank, plunged 63% over the past year. Intesa Sanpaolo (ISP.MI), Italy’s second biggest, is down 45%. Banca Monte dei Paschi di Siena (BMPS.MI), Italy’s third biggest, is down 83%. And Banco Popolare (BP.MI), Italy’s fourth biggest, is down 79%.
BMPS, if you read “The Coming Battle”, was implicated in another scandal, some year’s back involving Federal Reserve Treasury Bonds held by a former Chinese Dynastic family known as the “Kuomintang” or colloquially as “The Dragon Family”, which essentially meant the U.S. Federal Reserve got 50,000,000 ounces of Silver for nothing but a few pieces of paper and ink. But, I digress.
These are giant declines. Remember, we are talking about the bastions of Italy’s financial system.
Right now, these stocks aren’t telling us everything is OK. They’re saying Italy’s banking system could be insolvent and are facing their own “Lehman moment” Will this, if it happens with a sudden stock-market decline, trigger the Deutsche Bank collapse, I’ve mentioned previously?
ECB to bail out Italian banks?
On Thursday (21st July), Mario Draghi, who heads the ECB, said he would support a public bailout of Italy’s banks “in exceptional circumstances.” If this happens, the government will give money to Italy’s troubled banks and make taxpayers pay for it, but they first have to show that the private sector would do that. The trouble is, the stock prices are telling their own story…
If this sounds familiar, it’s because the U.S. government did the same thing during the 2008–2009 crisis. It gave hundreds of billions of dollars to the largest U.S. banks because they were “too big to fail” – (too big to jail?) They also clandestinely, loaned $15 TRILLION, to 30 of Europe’s Biggest Banks, to inject liquidity, at 0%. The average American ended up footing the bill. As a result, Italian bank stocks jumped on Draghi’s words…
Banco Popolare (BP:IM) on Friday rose from €2.37, to €2.43. UniCredit rose 2.1%. And Banco Monte dei Paschi di Siena closed the day up 1.8%. In other words, investors are betting on a bailout, and that’s because Europe doesn’t have much choice.
It is now fairly obvious, the ECB will find some way to bail out Italian banks. Italy’s economic weight is too big. A collapse of the Italian banking system is a real threat to the Euro, and probably the whole EU project.
But, I don’t think a bailout will fix Italy’s problems. At best, it will buy Europe some time.
Let me explain:
A bailout won’t fix Italy’s main problem, because the country hasn’t had any meaningful economic growth since it joined the Euro in 1999. In fact since the emergence of the consumer society, and the predominance of the Service Sector in western economies, no major economy, has experienced rapid economic growth, suggesting the current economic model is flawed, and we will need to start again. How do you serve dinner faster at an old people’s home, unless you put the nursing assistant on skates?
But, even if a bailout can postpone a collapse of Italy’s banking system, it won’t prevent a bubbling political crisis.
You see, right now, Beppe Grillo’s M5S (Movimento 5 Stelle) a populist party in Italy, is gaining control. According to polls, it’s the most popular party in the country. And it’s gaining followers by the day. The party is against Italy’s ruling elites, and is generally thought to be “anti-establishment”. In fact in a meeting between Grillo, and Matteo Renzi – before he became Prime Minister – in April 2014, Grillo even refused to allow Renzi to speak, talking over him, saying he wasn’t prepared to engage with him, in a democratic way, because Renzi was a tool of the elite – according to Grillo.
M5S blames Italy’s economic problems on the Euro and immigration from south of the Mediterranean. Grillo, wants Italy to go back to the Lira, its old currency. Some think the party could even rise to power as soon as this October…(perhaps the SHTF moment?)
If this happens, Italy will likely hold a referendum like the UK did. But, this time, Italy will decide if it wants to stay in the Euro or go back to the Lira. If Italy votes to leave the Euro, the fallout could be far worse than what happened with Brexit.
Italy leaving the Euro would destroy confidence in the currency. and this could be devastating for the project. Like all paper currencies, “confidence” is all that backs the Euro.(Unlike Gold and Silver, which have intrinsic value) If people lose faith in the Euro, it will literally become worthless, and this could happen sooner than most people think. Which is why, those Bankers are trying to get rid of Cash, so that in extremis, every transaction is monitored, controlled and entered onto a ledger in a computer somewhere, so that Governments can grab a slice of every transaction, and thus pay back the debt encouraged by those “Too big to Fail” banks. Of course they won’t tell you that though.
But it also means they can fire those tellers working on Bank Desks, and make even more in their annual bonuses, while all they are doing is shuffling electrons around on a large computer network, because, they’ve also got Bitcoin, and the other digital payment methods snapping at their heels.
However, Italy, in 2015, was the 4th largest economy in Europe, and in the G8 of world economies. If it leaves the Euro, it would probably be the beginning of the end. I think it could destroy the currency. Without the Euro, the economic linkages between EU countries would weaken. This could be a fatal blow to the EU itself.
Bottom line, the Euro and the whole EU project could very well die in Italy over the next six to twelve months. This would be “the biggest geopolitical event since World War II” – even bigger than Brexit… It could trigger a global stock market crash. It could drag the world deep into depression. It could even spark a global currency crisis. Of course, there’s no way of knowing exactly what will happen. But, as I’ve said before, the EU is one of the biggest economic experiments in history. As many see it, the Bankers put the cart before the horse.
In reality, you need a political and perhaps even a linguistic union before you can hope to have a financial union, because in order to stop one part of the economy from over-heating, forcing up the local currency, or one part of the economy turning down, you need transfer payments, which can only be tolerated if those in the successful parts are willing to at least in part subsidize the poorer areas. The Barnett formula in the UK, was a way of ensuring those in Scotland, Wales and Northern Ireland received more per head from central government, than they otherwise should, from its inception back in 1978 to the present day. The name for the formula comes from the politician – Joel Barnett, who was Chief Secretary to the Treasury and who created it, and it has remained in effect ever since. Of course those areas also receive huge sums from the EU, hence their decision to remain by and large, but this means taxation controlled centrally, with political (democratic?) oversight..
So, the EU, needs a similar political process, but with separate governments, separate political systems and separate historical political leanings, that becomes difficult to enact into legislation and to manage, because it would probably mean Germany, Holland and the industrial heartlands of Northern Europe, subsidizing the rest – particularly the Mediterranean nations. So, a parliamentary union with democratic accountability would be required. But the elite don’t want to allow us ordinary people to decide how our government’s are made up, hence the current technocratic structure.
So, if we are not to be given the vote. We have little control over how the money is raised, and or spent, which means they can just decide to bail themselves out once more, and charge the subsidy to the rest of us. Even though, the European Union has already legislated to ensure that bank bail-outs don’t happen again, the Banks are supposed to behave like Cyprus, and seize their client’s money, raise capital on the markets, and/or shareholders. If you have a large sum, because you have just sold a house, won the lottery or sold your family heirlooms, then your capital and even your salary payments are at risk – you are an unsecured creditor to essentially a computer network, with an armed police force to back up the taxation threat…
If that worries you, then you need to protect yourself. Your first step should be to own Gold and/or Silver. As I’ve often said, Gold unlike any other substance, is real money. It has protected wealth for centuries because it’s durable, divisible, fungible (one unit is the same as any other unit), a unit of account and widely adopted and recognised. Its value also doesn’t depend on any central bank or government. An ounce of Gold, will still buy you a nice suit or outfit, from Savile Row, just as it did a hundred years ago or probably a thousand years in the future.
If the Euro runs into problems as I expect, Gold’s value could shoot to the moon.
So, how does that lead to snipers on roofs?
If those in power, manage to rid the continent of guns, and a major financial crisis occurs, the ramifications of large-scale demonstrations, could lead to further polarisation, of people in politics. In France, “Le Front Nationale” (The French National Front) led by Marine Le Pen, daughter of Mari Le Pen, has been making major headway, and in recent elections has been getting 30% of votes, as many in France fear their loss of culture, and more competition for jobs. In fact she has already been promoting demanding a referendum leading to a French Exit – a so-called Frexit.
The elite fear losing grip on the situation, and just as Fascism took hold in the 1930s, a modern version could take root again. Just as Spain erupted during 1937 into Civil War, when Fransisco (General) Franco, the Nationalist leader, took on the communists and anarchists. A division in politics, we currently see being played out in the civil war, that has erupted in the British Labour Party as the grass roots wants one leader, but the parliamentary party has already made the decision to attempt to select a new more moderate leader, that they feel can win not just the support of the Labour supporters, but the wider public, in the next election.
This mirrors events in 1979, in the aftermath of the Labour defeat to Margaret Thatcher, and the Conservatives, when the party took a step to the left, which the Gang of Four – David Owen, Shirley Williams, Bill Rogers, and leader Roy Jenkins, found a step too far. The step put the Labour Party out of office for 18 years, until Tony Blair resurrected the party and made it electable again. (Only to kill any chance of retaining it, as the Chilcott Report has just proved)
The Labour Party’s division though is merely a symptom of a much larger division emerging world-wide,between those who have a greater understanding of economics that works, and those who have merely wishful thinking, but as Theresa May said in her opening statement upon taking up office, the disparities of recent years cannot continue. Either we all stand together or we fall alone.
And following the election of Mrs Thatcher, the price of Gold shot to the moon, as interest rates were raised to put a stop to soaring inflation, caused in part by lax fiscal policies. Even the Labour leader James Callaghan warned the party as much in the party conference in 1976, when he appeared in Blackpool and issued his now famous rebuke to the party.
You have been warned.
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Oil, Solar, Wind and Water Don’t Mix
It would seem that the Saudis want every one of their oil competitors to go bust in the attempt to tear down the shale oil revolution, only to push oil prices back up again in the future. But do they still have control of the market? Judging by the persistent weakness observed in the oil market, it seems that everything is falling apart, all around the Arabian peninsula. And given events in Nice on Thursday, and Turkey yesterday, it appears that turmoil, is extending further afield.
Oil prices have still not fully recovered from the lows seen at the peak of the financial crisis (in February of 2009). If the current trend remains in place, the market will remain subdued for an extended period. On the one hand, this maybe exactly what the Saudis, and to some extent, the Iranians, want, in order to regain their market share and push other recent entrants out of the market; on the other hand, given that the worst of the recession is behind us, with prices now in the $50-$60 range, that would still be below marginal costs for many oil exploring areas. In fact, one could ask whether these low prices are just the result of OPEC’s output decisions or whether they hide other developments.
Saudi Arabia’s task has been easier than it could have hoped for, due to a mix of international developments. Unlike events in 2009, when oil prices were boosted by a declining US dollar driven by the FED’s massive asset purchases, now QE has for the moment ended, and the interest rates are being talked up again. Anticipation of this event alone has driven the dollar higher, although weakness of other currencies has also contributed, (Brexit, of course, making the pound particularly vulnerable) which has had a negative impact on commodity prices in general, and of course, oil in particular.
2016 – US Outlook
While a rise in US interest rates would have a direct negative impact on oil prices, the eventual effect is usually positive. The reason for this is the fact that a rate hike usually comes at times when the economy is improving and we would then see rising economic activity. This would usually come with higher aggregate demand, which would boost the appetite for energy products.
However, as suppliers attempt to increase production to fill the higher demand for their products, this may be limited as fracked wells do not respond well to just opening spigots, they require more wells, and this requires capital. So, this time, not even an improving US economy might be able to spare oil these losses. Many feel that the excess oil production has been so large for so long, with stocks piling up everywhere, that more demand will merely offset the surplus effect stemming from aggregate output. But that may be just half the story.
Back in November 2015, the IEA predicted a rise in demand for oil of less than 1% per year until circa 2020 and modest growth rates thereafter. If these predictions transpire, it may take years for the current stockpiles to normalise and, unless OPEC and the wider world cuts production, the bearish trend for oil prices may continue for years.
This bearish oil market, is the consequence of depressed demand and over-production, and may not be reversible for several reasons.
The world is in an unfavourable growth scenario, with the US running at the front of the developed world pack, but Europe is still struggling with the aftershocks of the global recession. At the same time, the threat of rate hikes in the US is hitting oil prices and leading to capital outflows in the once high-flying emerging economies.
If the number of SUVs with new more efficient engines, Toyota Priuses, Nissan Leafs and Teslas, I’ve seen locally is anything to go by, the world is moving away from its oil dependence for transport. China is no longer hungrily demanding raw materials to grow its economy, as it moves from an investment-driven economy towards a more consumer-orientated one. Given the China outlook, any change in demand is likely to be lower, and lead commodities into a further bearish market. Because the finding and extraction of raw materials takes years to achieve, past decisions to expand capacity will take time to be reversed, as countries and companies adjust to the new reality. In the meantime, prices will take care of the imbalances but huge volatility is expected. In fact Dr.Kent Moors, sees problems for the oil production companies in the U.S., for a few years yet
So these and other important shifts in the world, – Wind power, Tidal, Solar, and increased Nuclear, with increases in efficiency are all taking their toll. Faced with high oil prices and being dependent on a small group of countries, governments and companies in oil-dependent countries invested in the development of these new energy sources and improvements in the efficiency of the existing ones. Cars, household appliances, consumer gadgets et-al, today need a fraction of the energy they once did.
This means that for the oil market to remain stable and growing, needs higher global GDP growth rates than hitherto. Unlike what many predicted decades ago, it won’t be the supply side controlling this market, leading prices higher, but rather a suspicion of ever decreasing demand. Saudi Arabia may already not be in control of this market and may run into trouble, along with any other entity that is dependent on petro-dollars. Of course, the value of the dollar, as well as whether oil is marketed worldwide in dollars, will ultimately define markets. But reports of a 45% split between oil and the water that is used in the waterflood of old oil wells, is also increasing costs of extraction for Saudi fields, and thus requires a higher commodity price, to balance Saudi national budgets.
Shares in the biggest oil companies trading in the FTSE, like Royal Dutch Shell and BP, lost 40% in the last year before their bounce back in recent months. In less than a year, oil prices retreated 60% and these companies couldn’t avoid the downturn. Smaller companies, including low-cost producers face an even bleaker outlook, as share price declines have surpassed 80% in many cases. Companies operating in the shale oil revolution have been decimated and many won’t be around by year end.
2016 – OPEC Outlook
If OPEC has in the past helped to boost a number of energy alternatives and driven gains in user-efficiency (via higher oil prices), they are now contributing to the development of improved technology on the supply side, as the low price is a great incentive for the remaining companies to increase cost efficiency. A low price will certainly drive many companies towards bankruptcy, but will also force the surviving companies to become highly efficient. Oil projects in remote areas or regions with high risks (being economic, political, or of any other type) will be delayed indefinitely, but part of the shale industry in more productive areas will remain. That industry has effectively placed a cap on oil prices. OPEC won’t be able to drive prices above a certain level, because many companies would enter the market again and force prices down.
The strategy followed by Saudi Arabia has severe shortcomings. This is no longer about the shale oil industry but also about OPEC members. The high production strategy is crippling growth, leading to capital outflows and increasing budget deficits in all OPEC members. Venezuela and Angola are heading towards complete economic and social chaos, with growth spiralling down and oil income not enough to finance government spending.
2016 – Angola & Venezuela
At the beginning of 2007, one US dollar would buy 75 Angolan kwanzas. In early July this year the exchange rate stands at 1 to 165, as a result of declining oil prices. That’s a decline of 50%, but the official rate doesn’t even reflect the observed reality, which is that people aren’t able to get US dollars from banks, and instead are forced to exchange them on the streets at a rate of 1 to circa 300. Many construction companies are already shutting down their business in the country, as the government is delaying payments.
Venezuela, is in even worse shape. In 2011, the Venezuelan Bolivar was 4.3 to the USD, but today stands at circa $1:10.0(VEF). This loss of purchasing power, caused riots after Hugo Chavez died, and the oil revenues upon which the nation depended, bought less and less on world markets. Queues for such luxuries as Toilet Rolls were seen, and the Socialist miracle of Venezuela, is gone, possibly for good.
Angola and Venezuela are the weakest links in the OPEC group and are thus expected to be the first to experience a deterioration in their financial positions following oil price declines. But they won’t be alone in the medium term.
The Long and Short of the Oil Market?
Take the Saudi Arabia case, for example. The country had a debt-to-GDP ratio of less than 2% at the end of 2014 and foreign reserves of around $738 billion (at today’s exchange rate). In a country where people don’t even have any experience of taxes, there seems to be a lot of margin to drive all others bankrupt before feeling the heat. Nevertheless, the country lost $90 billion in foreign reserves in the year to October. If this pace continues, the country will run into trouble in a matter of just a few years. From a balanced budget the country is going to hit a deficit of near 20% this year and another 20% next year (as predicted by the IMF). Oil-producing countries in the Gulf are already tapping money from their sovereign wealth funds to keep afloat.
OPEC long ago shot itself in the foot and will never recover from the damage. While Saudi Arabia tries hard to bust everyone, let’s enjoy the lower oil prices as consumers. As investors, or traders, it may be time to look for something sweeter than oil like cocoa and wait for the markets to stabilise, as price declines aren’t over yet. In the meantime, perhaps time to sell any oil-holdings, and time to buy, commodities that are undervalued and thus oversold? Can you say Gold, Silver, Platinum, Palladium or Crypto Currencies?
