Economics of Disasters
Anyone over 50 (at least in the UK.) will no doubt have learned of so-called Chinese Water Torture, which was discussed in the playgrounds of schools the length and breadth of the country during the 50s, and 60s – perhaps this misplaced discussion was just childish minds being over imaginative, or the result of the war films that were the standard fare of the era, or perhaps just the result of propaganda by a biased media, or just by ill-educated professionals, who had been mis-informed and we juniors picked up on it – we can but speculate.
According to the stuff of legend, this involves suspending a bucket or other recepticle full of water in which a small hole has been punctured, such that water will drip out at a fairly consistent rate over a fairly lengthy period of time.
The torture victim, is placed under this recepticle, and strapped in a fixed position. The slow but monotonous dripping, at first appears to offer no threat to the intended victim, but over time, first becomes an inconvenience, then a minor irritation, then an annoyance, then a major irritation, then downright torturous.
The slow drip, drip, drip, ratchets up the pressure on the intended victim…
Applying the Torture?
So, this analogy brings me to the reason for this tortuous piece.
As I wrote some weeks ago, China informed the world, back in May, that they had improved their Gold holdings over the previous six years from April 2009 at 1,065 tonnes to 1,658 tonnes (allegedly – since many commentators think this was significantly under-reported)
According to reports, China announced it had purchased an additional 19 tonnes in July, but news released a few days ago, says they have also now added an additional 16 tonnes in August. This now brings their total to 1,693 tonnes, and according to silverdoctors.com, they’ve imported “a whopping 112 tonnes” so far in the first half of this year from the LBMA, up from the 110tonnes in the whole of 2014.
So is this “Drip, Drip” of additional purchases the equivalent of the torture method mentioned earlier for the FEDs?
China sold some $94 Billion in Treasury Bills, which might also be sending a signal to those in the non-BRICS Banking world.
And according to Alisdair Macleod, who referenced a Zero Hedge article, he said that if nothing else, it confirms the gold market is plagued by disinformation, not limited to Comex. Besides the conflict between the bears in the futures market and the physical bulls, on one day we are told of record Indian gold and silver imports at 126 and 1,400 tonnes respectively for the month of August (Koos Jansen), and of Indian gold demand “remaining weak” (HSBC). The former is a hard number, the latter an opinion, but it is opinions that are quoted most in the mainstream market commentaries.
Also in August, Chinese public demand reported on the Shanghai Gold Exchange totalled 265 tonnes, so between India and China identified demand exceeded the world’s monthly mine output by about 56% – Over half. Given anecdotal evidence of increasing physical demand from elsewhere in Asia and also in western markets by the general public, the drainage of physical gold previously available to cover futures and forward contracts, as well as unallocated bullion bank accounts is at very high levels. No wonder there is so little registered gold in the Comex vaults.
Alisdair Macleod September 3rd 2015, interview…
Now we hear via Jim Willie interviews, that the Tianjin explosion, may MAY, have been a Langley (i.e. CIA) inspired or managed incident. Remember, this was in an industrial park, port, and the home of a chinese super-computer, which according to JW, managed not only financial transactions of the emerging Chinese Banking and Financial Services Industries, but Chinese Military, and with a footprint of 1,000 square feet is HUGE. Within days of the explosion, the whole of the North-East of the U.S. Airline databases went down. Was this a revenge attack by Chinese hackers? We shall never really know, but we can speculate.
As things stand, the British, German and American Financiers, who essentially rule western industry and politics, will have control wrested from them, when the Chinese wrest control of the Gold market, and Precious Metals are priced in Yuan/Renminbi (RMB) and Chinese currency will be required in most trade deals, and many east-asian nations may, MAY only accept Renminbi for their products, and that will help seal the fate of the dollar.
As things stand now, 32 nations have currency swap facilities with China in Chinese currency, as I suggested some months ago, when Saudi-Arabia began discussing oil deals with China, as a way of balancing the emergence of the changes in the oil markets which have driven down oil prices largely because of fracking, and deep water production made possible by cheap money loaned out in the form of Corporate Bonds, we may see oil wars, but therein lies the problem.
As oil prices have collapsed from their 2007 high of $147/barrel, those corporate bonds, and finance raised to drill for shale oil, will come due, and many of those companies, are now struggling to make money. According to Jim Willie, the oil bond market collapse could be greater than the sub-prime crisis, that exploded onto our screens in 2008.
And at this particular point in time, the world credit markets stand on $700 TRILLION worth of derivatives. When the derivatives market collapses, perhaps as a result of those oil bonds, we could be seeing the end of the dollar empire, and thus the end of Western hegemony.
But this is of course all speculation…
However, when this collapse happens those who have savings in Banks, Savings in Stocks, Savings in Pension Funds, IRAs, SIPPs and bonds, will all suffer. When all those savings – excess savings as “Conant” once in the late 1890s called them, sought out productive assets overseas, in the round advocating a dollar Empire in the process, rush for the exits, from assets with counter-party risk, to assets with none, then the long awaited price reset in Precious Metals will begin.
And this price reset, will cause a spike in metals prices as many of those manipulators, who are currently shorting the price using leveraged shorts in such products as ETFs, ETPs, Options, Covered Warrants, CFDs, Spread-Betting accounts, and Binary options accounts, will all be rushing for the exits at the same time.
And where will the carnage lead them? To the one asset class with no counter-party risk.
Have you got yours yet? The sand in the hour-glass may be fast running out, as reports emerge of severe shortages in small denomination coins and bars. 100 Kilo bars are still plentiful in Silver, and larger bars. This may be a fabrication issue – i.e. refineries struggling to keep up with coin and small bar demand, or it may be that there is an emerging shortage of silver in the supply chain. If you were a miner, would you sell your ore into a falling market?
Remember, no-one will sound the bell identifying that now is the time to act. If you haven’t already begun to prepare, time may be fast running out.
It will be prudent too if Jim Rickards and Bill Bonner are correct, who have been following this inevitable crisis from its inception in the 1970s to its current conclusion, advise us to take currency from our bank account, and keep it outside the banking system, while we still can. About a month’s currency should suffice.
The banking crisis in Cyprus, in 2013, and Greece in 2014/15 were just stepping stones on the way to this one. Legislative changes forcing European Banks to seize their depositors’ currency rather than hit tax-payers for another bailout have been put in place. The digits on the banks ledgers are now theirs, not yours. You have been warned.
This entry was posted in Geo-Politics, Investing, Political Economy & Finance, Precious Metals and tagged Bankers, Central Banks., China, China's Gold, COMEX, Commodities, Debt, Demise of the Dollar, Disasters Financial, Economics of Disasters, End of Empire, Federal Reserve, Federal Reserve System, Gold, Gold and Silver - Banking, Hyper-inflation, Investments, Liberty and Freedom, QE, Renminbi, Silver, Silver-Coins, Treasurys, Yuan.
As we learn of Typhoon Haiyan which thrashed through the Philippines over the week-end, totally devastating that country, On this Remembrance Day, we would do well to perhaps think also of those poor souls who lost their lives – Over 10,000 by the latest reckonings – and no doubt this figure will rise as the latest information comes in, With Vietnam now on the receiving end of the now tropical storm, we need also to consider what the costs will be to the wider economy.
Many purchasers of tech products will no doubt have seen “Made in Vietnam” or “Made in the Philippines” stamped, if not on the outside of the box, then on components and sub-assemblies on the insides.
Global supply chains now extend over many countries, and particularly in South-East Asia, with the skills and abilities of the people to build and repair the many damaged factories and logistics chains perhaps unavailable as these people are occupied just surviving and re-building their own lives and homes – will this affect global markets?
This may have devastating consequences for Global Corporations with facilities in the area of the Storm.
Insurance corporations too, may well be hard hit, as the strongest storm ever recorded with wind speeds in excess of 320Kph were recorded. With Hurricane Sandy still so fresh in Americans minds, Katrina of a few years ago, and now the most recent of these storms causing billions of dollars worth of damage, many will be questioning, “What do we need to do to stem these devastating events?”
One answer maybe to take personal responsibility and to slow consumption of oil-based commodities – particularly those which do not get re-cycled. Though even here, one has to consider whether the amount of energy spent in re-cycling, exceeds that which would be used to produce another product of like or greater capability – “What’s the point of re-cycling my old phone, if I also need a new one, which uses less energy to produce and uses energy more efficiently going forward, and recycling would use more energy than that retrieved?” we might ask.
One also has to consider the cost of capital and energy used in building the plant and equipment used to carry out the re-cycling with efficiency.
In a world of limited money (as was the case before the world of elastic currencies) the users of capital would compete for scarce funds, and this would drive up interest rates, as happened in 1906 when the San-Francisco earthquake caused devastation to that city, and Insurance corporations had to disburse to companies and individuals to help in the re-building process, which caused a liquidity trap, and helped precipitate the 1908 financial crisis, which eventually ushered in the Federal Reserve some 5 years later.
These are not easy questions to answer. Without the statistics readily to hand, individual consumers cannot make these decisions easily. This therefore places greater emphasis on transparency and full-disclosure made available by enforcing legislation at the State and International levels. European legislation here therefore has a bigger role to play in proposing and enforcing these legislative practices.
But we might also wonder, if some countries return to commodity backed currencies (Precious metals being the most likely) then the chance of that happening again increase unless savings increase in line with interest rates. BUT, what would rising interest rates do for the Western economies, given how much has already been borrowed from the printing presses of the Federal Reserve and PBOC and Banks of England and Japan?
The South East Asian area has had more than its fair share of disasters in recent years too, with the Boxing day Tsunami of 2004, and the one which devastated Fukushima in Japan in October 2011, and to make matters worse, there is increasing volcanic activity in the region with explosions and plumes in Sumatra, and Sunda Islands of Indonesia, Papua New-Guinea and all along the edge of the Australasian tectonic plate.
Is this the start of an era which calls upon the whole world to come together, to assist one another, or are we going to revert to type and become protective of our individual territories and economies, that resulted in the events of the early 20th Century?
We shall see…