Gold, the SDR and BRICS

http://www.goldmoney.com/research/analysis/gold-sdr-brics

Gold-Backed SDR "Is Quite Likely To Happen", LSE's Lord Desai Warns

http://www.zerohedge.com/news/2015-04-12/gold-backed-sdr-quite-likely-happen-lses-lord-desai-warns

Treasuries lack safety, liquidity for China

When your largest creditor wants to turn off the spigot, and your citizens back home are losing their jobs, their homes, and net worth, it's "uh-oh" time.

http://www.businessweek.com/news/2010-08-03/treasuries-lack-safety-liquidity-for-china-yu-says.html

The Chinese are diversifying away from USDollar-denominated assets, and looking at Special Drawing Rights as an alternative reserve currency. They're also accumulating gold.

BIS gold swaps (part 2)

Thanks to Dick for bringing up this article.

http://www.zerohedge.com/article/guest-post-gold-swap-signals-roadmap-ahead

See BIS gold swaps (part 1) here.

Here are my unedited comments:

I read another article which hinted that Portugal was indeed the country that swapped out their gold to cover the bills. The BIS is a very private organization that meets 10 times a year in Basel. It's in a building that has no signs. Swiss citizens pass it every day and don't even know it exists.

Think of them as a big pawn shop for central bank gold. If you need cash, whether in Euros, dollars, etc., just swap out your gold, and receive the currency requested. If you fail to repay the cash, you lose the gold. That article correctly states gold is double-counted--I'll extend that argument further and say it's counted 45 x, which means the other 44 people who think they have ownership to the gold (unallocated), don't really own that gold. They are paper certificates with no ownership rights.

I'll connect the dots, and declare if/when we transition away from the USDollar, whether it's another paper currency like the SDR, gold as priced in USDollars, will soar. In fact, eventually, the SDR will lose its luster too, because it's made up of a basket of four other paper currencies: the USDollar, yen, British pound sterling, and Euro--none of which are backed by gold either.

So they are merely replacing one paper currency for another, although the SDR will give a semblance of stability, since the devaluation risk is spread out between 4 doomed currencies, instead of one. I don't see how the Chinese and Russians will like this solution either.

But whether the SDR becomes the de facto currency or not, and whether a gold-backed currency becomes the new reserve currency, it spells doom for the USDollar, priced against gold. And since our trades are based on a higher price for gold in USDollars, we will do well. How well is the question. If the transition goes well, and the paper chase is concealed for another decade, gold will rise to $2500. If the formula doesn't work well, gold will be $6300....priced in US Dollars, of course.

I'm more convinced than ever this scenario will happen, and that markets will react violently after the Ponzi schemes of central bankers are exposed. The sad truth is that it doesn't have to happen. Imagine if gold were worth $12,000 an ounce tomorrow, ten times what it is worth right now in the spot market. All of a sudden, the US balance sheet looks a lot better, because the Assets side of the ledger just went up by a huge amount, somewhat offsetting our huge Liabilities (I'm assuming the Fed still has the gold they claim to have in Ft. Knox and the New York Fed, which is a big assumption, given there has been no independent audit since 1953).

But government officials and bankers are too worried about what soaring gold prices signal to the markets, and they're too worried their Ponzi schemes being exposed. Re-valuating gold at much higher prices would be an admission of guilty for decades of price manipulation. But it would also relieve them of the huge burden of being too under capitalized, much like an insolvent bank is.

When your crown jewels are re-valuated at much higher prices, you now have much more equity from which to make loans against. For example, if your house value increased from $1 million to $10 million, you can now tap that additional equity of $9 million and put it to work for you. Government officials and central bankers are more worried about soiling their reputations, so they continue on their search to extend the shell game, instead of focusing on fixing the structural problems of RECAPITALIZING THEIR ASSET BASE and producing income again to pay off their enormous debts.

FDR did this in 1933 by confiscating private gold at $20.67 and later re-valuating gold officially at $35. Obama and Bernanke will have to do this also, but their revaluation would have to be significantly higher for it to accurately reflect the huge supply of USDollars sloshing around worldwide, not just in the US. After all, USDollars are held in private hands, commercial banks, as well as in reserve vaults at foreign central banks. Only then will the US Dollar have any link to gold, which encourages sound monetary policy. In our mad world of derivatives, swaps, and endless printing of paper currencies, nothing is backed by nothing, which is exactly why we had the financial collapse in 2008. Lack of collateral caused the collapse of the subprime securitized mortgage bonds when prices of US residential homes went south. Until currencies are backed by gold, a repeat is inevitable.

Re-valuating central bank gold reserves to accurately reflect global money supply will re-energize the sinking world economy, at least in the developed world, as the most indebted European countries and the US have the most gold in their reserves. Emerging growth countries have a disproportionately low percentage of gold in their reserves and are accelerating their gold holdings.

Of course, central bankers won't take steps to restore gold-backed currencies for the aforementioned reasons, but when the world wakes up to the shell game they have been playing, the markets will force their hand, because gold will be priced at much higher levels.

UN recommends abandoning USDollar as global reserve currency

It's been suggested by others, but now the UN is recommending abandonment of the USDollar as the reserve currency in favor of the IMF's Special Drawing Rights (SDR's).

http://www.moneynews.com/Headline/dollar-unitednations/2010/06/29/id/363403

A new United Nations report released on Tuesday calls for abandoning the U.S. dollar as the main global reserve currency, saying it has been unable to safeguard value.

"The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency," the U.N. World Economic and Social Survey 2010 said.

The report supports replacing the dollar with the International Monetary Fund's special drawing rights (SDRs), an international reserve asset that is used as a unit of payment on IMF loans and is made up of a basket of currencies.

"A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency," the U.N. report said.

It said a new reserve system "must not be based on a single currency or even multiple national currencies but, instead, should permit the emission of international liquidity (such as SDRs) to create a more stable global financial system."

The beginning of the end for USDollar hegemony

I have had many discussions among friends about the inevitability of the collapse of not only the USDollar, but all paper currencies. People shouldn't mistake the recent weakness of the Euro as a sign of strength in the USDollar. Almost all developed world countries share the same characteristics of high deficits, huge debts, and weakened economies--with poor prospects for growth. The end of USDollar hegemony is around the corner. Again, it's a matter of when, not if. Sovereign central bankers can paper over their insolvencies for only a finite period of time before the bond vigilantes attack their respective currencies.

Every major trading country has initiated attempts to diversify away from a declining dollar. Part of that strategy inevitably includes adding gold reserves. China, Brazil, Russia, and middle eastern oil-exporting countries have already made plans to trade in currencies other than petrodollars.

http://abcnews.go.com/Business/wireStory?id=9958995

My take is that even if the IMF's Special Drawing Rights (SDR) are used for global trade in lieu of USDollars, hard assets will likely appreciate against any other currencies, due to all four currencies included in SDR's (Japanese yen, British Sterling pound, the Euro, and the USDollar) having been debased by their respective central bankers. It's a mad dash to the bottom, as all countries desperately devalue their respective currencies in an attempt to stimulate their economies. As controllers of the world's reserve currency, the US just happens to be the worst offender.

IMF joining the liquidity party

The International Monetary Fund is now flooding global markets with liquidity, issuing Special Drawing Rights (SDR), which is basically a basket of the USDollar, the Euro, the Japanese Yen, and the Pound Sterling currencies. Due to liquidity exhaustion by the Fed, the IMF is now stepping up in its role as the international central bank, injecting SDR's into the global financial system. Is this inflationary? You decide.



Near the end of the interview, Rickards sums up well the disdain for gold from central bankers:

"The problem is: when you own gold, you're fighting every central bank in the world. Central banks hate gold, because it limits their ability to print money. But the market is the market; the market will do what it wants. Even the central banks are not bigger than the market."