battle royal

Discussion in 'Economics' started by darkhorse, Apr 20, 2004.

  1. I vote for an option the columnist didn't mention - coordinated preemptive policy to dampen a key warning barometer as US stimulus begets inflation and the ECB is eventually forced to ease.

    If things get really interesting, gold vs central bankers = irresistible force vs immovable object. More wild swings than Studio 54. Cool.

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    Why Is Europe Now Breaking Into Its Gold Vaults?: Matthew Lynn

    April 19 (Bloomberg) -- Gold has always attracted its fair share of eccentrics. More than any other commodity in the financial markets, it has provided a haven for oddballs and conspiracy theorists.

    Right now, they can have a field day. Something strange has been happening in the gold market. Europe looks to be bailing out of the metal as gold prices soar and politicians squabble with central bankers over how to make use of the proceeds.

    In France, the new finance minister, Nicolas Sarkozy, is arguing for the Bank of France to sell some of its gold.

    A hundred metric tons of gold is worth about 1 billion euros ($1.2 billion), which would yield from 35 million to 40 million euros a year if the proceeds from the gold's sale were invested in assets earning interest, Sarkozy told lawmakers in France's lower house of parliament last week.

    The bank's governor, Christian Noyer, has already said he will decide before October whether to start selling as much as 100 tons of gold annually, and invest the money instead in assets yielding interest, according to the French newspaper Le Parisien.

    It sounds like Sarkozy has already made up his mind.

    In Germany, Ernst Welteke resigned as Bundesbank president on Friday after being embroiled in a row over a hotel bill in Berlin. Behind that may be a disagreement about Germany's gold reserves. Welteke's son, Hans, has claimed his father argued with German Finance Minister Hans Eichel over how to use the money raised from selling some of the country's gold reserves.

    This year, Welteke said he won an option to sell 600 tons of gold or as much as 20 percent of the country's reserves over five years. The Bundesbank has disposed of only 29 tons of gold coins since 1999.

    Gold Sale

    Welteke's option to sell more gold was part of an accord between the euro-region's national central banks, the Swiss National Bank, Sweden's Riksbank and the European Central Bank last month. Under the agreement, the main European central banks may sell as much as 500 tons of gold between them each year -- an increase on the annual limit of 400 tons agreed to in 1999.

    With so much gold coming into the market, N.M. Rothschild & Sons Ltd., the world's second-largest closely held investment bank, may even regret the decision announced last week to pull out of commodities trading and withdraw from the London gold fix, the price-setting institution it hosted for 84 years.

    If both France and Germany start selling gold, it may have a big impact on the market. According to World Gold Council figures, both countries are among the largest holders of gold in the world.

    Country Rankings

    The U.S. is the largest, with more than 8,000 tons. Germany comes next, with about 3,400 tons, followed by the International Monetary Fund with more than 3,200 tons. The French have about 3,000 tons.

    The next largest holders are also European: The Italians have 2,451 tons, and the Swiss 1,592.

    The Swiss have been selling some of their gold. The Italians may have to do the same. Given the size of that country's budget deficit, and Prime Minister Silvio Berlusconi's determination to push through tax cuts, all that shiny metal must be looking very tempting.

    The gold holdings of the big European countries have been remarkably stable over the past 30 years. Take a look at the French and German figures. According to the World Gold Council, the French held 3,139 tons in 1974 and Germany had 3,658 tons.

    Since they've kept it for so long, why are European countries looking to get rid of their gold now? Would it be wise?

    Three Obvious Reasons

    There are three obvious reasons why Europe is thinking hard about emptying its gold vaults right now. And one subtle one.

    Let's start with the obvious.

    One, the gold price is high. At more than $400 an ounce, the precious metal is at its highest in years. Back in 1999, gold went as low as $252 an ounce. UBS AG predicts it could reach $480 an ounce within a year.

    Two, unless you melt it down for rings, it's useless. Gold no longer has any formal role in the monetary system. And, unlike some other assets, it doesn't really pay much in the way of dividends. Instead you have to pay guards to look after it.

    Three, some EU countries need the money. France and Germany, and most of the other European nations, are running big budget deficits. Economies are weak. There is no scope for tax increases. Why not sell some of that gold?

    All three of those are good reasons for running down central bank holdings of gold. Indeed, the British have already acted on precisely that basis. Under a 1999 agreement, the Bank of England disposed of 395 tons of gold in 17 separate auctions completed in March 2002, unfortunately before the steep price increase.

    Euro's Role

    There is another more subtle reason: the euro.

    Rationally, there is no special reason to have vaults full of gold, certainly not to the extent the European national central banks still do. Gold represents 46.5 percent of Germany's total foreign reserves, and more than half of France's, according to the World Gold Council.

    Why so much? The Swedes have only 11 percent of their reserves in gold, and the Irish just 1.7 percent -- and both have strong economies.

    When euro-region countries had their own national currencies, there was a temptation to keep some gold in reserve. It was a financial security blanket. You never know when the world might be plunged into chaos. You might need that gold to support your currency.

    The euro has changed that. France and Germany, and the rest of the euro nations, no longer have to defend a currency on their own.

    And if the euro were to collapse during a crisis, a few thousand tons of gold here or there probably wouldn't make much difference.

    The creation of the euro has severed the emotional ties between Europe's central banks and their gold vaults. They probably can't be restored now -- and the market should expect to see a lot more of the metal sold under future accords.
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  2. If you still don't know that the politicians don't decide anything especially about the Central Bank policy : neither in Europe nor in Us : they are independant. Politicians serve only to endorse the responsabilities in front of public opinions : they are puppets.
  3. Doesn't matter whether they're taking orders or not; they can read the writing on the wall.
  4. All central banks including the US FED are only submitted to one authority: the mother of all central Banks: the Swiss Central Bank or BIS - Bank of International settlement. All central banks decisions are concerted by the BIS so it is laughable when people believe the medias that Japan central Bank is acting against US Central Bank or vice versa it's a comedy because the FED cannot devaluate the dollar in front of his public opinion they use a foreign central bank to do the work so that it saves their face that they devaluate their own currency haha !

    If you don't know the Bank of International settlement this is an article:
    Ten times a year— once a mouth except in August and October— a small elite of well dressed men arrives in Basel, Switzerland. Carrying overnight bags and attache cases, they discreetly check into the Euler Hotel, across from the railroad station. They have come to this sleepy city from places as disparate as Tokyo, London, and Washington, D.C., for the regular meeting of the most exclusive, secretive, and powerful supranational club in the world. Each of the dozen or so visiting members has his own office at the club, with secure telephone lines to his home country. The members are fully serviced by a permanent staff of about 300, including chauffeurs, chefs, guards, messengers, translators, stenographers, secretaries, and researchers. Also at their disposal are a brilliant research unit and an ultramodern computer, as well as a secluded country club with tennis courts and a swimming pool, a few kilometers outside Basel.

    The membership of this club is restricted to a handful of powerful men who determine daily the interest rate, the availability of credit, and the money supply of the banks in their own countries. They include the governors of the U.S. Federal Reserve, the Bank of England, the Bank of Japan, the Swiss National Bank, and the German Bundesbank. The club controls a bank with a $40 billion kitty in cash, government securities, and gold that constitutes about one tenth of the world's available foreign exchange. The profits earned just from renting out its hoard of gold (second only to that of Fort Knox in value) are more than sufficient to pay for the expenses of the entire organization. And the unabashed purpose of its elite monthly meetings is to coordinate and, if possible, to control all monetary activities in the industrialized world. The place where this club meets in Basel is a unique financial institution called the Bank for International Settlements-or more simply, and appropriately, the BIS (pronounced "biz" in German).

    THE BIS was originally established in May 1930 by bankers and diplomats of Europe and the United States to collect and disburse Germany's World War I reparation payments (hence its name). It was truly an extraordinary arrangement. Although the BIS was organized as a commercial bank with publicly held shares, its immunity from government interference, and even taxation, in both peace and war was guaranteed by an international treaty signed in The Hague in 1930. Although all its depositors are central banks, the BIS has made a profit on every transaction. And because it has been highly profitable, it has required no subsidy or aid from any government.

    Since it also provided, in Basel, a safe and convenient repository for the gold holdings of the European central banks, it quickly evolved into the bank for central banks. As the world depression deepened in the Thirties and- financial panics flared up in Austria, Hungary, Yugoslavia, and Germany, the governors in charge of the key central banks feared that the entire global financial system would collapse unless they could closely coordinate their rescue efforts. The obvious meeting spot for this desperately needed coordination was the BIS, where they regularly went anyway to arrange gold swaps and war-damage settlements.

    Even though an isolationist Congress officially refused to allow the U.S. Federal Reserve to participate in the BIS, or to accept shares in it (which were instead held in trust by the First National City Bank), the chairman of the Fed quietly slipped over to Basel for important meetings. World monetary policy was evidently too important to leave to national politicians. During World War 11, when the nations, if not their central banks, were belligerents, the BIS continued operating in Basel, though the monthly meetings were temporarily suspended. In 1944, following Czech accusations that the BIS was laundering gold that the Nazis had stolen from occupied Europe, the American government backed a resolution at the Bretton Woods Conference calling for the liquidation of the BIS. The naive idea was that the settlement and monetary-clearing functions it provided could be taken over by the new International Monetary Fund.

    What could not be replaced, however, was what existed behind the mask of an international clearing house: a supranational organization for setting and implementing global monetary strategy, which could not be accomplished by a democratic, United Nations-like international agency. The central bankers, not about to let their club be taken from them, quietly snuffed out the American resolution.


    Occasionally there is an extraordinary situation, such as the decision to sell gold for the Soviet Union, which requires a decision from the "governors," as the BIS staff calls the central bankers. But most of the banking is routine, computerized, and riskless. Indeed, the BIS is prohibited by its statutes from making anything but short-term loans. Most are for thirty days or less that are government guaranteed or backed with gold deposited at the BIS. The profits the BIS receives for essentially turning over the billions of dollars deposited by the central banks amounted to $162 million last year.

    As skilled as the BIS may be at all this, the central banks themselves have highly competent staffs capable of investing their deposits. The German Bundesbank, for example, has a superb international trading department and 15,000 employees— at least twenty times as many as the BIS staff. Why then do the Bundesbank and the other central banks transfer some $40 billion of deposits to the BIS and thereby permit it to make such a profit?
  5. Even if this is true it doesn't change anything.

    If the dollar goes into freefall and gold skyrockets, central bankers' most logical course of action would be to sell gold and buy US treasuries to try and preserve the fiat structure.

    From a macro perspective, the USD is "too big to fail." At least for now anyway.
  6. they're can't even take orders because monetary orders completely escape them: it is in the hand of the Central Banks. And it will be more and more worse with Europe Entity as all decisions will be taken by bureaucrats who have not even been elected.

  7. Why do you think that financial globalists care about dollar, euro, or any other other currency since they can just invest in any currency ? Stop your local thinking and think globally since you pretend to be for globalism. If they care about the dollars it's only that they now need to take their partial profit after shorthing it. Long term, dollar aims to fall at 50% of his highest value. Don't tell me it's impossible since it has already happened in the past. For now until election they would avoid to do so: see my signature.


  8. An orderly fall would be one thing, a total implosion quite another.

    Think of water moving through pipes. At a normal rate of flow, the system remains intact. But if there is too much water and too much pressure, the pipes explode.

    A violent dollar meltdown and ensuing chain reactions would send major shockwaves through the global economy and potentially disrupt the entire fiat currency structure itself. That wouldn't be good for any central banker. They all have an interest in preserving the game.

    The plan is to manage the dollar downward; it's if / when they lose control that things will get interesting.
  9. That wouldn't be good right, but if each time something that wouldn't be good never happened we would have already paradise on earth :D.

    #10     Apr 20, 2004