By Claus Vistesen, on August 22nd, 2011
The Calafia Beach Pundit raises an interesting question in relation to the recent surge in the US money supply which he suggests might be a reflection of a scramble into USD assets. More specifically, the argument would seem to be that a silent run on European banks is in the works as money is moved into perceived safe USD liquid assets.
As this chart of the M2 measure of money supply shows, it has gone on to experience a gigantic surge in the past seven weeks. M2 has risen almost $420 billion since the week of June 13th, on average almost 60 billion per week. To put this in perspective, annual M2 growth has averaged about 6% per year since 1995, and growth at this rate would translate into about $10 billion per week. In other words, M2 normally would have grown by $10 billion a week, but instead has grown six times faster. M2 has never grown this fast in a seven week period for at least the past 50 years. No matter how you look at it, this is a major event.
Where is the growth in M2 coming from? Virtually all of the increase can be traced to savings deposits (up $267 billion) and checking accounts (up $148 billion). Now we know why several large banks have announced they will now begin to charge customers who have over $50 million on deposit—they don’t know what to do with all the money coming in.
Clearly, the theoretical argument is sound here. In a world populated by different paper currencies a surge in liquid deposit assets of the reserve currency in times of crisis reflects preference for liquidity and safety. However, the idea that money is now systematically fleeing Europe is new and disturbing. The news last week that the ECB had to supply 500 million USD to an un-named Eurozone bank has added further to the speculation.
However, there are two problems here. Firstly, as Simon Ward points out, the data does not quite support the idea of capital flight from the Eurozone. Especially, one would have expected the EUR/USD to have reacted strongly on a flight of the Eurozone to USD assets.
Scott Grannis, for example, argues that US money demand has been boosted by massive capital flight from the Eurozone as investors anticipate a break-up of the single currency. The US money supply gain, however, has not, to date, been fully offset by Eurozone weakness – G7 monetary growth, therefore, has risen. Eurozone figures for July, released next week, could conceivably change the story but would need to show a large decline to offset US strength.
The Grannis theory of a huge capital inflow to the US from Europe, in any case, is inconsistent with the stability of the euro / dollar exchange rate in recent weeks.
Of course, someone else could be doing the bid on the EUR/USD (Voldemort?) but more specifically we should also observe a blow out in the Eurozone interbank spreads and while we may still see this in the coming weeks we have not seen anything resembling 2008 levels of panic.
Secondly, Simon Ward points out that even if you adjust for a plausible measure of liquidity preference money growth in the US is still strong which suggests that we cannot linearly equate a spike in the US money supply with capital flight from the Eurozone.
Another point worth considering here is that while the USD certainly must still be considered a safe haven other currencies have taken up this role especially in the wake of the debt ceiling debacle which saw the US lose its triple A rating from S&P. The CBP points out in the comments section;
(…) it’s true that the euro isn’t falling against the dollar, but both are falling against gold, the swiss franc, and the japanese yen. With currencies, everything is relative.
Especially the ascend of the CHF has seen the Swiss National Bank retort to more or less desperate measures to rid its currency of its safe haven status as it deems the Swissie to be severely overvalued.
At the end of the day, the answer must be found in deposit growth in the Eurozone. We have observed for a while how the periphery has been bleeding deposits which logically have been moving to the core (or so I assume). But generally, the total stock of money in the Eurozone has been volatile around a flat trend since 2008 which makes it difficult to interpret spikes and dips in the data. I will be looking closely at Eurozone deposit data next and will report back if I find something interesting.
By Bron Suchecki, on April 22nd, 2011
I consider comments like these below from a high profile business executive (as reported by The Australian) as significant. You can be sure the smart money is now positioning itself. THE world economy is on “life support”, living beyond its means, with the threat of a cataclysmic shock within the next eight years, ABC chairman Maurice Newman warned yesterday. The former chairman of the Australian Securities Exchange, who is also a director of the Queensland Investment Corporation, said the Australian economy was better placed than many others to withstand the potential major shock to the world trade and financial system. But he warned that Australia had only a few years to get its economic house in order …
“We are nearing an endgame, which I put at no more than eight years away, possibly less,” he said. He warned that policy failures of governments, rising social costs and financial market volatility would “create a crisis” that would trigger “widespread trade and capital market dislocation”. …
But investors needed to prepare for the crisis by de-risking their portfolios and cleaning up their balance sheets. Australians needed to press their political leaders to make the economy more competitive.
Mr Newman predicted that the coming financial crisis could trigger an end to the role of the US dollar as the reserve currency of the world. He said it could be replaced by a system of International Monetary Fund drawing rights, which could be made up of a basket of currencies including the Chinese renminbi and gold.
By Bron Suchecki, on October 22nd, 2010
WHAT OTHERS ARE THINKING
An example of “gold blindness” from Barry Eichengreen, Professor at the University of California in his recent article on reserve currencies:
“… the view that there can be just one international and reserve currency at any point in time is inconsistent with history. Before 1914, there were three international currencies: the British pound, the French franc, and the German mark. The dollar and the pound then shared international primacy in the 1920’s and 1930’s.”
While there may have been many paper currencies, he ignores the fact that in times past the various versions of gold standard in operation meant that gold was in effect the underlying sole reserve currency.
He also has an interesting view of central bankers, stating that their “… reserve managers do not have the high-powered financial incentives of hedge fund managers to seek to maximize returns. … They have social responsibilities, and they know it. This means that they have less incentive to herd – to buy or sell a currency just because everyone else is buying or selling it. They can adopt a longer time horizon, because, unlike private fund managers, they do not have to satisfy impatient investors. Compared to private investors, then, central-bank reserve managers are more likely to act as stabilizing speculators.”
Well, in respect to gold I think the documented switch by central banks in general from selling gold to buying it could be used to make a case that they are herding along with impatient investors. In fact, it would probably be more accurate to say they are following rather than herding, as central banks were selling all the way through gold’s 10-year bull market, only switching to net buying in 2009. Question is why the switch? For “social responsibility” reasons or as (un)stablising speculators?
By Trace Mayer, on February 9th, 2010
When a daisy chain of retrocessionaires exists, a single weak link can pose trouble for all. In assessing the soundness of their reinsurance protection, insurers must therefore apply a stress test to all participants in the chain, and must contemplate a catastrophe loss occurring during a very unfavorable economic environment. After all, you only find out who is swimming naked when the tide goes out. At Berkshire, we retain our risks and depend on no one. And whatever the world’s problems, our checks will clear. – Warren Buffett in the 2001 Berkshire Hathaway Chairmen’s Letter 
Having read all of the Berkshire Hathaway Chairman’s letters I can attest that there are many pearls of investing wisdom contained therein. I prefer to keep my capital safe and not dependent on insolvent banks, which are barbarous relics compared to digital gold currency, in order for my checks to clear. Just look at the FDIC failed institution list. Nevertheless, the Great Credit Contraction grinds on and it appears the next round is imminent; a Laboon is coming. As Australia’s News reports for the week of 6 Feburary 2010,
Representatives from 24 central banks and monetary authorities including the US Federal Reserve and European Central Bank landed in Sydney to meet tomorrow at a secret location, the Herald Sun reports.
Organised by the Bank for International Settlements last year, the two-day talks are shrouded in secrecy with high-level security believed to have been invoked by law enforcement agencies.
If the recovery is doing so well and if the credit crisis has subsided then why all the secrecy? Why not tell everyone, openly, the true state of affairs? Why does the Fed deny release of gold swap information under the FOIA requests from GATA? But we know why. Vampire squids operate in the shadows of secrecy and evaporate in the sunlight of truth.
THE LAST DAYS OF LEHMAN BROTHERS
Over the weekend I watched The Last Days Of Lehman Brothers and found it pretty entertaining. For those who have not seen it I would recommend picking up a copy.
The day of reckoning has only been delayed and will be intensified. This round will be attacks against currencies not investment banks. Perhaps that day of reckoning is coming sooner?
EURO BEGINS EVAPORATING
The only plausible fiat replacement for the FRN$ is the Euro. But if you think the FRN$ has problems the Euro’s are a multitude greater. But after the Euro evaporates, and it will eventually, then it will be time for the FRN$ to evaporate. There is only one alternative for the world reserve currency.
On May 20, 1999 Alan Greenspan testified before Congress, “And gold is always accepted and is the ultimate means of payment and is perceived to be an element of stability in the currency and in the ultimate value of the currency and that historically has always been the reason why governments hold gold.”
WHEN THE TIDE GOES OUT THE LABOON COMES
In Southeast Asia on the coasts of Thailand and Burma (Myanmar) live the Moken people who catch fish for their sustenance. For hundreds of years the tribal knowledge of the sea has been passed from father to son. One sign of particular importance is when the water recedes. Why? Because then soon comes the ‘Laboon‘ – a wave that eats people.
The elders of the village saw this terrible sign in December of 2004 when the massive tsunami slammed Southeast Asia killing over 200,000 people. I am sure the greyheads shouted and hooped and hollored in an attempt to warn everyone to run to higher ground. And like humans are I am sure not everyone listened or was liquid enough to move and undoubtably some must have perished in the Laboon.
In the financial world, gold is the highest ground to protect against financial asset destruction because it is the King of Commodities, the ultimate means of payment and is always accepted. Gold can stay at the bottom of the ocean for 500 years and still have the same amount of value when you pull it out. In other words, you can wait any crisis out indefinitely.
On the other hand, when you are in money market funds, auction rate securities, the massive bond market, (nationalized) retirement accounts, frozen bank accounts in Greece or Iceland, Monex, Failure-To-Delivers that weave the fiction of liquidity on the NYSE through the DTCC, or any other multitude of financial asset then you do not own an asset with intrinsic value. That asset can become either worthless or not be accepted for value like with ARS, CMBS, and etc. which makes H.R. 4248 The Free Competition In Currency Act of 2009 all the more important.
THE GOLD PULLBACK WAS HIT
On 28 December 2009 in Third Round Of Gold Upleg Ready To Start I concluded,
Sure, the third round of the upleg could not materialize for any number of reasons such as interest rates being raised, the mythical Cibola being discovered, etc. As the upleg progresses the gold to silver ratio should probably close from the current 63.27 towards a more normal 50-55. The better time to buy gold, silver or platinum was before the first or second rounds of this upleg. But if the precious metals are absent from one’s portfolio then the second best time to buy them is now although the real bargain may be around $1,050-$1,080 but we may not see that.
With gold trading around $995 on 9 September 2009 in Gold Party Barely Started I wrote, “This puts $1,300 gold and $25 silver within range without greatly exceeding previous trading norms”. With the current silver to gold ratio at 70.8 silver looks increasingly cheap.
I reiterated the opinion of $1300 by Q2 2010 on 9 October 2009 when interviewed on BNN. About a month later I was joined in the $1300 price target by Paul T. Jones II of Tudor Investment Corporation and on 4 February 2010 John Embry of Sprott Asset Management, a long-time gold advocate, chimed in with a similar opinion.
Gold should continue to consolidate over the next few weeks but, the next big move is likely to be up.
This is the view of Sprott Asset Management’s chief investment strategist John Embry, who says he is looking for the price of the yellow metal to hit around $1,350 to $1,400 by late spring.
CONCLUSION
The Last Days of Lehman Brothers, like the movie Rollover, is playing out before our eyes but not with investment banks but with currencies, the common stock of nations. A memorable quote was, ‘Nothing is something.’ And that is the reason to own gold. As The Great Credit Contraction grinds on capital will oscillate in waves between gold, the FRN$ and the Euro as capital seeks safety and liquidity which results in the fictitious capital being evaporated. For those who have not secured their financial castle on high ground, now is not the time to be hunting around for sand dollars in the retreated water.
The bailouts, quantitative easing and gigantic government enforced Ponzi scams known as retirement schemes will only cause the Laboon, which currently races towards the financial shore at a breakneak pace, to be that much larger and more intense. Despite what Geithner shrills, Treasury debt will not only lose its Aaa status it will eventually become worthless. The impotent costumed officials will be no more successful at holding off the Laboon than King Cnut was in ordering the sea to go out.
DISCLOSURES: Long physical gold and silver with no interest in sovereign debt from Greece, Portugal, Italy, Ireland, Spain, etc., Euros or the problematic SLV, Streettracks Gold ETF Trust Shares or the platinum ETFs.
By Claus Vistesen, on February 4th, 2010
Watching, monitoring, and analysing the economy and her markets is as much about tracking discourses (and how they change) as it is about perusing data material on various leading and lagging indicators. And thus, as I am still knee deep into putting the last touch on my thesis [1] I thought that I might as well move in with some random shots at what just might (or might not) be a subtle change of discourse in the context of the areas of the economy I am interested in.
Rallying Risky Assets no More?
The first interesting piece that got my attention was the coverage by FT Alphaville’s Tracy Alloway of this week’s musings by JPMorgan and UBS about whether the recent dip in risky assets (and subsequent rally of the buck) is a decisive turning point or merely a blip à la Dubai.
In terms of a change in discourse there is not much in the way of one as e.g. JPMorgan’s equity team concludes;
We advise adding to positions on weakness and would revisit this view if jobless claims were to move back towards 500k, if Greek default becomes a reality or if manufacturing leading indicators roll over.
Now, this appears as full out frontal bid on equities to me since if jobless claims were to move into the 500ks it would not, I presume, happen overnight as well as a de-facto Greek default would constitute, an ex-post, post mortem on an equity market in shambles as it would surely wreck havoc even in the initial stages. As for the leading indicators they are of course, by nature leading and thus this may be the figue leave JPMorgan can cling on to if and when they decide to back pedal on this bullish strategy. More generally, UBS is quoted of pointing to three sources for the recent dip in risky assets and thus immediate source of a sudden correction. The first is the growing worry by part of Chinese policy makers of the bubblicious state of the economy and thus the incipient signs of monetary tightening. The second relates to the recent barrage from Obama against the financial sector and especially, I assume, the declared war against proprietary trading which has been the source of fat profits for the likes of Goldman, illuminati, Sach, Morgan Stanley and other of their ilk. Finally, there is of course the growing unease in the market place with the unfolding mess in the Eurozone where Greece is still taking center stage teetering on the brink of a bailout in the form of either and IMF led representation or an internal agreement with the EU.
While I certainly agree that those factors represent sand in the otherwise smoothly running machine of excess liquidity driving the rally in risky assets I tend towards a more straightforward source of a potential correction. Consequently, and for all the stimulus and inventory driven growth we are currently observing I think that final demand at the end consumer as well as the willingness and capabilities of companies to ramp up investment will disappoint thoroughly to the downside. The need to rebuild balance sheets and deleverage across all sectors of the real economy will trump the current positive discourse. It is ironic in this sense that the current flurry on government deficits (especially in the Eurozone) represents exactly the inflection point reached by many OECD governments with respect to the need to decisively rein deficit spending in order to put in a reasonable effort at covering future age related liabilities (as the principal although not only reason). In short; it is really difficult to see from which sector in the real economy we are likely to see a recovery to confound the current expectations in the market.
Yet, as is clear from the latest equity research from the good equity analysts at JPMorgan and UBS the discourse is still fixed on recovery. My bet though is that it will change at some point in 2010 in line with the lack of response from the real economy in taking over from stimulus driven growth, but of course; when it comes to the movements of stocks … I am not the right one to as. Really, I am not!
Speaking Truth on Japan
Meanwhile in Japan it was interesting to note the comments by economist at the BOJ Kazuo Momma who managed to pinpoint with surgical precision what exactly Japan’s current woes are in terms of macroeconomic dynamics;
(Quote Bloomberg)
Japan’s economy is far from achieving self-sustained growth as the export-led recovery fails to spur spending at home, according to Kazuo Momma, the Bank of Japan’s top economist. “The risk that the Japanese economy will fall off from a cliff is small, but there is still a long way to go,” before the expansion becomes sustainable, Momma said in Tokyo today. “Even if the global economy continues to recover, the spread of that to capital spending and the labor market will be limited.”
The key thing to notice above and beyond the real economic effects in the form of entrenched deflation and low growth is the failure of the momentum from external demand to reach the domestic economy. Perhaps more than anything this is the defining characteristic of the Japanese economy and, I would argue, export dependent economies in general. Consider also that the discourse on Japan to large extent has been solidly anchored in the expectation that the strong momentum of the export related activities would eventually lead into a positive feedback loop with domestic activity. This has so far closely resembled the well known perennial wait à la Beckett and it is worth I think to ask what exactly underlies this disconnect in the economy. In this sense, I thought it interesting that Mr. Momma and thus the BOJ moved in with such a decisive recognition that something seems thoroughly broken in terms of the ability of the domestic Japanese economy to gain traction.
Elsewhere on Japan I also took note of the veritable tableau d’horreur in the context of the estimated fiscal outlay in the coming years. Consequently, recent numbers from the ministry of finance suggest that Japan will up the its bond issuance by as much as 16% moving towards 2013. Concretely, the butcher’s bill is estimated to total 51.3 trillion yen in the year starting April 2011, 52.2 trillion yen in the fiscal year of 2012 and 55.3 trillion yen in the fiscal year of 2013. Naturally, former minister and now opposition member Yoshimasa Hayashi was quick to slam on the critique simply noting that it was unclear whether the new DPJ led government was worried at all about the fiscal conditions of Japan’s economy. Specifically Mr. Hayashi worries about 10 year yields which I reckon is the right time horizon for when this could really turn out sour for Japan; (quote Bloomberg) …
The deteriorating fiscal position has raised concern that bond investors may start to demand higher yields for holding Japan’s debt. The yield on the 10-year government bond rose half a basis point to 1.31 percent at 2:28 p.m. in Tokyo. It hasn’t exceeded 2 percent in more than a decade.
Finance Minister Naoto Kan said yesterday that the government’s mid-term fiscal strategy to be released by June will help to maintain investors’ confidence. “We need to keep yields around the current level by maintaining markets’ trust in our fiscal health,” he told parliament. S&P’s downgrade of the outlook for Japan’s debt to “negative” indicates it may cut the local-currency rating for the first time since 2002. National Strategy Minister Yoshito Sengoku called the warning a “wake-up call.”
Before we start comparing Japan with Greece et al though there is little doubt that demand will be there for the securities since we can be pretty sure that the BOJ will be provide the bid through quantitative easing. However, in a longer term perspective and with largest debt to GDP ratio as well as the oldest population in the world one does not have to be a macroeconomic literate to see how this cannot go on forever. However, as long as Japan remains a net external lender the problem is one of accounting really and with its own independent central bank the show can go on for quite a while. Moreover, the likely side effect on the JPY makes it an almost attractive route to follow by Japan in the sense that a long waited depreciation of the JPY (if it comes) will not only strengthen the export sector but also provide some welcome inflation to the economy.
Wither the Euro (as a “reserve” currency)?
Perhaps the most interesting headline coming in on the wires in the beginning of the week was this Bloomberg piece running under the header that the Euro is losing its allure as a reserve asset.
Investors are pulling cash out of Europe at a record pace as central banks slow euro purchases, jeopardizing its status as a substitute to the dollar as the world’s reserve currency.
Last year, policy makers loaded up on euros, while analysts at Barclays Plc in London and Aletti Gestielle SGR SpA in Milan predicted central bankers would make good on threats to reduce the greenback’s dominance. Now the euro is down 8.4 percent since Nov. 25 in its fastest slide in 10 months amid concern that cash-strapped countries like Greece won’t pay their debts. Billionaire investor George Soros said Jan. 28 that there’s “no attractive alternative” to the dollar.
Well well, what a difference a couple of jitters in Southern Europe makes. Now, before we get ahead of ourselves in terms of the long term significance of the Euro’s recent slip I think this abrupt change in discourse on the Euro is a good testament to the difficulty many have in understanding exactly what these so-called global imbalances are. This may sound arrogant as I imply here that I do actually understand, but I find it extremely difficult to see how people who hitherto believed in the Euro as a the new dominant global currency can suddenly shift position on the back of trouble in Greece, Spain et al. I mean, surely and if you had cared to look and listen the structural difficulties of the Eurozone and the obvious inability of the EUR/USD to move about in the 1.50s/1.60s and thus act as the main vessel of rebalancing were there for anyone to see. Well not quite and while the coup de grace from George Soros is significant in itself I think it worthwhile to think back to the heaty days when Bernanke lowered rates as an initial response to the subprime fallout (and the ECB momentarily raised) and thus where the Eurozone was hailed as the new engine of the global economy to take over from an ailing US economy. Some of us tried to dimiss this nonsense but it appears that it takes near default along the periphery, before it really hit the main wires. So let me be quite clear here. The Euro is not an alternative to the Dollar in so far as goes rebalancing of the global economy which would entail the Eurozone being a relatively large and sustained net external borrower. In fact, given the troubles in Spain and Greece the real challenge is how the Eurozone can become a net surplus region and thus reduce the borrowing of key member countries.
Bubble Trouble in China
This one is hardly news and neither has there been much of a change in discourse as it has been some weeks now that Chinese authorities little by little have started to voice concerns over the growing tendencies of overheating in the Chinese economy and property sector in particular.
China’s “real worry” is asset bubbles as capital flows into an economy awash with money and the nation emerges from the crisis into a “boom time,” central bank adviser Fan Gang said. Moves by the central bank this year to curb liquidity were “timely and necessary,” Fan told a forum in Beijing today. “Although globally we’re still talking about the crisis, China and some developing countries now are facing another boom time.”
Stocks fell in Asia and Europe today on speculation that Chinese policy makers will do more to cool the world’s fastest- growing major economy after two reports showed a sustained rebound in manufacturing and rising prices. Excess liquidity is a “problem” as low interest rates and slower growth in the U.S. and Europe encourage money to flow into China, said Fan, the academic member of the monetary policy committee.
One economist and long time China observer, Andy Xie, that I tend to lean on is much more out spoken on the current risks in China as well as a recent report by BNP Paribas sees decisive turning point already in 2010 as tighter liquidity conditions begin to bite;
China’s property market “bubble” is set to burst as the government curbs credit growth and clamps down on speculation, according to independent economist Andy Xie As bank lending slows, “it’s very difficult to see this demand continuing,” Xie, formerly Morgan Stanley’s chief Asian economist, told Bloomberg Television in Hong Kong today. Tougher property policies may lower 2010 sales volumes 10 percent, compared with an earlier forecast for growth of as much as 5 percent, BNP Paribas said in a report today.
I agree in the main. The key however is timing and just how far China may run here. It may be longer than many imagine, but I agree with the fundamentals of the argument. Xie apparently thinks that 2010 will see a significant correction. I have no reason to disagree, but a bubble in China (in general) may run a long time before she runs out of steam. Having said this though, recent bits and pieces of information that I have been fed from the ground in China by my “contacts” strongly suggest that a breaking point is near. One key ingredient here according to a property insider in China is that almost all of the stimulus money currently being poured into the Chinese economy (which is a lot) is going into property and needless to say, this cannot run forever.
More generally, a full blow out of the Chinese property sector in e.g. some of the most bubbilicious parts of the real estate sector would constitute a severe dent in the expectations of a global recovery driven from Asia. Perhaps this more than anything suggests why it is important to keep a weary eye on port side property in Shanghai and elsewhere even if you are not in the market for a condo.
A Change in Discourse?
Whether there has really been a change in discourse in some parts of the market as per reference to the points mentioned above or whether I am just preying on a well worn narrative to take some random shots I will leave it for the reader to decide. In general, the ball is still rolling on the recovery discourse but with events in the Eurozone and a Chinese economy looking set to fall short of the promises to pull forward the global economy things might change sooner rather than later. To this I would add the fundamental and lingering trend of deleveraging in all real sectors of the economy which ultimately means that self sustained growth will disappoint thoroughly to the downside and this I hold to be quite certain and not just a random shot.
—
[1] – Which I will present here in due course.
By Rok Spruk, on November 16th, 2009
The Economist published an excellent analysis on the future of reserve currencies in the world (link).
By Trace Mayer, on June 3rd, 2009
RUSSIA IS MASSIVE BUT DISAPPEARING
Russia with 6,592,800 square miles (17,075,400 square kilometers) spanning 11 time zones is easily the largest country in the world covering about 1/8th of its landmass. The BRIC economies, Brazil, Russia, India and China are both similar and different. With only about 142 million people, tremendous natural resources and about 8 million unemployed Russia is more akin to Brazil than the population behemoths.
Russia’s total fertility rate is only 1.3 births per woman where 2.1 is required to maintain a stable population. The death rate of 15 per 1,000 people per year is 66% above the world’s average of 9. With neither a rising generation nor much immigration and rapid deaths the Russian population is disappearing.
WANING OLIGARCHS
The collapse of the Soviet Union resulted in massive chaos. Three wings, the siloviki, ‘The Family’ and the ogligarchs frantically grabbed power, resources, companies and wealth. Into the KGB Putin brought the siloviki, mostly former KGB and other security contractors, and ‘The Family’, Yeltsin’s relatives who burrowed into business and government to keep him in power along with the technocracy aligned with Western interests that kept foreign direct investment funds flowing on Russia’s terms.
The billionaire oligarchs were allowed to keep their fortunes so long as they did not play politics. For example, Mikhail Khodorkovsky the owner of oil super-major Yukos decided to play politics and succeed Putin as President. Mr. Khodorkovsky is still in a freezing Siberian oubliette.
The credit crisis in 2008 has decimated most of the oligarchs. With gigantic debts, declining revenues, access to very little credit and dissipating companies the oligarchs found that their business empires had rapidly evaporated. For example, the Forbes billionaire list saw Russians disappear from from 87 in 2008 to 32 in 2009.
REGENERATING KREMLIN
The real power elite in Russia are both siloviki and oligarch as they infest both corporate boardrooms and the Kremlin. Like the politically connected in America they make the ‘bailout cut’. The Kremlin is able to determine which oligarchs survive. Government power is consolidating in financial, economic, business, social and political spheres.
Out of the G-20 party came pressures on tax havens. Obama and the US government led the charge. Likewise the Russian government struck deals such as with Cyprus and Deloitte reported, “one of the most favourable treaties the Russian Federation has concluded”. It is getting increasingly difficult for those trying to figure out how to vanish.
TD F 90-22.1 FORM DUE 30 JUNE 2009 FOR 2008
This may be a good time to mention that for those subject to US jurisdiction the TD F 90-22.1 Form for reporting foreign bank accounts is due on 30 June 2009 for 2008 activities. I have received many inquiries about its application to GoldMoney holdings. There are significant legal issues, questions of law and particular facts unique to each individual that will determine individual application.
I recommend filing the form if there is any question as to its requirement because it is not very burdensome and the penalties for not filing are draconian. Nevertheless, if you do not wish to file because after reading the instructions on the form you do not think it is required then I do suggest consulting competent legal counsel.
THE AGE OF REAL THINGS
Ironically, during the Information Age there is a return to all things real. Immediate worldwide communication overextends and will eventually decimate the inherently unsound, unstable and immoral financial and monetary system.
The Internet is quickly aligning perception with reality. Monstrous malinvestment is being liquidated and the costumed criminal clowns in Washington DC and St. Petersburg are intentionally exacerbating the greater depression. As the tide goes out it is increasingly apparent which wealth is real and which was illusory.
Russia does have a real economy built by real labor that grows, produces or builds real things and generates real wealth. Nevertheless, as Russia Today reports, “Russia’s economy is contracting at the fastest pace in 15 years”. Meanwhile the ruble has lost about 40% of its value in the past year and yet Putin praises the central bank. Russia may not have anything to worry about.
ANOTHER ATTACK ON FRN$ HEGEMONY
The Gold Anti-Trust Action Committee, GATA, held the Gold Rush 21 Conference 7-9 August 2005 in Dawson City, Yukon, Canada and had an extremely interesting visitor: Andrey Bykov a highly regarded economic advisor to Vladimir Putin.
Gold was trading at $436 at the time and two days later the gold market broke traditional trading norms and a bull upleg started that eventually took gold to new highs. On 22 November 2005 Vladimir Putin said, “The central bank should review its gold and forex reserves policy in favor of increasing the weighting of gold.” Putin is learning where and how to buy gold bars in his hot little hand.
On 19 May 2009 the FRN$ stopped being Russia’s reserve currency with 47.5% of currency assets in the Euro, 41.5% in the FRN$ and about 500 tons of officially reported gold or about 2%.
Likewise Russia has begun asserting economic and military ambitions in its region. There has been the Georgia skirmish with the US in August 2008. On 26 May 2009 the Civil Georgia reported that protesters of United States puppet President Saakashvili filled the 55,000 seat Tbilisi’s national stadium. Also, Russia has offered Azerbaijan assistance in building a nuclear plant.
Russia has agreed to pay Ukraine to run military drills over the Crimean Peninsula. Of particular interest though is that while the American government says this ‘could prove provocative and destabilizing’ on 15 May 2009 Vladimir Putin met with Sergey Bagapsh, leader of the Georgian breakaway region Abkhazia, and agreed to sign an agreement for Russian military bases in Abkhazia where Russian troops will be stationed for at least 49 years.
CONCLUSION
Russia is a regional powerhouse but disappearing because of demographic factors. The oligarch’s power and influence is waning as the Kremlin reasserts its dominant role in finance, economics and politics. The Great Credit Contraction grinds on and real things are becoming increasingly sought after.
Resurgent Russia is discharging dollars like refuse through a garbage disposal. This challenge of FRN$ hegemony with its world reserve status along with United States dominance both economically, diplomatically and militarily will have significant geo-political and geo-strategic implications. As a result, the FRN$ will be impacted negatively while gold will be a prime beneficiary of this change.
Disclosures: Long physical gold and silver, no problematic GLD or SLV ETFs and no TLT.
|
|
Most Popular Posts