Guest post by Vix and more.
The biggest change in investor fears over the course of the past two weeks is a growing trend toward the mistrust of the role of institutions such as central banks and governments in economic matters. Concerns about central bankers and politicians are significant enough to poll in the #3 and #4 spots for all respondents, but rate even higher in the U.S., where government and politicians were the #2 concern and excessive central bank intervention worries garnered the #3 spot.
Guest post via Gold Silver Worlds.
It is highly unlikely the Mayan predictions of the end of the world referred to the bankers’ world of credit and debt. Nonetheless, with only one month remaining until December 21, 2012—the end date of the Mayan 5,125 year Mesoamerican calendar—the concomitant end of the bankers’ 300 year ponzi-scheme of credit and debt should not be dismissed as mere coincidence.
The world has entered a paradigm shift of immense proportions; and the collapse of the bankers’ economic world is a part of that shift. The bankers’ credit fueled a 300-year global expansion which transformed the world. The bankers’ credit, however, has now become debt which increasingly cannot be repaid.
Economics is not rocket science although the arcane algorithms used by Wall Street banks to predict capital markets imply that intended conclusion. Modern economics, i.e. capitalism, is merely the current iteration of the supply and demand dynamic distorted by 300 years of credit and debt—a distortion that’s now about to end.
Our analysis of the physical gold market shows that central banks have most likely been a massive unreported supplier of physical gold, and strongly implies that their gold reserves are negligible today. If Frank Veneroso’s conclusions were even close to accurate back in 1998 (and we believe they were), when coupled with the 2,300 tonne net change in annual demand we can easily identify above, it can only lead to the conclusion that a large portion of the Western central banks’ stated 23,000 tonnes of gold reserves are merely a paper entry on their balance sheets – completely un-backed by anything tangible other than an IOU from whatever counterparty leased it from them in years past. At this stage of the game, we don’t believe these central banks will be able to get their gold back without extreme difficulty, especially if it turns out the gold has left their countries entirely. We can also only wonder how much gold within the central bank system has been ‘rehypothecated’ in the process, since the central banks in question seem so reluctant to divulge any meaningful details on their reserves in a way that would shed light on the various “swaps” and “loans” they imply to be participating in. We might also suggest that if a proper audit of Western central bank gold reserves was ever launched, as per Ron Paul’s recent proposal to audit the US Federal Reserve, the proverbial cat would be let out of the bag – with explosive implications for the gold price.
Full article click here.
Guest post by Azizonomics.
Markets are true democracies. The allocation of resources, capital and labour is achieved through the mechanism of spending, and so based on spending preferences. As money flows through the economy the popular grows and the unpopular shrinks. Producers receive a signal to produce more or less based on spending preferences. Markets distribute power according to demand and productivity; the more you earn, the more power you accumulate to allocate resources, capital and labour. As the power to allocate resources (i.e. money) is widely desired, markets encourage the development of skills, talents and ideas.
Planned economies have a track record of failure, in my view because they do not have this democratic dimension. The state may claim to be “scientific”, but as Hayek conclusively illustrated, the lack of any real feedback mechanism has always led planned economies into hideous misallocations of resources, the most egregious example being the collectivisation of agriculture in both Maoist China and Soviet Russia that led to mass starvation and millions of deaths. The market’s resource allocation system is a complex, multi-dimensional process that blends together the skills, knowledge, and ideas of society, and for which there is no substitute. Socialism might claim to represent the wider interests of society, but in adopting a system based on economic planning, the wider interests and desires of society and the democratic market process are ignored.
Our latest outlook series details structural (i.e., long term) problems in the world’s largest economies that were “unmasked” by the credit crisis and Great Recession. This year’s multi-part discussion seeks to look beyond debt and deleveraging (see last year’s “The Age of Deleveraging”: Our Observations and Outlook), to assess the myriad influencers of growth, and thus market prospects going forward.
Part I of our Sleepwalking Toward a Precipice series focused on structural issues in the United States.
In Part II, we discuss structural problems in Europe and China, a variety of unknowns that could impact growth and markets going forward, and central bank rule.
In an upcoming final installment, we discuss our investing approach given the “double-wide” possibilities for global growth and markets over the next decade. We hope you enjoy and please email or call with any questions.
Grant Williams on firewalls, central banks and much more in the latest things that makes you go hmmm
“But what about the Maginot Line?” I hear you cry… Well, the German army found a slightly simpler solution to that particular ‘impregnable defense’; they attacked France through Luxem- bourg and then Belgium, completely bypassing the main part of the Maginot Line – thus render- ing it virtually useless.
That’s the problem with firewalls, you see; they ALWAYS seem as though they provide a solution to the problem they are built to mitigate but they rarely do.
Since 2008, the Central Banks of the world along with their respective govern- ments have been moving heaven and earth to put in place the kind of firewalls that will protect the world from a ‘collapse of the system’ – even though we literally have no idea just what that ‘collapse’ would look like or entail.
Quantitative Easing, TARP, HAMP, LTRO I & II, Ba- sel III and all sorts of other schemes have been dreamt up by those in power in order to protect the world from something that is, essentially, unavoidable; the after-effects of two decades spent bingeing on debt and free money. And what has been the single most often-used solu- tion employed in the treatment of this particular problem? Yes, more free money.
Let’s be clear, printing money out of thin air CANNOT fix this. If it COULD, then why not just give everybody in the world $10,000,000 in cold, hard cash and we can all go about our business? The question is redundant. The answer obvious. But that hasn’t stopped the Keynesian geniuses at the wheel from persisting down this particular road for several years now in the misguided be- lief that just a LITTLE more free cash will finally get things flowing again.
It takes some curage delivering the speech below, especially to a group of central bankers. PIMCO’s El Erian on the crisis, central banks avoiding the the Great Depression, and the most important; what do do next. With the ballooning balance sheets of the central banks, they better have a plan, or….Simply a must read.
After diffusing a material threat of a global depression, central banks in the advanced economies did a good job in maintaining a certain status quo in the midst of too much debt, too little growth, too much inequality, and an historic global economic realignment. Critically, they succeeded in their overwhelming priority of avoiding an economic depression. Concurrently, they reduced the risk of market overshoots and disruptive multiple equilibrium dynamics, thereby alleviating well-founded concerns about extreme negative tail risk events, including a renewed financial meltdown.
This success involved the unprecedented use of tools available to central banks. In the process, central banks stretched like never before in the era of modern central banking the very concept of a monetary institution. And while the benefits were immediate in the crisis management phase, they have been less consistent when it it comes to securing certain economic outcomes. Also they have come at a potential cost and with risks. They are also serving to alter behavioral relationships, change market functioning and modify the configuration of certain market segments.
I think that we have reached the legitimate point of – and the need for – much greater debate on whether the benefits of such unusual central bank activism sufficiently justify the costs and risks. This is not an issue of central banks’ desire to do good in a world facing an “unusually uncertain” outlook. Rather, it relates to questions about diminishing returns and the eroding potency of the current policy stances.
Central banks and their holdings of gold have been widely discussed. Below is an article exploring the subject in depth. From Voxeu.
On 7 August 2009, the European Central Bank released the followingJoint Statement on Gold:
“In the interest of clarifying their intentions with respect to their gold holdings the undersigned institutions make the following statement: Gold remains an important element of global monetary reserves. The gold sales already decided and to be decided by the undersigned institutions will be achieved through a concerted programme of sales over a period of five years, starting on 27 September 2009, immediately after the end of the previous agreement. Annual sales will not exceed 400 tonnes and total sales over this period will not exceed 2,000 tonnes. The signatories recognise the intention of the IMF to sell 403 tonnes of gold and noted that such sales can be accommodated within the above ceilings. This agreement will be reviewed after five years.”