3 Minute Gold News
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The full interview is 25 minutes to watch and highly recommended. Well worth your time.
Russia and China Energy Deal
Eurasian Economic Zone
Gold Demand from China and India
Complexity Theory Model
Fed Creating Money
Hawks and Doves
The Coming Crisis
RUSSIA AND CHINA ENERGY DEAL
These are headline news today: Ukraine, the political significance of natural gas, budding alliances between Russia and China, Russia creating an economic zone in Eastern Europe and Central Asia — these are things that Jim talked about in his first book “Currency Wars”.
If you’d read that book in 2011 you’d have had advance warning on what is going on in 2014.
The point of Death of Money is to take the story forward. If you read The Death of Money today if you want to know what’s going to happen three years from now.
There’s an economic summit going on today in St. Petersburg, Russia. They call it the “White Nights” because it’s light almost 24 hours a day.
The U.S. is not going, and they’ve put pressure on U.S. CEOs not to go.
Putin said he envisions a Eurasian economic zone involving Eastern Europe, Central Asia and Russia.
The Russian Ruble is nowhere near ready to be a world reserve currency but it could be a regional reserve currency
What Comes as a Surprise Since You Wrote the Book
A lot of the things that Jim talked about in Currency Wars and what he talks about in The Death of Money are happening faster than he has expected.
Things Jim thought would happen in 2015 or 2016 seem to be happening now.
The tempo of events is faster than Jim expected, so he believes some of the outcomes he has predicted will come about sooner than he thought.
We’re right on the precipice, and when you’re on the precipice it doesn’t mean you fall off immediately, but you’re going to fall off because you can see the forces in play.
It’s not that we’re going to make some mistakes and bad things will happen — the mistakes have already been made.
The instability is already in the system and we’re waiting for the catalyst – what Jim calls the snowflake that starts the avalanche.
When the avalanche starts you don’t worry about the snowflakes, you worry about the fact that the snow is unstable and waiting to collapse.
It doesn’t matter what the catalyst will be — it will be something. It could be a failure to deliver physical gold, an MF Global type of financial failure, a suicide, or a natural disaster. It could be a lot of things.
Investors need to understand that the catalyst doesn’t matter.
The instability is already there and the system will collapse.
Jim is sticking to his view that it could be a year or two years out but it could be sooner than we think. There’s certainly evidence of that in terms of what is happening with Russia and China.
Gold manipulation will end when there’s a physical shortage and someone fails to deliver. At that point there will be a buying panic.
There also could be buying panic or “demand shock” coming from China.
Jim wants to make it clear that he doesn’t engage in speculation. He provides facts, provides analysis, and sometimes there’s a logical inference from the facts that we know and Jim labels it as such — he says when he’s stating an inference and doesn’t have a hard fact.
When you look at The Death of Money it has three hundred end notes and thirty pages of sources. Jim doesn’t put anything out there that he can’t document.
Jim says that gold manipulation is obvious and the evidence is coming in from all directions.
Some of it is statistical, some of it is hard forensic evidence, some of it’s anecdotal and some of it is inference — when you put it all together there’s no question the gold price is manipulated.
It goes back to the 1970s.
Between 1950 and 1970 the U.S. lost 11,000 tonnes of gold.
The U.S. had 20,000 tonnes in 1950 and 9,000 tonnes in 1970.
Where did the 11,000 tonnes go?
Jim says it went to our trading partners under the old Bretton-Woods system.
That ended in 1971, but by 1980 the U.S. was down to just over 8,000 tonnes and it’s been about there since.
The U.S. has not sold any significant amount of gold since 1980.
What happened to the 1,000 tonnes from 1971 to 1980?
It was dumped on the market to supress the price.
Jim discovered documents from the Ford Library that were classified at the time but since declassified.
Jim found letters between President Ford and the Chancellor of Germany and internal memos saying they needed to dump gold to suppress the price. It’s in Chapter 9 and 11 of The Death of Money.
Some of the recent evidence of gold manipulation was dug out by GATA and others. There’s also statistical studies. Jim has seen studies that look at COMEX after hours trading over a ten year period, and where they should only have minor fluctuations over ten years, they are not the same.
If you had bought gold during market hours you would have lost almost all your money, and if you bought after hours you would have made multiples of what gold actually did.
That’s clear statistical evidence.
The Bank of International Settlements (BIS) footnotes to their financial statements say that they transact in the gold market on behalf of central banks and commercial banks.
The manipulation will end when there’s a physical shortage somewhere, or a short squeeze.
GOLD DEMAND FROM CHINA AND INDIA
We’re going to get a very large demand for gold from China and India.
We have a brand new government in India and they are going to repeal the import tax on gold. Also the wedding season is coming up, and the India rupee is getting stronger.
Put all that together and a stronger rupee buys more gold, the wedding season has traditionally strong demand, and the import tax was standing in the way but will be repealed.
One of the reasons they’re repealing the import tax is because the gold fabrication industry was moving to Pakistan, to make jewelry.
So India is set up for a large demand.
The China credit collapse story is happening now in real time.
As Jim previously predicted, defaults are piling up, money riots, people trying to get their money back from wealth management products and being told by the bank that those were private and not bank products, banks trying to raise cash, and eventually Jim predicting that the government will be bailing out the banks.
There will be a lot of distress in the short run. The Chinese investor can’t buy foreign stocks and bonds, banks give almost not interest, the stock market has been lousy, and they were piling into real estate and the wealth management products.
That’s the sector that’s collapsing and they want to get out.
What’s left? Gold.
Jim talked to the head commodities trader globally at one of the largest banks in the world, and he agrees with Jim’s analysis. He sees the demand shock coming from China.
So, you have a shortage of physical supply and demand coming from China and India.
This is a recipe for a short squeeze or somebody somewhere not being able to deliver.
Once that becomes apparent then you could see a scramble to buy gold.
COMPLEXITY THEORY MODEL
Jim is extremely critical of Federal Reserve models and Wall Street models — they are junk science.
He has his own models using Complexity Theory.
Even having the right model isn’t a crystal ball.
One of the things is that you don’t have exact timing of events,
You can see the instability of the system (the scale), and how complex systems collapse, but you can’t see the timing.
Jim says he can’t know the exact day to get out of stocks and into gold, but he says he know that you should get out of stocks now and get into gold now so you’re set for when it happens.
If you can see something coming in advance then it’s not the snowflake that will take the system down. If you see it coming then you have time to fix it.
It’s the thing you don’t see coming that will take it down.
When it happens it will happen faster than you expect.
With gold it will chug along, chug along, down a little, up a little, then all of a sudden ‘boom’.
One day it will be up $100 an ounce.
Next day up $200 an ounce. Then everyone on TV will say it’s a bubble.
Next day, ‘boom’ up $300 an ounce.
Before you know it it will be up $1,000 an ounce, then people say, “Gee, I should get some gold.”, and they’ll find out that they can’t get it.
At that point the big players will be able to get it but the typical investor won’t.
Jim says it could happen by the end of this year but he’s not making a hard and fast call on that but it’s definitely possible.
It could be a two year horizon but it’s definitely coming.
The time to get some gold is right now.
FED CREATING MONEY
For ten years Jim was the Chief Credit Officers for one of the banks that is a primary dealers. When the FED engages in market operations they buy or sell U.S. government securities to create money.
When the FED wants to print money they buy securities, and print the money to pay for the securities. When they want to reduce the money supply they sell securities. They get paid for the securities with money that just make disappear down a black hole.
These open market operations is how the FED increases or decreases the money supply
Since 2008 they’ve been doing nothing but increase the money supply — by $4 trillion.
When they buy or sell securities the FED deals with a small approved list of twenty names.
Jim’s former bank was on that list and he met regularly with the top FED officials.
The recent U.S. bond buying in Belgium is not coming from the country Belgium.
Euroclear is a major clearing house for a lot of securities. So a third party could hold the securities at Euroclear and that would show up as Belgium ownership even though the country of Belgium is not the owner.
Belgium is the headquarters of the European Union.
We don’t know who the specific parties are and Jim doesn’t want to guess.
Looking at the facts, here’s what we do know:
In the crisis in 2009, the FED and the European Central Bank (ECB) were busy bailing out their banking systems.
The FED could print dollars but the European central bank could only print euros and not dollars.
So they both printed and then swapped, so the ECB could bail out their banks in dollars.
These swaps were in the tens of trillions of dollars. Huge. And they’re still in place.
It wasn’t disclosed at the time but we know now because of Dodd Frank.
So could the FED and the ECB be engaged in a swap so the ECB gets dollars from the FED through Euroclear on an anonymous basis and buys U.S. treasuries?
That seems the most likely scenario and it wouldn’t show up on the books.
The FED would be financing the ECB buying U.S. treasuries. So it wouldn’t show up on the FED balance sheet.
The swaps are not publicaly reported.
The Tick Report is the U.S. Treasury report showing foreign holdings of U.S. government securities, and it lists the buyer by country. The country is the source, but it doesn’t identify the buyer by name.
Belgium doesn’t have enough money to buy the amount of bonds stated as a Belgium source. The Belgium economy isn’t that big, and it’s not a person in Belgium for the same reason.
So it’s a third party.
We’re pretty sure it’s not China and it’s not Russia, and it’s not Saudi Arabia. So it’s likely it’s the ECB.
The same thing goes on at the BIS when it comes to gold. We can dig out a footnote in the BIS financial statements but we don’t really know who is doing it.
So BIS, Euroclear, ECB — these are all backdoor channels the Fed can use to manipulate the dollar and manipulate gold, and they’re doing it.
The evidence is clear.
You get crazy when you’re system is collapsing.
Euroclear isn’t the buyer; they’re the custodian.
It’s going on because we know Russia has dumped $100s of billions of treasury securities. China isn’t dumping but they’re also not buying any more because they’re buying gold and mining assets around the world.
There’s a huge struggle going on right now inside the Fed — the hawks and the doves.
HAWKS AND DOVES
The hawks believe there’s no limit to the Fed balance sheet.
They’re at $4 trillion and they believe they can go to $8 or $12 trillion — they’ll print whatever it takes.
The doves believe there’s a confidence limit, and they’re getting close.
The Fed has a hawkish Federal Open Market Committee (FOMC) right now.
Janet Yellen is new as the Chairwoman so she’s not going to walk into a board meeting and blow up policy. It takes months or a year or more to build consensus.
So the Fed is hawkish and is looking around the world for what Jim calls buyers of last resort. Right now they seem to be coming from Europe and probably the ECB.
The U.S. banking system
In the 1950s, banks in the U.S. had more than half of their assets in U.S. treasury securities.
Today that number is less than 10 percent.
The government can force the banks to buy the bonds.
The government can break up or shut down any one of the banks anytime they want.
If the Fed balance sheet gets tapped out, which it is, and now we have this European “mystery buyer”, who could become tapped out, then they can always turn to the banks.
But it can only go on for so long.
The Fed has two choices and they’re both bath.
If they continue to taper they’ll throw the U.S. into a recession within the depression we’re already in.
If they pause tapering and print money then it will signal the market that they have to keep printing, then gold will go up and the dollar will collapse.
The Fed has two choices: depression or hyperinflation.
Good luck with that.
They painted themselves into a corner by manipulating the market.
THE COMING CRISIS
The government should have temporarily nationalized all the banks, and let them all fail — wipe out the stockholders, haircut the bond holders, and guaranteed the deposits.
They wouldn’t have had to print a nickel.
Then strip out the bad assets and IPO the new banks, who create loans to stimulate the economy again.
The stockholders who invested in the banks deserved to lose. The taxpayers did not deserve to lose, and have their savings stolen through inflation.
They should have put the loss where it belonged — on the investors and bondholders.
The Fed and Treasury didn’t want to do that because it was their friends who ran the banks — they’re all buddies. Jim has seen it in action.
So they’ve just made it worse.
The next collapse will be bigger.
It will be bigger than the Fed.
The IMF is going to have to bail out the United States.
Black Swan Dive
Elaine Diane Taylor
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