The Word BANK Means: Be Aware No Kash!!

Email Print

And by the looks of it, with the inner circle of Putin being targeted, it looks like the Russians are currently the first ones to find out what the word BANK means: Be Aware No Kash. When money finds its way into the Western banking system it can be traced to any place and it doesn’t matter if it is to bogus accounts. Ultimately people will find out who are directly or indirectly the beneficiaries of the accounts. Too many people are involved and want get a piece of the pie and with enough pressure people will confess. I think one of the few ways to ensure no registration or tracking of the money flows is by buying gold. Gold can’t be tracked as easily as money and circumvents the banking transfer system.

Anyway let’s have a look at credible comments on gold and some circumstances that definitely warrant a much higher gold price.

Zijlstra, “gold is artificially kept at a far too low price” at the behest of the U.S. government!

Before I will get to the reasons why you should be wary of banks the memoirs of the former president of the Netherlands Central Bank, Jelle Zijlstra, who was also president of the Bank for International Settlements, can shed some light on gold suppression by the central banks and the reason why.

And this has especially more weighting because The Netherlands was one of the participants in the London Gold Pool, a mechanism established by the United States, United Kingdom, and six other European countries to control the gold price in the 1960s.

Zijlstra chronicled in his memoirs that “gold is artificially kept at a far too low price” at the behest of the U.S. government, which sought support for the dollar against gold and other currencies. And I believe this is one of the reasons why the US has been able to get away for such a long time with major monetary imbalances and still being able to uphold the US dollar as the most wanted currency, the reserve currency. Though nothing goes on forever and with the Chinese buying up all the available physical gold and countries such as Russia, China, Iran, Brazil closing oil and other trade contracts in other currencies than the reserve currency, the US dollar could lose its status. It feels like we are getting to the end of the hegemony of the US dollar, which will have far reaching ramifications for the US, the world and the banking system.

graf 1

The chart here above shows the correlation between the Yen (shown here is the inverse Yen value 97.88 which is equal to (1/0.9788) 102.16 Yen for $1) and the gold price. Why is the Yen/$ exchange rate so important? The reason is that Japan is the second largest foreign holder of Treasuries after China and because the Yen/$ is a “free” exchange rate whilst the Yuan/$ exchange rate is fixed.

Next to that many hedge funds have borrowed the Yen in anticipation of a much lower Yen and the low interest rates following the “Abenomics” which makes it a great carry trade currency allowing the hedge funds to borrow in Yen andinvest in higher risk, higher return investment classessuch as Euro denominated bonds which carry higher interest rates and might also produce a currency gain. Selling the yen short and using the proceeds to speculate in dollar- and euro-denominated assets because traders are attracted not only to the yield on offer, but also to the gains resulting from the relative movements of the underlying currencies.

Though an unwinding of this trade would have quite some financial consequences for all parties involved hence why the Yen is in my point of view kept at around the 102 level. In case the Yen would fall below the 100 level you can bet you will see some fireworks in the markets.

The reason I am saying that is because what we are witnessing is that whenever the yen goes down, i.e. the dollar rises, stocks rise and when the yen strengthens, and the dollar weakens stocks fell, since the beginning of 2013, the yen’s movements are for 60% correlated with corresponding changes in the S&P 500.

Basically what we are witnessing is that next to the central banks of Japan and the US, the central banks in China and especially the EU, are now also actively looking to weaken their currencies to boost exports, their economies, trying to push inflation higher in order to avoid deflation. The newest kid on the block, the European Central Bank, after watching the euro zone’s overall inflation rate drop dangerously low to 0.5% in March, amid stagnant credit creation, is now openly discussing launching a quantitative-easing bond-buying stimulus. Though a relative weaker Euro could mean a relative stronger Yen, which could strengthen the Yen from 102 to 100, 99 or 98 against the US dollar.

The Yen carry trade has worked because Japanese Prime Minister Shinzo Abe returned to power with a pledge to aggressively devalue the yen as a last-gasp strategy at ending Japan’s multi-decade debt-deflation nightmare. But this strategy, dubbed “Abenomics” by Wall Street, is losing its edge as Japan’s consumers suffer the negative consequences of a weaker currency (higher food and fuel-price inflation) before the positives kick in (higher wages). A recent sales-tax hike (the first since the late 1990s, from 5% to 8%) is making the situation worse. As is being witnessed everywhere the wealth and purchasing power of the middle class is being eroded.

Next to that the Federal Reserve chairman Janet Yellen needs to keep the dollar down, to stimulate growth, by holding short-term rates — which have been near 0% since 2008 — lower for longer until both inflation returns to the Fed’s 2% target and alternative measures of labor-market health, such as wages, recover. That will keep the pressure on the dollar hence why the gold price also has to be kept low! Remember if the gold price will take off it will show the weakness in the reserve currency and as long as gold doesn’t rise much higher “nobody” worries. Though I believe that if the US dollar index breaks the 79 level we could see a quick retracement to 74.

graf 2

Anyway in the bigger scheme of things one has to wonder why is it that the reserve currency is weaker than the Euro or Sterling! The Euro is 1.38 US Dollars whilst the Pound Sterling is 1.68 US Dollars. Think about it, shouldn’t that be the other way around i.e that you get more Euros or Pounds for one US dollar? What is this telling you about the underlying weakness of the US dollar?

Keep on dreaming if you think banks won’t go bankrupt or that what happened in Cyprus won’t happen here. See what happens in the Ukraine.

The reason I used this title and described the “meaning” of the word BANK is just to emphasize how little protection you have when you have money in your account at the bank. And if anyone thinks that their deposits are insured up to $100,000-$250,000 when the banking system falls over, they should think again, either the bank insurance company will be broke or the money you get repaid will be not worth the paper it is written on.

Following the stand-off between the Ukraine and Russia, we witnessed bank runs in the Ukraine and the Hrivnia, the Ukrainian currency, crashed. The ruble also experienced the impact of Russia’s aggressive behavior, its interest rate was just recently increased to 7.5% (to defend the ruble) and Standard & Poor downgraded Russian debt to one level above junk.

The odd thing though was that it was not the US dollar that strengthened but gold and silver and the Euro and the Sterling that experienced the flight for safety whilst the Eurozone is the closest to the Ukraine. You have to wonder what that says about the confidence in the US dollar. Have we seen the breaking point of the US dollar?

Anyway lets get back to the Ukrainian issues. As a result of the geopolitical events Ukraine’s largest commercial bank, Privatbank, announced temporary limits on cash withdrawals for its account holders and suspended writing new loans, saying in a statement the measures were intended to stop those undermining the political situation in the country. “A temporary limit on withdrawals is needed to stop the forces that are working to destabilize the situation [and] are using the cash for [their] sabotage,” the bank said in a statement. The bank first announced withdrawal limits of 1,000 Hryvnia ($103) a day at both automated teller machines and in over-the-counter transactions.

Unicredit issued a statement “temporarily limiting operations on cash withdrawal in ATMs, in order to provide all the clients with an access to cash money.” The decision, they stress, is a temporary one (like Cyprus capital controls?) and will be cancelled with the “normalization of the situation.”UniCredit Group is an Italian global banking and financial services company with approximately 40 million customers and operations in 20 countries, in Western and Eastern Europe. Except for the notion that any sort of similar event can restrain you ability to get your money from the bank think also what the ripple effect in the banking system could be if the Italian bank suddenly has to write off billions because of the devaluation of Eastern European currencies.

One moment you think you have money in the bank of which you are a creditor and the next moment the bank is telling FOR WHATEVER REASON that you can only withdraw a limited amount! WELCOME TO THE FUTURE. This could happen everywhere depending on the circumstances. In the Ukraine it was because of geopolitical reasons whilst in the West it could be because of massive budget deficits and unrepayable debts. And the more these bank freezes happen the more these will be considered “acceptable” by the banking and government/monetary authorities.

Read the rest of the article

Email Print
  • LRC Blog

  • LRC Podcasts