No Gold in Them Thar Hills
The Germans and most of the world no longer trust us. Rather, the Germans no longer trust the Federal Reserve, our political or economic elite and leaders -- why should they?
The United States has held the world's reserve currency status since 1971 when Nixon took on the gold standard after Charles DeGaulle demanded that any transfer payments between the US and France be in gold. After that, the world accepted us as reserve currency, and the dollar became the gold standard. Along with London and the Swiss, the United States became a financial empire as well as a military and political empire.
Since 1971, most trading between countries has been done in dollars; however, that situation is changing as the US began to squander it's reserve status in foolish schemes and dreams, derivatives and financialization of the US economic system.
In recent years, the world's countries have looked furtively at one another wondering what the world's crazy uncle - the US - will do next. Meantime, our once large and thriving Middle Class is shrinking and a nation that was once a producer/saver has gone nuts - spending itself both publicly and privately into massive debt. From producers and savers we have become consumers of junk from the rest of the world; using our McMansions as giant ATM machines and producing very little of importance - derivatives and drones don't count. The world's crazy uncle chopped off various body parts and fed them to the wolves.
We gutted our manufacturing, imported millions from the Third World, shut down our productive capacity, closed off resources to any good use, went nuts doing regime change around the world, kept military in over 100 countries, and built a giant police state and prison system. We pretended we could spend and tax ourselves into being king of the world forever. Our entire economic system became one of debt junkies on a private and public level gone off on a wild spending spree. Meanwhile, in the REAL economy, the Middle Class went into free fall and no one seems to care, let alone know what to do about it.
The Middle Class is on the ropes for many reasons and we are not in Kansas anymore. According to Pew Research Center:
"In 2011, this middle-income tier included 51% of all adults; back in 1971, using the same income boundaries, it had included 61%. The hollowing of the middle has been accompanied by a dispersion of the population into the economic tiers both above and below. The upper-income tier rose to 20% of adults in 2011, up from 14% in 1971; the lower-income tier rose to 29%, up from 25%. However, over the same period, only the upper-income tier increased its share in the nation's household income pie. It now takes in 46%, up from 29% four decades ago. The middle tier now takes in 45%, down from 62% four decades ago. The lower tier takes in 9%, down from 10% four decades ago."
As I recently told my grown children, this is not your father's United States anymore - not even close. The world knows that we are over-extended geopolitically. Our own finances and economic system have become a big Ponzi scheme as we spend too much and produce too little. For all intents and purposes, we are bankrupt. Fiscal cliff and debt ceiling make nice theater but signify hype that someone is an adult and in charge.
Nevertheless, US politicians as well as central banks and most corporate entities continue to act as if it were 1948 and we were sitting on top of the world dictating terms. A half dozen major and minor wars later, the United States indulged in "guns and butter" to an insane degree. The giant boondoggle called the "War on Poverty" and various wars on drugs or terrorism have left the United States broke and printing it's way out of trouble.
The US has turned on itself, eating its own leg off as the moral and economic capital we once had has been squandered recklessly and with an arrogance that is breathtaking. It took generations to accumulate our capital and build our system and only one generation to bring it down.
We are broke or broken in every significant way: monetarily, fiscally, spiritually, economically, politically and culturally. All squandered in a binge of empire building and and trying to become the world's policeman, its banker and increasingly its bully.
The world knows we are busted like some genteel southern lady living in grand style but who can't pay the light bill. We can't seem to stop with the empire building. It was recently announced that the US military will be going into 35 African countries. The president offers bread and Obama-phones when we owe trillions and servicing the debt is going to eat up most of the money we take in through taxes. Our leaders do not seem to care - but the world notices and cares. The bill has come due and we can't pay it. We continue to write rubber checks to cover it, but that only works until no one accepts them any longer - as in the case of the German Bundesbank. We have bounced one too many checks and the world no longer trusts us.
Recently, the German Bundesbank decided to begin repatriating its gold from the US Federal Reserve in New York, as well as the gold held in trust in Paris. Germany is worried about the socialists and empire builders in both countries. Germans are concerned and rightly so. The country does not want its gold to be used to prop up either country as they implode from debt and stupidity.
In fact, Germany's gold might not be in the Fed in New York. I would hazard a guess and say it is gone - long gone. Likely, the Fed has loaned out Germany's gold, which was then sold to different entities in the giant Ponzi that is now the globalized economic system. Scrooge McDuck probably has more gold in his imaginary vault than the Fed does in theirs.
In any event, the official statement from Bundesbank includes:
"By 2020, the Bundesbank intends to store half of Germany's gold reserves in its own vaults in Germany. The other half will remain in storage at its partner central banks in New York and London. With this new storage plan, the Bundesbank is focusing on the two primary functions of the gold reserves: to build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold trading centers abroad within a short space of time.
To this end, the Bundesbank is planning a phased relocation of 300 tonnes of gold from New York to Frankfurt as well as an additional 374 tonnes from Paris to Frankfurt by 2020.
The withdrawal of the reserves from the storage location in Paris reflects the change in the framework conditions since the introduction of the euro. Given that France, like Germany, also has the euro as its national currency, the Bundesbank is no longer dependent on Paris as a financial center in which to exchange gold for an international reserve currency should the need arise."
Gold guru Jim Sinclair writes in his latest newsletter:
Basically the Germans - if they go through with repatriation of their gold - is one of the most significant events in monetary history - at least in the last hundred years.
Charles De Gaulle was the first person in modern history to call the hand of the USA on its then obligation to convert French held dollar reserves into gold. I was a senior trader at the time.
History will look back on this salvo fired across US war financing as being the beginning of the end of the US dollar as the reserve currency of choice.
The reaction on the part of the US was to cut the tie between the dollar and convertibility. This again raises the question of the USA having fungible gold to the degree that is claimed without 3rd party audits or any viewing publicly whatsoever.
He knows, I know, and most people know, the gold that belongs to Germany is likely not in a bank in New York or, as the song says, Beverly Hills either. In order to comply with Germany's request to get it's gold returned, the Federal Reserve will have to shut the Germans out or give them an I.O.U that is not worth the paper it won't be printed on. The Fed may take gold stores from someone else and give it to Germany.
What may happen is that The Bernanke, Helicopter Ben, will tell the Germans - "If you repatriate that much gold from us it will implode the entire world economy, the markets will go down, and we will be left with lots of egg on our face and have to shut our doors because everyone else will want their gold too."
A few years ago, crazy man dictator of Venezuela, Hugo Chavez simply demanded his gold from the Federal Reserve then sent it to Russia for safe keeping. Given that the Federal Reserve is playing fast and loose with the US and world monetary and financial system - Chavez may not have been crazy after all. Putin is renowned for calling US leaders nuts - he is right; they are nuts and are so arrogant they believe the scam they have been pulling for 30 years or so will continue.
So what is the end game in this momentary madness? Sinclair seems to think it's a game the banks are playing.
Jim Sinclair clarified his beliefs that the end-game for gold in this global debt/fiat/derivatives crisis will be a virtual reserve currency linked to gold, that is tradable by central banks only.
What does all this mean for the United States, the American people, the Middle Class? It means we are in for a very rough ride. It means that the US government, Federal Reserve and central banks will continue to play fast and loose with our economic future. It means your children and grandchildren will have less of a future, band e slaves to debt mostly incurred by dumb policies from the government and central banks. It means we are on our own to rethink the system. The one we currently have is broken beyond reform. It also means the end game is a world currency or one currency or a basket of currencies consisting of various groups backed by gold.
The answer? Be prepared.
Think preparation. Think in terms of what you can do for your family, community and state. The federal government and central banks have ruined us. It is likely we will have to act outside their notice and start over again. In addition, be ready for a one-world-fits-all economic system - and that is what this entire crazy bubble and process was about from the beginning.