Earlier I wrote the following:
I have never heard of Graceland updates. However Stewart Thompson makes a few points that are unmistakably correct. QE is a failure. Zero interest rates are a failure. Everything is going to be a failure because the problem is unsolvable. He is absolutely spot on regarding the OTC derivatives, which I refer to as Quadzilla. There is over a 1000 $trillion in notional value associated with these instruments of financial mass destruction. There isn’t enough dollars in the world by many factors to keep these things alive and upright through QE or anything else.
Debt must either be repudiated or paid off, there is no other choice. The Bernank and the rest of the bankers cannot allow repudiation, for if they do their wonderful central banks go up in smoke. They cannot use their secret weapon if they allow default to purge the system of debt. You see gold is money and they have a lot of it. The real issue is that they do not have enough of it at the current price in currency. But, that is a small matter of no concern to the central banker because he and his agents in the banking system largely are in control of the price and can achieve dramatically higher prices whenever they want.
You see, the central banks have this wonderful ability to print dollars out of nowhere when they buy something. Their checking account is not like yours and mine, there is no money in their account. Yet when they need to buy something they simply write a check and presto, new dollars arrive magically into the world. Central banks are buyers of gold, big time. What are they doing when they buy gold? They are printing currency. The new currency goes out into the world to provide the means to service debt, in return they get a claim to something with tangible value, gold.
Only one thing remains that will enable these bankers to use the secret weapon, they need to dramatically raise the price of gold. Another way of saying this is they have to dramatically reduce the value of the currency. In doing so, the debts associated with a 100 plus year Ponzi scheme will be able to be serviced. The tidal wave of new money will go to paying the debts. The ultimate end is a dollar that is 30 to 50 times weaker than the current one and gold 30 to 50 times higher in dollar terms.
The debts will be paid, only in worth less dollars. Think of it as a seesaw, as the stored wealth of the world held in currency and paper goes to zero through this devaluation process, the stored wealth in gold goes the other way. The wealth in paper transfers over and into gold. Like a person on a seesaw that is up in the air who provides the potential energy to propel the person on the ground into the air, paper assets will propel gold into the air. When it is over, nearly all of the worlds paper wealth will return to the banks in the form of physical gold.
Those who have the gold make the rules. and there will be new rules to go along with a new system of money. Freegold is the natural manifestation of what must happen. Understand that Freegold is about gold price floating to its real price associated with its real supply. Fictitious gold related to multiple claims for a single ounce go away by definition. This happens when all buyers and holders of gold insist on taking delivery of the physical ounces and then fully allocate them for the sole purpose of wealth storage. No more gold loans. The fake supply of gold will then disappear and the wealth that gold currently holds, along with the additional wealth that it will need to hold, will have to be spread over far fewer ounces in supply.
So what is left for the banks to do? They have to continue their purchases of gold. They have to ultimately take claim to gold in a physical way. This means they will have to force all the counter-parties on the gold loans to deliver. Gold will be confiscated in this manner. Much of the gold in the ground is owed to banks, which is then owed to central banks. In all likelihood, mines will be nationalized when the gold loans are called in by the central banks. The debts will be unserviceable and collateral will be confiscated. Gold and future claims to gold in the ground will be the collateral.
Now read the following Zerohedge article. Is there any doubt gold is emerging as the new world reserve currency?
The European Gold Confiscation Scheme Unfolds: European Parliament Approves Use Of Gold As Collateral
Wonder why Europe is pressing so hard for Greece (and soon the other PIIGS) to collateralize its pre-petition loans on a Debtor in Possession basis? Here is your answer: “Yesterday’s unanimous agreement by the European Parliament’s Committee on Economic and Monetary Affairs (ECON) to allow central counterparties to accept gold as collateral, under the European Market Infrastructure Regulation (EMIR), is further recognition of gold’s growing relevance as a high quality liquid asset. This vote reinforces market demand for a greater choice of assets that can be used as collateral to meet margin liabilities.” Luckily for Greece, it has 111.5 tons of gold in storage (somewhere at the New York Fed most likely). Looking down the road, Portugal has 382.5 tons, Spain 281.6, and Italy leads the pack with 2,451.8 tons.
The Economic and Monetary Affairs Committee of the European Parliament has approved gold to be used as collateral confirming its status as a high-quality liquid asset
Yesterday’s unanimous agreement by the European Parliament’s Committee on Economic and Monetary Affairs (ECON) to allow central counterparties to accept gold as collateral, under the European Market Infrastructure Regulation (EMIR), is further recognition of gold’s growing relevance as a high quality liquid asset.
This vote reinforces market demand for a greater choice of assets that can be used as collateral to meet margin liabilities.
Natalie Dempster, Director of Government Affairs at the World Gold Council said:
“It is very significant that the European Parliament is putting its weight behind the argument that the unique characteristics of gold make it an ideal form of high quality liquid collateral.
“We now look forward to the European Parliament and Council of the European Union upholding the inclusion of gold in the next stage of negotiations around EMIR which will now take place after the July plenary vote. The ratification would mark a significant step forward in redefining what constitutes a highly liquid asset under the Capital Requirements IV Directive, due in the coming month, from the European Commission.”
Market demand for gold to be used as a high quality liquid asset and as collateral has been building for some time. In late 2010, ICE Clear Europe, a leading European derivatives clearing house, became the first clearing house in Europe to accept gold as collateral. In February 2011, JP Morgan became the first bank to accept gold bullion as collateral via its tri-party collateral management arm. Exchanges across the world, such as Chicago Mercantile Exchange, are now accepting gold as collateral for certain trades and London-based clearing house LCH Clearnet has said that it also plans to start accepting gold as collateral later this year, subject to regulatory approval.
The World Gold Council has examined this trend and has defined the characteristics that make gold an excellent form of collateral in its study “Gold as a source of collateral”. The report includes a case study on ICE Clear Europe, explaining why the central counterparty clearing house has started to accept gold as collateral and how this operates in practice.
“As regulators, from G20 countries, demand that more OTC trading is cleared on exchanges and with the ongoing world economic difficulties further eroding the credit worthiness of other forms of collateral, we expect to see increasing demand by clearing houses, exchanges and investment banks to use gold as collateral,” says Natalie Dempster.
In order to legitimize this precursor to full blown gold sequestration (on a purely voluntary basis of course, as credit money is received while physical PMs are pledged), the WGC has even put together this pretty presentation: