Why Did The Bundesbank Secretly Withdraw Two-Thirds Of Its London Gold?

Two days ago we reported that the German Court of Auditors demanded that the German Central Bank, the Bundesbank, verify and audit its official gold holdings consisting of 3,396 tons, held mostly offshore, namely New York, London and Paris, at least according to official documents. It also called for repatriation of 150 tons in the next three years to perform a quality inspection of the tungsten gold. Today, in a surprising development, via the Telegraph we learn that none other than the same Bundesbank which is causing endless nightmares for all the other broke European nations due to its insistence for sound money, decided to voluntarily pull two thirds of its gold holdings held by the Bank of England. According to a confidential report referenced by the Telegraph, Buba reclaimed 940 tons, reducing its BOE holdings from 1,440 in 2000 to 500 in 2001 allegedly “because storage costs were too high.” This is about as idiotic an excuse as the Fed cancelling its reporting of M3 in 2006 because “the costs of collecting the underlying data outweigh the benefits.” So why did Buba repatriate its gold? Ambrose Evans-Pritchard has an idea.

The shift came as the euro was at its weakest, slumping to $0.84 against the dollar. But it also came as the Bank of England was selling off most of Britain’s gold reserves – at market lows – on orders from Gordon Brown.


Peter Hambro, chair of the UK-listed gold miner Petropavlovsk, said the Bundesbank may have withdrawn its bullion in self-protection since it did not, apparently, have its own specifically allocated bars in London. “They may have decided that the Bank of England had lent out too much gold, and decided it was safer to bring theirs home. This is about the identification. Can you identify your own allocated gold, or are you just a general creditor with a metal account?”


The watchdog report follows claims by the German civic campaign group “Bring Back our Gold” and its US allies in the Gold Anti-Trust Committee that official data cannot be trusted. They allege central banks have loaned out or “sold short” much of their gold.


The refrain has been picked up by German legislators. “All the gold must come home: it is precisely in this crisis that we need certainty over our gold reserves,” said Heinz-Peter Haustein from the Free Democrats (FDP).

Speculation aside, the fact that central banks, and even banks of central banks (i.e., the BIS), have long lent out gold, is no secret to anyone, traditionally to satisfy short-term physical gold confirmation claims upon a spike in demand, usually associated with a liquidity shortage (when the value of gold as monetary collateral truly shines). The problem with this rehypothecation scheme is what happens when the counterparty suddenly finds themselves insolvent, the gold has since been re-re-rehypothecated, and nobody really knows whose gold it is any more. This becomes a drastic problem when a counterparty in a collateral chain suddenly goes broke… like MF Global did last year, and the lawsuits started flying trying to determine whose gold is where. Needless to say, it was the London office of MF Global that was at fault for breaching a rehypothecation chain (because only in London was there no collateral haircut limit on rehypotehcation), and once physical delivery demands arose, nobody could locate bar XYZ with a given serial number.

That, or the Bundesbank merely foresaw the ultimate unwind of the failed European mercantilist experiment at the start, and refused to leave its most precious asset in the hands of the banker oligarchy which it knew would do everything in its power to procure said gold once the feces hit the fan. Sure enough, BUBA’s ‘non-denial’ denial confirms this too:

The Bundesbank said it had full trust in the “integrity and independence” of its custodians, and is given detailed accounts each year. Yet it hinted at further steps to secure its reserves. “This could also involve relocating part of the holdings,” it said.

Yet what is left unsaid in all of the above is that Germany has done nothing wrong! It simply demanded a reclamation of what is rightfully Germany’s to demand.

And here is the crux of the issue: in a globalized system, in which every sovereign is increasingly subjugated to the credit-creating power of the globalized “whole”, one must leave all thoughts of sovereign independence at the door and embrace the “new world order.” After all this is the only way that the globalized system can create the shadow cloud of infinite repoable liabilities, in which we currently all float light as a binary feather, which permits instantaeous capital flows and monetary fungibility, and which guarantees that there will be no sovereign bond issue failure as long as nobody dares to defect from the system in which all collateral is cross pledge and ultra-rehypothecated… for the greater good. Until the Buba secretly defected that is.

And this is the whole story. Because by doing what it has every right to do, the German Central Bank implicitly broke the cardinal rule of true modern monetary system (never to be confused with that socialist acronym fad MMT, MMR or some such comparable mumbo-jumbo). And the rule is that a sovereign can never put its own people above the global corporatist-cum-banking oligarchy, which needs to have access to all hard (and otherwise) assets at any given moment, on a moment’s notice, as the system’s explicit leverage at last check inclusive of the nearly $1 quadrillion in derivatives, is about 20 times greater than global GDP. This also happens to be the reason why the entire world is always at most a few keystrokes away from a complete monetary (and trade) paralysis, as the Lehman aftermath and the Reserve Fund breaking the buck so aptly showed.

We are confident that little if anything will be made of the Buba’s action, because dwelling on it too much may expose just who the first country will be (or  already has been) when the tide finally breaks, and when it will be every sovereign for themselves. Because at that point, which will come eventually, not only Buba, but every other bank, corporation, and individual will scramble to recover their own gold located in some vault in London, New York, or Paris, or at your friendly bank vault down the street, and instead will merely find a recently emptied storage room with humorously written I.O.U. letters in the place of 1 kilo gold bricks.

Three Chinese 'Surveillance' Vessels Enter Japanese Waters Around Senkaku Islands

It’s been quiet, too quiet in the Pacific for the last few days, but now, as Yoimuri reports (and confirmed by Kyodo), the Japanese Maritime Safety Agency (Coastguard) issued a statement that “Chinese surveillance vessels on Thursday entered Japan’s territorial waters around a group of islands claimed by China, for the first time in three weeks.” Three Chinese maritime vessels moved into the waters near Minamikojima, one of the five main islands of the Japan-controlled Senkaku group in the East China Sea, around 6:30 a.m., the coast guard said. It is the first time since Oct. 3 that Chinese surveillance vessels have entered Japan’s territorial waters around the Senkakus, which are known as Diaoyu in China.


The European Nash Dis-equilibrium Through The Eyes Of A Greek

In a somewhat mind-blowing ‘gotcha’ this evening (that we saw coming from the moment the words left his lips), the Greek finance minister has been forced to admit he’s a lying cheat drop claims that he had secured a two-year extension for debt repayments and an agreement with creditors over EUR13.5bn in proposed austerity measures – because HE HADN’T! As The Guardian reports, Stournaras played to stereotype perfectly (the Greeks only got in the euro thanks to off-market currency swaps to reduce debt optics off-balance sheet) by lying once again (if you lie big enough it has to stock, right?). The U-turn – which he was forced to make after Germany denied the deal (yes Zee Germans again the only ones that anyone should be listening to) – caused chaotic scenes in parliament. As we have vociferously described, and Mr. Panos confirmed, the leverage is all with the Greeks (as much as the world does not want to admit it) as one Greek official said (frighteningly honestly!):

Even if the troika give us a negative report, what are they going to do? Are they really going to not give us the installment [to keep Greece’s economy afloat] two weeks before the US elections, with everything that entails – default, bankruptcy, global market turmoil? These labour reforms will turn our country into Bangladesh. They have no fiscal benefit and will actually derail the adjustment program. The political system will collapse if we impose them. The troika is demanding that we commit suicide!


Via The Guardian:

Chaos in the Greek parliament following a row over the country’s revised bailout plan brought fresh gloom to the eurozone as figures showed the currency union moving closer to recession.


The Greek finance minister was forced to drop claims that he had secured a two-year extension for debt repayments and an agreement with creditors over €13.5bn (£10.9bn) of proposed austerity measures when he addressed MPs on Wednesday.


Yannis Stournaras had previously told MPs that a deal was ready, only to later admit that negotiators had yet to approve a final draft. The U-turn, which Stournaras was forced to admit after Germany denied any deal, triggered chaotic scenes in parliament as opposition MPs objected to proposed tax rises and job cuts.


It was unclear last night whether the government will be able to submit two separate bills on austerity cuts and labour reforms due to be debated in parliament next week.


Greece has spent months in talks with its creditors, headed by the troika of the International Monetary Fund, the European Central Bank and the European Union.


Stournaras wants Greece to cut its debt pile by reducing the interest and extending the term of its bailout loans. Analysts still expect Athens to win improved loan terms, though not until it relinquishes more supervisory powers to the troika, which wants to closely monitor any deal.


One Greek official said the troika would need to back down over demands for tough labour laws or risk a political revolt.


“Even if the troika give us a negative report, what are they going to do? Are they really going to not give us the instalment [to keep Greece’s economy afloat] two weeks before the US elections, with everything that entails – default, bankruptcy, global market turmoil?” he asked.


“These labour reforms will turn our country into Bangladesh. They have no fiscal benefit and will actually derail the adjustment programme. The political system will collapse if we impose them.
“The troika is demanding that we commit suicide, which is why we believe this is a matter that should be solved on a political level by the prime minister and not with the troika.”


Stournaras was forced into his U-turn after the German finance minister, Wolfgang Schäuble, told reporters in Berlin that a deal would be impossible until the troika concluded its report.


Schäuble, who is a key architect of the austerity measures dominating Europe’s economic landscape, warned that the eurozone’s finance ministers must also read the report before agreeing to the two-year loan extension called for by the Greek government.

and as a reminder, The Greek Plan for Dummies:

Guest Post: Plutonocrits

Submitted by Pater Tenebrarum of Acting-Man blog,

Charles de Trenck has written a very interesting article on so-called ‘Plutonomies’ and how they affect the global economy. We offer this article to our readers as a free download in pdf format below.

The term ‘Plutonomy’ was originally coined by Citigroup analyst Ajay Kapur, who argued that in many countries, an ever larger part of economic activity was due to the the richest segments of society, as wealth disparities have increased a great deal in recent decades.

Countries with especially large Gini coefficients (i.e., an especially large gap between rich and poor) were deemed to represent such ‘Plutonomies’ by Kapur.

We would briefly comment  here that one of the main reasons why the gap between rich and poor has widened so much is the vast amount of monetary inflation that has taken place in recent decades. As we have hopefully convincingly demonstrated in a previous essay on growing wealth and income inequality in the US, it is not inequality as such that is the problem.

The problem is that while the rich have gained from monetary inflation, the middle class and the poor have at the same time lost out. Inflationary policy is in effect a reverse distribution of wealth from the poor to the rich. This problem cannot be satisfactorily solved by moving toward more socialism. What is required is a return sound money and the abolition of central banking and fractional reserve banking. The world’s banking cartels must be replaced with a free banking system.

There is no contradiction between advocating both free banking and a ban on the lending out of demand deposits. One merely has to consider that the latter practice is essentially fraudulent (even though it is currently legal) and hence violates property rights. Irregular deposit contracts are akin to warehousing contracts. It is not legitimate to use things one stores on the behalf of customers with the promise that they can be withdrawn again at any time for one’s own business purposes. Moreover, it is precisely because of this practice that we experience the credit expansions that are at the root of boom-bust cycles. These business cycles are obviously detrimental to society as a whole. Banks would of course be perfectly free to lend out savings deposits, which are mutuum contracts. For more details on this, we refer readers to our previous series of articles on fractional reserve banking (parts one, two and three).

Charles takes a slightly different tack in his article, which is subtitled “a plea for social consciousness among certain segments of the ruling class, and understanding some of the effects of off scale Gini coefficients.”

He differentiates between what he calls a ‘plutonocrit’ – someone who uses the political system to gain economic advantage, i.e., increases his income and wealth by political means, as opposed to the entrepreneur, who increases his income by economic means, i.e., voluntary exchanges in the marketplace.


Of Plutonocrits Oct 12 Final 1

Shooting From The Hip And Hitting Consumers: Protectionism In France

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

That France’s economy is hurting is an understatement. Today’s manufacturing index tested depths not seen since 2009 during the trough of the financial crisis. Orders plunged and employment was morose. The service sector index dove to the lowest level since January 2009. Cited reasons: “unfavorable business climate and lack of visibility.” It confirmed yesterday’s Insee business climate index, which, at the lowest level since mid-2009, was mired in pessimism.

So the government deployed its big gun: Industry Minister Arnaud Montebourg. He’d turn around the economy by revitalizing industry; and he has been on the forefront with his vision.

In July, he announced that the government would ask the European Commission to “monitor” the free-trade agreement between the EU and South Korea. He pointed at the “very substantial increase in imports of Korean vehicles” during a time when vehicle sales in France were cascading downhill. He wanted the EU to stick additional taxes on Korean cars. In August, the French government submitted the formal request to the European Commission. At the Paris auto show in early October, Montebourg attacked the Koreans for the “social hardness” hiding “behind the windows of every Hyundai and Kia” and accused them of “social dumping” [Worse than the Infamous Lehman September: France’s Private Sector Gets Kicked off a Cliff].

But on Monday, he got slapped in the face. “He is protectionist,” said European Trade Commissioner Karel De Gucht and then pointed out the big conundrum: France has more of the world’s 500 largest corporations than any other EU member state, but they were more successful outside France than in France. How to re-industrialize France, given its 35-hour workweek and its salary costs, that’s the big question, Gucht said, but he didn’t think that Montebourg was “really interested in the long-term.”

It was part of Gucht’s smack-down of the French request to “monitor” Korean imports. And Montebourg’s idea of subsidizing European industries? “The absence of national subsidies is one of the keys of the European market,” Gucht explained, in case Montebourg had missed it in school. And then he mentioned something else the Industry Minister might have missed: The EU has a €300 billion trade surplus with the rest of the world—and France has a trade surplus with Korea.

In fact, of the nearly 400,000 new Hyundai and Kia vehicles registered in the EU during the first half of 2012, more than half were manufactured in the Czech Republic and Slovakia—both EU members—and in Turkey. Then there is GM, partner of teetering PSA Peugeot Citroën; most of its 103,000 Chevrolet’s sold in the EU were manufactured in Korea. Renault imported over 10,000 4×4 Koleos and Latitudes from its Korean subsidiary. Montebourg had opened his mouth and had inserted his foot [He should have read my hard-edged but funny book on the car business, TESTOSTERONE PIT, the novel; enjoy the first few chapters for free on Amazon].

He had better luck posing for Parisien Magazine, dressed in a €49 sailor’s jersey by Armor-Lux, holding up a €230 Moulinex blender, and displaying a Michel Herbelin watch that retails for €790 ($1,000+). Not exactly a watch that the 24% of the young people who don’t have jobs can afford. Behind him was the French flag. All of it was “Made in France.”

His priority was “le Made in France,” he said. “There’s a choice that’s more important than any other, and that is to preserve France’s industrial base.” He suggested a variety of remedies, such as installing “Made-in-France” aisles in supermarkets to better guide consumers. He called for the rebalancing of “unbalanced relationships” between industrial nations to “defend French and European industries.” The results of worldwide free trade, as “proposed by the WTO,” were a “disaster,” he said—not remembering the EU’s €300 billion trade surplus.

Consumer groups lambasted him—not everyone can afford a €790 watch. But on Saturday, the day after the article had appeared in the Parisien, sales of the jerseys at the company’s 50 stores jumped by 60% – 65%, compared to Saturday a week earlier, said Armor-Lux CEO Jean-Guy Le Floch. Visitors to its website shot from an average of 2,000 per day to 7,000. And the fancy watch? Internet traffic to the company’s site soared ten-fold the day the article appeared. Excellent promo. But naïve.

Only 40% of the products Armor-Lux sells are (at least partially) made in France. The rest is made elsewhere. And the watch? According to Atlantico, the quartz movement, dial, hands, and glass came from Switzerland. The buttons and enclosure were not French either. While the bracelet might have come from a French supplier, it would have been made in Portugal, Mauritius, and Asia. But the watch was assembled in France and qualified for the “Made in France” label. So, Montebourg’s vision is unlikely to revitalize the French economy, beyond the benefits of the promo.

The US government over the last five years squandered $7.6 trillion on Keynesian demand-side stimulus to resuscitate demographically shrinking demand as 80 million baby-boomers moved out of their peak spending years. But with only 23 million born between 1995 and 2012, “Generation Z” is too small for demand-side stimulus to revive the economy. So there are consequences, writes Chriss Street. Read…. Supply-Side Economics Is Coming Back.

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