Tag Archives: BIS

Derivatives: Unexploded Financial Weapons

Central counterparties keep records of trades and help suck risk out of the banking system, but this only works if they themselves are well capitalised and have plans in place to deal with a sudden collapse of one or more of its members and get close to failure. Otherwise, they’re just unexploded nuclear bombs nestling deep in the financial system.   – Business Insider LINK.

Who are we kidding.  Since the 2008 de facto banking system collapse, the OTC derivatives problem has mushroomed out of control.   The Obama Government heralded in the Dodd Frank legislation, which allegedly made the financial system safer for everyone.  In reality it is nothing more than a fairlytale written with  the goal of allowing the Too Big To Fail banks to cover up their continued derivatives Ponzi scheme.

Now the BIS has issued yet another warning about the dangers lurking with derivatives. The “central clearing exchanges,” like the Depository Trust Clearing Corporation, are giant derivatives-infested vipers nest which harbors the next – and possibly imminent – financial system collapse.

This is one of the reasons behind Carl Icahn’s recent candor regarding the U.S. financial system:  “sooner or later there’s going to be a massive problem.”  LINK

In today’s episode of the Shadow of Truth,   we discuss the reasons why the BIS is sounding the derivatives alarm bell again and why Carl Icahn has become “Dr. Doom” on the stock market:

Where Is The IMF’s Gold?

In mid-2009, the IMF announced that it was going to sell a portion of its gold.  It ended up selling 403 tonnes of its then-reported 3218 tonnes of gold.  Back then the original announcement made it sound like the IMF was trying to push down the price of gold with a big sale announcement, as the price of gold went parabolic after the 2008 de facto collapse of the financial system.   The excuse for the gold sale was to “shore up” IMF finances.  However, historically, the IMF has sold off portions of its gold holdings as a policy to reduce gold’s role in the global fiat currency system.

At the time, India and China jointly delivered a research paper which suggested that, if the IMF were interested, the two countries would be interested in buying all of the IMF’s gold. The IMF limited its sale to the 403 tonnes:   200 tonnes to India, 2 tonnes to Mauritius and 10 tonnes to Sri Lanka.  By  December 2010 the IMF concluded the sale of the balance of the gold without ever disclosing the buyers.

The IMF’s gold comes primarily from the member countries, who pledge gold to the IMF as part of the cost of their “quota” assigned to become a member country.  25% of a country’s “quota” were to be paid in gold.  The IMF states that its gold is held in various depositories, like the NY Fed, around the world.  The truth is that most of the gold “pledged” to the IMF has likely been leased out by the custodial Central Banks.

Curiously, over the IMF’s 71 year history, it sold its gold intermittently.  Each time the demand by Central Banks to buy that gold has far exceeded the amount of gold offered.  This is an important point to note because it drives home the point that gold is significantly undervalued and that real Central Bank demand emerges when large quantities (100’s of tonnes) of gold are offered for sale.

In the latest episode of the Shadow of Truth, we discuss the interesting shift occurring in the IMF’s SDR structure and what it means for the U.S. dollar as a reserve currency.  We also discuss why the price of gold will likely begin to move much higher as we move from summer into autumn – we also discuss why GLD is a total fraud:

“Somebody Big Is Sitting On The Gold Price”

Arabianmoney.net posted a conversation with Ross Norman, who is the CEO of Sharps Pixley, the London-based bullion broker with roots that go back to the late 1770’s.  What makes this admission astounding, and was overlooked by Arabianmoney, is that Ross Norman was at one time a gold trader for the Rothschild family at NM Rothschild.  In other words, he has access to the “wizard” behind the curtain that controls the London Buliion Marketing Association.

Here’s who it is, Ross, and I’m sure you already knew:

I am on an email distribution list operated by Gijsbert Groenewegen, who many of you may know from his articles posted on 321gold, Goldseek and Gold-Eagle.com.   Interestingly, Gijsbert sent out an email this morning with very interesting analysis from someone on his list who is an expert in the precious metals market.  The reader had just finished pouring over the latest BIS annual report, which was released in June.   Here’s his commentary:

Last week I scanned through the Bank of International Settlement’s 2014/2015 annual report, which came out in late June.  While I don’t have any investable conclusion from what I noted, I was impressed with how important gold is to its operations.   I don’t think the general gold market pays much attention to the BIS, but after going through the report, it was clear to me the BIS has the potential to have a major influence on the gold price, and that would certainly be true relative to the currencies it owns and manages.

If one considers that the BIS is the banker to central bankers  — 60 listed in total – then it is understandable that 95% of its deposits are denominated in currencies (74% USD, 13% euros, and 6% sterling) and the rest is gold (about USD$13.8 bn).  If the BIS role is to facilitate capital flows and smooth out FX, it makes a lot of sense that gold is central to its function.  It certainly appears prevalent in the annual report.

To me, it appears that gold is sort of a relief valve to some of the functions the BIS undertakes.   The BIS owns 108 tonnes of gold and accounts for 443 tonnes as off-balance sheet gold.  Also noteworthy is presence of gold derivatives.  Of the SDR 437.19 billion total notational derivative financial  instruments (1 Special Drawing Right = USD$1.40 ) —  gold related options, forwards, and swaps make up 30%; while interest rate swaps account for about 60%.  Its net gold investment assets account for 16% of its equity.   Gold is about 6.5% of assets and about 5% of liabilities.   I figure about 12% of its profits came from its gold transactions.

If there is one financial institution capable, willing and basically obligated ( per the 60 central banks it represents!) to influence the gold price, it is the BIS.  If they are not influencing the gold price / FX, then the 60 member banks are not getting well served!!

Between the above analysis and Ross Norman’s interesting admission, I think it’s pretty clear who the 600 lb. gorilla is in the gold market.  Which means that the Fed and the U.S. bullion banks are de facto manipulating the gold market on a daily basis, as the they are subservient to the BIS.

If nothing else, it certainly explains this:

GOLD_Q1SilverOTCderivs1

You can get into contact with Gijsbert here: LINK

EU Regulators Order 11 Countries To Adopt Bail-In Rules

If there is a risk in a bank, our first question should be:  “Ok, what are you the bank going to do about that? What can you do to recapitalise yourself?”  If the bank can’t do it, then we’ll talk to the shareholders and the bondholders. We’ll ask them to contribute in recapitalising the bank.  And if necessary the uninsured deposit holders:  “What can you do in order to save your own banks?” – Jeroen Dijsselbloem, President of the Board of Directors of the European Stability Mechanism,  March 26, 2013

The bail-ins are coming.  Reuters reported today that European Commission today gave France, Italy and nine other EU countries two months to adopt bank bail-in regulations or face legal action – LINK

The move to require bank bail-ins originated at the BIS – Bank for International Settlements beginning in 2008.   In 2011, the Financial Stability Board (FSB) – a sub-committee of the BIS – drafted the boilerplate model for big bank bail-ins:  Key Attributes of Effective Resolution Regimes for Financial Institutions.

The objective of an effective resolution regime is to make feasible the resolution of financial institutions without severe systemic disruption and without exposing taxpayers to loss, while protecting vital economic functions through mechanisms which make it possible for shareholders and unsecured and uninsured creditors to absorb losses in a manner that respects the hierarchy of claims in liquidation.

The bank rescue model as drafted lays out a complete systematic procedure for the rescuing and restructuring of any financial institution considered “SIFI” – a Systematically Important Financial Institution.  In layman terms this translates into “Too Big To Fail.” This model was endorsed by the G20 at Summit in 2011.

The “model” requires that funds required for a bail-in to prevent a TBTF from collapsing would first be taken from unsecured creditors.  This is primarily any depositor money in excess of the amount insured by the Government.  Incredibly, and this has been ratified by legislation in the United States, holders of derivative securities of the collapsing bank are considered super-secured.  In other words, those stakeholders in the banks would be the last to suffer any losses resulting from the restructuring of an insolvent bank.

In the United States there is over $4 trillion in depositor cash in excess of the amount covered by the FDIC sitting in banks.

Make no mistake about this, bail-in legislation is coming to the U.S.  In fact, a $1.1 trillion spending Bill passed by Congress and signed by Obama on December 16, 2014 contained specific provisions drafted (and paid for) by Citibank which ensured that big bank OTC derivatives holdings will be covered by the FDIC (i.e. taxpayer).  This is a back-door way of making the next taxpayer bailout of the big banks a legal requirement.

Anyone who keeps any cash in a bank is either completely ignorant of the ways in which that money can be “confiscated” or just completely brain-dead.  I suppose there could be a strong element of denial involved as well.  Big bank balance sheets are in far worse shape than they were in 2008, especially once you peel away all of the accounting shenanigans and include the off-balance-sheet ticking bombs.   It’s not a question of “IF” – It’s a question of “WHEN.”

We can ignore reality, but we cannot ignore consequences of ignoring reality.  – Ayn Rand

SoT Ep 26 – Chris Powell: “Gold Is The Deadly Threat To All Governments”

We open this podcast with Charlie Chaplin’s speech from “The Dictator.“ It is one of the most powerful speeches ever given. It ranks with the likes of Dr. King’s “I have a Dream” and a handful of other truly great speeches that were designed to uplift the spirit, free the mind and announce to the world we are all sovereign human beings created to do great things with our lives.

For over 15 years, Chris Powell – the co-founder of GATA – has been in the trenches exposing the corruption deeply embedded in our financial and political system. Chris has been a staunch promoter of free markets and reduced Government power. The cornerstone of democracy and true freedom begins with honest money. Gold stands alone a honest because it does not rely and counterparty risk and it can not be printed and devalued.

Because of this inherent nature in the use of gold as currency, gold stands as threat to a Government’s ability to dictate.

Gold is the deadly threat to all governments, including the Chinese government. Gold is a free market independent currency and puts all government currency at risk. Is China really working in the gold market for free markets and democracy and individual liberty around the world? No, I don’t think so. China, I think, is mainly working to hedge it’s stupid U.S. dollar exposure. – Chris Powell, Shadow of Truth

The gold community, in general, is very excited about the prospects of China and the new gold fix that will be launched sometime in 2015. Most of the speculation is around the September timeframe, but most assuredly before years end. After speaking with Chris about China and this seemingly important change in the global pricing mechanism, our optimism is waning. Let’s just say there has been a dose of reality served up.

I don’t kid myself that China is working for the benefit of us goldbugs here in the West. I think China is working for power for the Chinese government. Now, does the Chinese government want a higher gold price or a lower gold price or does the Chinese government just want to control the gold price as much as Western governments want to control it for different reasons? In 1974 Kissinger and his Deputy Secretary Thomas Enders discussed how the United States must persuade the European countries to keep moving gold out of the world financial system because whoever has the most gold controls it’s valuation and whoever controls golds valuation controls the valuation of government currencies. – Chris Powell, Shadow of Truth

This is an incredible interview with Chris Powell. Dare we say that he was “on fire.”

I’d say almost all the major ones (mainstream media) in the United States and Europe. Every major financial news organization in the West has all this documentation (regarding gold market manipulation) It just can not be acknowledged as an issue. Any journalist that picked up the gold price suppression issue would be fired.

***

I don’t think the power of Central Banks to create infinite money is their greatest advantage right now. I think their greatest advantage right now is either their control of the mainstream financial news media or the timidity of the mainstream financial news media. This story is just the Emperors New Clothes.
There is very likely an arrangement, an understanding, among the world’s major Central Banks that is redistributing the worlds gold, right now, the debtor nations to the creditor nations to allow the creditor nations to hedge themselves against an evadible devaluation of the dollar.

He (Jim Rickards) has said, over the last year, a number of times. That from his meetings with government officials, Central Bank officials, elected officials, officials of the International Monetary Fund that there is, some, more or less formal arrangement, understanding between the United States and China. Whereby, China agrees not to dump it’s Treasuries while the United States agrees facilitate the flow of gold into China at a discounted price.

Rickards has been on record, on several occasions, stating that gold would be revalued to approximately $9,000 per ounce. According to Millars report, there is already in place, a plan to revalue gold by 7 to 10 times. Gold is currently, approximately, $1,200 per ounce, multiply that by 7 and you get $8,400 per ounce. A multiple of 10 and you have $12,000 per ounce.

“We’ve Got To Start Rigging The Gold Market”

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold [FDR1934]If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.  – Alan Greenspan, “Gold and Economic Freedom” 1966

GATA has sourced a speech given in 1981 by the President of the BIS, Jelle Ziljstra, at the IMF headquarters in 1981 in Washington, DC in which he advocated Central Bank intervention in the gold market in order to control the price and prevent gold from competing with a global system which was based on paper fiat currency:

“I feel it is necessary for us, within the Group of Ten and Switzerland,consider
ways to regulate the price of gold…”  – Jelle Zijlstra

The “Group of Ten” are the Central Banks of France, Germany, Belgium, Italy, Japan, the Netherlands, Sweden, the United Kingdom, the United States and Canada plus Switzerland.  As everyone knows, the BIS is the Central Banks of global Central Banks and therefore controls – de facto – global monetary policy.  Here’s a link  to the speech – there can be no questions that Central Banks – through their agent “bullion” banks (primarily JP Morgan, HSBC, Scotia, Deutsche Bank, Goldman Sachs, Citibank, Barclays and UBS) – make a concerted effort to limit the upward price movement of gold.

That day the U.S. announced that the dollar would be devalued by 10 percent. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake. – Paul Volcker, “Nikkei Weekly” Nov. 15, 2004 (original incident on February 12, 1973)

Below are couple graphs from the St. Louis Fed website, with my commentary, to put Zijlstra’s speech context.

ControlGold

The Fed discontinued reporting M3 in March 2006.  The excuse was that M3 was too expensive to compile and report.  This is in the context of the Fed spending millions to fight all attempts by Congress to authorize a full audit of the Fed.  The U.S. is the ONLY industrialized country which does not report M3.  Make no mistake, M3 is the most accurate – though not completely accurate – measure of the money supply.   Any honest economist will admit that.

Note the difference in the level of M3 vs M2 when M3 was discontinued.  M3 shows that the money supply was nearly $4 trillion higher using M3 at the time M3 was discontinued.  Nothing happens by accident and it’s no coincidence that M3 reporting was discontinued a little more than 2 years before the Great Financial Crisis and the advent of Bernanke’s “QE.”  Many of us saw the financial collapse coming in the early 2000’s – certainly the price of gold “saw” it.  If we did, I can guarantee that the BIS and the Fed saw the collapse coming and the need to flood the system with dollars to keep it from collapsing and destroy the elitists’ ability to confiscate wealth and control the western world.

IF the Fed were to report M3 now, how high would the U.S. money supply truly be?

ControlGold1

This second chart above shows the parabolic, hyperinflating growth of U.S. Government debt.  Note that the growth in Treasury debt did not start taking off until after Nixon closed the gold window.  It started to rise a little more quickly after 1981, when Volker began to ease up on monetary policy.  The rest is history, but note that issuance of Treasury debt goes parabolic after Bernanke began to flood the banking system with money.

It was shortly after the Bernanke Money Floodgate opened that gold almost broke through $2,000 per ounce before the BIS/Fed was able to get control of the price and push it lower using Comex and LBMA paper gold, which can be printed in unlimited quantities as long as counterparties  do not demand delivery of the underlying gold.

In other words, the U.S. dollar-based global monetary system is one massive paper fraud and gold is the arch-enemy of a system based on fiat paper currency.  The only way it has been perpetuated this long is through the outright intervention in the gold market by the BIS and western Central Banks.

Like ALL Government interventions in history, this too shall come to an end – an end that will be painful for all of us.