Three corrections into the longest-ever Bull market, there is a sense across the World this Monday morning that investors are simply waiting for the next symptom of crisis to kick off Correction4. The Shanghai index is 3% off overnight, and the European markets are a sea of red: but by the end of the week, it’s perfectly possible that bullish stats will have settled the nerves and made good the losses….until the next time. However, three topics relating to the medium and longer term are gaining traction: the future and fate of gold, the phasing out of paper liquidity, and the obvious signs from the G20 that various factions in the élite are in total disagreement about what to do. The Slog argues that this clash of interests is going to become more obvious and tectonic as events unfold.
The end of gold and the hegemony of plastic
in 2015, central banks purchased 588.4 tonnes of gold bullion. In 2014, they purchased 583.9 tonnes. Mind you, they have been buying it for a long time.
Q4 2015, in fact, was the 20th quarter in a row when central banks added gold bullion to their reserves. During that year, 20% of all global gold available for sale was hoovered up by central bankers. Were the sector media ownership, that’d be getting close to the point where anti-Trust legislators start getting antsy.
Since Crash1, gold has served several purposes for the CBs:
- To defend the Dollar by dumping it
- to keep people in the stock market by dumping it
- to buy lots of it cheap, and then revalue it later in order to repair the banking system’s black holes….and connected with this
- to keep on buying it while destroying the value of fiat paper.
This is not what you’d call consistency, but then consistency is the cross borne by those who can’t be arsed to read the data. The process has gone through various stages of opportunism since 2008, but to the best of my ability, the future could look like this:
- A directionalised gold rush during which – very quickly indeed – the price of gold skyrockets. Bond yields would rise and stock markets would fall, but the scheme would accept that in the light of
- further loss of faith in CB stimulation plus Nirp, and a shift out of fiat paper causing rapid safe-haven searches and rampant hyperinflation
- an abrupt, draconian ban on buying gold, alongside the introduction of a small price premium for selling it to ‘the authorities’ aka central banks
- the use of a Basle 5-style revaluation of gold in terms of bank accounting, aided by
- hugely discounted offers whereby private banks can buy gold off central banks
- the rapid and obligatory introduction of ‘gold-backed’ electronic cards on all levels of consumer purchase
- the raising of lending rates on private electronic bank deposits – to create maximum access to bail-in funds aka confiscation of all privately held cash there – in the event of potential bank failure.
The consequent ruination of the populace after these processes would of course reduce global wage costs by an inestimable amount. But in the eyes of the bean-counters, quants, Wall Street banking firms, élitist governments and other assorted bubble-dwelling members of the 3% De Sade club, that would be one of the biggest plus points of the idea.
“Nonsense,” I hear the apologists cry, “what would be the point of, at a stroke, wiping out the ability of the citizen drones to comsume?”
To which my equally predictable reply would be, “That is exactly the effect of neoliberal economics anyway over the medium term”.
The entire plan is a nonsense that would come unstuck at every staging point imaginable – especially that moment when empty bellies and ragged trousers decide that eating rich people might not be such a bad idea after all.
Something will pop out of left field to change the order of that imagined future, because it always does. But there are three associated problems for the banks at the moment:
- They can’t do profitable business as long as Nirp is in play
- They won’t be in the clear on their exposure to credit crises until they have another infinitely more valuable asset on board…rather than a bunch of bad loans
- Neither they nor the tax authorities will have real control over money (as in private ‘cash’) until it is universally electronic.
This sets up an interesting situation. Perhaps it’s just me being insanely optimistic, but if one looks at the three prongs in the Devil’s trident – banking, government and globalist bourse-fuelled business – then it’s hard not to predict something of a falling-out taking place in the triad.
I know of very few corporates keen on the idea of abandoning cash. The cash economy is useful to multinationals in a variety of ways – getting rid of old stock through ‘informal’ retailing chains, tax evasion among senior staff, bribery cash, increasing real pdi via worker tax evasion and so forth. For reasons of cash preference, Germany would grind to a halt for most payments. The French would simply block the autoroutes. And Italy would collapse because the entire country runs on cash corruption.
Governments, on the other hand – and the Mad Hatters of the eurogroupe in particular – won’t be happy until their tax take is 100% of what’s due; and as it’s clear that the bigwig/corporate evaders are never going to give up their tax havens, we’re going to be the ones asked to cough up. And for the banks, electronic liquidity would mean they had instant access to all citizens’ funds at a stroke…or rather, by pressing a button. Bank runs could be halted by simply blocking all access. What’s being done to Greek consumers would be made 100% effective in a fraction of a second.
It doesn’t end there. Forget tax increases: just collecting it automatically and universally would probably cut first-world global consumption by 5-10%. Politicians would find it very difficult indeed to get reelected. Major global players on every bourse would see their shares collapse. So the price of gold would go up even more….just in time for the central banks to ban buying and selling it among the citizenry.
What’s sauce for the banker and the bureaucrat is not at all tasty for brokers and businesmen. And neither would work for elected legislators.
Clear evidence of tetchiness and strained statements designed to pass the blame around have been evident since 2008. Draghi has pointed out on several occasions that monetary policy “can only do so much if there is no free market reform to go with it”. Yellen at the Fed is getting heat from both the markets and big business Bric colonists about raising rates. Japanese exporters are dismayed by the way negative rates have made the Yen expensive. And whatever Camerlot says, the vast majority of big business leaders are pro Brexit….whereas the Sir Humphreys and the bankers are virulently anti it.
If there is some global conspiracy to turn us all into slaves, then it seems to me inevitable that it will result in some spectacular élite splits.
Bring it on.