This page has been archived and commenting is disabled.
Gold Confiscation, Inflation, And Suddenly Virtuous Central Bankers
Wolf Richter www.testosteronepit.com
When the world's major central bankers get together, as they did at the Fed conference in Washington this weekend, ironies abound. Off to the side was Turkey’s government that had just floated a plan to get its people to turn in their physical gold in exchange for “certificates,” a first if still voluntary step in what may become a process of gold confiscation. In the background was the Fed, which in January had promised to keep interest rates at record lows through 2014, come hell or high water, after having purchased $2.3 trillion in bonds. And in the foreground were the money printers of Japan and Europe.
“If low interest rates induce investment projects that are only profitable at such interest-rate levels, this could have an adverse impact on productivity and growth...,” said Masaaki Shirakawa, Governor of the Bank of Japan, the champion of deficit monetization and ultra-low interest rates.
He was worried, he said, about “side effects” such as rising commodity prices—a non sequitur after he'd announced in in mid-February that the BOJ would plow another ¥10 trillion ($128 billion) into asset purchases, having already done three waves of asset purchases in 2011. And then we learned that board members fretted that this might be considered monetization of Japan's deficit. Um, yes.
Not to be outdone, Jean-Claude Trichet, ex-President of the ECB, did his own fretting. Under him, the ECB had purchased crappy Eurozone sovereign bonds despite a treaty that prohibits it. And now he worried that these bond purchases by central banks have become part of a new “permanent regime,” and that it could create “behavioral contagion”—something that has already happened. “I think we have to reflect on that,” he said belatedly.
Back to Turkey: it found a different solution for its own out-of-control budget deficit. Like that of Japan, the US, and other countries, Turkey’s deficit, at 10% of GDP, has become part of the “permanent regime.” But rather than deal with it the hard and honest way—cut spending and increase tax collections—Turkey is grasping for alternatives. Hence the plan to bamboozle its citizens into handing over their hidden stashes of physical gold in return for what would certainly be pretty certificates. And as an additional incentive, gold-deposit accounts would earn interest.
When I was in Turkey in 1997, pocket money was a wad of Turkish lira that included 1,000,000-lira notes. Even beggars could be millionaires. And those who spent their last million on gold (jewelry was a favorite) would never forget how smart that decision was. Not only would the price of gold, at the time around $300 per ounce, start rising again, but also the value of the lira would dissipate into hyperinflation.
On January 1, 2005, the government revalued the currency at 1,000,000 lira to 1 New Turkish lira and issued new banknotes and coins. Then, on January 1, 2009, the government again put new banknotes and coins in circulation but without New in the name. They looked different, and omitting New would certainly inspire confidence and help people forget the fiasco of the old lira.
Inflation in February was 10.4%. Yield on the two-year bond is near 10%. And last year, the lira plummeted 20% against the dollar. No wonder Turks don’t trust their paper money, regardless of how the government dresses it up. So they doubled their purchases of physical gold in 2011, according to the World Gold Council. Their savings rate is at a 30-year low. They’re borrowing and spending lira, and they’re buying gold for safekeeping in their homes. A lot of it. $150 - $300 billion, according to government estimates—savings that are not part of the "savings rate."
If the government got its hands on, say, $200 billion of its people’s gold, it could transfer it into the international market and kick the deficit can down the road. And if push came to shove, it could do with the certificates what Greece did with its bonds. Which makes people wonder who the advisor on the project was. Goldman Sachs?
But Turks saw what happened next door: “We owed it to our children and grandchildren to rid them of the burden of this debt,” said Greek Finance Minister Evangelos Venizelos after the bond swap, a default that had whacked private sector investors with a 72% loss. While everyone other than the bondholders was applauding, Greece’s economic horror show continued in its relentless manner. For that whole debacle, read..... “A harder Default To Come.”
»
- advertisements -
... again.
Devo, is that what they call a "credibility trap"?
I think we have to reflect on that
Lemme see here. If we confiscate the gold at current prices that might cover what, a year's deficit of $200B (or whatever) when we turn around and sell it into the market.
Short term solution to a long term problem.
But if we get smart and confiscate it after the price rises by 100x, then we've covered 100x the deficit.
Or, maybe somethings wrong here.
Like taking the gold does naught for the gubamint except act as an additional tax which can be levied against fiat balances.
The reason gold was confiscated in the good olde Roosevelt days of freedom and democracy was that it was that fiat was convertible into gold at a fixed price and then the fuckers went and tried to cheat by printing too much paper.
So, unless there's a fixed conversion from the Mother Lode at Ft. Knox (The Official US Tungsten Emergency Strategic Materials Reserve) there's no economic motive to take the stuff from the public..... unless.... whatever the repositories claim to hold ain't there... as in empty, invalid paper claims or fake.
Oppps! Scandal time!
Confiscation will likely come in the form of a "steep tax" in your fiat gains.
As long as the Treasury keeps their ledger annotated at $42.2222 for an ounce of gold....the tax liability (confiscation) should not be too bad.
That said, I could envision them "updating" their book value on their holdings when it becomes convenient.
http://fms.treas.gov/gold/current.html
The American Sheeple are still selling their gold. You see signs everywhere, "We Buy Gold". TV ads abound for outfits buying "scrap jewelery" etc. Wait till the light bulb comes on, if ever. They're gonna be pissed :)
"Sheeple"? Don't be too smug.
The loss of good jobs and housing compels many to divest their assets, by tag sales, pawn shops, or gold buyers, ... whether they like it or not.
The system operates to screw people over regardless whether they have also been duped, as most readers here at ZH are aware.
Whoops double post.
Anecdotal evidence that the sheeple are waking up. 3 people have asked me in the last month how to invest in precious metals. I have been talking about phyzz, Sprott etc for years when asked about investing but never had anyone seek me out and ask for advice on the metals. The mania phase may be approching, the sheeple are restive and sense something is wrong in paradise.
At least now we know who's buying it so we can go back and "liberate" it. Galippolli 2, bitches.
I'm kind of partial to the Judge/Taurus in keeping with the US Constitution:
http://www.youtube.com/watch?v=4H5GepjBRsM
HAHAHA
There will probably be some dopes who actually make the deal.
If they want what little gold I have I will gladly give them a receipt for it and keep the metal. I will promise that this paper will be redeemable for metal. I will reserve the right to ...I believe the word I'm searching for 'hypothecate' and the correct prefix is 're'. Yes I'll do for them what they have done for us. If there are more receipts than metal to back them I will call this 'fractional reserve' and 'normal'. They will understand that this is how it has always been done and there will be no problems...I'm sure...
You are well versed in tradition
Short and sweet. Well done.
Bankers should be hung from trees with good quality, debt free rope.
Rope, no future counterparty risk when properly employed.
Good luck with the debt free rope.
A good strong hemp rope!
My, my.
A distrust of paper trust.
How 14th century of them.
What do they know that we don't?
The Man will not take mine.
.30 Combloc, Bitchez.
Although not specifically mentioned, the recent Executive Order signed by Obama allowing confiscation of assets during times of national emergency surely had Gold in mind also. As we all know, we are already "At war" in the "War on terror" so this never-ending war could be used as a pretext at any time. The NDAA and upcoming cancellation of US Nationality legislation have already taken care of any possible dissentors.
It is actually WAR 'AND' TERROR
Just like WAR 'AND' DRUGS
WAR 'AND' POVERTY
Fixed it for ya'll!
The Man will not take mine, without killing me first.
.45 auto. That's it. (fixed it)
He can try and kill me and even if he is successful he'll still never benefit from it, because he's got a better chance of convicting Jamie Dimon of fraud than finding my PM's.
There really fixed.
If you fellas got gold, nothing needs fixin'.