Reuters / Shannon Stapleton
Thanks to Suzy Star and Golden Age of Gaia.
By Max Keiser, RT.com, Op-Edge – September 20, 2013
http://rt.com/op-edge/world-gold-standard-currency-152/#.UjzJp-ySbj8.twitter
If you believe that gold no longer plays a role, think again. In effect, if you know what to look for, the world is on a gold standard now.
In 1971 the US ‘closed the gold window’ starting an era of global fiat money reference pricing that has been unprecedented in history.
Never has the world operated on the basis of no country having a currency tied to something with intrinsic value like Gold. The ‘petro-dollar’ – a US dollar exchange rate based on the deal struck between Saudi Arabia and America – for the US to buy their oil and for the Saudis to buy US dollars and bonds in return – started a period of oil companies (with the military machinery in their pocket) bullying the world into buying US dollars or getting cut off from oil and dollar supplies led to our current political situation with the US now involved in multiple wars in various oil dependent economies and their satellites – and this lulled many into believing that Gold no longer played a role, but recent events prove these assumptions wrong.
Leading up the news that the Federal Reserve would not ‘taper’ their bond buying (QE) program we saw a precipitous drop in the price of Gold. Since I knew (like others including Peter Schiff, Bill Fleckenstein, Michael Pento and even James Rickards who stated as much on “Keiser Report”) that the Fed cannot ‘taper’ at any point going forward without throwing their entire Ponzi scheme into the ditch (causing every major bank in the world to instantly collapse) it was interesting to see the price of Gold trade down – unless you know the Fed, working alongside bankers on Wall St. and the City of London – are actively managing the price of Gold (along with stocks, bonds and currencies).
Knowing that the Fed (who is implicated in every recent major market rigging scandal covering Forex, energy markets and credit default swaps) knew that it would make an announcement that would cause a buying panic in Gold (that they were going to debase the currency some more) – it had to go into the market and drive the price of Gold down ahead of the announcement or risk seeing Gold pop to new all-time highs of $2,000 or more.
I commented a few weeks ago that to understand the Fed you have to understand that it, along with JP Morgan and other TBTF banks, are one giant hedge fund. And this is a huge negative for supporters of free markets who believe prices should be determined by the market – not the Fed. Surprisingly, a few days later Warren Buffett made the same observation. He said the ‘Fed is the most successful hedge fund in history.’
For Warren this is true. He is on the receiving end of the biggest transfer of wealth in history from workers and savers to borrowers and speculators. But for those not on the Fed’s list of recipients of hundreds of billions worth of interest free loans that never have to be paid back the fact that the Fed is a giant hedge fund is devastating. It’s no coincidence that the day after the ‘no tapering’ of ‘food stamps for bankers’ aka QE was announced the government announced that food stamps for the non-recipients of the Fed’s free money were told that they can expect a ‘taper’ in the form of a cutback.
The huge price drop in Gold before the taper announcement is ‘smoking gun’ proof the Fed does exactly what Warren Buffett says they do: operate like an enormous hedge fund; making free loans to ‘friends,’ manipulating markets with impunity, disrupting price discovery with high powered algo trading fraud and pressuring governments to submit to various extortion schemes like TARP (created by Goldman Sachs alum and Treasury Secretary Hank Paulson.
In effect, if you know what to look for, the world is on a gold standard now. The price of gold is telling you that the Fed Ponzi is running at full tilt and that the ravages of having such a destructive mechanism at the heart of the economy are unraveling. Because even with all that effort, the trend of the price of Gold is still higher and at some point the ability to keep it down will fail and then; as Warren Buffett also said; ‘You can see who’s not wearing a bathing suit when the tide goes out.’
Max Keiser, the host of RT’s ‘Keiser Report,’ is a former stockbroker, the inventor of the virtual specialist technology, virtual currencies, and prediction markets.
Replies
Here's how some self-adorated men in the Ivy League of U.S. education (who get selected to run things in Washington D.C. due to their high IQs (and their love for the rewards from central banking enthusiasts)) SCREW THINGS UP FINANCIALLY BY TRYING CREATIVE ACCOUNTING TRICKS WITH THE U.S. GOLD SUPPLY AND THE STORED GOLD OF OTHERS (by leasing out gold to third parties, taking the proceeds and investing in interest-rate government securities, and ASSUMING that the price of gold stays down as long as this process is continuous. OOPS.)
Due in no small measure to articles he wrote as a young economist, especially his 1966 essay "Gold and Economic Freedom" (reprinted in A. Rand, Capitalism: The Unknown Ideal, available online at www.gold-eagle.com/greenspan041998.html), Fed chairman Alan Greenspan is widely recognized as quite an authority on gold. Far less widely known are professional articles on gold by another young economist who also went on to serve until quite recently in some of the nation's top economic policy positions.
Not long before joining the new Clinton administration as undersecretary of the treasury for international affairs, Harvard president and former treasury secretary Lawrence H. Summers, then Nathaniel Ropes professor of political economy at Harvard, co-authored with Robert B. Barsky an article entitled "Gibson's Paradox and the Gold Standard" published in the Journal of Political Economy (vol. 96, June 1988, pp. 528-550), available online at www.gata.org/gibson.pdf. The article, which appears to draw heavily on a 1985 working paper of the same title by the same authors, is an excellent technical piece, revealing a high level of expertise regarding gold, gold mining, and the interconnections among gold prices, interest rates, and inflation.
Indeed, for any administration concerned that the bond vigilantes on Wall Street might thwart its economic policies by pushing up long-term rates at inopportune times, the article is must reading and qualifies its authors as attractive candidates for government service. Of even more interest looking at the Clinton administration retrospectively, the article provides strong theoretical evidence that since 1995 gold prices have not acted as would normally be expected in a genuine free market, but instead have behaved as if subject to what the authors describe as "government pegging operations."
Lord Keynes gave the name "Gibson's paradox" to the correlation between interest rates and the general price level observed during the period of the classical gold standard. It was, he said, "one of the most completely established empirical facts in the whole field of quantitative economics." J.M. Keynes, A Treatise on Money (Macmillan, 1930), vol. 2, p.198. And it was a paradox because contemporary monetary theory, largely associated with Irving Fisher, suggested that interest rates should move with the rate of change in prices, i.e., the inflation rate or expected inflation rate, rather than the price level itself. Yet when Keynes wrote, data for the prior two centuries showed that the yield on British consols (government securities issued at a fixed rate of interest but with no redemption date) had moved in close correlation with wholesale prices but almost no correlation to the inflation rate.
Economists have long tried to find a theoretical explanation for Gibson's paradox. Professors Summers and Barsky provide the following executive summary of their contribution to this debate (at 528):
They begin their article with an examination (at 530-539) of the data supporting the existence of Gibson's paradox, concluding that it was "primarily a gold standard phenomenon" (at 530) that applies to real rates of return. Regression analysis of the classical gold standard period, 1821-1913, shows a close correlation between long-term interest rates and the general price level. The correlation is not as strong for the pre-Napoleonic era, 1730-1796, when Britain effectively adhered to the gold standard but many other nations did not, and "completely breaks down during the Napoleonic war period of 1797-1820, when the gold standard was abandoned" (at 534).
Nor is the evidence of Gibson's paradox as strong for the period of the interwar gold exchange standard, 1921-1938, which was marked by active central bank management and restrictions on gold convertibility. Following World War II, the correlation weakened substantially under the Bretton Woods system, and "[t]he complete disappearance of Gibson's paradox by the early 1970s coincides with the final break with gold at that time" (at 535).
With the nominal price of gold fixed, Barsky and Summers note (at 529) that "the general price level is the reciprocal of the price of gold in terms of goods. Determination of the general price level then amounts to the microeconomic problem of determining the relative price of gold." For this, they develop a simple model (at 539-543) that assumes full convertibility between gold and dollars at a fixed parity, fully flexible prices for goods and services, and fixed exchange rates.
Next, they examine the response of the model to changes in the available real rate of return. In this connection, they observe (at 539): "Gold is a highly durable asset, and thus ... it is the demand for the existing stock, as opposed to the new flow, that must be modeled. The willingness to hold the stock of gold depends on the rate of return available on alternative assets." With respect to the gold stock, the model distinguishes between bank reserves (monetary gold under the gold standard) and nonmonetary gold, principally jewelry.
Summarizing the mathematical formulas of the model, Barsky and Summers make two key points. The first (at 540):
And the second (at 542):
Because the model is "essentially a theory of the relative price of gold," Barsky and Summers postulate (at 543) that "an important test of the model is to see how well it accounts for movements in the relative price of gold (and other metals) outside the context of the gold standard." They continue (id.):
And they conclude (at 548):
In other words, the bottom line of their analysis is that gold prices in a free market should move inversely to real interest rates. Under the gold standard, higher prices meant that an ounce of gold purchased fewer goods, i.e., the relative price of gold fell. Since under the Gibson paradox long-term interest rates moved with the general price level, the relative price of gold moved inversely to long-term rates. Assuming, as Barsky and Summers assert, that the Gibson paradox operates in a truly free gold market as it did under the gold standard, gold prices will move inversely to real long-term rates, falling when rates rise and rising when they fall.
the plot is still thick with stink...............................