By Jorge Vilches for the Saker Blog
slowly then suddenly
The extremely-abused Western fiat legal tender currencies will fail As We Know Them and for good reason the euro has taken the lead. But the deep interconnection of Western economies and finances, basically “joined at the hip” – also means that the other three major Western currencies will follow. Accordingly, we shall witness a cascading devaluation of euros, dollars, pounds, and yens necessarily dragging each other down in a maddening competitive “race to the bottom”. Such devaluation will come about by their ever lower purchasing power meaning higher prices for everything, if available – either made locally or foreign — including real, effective money, i.e. physical gold bullion to be explained later. The political chaos derived is already obvious in Italy, France, the United Kingdom, Germany, Japan, the US, and Europe at large.
In passing please be advised that dollars and yens and pounds also have serious problems of their own. While under current circumstances the Russian Ruble and/or the Chinese Renminbi (a.k.a. ´yuan´) would actually not be that much negatively affected and may even possibly end up with the opposite “problem” of over-valuation. But if that ever happens it would mean the least of troubles. As the Russian proverb goes “The marvel is not that the bear dances well, but that the bear dances at all.” Today´s financial conundrum for any nation-state is simply to keep “dancing” somewhat somehow somewhere with the right “somebody” in exchange for the right “somethings” reliably delivered.
The “Russian sanctions” boomerang hollowed out Europe´s economic underpinnings. Accordingly, the euro started its downfall as the most visible negative outcome derived from the EU´s unwarranted Russophobic policies. Meanwhile, both Anglo-Saxons Plan A (“lets all rape Russia together”) and alternate Plan B (“lets rape Europe with UK help instead”) have unfolded in plain sight. So with the sudden and sharp devaluation of the European euro — and with the realization that plan A is now fully out of the question — now plan B is getting ready to kick in. In parallel, it is now becoming clear that the world will probably split into two competing areas, in which case the BRICS-non-NATO countries will need to find and implement their own currency — possibly based on commodities — something which requires time and negotiations. Or quite possibly through a brand new international BRICS bank with currency swap arrangements or ´special´ SDRs as recently suggested, which also require time. So, in order to continue their “normal” lives — besides the now-troubled traditional Western currencies — all nations may also soon end up needing either Rubles or gold or Renminbis or, in some special cases, the proper barter swaps partners, formulations, and procedures based on the pivoting price of gold as reference.
The impact of the Ukraine crisis has exposed Western finances to an extraordinary process that, true enough, sooner or later was coming anyways. Although now there are also over-lapping phenomena taking place which accelerate the breakdown tempo. So, besides the counter-productive “Russian sanctions”, in broader terms the European world conquest that started in the 1500s suddenly 6 months ago found a major stumbling block. This has thrown it dangerously off-balance and jump-started the revolution duly explained to the world by Russia´s President Vladimir Putin. And because of so much legal tender currency ´printing´ – not real money but rather legally authorized claims on value – we now witness the inevitable sharp rise of prices due to the tremendous amount of bits and bytes (high demand) chasing relatively fewer products and services effectively available (low supply). So the rates that banks should offer in order to attract investors to finance such monstrous idle debt cannot be as high as needed (15% ?).
If they were, the interest accrued by the many dozens of trillions of currency debt already piled up would explode the system. Plus it would be obvious that the principal would never be returned and economic depression would instantaneously surround us. So it´s the unmanageable huge debt collapse behind it all as central bank monetization and/or taxes would have to be prohibitively high to really help out any.
Furthermore, beware: legal tender currency claims are not money and they do not extinguish debt in any way, shape, or form such as precious metals — gold or silver — actually do. Since 1971, once off the gold standard – and before that, the silver standard — legal tender currencies lack any intrinsic value and debt is very much alive and multiplying obscenely around us as we speak. Now add to this the self-harming “Russian sanctions” backfire effect and hence the European euro in 2022 has so far lost approx. 20% of its value in relation to the US dollar…and to gold. Think Plan B with more ´printed´ US dollars that curiously enough would still buy far more value than down stricken euros although neither would eventually have the real-life economic meaning that they are supposed to have. Still, never forget that fiat currencies are a legally-imposed settlement mechanism of transactions whereby value is acquired with debt.
So true, real money that extinguishes debt requires an intrinsic value in and of itself such as gold has… or at the very least the temporary backstop purchasing power that Rubles or Renminbis have for real “hard” badly needed value such as Russian energy, food produce or other commodities… or Chinese real tangible performing products or assets or technologies. Time will eventually tell and – as the saying goes — ´there´s more than one way to skin a cat´. But this “cat” here and now simply cannot continue to be ´skinned´ much longer by magnetic fields digitally representing bits and bytes clicked into existence and projected upon a CRT Cathode Ray tube screen which some Western vested interests we all know want us to believe is “money”. It is not. It is a fiat legal tender currency claim without value which is a different animal altogether. It is not a wild tiger as real money is. It is a convenient self-cleaning household kittie cat
Today´s Western legal tender currencies are mere units of account plus a means for the legal settlement of transactions with no store of (intrinsic) value thus lacking the all-important feature that real money must necessarily have. What the West has today are strict “fiat” legal tender currencies which mean ´government imposed´ paper claims often with colorful pictures of musicians or very rare animals, possibly on their way to extinction. So naturally, with any important crisis, the market reaction is quite nervous and with unstable dynamics. Investors know – or should know – that they are on their own as there is no backstop behind their ´financial´ investments. As a consequence, today’s non “money” or ´fiat legal tender currency claims´ by their very nature are definitely perishable with a life expectancy that depends upon how well they are managed but historically never lasting more than 50 years (1971-2021 ?). And they have all been very terribly managed – most especially after the 2008 GFC + Covid scare and supply chain disruptions – and basically overprinted with impunity without any relationship to the real, effective wealth value produced. After the 2008 GFC financial meltdown, the only “result” that central bankers generated was discretionary favoring of fellow bankers with free (and first) access to overinflated legal currency credit with taxpayers and future generations footing the bill.
Ref #1 http://charleshughsmith.blogspot.com/2022/07/the-only-real-solution-is-default.html + graph notes credit to Charles Hugh Smith
debt NOT growth
Hence, the humongous increase of non “money” undertaken by central banks was literally wreckless. Actually, it´s the same old gimmick but now disguised – with help from MSM specialized press – as ´Quantitative Easing´ a.k.a. “QE” which through GDP´s magic formula ends up being “growth” (not). But debt is not growth and has to pay interests, no? So now, with industrial production stabbed in the back by financial engineering, the European Central Bank (ECB) with its euro crisis alive and kicking is running desperately behind events. But the harm is already buried in and cannot be fixed as — guided by their vested interests — central bankers failed miserably yet again by just offering nothing other than 14th. century printing-press technology, a one-trick pony. The destructive financialization of the fiat non-“money” world has overgrown the underlying real-life production of truly useful products and services by several multiples. These “financialized economies” developed extraordinary fiduciary instruments, but few productive factories or services. So, for so much non “money” now the West only offers a few externalities solving real economic needs.
As Prof. Michael Hudson has repeatedly explained, printing humongous ´money´ specially for the FIRE rentier sector (Finance Insurance Real Estate) and beyond anyone else has tremendously increased Western GDPs… but did not increase at all its effective, real-life tangible products and services economy that would benefit flesh & blood human beings. The GDP formula and its 4 terms by themselves are clear evidence of such a problem. So today Western central banks have painted themselves into a far away “false GDP” corner with no effective tools, space, or time left to maneuver with or issue yet “new” forward guidance (lip service) for their “financial policies” to change such outcome.
Per multi-billionaire and Bill Gates’ partner Warren Buffett — a.k.a. the ´Omaha Oracle´ — derivatives are a weapon of Financial Mass Destruction which today would sum up a notional sum exceeding USD $ 2 quadrillion. Of these, the central bank-induced and managed “paper gold chimera” could be as high as 30%. Flat-footed as they now are, central bankers can thus awkwardly run around in circles, but they can’t ever effectively hide. They might still be kings for a little while longer but they wear no clothes.
Russian revolution 2022
And so back to the 2022 world, Russia now says “it´s our products so you pay in our Rubles, okay?” Why euros or dollars? The West plain robs them anyways, so Russia cannot give away something for nothing. Russia does not need, care to have, or find a valid use for dollars or euros which are strictly Western nonsense, not Russia´s. This includes oil + nat-gas + LNG + refined products + wheat + everything else. And the Chinese may also start gradually doing something equivalent until a new, stable, fairer, BRICS-non-NATO monetary system is developed, installed, and accepted. How the transition will unfold is not yet very clear other than that it´d probably be a bumpy road and that it will take time. Of course, physical gold would work as perfect money so recall that the Global South has plenty of gold — and highly valuable silver — buried deep in the ground but still environmentally recoverable with adequate mining practices. This might turn out to be a game-changer both for these Global South regions of the world and for the Russian and Chinese investments to be made especially if the countries in question belong to BRICS and/or the BRI – Belt and Road Initiative. Ref #2 https://www.rt.com/business/558232-russia-switches-grain-exports-rubles/
the euro breakdown – up until July 21, 2022 – although eventually will get much worse
graph credit to “Goldmoney 2022”
“ The euro system has depended on redistributing wealth from Germany and the fiscally conservative northern states to bail out the profligate South using suppressed interest rates. That scheme is now kaput. The concept underlying the EU can be summed up as the socializing of the wealth of the northern states to subsidize the southern and less wealthy member nations. In keeping with its post-war low political profile, Germany went along with the European project’s evolution from being a trading bloc into a currency union.” – Alasdair Macleod – “Goldmoney” – July 2022
And sorry to say but it´s even far worse as the EU decided to establish a common currency without first having a solid fiscal and banking union amongst its members to regulate the financial framework and its economic underpinnings. Rather, the EU skipped all of that (“what for ?”) and went directly into a common euro currency as if such strict, unified fiscal and banking policies already existed (not). Furthermore, complicating the problem, the Maastricht Treaty requirements were not complied with, even receiving cheating help from Goldman Sachs in some cases. Let alone that a political union was also required, but let´s leave that for another day as the design was bad enough already.
So Europeans readily jumped from their trading bloc – actually a Customs Union with a Common External Tariff for foreign imports protection – directly into a monetary union with pretty much effective fiscal liberty for all of the many individual member states to spend as they best-consider fit on their own. Exaggerating, it´d be the equivalent of having some very hungry foxes as Guardians-In-Charge of a densely populated hen-house. True enough, the EU also evolved some Single Market features with the arch-famous 4 internal freedoms for goods, services, capital, and people… with the supposed “convergence” and “coordination of policies” etc… but there is no need to complicate the analysis with non-essentials. And the essence was and still is that if Germany sneezes, Europe catches the flu. And in the event that Germany went bad (as is now the case), Europe as a whole would end up terribly worse and the Club Med countries would no longer have an economy, period. And “Club Med” is just a friendly term used instead of the ugly-sounding PIIGS — meaning Portugal + Italy + Ireland with un-resolved Brexit + Greece + Spain… with France staringly absent (why so ?). And because of the EU “Russian sanctions” blowback now Germany is very very very sick – possibly terminally sick — and so the evolution of this horrifying built-in systemic risk is left only to your imagination.
plan B re EU gold
So now the new name of the game is also having Rubles and Renminbi… which nobody has, at least in amounts anywhere close to what is needed… and only to be acquired through trade with Russia or China. Or having gold, not “paper gold” per ETFs, etc. but tangible, physical gold. Like when introducing Mr. Bond, James Bond. So where exactly is Europe´s physical gold stored at? The answer is nowhere that Europe can reach, have, or use. Why not? Because it has been (a) possibly sold off and thus is non-existent and now held in private vaults or exhibited in Indian women´s necks or (b) because whatever is left will not be returned with blah blah excuses of which together we can think half a dozen in a matter of a few minutes. And then WHERE is Europe´s gold totally or partially “supposedly” vaulted at anyway? Between the US per Fort Knox et al and the UK per the Bank of England and Threadneedle Street or thereabouts, both together “supposedly” vault lots of what was Europe´s gold or what´s left of it. Of course, just to play along with their own convenience and to increase their leverage Anglo Saxons on both sides of the Atlantic will insist that most of Europe´s gold (and not just part – or none — of it) is in their physical possession…but not to be given back because of blah blah and also plan “B” remember? Now “YOU” lost and “WE” Anglo-Saxons have the gold / your gold / our gold / whatever gold. So please let´s not argue about silly details such as ´ownership´ because we have got the gold´s physical ´possession´ whether real or simulated (but still believed…) and repeated in every single ´official´ source on planet Earth. So the fact of the matter remains that WE have it – or at least we can say that WE have it — and you can´t do a bloody thing about it. Simple see? Anglo-Saxons are a dangerous bunch but not dumb you know. Plan B means Europe is vassalized completely and effectively — without military or weapons – so would just follow orders without even dreaming any ideas of its own. Rule Britannia lyrics come to mind “…Britons shall never never never be slaves…”. Continental Europeans of course will be, but not Perfidious Albion. No Sir, because British Royal spirits – despite their 20th. century German origins per House of Saxe-Coburg and Gothä — would never allow it
why gold ?
Skeptics always ask, why gold? You can´t buy groceries with gold, can you? Okay, let´s postpone those very easy questions and submit to you right now the hard part (please see below) that I´ll also help out with and fully answer later. For the time being the idea is to convince yourself with your own line of thought and arguments of why J.P. Morgan famously told the US Senate that “money is gold and nothing else”. So quickie homework for you :
- make a full listing as complete as possible with all of the monetary virtues and advantages that gold has all put together on itself and which nothing else has. Google it, Tweet it, Whatsapp it, Yahoo it, Instagram it, Tic-Toc it, do whatever you want, ask whomever, take lots of time, copy-cat, and “cheat” a bit if you wish to…
- You will most probably still have missed the two most important ones which are almost never mentioned and should not ever be forgotten. Stay tuned…
“The Mother of European conflicts: If history is any guide, hostilities will explode the instant the EU member states individually or collectively rightfully demand a yet-non-existent fully independent world-class functionally detailed audit of the EU gold supposedly still in ´custody´ at the Bank of England or Fort Knox. This should take plenty of time and is the perfect excuse for delaying the whole process always under the exclusive purview of London and Washington, not Brussels. Or unmanageable problems would arise as soon as EU nations require immediate repatriation of at least some of such ´theoretical´ bullion, most probably all of them at the same time in view of circumstances.” Jorge Vilches
In synchronized lockstep with the well-known ´Anglo-Saxon exceptionalism´, the London and New York gold and silver markets have always been beyond “opaque” without any significant reporting of transactions or positions. No data has ever been offered either on commercial banks holding accounts in the UK or the US, or precise technical identification of gold custodies, let alone those belonging to EU members. So who may or may not be acknowledged as a valid claimee of anything vaulted is an open subject left to the entire discretion of London and Washington, not Brussels. The same goes for the enormous unallocated gold and silver liabilities of the so-called ´bullion banks´… or any other pertinent data. Of course, the gold bar serial numbers records affecting original transactions, deliveries, quality, ownership, and technical status regarding grade, etc. are also missing.
Ref #10 https://www.bullionstar.com/blogs/ronan-manly/european-central-bank-gold-reserves-held-across-5-locations-no-physical-audits-will-not-disclose-gold-bar-list/ Ref #11 https://www.gata.org/node/13310 Ref #12 https://www.gata.org/node/20642 Ref #13 https://www.gata.org/node/21861
So while Europe already foresees freezing and starving in the near term, the many pending questions include:
(a) do the US and the UK still have all of Europe´s gold bullion… or has it been sold off partly or totally or even loaned out as many experts insist?
(b) are the US and the UK willing and able to immediately return to European countries the physical gold they may still have left to legitimate owners if any?
(c) who are the legitimate owners of such-vaulted gold after decades of European reshuffling of political borders?
(d) would the European ECJ decide on gold ownership or the British or US Judiciary? On what basis, exactly?
(e) could the ECB, the IMF, and the BIS claim that Europe´s gold is, at least in part, “their” gold? why so?
(f) has any of Europe´s gold been lent, swapped, re-hypothecated, leased, leveraged or encumbered now lien with other many alleged legitimate claimees also standing in line with ´fractional un-allocated synthetic´ bullion custodies per “Digital Derivative Pricing Schemes“.
“ The powerful forces of bank credit contraction are at the heart of a rapidly evolving financial crisis in global derivatives, whose gross value is over USD $ 600 trillion, an unimaginable sum. Central banks are on course to destroy their currencies through unlimited monetary expansion, lethal for bullion banks with fractionally reserved unallocated gold accounts while being dramatically short of Comex futures…Precious metal derivatives are an observable part of a wider derivative catastrophe that is caught between contracting bank credit and infinite monetary inflation.” Alasdair Macleod – “Goldmoney” Ref #18 https://www.goldmoney.com/research/the-looming-derivative-crisis?gmrefcode=gata
British economist Peter Warburton was 100% correct when he described that Western central banks were using derivatives in the futures options market to control gold and silver prices and protect government currencies against the public’s recognition of currency devaluation. Warburton’s essay was “The Debasement of World Currency: It Is Inflation But Not as We Know It”. Ref #19 https://www.gata.org/node/8303 Ref #20 https://www.usdebtclock.org/gold-precious-metals.html
In closing, please allow me to quote Mayer Amschel Rothschild “ Let me issue and control a nation’s money and I care not who writes its laws ”… which most probably inspired the creation of the US Federal Reserve Bank which is neither ´Federal´ nor has any ´reserves´ just electronic bits and bytes on a computer screen. But it still does own the (1) world´s reserve currency which dominates world business and (2) the US government and military to impose its will upon world business.
ADDITIONAL important REFERENCES: