Perspectives on the global economic changes

[Suraj]

Per-capita debt is not comparable to per-capita real income. You get an income every month. You don't get a new bill from the government every month when their stock of outstanding public debt goes up. You do pay indirectly in the form of taxes, but 'per capita debt' is a balance sheet artifact, while per capita money is money in hand.

It's true that wage growth in real terms has stagnated recently, but income growth during the 20th century FAR outstrips anything managed in any previous period, including 19th century. The 1800s are in no way comparable to today, either in terms of income growth or inflation. What they had then was practically zero income growth and zero inflation, because people were too poor and there was practically no demand for goods compared to today.

It does not matter if per-capita debt in the 1800s was $0; average 1.5% income growth for 100 years is extremely poor, and calling it 'some of the fastest growth' is laughably off the mark. That performance was little better than India in that period. Most of that growth came in the last 3 decades of the 1800s, thanks to the Reconstruction, which was also characterized by several manias and panics, that we today call a boom and recession, together with the associated rising and falling inflation, not zero inflation.

[panduranghari]

There is no trade-off between growth and debt. Under the regime of irredeemable currency, debt is no longer a servant. It is a Moloch, devouring its children.

Antal Fekete

[panduranghari]

There's no 'but' involved here. You're talking about the individual's imperative. I'm talking about the central bank's imperative. Inflation will progressively erode one's purchasing power. Everyone knows that - even the illiterate. But it happens by stealth, and the human psyche is that people tolerate a slow loss longer than a sudden change to their circumstances.

The latter is what would happen in a deflationary spiral, because business activity would rapidly contract, throwing society out of order. Few deflationary spirals have been managed or extended over a long time, with the notable exception of Japan, which still faced a lot of economic and social pressures over a 2-decade period anyway. Thanks to Volcker, central banks at least have a copybook on how to handle an inflationary spiral. They don't have one for a deflationary spiral. So they'll by default pick managed inflation - it's the more stable socio-economic option.

You are obfuscating. In reality, central banks control a relatively small amount of the world’s money supply, with bank credit making up the majority.

Central banks cannot deal with this irrespective of what Keynesian economists say or Chicago school has taught.

[chola]

It is the job of government to provide paper

Says who?

The free market should be the one to decide the type of monetary system that should exist, not bureaucrats nor bankers. The people who EARN the wealth should decide what they want as a store of wealth and a means of transaction. That is capitalism where the market selects the money. Anything else is cronyism no matter how much the "wise man" professes his ability to foresee the future or for that matter represent the interests of the people instead of his cronies.

Says every modern economy in the world. Unless you live in the bush and can barter with animal carcasses and bags of rice, you need government to provide paper.

[chola]

BTW, the greatest growth periods in the US were between 1865 to 1900 (post war boom -- Civil War) and between 1945 and 1971 (post war boom -- WWII.)

Each one started with a period of rapid inflation with government printing money like water for war efforts.

Again, for growth you will always have some inflation. You want zero inflation, barter for your livelihood. No modern economy can grow without some inflation.

But why talk about inflation? Inflation in developed nations is at a historically low level for over a decade. In Japan, there was actually massive deflation with prices crashing during a period of low growth.

And you are right, productivity and economy of scale have made things cheap. If you look at electronics in the US market (and even India) there had been been downward pressure on prices for years (since China and the Asian Tigers were brought into the global supply chain.) People forget how much a TV or a refrigerator used to cost. They used be to major long term investments that people repaired over and over to continue use. They are so cheap today that they are throwaway items.

So why complain about some "wise man" at the Fed when it comes to inflation? Again, even with zero interest rates, inflation is low as hell.

Look, as I said before, it would be paradise to find that unicorn of zero inflation coupled by growth. But it is nearly impossible as they a diametrically opposed mandates. Mature economies have the luxury of focusing on inflation at the expense of growth. In India, like every other developing nation, we don't have that luxury.

[Suraj]

You are obfuscating. In reality, central banks control a relatively small amount of the world’s money supply, with bank credit making up the majority.

Central banks cannot deal with this irrespective of what Keynesian economists say or Chicago school has taught.

How am I obfuscating ? And if the ability of central banks to fulfil their mandate to manage monetary policy was so shaky, why does every major economy have a central bank, or run a policy that defers to the moves of another major central bank ?

Central banks control the rates that the banks lend at. There's certainly a law of diminishing returns at work if they raise or lower rates too far. But normal circumstances, a change in rates has a substantial effect on deposit and lending rates, besides affecting equities and bond markets by incentivizing one over the other.

What they have much less control over is where the money goes to. There are far fewer tools (or maybe the willingness) to control asset bubbles in specific assets, whether it be bonds, equities, housing or commodities.

I re-iterate what I said - every major central bank prefers to stimulate managed inflation. Unlike the 1800s, the problem today in developed economies is stimulating demand, not supply. The supply side is so efficient today that that output of most things is in abundance. As such, central banks attempt to drive up aggregate demand just enough to keep inflation with tolerable limits. What they don't want is demand destruction via deflation, because that results in a deflationary spiral as was the case in the Great Depression.

[chanakyaa]

Milton Friedman - Money and Inflation


It is a long video. Worth listening to the entire video, unless you have strong opinions against Freidman..

[Neshant]

Per-capita debt is not comparable to per-capita real income.

Per capita income IS per capita debt under the fiat paper money system. This is because all money is created as debt with the addition of an interest charge on it. In fact it is LEVERAGED debt once it enters the economy.

It's true that wage growth in real terms has stagnated recently, but income growth during the 20th century FAR outstrips anything managed in any previous period, including 19th century.

This is untrue. Between the Civil War and 1913, the U.S. economy experienced explosive. By 1890, the US leaped ahead of Britain for first place in manufacturing output - this was at a time when Britain owned all the manpower & resources of 25% of the globe. From 1869 to 1879, the US economy grew at a rate of 6.8% for real GDP and 4.5% for real GDP per capita - that is WITHOUT debt nor LEVERAGE. The economy repeated this period of growth in the 1880s, in which the wealth of the nation grew at an annual rate of 3.8%, while the GDP was also doubled. That's double the national GDP in 10 years with the US emerging as the largest creditor in the world. Essentially this is when US became the global super power.

Most importantly, none of this wealth was re-hypothecated nor leveraged.

The same is not true today which is a guarantee that vast numbers of people are going to be cheated of the fruits of their labor.

[Neshant]

Says every modern economy in the world. Unless you live in the bush and can barter with animal carcasses and bags of rice, you need government to provide paper.

Total nonsense. There is absolutely nothing that says a cartel of private banks should have a monopoly over the creation of money and its value thereof while skimming cream off it and dumping their losses onto society through it.

Printing money & stealing wealth from productive society is not some highly technical endeavour that is the God-given right of a secret cabal of banking goons. Anyone with a laser printer can do that.

There are many private issuers of currency that could easily emerge, many electronic exchanges that could exists, more recently even crypto currencies that cannot be duplicated. Yet private banking goons with their current monopoly over the issuance of money insists they should be the only one to control the monetary system.

We have competition in every area of industry which is a good thing. However in money, there is a monopoly over its creation by a few politically connected entities. Why is this so?

Here's my favourite video on the issue :

[Neshant]

Again, for growth you will always have some inflation. You want zero inflation, barter for your livelihood. No modern economy can grow without some inflation.

What has inflation got to do with growth? Inflation is nothing more than erosion of the purchasing power of currency.

In Japan, there was actually massive deflation with prices crashing during a period of low growth.

What is your definition of deflation? If asset prices become over-valued due to money printing, leveraged gambling in the market and those prices come crashing back to earth, is that deflation.

So why complain about some "wise man" at the Fed when it comes to inflation? Again, even with zero interest rates, inflation is low as hell.

Who said interest rates reflect inflation rate? Interest rates are set by a private cabal of bankers aka the Federal Reserve to suit their interests. When these private banks make leveraged bets in the market that turn sour (e.g. leveraged bets on real estate), they want the inflation rates up to jack up prices so their bets pay off. And vice-versa. This is IRRESPECTIVE of the rate of inflation. Now GUESS who pays the COST of that THEFT of value from the currency.

much a TV or a refrigerator used to cost. They used be to major long term investments that people repaired over and over to continue use. They are so cheap today that they are throwaway items.

That has what to do with the stealing purchasing power of people's earnings by private bankers? That products improve is a result of technological innovation INSPITE of the theft by these banking goons, not because of it. But you'll connect just about anything to the benefits of "inflation".

Look, as I said before, it would be paradise to find that unicorn of zero inflation coupled by growth.

Inflation and deflation are neither good nor bad as long as long as it occurs in a free market economy. These are price signals to which the market can react. However it is NOT a free market economy when decisions on money printing are made by a politically connected group of PRIVATE BANKERS who have a monopoly on the creation of money. They end up price fixing and lieing about inflation/deflation statistics to benefit & bail out their cronies the private banks. This occurs at the EXPENSE of the productive economy i.e. wealth is stolen from the productive economy to manipulate prices to make good their gambling bets. You don't seem to understand this.

[panduranghari]

Chola Ji,

A post especially for you.

http://fofoa.blogspot.co.uk/2010/08/cre ... ation.html

[TSJones]

^^^^^yeah four years after the above article was written still no collapse of the dollar.

but please keep buying gold. my son is making a killing.

[panduranghari]

The post was not for you. Any way thanks. I will. I do not buy from any tom dick harry off the internet.Only from LBMA accredited dealers.

[Austin]

Can some one tell me what criteria does it take for a currency to be fully convertible ?

I was reading on BRICS and it seems only Russia has fully convertible currency , China perhaps partial convertible , not sure though ?

Lets say if we want to make Rupee full convertible what do we need to do ?

[TSJones]

Russia has decided bitcoins are illegal and Apple has dropped support of bitcoins.

http://money.cnn.com/2014/02/10/technol ... ?hpt=hp_t2

[svinayak]

Can some one tell me what criteria does it take for a currency to be fully convertible ?

I was reading on BRICS and it seems only Russia has fully convertible currency , China perhaps partial convertible , not sure though ?

Lets say if we want to make Rupee full convertible what do we need to do ?

Global trading system is a rogue trading system. Once the country figures out how to handle the rogue traders and their backers then the country is ready to flout its currency into the global open market. It is usually when the currency usage and its dominance reaches a point of bullying.

[TSJones]

Can some one tell me what criteria does it take for a currency to be fully convertible ?

I was reading on BRICS and it seems only Russia has fully convertible currency , China perhaps partial convertible , not sure though ?

Lets say if we want to make Rupee full convertible what do we need to do ?

From investopedia:

Convertible currency

A currency that can be readily bought or sold without government restrictions, in order to purchase another currency. A convertible currency is a liquid instrument when compared to currencies tightly controlled by a central bank or other regulating authority.

reserve currency:

Definition of 'Reserve Currency'


A foreign currency held by central banks and other major financial institutions as a means to pay off international debt obligations, or to influence their domestic exchange rate. A large percentage of commodities, such as gold and oil, are usually priced in the reserve currency, causing other countries to hold this currency to pay for these goods. Holding currency reserves, therefore, minimizes exchange rate risk, as the purchasing nation will not have to exchange their currency for the current reserve currency in order to make the purchase.

[Suraj]

It's true that wage growth in real terms has stagnated recently, but income growth during the 20th century FAR outstrips anything managed in any previous period, including 19th century.

This is untrue. Between the Civil War and 1913, the U.S. economy experienced explosive.

Yes it experienced explosive then - dynamite was invented around the time Jokes apart, You're arguing using what I already posted - that all of the 19th century growth effectively occured in the last 1/3d of that century. WHY ?? Because of money printing!

Historically, every war has been followed by a boom due to the issuance of debt to fund the war, and the subsequent debasement of currency to pay down that debt through inflation. Just look at the history:
* Civil War (1861-65) followed by the Reconstruction boom
* WW1 (1914-18) followed by the roaring twenties
* WW2 (1939-45) followed by the growth spurt until the mid 60s, when another war (Vietnam) started.

All that explosive growth you're talking about was driven by cheap money. Just because the Fed wasn't created until 1913 doesn't mean no one was printing money beforehand. The Fed itself was created due to the multiple panics (what we now call recessions) during the boom years between 1865-1913. Here are all the panics:
http://en.wikipedia.org/wiki/Financial_ ... th_century
http://en.wikipedia.org/wiki/Financial_ ... th_century
Panic of 1819 – pervasive USA economic recession w/ bank failures; culmination of U.S.'s 1st boom-to-bust economic cycle
Panic of 1837 – pervasive USA economic recession w/ bank failures; a 5 yr depression ensued
Panic of 1857 – pervasive USA economic recession w/ bank failures
Panic of 1873 – pervasive USA economic recession w/ bank failures, known then as the 5 yr Great Depression & now as the Long Depression
Panic of 1884
Panic of 1890
Panic of 1893 – a panic in the United States marked by the collapse of railroad overbuilding and shaky railroad financing which set off a series of bank failures
Panic of 1896 – an acute economic depression in the United States precipitated by a drop in silver reserves and market concerns on the effects it would have on the gold standard
Panic of 1901 – limited to crashing of the New York Stock Exchange
Panic of 1907 – pervasive USA economic recession w/ bank failures
Panic of 1910–1911

Look at the panics above - they're heavily weighted towards the boom years between 1870-1913. Panics in 1893, 1884, 1890, 1893, 1896, 1901, 1907 and 1910. That's the reason why the central bank came about - the lack of coordination on monetary policy resulted in a wild west economic world where investment was more about speculation and control by robber barons, than productive spending.

Of course, we're essentially back to similar circumstances today, with a central bank. What does that tell you ? You're going to have the same end results as the late 1800s whether or not you have a central bank, if you don't have additional policymaking ensuring that the money is backed by economic output.

When you go about on a tirade against central bankers, understand the circumstances that led to the creation of the Fed. Back in 1913, the economy was in the hands of a group of oligarchs, while the small guy faced a sequence of extremely destabilizing economic recessions. Rockefeller's net worth in todays dollars would be about $300 billion, or about 6x that of the wealthiest man today. The only thing that helped the common person then was the deflation in prices of goods driven by rapid industrialization.

Take away central banks today and you're not going to fix much. You'll get a far more volatile stock market, and instead of SPY/QQQQ, fortunes will be made and lost on the VIX instead. You'll get a much more unstable job market due to rapid movements between inflationary and deflationary conditions. Businesses will invest less because of lack of stability, and overall standard of living will also be volatile.

Central banks serve the dirty purpose of smoothening this volatility out. They provide the fiscal and economic stability at the cost of corroding the value of savings progressively through inflation. They're not a solution without its own problems, but they came about because of lack of tolerance for what existed before - a level of instability that was socially, economically and politically unmanageable.

Taking central banks away isn't going to itself fix anything. A proper solution to the situation is to encourage investment in productive output of real goods to back the money being printed. That's a necessary condition regardless of whether you have a central bank or not. The central bank itself serves as a means to smoothen out the economic cycles using the tax of steady inflation.

[Neshant]

that all of the 19th century growth effectively occured in the last 1/3d of that century. WHY ?? Because of money printing!

You are spinning yarn my man. There was no money printing in the Union as the govt incurred debt. The money printing was ironically going on in the side that lost (Confederate). The issuance of money by the Union during the war was taken over by the Federal govt which also passed a tax to finance the war.

Historically wars resulted in great leaps in industrial output. The market begins to bet ahead of time on the victor and against the loser. If all it took was money printing to make an economy boom, all losers in a war would be equally as wealthy by the end as they would be printing right upto the end as well.

Fed wasn't created until 1913 doesn't mean no one was printing money beforehand. The Fed itself was created due to the multiple panics (what we now call recessions) during the boom years between 1865-1913. Here are all the panics:

None of the recessions put any dent in what was the fastest economic growth period. In fact most were over *without* running up a any national debt in "stimulus" aka private banker bailouts aka wealth redistribution from producers to private bankers who made bad bets.

That's the reason why the central bank came about

Central banks came about to perpetuate the interests of the private banking cartel that created it. You are ignorant of the creation of the Federal Reserve which is why you do not know this. Even in the biggest "panic" just before the creation of the Federal Reserve, less than 2% of small banks had closed.

Of course, we're essentially back to similar circumstances today, with a central bank. What does that tell you ? You're going to have the same end results as the late 1800s whether or not you have a central bank,

Uh, I thought the whole purpose of handing over trillions of dollars to "wise men" at the top and them offloading the losses of their cronies by the trillions onto productive society was to prevent collapses. Now you want to claim they don't really prevent collapses? What exactly is their use then other than spinning bogus theories on how their thieving for their cronies is a benefit to productive society that is being pilfered. Its pure snake oil salesmanship.

I'd like to get in on this money printing racket myself and help stimulate the economy. I could help smooth out any recession by spending money I print up from my laser printer. Why not?

When you go about on a tirade against central bankers, understand the circumstances that led to the creation of the Fed. Back in 1913, the economy was in the hands of a group of oligarchs,

The oligarchs are the Fed. You don't understand the circumstance behind the creation of the Fed. It was created by a few individuals who at that time controlled 25% of the world's total wealth. That is an OLIGARCH.

You'll get a much more unstable job market due to rapid movements between inflationary and deflationary conditions.

You have been conned by jargon and mixed up cause with effect. The instability is caused by the interference of "wise men" pretending to know what ails the economy and how to fix it. Really all they're doing is playing a con game that benefits themselves.

The best thing about 2008 is it thoroughly exposed the foolishness of letting one man at the top fix & manipulate interest rates resulting in (what will turn out to be) the greatest destruction of wealth in history. All these guys from Greenspan to Bernanke to a hoard of fast talking economists look like used car salesmen peddling their theories in hindsight.

[Austin]

From investopedia:

Convertible currency

A currency that can be readily bought or sold without government restrictions, in order to purchase another currency. A convertible currency is a liquid instrument when compared to currencies tightly controlled by a central bank or other regulating authority.

Thanks but what I was keen to know is what determines a country decision to make its currency Convertaible , Are there any set parameters before a country decides its currency is full convertible ?

Else India can declare its currency as fully convertible like Australian,Canada or Russia currency are

[Suraj]

If there was no change in economic policymaking in the 1800s, and wars themselves generated productive output then,
* why was all the growth during the 1870-1900 period ? Why just the last 30 years and not the previous 70 - the argument being that nothing had changed monetary policywise that whole century ?
* There was no shortage of wars then, from the big ones (1812 Anglo-US and 1847 Mexican-American) to all the warfare against the native Americans. Why did that not generate per capita income growth, which was stagnant for 70 years ?
* Why were most of the panics, including the main ones in 1873-79 and 1893, co-terminus with the boom years.

Have you quantified the value of land grants and railroad subsidies that the Federal government provided, before claiming there was no public debt ? The government just chose to forego revenues, rather than issue bonds and fund it through taxation. The result was a series of panics in the absence of any moderating monetary authority.

While there may have been no central bank in the 1870s, those panics transferred capital into the hands of the oligarchs of the day. The Federal Reserve system provides at least notional political control over these oligarchs, as opposed to none at all.

As much as I think the current economic situation is placing increasingly unsustainable pressures on on long term growth, I also realize that the population at large wants it that way. They voted for this in the US in 2008, and did so even more comprehensively in 2012. You can scream yourself hoarse, but the fact that someone like Ron Paul never got any traction proves you're a fringe minority.

That doesn't mean I comprehensively disagree with you. I think the Fed is evil, but a necessary one. My disagreement lies primarily in the claims of the benefits of an alternative - a free floating currency where the individual can grow wealth through his own labors. It's a great frontier mentality, but historically, overall growth has always been heavily top-down, driven by big guys with lots of money. It was so in the 1870s, and still is.

[TSJones]

From investopedia:

Convertible currency

A currency that can be readily bought or sold without government restrictions, in order to purchase another currency. A convertible currency is a liquid instrument when compared to currencies tightly controlled by a central bank or other regulating authority.

Thanks but what I was keen to know is what determines a country decision to make its currency Convertaible , Are there any set parameters before a country decides its currency is full convertible ?

Else India can declare its currency as fully convertible like Australian,Canada or Russia currency are

Russia has lots of oil and natural gas contracts with outside countries.

Canada also is a net producer of energy.

Australia also exports heavily, minerals, agricultural products, etc.

These countries have huge in flows of foreign currency. That is a very sweet spot to be in.

What they means is, that they can afford to convert their currency w/o having to worry about devaluation in regards to the world financil markets because they huge in flows of capital.

I am no expert about India but India has a large population that is rural and barely above subsistence (India also has a very large middle class but they are dwarfed by the needs of the many). India must import a big portion of its energy needs (so does Japan but they have a huge manufacturing export economy as does Germany). India's agriculture is starting to take off but it still has a ong ways to go as does it's manufacturing. Couple that with retrictive trade practices and what India has is a controlled currency. This is not meant to critciize India. India has it's own path to follow

[Suraj]

Thanks but what I was keen to know is what determines a country decision to make its currency Convertaible , Are there any set parameters before a country decides its currency is full convertible ?

Else India can declare its currency as fully convertible like Australian,Canada or Russia currency are

There are two kinds of convertibility:
* Current account: where you can convert currency freely for trading purposes. India already has this, as does China.
* Capital account: where you can convert your financial assets in one currency freely into the other. India (and China) does not have this.

The latter is a sensitive matter because of the potential for a hollowing out of capital base within the country due to a crisis of confidence. It will take a period of stable and mature economic policymaking before a country contemplates this, because they need to be sure there won't be a run to the exits at each minor crisis. Neither Indian nor Chinese political systems have this confidence to make such a move on capital account convertibility. The west on the other hand, would encourage it because they'd be the beneficiaries of any such event.

[vishvak]

The European Commission unveils its very first report on corruption.
first EU Anti-Corruption Report
Turns out that corruption in EU covers all member states and is as much as entire EU annual budget, and can be much more.

Looks like EU is a cesspool of corruption. This is a huge matter considering that EU is very well plugged into international trade. Officially it is about 120€ however it can be much more. One of reports on it here - link.

Another report on Italian Mafia taking off with funds allocated by EU commission for poor people and also for renewable energy sources! Note how funds from EU is seen as gift for Mafia as told to BBC by Italian mafiaso Antonio Birrittella; and funds are used to extend money laundering empire; or how 93% of cases are thrown in paper basket! First world treatment for reading only!

[Austin]

Thanks TSJ , Suraj ....

Yellen: Federal Reserve stimulus cuts to continue

The new chair of the Federal Reserve, Janet Yellen, has said the bank will continue to cut its stimulus measures for the US economy.

If the US economy keeps improving, the bank would take "further measured steps" to reduce its support, she said.

In her first comments since taking over, Ms Yellen also signalled that interest rates would remain low.

Her testimony signals a continuation of the policies started under her predecessor, Ben Bernanke.

"I have always been in favour of a predictable monetary policy that responds in a systematic way to economic variables," said Ms Yellen in response to questions from Jeb Hensarling, a Republican from Texas, who is the chair of the House Financial Services Committee.

While Ms Yellen noted the recent volatility in global financial markets, she said that at this stage it did not "not pose a substantial risk to the US economic outlook".

US markets reacted positively to her comments, with the three main share indexes trading higher after her remarks.

'Substantial progress'

Ms Yellen said there had been an improvement in the US jobs market, but added that the recovery was "far from complete".

While the US jobless rate had fallen, it still remained "well above levels" the Fed saw as consistent with maximum sustainable employment, she said.

She said that in assessing the health of the labour market, it was important to consider "more than the unemployment rate".

A mixed run of figures has raised questions over whether the US economy can sustain the strength it showed in the second half of 2013.

The unemployment rate has fallen to 6.6%, down from 7.9% a year ago, but the past two months have seen weak jobs growth, which Ms Yellen said had surprised her.

"Since the financial crisis and the depths of the recession, substantial progress has been made in restoring the economy to health," said Ms Yellen.

"Still, there is more to do."

'Moderately optimistic'

Many economists expect that the Fed's bond buying programme will be cut in $10bn (£6.1bn) monthly steps until purchases are eliminated.

The bond purchases were running at $85bn a month until December, since when there have been two reductions taking the figure to $65bn a month.

The purchases of Treasury and mortgage bonds have been aimed at stimulating the economy by keeping long-term borrowing rates low.

Overall, "there are no surprises" in Ms Yellen's testimony said Ward McCarthy, chief US economist at Jefferies.

"[Ms] Yellen is moderately optimistic about the state of the economy, but also acknowledges that the economy and labor market have a long way to go before attaining normalcy."

Mr McCarthy noted that in a departure, the House Financial Committee had scheduled a second round of testimony on Tuesday.

"The appearance of a second panel is an unprecedented development and, in our opinion, an unwarranted assault on Fed independence," he wrote in a note to clients.

[Austin]

Russia's foreign trade surplus increased in 2013 to $ 208.6 billion

Russian trade balance in 2013 showed a surplus of $ 208.6 billion, up $ 1.1 billion, or 0.5% more than it was in 2012. It is reported by the Federal Customs Service.

In the trade with foreign countries the balance equaled $ 176.4 billion (an increase of $ 3.2 billion), with the CIS countries - $ 32.2 billion (down $ 2.1 billion).

According to customs statistics, in 2013 Russia's foreign trade remained at the level of 2012 and amounted to $ 844.2 billion, with non-CIS foreign trade turnover amounted to $ 729.4 billion, with the CIS countries - $ 114.8 billion

Russian exports in 2013 remained virtually the same as last year and formed a $ 526.4 billion in total exports to non-CIS countries in 2013 accounted for 86.0%, the share of CIS countries - 13.9%.

Russian imports in 2013 and remained at the level of indicators in 2012 and amounted to $ 317.8 billion in total imports to non-CIS countries in 2013 accounted for 87.0%, the share of CIS countries - 13.0%.

MOSCOW, February 12. / ITAR-TASS /.

[Austin]

Keiser Report: Guest Mitch Feierstein (01Feb14)

[kmkraoind]

Want independence? Then be set to lose pound, says UK FM

Osborne said that there was no legal reason why Britain should share the pound with Scotland and that Scottish debt issuance would face "punitively high interest rates" in the case of secession.

Can any economic guru tell us what does this mean, cannot Scotland choose Euro?

[TSJones]

Want independence? Then be set to lose pound, says UK FM

Osborne said that there was no legal reason why Britain should share the pound with Scotland and that Scottish debt issuance would face "punitively high interest rates" in the case of secession.

Can any economic guru tell us what does this mean, cannot Scotland choose Euro?

Sure, if they want to meet euro guidelines, procedures, asset requirements, etc.

There is no magic wand. Scotland still has to sell bonds to finance their government and raise taxes to pay for it.

[member_26147]

Can any economic guru tell us what does this mean, cannot Scotland choose Euro?

Sure, if they want to meet euro guidelines, procedures, asset requirements, etc.

There is no magic wand. Scotland still has to sell bonds to finance their government and raise taxes to pay for it.

Scotland would be better off if it uses Euro as its local currency instead of the debt laden pound. Its funny to see the UK PM chiding scottish efforts on independence by warning about the pound. What a joke! Sure, they will have some problems in the beginning but they can follow Netherlands Model and integrate with Europe more. I'm pretty sure they can stand independently and do very well for themselves. The empire has to crumble.

[svinayak]

Can any economic guru tell us what does this mean, cannot Scotland choose Euro?

Sure, if they want to meet euro guidelines, procedures, asset requirements, etc.

There is no magic wand. Scotland still has to sell bonds to finance their government and raise taxes to pay for it.

Scotland would be better off if it uses Euro as its local currency instead of the debt laden pound. Its funny to see the UK PM chiding scottish efforts on independence by warning about the pound. What a joke! Sure, they will have some problems in the beginning but they can follow Netherlands Model and integrate with Europe more. I'm pretty sure they can stand independently and do very well for themselves. The empire has to crumble.

There is a baggage with using Pound Sterling.
With the Bond market bubble and general decline in the Pound economy worldwide, Euro can offer global access and reach for smaller countries in EU.
Also Pound comes with the guilt of the colonial exploitation which Euro does not have!

[Suraj]

The Scots will have a readymade source of income from the North Sea oil, plus they have a fair bit of manufacturing output. They're unlikely to face signficant budgetary pressures. Further, the argument that they are subsidized by the current union is questionable:
Enough of the Scottish subsidy myth

This view is based on the discrepancy between levels of public spending per head of the population in Scotland and England. According to the Treasury's latest Public Expenditure Statistics, Scots gets an average of £10,212 spent on them every year by the UK government, compared with around £8,588 -- £1,624 less -- for people in England.

In line with narrative of the Scottish welfare subsidy, the extra cash allows Scotland to provide its students with free higher education, its elderly with free personal care and concessionary travel, and its sick with free prescription medication, while their English equivalents are forced to go without.
　
This so-called "Union dividend" is also used by many London-based journalists and politicians -- many of whom would describe themselves as social democrats -- who argue that current levels of public expenditure in Scotland would be unsustainable were it to break away and become an independent country.
　
Yet, if the London commentariat took the time to examine the figures a little more closely, they would discover what a large number people north of the border already know: not only does Scotland more than pay its way in the Union, but its overall fiscal position would actually be stronger as a fully sovereign nation.
　
Let's tackle the subsidy charge first. Scots represent 8.4 per cent of the UK's total population, but they generate 9.4 per cent of its annual revenues in tax -- equivalent to £1,000 extra per person. The remaining £624 is easily accounted for by decades of UK government under-spending in Scotland on defence and on other items which are not routinely broken down by region, such as foreign office services.
　
Second, there's the claim that Scotland's "bloated" welfare state could not be sustained outside the Union. This is nonsense. Including its per capita share of revenues from North Sea oil and gas production, Scotland's public expenditure probably does not exceed the OECD average and is almost certainly lower than that of the Scandinavian social democracies. The fact that the Treasury cynically refuses to class those revenues as part of Scotland's overall annual economic output inflates the level of public sector expenditure as a proportion of GDP relative to that of the private sector.
　
Finally, one of the most common -- and least well-considered -- claims made by supporters of the Union is that the 2008 global financial meltdown shattered the economic case for independence. How, they argue, would the economy of tiny, independent Scotland have been able to cope with the burden of debt needed to rescue its financial sector from collapse? It wouldn't, of course, but according to George Walker, professor of financial regulation and policy at the University of Glasgow, Scotland would only have had to take on a proportion of the total cost of the bail-out based on the subsidiaries and business operations of HBOS and RBS in Scotland. This would probably amount to no more than 5 per cent.
　
For the sake of argument, nationalists might also wish to note that Scotland's 2009 - 2010 deficit was, at 6.8 per cent of GDP, a full 3 per cent lower than England's, and that the likely defence expenditure of an independent Scotland would, at around $1.8bn per year in line with Nordic average, be roughly £1bn less than what the UK currently spends on its behalf.
　
But why should Unionists let the economic facts ruin the image they have built up of Scotland as a nation of selfish, indulged welfare "mendicants"?The subsidy myth is too politically useful to be simply abandoned. Of course, if they ever do come to terms with the reality that Scotland could survive on its own - and even prosper - it will probably be too late anyway.

[ramana]

100 years after Spain lost Haiti it had the Spanish Civil War and became basket case. Looks like UK is going to lose Scotland and is threatening them with financial ruin. its only a matter of when and not if.

[Austin]

( World Gold Council )

Gold reserves in tons ( as of Dec 2013 )

U.S. ............... 8 133.5
Germany ........ 3 387.1
IMF .................2,814.0
Italy 2 ............ 451.8
France ........ 2 435.4
China .............. 1 054.1
Switzerland .... 1 040.1
Russia ........... 1 035.2
Japan ............. 765.2
Netherlands ........ 612.5
India ............... 557.7

[Austin]

India stands 11th in the list although I suspect Chinese Gold Reserves are highly underestimated ....coz they dont officially disclose it.

[Suraj]

Those are gold reserves held by the central bank only. It does not count gold reserves in private hands. The latter is a better estimate of who really has the most gold, and India would finish on top easily on such a list. The problem is that there's no exact audit of private gold holdings. Estimates for Indian private holdings range from 18000 to 35000 tons.

The Chinese central bank *does* report their gold reserves, just as RBI does, in their monthly reserves statements. There are also other local factors affecting that list, e.g. the US once prohibited citizens from holding private gold, and required everyone to surrender gold with the Fed for a fixed exchange rate, during the Depression. That essentially moved most of private gold into the central bank's hands. India's never done that, and really could not do so because the population would never cooperate, just as the US could never get everyone to surrender their guns.

[chanakyaa]

http://www.paulcraigroberts.org/2014/01 ... ipulation/
The Hows and Whys of Gold Price Manipulation

The deregulation of the financial system during the Clinton and George W. Bush regimes had the predictable result: financial concentration and reckless behavior. A handful of banks grew so large that financial authorities declared them “too big to fail.” Removed from market discipline, the banks became wards of the government requiring massive creation of new money by the Federal Reserve in order to support through the policy of Quantitative Easing the prices of financial instruments on the banks’ balance sheets and in order to finance at low interest rates trillion dollar federal budget deficits associated with the long recession caused by the financial crisis.

The Fed’s policy of monetizing one trillion dollars of bonds annually put pressure on the US dollar, the value of which declined in terms of gold. When gold hit $1,900 per ounce in 2011, the Federal Reserve realized that $2,000 per ounce could have a psychological impact that would spread into the dollar’s exchange rate with other currencies, resulting in a run on the dollar as both foreign and domestic holders sold dollars to avoid the fall in value. Once this realization hit, the manipulation of the gold price moved beyond central bank leasing of gold to bullion dealers in order to create an artificial market supply to absorb demand that otherwise would have pushed gold prices higher. The manipulation consists of the Fed using bullion banks as its agents to sell naked gold shorts in the New York Comex futures market. Short selling drives down the gold price, triggers stop-loss orders and margin calls, and scares participants out of the gold trusts. The bullion banks purchase the deserted shares and present them to the trusts for redemption in bullion. The bullion can then be sold in the London physical gold market, where the sales both ratify the lower price that short-selling achieved on the Comex floor and provide a supply of bullion to meet Asian demands for physical gold as opposed to paper claims on gold.

The evidence of gold price manipulation is clear. In this article we present evidence and describe the process. We conclude that ability to manipulate the gold price is disappearing as physical gold moves from New York and London to Asia, leaving the West with paper claims to gold that greatly exceed the available supply.

The primary venue of the Fed’s manipulation activity is the New York Comex exchange, where the world trades gold futures. Each gold futures contract represents one gold 100 ounce bar. The Comex is referred to as a paper gold exchange because of the use of these futures contracts. Although several large global banks are trading members of the Comex, JP Morgan, HSBC and Bank Nova Scotia conduct the majority of the trading volume. Trading of gold (and silver) futures occurs in an auction-style market on the floor of the Comex daily from 8:20 a.m. to 1:30 p.m. New York time. Comex futures trading also occurs on what is known as Globex. Globex is a computerized trading system used for derivatives, currency and futures contracts. It operates continuously except on weekends. Anyone anywhere in the world with access to a computer-based futures trading platform has access to the Globex system.

In addition to the Comex, the Fed also engages in manipulating the price of gold on the far bigger–in terms of total dollar value of trading–London gold market. This market is called the LBMA (London Bullion Marketing Association) market. It is comprised of several large banks who are LMBA market makers known as “bullion banks” (Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorganChase, Merrill Lynch/Bank of America, Mitsui, Societe Generale, Bank of Nova Scotia and UBS). Whereas the Comex is a “paper gold” exchange, the LBMA is the nexus of global physical gold trading and has been for centuries. When large buyers like Central Banks, big investment funds or wealthy private investors want to buy or sell a large amount of physical gold, they do this on the LBMA market.

The Fed’s gold manipulation operation involves exerting forceful downward pressure on the price of gold by selling a massive amount of Comex gold futures, which are dropped like bombs either on the Comex floor during NY trading hours or via the Globex system. A recent example of this occurred on Monday, January 6, 2014. After rallying over $15 in the Asian and European markets, the price of gold suddenly plunged $35 at 10:14 a.m. In a space of less than 60 seconds, more than 12,000 contracts traded – equal to more than 10% of the day’s entire volume during the 23 hour trading period in which which gold futures trade. There was no apparent news or market event that would have triggered the sudden massive increase in Comex futures selling which caused the sudden steep drop in the price of gold. At the same time, no other securities market (other than silver) experienced any unusual price or volume movement. 12,000 contracts represents 1.2 million ounces of gold, an amount that exceeds by a factor of three the total amount of gold in Comex vaults that could be delivered to the buyers of these contracts.

This manipulation by the Fed involves the short-selling of uncovered Comex gold futures. “Uncovered” means that these are contracts that are sold without any underlying physical gold to deliver if the buyer on the other side decides to ask for delivery. This is also known as “naked short selling.” The execution of the manipulative trading is conducted through one of the major gold futures trading banks, such as JPMorganChase, HSBC, and Bank of Nova Scotia. These banks do the actual selling on behalf of the Fed. The manner in which the Fed dumps a large quantity of futures contracts into the market differs from the way in which a bona fide trader looking to sell a big position would operate. The latter would try to work off his position carefully over an extended period of time with the goal of trying to disguise his selling and to disturb the price as little as possible in order to maximize profits or minimize losses. In contrast, the Fed‘s sales telegraph the intent to drive the price lower with no regard for preserving profits or fear or incurring losses, because the goal is to inflict as much damage as possible on the price and intimidate potential buyers.

The Fed also actively manipulates gold via the Globex system. The Globex market is punctuated with periods of “quiet” time in which the trade volume is very low. It is during these periods that the Fed has its agent banks bombard the market with massive quantities of gold futures over a very brief period of time for the purpose of driving the price lower. The banks know that there are very few buyers around during these time periods to absorb the selling. This drives the price lower than if the selling operation occurred when the market is more active.

A primary example of this type of intervention occurred on December 18, 2013, immediately after the FOMC announced its decision to reduce bond purchases by $10 billion monthly beginning in January 2014. With the rest of the trading world closed, including the actual Comex floor trading, a massive amount of Comex gold futures were sold on the Globex computer trading system during one of its least active periods. This selling pushed the price of gold down $23 dollars in the space of two hours. The next wave of futures selling occurred in the overnight period starting at 2:30 a.m. NY time on December 19th. This time of day is one of the least active trading periods during any 23 hour trading day (there’s one hour when gold futures stop trading altogether). Over 4900 gold contracts representing 14.5 tonnes of gold were dumped into the Globex system in a 2-minute period from 2:40-2:41 a.m, resulting in a $24 decline in the price of gold. This wasn’t the end of the selling. Shortly after the Comex floor opened later that morning, another 1,654 contracts were sold followed shortly after by another 2,295 contracts. This represented another 12.2 tonnes of gold. Then at 10:00 a.m. EST, another 2,530 contracts were unloaded on the market followed by an additional 3,482 contracts just six minutes later. These sales represented another 18.7 tonnes of gold.

All together, in 6 minutes during an eight hour period, a total amount of 37.6 tonnes (a “tonne” is a metric ton–about 10% more weight than a US ”ton”) of gold future contracts were sold. The contracts sold during these 6 minutes accounted for 10% of the total volume during that 23 hours period of time. Four-tenths of one percent of the trading day accounted for 10% of the total volume. The gold represented by the futures contracts that were sold during these 6 minutes was a multiple of the amount of physical gold available to Comex for delivery.

The purpose of driving the price of gold down was to prevent the announced reduction in bond purchases (the so-called tapering) from sending the dollar, stock and bond markets down. The markets understand that the liquidity that Quantitative Easing provides is the reason for the high bond and stock prices and understand also that the gains from the rising stock market discourage gold purchases. Previously when the Fed had mentioned that it might reduce bond purchases, the stock market fell and bonds sold off. To neutralize the market scare, the Fed manipulated both gold and stock markets. (See Pam Martens for explanation of the manipulation of the stock market: http://wallstreetonparade.com/2013/12/w ... ouncement/ )

While the manipulation of the gold market has been occurring since the start of the bull market in gold in late 2000, this pattern of rampant manipulative short-selling of futures contracts has been occurring on a more intense basis over the last 2 years, during gold’s price decline from a high of $1900 in September 2011. The attack on gold’s price typically will occur during one of several key points in time during the 23 hour Globex trading period. The most common is right at the open of Comex gold futures trading, which is 8:20 a.m. New York time. To set the tone of trading, the price of gold is usually knocked down when the Comex opens. Here are the other most common times when gold futures are sold during illiquid Globex system time periods:

- 6:00 p.m NY time weekdays, when the Globex system re-opens after closing for an hour;
- 6:00 p.m. Sunday evening NY time when Globex opens for the week;
- 2:30 a.m. NY time, when Shanghai Gold Exchange closes
- 4:00 a.m. NY time, just after the morning gold “fix” on the London gold market (LBMA);
2:00 p.m. NY time any day but especially on Friday, after the Comex floor trading has closed – it’s an illiquid Globex-only session and the rest of the world is still closed.

In addition to selling futures contracts on the Comex exchange in order to drive the price of gold lower, the Fed and its agent bullion banks also intermittently sell large quantities of physical gold in London’s LBMA gold market. The process of buying and selling actual physical gold is more cumbersome and complicated than trading futures contracts. When a large supply of physical gold hits the London market all at once, it forces the market a lot lower than an equivalent amount of futures contracts would. As the availability of large amounts of physical gold is limited, these “physical gold drops” are used carefully and selectively and at times when the intended effect on the market will be most effective.

The primary purpose for short-selling futures contracts on Comex is to protect the dollar’s value from the growing supply of dollars created by the Fed’s policy of Quantitative Easing. The Fed’s use of gold leasing to supply gold to the market in order to reduce the rate of rise in the gold price has drained the Fed’s gold holdings and is creating a shortage in physical gold. Historically most big buyers would leave their gold for safe-keeping in the vaults of the Fed, Bank of England or private bullion banks rather than incur the cost of moving gold to local depositories. However, large purchasers of gold, such as China, now require actual delivery of the gold they buy.

Demands for gold delivery have forced the use of extraordinary and apparently illegal tactics in order to obtain physical gold to settle futures contracts that demand delivery and to be able to deliver bullion purchased on the London market (LBMA). Gold for delivery is obtained from opaque Central Bank gold leasing transactions, from “borrowing” client gold held by the bullion banks like JP Morgan in their LBMA custodial vaults, and by looting the gold trusts, such as GLD, of their gold holdings by purchasing large blocks of shares and redeeming the shares for gold.

Central Bank gold leasing occurs when Central Banks take physical gold they hold in custody and lease it to bullion banks. The banks sell the gold on the London physical gold market. The gold leasing transaction makes available physical gold that can be delivered to buyers in quantities that would not be available at existing prices. The use of gold leasing to manipulate the price of gold became a prevalent practice in the 1990′s. While Central Banks admit to engaging in gold lease transactions, they do not admit to its purpose, which is to moderate rises in the price of gold, although Fed Chairman Alan Greenspan did admit during Congressional testimony on derivatives in 1998 that “Central banks stand ready to lease gold in increasing quantities should the price rise.”

Another method of obtaining bullion for sale or delivery is known as “rehypothecation.” Rehypothecation occurs when a bank or brokerage firm “borrows” client assets being held in custody by banks. Technically, bank/brokerage firm clients sign an agreement when they open an account in which the assets in the account might be pledged for loans, like margin loans. But the banks then take pledged assets and use them for their own purpose rather than the client’s. This is rehypothecation. Although Central Banks fully disclose the practice of leasing gold, banks/brokers do not publicly disclose the details of their rehypothecation activities.

Over the course of the 13-year gold bull market, gold leasing and rehypothecation operations have largely depleted most of the gold in the vaults of the Federal Reserve, Bank of England, European Central Bank and private bullion banks such as JPMorganChase. The depletion of vault gold became a problem when Venezuela was the first country to repatriate all of its gold being held by foreign Central Banks, primarily the Fed and the BOE. Venezuela’s request was provoked by rumors circulating the market that gold was being leased and hypothecated in increasing quantities. About a year later, Germany made a similar request. The Fed refused to honor Germany’s request and, instead, negotiated a seven year timeline in which it would ship back 300 of Germany’s 1500 tonnes. This made it apparent that the Fed did not have the gold it was supposed to be holding for Germany.

Why does the Fed need seven years in which to return 20 percent of Germany’s gold? The answer is that the Fed does not have the gold in its vault to deliver. In 2011 it took four months to return Venezuela’s 160 tonnes of gold. Obviously, the gold was not readily at hand and had to be borrowed, perhaps from unsuspecting private owners who mistakenly believe that their gold is held in trust.

Western central banks have pushed fractional gold reserve banking to the point that they haven’t enough reserves to cover withdrawals. Fractional reserve banking originated when medieval goldsmiths learned that owners of gold stored in their vault seldom withdrew the gold. Instead, those who had gold on deposit circulated paper claims to gold. This allowed goldsmiths to lend gold that they did not have by issuing paper receipts. This is what the Fed has done. The Fed has created paper claims to gold that does not exist in physical form and sold these claims in mass quantities in order to drive down the gold price. The paper claims to gold are a large multiple of the amount of actual gold available for delivery. The Reserve Bank of India reports that the ratio of paper claims to gold exceed the amount of gold available for delivery by 93:1. (??)

Fractional reserve systems break down when too many depositors or holders of paper claims present them for delivery. Breakdown is occurring in the Fed’s fractional bullion operation. In the last few years the Asian markets–specifically and especially the Chinese–are demanding actual physical delivery of the bullion they buy. This has created a sense of urgency among the Fed, Treasury and the bullion banks to utilize any means possible to flush out as many weak holders of gold as possible with orchestrated price declines in order to acquire physical gold that can be delivered to Asian buyers.

The $650 decline in the price of gold since it hit $1900 in September 2011 is the result of a manipulative effort designed both to protect the dollar from Quantitative Easing and to free up enough gold to satisfy Asian demands for delivery of gold purchases.

Around the time of the substantial drop in gold’s price in April, 2013, the Bank of England’s public records showed a 1300 tonne decline in the amount of gold being held in the BOE bullion vaults. This is a fact that has not been denied or reasonably explained by BOE officials despite several published inquiries. This is gold that was being held in custody but not owned by the Bank of England. The truth is that the 1300 tonnes is gold that was required to satisfy delivery demands from the large Asian buyers. It is one thing for the Fed or BOE to sell, lease or rehypothecate gold out of their vault that is being safe-kept knowing the entitled owner likely won’t ask for it anytime soon, but it is another thing altogether to default on a gold delivery to Asians demanding delivery.

Default on delivery of purchased gold would terminate the Federal Reserve’s ability to manipulate the gold price. The entire world would realize that the demand for gold greatly exceeds the supply, and the price of gold would explode upwards. The Federal Reserve would lose control and would have to abandon Quantitative Easing. Otherwise, the exchange value of the US dollar would collapse, bringing to an end US financial hegemony over the world.

Last April, the major takedown in the gold price began with Goldman Sachs issuing a “technical analysis” report with an $850 price target (gold was around $1650 at that time). Goldman Sachs also broadcast to every major brokerage firm and hedge fund in New York that gold was going to drop hard in price and urged brokers to get their clients out of all physical gold holdings and/or shares in physical gold trusts like GLD. GLD and other gold ETFs are trusts that purchase physical gold/silver bullion and issue shares that represent claims on the bullion holdings. The shares are marketed as investments in gold, but represent claims that can only be redeemed in very large blocks of shares, such as 100,000, and perhaps only by bullion banks. GLD is the largest gold ETF (exchange traded fund), but not the only one. The purpose of Goldman Sachs’ announcement was to spur gold sales that would magnify the price effect of the short-selling of futures contracts. Heavy selling of futures contracts drove down the gold price and forced sales of GLD and other ETF shares, which were bought up by the bullion banks and redeemed for gold.

At the beginning of 2013, GLD held 1350 tonnes of gold. By April 12th, when the heavy intervention operation began, GLD held 1,154 tonnes. After the series of successive raids in April, the removal of gold from GLD accelerated and currently there are 793 tonnes left in the trust. In a little more than one year, more than 41% of the gold bars held by GLD were removed – most of that after the mid-April intervention operation.

In addition, the Bank of England made its gold available for purchase by the bullion banks in order to add to the ability to deliver gold to Asian purchasers.

The financial media, which is used to discredit gold as a safe haven from the printing of fiat currencies, claims that the decline in GLD’s physical gold is an indication that the public is rejecting gold as an investment. In fact, the manipulation of the gold price downward is being done systematically in order to coerce holders of GLD to unload their shares. This enables the bullion banks to accumulate the amount of shares required to redeem gold from the GLD Trust and ship that gold to Asia in order to meet the enormous delivery demands. For example, in the event described above on January 6th, 14% of GLD’s total volume for the day traded in a 1-minute period starting at 10:14 a.m. The total volume on the day for GLD was almost 35% higher than the average trading volume in GLD over the previous ten trading days.

Before 2013, the amount of gold in the GLD vault was one of the largest stockpiles of gold in the world. The swift decline in GLD’s gold inventory is the most glaring indicator of the growing shortage of physical gold supply that can be delivered to the Asian market and other large physical gold buyers. The more the price of gold is driven down in the Western paper gold market, the higher the demand for physical bullion in Asian markets. In addition, several smaller physical gold ETFs have experienced substantial gold withdrawals. Including the more than 100 tonnes of gold that has disappeared from the Comex vaults in the last year, well over 1,000 tonnes of gold has been removed from the various ETFs and bank custodial vaults in the last year. Furthermore, there is no telling how much gold that is kept in bullion bank private vaults on behalf of wealthy investors has been rehypothecated. All of this gold was removed in order to avoid defaulting on delivery demands being imposed by Asian commercial, investment and sovereign gold buyers.

The Federal Reserve seems to be trapped. The Fed is creating approximately 1,000 billion new US dollars annually in order to support the prices of debt related derivatives on the books of the few banks that have been declared to be “to big to fail” and in order to finance the large federal budget deficit that is now too large to be financed by the recycling of Chinese and OPEC trade surpluses into US Treasury debt. The problem with Quantitative Easing is that the annual creation of an enormous supply of new dollars is raising questions among American and foreign holders of vast amounts of US dollar-denominated financial instruments. They see their dollar holdings being diluted by the creation of new dollars that are not the result of an increase in wealth or GDP and for which there is no demand.

Quantitative Easing is a threat to the dollar’s exchange value. The Federal Reserve, fearful that the falling value of the dollar in terms of gold would spread into the currency markets and depreciate the dollar, decided to employ more extreme methods of gold price manipulation.
When gold hit $1,900, the Federal Reserve panicked. The manipulation of the gold price became more intense. It became more imperative to drive down the price, but the lower price resulted in higher Asian demand for which scant supplies of gold were available to meet.

Having created more paper gold claims than there is gold to satisfy, the Fed has used its dependent bullion banks to loot the gold exchange traded funds (ETFs) of gold in order to avoid default on Asian deliveries. Default would collapse the fractional bullion system that allows the Fed to drive down the gold price and protect the dollar from QE.

[Austin]

Those are gold reserves held by the central bank only. It does not count gold reserves in private hands. The latter is a better estimate of who really has the most gold, and India would finish on top easily on such a list. The problem is that there's no exact audit of private gold holdings. Estimates for Indian private holdings range from 18000 to 35000 tons.

Central Bank gold is what really matters when it comes to reserves and gold holding , Private gold is like private property and it would depend on the individuals on what they should do about it.

India's never done that, and really could not do so because the population would never cooperate, just as the US could never get everyone to surrender their guns.

Exactly why should people in India cooperate and surrender their privately held gold to Gobermand that believes in Stealing from its own citizen and enriching itself

[Austin]

Did we miss this news

Ruble move reflects China's yuan strategy

Allowing foreign currencies to be freely traded with the home currency is common in many countries. But giving a foreign currency the same status as the home unit is not, and China has acted differently.

On Dec 8, the country announced that it was allowing the Russian ruble to circulate unrestricted in Suifenhe, Heilongjiang province, bordering Russia. Although the rule applies to only one city, it is the first time that Beijing has given a foreign currency the same legal status as the renminbi on Chinese territory.

This deregulation tells a few things.

First, Chinese policymakers are indeed increasingly embracing market forces.

Generally the government remains prudent in liberalizing the foreign exchange system and insists on setting what it believes the right value for the yuan.

But Suifenhe, as a place where the yuan and the ruble have already been traded freely by residents, travelers and businesses, has proven that the market itself can do a good job in finding the right point between two currencies.

For years, underground dealers in the city have brokered deals on their own. Their exchange rates could at times differ widely from official rates. But their rates appeared to reflect the market better, with official rates having taken gray-market rates as a reference over the years. Now the differences between market rates and official rates are small, which shows the power of the market.

On the demand side, the ruble has virtually become the second currency in the city, where one-tenth of the China-Russia trade is taking place.

So giving ruble legal status in the city is in line with what the market has been calling for. The government decided not to follow the old practice of simply cracking down on what it used to deem as underground transactions. It realized that legalizing this trade, instead of blocking it, is the way to go, which represents a remarkable change of thinking.

Second, allowing the ruble to be used in Suifenhe displays policymakers' confidence of the yuan's lure across the border.

A big reason that a country usually does not allow a foreign currency to be used in its territory stems from worries that it will threaten the status of the country's home currency.But for Chinese policymakers, it is not a cause of concern.

As the yuan is appreciating and its value remains strong, the currency's demand in border trade is always big, often making it a preferred choice.

In an open and free foreign exchange market, a stronger currency will ultimately have a bigger share.

In the case of Suifenhe, the ruble is mostly used as a settlement for trade and sometimes as a payment unit for Russian travelers. As the ruble's value can fluctuate sharply and it is depreciating, Suifenhe residents would like to exchange rubles for yuan after they collect some of the currency, and Russian businesspeople are also willing to hold yuan.

So long as China's economic growth bolsters the yuan, its neighbors' currencies, even if they are given access to China, will be unable to challenge the renminbi.

By opening Suifenhe to the ruble, Chinese policymakers are casting a vote of confidence in the yuan, confident that its value can be maintained.

Third, the deregulation in Suifenhe could be copied in other border cities.

China may allow other currencies to legally enter its territory. Cities bordering Southeast Asia and Central Asia could be the next candidates.

The opening-up will certainly make trade easier.

But more importantly, the move can create a reference for Chinese authorities to better set the yuan's exchange rates, as a free market will provide the best reflection of demand and supply.

Last but not least, by allowing foreign currencies to be used in designated Chinese cities, China can have an upper hand in negotiating with neighbors on financial opening-up.

China's ambition to internationalize its currency is clear. But before the yuan becomes a global unit, it has to be a regional one. Therefore, boosting the use of the yuan in neighboring countries is an immediate task for China.

By accepting their currencies, the chances are enlarged for China to persuade neighbors to give a wide access for the yuan to enter their markets.

[Suraj]

Central Bank gold is what really matters when it comes to reserves and gold holding , Private gold is like private property and it would depend on the individuals on what they should do about it.

'Really matters' in what way and to whom ?

Exactly why should people in India cooperate and surrender their privately held gold to Gobermand that believes in Stealing from its own citizen and enriching itself

This seems contradictory to the previous statement. Since you argue that central bank holdings are what 'matter', shouldn't the gold be in their hands according to whatever parameter you base the argument upon ?

My argument is quite the reverse - the gold is best held in private individual hands and not in the hands of the central bank. In that sense, the pattern of Indian gold holding is better than what is in the US.

However, that would also mean that we don't show up anywhere near the top of such manufactured lists of 'top gold holders'. It's that very 'fakeness' of that list that I posted earlier to point out.