Gold, Financial War & The Fed’s Dangerous Exit Strategy

With the United States celebrating Independence Day, oil still trading over $100 a barrel, and continued uncertainty in the Middle-East, today King World News interviewed the director of international economics at the Council on Foreign Relations in New York. Dr. Benn Steil warned KWN about the Fed’s exit strategy, and also spoke about China’s large hoard of U.S. dollars, and their massive accumulation of gold.

Eric King: “What we are looking at right now is a financial war between the U.S. and China.”

Dr. Steil: “That’s right. In the 1940s the U.S. was the world’s largest international creditor, and Britain was the world’s largest international debtor. Today, China is the world’s largest international creditor, and of course the United States is the world’s largest international debtor.

And it’s fascinating to see that the United States today takes the same position in terms of identifying the flaws in the global monetary architecture that Keynes and the British took in the 1940s. For example, former Treasury Secretary Tim Geithner, in 2010, proposed imposing caps on persistent current account surpluses. Of course that was aimed at disciplining Chinese economic behavior….

“This was exactly the sort of position that Britain was taking in the 1940s, Harry Dexter White and the FDR administration condemned. So where you stand depends on where you sit at the time.”

Eric King: “This is also a quote (from Dr. Steil) ‘At present, the United States has no need to accommodate calls for it to sacrifice its exorbitant privilege (having the world’s reserve currency) to some vague vision of the global good. It will only waver when the market initiates a clear shift toward alternatives.” What about that (Dr. Steil)?”

Dr. Steil: “Well, in the 1940s there was a deal to be done between the United States and Britain. It was a harsh deal, and it was an imbalanced deal as I explained, but nonetheless it was a deal to be done. Britain needed financing to get through the war, and the Americans needed British acquiescence to make the dollar the global unit of account.

But the situation with China today is not the same, and let me give you just one little anecdote to illustrate this: In 1956, the Eisenhower administration forced the British out of (the) Suez (Canal) by threatening to withhold emergency IMF support.

Now, the United States, at the time, could afford to provoke a sterling crisis at no cost to itself because in 1956 U.S. holdings of British securities amounted to only one dollar per U.S. resident. Now, compare that to today, where Chinese holdings of U.S. securities amount to over (a remarkable) $1,000 per Chinese resident.

So China cannot afford to provoke a dollar crisis today because it would be hurting itself at least as much as it would be hurting the United States. And that’s why there is really not, in my view, a deal to be done right now between the United States and China to remake the global international architecture … As you quoted, China has a vast stash of dollar-denominated assets, and it doesn’t want to do anything that would undermine the global purchasing power of this hoard. So they are in quite a bind.”

Source: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/4_Gold,_Financial_War_%26_The_Feds_Dangerous_Exit_Strategy.html

Happy 80th Birthday to Gold Confiscation

by bullionvault.com

Quantitative easing 1933-style with FDR and the threat of 10 years in prison…

“I, Franklin D. Roosevelt, President of the United States of America, do declare that [our] national emergency still continues…and do hereby prohibit the hoarding of gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations…”

The OPENING PHRASES of Executive Order 6102, issued by Franklin D.Roosevelt 80 years ago, on April 5 1933, obliged US gold owners to take their bullion to a bank and exchange it for Dollars at the prevailing rate, writes Ben Traynor at BullionVault.

This order has become notorious among gold investors. Some fear a similar gold confiscation could happen again – that their government might seek to take their bullion away as part of some trumped up solution to a “national economic emergency”.

Events in Cyprus, where at one point it looked like the state was going to levy a 6.75% on deposits below €100,000 – despite these coming under the deposit protection scheme – have only served to heighten fears that private wealth can, under certain circumstances, simply be appropriated. Governments change laws from time to time, and yes it’s possible that under the right circumstances some governments might try to confiscate their citizens’ gold. But it is important to realise that the motivation for confiscating gold that existed for FDR in 1933 has largely disappeared.

Back then the US was still on the Gold Standard (the UK had been forced off 18 months earlier. The rest of the world would follow by the eve of WWII, never to return). Gold was the foundation of the American currency and economy; at the time of FDR‘s order the Dollar’s value was tied to gold at a rate of $20.67 per ounce – the price at which the government offered to buy and sell physical bullion. Making private “gold hoarding” illegal, FDR in fact nationalized what had been private property, using the bullion turned in to the banks to boost Washington’s finances and imposing 10-year jail terms and $10,000 fines (almost half-a-million dollars at today’s gold price) for disobedience. Only one case relating to the confiscation ever reached the courts (and only then because the gold owner, Manhattan attorney Frederick Barber Campbell, sued for return of his property) but the threat alone pulled in 60% of privately-circulating gold bullion within six months.

Following 6102, Roosevelt was then able to devalue the Dollar against gold by raising the gold price, something the government could now do as it controlled the entire domestic supply, plus a big chunk of the international market, which now poured metal into the US in exchange for evr-more dollars per ounce. FDR was acting on the advice of Cornell agricultural economist George Warren, whose background observing commodity prices had left him with the belief that the best way of solving a deflationary depression was to inject some inflation and push prices higher. This was the reasoning behind devaluing the Dollar; in the weeks following 6102, FDR and his advisers would sit at the breakfast table and decide what the gold price should be, nudging it higher a bit at a time until they settles on the $35 an ounce that prevailed until Nixon closed the gold window in August 1971.

So in a way, FDR gold confiscation and his raising of the gold price was a Gold Standard-era version of quantitative easing, a policy aimed at fighting deflation by raising asset prices at the expense of the monetary unit. Whereas today central banks can simply create the Dollars or Pounds necessary to do this, under the Gold Standard that was not possible. So Roosevelt instead confiscated gold and changed its price, the aim being to raise prices in the economy even though there was no additional gold to back the quantity of currency.

The situation that we have today is very different to that faced by Roosevelt in 1933. Gold is not the foundation of the world’s monetary system. Few people own gold – compared to (for example) real estate and regular financial assets. They also tend to own it in ways that make it relatively inaccessible to governments. The gains to a government from confiscating people’s gold would be much, much smaller than those that accrued to FDR.

Nonetheless, one can never say never. In our opinion, a good way to own gold is directly (i.e. not through a trust), in allocated physical form, and offshore, in a place with a strong tradition for protecting international investors’ property. This makes it a harder target for confiscation by your government, and one that could risk upsetting other countries for relatively little reward.

Aside from gold bullion owned offshore there are many other sources of private property which are much easier targets for confiscation (including domestically held gold) and which would yield more value for less trouble.

BullionVault offers vaults in four separate jurisdictions, all of which have a reasonable (if imperfect) tradition of defending private property rights. These choices are London, New York, Zurich and we have recently started vaulting in Singapore, after receiving numerous enquiries from customers interested in owning gold in Asia.

We do not claim to have resolved every risk involved in storing wealth; we don’t believe a 100% strategy exists. But we do argue there are clear potential benefits to diversifying across international jurisdictions.

Source: http://goldnews.bullionvault.com/gold-confiscation-040420136

Flinders 43-101 Doubles Historic Resource and Preps to Process Graphite in 2013

Martin-McFarlane-FlindersJanuary 14, 2013 — Tracy Weslosky, Publisher of ProEdgeWire.com interviews Martin McFarlane, President and CEO of Flinders Resources Ltd. (TSXV: FDR) (www.FlindersResources.com) on their recent 43-101 results. Martin starts: “The good news about the resource is that it doubled the previously known historic resource and that’s really only the start of it…”

Fully funded to production with significant management talent and aggressive timelines Flinders Resources is working towards reopening their graphite mine to production by end of 2013. Martin also provides investors with an update on the Kringel mine site. Kringel was producing graphite in Sweden until it closed in 2001 due to low graphite prices. With the increased demand for graphite and reflective prices, Kringel has a forecasted 40 year mine life and good quality graphite.

Disclaimer: Flinders Resources Ltd. is ProEdgeWire member. For more information, contact Info@ProEdgeWire.com.

Tracy Weslosky Tracy Weslosky is the Publisher for ProEdgeWire – the investor intelligence source for the resource sector. Tracy is the CEO for ProEdge Media Corp. and Managing Director for REE Stocks Company Ltd.

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