I’ve had several people ask me, “Why is collateral coming into question now, at this particular point in time?” Last Friday, it was reported that “Europe” made noise regarding collateral and the rehypothecation of such. Then yesterday the BIS also made statements regarding rehypothecation chains. Before I go any further let me say this, “someone” needs to be and will be “in charge of” or officiate the coming re-set, and the BIS (the central bank’s central bank) are the most obvious player.
By what has been said about collateral (and by who spoke) recently we know that there is a problem of some sort. Not enough collateral…fake collateral…collateral pledged, re pledged and then pledged 10 more times…true ownership questions etc. etc.. The point is this, the entire façade; the entire house of cards has been built on “collateral.” In the old days, no, but since let’s say 1991-92, recessions have been aborted early or negated entirely by pouring more and more fuel on the fire. The “fuel” has been money borrowed against “collateral.” Collateral of all sorts, types, sizes and shapes. Now whether “good” collateral is running out (it already did) or is fake or the chain of ownership cannot be discerned doesn’t matter.
As I see it, the BIS is pulling the plug on this whole daisy chain. Maybe they know that defaults on the metals exchanges are imminent? Maybe the Fed cannot keep up with deliveries? Maybe the Germans are pissed because they now know for a fact that their “custodial” gold was sold. Maybe it was something as simple as some square headed accountant with a pencil and piece of paper that tried to add 2+2 and in today’s system could never come with the number 4? Who knows? It doesn’t matter.
What does matter is that this “collateral stuff” is being thrown around. I might add that while “collateral” is all of a sudden being questioned…gold has started acting strongly, certainly different than just 10 days ago. It is also important to understand (remember) that in a “normal” system, gold is the ULTIMATE collateral! As long as it is pure and in deliverable form, and as long as you brought it into a financial institution without encumbrance…gold can always be borrowed against or sold for liquidity. At a time when collateral has come under suspicion… gold will rise to the top of all “monies” and collaterals.
I have said all along that the only real solution to making the global banking system solvent once again would be marking the price of gold up many many multiples. This “mark up” will fill central bank balance sheet holes AND take the ownership up, out and away from the ability of the common man to purchase and thus killing two or more birds with one stone. There of course will need to be some sort of cover story so that something can be pointed to as “the reason.” A war? Power going out in South Africa and the mines flooding? A big bank or broker breaking the daisy chain? Or even a little butterfly flapping its wings in Japan? Doesn’t matter.
I will leave you with this thought, in a system completely built AND running (surviving) on debt, what would be the absolute worst possible thing to happen. Yes, the “collateral” coming into question. This “cannot” come into question but surely looks like it is. Have you stocked up on collateral? Real and un hypothecated collateral?