I got to thinking about “who wins” when the global monetary and banking system goes down? Hardcore gold bugs will tell you “only those who have metal.” I think that this is wrongheaded thinking because when this ship goes down we will all lose. The words of one of the world’s biggest metals money manager to me several years back will ring true I believe, “Who wants to be the richest guy in a world where it’s not safe to walk the streets and can’t enjoy life because nothing’s open?” Don’t get me wrong, owning metal will “ease your pain” but it will not be a magic lamp you can rub to make everything better.
From a macro standpoint, who wins? In this case I think it will be a different story. Here I believe that the winners will be the countries who have accumulated gold and the losers will be those that divested. I also believe that there will be (are) countries that do not know they have “divested” but will soon find out. Germany being the prime example here as they were told that it would take 7 years to repatriate a measly 300 tons from N.Y., in this case Germany already knows that they have had some “leakage.”
My original thoughts on this topic came from reading a Zerohedge article this morning that said “China warns of big bank failures.” I thought to myself this is the third or fourth time that overnight rates have spiked out of fear that some banks would lock up. They have levered their real estate market and banking system as high as or even higher than ours so risk of a black swan event from China is as high as anywhere else. Ah…but, they have imported massive amounts of gold over the last 3-5 years. I would be shocked if they haven’t accumulated at least 5,000-6,000 tons. In fact, I would not even be surprised if we eventually found out that they have 8,000 or even 10,000 tons.
Going back to the title “Who Wins,” China does. If (when) it turns out that the current monetary system collapses in a heap, the clear sovereign winner WILL be whoever has the most gold. Think about it this way, if “everything paper is worth nothing” then the winner will be whoever has the most of whatever is worth “something.” This “something” when it comes to “money” is and has been for 5,000 years, gold. For years the West has quietly and secretly divested gold in an effort to prop up their currencies and retain “power.” Some (many) countries were a part of this effort without even knowing about it. Germany comes to mind, Portugal, Finland and others also as they have leased out a major portion yet still believe they “own” gold. Much of this gold is simply gone and will never come back. Britain, Canada and Australia also make this list as they outright have already sold much or all of their gold.
Even though China has levered itself beyond “survival capacity” they have done something very smart. I equate what they have done with gold as something similar to a homeowner taking on huge amounts of debt yet have physical metal equal to or more what their debt totals. In this manner a homeowner can “sleep at night.” Yes I know the leverage in China is far and above the value of their gold holdings…currently…and at today’s prices. This leads me to just a little bit more to explain.
I have read several opinions that suggest the Chinese themselves may be a part of the current metals price suppression scheme, this does make some sense and I believe it is quite possible. China has every motive I can think of to keep gold prices “low.” They know that there is only so much gold to be had, why would they “pull the plug” on their reserve holdings while they could still accumulate more gold by using them? This topic I believe was part and parcel of the mid and late 2011 high level meetings between the U.S. and China. It would not surprise me one bit if a deal was struck where the Chinese would not liquidate Treasury holdings in size as long as gold was still being delivered. This could also explain the meltdown of inventories at the COMEX, GLD and 1,300 tons “disappearing” from London.
In any case, as I mentioned above, the “current” gold holdings of China. China doesn’t care “what it’s worth” NOW. They only care how much “weight” they have because in my opinion the old story of “he who has the gold makes the rules” will apply. THEY will re price gold to much much higher levels once there is no more in any sizeable quantity to be had. They won’t care what their dollar holdings will be worth, they will only care about what their gold holdings will be “worth”…AND they will essentially “dictate” this.
Is this speculation on my part? Yes of course it is. Does it make sense? I think so, I think it is just basic common sense which the Chinese have and we lost as a nation or even a culture many years ago. No matter what, it is clear that the Chinese now have at a minimum the second largest gold holding in the world if you believe that the U.S. still has 8,300 tons. If we do not have this stash (which I entirely believe that we do not) then the Chinese have amassed the largest holding. Which… if history is any guide makes them the “winners.” It will also allow them to “make the rules.”
Bill,
I think you have hit a home run with this article.
I think the winners will be China and India. The losers are everyone else (including the USA).
Americans better get ready to be the house boys and house girls of the Chinese.
“Sundown in America, it’s cold – and dark – and wet…”
~ Greg Brown
There is no doubt in my mind that those running the show in this country today are, as Lee Iacocca put it, “a bunch of clueless bozos.” Further they will do any, and everything, including throwing their own country, “under the bus” to win election, as evidenced by the ugly campaigns we have to sit through every 2 years. What’s the term? Ah yes, “mud-slinging.” I believe that, in an effort to keep the party going the powers that be are selling all of our tomorrows for their today. Basically I’m with you Bill, I very much doubt there is as much gold in Fort Knox as we are led to believe…
But on the positive side, we do have a lot of resources in this country, and we do have the American People. Let us hope that when the day comes they will, as they have in the past, rise to the occasion. From my point of view what is lacking today, more than anything else, is the work ethic our forefathers had, and used to build this great nation. I would be the first to admit that at this point in our history The United States of America is floundering.
In my view the main reason for this is that our Supreme Court has failed in its mandate to protect The Constitution from the monkey business of a self serving Political Class. They should have never have allowed the Sixteenth Amendment to be used to promote financial discrimination; once that line was crossed the flood gates of unbridled government growth, and spending, were flung wide open. Only due to the promise of discrimination, “vote for me and I will give you the fruits of other men’s labor” oh, no, that’s not it, its, “We will only raise taxes on the rich.” Only by making this promise has the Political Class been able to get the voters to agree to ever higher and higher tax rates, and thus an ever bigger and bigger government – along with the debt burden we are suffering from today. In a country governed by our Constitution all men are EQUAL and justice is blind – in fact she is so blind she’s not even able to see rich or poor. The sad thing is that people with money are not the enemy of the poor, they are their source of income, at least they are for those who are willing to work. As my father, a crippled janitor, said to me when I was a small boy, “Donald, you can’t help the rich man without helping the poor man.” or as the building contractor put it, “I’ve never been hired by a poor man.” But while these concepts could be grasped by a crippled janitor, sadly they are too deep for a Washington Politician. They will tax us until there is no one left to tax… and then the American People will have to build from the ashes. Hopefully they will be up to the task.
A few parting thoughts via quotes:
“When you promise to rob Peter to pay Paul, you can always count on Paul for support.”
“A good economic system makes poor people rich, not rich people poor.”
And I would add that the original United States of America, which WAS governed by The Constitution, was a perfect example of just such an economic system.
Bill,
Don Paul needs to be writing articles as well. His take on what is happening is excellent.
Bill, It sound like you are saying, If you hold a thousand dollars of debt but have a thousand dollars worth of PM then you have no worries. Does that also mean that with a thousand dollars of debt, you would be well off if you have two thousand dollars worth of PM.
yes, more or less. If you have PM’s equal to or greater than your debt then you should be able to sleep well at night. I’ve lived by this concept for many years.
To me at least, it appears the western politicians are merely puppets of the cartel. By cartel, I mean the ultimate controllers of the huge western banks,financial systems and those who control the boards of major corporations by virtue of having their puppet proxies sitting on Boards of Directors.
If Gold is flowing West to East they obviously the cartel is aware of it, in fact it seems logical to assume they are permitting it, perhaps even the instigators of it.
Should China,Russia and the BRICs + Iran and a few Arab oil states accept some sort of Gold based trade notes, that will likely impact the US and UK to such a degree that these two especially will face dramatically lower living standards. I struggle to see how the U.S. could even continue to pay for it’s bloated Military.
My question is ….. since this would have such a deleterious effect the U.S & U.K …why aren’t their leaders fighting it? Or at least what’s their plan of action should king dollar get deposed.
good question. Our politicians only worry about getting re elected, not about the health and welfare of the country.