Diamonds, daisies, snowflakes, chestnuts, rainbows, springtime, tinsel, sable, popcorn, white wine, gingham, bluebirds, broadway are not subject to capital controls. Gold on the other hand. She’s the IMF’s alone. She’s that girl!
It was November 16th, 2012 when Secretary of the Treasury, Timothy Geithner released his exemption for foreign exchange swaps and forwards effectively unharnessinng the second largest derivative market in the world from being subjected to the rule of law as spelled out in Dodd-Frank.
Coincidentally, the International Monetary Fund also had a board meeting on November 16 and then issued their report on Monday, December 3rd stating:
“Capital flows can have important benefits for individual countries across the fund membership and the global economy,” They “also carry risks, however, as they can be volatile and large relative to the size of domestic markets.”
As a precursor to the official statement on the complete 180 degree reversal in IMF policy from one that endorsed the free flow of capital to the new and improved capital controls, IMF Director Christine Lagarde said speaking from Malaysia:
“Temporary capital controls might prove useful,” Lagarde said. “Malaysia was ahead of the curve in this area.” It has been reported from numerous outlets that Lagarde’s endorsement of global capital controls is a reflection of the IMF’s efforts to “modernize.”
So, let me get this straight.
Why? It’s simple. Gold. This is about gold. For once, this isn’t about oil. To breakdown the U. S. dollar as the world’s reserve currency, which certainly appears to be the agenda of the White House, you have to not only drive up the utility of gold as a market mechanism, you have to get control of more of it yourself.
Now, let’s take a look at what has happened with gold since the November 16th, pen stroke of the soon to be departing SecTreas. In the first week of December 2012, China opens up a $59 billion swap line with South Korea.
The privately owned South Korean Central Bank bought 14 tons of gold in November. Wonder where they got the money from for that? :
What does this mean? If you ask Dave it’s simple enough. Money is moving from the West to the East and it couldn’t move until the determination from the U. S. Secretary of the Treasury to exclude these movements from Dodd-Frank oversight. In other words, we decide if and when the Chinese can move their money. In regard to the elimination of regulatory barriers in the Yuan-Won swop line. Well, the U.S. would have been the ones to do that for the Yuan-Won, not the PBOC as reported. Dave loves this particular line from the article; “Chinese firms will have new access to won, though the details are not immediately clear.”
So, where exactly are these new swap lines going to be routed? How about London through “non-U.S. personages”… at least not ones that we know about. From Rothschild controlled Reuters News:
“The banks’ solution is to route trades via their non-U.S. affiliates – subsidiaries with their own separate balance sheets, often in London – rather than the parent banks.
If you’re a loyal reader and you remember way back when, you probably recall Pete Peterson’s idea for an onshore and offshore version of the Chinese Yuan. It didn’t really work out the way he had hoped. It seems people were thrown off a bit by the distinction between the CNY ticker and the CNH ticker – one being backed the Chinese and the other not so much. You can read all about it here: http://tradewithdave.com/?p=9186
Who enters back into the picture this week in light of the new exemption for swaps except the Bank of England and Pete Peterson’s institute glowing endorsement of the two-two-two coins in one platinum plan to cover up the reeking smell of rehypothecated gold emanating from the vault over at the Bank of England. With no effective oversight of the global derivatives market, the banks are free to hypothecate at will and leave the confidence building to Youtube and retired college professors who need to make a quick book. The video courtesy of the guvna of The Bank of England is rapidly overtaking the Gangnam style video. Before you jump to conclusions that this is nothing more than a pop culture collision between conspicuous consumption and possession of physical gold, take a minute to think about it.
The Gangnam area of South Korea is literally booming (http://www.bloomberg.com/news/2012-10-15/-gangnam-style-tells-economic-truth-of-our-day-william.html). If there’s one thing the banks want to do is to get their fair share of the action. It’s only logical the first place in in need of $50+ billion in fresh cash would be South Korea itself. As long as London is able to makes it’s transaction fee, the U.S. is able to maintain a military upper hand over Iran as Turkey piles up our future gold on their neighbor’s doorstep and with Pete’s office glowing endorsement of the two platinum coin plan, we have a back-up in case we are not able to get our hands on the Iranian gold in time for a soft-landing over the fiscal cliff we can rely on the same genius who brought us onshore and offshore versions of the same Renminbi. Think of it as Schrodinger’s Swap of a dead rule of law with a living rule of law as long as you refuse to look at it.
What does Dave expect to come of all this. Here are a few possibilities for your consideration:
1. The rise of the private corporate treasury to mitigate the musical chairs of counterparty risk via unanticipated implosion or failure to be able to successfully limbo dance under the latest regulatory race to the bottom. In other words, corporations actually stockpiling paper currency, not just cash in the bank. Go long used Brink’s trucks.
2. An increased interest in paper currency as a means of exchange rather than electronic money… this could be highly deflationary as it continues to lower velocity and removes the multiplier effect from the fractional reserve system and deflates the assets that are normally associated with wealth such as real estate. The low velocity which has kept inflation in check could tip over to a complete traffic jam of paper currencies and severe deflationary effects.
3. You will have inter-country arbitrage as one country has a particular asset class (say iron ore) and another has coffee beans and one will deflate while the other inflates yet the inhibited capital movements won’t be sufficient to balance. This will cause a massive rise in black markets, paper currency transport and alternative forms of electronic value transmission such as bitcoin. Let’s call it regulatory arbitrage.
This double-standard of capital controls and unregulated foreign exchange swaps is what the divorced currency system is all about. Two global monetary systems that will be woven together through triple entry accounting. Dave’s been writing about the Mervyn King divorced currency system for nearly three years. I’ve been writing about how triple entry accounting and a public record of all transactions as exhibited by Bitcoin will be the basis for just such an Occidental – Oriental axis. The fly in that ointment is Islam and it’s focus on gold. President Obama understands this and that’s why he’s torn, in my opinion, about how to support Islam as an ideal while disabling the power of their gold to disrupt the plan for globalization and an entirely new monetary system.
Letters from the industry request that swaps not be excluded: http://www.marketsreformwiki.com/mktreformwiki/index.php/FX_Swaps_Regulation_-_Comment_Letters
The first thing you do when you remove the rule of law is to impose one that describes “conduct”. Title VII of Dodd Frank required the regulation: http://m.sidley.com/Reporting-and-Business-Conduct-Standards-Remain-For-FX-Swaps-and-Forwards-Despite-US-Treasury-Exemption-11-20-2012/
When you’re talking “modern” in the Christine Lagarde spirit of the word, you’re talking MMT. To fully appreciate how important it is to look modern and feel modern, simply harken back to the days of the original MTM modern girl. That would be Mary Tyler Moore. She was a modern girl and she had a modern show. Or how about shorten the length with a simple MT mini skirt? That would be Marlo Thomas. She was “That Girl!” Totally modern. When you’re talking Modern Monetary Theory, forget gold… in the words of Ben Bernanke, it’s just a tradition. Forget old barbarous relics like gold and Charlie Munger. Update your look. Get something modern… like a new hat… and turn the world on with a smile…
Personages (Part 1)… parts is parts: http://tradewithdave.com/?p=13985