Normally I don’t try to answer the question to a title until the end of a
writing and after providing some evidence for the conclusion, I will
today. The answer to today’s title is easy, flat out, when central
banks loose trust in each other you can pretty much expect chaos because of
the loss of confidence! Before laying the case out for you, please
remember we have been living in a system where “confidence” is not just everything,
it’s the ONLY thing!
Recently we have seen several “coordination” fractures amongst the central
banks themselves. It really started in late 2012 when Germany decided
to ask the Banque du France, Bank of England and the Federal Reserve for some
of their custodial gold back. This of course has been followed by the
Dutch repatriating 120 tons in November and the Belgians and Austrians
pondering the same actions. Why? Why are foreign central banks
repatriating their gold held in London and New York? The answer is
really simple, “trust”, or lack of it. You see, they can do math as
well as we can. They know how much gold is produced globally from the
mines and they also know how much gold is being taken off the market by China
et al. After doing the most very basic of math, they know the “excess”
gold is coming from “somewhere” and as I have been saying for several years
now, that “somewhere” has to be the only place it exists in such large
quantities …Western vaults!
The Germans who are a very meticulous society announced 85 tons of gold
received (repatriated). In their announcement, they made clear that
“all serial numbers matched”, however, they did not specify last year at this
time regarding those measly 5 tons received. They took a lot of heat
(including from yours truly) for melting down the bars. This time
around, they assure us the serial numbers all matched and all bars were
assayed, weighed and inspected. Why? Why such a detailed
statement and why bother assaying if the serial numbers matched? I
could write an entire article on this but suffice it to say, they wanted to
make sure the “conspiratorial crowd” had no fodder. But, why include
that all bars were inspected and assayed? Do they not trust the U.S.
Fed? Do they really believe the Fed would go through the trouble of
putting correct earmarks and serial numbers on golden covered tungsten?
Do they really not trust the Fed or are they just trying to take any sticking
points away …and in the process “implying” they don’t trust the Fed?
Enough said.
Another area where “trust” looks to be breaking down is in the various
central bank policies. Switzerland just broke ranks last Thursday and
we received news after the close on Friday that Denmark has followed
“negative(r)” interest rates. What Switzerland just did was what is
best for Switzerland, NOT what is supposedly best for the central bank
cabal. In essence, they pushed rates further negative and said we will
not be buying any more euros. In other words, they announced they will
no longer underwrite QE for Europe. Denmark followed and is basically
saying the same thing.
We also heard from Japan (who’s economy is definitely in shrinking mode),
they will not be employing any further QE than is already in place. Is
this in step with a united central bank front? Maybe it is because the
U.S. Fed wants you to believe they will be tightening later in the
year. Is the plan to have Europe announce further QE monetizing later
this week and take the baton from Japan? I suspect this is the plan but
it has the same flaw discovered in the U.S. and then Japan, they
will be taking too much “collateral” (there’s that word again!) out of the
system which will actually tighten credit rather than loosen it. The
next question of course is “who is next” with further QE? This answer
is either the U.S. or, more likely ALL central banks still within the ranks!
I do want to mention Russia and more importantly China. These two
have hooked up and in the case of Russia, dollars will no longer be used.
China will have a difficult time avoiding all dollar transactions but they
will surely be using less. As far as their central banks are concerned,
they will skip to their own beat and not the one of the IMF nor the
BIS. They will do what is best for them, not what is best for the
Western central banks. Both Russia and China are courting and
trying to pick off weak Western allies one by one. Russia is using
energy while China is using other trade. The important thing to understand
is their central banks are not part of the united front and in fact they
(Russia in particular) are trying to divide and conquer the front.
I decided to write this piece because a “united front” is what has kept
the coalition together for the last 6 years. The coalition has now been
broken by the Swiss (and Danes). “Trust” and thus confidence are the
only things that have held the game together for this long. The little
guy knows “something” is wrong but for most part cannot put his finger on
exactly what it is. If the man in the street begins to see infighting
and quarrelling between central banks, he will have a further glimpse as to
what is wrong. More importantly, if the populace sees clearly that
trust between central banks is broken, then why should he “trust” also?
Taking this “trust” process just one step further, what will happen in
another 2008 scenario? By this I am asking what will happen when
financial institutions distrust one another and credit freezes up
again? The last time around, the central banks stepped in and declared
“you can trust US, so you can trust your counterparty”. I submit to
you, another 2008 event is a mathematical certainty with just one caveat …if
the central banks do not trust each other and are in an “every man for
himself” mode, systemic confidence itself will fail this time around!
Please understand the “whole” of the above is about the creators of
currency. Trust and confidence are necessary for their programs to
work. Gold on the other hand does not have these issues because gold is
no one’s liability and not created by man. Gold (and silver) require
real work, real capital and real labor to “make”, once “made”, trust is
never an issue! In fact, with what is surely coming, it is this
very topic of “trust” which will separate gold (and silver) from all other
monies!