18 October 2009
Jim Willie CB,  “the Golden Jackass”

* Endorsed Failed Economic Views
* Meet the Central Bank Clearinghouse
* Skewed Voting Rights Beg Reform
* The IMF Gold Ramp


Special Report
Issue #67

NEW IMF ROLE AS GLOBAL BANK PROXY

The USDollar will lose its global reserve status. The Intl Monetary Fund and the G-20 Meeting combine to deliver the death knell, as chapters will next be played out. The Meeting in Pittsburgh Pennsylvania in September enabled the IMF to confirm further failed economic planks, upon which to build a monetary policy. They are every bit as incorrect as the majority of past beliefs. The IMF is being endorsed as the new central bank proxy, a virtual clearinghouse for accepting and dispensing funds, the manager of the currency basket to be used in crude oil transactions, the issuer of debt, and the buyer of gold. To keep the peace, the IMF must reform its voting rights practices, which are badly skewed toward the United States and the Western nations. Votes for smaller nations in Europe have equal or greater votes than China, Brazil, and India, and the United States still has a total veto.

$$$ A SURPRISING INSULT JAB CAME FROM THE WORLD BANK, WHOSE POSITION CAN BE SEEN AS A DEFECTION AGAINST USDOLLAR. A CHANGE IN THE WIND IS DETECTABLE. $$$

World Bank President Robert Zoellick is another Goldman Sachs alumnus. He came out with a shocking comment recently that the USDollar's primary role and standing are not a certainty, and should not be taken for granted. US financial networks picked up the story, but brushed off the risk. Zoellick said the US should not take for granted the US$ status as the main reserve currency in world banking any longer. Zoellick warned of the 'next upheaval' in the international economic order is in progress as emerging nations gain greater influence. He acknowledges properly that China and Russia have repeatedly called for an alternative to the USDollar currency in foreign exchange reserve systems. Zoellick criticized both US central banker judgment and US regulatory body sanity, in a surprise display. He argued that central banks failed to address growing risks in the economy in the last several years, reinforcing my point of a failed central bank franchise model. He commented that leading up to the financial crisis, "regulators and supervisors of financial institutions were no longer grounded in reality. [Central banks] argued that damage to the real economy of job production, savings, and consumption could be contained, once bubbles burst, through aggressive raising of interest rates. They turned out to be wrong." See the Bloomberg article (CLICK HERE). Central bankers have not been correct about much of anything for a couple decades. They are the chief financial traffic cheerleaders and purveyors of phony economic mythology that repeatedly is discredited. The significance of this statement is that big bankers are turning against bankers in the United States.

This entire line of World Bank criticism seems significant, first because the World Bank has served as a weaponized bank tool by the US-UK bank syndicate for at least three decades, second because Zoellick is of Goldman Sachs pedigree. Methinks the US-UK Boyz are losing their votes and seats, but it will still take time to unravel and gather momentum. Perhaps Zoellick is preparing himself and his career for the aftermath of the monetary system collapse in progress, working to protect his job security?

ENDORSED FAILED ECONOMIC VIEWS

◄$$$ THE G-20 MEETING FINISHED, ACCOMPLISHED NOTHING ON THE GLOBAL ECONOMIC FRONT, AND HAS CONFIRMED CONTINUOUS STIMULUS. THIS IS AN APPROVAL OF ONGOING LIFE SUPPORT, AND TACIT STATEMENT OF A BROKEN SYSTEM. $$$

The expanded G-20 Meeting has been meeting almost every month. In doing so, it has supplanted the G-8 Meeting, where the insolvent industrial nations pretend to be in control. Do not expect any more G-8 Meetings to convene. In Pittsburgh Pennsylvania (home town of my youth), President Obama delivered a speech laden with patent nonsense, as he claimed the global bankers have "taken bold and concerted action to forge a new framework for strong, sustainable, and balanced growth. We have brought the global economy back from the brink." In fact, NO BANK OR MONETARY REFORMS WERE PUSHED, NOTHING, just floods of money without new frameworks. No new rules were recommended on bank capital reserves. No leverage caps were agreed upon. No overhaul the global regulatory bodies were suggested. No urgent call to reinstate the Glass-Steagall Act, the firewall put in place after the Great Depression between retail and commercial banking, between insurance and investment banking, and between stock brokerage and banking. Nothing bold at all was done. In fact, the gigantic fountains and channels of untethered money have put the global monetary system and banks at great risk. The gathering in Pittsburgh produced photo opportunities, no economic progress, but plenty of confirmation that the USDollar would next be pushed aside in favor of the IMF basket of currencies.

The formal G20 communique stated, "We will avoid any premature withdrawal of the stimulus… We will adopt policies needed to lay the foundation for strong, sustained and balanced global growth. [We strive for a] global architecture that meets the needs of the 21st century." Interpret that message to mean continued Zero Interest Rate Policy worldwide, as well as Quantitative Easing from its characteristic heavy monetary creation!! They have declared a queer victory, while the system continues to crumble amidst giant props that even they admit cannot be removed. Gold will be the exclusive beneficiary.

The bankers in their statements relied upon so-called excess capacity (idle industry) to justify their monetary inflation on steroids, desperately applied. Their economists errantly declared that the vast idle pastures of excess capacity within industry renders no risk of stoking price inflation. THIS IS HERETICAL NONSENSE, SINCE MONEY CREATION GIVES PRICE INFLATION BIRTH. The Bank of England has recently contradicted this notion. Their latest minutes admit that the Monetary Policy Committee "may have misjudged the amount of slack in the economy. Where reckless behaviour and a lack of responsibility led to crisis, we will not allow a return to banking as usual." Regard their comment as a warning of price inflation. In fact, much of Western industry is dead, dilapidated, and destroyed. As a result, the status quo is threatened, and the United States will attempt with greater obstacles to retain its veto over the rest of the world. Meanwhile the large emerging markets now have combined economic magnitude almost as big as either the European Union or the United States.

◄$$$ PAST FAILED STRUCTURES WILL NEXT BE ATTACKED. ECONOMIC FOUNDATIONS WILL BE ASSAULTED. CURRENCY SPECULATORS OPPOSE THE USGOVT. THEY BET AGAINST CONTINUED WRONG ECONOMIC EXPECTATIONS. $$$

The Dollar Carry Trade has entered conversations among bankers. Investors are taking out cheap US$-based loans then converting them into higher yielding currencies and gold, thus flooding the world with dollars and demanding non-US$ assets. A global perception has taken root, based on knowledge and strong belief that the White House will do nothing to prevent the USDollar from falling. US leaders, both political and banking, view a weaker currency as putting the US in a more competitive trade posture, while at the same time reducing the value of its external debt. They are leaning on two errant pillars, as the lower USDollar exchange rate will accelerate price inflation, result in only tiny export industry revitalization, but will anger foreign creditors to the point of halting credit supply altogether. The US Engines will run strictly on Printing Pre$$ paper output. This is a prescription for disaster, just like with the Weimar Republic, but on a much more grand scale, with much more grand fallout globally. The great risk is of lost control of the USDollar decline, and sudden loss of USTBond integrity, which would cause global panic. My forecast is for global panic from a monetary system breakdown to occur, whether slowly or suddenly, it matters not. See the UK Telegraph article (CLICK HERE).

MEET THE CENTRAL BANK CLEARINGHOUSE

$$$ NEW INTL MONETARY FUND ROLE IS EMERGING AS PSEUDO CENTRAL BANK. THE I.M.F. IS GIVEN NEW MANDATE. IT WILL CLEARLY MANAGE THE GLOBAL CURRENCY BASKET, AND GUIDE TRANSACTIONS USING IT. IT WILL DISPENSE FUNDS FROM FORMAL AID INITIATIVES. IN TIME IT WILL ISSUE A GREATER VOLUME OF BONDS IN BASKET TERMS. ITS FIRST MANDATE IS RUMORED TO BE A 30% TO 50% USDOLLAR DEVALUATION. $$$

The IMF is being catapulted to an exalted status, in a clear transition compromise. The objective in the immediate is to displace the almighty USDollar, since corrupted, debauched, and discredited. According to Jim Rickards, director of market intelligence for the scientific consulting firm Omnis, the undisclosed purpose of the recent G-20 Summit in Pittsburgh was in his words "the IMF is being anointed as the global central bank." That key item was omitted in the network news which reported unimportant pronouncements. He claims that the plan is for the IMF to issue a global reserve currency as formal replacement the dollar, in broad usage. Richards said, "They have issued debt for the first time in history. They are issuing Special Drawing Rights. The last SDRs came out around 1980 or 1981, [worth] $30 billion. Now they are issuing $300 billion. When I say issuing, it is printing money. There is nothing behind these SDRs."

IMF Managing Director Dominique Strauss-Kahn said the broadened G-20 group of finance ministers gave the IMF a 'New Mandate' of significance. It signifies the sunset for the USDollar as the global reserve currency. This is a Chinese & Russian power play to the extreme. The mandate calls for the IMF to serve as a global lender of last resort, and manager of global currency coordination. The G-20 summit also gave the IMF bolstered legitimacy by committing to grant emerging economies a greater quota of IMFund governance. Strauss-Kahn stressed the need for global cooperation in moving toward clear goals. He said, "For that, three principles are essential. First, international policy collaboration is essential. Second, financial stability demands better regulation and supervision. And third, the international monetary system must be more stable, and anchored by a global lender of last resort." See the Wall Street Journal article (CLICK HERE).

Beware that the positive effect of a global currency basket could open the door to a one-world currency and global control. My personal view is that the next step will be introduction of a few strong regional currencies with gold backing. They would serve a transition chapter from failed global reserve fiat currency to a final single global currency. The reason is simple. Continental powers wish to continue their privilege to print and control money,which consolidates their economic and political power, even promoting their syndicates. Watch for the inception of the Gulf Dinar, the new Russian Ruble, and either the Nordic Euro or the New D-Mark. The New USDollar, if it arrives, will be a Third World garbage currency in terminal permanent decline. Later, in future years, the step of global unity in a currency will become a horrible nightmare reality.

SKEWED VOTING RIGHTS BEG REFORM

◄$$$ THE I.M.F. HAS BEGUN TO ADDRESS REFORM OF VOTING RIGHTS. THE APPROVED SHIFTS SEEM MEANINGLESS SO FAR. FUTURE ADJUSTMENT IS CERTAIN TO BE MORE SIGNIFICANT, ENOUGH TO CHANGE THE BALANCE. $$$

The G-20 has near agreement on shifting IMF quotas, according to their officials. The United States is set to lose some power within the IMF to the BRIC countries. The upstart nations demand more voting power. Some consensus agreement has come to a 5% shift of so-called IMF quotas from countries with disproportionate influence. Quotas determine member voting rights on decisions, financial commitments for producing funds to the IMF, and access to IMF loans. Brazil, Russia, India and China, the so-called BRIC countries, proposed a 7% shift in IMF quotas to the emerging developing countries "to correspond roughly to their share in world" volumes for the global economy. The voting change came after they agreed to contribute funds that would triple the IMF account. They used leverage. The core G-8 nations demanded that increased funding by the newer nations would be the pre-condition for more voting power and clout. Such steps will continue, as money will purchase power.

The IMF has shored up economies from Pakistan to Iceland in the past year. It will be able to provide even more aid, given the IMF lending capacity will triple to $750 billion. The IMF and its members might make sure not to impose draconian rules like those in the past, urged by the US and UK, which crippled the nations appealing for aid. The tilt has been consistently to favor the Western banks, while pushing reforms that kept the emerging nations under a permanent debilitated state. The examples are too numerous to cite over a few decades, a recent one being Indonesia, well remembered by all Asian participants. The new mandate for the IMF comes after the credit crisis has endured a full year of erupted crisis, after a full year of hidden crisis. The IMF, founded in the aftermath of World War II to assist countries in financial distress, has more accurately been an institution used to exploit nations outside the Western G-8 Sphere. It had been criticized as irrelevant before the latest credit crisis began.

China has experienced an emergence not properly reflected in the IMF voting rights. In the last couple years, China has overtaken Germany to become the world's third largest economy. Its annual gross domestic product is $3.9 trillion. China currently has a 3.7% voting share on IMF executive board decisions, compared with 3.2% for Saudi Arabia, whose economy is about 12% the size of the Chinese. France is still granted almost twice as much IMF power as China. Most European nations have ridiculously high votes. The balance of power with voting rights remains still out of balance, out of whack. The US veto makes a mockery of the entire IMF process. See the Bloomberg article (CLICK HERE).

$$$ OXFAM CALLS A SPADE A SPADE, AND CLARIFIES THE IMPASSE AT THE I.M.F. OVER VOTING RIGHT IMBALANCES. PROGRESS HAS BEGUN, BUT MUCH MORE IS NEEDED TO REMOVE THE CHOKEHOLD OF U.S. CONTROL OVER I.M.F. POLICY. ONLY THEN WILL ITS LEGITIMACY BE SET. $$$

The Humanitarian Aid agency OXFAM brings focus to the imbalances. Strong criticism with firm objectives come from an unlikely source, not too surprising, since not aligned politically and thus objective. OXFAM says current voting formulas at the IMF give Luxembourg more weight than the Philippines, which has almost 200 times the population. They do not mention the similarity in economic sizes. It said the 5% shift in voting power was insufficient. Caroline Pearce is OXFAM policy adviser. She said, "They need to give more voice to the poorest countries, have fewer European seats on the Board, and get rid of the US veto." She stresses how IMF relevance can be achieved only if countries seriously affected by the crisis in the last couple years have much more voice in determining their destiny, more voice in usage of funds, and more voice in terms of lending.

The United States has a 17% voting stake in the IMF, effectively giving it veto power. All major decisions require an 85% majority for approval and passage. If the US can no longer afford sizeable IMF funding payments, its voting rights will vanish overnight. SOLIDAR, a European network of non-governmental organizations, said the calls for a 5% shift amounted to 'grandstanding' that distracted attention from the harsh impact of IMF austerity policies in nations including Ethiopia and Latvia. Andrea Maksimovic of SOLIDAR said, "Governments are still being forced to cut pensions, jobs in the public sector, unemployment benefits, teacher salaries, and the list goes on." The United States managed to negotiate changes to individual voting rights without losing its VETO POWER. The rework gained China a tiny boost, but all at the expense of Europe. The imbalance remains firmly in place, and must be addressed again and again. Even the adjusted voting rights is still way out of whack and implementation will have no affect on the United States.

My view is that the the changes are obviously inadequate, but the process of reforming the voting rights has begun. Watch the next round grant even more power to the emerging newer nations. Eventually the veto process will be eliminated altogether in exchange for large scale fund additions, as the newer richer nations exert their influence with leverage, and the US wiggles out of commitments to make large payments. Money for votes is natural in power games. See the Yahoo Finance article (CLICK HERE).

THE IMF GOLD RAMP

$$$ ORLANDINI COMMENTS ON GOLD PURCHASES BY THE I.M.F. TO CLEAR THE MATTER. THE ENTIRE EPISODE IS VERY BULLISH FOR GOLD, SO BULLISH THAT IT MIGHT NOT BE TOLD BY THE OFFICIAL PRESS. MY SOURCE TELLS OF I.M.F. PURCHASE OF GOLD, NOT SALE, NEEDED TO BEGIN ITS NEW FORMAL FUNCTIONS. $$$

Enrico Orlandini made a comment two weeks ago, highly relevant and on the mark. He wrote, "Over the weekend it was announced that the IMF would sell 405 tons of gold and the sales would begin this coming week. According to analysts 'in a position to know' this will drive a stake thru the heart of the bull market for gold! My reaction is the following: bullshit! That is a technical term by the way. First of all, this is old news and already priced into the market, and secondly China has contacted the IMF and expressed an interest in purchasing the gold. Although I have no way of proving this, I suspect the IMF has already leased most of its gold out and this was really a sale designed to acknowledge the fact that the leased gold was never going to be returned in the first place. The fact that China intervened complicates matters for the IMF, and may actually push gold higher instead of lower. I think China knows that and is doing this on purpose. Just a guess."

Orlandini has a loose grip on the reverse story involved, whereby the IMF supposed sales are actually closed out short transactions from years ago. He leaves out the details. The big European Union member central bank sales have actually been completed short sale transactions conducted by the United States many years ago. The US thus covers their short sales, closes out the short sales, which are described in the press as sales, when they are actually the US buying the disastrous shorts at 3 times the price when the gold was borrowed. The sales took place under the Clinton-Rubin regime. The story bears repeating month after month. China truly complicates matters, and serves as an integral player to expose the chicanery. Their role will drive up the gold price from numerous angles. Take the entire IMF sale story as extreme propaganda, even the new developments to such sales. They are all deceptions. CHINA IS ACTUALLY USING THE IMF TO FORCE FACILITATED GIGANTIC GOLD SALES FROM WESTERN CENTRAL BANKS, cooperating with the US-UK press propaganda messages. China lets them tell the stupid stories. They just want the gold!

The recent central bank purchase of the IMF gold was in all likelihood deeply oversubscribed. That is an official term to mean far more buyers than anticipated, and bids to buy more than what was offered. One subscriber SteveK from Nevada who is following the story, wrote, "The silence on the IMF gold sales is indicative of the probability that it was oversubscribed by the central bank buyers. The IMF fell over backward to mention the sale in the IMF preliminary meetings. Now the IMF meeting has been finished for well over a week and nothing nothing zilch is appearing on the news wires about the IMF gold sale arrangement. Why not? The commercial shorts would be devastated if the market realized the current IMF gold sale allotment was already spoken for. This is just another sign of the disarray that is happening as the G-7 ministers lose influence to the up and comers in the BRIC nation group. If the commercial shorts cover, then gold will surpass $1200 directly. Taiwan has all but said they are buying gold. Korea is buying gold. China and Russia are also buying gold. Word is the Arabs are too! The Europeans have all but stopped selling gold. The IMF gold sale has dropped out of the news as if it was a non-story. That means a central bank big purchase may be oversubscribed and that news alone would destroy the shorts." He thinks like the Jackass with great suspicion and hidden motives lurking.

The story is full of misdirection and confusion. It reveals the Topsy Turvy world of gold with respect to the central banks. Word came to me that the figure was 600 tonnes of gold, and the gold was to be bought by the IMF. The IMF wishes to supply itself with gold in order to fortify its role as banker with bonds and basket currency management. The bullion would be supplied by private individual billionaires. The rumor mill reported that they want to devote the funds from the enormous gold sales to acquire large swaths of global industrial plants and commercial property, in preparation for the next phase of whatever recovery occurs. That might be part of a Top-Down Consolidation plan to put even more of global wealth and production in the hands of a few.