Best of the Week
Most Popular
1. Ray Dalio: This Debt Cycle Will End Soon - John_Mauldin
2.Stock Market Dow Plunge Following Fake US - China Trade War Truce - Nadeem_Walayat
3.UK House Prices 2019 No Deal BrExit 30% Crash Warning! - Nadeem_Walayat
4.What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - Andrew_Butter
5.Stock Market Crashed While the Yield Curve Inverted - Troy_Bombardia
6.More Late-cycle Signs for the Stock Market and What’s Next - Troy_Bombardia
7.US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - Troy_Bombardia
8.TICK TOCK, Counting Down to the Next Recession - James_Quinn
9.How Theresa May Put Britain on the Path Towards BrExit Civil War - Nadeem_Walayat
10.This Is the End of Trump’s Economic Sugar High - Patrick_Watson
Last 7 days
UK House Prices Momentum Forecast 2019 - 18th Dec 18
Will US Government Shutdown Cause The Stock Market To Crash? - 18th Dec 18
The Coming Financial Storm - 18th Dec 18
Jeff Gundlach thinks that a Stocks Bear Market has started. Is he Right? - 18th Dec 18
Gold’s Not An Investment – You Won’t Get Rich - 17th Dec 18
Stock Market At Medium-Term Lows, Which Direction is Next? - 17th Dec 18
This Stock Will Drive America’s 5G Buildout - 17th Dec 18
Stock Market Turn In The Tide - Have a Happy Bear Market! - 17th Dec 18
How A NASA Scientist Could Trigger The Next Cannabis Boom - 17th Dec 18
iShares Russell 2000 IWM Leading Stock Market Decline - 17th Dec 18
Where is the Dow Stock Market Santa Rally? - 17th Dec 18
With Weaker Climate Consensus, Expect Elevated Climate Change - 16th Dec 18
SMIGGLE Advent Calendar 2018 UK Contents - What You Get Look Inside Review - 16th Dec 18
Is there a Lump of Coal in Santa's Stock Market Bag? - 16th Dec 18
This Market Will Drive Gold in 2019… - 16th Dec 18
Gerald Celente:Central Banks Can’t Stop a 2019 Debt Disaster - 16th Dec 18
Gold Stocks Triple Breakout - 15th Dec 18
The stock market fails to rally each day. What’s next for stocks - 14th Dec 18
How Low Could the S&P 500 Go? - 14th Dec 18
An Industrial to Stock Trade: Is Boeing a BUY Here? - 14th Dec 18
Will the Arrest of Huawei Executive Derail Trade War Truce? - 14th Dec 18
Trump vs the Fed: Who Wins? - 13th Dec 18
Expect Gold & Silver to Pullback Before the Next Move Higher - 13th Dec 18
Dollar Index Trends, USDJPY Setting Up - 13th Dec 18
While The Stocks Bulls Fiddle With The 'Fundamentals,' Rome Burns - 13th Dec 18
The Historic Role of Silver - 13th Dec 18
Natural Gas Price Setup for a Big Move Lower - 13th Dec 18
How to Get 20% Off Morrisons Weekly Supermarket Shopping - 13th Dec 18
Gold Price Analysis: Closer To A Significant Monetary Event - 13th Dec 18
Where is the Stock Market Santa Claus Rally? - 12th Dec 18
Politics and Economics in Times of Crisis - 12th Dec 18
Owning Precious Metals in an IRA - 12th Dec 18
Ways to Improve the Value of Your Home - 12th Dec 18
Theresa May No Confidence Vote, Next Tory Leader Betting Market Analysis and Forecasts - 12th Dec 18
Gold & Global Financial Crisis Redux - 12th Dec 18
Wow Your Neighbours With the Best Christmas Projector Lights for Holidays 2018! - 12th Dec 18
Stock Market Topping Formation as Risks Rise Around the World - 11th Dec 18
The Amazing Story of Gold to Gold Stocks Ratios - 11th Dec 18
Stock Market Medium term Bullish, But Long Term Risk:Reward is Bearish - 11th Dec 18
Is a Deleveraging Event about to Unfold in the Stock Market? - 11th Dec 18
Making Money through Property Investment - 11th Dec 18
Brexit: What Will it Mean for Exchange Rates? - 11th Dec 18
United States Facing Climate Change Severe Water Stress - 10th Dec 18
Waiting for Gold Price to Erupt - 10th Dec 18
Stock Market Key Support Being Re-Tested - 10th Dec 18
May BrExit Deal Tory MP Votes Forecast, Betting Market Analysis - 10th Dec 18
Listen to What Gold is Telling You - 10th Dec 18
The Stock Market’s Long Term Outlook is Changing - 10th Dec 18
Palladium Shortages Expose Broken Futures Markets for Precious Metals - 9th Dec 18
Is an Inverted Yield Curve Bullish for Gold? - 9th Dec 18

Market Oracle FREE Newsletter

How You Could Make £2,850 Per Month

Why Government Control over Financial Markets has to Grow!

Politics / Government Intervention Apr 11, 2013 - 05:36 PM GMT

By: Julian_DW_Phillips

Politics

Growth of control by banks and government

Quietly, but thoroughly, governments and the banking system have taken an ever increasing role in every aspect of the economy and individual's lives. Where in the distant past cash was the only means of exchange, cash is now controlled by the banking system and cash transactions reduced to a miniscule role in all our lives. Even in Cyprus after the 'confiscation' of deposits, cash is rationed and transactions within the banking system are allowed up to €200,000 before a 'bank committee' has to approve them. The banking system is answerable only to government. Government is grateful to the banking system because government has a means of visible monitoring and controlling its citizen's financial affairs. Through the banking system, government is able to control our financial lives as never before. Cyprus demonstrates how that control will be increased even in crises caused by themselves.


Now fast forward to 2007, when the 'credit crunch' hit the banking system directly, catching it in reckless lending and issuing of dubious property securities. The crisis threatened to bring down the banking system and a good many citizen's businesses (through no fault of their own) and damage the level of control government had over our financial lives. That's why the efforts of government and central banks were directed at saving the banking system. It's also why such efforts will, inevitably, persist in the future. The economy and its citizens are a secondary priority to government.

The rise of China and Asia

Where the consumer has seen a rise in his disposable income he has sought to get the best out of it. This has meant that he bought cheap imports instead of locally produced goods. Local manufacturing has persistently shrunk because of this. In other words much of the stimulation has stimulated China ahead of the developed world.

We cannot emphasize the effect of Chinese growth on the developed world enough. Over the last 20 years it has sucked the wealth and the manufacturing out of the developed world with the direct help of developed world companies. To vastly improve profits developed world companies shifted their manufacturing to China and teaching Asia how to do the job in the process. In time the Chinese manufacturing has equalled the production quality of the West. It now produces much of it, under their own labels and competes directly with their mentors, winning industry after industry. Take the computer this is being written on, a Lenovo, the equal and cheaper than its equivalent in the developed world.

As a result China now has (not far off) $4 trillion in reserves in its pocket and is spending it globally to build a resource base separate from the west and an independent empire. It will continue to do so, so long as the dollar is accepted.

We hear reports that perhaps China will boost global growth, implying that the developed world will benefit too. Little is further from the truth. China is building an empire that will be able to function with little need for the developed world.

Shortly it will launch its own currency the Chinese Yuan, which will draw off reserves from the USD as fast as it is available, allowing the Chinese to pay in Yuan for foreign goods and perhaps to demand payment for its goods in Yuan too.

It will then be in a position -as the U.S. has been for generations--to demand the 'exorbitant privilege' of running its foreign reserves down and allowing gold to be a huge [75%] of its foreign reserves as is the case with the U.S. at the moment.

Excess dollars!

We saw China and the rest of Asia stop buying dollars until a month ago, when it began again. It appears that it may have become fearful of buying other more vulnerable currencies, including the euro and switched back to the dollar as the best of a bad bunch. But there will come a time when for the safety of the value of its reserves, it will heavily reduce these foreign currencies, as a percentage of its reserves, including the dollar.

It is then we may see Capital Controls in the U.S. to stem the inflow of dollars back to the U.S. and allow its exchange rate to fall. Due to a resuscitation of its oil industries, the U.S. may have reduced its Trade Deficit to nearly nil, so will not import the consequent inflation as the dollar drops. This alone will boost import replacement industries now able to compete through a cheap dollar.

We foresee a general and huge repatriation of dollars to the U.S. then, from other sources as well, such as the 'carry trade', other nations reducing their dollar holdings as their value falls and as its use as a reserve currency diminishes.

If interest rates do rise (and we're constantly being fed the impression that that is coming after the end of this year) then there will be an exodus of foreign-owned Treasuries. This may be followed by a stalling economy, a falling housing market, and a massive rise in fear as confidence dissipates.

Quantitative Easing

Moving ahead to the advent of quantitative easing, apparently aimed at saving and reinforcing the banking system and hopefully boosting the economy, we saw what seemed like an inspired move to lift first the U.S. then the Eurozone, the U.K. and now Japan, out of a no-growth situation, recession or deflation. After four years of this have we seen an improvement? Not really. What we have seen is a staving off of a depression and a huge expansion of the money supply.

The money printed to turn the developed world to growth has wound up mainly back in the central banks, making bank's balance sheets look good, but never reaching the underlying economy. The balance sheet of the Fed is expected to rise to $6 trillion by the expected end of QE.

But central banks are fully aware of this and continue to tolerate it and to print more money. The result is that the deflation, which is in the underlying economy, continues to progress, unseen.

If Q.E. fails to produce growth and the above takes place, then a loss of confidence will be quick. The loss of confidence will be virulent with its victims the dollar, the euro, the pound and the Yen alongside the developed world economies. Just as the rest of the developed world followed the U.S. into Q.E. so it will follow the U.S. into a loss of confidence in its currencies. As of now, the euro is clinging on desperately to a diminishing confidence, one spawned out of necessity for a means of exchange not by preference and the Yen is being purposely weakened.

If Q.E. fails to produce growth the only way to contain the foreign exchange markets and prevent both currency chaos and the failure of paper currencies to do their job will be through Capital Controls on a broad front forcing citizens to keep using them. We saw this in Cyprus. We have seen the extent austerity is allowed to go, usually at the expense of citizens.

Capital Controls to become Draconian and to include Gold

The Capital Controls we have seen to date are a pale shadow of what will come if the above comes true. What's frighteningly true from the evidence we already have is that governments and banks will be made to survive and will be made to do so at the expense of their citizens and clients wealth, employment and overall future.

It is in this environment that the monetary world will have to turn to gold and for it to be used in support of declining confidence, distrust in national currencies and to ensure the global monetary system remains liquid.

What's already apparent is that too few nations have sufficient gold to retain the credibility of their currencies under such conditions. There's too little by way of supply of gold to raise gold reserves to a sufficient size. There's only one source available to them and that is their citizens' gold.

Just as the new U.S. tax legislation FATCA and new reporting requirements are becoming increasingly onerous and Swiss banks and vaults are distancing themselves from client's gold (though rejecting them or pushing them into allocated accounts) so the ability of the government authorities to see what gold their citizens have at home and overseas is increasing.

It's a small step to add to this visibility and should they decide to do so, order their citizens to ship their gold home for their government's use!

It's reported that ABN AMRO, one of the largest banks in Europe announced in a letter to clients that it would no longer allow clients to take delivery of their metal and instead will pay account holders in a paper currency equivalent to the current spot value of the precious metal.

Hold your gold in such a way that governments and banks can't seize it!

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2012 Authentic Money. All Rights Reserved.
Julian Phillips - was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as "Accountancy" and the "International Currency Review" He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

Disclaimer - This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

Julian DW Phillips Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules