Tuesday, May 25, 2021

Demographic Decline = Fiscal Crisis by Dan Mitchell

 As a libertarian, I don’t care if couples have zero children or 10 children.

But as an economist, I’m horrified that big changes in demographics are going to lead to fiscal crises thanks to poorly designed entitlement programs.

Simply stated, modest-sized welfare states are sustainable if more and more new taxpayers enter the system to finance benefits for a burgeoning population of old people.

But that’s not happening any more. In most nations, traditional population pyramids are becoming population cylinders because of falling birthrates and increasing longevity.

That’s the bad news.

The good news is that there is growing awareness the demographic changes are happening. Indeed, Damien Cave, Emma Bubola and  have a big article on population decline in the New York Times.

All over the world, countries are confronting population stagnation and a fertility bust, a dizzying reversal unmatched in recorded history that will make first-birthday parties a rarer sight than funerals, and empty homes a common eyesore. Maternity wards are already shutting down in Italy. Ghost cities are appearing in northeastern China. Universities in South Korea can’t find enough students, and in Germany, hundreds of thousands of properties have been razed, with the land turned into parks. …Demographers now predict that by the latter half of the century or possibly earlier, the global population will enter a sustained decline for the first time. …The strain of longer lives and low fertility, leading to fewer workers and more retirees, threatens to upend how societies are organized — around the notion that a surplus of young people will drive economies and help pay for the old. …The change may take decades, but once it starts, decline (just like growth) spirals exponentially. With fewer births, fewer girls grow up to have children, and if they have smaller families than their parents did — which is happening in dozens of countries — the drop starts to look like a rock thrown off a cliff. …according to projections by an international team of scientists published last year in The Lancet, 183 countries and territories — out of 195 — will have fertility rates below replacement level by 2100.

Plenty of interesting data, though remarkably little focus on the fiscal implications. Sort of like writing about 1943 France with almost no reference to World War II.

In any event, the article takes a closer look at the challenges in certain nations., including South Korea.

To goose the birthrate, the government has handed out baby bonuses. It increased child allowances and medical subsidies for fertility treatments and pregnancy. Health officials have showered newborns with gifts of beef, baby clothes and toys. The government is also building kindergartens and day care centers by the hundreds. In Seoul, every bus and subway car has pink seats reserved for pregnant women. But this month, Deputy Prime Minister Hong Nam-ki admitted that the government — which has spent more than $178 billion over the past 15 years encouraging women to have more babies — was not making enough progress.

I was struck by the statement from the Deputy Prime Minister that his nation “was not making enough progress”?

That’s a strange way of describing catastrophic decline in birthrates, as noted in the article.

South Korea’s fertility rate dropped to a record low of 0.92 in 2019 — less than one child per woman, the lowest rate in the developed world. Every month for the past 59 months, the total number of babies born in the country has dropped to a record depth.

Maybe, just maybe, government handouts are not the way to boost birthrates.

I’ll conclude by noting that the real problem is tax-and-transfer entitlement programs, not low birth rates.

Both Singapore and Hong Kong have extremely low birth rates, for instance, but they aren’t facing a huge fiscal crisis because they have very small welfare states and workers are obliged to save for their own retirement.

Other Asian jurisdictions, however, made the mistake of copying Western nations, meaning entitlement programs that become mathematically impossible when populations pyramids become population cylinders (or even upside-down pyramids!).

In addition to South Korea, Japan also faces a major challenge.

And the situation is very grim in Europe, even though birth rates haven’t fallen to the same degree (though the numbers is some Eastern European nations are staggeringly bad).

P.S. The United States isn’t far behind.

P.P.S. We know the answer to this crisis, but far too many politicians are focused on trying to make matters worse rather than better.

P.P.P.S. You can read my two-part series on this topic here and here.

Stray Voltage: Parts!

Stray Voltage: Parts!: While I'm making judicious use of my junk box for parts--parts salvaged from garbage picking old TVs and stereos years ago--I still am s...

Podcast Episode #73 – James Howard Kunstler and the Bad Bond Movie Script by Tom Luongo

 This week I sit down with author and columnist James Howard Kunstler to break down the strange activity of the Davos Crowd and their Bond-villian-like plans to remake the world and make it safe of commies and eugenics.

From bitcoin to the dairy farmers in upstate New York, James and I discuss the deurbanization trend that’s occurring as a result of this idiocy and the mistakes a lot of folks are making moving to the suburbs.

Show Notes:
James Howard Kunstler is the author of The Long Emergency, Too Much Magic, The Geography of Nowhere, the World Made By Hand novels, and more than a dozen other books. He lives in Washington County, New York.
James’ Website

Previous Episodes:
Podcast Episode #72 – Crypto Rich and the Future of Privacy and Governance
Podcast Episode #71 — Patron Q&A #2 – Will Crypto Save the World from the Great Reset?
Podcast Episode #70 – Ryan Cristian and the Censorship of the World We Want

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Five Ugly Truths About Critical Race Theory by JAMES LINDSAY

 Critical Race Theory is currently getting a ton of attention on the national and international stage, which is long overdue, but there are also many misconceptions about it. Here are five questions that many people are asking about Critical Race Theory along with straight answers, explanations, and a raft of proofs from the Critical Race Theory literature itself. My hope is that people will be able to use these proofs to show people that Critical Race Theory is every bit as bad as its critics contend.

Since these proofs run rather long in some cases, here are the questions and answers as a summary:

  1. Is Critical Race Theory racist? Yes.
  2. Does Critical Race Theory advance the vision and activism of the Civil Rights Movement? No.
  3. Does Critical Race Theory say all white people are racist? Yes.
  4. Is Critical Race Theory Marxist? Yes and no.
  5. Is Critical Race Theory an analytical tool for understanding race and racism? No, not really.

Question: Is Critical Race Theory racist?

Answer: Yes.

Critical Race Theory begins by asserting the importance of social significance of racial categories, rejecting colorblindness, equality, and neutrality, and advocating for discrimination meant to “level the playing field.” These things lead it to reproduce and enact racism in practice. It also explicitly says that all white people are either racist or complicit in the system of racism (so, racist) by virtue of benefiting from privileges that they cannot renounce.

Examples:

“We all can recognize the distinction between the claims “I am Black” and the claim “I am a person who happens to be Black.” “I am Black” takes the socially imposed identity and empowers it as an anchor of subjectivity. “I am Black” becomes not simply a statement of resistance but also a positive discourse of self-identification, intimately linked to celebratory statements like the Black nationalist “Black is beautiful.” “I am a person who happens to be Black,” on the other hand, achieves self-identification by straining for a certain universality (in effect, “I am first a person”) and for a concommitant dismissal of the imposed category (“Black”) as contingent, circumstantial, nondeterminant. There is truth in both characterizations, of course, but they function quite differently depending on the political context. At this point in history, a strong case can be made that the most critical resistance strategy for disempowered groups is to occupy and defend a politics of social location rather than to vacate and destroy it.” From “Mapping the Margins,” Stanford Law Review, by KimberlĂ© Crenshaw, p. 1297.

“The defining question is whether the discrimination is creating equity or inequity. If discrimination is creating equity, then it is antiracist. If discrimination is creating inequity, then it is racist. … The only remedy to racist discrimination is antiracist discrimination. The only remedy to past discrimination is present discrimination. The only remedy to present discrimination is future discrimination.” From How to Be an Antiracist, by Ibram X. Kendi (pseud. for Henry Rodgers), p. 19.

“Unlike traditional civil rights, which embraces incrementalism and step-by-step progress, critical race theory questions the very foundations of the liberal order, including equality theory, legal reasoning, Enlightenment rationalism, and neutral principles of constitutional law.” From Critical Race Theory: An Introduction, by Richard Delgado and Jean Stefancic, first edition, p. 3.

“Critical race theorists (or “crits,” as they are sometimes called) hold that color blindness will allow us to redress only extremely egregious racial harms, ones that everyone would notice and condemn. But if racism is embedded in our thought processes and social structures as deeply as many crits believe, then the “ordinary business” of society—the routines, practices, and institutions that we rely on to effect the world’s work—will keep minorities in subordinate positions. Only aggressive, color-conscious efforts to change the way things are will do much to ameliorate misery.” From Critical Race Theory: An Introduction, by Richard Delgado and Jean Stefancic, first edition, p. 22.

(See also below, in proofs for the question of whether Critical Race Theory says all white people are racist.)

Question: Does Critical Race Theory advance the vision and activism of the Civil Rights Movement?

Answer: No.

Critical Race Theory refers to that vision as “traditional approaches to civil rights” and calls it into question. The Civil Rights Movement called for living up to the foundational promises of the United States (and other free nations) and incrementally changing the system so that those original ideals were met. Critical Race Theory rejects incrementalism in favor of revolution. It rejects the existing system and demands replacing it with its own. It rejects the liberal order and all that goes with it as being part of the system which must be dismantled and replaced. It is therefore fundamentally different than the Civil Rights Movement (and is explicitly anti-liberal and anti-equality).

Examples:

“Crits are also highly suspicious of another liberal mainstay, namely, rights.” From Critical Race Theory: An Introduction, by Richard Delgado and Jean Stefancic, first edition, p. 23.

“Unlike traditional civil rights, which embraces incrementalism and step-by-step progress, critical race theory questions the very foundations of the liberal order, including equality theory, legal reasoning, Enlightenment rationalism, and neutral principles of constitutional law.” From Critical Race Theory: An Introduction, by Richard Delgado and Jean Stefancic, first edition, p. 3.

“We all can recognize the distinction between the claims “I am Black” and the claim “I am a person who happens to be Black.” “I am Black” takes the socially imposed identity and empowers it as an anchor of subjectivity. “I am Black” becomes not simply a statement of resistance but also a positive discourse of self-identification, intimately linked to celebratory statements like the Black nationalist “Black is beautiful.” “I am a person who happens to be Black,” on the other hand, achieves self-identification by straining for a certain universality (in effect, “I am first a person”) and for a concommitant dismissal of the imposed category (“Black”) as contingent, circumstantial, nondeterminant. There is truth in both characterizations, of course, but they function quite differently depending on the political context. At this point in history, a strong case can be made that the most critical resistance strategy for disempowered groups is to occupy and defend a politics of social location rather than to vacate and destroy it.” From “Mapping the Margins,” Stanford Law Review, by KimberlĂ© Crenshaw, p. 1297.

Question: Does Critical Race Theory say that all white people are racist?

Answer: Yes.

More specifically, Critical Race Theory says that all white people are either racist or that they are complicit in a “system of racism” (so, racist) that they wittingly or unwittingly uphold to their own benefit unless they are “actively antiracist” (and usually even then). Those benefits of “whiteness” are labeled “white privilege” in general and are said to be outside of the scope of things that white people can intentionally renounce. The most they can do is “strive to be less white” and to become aware of and condemn “whiteness” as a system.

Examples:

“Wildman and Davis, for instance, contend that white supremacy is a system of oppression and privilege that all white people benefit from. Therefore, all white people “…are racist in this use of the term, because we benefit from systemic white privilege. Generally whites think of racism as voluntary, intentional conduct done by horrible others. Whites spend a lot of time trying to convince ourselves and each other that we are not racist. A big step would be for whites to admit that we are racist and then to consider what to do about it.”” From Being White, Being Good: White Complicity, White Moral Responsibility, and Social Justice Pedagogy, by Barbara Applebaum, p. 15.

“The relevant point for now is that all white people are racist or complicit by virtue of benefiting from privileges that are not something they can voluntarily renounce.” From Being White, Being Good: White Complicity, White Moral Responsibility, and Social Justice Pedagogy, by Barbara Applebaum, p. 16.

“The white complicity claim maintains that all whites are complicit in systemic racial injustice and this claim sometimes takes the form of “all whites are racist.” When white complicity takes the latter configuration what is implied is not that all whites are racially prejudiced but rather that all whites participate in and, often unwittingly, maintain the racist system of which they are part and from which they benefit.” From Being White, Being Good: White Complicity, White Moral Responsibility, and Social Justice Pedagogy, by Barbara Applebaum, p. 140.

“The white complicity claim maintains that all whites, by virtue of systemic white privilege that is inseparable from white ways of being, are implicated in the production and reproduction of systemic racial injustice.” From Being White, Being Good: White Complicity, White Moral Responsibility, and Social Justice Pedagogy, by Barbara Applebaum, p. 179.

“Here we find a claim about complicity that is addressed to all white people regardless of and despite their good intentions. What I refer to as “the white complicity claim” maintains that white people, through the practices of whiteness and by benefiting from white privilege, contribute to the maintenance of systemic racial injustice. However, the claim also implies responsibility in its assumption that the failure to acknowledge such complicity will thwart whites in their efforts to dismantle unjust racial systems and, more specifically, will contribute to the perpetuation of racial injustice.” From Being White, Being Good: White Complicity, White Moral Responsibility, and Social Justice Pedagogy, by Barbara Applebaum, p. 3.

“White privilege protects and supports white moral standing and this protective shield depends on there being an “abject other” that constitutes white as “good.” Whites, thus, benefit from white privilege in a very deep way. As Zeus Leonardo remarks, all whites are responsible for white dominance since their “very being depends on it.’” From Being White, Being Good: White Complicity, White Moral Responsibility, and Social Justice Pedagogy, by Barbara Applebaum, pp. 29–30.

“Many critical race theorists and social scientists alike hold that racism is pervasive, systemic, and deeply ingrained. If we take this perspective, then no white member of society seems quite so innocent.” From Critical Race Theory: An Introduction, by Richard Delgado and Jean Stefancic, first edition, pp. 79–80.

“…a positive white identity is an impossible goal. White identity is inherently racist; white people do not exist outside the system of white supremacy.” From White Fragility: Why It’s So Hard for White People to Talk About Racism, by Robin DiAngelo, p. 149.

Question: Is Critical Race Theory Marxist?

Answer: Yes and no.

It is accurate to say that Critical Race Theory is mostly Marxian but not specifically Marxist. It is more accurately adapted from neo-Marxism, which is in turn adapted from Marxism.

The main difference is that Marxism is concerned primarily with economic class and rejects racial categories in favor of workers’ solidarity. What this means is that Critical Race Theory operates like Marxism but using race instead of economic class as the line of “social stratification,” above which people are “privileged” or “oppressors” and below which people are “marginalized” or “oppressed.” This social order is assumed in Critical Race Theory as “the ordinary state of affairs” and analyzed in the same way Marx analyzed across class stratification. Namely, Marx’s “conflict theory” (a.k.a. “critical philosophy,” so Critical Theory of Race, i.e., Critical Race Theory) is the tool for analyzing society, which is assumed to be totally racialized (by white people).

For those who understand Marxism, where Marxism sees capitalism as a superstructure that organizes society and determines the outcomes of the privileged (bourgeoisie) and oppressed (proletariat) classes, Critical Race Theory sees “white supremacy” as a superstructure that organizes society and determines outcomes of the privileged (white) and oppressed (BIPOC) classes. From there, it is functionally identical except that it operates primarily in the realms of cultural production rather than in the realm of economic and material production.

Critical Race Theory is most accurately “critical constructivist,” which is to say a form of race-based neo-Marxism (Critical Theory) with some postmodernist (social constructivist) characteristics.

Examples:

“The critical-thinking tradition is concerned primarily with epistemic adequacy. To be critical is to show good judgment in recognizing when arguments are faulty, assertions lack evidence, truth claims appeal to unreliable sources, or concepts are sloppily crafted and applied. For critical thinkers, the problem is that people fail to “examine the assumptions, commitments, and logic of daily life… the basic problem is irrational, illogical, and unexamined living” (Burbules and Berk 1999, 46). In this tradition sloppy claims can be identified and fixed by learning to apply the tools of formal and informal logic correctly.

“Critical pedagogy begins from a different set of assumptions rooted in the neo-Marxian literature on critical theory commonly associated with the Frankfurt School. Here, the critical learner is someone who is empowered and motivated to seek justice and emancipation. Critical pedagogy regards the claims that students make in response to social-justice issues not as propositions to be assessed for their truth value, but as expressions of power that function to re-inscribe and perpetuate social inequalities. Its mission is to teach students ways of identifying and mapping how power shapes our understandings of the world. This is the first step toward resisting and transforming social injustices. By interrogating the politics of knowledge-production, this tradition also calls into question the uses of the accepted critical-thinking toolkit to determine epistemic adequacy.” From “Tracking Privilege-preserving Epistemic Pushback in Feminist and Critical Race Philosophy Classrooms,” Hypatia, by Alison Bailey, p. 881.

“Our analysis of social justice is based on a school of thought known as Critical Theory. Critical Theory refers to a body of scholarship that examines how society works, and is a tradition that emerged in the early part of the 20th century from a group of scholars at the Institute for Social Research in Frankfurt, Germany (because of this, this body of scholarship is sometimes also called “the Frankfurt School”). These theorists offered an examination and critique of society and engaged with questions about social change. Their work was guided by the belief that society should work toward the ideals of equality and social betterment.

“Many influential scholars worked at the Institute, and many other influential scholars came later but worked in the Frankfurt School tradition. You may recognize the names of some of these scholars, such as Max Horkheimer, Theodor Adorno, JĂĽrgen Habermas, Walter Benjamin, and Herbert Marcuse. Their scholarship is important because it is part of a body of knowledge that builds on other social scientists’ work: Emile Durkheim’s research questioning the infallibility of the scientific method, Karl Marx’s analyses of capitalism and social stratification, and Max Weber’s analyses of capitalism and ideology. All of these strands of thought built on one another.” From Is Everyone Really Equal?, by Ă–zlem Sensoy and Robin DiAngelo, second edition, p. 50.

“As the reader will see, critical race theory builds on the insights of two previous movements, critical legal studies and radical feminism, to both of which it owes a large debt. It also draws from certain European philosophers and theorists, such as Antonio Gramsci and Jacques Derrida, as well as from the American radical tradition exemplified by such figures as Sojourner Truth, Frederick Douglass, W.E.B. Du Bois, Cesar Chavez, Martin Luther King, Jr., and the Black Power and Chicano movements of the sixties and early seventies.” From Critical Race Theory: An Introduction, by Richard Delgado and Jean Stefancic, first edition, p. 4.

Question: Is Critical Race Theory an analytical tool for understanding race and racism?

Answer: No, not really (there’s a tiny sliver of yes here, in a misleading sense).

Critical Race Theory describes itself as a movement of activists and scholars. This is not exactly what one would expect from a mere “analytical tool.”

More accurately, Critical Race Theory is a worldview, not a means of analysis. Critical Race Theory begins from the underlying operating assumptions that race is constantly being imposed by a “white supremacist” society (“systemic racism”) and that racism is therefore the ordinary state of affairs in society. It believes further that racism is effectively impossible to eradicate within the existing “white supremacist” system and therefore that it has merely hidden itself better, when it seems to be diminished or less impactful. Critical Race Theory is the tool that allows the people who have awakened to a “Critical Consciousness of race” (i.e., Critical Race Theorists) to detect hidden racism in everything. This is a way of viewing the world, however, not a way of analyzing the world as it is.

Examples:

“Racism exists today, in both traditional and modern forms. All members of this society have been socialized to participate in it. All white people benefit from racism, regardless of intentions; intentions are irrelevant. No one here chose to be socialized into racism (so no one is “bad’). But no one is neutral – to not act against racism is to support racism. Racism must be continually identified, analyzed and challenged; no one is ever done. The question is not ”did racism take place”? but rather “how did racism manifest in that situation?” The racial status quo is comfortable for most whites. Therefore, anything that maintains white comfort is suspect. If you are white, practice sitting with and building your stamina for racial discomfort” -Robin DiAngelo (Link)

“The critical race theory (CRT) movement is a collection of activists and scholars interested in studying and transforming the relationship among race, racism, and power. The movement considers many of the same issues that conventional civil rights and ethnic studies discourses take up, but places them in a broader perspective that includes economics, history, context, group- and self-interest, and even feelings and the unconscious.” From Critical Race Theory: An Introduction, by Richard Delgado and Jean Stefancic, first edition, pp. 2–3.

“First, [most critical race theorists assume] that racism is ordinary, not aberrational—“normal science,” the usual way society does business, the common, everyday experience of most people of color in this country. Second, most would agree that our system of white-over-color ascendancy serves important purposes, both psychic and material. The first feature, ordinariness, means that racism is difficult to cure or address. Color-blind, or “formal,” conceptions of equality, expressed in rules that insist only on treatment that is the same across the board, can thus remedy only the most blatant forms of discrimination … The second feature, sometimes called “interest convergence” or material determinism, adds a further dimension. Because racism advances the interests of both white elites (materially) and working-class people (psychically), large segments of society have little incentive to eradicate it.” From Critical Race Theory: An Introduction, by Richard Delgado and Jean Stefancic, first edition, p. 7.

“Many critical race theorists and social scientists alike hold that racism is pervasive, systemic, and deeply ingrained. If we take this perspective, then no white member of society seems quite so innocent. The interplay of meanings that one attaches to race, the stereotypes one holds of other people, and the need to guard one’s own position all power- fully determine one’s perspective. Indeed, one aspect of whiteness, according to some, is its ability to seem perspectiveless, or transparent. Whites do not see themselves as having a race, but being, simply, people. They do not believe that they think and reason from a white viewpoint, but from a universally valid one—“the truth”—what everyone knows. By the same token, many whites will strenuously deny that they have benefited from white privilege.” From Critical Race Theory: An Introduction, by Richard Delgado and Jean Stefancic, first edition, pp. 79–80.

Basel III and the New Role For Gold by Tom Luongo

Last week both Martin Armstrong and Alistair MacLeod wrote about the changes to the Basel III rules and how they will greatly affect the physical and paper gold markets if implemented in their current form.

MacLeod’s article from last week is an excellent primer on the definitions and inner workings of the rules, the gold market and the changes to the rules.  The short redux is that the advantage to using unallocated accounts, savings accounts which are linked to gold by holding futures contracts, will end.

We’ve discussed parts of this in the past.  The process of creating fake supply to control the price of gold is on the line with these rule changes.

These rules are coming at the end of June for the European Banking System which will adopt the new Basel III rules. In short, the incentive to have exposure to gold as a pile of credit will go away if the banks can’t use any of that as part of their reserve calculations for their ASF – Available Stable Fundings.

Moreover, any physical gold they hold will be held at a 15% discount. Bottom line: these rules will make it impossible for the LBMA member banks to hold any exposure to unallocated pools of gold derviatives –futures and swaps — on their balance sheets.  

It will force a liquidation of those positions and end any fractional reserve leveraging of gold used to suppress the price. There will still be futures markets but the whole of the gold trade will collapse back to simply coordinating supplies of gold from producers to consumers through time, like any other commodity market.

In effect, Basel III, if implemented in its current form, would change the gold market from a speculative one based on perceptions of the efficacy of monetary policy to control real interest rates to one that should force price discovery in an almost purely physical market. As I told my Patrons in May 16th’s Market Report video, physical gold will go from being the price taker to the price maker.   

And the Free Gold contingency, of which MacLeod is one, will claim victory here. These are the people who have contended for years that once the leverage in the monetary system became so big it would collapse the paper gold market as it went bidless and everyone demanded physical.

In a way they argue the same end to the current system as Murray Rothbard predicted how Bretton Woods would end when someone — France under De Gaulle — would drain the U.S. Treasury of its gold if they believed the U.S. printed more dollars than could support a peg to $35/ounce.

I sense from reading MacLeod’s last two articles, he is doing his best to contain his optimism and exuberance.  Now, this week’s article from him goes into some speculation as to why this is happening.  And I think he’s avoiding the real issues.  

MacLeod’s avoiding the elephant in the room in the same way that Martin Armstrong last week berated the BIS for these rules knee-jerk reacting to them as more evidence of regulator incompetence, not giving much credence that it may be part of a wider strategy.

To Armstrong’s immense credit he did warn us of this in 2019, stating that Basel III’s requirements would create the very liquidity crisis we’ve been inching towards since the blowout of SOFR in September 2019, which resulted in the market spasm I call the Coronapocalypse last March once the heroin wore off and the flood of liquidity created by the Fed since then to keep the financial system alive, if on life support.

But the cliff edge of Basel III is now right in front of us, if reports are true.

To me this situation begs a number of obvious questions.  

And the first is, Why Now?

We’ve been discussing these changes vis a vis Basel III for more than five years. So, why, all of a sudden is Europe so hot to implement them in June and for the U.K. to adopt them in January 2022, knowing full well that this will end the bullion banks and the central banks’ program of controlling the rise in gold prices through the application of newly-printed money to create fake supply and allow nearly infinite leverage in the gold market relative to unencumbered physical supply.

MacLeod goes through the math in this week’s article speculating as to what the real available supply of gold is versus the stated available supply.  It’s vanishingly small if you assume, like he does, that both China and Russia vastly understate their gold holdings, which is a good assumption.

In October 2014 I published an article explaining why China had considerably more gold in storage than her declared reserves, and I estimated that by 2002, when the Chinese government removed the ban on personal ownership and opened the Shanghai Gold Exchange, the state could have acquired up to 25,000 tonnes. Much of this gold would have been leased gold sold into the London market …

That China had accumulated substantial undeclared bullion stocks was confirmed to me anecdotally by experienced China watchers. If we treat that as part of our estimate of monetary gold, and make an allowance for Russia, of perhaps an unrecorded 5,000 tonnes, monetary gold in the hands of everyone else appears to amount to only 15,000 tonnes.

So, again, why this, why now if suppressing gold is such a useful tool for continued faith in the central banks? Well, MacLeod gets about halfway there in my opinion.

Another popular theory is of an even wider financial reset. The BIS is coordinating research into central bank digital currencies, which if adopted cuts out the commercial banks altogether. In theory, it would allow central banks to more effectively target stimulus and do away with the destabilising cycle of bank credit. The ultimate aim could be to demote and then remove commercial banks from the financial system entirely, in which context the closure of derivative markets by regulatory means makes some sense.

That is the final act of the story not the beginning of it.

First you have to get through the crisis this would engender with the Central Banks 1) retaining some of the people’s faith they are competent and 2) they don’t go bankrupt in the process.

Now, because of its structure, the Fed can’t go bankrupt.  It can print unlimited amounts of credit and ‘elastic money,’ as Martin Armstrong terms it to cover any and all time-mismatches within the banking system.  That has been proven to be correct multiple times over the past 13 years since Lehman Bros. collapsed. 

The ECB, on the other hand, can go bankrupt, since it has no capacity to do this.  All it can do is buy the sovereign debt of the member countries’ central banks and hand them back euros, while swapping around deckchairs on this monetary Titanic. There is a definable limit to this process, especially if rates rise as people lose confidence in the underlying economic activity of those countries and their fiscal positions.

This is absolutely underway, and it isn’t like this is happening on the periphery of Europe.  It’s happening in the core countries, like France and Germany.  This is why I keep harping on the rise in the German 10 year bund, up nearly 60 basis points since the beginning of the year, despite Lagarde’s heroic efforts. 

In March ECB President Christine Lagarde panicked and doubled the rate of bond buying within the Euro-zone by the ECB to keep rates under control.  She has failed.  The market woke up to the fact that she’s a lawyer not a central banker.  

This week the ECB made the statement that there are ‘elevated financial stability risks’ because of a a high stock market.  It was their ‘irrational exuberance’ statement.  But it’s really an admission that the entire system is melting down and they have no more capacity to keep it under control.

Lagarde increasingly looks like someone overmatched for her job from a money professional’s perspective. But from the political vandalism perspective, as practiced by her real boss, Klaus Schwab of the World Economic Forum, she’s doing a bang up job screwing everything up.

Moreover, if you also are coordinating with the Bank of International Settlements and are manipulating events to transfer power from individual countries to the IMF and *shudder* the United Nations, it’s important that the institutions you have the most control over remain solvent and stand ready to offer a solution out of the incipient crisis.

That means, as a truly trapped ECB presiding over a banking system that has reached its terminal limit who is also sitting on trillions in deteriorating sovereign debt, what can you do to shore up your balance sheet at that point?

The answer is simple, the one thing the Fed cannot do, allow the price of gold to rise.  

What?! 

Yes.

The ECB has under its control roughly 10,000 tonnes of gold. It marks that gold to market. It’s worth at $1881 an ounce around $605 billion. The Fed, on the other hand, holds its gold, the 8133.5 tonnes it bought from the U.S. Treasury, on its balance sheet at the price it paid, $42.22 per ounce.   It has a balance sheet entry of $11.04 billion

The problem is the ECB has around €6 trillion (or around $7.2 trillion at $1.21 EUR/USD) in securities on its balance sheet which are now falling in value with rising yields that Lagarde’s QE programs of various flavors cannot contain.

https://www.yardeni.com/pub/balsheetwk.pdf

The Fed has the problem of rising inflation and real yields now running -3%. Moreover, they can’t taper QE or raise rates until they are done cutting the commercial banks out of the transmission system for dollar liquidity first. Chris Whalen’s latest article on Zerohedge has the details of what’s going on at the Marriner-Eccles building.

…the FOMC is going to make permanent the RRPs (reverse-repos), essentially accepting the proposal by the Federal Reserve Bank of St Louis to create a standing repo facility for banks and nonbanks alike. This means that funds, REITs and especially smaller dealers are going to be able to go direct to the Fed of New York and finance collateral, breaking the monopoly control of the big primary dealer banks. H/T to George Selgin at Cato Institute.

Like Basel III’s changes to funding ratios, the FOMC opening up its repo and credit facilities to non-banks, REITs and anyone with a pulse, means there are big changes in store for the big commercial banks who have been running roughshod over the financial landscape for decades.

But, back to the ECB. It should be obvious now where I’m goin with this. In order for the ECB to avoid bankruptcy in the coming sovereign debt crisis, which in many ways The Davos Crowd is engineering, the price of gold will have to rise in euro-terms to offset the losses as that debt goes bidless. When that happens amidst the panic, the ECB will offer George Soros’ preferred option to investors, perpetual bonds.

The old debt will be cancelled and reissued as perpetual debt. But to pull that off the ECB will officially take control over the gold reserves of the euro-zone completely, while gold rises, putting the Fed behind the eight ball having lost the battle against commodity inflation.

So, implement Basel III, crush the incentive structure of the paper gold trade and allow real price discovery to fuel an historic rise in the price of gold. If the commercial banks in London and New York fight this they will be outcompeted and their balance sheets degraded.

Let’s take this one step further and go back to my original question. Why Now?

Simple, the private markets are beginning to realize what’s happening. The commercial banks are embracing crypto to keep their clients from bolting. There are fissures forming, as I talked about last week between the central banks and the commercial money center banks.

But, the big one, timing-wise, is the emergence of a potential parallel monetary system is threatening to capture the imagination of a generation who:

  1. Hate the commercial banks because of the last 13 years of financial repression.
  2. Want something tied to a real asset or at least a non-fake one of infinite supply.
  3. Firmly distrust the existing power structure and have voted that way consistently over the past decade of Western elections.

Like bitcoin or hate it, the latest rally was deeply embarrassing to everyone who’s been skimming the cream off society via the monopolistic monetary system. Their lies were laid bare for all of us to see.

It doesn’t surprise me at all that this week was the week chosen to do the hatchet job on crypto. It was also the week where the plumbing of the financial markets became so thoroughly clogged (see Whalen’s article above) that there was no choice but to demoralize the rubes who thought they would escape the Great Reset.

Everyone must be liquidated to make the world safe for German eugenicists and commies.

So, Basel III is coming to destroy the paper gold markets and destroy the money center banks in New York and London while setting the stage to bail out the euro-zone. Higher gold prices are the answer to all of these things. Think of it this way, in a world where debt assets are failing and new private forms of custodial assets are rising in mindshare, what’s the only real weapon the central banks have to maintain credibility?

Their gold reserves.

How do you, if you are the ECB, use that weapon simultaneously against your two main competitors, the commercial banking interests in New York and London and the nascent crypto anarchists? You deploy your gold and steal everyone’s thunder.

In the end the Free Gold community will get what they want, but not for the reasons they ever thought they would — a bidless paper gold market and true price discovery in gold. What they won’t ever get is the next step, the re-monetization of gold, unless enough people see this power play for what it is and start making the appropriate moves now, which includes getting off your high horse about crypto.

So, if you are looking for these new Basel III rules to be put off again, you are most likely going to wind up on the wrong side of the trade and be just more grist for Schwab’s mill.


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