Blog of the Week of October 24, 2011

SEE THE LIGHT?

Ed.:  If ever you’re still wandering about and wondering about whassup with gubmint intervention – directly and indirectly – in capital markets and precious metals markets and related, wander and wonder no longer, pilgrims.  Here’s your resolution of fundamental matters therewith, in three paragraphs (emphasis done by others, except ’Fork’s insertions by []), thanks to a recent Ed Steer’s Gold & Silver Daily.  The clarity.  The concision.  The comfort and joy.  Denial, deceit, deferral, and debasement be gone.

“In his classic essay ‘The Debasement of world currency: It is inflation, but not as we know it’ published on April 9, 2001...British economist Peter Warburton laid it all out in three simple paragraphs...which I labeled the '3 most important paragraphs in the world' almost from the moment that I read them for the first time.  I've posted them in this column several times over the years, but it's time to revisit them once more...and don't forget that this was written ten years ago.  Needless to say, they're a must read.

“ ‘Central banks [and the goons that perpetuate them - Ed.] are engaged in a desperate battle on two fronts

“ ‘What we see at present is a battle between the central banks and the subsidence of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity [and what looks like accounting fraud to 'Fork - Ed.] for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies. Equally, their actions seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets [principally by market intervention in price discovery – Ed.].

“ ‘It is important to recognize that the central banks have found the battle on the second front much easier to fight than the first. Last November, I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil and commodity markets? Probably, no more than $200 billion, using derivatives [comfortably assuming sufficiently corrupted regulatory authorities having jurisdiction – Ed.]. Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world's large investment banks have over-traded their capital [bases] so flagrantly that if the central banks were to lose the fight on the first front, then their stock would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold [until bullion, unlike rock, covers paper and, like rock, breaks corner-cutting scissors - Ed.], oil, and commodity prices.

“ ‘Central banks, and particularly the US Federal Reserve, are deploying their heavy artillery in the battle against a systemic settling. This has been their primary concern for at least seven years. [To the author, that's since 1994; to the Ed., that might could pushback another decade or so – Ed.] Their immediate objectives are to prevent the private sector bond market from closing its doors to new or refinancing borrowers [by price-pinching and policy- and practice-pinching capital market flows, and, causally, pushing those dastardly derivatives’ to their deserved dénouements – Ed.] and to forestall a technical break in the Dow Jones Industrials. Keeping the bond markets open [and cheap – Ed.] is absolutely vital at a time when corporate profitability is on the ropes [and, phony accounting withstanding, when US banks are absolutely insolvent and have been for quite a while – Ed.]. Keeping the equity index on an even keel is essential to [fallaciously – Ed.] protect [sic] the wealth of the household sector and to maintain the expectation of future gains. For as long as these objectives can be achieved, the value of the US dollar can also be stabilized in relation to other currencies, despite the extraordinary imbalances in external trade.’

“The link to the entire Warburton article is here.”

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