Saturday, April 16, 2016


When certain writers comment upon Deutsche Bank's derivative exposure - in light of their recent admission of gold price rigging - it is wise to maintain perspective. At $21.39 trillion in total derivative exposure, DB is still well below the average of the top five US Bailout Queens.

If the Fed is displaying concern over the potential liquidity needs of BofA and JPM ($31 and $36 trillion in interest rate notionals alone, respectively) they do this in order to manage expectations.

Yes it is a political maneuver, but the reasoning behind it is layered and opaque. We are at a point now where the financial stability of the dollar system is perceived to be in peril, yet the FED and its 5 largest primary dealers (who it provided many trillions of non-disclosed liquidity injections to over the last 8 years) are displaying discord. Is the discord just another deception?

By Keynesian standards, nothing has changed with respect to dollars being issued to cover systemic losses. The rule of law has never been used significantly, not for generations, to punish "systemic" wealth holders and the banks they own. The only thing that could change the dollar paper game is a collective (and systemic)  "change in thought" about "what is wealth?"

We know that paper liquidity can NEVER be a political problem for dollar faction profiteering, and in such a system, any thing other than a political problem is no problem at all. But if the system itself comes into question, because it's numerator fails to function contractually, there is a Grand Moderator who stands above the rule of law, where law fails to "re-invent" our global valuation system. The BIS is widely thought to be that moderator, and gold its final instrument. But some will say gold is the moderator, and the BIS is the instrument. I am among them.

Derivative instruments, contracts denominated mostly in dollars, provide for counter-party gains or losses in the onset of an event. If the dollar's FX value becomes unstable or volatile, gains and losses become redefined. The event becomes secondary. Instead, the stability of the numerator becomes the common denominator, which of course impacts that target event and so-on.

This self-referential perpetuation of perceived risk becomes a crisis of confidence in the system and the way that it functions. Again, when all of this involves only paper, the system is a self-referential closed loop, but when the price of the only asset on central bank balance sheets becomes uncontrollable, either by design or by circumstance, the size of the paper trade becomes irrelevant ... valueless.

All that remains is the knock-on effect of real world physical prices for goods and services, food, energy, land - real things - relative to how currencies maintain their ability to purchase things other than pieces of paper with numbers and signatures printed on them that promise more pieces of paper based on relative changes of hypothetical conditions.

In the real world of the 98% this means hyper-inflation of currencies used to buy domestic and foreign goods and services. In the central banking 2% world it means a relative hyperinflation of their balance sheet paper, relative to their holdings of gold - the only non-paper asset held. If the derivative system fails to act as a pricing system for the real world, the real world wealth asset, freely traded against currencies, becomes the anchor which currencies are measured against, in order to provide a credible valuation system for the currencies - to re stabilize their relative international purchasing power.

Truly, in that time, the dollar does still retain some relative value, especially domestically - but as a global financial and monetary system, the dollar system becomes a relic, and the new gold basis equity system - with its SDR component - provides the only credible alternative to war and chaos, which is acceptable internationally.

So if that helps one to see the connection between a collective power play to "encourage" a free market price of gold, relative to existing currencies, then it would also help one to interpret the FEDs political and very public display of concern over JPM and BofA's derivative "wind down" capability.

Not only that, but it also fits perfectly with what has been predicted along the thoughts of another. If the dollar system truly becomes a barbarous relic, as the former gold standard had become, a free market gold standard, with no currency fixing, was long held to be the foundation of the new systemic standard, as wealth Giants had planned for decades ago, and have been preparing for ever since.


  1. So do you think that there might be some validity to Rickard's postulation that the next "system" will be the SDR with physical gold included in the basket?

  2. I think it could be a part of the system from a standpoint of replacing or altering the current FX regime. Certainly, there are those who want this, it is just a matter of whether there is consensus enough.

  3. I envision all four nations and EU, which currencies would be included in the SDR, would probably adopt a dual currencies system. The old fiat currencies would be significantly devalued as the new currencies, likely tie to the gold reserve of those five nation’s central banks, being created in the IMF as the components in the new global reserve currency – SDR.

    If an American wanted to buy a BMW after the reset with the old FRN dollar, he would need to convert the FRN to the new U.S.Treasury dollar, and then convert the new Treasury dollar to SDR. Listed price on all major foreign purchase would be denominated in SDR while domestic goods would be listed in FRN dollar.

    The old FRN would be totally back by our productivity and the new Treasury dollar would be partially back by whatever percentage of gold, which the IMF deem necessary in our central bank’s reserve, and the rest would be back by the old FRN.

    If our productivity diminished after the reset, then the percentage of gold has to increase to maintain the value of the new Treasury dollar in order to stay in the SDR pie.

    If we didn’t have enough gold to make up for our falling productivity, IMF would reduce the size of the Treasury dollar in the SDR.

    Now, please bear with me and allow me to put on the super size tin foil hat and take this to the extreme, if we lost all productivity and used up all of our gold, the IMF would eject the new Treasury dollar and introduce a new component like Russian ruble.

    I hope the American people understand that if Trump bought jobs back to America, that means we would have to be as competitive as the Germans or the Japanese, or our labours are as cheap as the Chinese, or we have as much gold as the Indians or oil like the Saudis.

  4. "The old FRN would be totally back by our productivity and the new Treasury dollar would be partially back by whatever percentage of gold, which the IMF deem necessary in our central bank’s reserve, and the rest would be back by the old FRN.

    If our productivity diminished after the reset, then the percentage of gold has to increase to maintain the value of the new Treasury dollar in order to stay in the SDR pie."

    If our productivity increased after the reset, then the percentage of gold would reduce to maintain the value of the new Treasury dollar. The only way to get gold is to either dig it up from the ground or earn SDR and convert it to one of the five currencies with the highest percentage of gold backing. This mechanism would drain the currency with poor productivity of its gold reserve.

  5. I would have to agree with David Stockman that the whole system is waiting for a " Black Swan" event. Should that not happen until after yuan is included in the basket, this is a plausible scenario.

    1. The CB's certainly do seem to levitate the equity markets beyond credibility ... but with paper as their weapon, all who honor the paper produce the ammunition of confidence.

      Will a black swan destroy confidence or will waning confidence be the black swan itself? It is guessing game where (IMHO) gold is the answer either way.