martedì 11 ottobre 2011

How State Banks Bring the Money Home



How State Banks Bring the Money Home

Big banks freeze out small business, but North Dakota’s state bank supports local jobs. The idea is catching on.
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mitchell.jpg-1
One of the most significant, but least noticed, consequences of the rapid and dramatic consolidation of the banking industry over the last decade is how much it has hindered the U.S. economy’s ability to create jobs.
To begin to understand this, take a look at each end of the banking spectrum. On one end are the nation’s 6,900 small, locally owned, community banks. These institutions control $1.4 trillion in assets. That’s 11 percent of all bank assets. They currently have $257 billion in loans to small businesses and farms on their books.
On the other end, four giant banks—JP Morgan Chase, Bank of America, Citibank, and Wells Fargo—now command $5.4 trillion in assets, or 40 percent of the total. Given that they are nearly four times as large as all local banks combined, one might expect that they would have made four times the small-business loans, or about $1 trillion. In fact, these banks have a mere $85 billion in small-business and farm loans on their balance sheets.
Why do giant banks make so few small-business loans? Automation is the short answer. The only way these sprawling institutions can function efficiently is by taking a mass production approach to lending: Plug credit score, income, and appraisal into the computer—out comes the loan. That’s why the mortgage business was supposed to be so safe. The economic meltdown of 2007 shows that it’s actually very risky.
North Dakota's struggling farmers, tired of being at the mercy of powerful out-of-state financial interests that controlled the availability and cost of credit, decided they needed a bank better aligned with their own interests.
Small-business loans are not so easily mechanized. Each is a custom job, requiring human judgment to evaluate the risk associated with a particular entrepreneur, a particular business plan, and a particular market. Community banks excel at this. Their lending decisions are made locally, informed by face-to-face relationships with borrowers and an intimate understanding of their hometown economies. Big banks, whose decision-making is long-distance and dictated more by computer models than judgment, are pretty bad at it. So they don’t make many small-business loans.
It’s no wonder, then, that unemployment has been so persistent. Our financial system is top-heavy with big banks that are scaled to meet the needs of large multinational corporations. The Commerce Department estimates that U.S.-based multinationals have eliminated 3 million American jobs over the last decade. Meanwhile, small businesses, historically responsible for about two-thirds of new jobs, have found it harder and harder to obtain credit.
In short, we have a financial system that is mismatched to the economic needs of American communities. This mismatch will become more acute as we attempt to transition to a carbon-efficient economy, which, by its very nature, will be the domain of small-scale enterprises: local food producers, community-owned windand solar electricity, neighborhood stores that provide goods within walking distance of homes, and so on. To take root, these businesses will need a robust array of community-based financial institutions capable of meeting their capital and credit needs.
State Banks graphic
What a State Bank Can Do for a State's Economy
Lots of lending by banks is a measure of a healthy economy.
1. Lending in North Dakota is consistently higher than nearby states that are economically similar. One reason? The support that the State Bank of North Dakota offers local banks.
2 That’s also why North Dakota has nearly double the number of banks per 100,000 than its neighbors, and more than four times the national average. 

State Partnership Banks

Home of Economy photo by Ellis Grafton
Photo by Ellis Grafton.
There’s no single solution to the thorny problem of how to restructure our financial system, but one of the most promising strategies involves creating state-owned banks that can bolster the lending capacity of local banks, helping them grow and multiply.
North Dakota is the only state, so far, that has a publicly owned bank. Founded in 1919, the Bank of North Dakota (BND) was a populist response to dynamics similar to those we face today. The state’s struggling farmers, tired of being at the mercy of powerful out-of-state financial interests that controlled the availability and cost of credit, decided they needed a bank better aligned with their own interests.
BND is wholly owned by the state, which deposits all of its money, except pension funds, with the bank. BND does not compete with local banks; it does not solicit retail banking business and has no branch offices or ATMs.
Instead, BND partners with local banks to expand their lending capacity. Much of BND’s $2.8 billion loan portfolio consists of “participation loans.” These are business loans originated by local banks, which then invite BND to finance a portion of the loan (and share part of the risk). This enables local banks to make more loans and maintain more diverse portfolios.
Thanks largely to BND, North Dakota has a more robust community banking network than any other state. It has 35 percent more local banks per capita than South Dakota and four times as many as the U.S. average. Small local banks account for 60 percent of deposits in North Dakota, compared to only 16 percent nationally.
Inspired by the North Dakota model, activists and small-business owners in more than a dozen states backed bills this year to create state-owned banks.
Over the last decade, lending by North Dakota’s local banks has averaged about $12,000 per capita (plus about $2,400 in participation lending by BND), compared to just $3,000 for community banks nationally. BND has also enabled local banks to maintain a higher loan-to-asset ratio than their counterparts in other states, which means they devote more of their assets to productive lending, rather than safer holdings like U.S. securities.
Although BND has some loan programs that accept a higher risk or lower return to meet specific economic objectives, such as its Beginning Entrepreneur Loan Guarantee Program, the vast majority of its lending decisions are made on a for-profit basis. It participates only in loans that make economic sense. As a result, BND has pumped $300 million in profit into the state’s general fund over the last decade. (In a state like Illinois that has a population of 13 million, the equivalent return would be about $6 billion.)
U.S. Treasury, photo by Ryan MacFarland
The Public Banking Revolution

From California to Washington, more articles on what state banks could mean for a new economy.
Inspired by the North Dakota model, activists and small-business owners in more than a dozen states, including Oregon, Maine, Massachusetts, Montana, and Washington, backed bills this year to create state-owned banks. Although none of these bills passed on the first round, they did pick up a remarkable amount of support from lawmakers, given how unfamiliar most people, including most local bankers, are with BND.
To help educate lawmakers and counter misinformation put out by big-bank lobbyists, the Center for State Innovation has produced several reports analyzing how a public bank would function in various states. Its analysis of Oregon, for example, concluded that a state bank would help local banks expand lending by $1.3 billion, leading to 5,391 new small-business jobs in its first three to five years.
Many of these states, and others, are likely to take up the state bank idea again in the coming months. Although opponents like to suggest that these proposals would simply create yet another (unnecessary) state loan fund, the real power of a state bank lies not so much in its own lending, but rather in its capacity to support local banks and remake the financial landscape to better meet the needs of small businesses and communities.

Stacy Mitchell wrote this article for New Livelihoods, the Fall 2011 issue of YES! Magazine. She is a senior researcher with the Institute for Local Self-Reliance’s New Rules Project, where she heads up initiatives on community banking and independent business. Her latest book is Big-Box Swindle: The True Cost of Mega-Retailers and the Fight for America’s Independent Businesses.
Interested?

lunedì 10 ottobre 2011

Italy: Preparing a financial GOLPE


Preparing a financial coup

Italian Premier Silvio Berlusconi sees conspiracies everywhere. The communists - not the real ones as these are thin on the ground these days - can be found in parliament, in the international press and, above all, in the judiciary. The "red magistrates" are apparently hounding Berlusconi in court cases over corruption, tax fraud, abuse of power and paying for sex with a minor. This week he put his finger on a new, much more real conspiracy.
Rome has been under growing pressure for the size of Italy's public debt - more than €1.9 trillion (£1.6 trillion) or 120 per cent of gross domestic product, making it the second largest in the region after Greece - and the billionaire media magnate's inability to reassure international investors holding Italian treasury bonds that he can actually reduce it. Measures taken since the summer to shore up the country's finances have relied almost exclusively on spending cuts and taxes on the working and middle classes who keep Main Street in business. Growth, which could make a major contribution to cutting the debt, remains anaemic.
The thing about Italy, Europe's fourth largest economy, is that unlike Greece it is too big to fail. And that's really scaring other European governments and the institutions like the IMF, European Central Bank and European Commission that might be called upon to bail it out.
This week's downgrade over three levels to A2 from AA2 by credit agency Moody's - which warned that further downgrades of Italy were possible - and the rapidly unfolding meltdown of the global, but especially European, banking system is adding to investor worries.  Berlusconi, once highly favoured for keeping the left out of power and his promises of injecting dynamism in the Italian economy, is now considered very much part of Italy's international credibility problem. One leading Italian economist Tito Boeri has calculated that since this summer, his disastrous premiership has cost the country €20bn.
Berlusconi's former allies in the business world, from Confindustria  president Emma Marcegalia, to Fiat CEO Sergio Marchionne have deserted him. So too has conservative press - the bit that he doesn't already own.
"We are neither credible nor serious. Nobody invests in Italy anymore. And who lends to us wants usurious rates," said Ferruccio de Bortoli, editor of Corriere della Sera in a front page commentary of Wednesday.
But most seriously for Berlusconi is the collapsing support within his own political party, including his Finance Minister Giulio Tremonti, who suggested days ago that it was time for a new government. "The time has come for a handover," added Santo Versace, an MP who quit Berlusconi's People of Freedom Party last week.
A handover won't come through elections though, as these may result in Italians choosing to deal with their sovereign debt crisis in unpredictable ways, like conducting a debt audit to decide what part of the debt is legitimate, or to recover hundreds of billions of euros stolen every year from the Italian state by cracking down on corruption, organised crime, tax evasion, avoidance and other legal forms of financial treason.
Instead, just as in the 1990s when the Italian people were made to pay down debts they didn't create to prepare for entry into Europe's single currency, the plan is to put in place a technocratic government, possibly headed by former European Commissioner Mario Monti. To restore the nation's finances, Monti and other faceless technocrats could then implement more drastic welfare and public spending cuts. Along with structural reforms, these could include opening up new areas of public activity to profit and cuts to pensions and employment rights, ensuring that, as the unions have been saying, the same old people pay the bill.
These plans to curtail Italian sovereignty and democracy come after the European Central Bank (ECB) ordered the Italian government in August to implement "a comprehensive, far-reaching and credible reform strategy," a strategy that was spelled out in some detail by the Frankfurt-based central bank governor. The enforced measures were in return for the ECB purchasing Italian government bonds - debt.
Many Italian MPs - a high number of whom are former businessmen with continuing strong links to the international corporate world - will swing behind this technocratic administration, including the opposition centre-left "Democrats."
The plan, says Berlusconi in his usual conspiratorial tone, is a "financial coup."
And although I don't believe in conspiracies, or indeed much said by Italy's PM, he's absolutely right on this one.

Tom Gill writes for the Morning Star, where this article first appeared. The photo is by Roberto Gimmi. 

Panic of the Plutocrats - by Krugman


OP-ED COLUMNIST

Panic of the Plutocrats




It remains to be seen whether the Occupy Wall Street protests will change America’s direction. Yet the protests have already elicited a remarkably hysterical reaction from Wall Street, the super-rich in general, and politicians and pundits who reliably serve the interests of the wealthiest hundredth of a percent.

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And this reaction tells you something important — namely, that the extremists threatening American values are what F.D.R. called “economic royalists,” not the people camping in Zuccotti Park.
Consider first how Republican politicians have portrayed the modest-sized if growing demonstrations, which have involved some confrontations with the police — confrontations that seem to have involved a lot of police overreaction — but nothing one could call a riot. And there has in fact been nothing so far to match the behavior of Tea Party crowds in the summer of 2009.
Nonetheless, Eric Cantor, the House majority leader, has denounced “mobs” and “the pitting of Americans against Americans.” The G.O.P. presidential candidates have weighed in, with Mitt Romney accusing the protesters of waging “class warfare,” while Herman Cain calls them “anti-American.” My favorite, however, is Senator Rand Paul, who for some reason worries that the protesters will start seizing iPads, because they believe rich people don’t deserve to have them.
Michael Bloomberg, New York’s mayor and a financial-industry titan in his own right, was a bit more moderate, but still accused the protesters of trying to “take the jobs away from people working in this city,” a statement that bears no resemblance to the movement’s actual goals.
And if you were listening to talking heads on CNBC, you learned that the protesters “let their freak flags fly,” and are “aligned with Lenin.”
The way to understand all of this is to realize that it’s part of a broader syndrome, in which wealthy Americans who benefit hugely from a system rigged in their favor react with hysteria to anyone who points out just how rigged the system is.
Last year, you may recall, a number of financial-industry barons went wild over very mild criticism from President Obama. They denounced Mr. Obama as being almost a socialist for endorsing the so-called Volcker rule, which would simply prohibit banks backed by federal guarantees from engaging in risky speculation. And as for their reaction to proposals to close a loophole that lets some of them pay remarkably low taxes — well, Stephen Schwarzman, chairman of the Blackstone Group, compared it to Hitler’s invasion of Poland.
And then there’s the campaign of character assassination against Elizabeth Warren, the financial reformer now running for the Senate in Massachusetts. Not long ago a YouTube video of Ms. Warren making an eloquent, down-to-earth case for taxes on the rich went viral. Nothing about what she said was radical — it was no more than a modern riff on Oliver Wendell Holmes’s famous dictum that “Taxes are what we pay for civilized society.”
But listening to the reliable defenders of the wealthy, you’d think that Ms. Warren was the second coming of Leon Trotsky. George Will declared that she has a “collectivist agenda,” that she believes that “individualism is a chimera.” And Rush Limbaugh called her “a parasite who hates her host. Willing to destroy the host while she sucks the life out of it.”
What’s going on here? The answer, surely, is that Wall Street’s Masters of the Universe realize, deep down, how morally indefensible their position is. They’re not John Galt; they’re not even Steve Jobs. They’re people who got rich by peddling complex financial schemes that, far from delivering clear benefits to the American people, helped push us into a crisis whose aftereffects continue to blight the lives of tens of millions of their fellow citizens.
Yet they have paid no price. Their institutions were bailed out by taxpayers, with few strings attached. They continue to benefit from explicit and implicit federal guarantees — basically, they’re still in a game of heads they win, tails taxpayers lose. And they benefit from tax loopholes that in many cases have people with multimillion-dollar incomes paying lower rates than middle-class families.
This special treatment can’t bear close scrutiny — and therefore, as they see it, there must be no close scrutiny. Anyone who points out the obvious, no matter how calmly and moderately, must be demonized and driven from the stage. In fact, the more reasonable and moderate a critic sounds, the more urgently he or she must be demonized, hence the frantic sliming of Elizabeth Warren.
So who’s really being un-American here? Not the protesters, who are simply trying to get their voices heard. No, the real extremists here are America’s oligarchs, who want to suppress any criticism of the sources of their wealth.

Paul Leads Hearing On First Ever Audit Of Fed


Ron Paul Leads Hearing On First Ever Audit Of Fed







“Would it be much of a problem if we were doing this every year?”
Steve Watson
Infowars.com
October 5, 2011
Ron Paul
Texas Congressman and 2012 presidential candidate Ron Paul held hearings Tuesday into a recent and rare one off audit of the Federal Reserve’s crisis-response emergency lending programs of 2008.
In his role as chairman of the Domestic Monetary Policy subcommittee, Paul relished the glimmer of transparency that was afforded as part of the Dodd-Frank Act, signed into law last year.
“More people now are starting to realize that the Fed isn’t independent of political independence because indirectly and some times more directly it is involved in political decisions or at least private decisions to serve some political interest.” Paul told those gathered at the hearing.
Along with Paul, Republicans in attendance argued that the audit should pave the way for regular reviews of the Fed’s policies, as well as more complete disclosure of exactly who has received upwards of $27 trillion in bail out funds since 2008.
“Would it be much of a problem if we were doing this every year?” Paul asked.
Robert Auerbach, Professor of Public Affairs at the University of Texas, backed Paul up by putting the case that regular and ongoing audits would not affect the Fed’s independence in any major way.
“The Fed’s mythical flag of independence from politics, a favorite Fed mantra to avoid individual responsibility, is merely a shield intended to protect the institution from being forced to act in a more transparent fashion,” Auerbach testified.
Rep. Blaine Luetkemeyer, Republican of Missouri, expressed concern that although the GAO’s audit authority is now expired, some banks and firms that “borrowed” from the Fed, and by extension the American taxpaying public, as part of the Bear Sterns and AIG relief packages, have yet to pay back the funds.
Luetkemeyer also noted that the one time GAO audit was extremely limited in its scope.
Nevertheless, the GAO’s report found several instances of conflicts of interest and questionable practices involving Fed officials.
It was also revealed that the Fed made $16.1 trillion in secret loans to Wall Street firms at the height of the crisis.
The full hearing, beginning with Ron Paul’s opening statement, can be viewed below:
Congressman Ron Paul also appeared on Freedom Watch yesterday to discuss the economic situation, urging that politicians in Washington are “not offering a prescription”.
  • “We have too much spending and too much debt, so they’re trying to solve the problem with more debt. There’s not a chance that we can get out of the recession this way.” Paul told host Judge Andrew Napolitano.
“The people here don’t want to change because they have been conditioned by Keynesian economics. Where I’m encouraged is that people outside this place are getting the message. The answers are well known but how do you translate this new message that we have of free markets and the constitution, and get the people that are managing the affairs now out of office?” the Congressman stated.
Paul added that as president he would implement some immediate measures that would cut the deficit and reduce spending in a meaningful way.
“Immediately you could bring all our troops home and have them spend money here at home, that would give us some reprieve. We could change our foreign policy and indicate to the world that we are going to get our budget under control.” Paul said.
“We could remove taxation on all the money that is held overseas by our corporations and not double tax them. We could remove the interest paid by the Federal Reserve to the banks. The banks won’t invest their money because it’s too risky, but the Federal Reserve gives them their money, essentially, for free, and then they invest it back into Treasury bills, so they help monetize the debt too.”
“Those are a few things, but sending a signal will be most important, ‘we’re going to quit this spending’. Right now I’m working on a plan where in one year I want to cut a trillion dollars.” Paul revealed.
“The appetite for big government is the problem. The taxes and the Federal Reserve inflating, that is the symptom, and the budget problem is a symptom of the appetite for big government.” Paul continued.
“Too often the leadership is only in the business of preserving power… It’s a shame that despite all this arguing and bickering going on between the two parties, there is no difference. Regardless of which party it is they still don’t change the definition of entitlements, they don’t change the foreign policy and they don’t go after the Fed.”
The Congressman also reiterated comments he made earlier in the week regarding the unconstitutional killing in Yemen of the American born cleric Anwar al-Awlaki.
Watch the interview:
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Steve Watson is the London based writer and editor for Alex Jones’ Infowars.net, and Prisonplanet.com. He has a Masters Degree in International Relations from the School of Politics at The University of Nottingham in England.

Financial Polarization and Corruption: Obama’s Politics


Financial Polarization and Corruption: Obama’s Politics of Deception
Don’t Let Him Get Away With It...

By Prof. Michael Hudson
Global Research, October 7, 2011

The seeds for President Obama’s demagogic press conference on Thursday were planted last summer when he assigned his right-wing Committee of 13 the role of resolving the obvious and inevitable Congressional budget standoff by forging an anti-labor policy that cuts Social Security, Medicare and Medicaid, and uses the savings to bail out banks from even more loans that will go bad as a result of the IMF-style austerity program that Democrats and Republicans alike have agreed to back.
The problem facing Mr. Obama is obvious enough: How can he hold the support of moderates and independents (or as Fox News calls them, socialists and anti-capitalists), students and labor, minorities and others who campaigned so heavily for him in 2008? He has double-crossed them – smoothly, with a gentle smile and patronizing patter talk, but with an iron determination to hand federal monetary and tax policy over to his largest campaign contributors: Wall Street and assorted special interests – the Democratic Party’s Rubinomics and Clintonomics core operators, plus smooth Bush Administration holdovers such as Tim Geithner, not to mention quasi-Cheney factotums in the Justice Department.
President Obama’s solution has been to do what any political demagogue does: Come out with loud populist campaign speeches that have no chance of becoming the law of the land, while quietly giving his campaign contributors what they’ve paid him for: giveaways to Wall Street, tax cuts for the wealthy (euphemized as tax “exemptions” and mark-to-model accounting, plus an agreement to count their income as “capital gains” taxed at a much lower rate).
So here’s the deal the Democratic leadership has made with the Republicans. The Republicans will run someone from their present gamut of guaranteed losers, enabling Mr. Obama to run as the “voice of reason,” as if this somehow is Middle America. This will throw the 2012 election his way for a second term if he adopts their program – a set of rules paid for by the leading campaign contributors to both parties.
President Obama’s policies have not been the voice of reason. They are even further to the right than George W. Bush could have achieved. At least a Republican president would have confronted a Democratic Congress blocking the kind of program that Mr. Obama has rammed through. But the Democrats seem stymied when it comes to standing up to a president who ran as a Democrat rather than the Tea Partier he seems to be so close to in his ideology.
So here’s where the Committee of 13 comes into play. Given (1) the agreement that if the Republicans and Democrats do NOT agree on Mr. Obama’s dead-on-arrival “job-creation” ploy, and (2) Republican House Leader Boehner’s statement that his party will reject the populist rhetoric that President Obama is voicing these days, then (3) the Committee will get its chance to wield its ax and cut federal social spending in keeping with its professed ideology.
President Obama signaled this long in advance, at the outset of his administration when he appointed his Deficit Reduction Commission headed by former Republican Sen. Simpson and Rubinomics advisor to the Clinton administration Bowles to recommend how to cut federal social spending while giving even more money away to Wall Street. He confirmed suspicions of a sellout by reappointing bank lobbyist Tim Geithner to the Treasury, and tunnel-visioned Ben Bernanke as head of the Federal Reserve Board.
Yet on Wednesday, October 4, the president tried to represent the OccupyWallStreet movement as support for his efforts. He pretended to endorse a pro-consumer regulator to limit bank fraud, as if he had not dumped Elizabeth Warren on the advice of Mr. Geithner – who seems to be settling into the role of bagman for campaign contributors from Wall Street.
Can President Obama get away with it? Can he jump in front of the parade and represent himself as a friend of labor and consumers while his appointees support Wall Street and his Committee of 13 is waiting in the wings to perform its designated function of guillotining Social Security?
When I visited the OccupyWallStreet site on Wednesday, it was clear that the disgust with the political system went so deep that there is no single set of demands that can fix a system so fundamentally broken and dysfunctional. One can’t paste-up a regime that is impoverishing the economy, accelerating foreclosures, pushing state and city budgets further into deficit, and forcing cuts in social spending.
The situation is much like that from Iceland to Greece: Governments no longer represent the people. They represent predatory financial interests that are impoverishing the economy. This is not democracy. It is financial oligarchy. And oligarchies do not give their victims a voice.
So the great question is, where do we go from here? There’s no solvable path within the way that the economy and the political system is structured these days. Any attempt to come up with a neat “fix-it” plan can only suggest bandages for what looks like a fatal political-economic wound.
The Democrats are as much a part of the septic disease as the Republicans. Other countries face a similar problem. The Social Democratic regime in Iceland is acting as the party of bankers, and its government’s approval rating has fallen to 12 percent. But they refuse to step down. So earlier last week, voters brought steel oil drums to their own Occupation outside the Althing and banged when the Prime Minister started to speak, to drown out her advocacy of the bankers (and foreign vulture bankers at that!).
Likewise in Greece, the demonstrators are showing foreign bank interests that any agreement the European Central Bank makes to bail out French and German bondholders at the cost of increasing taxes on Greek labor (but not Greek property and wealth) cannot be viewed as democratically entered into. Hence, any debts that are claimed, and any real estate or public enterprises given sold off to the creditor powers under distress conditions, can be reversed once voters are given a democratic voice in whether to impose a decade of poverty on the country and force emigration.
That is the spirit of civil disobedience that is growing in this country. It is a quandary – that is, a problem with no solution. All that one can do under such conditions is to describe the disease and its symptoms. The cure will follow logically from the diagnosis. The role of OccupyWallStreet is to diagnose the financial polarization and corruption of the political process that extends right into the Supreme Court, the Presidency, and Mr. Obama’s soon-to-be notorious Committee of 13 once the happy-smoke settles from his present pretensions.

Germany should bring its gold home


Lars Schall: Germany should end the secrecy and bring its gold home

 Section: 
By Lars Schall
Monday, October 10, 2011
The last duty of a central banker is to tell the public the truth.
-- Alan Blinder, vice chairman of the U.S. Federal Reserve, on the PBS "Nightly Business Report," 1994.
In recent months I have written to the Deutsche Bundesbank, the Federal Reserve Bank of New York, and the Board of Governors of the Federal Reserve System in Washington to ask questions about the gold reserves of Germany.
A critical problem with Germany's gold reserves, the second largest gold holdings in the world, is noted by Peter Boehringer of the German Precious Metals Society: "The bulk of Germany´s national gold is not in Germany and has not been since the 1960s, when Germany earned most of the gold through its trade surpluses, but is kept in New York and London and a little bit in Paris too. Even the Bundesbank itself has confirmed this part of the story several times -- and defended that storage policy with 'reasons of trading convenience and historical storage custom.'"
In fact, when asked about it, the Bundesbank has stated that it "needs to hold gold at the various trading centers in order to conduct its gold activities." (Seehttp://www.gata.org/node/7713.)
After the Bundesbank brushed off some specific questions of mine (see
http://www.gata.org/node/9363) and refused to communicate with me any further when I replied that its way of answering was largely a recycling of old phrases that had very little to do with my questions, I also endured silence from the Fed (see
http://www.larsschall.com/2011/05/02/the-sound-of-silence-from-the-fed/). Thus I did the last two things that were left for me to do in this matter: I wrote to the Bank of England and to the U.S. Treasury.
Let's see if my questions were legitimate.
But first let me tell you why Germany should have its gold at its own disposal on German soil. The reason is two-fold and involves a time frame of the present to 2025:
-- The future of Germany lies in eastern Eurasia. (Whether we like it or not is irrelevant.) Take a look at the energy situation from a German perspective and you'll see. Among the G20 nations, export powerhouse Germany should be one of the biggest energy-deficit nations, enormously dependent on ever-increasing imports of Russian energy. But Russia as an energy exporter will focus more on the Pacific region in the years to come (especially via the East Siberia-Pacific Ocean pipeline and the ultramodern Kozmino oil terminal). By doing so, Russia can demonstrate both its growing independence from Europe and its growing ability to use its oil and natural gas muscle in a way that soon won't be a bluff anymore. My friend Max Keiser described the context well: "To fight the currency war the Germans will have to buy physical gold in the open market or strike deals with countries like China, Russia, and Iran."
Keep in mind here not only that the region of the members of the Shanghai Cooperation Organization (SCO) and the Association of Southeast Asian Nations (ASEAN) "account for a significant share of global gold production," as Vienna-based commodities analyst Ronald Stoeferle points out, (see Footnote 1) but also that the central banks of Russia and China are big buyers of gold, while Western central banks are not, even though the latter are selling less gold these days. And the members of SCO and ASEAN won't pay forever for what Peter Dale Scott calls the "American war machine." (See Footnote 2.)

-- I believe that the time will come when oil-producing countries and other natural resource exporters will no longer sell their commodities for paper money but only for precious metals. The age of cheap and abundant oil and natural ressources is over and with it the age of "expensive real values for cheap paper promises." As geopolitical analyst James G. Rickards says:
"This is all part of an evolution away from the U.S. dollar. It has a number of ways to go. I do think that what may happen is that gold will be used as a pricing mechanism. In other words, Middle Eastern and Russian natural resource exporters may begin to price their goods in units of gold while still accepting dollars, but the problem, of course, is that the amount of dollars won't be fixed. A simple example: Right now oil is around $100 a barrel and gold is around $1,500 an ounce, so it takes 15 barrels of oil to purchase one ounce of gold.
"If you look at the oil-to-gold ratio it has been very constant for a very long time. Of course the price of oil has moved between $30 per barrel and $150 per barrel, and the price of gold has moved between $200 an ounce and $1,500 an ounce, but if you look at the ratio, it always hovers around that 15-1 or 16-1 ratio, and that tells you something about the real intrinsic value of commodities.
"But you could have a situation where somebody in Saudi Arabia says: 'From now on a barrel of oil will be 1/15 of an ounce of gold. Now if you want to pay me in dollars, that's fine, but you have to do the dollar-gold conversion (to figure out how many dollars you owe me in a world of an increasing gold price), so you have to pay more dollars for a barrel of oil.' So even if the Saudis accept dollars, you can still have a world where oil is priced in gold but gold is convertible to dollars and you can pay with dollars but you have to pay a lot more.
"I think that is one of a number of solutions on the table. Another one is of course the Special Drawing Right of the International Monetary Fund. The IMF is trying to promote the use of SDR as a basket of currencies. But none of this is feasible yet. It will require some years to study. It will require a conversion process and some pre-announcement for the market. But the bottom line on the whole thing is: The exporters of natural resources and manufactured goods in the Middle East, Russia, China, and Brazil all have indicated deep dissatisfaction with the current international monetary system and the role of the U.S. dollar in particular, so I think you will see some shifting away from that in the years ahead."
Or from GoldMoney founder James Turk about the use of dollar and gold in internationa commerce:
"That is a really good question, and it doesn't involve economics; it involves politics. Given the American influence in that part of the world from a military support point of view, something dramatic has to happen with the dollar before these countries abandon the dollar and go to gold. They should go to gold, because the link between gold and oil is quite clear: An ounce of gold buys the same amount of oil it did 50 years ago. But the political issues are clouding the economic and monetary issues. If the dollar collapses, you are going to see not just the countries in the Middle East but people around the world moving to gold and out of the dollar."
Of course, this switch won't come easily. Why? Because the elites all over the U.S.A. (and the 'fat cats' from Wall Street) have to be in the know -– when the petrodollar system (or, as David Spiro called it, the hidden hand of American hegomony" (see Footnote 3) will come to an end, they (and, unfortunately, the country that makes them rich and powerful) would finally burn at the stake of history. (Large quantaties of surplus dollars that have been circulating for decades outside the United States would find their way back inside the U.S., resulting in disastrous inflation. Do you think this is really an option for the elites?)
I would assume that the following is a much more appealing option, laid out by Rickards in an interview with King World News. (See
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/10/16_....)
Rickards said: "I think the paper dollar is on its way to collapse but that doesn't mean the end of the United States or U.S. power. What's really interesting to me is that the United States is an awesome gold power. We never talk about it because nobody ever wants to talk about gold -- no one in an official capacity. But if you think of the world in terms of oil reserves, and people have done that a lot over the last 30 years, you know about the role of OPEC and so forth. You divide the world into those that produce oil and those who consume oil. An awful lot of concern has gone into the oil industry and the movement of oil around the world. Well, think of gold the same way. Few people have ever done this.
"But when you start to think of the world in gold space instead of oil space, you quickly realize that the United States is the Saudi Arabia of gold. We have more than 8,000 tons -- more than any other country. The euro system has 10,000 tons. But that's a consortium of 16 members, 16 central banks, so it's Spain and Italy and Germany and the Netherlands and a number of other countries. It's not all on the books of the European Central Bank. In fact, relatively little is on the books of the ECB. Most of it is in the national treasuries of those countries. But, collectively, if they wanted to act as a unit, under the one currency banner, the euro, they;ve got 10,000 tons, so they're a gold power too.
"Russia is desperately short of gold. China is short of gold. India and Brazil are kind of pathetic. Japan and the UK are kind of pathetic. None of these countries has anywhere near the gold they need to support their money supply. So for the United States, just as we're a military superpower, we're also a gold superpower. We're also one of the 10 largest gold-producing countries in the world, producing approximately 200 tons a year out of a total global output of a little over 2,000 tons. So we're producing almost 10 percent of the world's gold output. We're a major producer and we're a major hoarder of gold.
"In addition there are more than 6,000 tons of foreign official gold stored in the United States that we could always convert if we wanted to. If that gold is at the Federal Reserve Bank of New York, the United States could just secure it. We could send in a military convoy and move it to West Point or some secure U.S .location and then just give the Europeans a receipt. So we could actually increase our gold supply to more than 14,000 tonnes very quickly.
"In a way, then, the Fed could afford to trash the paper dollar, or at least experiment and risk trashing the paper dollar, because if the paper dollar collapses, we could just go back to gold pretty easily. But the rest of the world can't, especially if we take their gold."
I don't want to see the approximately 66 percent of Germany's gold reserves held at the New York Fed to be dumped into the mouth of the "beast of corporatism" that the United States has become.
Thus, it is doubly important -- having at heart the best interests of the German people and fellow Europeans -- to have Germany's gold in physical form in Germany itself, and not just a receipt.
Take this exchange between Rickards and me:
"Mr. Rickards, a huge chunk of the foreign gold reserves located at the New York Fed belongs to Germany. What are your thoughts related to the German gold reserve in custody at the New York Fed? Let's assume you were the head of the Deutsche Bundesbank with the best interests of the German people in mind, and assuming that we're heading to a system of currencies backed by gold. What would you do in that respect?"
Rickards: "It depends on the German gold policy. If Germany wants to leave monetary policy to the United States and is willing to accept whatever policy plans the U.S. comes up with, Germany should probably leave the gold where it is. That is a question of confidence. But if Germany wants to pursue its own policies or perhaps have a more gold-backed euro or maybe even go back to a deutschmark, then they should bring the gold to Germany and store it in secure vaults under control of the Bundesbank. For as long as it stays in the United States, the gold is vulnerable to confiscation. So you really don’t have the control over your own monetary policy as long as your gold is in other hands. During the Cold War, given the Russian threat, I am sure it made sense to have the German gold in New York. But today I would be concerned more with the Federal Reserve's printing presses than with Russian tanks, and thus I would like to have the gold in Frankfurt."
And take this exchange between the financial journalist Nomi Prins and me:
"Officially, Germany has the second largest gold reserve of the world. Roughly 66 per cent of the total gold is located in the vaults of the New York Fed. Do you think that Germany should relocate its gold reserve from New York to Frankfurt just to be on the safe side?
Nomi Prins: "I wouldn't keep 66 per cent of my gold at the Fed." (Laughs.) "Yes. If I was Germany, and taking note of what is going on in the global economy, in the U.S. economy, and how the Fed is artificially propping things up, I would want to pull out my gold assets. I would want tangible physical assets in my possession. I don't see why the German central bank wouldn't want to do that. It just doesn't make sense to me."
With the euro being treated by a clueless intensive-care unit on a permanent life-support machine and the European Central Bank itself being a bad bank, I would sum up this way. During one of his more intelligent moments in public, former Fed Chairman Alan Greenspan remarked a few years ago: "Gold still represents the ultimate form of payment in the world. It is interesting that Germany in 1944 could buy materials during the war only with gold, not with fia, money paper. And gold is always accepted and is the ultimate means of payment and is perceived to be an element of stability in the currency and in the ultimate value of the currency and that historically has always been the reason why governments hold gold." (See Footnote 4.)
And now my questions.
Here is my e-mail to the Bank of England:
"Request re sovereign German gold at Bank of England.
"Dear Ladies and Gentlemen,
"My name is Lars Schall and I am a freelance journalist for finance from Germany. I have some simple questions for you, especially related to the sovereign gold reserves of the Deutsche Bundesbank that are placed in London. I forward them to you because the Deutsche Bundesbank itself wasn't very communicative in that regard to me. Chris Powell, the secretary of the Gold Anti-Trust Action Committee (GATA), wrote about this behavior as follows (http://www.gata.org/node/9363):
'The Bundesbank's refusal to answer Schall's questions can only heighten suspicion that use of German gold is central to the gold price suppression policy undertaken largely surreptitiously by the Federal Reserve, U.S. Treasury Department, and Bank of England.'
"So I thought you may want to take the chance to debilitate this suspicion as far as the Bank of England is concerned. I can imagine that the Bank of England could have an interest in reconnoitering some 'misunderstandings.'
"With regard to the gold deposits in New York City and London, the Deutsche Bundesbank told me among other things:
"'Particularly with respect to the confidential nature of information about where gold holdings are kept, we are unable to go into any greater detail concerning exact locations and the quantities stored at each of these. Likewise, owing to the strategic nature of the activity, we are not at liberty to provide you with more detailed information about gold transactions.'
"The Bundesbank also stated in the past (see http://www.gata.org/node/7713) that 'the Bundesbank needs to hold gold at the various trading centers in order to conduct its gold activities.'
"Therefore, my questions for you are:
"-- Can you confirm that you are engaged with the Deutsche Bundesbank in strategic activities in the gold market, in particular when it comes to the sovereign gold of Germany that is located in London?
"-- Given that London is a large gold trading center, do you help the Deutsche Bundesbank with conducting its confirmed gold activities? If not, why is the gold then located at the gold trading center, London? In other words, if these are strictly reserves, no trading, correct?
"-- Furthermore, do you have any swap arrangements with the Deutsche Bundesbank related to the German gold reserves that are located in the United Kingdom?
"-- If the answer to the latter is yes, for what reason do you need a swap arrangement with the Deutsche Bundesbank related to its gold in the United Kingdom -- or any other foreign central bank or foreign gold reserves -- at all, if you actually have one or would seek one?
"-- Do you keep any gold-related records away from the public? In other words, if yes: What sort of gold-related records are barred from disclosure? Is nearly everything gold-related secret as far as the Bank of England is concerned?
"-- In the past the Bundesbank stated with regard to the German gold reserves abroad 'that transportation to Germany and safekeeping in the Bundesbank's own vaults would entail high costs.' Can you explain why it costs less to keep the gold safe in London at the Bank of England than in Frankfurt or Mainz?
"-- Moreover, according Dimitri Speck's book, "Geheime Goldpolitik" ("Secret Gold Policy"), published by Finanzbuch Verlag in Munich 2010, the German gold in custody in London is approximately 21 percent (+/- 5 percent) of the official German gold holdings of 3.401 tonnes. (See Page 86 of the book.) Can you confirm that? You see, the difficulty I have is this: According to Folker Hellmeyer, chief analyst with Bremer Landesbank, large parts of the German gold reserves were shifted from London to Frankfurt. Hellmeyer says this on the grounds of his experience at the Helaba (Landesbank of Hesse-Thuringia). Can you confirm his statement that a good portion was relocated? If so, how much was relocated? In other words, what is your official statement of how much sovereign German
gold is actually in British custody?
"-- My last question: If the Deutsche Bundesbank decided to shift large parts or the full amount of the German gold reserves away from London, would you perceive this as an expression of loss of confidence by the German side in the Bank of England?
"Thank you very much for your attention!"
"Best regards, Lars Schall."
As a second e-mail I wrote the following to the Bank of England after my friend Rob Kirby made me aware of something:
"Request re sovereign German gold at Bank of England No. 2."
"Dear Ladies and Gentlemen,
"For your 'swap answer' in order to reconnoiter some 'misunderstandings,' please take a look at this essay written by the Canadian financial analyst Rob Kirby in 2006:
"http://www.safehaven.com/article/6115/a-swap-story-borrowed-from-the-bank-of-england"
"This got Kirby 'thinking about things like former British Chancellor Gordon Brown and his well-publicized sale of 60 percent of the British gold reserves at less than $300 per ounce and the make-up of Britain's remaining gold reserves."
"Do you have an answer, ladies and gentlemen?
"Moreover, 'in doing a bit of research about the makeup of Britain's sovereign gold reserve, I ran across this tidbit [footnote on the bottom of Pages 5 of 8 of the pdf file] regarding different types of gold swaps that the Bank of England presumably utilizes: 'Under a gold location swap, gold stored in a particular physical location is swapped with a market counterparty for specified period with gold stored in another physical location. Under a gold quality swap, gold of a particular quality [fineness] is swapped with a market counterparty for a specified period with gold of different fineness. In each case a fee is built into the transaction.'
"Question: what is a 'gold quality swap'?
"Kirby said: 'Given the amount of research I've done in this area, I would only offer that this would make a gold quality swap a 'rare bird' indeed. But this got me to thinking WHO could possibly be involved in such a transaction if one were to occur.'
"'And with inclusion in these footnotes, they do occur. ...
"'Fundamentally, a gold quality swap would allow the holder of 'less than fine' bullion to effectively sell or transact it publicly and remain anonymous. All gold coin melt just happens to be 22-carat. Who would possibly care about such a thing? After all, central banks have declared gold to be a barbarous relic and sell it all the time -- and usually have news conferences to pre-announce upcoming sales to boast about them, don't they? So why would a sale of 'less than pure' gold need to be kept a secret? The 'best fit' counterparty is: the U.S. Treasury or Federal Reserve was the other side of these trades. In fact, they are the most plausible counterparty for such a transaction -- arising from the great confiscation of gold coin in the United States in 1933.“
"Mr. Kirby added:
"'Regarding gold quality swaps conducted by the Bank of England, my thought then and now is that gold reserves yet to be mined are likely involved here. After all, a deposit of 3.401-compliant reserves is gold 'of a different fineness than .999 pure LBMA good-delivery gold, isn't it?'
"What is your take?"
"Best regards, Lars Schall."
The press office of the Bank of England sent me an answer that said at the beginning: "Not for quotation or attribution." Thus I am obliged not to quote the answer. But I certainly can say that the Bank of England refused to answer my questions.
And here is my e-mail to the U.S. Treasury:
"Request re Exchange Stabilization Fund."
"Dear Ladies and Gentlemen and dear Ms. Alaimo,
"My name is Lars Schall and I am a freelance journalist for finance from Germany. I have three simple questions for you related to a rather mysterious topic:
"Swap arrangements between the Exchange Stabilization Fund and the Deutsche Bundesbank, respectively the national German gold reserves that are placed in the United States of America.
"Due to the fact that in the past:
"a) the Deutsche Bundesbank, the Federal Reserve Bank of New York, and the Federal Reserve System's Board of Governors in Washington treated my public requests in that regard not very well; and:
"b) since the Exchange Stabilization Fund is the entity that is involved with gold market operations on behalf of the U.S. Treasury (and to a lesser extent on behalf of the Federal Reserve), I would like to ask you now for some clarifications, please:
"1) Regarding the swap arrangement that was acknowledged / mentioned during the Federal Open Market Committee meeting in January 1995 (see FOMC19950201meeting.pdf / Page 125) between the ESF and the Deutsche Bundesbank, is this strictly a swap arrangement related to foreign currency / exchange?
"2) Do you have any swap arrangements with the Deutsche Bundesbank related to the German gold reserves that are located in the United States?
"3) For what reason do you need a swap arrangement with the Deutsche Bundesbank related to its gold in the U.S. -- or with any other foreign central bank / foreign gold reserves -- if you actually have one or would seek to get one? (See the minutes of the FOMC meeting in January 1995
FOMC19950201meeting.pdf / Page 69, the remarks by Mr. Mattingly.)
"Thank you for your attention!
"Best regards, Lars Schall."
I'm still waiting for a reply to this one.
By the way, after I heard nothing from the New York Fed and Federal Reserve in Washington, I asked GATA Chairman Bill Murphy about it.
Murphy replied: "I think their lack of response and lack of denial -- I mean, that's pretty simple to deny, really simple -- that they haven't come back to you at all is indicative of the answer."
I should point out that central banks the world over have always been afraid or reluctant to provide transparency about issues concerning gold. Consider GATA board member Ed Steer's brilliant essay, “When Irish Eyes Are Smiling,“ in which he outlines how Canada's gold was "mobilized" to "assist" in taking down the Soviet Union:
And Dana Allen's related essay, "How the Soviet Empire's Fall was Engineered":
If you have never heard that the foreign exchange income of the Soviet Union was reduced by driving down the price of both oil and gold during the Reagan administration, and how those prices had been "managed," read those essays by Steer and Allen. They tell the truth.
* * *
FOOTNOTES:
1. The Shanghai Cooperation Council consists of China, Russia, Kazakhstan, Kyrgyzstan, Tadzhikistan, and Uzbekistan, and states holding observer status: Mongolia, India, Pakistan, and Iran. Partners in dialogue are also Belarus, Afghanistan, Turkmenistan, and the Association of Southeast Asian Nations, ASEAN.
2. Compare for the status quo Michael Hudson's "America's Military Expansion Funded by Foreign Central Banks." published at Global Research on April 12, 2011:
For the term "American War Machine" compare Peter Dale Scott: "American War Machine. Deep Politics, the CIA Global Drug Connection, and the Road to Afghanistan," Rowman & Littlefield, 2010.
3. Compare David E. Spiro: "The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets," Cornell University Press, Ithaca, 1999.
4. Then-Federal Reserve Chairman Alan Greenspan, in an exchange with U.S. Rep. Ron Paul, in "The Architecture of International Finance," testimony by Greenspan and Treasury Secretary Robert Rubin before the Committee on Banking and Financial Services, U.S. House of Representatives, May 20, 1999.
For the historical fact that the Allied Powers were not reluctant to make "business as usual" before and during World War II with Nazi Germany, compare the history of the Bank for International Settlements in Basel, Switzerland, in Charles Higham's "Trading with the Enemy. The Nazi-American Money Plot 1933 – 1949," iUniverse Inc., Lincoln, 1983, 2007, pp. 1–19, Chapter 1: "A Bank for All Reasons."
5. Related to the complex "oil price / collapse of the USSR," compare, for example, James R. Norman: "The Oil Card. Global Economic Warfare in the 21st Century," Trine Day, Walterville, 2008, and Peter Schweizer: “Victory: The Reagan Administration's Secret Strategy that Hastened the Collapse of the Soviet Union," The Atlantic Monthly Press, New York, 1994.
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Lars Schall is a freelance journalist in Germany. He can be reached at larsspeschall@yahoo.de.