Saturday, October 11, 2008
Central Bankers at Work
"Central banks may be starting to turn to one of the few assets in which they can invest: gold. ... But the amount sold has been dwindling of late, and banks are now far more likely to be holders of gold, analysts note. Nonsignatories--and especially Asian banks--are seen as keen buyers. ... Chinese officials have already said they view gold as a strategic asset and would like to diversify their foreign-exchange reserves away from the dollar. ... The U.S. is at the top of the list of official holders, It holds 78.2% of its reserves in gold, which is about 8,133.5 tons of gold. ... But even central banks that signed on to the sales program are starting to publicly state ther value of gold in their portfolios", Andrea Hotter and Matt Whittaker at the WSJ, 22 September 2008.
"The Reserve Bank of Australia sold US$10 billion in a 28-day repurchase operation Friday while the South Korean government said it plans to lend an identical amount in a currency swap as part of its efforts to boost U.S. dollar liquidity in the Asian region. The moves extend recent coordinated moves by the world's central banks and governments to counter growing U.S. dollar scarcity in markets as the crisis in the U.S. banking system has worsened. ... The South Korean government will tap its $55 billion foreign-currency equlibrium fund in what will be its largest-ever intervention in the foreign-exchange swap market. 'We will inject at least $10 billion and more if necessary to help stabilize the market,' said Choi Jongku, director general of the international finance bureau at the ministry of strategy and finance", James Glynn at the WSJ, 27 September 2008.
"Ireland took the extraordinary step of guaranteeing all the debt of its top six financial institutions, while governments in Europe bailed out another major lender and central banks in Asia injected cash into their banking systems, as the ripple effects of the U.S. financial crisis intensified around the world. ... Meanwhile, French-Belgium bank Dexia SA became the fifth European financial institution to succumb to a bailout or nationalization since Sunday. ... Overnight dollar Libor jumped to 6.88% from 2.57%, its largest one-day rise ever. Three-month dollar Libor climbed to 4.05% from 3.88% ... The bold moves by European governments could stir controversy: Stepping in with government guarantees to restore confidence could cost taxpayers billions of dollars, a factor that also gave U.S. lawmakers pause. ... The U.K. also was considering new moves to reassure borrowers, amid worries Ireland's action could send deposits there. Prime Minister Gordon Brown noted a banking bill to be put before Parliament would raise deposit guarantees to L50,000 ($88,890) from L35,000--still short of Ireland's move, which removes the upper limit on guaranteed deposits. ... In India, the central bank stepped in Tuesday to stop a run on the country's second-largest bank by deposits, ICICI Bank Ltd., by promising to pump in cash. ... Hong Kong Monetary Authority Chief Executive Joseph Yam spoke on Tuesday of the need to 'stand between various banks and to cycle liquidity from those who have it to those who want it'," my emphasis, WSJ, 1 October 2008.
Let's see, 8,133.5 tons is 261.5 million ounces, which is worth $229.6 billion at $878 per ounce. Since this may be the only asset the "Fed-Treasury" has which is worth anything, gold is going a lot higher. Just wait. $229.6 billion is inadequate to bail out Wall Street. We know because Henry Paulson wants more.
What's going on here? Is the US dollar being supported by Australia and Korea?
Isn't central banking fun? I remember once reading an interview with Bobby Fischer, (BF) chess champion. BF was asked why he liked playing chess. BF's answer, "Because I like to see my opponents squirm". Isn't watching the world's central bankers squirm fun? In 1971 when Nixon removed the last US dollar tie to gold, he said, "We are all Keynesians now". Perhaps our central bankers' cry should be, "We are all Marxists now". Marx said, "from each according to his ability, to each according to his need".