By Dominique de Kevelioc de Bailleul
As a post-Lehman solution to the Western world, which suddenly found itself drowning in debt, drags well into year three, speculation of an inevitable endgame to Kondratiev’s Winter of discontent is coming more into focus.
Federal Reserve Governor Thomas Hoenig, World Bank President Robert Zoellick, Grant’s Interest Rate Observer Publisher Jim Grant and Currency Wars author Jim Rickards, among others, have proposed the idea that the only responsible solution to mountains of unserviceable debt requires backing, at some level, the world’s reserve currencies with gold. Sign-up for my 100% FREE Alerts
The outspoken and constant thorn in Fed Chairman Bernanke’s side, Hoenig, shocked the officialdom with a suggestion that if the Fed is serious about achieving ‘price stability’, it would mandate a reintroduction of gold into the global monetary system.
“The gold standard is a very legitimate monetary system…We’re not going to have fewer crises necessarily,” Hoenig said in a Jan. 5, 2011 speech. “You will have a longer period of price stability or price level stability, but I don’t know that you’ll have lower unemployment, I don’t know that you’ll have fewer bank failures.”
Again, this time, at the global level, in Nov. 2011, Zoellick controversially broke the ice to an open discussion about gold in an article published by the Financial Times of London. He called for a Bretton Woods II.
Zoellick wrote: The international monetary system “is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalization and then an open capital account,” adding, “The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.”
Taking the queue from Hoenig and Zoellick, Jim Grant’s well-known and thoughtful ‘voice of reason’ began echoing both bureaucrats, lending added credence and pressure from the respectable of the private sector to a notion that’s continually berated by the government bullpen of Keynesians at the Woodrow Wilson School.
“Why not issue bonds backed by gold bullion?” Grant suggested in a Bloomberg interview with Tom Keene on Feb. 14. “Gold is a better money and is grounded in something besides the power of the people that print the dollar bills.”
Jim Rickards, the man who points out that a global financial system which has been using BIS Special Drawing Rights (SDRs) behind the scenes in parallel with the dollar-based system to settle trade for some time now, said he expects monetary authorities will try an SDR scheme in an increasingly larger roll before central banks are forced into a more stable currency regime.
When will central banks be ultimately forced into a corner and succumb to the discipline inherent in some form of a gold-back monetary system?
James Sinclair of JSMineset.com offers a time line for the next ‘event’ and the ‘big reset’. This week, he drops a bombshell in an article to the gold community. In it, he said the next shock wave to the global financial system will take place some time, “in all probability,” between March 14th and 20th.
If Sinclair is correct, another Lehman calamity should finally put to rest any faint hope still lingering among the markets’ most optimistic of an euro solution.
Irrespective of the actual date of the Lehman 2.0, China may find it is in her best interest to intercede and cut a deal with the EU favorable to its export-based economic model. Additionally, all recipients of China’s potential trillion dollar largess will most likely need to pledge gold as collateral to any bailout from the PRC.
If a deal can be reached, Europe gets a reprieve for a while and China gets a badly-needed boost to its gold reserves (at default).
Since the latest tranche from the Troika for Greece included a clause requiring the Greeks to pledge its 111 tons of gold reserves, China will want and expect the same deal. Though not adequately reported, the deal reached this week in Athens hooked the nation’s ultimate reserve.
“Greek gold will be held hostage to their debt,” stated Sinclair.
Knowing that Portugal, Ireland, Spain and Italy (at the very least) will also require bailouts following Greece, their gold will most likely be pledged as collateral as well. Between these four other nations of the PIIGS, the tonnage available as collateral, are 382, 6, 281, 2,451, respectively, for a total of 3,120 tons. That 3,120 tons, too, as Sinclair has put it, “will be held hostage.”
Isn’t the installation of technocrats in Greece and Italy for the purpose of securing the gold? Will Portugal require a technocrat government as well?
But the ‘big reset’ won’t come this year, according to Sinclair, allowing more time for Germany, China and the US to secure the gold before ultimately pulling the plug on the PIIGS.
“I do not agree that we are at the doorstep now of major changes in the international monetary system,” Sinclair speculated. “That comes in June of 2015.”
Assuming Greece can be used as a model for subsequent sovereign defaults by other eurozone nations in the future, the question, then, is: will the gold price be officially revalued before the official defaults of nations that have pledged gold as collateral—or after? In other words, is a more diabolical version of 1933 planned for the PIIGS? Sign-up for my 100% FREE Alerts
“The last man standing among asset categories as the new monetary system is introduced sometime post June of 2015 will be gold and gold alone,” said Sinclair.