By Dominique de Kevelioc de Bailleul
Zerohedge.com once in a while posts a bombshell. The latest, This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied – The Sequel, proves once again that Trends Journal Founder Gerald Celente should top investors’ Google News alerts for his latest outlook and commentary.
“You don’t own your money unless you have it in your possession.
—Gerald Celente Nov. 2011 (following MF Global’s sudden bankruptcy, Oct. 31)
And to put some official sanction to an already corrupt banking system, the safest of safe assets, cash, will shockingly turn out to be not safe after all when the big reset nears. In fact, cash, too, will be confiscated through, maybe, another Obama Executive Order, more un-prosecuted fraud and consolidation to benefit JP Morgan, or just an old-fashion overnight currency devaluation, which is usual and customary—and is, presently, the odds on favorite after all attempts by the Fed to jury-rig the banking system fails.
As the following excerpts of the NY Fed proposal to Bernanke and Co. reveals, plans for coping with a banking crisis in the U.S. via some form of dollar devaluation are underway, including capital controls to stem a bank run—of course. Therefore, it’s necessary to make changes to Money Market Rule 2a-7.
Title: The Minimum Balance At Risk: A Proposal to Mitigate the Systemic Risks Posed by Money Market Funds
. . . This paper proposes another approach to mitigating the vulnerability of MMFs to runs by introducing a “minimum balance at risk” (MBR) that could provide a disincentive to run from a troubled money fund. The MBR would be a small fraction (for example, 5 percent) of each shareholder’s recent balances that could be redeemed only with a delay. The delay would ensure that redeeming investors remain partially invested in the fund long enough (we suggest 30 days) to share in any imminent portfolio losses or costs of their redemptions. However, as long as an investor’s balance exceeds her MBR, the rule would have no effect on her transactions, and no portion of any redemption would be delayed if her remaining shares exceed her minimum balance. [her? Politically-correct thieves.]
The motivation for an MBR is to diminish the benefits of redeeming MMF shares quickly when a fund is in trouble and to reduce the potential costs that others’ redemptions impose on non-redeeming shareholders. Thus, the MBR would be an effective deterrent to runs because, in the event that an MMF breaks the buck (and only in such an event), the MBR would ensure a fairer allocation of losses among investors.
Importantly, an MBR rule also could be structured to create a disincentive for shareholders to redeem shares in a troubled MMF, and we show that such a disincentive is necessary for an MBR rule to be effective in slowing or stopping runs. In particular, we suggest a rule that would subordinate a portion of a redeeming shareholders’ MBR, so that the redeemer’s MBR absorbs losses before those of non-redeemers. Because the risk of losses in an MMF is usually remote, such a mechanism would have very little impact on redemption incentives in normal circumstances. However, if losses became more likely, the expected cost of redemptions would increase. Investors would still have the option to redeem, but they would face a choice between redeeming to preserve liquidity and staying in the fund to protect principal. Creating a disincentive for redemptions when a fund is under strain is critical in protecting MMFs from runs, since shareholders otherwise face powerful incentives to redeem in order to simultaneously preserve liquidity and avoid losses. . .
Importantly, an MBR rule also could be structured to create a disincentive for shareholders to redeem shares in a troubled MMF, and we show that such a disincentive is necessary for an MBR rule to be effective in slowing or stopping runs. . .
. . . if losses became more likely, the expected cost of redemptions would increase.
[emphasis added to the above text]
And that bank run is sure to come, according to John Williams of ShadowStats, among other ‘unencumbered’ analysts, and will most likely involve all the “if necessary” clauses to kick in, such as “suspending redemptions” of money market funds altogether.
As the moment of another Lehman-like collapse (on steroids) nears, more and more bold calls for soaring gold prices by regulars of King World News (KWN) streamed in, all within a week.
With Spanish 10-year notes reaching 7.47 percent, Tuesday, closing above 7 percent for the past two trading days, and the IMF preparing to cut Greece off, the air is rife with an imminent emergency QE from the Fed, a global QE announcement of some kind, or at the outside chance, a complete financial panic brought on by a systemic European bank run.
However, Bernanke and his colleagues won’t allow a collapse as long as investors believe they’re still relevant. More QE most likely is at hand to keep Spanish yields from, then, pushing up Italian yields above 7 percent, creating three fires in the eurozone instead of the only one fire still raging in Greece.
“It [global QE] is coming a lot faster than the gold bears think. It can be any weekend now. It could be this weekend,” Jim Sinclair of JSMineset stated on his blog this weekend.
“The longer the central banks wait, the more nuclear and longer the QE blast will have to be maintained,” he added. “The price of gold is going to $3,500 and higher.”
And Eric Sprott of Sprott Asset Management brought up ‘black swans’ in his lengthy interview with KWN late last week.
“My biggest ‘black swan’, Eric, is that I think I’ll be right one day,” said Sprott. “My worry is that one day they just shut everything down. They say, ‘You know what, we just can’t keep this up anymore, the whole Ponzi (scheme), we just can’t do it and we shut it down.’
“All of the markets freeze, and the stocks that you are short are never allowed to go where they were.
“They might cease gold trading, in the normal sense, or maybe they will even outlaw gold trading.”
Jim Rickards, another regular on KWN was quoted by Austria-base FORMAT, Tuesday, “I expect a gold price of $7,000 by the next several years.” Rickards, too, expects the U.S. to either outlaw gold possession or tax it into the underground economy.
Egon von Greyerz Matterhorn Asset Management told KWN, “ . . . my target on gold of $3,500 to $5,000 over the next 12 to 18 months, and then over $10,000 in 3 years.” von Greyerz is convinced the monetary ‘authorities’ will have to incorporate gold back into global settlements.
Gerald Celente said on Max Keiser’s program, On The Edge, a false-flag attack could be in the offing before a QE announcement, presumably to distract the world from the Fed’s upcoming ridiculous and reckless policy move.
And, the interview to rival the Sinclair announcement comes from the Anonymous London Trader (ALT), who told KWN’s Eric King that something big will be coming out of official channels soon. There’s too much discussion and scuttlebutt surrounding the unmentionable topic among polite company, which is, allocated gold accounts, or better, yet, the lack of allocation, thereof.
“It is now beginning to be discussed, openly, that the unallocated gold is not at the banks,” said ALT. “This is definitely the case with many of the allocated accounts as well. The reason I’m pointing this out is you have a more ‘open’ disclosure that’s taking place with regards to this.
“This tells me there is something major that is happening behind the scenes. It tells me that the LBMA’s price fixing scheme is coming to an end. You have these naked short positions, that are incomprehensible to most people, in both gold and silver….” [emphasis added]
With GATA’s Bill Murphy’s testimony of his ‘connected’ source suggesting August will be the month of fireworks in the gold market, Nouriel Roubini making the rounds telling the world that the U.S. economy is tanking—again—and reports from Germany-based Der Spiegel that the International Monetary Fund will stop funding Greece as soon as the EMS becomes operative in September (which is still not funded), the world is on the precipice—for the umpteenth time—of financial Armageddon, unless something drastic comes out of the world’s central banks, soon.
All of that comes back to the NY Fed’s latest proposal to the FOMC. If adopted, the NY Fed proposal to institute capital controls on money market funds may come sooner than investors now believe. But you can count on central bankers to deploy Jim Sinclair’s mantra “QE to infinity” in the meantime. In the eyes of neo-Keyensians, they have no better choice but to devalue the U.S. dollar more rapidly. Gold (and silver) will be the last refuge.