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Big economic changes happening

Apr 05, 2013

It appears that the world has just seen another large financial earthquake. Yesterday Japan announced that it will begin a new, greatly enhanced program of quantitative easing (money creation) that will nearly double the amount of yen within two years. The yen dropped about 5 cents on the news, as people scrambled to dump their yen and buy anything of value within reach.

Last December a dollar would buy only 78 yen, but now a dollar will buy 97 yen. If this were not a deliberate government policy, it might be called a collapse.


Gold is higher in most currencies today except the Japanese yen. Gold surged  over 3% to 0.149 million yen per ounce yesterday as markets shuddered due to the  scale of currency debasement soon to be seen in Japan....

Japanese are suddenly buying a lot of gold, since gold prices rise when currency values fall. That will create a new market for gold, putting pressure on the US government's "Plunge Protection Team" as they search for more ways to depress the world gold price. The above article continues with another eye-popping situation, this time with the largest Dutch bank, ABN Amro:

An interesting development in the precious metals market is the largest Dutch bank, ABN Amro, has said that they will no longer be providing physical delivery of precious metals including gold, silver, platinum, and palladium bullion coins and bars.

ABN AMRO, one of the largest banks in Europe announced in a letter to clients  that it would no longer allow clients to take delivery of their metal and instead will pay account holders in a paper currency equivalent to the current  spot value of the precious metal.

Thus, instead of legally owning a risk free, physical asset (a bullion bar or a  bullion coin), the bank’s clients are now unsecured creditors and are now  exposed to the bank and the financial system – somewhat  defeating the purpose of owning precious metals.

As these currencies collapse, governments try to stop it by manipulating the price of gold and silver downward. Cheap gold and silver give currencies the appearance of strength, even while central banks (such as the Federal Reserve) embark on endless quantitative easing. With the Fed buying at least $85 billion worth of bonds each month, there is no economic reason why the price of gold and silver should drop. The reverse ought to be true--and would be, if it were not for government interference in the markets. It will be interesting to see if Japan has its own Plunge Protection Team to try to stave off the gold frenzy in Japan.

ABN AMRO bank's clients who had previously purchased gold futures will have to settle for paper currency. That may be fine for speculators who don't intend to take possession of actual physical gold, but what about all those who were actually wanting gold delivery? If this sets a precedent in the gold market, it would mean that essentially people are no longer able to buy gold freely within the system. If they want gold, they will have to buy it from a dealer and take immediate possession.

The article above also mentions something that few understand. When you deposit money in a bank, you no longer own that money. You are an "unsecured creditor," which means that you have loaned money to the bank with no collateral to back up that loan. The bank crisis in Cyprus has brought this fact to the surface this past month, as people have discovered that when a bank closes its doors, the people can lose whatever deposits they have in the bank. Even "insured deposits" are now at risk, as governments have granted themselves the right to confiscate deposits by the stroke of a legal pen.

This is the kind of irresponsible banking and government that can really shake people's confidence in the banking system, bank deposits, and currency itself. If this gets out of hand, more and more people will see no alternative but to dump their money and buy gold or silver--or anything that actually has value.

The government rationalizes their theft by exchanging bank deposits for shares of bank stock. In other words, Cypriots who thought they had saved some money in the bank suddenly woke up to the fact that their money had just been used to purchased shares in a bankrupt bank!

'The Canadian government seems to be impressed with the success of the Cyprus plan and are thinking about implementing the same plan.


Buried deep in last month's federal budget is an ambiguously worded section that has roiled parts of the financial world but has so far been largely ignored by the mainstream media.

It boils down to this: Ottawa is contemplating the possibility of a Canadian bank failure — and the same sort of pitiless prescription that was just imposed in Cyprus....

The article gives a chilling fact that only a few really understand. When the government allows a bank to substitute bank shares for deposit money, the depositors suddenly lose their deposit insurance. Why? Because they no longer have deposits. Now they have stock in a bank, and stock is not insured! The article says,

But he also notes that many Canadians believe, mistakenly, that their RRSPs and other holdings are safe and insured, too, up to the $100,000 threshold.

They don't often realize that government bonds as well as stocks and mutual funds are among the investments that don't qualify for CDIC insurance.

I don't know the situation in Canada, but in America over $10 Trillion worth of deposits are insured by about $30 billion in the FDIC. In any kind of bank run, the FDIC would have no way of refunding the money that they are insuring. By converting people's cash into bank shares, the FDIC could be let off the hook and still claim with tongue in cheek that no depositors lost any money up to the insured amount. After all, they got "equal value," that is, they got bank shares in a bankrupt bank!

The problem is that their money will be tied up in bank shares that they are unable to sell. So regardless of how much stock they have in the bank, they will not have enough cash on hand to do their daily business. Currency controls will be in place by that time--as in Cyprus today--and people will only be able to withdraw a small amount of money from the bank each day.

Such a scenario will force people to go back to the barter system. That is where gold and silver may become very useful. With prices skyrocketing, however, an ounce of gold may be too pricey if you try to use it to buy groceries or fuel for the car. Here is where silver has a clear advantage, because even though its value would greatly increase, it would still be far preferable to gold--unless you are purchasing a big item such as a house or car.

I am not saying that this kind of scenario will hit us tomorrow or even this year. I am saying only that we are moving in that direction, and unless something changes, it is inevitable at some point in time. Right now the world is becoming very unstable. The example of Cyprus has shaken many people's confidence in the security of their savings in the banking system. If this confidence erodes further, the government will soon lose control of the markets, as everyone heads for the door.

If we have the foresight and the prudence to prepare for these possibilities, we will not get trampled in the mad rush when we reach that point of no return.


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Category: Financial

Dr. Stephen Jones

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