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Will U.S. ease off gold price suppression to offset rate-rise boost to dollar?

By: Chris Powell, Secretary/Treasurer, GATA

 -- Published: Sunday, 6 December 2015 | Print  | Disqus 

Dear Friend of GATA and Gold:

Your secretary/treasurer is no market analyst. Rather, he is only the archivist of documentation of largely surreptitious intervention in the gold market by central banks to defend their currencies and government bonds, to control interest rates and the prices of strategic commodities, and, really, thereby to control the world:

But given the new warning from the Bank for International Settlements against more appreciation of the U.S. dollar, as described in the report today from the London Telegraph appended here, your secretary/treasurer will volunteer a suspicion that he hopes arises more from his experience with the deceit basic to modern central banking than from his wishful thinking, his belief in free and transparent markets and gold's crucial function in achieving them.

That suspicion is that the U.S. government and its remaining allies in international market rigging will use and maybe already on Friday began using the Federal Reserve's expected nominal raising of interest rates this month as cause to ease off gold price suppression and to let the gold price rise a little.

While the Fed's raising U.S. interest rates would tend to strengthen the dollar and increase the burden of dollar-denominated debt, about which the BIS and many others are warning, a simultaneously rising gold price would tend to devalue the dollar. It would be one foot on the brake ostentatiously, the other foot on the accelerator surreptitiously, allowing the Fed to save face after its many postponements of raising rates while continuing to support asset inflation.

Of course, just as when you're a hammer everything looks like a nail, when you're the archivist of gold price suppression everything central banks do is read in the context of their ever-increasing intervention in the markets to protect their power. Indeed, as the new BIS report says, central bank policies themselves have become the markets. Or as a high school graduate told GATA's Washington conference seven years ago, with no tutoring at all from the BIS, "There are no markets anymore, just interventions":

"The problem with central banking," that high school graduate said then, "has been mainly the old problem of power -- it corrupts.

"Central bankers are supposed to be more capable of restraint than ordinary politicians, and maybe some are, but they are not always or even often capable of the necessary restraint. One market intervention encourages another and another and increases the political pressure to keep intervening to benefit special interests rather than the general interest -- to benefit especially the financial interests, the banking and investment banking industries. These interventions, subsidies to special interests, increasingly are needed to prevent the previous imbalances from imploding.

"And so we have come to an era of daily market interventions by central banks -- so much so that the main purpose of central banking now is to prevent ordinary markets from happening at all."

The Telegraph's story about the latest hand-wringing by the BIS is below, along with a link to the new BIS report.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

'Uneasy' Market Calm Masks Debt Timebomb, BIS Warns

By Szu Ping Chan
The Telegraph, London
Sunday, December 6, 2015

The "uneasy calm" in financial markets could rapidly reverse as the US Federal Reserve's first tightening cycle in a decade exposes fragilities in the new world order, according to the Bank for International Settlements (BIS).

The central bank watchdog said emerging market households and businesses reliant on cheap debt faced a credit crunch that could trigger panic in a world of evaporating liquidity and fewer market makers.

It warned that the "potential for spillovers" to emerging markets from higher US interest rates was larger now than it was during the so-called "taper tantrum" in 2013.

BIS data show the stock of dollar denominated debt rose to $9.8 trillion (£6.5 trillion) in the second quarter of 2015, with dollar credit to borrowers in emerging markets doubling since 2009 to more than $3 trillion.

Tighter US policy and a stronger dollar would highlight financial vulnerabilities among domestic and foreign currency borrowers, the BIS said. According to the watchdog, total non-financial corporate debt in emerging markets, including dollar borrowing, currently stands at $23.5 trillion. ...

"Any further appreciation of the dollar would additionally test the debt servicing capacity of emerging market economy corporates, many of which have borrowed heavily in US dollars in recent years," the BIS said.

Financial vulnerabilities had far from "gone away," said Mr Borio, who said investor reaction to the European Central Bank's latest stimulus plan showed markets remained hooked on "every word and deed" of central banks. ...

... For the remainder of the Telegraph report:

... For the report by the BIS:

* * *

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