This weekend, the Finance Ministers of the G20 nations are meeting in England as the final "dress rehearsal" for the G-20 Heads of State Summit to be held on April 2 in London. It's actually a lot more than a dress rehearsal, it's an attempt to hammer out a "policy mix" which the nations involved can agree to - however grudgingly. This is essential. The G20 Heads of State Summit has been elevated into a momentous event. THIS is now being touted as the meeting where the high and the mighty come together to deliver a smashing blow to the global financial crisis. The Heads of State must be able to show as unified a front as possible. The "plan" decided upon must be credible, or at least not a rehash of the measures which have already been tried, have failed, and have been SEEN to have failed by the markets and by main street.
All Summit meetings of this nature have their final communique prepared beforehand. The Heads of State are not there to "wrangle" over petty details. They are there to show a broad front of agreement and confidence that their plans to keep the world chugging forward in their chosen directon are both in place and sure to work.
On the one side stand Mr Obama, Mr Bernanke, Mr Geithner, Mr Summers, Mr Volcker et al. They want more of the same. They want to "jump" or "kick" start global economies by way of pumping even more money into them. There is no room in these plans for any concern of "where" the money is going to come from. If necessary (and if this plan is followed it will be), the central banks of the G-20 can follow the lead of the Bank of England and simply monetise the debt of their respective Treasuries. There is plenty of time later to worry about the size of the debt rung up in the process and the debauched currencies this would inevitably cause. The Obama Administration is adamant that the $US 1.75 TRILLION PLANNED deficit that they are going to run up this year - and the PLANNED $US 1 TRILLION plus for next year, are necessary. Having done that, they can then "reduce" the deficit by half (back to $US 500-600 Billion perhaps?) by the end of Mr Obama's first term.
On the other side stand the continental Europeans, specifically France and Germany. They are baulking at the size of the proposed deficits and are focussing instead on what they call "financial transparency" and, specifically, on tighter banking regulation.
The US and Britain want to print their way out of trouble. Japan too is leaning in this direction. China is the imponderable. In recent days, the US media has been full of reports about the publicly expressed "concern" held by the rulers of China over the future of their HUGE holdings of US Treasury paper. On March 13, the Chinese Premier was quoted by the (UK) Financial Times as follows: "We have lent a huge amount of money to the United States. Of course we are concerned about the safety of our assets. To be honest, I am a little bit worried. I request the US to maintain its good credit, to honour its promises and to guarantee the safety of China's assets."
China does indeed have a huge mountain of US Treasury debt paper amongst its "assets". So does Japan. So does the UK. So does the entire world. US Treasury debt paper is and has been ever since Bretton Woods in 1944 THE global financial asset underpinning the ENTIRE world's financial system - and the world's various and sundry currencies too. The US Dollar is the world's reserve currency. US Dollars don't earn interest. US Treasury debt paper does. It is the preferred "reserve" of the entire world, and has been so for nearly three generations now.
Now, the "supreme ruler" of China is "a little bit worried". He wants guarantees from the Obama Administration about "the safety of Chinese assets". In the meantime, he is reading reams of media copy from the US which points out that if the Chinese don't continue to buy US Treasury debt, the Obama Administration will be unable to undertake their existing $US 800 Billion "stimulus package", let alone to ramp it up ever further to deal with any future "unforeseen circumstances".
As the G20 Heads of State summit approaches, the financial world enters a surreal situation. The US is leading the push towards the creation of new oceans of fiat "money" in order to restore the valuations of the paper assets which are dragging world banks down with them. Only the Europeans are vocally standing against this, and their preferred option is to tighen "regulation" and close tax loopholes and havens. Nowhere in any of this hot air is there any hint of a discussion about the MONEY itself. Instead, White House Press Secretary Robert Gibbs was trotted out in front of a bank of microphones to make the assertion that: "investments in the US are the safest in the world."
And as long as Gold is confined in the $US 900 - $US 1000 trading range it now looks to be setting up, there will not be any such discussion about the nature of money.
The governments of the US and the UK are absolutely determined to destroy their financial systems and the money they rest on rather than remove their hands from the levers of political power. They are well aware that the fundamental means by which they "run" their economies and thereby the lives of their citizens is their monopoly control over what their citizens must, by law, use as money. Having sold the false idea that money IS wealth, they tenaciously cling to their legislated powers to create "wealth" out of thin air.
Money is NOT wealth. It is merely a means to an end. The means is voluntary indirect exchange between consenting adults on a free market under contractual arrangements. That is the only way that wealth beyond a mere subsistance level - the end of all human effort and interaction - can be created. And that is what SOUND money makes possible.
The upcoming Heads of State G20 Summit will do its best to put on a good show. The participants will do their best to convince the world that they are in accord and that their "plans" for throwing worse money after bad will, this time, succeed where all previous historical efforts have failed. The longer this facade stands, the longer it takes before some nation or group of nations breaks away, the worse the final collapse is going to be.
(Chart appears here in original analysis.)
A new low was hit on the chart when spot future Gold closed in New York at $US 705 on November 13 last year. This pushed the chart two "Xs" below the $US 715 support level established in late October and equalled early in November. Then came the first big turnaround - and upturn on the chart - of November 14. The region between $US 700-720 firmed as SOLID support for Gold. That support "zone" was emphatically confirmed as Gold rose by just over $US 110 between November 13 and November 28 last year.
On February 20, as you know, Gold made it all the way back to its previous all time highs. But it did NOT break through the $US 1000 barrier. Since then, Gold has retreated to just below the $Us 900 level in two moves down. What is now beginning to be traced out on this chart is a gigantic "reverse" head and shoulders formation. The trading range between $US 900 and $US 1000 is firming up. We will see how long it lasts.
We began the table below in 2007 and have extended it into 2009, even though Gold in all four currencies in the table remain well above their 2006 highs. The all time highs for Gold which occurred in 2008 have remained intact in US Dollars and in Yen.
But in terms of the Euro and especially the Aussie Dollar, the situation is very different. Gold hit new all time highs in both currencies on January 30 with situation being duplicated by Gold in terms of MANY other currencies. Last month, those highs were taken out last week when Gold hit $US 1000. Even with $US 100 fall in Gold up to March 9, the Japanese Yen and the US Dollar (and currencies still "pegged" to the US Dollar) are about the only paper moneys left against which Gold has NOT (yet) hit an all time high this year.
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