Venezuelans Abandon Bolivar - Merchants Insist On Being Paid In Dollars

Venezuelans are struggling to carry out basic transactions like purchasing food as the value of their currency, the bolivar, has plunged against the dollar amid the country’s worsening economic collapse.

According to Reuters, over the past year, Venezuela’s currency weakened 97.5% against the greenback: Put another way, $1,000 of local currency purchased in early January would be worth just $25 now. The annual inflation rate in 2017 could reach $2,000. Though at least one other estimate puts the real rate of inflation closer to 2,800%.

Of course, President Maduro has blamed websites like DolarToday – which publishes the closest thing to an official black-market rate by surveying clandestine exchanges in Caracas and other cities – for the spread of black-market activity, part of a conspiracy organized by Washington and his local political opponents to force him from power.

One of the unintended consequences of the bolivar’s collapse has been a social experiment of sorts in the use of digital currencies: As we noted back in October, as many as 100,000 people are now mining digital currencies in Venezuela, defying a government crackdown that’s seen many of them thrown in prison.

But for those who can’t or haven’t resorted to transacting in bitcoin, an increasingly scarce supply of dollars is creating intractable problems for millions of Venezuelans, Reuters reported.

For many, simple purchases like a new tire for their car are simply out of reach.

There was no way Jose Ramon Garcia, a food transporter in Venezuela, could afford new tires for his van at $350 each.

 

Whether he opted to pay in U.S. currency or in the devalued local bolivar currency at the equivalent black market price, Garcia would have had to save up for years.

 

Though used to expensive repairs, this one was too much and put him out of business. "Repairs cost an arm and a leg in Venezuela," said the now-unemployed 42-year-old Garcia, who has a wife and two children to support in the southern city of Guayana.

 

"There’s no point keeping bolivars."

A practice that was initially adopted by shops catering to wealthy and middle-class Venezuelans is spreading to merchants selling everything from foodstuffs to medicine. Food sellers, dental and medical clinics, and others are starting to charge in dollars or their black-market equivalent - putting many basic goods and services out of reach for a growing number of Venezuelans.

"I can’t think in bolivars anymore, because you have to give a different price every hour,” said Yoselin Aguirre, 27, who makes and sells jewelry in the Paraguana peninsula and has recently pegged prices to the dollar. “To survive, you have to dollarize."

 

The socialist government of the late president Hugo Chavez in 2003 brought in the strict controls in order to curb capital flight, as the wealthy sought to move money out of Venezuela after a coup attempt and major oil strike the previous year.

 

Oil revenue was initially able to bolster artificial exchange rates, though the black market grew and now is becoming unmanageable for the government.

Still, President Nicolas Maduro has maintained his predecessor, the late Hugo Chavez’s policies on capital controls, even as the spread between the official rate - some 10 bolivars per dollar - and the black market rate - of around 110,000 per dollar - is now huge.

The trend is angering Venezuelans who don’t have access to dollars. As Reuters pointed out, it also dampened Christmas celebrations this year due to a shortage of pine trees, toys, meat, chicken, cornmeal…the list goes on.

While sellers see a shift to hard currency as necessary, buyers sometimes blame them for speculating.

 

Rafael Vetencourt, 55, a steel worker in Ciudad Guayana, needed a prostate operation priced at $250.

 

“We don’t earn in dollars. It’s abusive to charge in dollars!” said Vetencourt, who had to decimate his savings to pay for the surgery.

Most Venezuelans, earning just $5 a month at the black-market rate, are nowhere near being able to save hard currency.

"How do I do it? I earn in bolivars and have no way to buy foreign currency," said Cristina Centeno, a 31-year-old teacher who, like many, was seeking remote work online before Christmas in order to bring in some hard currency.

While many have begun mining bitcoin, purchasing the digital currency is also out of reach for many, since they would need to first convert their bolivars into dollars.

As the bolivar has continued to plummet, some communities have begun experimenting with alternative currencies that derive their value from a limited supply. In one Caracas neighborhood, several shops have started accepting the panal, one such alternative currency.

With the supply of dollars drying up since Maduro announced that the state-owned oil company would no longer settle payments for oil exports in greenbacks, it’s likely only a matter of time before more of these alternative paper currencies start springing up.

That is, unless the price of oil – which broke above $60 today – makes a surprising and altogether unlikely comeback.

Offshore Yuan Tumbles To 2-Week Lows, Biggest Drop Since Election

Offshore yuan has now dropped almost 16 handles in the last 8 days since Chinese officials voiced their concerns "about a rallying yuan as exporters come under strain."

Tonight"s tumble pushes the Yuan to its lowest since August for the biggest 8-day drop since the election...

And offers Trump some excuses to be mad at China for "devaluing" their currency after the dollar dumped for most of the year...

Notably, while Yuan is tumbling, Hong Kong Dollar spiked back toewards the peg...

The Economist: "Get Ready For A World Currency By 2018"

Via Climateer Investing blog,

Get Ready for the Phoenix

January 9, 1988, Vol. 306, pp 9-10

THIRTY years from now, Americans, Japanese, Europeans, and people in many other rich countries, and some relatively poor ones will probably be paying for their shopping with the same currency. Prices will be quoted not in dollars, yen or D-marks but in, let’s say, the phoenix. The phoenix will be favoured by companies and shoppers because it will be more convenient than today’s national currencies, which by then will seem a quaint cause of much disruption to economic life in the last twentieth century.

-

At the beginning of 1988 this appears an outlandish prediction. Proposals for eventual monetary union proliferated five and ten years ago, but they hardly envisaged the setbacks of 1987. The governments of the big economies tried to move an inch or two towards a more managed system of exchange rates – a logical preliminary, it might seem, to radical monetary reform. For lack of co-operation in their underlying economic policies they bungled it horribly, and provoked the rise in interest rates that brought on the stock market crash of October. These events have chastened exchange-rate reformers. The market crash taught them that the pretence of policy co-operation can be worse than nothing, and that until real co-operation is feasible (i.e., until governments surrender some economic sovereignty) further attempts to peg currencies will flounder.

…

The new world economy

The biggest change in the world economy since the early 1970’s is that flows of money have replaced trade in goods as the force that drives exchange rates. as a result of the relentless integration of the world’s financial markets, differences in national economic policies can disturb interest rates (or expectations of future interest rates) only slightly, yet still call forth huge transfers of financial assets from one country to another. These transfers swamp the flow of trade revenues in their effect on the demand and supply for different currencies, and hence in their effect on exchange rates. As telecommunications technology continues to advance, these transactions will be cheaper and faster still. With unco-ordinated economic policies, currencies can get only more volatile.

…

In all these ways national economic boundaries are slowly dissolving. As the trend continues, the appeal of a currency union across at least the main industrial countries will seem irresistible to everybody except foreign-exchange traders and governments. In the phoenix zone, economic adjustment to shifts in relative prices would happen smoothly and automatically, rather as it does today between different regions within large economies (a brief on pages 74-75 explains how.) The absence of all currency risk would spur trade, investment and employment.

–

The phoenix zone would impose tight constraints on national governments. There would be no such thing, for instance, as a national monetary policy. The world phoenix supply would be fixed by a new central bank, descended perhaps from the IMF. The world inflation rate – and hence, within narrow margins, each national inflation rate- would be in its charge. Each country could use taxes and public spending to offset temporary falls in demand, but it would have to borrow rather than print money to finance its budget deficit. With no recourse to the inflation tax, governments and their creditors would be forced to judge their borrowing and lending plans more carefully than they do today. This means a big loss of economic sovereignty, but the trends that make the phoenix so appealing are taking that sovereignty away in any case. Even in a world of more-or-less floating exchange rates, individual governments have seen their policy independence checked by an unfriendly outside world.

–

As the next century approaches, the natural forces that are pushing the world towards economic integration will offer governments a broad choice. They can go with the flow, or they can build barricades. Preparing the way for the phoenix will mean fewer pretended agreements on policy and more real ones. It will mean allowing and then actively promoting the private-sector use of an international money alongside existing national monies. That would let people vote with their wallets for the eventual move to full currency union. The phoenix would probably start as a cocktail of national currencies, just as the Special Drawing Right is today. In time, though, its value against national currencies would cease to matter, because people would choose it for its convenience and the stability of its purchasing power.

…

The alternative – to preserve policymaking autonomy- would involve a new proliferation of truly draconian controls on trade and capital flows. This course offers governments a splendid time. They could manage exchange-rate movements, deploy monetary and fiscal policy without inhibition, and tackle the resulting bursts of inflation with prices and incomes polices. It is a growth-crippling prospect. Pencil in the phoenix for around 2018, and welcome it when it comes.

Just to be clear: This is NOT f?ke™ news.

It is an article from The Economist published 29 years and six months ago, today.

We are counting down the minutes.

On Gold, Dollars, & Bitcoin

Authored by Paul Brodsky via Macro-Allocation.com,

We have been bullish on gold – the barbarous relic; King Dollar – the modern hegemon; and Bitcoin – the crypto currency investors love to hate. One might say our feet have been planted firmly in the past, present and future. (We may not have three feet, but let’s go with it.) Are we hedging our bets, being too cute by half, or is there a cogent rationale that unifies bullishness for money forms most would consider incongruous and at-odds with each other?

The short answer is we like:

1) gold, because central banks around the world own it and are buying more, ostensibly to devalue their fiat currencies against it someday, after they are forced to hyper-inflate in order to reduce the burden of systemic debt service and repayment;

2) the dollar, because dollar-denominated financial markets are broader and deeper than any other market and because the Fed is years ahead of other major central banks when it comes to normalizing policy and maintaining bank solvency (i.e., other fiats are in worse shape), and;

3) Bitcoin, the borderless digital currency that is already being perceived as a better store of value than gold and all fiat currencies, and potentially a more expedient means of exchange too. All three should win in different ways.

It may be easier to accept this discussion by first reminding one’s self that monetary regimes come and go every fifty years or so. The last transition was in 1971 and the world is due for another. We have a high level of conviction that the evanescence of the current global monetary system is rooted in sound economics and already has been firmly established. A global monetary reset is necessary and likely.

To understand why we must break down money into its two main components: a means of exchange and a store of value. When it comes to using money in exchange for goods and services, fiat currencies have it all over gold and crypto currencies presently. That’s because governments demand taxes be paid with their fiat currencies (legal tender), forcing producers and labor to demand compensation in those currencies. As a result, banking, payment systems and all goods and service channels are set up to use fiat-sponsored currencies.

When it comes to a store of value, however, the factors of production may choose to save in whatever form of money they want. If the general perception is that government-sponsored, bank system-created fiat currencies will have to be greatly diluted in the future so that systemic debts can be serviced and repaid, then savers will migrate to money forms with capped floats, like gold and Bitcoin.

Prior to 1971, if a major government-sponsored currency was threatened with dilution, global sovereigns and savers and producers would exchange that currency for gold at a fixed exchange rate to the dollar. Or, they could simply exchange that currency for another currency less likely to be diluted. In the current regime, all economies are highly levered and all fiat currencies must be greatly diluted in the future. It comes down to timing and we think the US dollar is the best positioned of all major fiat currencies. That said, it will eventually have to be diluted too and will lose value in gold and Bitcoin terms.

As mentioned above, gold is still owned by the world’s major treasury ministries and central banks. (In fact, it is effectively the only asset on the Fed’s balance sheet that is not someone else’s liability.) If US or global economic growth were to fall enough, or contract, and central bank monetary and credit policies were to fail to stimulate positive growth, then the value of all outstanding sovereign, household and corporate debt (and bank and bondholder assets) would become stressed.

The Fed would have no choice but to devalue dollars against its other asset – gold. Other central banks would either follow suit or go along with a coordinated plan to fix their currencies to the dollar (i.e., a new Bretton-Woods agreement). If this were to happen the price of gold in dollar terms would rise by as much as five to ten times current levels, in our view. (We arrive at this magnitude of change by taking the level of bank assets needed to be reserved and then using the Bretton Woods formula for currency valuation, base money divided by gold holdings.)

The new gold price would reflect a level at which gold holders would be willing to exchange their gold for the diluting currency. This dynamic is basically what happened in another form with US interest rates in 1980/1981. US treasury yields were forced higher by the Fed (22 percent to 15 percent along the inverted yield curve), a level at which trade partners like OPEC would accept dollars with a floating exchange rate.

Finally, Bitcoin. The BTC/USD exchange rate has gotten a lot of notice lately because it has almost doubled in the last month (se chart below)...

To listen to financial media commentary, the extraordinary move must be the result of unsophisticated financial rubes looking to get rich quick on the latest tulip fad.

We disagree. While the dollar price of BTC may drop significantly any time as it reflects people’s understanding of dynamic global economic and monetary conditions and of Bitcoin itself, we are highly confident the exchange rate will appreciate dramatically from current levels over time.

To be sure, faith in the flexible exchange rate fiat monetary system remains strong in G7 economies and those that actively trade with them. But major currencies require continued faith in perpetual growth without recessions and that highly leveraged, irreconcilable balance sheets will never have to be diluted.

Meanwhile, access to Bitcoin takes only internet connectivity, it is free to store, and there is no need to hide it traveling across borders. Bitcoin, itself or as a proxy for all crypto currencies, is quickly becoming a more reliable and accessible store of value for 5 billion people across the world residing in economies without major currencies, strong central banks or stable pegs.

The store-of-value benefit is beginning to make itself clear to wealth holders in developed economies too, those becoming aware of the need for future fiat currency inflation by monetary authorities.

Those unfamiliar with crypto currencies tend to fear bubble bursting outcomes. While this fear is understandable given its newness, complexity, past volatile market action and lack of a central or sovereign regulator, it is not reality-based. Bitcoin cannot be successfully hacked due to its underlying block chain recordkeeping system, which documents every transaction and every sequential custodian in the chain (all anonymously to the world). No one can create Bitcoins outside its system or sell Bitcoins that do not exist.

Further, Bitcoin’s float cannot be diluted without the express agreement of 51 percent of all Bitcoin holders. Bitcoins are widely dispersed across the world and there is no central authority with a political agenda. It is inconceivable why Bitcoin holders would agree to being diluted anytime soon.

At a $50 billion total market valuation, of which Bitcoin is about $30 billion, crypto currencies have almost incalculable appreciation potential vis-à-vis fiat currencies. They should gain significant market share for store of value purposes, and this could be sped up if payment systems adopt Bitcoin, Ethereum, Litecoin, or another crypto currency as a global means of exchange. After all, global fiat money amounts to nearly $100 trillion.

Many of us who have toiled over the years as professional investors are deluded with the explicit or subconscious expectation that the perception of wealth and markets will someday revert to what they were five, ten or twenty years ago. They will not, in our view. Yes, this time IS different (as it always has been). Our money will change (as it always has).

Given the highly leveraged state of the current monetary regime, the most dominant variable for future wealth maintenance and creation, in our view, may not be asset selection but rather money selection. Something to think about...

How To Stop Venezuela's Fatal Inflation

During my testimony of March 28th before the U.S. House of Representatives Committee on Foreign Affairs, I stressed that, to establish stability and turn Venezuela’s economy around, runaway inflation must be stopped in its tracks. After all, stability might not be everything, but everything is nothing without stability.

To grasp the magnitude of Venezuela’s inflation problem, take a look at the chart below. It shows the annual inflation rates (yr/yr) for chicken. Venezuela’s current chicken-price inflation is running at a whopping 700% annual rate.

 

The New York Times editorial of March 30th, “Crisis Upon Crisis in Venezuela,” picked up on my “stop inflation first” elixir. As the Times put it: “the international community could propose specific macroeconomic reforms that could curb Venezuela’s runaway inflation and stabilize its currency.”

The Times failed to offer a specific inflation-killing strategy, however. There are only two sure-fire ways to kill Venezuela’s inflation and establish the stable conditions which are necessary to carry out much-needed economics reforms. One way would be to dump the bolivar and officially dollarize the economy, an option I covered in my March 30th Forbes piece, “On Venezuela’s Death Spiral.”

A second method would be to adopt a currency board system. In such a system, the bolivar would become a clone of a reliable anchor currency, such as the U.S. dollar.

Just what is a currency board? An orthodox currency board issues notes and coins convertible on demand into a foreign anchor currency at a fixed rate of exchange. As reserves, it holds low-risk, interest-bearing bonds denominated in the anchor currency. The reserve levels (both floors and ceilings) are set by law and are equal to 100%, or slightly more, of its monetary liabilities. A currency board generates profits from the difference between the interest it earns on its reserve assets and the expense of maintaining its liabilities.

A currency board’s operations are passive and automatic. The sole function of a currency board is to exchange the domestic currency it issues for an anchor currency at a fixed rate. In consequence, the quantity of domestic currency in circulation is determined solely by market forces, namely the demand for domestic currency. 

A currency board cannot issue credit. It cannot act as a lender of last resort or extend credit to the banking system. It also cannot make loans to the fiscal authorities and state-owned enterprises. In consequence, a currency board imposes a hard budget constraint and discipline on the economy.

A currency board requires no preconditions for monetary reform and can be installed rapidly. Government finances, state-owned enterprises, and trade need not be already reformed for a currency board to begin to issue currency.

Countries that have employed currency boards have maintained currency convertibility and delivered lower inflation rates, smaller fiscal deficits, lower debt levels relative to GDP, fewer banking crises, and higher real growth rates than comparable countries that have employed central banks.

It is important to mention that the currency board idea became engulfed in controversy – thanks to Argentina. What Argentina termed “Convertibility” was introduced in April 1991 to stop inflation, which it did. The system had certain features of a currency board: a fixed exchange rate, full convertibility, and a minimum reserve cover for the peso of 100% of its anchor currency, the U.S. dollar. However, it had two major features which disqualified it from being an orthodox currency board. It had no ceiling on the amount of foreign assets held at the central bank relative to the central bank’s monetary liabilities. So, the central bank could engage in sterilization and neutralization activities, which it did. In addition, it could hold and alter the level of domestic assets on its balance sheet. So, Argentina’s monetary authority could engage in discretionary monetary policy, and it did so aggressively. 

Because of these flaws, I penned an article which appeared in the October 25, 1991 edition of the Wall Street Journal. I concluded that, unless Argentina embraced orthodoxy and amended the Convertibility Law, the system would eventually collapse, which it did in 2002.

The collapse of Convertibility spawned a cottage industry of currency board critiques. But, since Argentina’s Convertibility System allowed for both monetary and exchange rate policies, it was not a currency board – something most economists failed to recognize. Indeed, a scholarly survey of almost 100 leading economists who commented on the Convertibility System found that almost 97% incorrectly identified it as a currency board system. So, those that used the collapse of Argentina’s Convertibility System to argue against currency boards literally didn’t know what they are talking about.

Just what can the international community do to shine a light on the currency board solution for Venezuela’s runaway inflation? For me, the answer harks back to 1992. That’s when I worked with the then-leader of the U.S. Senate, Bob Dole, and Senators Steve Symms and Phil Gramm, to draft U.S. legislation that would encourage countries with unstable currencies and runaway inflation to install currency boards. This legislation, (HR-5368, Law no. 102-391), was signed into law on October 6, 1992.

This piece was originally published on Forbes.

NEW UNCOVERED INFORMATION: Why Central Banks Were Forced To Rig The Gold Market

By the SRSrocco Report,

According to newly uncovered information in the gold market, it provides additional evidence of why the Fed, Central Banks and the IMF were forced to RIG the gold market.  Not only was the dropping of the Gold-Dollar peg going to release a great deal of pressure on the manipulated gold price, but forecasts of a massive increase in gold demand was going to totally overwhelm supply.

Thus, this new information provides clear evidence that the gold market was being assaulted on "two fronts."  Not only was the gold market suffering from a decades of price suppression schemes via the Fed and Central Banks, but also that surging gold demand in the jewelry and industrial sectors was going to lead to severe shortages in the gold market.

Which means, the gold market was experiencing a great deal more stress than complications stemming from the debasement of the U.S. Dollar due to massive money printing.  Actually, looking at this new information, I had no idea of the amount of Fed, Central Bank and IMF gold market intervention until I put all the pieces together.

Now, when I say "new information", it pertains to new information and data that I dug up from older official documents.  While most of the folks in the precious metals community realize that the Fed and Central Banks have sold gold into the market to depress the price, this new evidence puts the gold market it in an entirely DIFFERENT LIGHT.

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PRECIOUS METALS INVESTORS.... if you think your getting the "BEST PRICE" for purchasing gold and silver, or you are receiving the best "FEE" for storing your metals, than you need not look any further.  However, if you haven"t checked out our new PRECIOUS METALS INVESTING section or our new LOWEST COST PRECIOUS METALS STORAGE page, I highly recommend you do.

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Furthermore, additional data points to a "Gold Supply & Demand" situation that would have gone completely out of control, if the Fed, Central Banks and IMF did not step in.

To preface this subject matter, the Central Banks dumped a lot of gold into the market during the 1960"s to maintain (suppress) the official gold price.  This was known as the "London Gold Pool" where an estimated 78 million oz (Moz) of gold were dumped into the market between 1961 and 1968.  I explained this in my THE GOLD REPORT- Investment Flows.

However, when Nixon dropped the Dollar-Gold Peg on August 15, 1971, the problems with the global monetary system were just beginning.  In a report published in November, 1972, by the U.S. Congress and Subcommittee on International Payments of the Joint Economic Committee for the purpose of "De-emphasizing gold as a reserve asset",it stated the following:

Not only did the committee suggest and permit the "voluntary" sale of official gold into the market, but also to "prohibit" against Central bank purchases.  Which meant the committee was proposing a plan to only allow the DUMPING of gold into the market, but forbid any OFFICIAL BUYING.  This of course was supporting the "FREE MARKET" fundamentals for proper gold price discovery.... LOL.

At the bottom of that quote, the committee went on to state that when the international monetary reform had been achieved (to an IMF SDR basket), all prohibitions of gold (investment) purchases by American citizens would be promptly abolished.

So, the wonderful folks up in government had an ingenious method to their madness.  According to their assessment, it would have not been prudent to allow Americans to start purchasing and hoarding gold until the completion of the new fiat monetary system was achieved.

Again, most of us in the precious metals community understand that the Central banks dumped a lot of gold into the market during the 1960"s London Gold Pool to maintain the official gold price.  However, new uncovered gold supply and demand data suggests there was another FACTOR that forced even more dumping of official gold during the 1970"s.

Forecast Of Massive Gold Supply & Demand Imbalance

The reason that Nixon dropped the Gold-Dollar Peg in August 1971 was to keep U.S. gold from flowing overseas as the U.S. Government had been printing a great deal of paper money.  Thus, countries such as France were exchanging Dollars for real gold.  This forced Nixon to drop the convertibility of Dollars into gold so the United States could hold onto its remaining gold reserves.

But, and here is a BIG BUT... converting Dollars into physical gold was only one part of the monumental problem facing the gold market and industry.  Up until now, this was the only real problem that I was aware of as it pertained to the gold market in the 1970"s.  However, forecasts of future Gold Supply & Demand factors were going to totally disrupt the market unless the Fed and Central banks stepped in.

This next quote comes from the USGS 1971 Gold Yearbook.  The highlighted area shows just how bad the gold supply and demand situation was going to be at the end of the decade:

According to a gold expert at Consolidated Gold Fields Ltd., global gold demand was forecasted to reach 63 million oz (Moz) by 1980, up from 42.5-45 Moz in 1972.  You see... this was a BIG PROBLEM.  Why?  Because gold mine supply was also forecasted to decline to 38-41 Moz in 1980.  This would have resulted in a huge net deficit.

So, how well did the Consolidated Gold Fields Ltd., forecast turn out?  Let"s look at the chart below:

Actually, it turned out pretty darn accurate.  Global gold production declined from its peak of 46.5 Moz in 1970, to 38.8 Moz in 1980.  This was mainly due to the peak and decline of South African gold production.  I would imagine very few individuals in the precious metals community realize just how much gold South Africa produced.

No other country has come anywhere near the record annual gold production achieved by South Africa at its peak in 1970:

South Africa produced an amazing 1,000 metric tons of gold in 1970... 32 Moz.  Here are the annual peak production figures from three leading gold producing countries:

1) China = 478 mt (15.4 Moz) 2014

2) USA = 366 mt (11.8 Moz) 1998

3) Australia = 276 mt (8.9 Moz) 2015

China holds the second highest annual gold production record at 478 mt (15.4 Moz) set in 2014.  However, this is still less than half of the 1,000 mt that South Africa produced in 1970.  According to GFMS 2016 Gold Survey, South Africa"s gold production was 151 mt (4.8 Moz) in 2015.   The once mighty South African gold production has declined 85% from its peak in 1970.

Now, taking the 1980 forecasted supply and demand data by Consolidated Gold Fields Ltd. above, here is the result:

If the forecast of a 63 Moz gold demand figure was true, then the market would have suffered a 25 Moz deficit in 1980.  So, not only did U.S. President Nixon stop the bleeding of gold flows out of the U.S. Treasury, but in addition, public demand for gold that decade was going to explode.

This just could not fly.  Which is why the Congress and the Subcommittee on International Exchange and Payments (listed above) were highly motivated to promote "Official Gold Sales" while prohibiting "Official Gold Buying."  This was a "ONE-WAY PLAN" for gold... and that was the dumping of a massive amount of the yellow metal into the market.

The Fed, IMF and Official Government Gold Sales During the 1970"s

It"s hard to tell how much gold was dumped into the gold market during the 1970"s decade.  I have plans on putting together a more comprehensive report on the details of what took place in the gold market from the 1960"s to present.  This will include more detailed data on Official gold sales.

However, we have some clues in the text from different USGS Gold Yearbooks.  First, we have foreign gold at the Federal Reserve sold into the market in 1973 and 1974:

As we can see, 2.14 Moz of foreign held gold at the Fed were dumped into the market in 1974 and 1.69 Moz in 1973.  Unfortunately, official sales of gold into the market did not deter the rising gold price.  The gold price jumped from an average $65 in January 1973 to a high of $200 at the end of 1974.

Well, the Central banks could not let this exploding gold price to continue.  Which is why the IMF made this official statement in August, 1975:

The IMF - International Monetary Fund, announced in August, 1975 to sell one-sixth of its gold stocks.  At the time, the IMF held 153.4 Moz of gold.  Thus, it planned to sell 25.5 Moz over the next several years to supposedly provide capital for low-interest loans to developing countries.  I wonder why the IMF did not make this statement back in 1973 or 1974?  And why would the IMF have to sell gold to provide capital for developing countries??  Wasn"t there a new FIAT MONETARY REGIME??

Wasn"t gold now a "Barbarous Relic?"

With the IMF "strategic"announcement that it would sell 25.5 Moz of gold into the market, it had a profound impact on the gold price in 1975:

After the IMF gold sale announcement, the gold price plummeted 21% in just one month from $165, down to a low of $130.  Before I came across this information, I just believed that the gold price was due for a correction.... stated by several websites, such as by analysts on King World News.  However, this wasn"t a typical market correction.  Rather... this was a MARKET INTERVENTION FORCED CORRECTION.  Big difference.

So, why the IMF gold sale announcement?  Was it due to a response to the rapidly rising price.. or did rising demand play a part.  If we look at this next quote taken from the USGS 1974 Gold Yearbook, we find our answer:

According to the data, private gold holdings and investment surged 5-fold in 1974 to 27.3 Moz.  The report also stated that total gold jewelry and industrial demand was 23 Moz in 1974.  Thus, total gold demand exceeded 50 Moz in 1974.

I would imagine if private gold investment didn"t jump 5-fold from the previous year, the IMF would have not considered it necessary to announce the sale of 25.5 Moz of its gold reserves in 1975.

In order to make good on its promise, the IMF did sell 3.9 Moz of gold in 1976 and another 6 Moz in 1977 into the market:

In just the first two years after its proposed 25.5 Moz gold sale in August 1975, the IMF sold 9.9 Moz, or nearly 40% of its planned amount.  If we read the first quoted text above (1976), the gold price reached a low in August 1976 after the second IMF gold sale.

Oh, did I forget to mention that another 2.14 Moz of foreign held gold at the Federal Reserve was dumped into the market in 1976??  So, between these two official institutions, over 6 Moz of gold were sold into the market in 1976 alone to guarantee there was a FREE MARKET PRICING mechanism for gold.

I have to make a comment here.  I spend a lot of time at energy and precious metals blogs.  I am completely surprised at the lack of intelligence by individuals who are supposedly very "BRIGHT" in their respective industries.  When I hear comments that gold is nothing more than a "13th Century Middle Ages Relic", and that digit currency is the new monetary system... the Good Lord Almighty must be enjoying one hell of a BELLY-ACHING LAUGH.

These folks who seem to understand the ramifications of falling cheap energy production upon the global markets still cling to a FIAT MONETARY SYSTEM that needs an ever-increasing supply of cheap oil to survive.  How on earth are they unable to CONNECT THE FRICKEN DOTS is beyond me.

Regardless, the Fed, Central banks and IMF have been rigging the gold market for quite some time... and continue to do so.

During the 1960"s Gold Pool it was more a physical market intervention as they dumped 78 Moz of gold to maintain the official gold price of $35 an ounce.  Then when Nixon dropped the Gold-Dollar Peg in 1971, these official institutions combined "Physical gold dumping" along with the "Creation of a Paper Gold Futures Market in 1975" to rig the gold market during the wild 1970 decade.

I don"t have a lot of data on the paper futures market in this article (will be in future Paid Report), but here is a tidbit on some of the trading volume:

Global Paper GOLD EXCHANGE Annual Trading Volume:

1975 = 84 Moz

1977 = 190 Moz

1979 = 1,027 Moz

From the beginning of paper gold trading on the Global Exchanges, it increased from 84 Moz in 1975 to an astonishing 1,027 Moz (1.03 billion oz) in 1979.  The tremendous trading of paper gold contracts (later on including options) sucked in a massive amount of funds.  Thus, paper gold trading funneled a great deal of money away from physical gold and into worthless paper gold.

As I mentioned, I don"t have a full reporting of all the official gold that was dumped into the market from 1971-1980.  That will be included in an upcoming report.  However, it was stated in the USGS 1980 Gold Yearbook, that the IMF did complete its final gold auction in May 1980.  This was their final gold sale that equaled a total of 25.5 Moz from 1976 to 1980.

If we include this amount with the sales of foreign gold at the Federal Reserve and other official gold sales, the amount of gold sold during the 1970 decade was quite an impressive amount... probably something north of 50 Moz.

Again, this was all done to guarantee a FREE MARKET price discovery for gold.  Today, most Americans and citizens around the world have no idea just how undervalued gold is.  No idea whatsoever.

Since the peak of the gold price in 1980, the Fed and Central Banks continued to dump physical gold into the markets at various times up until 2009.  However, "Official gold sales" turned into net "Official purchases" in 2010.  This put a severe KINK in the Western Central Bank plan of gold market rigging.  Just seems like those problematic Chinese and Russians have a much different idea about REAL MONEY than the West.

To continue rigging the gold market in the 1990"s and onwards, the West had to introduce "Gold Leasing" and more exotic "Gold Derivatives" to keep the gold price from going completely BONKERS.  Again, this has been done while the public remains completely in the dark.

In conclusion, the Fed and Central banks were in serious trouble in 1971.  Not only was the dropping of the Gold-Dollar Peg in 1971 a sign that things were about to get very interesting with the gold price, but the forecast of exploding gold demand would have resulted in a 25 Moz deficit by 1980.  This forced the Fed, IMF and Central banks to dump a massive amount of gold into the market to meet the insatiable demand.

Which means, gold became too valuable to be used as money in the U.S. and Global economy.  Yes, that sounds strange... but that is the truth.  I mentioned this in a previous article on why silver was removed from U.S. coinage.  It was due to the same reason.

When I say, "too valuable to be used as money", I mean it in the way that money has degraded to.  There are no real banks in the world.  A bank should hold stored "ECONOMIC ENERGY" as stated by Mike Maloney.  When someone deposits gold at a bank, that is REAL MONEY.  A bank is supposed to store real money.  Instead, banks store DIGITAL IOU balances, or worse yet, highly leveraged loans.

Since Nixon dropped the Dollar-Gold Peg in 1971, the amount of debt in the world has skyrocketed.  The Central Banks designed a two-tiered system to remove gold as a reserve asset:

1. Dump physical gold into the market to suppress or maintain price.  Then add a Paper Futures Market to funnel funds away from a limited supply of physical gold and into an unlimited supply of paper gold contracts.


2. Increase world debt to such massive levels, that interest rates had to fall towards zero.. or negative.  Thus creating a 30+ year artificial Bond Market Rally.  If interest rates rise... the entire system BLOWS UP.

While the ultimate revaluation of gold and silver has taken more time than most of us in the precious metals community anticipated, THAT DAY IS COMING.

As I have mentioned in several articles and interviews, the timing of this event will be known by what takes place in the energy markets as they are the drivers of our economy... and the highly leverage Fiat Monetary System.

Investors should not try to time the markets by selling Stocks, Bonds or Real Estate before the crash comes and then move into physical gold and silver.  Rather, that should be done on an ongoing basis as the TIMING of the event is impossible to predict.

However, it is much wiser to do be in the metals a DAY EARLY than a DAY LATE.

Lastly, if you haven"t checked out our new PRECIOUS METALS INVESTING section or our new LOWEST COST PRECIOUS METALS STORAGE page, I highly recommend you do.

Check back for new articles and updates at the SRSrocco Report.

2017 Will Be An Important Year For The Currency Wars

Source: ft.com

The past few years, ‘currency war’ was the ‘talk of the town’, but truth be told, there was no real ‘cold’ trade and currency war. In fact, the European Central Bank kept on decreasing its benchmark interest rates when the Federal Reserve took baby-steps to increase its own interest rates again, so we do have to take the previous ‘currency war’ declaration with a mid-sized spoon of salt.

But in 2017, the gloves might come off, as several countries have been warning for ‘expensive currencies’. China, for instance, might become under increased pressure from the Trump administration who will very likely announce and initiate some protectionist measures to boost the domestic economy inside the USA. China also is an easy ‘victim’ as it’s easy to use the country as a ‘target’ when things go wrong in the USA. The statement ‘the US Dollar is overvalued whilst China is keeping its currency rate artificially low’ isn’t coming out of the blue.

Source: The Economist

And of course, China will obviously encounter its fair share of problems as well, this year, as its annual growth rate just continues to decrease, and any protectionist move in the USA will aggravate the situation.

China is clearly worried, as its president, Xi Jinping, was one of the biggest advocates of globalisation and world trade at the recent economic forum of Davos. That’s not unexpected, as China has hands-down been the main beneficiary of the recent push for globalisation in the past sixteen years of this millennium.

Source: ABN AMRO

The country is clearly feeling the pressure on its economic situation, as even though the import growth rate has been picking up again, the export growth remains in the negative territory, pointing in the direction of a global trade pattern which is slowing down. To make things worse, the import growth was predominantly caused by a (temporary?) increase in the import of raw goods to replenish the stockpiles (before the Chinese new year starts).

And the pressure on the Chinese economy is coming from all angles. The real estate market seems to be bracing for (yet another) correction as the local governments have started to tighten the regulations in an attempt to slow down the overheating market. This seemed to be working as there has been a substantial slowdown in the total volume of mortgage applications, but it looks like this was just the first step.

China also had to solve the trilemma of having an independent monetary policy, the free movement of capital and a fixed exchange rate as that’s technically, theoretically and practically pretty much impossible. More measures have been announced and implemented (by suspending the possibility to purchase foreign assets that have no industrial use, and reducing the possibility for citizens to purchase foreign currency.

Source: The Economist

The credit growth rate remains positive and with credit levels increasing towards 300% of the GDP, China can’t afford any missteps as any serious contraction of its growth rates and/or the level of its economic activity could push the country over the cliff, with disastrous consequences.

China will need to keep its currency cheap and will have to work on its relationship with President Trump to ensure a good relationship. Globalisation is key for China, and a slower world trade will hurt the country.

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