GERMAN GOLD REPATRIATION - It Was Only A Matter of Time

It Begins: Bundesbank To Commence Repatriating Gold From New York Fed 01-14-13 Zero Hedge

In what could be a watershed moment for the price, provenance, and future of physical gold, not to mention the "stability" of the entire monetary regime based on rock solid, undisputed "faith and credit" in paper money, German Handelsblatt reports in an exclusive that the long suffering German gold, all official 3,396 tons of it, is about to be moved. Specifically, it is about to be partially moved out of the New York Fed, where the majority, or 45% of it is currently stored, as well as the entirety of the 11% of German gold held with the Banque de France, and repatriated back home to Buba in Frankfurt, where just 31% of it is held as of this moment. And while it is one thing for a "crazy, lunatic" dictator such as Hugo Chavez to pull his gold out of the Bank of England, it is something entirely different, and far less dismissible, when the bank with the second most official gold reserves in the world proceeds to formally pull some of its gold from the bank with the most. In brief: this is a momentous development, one which may signify that the regime of mutual assured and very much telegraphed - because if the central banks don't have faith in one another, why should anyone else? - trust in central banks by other central banks is ending.

Much more importantly, it is being telegraphed as such, with Buba fully aware of just what the consequences of this (first partial, and then full; and certainly full vis-a-vis the nouveau socialist regime of Francois Hollande which will soon hold zero German gold) repatriation will be in a global monetary arena, which is already scraping by on the last traces of faith in a monetary system that is slowly but surely dying but first diluting itself to oblivion. And in simple game theory terms, the first party to defect from the prisoner's dilemma of all the bulk of global gold being held by the Fed, defects best. Then the second. Then the third. Until, in this particular case, the last central bank to pull its gold from the NY Fed and the other 2 primary depositories of developed world gold, London and Paris, just happens to discover their gold was never there to begin with, and instead served as collateral to paper gold subsequently rehypothecated several hundred times, and whose ultimate ownership deed is long gone.

It would be very ironic, if the Bundesbank, which many had assumed had bent over backwards to accommodate Mario Draghi's Goldmanesque demands to allow implicit monetization of peripheral nations' debts has just "returned the favor" by launching the greatest physical gold scramble of all time.

From Handelsblatt:

Die Bundesbank hat ein neues Konzept ausgearbeitet, wo sie künftig ihre Goldreserven lagern will. Nach Informationen des Handelsblatts (Dienstausgabe) sieht dieses Konzept, das am kommenden Mittwoch bekanntgegeben werden soll, vor, den heimischen Standort aufzuwerten, in New York dafür weniger Gold zu lagern und überhaupt kein Gold mehr in Paris zu horten.

Derzeit lagert das Gold der Bundesbank ihren Angaben zufolge in New York, London, Paris und Frankfurt. In der amerikanischen Notenbank Fed lagern 45 Prozent der insgesamt 3.396 Tonnen Gold, in der Bank of England in London 13 Prozent, in der Banque de France in Paris elf Prozent und im Hauptsitz in Frankfurt 31 Prozent. Diese Verteilung soll sich nun ändern.

We present it in the original for fear of losing something in translation, but in broad English terms the above reads as follows:

The German Bundesbank is developing a new approach as to where its gold will be stored. According to exclusive information, to be fully announced on Wednesday, the bank will in the future hold less gold in the New York Fed, and no more hold in Paris (Banque de France). As a result, the distribution of German gold, of which 45% is held in New York, 13% in London, 11% in Paris and 31% in Frankfurt, is about to change.

There is no need to explain why this is huge news (for those who have not followed our series on the concerns and issue plaguing German gold can catch up here, here, here, here, and certainly here) . At least no need for us to explain. Instead we will let the Bundesbank do the explanation. The following section is the answer provided by the Bundesbank itself in late October in response to the question why it does not move the gold back to Germany:

The reasons for storing gold reserves with foreign partner central banks are historical since, at the time, gold at these trading centres was transferred to the Bundesbank. To be more specific: in October 1951 the Bank deutscher Länder, the Bundesbank’s predecessor, purchased its first gold for DM 2.5 million; that was 529 kilograms at the time. By 1956, the gold reserves had risen to DM 6.2 billion, or 1,328 tonnes; upon its foundation in 1957, the Bundesbank took over these reserves. No further gold was added until the 1970s. During that entire period, we had nothing but the best of experiences with our partners in New York, London and Paris. There was never any doubt about the security of Germany’s gold. In future, we wish to continue to keep gold at international gold trading centres so that, when push comes to shove, we can have it available as a reserve asset as soon as possible. Gold stored in your home safe is not immediately available as collateral in case you need foreign currency. Take, for instance, the key role that the US dollar plays as a reserve currency in the global financial system. The gold held with the New York Fed can, in a crisis, be pledged with the Federal Reserve Bank as collateral against US dollar-denominated liquidity. Similar pound sterling liquidity could be obtained by pledging the gold that is held with the Bank of England.

And in case the above was not clear enough, below is the speech Buba's Andreas Dobret delivered to none other than NY Fed's Bill Dudley in early November:

Please let me also comment on the bizarre public discussion we are currently facing in Germany on the safety of our gold deposits outside Germany – a discussion which is driven by irrational fears.

In this context, I wish to warn against voluntarily adding fuel to the general sense of uncertainty among the German public in times like these by conducting a “phantom debate” on the safety of our gold reserves.

The arguments raised are not really convincing. And I am glad that this is common sense for most Germans. Following the statement by the President of the Federal Court of Auditors in Germany, the discussion is now likely to come to an end – and it should do so before it causes harm to the excellent relationship between the Bundesbank and the US Fed.

Throughout these sixty years, we have never encountered the slightest problem, let alone had any doubts concerning the credibility of the Fed [ZH may, and likely will, soon provide a few historical facts which will cast some serious doubts on this claim. Very serious doubts]. And for this, Bill, I would like to thank you personally. I am also grateful for your uncomplicated cooperation in so many matters. The Bundesbank will remain the Fed’s trusted partner in future, and we will continue to take advantage of the Fed’s services by storing some of our currency reserves as gold in New York.

Incidentally, what Zero Hedge did provide after this article, was factual evidence that the Buba's very much "trusted partner" had been skimming it on physical gold deliveries on at least one occasion, in "Exclusive: Bank Of England To The Fed: "No Indication Should, Of Course, Be Given To The Bundesbank..."

So we wonder: what changed in the three months between November and now, that has caused such a dramatic about face at the Bundesbank, and that in light of all of the above, will make is explicitly very unambigous that the act of gold repatriation, assuming of course that Handelsblatt did not mischaracterize what is happening and misreport the facts, means the "excellent relationship" between the Fed and Buba, not to mention Banque de France which will shortly hold precisely zero German gold, has just collapsed.

Also, if the Bundesbank is first, who is next?

Finally, once the scramble to satisfy physical gold deliverable claims manifests itself in the market, we can't help but wonder what will happen to the price of gold: both paper and physical?

WEF GLOBAL RISKS - Chronic Fiscal Imbalances Ranks First

The 17 Biggest Risks To Our Hyperconnected World 01-13-13 BI

1. Chronic Fiscal Imbalances
2. Rising Greenhouse Gas Emissions
3. Water Supply Crises
4. Mismanagement Of Aging Populations
5. Cyber Attacks
6. Severe Income Disparity
7. Failure Of Climate Change Adaptation
8. Pervasive Entrenched Corruption
9. Extreme Volatility In Commodity Prices
10. Persistent Extreme Weather
11. Global Governance Failure
12. Mismanaged Urbanization
13. Chronic Labor Market Imbalance
14. Species Overexploitation
15. Rising Religious Fanaticism
16. Terrorism
17. Critical Systems Failure

World Economic Forum - Global Risks 2013

COMPLEX NETWORKS

The Cases – Making Sense of Complex Systems

The 50 global risks in this report are interdependent and correlated with each other. The permutations of two, three, four or more risks are too many for the human mind to comprehend. Therefore, an analysis of the network of connections has been undertaken to highlight some interesting constellations of global risks seen in Figure 3.

In Section 2, these constellations of global risks are presented as three important cases for leaders: “Testing Economic and Environmental Resilience” on the challenges of responding to climate change, “Digital Wildfires in a Hyperconnected World” on misinformation spreading via the Internet, and “The Dangers of Hubris on Human Health” on the existential threat posed by antibiotic-resistant bacteria.

Each case was inspired by the findings from an initial network analysis and further developed through extensive research into current trends, potential causal effects, levels of awareness and possible solutions. Unlike traditional scenario methodologies, the risk cases do not attempt to develop a full range of all possible outcomes. They are instead an exercise in sensemaking as well as a collective attempt to develop a compelling narrative around risks that warrant urgent attention and action by global leaders. Readers are encouraged to refine these cases further and to develop their own scenarios based on the data presented.iv

Resilience – Preparing for Future Shocks

This year’s Special Report examines the increasingly important issue of building national resilience to global risks. It introduces qualitative and quantitative indicators to assess overall national resilience to global risks by looking at five national-level subsystems (economic, environmental, governance, infrastructure and social) through the lens of five components: robustness, redundancy, resourcefulness, response and recovery. The aim is to develop a future diagnostic report to enable decision-makers to track progress in building national resilience and possibly identify where further investments are needed. The interim study will be published this summer, and we invite readers to review the proposed framework and to share ideas and suggestions with the Risk Response Network.

GLOBAL TRENDS - National Intelligence Council

Global Trends 2030: Alternative Worlds Natiional Intelligence Council

A report by the National Intelligence Council predicts that the United States will lose its superpower status by 2030, but that no country — including China — will be a hegemonic power.

Instead, the report says, power will shift to “networks and coalitions in a multipolar world.”

The council, which wrote Global Trends 2030, was established in 1979. It supports the U.S. director of National Intelligence and is the intelligence community’s center for long-term strategic analysis.

The council’s intelligence officers are drawn from government, academia and the private sector.

FULL REPORT: Global Trends 2030

“The world of 2030 will be radically transformed from our world today,” the report concludes. “By 2030, no country — whether the U.S., China, or any other large country — will be a hegemonic power.”

Intel report sees U.S. losing superpower status by 2030

MEGATRENDS: The 6 'Gamechangers' That Will Impact The Planet For Decades 01-11-13

Gamechanger 1: The Crisis-Prone Global Economy

• CRISIS ECONOMY: “Drastic measures” will be necessary to curb growing fiscal liabilities in developed countries.
• CRISIS ECONOMY: The global share of financial assets becomes much more evenly distributed.
• CRISIS ECONOMY: Commodity instability will hit China and India, who remain import dependent.
• CRISIS ECONOMY: Durations of business cycles will become significantly shorter and less smooth.

Megatrend 2: The Governance Gap

• GOVERNANCE GAP: Growing middle classes in developing countries will increase demand for rule of law and government accountability.
• GOVERNANCE GAP: About 50 countries qualify as falling somewhere between "free" and "not free."
• GOVERNANCE GAP: And growth in the number of free countries has stalled in the past decade.
• GOVERNANCE GAP: Climate stress, which will exacerbate water scarcity, could actually cause some governments to collapse.

Gamechanger 3: Potential For Increased Conflict

• CONFLICT: Tensions have increased as the international system has become more fragmented and existing norms of cooperation fall out of favor.
• CONFLICT: Resource competition will intensify.
• CONFLICT: Cyber attacks have increased.

Gamechanger 4: Wider Spread Of Regional Instability

• REGIONAL INSTABILITY: The Middle East's youth population is getting younger, and unemployment is rising.
• REGIONAL INSTABILITY: Defense spending in Asia is increasing.
• REGIONAL INSTABILITY: Latin America's growing middle class will clash with countries' inherent populism.
• REGIONAL INSTABILITY: Using a new global power index, China will still surpass the US, but by 2040 instead of earlier.

Gamechanger 5: The Impact Of New Technologies

• TECH: Three key technology areas will see wide inovation: information, the ability to store which is getting increasingly cheaper
• TECH: Robotics and manufacturing, which is already affecting unit labor costs worldwide...
• TECH: And resource technology, which will have to increase to compensate for declining crop yields.

Gamechanger 6: The Role Of The United States

• AMERICA: For now, the U.S. continues to dominate the world in a number of areas.
• AMERICA: And the U.S.'s share of the oil market is only going to increase. Read more:
• AMERICA: But by 2050, China will enjoy greater purchasing power parity than the U.S.
• AMERICA: Our demographic prosperity window is closing fast, while others' have just opened.

DEMOGRAPHICS - Immigration, Regionalization, Dependency and Obesity

AMERICA 2050: Here's How The Country Will Look Three Decades From Now 10-19-12 BI

1. The Census says our population will jump another 100 million in just a few decades
2. Put aging and immigrants together, and you get a working-age population that will be "majority minority" in 2050
3. 11 emerging "megaregions," economies become so interdependent that they form larger distinct entities
4. Dependency ratio — the proportion of nonworking to working people — is gonna surge. It's not clear whether we'll be able to support them
5. There's another thing that's gonna happen...we're gonna get fatter. this, not aging, is what's going to cause medical costs to skyrocket

CHINA - Social Unrest

Why Chinese Leaders Are All Reading Alexis de Tocqueville 01-13-13 Patrick Chovanec, An American Perspective From China