2ndlook

Mystery of the missing Russian gold

Posted in Business, Current Affairs, European History, Gold Reserves, History, India, politics by Anuraag Sanghi on January 18, 2010

As the Soviet Empire crashed

In November 1991, the head of Gosbank the Central Bank of USSR, Viktor Geraschenko confirmed that USSR had less than 400 tons of gold reserves – and not the 1000-1500 tons as estimated. Russia, which has been one of the world’s Top 10 gold producers for the last 100 years, to have a paltry less than 400 tons of gold as reserves created a flutter in the IMF, World Bank, and the Western world. Where did this ‘estimated’ 1000 ‘extra’ gold go?

The declared gold reserves of Gosbank in mid-1937 were 374.6 tons. No additions were made after that, and the reserves were turned over to the People’s Commisariat of Finance. The size of of the reserve had been kept secret since the late 1930s. Geraschenko wrote to Gorbachev on November 15, 1991: “It was reported in October of this year that the official gold reserves of the country are only 240 tons. The declared level of official gold reserves, which is one of the most important indicators of a country’s solvency, is not commensurate with the status of a superpower and leading gold producer, according to experts. Reports of the size of the USSR gold created confusion among specialist on the gold market, who had previously estimated them to be 1,000-1,300 tons”. (via Collapse of an empire: lessons for modern Russia By Egor Timurovich Gaĭdar, page 238).

A preachy and superior writer about the Soviet implosion

A preachy and superior writer on the Soviet implosion

After Gorbachev’s ‘perestroika’ and ‘glasnost’, as the Russian economy was loosening the grip of the CCCP, the Russian Central Bank set-up an

“offshore firm, Financial Management Co., known as Fimaco, based in Jersey, the Channel Islands, to handle Russia’s foreign currency reserves. By one estimate, the offshore fund managed $37 billion between 1993 and 1998. The firm was a subsidiary of Eurobank of Paris, which is 78 percent owned by the Central Bank.”

The Washington Post revealed in another report how Russia,

funneled billions of dollars in Russia’s hard currency reserves through… Fimaco … Documents disclosed by The Washington Post showed that some of the money was then pumped back into Russia’s high-flying government bond market in 1996, in the months before President Boris Yeltsin’s reelection.

One of the few journals to get this story right was Businessweek – based ‘on-the-ground’ whispers.

Managing the Russian Central Bank during the mayhem

Described by Jeffery Sachs, repeated many times by Western bankers, as “the worst banker in the world”, Viktor Gerashchenko was chairman of the Russian Central Bank. Twice: the first time from 1992 to 1994, and the second time was after the default crisis of 1998 – upto 2002; resigning after “expressing opposition to proposed legislation that aimed to make the Central Bank subordinate to a new government led body, The National Banking Council.”

Without any conspiracy theories

For Russia, as one of the Top 10 producers of gold, to have 1000-1500 tons of gold would not be excessive. But between 1971, after the Nixon Chop, in little time, dollar value depreciated from US$35 per ounce of gold to US$800 in 1980. Over the next 20 years, through various clandestine methods (check out the Edmond Safra and the Yamashita stories below), gold prices were ‘managed’ and brought down to US$225 per ounce. Co-incidentally, along with oil prices. This reduction in gold and oil prices simultaneously, severely undermined the health of USSR’s economy – these two being the most valuable ‘hard currency’ exports from USSR.

A simple explanation may be that the central bankers of the erstwhile USSR used a lot of that gold to ‘support’ alliances. Much in the manner of the USA, which does the same with its USCAP system. To this add the possibility that Soviet apparatchiks did not want to divvy up Soviet gold with members of the CIS and the subsequent splinter countries of the USSR, or lose it to ‘impatient’ and ‘opportunistic’ Western creditors.

This ‘unexplained’ reduction in gold reserves, was done according to Gosbank head, Gerashchenko, to “to avoid the seizure of assets during talks with foreign governments and private creditors on the restructuring of Moscow’s Soviet-era debts.” Russian authorities also “questioned the $50 billion figure reported by Skuratov. They said $1.4 billion was the most FIMACO ever managed at one time, in 1994”. After his stint at Gosbank, Geraschenko became chairman of the Yukos board. Yukos is the company that belonged to the jailed billionaire, Mikhail B. Khodorkovsky.

 La Leopolda  at Villefranche sur Mer, France, the former home of King Leopold, Gianni Agnelli and Edmond Safra.

La Leopolda at Villefranche sur Mer, France, the former home of King Leopold, Gianni Agnelli and Edmond Safra.

Death Of Edmond Safra

Friday. December 3rd, 1999. TV channels (in India too) announced that Edmond Safra died in mysterious circumstances – at his villa in Monaco.

Based out of Monaco, a known off shore finance centre, Edmond Safra was reputed to have been in the know and arranged numerous gold dealings. His claim to fame was to ‘arrange’ the evacuation of Sephardic Jews, with their wealth from various West-Asian and Middle East countries between the 1920-1960s. He was ‘whispered’ to be behind the George Soros run-in with the Bank Of England gold sale and physical delivery.

The US FBI was conducting investigations about money laundering through Safra’s bank by the Russian ‘mafiya’, based on information given by Edmond Safra. Behind many of these money transfer and manipulation operations through Safra’s Bank, was the Russian ‘mafiya’ – and lubricating these transactions, were hundreds of tons of Russian-Soviet gold. Sold through Edmond Safra? Was it this investigation or a ‘double-cross’, that triggered Safra’s killing?

At the time of Edmond Safra’s death, he was negotiating the sale of his bank to The Hong Kong & Shanghai Banking Corporation.

Yamashita Gold – Underground gold from Japan

Korea claims that Japan plundered Korea of hundreds of tons of gold from 1937-1944. Philipines, Indonesia have all raised claims against Japan for war time gold loot.

Regardless, one American writer had definitely hit a jackpotGold Warriors: America’s Secret Recovery of Yamashita’s Gold (By Sterling Seagrave, Peggy Seagrave). Ian Fleming is supposed to have based his story on the Yamashita chapter of WW2.

Japan’s top underworld crime boss, Taisho (Admiral) Yoshio Kodama, (ranked as an admiral at 34 years) a major figure in the Japanese underworld was in charge of Project “Golden Lilly” – after one of Hirohito’s poems! Objective – looting gangsters in Japanese occupied territories. Supervising the operations was Emperor’s Hirohito’s brother, Prince Chicubi. Management – Japan’s top financial figures.

Central Bank - Gold Sales
Central Bank – Gold Sales

Subsequently, allegedly, a lot of this gold landed with Ferdinand Marcos; the Filipino dictator. Swiss banks, Macao criminals, American generals and politicians – all involved.

Glen Yeadon, writer of “The Nazi Hydra in America: Suppressed History of a Century” writes how Presscott Bush (grand-father of George Bush), Douglas MacArthur were involved in various launderings, diversions and subterfuge involving Nazi gold and Japanese gold after WW2.

After the Japanese surrender, Tomoyuki Yamashita, was tried by a kangaroo court, convicted of vague crimes and hung to death – which added to the rumours of Yamashita’s gold.

Recovery of Boticelli’s Venus

Sandro Botticelli’s Venus Rising, a ‘priceless’ renaissance period painting, now in the Ufizzi gallery, stolen and hidden, was ‘discovered’ by Indian soldiers, during WWII. This ‘discovery’ of Botticelli’s Venus was a highlight of the mopping up operations – and the role of the Indians soldiers has been wiped clean. No book review of a hagiographic account, The Venus Fixers: The Remarkable Story of the Allied Soldiers Who Saved Italy’s Art During World War II By Ilaria Dagnini Brey mentions this contribution by Indian soldiers. I wonder what would have happened if ‘others’ had found this painting. Blame the Nazis for the loot! The painting would never have been recovered, I presume!

Central Bank Gold Sales

Between 1999-2009, European Central Banks have sold more than 4000 tons of gold under the Central Bank Gold Agreement (CBGA).

Switzerland, which had held the most gold reserves per capita in Europe in 1999, has sold more than 1,300 tons of its gold reserves. Other major sellers in the past 10 years included France, the Netherlands, and the U.K.

Countries like France, where monetary policy is now set by the European Central Bank, still maintains its own central bank. The U.S. hasn’t sold gold.

In the past, abrupt selling has sometimes depressed gold prices. The Bank of England’s announcement in early 1999 that it was selling part of its reserves helped gold prices slump to a 20-year low. Gold traded at just above $250 an ounce by the summer of that year.

But efforts to coordinate those sales have reduced those shocks. On Sept. 26, 1999, 15 European central banks, led by the ECB, signed the first CBGA to take concerted moves on gold sales.

The banks agreed that in a five-year period, they will cap their total gold sales at around 400 tons a year, with sales in five years not exceeding 2,000 tons. The CBGA was renewed in 2004 for another five-year period. The second CBGA raised annual ceiling to 500 tons and the five-year limit to 2,500 tons.

The interesting bit was where did the European Central Banks get so much gold from! Was it the various gold hoards, that had disappeared from 1900-200o, making a re-appearance!

For long, these calls for accountability from ‘conspiracy theorists’ have been ignored. The good news. These ‘conspiracy theorists’ have not been able to locate any more of such extra sources of gold, which may disturb the market in the next few years.

Connecting The Dots …

Posted in Business, Current Affairs, Gold Reserves by Anuraag Sanghi on October 11, 2008
The Dollar Yuan Rumba

The Dollar Yuan Rumba

Dollar Devaluation

1973-1985. The Japanese were strutting on the world stage.

1973-1985. The Japanese were strutting on the world stage. In their hubris, one Japanese businessman declared that the only world-class product made in USA was maple syrup. The Japanese manufacturing juggernaut seemed unstoppable. Japanese management was the first lesson and the last word in business schools. Companies like Xerox, FedEx, Motorola adopted various ‘QIP’ systems – quality improvement processes.

Finally, the Americans decided that the yen-dollar exchange rate was the culprit. In 1985, the US worked out a deal whereby the US dollar was devalued. Only it was not called a devaluation. It was called the Plaza Accord.

Without a formal devaluation, the Plaza Accord allowed Americans to depreciate the dollar against other currencies – especially the Japanese Yen. Intense negotiations spread over nearly a decade followed. During a crucial negotiation in Japan, in 1992, a stressed out George Bush Sr., vomited and fainted.

The Oil-Dollar Tango

The Oil-Dollar Tango

Endaka – and the end of the Japanese run

After the Plaza Accord, the Japanese team went back home and prepared their industry for endaka – high yen prices.

From August 1971 through April 1995, the yen’s value ratcheted up from 360 to the dollar to 80 to the dollar. This was primarily because some U.S. industries, anxious about their eroding share of world markets, put political pressure on American politicians. The American government in turn put pressure on Japan’s politicians and central banking officials to keep raising the value of the yen against the dollar. With some support from academic economists, American producers argued that a higher-valued yen would help their products sell better in competition with Japanese products and therefore reduce the American trade deficit.

Net outcome, by the mid 1990s, the Japanese juggernaut was halted. Japan had to remain contented with being the world’s second largest economy. George Soros thought,

the prospect of Japan’s emerging as the dominant financial power in the world is very disturbing, not only from the point of view of the United States but also from that of the entire Western civilization

For the next 10 years, the Japanese economy stagnated, investments stagnated. Their dream of supplanting the US as the world’s largest economy were over – for now at least.

Stuffed Tigers

The 90s was decade of the Asian Tigers. Korea, Malaysia, Thailand, Indonesia, Singapore were all set to replace Japan as the axis of world economy. India especially came out as a distant plodder against these countries. Lee Kuan Yew, held forth on the Indian character was faulty – and could not compete with the Chinese-Confucian value-set.

Then followed the Asian Crisis. Mahathir Mohammed claimed that the 1997 Asian Crisis was a foreign conspiracy. Specifically, he named George Soros as the master mind behind the Asian Crisis. 9 years later, Mahathir made up with George Soros – and retracted his charge.

The ostensible reason was that investors in the Asian Tigers were funding long-term investments from short-term borrowings – a classic mismatch. The rapid withdrawal of foreign funds impacted development of these economies to the extent of a decade.

Has It Come To This? (Cartoon by David Horsey from seattlepi.com).

Has It Come To This? (Cartoon by David Horsey from seattlepi.com).

The 2 trillion trap

After the Asian crisis, China was in a better position to resist American pressure for renminbi revaluation.

That resistance to renminbi revaluation, in turn, caught China, in another trap. China has US$ 2 trillion worth of rapidly depreciating foreign reserves.

Which brings us to India!

What will it be

What are the threats to the Indian economy! Will it be a ‘sudden’ collapse in software and outsourcing? Or will it be a severe contraction in gems and jewellery exports? Can it be a 3 year drought due to global warming?

Bretton Woods – What they wont teach or tell you …

Posted in Business, Current Affairs, Environment, European History, Gold Reserves, History, Media, Uncategorized by Anuraag Sanghi on October 8, 2008

Prequel to Bretton

Keynes’ first book that gained him some following in the world of economics was the ‘Indian Currency And Finance‘. This work examined in significant detail the workings of the Indian currency system. The Indian colonial currency system was anchored to the British pound – and various other local Indian currencies were in use – and even legal tender in large parts of India.

G5 will take on G8

G5 will take on G8

Thus there was always great pressure on Britain to keep the British pound on gold standard – as there was always the option for the common citizen to use coinage from other kingdoms and princely states. In 1900, the British colonial Government tried to enforce circulation of British sovereigns in India – which failed.

Of course, gold importation into India was severely restricted. The gold blockade against India was effective as the major gold production centres were under Anglo Saxon occupation (Australia, Canada, USA, South Africa, Rhodesia, Ghana, etc.).

The Birth Of Bretton Woods

As WW2 was winding down, the Anglo Saxon Bloc went ahead and devised the Bretton Woods system. This system was a copy of the Indian currency system – where instead of the British pound, the American dollar became the Index currency.

Instead of milking only India, the Anglo Saxon Bloc could now milk the whole world. Keynes noted how America when dealing ‘her dependencies, she has herself imitated almost slavishly, India.’ So, when the time came, it took very little time for the US to scale the Indian currency model on the rest of the world.

The success of Bretton Woods-I depended on blockading India from buying gold – which was effectively done by Morarji Desai. (I wonder why the ungrateful Anglo Saxon Bloc has not made a statue of Morarji Desai at Mount Rushmore). He has after all been the single biggest contributor to their prosperity for the last 50 years.

What was Bretton Woods

The world stamped their approval on Bretton Woods.

As per the agreement, all countries of the world would use the dollar as the index currency – for international trade and foreign exchange reserves and for nominal exchange rate fixation. This system allowed the USA to print ‘excess’ dollars. These ‘excess’ initially in limited quantities, but soon at an accelerating pace. Today the USA has flooded the world (and the USA markets with more than US$50 trillion) of excess currency. The housing bubble, the M&A frenzy, the credit crisis are by products of this printing of dollars. With these excess dollars, the US consumers and others bought what they wanted – and US went ahead and printed some more dollars.

Bearing the dollars cross

Bearing the dollar's cross

Behind Bretton Woods – Gold

If the Bretton Woods system was defective, unfair, weighted et al, why was it accepted? Why did the world believe that only the Anglo-Saxon Bloc could deliver.

Why?

In 1944, the Anglo Saxon Bloc (countries, colonies and companies) controlled more than 90% of gold production and reserves. The largest private gold reserve in the world, India was still a British colony. Hence, it was fait accompli.

The Cornering Of Gold Supplies

For the last 150 years, the ABC countries (America, Australia, Britain, Canada) comprising the Anglo Saxon bloc (countries, colonies and companies) have controlled 90% of the world’s gold production. Till (a large part of) India was a British Colony, they also controlled more than 50% of the above-the-ground gold reserves. This gave them absolute liberty to print depreciating currency and flood the world pieces of paper(called dollars and pounds), manipulate the world financial system and keep other populations poor and backward.

Who paid for the dollar hegemony

Who paid for the dollar hegemony

Bretton Woods – Broken Promises

The promise of the Bretton Woods system was stability. USA promised the world that they will redeem the US dollar for gold – at a rate of US$35. Anyone could (except Indians and Americans) buy an ounce of gold from the USA for US$35 – managed by the the London Pool system. Within 20 years, the first promise was broken. Redemptions of dollar for gold to individuals was stopped in 1968 (March15th).

The Bretton Woods system worked for 20 years because Indians were not allowed to buy gold. India’s finance minster during that crucial period, Morarji Desai, (allegedly on CIA payroll during Lyndon Johnson’s Presidency 1963-1968), presented a record 10 budgets, between February 1958, up to 1967.

His break with Indira Gandhi began when the Finance portfolio was taken away from him. Morarji Desai’s ban on gold imports allowed the sham of Bretton Woods to continue for 20 years. His adamant attitude on gold cost the government popularity and electoral losses – and the Indian economy and Indians much more. Was it a co-incidence that many of the RBI functionaries later got (and even now) plum postings at LSE (IG Patel) and BN Aadarkar (IMF)?

The Bretton Woods Twins

Bretton Woods also gave rise to the the Bretton Woods twins (the IMF and the World Bank) which are run and managed by the Anglo Saxon countries. The ABC countries, their client states like Japan, OECD, etc. have 65% of the voting rights. With this huge voting majority, less than 5% of the world’s population (of the ABC countries) decide how 95% of the world lives.

The Bretton Woods twins (the IMF and the World Bank) been significant failures. Aid (spelt, ironically, very similarly to AIDS) projects are approved – which are tied to imports from these Anglo Saxon countries.

Bretton Woods Fraud

The Bretton Woods system was technically created by more than 700 delegates from the 44 allied nations. But the match was fixed.

It was designed by the Anglo-Saxon countries (America, Australia, Britain, Canada), for the benefit of the Anglo Saxon countries. Notice how much Britain resisted and finally did not join the European Currency Union. This system has swamped the world with accelerating inflow of dollars (American, Australian, Canadian) and British pounds. Producers and exporters are left with vast reserves of a depreciating currencies.

Nixon Chop And Bush Whack

From the Nixon Chop to the Bush Whack final months of Dubya’s Presidency, the Bush Family has been in the Presidency for 12 years of the 37 years. And in positions of lesser power for the entire period. George Bush Sr. was the US representative to the UN during the Nixon era – when Nixon made his infamous remarks to Kissinger about the ‘sanctimonious Indians’ who had pissed on us (the US) on the Vietnam War’. George Bush Sr. was also the US Vice President during the 8 years of Reagan Presidency.

The bend in the flow

The bend in the flow

During these 37 years – between the Nixon Chop (1971) and the Bush Whack (2008), the world has changed significantly.

The Nixon Chop

On August 15th, 1971, President Nixon after a two day huddle with 15 advisers at Camp David, delivered the Nixon Chop to the world. The Nixon chop (my name for this event), one month after his China breakthrough, cut the convertibility peg of US$35 to gold as US gold reserves were severely depleted.

The French had been regularly redeeming gold for their dollar earnings – and for this ‘perfidy’ the US had not forgiven France. This was much like the pre-WW2 French methodology of devaluation, new peg, old debt for new gold routine which got the US hackles up. Many decades have passed since these redemption by France, and the new French President, Sarkozy believes it is now possible to renew US-French relations again.

On the opposite side of the world, a beleaguered Indian Prime Minister was celebrating 24 years of Independence with a “ship-to-mouth” economy, dependent on PL-480 grain. Private gold reserves in the Indian economy after nearly 25 years of post-colonial rule, were steadily rising. Over the next 10 years, the western world (and most of the rest) blamed OPEC for post-1971 inflation, gold scaled US$800 an ounce; the Hunt Brothers launched their bid to corner the silver market; stagflation made an entry and Soviet power grew. Nixon Chop , itself the result of many years of gold reserves erosion, was one in many steps that brought the US$ to its knees.

Can the dollar be fixed?
Can the dollar be fixed?

On August 15th, 1971, the world got the Nixon Chop – where even Governments could not redeem dollar holdings. The dollar was put on float. In little time, dollar value depreciated from US$35 per ounce of gold to US$800 in 1980. Over the next 20 years, through various clandestine methods (check out the Edmond Safra and the Yamashita stories links), gold prices were managed and brought down to US$225 per ounce – but still 80% reduction in value of dollar value. Foreign reserves of poor countries got eroded. It was a gigantic fraud on the world – especially the poor, developing countries. And the fraud continues.

Every Few Years

Every 10-25 years, the world seems to go from one financial crisis to another. Trucks full of economic analysis follow each crisis – and everyone agrees after each meltdown, that there will not be another catastrophe. What the poor (and not so poor) economists don’t see is that the Anglo Saxon bloc with 80% of the world’s gold production in a choke-hold does what it wants.

On December 31st, 1974, nearly forty years after Roosevelt nationalized private American gold stocks, Americans were allowed to invest in gold again. Again Indian liberalization (1991) of gold imports happened a good 17 years after the US laws (1974) were liberalized. I wonder, how that was tied.

And that is what has happened for the last 60 years. Of course, all good (for the Anglo-Saxon Bloc) things come to an end. And so has Bretton Woods – I & II.

Nixon Chop And Bush Whack

Posted in Business, Current Affairs, European History, Gold Reserves, History, Indo Pak Relations by Anuraag Sanghi on September 24, 2008
The Bush Era Balanced Score Card

The Bush Era Balanced Score Card

The Dollar-Oil Tango

From the Nixon Chop to the Bush Whack, in the final months of Dubya’s Presidency, the Bush Family has been in the Presidency for 12 years of the 37 years. And in positions of lesser power for the entire period. George Bush Sr. was the US representative to the UN during the Nixon era – when Nixon made his infamous remarks to Kissinger about the ‘sanctimonious Indians’ who had pissed on us (the US) on the Vietnam War’. George Bush Sr. was also with the CIA and the US Vice President during the 8 years of Reagan Presidency.

During these 37 years – between the Nixon Chop (1971) and the Bush Whack (2008), the world has changed significantly.

Every Few Years

Every 10-25 years, the world seems to go from one financial crisis to another. Trucks full of economic analysis follow each crisis – and everyone agrees after each meltdown, that there will not be another catastrophe. What the poor (and not so poor) economists don’t see is that the Anglo Saxon bloc with 80% of the world’s gold production in a choke-hold does what it wants. And the second element – they also control and influence 80% of the Oil production.

Why has this system been such a failure? Simple!

Oil & Dollars

After the Nixon Chop, the OPEC went into a huddle. After all they were selling a limited resource against payment through pieces of paper. After the Nixon Chop, the chain of events, post 1970 developments were as follows: –

The international monetary developments as of 15 August 1971 prompted OPEC, in its meeting in Beirut on 22 September 1971, to call for negotiations with the oil companies holding concessions in member countries. By 14 January 1972 there was no progress in negotiations. OPEC, in spite of a total loss of more than 11.5%, was asking for a hike of only 8.57% –- which was the loss in value of the US dollar relative to gold. In fact, what OPEC was asking for was very close to what the International Maritime Conference had, at the time, announced: a minimum increase in the dollar freight rates of 8.6%. Finally, an agreement was reached in Geneva on 20 January 1972 that provided an immediate increase in the posted prices by 8.49%. The settlement also included provisions for further adjustments until 1975 based on an index that reflected changes in the dollar and other key currencies.

Concurrently, on October 17th 1973, OAPEC members (OAPEC, consisting of the Arab members of OPEC plus Egypt and Syria) announced embargo against shipping oil to all countries supporting Israel in the the ongoing Yom Kippur War against Syria, Egypt and Iraq – i.e. the United States, Western Europe, and Japan. Non Arab OPEC members decided to leverage their power to raise world oil prices, after the failure of negotiations with the Oil Companies (then popularly called “Seven Sisters”).

The targeted countries responded with a wide variety of new, and mostly permanent, initiatives to contain their further dependency. Europe tied with Russia for the trans-Europe gas pipeline. North Sea Oil production was ramped up. Norway and other countries also increased their output. Thus while not fully dependent on the OPEC, this served an important purpose – to demonstrate that the West and OPEC were on opposite sides, whereas the truth was opposite.

OPEC and West – Partners In Loot

Actually, the West saw a transfer of wealth, all over again from the Third World, via the OPEC Petro Dollars. The dollar regime was significantly beneficial to the Western World in general – and US in particular. The Oil dollar linkage allowed the US to create global reserves with other countries of US$6 trillion in just foreign exchange reserves. Other debt and trade add upto another US$14 trillion.

Approx US$20 trillion is the amount of dollars that the OPEC has managed to transfer from the Third World to the West. But the unhappy outcome of the Oil Crisis of the ’73 (for the West) was the riches and power of the Arab countries. What followed was a rising crescendo of Islamic Demonization for the last 37 years.

Oil output is currently over-valued as Western producers and OPEC jointly rig up prices. The Rest of the world pays (recently its is largely India and China) – and pays in dollars which again benefits the West.

The West limits its own output to keep up the prices. OPEC has the advantage of high oil prices. The petro dollars are reinvested back in the West. Finally, OPEC gained – and so did the West.

Who paid!

Mostly poor Indians and Chinese. And even poorer Africans.

Bush Whacked

Bush Whacked

War, Oil , Dollars & The Middle East

The justifications for invading Iraq given by the USA, were finally found to be false. The invasion was finally not related to 9/11. Iraq did not have any WMDs either. So, what was were the reasons for Iraqi invasion?

A ring side observer, former Indian Ambassador to Iraq, Ranjit Singh Kalha’s book, ‘The Ultimate Prize’ makes some interesting observations on the genesis of the Iraq invasion.

“The first mistake Saddam made was when he decided in October 2000 to move away from using US dollars as the currency for oil exports, …under the UN ‘oil-for-food’ programme.” Saddam also converted Iraq’s USD 10 billion reserve fund from US dollars to Euros. “Although this act of Saddam was not of very great economic significance in overall terms, it represented for the United States a direct challenge to the use of the dollar as a currency for transactions,” … in his just-released book, “The Ultimate Prize”. Iran followed Saddam’s move and Venezuela started initiating barter deals outside the dollar system. “If most other Organisation of Petroleum Exporting Countries (OPEC) followed the Iraqi and Iranian example, the stability of the US dollar would be at stake,” Kalha, who was posted in Baghdad during the tumultuous 1992-94 period, says.

Sidelined to the (Indian) National Human Rights Commission, Kalha’s book was also buried under a mound of silence, not reviewed and made no impression in the popular media. One press release by PTI was recycled by The Economic Times, Outlook, Sahara Samay, The Hindu, India Today, and NDTV. Google and Live Search hardly turned up anything. Yahoo.co.in showed some these links.

Bush Whacking Iraq

Bush Whacking Iraq

Iran and Venezuela followed Iraq and also moved away from designating oil sales in US dollars. After the Bretton Woods-I collapse, instead of gold, it was oil that anchored the US currency. West Asian Oil producers agreed to denominate oil in dollars after the Nixon Chop – and in turn there was no real resistance by the West to OPEC oil cartel increase oil prices by a factor of 10.

Western Oil companies also acted in concert with OPEC by limiting their own oil production. From around 4 dollars a barrel to US$40. The West was relatively unscathed – as these petro-dollars were re-invested back in the West. Europe managed to insulate itself with the North Sea Oil (Britain, Norway were the main producers along with Germany and Denmark. Europe also concluded a deal with Russia for a pipeline into Europe. North Sea Oil Production peaked in 1999-2000 with a 6 million barrels per day.

India was also not highly impacted as Bombay High started production in 1974. It was the rest of the Third World which paid this bill.

Bretton Woods – I & II

As Ron Paul noted,

“The agreement with OPEC in the 1970s to price oil in dollars has provided tremendous artificial strength to the dollar as the preeminent reserve currency. This has created a universal demand for the dollar, and soaks up the huge number of new dollars generated each year.”

The Bretton Woods-I system worked for from 1945-1971 (26 years) years because Indians were not allowed to buy gold. India’s finance minster during that crucial period, Morarji Desai, (allegedly on CIA payroll during Lyndon Johnson’s Presidency 1963-1968), presented a record 10 budgets, between February 1958, up to 1967.

Bretton Woods-II, based on oil-dollar anchor, worked for another 35 years (1973-2008) till now. Oil exploration is a 5-10 year investment. Oil should be made another commodity. An easy option is to create a Republic of Pacific Islands – Haiti, Cuba, Grenada, and other West Indies. These islands can become vast oil production centres – that will help them raise their economies and can feed Asia with oil, peacefully.

The third currency bloc is essential – and it can happen only if India and South Africa decide to make it happen.

Recessions, Slowdowns, Slumps – The US Role

Posted in Business, Gold Reserves, History by Anuraag Sanghi on March 1, 2008
What has happened as a result of unsustainable policies (simultaneous budget and current account deficits, and loose monetary and fiscal policies) in the US is that a huge liquidity bubble of $7-10 trillion has caused massive inflation in global prices for all asset classes: property, stocks, commodities, etc. – Percy S Mistry / New Delhi February 28, 2008 (bold letters mine).

How many Zeros In a Trillion?

I dont know. I was not prepared for this figure. It simply too huge.

To put it in perspective. The whole of India, produced last year, goods and services worth US$1 trillion. Did banks lend out 7-10 trillion US$ in doubtful loans (Why didnt I get any of this?)? Who will pay the price for this? How will this get financed? Can we continue running the world financial system like this?

Every Few Years

Every 10-25 years, the world seems to go from one financial crisis to another. Asian currency crisis, US housing slump, Northern Rock, Soc Gen derivatives scam, et al. Trucks full of economic analysis follow each crisis – and everyone agrees after each meltdown, that there will not be another catastrophe. What is behind this? Who is behind this? What can we do to avoid this?

What is the system behind this fraud? Why has ‘this’ system been such a failure? Simple!

US Trade DeficitThe Bretton Woods Fraud

After WW2, the global financial system has been governed by the Bretton Woods Agreement. The Bretton Woods Agreement is a millstone around the developing world. As WW2 came to a close, British-American economists came together and devised this system. The Bretton Woods system was technically created by more than 700 delegates from the 44 allied nations. But the match was fixed.

It was designed by the Anglo-Saxon countries (America, Australia, Britain, Canada), for the benefit of the Anglo Saxon countries. Notice how much Britain resisted and finally did not join the European Currency Union. This system has swamped the world with accelerating inflow of dollars (American, Australian, Canadian) and British pounds. Producers and exporters are left with vast reserves of a depreciating currencies.

Bretton Woods – Broken Promises

The promise of the Bretton Woods system was stability. USA promised the world that they will redeem the US dollar for gold – at a rate of US$35. This was supposed to be done out of the London Pool system. Within 20 years, the first promise was broken. Redemptions of dollar for gold to individuals was stopped in 1968 (March15th).

The Bretton Woods system worked for 20 years because Indians were not allowed to buy gold. India’s finance minster during that crucial period, Morarji Desai, (allegedly on CIA payroll during Lyndon Johnson’s Presidency 1963-1968), presented a record 10 budgets, between February 1958, up to 1967.

His break with Indira Gandhi began when the Finance portfolio was taken away from him. Morarji Desai’s ban on gold imports allowed the sham of Bretton Woods to continue for 20 years. His adamant attitude on gold cost the government popularity and electoral losses – and the Indian economy and Indians much more. Was it a co-incidence that many of the RBI functionaries later got plum postings at LSE (IG Patel) and BN Aadarkar (IMF)?

The French Perfidy

In the 1960s, most of the world was buying gold at an artificially low price US$35 – and the USA was bleeding gold. The French team of Charles de Gaulle and his economic advisor, Jacques Rueff did quick maths. It was clear this मेला would not last long. The USA was printing dollars and dumping it in world markets. Based on huge dollar ouflows, the French decided they will call the bluff. The French started redeeming gold for their dollar earnings – and for this ‘perfidy’ the US had not forgiven France.

The French redeemed their dollar holdings (1958 onwards), sent the French navy (in 1965) to take delivery of gold from USA and bring it to Banque de France. The French raised gold reserves and dumped dollars. Banque De France finally, by 1968, increased its gold reserve to 92% (as a percentage of total foreign currency /monetary reserves).

This was much like the pre-WW2 French methodology of devaluation, new peg, old debt for new gold routine which got the US hackles up. Many decades have passed since these redemptions by France, and the new French President, Sarkozy believes it is now possible to renew US-French relations again.

The Nixon Chop

In 1971 (August 15th), the world got the Nixon Chop – where even Governments could not redeem dollar holdings. The dollar was put on float. In little time, dollar value depreciated from US$35 per ounce of gold to US$800 in 1980. Over the next 20 years, through various clandestine methods (check out the Edmond Safra and the Yamashita stories in these links), gold prices were managed and brought down to US$225 per ounce – but still 80% reduction in value of dollar value. Foreign reserves of poor countries got eroded. It was a gigantic fraud on the world – especially the poor, developing countries. And the fraud continues.

The Bretton Woods Twins

Bretton Woods also gave rise to the the Bretton Woods twins (the IMF and the World Bank) which are run and managed by the Anglo Saxon countries. The ABC countries (and their client states like Japan, etc.) have more than 67% of the voting rights. With this huge voting majority, less than 5% of the world’s population (of the ABC countries) decide how 95% of the world lives.

The Bretton Woods twins (the IMF and the World Bank) been significant failures. Aid (spelt, ironically, very similarly to AIDS) projects are approved – which are tied to imports from these Anglo Saxon countries.

How Does This Work

Highly paid (mostly western) consultants are paid by aid recipients from debt funding – who recommend more debt and more imports which creates greater indebtedness and rising interest payments which need more aid for which more highly paid consultants are required. At the other end, some of this aid, finally ends up with corrupt bureaucrats and politicians – who tax the citizenry more to pay increasing debt.

US Trade Balance (Image source and courtesy - nytimes.com).

US Trade Balance (Image source and courtesy - nytimes.com).

Asians Are Funding the US

Asia lost last year (my estimate) more than US$300 billion dollars due to the monetary policy of the USA. Deliberate, well thought out monetary policy by the USA Government.

The truth is that American lifestyle is being maintained due to Asian stupidity. The Chinese, Japanese, Indian, and other ASEAN countries have lent the USA – which is in the hock by over, US$2 trillion dollars. They will lose US$ 300 billion for the privilege of lending US$2 trillion to the USA. They designate trade in US dollars worth another few trillion dollars a year – which is zero-cost-to-US depreciating currency ‘float’ that the US benefits from.

The Big Mac index (based on two simple ideas of PPP and a standard industrial product) shows the dollar is overvalued against most currencies of the world. This over-valuation range is about 53% in case of India. What that means is that the US pays India only half the amount of what it should actually pay. And India pays double for whatever it buys from the USA.

Who Is Behind This

No one person is – but an excellent representative is Ben Bernanke – the US Federal Reserve Chairman. In his celebrated speech, he sneeringly informed the rest of the world that the USA can start printing dollars – and helicopter drop them.

If the world doesn’t take him seriously now, who can blame him. He has told the truth. The latest is economists are waiting for him to release his M3 (money circulation) figures. Of what use is that. He has already told the world that the US Mint presses are working overtime.

Dollar Reserves in Developing Economies

Dollar Reserves in Developing Economies

West Being Held To Ransom

While the West, especially the Anglo Saxon printing presses are working overtime, propagandists, (called neocons these days), blame the rest of the world for imaginary problems. One favorite whipping boy – Oil producers.

One such neo-con (emphasis on con) Brendan Simms starts with his “western capitalist democracies find themselves held to ransom.” rigmarole. All that OPEC wants is a market driven price. Any problems? Why does the West not explore and drill for oil along their huge off shore areas and kill their dependence on oil. If the Oil producers are wary of the dollar price due to depreciating dollar, who can you blame.

If the West wants ‘helicopter Ben’ wants to print more dollars, who will pay the price ? The rest of this gullible world? Does Simms think, that oil rich countries will ship out limited oil resources with the same speed that Bernanke prints money – or helicopter drop dollars?

Is Simms getting this feeling because of the price that the Middle East is charging a full price for oil.

Simms-bhai, I know the feeling, believe me! We, have been through that. It is the similar feeling that we in India, (and developing countries) used to get while negotiating for food purchases (called aid) after the Bengal Famine and while rebuilding collapsed agriculture economies in post colonial India.

Behind Bretton Woods – Gold

The world stamped their approval on Bretton Woods. Why? Why did the world believe that only the Anglo-Saxon Bloc could deliver. Why? In 1944, the Anglo Saxon Bloc (countries, colonies and companies) controlled more than 90% of gold production and reserves. The largest private gold reserve in the world, India was still a British colony. Hence, it was fait accompli.

The Cornering Of Gold Supplies

For the last 150 years, the ABC countries (America, Australia, Britain, Canada) comprising the Anglo Saxon bloc (countries, colonies and companies) have controlled 90% of the world’s gold production. Till (a large part of) India was a British Colony, they also controlled more than 50% of the above-the-ground gold reserves. This gave them absolute liberty to print depreciating currency and flood the world pieces of paper(called dollars and pounds), manipulate the world financial system and keep other populations poor and backward.

Things are still the same

Global Foreign Currency ReservesThe Anglo-Saxon bloc of ABC countries is still the largest gold production bloc in the world. The Anglo-Saxon Bloc (countries, colonies and companies) still control more than 80% of world’s gold production – and significant natural resources, like oil. They administer 3 out of the 5 largest countries in the world. Hence, their currencies still have significant heft. Apart from military power.

Financial manipulation comes naturally to them. The USA is trillions of dollar in debt – and Ben Bernanke, the Fed Chief says we can always print more money – or drop it from a helicopter. For instance, the above diagram shows the increase in global dollar reserves – mostly held by Asians.

What happens to the Indians, Chinese, Russians – who stupidly even today believe in the American dollar? Well! Anglo Saxon law says, caveat emptor – buyer beware!! Their latest victims – good old India and China. India and China have significant dollar holdings. The value of dollar had depreciated by 75% in the last 10 years – from US$225 to US$900.

What Can Change

India has emerged as the largest (private) reserve of gold in the world. The countries of South Africa, Ghana, Peru, Indonesia, China, Russia, Papua New Guinea account for nearly 50% of the world’s gold production – though gold operations in these countries are controlled by largely Anglo Saxon Bloc.

A currency bloc, underpinned by India’s private gold reserves – and future expansion of the currency system guaranteed by 50% of the world’s gold production is a feasible start point.

This will make the world more equitable and reduce financial volatility. This will also wean the world away from the savagery of the Anglo Saxon bloc countries who have been involved in every major conflict for the last 400 years.

%d bloggers like this: