Ron Paul Calls Central Bank Intervention A “Form of World Wide Quantitative Easing”

Central banks, spear headed by the U.S. Federal Reserve, launched a massive joint effort to provide liquidity to a European banking system that was teetering on the verge of collapse.

The six central banks involved in the emergency lending program were the U.S. Federal Reserve, the Bank of Japan, the Swiss National Bank, the Bank of England, the Bank of Canada and the European Central Bank.  The central bank actions provided European banks with cheap access to  funding through U.S. dollar swap lines.  Under dollar swaps, the U.S. Federal Reserve supplies dollars to foreign central banks which in turn lend the dollars to banks that need U.S. dollars to meet funding needs denominated in U.S. dollars.

In a joint statement, the six central banks said "The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity."  As one European bank after another appeared to be on the verge of collapse, the calls for central bank intervention to "save the world" had become deafening.  Today, the central banks obliged, effectively endorsing the theory that more debt is the solution to the debt crisis.

In an early day interview on CNBC, Ron Paul gave his take on the massive central bank intervention, calling it "a form of worldwide quantitative easing."

Ron Paul also noted that the central bank actions "penalize the American people" and that the Federal Reserve actions will simply result in "more debt and more inflation."

Ron Paul said the Fed is doing the same thing that it has done for the past 40 years.  "Spending excessively, running up debt, printing up money, and manipulating interest rates.  We're up against the wall now, it doesn't work anymore. Lowering interest rates is essentially impossible.   That's what they're desperately trying to do today.  But, you know, when our interest rates to the banks are down to zero, what are they going to do next?  Used to be that Congress would just spend more money and that would help.  How can they spend more money when there's no more money in the Treasury?"

The answer to Ron Paul's last question is obvious and should deeply concern every American.  Funding needs of the Treasury will continue to be supplied by the Federal Reserve with printed money and the U.S. currency will continue to lose value.  The rising price of gold has reflected the systematic destruction of our currency.  Based on the predictable response of central banks worldwide to print their way out of the debt disaster, there is effectively no upside limit to the price of gold.

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Did Central Bank Coordinated Easing Also Include Manipulation of The Gold Market?

On a day when coordinated central bank monetary easing sent stocks and commodities soaring into orbit, the price action in the gold market was curiously muted.

The Dow Jones, S&P 500 and Nasdaq all increased by over 4%.  Gains in various S&P sectors ranged from 4.75% for the transportation sector to 7.51% for the financial sector.  Gold, by contrast, rose a mere 2%.

The massive monetary easing by central banks should have sent the price of gold into the stratosphere.  It has become crystal clear that central banks will continue to create whatever amount of money is necessary to prop up a collapsing, debt saturated system.

Why would central banks collude to restrain the price of gold?  GATA has explored this question in depth and in a recent exchange between Lawrence Williams of Mineweb and GATA, Williams writes  "If one assumes that governments as a matter of course manipulate currency exchange rates, then there is logic in their manipulating the gold price too, as many throughout the world consider gold as money (currency) and a rise in the gold price thus equates to a depreciation in currencies -- notably the U.S. dollar."

Most of the world already suspects that the "emperor has no clothes" when it comes to central bank money creation.  Had the value of gold been allowed to soar hundreds of dollars per ounce today, under free market conditions, the entire crumbling edifice of fiat currencies would have been exposed.

Gold is the only currency that central banks cannot destroy.  If central banks did not suppress the price of gold, the true extent of the debasement of paper  currencies would become blatantly obvious and thereby threaten the entire system of fiat currencies.  Central banks have every motive in the world to suppress the price of gold.  How long they can remain successful at it (as they engage in blatant, massive and world wide money printing) is the question on most gold investors' minds.

More on this topic:

Where In The World Is The Gold?

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Will Central Banks Continue To Increase Their Gold Holdings?

FORT KNOX

Central banks continued to add to their gold reserves in August with three countries adding a total of 643,000 troy ounces to their reserves.

According to the Wall Street Journal, the largest central bank purchaser of gold during August was Thailand which purchased 300,000 troy ounces, bringing their total gold holdings to 4.4 million ounces.  The Bolivian central bank purchased 225,000 ounces increasing their total reserves to 1.36 million ounces and the central bank of Russia purchased 118,000 ounces which increased total reserves to 27.2 million troy ounces.

After selling gold reserves for many years, central banks began purchasing gold around 2000.  Over the past several years central banks have sharply accelerated their purchases of gold to diversify away from the U.S. dollar which is no longer considered to be a safe asset.  China and Russia, large buyers of gold, have been particularly critical of U.S. monetary and fiscal policies and are actively seeking to reduce their reserve holdings of U.S. dollars.

Will central banks continue adding to their gold reserves?  For some insight on this matter, consider the following facts.

In August Russian Prime Minister Putin said that the United States is "not living within its means, shifting the weight of responsibility  on other countries and in a way acting as a parasite."  Putin also said that a new reserve currency is necessary to protect against a "systemic malfunction" of the U.S.  Putin has reason to worry since Russia has almost half of its reserves in U.S. dollars.  In 1998 Russia had gold reserves of 14.7 million ounces compared to 27.2 million ounces after its latest purchases.  Despite the fact that the Russian central bank has the eight largest official gold holdings in the world, gold amounts to only 8.2% of total reserves.

China, which holds $1.2 trillion of U.S. treasury debt, has the most to lose from the continuous debasement of the U.S. dollar and has become harshly critical of U.S. economic policies.  After the U.S. debt downgrade in August, China said that America must "cure its addiction to debts" and "live within its means."   China is actively seeking to diversify its reserves and reduce its holdings of  U.S. dollars.  The latest reports show total Chinese gold reserves at 1,054 tonnes compared to 395 tonnes in 1988.   Gold holdings amount to only 1.6% of total Chinese reserves.  China's 33.9 million ounces of gold is currently valued at only $54.2 billion.  By comparison, the gold holdings of the SPDR Gold Shares ETF (GLD) total 39.9 million ounces valued at $65.6 billion.  Expect China to add dramatically to its gold reserves in the future.

Gold purchases by central banks during 2011 are forecast to be 336 metric tonnes, approximately 13% of total yearly gold mine production.  Central banks during  the second quarter of 2011 purchased four times the amount of gold purchased during the comparable quarter of 2010.  Given the fragile state of the world fiat money system, it is likely that central bank gold purchases could expand dramatically going forward.

Only 7 countries or institutions currently hold more than 1,000 tonnes of gold - the United States, Germany, the IMF, Italy, France, China and Switzerland.

Total official world gold holdings by central banks and the IMF currently total 30,707 tonnes, valued at approximately$1.6 trillion which, coincidentally, is the size of this year's budget deficit for the United States.  Total gold holdings of the world's central banks amount to only a fraction of the value of paper currencies that have been exponentially created.

All of the gold mined throughout history totals only 178,000 tonnes or about 6 billion ounces valued at $9.6 trillion.  Central bank holdings amount to only 17% of the total gold supply available.

Despite increasing gold prices, gold mine production has been stagnant.  Most of the easy to mine, high grade ore deposits have already been exploited.  New total yearly gold production adds only 1% per year to the existing supply of gold.  Increasing demand and limited supply result in higher prices.

Only 34 central banks currently hold over 100 tonnes of gold and only 12 central banks or institutions hold more than 500 tonnes of gold.

Ironically, the United States, the most indebted nation in world history has decreased its gold reserves.  In 1962, the United States owned 14,269 tonnes of gold or almost 39% of all gold held by central banks.  By 1972, the United States held only 8,584 metric tonnes of gold.  Currently, U.S. gold reserves allegedly total 8,134 tonnes but the amount remains in question since the government will not allow an independent audit of the actual amount held.

Considering the relatively small amount of gold held by central banks and the exponential increase in the creation of paper money, gold demand by central banks should  increase dramatically in the future.

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Gold and Silver Soar On Fears Of Massive Central Bank Stimulus

Precious metals soared across the board this week.  The dismal jobs report released on Friday showed that the American economy has come to a standstill with zero new jobs added in August.

The specter of the US economy plunging back into recession along with imminent banking crises in Europe and the US have fueled speculation that the Federal Reserve is on the verge of conducting another massive wave of monetary stimulus which will further debase the value of the US dollar.  Apprehension is also growing that the magical Obama plan for "creating" new jobs will involve further borrowing by an already bankrupt  American empire.

Also lurking in the background is the fear of coordinated US and European central bank intervention (money printing) to contain the collapse of the European banking system.  Despite the purchase of hundreds of billions of dollars of Spanish, Greek and Italian debt by the European Central Bank, rising interest rates are forecasting default by numerous sovereign states in the European Union.   Rates are rising again on Italian debt and the rate on one year Greek paper now exceeds 70%.  The yields on Greek debt indicate that default is now a certainty and the losses by insolvent European banks holding PIGS debt will require unprecedented government bailouts to prevent complete financial chaos.

Soaring gold prices have been predicting the collapse of paper money currencies.  As measured by the closing London PM Fix Price, gold soared on Friday by $54.25 to $1,875.25.  In later New York trading, gold continued higher closing at $1,885.20.  Gold is only $2.25 below the all time London close of $1,877.50 reached on August 22nd.

As measured by the closing London PM Fix Price, silver gained $1.44 on the week to $42.50 and continued to rise in later New York trading to $43.35.   After consolidating in the $34 range, silver has resumed its uptrend and is likely to hit new all time highs before year end.

Silver - courtesy stockcharts.com

Platinum soared by $61 on the week to close at $1,873 while palladium finished up $38 to close at $785.

Precious metals may correct after strong advances, but the fundamental case for owning them is growing geometrically.  Expanding deficits and wild money printing will continue as policy makers continue their futile attempts to produce economic recovery by adding more debt to a system already collapsing from the burden of excessive debt.   Continue to increase gold and silver positions on any pullbacks.

Gold - courtesy stockcharts.com

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