Private Markets as Political Weapons?

I think my all time favourite commentator on economics is Dr. Paul Craig Roberts...former assistant treasury secretary under Reagan, former editor of the WSJ, and author of a wonderful book...'The Failure of Laissez Faire Capitalism'.



In this interview, he talks about the collaspe of the ruble and the gold price as suggestions of direct political interference in private markets.

Should Putin withdraw the ruble from exchange markets?

Should the oil and gold futures markets function as gambling casinos where buyers are not required to take physical delivery?

 

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Sad to see what was once a great mind deteriorate with age. Anyway, to your questions:

Huh? You can't remove a currency from exchange markets. Exchange markets are how you change one currency into another. How am I supposed to buy anything if I take a trip to Russia if I can't exchange my Dollars for Rubles? How is BMW supposed to sell cars in Russia if it can't exchange Rubles for Euros?

Perhaps more to the point: Putin has no control over what people do with their money once they have it. It isn't possible to remove the Rubles from exchange markets even if he wanted to, which he certainly would not (such a thing would reduce the Ruble to Rubble since you couldn't use it for trade).

Sure, why not? What is wrong with that?

 

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A private exchange is where the value of currencies are freely determined by market forces.

Its entirely possible to remove a currency from this system...as China did for years by pegging its currency.

 

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No. If people have a currency in their posession, there is literally nothing a country can do to stop people from trading it beyond putting up a wall and preventing people and currency from entering or leaving the country. In reality, when a country "pegs" its currency, that takes serious manipulation of the free market -- it doesn't bypass the market.

http://en.wikipedia.org/wiki/Currency_intervention
Here's what happened in Mexico:

http://en.wikipedia.org/wiki/Crawling_peg

So, sure, Putin can try to manipulate his currency (really, he already is), but that will just cause inflation(already has), which will crush his economy anyway. He's screwed either way.

 

I don't think the guy ever had a great mind. But yeah, the guy is either nuts or he is profiteering by selling conspiracy theories to rightwing conspiracy nuts. He makes a conspiracy rant and a few minutes later he contradicts himself. You want to talk about disconnected thoughts; this guy has them in spades.

His limited success hasn't been in economics, but in partisan politics acting as a political agent.

Well he can replace the ruble with a new ruble, a new currency, and use the Russian central bank to exchange that currency as it did in the Soviet era. But that would be even more devastating to the Russian economy than the Western sanctions and decline in oil prices. As if Putin hasn’t done enough to destroy the Russian economy, this would be the coup de grâce for the Russian economy. The foreign trade and foreign investment Russia so desperately needs would come to a grinding halt as you point out.

In the real world where most of us live, Putin only has two options, continue down the road of economic decline or accede to Western demands.

 

I'm just assuming based on his resume -- I don't actually know much about him beyond his current conspiracy nutso.

 

how is helping reagan triple the debt a sign of a good mind?

 

[QUOTE="joepistole, post: 3257831, member: 30319]"... Well he can replace the ruble with a new ruble, a new currency, and use the Russian central bank to exchange that currency as it did in the Soviet era. But that would be even more devastating to the Russian economy than the Western sanctions and decline in oil prices. ...[/QUOTE]I think it would not be as damaging as the current low oil prices and of course would strongy depend on what the new currecency is.

Brazil replaced the old currency with new many times, so often that the had to reused an old name, just stick "new" in front of the ole name. It had years of run-away inflation. Stores closed for hours each AM to mark the prices, etc. Then they did the best ever exchange.

For about a year all items in stores had two prices, one still with run-away inflation, but other did not eist as a currency. It was the URV, unit of Real value. - that immediately helped the merchants with end the daily mark ups - on the shelf the price was in URVs. at the check out counter the conversion of the actual currency to URV was changed, even hourly. This got the population tinking in terms of a stable price an then the new currency, the "Real" = one URV was created, which we still have ~20 years later.

What Russia might do is sort of like this, - price items in Au (the chemical symbol for gold) and at check out counters the daily conversion rate of Rubble to Au would be posted. Then when the population got use to the relatively stable (or even falling pirces in AU if price of gold does resume it march up) their new paper currency for internal use mainly, could be gold backed. Even with all its current financial problems Russia is one of the world's largest hoarders of gold - 2nd or 3d greatest producer and buyer of it too! (Passed India recently as a buyer.).

 

I think it would not be as damaging as the current low oil prices and of course would strongy depend on what the new currecency is.

Brazil replaced the old currency with new many times, so often that the had to reused an old name, just stick "new" in front of the old name. It had years of run-away inflation. Stores closed for hours each AM to mark up the prices, etc. Then they did the best ever exchange.

For about a year all items in stores had two prices, one still with run-away inflation, but other did not exist as a currency. It was the URV, Unit of Real Value. - that immediately helped the merchants with end the daily mark ups - on the shelf the price was in URVs. at the check out counter the conversion of the actual currency to URV was changed, even hourly. This got the population tinking in terms of a stable price and then the new currency, the "Real" = one URV was created, which we still have ~20 years later.

What Russia might do is sort of like this, - price items in Au (the chemical symbol for gold) and at check out counters the daily conversion rate of Rubble to Au would be posted. Then when the population got use to the relatively stable (or even falling pirces in AU if price of gold does resume it march up) their new paper currency for internal use mainly, could be gold backed. Even with all its current financial problems Russia is one of the world's largest hoarders of gold - 2nd or 3d greatest producer and buyer of it too! (Passed India recently as a buyer.).

You have to wonder why, gold vaults in US are empty and even the largest was sold to China a couple of years ago, while several new "world's largest" are being built or already opening in Asia now. Why are China and Russia so rapidly adding to their hoard of gold? And why can't congress audit Fort Knox or the treasury deliver Germany's gold as originally requested?

Joe at least knows what I think the answer is: Gold backed RMB bonds for central banks & the IMF. While looking for early statement of the (found one in post 192* of the BRIC news thread that spoke of earlier version, not yet found) I found this:
Spidergoat had said: ... "If we {US} fall, it will be our own doing." And I replied (on 15 March 2006):

Interetingly we both are still active here and still hold these view.
My post at: http://www.sciforums.com/threads/fall-of-the-us.53145/page-3#post-1005084

* There on 23Oct 09, I said: "Russia may add a new reserve currency- RMB to its foreign exchange reserves, Russian vice-premier concurrently Minister Alexei Kudrin said. ... At present, the portion of U.S. dollars in Russia's forex reserves has declined to 49 percent, and euros' portion increases to 41 percent. Pound and other currencies take up 10 percent. ... Because of the growing influence of the RMB, yuan may also join Russia’s foreign exchange reserves, he said. ..." From: http://english.peopledaily.com.cn/90001/90778/90859/6792509.html
-------------------------
"China has surpassed South Africa to become the world's largest gold producer with a total output of 282 tons last year, according to China Gold Association. ..." From: http://english.peopledaily.com.cn/90001/90778/90860/6790593.html
I have mentioned it before, but it seems possible China could make the Yuan convertible into gold as a way to immediately make it an international currency suitable for holding in other countries reserves. ... If China were to back the Yuan with gold, it would not be like gold once backed the dollar. I.e. only other central banks could redeem Yuan for gold, not ordinary people, especially not Chinese or Indians who love to hold gold even though it gives no interest and may be stolen. Article is focused on one Chinese gold producer who is expanding production by 30 tons annually. I have reason to believe that China has huge belt of gold rich ore near the border with Mongolia. If true, in a few years China could be producing 500 tons annually."

 

Except, the gold vaults in the US are not empty. US gold reserves are the largest on the planet, seven times larger than Russia's and 8 times larger than China's. Two, going back to the gold standard does nothing for Mother Russia. Revisiting all the problems associated with the gold backed currencies isn't going to fix what ills Russia. It won't forestall the impending doom. It will just bring back the problems associated with gold back currencies and deepen Russia's economic problems. What I think Russia may be forced to do next year, probably late next year, depending on how fast it burns through its foreign capital reserves, is to sell its gold reserves in exchange for desperately needed foreign currency.

 

As Dr. Roberts suggests in OP interview a Russian gold backed currency is still vulnerable to private markets being used as political weapons...because the US government can simply use naked short selling in the futures markets to drive down the value of gold, as already happened with Russia's primary export - oil.

http://en.wikipedia.org/wiki/Naked_short_selling

A better solution would be to simply remove the Ruble from freely traded markets and peg it to the Euro...as the Danish government does with its currency.


http://www.paulcraigroberts.org/2014/01/17/hows-whys-gold-price-manipulation/

"The deregulation of the financial system during the Clinton and George W. Bush regimes had the predictable result: financial concentration and reckless behavior. A handful of banks grew so large that financial authorities declared them “too big to fail.” Removed from market discipline, the banks became wards of the government requiring massive creation of new money by the Federal Reserve in order to support through the policy of Quantitative Easing the prices of financial instruments on the banks’ balance sheets and in order to finance at low interest rates trillion dollar federal budget deficits associated with the long recession caused by the financial crisis.

The Fed’s policy of monetizing one trillion dollars of bonds annually put pressure on the US dollar, the value of which declined in terms of gold. When gold hit $1,900 per ounce in 2011, the Federal Reserve realized that $2,000 per ounce could have a psychological impact that would spread into the dollar’s exchange rate with other currencies, resulting in a run on the dollar as both foreign and domestic holders sold dollars to avoid the fall in value.

Once this realization hit, the manipulation of the gold price moved beyond central bank leasing of gold to bullion dealers in order to create an artificial market supply to absorb demand that otherwise would have pushed gold prices higher. The manipulation consists of the Fed using bullion banks as its agents to sell naked gold shorts in the New York Comex futures market. Short selling drives down the gold price, triggers stop-loss orders and margin calls, and scares participants out of the gold trusts.

The bullion banks purchase the deserted shares and present them to the trusts for redemption in bullion. The bullion can then be sold in the London physical gold market, where the sales both ratify the lower price that short-selling achieved on the Comex floor and provide a supply of bullion to meet Asian demands for physical gold as opposed to paper claims on gold."

 

Russia can do anything it wants to but nothing is going to help a country (any country) other than free trade and having something to trade

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A country can impose exchange controls. As I recall (may be different now) the S. Korea won isn't freely traded. There are (or were) limits on foreign exchange there. I used to work in international banking.

The gold standard isn't a fix for anything. There is a reason that we aren't still on the gold standard. It doesn't fix any problem if politicians aren't responsible and if they are responsible then you don't need an inefficient system like the gold standard.

There is no trick that will let you avoid being responsible as a government. Argentina used to peg its currency to the dollar. That meant they ceded monetary policy to the U.S. in effect and it was an attempt to control their runaway inflation but politicians being what they are...it didn't work.

The guy in the video is a nut.

 

I was speaking of the private, independently audited vaults. -I could have been more clear but said the largerst one (in NYC) was sold to a Chinese firm - not needed as most privately owned gold in US has been shipped to Asia, often via Swiss refineries where it is converted in the standard bars the Chinese prefer.

Fort Knox has not had a independent audited for more than six decades - despite Ron Paul's and other Congressmen's efforts to force that. But we can trust the government to ALWAYS tell us the truth, can't we? Government's argument that audit would waste taxpayer's money, does not cut it with me. The audit would cost about the same as one "Iron Dome" missile that the taxpayer buy for Israel - several hundred now. IMO if the gold is there and still owned by the US (not leased out) it would be well worth the cost to kill the rumors that US no longer owns ~ 8,000 tons of gold.

 

So you want to cherry pick and you know the quantity of gold held privately around the globe...how? And why is it even relevant? Here is the problem BillyT, you have no evidence to backup your machinations.

 

"Cherry pick" refers to selectively quoting to distort. I did not even quote- how can I be accused of cherry picking?

Also which of my assertions do you want me to find support for? Your "machinations accusation" is too ill-defined for me to respond to.

 

How about answering the questions I posed to you?

 

I did not see any. Pick one you most want answered and ask it in new post.

 

Just read the post you responded to. The question mark should be sufficient to indicate a question.

 

Unlike the US, Russia has a trade surplus. Additionally, free trade holds no intrinsic guarantee of prosperity. The US government imposed tariffs on foreign goods during much of the 1800s while it was experiencing the highest growth in real wealth the world has ever seen.

Governments go off anything pegging the currency when they decide to become irresponsible, as Argentina did in 2001, so your arguement is demonstrably self-imploding...like saying refusing to vaccum your house causes laziness.

 

If you are wanting me (or anyone) to tell how how much gold is held by people, I agree there is no way to know. A lot is buried, more in Jewelry especially on Indian ladies but generally speaking this gold does not enter into trading. The largest ETF holding gold against it shares is GLD with vault holding about half the mass it did a few years ago, yet even it (or lesser gold holding ETFs) are not very important in setting the price of gold. That is mainly done by activity in the "gold pits" of the Chicago Board of Trade / CME & especially COMEX; and to large extent by selling non-existing gold - "Paper gold." This paper gold claims can and sometimes are redeemed for physical gold, the that is not common. Usually these claims are just sold again and again.

The "leverage" in these gold trades is very high - I have not looked recently but a few months ago there were 60 or so claims for every ounce of gold actually existing. - 60 potential owners of each ounce. Likewise no one knows how much gold is leaving the West and going to the East each year, but only China and India are "soaking up" about the entire global production (not counting China's own production) Russia has recently (last 8 months) be buying about as much as Indian - may be 2nd largest buyer, after China. - All-in all, not a stable condition.

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bottom graph shows there are now 57 owners of each ounce of deliverable (registered) gold.