just in from you know who, re whereto, and i quote
Apparently a lot of the 'UK buying' is really buying by other countries disguising it through London intermediaries. I suppose the same is true of the Carribean buying (always a big factor, and a major reason why there's hope that the hue and cry about tax havens will peter out again...).
Wondering about the whys and wherefores....why do central banks all over the world still stuff their vaults with dollar denominated IOUs?
Now aside from the more conventional arguments one often hears (from the mercantilistic vendor-financing schemes to vassaldom to whatever trust remains in the economic and military might of the reserve currency issuer), i would submit that it is simply a system that has long ago gone out of control, so to speak, and has developed an unstoppable dynamic of its own.
Once the dollar's link to gold had been severed in the early 70's, the era of major global debt expansion began - and now that the fiat dollar based system (with all the other CBs using the treasury's IOUs as 'reserves') has been firmly established for several decades, there is no longer a realistic escape hatch in sight.
It's sink or swim together for the monetary and fiscal bureaucrats involved. So in time-honored tradition, the 'can is kicked down the road' and the mountain of liabilities grows and grows and grows...
Attached, as an example (there are numerous others one can look at of course) of the 'taking off' of fiat money inflation and the associated explosion in financial claims and liabilities, is a chart of UK bank assets from a recent paper by Andrew Haldane on the crisis.
The reason why we can use this chart as well as any other (such as total credit market debt/GDP charts or those of 'reserves') is that the banking system and the state have always been in bed with each other w.r.t. this inflationary policy. Now, post crisis, it has merely become more immediately obvious, but it has always been a state-capitalistic arrangement (and bluntly speaking, a 'license to steal' for both banks and governments).
The point made by the chart is anyway mainly 'when did the unstoppable debt expansion begin' - and that was when gold was finally abandoned in toto.
It is supremely ironic that while financial claims have exploded, economic growth has done the exact opposite - it has slowed down markedly vs. the pre-debt expansion era.
So much for 'we need inflation for economic growth' - this is a lie, based on a flawed theory, and it can be shown to be so both empirically and theoretically.
Coming back to the expansion in treasury and other government debt - what has now happened is that the part of the inflationary bubble that threatened to collapse has been shifted from one set of balance sheets of the 'bank-state' conglomerate to the other , where it can be better camouflaged for the purpose of 'buying time' and attempting to - perversely - 'inflate out of it.'
In short, the inescapable dynamic of the system of irredeemable currency without anchor has now moved into a new phase.
Note my mention of 'slower economic growth during the inflationary expansion/boom'. This is a side-effect of the structural economic damage done by money and credit supply inflation - too many uneconomic projects are undertaken, and even in a time of enormous technological advances, the economic damage can not be entirely swept under the carpet. This has now apparently morphed into a new 'no growth' mode, akin to what Japan has experienced for a while already. This is a sign that the damage has increased over time to such an extent that the pool of real funding is no longer sufficient to support even the previous 'slower growth' regime.
This is however not how those in charge of fiscal and monetary policy see it. They believe that the status quo ante can be restored by piling on even more debt and inflation (see Bernanke's numerous references over time as to the 'scourge of deflation' , which would no doubt involve a reordering of economic power he was appointed to avert).
And since it is a global affair due to the design of the system (i.e. with dollar denominated govt. IOUs as the main 'reserve asset'), the spiral of debt and reserve asset growth continues, until the day the market renders it inoperable.
In this context, the rising price of gold is an indication that some market participants are preparing for this inevitability. At various points in the journey, the gold forward curve, the gold price and interest rates will give signals indicating the waxing and waning of confidence in the system. We don't know what the threshold will be (how much more debt can be piled up before the market balks), but we know at least what to watch.
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