Rehypothecation: Western Civilizations Achilles Heel

[JohnyMac]

I was chatting via the internet today with a close friend who makes a living as a financial adviser. We shared New Year greeting's and wrote about our family's failures and successes in 2013 when of course as it always does, the conversation came around to the USofA's economy.

My position has always been a bit on the "Tin Foil Hatted" leaning's, while his is more grounded in reality. But of resent he is becoming more and more conservative and directing clients to focus their saving's on commodities. 

Well he explained to me that the the western world is at the beginning of lending countries calling in debts. Financial institutions have been rehypothecation the debt/loan cycle (hypothecation)since the end of the second world war and the USofA being the leader post the dollar not being backed by gold in ~ 1976.

He went on to explain to me that rehypothecation is you borrowing lets say $100,000- from the bank to buy a house using your house as collateral. The bank then borrows $100,000- from the Fed or another lending institution using your house as collateral. Here is a great under 5 minute YT video explaining it.     

Rehypothecation

So when Germany asks the Federal Reserve for their gold back the Fed can't give it back as they loaned it to me for my house. And then the Fed used my house for collateral to borrow money from X to lend lets say to the USofA in the form of bonds. Then the USofA can't pay back the loan to the Fed so the Fed can't pay back the gold to Germany. Etcetera, etcetera, etcetera.

He closed with writing that the house of cards will fall once the final lenders figure out they hold nothing but paper! Then war starts.

So where are we in this cycle? Months? Years? Decades away? When does the war start?

[JohnyMac]

I was listening to Glenn Beck this morning (Calm down Crudos  ) and guess what he was talking about?

Show content

Rehypothecation and the returning of Germany's gold from the Federal Reserve in NYC.

Well not wanting to take at face value what Glenn reports I did a little research. I found the below article by zerohedge.com. Here is the opening paragraph.

Here is a recent correspondence from our friend Lars Schall, an independent financial journalist, and the German Central Bank, the Deutsche Bundesbank, regarding the exact whereabouts and specifications of Germany’s national gold reserve. From the correspondence below, it appears that the US Central Bank had already leased out Germany’s gold reserves in prior years and no longer has it, as the gold bars the US Central Bankers returned to Germany last year were clearly not the same ones that Germany originally deposited with them. The questions Mr. Schall’s revelations now beg is (1) if the Banque de France and the Bank of England have Germany’s original gold as well; and (2) if the various Central Bankers are deliberately returning Germany’s gold on a painfully slow timeline because they have already leased out Germany’s gold into the open market in prior years, no longer hold it, and must therefore scrape together Germany's gold from the open market now.

In short, when countries put their gold in the Federal Reserve, all of the bars were stamped with a country proof mark and numbered. So why is gold being returned to Germany without their proof mark and serial number (s)? Could it be that the gold has been loaned out (rehypothecation) and the Federal Reserve had to scrape together gold to return to Germany? By the way they only returned 1/10th of Germany's gold. The other 90% will be returned over the next six years.

Why is this important to you? The country? The worlds financial situation? Why isn't the main stream media reporting this?

[Kentactic]

How much gold are we talking here? Trillions? If the US has to actually Buy back trillions in gold from the free market that could hurt us. Wouldnt they have to print all that money? Or could they just send so many zeros and commas into the other funny money account?

[JohnyMac]

I read somewhere we have stored 1,500 tonnes of gold for Germany. Lets do the math:

16 ounces to a pound
2000 pounds to a tonne

Spot gold price today $1,222- an ounce

$1,222- x 16 ounces = $19,552-
$19,552- x 2000 pounds = $39,104,000-
$39,104,000- x 1,500 tonnes = $58,656,000,000-

So ruffly just over $58B US dollars. Not much Ken in the big scheme of things. But here is the thing; Germany wants "their" gold back - not re-minted gold or US paper.

Also keep in mind, when Germany asked for "their" gold back, it was around $1,675- an ounce. So lets do the math again:

$1,675- x 16 ounces = $26,800-
$26,800- x 2000 pounds = $53,600,000-
$53,600,000- x 1,500 tonnes = $80,400,000,000-


Jan 2013 vs. Jan 2014 there is a Δ of -21,744,000,000-

So with this info, lets hypothesize here: If the Federal Reserve is going to return 1,500 tonnes of newly minted gold to Germany at a ratio of 1:1 (ounce for ounce) over the next seven years it means that the Federal Reserve has to buy gold on the open market.

So will the Federal Reserve manipulate the price of gold downwards to be able to buy more gold for less money? Remember, when the Germans asked for "their" gold back gold was selling for $1,675- an ounce. Twelve months later it is selling for $1,222- an ounce. 

Will gold still rise in price though because China, India and Russia are also competing for the available gold on the market? As the stock market starts to come apart will more and more investors move from it to buying commodities like gold, silver, land, etc? Will this force gold to climb too?

We all are peering into our crystal balls in order to see into the future to gauge when the collapse will happen. Rehypothecation and the German gold story is a small window into the future. Watch who lines up next asking the Fed for their gold back. Stay tuned. 
 


 

[Jeremy Knauff]

Why isn't the main stream media reporting this?

I will assume that was rhetorical, but I'll play along anyway.  Their advertisers would crucify them.

[JohnyMac]

  Jeremy!

[JohnyMac]

So it appears that the remolded gold that the Fed returned to Germany last month was only half of what was promised (5% returned vs 10% promised. Here is a great graph that shows what happened to the gold price in 2013.

Timeline:
> The original German gold held in the U.S. is gone. Leased, sold and rehypothecated many times
    over.
> Germany now wants its gold back. The U.S. balks and promises to only return roughly 40 mts/year
   for eight years. (By the way, why didn't France return any gold in 2013? Germany's looking for 374
   metric tonnes from them and, in 2013, it got zilch, zero and nada.)
> Pressed to come up with gold to ship back to Germany, the U.S. scours it's vaults.
> The U.S. takes some of it's 1930s-confiscated "coin melt" gold, assayed at 90% purity, and recasts
    it into 99.5% purity London bars and ships them off to Frankfurt.
> The Bundesbank books in these new bars, apparently date-stamped "2013", as a "return of German
    gold" and now awaits the other 95% of their "order".

http://www.tfmetalsreport.com/blog/5375/where-german-gold

Stay tuned...

[Jeremy Knauff]

A collapse is imminent. Tick tock...

[JohnyMac]

I ran across this article that basically says that, there ain't no gold to back "the dollar" in the vaults of the Fed anymore. Here are two paragraphs in the article that really stood out to me.

The $650 decline in the price of gold since it hit $1900 in September 2011 is the result of a manipulative effort designed both to protect the dollar from Quantitative Easing and to free up enough gold to satisfy Asian demands [And Germany] for delivery of gold purchases.

and

Western central banks have pushed fractional gold reserve banking to the point that they haven’t enough reserves to cover withdrawals. Fractional reserve banking originated when medieval goldsmiths learned that owners of gold stored in their vault seldom withdrew the gold. Instead, those who had gold on deposit circulated paper claims to gold. This allowed goldsmiths to lend gold that they did not have by issuing paper receipts. This is what the Fed has done. The Fed has created paper claims to gold that does not exist in physical form and sold these claims in mass quantities in order to drive down the gold price. The paper claims to gold are a large multiple of the amount of actual gold available for delivery. The Reserve Bank of India reports that the ratio of paper claims to gold exceed the amount of gold available for delivery by 93:1.

This is a VERY AND long VERY high level article concerning rehypothecation written by two VERY respected economists, Paul Craig Roberts and Dave Kranzler. If you have the patience read it. I could only read 3-4 paragraphs at a time in order for me to allow the writing's of Roberts and Kranzler to sink in to Old JohnyMacs gray matter. I ain't what I use to be  be forewarned!

For you history buffs please read about the Weimar Republic and the financial collapse of the Weimar Republic to get a full grasp of why the rehypothecation of gold is such a big thing.

Bottom-line...Tick tock. Tick tock. When will the bell toll? Is normalcy bias setting in to your household or are you preparing?

I haven't read the Old Testament in awhile. Maybe it is time to reread Genius (Noah) and Daniel (the fall of Babylon.) 

 "Those who cannot remember the past are condemned to repeat it." George Santayana