General Stock Ideas

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Here's an interesting development that should boost demand for gold by banks (see article below), and reinforce the notion that gold will play a role in the coming SDR reserve system.

Under the original Bretton Woods (1946-1971), the US dollar was made the world's reserve currency, and was convertible into gold for international settlements. The 'New Bretton Woods' that will come out of the approaching financial crisis will presumably also utilize gold, at least in the beginning.

After WW II when the Bretton Woods system was being set up, the British (Keynes) pushed for a world reserve currency system ('Bancor'), but the US wanted the US dollar to be the world's reserve, and that's what happened. But the new system that is coming (SDRs) will be along the lines of Keynes' Bancor, with a world central bank, and all currencies tied to the SDR via fixed/tightly bound exchange rates. Dollars, Euros, Yen, etc will still exist, but will be fixed in value to the SDR. International trade will be conducted in SDRs, thus ending the dollar reserve system that we've had since the late 1940s.

The US population stands to lose the most under this system because, no longer having the world's reserve currency, we will have to obtain SDRs to buy any imported commodities/goods. No more printing more dollars at will to buy everything we want, the free ride will be over. The US will need to rely on its own domestic resources instead of imports. To import, we will first need to acquire the necessary SDRs from exports (just as the rest of the world has to do now under the dollar system). To export will require rebuilding an industrial/manufacturing economy in the US, which is possible, but will take many years.

Under such a system, the US standard of living will plummet overnight (hence the FEMA internment camps and militarized police state apparatus being rapidly set up). But the US has plenty of food production, and domestic oil/gas production is rapidly being ramped up in preparation. Also, as part of 'Bretton Woods II', a large percentage of the national debts of nations will be reduced/deleted, which is relatively easy to do since all currencies will be now be pegged to the SDR, they just knock off some zeroes from every nation's indebtedness. De-clogged of debt, the world economies can boom once more.

The coming financial crisis will seem gut wrenching to the public, but the solution (Bretton Woods II) will come to the rescue and be welcomed with open arms - anything to end the crisis. As part of Bretton II, the global central bank authority will exercise significant control over national spending/budgets (as is happening in Europe), and there will be a global taxing mechanism to fund the global government (carbon tax, cap + trade) -

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>>> Is gold safe or dangerous now?


US banking regulators' proposal on risk weighting could boost the precious metal's attraction as an investor haven.


Wall St. Cheat Sheet
By Eric McWhinnie



http://money.msn.com/investing/article.aspx?post=9184db6c-7e19-4fde-8d0a-78263ef7a037



Gold has been called many things over the past several years. The shiny yellow metal is seen as a haven to some, but a barbaric lifeless asset by others. In short, gold has trouble receiving a wide range of support as a key player in the global financial system.

However, new developments may slowly change how investors and institutions view the precious metal.

Earlier this month, U.S. federal bank regulators issued a proposed rule-making note regarding capital risk-weightings for various assets. The Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and the Federal Reserve asked for comments on a move that would place a "zero-risk-weight" rating on gold bullion held in banking organizations' own vaults, or held in another depository institution's vaults on an allocated basis.

The full note can be found at FDIC.gov and Section 11 on page 57 states, "A zero percent risk weight to cash owned and held in all of a banking organization’s offices or in transit; gold bullion held in the banking organization's own vaults, or held in another depository institution's vaults on an allocated basis to the extent gold bullion assets are offset by gold bullion liabilities; and to exposures that arise from the settlement of cash transactions with a central counterparty where there is no assumption of ongoing counterparty credit risk by the central counterparty after settlement of the trade and associated default fund contributions."

The move will essentially place gold on the same risk level as cold hard cash -- 0%. Historically, gold has received a risk weighting of 50%. If the proposal stands, it appears that banks will have more flexibility and will not have their regulatory capital ratios punished for holding gold as a haven, instead of government bonds or fiat currency. This will likely help gold be seen more as a true haven in financial markets and further drive gold bullion demand, which is already at historic highs among central banks.

John Butler, chief investment officer at Amphora, explains, "A key reason why gold has not been acting like a safe-haven asset in recent months is because banks are so capital impaired that they are scrambling to reduce their holdings of risky assets in favour of so-called 'zero-risk-weighted' assets, against which they needn't set aside any regulatory capital. As it stands, gold has a 50% risk-weighting. But some government bonds, including U.S. Treasuries, German Bunds and British gilts, are zero-risk-weighted."

Interestingly, Standard and Poor's downgraded the U.S.'s credit rating for the first time ever last year. Wednesday, Egan-Jones credit ratings agency downgraded Germany by one notch from AA- to A+ with a negative watch. The effort to reevaluate the meaning of "zero risk" appears to be long overdue.

While we do not expect the proposal to make gold prices skyrocket overnight if approved, as gold bullion positions will be hedged, it does aid the recognition that gold is an important financial asset that lacks counterparty and downgrade risk, making it the ideal haven. Some of the world's largest and most powerful organizations have already realized this. The Bank for International Settlements, which is basically an international central bank looking over other central banks, recently released its latest annual report. It showed that the BIS reported a profit of Special Drawing Rights 758.9 million. However, about 15% of that profit came from the sale of physical gold and the repayment of gold loans. Apparently, gold is not as lifeless as some may think. <<<