Are currency controls and bank runs in our future?
Recent reports indicate that 100 Billion Eurodollars have recently left Spain as residents fretted about the safety of their money and approximately 10% of Italian capital has fled the country. In Greece, reports indicate that as much as 4 Billion Euros a week are heading for safer shores.
Not a good headline. Very few leading media outlets are reporting the transfers of currency out of certain European countries. Is this rampant? It does not take much effort to track down modern day bank runs. Electronic transfers are a large portion of today’s bank runs but people are still pulling money out of banks for the security of physical currency. Good luck since the Euro is still a fiat currency. What is the end game? As always, whoever has the most gold wins.
Europe’s debtors must pawn their gold for Eurobond Redemption
The German scheme — known as the European Redemption Pact — offers a form of “Eurobonds Lite” that can be squared with the German constitution and breaks the political logjam. It is a highly creative way out of the debt crisis, but is not a soft option for Italy, Spain, Portugal, and other states in trouble.
Gold Deposits Of USD 1 Billion To Be Collected By Turkish Bank
Turkiye Is Bankası AS, Turkey’s biggest bank by assets, plans to collect $1 billion of gold in its deposit accounts by the end of the year, deputy chief executive officer Erdal Aral said.
As much as 5,000 metric tons of gold is stored “under the mattress” in Turkey, Aral said, according to a Istanbul-based newspaper. Gold deposit accounts have surged to 13.6 billion liras ($7.4 billion) from 3.1 billion liras within the past year, according to data released by the banking regulator, Aral was quoted as saying.
The Hoarding Continues: China Purchases A Record 100 Tons Of Gold In April From Hong Kong
A month ago we were delighted to counterpoint Charlie Munger’s prior remarks about the level of “civilization” of a given consumer based on their sentiment vis-a-vis gold, by demonstrating that Chinese purchases of gold from Hong Kong rose to a record. To wit: “Imports from Hong Kong were 135,529 kilograms (135.53 metric tons) between January and March, from 19,729 kilograms in the year-earlier period, according to data from the Census and Statistics Department of the Hong Kong government. Shipments in March rose 59 percent from February, yesterday’s data showed.” We have just gotten the April update, and, lo and behold, the country which is now the biggest buyer of gold, having surpassed India, just set a new record: “Gold imports by mainland China from Hong Kong climbed 65 percent to a record in April, advancing for a third straight month as investors sought a hedge against financial-market turmoil and an economic slowdown. Shipments totaled 103,644.5 kilograms (103.6 metric tons) in the month from 62,913 kilograms in March, according to export data from the Census and Statistics Department of the Hong Kong government today. In the first four months, imports were 239,174 kilograms from 27,114 kilograms a year earlier, according to Bloomberg calculations. China doesn’t publish such figures.” In other words: in the first four months of 2012 Chinese purchases have increased by an unprecedented 782% over 2011.
And this is only from Hong Kong! Said otherwise: “Is the PBOC, which officially has just 1,054 tons of the yellow metal, quietly and relentlessly stockpiling gold?” Oh yes.
Expect a formal announcement from the Chinese central bank in the months ahead, indicating the country’s gold hoard has increased by at least 100%. What happens then to the price of gold is rather self-explanatory.
Greece will not be able to back the value of a return to the Drachma since their economy and tax base is in freefall. Here is the Greek plan for the future:
Greek Bank Run Update: €100-€500 Million Per Day
Five days ahead of the Greek parliamentary re-vote, the media propaganda machine has gone mute due to the moratorium on the RAND() known as popular polling: forgotten are the days when Syriza’ popularity rating would swing from -100 to +100 in the span of hours, Diebold notwithstanding. Which leaves the media machine just one tactic: updates on the economic collapse as a tacit suggestion of what may happen if situation is not fixed. And while at this point it is nearly impossible to distinguish propaganda from fact, the latest numbers out of Kathimerini are just stunning. As Bloomberg’s Marcus Bensasson reports, citing Kathimerini, the Greek banking system has continued to hemorrhage deposits this month, amid uncertainty over the outcome of elections on June 17. “Many people are putting money in shares of mutual funds denominated in dollars because of the bureaucratic difficulty of taking money out of Greece, or are keeping cash at home, the newspaper said.” How much? “Deposits are leaving the banking system at a rate of 100 million to 500 million euros ($125 million to $625 million) a day, Kathimerini said, without specifying over how long a period that rate of outflow has continued.”
Considering that the Greece banking system has about €170 billion in total deposits, this is roughly 0.3% of the entire deposit base fleeing each day – those who understand the nuances of fractional reserve banking get why this could be an issue.
Putting this in the US context, which has over $8 trillion in various forms of deposits, this would be equivalents to about $25 billion getting withdrawn. Every day.
How will we know when the collapse is imminent? The stock market volume will decrease when the institutions have completed their electronic bank runs. The price of gold will rise (look for at least $100 over a few days). Border controls to stop physical currency transfers are further implemented. The news concerning “solutions” will fall on deaf ears in the market. The latest Spanish bailout rally lasted only two hours. The Federal Reserve will transfer large amounts of our treasure to Europe without any Congressional approval.
David DeGerolamo
