The Big Reset: Why China Bought JPMorgan's Gold Vault
The office building of JPMorgan with its largest private gold vaults at Chase Manhattan Plaza, opposite to the New York Federal Reserve building, has been recently sold to the Chinese.
We have now arrived at the point where it is not the banks, but the countries themselves that are getting in serious financial trouble. The idea that we can 'grow our way back' out of debt is naive. The current solution to 'park' debts on to the balance sheets of central banks is just an interim solution.
A global debt restructuring will be needed. This will include a new global reserve system to replace the current failing dollar system, probably before 2020.
The sole reason why I became interested in gold is because of the book "Overleef De Kredietcrisis" (How To Survive The Credit Crisis), written by Willem Middelkoop – the Dutch equivalent of Jim Rickards – in 2009. This book opened my eyes and interest for economics and I didn't stop reading and writing about it ever since.
Middelkoop had written four books in Dutch when he decided to switch to English, his latest book has just been relesed: The Big Reset. This book is about the War on Gold and the plans behind the scenes to create a new gold-backed world reserve currency. I had the privilege to do a Q&A with Middelkoop about his latest book. The Q&A will be published on this website in two parts.
How did you started to invest in gold?
Because of the books by Indian economist Ravi Batra in the 1990's I became aware of the anti-cyclical nature of gold. Through my internet research in 1999, when the internet bubble was getting pretty scary, I had learned about GATA and learned a great deal about fiat and hard money. After I took profits on my real estate investments in Amsterdam between 2001 and 2004 I started to invest in physical gold and silver and bought my first shares in precious metal companies in 2002. In the following yearns I experienced that investing in junior mining and exploration companies who worked on new discoveries delivered the best results. This first led to the publication of the Gold Discovery Letter and in 2008 to the start of the Gold Discovery Fund, which was renamed Commodity Discovery Fund in 2010 because some investors like the commodities more than gold. We have some 600 high net-worth Dutch investors and invest in (junior) mining companies. 50% is gold related, 25% silver related. We also have some Rare Earth and base metal investments. Because of the ongoing 'World Championship Currency Debasement' we expect much high prices for precious metals in the next few years.
Your new book is named The Big Reset, isn't our current monetary system sustainable?
No, we now have arrived at the point where it is not the banks, but the countries themselves that are getting in serious financial trouble. The idea that we can 'grow our way back' out of debt is naive. The current solution to 'park' debts on to the balance sheets of central banks is just an interim solution. A global debt restructuring will be needed, as economists Rogoff en Reinhart recently explained in their working paper for the IMF. This will include a new global reserve system to replace the current failing dollar system, probably before 2020.
So you are not on your own with this call?
Right after the near death experience of the global financial system at the end of 2008 the IMF and others started to study the possibilities for a next phase of the financial system. In 2010 the IMF published a study titled 'Reserve Accumulation and International Monetary Stability' for a financial system without a dollar anchor. The United Nations called for 'a new Global Reserve System' based on the IMF's Special Drawing Rights (SDR's) a year later. The SDR was created in 1969, at the time the London Gold Pool couldn't hold gold at $35 and the U.S. lost over 10,000 tons of gold because countries like France and the Netherlands returned excess dollar reserves to the U.S. treasury and demanded physical gold. This development led to the end of the gold backed dollar in August 1971, when President Nixon closed the gold window and the first dollar crisis started. It led to the run up of gold towards $880 in 1980. The UN idea is endorsed by China who has publicly stated several times that it is dissatisfied with the present dollar-orientated system. In 2009 China's Central Bank Governor Zhou Xiaochuan advocated a new worldwide reserve currency system. Late 2013 the Chinese state press openly called to 'de-Americanize' the world'. In an official op-ed the idea for 'the introduction of a new international reserve currency to replace the dominant U.S. dollars' was mentioned again. According to the London based think thank Official Monetary and Financial Institutions Forum (OMFIF) it will take many years before the renminbi will mount a credible challenge to the dollar. The euro is not suitable either.
How will this change unfold?
Our financial system can be changed in almost every way as long as the main world trading partners can agree on these changes. Two major problems in the world's financial system have to be addressed, the demise of the U.S. dollar as the world reserve currency and the almost uncontrollable growth of the worldwide mountain of debts and central banks' balance sheets. A reset planned well in advance can and probably will consist of different stages. So currently the U.S. together with the IMF seems to be planning a multiple reserve currency system as a successor of the current dollar system. But this system which still include and center around the dollar, but other important currencies will be added at its core. OMFIF has published an interesting study last year. They remarked:
Some American insiders have even been calling for a return to the gold, isn't it?
n an open letter to the Financial Times in 2010 titled 'Bring back the gold standard', the very well connected and former President of the World Bank Robert Zoellick pointed out he wants to use gold as a reference point in order to reform the current failing financial system. Mr. Zoellick explained an updated gold standard could help retool the world economy at a time of serious tensions over currencies and U.S. monetary policy. He said the world needed a new regime to succeed the 'Bretton Woods II' system of floating currencies, which has been in place since the fixed-rate currency system linked to gold broke down in 1971. He said the new system
According to the famous publisher Steve Forbes, who was also an advisor for some of the presidential candidates in 2012, 'the debate should be focused on what the best gold system is, not on whether we need to go back on one.' So it was at no surprise for me to see an interview with professor Robert Mundell in Forbes magazine, in which he argued for a return to the gold standard. Mundell can be seen as one of the architects of the euro, and has acted as an advisor to the Chinese government as well. Mundell said:
And China supports these ideas for a currency reset?
As you know Chinese Central Bank Governor Zhou Xiaochuan advocated a new worldwide reserve currency system as early as 2009. He explained that the interests of the U.S. and those of other countries should be 'aligned', which isn't the fact in the current dollar system. Zhou advised to develop the SDR's into a 'super-sovereign reserve currency disconnected from individual nations and able to remain stable in the long run'. According to some experts the IMF needs at least five years more years to prepare the international monetary system for a worldwide introduction of SDR's to be used worldwide. Some doubt if we will have the luxury to wait that long. The fact China is stopped buying U.S. Treasuries in 2010 and have been loading up on gold ever since tells a great deal. Chinese high level officials have indicated China wants to grow their gold reserves 'in the shortest time' to at least 6,000 tons, in anticipation for the next phase of world financial system. A recent report by Bloomberg suggest The People's Bank of China and private investors has been accumulating over 4,000 tons since 2008. The Chinese are afraid the U.S. could surprise the world with a gold revaluation. Wikileaks leaked a cable sent from the U.S. embassy in Beijing early 2010. The message, which was sent to Washington, quoted a Chinese news report about the consequences of such a dollar devaluation as it appeared in Shanghai's Business News:
Can you explain the love for gold by the Chinese?
They know, even from their own history, gold has been used again and again to rebuild trust when a fiat money system has reached its endgame. As you might know, from your own studies, the main academic journal of the Chinese Communist Party's Central Committee published an article in 2012 that sheds a light on the Chinese monetary or should we say gold strategy. The article [exclusively translated by In Gold We Trust] was written by Sun Zhaoxue, president of both the China National Gold Corporation (CNG) and the China Gold Association (CGA). Sun stated:
According to my research the Chinese are now in the final stage to grow their gold reserves to 6,000 tons. They want to grow these reserves towards 10,000 tons before 2020. That amount will bring the Chinese on par with the U.S. and Europe on a gold/GPD ratio. This opens the door to a possible joint US-EU-China gold supported financial system like the IMF's SDR-plan. Such a reset could also be backed by Russia since they have accumulated over 1,000 tons, most of it since the start of the credit crisis in 2008.
Do China (and Japan) have the same debt problems like the western countries?
According to John Mauldin, author of 'The End Game' and 'Code Red' China is 'even more addicted to money printing than the US or Japan'. Despite national financial reserves of almost $4,000 billion, China has been confronted with its own debt crisis, after Chinese banking system's assets grew by $14 trillion between 2008 and 2013. The old Chinese communist leadership still remembers how they succeeded to grab power because of the monetary problems between 1937–1949. Their main goal is to avoid social unrest like China experienced during a period of hyperinflation after World War II.
What do the Chinese know about the War on Gold?
Sun Zhaoxue explained in 2012:
He then also explained how the US is debasing the value of its currency in a move to get rid of too much debt:
Additional proof of the Chinese knowledge about the gold price suppression can be found in message leaked by Wikileaks from the American Embassy in Peking about a Chinese newspaper report:
The office building of JPMorgan with its largest private gold vaults at Chase Manhattan Plaza, opposite to the New York Federal Reserve building, has been recently sold to the Chinese. This indicates the US and China seem to be working together in advance towards a global currency reset whereby the US, Europe and China will back the SDR's with their gold reserves so the dollar can be replaced.
Synopsis of The Big Reset: Now five years after the near fatal collapse of world's financial system we have to conclude central bankers and politicians have merely been buying time by trying to solve a credit crisis by creating even more debt. As a result worldwide central bank's balance sheets expanded by $10 trillion. With this newly created money central banks have been buying up national bonds so long term interest rates and bond yields have collapsed. But 'parking' debt at national banks is no structural solution. The idea we can grow our way back out of this mountain of debt is a little naïve. In a recent working paper by the IMF titled 'Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten' the economist Reinhart and Rogoff point to this 'denial problem'. According to them future economic growth will 'not be sufficient to cope with the sheer magnitude of public and private debt overhangs. Rogoff and Reinhart conclude the size of the debt problems suggests that debt restructurings will be needed 'far beyond anything discussed in public to this point.' The endgame to the global financial crisis is likely to require restructuring of debt on a broad scale.