tag:blogger.com,1999:blog-12167233687956565792024-03-14T14:31:09.907+01:00End of the World as we know itWealth is the product of man’s capacity to think.Boefkehttp://www.blogger.com/profile/12907824705116393715noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-1216723368795656579.post-22479056300326771932012-03-30T09:52:00.000+02:002012-03-30T09:53:52.101+02:00The future of EMU and the Netherlands’ place in Europe<div dir="ltr" style="text-align: left;" trbidi="on">
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNmv77GEyUePNJ4Q-T0x51XPSO7h4Mxe9ry-qQl-fvQGLU_jVRbAbVHpAoKZ41cUsVTrlgKEe-yywA8AAz_ZvkM7xJFMlxPf2pekTv0touP8UbqV6uuE51S_0zxYkj_gkImF4D6RK07q4/s1600/europe.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNmv77GEyUePNJ4Q-T0x51XPSO7h4Mxe9ry-qQl-fvQGLU_jVRbAbVHpAoKZ41cUsVTrlgKEe-yywA8AAz_ZvkM7xJFMlxPf2pekTv0touP8UbqV6uuE51S_0zxYkj_gkImF4D6RK07q4/s200/europe.jpg" width="133" /></a>Dear reader,</div>
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There are a lot of articles circulating on the internet every day which attract our attention. Some more interesting as others but in the end the internet has shown to be a useful source of information.</div>
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Recently I was pointed at an article (or a speech if you like) on twitter.</div>
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This speech was held by Klaas Knot, President of the Netherlands Bank, which you probably all know from a previous post on my blog...<a href="http://endotworldasweknowit.blogspot.com/2012/01/will-dutch-gold-ever-come-home.html" target="_blank">Will the Dutch gold ever come home?</a></div>
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In this speech Mr Knot addresses the problems of Europe facing today, and how it did come this far. Because of the very well documented and clear speech, I decided to place it on my blog in the original form. </div>
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This is a speech which isn't brought to you by mainstream media but is essential to get a clear view on Europe today and in the future. </div>
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I can fully endorse the recommendations and conclusions drawn by Mr Knot.</div>
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Hope you can appreciate the first "guest post" on this blog, I certainly did!</div>
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<b>Speech by Mr Klaas Knot, President of the Netherlands Bank, before the OMFIF (Official Monetary and Financial Institutions Forum), London, 17 February 2012.</b><br />* * *<br />
<br />Thank you for this opportunity to exchange views with you on this topical issue. Thank you also for arranging for me to do so amid the splendour of this magnificent hall.<br />
I feel quite safe standing here, for I understand the Armourers’ Hall was among the few buildings that escaped destruction in the Great Fire of 1666, and, in 1940, also survived a major blitz on London, while the surrounding area was devastated.<br />
So one might say that this venue symbolically suits my subject of today, for I am confident that in the distant future we will be able to say that EMU still survives.<br /><br />
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Speaking of which, I couldn’t help but notice that the title of my talk as announced in the flyer is “The Future of European Monetary Union”, instead of “Economic and Monetary Union” which the term “EMU” stands for. Don’t worry, you find yourselves in good company; many European governments are only now starting to realize that they haven’t paid enough attention to the “E” in EMU.<br />
My talk today consists of two parts.<br />
In the first part, I’ll focus on why it is that, for the Netherlands in particular, it is so important that the European project will be successful.<br />
In the second part, I’ll discuss the implications of the European sovereign debt crisis for the future design of EMU. I will argue that at the root of the crisis we find some individual euro area countries pursuing wrong policies and a failing system of mutual surveillance in the euro area. These deficiencies pose a number of challenges for the future of EMU. While the introduction of the euro has increased macroeconomic stability and furthered trade and financial integration, the sovereign debt crisis clearly demonstrates that the job is not done yet. The alliance of the Netherlands with Europe has always been strong and will remain so in the future, if only because of its small size and geographical location.<br />
The same holds true for the other “low country”, Belgium. By nature, Dutch people have always had a strong focus on Europe.<br />
Just to illustrate this point, every pupil in high school has to learn at least two foreign European languages. Foreign residents in the Netherlands even complain that it is hard to learn Dutch in Holland, because everybody they speak to in Dutch replies in English, French or German. Another way to illustrate the Netherlands’ focus on the outside world is to look at the openness of its economy.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiX_Zdv97zi0Byybd_wqluCRqTxSF6F9poevMlwNQtwY57o1LHJsO2t7QrHoXSqcm88D2ej1Vn2hdIg_ALAeixznlz_FPGMu8QgHztYrsiF2Xp3n2DYD_1Y2Bl_nhEoKcsefqbwZcAeFfM/s1600/chart+2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="260" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiX_Zdv97zi0Byybd_wqluCRqTxSF6F9poevMlwNQtwY57o1LHJsO2t7QrHoXSqcm88D2ej1Vn2hdIg_ALAeixznlz_FPGMu8QgHztYrsiF2Xp3n2DYD_1Y2Bl_nhEoKcsefqbwZcAeFfM/s400/chart+2.jpg" width="400" /></a></div>
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If you take a look at Chart 2, you find openness defined as exports plus imports as a percentage of GDP. As you can see, in the US, exports plus imports are less than 30% of GDP.<br />
In France, Italy, Spain and the UK, this indicator is between 53 and 63%. In the Netherlands, exports plus imports are nearly 150% of GDP, and in Belgium and Ireland even more.<br />
As a consequence of this openness, the realization of the single market and the introduction of the euro later on did have a substantial positive impact on the Dutch economy. After all, one of the most significant yields was the boost that EMU provided to trade.<br />
Driven by lower transaction cost, lower exchange rate risks and more market transparency, trade within the euro area developed more strongly than outside the euro area. Being a country of trade and distribution by tradition, the Netherlands has taken advantage of these circumstances.<br />
For sure, it is one of the reasons why the Dutch economy outperformed the euro area in terms of GDP growth in 14 out of the last 20 years.<br /><br />
The strong alliance of the Dutch economy with Europe in general and the euro area in particular also shows up if we look at its exports orientation. In Chart 3 you see this defined as exports to the euro area expressed as a percentage of total exports.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0keRZTHX1_FWGWPcOcOnULMxsO3X4sETvBq3v3asT_9xzhspTbSQY9_IcYcQ8kutpCilbnuqgvjJWx6Wj1I8NyBT4uRGTAA8AaL2VQS23Q65bAK4xXAI1Ol_jnLebPzr_JFSW7Hm6Oj8/s1600/chart+3.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="265" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0keRZTHX1_FWGWPcOcOnULMxsO3X4sETvBq3v3asT_9xzhspTbSQY9_IcYcQ8kutpCilbnuqgvjJWx6Wj1I8NyBT4uRGTAA8AaL2VQS23Q65bAK4xXAI1Ol_jnLebPzr_JFSW7Hm6Oj8/s400/chart+3.jpg" width="400" /></a></div>
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It follows that the orientation on the euro area is the largest in the Netherlands. More than 60% of our exports goes to euro area countries. Given its close ties with the euro area, it is obvious that for the Dutch economy a solution of the European sovereign debt crisis is of vital importance. If EMU were to fall apart, the consequences for the open Dutch trading nation would be severe.<br />
Therefore, Dutch policy-makers and central bankers should do their utmost to solve this crisis. In what follows, I will first focus on the causes of the sovereign debt crisis.<br />
Finally, I will present my views on the implications for a stable design of EMU.<br /><br />
Over the last couple of months, European policy makers have done a lot to restore confidence. As a consequence, most stressed sovereign debt markets have calmed down substantially (left-hand side of the graph).<br />
The most important development was the announcement and finalisation of the Fiscal Compact, in which the political leaders of the euro area countries (and most other EU countries) further strengthened the rules governing budgetary discipline in Europe.<br />
Furthermore, in March the capacity of the EFSF/ESM will be evaluated. We have to conclude that the EFSF in its current form (based on guarantees) and size unfortunately has failed to convince markets that all countries will get through this crisis unharmed. This is why we as central bankers call upon the European governments to increase the emergency facility as soon as possible.<br />
The ECB also took further measures to avoid the sovereign debt crisis from severely dragging down the real economy. It did so by introducing a refinancing operation with a maturity of three years. As Chart 4 shows, this operation attracted a lot of interest, with a total volume of EUR 490 billion (right-hand side of the graph).<br />
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This is not all “new” liquidity by the way, since banks also rolled over operations with shorter maturities into this new facility. This provides them with the liquidity security they need in light of the market tensions and, thus, helps prevent a sharp reduction in credit supply to the economy.<br />
At the end of this month, a second three-year operation will be carried out. In analysing and solving the sovereign debt crisis, the focus was on fiscal and monetary factors rather than on the macroeconomic causes of the crisis.<br />
However, as I’ll briefly demonstrate by means of Charts 5, 6 and 7, these causes are at least as important as the fiscal slippages some countries allowed themselves.<br /><br />
At the start of EMU, per capita income levels between countries differed significantly. It was assumed that catching-up countries would experience faster economic growth. This is what did happen, but not quite to the extent expected.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiJEc4D9-k6yy2OrBn6oZtm65Ayu2RTu7Zo8qj_nrF0LGS3SGuOcjURmjkhulz5nPySDhJJt_m26j8wwDjBMacKd7RxoPm7fa7pPndFizdmyxAEvkRCJ3oMaEfchcVxQ-uGzCvlGbEsPyI/s1600/chart+5.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="270" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiJEc4D9-k6yy2OrBn6oZtm65Ayu2RTu7Zo8qj_nrF0LGS3SGuOcjURmjkhulz5nPySDhJJt_m26j8wwDjBMacKd7RxoPm7fa7pPndFizdmyxAEvkRCJ3oMaEfchcVxQ-uGzCvlGbEsPyI/s400/chart+5.jpg" width="400" /></a></div>
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Prior to the crisis, mainly Ireland, and to a lesser extent also Greece and Spain, showed signs of real convergence. Their cumulative growth differentials compared to Germany reached 20 to 45% in 2007.<br />
Note that Italy and Portugal hardly experienced any real convergence towards the German welfare level, even before to the crisis. Even the Netherlands “converged” more than these countries.<br />
Unfortunately, the catching-up process largely took place through debt, either public or private.<br />
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As Chart 6 shows, in some countries credit to the private sector grew by more than 10% a year for over a decade. As a result, their debt with the rest of the world ran up tremendously.<br />
This was most dramatically the case in Ireland, which moved from a net creditor position of 52% of GDP in 1999 to a net debtor position of 71% of GDP in 2008.<br />
Note that the Netherlands is not doing particularly well with regard to this measure either. This is mainly the result of the growth in mortgage loans. In my view the high stock of mortgage debt is among today’s biggest vulnerabilities of the Dutch economy.<br /><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgsxmnQ0DEKuXs_UXlbYgCgj-0rYKbrO_HBHONVcKXs7FxH87THR2owOnUQvMXMM4DgCN_29IyhoA8C6YRk0LpOKc7uKnwIYYVhb4iJSkZHnnyyVNPZ0oogAun-GSQj7tqgfmDoGIGVShg/s1600/chart+7.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="267" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgsxmnQ0DEKuXs_UXlbYgCgj-0rYKbrO_HBHONVcKXs7FxH87THR2owOnUQvMXMM4DgCN_29IyhoA8C6YRk0LpOKc7uKnwIYYVhb4iJSkZHnnyyVNPZ0oogAun-GSQj7tqgfmDoGIGVShg/s400/chart+7.jpg" width="400" /></a></div>
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Besides being largely based on credit, real convergence was accompanied by high inflation, as you find visualised on Chart 7. <br />
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Whereas Germany experienced lower inflation compared to the euro area average, the inflation rates in Greece, Ireland, Spain and Portugal were much higher than the EMU average.<br />
This substantial deterioration of competitiveness mainly reflects the development of unit labour costs. The economic developments in Germany in the last decade have been phenomenal. The time that Germany was called the sick man of Europe is not so far way. Partly due to the supply of many low-paid workers from East Germany, the labour market institutions in Germany were no longer sustainable.<br />
This has led to the so-called Harz reforms, which made the German labour market more flexible and tempered unit labour costs and inflation.<br />
Before EMU, the current euro area countries followed different economic strategies. Between 1970 and 1999, unit labour costs in Germany, the Netherlands en Austria grew by a factor of 2.5 to 3. During these 28 years prior to EMU, unit labour costs grew by a factor of 12 in Italy, 14 in Spain, 35 in Portugal and 55 in Greece. By regularly devaluing their currencies, these countries were able to restore competitiveness.<br />
But after the launch of EMU, this policy option was no longer available,
of course.<br />
The hope was that these countries would adapt to this new
reality and unit labour costs growth would slow down. But has this
happened?<br />
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Chart 8 shows the cumulative growth of unit labour costs relative to the euro area average from the start of EMU. While countries like Germany, Austria and Finland continued their modest wage policies, unit labour costs in Southern European countries went up at a much higher pace, undermining their competitiveness. This proved unsustainable.<br />
The countries that found themselves in the top of the chart when the sovereign debt tensions started in 2009 – that is Greece, Spain, Ireland, Portugal and Italy – all ran into trouble one after the other.<br />
This is no coincidence.<br />
Currently, adjustments are hard-handedly being enforced by the markets. In the said countries, Ireland excepted, product and labour markets didn’t function properly and they still don’t. Markets are over-regulated and labour markets are highly inflexible.<br />
By addressing these problems, labour productivity can increase, thereby lowering unit labour costs.<br />
I am not saying this will be easy, but I’m convinced that such steps are absolutely necessary for EMU to function properly.<br />
As the chart also shows, in the Netherlands unit labour cost growth was also relatively high during the first years of EMU. This, however, wasn’t caused by the high inflation rates and low flexibility of the labour market, but reflected the low unemployment rate in the Netherlands in that period.<br />
For many years, the unemployment rate in the Netherlands was the lowest in the euro area. The divergences in unit labour cost developments and price competitiveness within the euro area are reflected in the current account balances of the individual countries.<br />
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As
you can tell from Chart 9, before the crisis, most southern European
countries and, to a lesser extent, Ireland experienced high and steadily
increasing current account deficits, while the current account
surpluses of Germany and the Netherlands improved further.<br />
For many years
it was thought that in a monetary union, the current account balances
of individual countries were no longer relevant. It was only the balance
of payment of the euro area as a whole that mattered. We know better
now.<br />
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Of course, besides competitiveness problems, the crisis also had fiscal
causes. As can be told from Chart 10, the stability and growth pact
didn’t prevent some governments from taking up old habits once they had
fulfilled the convergence criteria that enabled them to join EMU.<br />
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We
shouldn’t forget, however, that this was facilitated by some of the
core countries of EMU.<br />
When it became clear that fiscal policies in
these countries wouldn’t be able to meet the rules of the Stability and
Growth Pact, it was not the policies that were changed but the Pact.<br />
This was clearly a mistake. Besides, the gradual worsening of the budget
balance in countries like Italy and Portugal was partly due to their
competitiveness problems. Since devaluing out of these problems was no
longer an option, the declined competitiveness slowed down economic and employment growth.<br />
This
dampened tax revenues while stimulating social security expenditures. <br />
Looking at it this way, the lack of fiscal discipline partly reflected
the lack of macroeconomic discipline. More in general, budgetary policy
was supposed to absorb temporary cyclical differences, by allowing the
automatic stabilisers to do their work.<br />
For example, during a downturn,
public spending automatically goes up as more people receive
unemployment benefits, while tax revenues decrease. Such “automatic”
response to cyclical developments stabilises the economy.<br />
But in most
member states, the automatic stabilisers have failed to operate properly
since 1999. Instead, a number of governments followed pro-cyclical
budgetary policies, by loosening the budgetary reins during the economic
booms, and tightening them during the busts.<br />
In other words, budgetary
policies have hampered the functioning of EMU. Budgetary discipline in
EMU was supposed to be exacted not only by the stability and growth
pact, but also by market discipline. Markets were expected to restrain
profligate governments by charging them higher interest rates and, thus,
forcing them to change their ways.<br />
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As
is evident from Chart 11, market discipline was largely absent during
the first ten years of EMU, allowing governments to pursue unsustainable
policies. And when markets finally started to differentiate between
governments, they did so with a vengeance.<br />
Although market discipline is
now imposing necessary corrections, a stable monetary union cannot be
based on this mechanism. So what would a stable monetary union look like
in my view?<br />
As I argued earlier, some euro area countries have not
fully adapted to the fact that they lost the option of devaluation in
order to restore competitiveness. If they had, they would have increased
their flexibility and growth potential by reforming their labour and
product markets.<br />
Given the spillover effects of postponed structural
reforms on the functioning of EMU, these reforms cannot be the sole
responsibility of the governments concerned, but should also have a
“European” dimension.<br />
This can take different forms.<br />
One way could be to
strengthen the macroeconomic imbalances procedure, by increasing its focus and enforceability. This could be done, for instance, by
introducing more reversed Qualitative Majority Voting in these areas.<br />
Another way would be to introduce minimum standards or best practices in
policy areas where spillovers have turned out to be especially high,
such as labour market policies.<br />
Importantly, what should be avoided is
harmonisation towards some kind of EMU average, as this would force
strong countries to reduce their competitiveness.<br />
Secondly, debt ratios
should gradually be brought well below the ceiling of 60%. This lower
debt ratio can only be realised and maintained through independent
enforcement of the European fiscal rules and by anchoring these rules in
national legislation.<br />
A politically independent European authority that
can increasingly intervene in the fiscal policy of countries breaking
the agreements is essential here.<br />
If – and only if – these conditions
have been met, eurobonds could be a serious option. Eurobonds could
enhance the stability of EMU in several ways. They would prevent a
liquidity problem in one euro area country from needlessly transforming
into a solvency problem. Moreover, they could provide a fire wall
against the danger of contagion. Although eurobonds are not suitable as a
crisis instrument, they could be the light at the end of the tunnel for
the people of vulnerable euro area countries. For the people in those
countries need to feel that their sacrifices will contribute to a
permanent solution; one that will safeguard them from the
short-sightedness of both politicians and markets.<br />
<br />
As I said at the
beginning of my presentation, it is obvious that for the Dutch economy a
solution of the sovereign debt crisis is very important, given its
strong connections to the euro area.<br />
And therefore, Dutch politicians
and central bankers should do their utmost to solve this crisis.<br />
But
what is it we can offer?<br />
In my opinion a lot. Pragmatism, common sense
and a focus on problem-solving are crucial now and the Dutch happen to
be famous – not to say notorious – for these characteristics.<br />
Although
we can be very principled on some issues and in many cases see eye to
eye with the Germans, these typically Dutch characteristics could help
divided euro area countries to stick together and solve this crisis.
Pointing at the long-term perspective of eurobonds once the necessary
conditions have been met, is an example of this pragmatism and focus on
problem solving.<br />
Let me finish this presentation by saying that finding a
structural way out of the crisis will not only be beneficial for the
Netherlands, but also for the euro area, the rest of Europe, and, yes,
even for the world economy.<br />
Thank you for your attention.<br />
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<br /></div>Boefkehttp://www.blogger.com/profile/12907824705116393715noreply@blogger.com1tag:blogger.com,1999:blog-1216723368795656579.post-77069705728606083752012-03-06T07:43:00.000+01:002012-03-30T09:52:46.180+02:00The Dutch housing market<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5zHimM5O15mcOjOzVvKMpBCrXgGXb2whZG_5dW7hGWyYbndrgGOWc11E-oYflmf9k8LbKdZBHY6P0B5BdBDxOOouGp7Ufn8U20e4MkHN7YUm229qhnlOyvIYzT3XCXzoVqQjbDKz3UZI/s1600/images.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5zHimM5O15mcOjOzVvKMpBCrXgGXb2whZG_5dW7hGWyYbndrgGOWc11E-oYflmf9k8LbKdZBHY6P0B5BdBDxOOouGp7Ufn8U20e4MkHN7YUm229qhnlOyvIYzT3XCXzoVqQjbDKz3UZI/s200/images.jpg" width="149" /></a>As I get more and more questions about the Dutch housing market (particularly from abroad) it seems a nice idea to write a post about it.<br />
We all know the problems of the American housing market but what do we know about the Dutch?<br />
I can hear you think, what's the significance of the Dutch market worldwide? Marginal indeed, but what I will try to make clear is that the significance to the Dutch economy as a whole is far greater than thought of at first sight.<br />
We're going to look at the way this market has been organised and financed in the past and what probable changes are going to take place in the future.<br />
<br />
With the knowledge that almost all houses in the Netherlands are bought with the use of a mortgage let's have a closer look on how this works. <br />
Before the crisis of 2008 it was very common, for people living together, to get a mortgage based on two incomes. With a modest income in the Netherlands at € 32.500 this would make € 65.000.<br />
With this € 65.000 it was possible to borrow up to 6 or more times the annual income. This has never been an official rule. The rules implemented a certain percentage of housing costs a month, but in the end it turned out to be even more than 6 times. <br />
Maybe it is unnecessary to say that when there was a change in the income negatively the problems immediately occurred. The problems though were not as big as they are today, because most houses were sold for a price higher than the mortgage.<br />
Nowadays it's organised a bit different. Today the highest income is used in combination with an ever decreasing part of the second one. This does mostly result in a mortgage of 4,5 times the annual income.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhswAfPUOMy-Rv3FCkNLCn8PlQdohR-z7H9JaLlqKmTSAC6wcp2mNWNE6t01aBZaVzgXCNTdTl3XVdf59rVYiXmSGI4iHic_StJ6zuNEKudphSX-lERyXO5y3JGwQOBcVnwMYWU3UAadAA/s1600/index.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhswAfPUOMy-Rv3FCkNLCn8PlQdohR-z7H9JaLlqKmTSAC6wcp2mNWNE6t01aBZaVzgXCNTdTl3XVdf59rVYiXmSGI4iHic_StJ6zuNEKudphSX-lERyXO5y3JGwQOBcVnwMYWU3UAadAA/s1600/index.jpg" /></a>Besides this, there was also the possibility to borrow more than the price paid for a house. In fact this went up to 125%. When a house was bought for € 200.000 it was possible to get a mortgage of € 250.000.<br />
No, I'm not kidding you here, this was normal in these days.<br />
This "bonus" was spent on all kind of luxury things, like a totally new kitchen, bathroom but also cars and so on.<br />
Later, it was only possible to spend this renovation bonus on the house itself.<br />
This also implied that it was possible to buy a house without a single penny saved. Stepped up to the bank, showed your income and the "dream" was yours a nice renovation fee included.<br />
Of course this couldn't go on forever and nowadays the 125% rule is heavily discussed.<br />
Recently, mortgage products were launched with the possibility to borrow up to only 90% of the price of the house. A small step, as we look to our neighbouring country Germany, where it's common to borrow up to 80% and save the other part by yourself.<br />
That this policy has led to the fact that the Netherlands has the highest mortgage-debt-to-GDP ratio can't be a surprise to you.<br />
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If this isn't enough already, the Netherlands also has a very loose fiscal policy on the interest paid over the mortgage.<br />
It's pretty simple.<br />
The percentage you pay as an income tax, is also your discount on your mortgage interest paid. If you pay 33% tax on your income, you get 33% of the interest paid returned by our loving government. This can increase to a level of 52%.<br />
This policy is encouraging home owners to borrow as much as possible. Even when you're capable to pay cash for the house this law makes it financially more attractive to just borrow all the money needed.<br />
But, with the ever increasing house prices this policy is costing the government more and more.<br />
The Netherlands is running a budget deficit now of 4,5% of the GDP.<br />
It's necessary to cut down expenses.<br />
Europe has a maximum deficit prescribed of 3%. Probably the fiscal policy is going to crash in the following years, as it isn't affordable any longer. <br />
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The effect of all these measurements can be guessed. With almost everybody able to buy a house, the prices kept rising for years and years. The affordability however wasn't rising along. Wages are (corrected by official inflation numbers) somewhat the same.<br />
This is leading to a bigger gap between the affordability and the real house price.<br />
We can see the rising house price starting in the 80's, not coincidently along with the start of the encouragement measures of the government.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiMQNIaM9clr9KMlU3cBj09urLK_DiI0Y641R7GBz9EXIHA8_vrtzaO4aJAE7Pa2TZBDhaAGupGBWnBcCi8jqBmfIkKAOLOE43bLpdfuZzgR-vRHHFaO4v41eBi5ZJqKOLhPi6dYN6wjXc/s1600/huizenprijzen-1970-2002.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="215" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiMQNIaM9clr9KMlU3cBj09urLK_DiI0Y641R7GBz9EXIHA8_vrtzaO4aJAE7Pa2TZBDhaAGupGBWnBcCi8jqBmfIkKAOLOE43bLpdfuZzgR-vRHHFaO4v41eBi5ZJqKOLhPi6dYN6wjXc/s400/huizenprijzen-1970-2002.png" width="400" /></a></div>
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Why did the government take all these measurements? Officially it is to encourage people to buy their own home. <br />
Personally I think this can be a reason, but I have some doubts whether this is THE reason. <br />
More interesting is to see what the consequences are for the Dutch economy?<br />
The rising house prices were leading to a more and more debt driven consumption. People were able to get an additional mortgage to renovate their house. With this extra consumption the economy went in overdrive around the year 2000.<br />
The CPB has done research on this, and this showed that the growth of the consumption between 2000 and 2009 was completely due to the price increase of the houses. <a href="http://www.cpb.nl/publicatie/de-consumptievergelijking-saffier-ii" target="_blank">Link (download pdf page 23)</a> <br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhBT-Cm5mVtvak-aKN9AmkVj8yqLJ67ISMViJeAPIyHZDFH0pIrYaoMNG7L_3FLoT0P_t7rnS7bsMNZhZT-YJLhD9naFnzzU7XHSeXIjnI8sy5QVl6OGOdMXVgPN7Z8IFjJcpc1EAjxfU0/s1600/index.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhBT-Cm5mVtvak-aKN9AmkVj8yqLJ67ISMViJeAPIyHZDFH0pIrYaoMNG7L_3FLoT0P_t7rnS7bsMNZhZT-YJLhD9naFnzzU7XHSeXIjnI8sy5QVl6OGOdMXVgPN7Z8IFjJcpc1EAjxfU0/s1600/index.jpg" /></a>It's hard to call it coincidence that with the falling house prices the economy went into a recession.<br />
With the budgetary problems of the government some measurements like the fiscal policy will tighten for sure.<br />
The banks need more liquidity due to the <a href="http://en.wikipedia.org/wiki/Basel_III" target="_blank">Basel III</a> regulation. With this in mind they won't be that eager to borrow people money without savings in return.<br />
We can already see this in the new mortgage products.<br />
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The probability of a big crash in the house prices is very high. With just 10% down from the 2008 top we really haven't seen nothing yet.<br />
In a market where it's product is priced by almost "free money" it's hard to say what the real value is. We will find out the hard way, as the price of money will rise.<br />
I'm not even talking here about unemployment and other income related problems.<br />
This dropping price may seem bad news for home owners, it isn't that bad for newcomers. Newcomers who can't afford a house now, will be able to buy a house in the future, taking on less debt.<br />
We will eventually return to a situation where a house will become a bunch of stones again to live in, and not an investment option to make a lot of money.<br />
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<br /></div>Boefkehttp://www.blogger.com/profile/12907824705116393715noreply@blogger.com4tag:blogger.com,1999:blog-1216723368795656579.post-16891467487114470172012-02-19T15:31:00.002+01:002013-02-03T13:09:25.054+01:00Gold is money..NOT!<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjWlPg3Hn82vMSJwQRhr92nU1yeW1ywa-v3d1JMgMA8tDSt_7d6ocYY6aAcY_0X3eLOwIFuEQka1sQvSseEYUGnLnx3O2BEo5VRQouRDRReiaHxwc_kEkVIBmhUkBXO-NH5o9T6MHa4qtQ/s1600/gold_coins_question_mark.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjWlPg3Hn82vMSJwQRhr92nU1yeW1ywa-v3d1JMgMA8tDSt_7d6ocYY6aAcY_0X3eLOwIFuEQka1sQvSseEYUGnLnx3O2BEo5VRQouRDRReiaHxwc_kEkVIBmhUkBXO-NH5o9T6MHa4qtQ/s200/gold_coins_question_mark.jpg" width="138" /></a> Across the internet we often are confronted with the following sentence: "Gold is money".<br />
This is brought up as a reason for people to buy gold. There are numerous of people seriously thinking our next monetary system will use gold (and silver) as some kind of money.<br />
Because these commodities today aren't used as money there should be a big, big price advantage for the clever guy to step in and buy these commodities.<br />
As I also believe there are once in a lifetime opportunities here, it's not because of this money reason. This post should try to clarify the current situation. How do people come to this thought of gold is money?<br />
Will it eventually make things functioning better than they are today, and is it even possible to happen? <br />
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For me to come to an answer at these questions I think it's important to define what is meant by the term "money". Ludwig von Mises describes it this way: <a href="http://mises.org/humanaction/chap17sec3.asp" target="_blank">Money is a medium of exchange</a>. This is a view from the Austrian School. My take on this is a little different, but instead of making this subject even more difficult let's stick to this definition. The next time I use the word money I hope we can agree on the fact that we mean the medium of exchange.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhSHwKf8ei9mR6L6BUuSroPwFEgk6SXgrCLwcrH6HhSIuE7rfJY7dbHFYNJgcLI40yfEoghbLNAwefCjiliQYWr9q3BS9YKgJU2DiKK5kg_Id4d0gOSTzH-pgl4n3U6zXH93YhVfYQgOAA/s1600/image-01-large.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="142" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhSHwKf8ei9mR6L6BUuSroPwFEgk6SXgrCLwcrH6HhSIuE7rfJY7dbHFYNJgcLI40yfEoghbLNAwefCjiliQYWr9q3BS9YKgJU2DiKK5kg_Id4d0gOSTzH-pgl4n3U6zXH93YhVfYQgOAA/s200/image-01-large.jpg" width="200" /></a>Today the money we use are Euro's, Dollars and all kind of other currencies. The reason we use them is to lubricate the flow of value between the participants of the economy. <br />
For example, instead of bartering a cow against a sheep, it is possible to exchange the cow for money somewhere, and with that money go out and buy a sheep elsewhere. This is Mises' sole function of money, facilitate a smooth running system called economy. <br />
Does this function of money not work properly nowadays?<br />
In my opinion it does very well! Better said, the evolution now going on, from paper notes into digital currencies, is making moneys' function as a lubricator performing even better.<br />
The globalisation of trade is forcing us to seek for solutions of making this trade taking place in the most convenient way. Otherwise it would throw up barriers, which would affect the trade. Imagine yourself, how could you ever buy yourself a book from an other country if you had to barter something physical against it?<br />
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Back to my question: How do people come to this thought?<br />
Although it's always better to ask it themselves I think I've got an explanation.<br />
If you let me.<br />
Today we use money not only for the medium of exchange function. We also keep our short-term savings in it, and even our long-term savings (pensions).<br />
The fact that we are almost everyday confronted with media showing us central banks bringing more and more, out of thin air, created money in circulation, we feel cheated.<br />
We as the people have to work for our money, and what we don't consume we save. Our savings are loosing more and more purchasing power due to this printing. By calling for gold as money my guess is that people simply want to ensure the purchasing power of their savings in the future.<br />
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Gold can't be printed, this will learn that bastards! But, because people disuse money as a store of value, should we than completely change the medium of exchange function in a more "hard to print" variant? Doesn't this seem the other way around for you also?<br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLtQLlbzci37YizzPom7O9UZ1E5RCMroYU05jO0Y-m8PBoMfqnsm66SL-KhgOFruXlUNm5vWX-swsYd_atxigjd6LC2o_I3eXFxp7XE8vpQXJqt9QFglMrIFWjHgy3dn3qKUDGF4_ki30/s1600/bernanke.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLtQLlbzci37YizzPom7O9UZ1E5RCMroYU05jO0Y-m8PBoMfqnsm66SL-KhgOFruXlUNm5vWX-swsYd_atxigjd6LC2o_I3eXFxp7XE8vpQXJqt9QFglMrIFWjHgy3dn3qKUDGF4_ki30/s200/bernanke.jpg" width="147" /></a>As Ludwig von Mises describes a medium of exchange as money's sole function, wouldn't it be very difficult to explain that in the future we are going to make this function subordinate to an other less important function, which can be fulfilled by something else?<br />
Not only subordinate, we are also going to let it perform it's function worse as before. Nobody can advocate this as THE solution to our monetary problems, can you?<br />
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So would it be possible for this scenario to happen? The Mayans were convinced the world would stop turning at the end of 2012, this isn't very likely though. In my opinion we can also look in this way at the gold-money thing. It's not likely to happen.<br />
I'd like to go even further with my statement: "We should hope for god sake this won't happen because it would throw us back a century at least. We will have almost a barter economy, with devastating results for our trade worldwide."<br />
Will things stay how they are today? No, definitely not.<br />
There will take place major changes in the perception of people regarding saving in a medium of exchange. More and more people already see the need to separate the functions of money. Currency as the medium of exchange, and gold as the store of value. Acting independent from each other.<br />
Will this shift of perception imply big changes in the future value of gold? It will take indeed gold out of the commodity sphere and place it where it belongs, already described <a href="http://endotworldasweknowit.blogspot.com/2012/02/gold-silver-ratio.html" target="_blank">here</a>.<br />
The Euro-concept already adapted to this "new normal", which I described in the <a href="http://endotworldasweknowit.blogspot.com/2012/01/euro-vs-dollar.html" target="_blank">this previous post</a>.<br />
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What I would like to achieve with this little effort is for people to simply think about what they're actually meaning when it comes down to gold is money. Do they want the sole function of money to be fulfilled by gold, or just the store of value function. In the last case, fiat won't be a problem any more. No backing, completely independent. Try to stick to facts and when facts don't support your view, think.<br />
Like Ayn Rand once said: "<span class="st">Whenever you think you are facing a contradiction, check your <i>premises</i>. You will find that one of them is wrong."</span><br />
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Boefkehttp://www.blogger.com/profile/12907824705116393715noreply@blogger.com4tag:blogger.com,1999:blog-1216723368795656579.post-71061867080971575052012-02-07T20:29:00.000+01:002012-08-13T21:40:38.910+02:00Gold-Silver Ratio<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgX62B1hkOM2NE0P4qxpW82onob7QTpcjYqgqOLFZe9LGyjhpEDHqKo-p8qNGHC65lrcALYn0pyw0c3MxHOQUEFHGJ1WrJN8T3855VvdNZyESJOriAtny-s8V2zU77Kub2dYFfRDsvdG9Y/s1600/images.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="170" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgX62B1hkOM2NE0P4qxpW82onob7QTpcjYqgqOLFZe9LGyjhpEDHqKo-p8qNGHC65lrcALYn0pyw0c3MxHOQUEFHGJ1WrJN8T3855VvdNZyESJOriAtny-s8V2zU77Kub2dYFfRDsvdG9Y/s200/images.jpg" width="200" /></a>For more than a month now I've been able to succeed in not mentioning the S-word. But, al things come to an end. I'm talking about the gold-silver ratio.<br />
Obviously there's still a great misconception relating to this ratio, so here's my challenge to make it as clear as possible.<br />
To achieve my goal I'm not going to throw facts at you why gold is any different than silver. This hell of a job already has been done by FOFOA in <a href="http://fofoa.blogspot.com/2010/12/kicking-hornets-nest.html" target="_blank">this</a> post. It couldn't be explained any better, so please read it if you haven't already done it before.<br />
My purpose is to show that any comparison between these two precious metals is as logical as an <a href="http://en.wikipedia.org/wiki/Elfstedentocht" target="_blank">eleven-city</a> race in June.<br />
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In order to get a good result I would like to create an other comparison (or ratio if you like). Although I know it might seem strange on the first sight, I hope I can proof it isn't so strange at all.<br />
So here is my own ratio.....the paint-pencils ratio.<br />
This ratio simply shows us the amount of paint in the world related to the amount of pencils. Personally I think it's fair to put a ratio on this as they both are used by artists in various ways. It can show us whether the paint is expensive, or the pencils are compared to each other.<br />
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As we have our new ratio here, it's time to start with the test. At first sight there's nothing wrong with our new ratio. We simply compare two "commodities" by their physical availability. When there is a price setting in the markets for both "commodities", we simply look to the availability worldwide and than we can conclude whether one is overpriced or not. This is how it works with the gold-silver ratio also.....no difference here, agree?<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjKA4QXHAJxvmb_bZCTVzefH44393HS5DH-MPBa_mRtBxzX9JT_4XPNv2PYZuo4ZVwTqQGD2SP8ebGs_UD5Di6vDKFU-TuwQCyA0kAfNHpOInO4hojMpgLhfUnvuVA61nEtreb0xYmvb5M/s1600/mona-lisa.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjKA4QXHAJxvmb_bZCTVzefH44393HS5DH-MPBa_mRtBxzX9JT_4XPNv2PYZuo4ZVwTqQGD2SP8ebGs_UD5Di6vDKFU-TuwQCyA0kAfNHpOInO4hojMpgLhfUnvuVA61nEtreb0xYmvb5M/s320/mona-lisa.jpg" width="205" /></a>What happens when the function of either one of these "commodities" changes? By change I mean when a particular commodity's function changes. For example when a painter makes a painting? It's still the same paint, priced by the markets.<br />
But as people value art different than the physical paint, there is a total different price setting.<br />
How is that possible? It is still the same paint, isn't it?<br />
That's because art in some kind of a way is a store of value. Not the most liquid one, but it is one. So try to imagine what has happened with the price of the particular paint used by Leonardo da Vinci for the Mona Lisa. The market price was very low, but the value of the painting is enormous. Why? Because we, the people, value it as something valuable. (Does this sound familiar to you).<br />
The value of this paint changed because it's first function as a commodity changed in something else. <br />
Do you still feel comfortable to put a ratio on paint and pencils if you knew this paint was going to be used for the Mona Lisa of the future? Or following this, just buy pencils when they're undervalued by some price mechanism, knowing there is a very, very good chance paints' function would change?<br />
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This is in my opinion the problem with the gold-silver ratio. <br />
Yes, it both are precious metals; and yes they're both commodities today. In fact not exactly but hey, you can get that one from me.<br />
What I'm trying to make clear is that the function of gold is different because it's a store of value. The only store of value as a focal point in our new monetary system. Our Central Banks already adapted to the new situation and now almost all banks own only gold. Does this mean silver won't outperform gold in this current situation? No, definitely not. In fact it is very well possible that this will happen. But this speculative out-performance is occurring under the current commodity comparison. <br />
Nowadays gold is indeed priced as a commodity, but this won't last forever. It will be valued in a way maybe not to contain by everyone. How it's priced by it's availability today is far, far from telling us anything about future value...<br />
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Boefkehttp://www.blogger.com/profile/12907824705116393715noreply@blogger.com3tag:blogger.com,1999:blog-1216723368795656579.post-57230258256403719272012-01-30T12:45:00.001+01:002012-02-21T20:01:39.867+01:00ECB independent?<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2BFEDD07kGYpu_HcG_5z_8iXq_OKuMQzQ1cOV8ioBAzBQ3OXNcSBbuQ1BENOPfAaHe-sjQdjfd1FTIfqsu-IBLB5NPcCVERNjA_FgBj8ZL7P-4MUxKv1qOw4lfW3SE83Yr4LcARsJuBQ/s1600/ECO-_Wim_Duisenberg_120615a.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2BFEDD07kGYpu_HcG_5z_8iXq_OKuMQzQ1cOV8ioBAzBQ3OXNcSBbuQ1BENOPfAaHe-sjQdjfd1FTIfqsu-IBLB5NPcCVERNjA_FgBj8ZL7P-4MUxKv1qOw4lfW3SE83Yr4LcARsJuBQ/s200/ECO-_Wim_Duisenberg_120615a.jpg" width="132" /></a>Last week I received an interesting question from someone on Twitter about the independence of the ECB. He didn't believe the ECB is independent as politicians have a lot of power. As I am confronted with more question's about this independency, it is a good subject for a post. A post which I will try to keep short and most easy to read. Leading in this will be Mr Duisenbergs' speech (ECB president 1998-2003) in may 2002. Here, "The Euro-our money", was honoured by the Charlemagne Prize association. <a href="http://www.ecb.int/press/key/date/2002/html/sp020509.en.html" target="_blank">Link</a><br />
<br />
In order to come to an answer to this question about the ECB we better begin to look at the currency issued by the ECB, the Euro. Known by many as the coins and banknotes in our wallet. Now, the Euro stands for far more than this. This currency has become a symbol for underlying political vision. It was born out of a believe that in reaching peace and prosperity we should unify Europe. Also, shown by the next quote, the Euro is some kind of social contract.<br />
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<div style="background-color: #eeeeee;">
<i>"What is money? Economists know that money is defined by the functions it performs,
as a means of exchange, a unit of account and a store of value<span style="background-color: #eeeeee;">.</span><span style="background-color: #eeeeee; color: red;"> But, just as
importantly, money is also defined by the community for whom it performs these
functions.</span> Because it is an economic instrument for each of its users, it is
also a political and cultural bond between them. Consider this simple fact: we
engage in an exchange of goods and services everyday by using money as the means
of exchange; and we offer our labour in exchange for money, which, in itself,
has no value. We only do this because we believe that we will, in turn, be able
to exchange that money for more goods or services. This fact tells us much about
the confidence that we place in money itself. And it tells us much more about
the confidence that we place in each other<span style="background-color: #eeeeee;">.</span><span style="background-color: white; color: red;"><span style="background-color: #eeeeee;"> Hence, money is, in essence, a social
contract</span></span>." </i></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4Nsrx2aUZhb4FsHwlvaiKHl2cubfwqnttafQt3w5XqdTlC1wMzY963RmKL028j31DQaAtKRczd0FHZ7owIjcaF__S1kGUEZLyKsQMhsDIOGxXA_-PVsTibj1_s_jCXwNxNtcusmrSAG4/s1600/_38573379_afghan_ap.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="266" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4Nsrx2aUZhb4FsHwlvaiKHl2cubfwqnttafQt3w5XqdTlC1wMzY963RmKL028j31DQaAtKRczd0FHZ7owIjcaF__S1kGUEZLyKsQMhsDIOGxXA_-PVsTibj1_s_jCXwNxNtcusmrSAG4/s400/_38573379_afghan_ap.jpg" width="400" /></a></div>
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<span style="font-family: inherit;">For the fiat-people: </span><br />
<span style="font-family: inherit;"> We can see that our currency issuer (ECB) is pointing to the fact that our money in itself has no value.</span> It is the confidence that we as the people have in money, performing it's three functions well. So can we agree here once and for all that we can leave the fiat discussions for what they are?<br />
You didn't invent the wheel again...fiat is not relevant.<br />
All currencies are fiat currencies now, and will be in the future.<span style="font-family: inherit;"> We simply have to deal with this as it has far more benefits than disadvantages.</span><br />
<span style="font-family: inherit;"> Besides, this Duisenberg statement, can we call this transparent communication?</span><i> </i>I think we can. That this is no coincidence shows us the next paragraph.<br />
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<div style="background-color: #eeeeee;">
<i>"The euro, probably more than any other currency, represents the mutual confidence
at the heart of our community<span style="background-color: #eeeeee;">.<span style="color: red;"> It is the first currency that has not only severed
its link to gold, but also its link to the nation-state.</span></span> It is not backed by
the durability of the metal or by the authority of the state. Indeed, what Sir
Thomas More said of gold five hundred years ago –<span style="color: red;"> that it was made </span><span class="italic" style="color: red;">for</span><span style="color: red;">
men and that it had its value </span><span class="italic" style="color: red;">by</span><span style="color: red;"> them – applies very well to the
euro."
</span></i></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj1qAp8w1U15FkaEjpy_yoeJRVA-2l9fv1dGwV5JmjqBp-wkHCDchIXOKY21vm-MthOr1n3QKuC-LwnKUYzvxwXtV2oFlwJjUQzW2QeeKBtngfpTI2WeEy9XL2dMqa5xAMuw8YIF6E96H0/s1600/money_clip2.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="168" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj1qAp8w1U15FkaEjpy_yoeJRVA-2l9fv1dGwV5JmjqBp-wkHCDchIXOKY21vm-MthOr1n3QKuC-LwnKUYzvxwXtV2oFlwJjUQzW2QeeKBtngfpTI2WeEy9XL2dMqa5xAMuw8YIF6E96H0/s200/money_clip2.jpg" width="200" /></a>Again, the confidence is highlighted. Than Duisenberg moves on with a very interesting line. "Severed its link to gold, but also to the nation-state". This sentence is probably the most quoted sentence by Mr Duisenberg.<br />
My view on this is as following:<br />
By saying the currency has severed it's link to gold and in the next sentence mention it is not backed by the metal, Duisenberg is making a clear statement. By severing it's link he means GOLD is not MONEY.<br />
It is and will become more and more a physical asset for the people to use. That this was completely new back then, I already described in my post <a href="http://endotworldasweknowit.blogspot.com/2012/01/euro-vs-dollar.html" target="_blank">Euro vs Dollar</a>.<br />
<br />
Do you consider stop reading?<br />
Please stay with me, because this does not mean the ECB is throwing the function of gold overboard.<br />
It's made clear further on, by stating, "it was made for men and that it had its value by them".<br />
Actually this is the opposite of monetizing gold (gold owned by central banks) and central banks setting the price.<br />
Gold should be demonetized and start to flow through the hands of the people. As I recently made clear, this is what's happening now. Gold is getting more and more in the hands of the people. Do we put our excessive savings in our currency (the Euro), in gold, or both. It's up to us. <br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjr9OzLABP5OzGlpR2wysOxmgrz5aII-UTJK291gWHAGSSOpeIrLH3QeaTw6eqs19F28RrH34ZKgXf3xRm1p7pXLT8ma2q2YM3m0ZPUS50XDJRqUdXTHBQE_La_tqsvvznSdcyEhnQrGLc/s1600/goldcentralbanks.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="345" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjr9OzLABP5OzGlpR2wysOxmgrz5aII-UTJK291gWHAGSSOpeIrLH3QeaTw6eqs19F28RrH34ZKgXf3xRm1p7pXLT8ma2q2YM3m0ZPUS50XDJRqUdXTHBQE_La_tqsvvznSdcyEhnQrGLc/s400/goldcentralbanks.jpg" width="400" /></a></div>
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The separation of the nation-state is explained further on in his speech. <br />
Besides, did you notice the word politicians already? No?<br />
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<div style="background-color: #eeeeee;">
<i>"That the euro has economic origins does not reduce its significance as a social
contract. <span style="color: red;">However, its success as a social contract is only possible because
it is rooted in a second accord, a constitutional contract, between the citizens
who own it and the institution to which they have assigned the task of protecting
it.
</span></i></div>
<div style="background-color: #eeeeee;">
<i>
</i><i>The recognition that the management of the currency, being a policy function,
requires a constitutional backing is not exactly new. In 1360, the French bishop
and philosopher Nicolas Oresme was among the first to successfully argue that<span style="color: red; font-size: large;">
money did not belong to the state, but to "<span class="italic">the community and</span> [to] <span class="italic">each
of its members</span>".
</span></i></div>
<div style="background-color: #eeeeee;">
<i>
</i><i>One can only give credit to the architects of the Maastricht Treaty. They recognised
the need for the functions of money to be provided at <span style="color: red;">EU level</span>. The architects
of the Treaty also understood that a single currency can only fulfil its monetary
functions and its role as an integrating force so long as it retains its value.
Therefore, they drew up a solid monetary constitution to protect those functions
and its stability."
</i></div>
<i>
</i><i></i><br />
<br />
Here we come to the core of our question. After defining that the Euro is a kind of social contract between it's users, it's also a contract with the institution (ECB) which we have assigned protecting it. Money doesn't belong to the state, but to the community and each of it's members. The architects of the Maastricht Treaty saw it was needed to protect the functions of money at EU level and gave the ECB the task of protecting it. Here we now have the ECB's sole mandate, price stability.<br />
<br />
As the ECB is independent it can't be forced to support fiscal
wishes by the separate nation-states. That this has been regulated so isn't coincidence,
as just learned. <br />
This will not mean the ECB doesn't intervene in
a crisis-situation as this would harm the stability. But when
other options aren't available any more. Balancing budgets is a very important option
where the ECB keeps on pointing. Now you know why, these politicians
aren't always that happy with this independence. It's limiting their spending drift in a way. <br />
<br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgnvF_5K4Xp-a9LF4WlblY2btDWvqeExEle2W6DfIOcuVL8RpmPhrkQGc9QcOuVzYOJZhoKHrNnZgGiA72aeyup1_QBJkpA5PE16XpQxXQH-P51MIiIiXaH5etetwbSdeuJGH7nFNXjyDM/s1600/264px-ECB_Frankfurt.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgnvF_5K4Xp-a9LF4WlblY2btDWvqeExEle2W6DfIOcuVL8RpmPhrkQGc9QcOuVzYOJZhoKHrNnZgGiA72aeyup1_QBJkpA5PE16XpQxXQH-P51MIiIiXaH5etetwbSdeuJGH7nFNXjyDM/s200/264px-ECB_Frankfurt.jpg" width="150" /></a>By asking what the influence is of politicians (the state) on the mandate of the ECB or at the constitutional contract we can be clear.<br />
NONE.<br />
By taking this constitutional contract away from the state we made a big step forward in the integration of our continent.<br />
A necessary step, a giant leap.<br />
Every time when we hear a voice calling to end the independence of the ECB, or that this independence is dangerous, we should think back to what we've learned. Taking this institutional contract back to the various nation-states means going back into time......and disintegrate.<br />
<br />
This is the reason why the Euro-zone won't throw out members, or Germany will exit it. It would simply be the end of something big, started almost an age ago. With screaming for a Nordic Euro, you completely missed the reason of the creation of the Euro.<br />
I hope you understand it was a logical step to make the ECB independent.<br />
Independent of peasants, with other interests than price stability. Electoral interests clashing with monetary.<br />
As we can conclude, the creation of the Euro has probably far more benefits as you might think of at first sight.<br />
These giant steps are for us to follow. It's bringing us a different world.......<br />
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<iframe allowfullscreen='allowfullscreen' webkitallowfullscreen='webkitallowfullscreen' mozallowfullscreen='mozallowfullscreen' width='320' height='266' src='https://www.youtube.com/embed/MvA26p6wMYc?feature=player_embedded' frameborder='0'></iframe></div>
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p.s. As I used some paragraph's from this historical speech, this post doesn't cover the speech as a whole. It's containing far more interesting statements, you'd better read it for yourself. <a href="http://www.ecb.int/press/key/date/2002/html/sp020509.en.html" target="_blank">Link</a><br />
<i> </i><br />
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<br /></div>Boefkehttp://www.blogger.com/profile/12907824705116393715noreply@blogger.com27tag:blogger.com,1999:blog-1216723368795656579.post-43827545809428988262012-01-25T21:54:00.001+01:002013-02-03T13:15:41.733+01:00Will the Dutch gold ever come home?<div dir="ltr" style="text-align: left;" trbidi="on">
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjuY1iU_QB1NmcesiFMI-BAf7JOcCDWnZpwuqnXuwID1LwsdcAD0lYbQQH9sL6oDMt4Dcr_z2wNM6liG-92iyb9MbrFj5NGIXCMt9L6ihpzHGxn3WxktpYuUcKLytwR5aNctHSQoyiBynQ/s1600/downloadni.asp.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="172" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjuY1iU_QB1NmcesiFMI-BAf7JOcCDWnZpwuqnXuwID1LwsdcAD0lYbQQH9sL6oDMt4Dcr_z2wNM6liG-92iyb9MbrFj5NGIXCMt9L6ihpzHGxn3WxktpYuUcKLytwR5aNctHSQoyiBynQ/s200/downloadni.asp.jpg" width="200" /></a>For years the amount of gold held abroad by the Dutch Central Bank
(after this named DNB) was only to guess. Nout Wellink (former president
of DNB from 1997-2011) never answered any question regarding this
topic. But with the new president Klaas Knot just several months in
office things have changed. During an interview with Nieuwsuur last
January he stated that about 67 ton was stored in Amsterdam. Better
translated as "I thought it was about 67 tonnes". <a href="http://nos.nl/l/tcm:5-1152331/" target="_blank">Link (in Dutch)</a><br />
<br />
With total holdings at 612,5 tonnes, this leaves 90% of our national
gold stored abroad. And as the Ministry of Finance replied before; it is
stored in London, Ottawa and New York. <a href="http://925.nl/images/2011-10/goudvoorraad-dnb.pdf" target="_blank">Link (in Dutch)</a> <br />
In this post my intention is to discover what made Mr Knot make this
statement. As Mr Wellink had his reasons to remain in silence, so has Mr
Knot his reasons to be open. Will this eventually return our gold?<br />
<br />
<a name='more'></a><br />
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<a href="http://www.blogger.com/blogger.g?blogID=1216723368795656579" name="1350bcba5d344c25_more"></a>The first question that comes up is
why our gold is mostly stored in New York and London. DNB is clear. When
they want to sell some gold, it is easier to keep it close to the place
where the gold is sold. And that DNB has sold a lot of gold can we see
in this picture below. Notice (again) that although the weight in tonnes
has lowered, the total value remained the same, or increased a bit.<br />
<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiiJla5aBhyphenhyphen_PiIq1gbhmthmzBM9IUqokSV_lMdnYXNGIyxxadWLZ6drZpOQbQdksQPDoZs0n97heSO7Tr6t1sBpG-AgIpkdcedvHmcwnsuTLvpcyxC-0rbcPA63IClSR8uCPCFiF-ulOQ/s1600/Goudvoorraad_tcm46-144350.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="230" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiiJla5aBhyphenhyphen_PiIq1gbhmthmzBM9IUqokSV_lMdnYXNGIyxxadWLZ6drZpOQbQdksQPDoZs0n97heSO7Tr6t1sBpG-AgIpkdcedvHmcwnsuTLvpcyxC-0rbcPA63IClSR8uCPCFiF-ulOQ/s400/Goudvoorraad_tcm46-144350.gif" width="400" /></a></div>
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This is one reason to stick to the current situation. Another reason Mr
Knot pointed out is that repatriating the gold is going to be an
expensive and hard to insure operation. He better could ask Venezuelan
president Chavez how he managed to get their gold partially back. But
okay, in the end valid reasons in some kind of way to let the gold stay
where it now is.<br />
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<a href="http://www.newworldeconomics.com/archives/2011/061911_files/goldcentralbanks.jpg" style="margin-left: 1em; margin-right: 1em;" target="_blank"></a></div>
But if Mr Knot is feeling good with this situation, why than this
remarkably openness? A man in his position is very well aware of the
weight of his words. And with his statement so began the call of getting
our gold back home. Coincidence? I doubt it. In my opinion he knew this
was going to happen. He knew the public would go mad with this
knowledge reached to them by the bank director. So what could be his
goal?<br />
<br />
In this, it might be interesting to look at the next chart. In this
remarkable chart we can see the estimated total gold amount, and the
amount in the hands of the central banks.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjHNDfgnlWDncedifvmi_KhIJYOKJ-5epJlBoxXDYxLcySltab5KipUpx9aeiqkmhJdz3h9UoM_g1E1Jl6HTci9Bk_SA_Vm8n0Torg3u0ydvzzwhw5lJX1AGi3Y6bwUf2VqZWQWaWlDDnM/s1600/goldcentralbanks.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="345" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjHNDfgnlWDncedifvmi_KhIJYOKJ-5epJlBoxXDYxLcySltab5KipUpx9aeiqkmhJdz3h9UoM_g1E1Jl6HTci9Bk_SA_Vm8n0Torg3u0ydvzzwhw5lJX1AGi3Y6bwUf2VqZWQWaWlDDnM/s400/goldcentralbanks.jpg" width="400" /></a></div>
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What we see here is that the percentage of the gold held by the central
banks stays about the same until roughly World War 2. After that, the
total amount of gold held by those banks is barely moving. But as the
total amount steadily increases, the percentage of central bank holdings
is lowering as we speak. We can conclude that there is a clear shift
here from public to private hands regarding gold possession. As we know;
he who has the gold, makes the rules.<br />
<br />
With this in mind it could be Mr Knots' purpose to purely get the focus
on gold. In my opinion the gold stored overseas is never going to come
back. This has several reasons.<br />
1. Probably a great part, or everything of this gold has been sold into the markets.<br />
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2. With DNB asking to get it back, it would offset a tremendous panic
in the markets as this would be a sign of distrust. The implications
would be that there would be a buying power of enormous volumes and the
physical markets would quickly dry up.<br />
So in both situations the gold will not return.<br />
<a href="http://www.newworldeconomics.com/archives/2011/061911_files/goldcentralbanks.jpg" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;" target="_blank"></a> <br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNFzBty3MBnOZStZBGGlgIwy-uVpWieH0zngFfBfg8Kzv4vU9XuhmYu4oYqIePo98tN_UKM9AUVbVfzGC2_cB4qWWl3pKoAZ9Laf1U42zqnM6J4THP1Xy3EwdjuuPi1IdiG3Vg8egPc-Q/s1600/gouden-tientje-1933.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="126" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNFzBty3MBnOZStZBGGlgIwy-uVpWieH0zngFfBfg8Kzv4vU9XuhmYu4oYqIePo98tN_UKM9AUVbVfzGC2_cB4qWWl3pKoAZ9Laf1U42zqnM6J4THP1Xy3EwdjuuPi1IdiG3Vg8egPc-Q/s200/gouden-tientje-1933.jpg" width="200" /></a>But what could be an alternative way of getting the gold into the
Netherlands, or if we think bigger in the Euro-zone? First it starts
with the conditions for buying gold. In the Euro-Zone the buying of gold
is excluded from taxes. A very important point. And if we needed a
subtle way of making people realize the importance of saving in gold.
That is what could be happening now. People are talking and discussing
about this subject and in the end could be very well intended to buy
some themselves. As FOFOA has often explained the most important for the
future system is the gold held in mostly private hands. As the
confidence in the currency starts to evaporate among the people, so
starts the re-building of the confidence in the new system with the
people. And as we look back to the graph above this shift is taking
place for decades now!<br />
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Probably there is a lot of gold held in private hands already in the
Netherlands. When we look to Germany, France and Italy (numbers
available) there is more gold in private hands than stored in their
central banks. With this average there is probably more than 1000 tonnes
already privately held in the Netherlands. When it comes down to answer
my own question will the Dutch gold ever come home? My conviction is it
will. Not in the way you probably first thought, but by the people. But
this situation of buying us a ticket at these prices won't last
forever. Actually it can end any time. Stop puzzling and running around
in circles. Ask yourself the question: " is there a good reason for you
NOT owning gold?"<br />
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Boefkehttp://www.blogger.com/profile/12907824705116393715noreply@blogger.com9tag:blogger.com,1999:blog-1216723368795656579.post-9340179755347698802012-01-15T19:07:00.000+01:002012-02-21T20:30:21.007+01:00Euro vs Dollar<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhjnZuHDLKK4fQ9JCGKn7Z4zxVpz9UjkzOeEgHu1DvwZH3Hj5AuUbAJTQsjGCHxm2qaiYJP8CxyfDpqhguzV79enPoJ-RNSH9Tq_GkEggPBJphdXHqUWnh2JYL1ZneXZpL7kcyVTEkAe00/s1600/index.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="179" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhjnZuHDLKK4fQ9JCGKn7Z4zxVpz9UjkzOeEgHu1DvwZH3Hj5AuUbAJTQsjGCHxm2qaiYJP8CxyfDpqhguzV79enPoJ-RNSH9Tq_GkEggPBJphdXHqUWnh2JYL1ZneXZpL7kcyVTEkAe00/s200/index.jpg" width="200" /></a>When people say: " The Euro and the Dollar are all the same, and the causes of the problems we face today", it's sometimes hard not to giggle. The idea comes to my mind that there are in fact a lot of similarities between these two currencies. As there are similarities, there are differences. This subject isn't easy to explain, but I'm going to give it a try! Not with throwing difficult terms at your face or hard to grasp mind games, but with some graphs. With the idea that one picture says more than a thousand words.<br />
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As we know, money has three functions:<br />
1. Medium of exchange<br />
2. Unit of account<br />
3. Store of value.<br />
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<a name='more'></a>I rather wouldn't go deeper in this money definition, as I hope everybody can agree on this. The first two functions are both to the Euro and the Dollar equal. So when people say they are the same, in fact it's partially right. But, what about the third function? Store of value?<br />
I could hear you saying again it's the same for both. And again, partially right.<br />
When we use both currencies as a store of value (our savings), it is the same.<br />
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But what does the architecture of those two currencies actually tell us? And by architecture I mean, how does the issuer of these currencies show us how their currencies perform as store of value? For the Euro the issuer is the ECB, and for the Dollar the Fed.<br />
We all know central banks hold gold, but is there a difference in the way they value their currency to gold?<br />
Or maybe better, are the issuers of our currencies really showing the state of it?<br />
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Let's look how the ECB values it's gold holdings.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiViFQg83XMcTgMU1Q25vyMOu03nLWcqsIMrG9WDheEEc6_JUfHXCfaO3gTmXrDaks1-nfflfPBOxBejQXx2JaRAu0hqr_URG74yjWPgO6LzelB5-bkdzoHn2l287nzdncVJF9uR-e8ELY/s1600/Gold_Value.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="321" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiViFQg83XMcTgMU1Q25vyMOu03nLWcqsIMrG9WDheEEc6_JUfHXCfaO3gTmXrDaks1-nfflfPBOxBejQXx2JaRAu0hqr_URG74yjWPgO6LzelB5-bkdzoHn2l287nzdncVJF9uR-e8ELY/s400/Gold_Value.jpg" width="400" /></a></div>
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As we can see the ECB marks it's gold holdings quarterly at market prices. As these prices are rising since the creation of the Euro, the value is rising also. But, hey? If the value of gold measured in that currency is rising, than that currency itself is actually falling in value. So the ECB is showing us something. We, as the people, can use the Euro as a store of value but as time passes the purchasing power will be affected negatively.<br />
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When we move back to the dollar and try to get a closer look on the
valuation by the Fed of it's gold holdings we see a first difference.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiyINzDBTkYJQfM2im5RHp7Yk-NCu3p8ATex7tVHvwa0BVUu56O2kzPYcajYBtdr8dCmuHCycUpH_C-iOawaEp7O4OzETr7pZlYf95VA8NoRefXYlBuGkn7eTJfnknzOWS2IDiEEKzWMUg/s1600/gold4.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="286" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiyINzDBTkYJQfM2im5RHp7Yk-NCu3p8ATex7tVHvwa0BVUu56O2kzPYcajYBtdr8dCmuHCycUpH_C-iOawaEp7O4OzETr7pZlYf95VA8NoRefXYlBuGkn7eTJfnknzOWS2IDiEEKzWMUg/s400/gold4.jpg" width="400" /></a></div>
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The Fed still values its gold at $42.22 per ounce. This price was set during the fixed gold standard. So actually the Fed is telling us here there is no need for a separate store of value, as their currency (the Dollar) is still as good as gold. Even though we can't exchange roughly $42 for one ounce of gold any more, the Fed is still hanging on this cliff. Why? Again, no need for gold here, our Dollar is equally good as a store of value.<br />
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When we see the valuation of the federal gold holdings we see the stunning number of $11.1 billion. As we would draw this line into the graph of the ECB's valuation we would see a flat line just above zero. This flat line means that the creation of new currency wouldn't have impact on your savings. As we all know this is far from true. It will affect your purchasing power in the future and not in the way we want as saver.<br />
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Here we can draw a conclusion. While the ECB is open about the function and value of it's currency, the Fed isn't. And as the ECB is offering an alternative for the longer term (tax free gold everywhere in Europe), the Fed chairman Bernanke is calling holding gold 'some kind of tradition'. As the gold exchange standard for the Dollar stopped in 1971, the main offender of the Dollar (gold) was put to silence for several decades. But with the creation of the Euro, the Dollar has a new opponent. An opponent who knows monetary history and the inevitable course for every currency. In the end it always returns to it's intrinsic value, zero.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjIsMPIcgVgz3CmWfaHotTMb_JpCbaD8aDa3mVIWJLMj8jid4O6LIGLq_I5ZcQ7rXb06ZT1Ouc2tERsE81K8PX__jnVdmHlGNCj06ENkKZhxv7fzYZCcq_Adcqhve-KkoYdfHWgRDCsKxM/s1600/images.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="236" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjIsMPIcgVgz3CmWfaHotTMb_JpCbaD8aDa3mVIWJLMj8jid4O6LIGLq_I5ZcQ7rXb06ZT1Ouc2tERsE81K8PX__jnVdmHlGNCj06ENkKZhxv7fzYZCcq_Adcqhve-KkoYdfHWgRDCsKxM/s320/images.jpg" width="320" /></a></div>
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With this difference I would like to show that the Euro and the Dollar are far from the same. The Euro project is a threat, no let me state it different, a HUGE threat to the Dollar world as we know it. And in this light we should look at the news articles reaching us through all the media. Has Europe budgetary problems? They do.<br />
Is it threatening to the Euro as a currency? As threatening as it is to the Euro, so is it to the Dollar as these problems are not only budgetary. They're monetary and worldwide. When we look at the Dollar as old fashioned and almost history, we can look at the Euro-structure as the inevitable future. A future with "free floating physical gold", and not as it is now a price set by derivatives and numerous claims on the same piece of gold. <br />
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<br /></div>Boefkehttp://www.blogger.com/profile/12907824705116393715noreply@blogger.com5tag:blogger.com,1999:blog-1216723368795656579.post-39489779407785451632012-01-06T16:36:00.000+01:002012-02-26T20:47:05.101+01:00Pension Fund SPVG<div dir="ltr" style="text-align: left;" trbidi="on">
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjHV6wXnzyb9e4MEtz6lLpu7rMvAHJznYSSL6QgUIX9HMlP8luR-xhyphMhbnU1FMeo-HCgOMXaG1lEt272c0rkcHbjmdclHUNc8sc9dlGvPDfkLUy6HiiJkKbtv4dISeBtpFeBhZEsDwY/s1600/pflogo.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="101" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjHV6wXnzyb9e4MEtz6lLpu7rMvAHJznYSSL6QgUIX9HMlP8luR-xhyphMhbnU1FMeo-HCgOMXaG1lEt272c0rkcHbjmdclHUNc8sc9dlGvPDfkLUy6HiiJkKbtv4dISeBtpFeBhZEsDwY/s320/pflogo.png" width="320" /></a>In case you missed it, this is about a small Dutch pension fund (SPVG) that became world news. This alone can be called an achievement as this pension fund invests for a stunning number employees of 1142. So what was the reason they became world news?<br />
That's because this fund has been ordered to sell a great part of their gold bars (physical) due to a court ruling. Most interesting part, this was brought to court by the DNB (Dutch Central Bank). And as often, Zerohedge was quick in it's conclusion : "This latest gold confiscation equivalent event is most certainly coming to a banana republic near you.". <a href="http://www.zerohedge.com/article/here-comes-executive-order-6102-qe-generation-dutch-central-bank-orders-pension-fund-sell-it" target="_blank">Link</a><br />
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But why did the fund had to bring down it's gold holdings? There were several reasons.<br />
- As other pension funds invest in commodities ( I know, we're talking about gold here...so in my opinion certainly NOT a commodity) with an average 2,7% of their portfolio, SPVG was invested for 13% in only gold. <br />
-The funds' actions we're contradictory to the Goldman Sachs Commodity Index (GSCI) were the amount of gold is only 3,13% of all commodities. As part of all investments, gold would only be 0,5% instead of 13%.<br />
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This would make the fund to dependant on one single investment. There is a law (article 13, FTK) that forbids this dependency for al pension funds. There is one exception (article 135, PW). Pension funds are allowed to invest more in one particular thing, bonds. This was at SPVG almost 78% when DNB went to court. Did you know, as a citizen of the Netherlands, that your pension depends on mostly the profits on bonds? And to go further on this, that the debt of the most indebted country's is actually your asset?<br />
So what the court ordered was to lower the exposure to gold. Somewhere between the 1%-3%.<br />
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But why wanted DNB the fund to bring down its exposure to gold? Is it really only because of the risk of price volatility or overexposure?<br />
I personally find this hard to believe.<br />
With the one exception on investment exposure highlighted again namely bonds, I think this is what this is all about. Pension funds are simply most allowed to invest in bonds. And as such an organisation they have to act like that. Doesn't this conflict with the interest of it's participants?<br />
With the interest on bonds falling diminished the profits. And as a lot of funds had invested in south European bonds under this rule, there still is a great counter-party risk. There is the risk of the debt not being paid back.<br />
This in mind, it isn't strange for Dutch central bank president Knot to warn for pension cuts up to 7% in the coming year 2013 for approximately 40% of the pension funds.<a href="http://www.businessweek.com/news/2012-01-06/ecb-s-knot-says-dutch-pension-funds-have-to-take-extra-measures.html" target="_blank">Link</a><br />
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So why isn't the DNB encouraging all pension funds to buy physical gold? When you look at the profits made the last ten years, it's far from volatile. Or at least a part, as this would be to the best interest of it's members. Is this a possibility? Let's take a closer look on the value of the investments combined.<br />
With a combined value of €790 Billion the Dutch pension funds are relatively big to other European funds.<br />
This is because in other country's pensions are more invested through insurance company's.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjfotwAhGN086c-DFZGV_jA2SnGdXXEhbuJKq41E_T4hCxENhzNQ6QHHityfrARitCE53kC2ZKu4Jz_zcoNKM4D7GrSldAYYIF3Cfpxoj4kqXM5ZA3f5q_SKp3EYxgZj1a0eYg_ThXEyeU/s1600/SNB-nl_tcm46-257072.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="253" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjfotwAhGN086c-DFZGV_jA2SnGdXXEhbuJKq41E_T4hCxENhzNQ6QHHityfrARitCE53kC2ZKu4Jz_zcoNKM4D7GrSldAYYIF3Cfpxoj4kqXM5ZA3f5q_SKp3EYxgZj1a0eYg_ThXEyeU/s400/SNB-nl_tcm46-257072.gif" width="400" /></a></div>
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When all the Dutch pension funds would do the same as the SPVG and keep 13% in physical gold. This would come down to €102,7 Billion. With the current price of €41.000/kilo, this equivalents more than 2500 metric ton.<br />
With an annually mining output of 2652 metric ton (2010) this shift of demand would almost take away all the newly mined gold! And this is just for the Dutch pension funds. Could this issue play a role here?<br />
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The SPVG appealed against the verdict, but was during this appeal forced to sell. Cased closed you think? Think again!<br />
The court ordered DNB on (7-12-2012) in a between ruling to come up with a better motivation on the statements made. It was not adequate . <a href="http://zoeken.rechtspraak.nl/detailpage.aspx?ljn=BU6966" target="_blank">Link</a><br />
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So the case is far from closed. This could be a game-changer if the charges will be dropped. DNB didn't want to comment on this case but my guess is they came up with more and better motivations. And as Zerohedge is often very quick with their reactions and judgement, Tyler missed this one. Leaves us the question is gold just an average commodity? Or is there more to it?<br />
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<br /></div>Boefkehttp://www.blogger.com/profile/12907824705116393715noreply@blogger.com0tag:blogger.com,1999:blog-1216723368795656579.post-3995532331558431982012-01-03T17:49:00.000+01:002012-02-26T20:48:46.521+01:00Transition<div dir="ltr" style="text-align: left;" trbidi="on">
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEheE2CK6K8U7qB1xB5x-DhJ5v7pkUB2yBZLiP2TvneCz108IuaTvrEJVmCDzb62JOTivuwh9zzWNeVNRgPdQLJmvQ7PYV_-dhU9o0ssTqTbigI2xe3LF49eW_98NyygdJXyuLLLQBPwo_U/s1600/images.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="212" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEheE2CK6K8U7qB1xB5x-DhJ5v7pkUB2yBZLiP2TvneCz108IuaTvrEJVmCDzb62JOTivuwh9zzWNeVNRgPdQLJmvQ7PYV_-dhU9o0ssTqTbigI2xe3LF49eW_98NyygdJXyuLLLQBPwo_U/s320/images.jpg" width="320" /></a></div>
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It was once said that "gold and oil can never flow in the same direction". If the current price of oil doesn't change soon we will no doubt run out of gold. </div>
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<span style="font-family: Verdana;"><span style="font-family: Arial,Helvetica,sans-serif;">The Western governments needed to keep the price of gold down so it could flow where they needed it to flow. The key to free up gold was simple. The Western public will not hold an asset that going nowhere, at least in currency terms. ( if one can only see value in paper currency terms then one cannot see value at all ). </span><a href="http://www.usagold.com/goldtrail/archives/another1.html" target="_blank">Another, 5 october 1997</a></span></div>
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</div>Boefkehttp://www.blogger.com/profile/12907824705116393715noreply@blogger.com2tag:blogger.com,1999:blog-1216723368795656579.post-5279588580589628752011-12-30T11:22:00.000+01:002012-02-26T20:52:43.874+01:00Alan Greenspan<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgs6QkfF3ogem7NaHriBDE4gm0aqV2xuN5TO0mNfCIvq1Z7vxp8yghENFE8U5S70uRkl1Pbat90A2DD__Jm6R9lTTKeogpsX-kBSjWmEyf7cv_G2UOblVYPbQCfBTzWQ82TxtBkeobbi2A/s1600/images.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgs6QkfF3ogem7NaHriBDE4gm0aqV2xuN5TO0mNfCIvq1Z7vxp8yghENFE8U5S70uRkl1Pbat90A2DD__Jm6R9lTTKeogpsX-kBSjWmEyf7cv_G2UOblVYPbQCfBTzWQ82TxtBkeobbi2A/s200/images.jpg" width="151" /></a>In my first post I would like to highlight a very interesting person in my opinion, Alan Greenspan.<br />
Most people know this man as the chairman of the FED (1987-2004). In his role as the chairman he was responsible for the lowering of the interest rates to 1%. This in order to avoid a heavy recession after the 9-11 attacks.<br />
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In doing so, he created a bubble of gigantic proportion as mortgages became available at low costs. Also, people never able to buy a home (lack of income or no job!) were under this move able to load themselves up with debt. As there are several interesting things to discuss about this actions, I'm interesting in only two things:<br />
1. Were his actions based on doing the right thing to the economy?<br />
2. And were his actions based on his view on the economy generally? <br />
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These are two different things. When he was in the position as chairman of the FED, his mandates were simple ( on paper though). Maximum employment and stable prices. When either one is at stake he has to react. As he did the economy went in overdrive.The economy functioned for a couple more years, but in case of curing the patient he only kept the patient longer alive. The collapse of the American housing market, was one of the causes for the Credit Crunch in 2008. We still face the consequences every day. So he was doing what was "right" for the economy.<br />
Here we can conclude that what he did, when the economy was on the brink of a collapse, was asked from him as a chairman. Was this his personal conviction? <br />
In order to come to an answer it is necessary to look into the history of Mr Greenspan.<br />
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In the 1950's he was part of an intellectual group of people surrounding Ayn Rand. With Mr Greenspan and other intellectuals they talked about several subjects, including the monetary system. The corporation went further, and in her book Capitalism: the unknown deal (1966) she included Mr Greenspan's essay Gold and economic Freedom.<br />
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In this essay (which is a description of an old fashioned gold standard) there are some interesting lines, which may conflict with the actions he took when he was chairman of the FED. (Emphasis mine)<br />
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<span style="font-size: small;"><i><span style="color: red;">In the absence of the gold standard, there is no way to </span><span class="txtblack" style="color: red;">protect savings from confiscation through inflation </span><span style="color: red;">There is no safe store of value.</span> If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. <span class="txtblack">The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.</span></i></span></div>
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<span style="color: black; font-size: small;"><i><span class="txtblack">This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. </span>If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.</i></span> <a href="http://www.ok-safe.com/files/documents/1/Gold_and_Economic_Freedom_an_Article_by_Alan_Greenspan_1966.pdf" target="_blank">Link</a> </div>
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So while he advocated a separate store of value function outside the currency (gold) he created the greatest Ponzi scheme of all time. By creating free money he was confiscating wealth from the savers. What most people don't know, was that during his duty as chairman of the FED he still advocated for the gold standard during congressional hearings. (Emphasis mine)<br />
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<i><span style="font-size: small;"><span style="font-size: small;">R.W. Bradford writes in Liberty magazine that, as Fed chairman, "Greenspan (once) recommended to a Senate committee that all economic regulations should have fixed lifespans. Senator Paul Sarbanes (D-Md.) accused him of 'playing with fire, or indeed throwing gasoline on the fire,' and asked him whether he favored a similar provision in the Fed's authorization. Greenspan coolly answered that he did. Do you actually mean, demanded the senator, that the Fed 'should cease to function unless affirmatively continued?' 'That is correct, sir,' Greenspan responded." </span></span></i></div>
<span style="font-family: Verdana,Arial,Helvetica,sans-serif; font-size: small;"><span style="font-family: Arial; font-size: small;"><span style="color: #333333;"><i><span style="color: black; font-family: Arial,Helvetica,sans-serif;">Bradford continues, "The Senator could scarcely believe his ears. 'Now my next question is, is it your intention that the report of this hearing should be that Greenspan recommends a return to the gold standard?' Greenspan responded,</span><span style="color: red; font-family: Arial,Helvetica,sans-serif;"> 'I've been recommending that for years, there's nothing new about that. It would probably mean there is only one vote in the Federal Open Market Committee for that, but it is mine.'"</span> </i><a href="http://www.usagold.com/gildedopinion/greenspan.html" target="_blank">Link</a></span></span></span><br />
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Here we come to the core of my post. Alan Greenspan was acting "A" but saying "B".<br />
Although this is nothing rare on the international stage, could there be a reason for this action?<br />
Interesting is again to look at his history were he stayed very close to Ayn Rand who is known for her best-seller Atlas Shrugged. <a href="http://nl.wikipedia.org/wiki/Atlas_Shrugged" target="_blank">Link</a><br />
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In this book, there is a certain person named Francisco d'Anconia. He is the owner of the best and most productive copper mines around the world. On a certain point when governments are trying to get more influence in his company, and he sees that eventually they will confiscate all his wealth, he decides to set up a plan. <br />
He tells to investors there are enormous supplies of copper in the mountains. As he is a successful man he's trusted widely. People were going to make enormous investments and were following him blind on this. In the end there wasn't to be copper at all. His company was doomed........all the money was lost. In this we can see similarity with the housing bubble in the USA. <br />
Francisco's purpose was to show that company's are what they are because of the knowledge and the effort of the people who led them. The government is trying to get an income by taxation, not adding any value to the company. When government takes over, everything fails, simply because of the lack of knowledge.<br />
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So before you can build something new, it has to be obvious to everybody that the current system isn't functioning properly. The re-start has to come bottom-up.<br />
Was Greenspan thinking on this when he was lowering the interest rates to 1%? Did he knew this would speed up the meltdown of the current system?<br />
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In Atlas Shrugged Francesco speeches. His speech is about the concept of money, and about exchanging values. It's a very interesting speech widely spread. In a lot ways this speech looks like the statement mentioned above by Mr Greenspan's Gold and Economic Freedom. Please read it yourself. <a href="http://freedomschool.org/2010/01/17/franciscos-money-speech-by-ayn-rand/" target="_blank">Link</a><br />
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And when you think this is it....think again.This is not all.<br />
When you thought everything was coincidence, Greenspan showed recently it can get even more crazy. To me this is obvious a way to make clear the absurdity of the current system.<br />
Please watch this interview where Mr Greenspan says the USA can pay any debt because they can ALWAYS PRINT MONEY. Look at the face of the guy next to him, his eyes are almost falling out.<br />
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I know this seems all to ridiculous to be true, but with the knowledge we now have is it?<br />
In fact they can always print money.<br />
It would make the debt worthless instantly. And as many savers (Country's and citizens) store their wealth in this $-currency, would wipe out a lot of "savings".<br />
Would you feel fine if you're savings (even of small worth) are held in a currency formerly managed by a man telling the world they could always print money?<br />
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Brings us to the questions I started my post with.<br />
1. Greenspan's actions were indeed right for the economy in the way the economy didn't come to a standstill than.<br />
2. Greenspan's view on the economy totally differs from the actions he made. Before he was chairman of the FED, as a chairman and afterwards.<br />
All these things together make it possible that he had a different agenda. As these actions stand so far from his view, it could be a way to speed things up.<br />
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Everything I discussed above is a possibility. Only one person can bring clarity in this. I know Atlas Shrugged is just a book. A book with a very interesting track record on several subjects.<br />
But what I would like to show is that even though on the first sight things seem obvious, they may not always be.<br />
What is clear to me is that we are evolving in a new monetary system, away from the $.<br />
And as it is to me, I'm convinced it is to Mr Greenspan.</div>Boefkehttp://www.blogger.com/profile/12907824705116393715noreply@blogger.com12tag:blogger.com,1999:blog-1216723368795656579.post-31717987393280767062011-12-28T15:06:00.000+01:002012-02-26T20:55:02.646+01:00Introduction<div dir="ltr" style="text-align: left;" trbidi="on">
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I started this blog because of the lack of different views reaching us through the mainstream media.<br />
Therefore I would like to share my view on things from a different angle. Encouraging people to think for themselves, and not follow a path without even knowing it, is my main purpose.<br />
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As I visited a lot of forums and engaged in a lot of discussions, this seems to be the most convenient way for me to express my view. This one is shaped in the last years. Ayn Rand, author of Atlas Shrugged, contributed a great part in this.<br />
Also the Thought's of Another and FOA on exchanging value, and especially the role of oil and gold come together in this blog.<br />
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Adapting to the new reality, as the world around us changes quickly. <br />
Convinced of the bright future that is in front of us even though the years ahead won't be easy.<br />
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Hope I can share my view with you, not one of modern western thought but one of the common sense.<br />
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