Vic Van Rompuy and ECB balance sheet
Posted by Ivo Cerckel on February 16th, 2012
Dear EU president Herman Von Rompuy,
Your father, professor Vic Van Rompuy, was the original sole editor of a collective book by Leuven economics professors introducing undergraduate students to the science-or-not-so of economics.
The book was aptly called “Introduction to Economics” (“Inleiding to the Economie”)
and published by Universitaire Pers Leuven.
The 2000 edition of the book, still called “Introduction to Economics”, was under the editorship of professors Lodewijk Berlage and André Decoster, and was updated from previous editions by Madam Dr. I. Van der Auwera (What happened to Anne Vleminckx?).
One of the eight other authors is still professor Paul De Grauwe.
Nay,
the 2010 edition of the book,
now under the title “Economics – An Introduction”, “Economie – Een Inleiding”,
which I didn’t see here in the Philippines,
has a foreword by … Herman, not Vic but one his sons – you – Von Rompuy.
http://upers.kuleuven.be/nl/titel/9789058677976
The table 17.2 on
p. 471, not 411 as I had written previously, section “The supply of money” (“Het aanbod van geld”) of Chapter 17 “The money market” (“De geldmarkt”)
Parts of the 2010 edition of the book are available here
http://books.google.com.ph/books/about/Economie_Een_inleiding.html?id=WWxP4Mw_x8kC&redir_esc=y
“The supply of money” section of the new Chapter 18 has however not been copied by Google.
of the 2000 edition gives a schematic representation of the balance sheet of the European Central Bank (ECB) – thank you Dr. I. Van der Auwera.
The table gives two elements on the left or active side.
Three elements on the other side.
The second element on the active side is
“Claims on inhabitants/residents (private and public)”
(“Vorderingen op ingezetenen (privé and publiek)“)
The first element on the active side is “GOLD [capitalisation mine] and foreign currencies”
(“Goud en buitenlandse deviezen”)
The balance sheet reports financial position. When a comparative balance sheet for two periods is presented, it shows whether cash increased or decreased.
(Charles T. Horngren, Walter T. Harrison and M. Suzanne Oliver, “Accounting”, Prentice Hall, 2009, 8th ed. (as reprinted for the Philippines), p. 710)
In your speech “A currency for Europe” yesterday, Wednesday 15 February 2012, at the occasion of the launch of a campaign about the euro
at the University of International Business and Economics, in Beijing,
you said that:
“The Chinese leaders recognise that the economic fundamentals of the euro are strong: low inflation, a lower public debt and deficit than in the United States or Japan, an equilibrium on the balance of payments for the eurozone as a whole.”
http://consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/127993.pdf
Do you really think that the Chinese leaders and the successors to your father – don’t confuse your father with your brother Eric – at Universitaire Pers Leuven are imbeciles
and that they do not consider the fact that the ECB has gold on its balance sheet important?
Lemme explain to you:
The Accounting book I just quoted said that:
The balance sheet reports financial position. When a comparative balance sheet for two periods is presented, it shows whether cash increased or decreased.
For the balance sheet of a Central Bank like the People’s Bank of China and the ECB,
the question is not as for other corporations whether cash increased or decreased,
BUT whether GOLD {real money, not cash] increased or decreased.
http://bphouse.com/honest_money/2009/09/11/with-chinese-freegold-from-a-reserve-currency-to-a-world-standard/
I am happy to inform you
that the Shanghai Freegold Summit is definitely taking place at the Hilton DoubleTree Hotel in Huaqiao/Kunshan from 20 to 23 July 2012;
http://bphouse.com/honest_money/2011/12/16/freegold-conference-shanghai-china-july-20-23-2012/
that the Summit is indeed being organised by the International Society for Individual Liberty
http://www.isil.org/
which page now announces the event;
that I will be a speaker there – booooooo, boooooo, boooooo;
that my paper will still be my euro paper of 2003
(an early version of that paper was published in early February 2000 – that’s 12 years ago – in what was then known as the Belgian newspaper “De Financieel Economische Tijd”):
“With Chinese Freegold from a reserve currency to a world standard”
by Ivo Cerckel
Tuesday, 2 September 2003
http://www.free-europe.org/english/2003/09/with-chinese-freegold-from-a-reserve-currency-to-a-world-standard/
replace “derivates” in the text with “derivatives”;
Here’s the latest:
Tuesday February 14, 2012
Shanghai eyes OTC gold trading
http://biz.thestar.com.my/news/story.asp?file=/2012/2/14/business/10731535&sec=business
SHANGHAI: The Shanghai Gold Exchange plans to launch over-the-counter gold trading and is in talks with the China Foreign Exchange Trade System to conduct these trades via the interbank market, according to an official from the exchange.
The exchange also has plans to start exchange-traded-funds for gold to tap rising demand in China. It was also considering rolling out palladium contracts. – Reuters
I know also:
Chinese “gold rush”: country diversifying assets
Published: 01 February, 2012, 13:58
http://rt.com/business/news/china-gold-economy-assets-231/
SNIP
China is the world’s fifth-largest holder of gold and seems to be in the market for more. Analysts believe Beijing snapped up around 500 tons of gold in 2011, double what it bought in 2010.
UNSNIP
and I know this:
China gold imports from HK surged in 2011
Last updated: February 7, 2012 4:15 pm
By Leslie Hook in Beijing
http://www.ft.com/intl/cms/s/0/d26cd2d6-518d-11e1-a99d-00144feabdc0.html
SNIP
China’s gold imports from Hong Kong more than trebled in 2011 from the year before, hitting a record 428 tonnes as savers flocked to the yellow metal as a hedge against inflation.
China is expected to overtake India soon as the world’s largest gold consumer, and the figures, which are considered a proxy for China’s overall gold imports, underscore the country’s growing appetite for the metal.
UNSNIP
FT will be angry because I quote.
They should first send me their weekly “Best of Lex” and then their daily etc.
But what’s really happening here?
Welcome to SGE
Shanghai Gold exchange
Shanghai Gold exchange (SGE thereafter), approved by the State Council and founded by the People’s Bank of China, performs the regulated functions stipulated by Management Rules of Gold Exchange and organizes gold transactions with the principle of openness, fairness, justness and honesty.
http://www.sge.sh/publish/sgeen/
Yes, this was part of the answer:
Tuesday February 14, 2012
Shanghai eyes OTC gold trading
http://biz.thestar.com.my/news/story.asp?file=/2012/2/14/business/10731535&sec=business
But does the People’s Bank of China also proceed to the marking to market of its gold reserves at the Shanghai Gold exchange?
Seems improbable? I don’t know.
that I must therefore confess that I still have more questions than answers about the gold policy of the People’s Bank of China which policy is, I think, similar to that of the European System of Central Banks and (thus) of the ECB;
that I hope to provoke some answers next July in Shanghai.
Try to cogitate about that!
And this, Herman!
Ad nauseam:
The euro is the first currency that has not only severed its link to gold, but also its link to the nation-state.
(International Charlemagne Prize of Aachen for 2002
Acceptance speech by Dr. Willem F. Duisenberg, President of the European Central Bank, Aachen, 9 May 2002
http://www.ecb.int/press/key/date/2002/html/sp020509.en.html
Freegold means that the euro has a gold component and a paper component, and puts a “firewall” between both so that gold’s valuation as a wealth-preserving asset cannot be pulled lower by the inevitable inflation of the paper component of circulating currencies. It is the (quarterly) marking to market (MTM) of the gold reserves of the Eurosystem, not to the model of $42.2 like the USA central bank (originally $35), by the Eurosystem which provides that wall.
Gold is an item not related to euro monetary policy operations.
Let gold trade freely behind the real firewall – like it did for the Ancients,
a wealth asset that stands beside money,
yet has no modern label or official connection to money.
Or, Herman, do you write introductions to (your father’s) books you don’t read?
Or to books you consider worthless?
Gij zijt zot, Kamaraad!
(The gentleman may be krazy! Cannot be?
Check your premises, said Ayn Rand.
Tis impossible to be and not to at the same time and in the same respect, the Philosopher, i.e., Aristotle, had said in his Metaphysics.)
met de complimenten van Zorro,
Ivo Cerckel
honestmoney@maktoob.com
This was my tribute to
https://twitter.com/#!/freegolds
Freegolds
@freegolds
the correct angle of view is gold pricing the currency.. instead of the currency pricing gold.
goudforum.com • http://goudforum.com/
who in one of his tweets asked why no mainstream economist draws attention to the fact that the ECB has gold on its balance sheet .
No related posts.
February 17th, 2012 at 02:53
This was my article in Belgium’s De Financieel Economische Tijd, now De Tijd, in early Februaty 2000, just before I left for the Philippines. Unfortunately, I didn’t expressly discuss oil for gold-euro.
Replace “euro” with “renminbi”
===
About euro, dollar, oil and gold
Insert: ‘Will the euro replace the dollar as the reserve currency in international trade?’
Since its birth in early January 1999, the euro lost already 16 percent of its value vis-a-vis the dollar to the effect that one euro is now worth less than one dollar. If you look at the behaviour of the European Central Bank (ECB), this is no reason to worry. Why not? The answer has perhaps something to do with the role which the euro could play in international trade. Until the birth of the euro, international trade was completely dominated by the US dollar. Since the end of the 19th century, the dollar was freely convertible to gold. President Roosevelt knew better in 1933 and he retained this convertibility only for foreigners. Americans were ordered to hand in all their gold. President Nixon knew even better in 1971 and put also an end to this convertibility, then $ 35 an ounce, for foreigners.
The oil producers from the Middle-East could therefore obtain less gold than before with the dollars received for their oil. Out of love for gold, they were thus forced to increase their prices which caused the first oil crisis. The price of gold rose to over $ 800 up till 1980. Since then gold has fallen back to $ 230 to be at present just above $ 280.
The reason is not that there is too few but too much demand for gold. Due to the high demand, 10 to 14,000 metric tonnes of paper gold contracts have been signed since 1980. Those contract are concluded by gold mines with the bullion banks, among others, the prominent US banks J.P. Morgan, Goldman Sachs, Credit Suisse/First Boston and Republic, in order to secure their future income. The contracts are being guaranteed by the central banks. They are in fact wagers upon the future price of gold as it will be determined by the buying and selling of the traders of physical gold. The contracts are sold by the bullion banks to the oil producers and by the gold mines to the hedge funds. Every increase in the price of gold leads to problems for the gold mines (cq the hedge funds) which must then sell gold below the market price. And what’s the risk for the hedge funds if the realise that they cannot reimburse their loans because the necessary gold will only be mined in 10 years time? Hence, the recent problems for the whole financial sector and especially for the quoted banks and thus for the dollar in connection with the fiasco’s of Ashanti Goldmines and Long Term Capital Management (LTCM).
The existence of this paper gold market is being threatened just as the dollar was threatened in 1933 and 1971. Because this market is “expressed” in dollars and because there is now competition for the US dollar, this dollar is also being threatened. What now? Will the euro replace the dollar as the reserve currency in international trade? This euro is being backed by 15 percent of gold reserves. Because the trade balance euroland is, in contradistinction to the American trade balance, positive, a rising price of gold will support the value of the reserves of the euro and thus the euro itself.
On September 26, 1999, 15 European central banks signed the Washington Agreement, during an IMF meeting. This agreement recognised that gold will remain an important part of global monetary reserves and that the involved central banks will, apart from the sales which have already be decided, not sell gold in the next five years.
On December 06, 1999, the Dutch central bank announced that it would sell the first 100 tonnes of the 300 tonnes provided for in the Washington Agreement, through the Bank for International Settlements (BIS) and thus not through the London market. The BIS can sell or place gold without influencing the price of paper gold. This announcement by the Dutch central bank is the first step of euroland which confirms its direction. Part of these 100 tonnes have in the meantime been placed in brackets/pieces through the BIS. Switzerland is also considering to sell through the BIS.
On Tuesday January 25, 2000, the Bank of England proceeded to a sale of 25 metric tonnes of gold through a ‘private’ auction whereby demand exceeded offer by a factor of 4.3. The price at which the gold was sold was only 3 dollar more than the spot price of $ 286 for paper gold on the London market that day. However, it is now clear that there exist two prices of gold, one for paper gold and one for metal gold. The hour of truth comes when the ECB will buy gold on the market with the dollars in its reserves. This will increase the value of the euro. The dollar will be confronted with the fact that the dollars circulating abroad will be repatriated which could perhaps lead to inflation in the US.
March 4th, 2012 at 09:57
That organisers ask me to clarify that
the Shanghai July-20-23, 2012 Summit
at the Hilton DoubleTree Hotel
in Huaqiao/Kunshan, China
is NOT a Freegold Summit
but that it is the Austrian Economics Summit
and thus encompasses a much broader range of issues.