muses of the moment

June 28, 2012

Gold as good as cash

I have mentioned this little piece of information before, but I am reposting another link because of its importance in the long-cycle of gold and continuing global debt and currency crisis.

The official definition of gold is about to change from barbaric to same as cash. But, as readers of muses of the moment, you already knew that.

Click here.

In what might be the most underreported financial story of the year, US banking regulators recently circulated a memorandum for comment, including proposed adjustments to current regulatory capital risk-weightings for various assets. For the first time, unencumbered gold bullion is to be classified as zero risk, in line with dollar cash, US Treasuries and other explicitly government-guaranteed assets. If implemented, this will be an important step in the re-monetisation of gold and, other factors equal, should be strongly supportive of the gold price, both outright and relative to that for government bonds, the primary beneficiaries of the most recent flight to safety. Stay tuned.

A few observations from groovygirl:

  • gg would like to know where banks are going to find unencoumbered gold, as almost everything held in the financial and investment system is leased. Then gg would like to know what proof regulators will demand from banks that their gold is unemcumbered. You can see the probability that banks will just fudge balance sheets with “unencumbered” gold just as they do with their current assets.
  • If gold is called zero-risk asset by bank regulators, it kind of flies in the face of Ben and every other economics ya-hoos who calls gold “barbaric”.
  • Banks will be lining up for you to “loan them your gold” for a hefty return as we move along this debt implosion. Their assets, even with the Fed-zero-interest window cash, are shrinking not expanding.
  • This is what happens in a debt collapse cycle. Anything connected to debt becomes worth less and more risky. Physical assets owned outright are worth more. And debt-ladened assets are available cheap for cash or cash equivalent, which will soon be gold, according to even the banking industry.
  • This regulation is set to go into effect in January 2013.
  • I do not agree that this bank regulation necessarily sets up gold as a basis for fiat currencies now or in the future. It sets up gold to be as good as cash on any balance sheet. It sets up gold to be attractive to shore up a failing balance sheet in a global debt collapse. Remember the FED, EB, and others can’ t continue to print to plug the debt hole. We are getting to the point that even the clown accounting can not work. This is just another option to help keep the banking system from collapsing. They are running out of options and grasping at straws here.
  • And just as the Fed has suppressed gold to hide the decline in the purchasing power of the dollar, they can now let gold rise at certain times to “raise the value” of banks’ balance sheets to allow them fall within bank regulation guidelines without actually lending them any money.
  • No mention of silver and how this might affect the prices of both moving forward.

Groovygirl doesn’t know if any of these things will happen as a result of this banking regulation, they are just some possibilities. This should be interesting. Although there are many unknowns and MSM is not covering this at all, this is a major shift in the long-term gold cycle.

1 Comment »

  1. A scary thought: many banks have (customer) safe deposits full of “unencumbered” Gold.

    Comment by Al — June 28, 2012 @ 4:47 pm

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