In part one of this series, The Ecuadorian Miracle and the Crisis of Liquidity; we looked at the remarkable social gains made by the Ecuadorian government under the tutelage of Rafael Correa (http://www.dailycensored.com/the-ecuadorian-miracle-and-the-crisis-of-liquidity/). These gains are truly remarkable, as is the country’s expansion of the public sector. However, it comes at a cost, as I attempted to explain. The role of El Nuevo Conquistador, China, has been responsible for much of the funding of the social projects undertaken due to Ecuador’s crisis of liquidity. Basically, part one covered the economic investment by China and how they have seized Ecuador’s oil fields and mining industries through leveraging ‘liquidity’ while Ecuador suffers a cash deficiency.
In part two we shifted the discussion to historical economic policies in Ecuador and the role of both the International Monetary Fund and the World Bank in the pilfering of the country. Both entities have a sinister history in all of Latin America and many places elsewhere for they serve as the arm for US imperialism (http://www.dailycensored.com/the-ecuadorian-miracle-and-the-crisis-of-liquidity-part-two/). The economic chokehold on Ecuador by US imperialism is a sad legacy of US foreign policy throughout the region; and it continues today, though granted, not without competition by the new Empire, China.
In part two we also looked at the new loans proffered to Ecuador by the World Bank as well as Ecuador’s decision to sell $2 billion in 10-year bonds at a yield of 7.95%. In preparing the way for the return to the international capitalist markets, Correa even gave the green light to the International Monetary Fund to resume annual reviews of the economy.
Buy selling bonds, Ecuador plans to help pay for its generous programs. For 2014, the Ecuadorian government is planning $7.26 billion in public investments. The total investment goal through 2017 is $47.6 billion. 2014’s budget calls for spending of $34.3 billion, including a deficit of $4.94 billion. The National Investment Plan (IAP) 2014, determined that significant investments will be made in the ministries of Transport and Public Works (roads); Electricity and Renewable Energy (8 hydroelectric) and Public Health and Education (for service contracting works) (http://www.cesla.com/detalle-noticias-de-ecuador.php?Id=11390).
Here, in part three we will look at Ecuador’s recent decision to pawn half of the country’s gold reserves to criminal bankster, Goldman Sachs. I had also hoped to examine the role of the Coca Cola Company in Ecuador and how it is now saddled up to invest in the liquidity challenged country. However, there is simply too much to write about and thus this concept has been abandoned. I apologize to readers.
As stated back in 2002 by the India Resource Center:
“Today, Coca-Cola plainly stands as an unvarnished symbol of neoliberalism and modern corporate mercantilism. It is, plainly said, a multinational corporation exploiting cheap labor and “emerging markets,” that employs an array of illegal and criminal business “strategies,” and utilizes powerful public relations, marketing and lobbying powers to avoid accountability and fatten the company’s profits just as its product fattens its consumers” (http://www.indiaresource.org/campaigns/coke/2003/cocacolalatinamerica.htm).
Readers are encouraged to go to the site to see the sordid history of Coca Cola in Latin America, its work with death squads in Colombia and of course, the development of the Contras in Nicaragua led by now deceased, Adolfo Calero, a former executive of the Coca Cola country (http://www.independent.co.uk/news/obituaries/adolfo-calero-commander-of-the-usbacked-nicaraguan-guerrilla-group-the-contras-7815077.html).
The company is now setting up shop big time in Ecuador, as revealed bythe Ecuadorian newspaper, El Telegrafo (http://www.telegrafo.com.ec/economia/item/coca-cola-exportara-sus-productos-desde-ecuador.html).
In part four, the last in this series that will appear next week, I will report on the current and future politics of Ecuador, the supremacy of the oligarchs and the role of El PAIS, Correa’s party, in attempting to assure that the Ecuadorian Miracle does not fall back into the hands of the domestic and international one percent.
Pawnbroker to the world: Ecuador’s new deal to pawn its gold to Goldman Sachs
“The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who’s Who of Goldman Sachs graduates” (Matt Taibi, Rolling Stone, July 9, 2009 (http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405#ixzz35aDArQbX).
“What idiots they are in Ecuador, working with Goldman Sachs to exchange their gold for paper. What happened to the politicians in Ecuador? Are they drugged? How many more countries are going to be fooled, as happened with Greece?” (Max Keiser, (http://www.goldmoney.com/research/research-archive/james-turk-max-keiser-gold-and-bitcoin) (http://www.elcomercio.com/actualidad/goldman-sachs-polemico-oro-ecuador-finanzas.html).
There is little doubt that we live in a tortuous world, under the canopy of financial capitalism where debt stalks both personal and public life; a world where every government on earth needs “liquidity” to survive and few have it. In this international order of debt, inequality and class struggle, the provider of liquidity is always king.
Within the current financial system (the post Bretton Woods system that established the US dollar as the reserve currency status for the world), the primary machine of global liquidity is the U.S. dollar and dollar based assets. As the primary originator of the liquidity that every government on earth needs to endure, the Federal Reserve is the most powerful player globally in not only economic, but also within geo-political affairs. They can simply print money; and they have and they will continue to do so.
On June 6, 2014, Mining.com, an online journal covering issues having to do with precious metals and resources, reported:
“New York investment bank Goldman Sachs this week picked up 466,000 ounces of gold from cash-strapped Ecuador’s central bank.
Goldman will give back the 1,165 gold bars, worth roughly $580 million at today’s ruling price, in three years-time according to the agreement inked with Banco Central del Ecuador.
Ecuador is struggling with a record deficit and the central bank explained it “invested” the gold, about half the country’s total reserves, with Goldman in exchange for more liquid assets” (http://www.mining.com/forbes-on-ecuador-goldman-transaction-22166/).
Cash strapped means no liquidity; that there is no money to pay for the Ecuadorian Miracle. ‘Investing’ means pawning gold to pay the bills.
Pawnbroker Goldman Sachs is no different than the urban pawnbroker who will take your mother’s gold bracelet so you can pay the rent. Its historical involvement in the eventual collapse of Greece, through counterfeit accounting methods and its role in bringing down the US economy, should be well known (http://www.bbc.co.uk/news/world-europe-17108367) (http://theeconomiccollapseblog.com/archives/how-goldman-sachs-made-tens-of-billions-of-dollars-from-the-economic-collapse-of-america-in-four-easy-steps). Goldman made billions off of the devastation of the world economy and yet not one member of the too-big to fail bank has seen the inside of a jail cell.
So why would Ecuador, and especially an astute and sophisticated economist like Rafael Correa, make such a deal with Goldman? It goes back to your mother’s gold bracelet and why you might have to pawn such an item to pay rent, overhead, transportation, and for food. They’re broke and Goldman sees large advantages in loaning money to the cash-strapped country.
Yes, now Goldman Sachs is one of the world’s biggest pawnshops. With their liquidity, countries can now crawl to them and pawn their gold; much like you would your mother’s bracelet, to staunch their liquidity crises.
Here is how the deal with Goldman and Ecuador worked.
Ecuador announced the week of June 6th of 2014 that it had pawned (though the corporate press likes to hide this fact and uses the word ‘swapped’) 1,165 bars of gold to Goldman. The gold was worth, at the time of the country pawned it, nearly $600 million. Goldman GS 0.06% , in return, is giving the Ecuadorians “instruments of high security and liquidity,” which is likely cash or something close to it (http://fortune.com/2014/06/04/ecuador-goldman-sachs-gold/). The language is sufficiently vague so that the markets will respond positively while working to conceal much of what really is going on.
We are told that Ecuador gets to keep its gold and as part of the deal, three years from now, the two parties (Goldman and Ecuador) will reverse the pawn – meaning Ecuador can buy the gold back from the international pawnshop. Ecuador would then theoretically get its gold back and Goldman would get the going price for the gold at the time Ecuador goes to pawnshop-Goldman and presents its pawn ticket, for the 1,165 bars of gold it gave the seedy bank. But this would be in 2017 and of course there is no guarantee as to what the price of gold will be by then. Nor is there any guarantee whether the gold even exists.
Venezuela was set to pawn their gold assets to Goldman Sachs but backed out at the last minute
This is not the first time that Goldman Sachs has sought status as an international pawnbroker.
On November 19th of 2013, the Venezuela newspaper, El Nacional, reported that:
“Venezuela’s Central Bank and Goldman Sachs are ready to sign an agreement to swap or exchange international gold reserves, with a start date in October, as stated in the contract, and until October 2020. The negotiated amount, equivalent to 1.45 million ounces of gold, is deposited in the Bank of England and the transfers are made directly to Goldman Sachs once delivery times are stipulated.
The operation involves the delivery of gold from the central bank, which will receive dollars from the U.S. firm. The transactions are made through the creation of a financial instrument that is traded in the international market.
During the term of the instrument is an account called “margin,” in which the central bank agrees to deposit a larger amount of gold in the event that the price of gold falls or in which Goldman Sachs deposits a larger amount when gold increases. “At the expiration of the transaction the contributions are returned to their owners,” the document says.
There will be an adjustment to the asset value of 10 percent, to be used as a hedge in case the international market price falls, indicating that the U.S. bank takes care that if it produces depreciation it will be covered and Venezuela would assume risk. The annual interest rate will be a combination of dollars with the call BBA Libor equivalent to 8 percent.
The gold dollar instrument is sold in the secondary market that exists for this type of instrument and can be purchased by investors, usually businesses. The idea is to negotiate the instrument to obtain a commission that becomes profitable, depending on the price of the metal” (http://gata.org/node/13264).
The way the pawning was structured, Goldman simply could not lose. Venezuela would assume the risk while the Federal Reserve would simply continue to print money to cover the bet.
And what about the delivery of the gold? Just where is Venezuela’s gold, anyway? We are told that the gold is being vaulted in the Bank of England but that, as we will see, is similar to what the US told the Germans. The fact of the matter is that no one really knows for sure where the Venezuelan gold is.
Then president of the Venezuelan Central Bank, Nelson Merentes, said at the time of the pawning announcement that that the first shipment of gold would be part of a 160 tons of gold that would move back to Venezuela from the Bank of England in several shipments. From there, presumably it would be transferred to Goldman Sachs (ibid).
The Wall Street Journal reported:
“The Bank of England recently received a request from the Venezuelan government about transferring the 99 tons of gold Venezuela holds in the bank back to Venezuela, said a person familiar with the matter. A spokesman from the Bank of England declined to comment whether Venezuela had any gold on deposit at the bank.”
According to an update from Bloomberg, Venezuela has gold with JP Morgan, Barclays, and Bank of Nova Scotia. JPM is one of the 5 vault banks in the world. At the time of the request JPM only had 338,303 ounces of registered gold in storage — or roughly 10.6 tons. The gold has already been pledged about 100 times across the various paper markets (http://online.wsj.com/article/SB10001424053111903392904576512961180570694.html). So then where is Venezuela’s gold? Good question.
Venezuela hastily came out on November 28th, 2013 and expressly denied that the country would be pawning its gold to Goldman Sachs. A Venezuelan central bank official, requesting anonymity in keeping with bank policy, said that she had no information about the proposal to pawn gold to Goldman Sachs (http://www.zerohedge.com/contributed/2013-11-28/venezuela-denies-goldmans-gold-deal-inflation-tops-54). It seems after some critical thinking, cash trapped and inflation ridden Venezuela backed out of the deal. Why?
Perhaps because they know that this is precisely one of the major problems with gold. Gold, unlike what the gold bugs like to tell you, is probably the most manipulated asset on the planet. The fact is that many of the Central Bank purchases of gold do not consist of countries actually moving the gold within their borders, but rather the transaction just amounts to paper purchases. The country that supposedly is harboring gold within their central banks is merely given a piece of paper, a pawn slip that they presumably can use to retrieve their metal assets.
Back to Ecuador
“The Four Horsemen of Banking (Bank of America, JP Morgan Chase, Citigroup and Wells Fargo) own the Four Horsemen of Oil (Exxon Mobil, Royal Dutch/Shell, BP and Chevron Texaco); in tandem with Deutsche Bank, BNP, Barclays and other European old money behemoths. But their monopoly over the global economy does not end at the edge of the oil patch” (http://www.hangthebankers.com/the-federal-reserve-cartel-the-eight-families/).
As Rafael Correa, president of Ecuador has stated, piles of gold sitting in a vault, if it is really there, won’t buy goods and services for the people of Ecuador. You need cash for that kind of thing and this is the liquidity crisis that the country is facing.
The Ecuadorian Central Bank put forth a statement when the deal was announced in June:
“Gold that was not generating any returns in vaults, causing storage costs, now becomes a productive asset that will generate profits. These interventions in the gold market represent the beginning of a new and permanent strategy of active participation by the bank, through purchases, sales and financial operations, that will contribute to the creation of new financial investment opportunities” (http://fortune.com/2014/06/04/ecuador-goldman-sachs-gold/).
So if this is true then why not just sell the gold, why pawn it and take inordinate risks with a criminal bank like Goldman Sachs? Easy, the international markets get queasy when a country sells off its gold reserves. Better to pawn it and hide the fact the country is insolvent.
On the day the country announced the deal, Ecuador incredibly also said it expected to make $16 million to $20 million on the trade (ibid). How? When a country enters into a pawn like this they pay interest or a fee for what is really a loan. Venezuela said its $1.8 billion gold pawning scheme was going to cost them $800 million in financing over seven years.
Based on that figure, Ecuador could be paying Goldman a little over $100 million just for the right to get the pawn ticket for the gold! On top of that, Ecuador would end up owing Goldman even more money if the price of gold rises over the next three years for to buy the gold back; this means they would need to come up with more cash.
Of course Ecuador could be betting (short betting) that the price of gold will fall 20% over the next three years and then the price to buy the gold back from Goldman would be less than what it was pawned for. Or, Ecuador might think it could take the cash it gets from pawning the gold and invest it elsewhere in something that will make 20% over the next three years. It’s hard to see how this could happen given the measly interest rates to be had internationally and even more difficult to see how the $100 million fee Goldman picks up for the deal would be paid.
Ecuador also might be betting that the $700 million in bonds it is floating would be more attractive if they did a deal with Goldman and actually had some cash. But as Fortune magazine asked:
“Do I really want to be lending to a country that is making $600 million bets on the price of gold, writing complicated swaps, and generally embarking on a plan to pursue ‘new financial investment opportunities,’ essentially turning its central bank into a nationalized hedge fund?” (ibid).
A nationalized hedge fund indeed and this goes back to what I have previously written. In the world of financial capitalism and global inequality, entire countries and nation states are now becoming debtor nations and hedge funds, betting one way or another on financial transactions and exchanges while they suffer from a liquidity crisis. Goldman Sachs knows this and they are positioned with saddle bags of dollars to engage in pawnshop schemes. After all, if Ecuador defaults Goldman supposedly get the gold, wherever it is.
So, Goldman Sachs has now reconstituted its banking business in areas where there are no regulations. Having been too big to fail and thus not punished for the ‘moral hazard’ they created in the US or throughout many European countries ( not one person at Goldman has ever gone to prison nor has anyone been indicted) the rogue bank carries on in the wake of international financial crisis that they helped to create, without any repercussions.
So what does this deal with Ecuador tell us? One thing it tells us is that the country of Ecuador is in big trouble if they are willing to pawn their future to criminal Goldman Sachs. Goldman plays to win and they are far more powerful than the tiny country of Ecuador.
Where is Germany’s gold? what does the answer mean for Ecuador?
Ecuador’s gold is also supposed to be vaulted in the Bank of England. But is it?
In February of 2013, Germany requested it be repatriated a large portion of its gold reserves. They said that by 2020 they wanted fifty percent of their gold reserves back. This includes half of its gold, 300 tons that Germany thinks is housed with the Federal Reserve. Why didn’t Germany ask for all their gold back and right now?
The German request came just three months after the Federal Reserve refused to submit to an audit of its holdings of Germany’s gold. Basically, the Fed refused to give back Germany’s gold. The FED refused to permit Germany to examine its own gold, stating “security” and “no room for visitors” as reasons. When Germany finally was “permitted” an audit, the auditors were admitted into the vault´s anté chamber where 5 or 6 gold bars were shown to them as “representative for Germany´s holdings”. The German auditors apparently returned a second time, when the Fed granted them permission to “look into” 1 of 9 rooms without allowing them to enter or touch the gold, before the auditors were sent back home to Germany. (http://nsnbc.me/2013/07/31/mystery-about-germany%C2%B4s-gold-in-the-us-solved/).
Germany has the second largest gold reserves in the world so if they cannot get their hands on their own gold, then what country can?
In July 2013, the US American hedge-fund manager William Kaye created a stir when he picked-up the ball, stating:
“Germany won´t ever see its gold again…… Central Banks, such as the FED, where most of the reserves had been deposited, had lent the gold to U.S. Banks such as Goldman Sachs and JP Morgan.
The gold has been used in the market to lower the gold price and the FED has received securities in exchange…. Germany won´t ever see that gold again, because it is safely kept in my accounts and the accounts of our investors” (ibid).
The government has lent the gold to Goldman Sachs? The same Goldman Sachs that is now getting their hands on Ecuador’s gold? If this is true, then why would Ecuador even engage in business with criminal Goldman Sachs in light of the fact Germany cannot repatriate its gold?
Imagine, going back to the pawnshop where you pawned you mother’s bracelet, only to find out the bracelet was missing or the pawnshop refused to give it back.
So why would the Fed not give back Germany’s gold and just where is the gold, anyway? The argument that Peter Schiff makes is that the Fed has ‘rehypothecated’ (used the gold for collateral over and over) all of its gold holdings in the name of other countries (http://www.globalresearch.ca/u-s-dollar-collapse-where-is-germanys-gold/5321894. Sure says Schiff, the Fed could print more money and buy gold on the market but this would simply increase the price of gold internationally. This is the last thing that the Feds want. Another gold spike due to a buying spree by the Fed would remind people that the dollar is not a very strong fiat currency, as if some did not know it.
Every country who vaults their gold in the Bank of England or with the Fed or anywhere else puts their stamp on the gold they vault. Yet a report by Zerohedge in January of this year concluded that:
“it appears that the US Central Bank had already leased out Germany’s gold reserves in prior years and no longer has it, as the gold bars the US Central Bankers returned to Germany last year were clearly not the same ones that Germany originally deposited with them” (http://www.zerohedge.com/contributed/2014-01-07/germanys-gold-housed-new-york-paris-and-london-all-gone).
The bars are missing the essential country stamp inferring that the gold that was given back was not the original gold.
Assumptions abound as to where the Germany’s gold is and why the Fed cannot return it. Yet despite all the discrepancies and lack of transparency, recently, on July 8th, 2014 Germany announced that they gave up trying to get their gold repatriated.
Nobert Barthle, a German Parliament Budget spokesman told RT Television:
“The Americans are taking good care of our gold, we have no reasons for mistrust” (http://www.hangthebankers.com/germany-gives-up-on-getting-their-gold-back/).
Why the change in policy? Obvious, Germany knows the gold is not to be found and does not want to cause an international banking crisis. They know that the German Gold Reserves in the United States are gone.
One assumption as to why the gold went missing is that they have been used for financing the United States’ war chest and the US military scramble for “Global Full Spectrum Dominance” (http://nsnbc.me/2013/07/31/mystery-about-germany%C2%B4s-gold-in-the-us-solved/). This is one theory put out by MSNBC and it makes sense. Maybe this all explains the NSA spying on Germany (http://www.spiegel.de/international/topic/nsa_spying_scandal/).
While Ecuador pawns its gold reserves to criminal Goldman, the Netherlands and Azerbaijan have been discussing repatriation of their gold reserves. Russia, China, Kazahstan, Brazil and Turkey have also been adding to their own gold holdings. Add to this, as of May 26, 2014 it was announced that Austria is planning to send auditors to the Bank of England in order to verify the existence of Austria’s gold reserves, supposedly stored in British vaults. They no doubt will face the same crisis of transparency that German did (http://www.hangthebankers.com/no-gold-left-austria-wants-an-audit-of-its-gold-reserves-at-bank-of-england/).
Finally, the pro-Russian newspaper Iskra, reported in May of this year that, in a mysterious operation under the cover of night, Ukraine’s gold reserves were promptly loaded onboard an unmarked plane, which subsequently took the gold to the US (http://www.zerohedge.com/news/2014-03-10/was-price-ukraines-liberation-handover-its-gold-fed).
If Ukraine was “liberated” of all their gold did it promptly find its way either to the Bundesbank, or to the billionaire oligarchs, based either in London or elsewhere — those same imperialist entities currently in charge of “post-liberation” Ukraine? Is this why Germany has reneged on their demand for the gold? Is it why the National Security Agency has been spying on Germany? And will the gold eventually be sold to China? After all, 40 tons of gold is roughly what China imports every ten days, so the chances are high that it will be.
In light of current repugnant financial business practices and outright robbery does Ecuador really think that its gold is in the Bank of England or that when it comes time to turn in the pawn ticket over to Goldman Sachs in 2017 Goldman will give them their gold? Do western banks really have any gold left? (http://www.hangthebankers.com/do-western-central-banks-have-any-gold-left/).
Financial capitalism, the global economy of today, is teetering on the brink of distress and disarray while entire countries suffer the burden of centuries of historical oppression, heightened inequality and war. That Ecuador would jump into this Casino economy securitized by gangster banksters and the US is understandable, given their liquidity crisis but not very comforting to their people or the future of their economy.
Correa must understand this and is no doubt hoping that before a dollar collapse he can have all his country’s infrastructure in place to continue the Ecuadorian Miracle and that the tiny South American nation will then be both solvent and able to export internationally as well as industrialize internally.
Many of us think that this would be a miracle in and of itself. After all, we are talking about pawning gold reserves to one of the most hideous and criminal enterprises in the world — Goldman Sachs. And all of this is happening within the most insidious and garish system of economics the world has ever seen — financial global capitalism.