Dereliction: They All Had One Job

What is truly frustrating is that only now is the world trying to come to terms with the last ten years, and only because it ignored the major, seismic developments over the preceding forty. It’s not a question of too little, too late, it’s more so that after being bludgeoned with failure there are no leaps of intuition, merely baby steps that would have been mildly helpful in 2008 are now more haranguing than anything. You see it often in academia, where some sheltered scholar makes what he or she thinks is an earth-shattering discovery only to be graded with a dismissive “you didn’t know that before?”

The Bank for International Settlements (BIS) has gone in the direction of the actual “dollar” system for some time, but never manages to quite get there. I can’t figure if it is legacy ideology or the sometime shaky politics of the place, but for whatever reason when you start to think that they are on the cusp of figuring out something they fall back to the safe, orthodox, uninsightful baseline.

Practically no one remembers the monkey business in gold back in July 2010, of the few who might have been aware it had even happened. Summer 2010 wasn’t just some calm meadow in the woods, it was maelstrom all its own merely dwarfed by what came immediately before and what followed immediately after. Had the events of the middle of that year occurred in isolation they would have been burned into our collective memory, studied at great lengths throughout history.

The flash crash of May 2010 was the actually the least impressive part of it. The global “dollar” system was supposed to have been healed, or at least most of the way by then, after all QE1 had at the end of March 2010 expired. Greece had other ideas, which is to say the “dollar” system hadn’t been restored so that what should have been a little nothing became almost everything.

By July, the ECB was rescuing European banks who were thus beset by “dollar” difficulties all over again. In stepped the BIS with a gold swap of 346 tons; TONS. Their counterparty? Ten European banks that included some of the big ones: HSBC, BNP Paribas, and Société Générale; just the sort of names that would be repeated throughout the next few years for all the wrong reasons.

Nobody could quite figure out what the BIS was doing, for gold swaps were rare and never between it and commercial banks in any jurisdiction. The whole swap arrangement was meant for central banks, historically as nothing more than a more efficient arrangement to move gold without having to physically move it from place to place (good delivery standards were different in different places, therefore rather than moving bars from London to Paris, for example, and have to re-essay them upon arrival Banque de France could swap some of its Paris delivery gold so that London delivery gold needn’t be transported and changed). But just as you can figure out an unknown word by the context of the passage it is contained within, you can likewise surmise the general intent here by the monetary context of the summer of 2010.

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Disclosure: This material has been distributed fo or informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Investments involve risk and you can lose money. Past investing and economic performance is not indicative of future performance. Alhambra Investment Partners, LLC expressly disclaims all liability in respect to actions taken based on all of the information in this writing. If an investor does not understand the risks associated with certain securities, he/she should seek the advice of an independent adviser.

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