IMF Board Resignation & Metal Fixing! July 26/12

Submitted by Tyler Durden on 07/20/2012 14:58 -0400
The rats everywhere are now jumping furiously off the titanic, but few had taken the time to write a letter explaining in detail just how cracked and broken the hull really was. This has now changed, with the departure of Peter Doyle, formerly a division chief in the IMF’s European Department responsible for non-crisis countries and currently an adviser to the Fund. Not content with quietly slinking off the scandal ridden organization which has become the butt of all jokes in the international community, where humor about Lagarde's Louis Vuitton panhandling bag is as pervasive as punchlines about just how incompetent the organization is at actually doing its duty, Doyle has penned the following scathing letter which tears down every myth about the IMF: from its impartiality, to the selection process of its head, to its effectiveness. The letter also contains the following gem: "After twenty years of service, I am ashamed to have had any association with the Fund at all." Pretty much says it all. This is a scandal in the making, and one which may shake to the core the credibility of the IMF in the context of international organization.

Full letter (pdf)

European Department
Washington DC
June 18, 2012

To Mr. Shaalan, Dean of the IMF Executive Board

Today, I addressed the Executive Board for the last time—because I am leaving the Fund.

Accordingly, I wanted first to formally express my deep appreciation to the Swedish, Israeli, and Danish authorities with whom I have worked recently, as well as all others with whom I have worked earlier, for their extraordinary generosity towards me personally.

But I also wanted to take this opportunity to explain my departure.

After twenty years of service, I am ashamed to have had any association with the Fund at all.

This is not solely because of the incompetence that was partly chronicled by the OIA report into the global crisis and the TSR report on surveillance ahead of the Euro Area crisis. Moreso, it is because the substantive difficulties in these crises, as with others, were identified well in advance but were suppressed here. Given long gestation periods and protracted international decision-making processes to head off both these global challenges, timely sustained warnings were of the essence. So the failure of the Fund to issue them is a failing of the first order, even if such warnings may not have been heeded. The consequences include suffering (and risk of worse to come) for many including Greece, that the second global reserve currency is on the brink, and that the Fund for the past two years has been playing catch-up and reactive roles in the last-ditch efforts to save it.

Further, the proximate factors which produced these failings of IMF surveillance—analytical risk aversion, bilateral priority, and European bias—are, if anything, becoming more deeply entrenched, notwithstanding initiatives which purport to address them. This fact is most clear in regard to appointments for Managing Director which, over the past decade, have all-too-evidently been disastrous. Even the current incumbent is tainted, as neither her gender, integrity, or élan can make up for the fundamental illegitimacy of the selection process. In a hierarchical place like this, the implications of those choices filter directly to others in senior management, and via the appointments, fixed term contracts, and succession planning of senior staff, they go on to infuse the organization as a whole, overwhelming everything else. A handicapped Fund, subject to those proximate roots of surveillance failure, is what the Executive Board prefers. Would that I had understood twenty years ago that this would be the choice.

There are good salty people here. But this one is moving on. You might want to take care not to lose the others.

cc. Ms. Nemat Shafik
Mr. Stanley Fischer
Mr. Stephan Ingves
Mr. Benny Andersen
Mr. Alex Gibbs
Mr. Eric Meyer
Mr. Amit Friedman
Mr. Martin Holmberg
Mr. Reza Moghadam
Mr. Mark Plant
Mr. Brad McDonald

London Trader - The LBMA Gold Price Fixing Scheme Is Over

With many global investors still concerned about the recent price action in gold and silver, today King World News interviewed the “London Trader” to get his take on these markets.  The source told KWN that “... the LBMA’s price fixing scheme is coming to an end.”  The source also said that because of this, the eventual “move in gold and silver will literally frighten most people.”

Here is what the source had to say:  “It is now beginning to be discussed, openly, that the unallocated gold is not at the banks.  This is definitely the case with many of the allocated accounts as well.  The reason I’m pointing this out is you have a more ‘open’ disclosure that’s taking place with regards to this.”

The London Trader continues:

“This tells me there is something major that is happening behind the scenes.  It tells me that the LBMA’s price fixing scheme is coming to an end.  You have these naked short positions, that are incomprehensible to most people, in both gold and silver....

“As this scandal is brought to light, that the unallocated gold and silver are not there, and much of the allocated gold and silver is not at these banks either, and as you see these naked short positions unwound, the world will witness a massive price rise in in both gold and silver.  The move in gold and silver, at that point, will literally frighten most people.  They simply won’t understand what is happening.

When someone goes to a bank and deposits money, if you look at the small print, you don’t actually own that money, you’ve simply loaned it to the bank.  The banks will then turn right around and lend ten to one or whatever leverage they determine to use with your cash.  Well, when there is a run on the banks, as there has been in Europe, the money is printed by governments and given to the customers to calm things down.

The underlying problem here is that when the run on physical gold and silver begins, how will the banks print the gold and silver?  It’s not possible.  So something is brewing here.  There’s no smoke without a fire.  The reason this information is beginning to be discussed more openly is because of legal reasons.  They need to be able to say, ‘We disclosed to people that the gold and silver wasn’t there.’

Yes, this will include a scandal at the LBMA in those unallocated accounts.  The paper leverage in the LBMA system is off the charts.  Investors believe their gold and silver is sitting in those unallocated accounts, and they will be in shock when they find out it isn’t there.

We are talking here about a run on the bullion bank.  As this unfolds there will be a failure.  These people will only receive the fixed price before trading is halted.  This will not be called a default.  Then there will be a massive gap in the price of gold and silver.  But the bullion banks will not be allowed to go bankrupt during this process.  There is a ring of counterparties here.  If one of them fails, the whole system can fail.  So they will not be allowed to fail.”

The London Trader also stated: “I would also add that demand for gold from China is unceasing.  The Chinese not only want to diversify out of dollars, but now they also want to diversify out of the euro as well.  They are trying to do this in size.  They want out of those currencies, and what they are doing is exchanging them at the fixes in London for gold, and this will surprise some people, but we are beginning to see it in silver as well.

Gold is the primary focus, but very recently, and on every dip, we are seeing significant purchases of silver in size.  So yes, demand from China, it’s unceasing.  They want out of these debasing currencies.  I would add that they are buying anything that’s tangible, land, timber, mines, art, etc..

It is absolute nonsense when people speculate the Chinese may stop buying gold and silver.  When you see 315 tons of gold was purchased by China in the first five months of the year, that’s just the tip of the iceberg.  That 315 ton figure that was recently reported is patently false.  That’s just what they can’t hide.  The actual amount of gold China has accumulated is many times that 315 ton figure.

The buying is relentless.  It’s every single fix, every single day.  The Chinese are eventually planning to have gold back their new currency, which is going to replace the dollar as the reserve currency.”

The London Trader also added:  “It’s not just Chinese demand impacting the physical markets.  It’s the Middle-Eastern countries and Russia and so on.  Investment demand for silver is also picking up at these levels.  Demand is coming from the Middle-East, and India has also become a bigger buyer of silver.

I would also add that you see a great deal of negative press regarding gold.  Many are saying, ‘Look at 2008, they are going to sell gold along with everything else and it’s going to crash.’  What people don’t understand is gold is on its way back into the financial system.

We had the recent proposal to have gold categorized as a Tier-1 asset.  This moves the risk weighting from 50% to 0%.  Most people have not grasped the full significance of this proposal.  This will change the entire mechanics of the gold market when there is a time of stress, such as the one we witnessed in 2008.

This is one of the major reasons why those calling for a collapse in gold are going to be proven wrong.  Yes, in 2008/2009 we did see a significant correction in the price of gold, and that was a result of the liquidity drying up.  But in 2008, because gold was not considered a Tier-1 asset, it forced the banks to sell their only remaining liquid asset in order to raise cash.  This was done to meet margin requirements.

There was so much gold hitting the bid all at once that it was like a huge bottleneck.  This instigated a $200, waterfall-type decline, that amounted to a roughly 20% correction in gold in just 30 days.  This took place against tremendous fundamentals for gold.  In fact, the fundamentals for gold were so strong, that when gold bottomed in 2009, it only took just over 30 days for gold to break back above the level where the waterfall decline first began.

The difference this time around is that gold may be considered a Tier-1 asset, and what that means is that it will be equal to cash or Treasuries.  So there will be no need for banks to liquidate gold in order to meet margin requirements.  You may, instead, see fresh new money entering the gold market.  It’s going to provide a bid where there was no bid in 2008.”

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Eric King

KingWorldNews.com