There's a villain to the gold crash story

The reason gold fell so far.

The sudden and completely unexpected collapse of gold – down 13.7 per cent in the blink of an eye – was a huge market intrusion or manipulation, or major fiddle, into an overall rising bullion market - but by whom?

The spin was already craftily fed into the ether, along with the price: the fingered culprit was little lowly Cyprus, everyone’s favourite kicking-boy at the moment, as it was forced by the so-called rescuing Troika – the IMF, the EU and its ECB - to sell off its minimal gold hoard of just a piffling €400 million, and in effect send it to Germany.

The Troika isn’t interested in saving the Cypriot economy and its banks’ depositors, you see, but is only out to save the euro and its over-grandiose ambitions for the now over-stretched eurozone. The truth about gold, however, was completely different, and contained menacing overtones for the future of the world economy.

The real villain

So, stand up the real villain: it’s Ben Bernanke, of course! Yes, Helicopter Ben, you have been unmasked as the central banker at the Fed who’s slowly losing his clothes, and now Spear’s will rapidly remove your fig-leaf of a great deception – to reveal a major market manipulation.

And we will attempt to formulate the thinking behind you actions, which isn’t difficult, as we have seen through your QE failing game. Spear’s can see the consequences that so frightened you, that led to your breaking yet another sacred central banking rule: never to manipulate markets with public money.

Even your predecessor Sir Alan Greenspan - unwisely knighted in the UK for his services to (irony of ironies) financial stability - wisely disavowed any Fed interference with the booming dotcom markets of his day, which eventually crashed: but Greenspan didn’t see it as within the Fed’s charter to interfere with stock or bullion markets, or for that matter, to have a QE policy driven by unemployment.

Fake money

Now Bernanke is upholding his own failing and unproven strategy of flooding the economy with printed – or rather fake – money. He may have avoided a wholesale banking collapse, and supported the ongoing bonuses of those who broke the bank back in 2009.

His further attempts to avoid Global Depression II, however, are just stepping-stones to the ultimate disaster, the very result he so earnestly wished to avoid. His concern is that he will fail to prove his monetarist theory that the 1930s Great Depression was caused only by a serious lack of liquidity... for which his simplistic solution is just to print more of the bloody stuff, and throw some of it out of his helicopter over Iowa or wherever else isn’t on the map.

This is Bernanke’s answer to the unanswerable question, but QE doesn’t add one iota to aggregate demand. His QE3+ printing programme, which currently spews out $85.0 billion into the US economy every month, does nothing whatsoever, unfortunately, to increase consumer demand; and demand is what the world economy actually needs to get back to anything recognisable as Growth, as we once knew it.

Why gold tanked

What Bernanke did, on Friday, 12 April, was hit the market with 500 tonnes of naked shorts, knocking $73 off an ounce of gold. That adds up to 16 million ounces, worth $24,800,000,000, producing a loss for the seller(s) of $1,168,000,000: this begs the question of who has $25 trn of walking-around money in his hip pocket, and can afford to drop $1.2 bn on the street?

Answer: only the Fed, which can print money until the cows come home.

But what if it goes wrong? It’s an enormous and uncharted risk that Bernanke is taking, so why did he take it? Obviously, he wants to keep gold at around $1,400 per ounce, but why? Because the fall in value of the dollar against gold is caused by his QE3+ programme, which is designed to reduce unemployment by over one per cent, to seven per cent, but not to weaken the dollar and send import costs up, and lose control of interest rates. Hmm. It all sounds pretty rum.

Bernanke’s actions are the flipside of other central bank actions: Venezuela has repatriated its gold; Germany is doing the same, but the US only agreed to hand it over a seven-year period. So Bernanke now wants the price down, as he is committed to QE3+ until the US economy achieves lift-off.

The economy, however, is still patchy and not yet anywhere near take-off speed, so he daren’t let interest rates rise while he is printing money like a maniac, or he thinks his recovery will falter and fail.

It’s not difficult to see all this nonsense ending up as a nasty mess in the field at the end of the runway... with inflation and slump, slumpflation in a word, and banking and derivative collapses also found at the scene. What price gold then?

Stephen Hill is a businessman who has been published on classical economics and on European philology and philosophy. Read more by Stephen Hill

This article first appeared on Spear's.

Gold! Photograph: Getty Images

This is a story from the team at Spears magazine.

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Under Trump, American democracy will change – with the whole world at stake

We know that powerful countries don’t work well when nuance is cast overboard. Is this the collapse of the pluralist order?

In the weeks since 8 November, when Donald Trump won a majority of the electoral college despite losing the popular vote by three million, the culture of informed, participatory, representative democracy has taken one hit after another.

Before our eyes, the American republic, that most durable of representative democratic experiments, is morphing into something unrecognisable. At the federal level, the mediating, moderating institutions are withering away, leaving an abyss in the centre of US politics that Trump threatens to fill with a toxic appeal to race and religion baiting. Day after day, one reads reports of hate crimes and a surge in incivility – of Muslim women attacked in the streets, of swastikas painted on buildings, of Latino kids in schools being taunted about the wall that Trump has promised to build on the Mexican border. The Ku Klux Klan has rallied in several cities. “Alt-right” groups – some of which share members with neo-Nazi organisations – have held triumphalist events in Washington, DC.

Through it all, Trump has spent his time not trying to show that he will be a unifying president, not condemning this wave of violence, but instead holding his own rolling series of triumphalist rallies designed to shore up his personality cult.

Trump is only nominally a Grand Old Party Republican. His power derives not from understanding the ins and outs of party politics, playing by the long-established rules of a two-party system, nor from having studied the workings of the constitution, nor from any specialised legal or diplomatic knowledge. Rather, it stems from direct appeals to “the people”. Though a billionaire, Trump has fashioned himself as a far-right populist, a leader who speaks to the sensibilities of the mob with no time or patience for nuance.

He has enthusiastically endorsed “the torture” against terrorism suspects; collective punishment and executions; religious tests of entry for would-be immigrants; registries of Muslims; the jailing of his political opponents; clampdowns on free speech and on the functioning of investigative media outlets; stop-and-frisk policing strategies against minorities; wholesale deportation policies; and many other noxious ideas. He has deliberately coarsened America’s political language – systematically humiliating opponents and bringing his crowds down with him into the political sewers in which he thrives. His project is that of the classic totalitarian: make everyone and every major institution of state so grubby, so complicit, that, over time, they come to feel that they have no choice but to collaborate with an agenda of oppression.

We know that powerful countries don’t work well when nuance is cast overboard. Totalitarian projects garner support until they throw entire populations into disaster – into economic calamity, into spiralling conflicts and wars, into civil strife. Trump, as he makes policy on the hoof and hires a cabinet that seems to be made up of equal parts fanatics, conspiracy theorists, incompetents and generals, shows no sign of understanding this. He is a leader without internal limits.

Using his Twitter platform, in particular, Trump spent the weeks between election day and his inauguration wielding a wrecking ball against everything from environmental policy to gender equality regulations; from the “one China” policy carefully respected by leaders of both parties for more than 40 years to policies against expanded Israeli settlements in the occupied territories. Three days before Christmas, he suggested that the US would be expanding its nuclear arsenal under his leadership.

This isn’t just dangerous; it’s beyond idiotic – a man who will soon wield unholy power over the lives of everyone on this planet intervening in the most delicate of policy areas with the bluntest of cudgels. The idea of making nuclear policy through 140-character tweets is insane, the stuff of bad late-night comedy rather than serious international diplomacy. And yet, intellectually, this is where America’s incoming leadership now resides.

Trump’s actions over these past weeks indicate that he is a person of staggering hubris, of thoughtlessness, of impulsiveness – and that, as he presented himself time and again during the election season, he is a boy-man, with the sensibilities of a teenager rather than a mature adult. He comes across as someone megalomaniacally confident that he can think and do no wrong; who wants to listen only to sycophants; and who is convinced that his brand of instinctual politics (the kind that has no need for dreary, real-world interventions such as daily security briefings) will triumph over all.

On the night of the election, the New Yorker editor, David Remnick, wrote an impassioned essay about what he identified as an “American tragedy”. But this doesn’t do full justice to the catastrophe that Trump’s election represents. His is a triumph of the will, as surely as was Hitler’s rise to power in 1932-33. He has ridden and will continue to try to ride roughshod over his opponents – both within the craven GOP, which has sacrificed all semblance of democratic credibility in pursuit of power, and in the Democratic Party and beyond.

Because he enters the White House as a conqueror rather than a product of years of politicking within the existing governing structures, he knows that he can appeal to “the people” – not all of the people but those white, conservative, mainly rural and suburban residents who make up the core of his support – to get his way.

Will Trump succeed in this mad re-imagining of what the United States is? There will be large opposition – on the streets, on university campuses, in the courts and in the state houses of liberal states up and down both coasts. In wealthy and large states such as California, where the cities, state legislatures and the governor’s offices are united in opposition to huge parts of Trump’s agenda, it is likely that on a day-to-day basis residents will avoid the brunt of the impact.

It is entirely possible that there will be a flowering of radical politics in cities such as Los Angeles, San Francisco, Portland, Seattle, New York and Boston, as well as inward migration from the heartlands of large numbers of political progressives and members of racial and religious minorities. Yet in more conservative parts of the country – in Texas, say, or Oklahoma, Mississippi or Alabama, or a host of other states dominated by reactionary political leaders – life for immigrants, the working poor, single mothers and Muslims (just to take a few examples) will become harsher. In many states, it is not at all clear that the political leadership will be willing or able to stand up to Trump’s mob.

It’s also far from certain that local police forces or county sheriffs will be able, or even particularly inclined, to stop the unleashing of pogroms. After all, these are places where law enforcement long turned a blind eye to lynch mobs directed against black residents and black-run businesses. It is not such a stretch to imagine a similar passivity in the face of anti-Muslim or anti-Mexican violence today.

Nor, on the international stage, is it likely that this troupe of political novices will be able to control the forces of resentment they are unleashing. Trump’s cabinet is full of Islamophobes who believe that the entire Muslim world is now America’s enemy. It is dominated by China-haters and climate change deniers. By the time Trump assumes the presidency, he will have done an almighty job of pissing off swaths of the world’s population.

The optimistic scenario is that the world turns its back on an inward-looking America, getting on with the serious business of international affairs while the pre-eminent superpower throws a four-to-eight-year tantrum. It is more likely, however, that there will be a scramble for influence as US soft power wanes and other powerful countries and non-state organisations seek to fill a vacuum created by the dearth of sensible American voices and policies. Such players could range from economic powerhouses such as China and Germany, seeking, or being forced to accept, a bigger military and geopolitical role, to resurgent powers such as Russia – as well as non-state actors ranging from terrorist entities such as Isis to techno-anarchist groups such as WikiLeaks.

As America’s image mutates, they will have a growing opportunity either to sow instability or to reshape regions of the world in their own image. The nightmare scenario is that Trump, relying on his instincts in place of the counsel of experts, seeks to shore up America’s declining influence through spasmodic demonstrations of military power – bullying and threatening one country after another, much as fascist regimes did in the 1930s. The consequences could be disastrous: US nationalism unleashed could plunge the world into conflict.

Thus we hover on the edge of a catastrophe: a great democracy that has come to be controlled by demagogues, ready to pounce at the slightest provocation, itching for an excuse to implement emergency measures against Muslims and others, convinced that its military might will cow the rest of the world into toeing the Trumpian line.

Sasha Abramsky writes for the Nation magazine and is the author of “The American Way of Poverty” (Nation Books)

This article first appeared in the 19 January 2017 issue of the New Statesman, The Trump era