A Higher Gold Price is The Best Reason For QE

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DG365FD46564GFH654FU898 AppId is over the quota Quantitative easing is the only solution, according to the Federal Reserve, to help stimulate as well as keep the economy afloat. Is it really the only solution? Should we even keep the economy afloat or let is fall hard and rebuild from the bottom up? Whatever the case, they won't let it happen. QE will come and the gold price will soar. What about Greece? How will the United States' banking organization be affected by Greece and its predicament? That is dependent upon what a Greek default looks like as determined by the International Swaps and Derivatives Association (ISDA). Since their founding in 1985, the ISDA has had as its goal the betterment of the over-the-counter (OTC) derivatives market. Disbursed amongst 57 countries, there are more than 800 affiliates. They employ a master agreement which is a standardized contract. Initially originated in 1985, it became more structured during the decade of the 1990s. When it began, the key OTC derivative was interest rate swaps, but presently it includes many more derivative products such as the credit default swaps (CDS). The Bank for International Settlements (BIS) projects that world-wide there is approximately US $707 trillion notional amount of derivatives as of June 30, 2011 which means this market is worth over US $19 trillion. Why am I explaining what the ISDA is in reference to Greece? Believe it or not, there is an agreement in the making which stipulates that owners of private debt would receive only 30 cents on the dollar for their Greek debt. Private banks hold roughly $260 billion of Greek debt. It has already been agreed that these private debt owners will receive a 50% reduction in the debt they hold, however, a reduction of a 70% arrangement does not exist. Furthermore, new bonds would be issued with lower interest rates which basically means that these banking institutions may have to lose significantly. Credit default swaps are founding Greek debt and the ISDA has issued an order that as long as any debt agreement is voluntary there would be no call on the CDS and buyers of the CDS would not collect any payout. In the initial consideration, the 50% cut was recognized as chosen and therefore there would be no payout. However, now there is talk of a 70% slash which needs to be classified as voluntary or forced? ISDA would need to think about that one. Jim Sinclair, a well-known gold analyst, gave a brief sketch as to what constitutes a default for the ISDA. The interview aired January 31, 2012 on the Elli$ Martin Report. The CDS outstanding world-wide is approximately US $32.5 trillion notional value where half is held by US banks. The following five banks hold 97% of CDS in the United States and are prominent members within ISDA: • JP Morgan Chase • Bank of America • Citibank • Gold man Sachs • HSBC Bank USA In fact, the officials associated with the decision-making process that would conclude whether a 70% debt cut for Greek debt is a default or a voluntary reduction are the main issuers of CDS and Greek debt CDS. In regards to the financial institutions that administered their debt by buying the hedge of CDS, they are apprehensive and displeased that they may be obligated to lose 70% on their holdings as well as be powerless to accrue on their hedge. The anxieties Sinclair is demonstrating have merit because if the CDS owners are not capable of yielding from their hedge, the indeterminate amount of trillions of dollars worth of CDS that have been written by the 5 large banks before-mentioned will vanish. The problem lies in that the future misfortune on the Greek debt plus many others if the CDS hedges were declared a default would more than wipe out the capital of these large banks. The thought of the true death of the US banking system because of CDS is sufficient to frighten the biggest pessimist. Consequently, the anxiety felt by Sinclair is reasonable considering that, as it is, we're not getting the whole story. All is not lost, though. Maybe now we can better comprehend the latest statements by Fed Chairman Bernanke. For the next three years, interest rates are to be held more or less at existing levels until 2014; another round of quantitative easing is right around the corner. The swaps being negotiated between the Fed and the ECB are also a manner in which QE is produced. What's happening, consequently, is infinite QE throughout the world. This is not good for the US dollar. However, QE is good for the gold price, gold stocks, and it is also good for the stock market. Could this be the readon why the S&P 500 jumped 4.3% and gold was up 11% in January? Meanwhile, the USS Index fell 1.4% in January and is down 3.2% from its latest elevation. Tags: Gold Price Trend, Gold Price Updates, higher gold price This entry was posted on Wednesday, February 8th, 2012 at 9:10 pm and is filed under Gold Price. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.