Pathway to the Gold-Backed Euro


By Jim Willie CB

Jun 25 2010 9:42AM


The world faces challenges and uncertainty these days like perhaps never before in modern history. Broken insolvent banking systems match the insolvent homeowners living in despair but with newfound hope of realigning their own balance sheets from simply not paying home mortgages in large numbers. Over a quarter million Bank of America home mortgage holders have not made a loan payment in a year, yet still occupy rent-free dwellings. The European sovereign debt has shaken the entire government financial structures, offering a preview of what comes to other nations. In its wake, a fire is lit under gold as a recognized safe haven asset that has no debt attachment or counter-party risk. Government budgets are in shambles throughout the Western world. Mexico can safely be called a failed state. Indeed, crisis has become the new norm. Indeed, stimulus and extreme liquidity buttresses have become the new norm. Indeed, sugar high on perceptions after stimulus has become the new norm. Indeed, war has become the new norm to define peace. It makes sense that restructure of the global monetary system would evoke a powerful response by the upper echelon bankers. Their response so far has been diverse attempts to preserve the system, combined with weak gestures on actual innovative concepts. Take for instance, the Straw Man built of the Intl Monetary Fund and its primary vehicle, the Special Drawing Rights, the equivalent of a rusty corrosive chopshop car with sputtering engine but a spiffy new paint job.

Against this backdrop, the global monetary system is clearly broken, and increasingly recognized as broken. Political and banking leaders have been working on solutions. In Europe they have been focusing on extreme solutions, but in the United States they have been focusing on more extreme measures to preserve the current system. The one main principle to recall about bubbles and Ponzis is that an accelerated supply of money is required to maintain even a constant size of the destructive condition. My firm point has been for two years that the first nations to abandon the USDollar as the foundation for their monetary, banking, financial, and economic systems will emerge as leaders in the next global chapter. The jump transition is extraordinarily difficult. The entire world, evidence seen in the G-20 Meetings, is actively pursing an alternative to the US$ as the global reserve currency. While they procrastinate, gold has taken up the slack within the vast void from inaction. Gold demand is on an accelerated rise for physical investment. Coin and bar shortages are almost everywhere, and gold mine output is on a worsening decline. Attention has grown on scrutiny of the many Exchange Traded Funds for gold & silver investment. Europe without question must first find a solution, and much progress has come. The quest for a monetary structural solution can be best seen in viewing the anemic IMF SDR concept for its lack of solution, versus the innovative aggressive plan of the New Euro currency. The patchwork SDR vehicle means continuation of a broken system, with the power baton held by multiple hands of the same indebted debilitated kings. The New Nordic Euro vehicle will involve a grand streamlined platform, better described as a Dollar Killer. It will remove dependence upon faith, that basis of fiat currency, and thus remove the potential of illicit control.


As preface, consider the best parts of the patchwork SDR vehicle, and what benefits it offers. The Special Drawing Rights, denominated in US dollars, has their nominal value derived from a basket of currencies, tied to fixed amounts of Japanese Yen, USDollars, British Pounds, and Euros. The proportion each of these four currencies contributes to the nominal value of a SDR, reset every five years. A greater role for the SDR either to store foreign acquired reserves or to conduct transaction settlement does offer greater stability. It does so by essentially fixing the currency exchange rates within the participating group of currencies. While ignoring the reality of changing environment, it enforces stability from instilled constancy. Maybe the SDR could reset the component percentages every six or twelve months, instead of five years. The world is changing fast. The other benefit would be the greater confidence that comes when foreign reserves can be placed in a stable warehouse shed, even if the place bears traits of festering matter.

The SDR concept reveals desperation among the Western bankers, led by the Anglos. Their idea of switching to the SDR reveals desperation to retain continuity within a broken system. We see Europe struggling to maintain the unified Euro currency, bailing out banks for badly impaired sovereign debt, with the cost being to the entire European continent. By holding together, they risk sinking together from a broken system. Leaders rarely choose to examine why it is broken, preferring to put a typical bandaid or tourniquet on the gaping wounds. Instead of the patient walking, he stumbles repeatedly. The patient needs to be put to rest, and if possible, be given a respectful retirement ceremony.

The Special Drawing Rights is a life extension concept without solution. It represents tying a noose around the four major world currencies, so that they most assuredly sink together, hardly a raft, more like shackles. However, in the eyes of the Anglos, those Wall Street and London merchants of toxic bonds and conflicted credit swap contracts, the SDR is a poor attempt to divert attention away from viable constructive solutions. For two years, the Jackass has mentioned a Grand Paradigm Shift underway from the USDollar in both banking and commerce. The IMF SDR is an attempt to detour the G-20 nations from seeking a better vehicle that actually operates efficiently without toxic fumes of ruined debt and seized engines of insolvent banks. The mere fact that the G-8 Meeting has been eclipsed and supplanted by the G-20 Meeting carries great meaning. The Western dominated smaller G-8 is being recognized as yesterday's assembly, not only champions of systems fast in decay, but the responsible parties for export of high risk debt securities that have become lodged in most emerging economies. The idea floated of new SDR bonds or new FX contracts to link with the SDR cause unease, since they come with little credibility. Expect zero progress on these mechanics.

The Anglo leaders of the G-8 Pack wish to subvert the larger group of nations and their broad initiative to seek a workable sweeping solution, since it would surely not center on the USDollar. The G-20 nations clearly perceive the USDollar as exhausted, lacking viability, and the source of much of their own internal instability. The current establishment of bankers must pre-empt a Paradigm Shift away from the fiat system centered upon the USDollar. The Anglo Bankers appear to pursue another vehicle for principal usage, one still under the control of the developed world. It is merely a group of well connected similarly damaged vehicles. The Intl Monetary Fund currency, the Special Drawing Rights is the misguided goal for broader global usage as replacement to the USDollar, in a delay of its inevitable demise. My view is that the G-20 has no interest whatsoever in any broader SDR usage, which they see as the same dysfunctional bundled fiat papyrus that cannot float effectively on the oceans, showing a different flag. The paper currencies are all denominated debt masquerading as money. The foundation for any SDR vehicle would be just as damaged from a balance sheet perspective, maybe worse. The IMF is a mere focal point for the broken fiat constituents. Furthermore, admission of its own insolvency has come forth. The head of the IMF policy steering committee, Youssef Boutros-Ghali announced the fund requires $320 billion in order to be properly resourced, in his words. So they are badly underfunded too! Boutros-Ghali admitted that the IMF is essentially insolvent in its current form.

Fortunately, the broader group of organized nations is wise to the extreme duress of the current system, which lacks operating parts. They increasingly show more influence over the smaller group of powerful but weakened industrial nations. They hold outsized reserves in questionable bonds, no longer of the mortgage variety, but instead the sovereign variety. Emerging nations are outwardly worried that years of labor and export surpluses have been directed into tainted US$-based bonds and Euro-based bonds, now seen at high risk. The damage suffered from the EuroBond holdings has them worried of a larger series of losses from the USTreasury Bonds, kept inflated by monetization with increasingly awareness and publicity. The image for the United States is under a multi-faceted attack that includes its ecosystem.

The entire movement of the IMF SDR to serve as next global currency appears to be that of a Strawman with no substance. This effigy cannot walk, cannot bear weight, and cannot withstand storms. The SDR concept is designed to scare away the legitimate architects of a valid solution. What is lacking in the intellectual discussion among architects on the broken side of the table is an absolute truth, the Sound Money Axiom.


So the cobbled weak solution behind the IMF Special Drawing Rights initiative serves several purposes, designed to accomplish the following:

  • continue to perpetuate the same broken fiat currency system
  • continue to enable banker power to be wielded by the Anglos
  • transfer the Keynesian Fiat prime pump to a still controlled location
  • drag down the group of currencies together, with illusion of stability
  • spread evenly detrimental effects of massive deficits into global inflation
  • create a new monolith of corrupt power in the IMF, whose track record is horrendous
  • work toward the creation of new sovereign basket bonds of uncertain value
  • divert attention away from actual effective lasting solutions.


The two new Euro initiatives serve as systemic threats, delivered from outside the power center, as attacks to the fragile fiat flanks. The mere split of the Euro into two tiers, a seemingly sensible maneuver, avoids difficult decisions like bank-held bond writedowns, bank shutdowns, the whiplash effect of a fast rising new currency, and much more. Germany and France are examining a Two-Tier Euro currency structure. The intermediate stage of the new Northern Euro currency is in progress. The motive is to create a firewall of protection from the Southern imploding PIGS nations. German and French finance ministers are attempting to design a Two-Tier Euro currency system to separate stronger Northern European countries,  protecting them from being dragged down by the weaker insolvent Southern states. A collectivist Southern solution protects banks exposed to sovereign debt, rather than a single nation being expelled. However, they will tend to sink together rather than alone. The UK Daily Telegraph is the news source for the dramatic option. See the article.

Senior European politicians do not believe they can withstand another crisis, but they must prepare for Spain and Italy next, with assured bigger shocks. The creation of a Super-Euro zone would initially include Germany, France, the Netherlands, Austria, Denmark, and Finland. The broken parts in Portugal, Italy, Greece, and Spain, even Ireland, would be relegated to the Mediterranean under-class. The Spanish banking implosion scares the central banks witless, and it should. Spain has a distinction of denying its bank corrosion reality. They have not written down much of any bank credit assets in two years, and have not reduced prices of properties in any sensible constructive fashion. They therefore have left themselves exposed to gigantic airpockets, where sudden shocks are assured.

The Two-Tiered Euro currency system is intended to cut out and remove the damaged insolvent nations they can no longer afford to bail out. Regard the haphazard solution as lacking substance and planning, replete with desperation. The PIGS sovereign debt is dragging down all of Central Europe. The pursuit of solutions is motivated by staring into the abyss, threatened by contagion of insolvency and default. France has lent $750 billion and Germany $500 billion to Spain respectively. And Italian Govt debt to be refinanced before the end of 2011 is 10 times that of Greece. Lead nations are frustrated by being attached by a ball & chain to the wrecked PIGS nations. Politicians have suffered lost support in elections, are deeply concerned about lost power, and seek alternative solutions of radical type, since their finances are being ruined slowly. This Two-Tiered initiative is NOT a solution, but rather a step away from centralization that will not avert the tumble step toward sovereign debt default. The Two-Tiered approach serves mainly to develop the psychology, in my view, to condition the mindset for reform with substance, to embark on a new path with some hint of innovation, and to light a fire under the process. It urges a solution out of the box.


Witness the precursor to the New Nordic Euro. This is the much more realistic lasting solution, with systems being put in place, with important contracts being signed for installation of support systems. The wealthier Northern European nations seek to protect themselves, while simultaneously setting up the necessary structure that would enable reform and restructure to the indebted Southern Europeans. Take the concept of a forked split, but put different meat on the bones. Germany would lead a group of countries out of the existing Euro into a new single currency. The old Euro would become the Latin Euro or Southern Euro, whatever name suits them. The Latin Euro currency after the split would decline sharply against the newly hatched German-centric Euro. The devaluation would render great economic stimulus to the Southern nations. Important difficult decisions would have to be made regarding debt writedowns, forgiveness, and restructure. A perceived driving motive in the plan is to provide Southern nations some security from remaining within a group, so individual distressed nations like Spain or Italy would be spared the stress of being forced to contend with their situations alone. The bunker mentality will not spare them of continued deep distress. The consequences for any expelled nation would be catastrophic to bankers holding any sovereign PIGS debt, a problem not mitigated by any bicameral plan. The only assurance in this chaotic crisis is change coming to the EuroZone, radical change. In time, my full expectation is for each Southern Europe nation to opt to go it alone, to revert to the old native currency, to devalue it more, and inflate with abandon with spectacular deficits incurred, incite some nationalism, and slide badly from prosperity into poverty.

When practicality and feasibility dictate very difficult decisions to be made, with actual full implementation made final, a simple split of the current Euro will not be possible. It sounds good, and has value primarily in altering the psychology toward even more aggressive reform. Finally, the design of the New Nordic Euro will be on the table, with its radical but extremely necessary and obligatory requirements. A simple Euro currency split cannot work, since it does not solve the shared debt problem. A new currency must have a rock solid foundation built of hard assets, not a floating raft of papyrus built still of paper money.

For those who believe the New Euro is a ruse or dream, consider this. A Hat Trick Letter subscriber in Copenhagen Denmark offered a note with meat, for which the Jackass is grateful. He confirms the New Nordic Euro is coming into reality, as a result of conversation with his banker. By email, the man sent the message, "It is amazing to see how things play out like a script! I recently talked to the German chief economist of Barclays Thorsten Polleit. When confronted with the Nordic Euro currency idea, he nodded silently, with a strange look of having a secret cover blown away. He did not comment on it even though we were having a quite informal talk. The warmest of greetings from the heart of Copenhagen." Word is spreading, impossible to contain, since too important.

So the European innovations on currency reform and redesign have some formidable challenges. The simple Two-Tier Euro split has many obstacles to overcome:

  • restructure sovereign PIGS debt and East European debt
  • protect from unstable shifts between standing currencies
  • protect from unstable shifts in price of major assets like crude oil and copper
  • detach from new debt driven by fresh government deficits
  • permit more autonomy to central banks from individual nations
  • restore confidence in currency itself
  • install payment systems for international commerce, starting with OPEC crude oil
  • integrate with European trade partners (e.g. Russia, Scandinavia, Asia, Arab world).

Gold satisfies the above criteria when attached formally to a monetary currency vehicle the strength, durability, credibility, and freedom from debt. Germany plays a role filled with intrigue. They cooperate with the Wall Street and London bankers, whose prestige has vanished from the $trillion mortgage bond fraud, aggravated by their nasty attacks against sovereign bonds. German consultants advised Switzerland and Dubai to remove gold bullion from custodial accounts at the New York Fed. The Germans led the campaign for the Saudis to herald future crude oil payments outside the USDollar framework. Now German parties are the primary proponents, designers, architects, and engineers to a new revolutionary currency. After installation, the New Nordic Euro will serve as a Dollar Killer in my view. Americans are blind to the upcoming broadside assault, arrogant to the end that the King Dollar will live forever, oblivious to the Paradigm Shift in progress. The irony is thick. The Germans, home of the failed Nazi Third Reich, are the champions for establishment of a monetary system free from the tentacles of the last relics of the current Fascist Business Model where power lines connect to New York and London.

As the Anglo power podium contends with sweeping global monetary reform, great wealth will evaporate from the significant movement away from the USDollar as global reserve currency. Its value must eventually be determined by the free market, and that value will come at a shocking low level. My belief is that any new widely used gold-backed (or hard asset) currency embraced by the major nations of the world will act as a Dollar Killer, and usher the United States into the Third World. The linchpin is usage of the New Nordic Euro for crude oil sales, a requirement as part of an alliance with OPEC. That feature is scheduled for later. Imagine the USEconomy fretfully buying New Nordic Euros so it can fetch crude oil, foreign cars, or home electronics. The USDollar would descend each and every month in value, in devaluation. Eventually the United States would adopt the Nordic Euro, but only after tremendous damage, huge asset losses, and much more lost power & prestige.


Tremendous posturing and preparation are underway behind the curtains, out of view. France wishes to be included in the New Nordic Euro, due mainly to image and prestige. It lacks sufficient export surplus and national wealth to be an equal partner. In fact, France is more like the PIGS nations than like Germany, without a doubt, as per annual debt and cumulative debt. Leaders in France had better be cautious of what they wish for. An equal partner among Northern European nations is unlikely. They might have to settle serving as German squires, carrying luggage and delivering messages. Posing as a strong nation under any new currency regime, even if temporary, will deliver quick shocks to Paris, hardly a center of potency.

Russia on the other hand is making preparations to establish Moscow as an important financial center. The Kremlin strives to elevate the Russian Ruble to a reserve currency. They want an end to USDollar domination. A complex strong financial center in Moscow requires many challenges to be met, and diverse financial assets to be freely traded, with open borders. Moscow is working toward a role within the New Nordic Euro framework, toward guarantee of commodity supply. The challenge to establish an international financial hub is great. A reserve currency requires the openness to trade it on the FOREX, and strong capital markets for currency, bonds, and stocks, along with investment banking and respect for contract law. These are the challenges. My sources tell of Russia working closely with the designers toward the foundation of the New Nordic Euro, in commodity supply guarantees. Rumors are swirling that the new hard asset currency might have not only a gold component, but a crude oil component as well, maybe even an industrial metal component.

After such profound bond fraud in New York and London, the door is open in foreign lands. At a St Petersburg Intl Economic Forum, Russian President Dmitry Medvedev publicly stated his multi-faceted goal: to make the Ruble one of several world reserve currencies, and to establish Moscow as a global financial hub. The vast nation under nine timezones is in possession of natural resources to support a global currency. The world might require up to six reserve currencies, Medvedev believes, without any direct mention by him of either participation with the New Nordic Euro or a gold-backed Russian Ruble currency. The Kremlin wishes to reduce the USDollar dominance, and if truth be told, reduce the import of heroin from neighboring Afghanistan. See the Moscow Drug Conference that concluded last week, co-sponsored by the United Nations Drug Task Force. Russia has followed through on their agenda, having sold USTreasurys for a fifth consecutive month in April. In fact, all BRIC nations (Brazil, Russia, India, China) were net sellers of US$-based assets in April. Central bank Chairman Alexei Ulyukayev announced in a June 16th interview more diversification plans for its reserves. A tidbit, as Medvedev this week visited Apple Computer and Cisco systems in the United States. Look for a possible role for Cisco in the financial hub and Apple products on retail shelves.


Some extremely important developments have occurred in the gold market. The most significant and earth changing has been the recognition of Gold as a reserve asset alternative, not for commerce, but for foreign reserves asset management. Wealth is scrambling to find security and to achieve preserved valud. As the USDollar and Euro currency have undergone extreme shocks and have withstood the aftermath of stimulus, rescue, and nationalization, with all the attendant damage to global confidence, Gold has emerged as nobody's counter-party risk, an asset free from debt. The gold rise continues to be resisted by extremely large and suspicious futures contract shorting by the Big Four Banks. Consider the June Gold Call Options as they came due to expire three weeks ago. In predictable fashion, vast short sales arrived just in time to ruin the value of call options whose predominant strike price was $1200 per oz. Open Interest jumped as price fell. The CFTC and its commission Gary Gensler seem unaware or not interested, despite a more vigilant commentary. Ditto for the Silver Call Options due to expire this week, as the silver price has suddenly fallen by $1.00/oz in three days, just enough to ruin more call options held.

My firm belief is that every magnificent government or central bank Quantitative Ease program, or big bank rescue, or ongoing nationalized Fannie/AIG payment, the potential price for gold rises $1000/oz and for silver rises $30/oz. The key remains: nothing is being fixed, no reforms put in place, no bank liquidations of substance occur, just more wasteful monetary creation to keep the patchwork system going.

Individual investors should regard the stock market behavior as evidence of a deceptive loss of wealth. No nominal gains have been registered in ten years, which means a loss in purchase power is compounded at 5% to 7% per year. Almost no real gains have been registered in 40 years. Since 2001, gold has more than quadrupled in price, almost quintupled, while the usual suspects ply their trade on Wall Street to denigrate it. The propaganda against gold is unending, despite its obvious success. It even pays a dividend yield of sorts, from writing call options on gold or silver futures contracts. Ask Warren Buffet, who is quite familiar. Some wayward analysts actually claim that gold has not kept pace against inflation. They must not comprehend its 400+% gains in the last decade. Gold will continue to outperform all assets, since their trading activity is too deeply intertwined with the currencies and their national debts.

Jim Willie CB
Editor of the "HAT TRICK LETTER"
Hat Trick Letter
June 23, 2010


Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 24 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at . For personal questions about subscriptions, contact him at