One of our favorite and most respected gold commentators, Ben Davies has released a sequel to a piece he wrote in 2011: Revolting PIIGS. Davies discusses financial repression, the PIIGS debt crisis, and how gold relates to these issues.
From Ben Davies:
Gold has had a risk weighting of 50%, meaning an institution had to adjust its capital by 50% and then based on capital adequacy ratios mentioned below make appropriate reserve provisions. So if you had £4bn gold the institution has to provide capital as a proportion of only £2bn. Recent developments in the US suggest that gold may actually be offered the luxury of this very same subsidy given to sovereign debt. I originally didn’t mention it because I genuinely believed it was an unlikely event that gold could be considered a risk free asset and likewise eligible as collateral, as it flies in the face of financial repression tactics; sorry surely I mean macro-prudential regulation.
Financial repression in this case refers to the coercion of the private sector to take on more sovereign debt. For example in 2009 the FSA enforced higher capital charges and take up of over £90bn of UK debt onto bank and UK based foreign bank branches.
This recent gold risk weighing development has garnered very little attention, yet it could affect a significant change in understanding and application of gold within our current money system.
Almost a year to the day on June 27th, 2011 I wrote a blog for the popular alternative news broadcaster King World News. It was titled ‘Revolting PIIGs’. I made no apologies for my lack of sensibilities in a follow-up broadcast and still do not now. PIIGS is the appropriate acronym not GIIPS, as so many commentators now use having acquiesced to political correctness. If someone calls me ‘chubby’ I tend to do something about it. Get called a PIIG enough times you might hope EU member countries might do something about it. But that’s the problem try as they might to solve the problem they can’t because policymakers either do not want to understand the problem or actually just don’t understand the problem in the first place.