Germany Just Fired a Warning Shot at the Fed

Germany has the second largest Gold reserves in the world behind the US. Since the early ‘80s, it has stored the majority of these reserves with the NY Fed (45% vs. 13% in London, 11% in Paris and the remaining 31% in Frankfurt).

With that in mind, everyone needs to be aware that last Monday Germany’s Bundesbank announced it will be moving a major portion of its reserves from the US and all of its reserves from France back to Frankfurt.

Nearly half of Germany’s gold reserves are held in a vault at the Federal Reserve Bank of New York — billions of dollars worth of postwar geopolitical history squirreled away for safe keeping below the streets of Lower Manhattan.

Now the German central bank wants to make a big withdrawal — 300 tons in all.

On Wednesday, the Bundesbank said that it would begin moving some of the reserves, the second-largest stock in the world after that of the United States. The goal is to house more than 50 percent of German gold in Bundesbank vaults in Frankfurt by 2020, up from a little less than a third today, the bank said…

The new policy will include the complete withdrawal of 374 tons of German gold stored at the Banque de France in Paris, about 11 percent of the total. Bundesbank officials were quick to note that the decision was not a reflection of French trustworthiness. Rather, because France and Germany now share the euro, there is no need for reserves as insurance against currency crises

http://www.nytimes.com/2013/01/17/business/global/german-central-bank-to-repatriate-gold-reserves.html

This announcement came with the usual political statements that the decision had nothing to do with a lack of trust between the Bundesbank and the US Fed or Bank of France, but the message is obvious: Germany sees the writing on the wall and is moving to secure its Gold reserves.

Remember, Germany has spent the better part of two years preparing for financial chaos. Since the autumn of 2011, it has:

1)   Implemented legislation that would permit Germany to leave the Euro but remain a part of the EU.

2)   Revived its Special Financial Market Stabilization Funds, or SoFFin for short, allocating 480 billion Euros to the fund (and also providing German banks with a place to dump their Euro-zone Government bonds if they need to).

3)   Implemented reforms that would allow it to close off its borders for as long as 30 days if it needed to (so individuals and capital couldn’t leave Germany)

4)   Created a working group to assess both the economic impact of a Greek exit from the Euro as well as how to manage the impact of a collapse in France.

5)   Pulling all of its Gold from France as well as a major portion of its Gold from the US.

All of these are verifiable facts that the Western Media has avoided talking about. It is very easy to connect the dots here: Germany is implementing a contingency plan to put a firewall around its financial system for when the EU finally breaks down.

A final note here: the tension between the world’s Central Banks just increased dramatically.

Since the Great Crisis began in 2008, the world’s Central Banks have collectively pumped $10 trillion into the global financial system. Every major Central Bank from Germany to the US and China wants to debase its currency to benefit exports and facilitate dealing with its debt load (even China sports a real Debt to GDP north fo 200%).

This competitive debasement has lead to increased tension between the world’s Central Banks. You will never hear their stated outright for the simple reason that the single most important responsibility of the Central Banks is to maintain confidence in the system.

However, underneath the veneer of goodwill and the occasional necessary coordinated intervention, tensions are rising between Central Banks. When the US debases the US Dollar it pushes the Euro higher. This hurts German exports which in turn angers the Bundesbank.

The Bundesbank fired a warning shot at the Fed last autumn when it announced it wanted to have its Gold reserves at the Fed audited. To be clear here: no one of major financial import has ever questioned the Fed’s trustworthiness before. However, at the time of this announcement Germany stated it had no intentions of actually moving its reserves.

Fast-forward to today and Germany has not only audited and checked its Gold reserves at the Fed but it is now moving them. In plain terms, Germany has told the world that A) it does not trust the Fed and B) it is through playing around.

This situation will likely be getting worse going forward. The fact that Germany will be removing all of its Gold reserves from France certainly doesn’t bode well for future German French relations if push ever comes to shove (it’s not as though Europe has a history of getting along well).

Remember, the only thing holding the financial system together is belief in the Central Banks. If the Central Banks (it was Germany’s Bundesbank that is behind the Gold move) stop trusting one another or grow openly antagonistic, then things will get very bad very quickly.

For months now we’ve been asserting that the “improvements” in the global economy and financial system were a mirage. Germany’s move has confirmed this. If the financial system was in fact safe and the global economy was improving, Germany would not feel the need to repatriate its Gold.

Which begs the question, what exactly do German Central Bankers know that we don’t?

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