week I outlined the issue of collateral and how it is the most critical issue in
the financial system today. For a review of that article, click here now.
want further evidence that the financial elites are already preparing for a
default from Spain and a collateral crunch, you should consider that the
large clearing houses (ICE, CEM and LCH which oversee the trading of the
$700+ trillion derivatives market) have ALL begun accepting Gold as
Gold as Collateral Acceptable for Margin Cover Purposes
From 28 August 2012 unallocated Gold (Loco London) will be accepted by LCH.Clearnet Limited (LCH.Clearnet)
as collateral for margin cover purposes.
addition to acceptable margin collateral will be subject to the following
for members clearing OTC precious metals forwards (LCH EnClear
Precious Metals division) or precious metals contracts on the Hong Kong
Mercantile Exchange. Acceptable to cover margin requirements for all markets
cleared on both House and ‘Segregated’ omnibus Client accounts.
CME Clearing Europe to Accept Gold as Collateral on Demand
Clearing Europe will accept physical gold as collateral, extending the list
of assets it’s prepared to receive as regulators globally push more
derivatives trading through clearing houses.
Group Inc. (CME)’s European clearing house, based in London, appointed
Deutsche Bank AG (DBK), HSBC Holdings Plc and
JPMorgan Chase & Co. as gold depositaries. There will be a 15 percent
charge on the market value of gold deposits and a limit of $200 million or 20
percent of the overall initial margin requirement per clearing member based
on whichever is lower, Andrew Lamb, chief executive officer of CME Clearing
Europe, said today.
started with a narrow range of government securities and are now extending
that,” Lamb said in an interview today. “We recognize there will be a massive
demand for collateral as a result of the clearing mandate.
This is part of our attempt to maintain the risk management standard and to
offer greater flexibility to clearing members and end clients.”
coincidence that this began ONLY when the possibility of a sovereign default
from Greece or Spain began? Nope. This actions show that the large
clearinghouses see the writing on the wall (that defaults are coming
accompanied by a mad scramble for collateral) and so are moving away from
paper (sovereign bonds) into hard money.
know that when Spain defaults the system will be rocked even harder than it
was with Lehman in 2008. And they are doing everything they can get access to
(Gold) when paper collateral (Spanish bonds) becomes worthless.
history has shown us time and again that defaults come in waves. So when
Spain defaults, it will be only a matter of time before the rest of the PIIGS,
the UK, Japan, and then the US do as well.
for now Spain is the biggest issue. As a result of this, Treasuries, Japanese
bonds, German bunds and even French sovereign bonds remain attractive to the
big banks as collateral… for now.
it is the search for high grade collateral that has caused such periodic
spikes in Treasuries, German Bunds, French sovereign bonds, and Japanese
bonds (all of these have yielded 0% or even negative yields in the last five
years). Big banks are moving away from PIIGS bonds into safer havens.
is also why the Fed isn’t
touching Treasuries with QE3 and why it won’t touch short-term
Treasuries with Operation Twist 2 (this program sees the Fed selling
short-term Treasuries to buy long-term Treasuries): the Fed wants to keep as
much good quality collateral in the system as possible (long-term Treasuries
are problematic because institutions know it’s highly likely the US
will default within the next 30 years).
even this move is problematic because much of the Treasury market is locked
up with governments both foreign and domestic.
Total US Sovereign Debt
Foreign Nation holdings
US Federal Reserve
this is why clearinghouses (which oversee the derivatives markets) are now
allowing Gold as collateral: they know that eventually sovereign bonds will be
worth less or even worthless. And they want access to their clients’
Gold for when this happens.
is why I’ve been warning that the 2008 was just a warm-up. It’s
why the Powers That Be in Europe are absolutely terrified of what’s
happening there. And it’s why those investors who do not prepare in
advance for what’s coming will lose everything.
do not want to be one of them, you need to get moving.
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