*****Gold Leasing Driven By Wall Street Desperation For Cash*****

In my last entry, *****Wall Street's Liquidity Problem*****, I wrote that bullion bank gold leasing and producer hedging was driven by a Wall Street desperation for cash.

Reserve Balances & Vault Cash VS Total Money Supply (M3)

Notice how:

1) The entire US financial system is cash starved and has been for a while.

2) The level of vault cash (ATM cash) stays constant in proportion to the total US money supply.

Looking back at 1907 for comparison

From Frank Vanderlip's autobiography:


THE specters that haunt a banker when his world goes mad are terrible. I can tell you because I remember 1907.

A "run" is always appropriate material for the nightmare of a banker. Just fancy yourself as a banker— and discovering outside your plate glass façade an ever-lengthening column of men and women, all having bankbooks and checks clutched in their hands. Fancy those who would be best known to you, the ones with the biggest balances, pushing to the head of the line— there to bargain excitedly with the depositors holding the places nearest the wickets of the paying tellers. Even that won't give you a hint of what a banker's dread is like unless you heighten the effect with a swarm of hoarse-throated newsboys, each with his cry pitched to an hysterical scream; and then give the hideous concert an over-tone of sound from the scuffling feet of a mob.

Although the depositors never gathered as a mob outside our bank, I knew the flavor of terror just from contemplating the possibility. We had the biggest and strongest bank in the country, but obviously we could not hope to be in a position, ever, to pay their cash to all of our depositors if they should demand it simultaneously. Bigness does not save an elephant staked on an ant-hill. Bigness will not save a bank if a run endures long enough. In that year, 1907, the size of the National City Bank was regarded as phenomenal in America, and more than impressive in London, Paris, Berlin and St. Petersburg.
We had in our own vaults as our lawful reserves more than $40,000,000—and three-quarters of that sum was in gold. On our books were sums representing millions due us from other banks; we had paper that represented nearly $120,000,000 of loans and discounts; we had many other millions in the form of Government bonds; every day we held possession of pieces of paper representing millions of dollars which were expressed on our books as "exchanges for clearing house." In August, 1907, we were a fabulous organism.

Our total resources were:


But, of course, our liabilities were:


[In 1907, City Bank had cash/gold reserves equaling 17% of its liabilities.]

Borrowed Reserves

A financial system so short of cash is bound to have liquidity problems, which can be seen in discount borrowing from Federal Reserve... at least up to 1991.

Wikipedia explains the Fed's Discount window

The discount window is an instrument of monetary policy (usually controlled by central banks) that allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions. The term originated with the practice of sending a bank representative to a reserve bank teller window when a bank needed to borrow money.

Note that Wall Street's liquidity problems did not get better post-1991, but instead grew considerably worse. There is non-conspiracy theory explanation for why the money problems of a cash-starved, insolvent financial system would suddenly completely for vanish completely for two decades.

Gold leasing replaces discount window

Compare the highlighted timeframe below to the graph of borrowed reserves above. It suggests that gold leasing was used as a replacement for the Fed's discount lending to keep insolvent institution alive.

The primary motivation for the for bullion bank gold leasing and producer hedging would, therefore, be a desperation for cash on the part of insolvent Wall Street institutions. Suppressing gold prices and lowering interest rates were probably secondary motivations.


I really wanted to emphasize this the connection between Fed discount lending and gold leasing, so I made the graph below.

This is the "answer" to the question "why did bullion bank get themselves horri bly short gold through excessive gold leasing?" They needed the money.

(I will explain Reserve Balances, gold leasing, discount lending, etc in a later entry tying everything together)

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8 Responses to *****Gold Leasing Driven By Wall Street Desperation For Cash*****

  1. Trader says:

    Anybody notice that Jim Willie is missing since gold price running out of steam these last few weeks? :)

  2. Tyler says:

    Eric, the DXY is about to pass 80 to the upside. Please make an entry on this development. Your credibility is on the line, and you are running out of time.

  3. Tyrone says:

    Watch this if you're questioning credibility...

    US Dollar: long-term chart

  4. Tyler says:

    Tyrone, in the long run we're all dead. I'll buy it, but this is squarely about timing. I can say the stock market is going to crash, and be right. I can say the stock market is going to rally to new highs, and be right. If I don't say when, I add nothing of value. Eric has made very bold statements day after day for a very long time, and it appears he's about to be very wrong. I don't want more excuses backed by conspiracy and conjecture. How about a little humility for once, and admit you were WAY off.

  5. Tyler says:

    And by the way, if Eric is proven right anywhere close to the timelines he's been touting, I'll gladly admit and post my sincere apologies for being ignorant to what I believed was the truth. I expect the same from you and Eric.

  6. Tyler says:

    His calls for the COMEX to default have come and gone. I (somewhat) remember reading that the food shortages would begin to manifest during the first 4 months of this year. Everyone predicting hyperinflation seems to be backpedalling to 2011 or even 2012 at this point. Day by day the 'worst case scenario' seems less and less likely. I have 20 lbs of rice sitting in my basement thanks to this blog, and I think I've been had. Good luck if you've given any money to his Russian agriculture fund. I'd start looking for a good lawyer.

  7. Chris says:

    Timing these events is the hardest part of these predictions that people like Eric put out. I believe he is right about everything, but he has put a timeline into his predictions that may bite him. Hold on to that rice, you're still gonna need it.

  8. Sebastian says:

    I remember some Indian guys on this site talking about burning wheat, because they have so much of it. As for your rice, I would therefore recommend a Rice burner: http://en.wikipedia.org/wiki/Rice_burner

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