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Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Ignoring the facts won't help us address the insolvency of pay-as-you-go social programs.

I was fortunate enough to be invited back on Max Keiser's Keiser Report for a wide-ranging discussion of Peak Retirement, currency wars and more. Since the topics Max raises are profound and not always that easy to summarize (if there is another media host who covers complex topics in such profusion and with such a diverse range of guests, he/she is unknown to me), I'm devoting the next few blog entries to offer context for the topics Max and I discussed.

Max's first question related to my entry on Peak Retirement (October 15, 2013) in which I showed that the ratio of full-time workers to Social Security beneficiaries has dropped to 2-to-1.

Why does this matter? It matters because our social programs are pay as you go, meaning that current workers pay current retirees' benefits. There is no "trust fund" and the proof is simple: now that Social Security is operating at a deficit, i.e. payroll tax revenues no longer cover benefits paid out, where does the U.S. Treasury get the money to pay the benefits not covered by tax revenues?

Social Security Ran $47.8B Deficit in FY 2012

It sells bonds, just like it does to fund any other deficit spending of the federal government. The Trust Fund is a politically useful fiction, period, end of story. The bonds in the bogus Trust Fund are non-negotiable, i.e. worthless. The Treasury funds Social Security deficits by selling Treasury bonds.

(Social Security reports "interest earned" on the phony non-negotiable bonds, but where does the U.S. Treasury get the money to pay the interest? It sells T-Bills, adding to the national debt. No matter how you slice it, the programs' deficits are funded by selling debt, i.e. T-Bills, just like all federal deficit spending.)

I bobbled my response to Max's question, so he helpfully stepped in and explained that social programs like Social Security and Medicare are paid by payroll taxes, not income or other taxes. Employers and employees both pay 7.65% of earned income/wages to fund these two monster programs–a total payroll tax of 15.3%. (12.4% is for Social Security and 2.9% is for Medicare.)

Those who receive no earned income (self-employment earnings, wages, salaries, tips, etc.) and only receive unearned income (dividends, capital gains, rents, etc.) pay no Social Security/Medicare payroll taxes. That's one reason why unearned income is so sweet: it avoids the 15.3% payroll tax right off the top.

(Those of us who are self-employed pay the entire 15.3%.)

This means these programs depend entirely on payroll taxes from employed people. The taxes collected are non-trivial: Social Security brought in $725 billion in cash and paid $773 billion for benefits and overhead expenses in 2012.

The Social Security Administration (SSA) publishes a helpful chart of all earned income reported on federal tax returns: Wage Statistics for 2012. This data will help us understand why the system depends not just on those with any old job but those with good-paying full-time jobs.

(Recall that high-income earners only pay payroll taxes on the first $113,700 in 2013 and $117,000 in 2014. So someone earning $1,000,000 a year pays the same Social Security tax as someone making $113,700.)

Let's illustrate the importance of the full-time job/beneficiary ratio by asking: how many workers does it take to fund one retiree's annual benefit? Since even a low-lifetime earnings debt-serf like me can get $2,100 a month in Social Security bennies (if I wait until 70 to collect), and higher lifetime earnings folks get $25,000 a year at full or even early retirement, let's ask: how many workers' payroll taxes does it take to fund one retiree getting $25,000 a year from Social Security?

Over 23 million people reporting earned income made less than $5,000 a year. The SSA reports their average compensation was around $2,000. The Social Security payroll tax is 12.4%, so 12.4% of 2,000 is $248 a year in Social Security payroll tax.

It takes 100 of these workers' Social Security payroll tax to fund one retiree.
Another 14 million workers earn between $5,000 and $10,000, with an average of $7,400. At $7,400, each worker pays $917 in Social Security payroll tax. It takes 27 of these workers' payroll taxes to fund one retiree.

About 12 million workers earn between $10,000 and $15,000 a year, with an average of $12,460. Their Social Security payroll tax works out to $1,545 annually. It takes 16 of these workers to fund one retiree.

Cumulatively, that's around 50 million workers, or a third of the entire workforce.These 50 million people earn about the same amount ($153 billion) as the 1.8 million people who earn between $85,000 and $90,000 a year ($156 billion) and considerably less than the 890,000 folks who earn between $200,000 and $250,000 a year ($197 billion).

Those earning $85,000 a year pay $10,540 a year in Social Security payroll tax, so it takes 2.5 of these workers to fund one retiree.

Those 1.8 million people pay as much Social Security payroll tax as the 50 million low-compensation workers. This reveals how the system depends on full-time, high-paying jobs to fund the program. Adding millions of low-paying part-time jobs simply won't generate the payroll tax revenues needed to keep up with the rising number of beneficiaries (57 million total).

If you want to be in the top 10% of those with earned income, you need to earn about $85,000 a year. Out of 153 million people reporting earned income, 140
million make less than $85,000 a year.

To make it into the top 5%, you need to earn $115,000 or more, and to reach that oft-mentioned 1% (it's really the 1/10th of 1% who holds the power), you need to make $250,000 or more.

As noted earlier, those earning rarefied compensation aren't paying any more Social Security payroll tax than someone earning the limit of $113,000.

We don't have enough workers earning enough and paying enough Social Security payroll tax to support 57 million retirees. There are only 13 million high-wage earners (above $85,000 annually), and those with very high incomes pay no more Social Security payroll tax than those earning $113,000.

This is not sustainable. The average Social Security benefit is $1,230 a month or about $15,000 a year. It takes the payroll taxes of roughly 10 million low-wage workers to fund 1 million retirees receiving $15,000. The system needs another 57 million decent-paying full-time jobs to be sustainable in it's current form, i.e. the ratio of full-time workers to beneficiaries needs to rise back up to 3-to-1.

Unless 57 million Martian workers agree to kick in 12.4% of their quatloos (and assuming quatloos are convertible into dollars), the system is a doomed Ponzi scheme.

System costs will be rising fast as the Baby Boom retires en masse. There is no guarantee Social Security payroll taxes will rise at the same rate. Indeed, a recession or stagnation in the job market could cause payroll taxes to decline even as benefit costs soar.

Ignoring the facts won't help us address the insolvency of pay-as-you-go social programs.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/cCSvWG62fIc/story01.htm Tyler Durden

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Ignoring the facts won't help us address the insolvency of pay-as-you-go social programs.

I was fortunate enough to be invited back on Max Keiser's Keiser Report for a wide-ranging discussion of Peak Retirement, currency wars and more. Since the topics Max raises are profound and not always that easy to summarize (if there is another media host who covers complex topics in such profusion and with such a diverse range of guests, he/she is unknown to me), I'm devoting the next few blog entries to offer context for the topics Max and I discussed.

Max's first question related to my entry on Peak Retirement (October 15, 2013) in which I showed that the ratio of full-time workers to Social Security beneficiaries has dropped to 2-to-1.

Why does this matter? It matters because our social programs are pay as you go, meaning that current workers pay current retirees' benefits. There is no "trust fund" and the proof is simple: now that Social Security is operating at a deficit, i.e. payroll tax revenues no longer cover benefits paid out, where does the U.S. Treasury get the money to pay the benefits not covered by tax revenues?

Social Security Ran $47.8B Deficit in FY 2012

It sells bonds, just like it does to fund any other deficit spending of the federal government. The Trust Fund is a politically useful fiction, period, end of story. The bonds in the bogus Trust Fund are non-negotiable, i.e. worthless. The Treasury funds Social Security deficits by selling Treasury bonds.

(Social Security reports "interest earned" on the phony non-negotiable bonds, but where does the U.S. Treasury get the money to pay the interest? It sells T-Bills, adding to the national debt. No matter how you slice it, the programs' deficits are funded by selling debt, i.e. T-Bills, just like all federal deficit spending.)

I bobbled my response to Max's question, so he helpfully stepped in and explained that social programs like Social Security and Medicare are paid by payroll taxes, not income or other taxes. Employers and employees both pay 7.65% of earned income/wages to fund these two monster programs–a total payroll tax of 15.3%. (12.4% is for Social Security and 2.9% is for Medicare.)

Those who receive no earned income (self-employment earnings, wages, salaries, tips, etc.) and only receive unearned income (dividends, capital gains, rents, etc.) pay no Social Security/Medicare payroll taxes. That's one reason why unearned income is so sweet: it avoids the 15.3% payroll tax right off the top.

(Those of us who are self-employed pay the entire 15.3%.)

This means these programs depend entirely on payroll taxes from employed people. The taxes collected are non-trivial: Social Security brought in $725 billion in cash and paid $773 billion for benefits and overhead expenses in 2012.

The Social Security Administration (SSA) publishes a helpful chart of all earned income reported on federal tax returns: Wage Statistics for 2012. This data will help us understand why the system depends not just on those with any old job but those with good-paying full-time jobs.

(Recall that high-income earners only pay payroll taxes on the first $113,700 in 2013 and $117,000 in 2014. So someone earning $1,000,000 a year pays the same Social Security tax as someone making $113,700.)

Let's illustrate the importance of the full-time job/beneficiary ratio by asking: how many workers does it take to fund one retiree's annual benefit? Since even a low-lifetime earnings debt-serf like me can get $2,100 a month in Social Security bennies (if I wait until 70 to collect), and higher lifetime earnings folks get $25,000 a year at full or even early retirement, let's ask: how many workers' payroll taxes does it take to fund one retiree getting $25,000 a year from Social Security?

Over 23 million people reporting earned income made less than $5,000 a year. The SSA reports their average compensation was around $2,000. The Social Security payroll tax is 12.4%, so 12.4% of 2,000 is $248 a year in Social Security payroll tax.

It takes 100 of these workers' Social Security payroll tax to fund one retiree.
Another 14 million workers earn between $5,000 and $10,000, with an average of $7,400. At $7,400, each worker pays $917 in Social Security payroll tax. It takes 27 of these workers' payroll taxes to fund one retiree.

About 12 million workers earn between $10,000 and $15,000 a year, with an average of $12,460. Their Social Security payroll tax works out to $1,545 annually. It takes 16 of these workers to fund one retiree.

Cumulatively, that's around 50 million workers, or a third of the entire workforce.These 50 million people earn about the same amount ($153 billion) as the 1.8 million people who earn between $85,000 and $90,000 a year ($156 billion) and considerably less than the 890,000 folks who earn between $200,000 and $250,000 a year ($197 billion).

Those earning $85,000 a year pay $10,540 a year in Social Security payroll tax, so it takes 2.5 of these workers to fund one retiree.

Those 1.8 million people pay as much Social Security payroll tax as the 50 million low-compensation workers. This reveals how the system depends on full-time, high-paying jobs to fund the program. Adding millions of low-paying part-time jobs simply won't generate the payroll tax revenues needed to keep up with the rising number of beneficiaries (57 million total).

If you want to be in the top 10% of those with earned income, you need to earn about $85,000 a year. Out of 153 million people reporting earned income, 140 million make less than $85,000 a year.

To make it into the top 5%, you need to earn $115,000 or more, and to reach that oft-mentioned 1% (it's really the 1/10th of 1% who holds the power), you need to make $250,000 or more.

As noted earlier, those earning rarefied compensation aren't paying any more Social Security payroll tax than someone earning the limit of $113,000.

We don't have enough workers earning enough and paying enough Social Security payroll tax to support 57 million retirees. There are only 13 million high-wage earners (above $85,000 annually), and those with very high incomes pay no more Social Security payroll tax than those earning $113,000.

This is not sustainable. The average Social Security benefit is $1,230 a month or about $15,000 a year. It takes the payroll taxes of roughly 10 million low-wage workers to fund 1 million retirees receiving $15,000. The system needs another 57 million decent-paying full-time jobs to be sustainable in it's current form, i.e. the ratio of full-time workers to beneficiaries needs to rise back up to 3-to-1.

Unless 57 million Martian workers agree to kick in 12.4% of their quatloos (and assuming quatloos are convertible into dollars), the system is a doomed Ponzi scheme.

System costs will be rising fast as the Baby Boom retires en masse. There is no guarantee Social Security payroll taxes will rise at the same rate. Indeed, a recession or stagnation in the job market could cause payroll taxes to decline even as benefit costs soar.

Ignoring the facts won't help us address the insolvency of pay-as-you-go social programs.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/cCSvWG62fIc/story01.htm Tyler Durden

By: Chris Tell at http://capitalistexploits.at/

“Now, this debt ceiling — I just want to remind people in case you haven’t been keeping up — raising the debt ceiling, which has been done over a hundred times, does not increase our debt; it does not somehow promote profligacy. All it does is it says you got to pay the bills that you’ve already racked up, Congress. It’s a basic function of making sure that the full faith and credit of the United States is preserved.” – Barrack Obama

I confess to having spoken harshly of politicians in the past. I’ve been cruel, even spiteful to our leaders. I’ve stated that entitlement programs actually destroy creativity, suck from the productive in society while benefiting the unproductive.

I’ve stated that bureaucracy undermines the free markets, and further driving the knife deeper into a gaping wound I’ve championed that free markets are the lifeblood of an economy and therefore wealth creation. I’ve said that allowing the political class ever greater control has always, and will always end in tears.

I must now humbly apologize on bended knee. Listening to those keen insights from the leader of the free world I was struck with a blinding revelation. I now see the error in my thinking. How could I have been so wrong? I have confused many, many things in my little brain.

In my defense, I’m just a normal guy. I’ve never graced the steps of parliament, congress or any such hallowed ground where the mighty thinkers tread.

Damn those Austrian economists, they brainwashed me! How silly they clearly are with their misguided, simplistic rantings. That which goes up must come down…they must think that high finance is a matter of logic. Fools.

Having now seen the light, I wasted no time and immediately called out to my wife. I asked her to take inventory of our debts and credit limits. Whatever they were I wanted them raised, immediately!

She quizzed me curiously and pointed out that we don’t have any debts. I was ashamed and upset. Why was this? How could I have been so foolish? and I’m the one that is meant to know this stuff. I’ve been involved in financial markets all my adult life.

Now my wife is beautiful and bright, but alas not financially or politically minded, so I need to be patient with her. I had to explain how raising our debt limits and borrowing more (or in our case any) money in fact does NOT increase our debt, it in fact allows us to pay our bills!

Paying our bills is a good thing, she agreed. Looks like I’m making headway.

It follows therefore that if we are to be able to continue to pay our bills it is imperative that we raise our debt limits. No austerity in this household. Don’t need it according to Mr. Obama.

Now my wife started shifting about nervously and eyeing me suspiciously. She normally does that when…oh never mind. I’m going to have to find someone smarter than I to explain this to her.

“Look,” she said all of a sudden. “You know our neighbours Alan and Sue down the road, right?” Where was this going? “Sure,” I said. “Well, they are now both working full-time and then some to pay for that new rental property ‘investment’ that they purchased. Is that what you mean by increasing our debt limits?”

“That ‘investment’ is sucking another $25,000 a year out of their budget, money that clearly wasn’t there to be spent. Now their kids can’t come and play with our kids in the afternoons because they are in after school care! Not interested!”

From what I could gather, my wife doesn’t want our kids to have to go to after school care, and she doesn’t want to have to go find a job to support my “crazy new idea.”

Now she’s taken all the booze out of the liquor cabinet and started mentioning doctors. It’s getting uncomfortable, but I’m determined to re-edumacate her.

This is important stuff, and our financial future depends on it.

I’m wondering if Mr. Obama could setup a helpline to assist financially illiterate people such as my dear wife… 0800-FREE-RIDE.

Until then I’m going to have to figure out how to live within my means and pay my bills with cash in the bank instead of debt. That doesn’t sound nearly as fun, damnit.

Meanwhile, if any of you dear readers are more skilled than I in explaining complex financial mumbo jumbo, please let me know. I need to get my wife on board before it’s too late! Any help is greatly appreciated.

– Chris

“Deficits don’t matter” – Dick Cheney

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/johLyQOu2Sk/story01.htm Capitalist Exploits

Well over a year ago, we first suggested that the conventional wisdom thesis for the bounce in home prices – namely a spurt in household formation – was dead wrong. Sure enough, as has been confirmed empirically, the only reason for the latest dead cat bounce in home prices has been the Fed, and banks complicit in engaging in “foreclosure stuffing.” And while it was easy to deflect the topic of just what is driving the housing market (because none of the bulls would want to admit it is just another credit and liquidity-driven bubble) for over a year, with the traditional “things will be back to normal soon” fall back used every time, as time passed and none of the traditional ingredients for a housing recovery fell into place, some started scratching their heads. This came to a boiling point today, when real-estate firm Trulia, looking at the latest Census Bureau data on household formation, finally threw in the towel and rang the panic button as not only have young Americans set anchor in their parents’ basement, but even refuse to get a job.

That, and the “foreclosure stuffing” of course, with 53% of vacant homes helf off the market, “the highest share since before the bubble.”

Below, courtesy of Bloomberg, is the summary of what Trulia chief economist Jed Kolko wrote in a note.

• Census 3Q homeownership, vacancy survey shows household formation “alarmingly slow,” vacancies “remain stubbornly high,” Trulia chief economist Jed Kolko writes in note.
• “Slow household formation number is one of the most alarming housing indicators to come out this year“
• Share of millennials living with their parents rose to 31.6% vs 31.4% y/y
• Household formation 380k in yr leading up to 3Q vs L-T “normal” increase of 1.1m
• No increase over past yr in young adults moving out of parents homes or getting jobs is “most worrying”
• Vacant homes still pose “problem” for recovery
• 53% of vacant homes were held off mkt in 3Q, highest share since before bubble
• 10.2% of all housing units are vacant, unchanged y/y, higher than pre-bubble level of 8.9% in 3Q 2001

And yet:

• Oct. Trulia price, rent monitors show asking prices rose 0.6% m/m in Oct., prices up 11.7% y/y, rents up 2.7% y/y

Why? Just ask Mr. Chairwoman. After all Mr. Chairwoman has been rumored (wrongly) to be very oracular when foreseeing housing bubbles. Like last time supposedly.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/E1nw3M-x4qY/story01.htm Tyler Durden

Well over a year ago, we first suggested that the conventional wisdom thesis for the bounce in home prices – namely a spurt in household formation – was dead wrong. Sure enough, as has been confirmed empirically, the only reason for the latest dead cat bounce in home prices has been the Fed, and banks complicit in engaging in “foreclosure stuffing.” And while it was easy to deflect the topic of just what is driving the housing market (because none of the bulls would want to admit it is just another credit and liquidity-driven bubble) for over a year, with the traditional “things will be back to normal soon” fall back used every time, as time passed and none of the traditional ingredients for a housing recovery fell into place, some started scratching their heads. This came to a boiling point today, when real-estate firm Trulia, looking at the latest Census Bureau data on household formation, finally threw in the towel and rang the panic button as not only have young Americans set anchor in their parents’ basement, but even refuse to get a job.

That, and the “foreclosure stuffing” of course, with 53% of vacant homes helf off the market, “the highest share since before the bubble.”

Below, courtesy of Bloomberg, is the summary of what Trulia chief economist Jed Kolko wrote in a note.

• Census 3Q homeownership, vacancy survey shows household formation “alarmingly slow,” vacancies “remain stubbornly high,” Trulia chief economist Jed Kolko writes in note.
• “Slow household formation number is one of the most alarming housing indicators to come out this year“
• Share of millennials living with their parents rose to 31.6% vs 31.4% y/y
• Household formation 380k in yr leading up to 3Q vs L-T “normal” increase of 1.1m
• No increase over past yr in young adults moving out of parents homes or getting jobs is “most worrying”
• Vacant homes still pose “problem” for recovery
• 53% of vacant homes were held off mkt in 3Q, highest share since before bubble
• 10.2% of all housing units are vacant, unchanged y/y, higher than pre-bubble level of 8.9% in 3Q 2001

And yet:

• Oct. Trulia price, rent monitors show asking prices rose 0.6% m/m in Oct., prices up 11.7% y/y, rents up 2.7% y/y

Why? Just ask Mr. Chairwoman. After all Mr. Chairwoman has been rumored (wrongly) to be very oracular when foreseeing housing bubbles. Like last time supposedly.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/E1nw3M-x4qY/story01.htm Tyler Durden

Today’s AM fix was USD 1,311.25, EUR 971.30 and GBP 817.08 per
ounce.
Yesterday’s AM fix was USD 1,314.25, EUR 972.94 and GBP 823.47 per
ounce.

Gold inched down $0.60 or 0.05% yesterday, closing at $1,314.20/oz. Silver
slid $0.22 or 1.01% closing at $21.62. Platinum climbed $6.55 or 0.5% to
$1,450.25/oz, while palladium rose $7.46 or 1% to $745.25/oz.

Gold
in USD, 1 Year – (Bloomberg)

Gold has had five consecutive days of weakness as a stronger greenback has
led to traders selling gold on the COMEX. Even though the U.S. Fed maintained
their ultra loose monetary policies last week, maintaining $85 billion a month
in bond purchases, gold has lost its shine with momentum driven and computer
driven traders and hedge funds.

The sharp rise in the gold mining shares yesterday, the XAU was up 2.5% and
the HUI was up 2.9%,  was encouraging for gold.

Declines are likely to be limited as lower prices is leading to physical
buying globally. While much of the focus continues to be on ETF selling and
Indian and more recently Chinese demand, some market participants fail to
realise the extent of global demand which remains broad based. This is seen in
the recent gold data out of Dubai and Turkey.

Turkey’s gold imports jumped more than threefold in October to 15.98 metric
tons, from 4.8 tons in September, according to the Istanbul Gold Exchange’s
website. That’s the highest since July, the data shows.

Turkey has already imported 251.4 metric tonnes in 2013, year to date,
meaning that it will come very close to or surpass the record import year in
2005 when 269.5 metric tonnes of gold were imported (see table below).

Year to date imports are more than double the amount of gold imports in 2012
and more than triple those in 2011.

Turkey’s gold sales to neighboring Iran declined to $1.5 billion so far this
year from a record $6.5 billion for all of last year. This may indicate a fall
in demand from Iran or that Iran is now importing gold from other countries such
as Dubai in the UAE.

Istanbul
Gold Exchange

Gold is being remonetised and becoming money again in Turkey. Unlike India
which has embarked on a campaign of repression against gold, the Turks are being
far more enlightened. They are allowing the considerable and growing gold
holdings of the population to be remonetised in order stimulate demand and grow
the economy. 

The country’s central bank last year allowed commercial banks to hold a
portion of their lira reserves in gold and banks are making it easier to buy
gold in Turkey..

Some Turkish banks are now offering customers the ability to use their gold
based deposits for collateral on gold backed loans and using gold as access to
Turkish Lira or for access to credit cards.

Isbank and Turkiye Garanti Bankasi AS, the country’s biggest lender by market
value, offer gold-backed loans, where customers can bring jewellery or coins to
the bank and take out loans against their value. Garanti also has a credit card
linked to gold deposit accounts.

Government efforts to help ease the nation’s current account deficit are
encouraging householders to bring their gold coins which it is estimated that
there are $302 billion of hidden gold
stashed in homes in Turkey.

This hidden gold is second only to the U.S., and Turkish gold based deposit
accounts have grew 15% this year calculated until the end of July, which is a 3
fold increase in standard savings accounts according to the Turkish Central
Bank.

The gold accounts give customers an amount in Turkish lira equivalent to the
weight of the precious metal they deposit in the bank. Bank customers can then
withdraw cash or take out loans, while the bank is able to sell or hold onto the
gold.

Turkiye Is Bankasi AS (ISCTR), Turkey’s largest bank by assets, said gold
deposits increased 10 times in the two years through June.

The campaign by Turkey’s banks, featuring ads for “golden age” accounts and
products such as gold gift checks, is targeted at Turks who traditionally give
gold coins or jewellery as presents at weddings, births and circumcision
ceremonies. The custom gained popularity a decade ago as Turkey’s inflation rate
topped 70%, making gold an attractive store of wealth.

The World Gold Council estimates that by bringing 5,000 metric tons (5,512
tons) of gold bullion into the banking system — an amount greater in value than
Ireland’s GDP, Turkey aims to reduce gold imports and external borrowing.

Government statistics cite Turkey’s current-account deficit, has narrowed its
gap 23% from $77 billion (2011) to $59 billion (ending August). Record gold
sales from Turkish companies to the United Arab Emirates and Iran increased its
exports. Exports of precious metals to the UAE and Iran, climbed to $9.2 billion
(ending August 2012) from $645 million last year driven by western sanctions on
Iran.

Many of the gold exported is coming from the population that are shifting
their gold stash from their homes to the banks since Turkish gold production is
only 25 metric tons.

The Turkish Government endeavours include the August 16th central bank
decision to raise the proportion of reserves lenders can keep in gold to 30%
from 25%, having increased its efforts to get more bullion out of the homes and
into the monetary system.

IMF
Turkey Gold in Mill Fin Troy Oz

Banks are diversifying and offering diversification with a range of gold
related services.

Turkey’s regulators have been discussing planned legislation to enable
customers to buy or sell gold at bank branches or transfer gold into other
accounts, according to an Aug. 29 report in Milliyet, a daily newspaper. Bank
Asya has said it will soon start purchasing and selling bullion at its
branches.

Jewellers in Istanbul’s Grand Bazaar, one of the world’s largest covered
markets, have opposed the move. They say banks buying and selling gold would cut
their revenue and push them into underground trading, according to
Bloomberg.

The 6th century-old Grand Bazaar houses 4,000 jewellers, and about 1.5 metric
tons of scrap gold is processed into bullion there every day, according to
Istanbul Gold Exchange data. Transaction volume totalled 8.5 billion liras ($4.7
billion) last year.
The move by the Turkish banks may soon be followed by
desperate banks in other emerging and developed markets.

Turkey has been aggressively adding to its gold reserves in recent years and
now has the world’s 11th-largest gold reserves. Its holdings rose to 15.762
million ounces or over 490 tonnes at the end of September (see chart above).

Gold is gradually being remonetised again in Turkey and this trend will soon
be seen globa
lly.

With gold soon to become a Tier 1 asset, banks will attempt to get a
significant amount of investment grade gold bullion onto their balance sheets in
order to buttress them.

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GoldCore’s Essential Guide To Silver Eagles here.

 

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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/hle-ilVep1M/story01.htm GoldCore