Every gold coin has two sides

We’ve seen plenty of evidence that central bankers in the developed countries intend to continue their easing policies, driving up balance sheets. Take a look at the rise in the balance sheets as a percent of GDP from the largest developed countries. The European Central Bank (ECB) tops the list, with the balance sheet approach half of its GDP.

Williams says central banks need to continue to print money to “maintain the pretence that the global economic situation is under control, which it surely is not.”

This opinion is echoed by my friend, Ian McAvity. In his Deliberation on World Markets newsletter, he says “the orchestrated reopening of Cypriot banks creates two euros despite claims to the contrary.” Most importantly, the fact that “gold did not surge on these developments for the second most important currency teetering on the brink adds weight to the case for surreptitious central bank interventions,” he says.

McAvity says “surreptitious,” while CLSA’s Greed & Fear Author Christopher Wood calls it a “grandiose monetary experiment,” which may be “unprecedented in recorded financial history.” He believes that there is an “outright embrace of the eroding distinction between monetary and fiscal policy” and instead of moving away from its unconventional easing policies, “the central banks are moving further and further away from the exits.”

But there is a much more important issue that has been raised because of Cyprus’ and the euro system’s “startling inequality of treatment,” says CLSA’s Russell Napier. He questions whether the euro system works in a political sense. He writes:

If … people of the system believe that the euro’s sustenance necessitates the use of arbitrary power, resulting in unequal treatment, then they will conclude that the euro system is not worth having. The loss of democracy and the rule of law will outweigh whatever economic benefits euro membership may bring.

An avid sports enthusiast would translate this “loss of democracy and the rule of law” to a game where the referees are making unfair calls, adding rules and changing boundaries to control the outcome.

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