Requesting anonymity in return for speaking, senior French financial officials have disclosed their interpretation of why and how Dominique Strauss-Kahn known as "DSK" in France, fell suddenly from world power as head of the IMF. Cited on French blog sites, these officials see nothing less than a threat to world monetary stability and the integrity of the global economy, behind the dramatic sleaze operation that felled the woman-chasing, globetrotting freespender with a B-movie sting in a Manhattan hotel room.
Not only the USA is in financial and monetary meltdown and shackled by snowballing debt. In the European and Middle East-North African Arab region, monetary crisis is now in high gear. Not only DSK but finance ministers and central bank governors across the region know that if the dollar crumbles further, and regional debt and monetary disorder racks on and up, it is the euro which also will fall, creating a tidal wave of panic across Europe, the Arab world and further afield.
DSK's shuttle diplomacy and IMF financial firefighting was in high mode, when he disappeared from the scene leaving a sordid scrabble for the role of new IMF chief, pitting Europe, Japan and the USA against the world's only creditor countries: China, India, the Arab petromonarchies, Russia, Brazil and a very few other, small net creditor countries. For Europeans, the threat posed by Arab spring revolts now moving into all-out civil war in several theatres is at least as great as its own internal meltdowns featuring the PIIGS, the UK, Eastern and SE European EU27 countries.
GOLD AND MONEY
Each time an Arab regime falls and its long-time head of state flees - often to Saudi Arabia but very surely not in the Gaddafi case - its central bank's official reserves of gold will have no relation at all to what smaller amount is still left in its vaults. In the Tunisian case it is known that the wife of ousted strongman Ben Ali took at least 22% of the central bank's official reserves in one fell swoop. When Mubarak finally abandoned all attempts at crushing Egypt's democracy protestors, his family and henchmen scooped an unknown quantity of gold from its central bank vaults. The official reserve of 75.60 tons unchanged for 22 years is now extremely unlikely to be the real reserve. When Gaddafi and his sons who remain alive flee from Libya, its official gold reserves, flexibly estimated at anything from about 143 tons to over 220 tons will in no way correspond with what is left. If or when the Bachr al Assad regime of Syria tumbles, and al Assad and his family and henchmen possibly flee to Tehran, certainly not Riyadh, its official gold reserves of 25.80 tons, unchanged for over 30 years, will rather surely not be what the incoming regime will find left in its central bank.
Any country whose central bank has little or no fiduciary and official gold, and is edging near civil war or is in civil war, and has an economy in meltdown will also have a money that is worthless. International currency market speculation will ensure that, fast.
Financial firefighters have a single unchallenged world leader: the head of the IMF. By a touching act of faith and self-delusion, the IMF is thought able to "mobilize" financial resources, and especially gold, to restore confidence in any country's money, in return for draconian austerity measures aimed at impoverishing its ordinary citizens. The financial sector, both national and international is given full access to all national assets in a riot of private profiteering, increased social stress and competition for jobs, public squalor and national humiliation.
THE DSK GOLD SCAM
On the eve of DSK's easily-organized "honeypot sting" in a New York hotel, instantly removing him from the levers of power inside the IMF, he was due to meet with Germany's Angela Merkel and Eurozone-17 financial and monetary leaders, ostensibly to discuss IMF-backing for European national financial bailouts in Greece, Portugal and Ireland, and other countries, totalling hundreds of billions of euro. Germany is the undisputed money-master in Europe, with a huge trade surplus and an unswerving mercantilist strategy of turning its trade surpluses into gold: Germany holds more than one-third of all official gold in Europe, and its national reserve of about 3402 tons places it second-only to the USA, and well before third-ranking IMF by tonnage held.
Germany is therefore always interested in buying gold, especially at a low price, which the IMF is unquely placed to facilitate and organize. Methods used by the IMF feature the issuance - or printing - of its own near-money Special Drawing Rights, and the swapping of these for central bank gold from "assisted countries". The aided country will, through IMF magic, report an increase - not a decrease - in its central bank holdings despite the physical gold being transported out of the country. The official logic is that raised amounts of theoretical-only gold in its central banks vaults will stem speculation against the national currency, as part of the economic healing process. When this produces new economic strength, the central bank can buy back the gold it swapped for SDRs, using these to exchange for dollars, euro, yen, British pounds or Swiss Francs and cover its trade deficit crisis, budget crisis, or other transitional economic stress during "IMF adjustment".
Since late 2007 when DSK ran the IMF, its operations were multiplied about 100-fold in size, reflecting the size of financial crises not affecting the traditional prey of the IMF - low income Third World countries - but newly bankrupt richworld urban-industrial democracies of the OECD. The Third World remedies of the IMF, basically impoverishment of around 60% of the population and enrichment of the 40% designated "emerging middle classes", are unlikely to work either in Arab revolt countries, or Europe or the USA - but the IMF has no other medecine.
The DSK-led financial firefighters therefore had no choice but focus the real and hard assets of its aided victim countries - central bank gold. In this context a high gold price is vital, despite this being heresy for the IMF whose official mission is to matain or restore confidence in fiat paper moneys by pushing down gold bullion prices whenever and wherever it can. Emerging and leaked comment on DSK's "last days at the IMF" from French financial officials indicate massive plans to sell gold to Germany. The process, under full crisis conditions, would include channelling stolen and looted gold from the central banks of collapsing Arab dictatorships, and massive gold swap deals with the central banks and money authorities of near-bankrupt and nearing-bankrupt but gold-rich European countries, especially Portugal, Greece, Spain, Belgium and Romania.
Anything could go wrong in a high-risk ultra-secret set of negotiations. The counterparty to handing over gold to any official but secret buyers, which as well as Germany could have included the USA, China and India, Russia, Brazil and the Arab petro-states, is simple: cash. The process therefore also needs and generates large gold sales, with telltale daily traces in gold bullion trading and daily gold price movement.
We can provisionally conclude the scam failed and DSK had to rapidly disappear. Certainly this year, probably by late summer, the failure of the DSK operation will be clearly shown. Signs could include a radically toughening of the German stance on financial aid to Eurozone states, serious weakening of the euro, and revelations of missing gold in several Arab states, followed by an explosion of gold prices.