Where Is Germany's Gold?
bloomberg.com
bloomberg.com
So now, gold prices have been weak for a few years, so they have to come up with a new narrative. And that narrative is global conspiracy. So you get groups like GATA [1] and Zero Hedge [2] pushing various stories about how gold is being squirreled away somewhere mysterious, or prices are being suppressed by faceless multinationals or what-have-you. Maybe it's true! I don't know, but there's never really been any evidence, and it just sounds like someone justifying a failed investment thesis.
[1] www.gata.org [2] zerohedge.com
I lean towards the side that thinks that the central and money center banks (not faceless multinationals) are suppressing the price of gold via fractionally-reserved lending of physical gold. What would convince me that this is not the case would be a comprehensive audit of the Federal Reserve's books and gold holdings.
You?
But seriously, there are lots of things that are hard to prove wrong, but that's hardly a good reason to believe them. In your case, what motive would the Fed have? Has an employee of the Fed (or any other central bank) ever blown the whistle on this massive international conspiracy? If there's no good reason to think something, there really isn't much good reason to spend time proving it wrong.
The Federal Reserve is also intimately bound up in fractionally reserved expansion of the paper currency, so it is reasonable to assume that they might use the same basic technique with gold. And that, in fact, is the historical origin of banking, in the modern, leveraged sense: gold assayers began loaning out gold on a fractionally reserved basis, allowing them to collect interest beyond their core assets. Worked great until people ran on them.
So I assert that it is less irrational to believe that there is a possibility that central banks engage in manipulation of gold prices than it is to believe that there is a dinosaur living in the subway under manhattan.
YMMV.
Also, to believe this you have to postulate that:
1) Employees of the Fed are personally concerned about gold destroying the dollar.
2) They are willing to do something illegal (or at least unauthorized) to protect the dollar.
3) So they came up with a complicated, elaborate plan to manipulate the price of gold down that perfectly plays into the narrative of gold bugs (note the nefarious fractional reserve lending).
It's not impossible!
2) People involved in the banking system, by definition, are willing to fractionally reserve something
3) Nothing particularly complicated, same fence that fractionally reserved frauds have been running for a thousand years.
_shrug_
To be clear I'm not saying this is what happened, just that there doesn't have to be an ongoing conspiracy among hundreds of people and institutions for the gold to be gone and nobody wanting to say anything.
I'm not sure I understand you fully. What is this portion of your comment analogous to?
What would you do then? Would you actually say "Well, I guess my belief was wrong and I was misled by the people who promoted it to me", or would you find a way to move the goalpost and say that you'll continue believing until some other complex and politically-hard-to-manage thing happens? And then another, and then another?
So, let's get that audit going...
Gold as a raw material is useful to a degree, just as diamonds are, but artificial scarcity [1] [2] and wild speculation create a mess of distortions.
[1] http://www.theatlantic.com/magazine/archive/1982/02/have-you...
[2] http://archive.wired.com/wired/archive/11.09/diamond_pr.html
We're not going to shift to a 'usefulness' based mindset, and we should avoid shifting to the mindset that an object is equal to the sum of it's parts. Supply and Demand are king.
The US did not have a Gold-backed dollar in practice. From 1933 onward, Executive Order 6102 was in effect, making it illegal for any individual to own more than 5 ounces of gold.
The majority of people living today have never lived in a time period where you could practically exchange dollars to gold. That's the true conspiracy. The Gold-standard arguably never even existed in the first place. (At least, from 1933 onwards)
I've been following the Gold bug sphere in 2006, 2007 and there's absolutely nothing new about these conspiracy theories. They have been pushing them ever since, and you haven't even scratched at Bilderberger/Illuminati/Jews/Take your influential minority.
Banks still hold gold, they do so while ignoring other precious substances. Maybe it is a barbarous relic.
But some of the vaults this stuff is held in... they've got much less of it than was believed. Where is it? Why is no one concerned? Why are there no plain and verifiable answers forthcoming?
Not sure about the narrative you describe, but it's a clear fact that it's harder and harder to buy gold anonymously, without declaring to the State where you stash it. Makes it practical the day they come to get it back and give you worthless paper instead.
The Depression proves that the gold standard doesn't work. There was no stability; there was deflation.
Since the concept behind the gold standard means "gold always..." - a universal quantifier, one needs only show a counterexample to blow it out of the water.
Not really. The government went off the gold standard in 1914 when it began printing whatever dollars it needed. A legally fixed exchange rate, however, continued. This led to an increasing disconnect between the dollar and gold, by 1929 gold was worth about twice as many dollars as the legal exchange rate.
This is what lead to the banking collapse, as everyone suddenly realized this and rushed to exchange their dollars for gold at the official exchange rate. The runs persisted until the government suspended exchanging gold for dollars.
We see the same thing happen in modern times every time a government decides to peg its currency to a foreign currency, and then inflate it.
http://www.nber.org/papers/w16350
The hypothesis is that France "hoarded gold" - kept more gold reserves than it printed currency. This led to a paucity of gold. Those nations that played by the rules could issue less currency than was needed. This led to deflation.
Bimetalism, the attempt to peg the value of silver in relation to gold, has quite an illuminating history of failure.
You mean the same bankers, economist and politicians of the bail out to big banking institutions?
You mean the same bankers, economist and politicians of the too big to fail?
the same bankers, economist and politicians that have brutally increased their wealth in the crisis while the people income has gone deep down?
You need to insult people that disagree with you, calling them "bugs".
Times have changed. Invasion has become unlikely, despite Germany having borders to several foreign countries, with a history of centuries of conflict in Europe. Even corruption is unlikely today to take away significant portions of such a gold depot.
Still, the only purpose of this gold is as a currency, and as such it doesn't matter that much if it is stored in Germany or in some country you would probably have to trust anyway to make use of it.
(not only Germany is bringing their gold home, from the article France, Netherlands are doing the same)
The tungsten substitutes are just part of "normal" dodgy street counterfeiting? http://www.businessinsider.com/tungsten-filled-gold-bars-fou...
This is a big part of why the price of gold moves the way it does. It's not that the value of currencies changes compared to gold, which is the unmoving reference point. Instead, what's going on is that peoples' trust in paper currencies fluctuates, which changes their desire to hold gold as an alternative.
Paper money has mostly been a more stable store of value than gold... except when it hasn't. When the paper currency becomes toilet paper, gold looks like the perfect store of value.
The modern role of gold, then, is more insurance than it is a store of value. (Or you could think of it as a short on currency.)
Firstly, there's the the invasion risk the article referenced, to which I'll add internal political division (talking generally, not just about Germany, although 1989 was not that long ago in geopolitical time). Having all of your gold in the central bank sounds to me like having all of your eggs in one basket, waiting to be plundered.
But there's also the functional use of the gold. While I can't imagine these reserves being spent anytime soon, in the wider 50-100 year timeframe it's more likely that they may be needed for emergency purchases or as security. In that situation, having at least some of your reserves offshore, particularly in the US which is likely to be your wartime creditor based on history, makes more sense than having to ship it back in a time of crisis.
Repatriating it all just sounds like paranoia or nationalism to me.
TLDR: A good backup plan for your data involves an offsite copy. Why not the same with backup gold reserves?
If you do believe that the NY Fed, the Bank of England, and the Bank of France are "above reproach," then your argument is absolutely correct. But if you can't be sure of that—and this article is definitely attempting to cast doubt on that—then there's the usual argument about self-hosting. Amazon's probably a better sysadmin than most people are, but you're the only sysadmin that you have meaningful control over the competence of.
http://www.npr.org/blogs/money/2015/01/16/376967946/episode-...
Disclaimer: I'm currently reading Cryptonomicon. It's a history book, right?
Amazing book, by the way. I would also highly recommend the whole Baroque cycle.
Otherwise, I'd read pre-Cryptonomicon Stephenson.
You might also enjoy REAMDE which it a bit faster-paced. I happened to enjoy Anathem as well, though that was also a bit of a slog. It did have a resolution though. And protractor.
REAMDE was quick and entertaining, but it was the equivalent of a Tom Clancy novel. Or, fine, Michael Crichton.
"possession is nine tenths of the law" as is currently said."
This rarely changes anyone's mind (few people ever change their minds about issues regarding money) but I hope I can at least raise the contradiction to the top of their minds. All currencies are backed by our willingness to accept them, and that is the only backing that any currency ever needs.
He didn't say that fiat currency is a fiction, he said that he is worried that the world economic system might be built on the fiction of fiat currency.
Since you can print fiat, it's entirely possible in this current fractional reserve system that most fiat's employ to create a lot of artificial wealth.
Just because he's pointing out there could be a bubble doesn't automatically mean he ascribes 0 value to a US dollar, he just won't put his life savings in it.
> This rarely changes anyone's mind
Mainly because it's a dumb strawman.
> but I hope I can at least raise the contradiction to the top of their minds.
I really can't see the contradiction in thinking that there is a bubble in currency and still believing that said currency still has value in the current.
> All currencies are backed by our willingness to accept them, and that is the only backing that any currency ever needs.
Until people aren't willing due to inflation through debasement.... Thats the point....
> So why would they take a fiction over a real shirt that that gives them real value?
Because they can nearly immediately exchange the $500 (fiction) into something of real value (gold).
The goldbugs, as far as I know, don't favor gold because it's shiny; they favor it because it's physical and it's historically been popular in so many cultures as a medium of exchange for things of real, inherent value (food, labor, housing, etc.). I think a definition of "value" that roots gold as having value because it's gold would be so self-referential as to be useless.
No this is IMHO no valid implication. Say, goldbugs don't believe that money is something other than fiction. But they do believe that at least for the next few days this fiction will not break down in the society: This is enough time to buy gold. But they are not sure how much longer the "illusion" will hold up (say, for a month?).
So the right question to ask (for the goldbug) is "only" what will happen earlier:
a) The money illusion breaks down? or b) I've converted the earned money into gold?
What's the value of the shirt? That depends on a lot of things that aren't known to you, and might not be known to them: how long will it last? how versatile is it? what would it cost to find an equivalent shirt, or to resell it? etc. These things are also ambiguous at a clothing store, although less so. But what is clear to both you and the goldbug is that it's clearly and obviously worth much less than $500: you're willing to estimate a rough value, even though neither of you can't put an exact number on it.
The goldbug ought to be complaining that everyone looks at a five-hundred-dollar bill and thinks that it's clearly and obviously worth exactly $500.00. That is tied into a lot of things, including, like the shirt, how long it will last and what it can be exchanged for, and neither of you know these things for sure.
With our worldview and assumptions, you and I might conclude that the bill is definitely worth at least $495: the chance of government collapse or a run on the banks, even over the next several years, is much less than one percent, and we can expect to use the bill before inflation devalues it by one percent. The goldbug, with their worldview and assumptions, might conclude that the value is fuzzier and possibly as low as $400: maybe there's a 20% chance of a run on the banks in the next few years. That still makes it worth obviously more than the shirt.
So the goldbug shouldn't be arguing that the money is unbacked and valueless, and you're right that things (including bills) are worth what people think they're worth. The goldbug should be arguing that we as a culture are overvaluing the bill. (And normal people do make these calculations: ask anyone who travels frequently between two countries with different currencies whether they prefer to keep cash in one currency or the other. Even over such a small value, there's a good chance they'll have an opinion.)
Reading between the lines of this article, there's an argument to be made that the world's large banks are not 100% trustworthy, as we'd hope. Maybe they're 95% trustworthy, but we should be skeptical of the claim that they're "beyond reproach", and simple human error, let alone malice, can cause gold to be misaccounted. And if they're misaccounting mere bars of gold, what else are they misaccounting?
| All currencies are backed by our willingness to accept them...
This is true!
| ... that is the only backing that any currency ever needs
This is clearly false- just consider any currency that has experienced hyperinflation. Currencies backed by commodities are not subject to such troubles. Or consider the hidden tax of even nominal inflation caused by monetizing debt (ie, printing "mind backed" currency to pay debts). Such systems are essentially a transfer of wealth from the poor to the rich since poor people don't have access to financing/loans.
| So why would they take a fiction over a real shirt that that gives them real value?
Of course both the shirt and paper money have value, subject to supply and demand. But, the paper money tends to hold on to its value better when its backed by something more than the restraint of central banks.
This is completely false. When silver was discovered in Nevada the price was massively affected. Hell, Spain's economy was wrecked by the importation of gold from the Americas.
If we ever figure out how to bring asteroid resources to earth reliably, or if someone discovers a large deposit of gold you will see just how "stable" the value really is.
Ok, relax, I'm a fan of fiat currency as much as anyone, but your argument is a bit off.
Most people who argue for a gold standard aren't debating some innate worth of money. They're generally arguing that a backed currency restricts the government's ability to simply print money and create out of control inflation, which has actually happened many times.
My response to that would be that our democratic system has created a sufficient dis-incentive to do that and the fact that we haven't yet is sufficient proof that it works.
That said, I try not to keep my assets too liquid. Oh well =)
...I suppose that it doesn't even have to be out-of-control for it to have a fairly dramatic effect...
http://observationsandnotes.blogspot.com/2011/04/100-year-de...
I assure you, inflation is the lesser of two evils. Deflation is much, much worse.
They took a small short-term risk to increase their tangible goods by 300%.