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In the never-ending
and important debate over whether
gold is money, there is a voice that
has recently spoken, and you might want
to hear what it said. Many
voices worth listening to have said gold has
no utility.
For example, Warren Buffett
is famous for saying that we
dig gold out of the ground,
then we melt it down, dig another hole,
bury it again and pay people to stand around guarding it. It has no utility, he says. Anyone watching from Mars would be scratching
their head.
But there is another voice, much more important than Buffett, that has, in the last
6 months, uttered the opposing view. It's not the voice of a
newsletter or any analyst
or expert, or any one person,
although many agree with this
voice, including me. It is actually the voice of a group, a club, that
has been described as the most
exclusive, secretive and powerful
club in the world. The New York Times has called
them "the secretive
panel that establishes
global banking rules"
- the central banks' central bank.
They meet four times a year in a little
town called Basel in Switzerland. Edward Jay Epstein did
an article on them for Harper's
Magazine back in 1983 where
he describes their shyness about publicity and the sophistication of their
clubhouse. They have a nuclear
bomb shelter in the basement, an entire hospital, as well as some 20 miles of subterranean
archives. They make the
Fed look like a lemonade
stand.
It's an important voice. When did it
speak and what did it say?
Well, they have spoken, with comprehensive new rule sets,
"frameworks" they
call them, only three times since their inception in 1974. In 1988, they issued Basel I and in 2004 it was
Basel II. And now in
2012, they are issuing
Basel III.
They are men of few words.
They issue no binding legislation, but in the banking
world, what they say goes. Both
Basel I and II took the then
fashionable view of what
money is - government
bonds, mortgage backed securities, cash, etc.
Gold was included in what they allow
as capital, but as a "tier 3 asset" (not real money), and thus
was only allowed to be reserves for loans at just 50% of its market value, much like, say
an art collection would be.
Since 2004, a lot has changed
with all that. Mortgage-anything has become
ultra-toxic, major countries are teetering on bond defaults, and the race to debase cash is raging. These developments have moved the
Basel Committee to make some changes, but I'll focus on
just two here.
The most significant
change is moving gold from its tier
3 status to tier 1
capital as 100% loan-backing reserves,
the same as cash and bonds. For the first
time in 42 years, gold is being brought
back into our financial system as money. All the world's
banks are now storing this metal, not as some 3rd rate
"asset", but as all the world's working capital - its money. So it's not just any voice,
it is the ultimate voice on what is money that has spoken. Gold was removed from
our system by Nixon in
1971, when he took us off the gold standard by disallowing
foreign governments to
exchange their dollar reserves
for US-held gold.
Read the rest
of the article on Seeking Alpha here
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