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With his new
study, "Dr. Zijlstra's Final Settlement: Gold as the Monetary Cosmos'
Sun," appended here, our good friend the Netherlands economist Jaco Schipper
of MarketUpdate.nl today adds substantially to the growing documentation of
the Western central bank gold price suppression scheme.
Zijlstra is the
late Dutch treasurer, prime minister, and central banker Jelle Zijlstra, in
whose memoirs Schipper has found confirmations of that scheme, including a
confirmation involving former Federal Reserve Chairman Paul Volcker, whose
involvement in gold price suppression often has been noted by GATA:
http://www.gata.org/node/10923
http://www.gata.org/node/8209
Zijlstra knew what
he was writing about, as he served not only as president of its central bank
but also, simultaneously until his retirement in 1981, as president of the
Bank for International Settlements, where gold price suppression long has
been a primary function:
http://www.gata.org/node/8773
http://www.gata.org/node/11012
http://www.gata.org/node/11257
As noted by
Schipper, in his memoirs Zijlstra recounts repeated efforts by the U.S.
government to discourage the use of gold as a measure of currency values and
writes, "Gold is artificially kept at a far too low price."
Schipper also
calls attention to Zijlstra's notation that central banks had begun to count
as an asset not only gold but "an asset on an equal footing,"
apparently some claim to gold not quite in a central bank's own possession,
perhaps the original form of the somewhat mysterious "gold
receivables" that now reside on the books of many central banks,
mechanisms of imaginary inflation of official gold reserves.
We welcome
Zijlstra, if only posthumously, to the ranks of gold "conspiracy
theorists," and will have a tin-foil hat
engraved in his honor.
CHRIS POWELL,
Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
Dr. Zijlstra's
Final Settlement: Gold as the Monetary Cosmos' Sun
By Jaco Schipper
Market Update
Sunday, April 29, 2012
http://www.marketupdate.nl/nieuws/valutacrisi...final-settle...
Whenever I am in
Amsterdam, I go to a bookstore and browse the second-hand shelves in the
economics section. Recently I found two books by Dr. Jelle Zijlstra:
"Dr. Jelle Zijlstra, Conversations and Writings" (1979, second
edition) and "Per Slot Van Rekening" (1992, fifth edition). The
latter title is a Dutch figure of speech that may be translated as "The
Final Settlement."
The covers of the
books are shown here:
http://www.gata.org/files/Jelle_Zijlstra_book_covers.jpg
Jelle Zijlstra was
a renowned Dutch economist and one of Holland's finer statesmen. Early in his
career in 1948, shortly after World War II, he became a professor,
specializing in the velocity of money. By 1952 he was appointed minister of
economic affairs, then Dutch treasurer from 1958 to 1963 and again from 1966
to 1967. During his last term as treasurer he led the Dutch Cabinet as prime
minister as well until 1967, after which he became president of De
Nederlandsche Bank (DNB). While president of the Dutch central bank he was
appointed as the president of the Bank for International Settlements (BIS) as
well, positions he held until his resignation in 1981.
You can read a
little about this extraordinary man at Wikipedia here:
http://en.wikipedia.org/wiki/Jelle_Zijlstra
In Zijlstra's
first book, "Dr. Zijlstra," he writes about his career and his time
as president of De Nederlandsche Bank and the BIS. While he was DNB president
the international Bretton Woods agreement collapsed, and he goes into great
detail about what happened. He writes about the "European" group's
interests, about the cultural and financial ties between Germany and the
Netherlands, the relationships with France and Great Britain, and, of course,
about the position of the United States.
It gets especially
interesting when Zijlstra writes about then-U.S. Treasury Undersecretary Paul
Volcker and Federal Reserve Board member Dewey Daane of the Richmond Federal
Reserve Bank. On the July 7, 1971, Volcker and Daane arrived in Amsterdam to
urge the Dutch government not to convert any more of its dollar reserves into
gold.
Zijlstra writes
(p. 191): "From the beginning of 1971 we had already converted almost
$600 million in return for gold or an asset on an equal footing."
This phrase -- "an
asset on an equal footing" -- is peculiar, since from an investor's or
central banker's perspective there is no equivalent to physical gold. Let
this be very clear: There is no asset that stands on equal footing with gold.
You either own it or you do not.
But central bank
balance sheets account for official gold reserves under the description
"gold and gold receivables" and apparently have done so back to
times before Zijlstra became a central banker, before Bretton Woods
collapsed. This is quite revealing.
In the eyes of
gold bugs, "gold receivables" is a bit of
a contradiction in terms and has been the cause for much suspicion. Can we
really trust the numbers on central bank balance sheets?
The essence of
this question is one of accounting, because gold reserves are either
"allocated" or "unallocated."
The big difference
is that when gold is "allocated" one has legal title to specific
metal vaulted by someone else. But when gold is "unallocated" one
has merely a fiduciary claim on a future delivery of gold. This implies
counterparty risk.
Zijlstra and
Volcker: 'Monetary Adversaries'
As an economist, I
knew of the visit by the U.S. officials in 1971. It is remembered by many
Dutch economists because of Zijlstra's famous anecdote about a conversation
he had with Volcker, who went on to become Fed chairman.
When Volcker
visited Zijlstra as Treasury undersecretary, Volcker said, "You are
rocking the boat." Zijlstra replied: "If the boat is rocking
because we present $250 million for conversion into gold or something that
can be considered an equal asset, then the boat has already perished."
(p. 191.)
Zijlstra refused
to heed the U.S. request and converted DNB's dollar holdings for gold. And
since the reasons behind this "heavy American delegation" -- as he
described it -- were quite obvious, he suspected that the gathering storm he
had foreseen for some years was about to break loose. Or, as we say these
days, he knew that "the fiat was about to hit the fan."
A Man of
Precision and Conviction
Also interesting about
Zijlstra's first book is that he is very detailed and precise in explaining
his views. For example, he describes inflation as "the most gross social
injustice" which "hits the less fortunate the most," and he
practiced what he preached.
He explains how,
as Dutch treasurer (1958-63 and 1966-67) he managed his Cabinet to be
fiscally prudent, which he connects to his opposition to inflationary
policies. To illustrate his objections, in his second book he writes:
"Despite an
additional flow of funds due to increasing returns on Dutch natural gas
reserves and the second oil crisis, this Cabinet also proved it could grow
hungrier while eating."
Also, and in this
respect very typically, he defines the Dutch guilder in terms of gold:
"F. 1 = 0.334987 grams of fine gold" (p. 181), and in a footnote on
this page he included the numbers needed to calculate the value of the
guilder after the 1978 devaluation: 0.13333 grams of fine gold.
This points out
something really important. Why does a central banker, a former BIS
president, calculate the value of his currency in terms of gold when gold
backing had been officially removed?
'The Final
Settlement'
In Zijlstra's
second book, "Per Slot Van Rekening," we find a very candid man,
even contrarian. He gives a very precise description of how central bankers
conduct their business and maintain their independence from government
interference.
This makes this
particular book so refreshing. For example, whereas conventionally monetary
debasement is described euphemistically, Zijlstra explains what central
bankers actually do, and more importantly, acknowledges that the price of
gold is kept far too low.
Central bankers
have thus known what gold bugs long have been saying. Let me take this one
step at the time. Dr. Zijlstra writes that revaluing is "'putting a bit
more gold in your currency' so it becomes more valuable than other
currencies. Summarizing: it is about the choice between 'adjustment'
inflation or revaluation. Germany decided to revalue the German deutschemark
on March 3, 1961, with 5 percent; we decided ... to follow. To my regret,
then and still, Germany did not revalue more; I would have defended a
revaluation of 10 percent zealously if Germany would have done so. ... A
devaluation was more or less seen as a defeat, a testimonium paupertatis for
a country." (p. 220.)
Now that's a
really honest way of explaining currency devaluation.
But it gets far
more interesting. Zijlstra explains his understanding of the role of gold in
what he eloquently calls the international "monetary cosmos": Gold
functions like the sun, with all currencies as planets orbiting around it,
with only the sun in fixed position:
"... It is
perhaps nice to get into the role of gold and its meaning in the time before
the monetary cosmos collapsed into more chaotic conditions. Throughout
centuries gold was a protection against [natural] disasters, arbitrariness,
and persecution. ... Because natural production levels hardly allow
overproduction with substantial depreciating values as result; because it
does not rust and, once produced, never perishes, excessive scarcity can
never occur. That's why gold developed its image of solidity, stability, and
reliability. ... Gold coins then have been used over the centuries as means
of exchange in primitive currency frameworks and were later, with the
development of paper money, seen as a reliable basis. In the heydey of the
gold standard one could take a banknote to the central bank and -- if you
would like that -- get gold in return. The famous Englishman Bernard Shaw
once said one has the choice between the natural stability of gold and the
natural stability of honesty and intelligence of government. And he was of
the opinion this choice was not hard." (p. 221.)
Zijlstra explains
how all this was relevant during his time as president of the DNB and during
his presidency of the BIS. He explains that the United States was debasing
the dollar. Most interestingly, Zijlstra writes about his idea of a solution
for the "international chaotic non-arrangements":
"A good
solution would have been to drastically raise the price of gold, since it was
extraordinarily peculiar that in the post-World War II world, in which
everything became more than three to four times more expensive than in the
1930s, the price of gold remained the same. Actually, two things had to be
done. The official gold price in all currencies had to be raised ('their gold
content had to be reduced') and, beside this, the official dollar price of
gold had to be raised extra, to allow the dollar to devalue against all other
currencies". (p. 222.)
Zijlstra writes
about the American reaction to his proposals:
"However, the
Americans found this idea like swearing in a cathedral. Because, by that, the
dollar would in regard to gold become second, and the American ideal was and
is to have the dollar central in its role on the economic stage. As a
consequence, there was only one exit and that was cutting the tie between the
dollar and gold. That would eventually happen in August 1971 when President
Nixon announced that the dollar was no longer convertible into gold. After
increasing American pressure, step by step, the actual convertibility of
dollars in gold was curtailed until it was formally ended." (p. 222.)
But it gets even
more interesting. Zijlstra wittingly or unwittingly confesses what most gold
bugs assert. He writes: "An important step on this road was the creation
of a whole new international monetary instrument, the SDR (Special Drawing
Rights). This is about an inventive construction whereby 'something' is
created out of 'nothing.' The International Monetary Fund would -- through
precise administrative procedures -- create rights on the fund, with which
central banks can settle their payments among each other. Those rights would
-- according to certain measurements -- be credited to the members of the
fund. The idea behind this was that it was expected that in due time there
would be too little gold (I am inclined to say: what do you expect with such
an artificially maintained, much too low gold price) to serve as
'international means of settlement.'" (p. 222.)
This speaks for
itself, but just in case you missed the elephant in the room of international
finance, Zijlstra writes, even if it is in a mere aside, "Gold is
artificially kept at a far too low price."
He continues that
the introduction of SDRs in 1967 was warmly welcomed, becoming soon "a
fantasy for intellectuals" to have the SDR perform the function of the
sun in the "monetary cosmos." But despite this warm welcome, the
SDR went the way of the dodo bird.
Zijlstra
elaborates about the SDR that in the late 1980s and early 1990s, "we do
not hear much of it. At first, it appeared as if the foremost Americans were
enthusiastic proponents of this new international monetary instrument, but
this proved to be pretence. They welcomed the SDR to move gold even further
away. As soon as gold was removed as a central point in the international
monetary framework, their love for the SDR disappeared. The SDR has become a
piece for a museum." (p. 223.)
And: "But in
case there is no complete international means of settlement, no gold, no SDR,
wherein should central banks settle? The logical end-piece of this
development was giving up on fixed parities" to gold. "The
currencies are currently exchanged on international markets. The resulting
prices bring supply and demand in balance and there is no way of settling. No
more cosmos, no sun with planets: All currencies are formally equal. One can
buy and sell them on international currency markets." (p. 223.)
"It may be so
that in the formal sense of currencies one can say that all are equal, but
that in reality it proves that some are more equal than others. The dollar is
back as the material core of the international financial and monetary
arrangements. That the countries of the EEG [currently the EU] have begun
constructing their own monetary cosmos, I have mentioned already." (p.
223.)
What most pundits
are missing about Europe and the euro is what Zijlstra refers to: The euro
has been established as a solution and is orbiting gold. Now if you took
notice of the consolidated European Central Bank's system-wide balance sheet
--
http://www.ecb.int/press/pr/wfs/2012/html/...s120424.en.html
-- you can figure
the shadow value of one euro in terms of grams of fine gold much as Zijlstra
explains in his books.
According to my
calculation, with the ECB's gold holdings at 502.5 tons of gold, divided by
the number of euros in circulation (note how all other balance sheet items
are "denominated"), one will find that 1 troy ounce is worth the
equivalent of around E55,000.
And that's what
you really want to make use of -- that is, after everything else has failed.
If there emerges an absolute need to fix the financial crisis, you can be
sure of one thing: We'll have a pricing mechanism for physical gold at least.
In tragedy lies
humor
Even humor finds
its way into Zijlstra's second book, and something that is quite revealing as
well. It also illustrates his adversarial relationship with Volcker, if one
of a professional nature.
When Zijlstra
stepped down from the BIS presidency in 1981, Volcker, then chairman of the
Fed, gave Zijlstra an "$DR Note of 10 billion" depicted here:
http://www.gata.org/files/Jelle_Zijlstra_SDR_note.jpg
The note is dated
December 1981, carries a photo of Zijlstra's face, is signed by Volcker, and
bears the legend: "The Fund May Prescribe ... As Holders ...
Institutions [and Persons] that ... Perform Functions of a Central Bank for
More than One Member."
Zijlstra writes:
"This gift has become a lasting memory of the feelings on both sides: It
will never be something, respectively, it may never be something with the
SDR."(p. 234.)
Knowing his
religious and, more generally, his Dutch background, I think this was
Zijlstra's way of saying he appreciated Volcker's reflection and irony.
The other side of
the mock SDR note says: "To Meet the Need, As and When It Arises, for a
Supplement to Existing Reserve Assets." In between it says: "1 SDR
= 0.8886671 gram of fine gold(?)":
http://www.gata.org/files/Jelle_Zijlstra_SDR_note2.jpg
We'll have to
check some numbers, but perhaps we should make a contest for gold bugs to determine
what's behind this calculation. For the question mark says a lot: Behind the
scenes, central bankers were still discussing their currency values in terms
of gold, at least into 1981 when Zijlstra stepped down as president of the
BIS.
By the way, on the
left side of the mock SDR note, it says in small print: "This note is
freely convertible into useable currencies at widely fluctuating rates."
Zijlstra must have thought: "Funny money indeed!"
Conclusion
All this information
Zijlstra shared in his books is quite something. During his terms in office
central banks were converting their dollars into something other than real
gold in possession and probably did so all along from the start of the
Bretton Woods agreement in 1944. An asset "on an equal footing of
gold" makes you think: You either have possession or not. Apparently
central banks converted their dollars into something "funny."
A real giveaway is
that Zijlstra wrote this in the 1990s: "The gold price is artificially
kept far too low." And most important, he has provided all the necessary
information to reach the conclusion that central bankers are always
evaluating their currency in terms of gold.
Why? Because,
before and after all has failed, gold is the sun in our "monetary
cosmos."
As a central banker Zijlstra was a statesman in heart and
mind. His legacy and his insights are a tribute to honesty. He explained that
we must not think of the dollar or any other currency as the sun of the
"monetary cosmos" -- not anything but gold. Not the SDR either,
just gold.
This, in my
opinion, is the essential point Zijlstra is conveying.
He will not speak
further. He died in 2001. May he rest in peace. He provided us with an
enduring lesson. Two things were needed back then but are ever more
desperately needed now.
The official gold
price in all currencies had to be raised ("their gold content had to be
reduced") and the official dollar price of gold had to be raised extra,
"to allow the dollar to devalue against all other currencies," to
quote Dr. Zijlstra a final time.
Now you know why
you should own some physical gold. It is like the sun, which, in the end, we
are all circling, whether we do so consciously, with acknowledgment, or in
denial.
----
Jaco Schipper
is a Dutch economist who wrote this study for MarketUpdat.nl and GATA. His
sources included: Jelle Zijlstra (1979), "Dr. Jelle Zijlstra --
Gesprekken en Geschriften samengesteld door Dr. G. Puchinger met bijdragen
van Dr. W. Drees Sr.," Strengholt's Boeken (Naarden), second edition;
ISBN: 90-6010-430-7, and Jelle Zijlstra (1982), "Per slot van
rekening," Uitgeverij Contact (Amsterdam), fifth Edition; ISBN:
90-254-0181-3.
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