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A
Wall Street Journal columnist named Thomas Frank just made a great
suggestion:
One
Cross of Gold, Coming Up
How
the government could get even with right-wing cranks.
These
are polarized times, but one thing everyone agrees on is that it sure is
great when government makes a profit.
Supporters
of President Obama like to point to recent TARP-loan payoffs, plus interest,
as an example of federal success. His opponents, by and large, have long held
that government should be run like a business; their former leader, George W.
Bush, once announced that “government should be market-based.”
It is
a terrible idea. Were the government actually to begin understanding itself
as a market-based, profit-maximizing enterprise, determined to bring down the
deficit by whatever means present themselves, can there be any doubt what it
would do?
It
would sell gold. Oh, it would sell lots of gold. It would put Fort Knox on
eBay. Mr. Obama could film the TV commercials.
The
first reason for this is obvious: The price of gold is over $1,100 per ounce,
near its all-time high in nominal dollars. At that price, the
Treasury’s 261 million of ounces of gold would be worth nearly $300
billion. Meanwhile, the government’s enormous hoard of the stuff is
valued by the Treasury—according to a Web page entitled, “Fun
Facts About the United States Mint”—at only $42.22 per ounce. If
they’re saving it for a rainy day, that day has arrived.
I
know what you’re thinking: Stupid liberal, if the Treasury started
unloading its gold—if it gave even the merest hint of doing so—it
would send the price of that commodity plummeting.
Which
brings us to reason two. The other day, as I watched the zillionth commercial
for gold investments flicker by on Fox News, I thought to myself: What would
happen to the American right if the price of gold suddenly tanked?
As
anyone knows who has Googled the phrase, “FDR Gold Confiscation,”
gold has long been the obsessive investment choice of a certain species of
antigovernment crank. Its allure is especially strong for the disaster
cohort—for those who believe that hyperinflation is just around the
corner; that default by the U.S. government is a real possibility; and that
democracy itself is something of a fraud, a populist Ponzi scheme pulled off
by slimy politicians and the central bankers they’ve hired to run the
printing presses.
One
reason gold has been bid to its current stratospheric heights is because more
and more investors and fund managers have signed on to this dark belief that
America’s judgment day has finally come.
Were
the administration to get started on the great gold dump, however, we’d
come to a different judgment day very quickly. When the massively inflated
price of that metal collapsed, it would probably take with it a hefty chunk
of the portfolios of tea-party types, survivalists, Birchers, dittoheads,
Objectivists and almost every imaginable species of secular end-timer.
Achieving
such an effect might not even require selling the gold, either: The
government could conceivably collapse the price merely by implying that it
intended to sell the stuff.
Of
course, it is an article of my corny liberal faith that government should
never craft policy merely in order to damage its partisan opponents. But if
you believe that government should be run like a business, then this, too,
becomes thinkable. It was the supremely market-minded men of Republican
Washington, after all, who made “Defund the Left” into one of their
movement’s guiding principles. It was they who dreamed up the “K
Street Project” and the other schemes that were designed to reward GOP
loyalists and redirect the revenue streams of the Democratic Party.
If
it’s all about profit, why not take a page from that playbook? Besides,
the right already believes Mr. Obama to be an unholy amalgam of Machiavelli,
Pol Pot, and Bathhouse John Coughlin, guilty of the worst deviltry Chicago
has to offer. Why not serve a little up?
Just
for fun, the administration could then smooth the whole thing over with some
tactical libertarian cant. It might declare that the price of gold had been
propped up artificially for decades by the state’s irrational hoarding.
Privatization is a far better option, administration officials might purr. It
lets the market speak.
And
so, in an irony worthy of Oscar Wilde, it would be the gold-investing
contingent of the right who would discover that they had risked their
fortunes on the whim of the very government they distrust and despise.
But
it is the opposite irony that probably ensures that a great gold-dump will
not take place. In addition to denting the holdings of countless extremists,
such a move would also deal a massive blow to the hedge funds that have
reportedly made enormous bets on the barbaric metal. Their losses would then
reverberate through the financial system, inevitably shaking the institutions
deemed “too big to fail.” And before long, government would have
to ride to the rescue of those who have wagered so much on the government’s
collapse.
Some thoughts:
-
Mr. Frank doesn’t really get the whole money thing.
-
The gold’s not there. Research by GATA and others
indicates that much of what is purportedly in Fort Knox has been lent to
bullion banks and sold on the open market. So in a sense Treasury has already
taken Mr. Frank’s advice, but secretly.
-
By depressing the price of gold, the world’s central banks
actually did the gold bugs a huge favor by allowing a whole generation of
intelligent investors to load up at bargain prices.
-
If — and this is the big flaw in Frank’s argument
— the U.S. dumped its gold on the open market it would be seen,
correctly, as the final unmooring of the dollar from even the pretence of
being backed by anything other than our faith in the competence and honesty
of Ben Bernanke, Nancy Pelosi, Chris Dodd, Barney Frank, et al. Gold would
fall for a couple of months as the technical traders were once again
suckered, and then it would soar as the implications became clear.
-
So by all means let’s open up Fort Knox, list what’s
there on eBay and let the market do its thing.
John Rubino
DollarCollapse.com
John
Rubino is co-author, with GoldMoney’s James Turk, of The Collapse of the
Dollar and How to Profit From It (Doubleday, 2007), and author of Clean
Money: Picking Winners in the Green-Tech Boom (Wiley, 2008), How to Profit
from the Coming Real Estate Bust (Rodale, 2003) and Main Street, Not Wall
Street (Morrow, 1998). After earning a Finance MBA from New York University,
he spent the 1980s on Wall Street, as a Eurodollar trader, equity analyst and
junk bond analyst. During the 1990s he was a featured columnist with
TheStreet.com and a frequent contributor to Individual Investor, Online
Investor, and Consumers Digest, among many other publications. He now writes
for CFA Magazine and edits DollarCollapse.com and
GreenStockInvesting.com.
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