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By Lars Schall
Monday, October 10, 2011
The last duty of a central banker is to tell the
public the truth.
-- Alan Blinder, vice chairman of the U.S. Federal
Reserve, on the PBS "Nightly Business Report," 1994.
In recent months I have written to the Deutsche Bundesbank, the Federal Reserve Bank of New York, and the
Board of Governors of the Federal Reserve System in Washington to ask
questions about the gold reserves of Germany.
A critical problem with Germany's gold reserves, the
second largest gold holdings in the world, is noted by Peter Boehringer of the German Precious Metals Society:
"The bulk of Germany´s national gold is not in Germany and has not
been since the 1960s, when Germany earned most of the gold through its trade
surpluses, but is kept in New York and London and a little bit in Paris too.
Even the Bundesbank itself has confirmed this part
of the story several times -- and defended that storage policy with 'reasons
of trading convenience and historical storage custom.'"
In fact, when asked about it, the Bundesbank has stated that it "needs to hold gold at
the various trading centers in order to conduct its gold activities."
(See http://www.gata.org/node/7713.)
After the Bundesbank
brushed off some specific questions of mine (see
http://www.gata.org/node/9363) and refused to communicate with me any further when I replied that
its way of answering was largely a recycling of old phrases that had very
little to do with my questions, I also endured silence from the Fed (see
http://www.larsschall.com/2011/05/02/the-sound-of-silence-from-the-fed/). Thus I did the last two things that were left for me to do in this
matter: I wrote to the Bank of England and to the U.S. Treasury.
Let's see if my questions were legitimate.
But first let me tell you why Germany should have
its gold at its own disposal on German soil. The reason is two-fold and
involves a time frame of the present to 2025:
-- The future of Germany lies in eastern Eurasia.
(Whether we like it or not is irrelevant.) Take a look at the energy
situation from a German perspective and you'll see. Among the G20 nations,
export powerhouse Germany should be one of the biggest energy-deficit
nations, enormously dependent on ever-increasing imports of Russian energy.
But Russia as an energy exporter will focus more on the Pacific region in the
years to come (especially via the East Siberia-Pacific Ocean pipeline and the
ultramodern Kozmino oil terminal). By doing so,
Russia can demonstrate both its growing independence from Europe and its
growing ability to use its oil and natural gas muscle in a way that soon
won't be a bluff anymore. My friend Max Keiser described the context well:
"To fight the currency war the Germans will have to buy physical gold in
the open market or strike deals with countries like China, Russia, and Iran."
Keep in mind here not only that the region of the
members of the Shanghai Cooperation Organization (SCO) and the Association of
Southeast Asian Nations (ASEAN) "account for a significant share of
global gold production," as Vienna-based commodities analyst Ronald Stoeferle points out, (see Footnote 1) but also that the
central banks of Russia and China are big buyers of gold, while Western
central banks are not, even though the latter are selling less gold these
days. And the members of SCO and ASEAN won't pay forever for what Peter Dale
Scott calls the "American war machine." (See
Footnote 2.)
-- I believe that the time will come when oil-producing countries and other
natural resource exporters will no longer sell their commodities for paper
money but only for precious metals. The age of cheap and abundant oil and
natural ressources is over and with it the age of
"expensive real values for cheap paper promises." As geopolitical
analyst James G. Rickards says:
"This is all part of an evolution away from the
U.S. dollar. It has a number of ways to go. I do think that what may happen
is that gold will be used as a pricing mechanism. In other words, Middle
Eastern and Russian natural resource exporters may begin to price their goods
in units of gold while still accepting dollars, but the problem, of course,
is that the amount of dollars won't be fixed. A simple example: Right now oil
is around $100 a barrel and gold is around $1,500 an ounce, so it takes 15
barrels of oil to purchase one ounce of gold.
"If you look at the oil-to-gold ratio it has
been very constant for a very long time. Of course the price of oil has moved
between $30 per barrel and $150 per barrel, and the price of gold has moved
between $200 an ounce and $1,500 an ounce, but if you look at the ratio, it
always hovers around that 15-1 or 16-1 ratio, and that tells you something
about the real intrinsic value of commodities.
"But you could have a situation where somebody
in Saudi Arabia says: 'From now on a barrel of oil will be 1/15 of an ounce
of gold. Now if you want to pay me in dollars, that's fine, but you have to
do the dollar-gold conversion (to figure out how many dollars you owe me in a
world of an increasing gold price), so you have to pay more dollars for a
barrel of oil.' So even if the Saudis accept dollars, you can still have a
world where oil is priced in gold but gold is convertible to dollars and you
can pay with dollars but you have to pay a lot more.
"I think that is one of a number of solutions
on the table. Another one is of course the Special Drawing Right of the
International Monetary Fund. The IMF is trying to promote the use of SDR as a
basket of currencies. But none of this is feasible yet. It will require some
years to study. It will require a conversion process and some
pre-announcement for the market. But the bottom line on the whole thing is:
The exporters of natural resources and manufactured goods in the Middle East,
Russia, China, and Brazil all have indicated deep dissatisfaction with the
current international monetary system and the role of the U.S. dollar in
particular, so I think you will see some shifting away from that in the years
ahead."
Or from GoldMoney founder
James Turk about the use of dollar and gold in internationa
commerce:
"That is a really good question, and it doesn't
involve economics; it involves politics. Given the American influence in that
part of the world from a military support point of view, something dramatic
has to happen with the dollar before these countries abandon the dollar and
go to gold. They should go to gold, because the link between gold and
oil is quite clear: An ounce of gold buys the same amount of oil it did 50
years ago. But the political issues are clouding the economic and monetary
issues. If the dollar collapses, you are going to see not just the countries
in the Middle East but people around the world moving to gold and out of the
dollar."
Of course, this switch won't come easily. Why? Because
the elites all over the U.S.A. (and the 'fat cats' from Wall Street) have to
be in the know -– when the petrodollar system (or, as David Spiro
called it, the hidden hand of American hegomony"
(see Footnote 3) will come to an end, they (and, unfortunately, the country
that makes them rich and powerful) would finally burn at the stake of
history. (Large quantaties of surplus dollars that
have been circulating for decades outside the United States would find their
way back inside the U.S., resulting in disastrous inflation. Do you think
this is really an option for the elites?)
I would assume that the following is a much more
appealing option, laid out by Rickards in an
interview with King World News. (See
http://www.kingworldnews.com/kingworldnews/Br.../2010/10/16_....)
Rickards
said: "I think the paper dollar is on its way to collapse but that
doesn't mean the end of the United States or U.S. power. What's really
interesting to me is that the United States is an awesome gold power. We
never talk about it because nobody ever wants to talk about gold -- no one in
an official capacity. But if you think of the world in terms of oil reserves,
and people have done that a lot over the last 30 years, you know about the
role of OPEC and so forth. You divide the world into those that produce oil
and those who consume oil. An awful lot of concern has gone into the oil
industry and the movement of oil around the world. Well, think of gold the
same way. Few people have ever done this.
"But when you start to think of the world in
gold space instead of oil space, you quickly realize that the United States
is the Saudi Arabia of gold. We have more than 8,000 tons -- more than any
other country. The euro system has 10,000 tons. But that's a consortium of 16
members, 16 central banks, so it's Spain and Italy and Germany and the
Netherlands and a number of other countries. It's not all on the books of the
European Central Bank. In fact, relatively little is on the books of the ECB.
Most of it is in the national treasuries of those countries. But,
collectively, if they wanted to act as a unit, under the one currency banner,
the euro, they;ve got
10,000 tons, so they're a gold power too.
"Russia is desperately short of gold. China is
short of gold. India and Brazil are kind of pathetic. Japan and the UK are
kind of pathetic. None of these countries has anywhere near the gold they
need to support their money supply. So for the United States, just as we're a
military superpower, we're also a gold superpower. We're also one of the 10
largest gold-producing countries in the world, producing approximately 200
tons a year out of a total global output of a little over 2,000 tons. So
we're producing almost 10 percent of the world's gold output. We're a major
producer and we're a major hoarder of gold.
"In addition there are more than 6,000 tons of
foreign official gold stored in the United States that we could always
convert if we wanted to. If that gold is at the Federal Reserve Bank of New
York, the United States could just secure it. We could send in a military
convoy and move it to West Point or some secure U.S .location and then just
give the Europeans a receipt. So we could actually increase our gold supply
to more than 14,000 tonnes very quickly.
"In a way, then, the Fed could afford to trash
the paper dollar, or at least experiment and risk trashing the paper dollar,
because if the paper dollar collapses, we could just go back to gold pretty
easily. But the rest of the world can't, especially if we take their
gold."
I don't want to see the approximately 66 percent of
Germany's gold reserves held at the New York Fed to be dumped into the mouth
of the "beast of corporatism" that the United States has become.
Thus, it is doubly important -- having at heart the
best interests of the German people and fellow Europeans -- to have Germany's
gold in physical form in Germany itself, and not just a receipt.
Take this exchange between Rickards
and me:
"Mr. Rickards, a huge
chunk of the foreign gold reserves located at the New York Fed belongs to
Germany. What are your thoughts related to the German gold reserve in custody
at the New York Fed? Let's assume you were the head of the Deutsche Bundesbank with the best interests of the German people
in mind, and assuming that we're heading to a system of currencies backed by
gold. What would you do in that respect?"
Rickards:
"It depends on the German gold policy. If Germany wants to leave
monetary policy to the United States and is willing to accept whatever policy
plans the U.S. comes up with, Germany should probably leave the gold where it
is. That is a question of confidence. But if Germany wants to pursue its own
policies or perhaps have a more gold-backed euro or maybe even go back to a
deutschmark, then they should bring the gold to Germany and store it in
secure vaults under control of the Bundesbank. For
as long as it stays in the United States, the gold is vulnerable to
confiscation. So you really don’t have the control over your own
monetary policy as long as your gold is in other hands. During the Cold War,
given the Russian threat, I am sure it made sense to have the German gold in
New York. But today I would be concerned more with the Federal Reserve's
printing presses than with Russian tanks, and thus I would like to have the
gold in Frankfurt."
And take this exchange between the financial
journalist Nomi Prins and me:
"Officially, Germany has the second largest
gold reserve of the world. Roughly 66 per cent of the total gold is located
in the vaults of the New York Fed. Do you think that Germany should relocate
its gold reserve from New York to Frankfurt just to be on the safe side?
Nomi Prins: "I
wouldn't keep 66 per cent of my gold at the Fed." (Laughs.) "Yes.
If I was Germany, and taking note of what is going on in the global economy,
in the U.S. economy, and how the Fed is artificially propping things up, I
would want to pull out my gold assets. I would want tangible physical assets
in my possession. I don't see why the German central bank wouldn't want to do
that. It just doesn't make sense to me."
With the euro being treated by a clueless
intensive-care unit on a permanent life-support machine and the European
Central Bank itself being a bad bank, I would sum up this way. During one of
his more intelligent moments in public, former Fed Chairman Alan Greenspan
remarked a few years ago: "Gold still represents the ultimate form of payment
in the world. It is interesting that Germany in 1944 could buy materials
during the war only with gold, not with fia, money
paper. And gold is always accepted and is the ultimate means of payment and
is perceived to be an element of stability in the currency and in the
ultimate value of the currency and that historically has always been the
reason why governments hold gold." (See Footnote 4.)
And now my questions.
Here is my e-mail to the Bank of England:
"Request re sovereign German gold at Bank of England.
"To: press@bankofengland.co.uk
"CC: enquiries@bankofengland.co.uk
"Dear Ladies and Gentlemen,
"My name is Lars Schall
and I am a freelance journalist for finance from Germany. I have some simple
questions for you, especially related to the sovereign gold reserves of the
Deutsche Bundesbank that are placed in London. I
forward them to you because the Deutsche Bundesbank
itself wasn't very communicative in that regard to me. Chris Powell, the
secretary of the Gold Anti-Trust Action Committee (GATA), wrote about this
behavior as follows (http://www.gata.org/node/9363):
'The Bundesbank's refusal
to answer Schall's questions can only heighten
suspicion that use of German gold is central to the gold price suppression
policy undertaken largely surreptitiously by the Federal Reserve, U.S.
Treasury Department, and Bank of England.'
"So I thought you may want to take the chance
to debilitate this suspicion as far as the Bank of England is concerned. I
can imagine that the Bank of England could have an interest in reconnoitering
some 'misunderstandings.'
"With regard to the gold deposits in New York
City and London, the Deutsche Bundesbank told me
among other things:
"'Particularly with respect to the confidential
nature of information about where gold holdings are kept, we are unable to go
into any greater detail concerning exact locations and the quantities stored
at each of these. Likewise, owing to the strategic nature of the activity, we
are not at liberty to provide you with more detailed information about gold
transactions.'
"The Bundesbank also
stated in the past (see http://www.gata.org/node/7713)
that 'the Bundesbank needs to hold gold at the
various trading centers in order to conduct its gold activities.'
"Therefore, my questions for you are:
"-- Can you confirm that you are engaged with
the Deutsche Bundesbank in strategic activities in
the gold market, in particular when it comes to the sovereign gold of Germany
that is located in London?
"-- Given that London is a large gold trading
center, do you help the Deutsche Bundesbank with
conducting its confirmed gold activities? If not, why is the gold then
located at the gold trading center, London? In other words, if these are
strictly reserves, no trading, correct?
"-- Furthermore, do you have any swap
arrangements with the Deutsche Bundesbank related
to the German gold reserves that are located in the United Kingdom?
"-- If the answer to the latter is yes, for
what reason do you need a swap arrangement with the Deutsche Bundesbank related to its gold in the United Kingdom --
or any other foreign central bank or foreign gold reserves -- at all, if you
actually have one or would seek one?
"-- Do you keep any gold-related records away
from the public? In other words, if yes: What sort of gold-related records
are barred from disclosure? Is nearly everything gold-related secret as far
as the Bank of England is concerned?
"-- In the past the Bundesbank
stated with regard to the German gold reserves abroad 'that transportation to
Germany and safekeeping in the Bundesbank's own
vaults would entail high costs.' Can you explain why it costs less to keep
the gold safe in London at the Bank of England than in Frankfurt or Mainz?
"-- Moreover, according Dimitri
Speck's book, "Geheime Goldpolitik"
("Secret Gold Policy"), published by Finanzbuch
Verlag in Munich 2010, the German gold in custody
in London is approximately 21 percent (+/- 5 percent) of the official German
gold holdings of 3.401 tonnes. (See Page 86 of the
book.) Can you confirm that? You see, the difficulty I have is this:
According to Folker Hellmeyer,
chief analyst with Bremer Landesbank, large parts
of the German gold reserves were shifted from London to Frankfurt. Hellmeyer says this on the grounds of his experience at
the Helaba (Landesbank of
Hesse-Thuringia). Can you confirm his statement
that a good portion was relocated? If so, how much was relocated? In other
words, what is your official statement of how much sovereign German
gold is actually in British custody?
"-- My last question: If the Deutsche Bundesbank decided to shift large parts or the full
amount of the German gold reserves away from London, would you perceive this
as an expression of loss of confidence by the German side in the Bank of
England?
"Thank you very much for your attention!"
"Best regards, Lars Schall."
As a second e-mail I wrote the following to the Bank
of England after my friend Rob Kirby made me aware of something:
"Request re sovereign German gold at Bank of
England No. 2."
"Dear Ladies and Gentlemen,
"For your 'swap answer' in order to reconnoiter
some 'misunderstandings,' please take a look at this essay written by the
Canadian financial analyst Rob Kirby in 2006:
"http://www.safehaven.com/article/6115/a-swap-story-borrowed-from-the-bank-of-england"
"This got Kirby 'thinking about things like
former British Chancellor Gordon Brown and his well-publicized sale of 60
percent of the British gold reserves at less than $300 per ounce and the
make-up of Britain's remaining gold reserves."
"Do you have an answer, ladies and gentlemen?
"Moreover, 'in doing a bit of research about
the makeup of Britain's sovereign gold reserve, I ran across this tidbit
[footnote on the bottom of Pages 5 of 8 of the pdf
file] regarding different types of gold swaps that the Bank of England
presumably utilizes: 'Under a gold location swap, gold stored in a particular
physical location is swapped with a market counterparty for specified period
with gold stored in another physical location. Under a gold quality swap,
gold of a particular quality [fineness] is swapped with a
market counterparty for a specified period with gold of different
fineness. In each case a fee is built into the transaction.'
"Question: what is a 'gold quality swap'?
"Kirby said: 'Given the amount of research I've
done in this area, I would only offer that this would make a gold quality
swap a 'rare bird' indeed. But this got me to thinking WHO could possibly be
involved in such a transaction if one were to occur.'
"'And with inclusion in these footnotes, they do
occur. ...
"'Fundamentally, a gold quality swap would
allow the holder of 'less than fine' bullion to effectively sell or transact
it publicly and remain anonymous. All gold coin melt just happens to be
22-carat. Who would possibly care about such a thing? After all, central
banks have declared gold to be a barbarous relic and sell it all the time --
and usually have news conferences to pre-announce upcoming sales to boast
about them, don't they? So why would a sale of 'less than pure' gold need to
be kept a secret? The 'best fit' counterparty is: the U.S. Treasury or
Federal Reserve was the other side of these trades. In fact, they are the
most plausible counterparty for such a transaction -- arising from the great
confiscation of gold coin in the United States in 1933.“
"Mr. Kirby added:
"'Regarding gold quality swaps conducted by the
Bank of England, my thought then and now is that gold reserves yet to be
mined are likely involved here. After all, a deposit of 3.401-compliant
reserves is gold 'of a different fineness than .999 pure
LBMA good-delivery gold, isn't it?'
"What is your take?"
"Best regards, Lars Schall."
The press office of the Bank of England sent me an
answer that said at the beginning: "Not for quotation or
attribution." Thus I am obliged not to quote the answer. But I certainly
can say that the Bank of England refused to answer my questions.
And here is my e-mail to the U.S. Treasury:
"Request re Exchange Stabilization Fund."
"To: Press@treasury.gov
"CC: Kara.Alaimo@treasury.gov
"Dear Ladies and Gentlemen and dear Ms. Alaimo,
"My name is Lars Schall
and I am a freelance journalist for finance from Germany. I have three simple
questions for you related to a rather mysterious topic:
"Swap arrangements between the Exchange
Stabilization Fund and the Deutsche Bundesbank,
respectively the national German gold reserves that are placed in the United
States of America.
"Due to the fact that in the past:
"a) the Deutsche Bundesbank,
the Federal Reserve Bank of New York, and the Federal Reserve System's Board
of Governors in Washington treated my public requests in that regard not very
well; and:
"b) since the Exchange Stabilization Fund is
the entity that is involved with gold market operations on behalf of the U.S.
Treasury (and to a lesser extent on behalf of the Federal Reserve), I would
like to ask you now for some clarifications, please:
"1) Regarding the swap arrangement that was
acknowledged / mentioned during the Federal Open Market Committee meeting in
January 1995 (see FOMC19950201meeting.pdf / Page 125) between the ESF and the
Deutsche Bundesbank, is this strictly a swap
arrangement related to foreign currency / exchange?
"2) Do you have any swap arrangements with the
Deutsche Bundesbank related to the German gold
reserves that are located in the United States?
"3) For what reason do you need a swap
arrangement with the Deutsche Bundesbank related to
its gold in the U.S. -- or with any other foreign central bank / foreign gold
reserves -- if you actually have one or would seek to get one? (See the
minutes of the FOMC meeting in January 1995
FOMC19950201meeting.pdf / Page 69, the remarks by Mr. Mattingly.)
"Thank you for your attention!
"Best regards, Lars Schall."
I'm still waiting for a reply to this one.
By the way, after I heard nothing from the New York
Fed and Federal Reserve in Washington, I asked GATA Chairman Bill Murphy
about it.
Murphy replied: "I think their lack of response
and lack of denial -- I mean, that's pretty simple to deny, really simple --
that they haven't come back to you at all is indicative of the answer."
I should point out that central banks the world over
have always been afraid or reluctant to provide transparency about issues
concerning gold. Consider GATA board member Ed Steer's brilliant essay,
“When Irish Eyes Are Smiling,“ in which he outlines how Canada's
gold was "mobilized" to "assist" in taking down the
Soviet Union:
http://www.lemetropolecafe.com/Pfv1.cfm?pfvID=2612&SearchParam=Shamrock+...
And Dana Allen's related essay, "How the Soviet
Empire's Fall was Engineered":
http://www.lemetropolecafe.com/Authorlinkdocs/1672.htm,
If you have never heard that the foreign exchange
income of the Soviet Union was reduced by driving down the price of both oil
and gold during the Reagan administration, and how those prices had been
"managed," read those essays by Steer and Allen. They tell the truth.
* * *
FOOTNOTES:
1. The Shanghai Cooperation Council consists of
China, Russia, Kazakhstan, Kyrgyzstan, Tadzhikistan, and Uzbekistan, and
states holding observer status: Mongolia, India, Pakistan, and Iran. Partners
in dialogue are also Belarus, Afghanistan, Turkmenistan, and the Association
of Southeast Asian Nations, ASEAN.
2. Compare for the status quo Michael Hudson's
"America's Military Expansion Funded by Foreign Central Banks."
published at Global Research on April 12, 2011:
http://www.globalresearch.ca/index.php?context=va&aid=24267
For the term "American War Machine" compare Peter Dale Scott: "American War Machine. Deep
Politics, the CIA Global Drug Connection, and the Road to Afghanistan," Rowman & Littlefield, 2010.
3. Compare David E. Spiro: "The Hidden Hand of
American Hegemony: Petrodollar Recycling and International Markets,"
Cornell University Press, Ithaca, 1999.
4. Then-Federal Reserve Chairman Alan Greenspan, in
an exchange with U.S. Rep. Ron Paul, in "The Architecture of
International Finance," testimony by Greenspan and Treasury Secretary
Robert Rubin before the Committee on Banking and Financial Services, U.S.
House of Representatives, May 20, 1999.
For the historical fact that the Allied Powers were
not reluctant to make "business as usual" before and during World
War II with Nazi Germany, compare the history of the Bank for International
Settlements in Basel, Switzerland, in Charles Higham's
"Trading with the Enemy. The Nazi-American Money Plot 1933 –
1949," iUniverse Inc., Lincoln, 1983, 2007,
pp. 1–19, Chapter 1: "A Bank for All Reasons."
5. Related to the complex "oil price / collapse
of the USSR," compare, for example, James R. Norman: "The Oil Card.
Global Economic Warfare in the 21st Century," Trine Day, Walterville, 2008, and Peter Schweizer:
“Victory: The Reagan Administration's Secret Strategy that Hastened the
Collapse of the Soviet Union," The Atlantic Monthly Press, New York,
1994.
-----
Lars
Schall is a freelance journalist in Germany. He can
be reached at larsspeschall@yahoo.de.
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