The irony in this
piece is just too good.
This is almost a template for the anti-gold 'hit pieces'
that have appeared almost every year since 1999, put out by the
I wonder what people will be saying
ten years and five or six
more iterations of QE from
Who Needs Gold When We Have Greenspan?
By Floyd Norris
May 04, 1999
Is gold on its way to becoming just another commodity? The people who run the world's
financial system are doing
their best to secure that fate for the metal that once was viewed as the only ''real''
"I want to say one word to you. Just one word. Derivatives."
of removing the glitter from gold has been a gradual but inexorable one, and is
one of the most telling counters to the argument that
national governments are less
important in this era of globalization. Much of the world is
now quite happy to accept the idea that a greenback backed by Alan Greenspan is just as good as one backed by
gold. (And if they are not happy, send in the
drones. The bombings will
continue until they are giddy with joy.
Certainly gold's reputation as a store of value has eroded.
At the peak of the gold frenzy in 1980, an ounce of gold cost $873, precisely that day's level of the Dow Jones industrial average. Now the Dow is at 11,014.69, about 38 times higher
than the $287.60 price of
gold. (and today the Dow is 12, 830 and
gold is $1,730. - Jesse)
Actually, that measurement understates the amount by which stocks have outperformed gold. If you had owned stocks all those years, you would have received substantial dividends. If you owned a lot of gold, you got no dividends but did have to pay storage fees for the stuff. (And
if you do business with
Wall Street you may be paying storage
fees on gold that is not even there.
That is, in fact, how the
central bankers of the world look at gold these days. Michel Camdessus, the managing
director of the International Monetary
Fund, said last week he expected
the fund to sell gold for
the first time in two decades.
(And how many
more times have they said
this in the past twelve years? Jesse)
The Clinton Administration is pushing
for such sales by the I.M.F. to help finance a laudable program to forgive debts owed by very poor countries.
The money received from
the gold sales is to be invested in Government securities that will provide income, and that income will pay
off the loans. The implicit
assumption is that gold, which does not pay interest, is a lousy investment.
A couple of weeks ago,
the Swiss electorate voted to begin untying the Swiss franc from its gold backing. The Swiss central bank could begin
selling gold as early as next year. Once again, the argument was that selling gold was a way to find easy money for good deeds. To those who still view
gold as the only real money, having
the Swiss defect is a bit like discovering that Rome is embracing Protestantism. It is the last
place that should happen.
But it is happening, and it seems likely
that more central banks
-- like the Australian
and Dutch banks -- will join those
that have already begun selling gold.
We have taken
the risk out of trading
The argument against
retaining gold is that its day
is past. Once it was useful
as a hedge against
inflation that would hold its value when paper currencies
did not. Now financial markets have their own sophisticated
ways, using exotic derivative securities,
to hedge against
CDS good. Nice trade...if the government
is backstopping your enormous losses. - Jesse)
Once gold served as protection for investors against governments that debased their currencies. Now there is plenty
of debasing going on --
the Brazilian real is
down 27 percent this year
-- but the lesson people have drawn is to believe
in the dollar. There is growing
support for the idea that
all of Latin America should
adopt the dollar as a currency.
Dollarization, as that
idea is called, amounts to a sort of a gold standard without gold.
There would be a universal money whose value was based not on gold in the vaults, but on the wisdom of
Mr. Greenspan and his successors
at the Federal Reserve.
(In cyberspace, no one can hear you
screaming - Jesse) Few fear that one of those successors might resemble G. William
Miller, the Fed chairman in the late 1970's who seemed to have no idea how to slow inflation.
If the demonetization of gold continues, the price is likely
to keep falling as
central-bank sales more than
offset any increase in demand from jewelers
or industrial users. That
could change if it turns out that central bankers are not the geniuses they are now deemed to be. But for now, the world believes in Mr.
Greenspan and sees little
need for gold. (And now you
can sleep well and believe in Timmy and Ben. Got gold, bitchez? - Jesse)
Money For Nothing
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