For journalistic arrogance and disinformation it is always hard to top
The Economist, which never asks questions but rather simply presumes that, by
definition, it knows.
Such was the case again this week as the magazine's M.C.K. commented
obliviously on the Bundesbank's attempt to
repatriate a little of its gold vaulted abroad.
In a little essay headlined "Monetary Economics with a
Vengeance" --
http://www.economist.com/blogs/freeexchange/2013/01/central-bank-gold-re...
-- The Economist recalls the 1995 movie "Die Hard with a
Vengeance," which involves an attempt to loot and pretend to destroy the
gold held at the Federal Reserve Bank of New York.
"To understand why the threat to destroy the gold was
meaningless," The Economist writes, "it helps to understand what
the inert metal was doing before it was stolen (basically nothing). Yesterday's
statement from the Bundesbank tells you all you
need to know:
"'With this new storage plan, the Bundesbank
is focusing on the two primary functions of the gold reserves: to build trust
and confidence domestically, and the ability to exchange gold for foreign
currencies at gold trading centres abroad within a
short space of time.'
"Gold
reserves are a relatively convenient way to maintain access to foreign
currency in a pinch, but their value is mostly symbolic. For better or worse,
contemporary fiat currency systems do not require bullion in order to
function. What they do require is faith. 'Credit' and 'credible' come from
the same root word, after all. The Bundesbank's
decision suggests that some in Germany are worried about the public's
continued trust in the euro as a currency suitable for conducting
transactions and making investments. That would be a serious problem, to put
it mildly. Moving hundreds of tonnes of a shiny,
rust-resistant metal from a vault in Paris to a vault in Frankfurt could be a
worthwhile decision if it helps secure German acquiescence to Mario Draghi's monetary policies."
Yes, just trust the Bundesbank to calm the
great unwashed; nothing to see here; please move along.
Except, of course, Western central bank gold reserves have not
been doing "basically nothing" and their value is far more than
"mostly symbolic." Rather gold's value is the value of all capital,
labor, goods, and services in the world, because gold determines those
valuations.
Even when central bank gold reserves have been seemingly just sitting
around in their vaults they long have been surreptitiously leased, swapped, collaterized, hypothecated and rehypothecated,
and used for secret intervention in the currency markets, of which the gold
market is a big part, in order to rig those markets in support of currencies
and government bonds and to suppress interest rates.
In these arrangements central bank gold reserves likely have been, to
put it politely, overpledged as they have
backstopped the Western fractional-reserve gold banking business. Gold
ideologues like to say that "governments can't print gold," but in
fact they have printed probably thousands of tonnes
of it and much of the world has been ready to accept paper claims to gold
that doesn't actually exist.
Conversion of paper claims to metal that has been overpledged
is likely the story behind the Bundesbank's
tiptoeing away from the gold price suppression scheme.
But The Economist doesn't have to rely on GATA's account of this
scheme. The magazine could always attempt journalism and make its own
inquiries. The magazine could ask Western central banks for an accounting of
their gold swaps and leases and an inspection of their gold accounts at the
Bank for International Settlements, whose main function seems to be to
intervene in the gold market on behalf of its members and which even advertises
its gold market intervention services:
http://www.gata.org/node/11012
Or The Economist could query Western central banks about the
confidential 1999 memorandum prepared by the staff of the International
Monetary Fund reporting that Western central banks object to disclosing their
gold swaps and leases because doing so would impair their secret market
interventions:
http://www.gata.org/node/12016
Each central bank could be asked whether that memorandum applies to it
and whether in the interest of transparency it will make all its gold-related
records available to the public.
Of course The Economist will attempt none of that. It knows everything
without having to ask questions. That's why it's The Economist.
