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Dear Friend of GATA and Gold:
Today's Financial Times carries an essay by former Federal Reserve
economist and former assistant U.S. Treasury Secretary Edwin M. Truman
headlined "America Should Open Its Vaults and Sell Gold." For years
Truman has been turning up at the center of the gold price suppression
scheme, but GATA and its supporters might agree with him in principle on this
one, insofar as getting central banks out of the gold business is the first
step toward a free market in gold.
Of course these days free markets are the
last thing that Western central banks want, central banking's
main objective lately being to prevent any markets from occurring anywhere.
So Truman's objective here may be quite different from what it seems.
That is, Truman may be floating an idea for the cover story needed to
conceal the disappearance of the U.S. gold reserve.
In its struggle to prevent GATA from obtaining access to its records
about the U.S. gold reserve, last year the Federal Reserve, perhaps
inadvertently, acknowledged that it has gold swap arrangements with foreign
banks:
http://www.gata.org/node/9092
That acknowledgement adds to the evidence that much if not most or all
of the Western European central bank gold sales and leases of the last decade
were actually transactions fronting for the U.S. government and that U.S.
gold was swapped for the Western European central bank gold used in the
price-suppression scheme. If such swaps actually were undertaken, much of the
gold still held by the U.S. government likely belongs to other governments,
like Germany, whose Bundesbank admitted last year
that much of its gold is held at "trading centers" outside the
country:
http://www.gata.org/node/7713
With Republicans likely coming to power in the U.S. Congress in the
November election, the prospects for legislation proposed by U.S. Rep. Ron
Paul, R-Texas, to audit the Fed and the U.S. gold reserve will improve
dramatically. Eventually the U.S. government may require an explanation for
the depletion of the reserve. In his essay in the FT today Truman offers one:
Say it is being sold before the public learns that it was effectively sold a
long time ago.
If this speculation seems too far out, why, for starters, does the Fed
insist on keeping its gold swap records secret? Whose gold is it -- or was
it? The American public's, or someone else's?
Truman's biography can be found at Wikipedia here:
http://en.wikipedia.org/wiki/Edwin_M._Truman
His essay in the FT is appended.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
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America Should Open Its Vaults and Sell Gold
By Edwin Truman
Financial Times, London
Tuesday, October 12, 2010
http://www.ft.com/cms/s/0/2bbd4dbe-d5fe-11df-94dc-00144feabdc0.html
Gold is back in the news. Its price is soaring in what some analysts
say is a reflection of a weak economy and a lack of confidence in government
policies. Naturally, investors are looking at a new sure thing in the
expectation that prices will continue upward. My advice to the US government,
however, is that this may be the best time -- to sell. Doing so would help
President Barack Obama and Congress reduce indebtedness, at little cost.
It is an article of faith in bullion markets that the US will be the
last country to dispose of its gold stock. For 30 years it has had a
no-net-sales policy for reasons ranging from resistance by US gold-producing
interests to concerns about the international monetary system. That
assumption may remain plausible. Yet the administration has an obligation to
re-examine its policy.
The market price of gold has risen for more than a decade propelled by
low interest rates, the hype of the bullion dealers (holding large
inventories), and no doubt the normal amount of fraud and misinformation
accompanying asset price bubbles. The Financial Times has reported that the
precious metals industry expects the price to increase by a further 11 per
cent over the next year.
Meanwhile, the US Treasury holds 261.5 million fine troy ounces of
gold. The government has been sitting on it since the Great Depression,
receiving no return. At the current market price of $1,300 per ounce, the US
gold stock is worth $340 billion. The Treasury secretary, with the approval
of the president, has the power to sell (and buy) gold on terms that the
secretary considers most beneficial to the public interest. Revenues from
sales must be used to reduce the national debt.
If the US were to sell its entire gold stock at the current market
price, it would reduce the gross government debt by 2 1/4 per cent of gross
domestic product. (US net government debt would decline by essentially the
same amount because the US gold stock, listed as an asset on the balance
sheet, is valued at only $42.22 an ounce.) Based on the average interest cost
from 2005 to 2008, this reduction in debt would trim the budget deficit by
$15 billion annually. Thus, the Obama administration would be doing something
about the US fiscal debt and deficit without reducing near-term support for
the ailing economy.
This proposal has other benefits too. First, the US would be obeying
the maxim to buy low and sell high. Second, it would be performing a socially
useful function. Demand for gold exceeds normal production, driving up the
price. To the extent that the gold craze is being fed by concern (rational or
irrational) about government policies, public welfare would be enhanced by
giving citizens something tangible to hang around their necks or place in
safe deposit boxes. Third, if the price is a bubble, as seems likely, the
sooner it is burst, the better for the average investor.
Some people point to possible costs. Aside from political pressures
from those who want to protect the value of their holdings, above or below
ground, two principal arguments are made against US gold sales. The first is
that they would disrupt the market. But the US can be cautious in its sales,
avoiding disruption of the sales programmes of other countries, as it has in
the past. There is little risk. In recent years, sales under the Central Bank
Gold Agreement have dwindled, and some other central banks are buying gold.
(The US is not a party to the agreement.) Also the International Monetary
Fund has completed more than three-quarters of its own planned sales of 403.3
metric tons.
Another counterargument is that the US should hold on to its stock in
anticipation of a return -- by itself alone or with other nations -- to a
monetary system based on gold. But returning to the gold standard would
reinstate a system associated with unstable prices, wages, output, and
employment. It has not existed for a century; and will not make a comeback.
Official discussions of the reform of the international monetary system do
not include any advocates of a return to gold, and the IMF articles of
agreement prohibit it. The sooner thoughts of such a return are laid to rest,
the better.
A related argument is to keep the US gold stock as a "rainy
day" precaution. But after the recent economic and financial crisis and
with the prospect of misery for several more years, how much more rain must
pour before the US acts?
-----
The writer is a senior fellow at the Peterson Institute for
International Economics in Washington.
Chris
Powell
Secretary / Treasurer
Gold Anti-Trust Action Committee
www.GATA.org
* * *
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The Silver Summit
Thursday-Friday, October 21-22, 2010
Davenport Hotel, Spokane, Washington
http://www.silversummit.com/
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Wednesday-Saturday, October 27-30, 2010
Hilton New Orleans Riverside Hotel
http://www.neworleansconference.com/redirect.php?page=index.html&source_...
* * *
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