-- Posted Monday, 10 October 2011 | | Disqus
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
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 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.
"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:
"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."
"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:
And Dana Allen's related essay, "How the Soviet Empire's Fall was Engineered":
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.
* * *
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:
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 firstname.lastname@example.org.
* * *
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-- Posted Monday, 10 October 2011 | Digg This Article | Source: GoldSeek.com