2 replies to this topic
Posted 21 November 2008 - 10:34 AM
Because the Fed holds gold on it''s balance sheet. It is the only primary money that the Fed has at this time. The par value of a $ is .023685 oz of gold or gold is priced on the Fed balance sheet at $42.22/oz. This is where it was last set in 1971 when the $ was floated by the Nixon administration.
It is very interesting that the Fed carries this gold on it''s balance sheet at such a seemingly low price. However, there is a reason for it. That is due to the fact that this is the real value of a lawful dollar, not a Fed Credit instrument. All of your bank accounts and Federal Reserve Notes are nothing more than private banking credit expressed to have a value in $.
The credit value of a $ is far less than the real value of a $ as can be seen in the market value of gold. Currently gold is at $775/oz which is 18.5 times the lawful dollar value of an ounce of gold.
OK, so why gold? Well, gold is due for an official repricing if I am not mistaken. The Fed has increased it''s balance sheet by a factor of 2.5 in the last year. Most dramatically in the last three months. Why do banks increase their balance sheets? They need to lend more.
The $ that is used around the world is simply Fed credit. It is collateralised by the balance sheet of the Fed. Member banks of the Federal Reserver are allowed to extend credit in $ based on their balance sheets. With the banking system collapsing due to balance sheet collapse, the Fed has been forced to increase the size of it''s balance sheet as the balance sheets of it''s member banks was being vaporized.
This massive expansion of the Fed balance sheet has impacted the ratio of it''s credit collateral to it''s real collateral, i.e. gold. I suggest that at some point in the not too distant future, the Fed is going to be told to put a new value on that gold it holds. That will come from an act of Congress and when that happens, I suspect the value may be along the lines of $100, or maybe quite a bit more.
In any case, the credit price of gold will most likely maintain it''s 18.5 to 1 ratio with the par value of a dollar. In which case you can expect to see gold rocket substantially higher. The converse may occur as well. That being, the credit price of gold rises to the point that a revaluation of the gold on the Fed balance sheet is required.
Anyway, I would suggest that if you want to protect the purchasing power of the wealth you think you have amassed but which is entirely stored in Fed credit, you better protect yourself with gold.
Posted 21 November 2008 - 11:02 AM
Then why does every country of "Worth" continue to horde it and keep it safe?
Why a Fort Knox?
If the governments of the world are too afraid to let it out of their vaults and allow it to circulate it must be important to them.
One of the times the US came off the gold standard, (I believe it was the final Nixon move) France was asking for payment of debt to be paid in gold rather than fiat, and we couldn''t allow that, so we change the rules. That previous example may have been closer to the Breton Woods shift. I can''t remember.
Posted 21 November 2008 - 11:51 AM
I hate to say it but after FDR, the Fed owns their gold and yours too. The takings clause of the Constution went up with the Schecter Poultry company vs the US and to some extent, Erie vs Tomkins. It is the money. Some people err in calling it a currency. The US currency used to have the words (this note is redeemable in the lawful money of the United States at .......) This phrase was replaced with the phrase (this note is legal tender for all debts, public and private)
The currency never has been the money, but what it would redeem for being the money. Old currency was exchangable in gold. I would imagine that a person could insist on gold. The new money was to pay debts, as the biggest problem in a depression is to pay debts or should I say discharge debt.
There is only one reason to be a gold bear right now, the crunch of debt on the economy. All this nonsense about helicopters and whatever doesn''t do anything to make nonperforming loans performing and to turn the negative capital balance on the banks and other balance sheets into positive numbers. This is true whether we were talking about a gold system or a pure credit system. Credit opens one door for solution and closes another,which is where gold comes in. I think credit can deflate to infinity in a legal tender system. It could also do away with banks and lending entirely,which would destroy the value of legal tender, to pay debts. There are a lot of paradoxes to be examined. It we took the system right now and figured out how much gold there was and converted the balances to gold, it would be insolvent in a day because the problem is the ratio of debt to GDP and absolutely nothing to do with gold. You can look and see that legal tender can loan at next to zero.
Where gold comes in is at some point, if they allow for bankruptcy and for balances to be wiped out, at some point people start exchanging their gold in commerce. The problem is the same as now and the couldn''t be a deposit guarantee of any kind because there isn''t enough gold to guarantee what isn''t there. So, we go back to an informed, when to grab it out of the bank system where the ones that panic win and the ones of reason get skinned.
The big problem is that in a modern society, there needs to be an acceptance of recessions and depressions and bank insolvencies or the government needs to do all banking that deals with being able to redeem currency or what would be called money and the commercial banking system eliminated. It wouldn''t matter what they called money as long as they had a stable unit of account. Whether we are taking about legal tender or gold, inflation of the system with banking is a given, as banks lend their credit, not the gold.
the best reason to have gold is not that it is the cats meow, but the current system is probably going to have to go to pure cash without interest and then we are in uncharted territory. I believe this system will liquidate all debt, which means that it will liquidate all capital supporting the liabilities of the banking system. What would be left? The outstanding currency of the US could be collateralized at $1000 an ounce with 800 million ounces of gold roughly. That would be 24,000 metric tonnes, about 10 years production. The currency float would be the end result of a total banking liquidation. A tight credit system would eliminate about 75% of jewelry purchases around the world and it would not be that hard have a reasonable expansion of money. There will have to be a new system come out of this that compensates both the gold holders and those that hold currency equivalents because what we see is consuming itself. My guess is those that hold the gold are going to end up with half the money.
0 user(s) are reading this topic
0 members, 0 guests, 0 anonymous users