Guest Analyst for March 2001: Mr.
Antal E. Fekete
Professor Emeritus, Memorial
University of Newfoundland, recipient of the 1996 Bank Lips
Prize, author of Whither Gold? E-mail: firstname.lastname@example.org
to Jonathan Fürbringer's article A Stirring in the Long Suffering
Gold Market, in The New York Times, Sunday March 11,
TALE OF THREE LIES
Sins of the West
monetary system of the West, which is indeed the monetary system
of the world that the West has foisted upon South and East as well,
was born out of sin: sin of lies, thefts, and fraud. The original
lie was that the government needed the people's gold in order to
make the people's money stronger. The people responded to the call
out of patriotism and faith in upright dealings, and turned in their
gold in exchange for paper money. But no sooner did they do it than
the government confiscated their gold held in trust and wrote up
its value. Rather than making it stronger, the government has made
the people's money "safe for devaluations and depreciation". The
new monetary regime was bolstered by Draconian measures: ownership
of gold was made a criminal offence. In a nutshell, it was lies,
highway robbery, and deliberate fraud, epitomized in the United
States by Franklin Delano Roosevelt's monetary legislative record;
in other countries the form might have been somewhat different but
the substance was certainly the same. It goes without saying that
these measures were unconstitutional as they involved retroactive
laws, confiscation of property without due process, and power-aggrandizement
by a constitutionally limited government. But the perpetrators knew
how to twist the legal system to prevent people from taking their
grievance to court, or from getting satisfaction if they could.
It was nothing short of an unscrupulous confidence game aiming at
disenfranchising the people.
this day the government has not been able to muster up sufficient
moral fortitude to propose an amendment to the Constitution that
would make its paper money, essentially a crib with an unwritten
legend ‘IOU nothing', to conform to its Covenant with the people.
Later on the people succeeded in forcing the government to decriminalize
ownership of gold. But this indulgence is still on a 24-hour basis
subject to revoke, and there is no question of allowing the monetary
unit with the unwritten legend ‘IOU nothing' to be displaced by
one with a written legend ‘IOU gold' — on which our ancestors laid
the foundations of Western civilization and the prosperity of the
world in the 18th century.
Best Money in the World
is not a single university in the world today that would tolerate
a professor publicly saying that gold still has a monetary role
to play. Rather, professors are regimented and forced to parrot
the propaganda line, such as Lie Number One, asserting that
gold is a barren asset as it is not capable of earning a return
to capital, quite unlike ‘productive' paper currencies that
earn interest when put out on loan. I must resist the temptation
to develop the theme why it is ill-advised to limit the freedom
of professors to say the truth as they see it in their professional
capacity, even if it may not be pleasing to the ears of the powers
that be. The task of a professor is to search for and to disseminate
truth — rather than trumpeting government propaganda.
statement that gold is an asset incapable of earning a return is
a shameless lie. Facts speak for themselves: gold has been and is
still being put out on loan for a consideration to all credit-worthy
borrowers. There has been no interruption in this human activity
throughout recorded history, not during the usury-witch-hunts, not
during the World Wars, not during the revolutions, not during the
gold embargoes, not during the gold prohibitions.
only has gold retained its monetary function of being lent and borrowed
at interest, but gold is still a challenge to all paper currencies
in a keen competition with one another for the title "The Best Money
of the World". In point of fact, gold wins hands down: on most days
the rate of interest on gold loans is well below the rate of interest
on loans of paper currencies of any stripe or color. Even the Japanese
yen which, thanks to the frugality of the Japanese people, has an
eye-popping low rate of interest, comes out second to gold when
loan contracts of similar duration are compared.
find themselves in a very uncomfortable, not to say dangerous, position.
It is bad enough that gold gives the lie to sycophantic professors
and other government apologists as they are pushing and peddling
the virtues of paper money even as it is losing value at an alarming,
if well-hidden, rate. (One of the best-kept secrets of history is
that Dollar Almighty lost over 90 percent of its purchasing power
during the 20th century, most of it in the fourth quarter after
its link to gold was unilaterally severed by executive order). Worse
still is the danger that people may start asking embarrassing questions:
"If gold is the best money in the world as demonstrated by the lowest
rate of interest on gold loans, then why can't we, citizens of this
proud country, have it? Wouldn't it help producers in industry and
agriculture, to say nothing of home-makers, if they could once more
raise capital at 2 or 3 percent interest per annum, as they once
did in the ‘bad old days' of the gold standard?"
deal with this contradiction between the teachings of officially
approved economic doctrine and facts as demonstrated by the market,
and to silence trouble-makers who dare ask silly questions about
the possible merits of gold money, public relation managers decided
to play a little semantic game. They launched Lie Number Two:
gold is not lent, it is leased! "You say gold loans command
the lowest possible rate of interest? Arrant nonsense! There is
no such thing in our enlightened century as gold generating an interest
income. Only paper money is capable to bring this miracle about.
Gold may be leased, and an applicable lease rate paid, but that
is a different matter altogether."
we have another shameless lie, one which a self-respecting public
servant such as Federal Reserve Chairman Alan Greenspan who does
know better, should not help propagate. It is a lie because, while
it is true that there is a difference between loan and lease, a
transfer of gold with no change in ownership unquestionably falls
into the former category. The same gold is hardly ever returned
to the lender, only its equivalent. Likewise, when money
is lent, an equivalent amount is returned at the end of the loan
period. By contrast, when a car is leased, exactly the same car,
and not merely an equivalent, must be returned at the end of the
lease period. For certain things quality control may be exceedingly
difficult. We even have a word in the English language to reflect
this fact: things that are not fungible cannot be loaned
and so they must be leased. A large part of the reason why gold
has been so successful in its bid to become the monetary metal par
excellence has to do with the fact that gold is the most
fungible substance on earth. Every ounce of it, 999 fine,
is a perfect substitute for any other ounce, 999 fine — regardless
of which continent has produced it in which millennium.
New York Times broke its silence on gold on March 11, 2001. In its
Sunday edition it published an article under the signature of one
Jonathan Fürbringer. Apart from its patronizing title A Stirring
in the Long Suffering Gold Market, the article tries to be objective
in explaining the technicalities of gold leasing. But then it goes
on to pontificate on the question why gold can be borrowed at such
a remarkably low rate as 1 percent per annum most of the time, and
puts forth Lie Number Three: "The lease rate [on gold]
is normally very low because the world's central banks have a lot
to lend (sic)."
the third time, this is a lie. Gold commands a rate of interest
lower than that payable on paper money loans because you know exactly
what will be returned to you. In case of a paper money loan you
don't. The only thing certain about a paper money loan is that it
will be retired in depreciated units. Paper shrinks. Paper spoils.
Paper is open to all sorts of destruction. You can protect it against
fire, water, and theft, but there is absolutely no protection against
the deterioration of good faith behind it. The only thing creditors
can do is to demand a ‘depreciation premium' to compensate for that
loss. That premium (along with others such as a risk premium in
case of a less than perfect credit rating) is added to the net rate
of interest, making the market rate that much higher. There
is no depreciation premium for gold loans. None whatever.
One ounce of gold will always be one ounce of gold. Gold does not
shrink. Gold does not spoil. Gold is indestructible. No faith or
credit is involved in accepting it: you can test it with scales
and acids if you don't trust the agency that has stamped it.
low lease rate on gold is not controlled by central bankers. They
are not the only ones lending gold. As a matter of fact, they are
a newcomer to this business — evidencing that theirs is a concerted
action with a hidden agenda.
Public Enemy Number One
understand this hidden agenda fully we must grasp the fact that
Western governments by covenant are supposed to be a government
of limited power. Powers not enumerated explicitly in their
Constitution or Charter are reserved for the people. Central banking
was the device used to contravene this Covenant and to bring back
unlimited government power from the Dark Ages through the back door.
A government that arrogates itself the power to issue promises in
exchange for real goods and real services, while having no intention
whatsoever to meet the obligation but will issue a new promise every
time an old one is presented at maturity, is not a limited government.
It is a government of unlimited power. Banker Rothschild of Waterloo
fame put it most eloquently, albeit somewhat cynically, when he
said: "Give me the power to print money, and I don't care who
makes the laws." An executive branch that has institutionalized
money-printing is making a mockery of the legislative and judiciary
branches — whether the latter realize it or not. It is making a
mockery of free markets as well. Since all goods are encumbered
with a first-refusal claim by the government, the markets trading
those goods aren't free. Nor is the labor market, as laborers are
coerced into selling their services for irredeemable promises. Labor
contracts are pretty nearly meaningless as they are made in monetary
units of uncertain value subject to depreciation and debasement.
Central banking is but a front used to cover up this chicanery.
course, to a government and central bank that can stoop so low as
to issue irredeemable promises to pay, gold is not just anathema,
it is public enemy number one. Gold offers eternal challenge to
government arbitrariness and coercion. Gold money is not dead, in
spite of premature obituaries in the media. But if not dead, gold
must be totally discredited, not just in words, but in deeds as
well. And this is where central bank leasing of gold enters the
make your virtue destroy you!"
bank gold is ill-gotten gold. It has been taken from the people
fraudulently, by appealing to their patriotic feeling and faith
in government. The fraud did not weaken people's trust in gold,
on the contrary, as could be expected, strengthened it. The task
given to central banks is to destroy that trust, by hook or crook,
once and for all. A third-rate precious metal, palladium, is allowed
to go up in price fifty-fold, and trade over $1000 an ounce, but
everybody who touches gold must be taught a lesson. He must be made
to burn his finger right to the armpit. The diabolic plot is to
use the very virtue of gold that makes it the best money known
to man commanding the lowest rate of interest, to destroy people's
trust in gold. Through their greed unscrupulous bullion bankers
and others can be enticed to take the gold at the low lease rate,
sell it, and put the proceeds in high-yield government bonds. The
sale will crush the price of gold. Should it still show signs of
lingering life, it can be clubbed down again and again, with more
and more leasing. (This bit of intelligence is through courtesy
of Alan Greenspan.) Clearly, if it did not have the virtue of commanding
the lowest rate of interest, then this stratagem to destroy people's
faith in gold could not work.
Clips in the Balance Sheet
bankers are on the horns of a dilemma. On the one horn, they would
love to use their gold in a dumping campaign to punish all those
who trust their savings to gold. On the other horn, their gut-feeling
tells them that outright sale may not be a good idea after all.
They would give up the best kind of monetary asset that is nobody's
liability, and replace it with the worst kind, namely, irredeemable
promises of devaluation-happy governments. Such a course could undermine
the strength of their balance sheet, perhaps fatally, with incalculable
consequences to the value of their banknotes.
central bankers who still read history may know that in the 1931
episode of the devaluation of the British pound the directors of
the Bank of France were scurrying around the building to find overlooked
assets, and they put not only the value of the building, but also
the desks in the building, and the paper clips on the desks, into
the balance sheet in the forlorn hope to cover up the losses that
the bank suffered due to the devaluation of the pound. Forty years
later, in the 1971 episode of the devaluation of the dollar, the
techniques of damage-control were more ingenious. The French government
printed up special non-marketable obligations and allowed the Bank
of France to put them in the balance sheet. Luckily for them, the
cost of damage-control does not have to come out of the hide of
the central bankers. It comes out of the hide of "you know who".
so, too big a loss may incur the wrath of the government. In 1971
the loss on the dollar assets was partly compensated by the gains
on gold assets. But what if those gold assets are gone?
Their Cake and Eat It
bankers have found a neat way out of their dilemma. They did something
that nobody had ever done before, nor was it for lack of trying:
to have their cake and eat it. They leased their gold knowing that
it would promptly be sold in the open market by the borrower, which
could not fail to have the same effect on the gold price as outright
dumping would. But, at the same time, they would still have the
gold, well, after a fashion: if not in their vaults, at least in
their balance sheet.
bankers do not care that through their gold leasing policy they
are forking out obscene profits to the bullion banks. They let them
borrow at the minuscule lease rate while pocketing a hugely inflated
interest income drawn from high-yield government bonds in which
the proceeds from the sale of leased gold have been invested. Well,
that's just the cost of doing business. That's just the going rate
of hiring the hit-man. But why worry? The obscene profits do not
come out of the pockets of central bankers. They come out of the
pocket of "you know who".
is adding insult, and more injury, to injury. After the gold has
been forcibly and fraudulently taken from them, the people are now
made to pay the cost of the campaign to discredit it as a monetary
is the plot. Will it work? Time will only tell. Gold has the habit
of leaving the place where it is not appreciated, and going where
it is. Clearly, leaders in the West neither appreciate gold nor
would they know what to do with it if they did. So gold is taking
leave of them and will end up in private hands. When it does and
the government is out of gold, then the people will get their franchise
back and will decide on the future of gold. There is no question
that the restoration of gold money will be an option, with a good
chance of being adopted.
here is a more troubling question confronting the world, one that
will keep haunting it until the gold saga comes to rest. Can a monetary
system built on lies, confidence games, fraud, and coercion, long
endure? The garbage heap of history is littered with defunct and
discarded irredeemable promises issued by past governments that
also tried their hand at making the paper-gold alchemy work. There
is more room, no doubt, in that heap, awaiting more recent discards.
Emeritus, Memorial University of Newfoundland, recipient of the
1996 Bank Lips Prize, author of Whither Gold? E-mail: email@example.com