HomeBullion & Precious MetalsThe US Government Has Rigged Precious Metals Markets For 80 Years!

The US Government Has Rigged Precious Metals Markets For 80 Years!

By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com ……..

By now, I suspect that many of you have heard about the 60 Minutes program two Sundays ago. It exposed the impact of high frequency trading at 1) increasing the profits of brokerage firms, and 2) resulting in individual investors selling their holdings for a lower price and paying higher prices to purchase their investments.

The main thing that surprised me about this story is why it took so long to be covered by the major media. I exposed this activity at least five years ago, and other commentators and analysts who never seem to get the time of day from the popular media have been talking about such shenanigans for up to 20 years.

What didn’t really surprise me is that the 60 Minutes coverage only included the tip of the iceberg about how US stock, bond, currency, and commodity markets are manipulated. The US government has been involved in manipulating these markets since the mid-1930s! Further, high frequency trading is just one small tactic used to rig markets.

To augment the 60 Minutes story, let me share with you part of “the rest of the story.”

The US government’s Exchange Stabilization Fund within the Treasury Department was established way back in 1934. It began operations 80 years ago this month. It was initially financed by $2 billion of the profits the US government realized when it raised the official price of gold from $20.67 to $35 per ounce. The ESF was explicitly authorized to deal in gold and foreign exchange markets and was not subject to legislative oversight.

In 1970, the law was modified so that the Secretary of the Treasury, with the approval of the President, can use the ESF assets to “deal in gold, foreign exchange, and other instruments of credit and securities.”

539wNext, after the stock market crash in October 1987, President Reagan signed Executive Order 12631 creating the Working Group on Financial Markets. The four members of this group, commonly called the Plunge Protection Team, are the Secretary of the Treasury and the chairs of the Federal Reserve Bank, the Securities and Exchange Commission, and the Commodity Futures Trading Commission. This team is charged with “enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation’s financial markets and maintaining investor confidence.” To achieve this market manipulation to prevent major declines in the stock market or the US dollar, the Plunge Protection Team is authorized to use direct government action as well as coordinate its tactics with exchanges, clearinghouses, self-regulatory bodies, central banks, private banks, and brokerages.

Later, in January 1999, with the endorsement of then Federal Reserve Chair Alan Greenspan, Treasury Secretary Robert Rubin, and Securities and Exchange chair Arthur Levitt Junior, 12 major international commercial and investment banks established the Counterparty Risk Management Policy Group.

The initial banks in this Group were Goldman Sachs, JP Morgan, Bear Stearns, Barclays Capital, Deutsche Bank, Credit Suisse, UBS, Merrill Lynch, Morgan Stanley, Lehman Brothers, Citicorp, and Chase Manhattan. Working groups of this organization also included the participation of people representing AIG, Tiger Management, Societe Generale, General Motors, Bank of Tokyo Mitsubishi, and George Soros. Bank of America later became part of this group.

logosTurning flowery language into plain English, the purpose of this group was to reduce the risk of falling profits at these companies. In order to achieve this goal, six measures were identified. The first was to arrange for the confidential sharing of trade secrets among members of this group. This included disclosure of important counterparty relationships and details about each company’s trading and investment strategies. If any other group engaged in such conspiracies, all sorts of US regulatory agencies would come down on it.

Many of these same companies are also approved primary trading partners of the US government. In this capacity, they earn fees in return for executing trades to manipulate markets as directed by the US government. Much of this activity takes place in thinly traded futures markets before daily trading begins or in the last few minutes before a market closes.

All of the declassified government documents thus far have confirmed that the US government, directly or through intermediaries, has manipulated gold prices from the 1930s into the late 1990s or at least made arrangements to be able to do so. In the official records, people such as Paul Volcker, Alan Greenspan, Henry Kissinger, and others made statements confirming, at a minimum, that the US government stood ready to manipulate gold prices. Why should the US government have changed this practice in subsequent years when the existing legal authority and financial arrangements were already in place?

dollarThe value of the US dollar, despite long-term efforts by the US government and its allies to support it, has fallen about 78% against gold since December 31, 2001 (and down about 77% against silver over the same period).

In recent weeks, partly as fallout of events from the Ukraine and Crimea, there are significant efforts underway to displace the use of US dollars in major parts of international commerce. To the extent that such efforts are successful, they will weaken the dollar’s status as a global currency and lead to potentially trillions of dollars of US currency and Treasury Debt being repatriated. As this occurs, the value of the US dollar is at a high risk of falling significantly in value.

It seems to me that much of the market rigging activity by the US government and its partners and allies over the past few weeks has focused on propping up the value of a shaky US dollar. One of the major tactics pursued to support the dollar is to suppress gold and silver prices. I suspect that the recent dip in precious metals prices was pretty much all an artificial manipulation rather than a result of free market trading activities.

Until we know for sure, what would you rather trust: A politician’s promise or an ounce of physical gold or silver that you have in your direct possession?


Patrick A. Heller was honored with the American Numismatic Association 2012 Harry J. Forman Numismatic Dealer of the Year Award.  He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects.  Past newsletter issues can be viewed at http://www.libertycoinservice.com.  Other commentaries are available at Numismaster (http://www.numismaster.com under “News & Articles) and at http://www.coininfo.com.  His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.  He is also the financier and executive producer of the movie “Alongside Night” (go to http://www.tugg.com/titles/alongside-night for a list of scheduled theatrical showings across the country and to purchase tickets).


Patrick A Heller
Patrick A Heller
Patrick A. Heller was honored with the American Numismatic Association’s 2012 Harry J. Forman Numismatic Dealer of the Year Award. He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com). He is also the financier and executive producer of the movie “Alongside Night”.

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  1. The U.S. Federal Government has plenty of incentive just to let this devaluation happen. Inflation would go a long way towards getting debt under control. Granted, inflation palpable and perceivable to the public as greater than usual might make individual politicians unpopular, but thanks to gerrymandered districts, that is less an issue than it used to be.

  2. Is it bad that the U.S. Government is attempting to prop up / protect / manipulate the value of the dollar? No.

    Remember, the Great Depression (and the Great Recession) showed everyone that the classic theories of economics were flawed.

  3. It is bad Hubert if the very thing that dollar stands for is debt that can not be repaid. With the addition of other countries/currencies taking turns churning what’s left of the dollars value, further into the ground.

  4. No U.S. government, and LEAST OF ALL THIS ONE, is going to be trying to prop up the value of the dollar relative to other world currencies. That is economic SUICIDE. Instead, in order to gain an advantage in world trade, all sane governments try to DECREASE the value of their currency relative to others. This fact is lost on Mr. Heller, who has no economics background.

    • The worldview you are discussing here, ie the notion that competitive devaluation, or a race to the bottom in who can kill their own currency fastest, is somehow not economic suicide, is deeply flawed. It seems Mr. Heller sees this issue from a Macro perspective, and this his indication that he would rather trust gold than liars.

      If we can indeed make it to the bottom before everyone else, what then?

      Capitalism depends on capital. Right now governments everywhere are waging war on capital in order to feed on it. This is very short sighted.

      Once the feeding frenzy is over, your Grandmother’s savings will be gone. And since her savings are the only savings left, we will be left with only debt and repudiation. So kiss your pension and your healthcare goodbye.

      • And at the same time governments are allegedly waging war on capital, capitalists and entrepreneurs are waging all-out war on domestic U.S. labor. If you think one factor of production is going to unilaterally call a truce, you’re deluding yourself. Yes, in the 1970’s, labor held a disproportionate share of the factor power. Reagan largely fixed that. Now management / entrepreneurship does. To the extent they also represent capital per se (there is some crossover, but they’re not quite the same) you’re going to get no sympathy from me, or most Americans. Sorry. The “poor downtrodden capitalists” line is wasted on me.

      • By the way, my Grandmothers are both dead, as is my Mother, thank you very much. I have one living elder, a father with a 7-figure portfolio at age 91, with nary a speck of gold or silver in it. He thinks when he invests, he doesn’t rant against the government.

      • By the way, Curtis, I trust gold, too. Really I do! I trust it to lie there, be yellow, and pretty, and shiny, and heavy. Beyond that, no. It’s a commodity, nothing more or less than any other. It is NOT MONEY. It can be made into money, or it can be made into a tacky chunk of bling.

        • Kurt: Need an explaination. What role does gold play in your economic picture of the world? and why do governments and central banks hoard thousands of tons of gold, and even now continue to add to their holding?

          • Gold plays exactly one role in my world economic view – as a medium for works of art. I find it utterly irrelevant as money, and has been now for about 43 years, far far longer than the entire life of the Bretton Woods scheme.

            The ONLY reason anyone hoards gold is to meet some perceived future demand for it. Gold is almost useless except as art. Gold, perhaps more than any other asset is one whose value is utterly dependent on the “Greater Fool” theory. It goes “no matter what I pay for gold, eventually a greater fool will come along to pay me more for it”.

            The supply of fools has not yet proven to be finite, but it does vary widely over time.

          • Oh yeah, and Patrick Heller’s entire raison d’etre is the recruitment of more and bigger fools.

          • Noting parenthetically that gold, and all metals, are again taking a beating as I type this.

        • Kurt: Thanks for your opinion, but still need an answer. Estimates are that total Government and Bank reserves arround the world, as of Dec 2013 hold about 31,913 TONS of gold ( The US alone has 8,133.5 Tons of gold)

          Total value at $1300 oz spot is 1.327 TRILLION dollars

          If gold is useless and has no role in world economic stability or structure, why do governments and bank even bother with it? Not to mention that they increased the reseves last year by another 300 TONS.

          I don’t get it and I am sure you can explain it.

          • Perhaps the response of the Bundesbank on the completion of its move of bullion from Paris to Frankfurt will help:

            “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.”

            Here’s the translation – gold matters simply because some percentage of the people THINK it matters. There IS NO FUNDAMENTAL REASON WHY GOLD MATTERS. It’s a little like making investing decisions based on technical analysis of charts. It’s a good thing to try to understand, but not because there is any “there” there. because there isn’t. Technical analysis “matters” for the very same reason sovereign gold holdings matter – because there are enough people out there who THINK they matter and will act based on either or both to make markets move – self-fulfilling prophesies.

          • In short, the way gold prices fluctuate should be studied first and foremost in the Psychology Department, not the Economics Department. My college knew that and taught EXACTLY that in its Econ Department, and my college years were only 2-6 years after Nixon closed the gold window. Gold was treated almost as the punchline to a joke.

          • Kurt: I lost the logic in your argument. Nothing matters until it does. We ascribe value and importance on things based on necessity and perception of value. What the Bundesbank said was they repatriated the gold for domestic PR and the ability to exchange gold for foreign currency.

            The domestic trust and confidence issue could be argued at length, but why would Germany NEED to use gold to purchase foreign currency. Couldn’t they just exchange euros for Australian dollars, or Yuan or whatever. Why the archaic use of gold as a vehicle, not between individuals and business, but between central banks and governments themselves? Surely they have trust and confidence in the paper currency of each other?

            Everything we use to exchange value is based on some form of a commonly agreed to perception of value, be it horses, shells, commodities or fiat currency. If either of the exchange parties THINK the value is higher or lower greater or lesser,then the exchange is altered accordingly. That is the marketplace. And obviously governments and central banks across the world continue to hold and use gold as a medium of exchange and a store of value that has no counter-party risk.

            So I still don’t understand how one can make the argument that gold does not matter, that it only has value to the ecomonically ignorant, yet virtually every government holds and uses it, particularly in situations like currency exchange where they are dealing between themselves. Interesting.

    • I am inclined to agree with most of what you say. I noticed you were banned on CoinTalk. Me too. The beast doesn’t like to be called such publicly.

  5. Gold is the “Type O Rh negative blood” of finance – it is universal in this sense – you only have to do one transaction to get the currency you need, instead of occasionally two in the case of less universally demanded currencies. Take a look at the charts of percentage of foreign exchange assets held in gold. The U.S. is at about 70%. Germany just a tick lower (presumably because they need some of whatever the Russians want for their gas). But look at third place!!!! (Actually the IMF is third, but let’s stick to nations.) It’s ITALY! Now what is Italy, a relative economic basket case, doing holding so much gold? And they have had it since the Lire days, too. And that currency was a COMPLETE mess.

    Sovereigns holding gold is about instilling alleged “confidence”. (Noting here that confidence is the root word of con-game and con-man.) Now, confidence among whom? For the vast majority of investors? Hardly. More people right now likely hold long positions in Bitcoin than do in gold. The highest estimate I’ve heard of monetary gold holders is about 3%. You can’t swing a dead cat in Silicon Valley without hitting a Bitcoin holder.

    No. It’s to instill confidence in the “internal resonance chamber” created by the Tea Partiers, RT television commentators, Birchers, Forbes readers, Limbaugh, Larsson and Hannity listeners, Helleraniacs, Austrian Fool adherants, and other lunatics. And their ranks have continued to swell ever since January 20, 2009. I wonder what the effect on gold markets will be after the first Tuesday after the first Monday of November 2016.

    What’s causing gold to be up? (And yes, Virginia, $1300 in NOT down, it’s still UP, WAAAAAY up.) It’s politics, pure and simple.

    • Kurt: Come on. you are a very intelligent man. You made the statement before that “There IS NO FUNDAMENTAL REASON WHY GOLD MATTERS.” …”Gold, perhaps more than any other asset is one whose value is utterly dependent on the “Greater Fool” theory.”

      So I asked why do governments and banks hold over $1.37 TRILLION in gold reserves, and why is it used for purchasing foreign currency. Why not trade currency for currency?

      Your retort was that “Gold is the “Type O Rh negative blood” of finance – it is universal in this sense” So Gold does matter and it is used by Governments and Central Banks as an alternative to (or in preference to) fiat currency. So it has to be recognized as being a store of value, and I would submit to you that the primary reason for that is that gold has NO counter-party risk associated with it.

      However again, you lost me with your last rant. You said “Sovereigns holding gold is about instilling alleged “confidence”” but then you go off on the Tea Party, Talk radio, Birchers, Hannity, etc, etc ad nauseum.

      What the hell does that have to do with the IMF holding gold, or Italy, whom you rightly stated has been a gold hoarder from way back, certainly a lot longer than the right wing political types you mention.

      You totally mix up your disdain for the Right Wing with the economics of gold. The US government and for that matter all governments and banks have been holding and using gold long before the “Lunatics” as you put it were even in the public arena.

      I don’t think the German repatriation of gold had anything to do with Rush Limbaugh. but I could be wrong :-)

      I had thought we were having a discussion on what Gold’s place was in current economics and if it has no role then why do governments still trade in it, manipulate it and use it for currency transactions. Still waiting for some non emotional reasons……

  6. CoinWeek,

    Let me ask you this. Even a cursory look around the internet will yield story after story about how the gold to silver ratio is badly out of whack, historically pegged at 16:1. You can find many articles that suggest that silver ought to be around $80 an ounce.


    Why isn’t that evidence gold should be at $320?

    • Kurt:
      No doubt there is an entire industry out there that thinks and believes that paper money (fiat currency) and along with it the central banks, are destroying the value of all currencies and they strongly believe that precious metals are a far better alternative.

      The gold to silver ratio of 16:1 was a historic ratio that existed largely prior to 1900 for setting prices. It has no economic significance as gold and silver trade separately from one another and the “Reserve Currency” (at least for now) is the US dollar, which bears no correlation with gold.

      The fact that people who promote gold and silver use this historic statistic as a tool to suggest that Silver is undervalued seems to me to be good old American capitalism at work. They are making their sales pitch to put the product in the best light possible and motivate the buyer to act now before it is too late or prices rise. Gee… have never heard any of that before!

      Seems to me that both Gold and Silver are exactly where they are supposed to be, or perhaps exactly where the governments and banks want them to be (Interesting how the London Fix story just faded away).

      Things are worth what people are willing to pay for, or are forced to pay for. Should oil be at $110 a Barrel? Is some hideous painting worth $100 million? Should Pharmaceutical companies be allowed to spend billions advertising products directly to consumers who can’t buy them directly? Should the government be able to force you to buy a product you don’t want, and financially punish you if you refuse?

      Love it or hate it, it is the world we live in. but just remember, everyone with whom you may disagree is not an idiot or a lunatic.

  7. Kurt,

    You missed my point above on government consuming our savings through financial repression and ranted about downtrodden capitalists.

    Can you elaborate on how devaluing our currency faster than everyone else will help us all in the long run? To me it seems to be causing an explosion in the price of food and negatively impacting savers. Savers have money to invest in things. If we consume their savings for short term debt relief, then won’t we be left without their investment and with higher food prices in the long term?

    Currency devaluation has occurred hundreds of times through history. And it is always concurrent with a moral decline in leadership. It represents taking the easy road.

    But please, elaborate on how successful we will be if we devalue our paper money the fastest. You might also explain why it didn’t work out for Zimbabwe. What did they do wrong in their attempt? Because they certainly won the race to the bottom. I just have trouble finding their success.

  8. Kurt,

    Here is an article from today concluding that “Living standards will suffer as a larger percentage of household budgets are spent on grocery store bills, leaving less for discretionary spending.”


    How will further devaluation, vis-a-vis competitive devaluation, combat the problem of rising food prices? You indicate that “in order to gain an advantage in world trade, all sane governments try to DECREASE the value of their currency relative to others” and imply that Mr. Heller doesn’t understand economic fundamentals. Please help us all understand.

    I suppose one solution is that we could increase minimum wages immediately by legislative mandate, and further legislate that grocery stores are not allowed to increase prices, like they did in Venezuela. But for some reason this resulted in mass buying and hoarding of food, and grocery stores closing their doors forever in Venezuela. It was as if the food was somehow more valuable than the currency used to buy it. But how could this be? The food is priced in the currency, isn’t it? Why did the grocery stores close up shop? I’m confused. Can you me understand the economic fundamentals here?

  9. Curtis,

    I admit I’m not conversant on the current state of food prices in Venezuela or Edmonton, Alberta. But I am somewhat more familiar with same in Lancaster County, Pennsylvania, and I read what many write. I must admit that I hear lots of people CLAIM that somehow food is becoming less affordable, but honestly, I’m not seeing it.

    Venezuela is in political turmoil, and that nearly always creates economic displacements.

    Now, re: “Can you elaborate on how devaluing our currency faster than everyone else will help us all in the long run?” Sure.

    By devaluing our dollar RELATIVE to other currencies, imports become more expensive (duh…right?) and our exports become cheaper in other countries (unless they cheat and impose barriers, WHICH THEY DO). That advantages unemployed and/or underemployed U.S. labor to have more opportunities. Does it happen ENOUGH? No, because everyone else cheats and we allow it. But it does happen.

    Armstrong World Industries (popularly known as “Armstrong Cork”, the flooring people) has just announced a $41 million “re-onshoring” of their premier “luxury vinyl” (what a concept, right?) flooring product right here in good ol’ Lancaster, Pennsylvania (already a nearly full employment locality). Where are they discontinuing production to bring it back here?

    China. Yep, THAT China.


    The labor price advantage is no longer worth the corruption, transportation costs, and loss of their intellectual property from Chinese state-sponsored IP theft. The labor advantage has shrunk EVEN THOUGH China does not let the yuan fully float, ARTIFICIALLY HOLDING IS VALUE DOWN BELOW ITS TRUE MARKET RATE.

    See? China artificially held its currency DOWN to gain an advantage in trade and employment. All nations do.

  10. Another example of why a high currency value is bad?

    The Swiss Franc’s value went nuts (upward) when the Euro crisis initially hit. Foreign exchange inflows into Switzerland EXPLODED! What happened then? Swiss shopkeepers in border areas went broke. Relative prices in Germany and Italy were so low that it became worth it to cross the border to buy daily groceries.

    All from a spike in the value of the franc.

    Want the dollar high in value? I sure as hell don’t! My livelihood depends on my neighbor doing WELL, not like on Wall Street, where every dollar I steal from my neighbor is all that matters.

  11. I don’t think we need to devalue our currency … IF. If we somehow manage to “strap on a pair” and do trade battle where we need to when our trading partners cheat, WHICH THEY DO. Yes, Curtis, even our neighbor to the north, Canada, cheats its backside off in so-called “free” crossborder trade, employing MASSIVE labor protectionism of its domestic labor while we in the U.S. bend over and say “Thank you, sir, may I have another?”

    • Come now Kurt, let’s not discuss NAFTA. You seem to get distracted a lot and go in many directions. I think the point that Patrick is making above is that precious metals have historically retained their value through many deviant acts of government, as it is doing now.

      So I agree with you that gold is not in investment in the sense that for it to rise in value would require a greater fool. The thing is that it doesn’t rise it value. It only appears to rise in value as the value of the dollar used to buy it drops.

      All fiat money is backed only by confidence. So I’m not sure who the greater fool is…the fellow who shuns gold in favour of only paper, or the fellow that buys some as a hedge against the actions of fools in government.

      I was at Fort Edmonton Park over the summer and remember being struck by an interesting comparison. I saw on Ad for a Newspaper subscription dated in the early 1900’s advertising a one year subscription to the newspaper for $2.00. At Fort Edmonton they were selling one pickle on a stick for $2.00 today. In the 1900’s a dollar was made of silver. Today it is not. And it is obvious why that is. We couldn’t debase the coinage below its intrinsic value and continue to use Silver, could we? We’d have quickly run into the same problem that the Romans did with the Denarius.

      So we yanked the rug out from under the currency and ran an interesting confidence game based on guns and oil for the next 40 years! Very impressive and I tip my hat to Reagan. It was a good move politically.

      In the long run though, I’d much rather have the $2 that was used to buy the newspaper subscription in the 1900’s than the iron coins we use in Canada today, or the Paper & Cotton that you use in the US. If a steel or paper $2 only buys a pickle on a stick today, it’s hard to imagine how little it will buy in 2100…whereas that $2 from the 1900’s will have exactly the same purchasing power in 100 years as it does today, or arguably more. I don’t think I can buy a one year newspaper subscription for $25..so to me that is one indication that silver is likely undervalued relative to paper money. All the better reason to buy some today :)

      • There’s only one correct use of the term fiat money – that money which is set aside to buy a little Italian car. The rest is just “money” and it doesn’t need a further modifying adjective.

        • Ohhhh I could think of a whole lot of adjectives one could use……..

          BTW you never finished addressing my previous questions…I was hoping to get an education.

          • Scott,

            You are constantly revealing YOUR PERSONAL rooting interest in this, despite your oft-repeated protestations to the contrary. You are a confirmed government-skeptic goldbug, admit it. The denial is getting tired.

  12. I’d suggest ALL the goldbugs here need to step outside their little “internal resonance chamber” of goldbug blogs and message boards, and take in a little mainstream economics. Try listening to APM:Marketplace podcasts (each weekday) and The Economist (about 6-10 a week) podcasts. It’ll be okay, you don’t even have to read well; you can listen. I listen because it’s easier than reading on a train going 110mph and bouncing around.

    Now Scott, I truly truly do believe goldbugs are not just wrong, which they are, but they are truly mentally ill as well. This need to “trust” a mineral while continuing a constant “don’t trust government, or “gummint”, screed is truly as frightening as heck to me. And I know these same types tend disproportionately to have guns, as do I, by the way.

    The Bretton Woods system, which so many goldbugs revere like it was some king of brilliance, never actually took full effect until 1961, and was starting to die 3 years later, finally expiring in 1971. Whoa! 10 whole years! What a freaking success, right?

  13. Kurt:
    I love the tactic of deflecting attention away from not answering a direct question by ascribing assumed motivations to the questioner, and then trying to marginalize them with labels.

    I asked a series of questions based on YOUR comments that were posted. I did not start the conversation. If you can’t or won’t answer them, that is OK, and although you may “think” that you know who and what I am, trust me….. you haven’t got a clue.

    And sorry about the inconvenient questions….. I can only guess how frustrating it must be to have the “idiots and morons” actually question what you say.

  14. I’ve scoured your posts for serious non-rhetorical questions and can find none. But I’ll provide the entertainment of answering your rhetorical ones:

    $110 oil? Not necessary if we would simply decide to make development of our hydrocarbon assets the top priority. But given the current White House, $110 properly reflects global supply and demand. Keep pushing supply down, and it’ll get worse.

    Painting worth $100 million? Problem here again is supply, as in 1. Same with classic numismatic rarities, which have no top end UNTIL taxes get more steeply progressive at the top end. The marginal income tax rate at the end of the Eisenhower Administration, the era of vast expansion of the middle class, was 91%. The Kennedy fought to lower it to 70%. Then Johnson spent in a manner that 91% couldn’t handle.

    Pharmaceutical ads? Unless you know of a way to target them solely to prescribers, they should be banned. But them so should dietary supplement ads be banned. Self -“medication” is bad news all around.

    Forced purchase of a product? Ideologically, no. It’s offensive. Practically, you have to, because we have to treat everyone, morally. If you’re okay with a world where the uninsured bleed out in the driveway of the ER, then sure, ban forced purchase of medical insurance. But this crap of requiring 85 year olds to carry maternity? That’s insane! But I do agree that people who keep expecting the dollar to collapse imminently and gold to be the basis of the next monetary system really OUGHT TO HAVE robust mental health care insurance.

    • Kurt lets try this one more time in a short version…..

      Why do governments around the world hold gold reserves (31,913 TONS worth 1.4 Trillion) if as you say “Gold is not money and does not matter” ?

      If it as the Bundesbank says “the two primary functions of the gold reserves: to build trust and confidence domestically, and the ability to exchange gold for foreign currencies” then I have two non-rhetorical questions

      1) It can’t be “to instill confidence in the “internal resonance chamber” created by the Tea Partiers, RT television commentators, Birchers, Forbes readers, Limbaugh, Larsson and Hannity listeners, Helleraniacs, Austrian Fool adherents, and other lunatics” because governments have been holding gold and adding to it long before any of these people and groups you mention even existed.

      So if gold doesn’t matter and it has no place as money or a useable store of value, why do governments feel they need to have it to instill “confidence” in the financial system? Seems like a non-rhetorical question.

      2) And if Governments need Gold to Foreign Currency exchange…. WHY?

      Only 3% of the total value of US dollars in actual physical banknotes. Most transactions today, including on the commodities exchanges are done digitally. Why in the world would any exchange or specifically any government need to hold physical gold in order to facilitate foreign currency exchanges?

      For some reason governments world wide still hold, use and add to the gold reserves they have, and I have yet to hear a rational, non emotional and reasoned explanation as to why.

      Can you help without calling me names ?

  15. And I shall answer the same way – they do not hold gold because it is in any way important to THEM, because it is not, beyond the people they hire to man their commodities trading desks at large banks. Money is created every time a bank loan is consummated, not just by QE#, so gold can’t logically have any relevance to money. Some sovereigns hold almost no gold, in fact most hold extremely little. The nations that do hold gold do so because there is a fairly large contingent of folks who control a fairly large chunk of portable assets within those countries who think (wrongly, in my experience) that it is important for that country to hold gold. Hence – confidence. It is an obsolete vestige of a bygone era, but not everyone knows that. We used to have a Strategic Silver Reserve, too, and we got rid of it. If you have any Silver Eagles from 1986-199# (not sure about the last digit) you own a chunk of the old SSR. It is all gone now. Kaput! Silver was once important to the U.S. Government to have and now it isn’t. They just don’t talk about it much. Gold attracts more attention / obsession / worship / idolatry.

    Check the list of countries that have a gold bullion coin product and compare it to the list of countries buying gold. There is a huge intersection. Some of every AGE and Gold Buff can trace its history to Fort Knox and the 1933 gold round-up. Immediately? No. It goes through a process from Fort Knox to the New York Fed in lower Manhattan to the West Point mint, but some of every AGE was part of some 1920’s St. Gaudens. Do they now buy current mining? Sure. Why? Politics, in the “somebody put an amendment in a bill” sense of the word. Just like the Pittman Act of 1918, pork style mandates and set-asides will often rule.

    Why do governments hold gold? Because they sell it and some people will raise a hell of a fuss if they don’t. What kind of people? In my opinion, dangerous and scary people.

  16. Gold also provides extra liquidity in foreign exchange for less commonly traded currencies, hence by definition smaller transactions. The euro has made gold even moe monetarily unimportant than it was prior to the euro. Fewer currencies to inventory.

  17. Look, I am KEENLY aware that observing world economics without a metaphorical yardstick of a known and fixed length with which to measure things like currencies can be a scary thing and quite a mind bender. How do you measure things if the yardstick keeps changing in length, right? So some have literally DECIDED that there has to be such a yardstick and based on history, they’ve chosen a troy ounce of gold. Well fine, if that helps you sleep at night, good for you.

    Here’s the basic problem – just because hard money goldbugs have chosen gold to be their yardstick of choice, and they have a fairly sizable cadre of buddies agreeing with them, and places like Kitco and APMEX and Liberty and Blanchard, etc. to sell into the hysteria, that DOES NOT MEAN that the VAST MAJORITY of economic theorists, policy makers, or even investors, agree with them. The goldbug community is a relatively small incestuous little club of people who are REALLY uncomfortable with life without yardsticks of fixed length. I admit it took me years of solid DAILY economic academic training to wrap my brain around it. Studying the General and Special Relativity in astronomy, my unofficial minor, at the same time as studying foreign exchange with no fixed yardstick probably helped a lot. We are, both in the cosmos AND the economy, not in a place with fixed lengths of ANYTHING. We all are as a bug on a balloon, and everything is dependent on the adding or subtracting of gas. Anything that seems to be fixed and unchanging is an illusion, or rather a DElusion.


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