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As Germany Prepares To Repatriate Its Gold, We Hope They Have Learned From The "Monetary Sins Of The Past"

Tyler Durden's picture





 

As initially reported here yesterday, in what is the biggest news of the week, and possibly the year, the Bundesbank has broken away from its "all is well" posturing exhibited as recently as three months ago, and in a dramatic reversal of its diplomatic position, has demanded repatriation of some of its NY Fed and all of its Paris-domiciled gold. We applaud Herr Wiedmann for this move, although we hope that the German people are allowed to witness, and verify, the arrival of the actual gold as opposed to simply empty crates. Of course, at the end of the day the actual delivery is irrelevant: what matters is this first shot across the bow of the current monetary system - one which juxtaposes sound money versus infinitely dilutable electronic fiat more than ever before - by a major conservative central bank, one in possession of the second largest official gold reserve, second only to the Fed itself. That said, we can only hope that the German request for gold repatriation is not met with the same enthusiastic response that France encountered when it too attempted to repatriate its gold held by London back in the 1930s, just before a whole lot of things in the global economy went horribly wrong...

Specifically, in 1965 The Economist interviewed Jacques Rueff, a French economist and advisor to the French Government. In the following exchange (caught on pages 84-85 of the pdf "Monetary Sins of the Past", which are required reading to anyone who thinks what is going on now is in any way new or different), the Economist blames France for exerting pressure on London during the 1930s, through the withdrawal of sterling balances held at the Bank of England. We thank Martin Sibileau for the reminder about this key exchange.

What is disclosed is enlightening and entertaining, and may well serve as the basis for what the response Buba may encounter today.

Jacques Rueff: In 1930 I was financial attache in the French Embassy in London, and in that capacity I was responsible for the deposits of the French Treasury with British banks. They were the direct result of eight years of the gold-exchange standard, because we had kept the pounds sterling in London, as my colleagues in New York had kept in the American market the dollars that had been pouring into the French Treasury from 1927 onward. Then, in 1931, the failure of the Austrian Creditanstalt caused successive waves of repatriations; and it was this collapse of the gold-exchange standard that, without any possible doubt, transformed the depression of 1929 into the Great Depression of 1931.

The Economist: While you are on this historical episode, what would your comments be on the very widespread view that it was to a substantial extent French pressure on London at that time, through the withdrawal of sterling balances, that was in part responsible for the general collapse later on?

Jacques Rueff: Let me tell you that, unhappily for the world, the French pressure did not exist, or was so mild that it had no effect. There is a very interesting document from this period, a letter from Sir Austen Chamberlain, who was then Foreign Secretary in London, to M. Poincaré, who was Prime Minister and Finance Minister in France; it must be of 1928. Sir Austen said, "We know that you are entitled to ask gold for your sterling, but in the frame of the close friendship between Britain and France we ask you, so as to avoid trouble for the City of London, not to do that." And we were, I must say, weak enough to comply with this request and not ask for gold. The fact that I had such important sterling deposits in London shows that we did not use this right to ask for gold. The adjustment, which would hardly have been felt if carried out on a day-to-day basis, was not made, and we had the fantastic boom of 1927, 1928, and 1929. This explains the depth of the collapse and of the depression, because the adjustment was so long delayed. We were too gentle in complying with official appeals not to convert our sterling balances into gold.

Fast forward to today, and we can't help but wonder if some 30 years from today, an advisor to the Bundesbank will not rewrite the above to something as follows:

BUBA Advisor: ...There is a very interesting document from this period, a letter from William Dudley, who was then Head Of The NY Fed, to Herr Weidmann, who was Head of the Bundesbank; it must be of 2013. Dudley said, "We know that you are entitled to ask gold for your sterling, but in the frame of the close friendship between the United States and Germany we ask you, so as to avoid trouble for the Wall Street, not to do that." And we were, I must say, weak enough to comply with this request and not ask for gold. The fact that I had such important sterling deposits in New York shows that we did not use this right to ask for gold. The adjustment, which would hardly have been felt if carried out on a day-to-day basis, was not made, and we had the fantastic boom of 2013, 2014, and 2015. This explains the depth of the collapse and of the depression, because the adjustment was so long delayed. We were too gentle in complying with official appeals not to convert our USD balances into gold.

We can only hope that the Bundesbank is not quite as "gentle" as Paris was some 80 years ago in complying with London's equally as gentle denial to comply with the French repatriation request. In fact, quite the opposite: we hope Bundesbank pulls all of its gold, as do all other nations because in the aftermath of the "collapse and depression" that will soon follow, he who defected first, will have defected best.

Everyone else will be left with paper promises of repayment by a broke and insolvent government which went as far as suggesting the minting of a trillion dollar coin to absolve it of its own particular monetary sins. Seriously.

h/t Martin Sibileau

 


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Tue, 01/15/2013 - 15:22 | Link to Comment zoggl
zoggl's picture

The editor of the Handelblatt, Oliver Stock, comments what he would do with the Gold:

http://bcove.me/9miioixa (in German)

He wan't to sell it, because nothing can be done with the gold. He says gold has no use! This guy obviousely has no clue about paper money, what the role of gold is in a monetary system and he obviousely never heard, or does not understand currency wars. This guy is uneducated and unexperienced.

Of course the comments are disabled below the video. So I do one on ZH. Oli, you are a clown.

 

 

Tue, 01/15/2013 - 15:27 | Link to Comment y3maxx
y3maxx's picture

...Germany's Gold bullion delivery request.....EASY PEASY

Load a ship with whatever....send it out and sink it in the deepest part of the Atlantic...then declare "Force Majeur"

or

Have a ship hijacked by Somali pirates and declare the Somali's stole it!

Tue, 01/15/2013 - 15:34 | Link to Comment the grateful un...
the grateful unemployed's picture

yes and sometimes dishonest bankers (is that a redundancy) sometimes overstate their losses in a robbery.

Tue, 01/15/2013 - 15:28 | Link to Comment One eyed man
One eyed man's picture

Sorry, Germany. We're having just a little bit of trouble locating your gold. Could we interest you in a $1 trillion platinum coin instead?

Tue, 01/15/2013 - 15:30 | Link to Comment the grateful un...
the grateful unemployed's picture

or a trillion dollar tungsten coin?

Tue, 01/15/2013 - 16:13 | Link to Comment knukles
knukles's picture

Or a lock of Heidi's crusty blonde pubes?

 

(Don't wanna get them out of their very orderly comfort zone, now do we?)

Tue, 01/15/2013 - 19:13 | Link to Comment Savyindallas
Savyindallas's picture

OR bEN COULD JUST WRITE THEM A CHECK  -OR DO AN ACCOUNTING ENTRY OR WHATEVER. We can even pay them a premium on interest. The Germans could use their new paper money to buy gold from Big Al's gold and Silver Exchange. Or here in Dallas, place an order with Dallas Gold and Silver Exchange - it might take some time to fill such a large order, but it's probably easier than getting the bullion from the New York Fed.

Tue, 01/15/2013 - 15:30 | Link to Comment the grateful un...
the grateful unemployed's picture

have a good idea why they would leave their gold in herr bernanke's safe, and it comes back to how USG plays games with the SPR, Strategic Oil Reserve. if i borrow oil from SPR, then i make a ledger entry and the oil looks as though it belongs to me. i count the oil in my inventory, when the vendor comes around to see if i want any of his oil, i say no, full up.

 

a great deal of the gold in various CBs is double counted, but since no one audits the gold, its a easy con. in the case of NYMEX the traders pay almost no attention to inventory reports.

Tue, 01/15/2013 - 15:29 | Link to Comment debtor of last ...
debtor of last resort's picture

Ahhh, politicians are in exter's pyramid already. Down to gold. The rest will soon follow.

Tue, 01/15/2013 - 15:31 | Link to Comment ebworthen
ebworthen's picture

The return of tangibles and reality.

Whey else are long guns selling out and gold at decades high levels?

Ah tangibles...those real things like food, water, shelter, freedom, liberty, life.

And those intangibles that become meaningless as the perception of their value is destroyed; fiat paper money, the Munich Agreement (Neville Chamberlain), and such.

Tue, 01/15/2013 - 15:33 | Link to Comment H E D G E H O G
H E D G E H O G's picture

GIVE GERMANY BACK THEIR FUCKING GOLD DUDLEY! YOU FUCKING SCROTUM SUCKING PIG!

Tue, 01/15/2013 - 17:19 | Link to Comment Not Too Important
Not Too Important's picture

Your caps lock is . . . oh, never mind, you're right.

Tue, 01/15/2013 - 15:42 | Link to Comment toomanyfakecons...
toomanyfakeconservatives's picture

Who gives a shit? Everyone is waiting for today's gun grab announcement.

Tue, 01/15/2013 - 15:44 | Link to Comment Super Broccoli
Super Broccoli's picture

if i'm correct they are only repatriating 50 tons a year over the next 3 years ... so uncle-can't-handle-money-Sam could be able to manage this. Not like if germany asked for his all 1500 tons (that should be) sitting in NY !

Tue, 01/15/2013 - 17:18 | Link to Comment Not Too Important
Not Too Important's picture

BUBA will be testing every bar. Delivery schedules can change with one phone call.

Tue, 01/15/2013 - 15:47 | Link to Comment feelingspicy
feelingspicy's picture

I called at the Buba today and asked why they suddenly changed their stance on the gold, not being diversified anymore. I metioned the BoE report twice, on the quality but she didn't respond to that. She basically said the reason for the shift would be an inquiry by the "Bundesrechnungshof" which oversees german finances and that Paris isn't a center of finance. Then she asked my to wait for the press conference tomorrwo....

Tue, 01/15/2013 - 15:52 | Link to Comment Catullus
Catullus's picture

And thus: that statement proves Murray Rothbard correct over Friedman and Schwartz on the causes of the Great Depression. It was the maintainence of the gold-exchange standard, and specifically the exchange rate with the pound sterling in the boom years prior to 1928 that caused the depression. And by all accounts the French, it could just as very well have happened in 1926 or 1927. The arrangements between central banks all along caused the crisis then just as it has now.

It was not "do nothing" Hoover or the inability or reluctance of the Federal Reserve to bailout banks in 1929 as Friedman and Schwartz suggested. It was the perferential treatment and unsustainable exchange rate for the pound sterling after WWI that caused the inflation and subsequent run on banks.

The international banking conferences between 1933 and 1938 are also fascinating. The emergence of Keynesianism and the praise of the then academic economists to fascist economic policy prior to the run-up in WWII is also fascinating.

Tue, 01/15/2013 - 16:05 | Link to Comment Sandmann
Sandmann's picture

So the USA did not acquire Gold in WW1 from European states ? It did not have huge gains at the expense of European states and it did not have enormous liquidity whereas Britain had to service the debts it had incurred on behalf of Russia and France which both defaulted leaving Britain carrying the burden ? It did not mea huge overcapacity in shipbuilding and a collapse in global commodity prices as war ended causing global trade flow imbalances ?

Tue, 01/15/2013 - 17:14 | Link to Comment Not Too Important
Not Too Important's picture

And now it all comes full circle, back to the people that financed the rise of Fascism in Germany and Italy. Same companies, same families, same, same.

 

Tue, 01/15/2013 - 15:53 | Link to Comment earnulf
earnulf's picture

All I need to know is that my one ounce coin is worth an ounce of silver/gold regardless of what denomination it's stamped in.        I can exchange it for funny money from whatever country I wind up in.

Tue, 01/15/2013 - 15:56 | Link to Comment Pairadimes
Pairadimes's picture

Well, at least they won't be getting gold. They will be getting gold-plated tungsten, from which they can manufacture incandescent light bulbs for sale to the largest market in the world, the US... oh, wait...

Tue, 01/15/2013 - 16:03 | Link to Comment Dark_Horse
Dark_Horse's picture

Not going into the whys and wherefores of Germany's reasons for repatriation, none of which put Germany's counter-parties(including fiat) in a good light...

The simple act of getting their physical gold back on home soil speaks a volume on gold's importance versus fiat, above and beyond fiat's status quo. and flies in the face of Bernanke's statements about gold not being money.

If Germany's gold repatriation ushers more sovreigns to follow suit, this could prompt a run on the Fed's gold holdings.

 

If the Fed has been using the gold as non-funglible and have not applied fractional reserve(multiple leasing) practices, then the FED will not have any issue releasing the gold back to its owners.

What are the odds the FED has treated the foreign gold holdings as such?

Tue, 01/15/2013 - 16:11 | Link to Comment e_goldstein
e_goldstein's picture

.

Tue, 01/15/2013 - 16:18 | Link to Comment yogibear
yogibear's picture

Could it be that Germany already knows what Bernanke and the Fed will do next?

Like an overnight devaluation of the US dollar? 

When a international banks asks for it's gold that been held for years back it should raise a flag. What's next probably won't be pretty.

Tue, 01/15/2013 - 16:14 | Link to Comment joego1
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In god we trust. No gimmie my bling bitchez.

Tue, 01/15/2013 - 16:37 | Link to Comment 10PastMidnight
10PastMidnight's picture

Get it right Joe, in gold we trust.

Tue, 01/15/2013 - 16:17 | Link to Comment Silversinner
Silversinner's picture

Germans just got infected by goldfever.

As we all know on the hedge,the only cure

is a teribble boating accident.

Tue, 01/15/2013 - 16:18 | Link to Comment 10PastMidnight
10PastMidnight's picture

What will be the odds we have nothing but crickets in the room and if not crickets then who would hear it and if no one heard it, did it happen at all?  Benny loves riddles you know, that fucktard.

Tue, 01/15/2013 - 16:19 | Link to Comment astoriajoe
astoriajoe's picture

Munger. That's a German name, right? hmm..

Tue, 01/15/2013 - 16:35 | Link to Comment teolawki
teolawki's picture

Preparation maybe? I do like the smell of gold backed Deutshe Marks in the morning!

Tue, 01/15/2013 - 16:37 | Link to Comment dcj98gst
dcj98gst's picture

Has anybody read the schedule of withdraw for the gold holdings?  Is the repatriation to commence immediately?  I have not seen anything yet?  Let me know if it has been noted.  Thanks!

Tue, 01/15/2013 - 16:39 | Link to Comment 10PastMidnight
10PastMidnight's picture

Over the course of 3 years i believe and oh what a pipe dream that is cuase I don't think benny can dig out that fast.

Tue, 01/15/2013 - 16:39 | Link to Comment jomama
jomama's picture

i'm honestly surprised Au and Ag aren't down on the news.

Tue, 01/15/2013 - 16:45 | Link to Comment notadouche
notadouche's picture

Much talk about gold confiscation possibilities.  Question.  Wouldn't that just make silver all that more attractive and in fact the case for silver ownership as a needed counter to what would then become the illegal relic?  

Tue, 01/15/2013 - 16:46 | Link to Comment Temporalist
Temporalist's picture

Perhaps this is the preemptive move before gold becomes a Tier 1 asset.

Tue, 01/15/2013 - 16:55 | Link to Comment The Heart
The Heart's picture

So for our daily lesson kids:

Here we see and hear so much rabble rousing in the propaganda media about what? Who cares.

See this bit of trickery and illusion for what it is. "Hey! Look over here and never mind the real potentialities of what is happening over there. Or, watch my hand here, while the other picks your pocket clean. All so typical. What is illusion, and what hurts the Heart? How many generations have passed in history with good men that went their whole lives saying, they never had to go to war and kill other fellow men?

http://www.businessinsider.com/us-f-18-fighters-japan-f-15-fighters-patr...

 

Tue, 01/15/2013 - 17:21 | Link to Comment pupton
pupton's picture

Whoever has their own gold in hand when the music stops gets a chair.  Germany knows the DJ is getting ready for a smoke break...

Tue, 01/15/2013 - 17:34 | Link to Comment Toolshed
Toolshed's picture

I highly recommend reading "Monetary Sins of the Past" linked to in the above article. Very informative indeed.

The gist of it for the time impaired:

What we call rehypothecation today has been around for a long time. Thank you bankers. It was largely responsible for The Great Depression due to the widely used gold-exchange standard, which is quite different from the gold standard. And basically, as bad as things got then, they sure appear to be much, much worse now if you extrapolate the info presented into the situation we have in the world today.

All I can say is, may God have mercy on our souls. Bankers have no souls, so fuck them.

Tue, 01/15/2013 - 17:54 | Link to Comment youngman
youngman's picture

"he who defected first, will have defected best."

This will be so true.......

Tue, 01/15/2013 - 17:59 | Link to Comment Jan Modaal
Jan Modaal's picture

repatriating the gold is also about showing the US that Germany goes its own way. The Germans turn their back to the western empire. No need for US protection anymore, the US market is dead, foreign US politics is to violent for the Germans.

The sun sets in the west and comes up in the east. And there is where Germany's future lies. They strengthen the connection to Russia, and take a new step in the 'Ostpolitik' that started in the 70's under chancellor Willy Brand.

Ostpolitik was not only about good neighbourship and trying to unify Germany. The Russian commodities are of great interrest and not only Russia, but look at Azarbeidjan, so much oil and gas, gold, ore and what all.

Russian commodities, Cinese labor and German know-how.

And probably at one point Germany says: srew you all. Steps out of the euro and forms a goldbacked currency with Russia and China.

 

Tue, 01/15/2013 - 18:29 | Link to Comment shovelhead
shovelhead's picture

" Yeah, huh? Right. Well the thing is, is that the subways trains vibrations were getting your gold all dusty and whatnot, so we sent it over to London because they have a housekeeping staff over there and could keep it clean for you.

What?

No, I don't know what they did with it...You'll have to ask them..."

< clic>

"Goddam Germans"

 

Tue, 01/15/2013 - 19:07 | Link to Comment Darth Rayne
Darth Rayne's picture

We know that the FED stands ready to lend gold into the market as required. We know that the FED can buy back the gold, should they need to, whenever they need to for whatever price as Central banks can create money.

The only flaw in this genious plan is when the gold has fucked off to China. Luckily the FED only has other peoples gold as US gold is all on millitary bases. Lets assume that one day Germany asks for 500 tonnes of gold back but the FED only has 400 tonnes. What happens next is the interesting question. If the FED starts buying gold, openly, in large quantities then surely alarm bells will ring. Before this happens would the US Govt loan the FED 100 tonnes of US gold? If yes, would they lend all 8,300 tonnes?

So, what happens when the US Govt will not lend any gold and the FED doesn't have enough to send back to whichever country asked for it?

In short, what happens when the FED or BoE simply say, we haven't got it? A fast hot war or can I retire with a few ounces of the gold stuff?

Last time this lack of gold situation occurred didn't JP Morgan loan it to the US? Mr Morgan borrowed it from the Rothschilds. Do the Rothschild stand ready to bail everyone out? No, they are international financiers not idiots.

The real question is do the Rothschilds help perpetuate the system they devised or let it collapse as it was desgned to do? There you go, I answered my own question. Thanks for letting me ramble on.

The answer is: do the Rothschilds want to  bail out any and all Central banks with gold loans? Or would they let the paper burn and use their gold hoard to gain power in the next iteration of our civilisation?

The wealthy head of a wealthy family gets to decide. Not Obama, the most powerful man on the planet my arse. Not 320 million Americans. Just one old European man. If you want to blame someone, look into a mirror.

 

Tue, 01/15/2013 - 19:26 | Link to Comment Antifederalist
Antifederalist's picture

Germany to FED : checkmate.

Tue, 01/15/2013 - 20:02 | Link to Comment Clesthenes
Clesthenes's picture

A few years ago I did some research of financial reports issued by European central banks: German, Italian, English, French et cetera.

In every case, the first line on their asset statement read, "Gold and Gold Receivables".  And, no where did any report detail how the line total was divided.

"Gold receivables" was a recognition of the gold carry trade.  By this activity, central banks lent physical gold to bullion banks at a quarter percent or less, who sold such gold into the market and put proceeds into US Treasuries at 4-5%.

According to several reports (private newsletters, WSJ, Barron's), by 2001, the amount of central bank gold sold ranged from 30% to 80% of their total, at prices below $300/oz.  (Click on avatar for link, I don't have them available now; look for "What Price Gold...")

With this transfer of gold, we might get a clue as to how much central bank gold has been irretrievably sold.

Tue, 01/15/2013 - 20:24 | Link to Comment robertocarlos
robertocarlos's picture

For transport they should rent the USS ENTERPRISE or maybe even the US ENTERPRISE.

Tue, 01/15/2013 - 21:13 | Link to Comment mt paul
mt paul's picture

Monotonic gold enemas

for everybody ...

Tue, 01/15/2013 - 21:45 | Link to Comment BarryG
BarryG's picture

Germany wants to crash the dollar and replace it with the Euro as world reserve currency.

http://www.germanywatch.blogspot.co.uk/2012/08/europa-germanica-1940.html

Wed, 01/16/2013 - 02:38 | Link to Comment nastaking
nastaking's picture

We're barely a few days into 2013 but that hasn't stopped iPPO K8 from being announced. Sony is one of the first off the block with the Xperia Z

Wed, 01/16/2013 - 03:45 | Link to Comment Joe A
Joe A's picture

Bring your Tungsten test kit.

Do NOT follow this link or you will be banned from the site!