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Don Coxe's Fascinating Take On Why The Time For The US To "LBO" The Gold Market Has Arrived
A few short weeks ago we described the transition of America from a government "on behalf of the people" to one "in control of the people" catalyzed, as Bill Buckler, put it simply, by one simple event: the confiscation of America's gold, and the ushering in of the welfare (or "promise") state, the same welfare state that now is supported by a system that no matter how hard one denies, is nothing but a ponzi scheme. Today, we follow up that article, with a very thought-provoking observations by BMO's Don Coxe, in which he describes that just like in the time of FDR, for whom the creation of a "mild" inflation was a prime prerogative to offset the depressionary deflation gripping the land, the moment for a brazen gold revaluation by none other than the US government has arrived. Unfortunately, it likely also means that any scheme in which the government opens a buy/sell gold window at a substantially higher price point, will mean that very soon, either by guile or by force, the US government will once again be the prime and sole owner of all the gold. As Coxe says, "The gold bugs have long proclaimed their own version of the Golden Rule: “He who has the gold makes the rules." By that standard, Barack Obama could become the leader of the world overnight." And while it is described in much more succinct detail below, in summary, Coxe's point is that the time for a government "LBO" of the gold market, one in which every last ounce is extracted from the skittish public, in exchange for pseudo-equivalent assets such as gold-backed bonds, has arrived. The only question is what the acquisition price of the risk-free alternative to fiat would be, and hence how much higher will investors push the price in anticipation of the inevitable 25% take out premium. Once the public realizes that this is the endgame, and that the buyer of only resort will be none other than Uncle Sam... then look out above.
As for the context of Executive Order 6102.2, Coxe notes: "When nearly all OECD economies are running huge deficits at a time of near-zero interest rates, and nearly all governments are looking for ways to raise revenues without imposing economy-unfriendly taxes, why don't the big holders revalue their gold to, say, $2,200 an ounce and declare themselves willing sellers at that price—in bars or in bonds backed by gold—and willing buyers at, say, $2,000? Roosevelt revalued gold from $20.67 an ounce to $35 and declared that the US was a buyer and seller at that price. He also made it illegal for US citizens to own gold. By the end of the Depression, most of the world's visible gold reserves were in Fort Knox."
Most importantly, Coxe observes that "now is a good time to lock in the gold bull market by monetizing the nation's holdings through various strategies and vehicles forty years after Nixon uncapped gold and 78 years after Roosevelt boosted it 70%. Why don't the governments bring out their gold and use it to back their bonds? Obama should, in our view, try to find one non-Keynesian economist who understands gold to advise him. We’re sure he could get an old-fashioned scholar from the University of Chicago to help him out if he made a few calls."
Must read.
Governments, Central Banks, and Gold
Perhaps the most enduring paradox in all finance is the way major governments and central banks treat their gold holdings: they ignore them.
When nearly all OECD economies are running huge deficits at a time of near-zero interest rates, and nearly all governments are looking for ways to raise revenues without imposing economy-unfriendly taxes, why don't the big holders revalue their gold to, say, $2,200 an ounce and declare themselves willing sellers at that price—in bars or in bonds backed by gold—and willing buyers at, say, $2,000?
Roosevelt revalued gold from $20.67 an ounce to $35 and declared that the US was a buyer and seller at that price. He also made it illegal for US citizens to own gold.
By the end of the Depression, most of the world's visible gold reserves were in Fort Knox.
Apart from all the jobs created in Nevada and other gold-mining states, this attempt to introduce controlled inflation at a time of surging deflation was at least mildly salutary. Having most of the world's gold also proved extremely useful in helping to finance the recoveries in war-torn Western Europe.
Gold's roaring run to $1800 must be a huge embarrassment to the central bankers. Why should investors be rushing out of government bonds into bullion? Don't they believe us when we tell them that printing all this money isn't going to debauch the currency?
The best way to take gold out of its newfound role as moral arbiter of governments' fiscal and monetary policies may be to cap it.
Yes, captious critics would say that this is the equivalent of buying a bathroom scale whose highest reading is three pounds above the buyer's current weight.
But desperate times call for desperate measures.
The gold bugs have long proclaimed their own version of the Golden Rule:
“He who has the gold makes the rules."
By that standard, Barack Obama could become the leader of the world overnight.
Proclaiming a cap on gold and making all the gold in Western central banks' vaults available for sale—or as backing for convertible bonds—would be a blow to speculators.
Ironically, it would be good news for most gold mining stocks.
And wonderful news for gold mine prospects that are barely more than a hole in the ground.
Why?
Back in the 1930s, gold mining stocks were stock market darlings. Who else could sell everything they produced to the government at a guaranteed price?
Roosevelt was a hero to miners, prospectors and stock pushers.
It was the golden age for penny gold stocks. Anyone could take a flutter on them. There were no lotteries, and the only legal gambling was church basement bingo games. Anybody with a dream and a drill hole was able to peddle his shares, and securities regulation ranged from lax to nonexistent.
A story about an unexpected side effect of all the prospecting in that speculative era.
Management of Gunnar Gold, one of the numerous speculative stocks of the early 1940s, thought it had a promising gold deposit in the Yukon. There was some funny impurity in the ore, but it didn't seem to worry management.
Suddenly, the Canadian government nationalized the company—paying the stock market price, which was less than $2 a share. Only after the war was over did the surprised shareholders learn that Gunnar's ore was radioactive.
The uranium it contained went to a hush-hush US government operation in Los Alamos and some of it ended up in the bomb bay of Enola Gay to be dropped on Japan.
Without the guaranteed price for gold, that mine might never have been discovered.
We believe a new era in which gold was back into the very centre of central banks' operations would be a great time for gold prospecting and gold mine development.
As for the strong, well-financed producing gold mines with huge, politically-secure reserves—the Goldcorps, Barricks, Newmonts and their brethren— they would no longer be white chips: they'd be blue chips, paying secure dividends which, at a time of low-low interest rates, would be prized.
The upward revaluation would permit some of the better-endowed PIIGS to issue gold-backed bonds at minuscule interest rates. As for the US, which has more gold than anybody else, and doesn't seem to have the faintest idea why it has it—or what to do with it—Obama could apply net sales proceeds directly to the deficits.
The cap on gold would take a major bearish investment medium out of the stock market—gold bullion. For months, on the days stocks have gone down, gold has gone up.
If gold were capped and governments combined their willingness to sell gold with a ban on naked short-selling of bank shares, and on naked Collateralized Debt Swaps, governments and banks might get a breathing spell.
Why ban naked Collateralized Debt Swaps?
Because they violate the centuries-old rule for insurance products—an insurable interest. When life insurance was first created in England, companies let anyone buy a life insurance policy on anyone else. Then they found that those lives insured by people who weren’t personally related to the life insured tended to die violently. So the concept of insurable interest developed—just as the fire insurers had never let people buy insurance on dwellings in which they had no ownership interest.
AIG would never have gone down (at a cost to taxpayers of more than $100 billion), if it hadn't violated its insurance principles by going gung-ho into Collateralized Debt Swaps.
As the eminent Paul Volcker has said so often, why should economies and taxpayers be at risk for banks that get deeply into newfangled financial products? Western economies grew satisfactorily in the decades before all these monstrosities were developed, and the bank failures that happened were easily managed.
Today's announcement that UBS has apparently blown $2 billion in its trading operations is a perfect case in point: UBS had to be bailed out by Swiss taxpayers because it was levered more than 40 to one and had monstrous holdings of putrescent US mortgage paper. A great bank that had survived for more than a century as a pillar of Swiss prudence and rectitude had tried to become Goldman Swiss—and it lacked both the smarts and the capital for that remake. Less than three years later, it's due to report a quarterly loss it blames on a rogue trader. Axel Weber of Bundesbank fame is due to take charge next year of this organization whose financial structure in recent years seems to have been modeled on Swiss cheese.
As the chart shows, he's needed now.
Why do we devote so much space to making political proposals?
Because we are deeply worried that another financial crisis is coming, at a time when governments' bailut budgets are seriously constrained.
President Obama's long-awaited speech about his great plans for creating jobs was greeted with reactions ranging from boredom to disdain. It was a highly-energized and well-delivered rouser. However, all he could do is promote a new batch of "shovel-ready" projects and jobs for teachers that would be financed by higher taxes on the rich. He is seen as someone who spent $800 billion on stimulus that didn't work, and he's now largely devoid of both ideas and money.
Obama and his European counterparts look at the performance of shares of the big banks and must feel that, (as we put it in Basic Points), Naught's Had, All's Spent.
The government-owned gold that could provide such support to the leaders in the US and Europe is a nuisance to them, because its strong performance in the marketplace is a daily reminder of the futility of their seemingly endless crisis meetings and new acronymic rescue mechanisms backed by..........what?
Bernanke has expressed a yearning for some inflation (but not in foods or fuels) to help the hapless housing market.
Obama has failed to put the economy on a growth path. Most of his Republican opponents are as doctrinaire as he—while mouthing different dated dogmas of equivalent futility.
As Reagan put it, when the nation faced similar crisis, "If not us, who? And if not now, when?" (He also summed up the Democrats' economic program pithily, "If it moves, tax it; if it still moves, regulate it; if it fails, subsidize it." That perfectly distills today's Demodogmatism. But the Republicans' dogmatic refusal to permit any tax increases—even on the carried interest of hedge fund managers who create few jobs—is equally unhelpful.
If there were ever a time to start accessing the gold Roosevelt bought at $35—and reducing endogenous risk in the global banking system—this is it.
Gold-backed bonds and gold for sale at $2,200 to all bidders would, of course, be selling off "the family silver." But desperate times call for desperate solutions. The biggest and most obvious asset Obama has is the one asset that he supposedly can't touch.
Why not?
Long-duration Gold-backed Treasurys paying, say, .5% interest would be one way of selling off much of the Treasury's hoard without swamping the cash gold market.
Those with long memories will recall when Jacques Rueff, DeGaulle's gold guru, convinced France to issue some gold-backed bonds as proof that the nation didn't face serious inflation risk. Then came stagflation and the runaway gold market and those gold-backed bonds became fabulous investments.
Most central bankers know that embarrassing story, which may preclude their willingness to make any recommendations now. To be remembered as the guy who sold gold at $2,000 in a long-term bond and gold went to $5,000 would be ghastly.
But the reason why Rueff lost so big was that Nixon closed the gold window in 1971 and then oil prices quadrupled and stagflation—which had never existed before—took charge. Under this tentative scenario, the US would transfer all bullion needed to back the bonds, and Congress would pass legislation guaranteeing those gold bond conversions until the bonds matured.
Finally, the wise, witty folk at the Leuthold Group have published the Chart of the Year showing the cumulative total return on gold vs. the cumulative total return on the S&P since Nixon closed the gold window, repealing the cap on gold imposed by Bretton Woods.
Remarkably, gold's bull market in this millennium has meant that its annualized return has caught up with the S&P—9.9% vs. the S&P's 9.8%. If you'd put a bar of gold in a vault and left it there for 40 years, you'd have slightly outperformed most equity investors. The S&P has been long proclaimed as proof of the triumph of American capitalism with its business schools, management training, and superb collection of so many of the world's greatest companies. Buy and hold the S&P and you're going to be rewarded by the very best wealth-generators. Buy and hold gold and you're as outdated as believers in the phlogiston theory.
This statistic could be used by Obama to argue that now is a good time to lock in the gold bull market by monetizing the nation's holdings through various strategies and vehicles forty years after Nixon uncapped gold and 78 years after Roosevelt boosted it 70%.
The same strategy would apply to some of the more desperate European nations. They have gold; they need to sell bonds and the market doesn't want them; their deficits are scary and they're all supposed to retrench simultaneously. Issuing long-term bonds with a fixed call on gold would make their bonds marketable.
Most of the gold sitting in vaults in the US and Europe was accumulated at significant cost to the taxpayers of the time. It is performing no usual function at a time when it seems as if all governments—notably Switzerland—want the value of their currencies to decline. The reason nations wanted and needed gold was to back their currencies.
Pawn shops and jewellery stores report high levels of gold cashouts from middle class people who are having trouble getting by. The point of gold is that for all of history, it has been the one certain thing that can be used to buy goods and services or discharge debts.
Why don't the governments bring out their gold and use it to back their bonds?
Obama should, in our view, try to find one non-Keynesian economist who understands gold to advise him. We’re sure he could get an old-fashioned scholar from the University of Chicago to help him out if he made a few calls.
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Gunny: Jesus H. Christ, Pyle! What is THIS!?
Pyle: A jelly donut.
Gunny: A jelly donut.
they are paying for it. you might as well eat it...........
nothing like a little creed to break it on down with this gold talk....
http://www.youtube.com/watch?v=5yY1Nrznh4I
one last breath.....
The best solution to solve a financial crisis borne out of economic malfeasance, market manipulation, gov't involvement, rigging and white collar crime resulting out of the issuance of too much fiat credit is to.... debauch gold?
Well, makes sense, since the best way to solve a debt crisis is obviously with more debt.
Huh? Don, c'mon.
Truth is, it's capped already, just done so undercover and under the guise of "GLD". Plus, there isn't enough gold in CB possession to even come close to outstanding liabilities. This article makes no sense. It's all over the place without basic consideration for what the new valuation of gold would do to the USD.
This article is rather weak.
The author here is advocating a new market manipulation scheme.
Let everyone buy what ever they want at whatever price they feel is reasonable to them. The government has its hands everywhere and can not even manage a lemonade stand.
If gold is tradition, so be it. If it's money, fine use it along with the dollar, euro and whatever. If it's a barbarous relic, fine let us have it at a reasonable price.
What is it? make up your mind world.
Buy Buy physical as no one will be selling at these prices again. These morons are printing money and supress the price. One of these days it will get away from them.
Just as silver went from a stable 16 to a stable 40. That was the first leg.
British sovereigns in Europe are selling strong with at a huge premium.
Have a nice day you gold bashing morons.
Dona, here is a non-money thought for you.
If gold is the "good" heart of this 'evil" ponzi-debt system that we all abhor, then when the ponzi collapses, Gold will collapse with it. Does that make sense? it will be baby and bath-water time.
Think about that for a moment.
Later? oh yes, much later, Gold might be "wealth" again, but it does have a rather sordid history. Not for nothing was Gollum's precious made of gold, as was Midas's "touch".
He who laugh's last...etc....
ORI
The Curious Case of Troy Davis
If the Ponzi collapses, then what would Gold be valued against? It would stand alone if the dollar is gone and there would be no collapse.
Jlee, if the Ponzi collapses, there is no counter-party for Gold? But A dollar collapse would be a global event. Who will value what in what?
Currencies? bonds? Tangibles? What "exchange" rate mechanism would one apply, all the way from groceries to national debts? Whatever works? Hardly.
Gold hold's the polarity of being "sound" as opposed to "un-sound' fiat. But they exist in each other's death grip, only. It really is the same for silver too, but it might have a bit of a ways to go (up) yet, due to it having been more easily manipulatable.
And pound for pound, there is much more open manipulation of the Silver price, with JPM/Blythe etc. Why is that? Meanwhile the gold game is played much more at the CB, Government level. Why?
Perhaps the true nature and utility of both these so called monetary metals will become clear shortly (HAH!).
Till then, I'll hold my contrarian view-point.
ORI
Zimbabweans were trading gold for food after their ponzi inception collapsed, so there is obviously a counterparty for gold even during collapse.
Gold outlived many currencies throughout even recent history, hell it outlived shitloads of countries that seized to exist due to a variety of reasons. You are confusing proximity of fiat to gold for the need of gold to have value to be valued in fiat.
All points well taken Boris.
But perhaps we are beyond logic and reason now, so I'll hold my belief system in the face of some of that logic,a s profferred by you and jLee above.
ORI
What most is referring to as collapse is simply a reintroduction of reality into the construct that blossoms on ignoring it. Quite logical.
DOW surely will crash through the floor this morning. Gold 500 or at least crash and the knowledgeable buy like there's no tommorrow? That's my punt of the year.
Zimbabweans were trading gold for food after their ponzi inception collapsed,
AND other Zimbabweans were "trading" bullets for the gold held by the ones you mention. The point being that in a "Mad Max" world where the dollar is worthless, piles of bullion will be only as good as the AK-47 to back it up with.
The fact that during turmoil many people will be after gold, including those with guns, only proves it retains value otherwise why they would be after it and not fiatskis. Bullets will be worth more, sure, no argument about that.
i thought the whole point of gold was the lack of counterparty risk, i guess i should sell it all and buy an asset where another party gives me some sort of guarantee...
Hmmmmmm, there are other "tangibles" in the world y'know?
One's you really CAN eat too. ;-)
ORI
i have plenty of bullets, but i really need to work on my stash of beans...
Well said.Doña K
as of october 1st 2011 ebay will no longer be allowing buyers of precious metals to obtain ebay bucks ......to buy more
The cheap bastards weren't making enough as it was. They just couldn't stomach the fact that they were subsidizing the sales of PMs. I was doing quite well in that department! Oh, well. Back to square one. Just proof that eBay is about as clueless as 90% of the population in understanding what PMs actually are: MONEY.
Agreed. The fact that the author has a very weak price-point in mind (2200), coupled with his love-fest for GS ("A great bank that had survived for more than a century as a pillar of Swiss prudence and rectitude had tried to become Goldman Swiss—and it lacked both the smarts and the capital for that remake.") is revealing.
Here's an idea - reign in spending.
Even if Barry's handlers had him confiscate and place a peg on gold, and then issue a blizzard of gold-backed paper, the price point of $2200 has little realistic correlation to the sheer amount of ungodly defecit spending
If the US government were to declare it would buy gold at $2000, and sell at $2200, it would indicate that gold was becoming re-monetised, and everyone would dump their USD to buy the US' gold.
At 8100 tonnes, or 286 M ounces, that's $631B to buy all the US' gold. The Fort Knox and West Point vaults would be drained dry in the blink of an eye by China alone.
But valuing gold much higher might work... $7500?
Well if the USA was to cover its 14 Trillion in external debt using the 6000 tons of gold held by USA ( valued at approx 396 Billion @ approx $2000/ounce). the multiplier would be 35. Which means the price of gold would then have to be fixed at 2000*35 = 70,000, of course the USA could cover only portion of its external lliabilities say 25% of 14 trillion in which case the value for gold would have to be 70000/4 = $17500..
Feel free to correct me if I am wrong in my understanding..
6000 tons *1000kg*33 ounces per kg = 198,000,000 ounces
198,00,000 ounces *2000/ounce = 396,000,000,000
14,000,000,000,000 (external debt) /396,000,000,000 ( value of gold held at $ 2000 per ounce) = 35 ( thats how I got the multiplier of 35..)
So the gold which is today say at 2000 will become 2000*35 = 70000 ( i know gold is at 1800 odd and not 2000). :) :)
What a nice wet dream at 3.15 AM in the morning..
This article works on the principle that the USA still has worthwile gold holdings, but has it, any body been in Fort Knox of late. As I understand it TPTB flatly refuse an audit. Given the current situation would they not be bragging about all their gold.....Why such shyness...it is not afterall the... Why no Whoopdedoo, Yahoo, Weeheee....look what we have....!!
The Monday edition of Keiser on RT pretty much tells us there is no gold left in Fort Knox. The last time anyone got in there was circa 1973 and they were led to the smallest vault of them all and were not allowed to go further, and all the bars behind them had a distinct copper sheen to them.
Probably because most of that gold came from melted down coins, which were 90% (?) purity.
Gold bars- Fineness: minimum of 995.0 parts per thousand fine gold
- Marks: serial number, refiner's hallmark, fineness, year of manufacture
- Gold content: 350 oz t - 430 oz t
- Recommended dimensions
- Length (top): 210 – 290 mm
- Width (top): 55 – 85 mm
- Height: 25 – 45 mm
Silver barsThis article makes the enormous assumption that governments own and have, unemcumbered, in their physical possession, the gold that they claim to have.
Prior to any government bonds issuance there should be a complete, audit, inventory and assay of all gov owned gold.
Otherwise, bondholders will be buying bonds based on another government promise; ie, 'trust us, we have the gold'
The article is weak because it advocates using gold to prop up fiat to facilitate more debt. It's not just gold, it's every tangible commodity known to man used and abused to prop up the reserve currency controlled by undisciplined criminals doing it ostensibly for our love of instant gratification. Then there's the infighting amongst the currencies to make theirs more desirable than their neighbours', often teetering on the highwire act of attracting investments without destroying their export industries. It goes on and on until the smaller players crack and their people begin to realise that what they hold in their bank accounts and their wallets is not a passport to wealth and pleasure, but coloured paper as common and useful as autumn leaves. Moreover, coloured paper that represent not just their own labours, but the labours of future generations to come. We are in the era of the big players cracking, and cracking big.
Instant gratification, greed, blind trust, and tradition are the drivers that allow central banks to issue more and more debt to play the game of creating liquidity out of thin air. Paying for things and services with magic money is almost a byproduct of their love affair with power and enslavement. Anything that threatens the supremacy of USD will end up like the rest who dared to challenge it. Deflation is not the enemy. Economic contraction is not the enemy. Inflation and growth based on gross manipulation of trust that empowers a few leeches to lord it over all of us, until the next bust, is the real enemy.
Yessireebob! That's called eating your seed corn. Totally inappropriate use for any gold that is accountable. Of course, the proposition won't be adopted because, just like the shadow banking "assets", nobody now knows what anyone else holds. PM markets have become obscure by design.
Even Jesus hates Creed.
If the U.S says $2200..Europe will outbid at 30,000 Euros.
Where will the gold flow? Who's balance sheet will look better? Who's economy would YOU invest in?
You are forgetting China with about 2 trillion in USD, They could outbid anyone to get their hand on gold and their hands off the USD. Hell, I am not even sure what is stopping them from initating such a mark up purchase of gold.
Good question.
How is that 2 tril held? Methinks not much in benjamins, but rather electronically-registered bonds (govt, agencies, other rubbish). If China upsets the gold market, the US declares them a 'hostile power' and nullifies their bond holdings. Debt problem solved by selective default.
If your creditor can't hurt you, then you need to please your creditor only as long as you still need to borrow from him. If China bids up gold too much, then it means that they'll likely quit lending to the US and the game is over. China's problem is how to dump their paper discreetly.
It's a fight club for CBs. Debt and credit are weapons, with default (hard or soft, via inflation) as the nuclear options.
"If China upsets the gold market, the US declares them a 'hostile power' and nullifies their bond holdings. Debt problem solved by selective default."
Ah, there's the world's strongest military again. As long as Brit..., I mean USA, rules the waves, etc.
Two Towers... China has already been 'outbidding' for gold... China, India, SE Asia, Mid East are the soverigns and populations that have driven the price of gold to current levels.
Tyler, Hopium makes your ass look big.......
Well, this is disconcerting.
Truly. It lends mechanism to a greater Fascism..
This may be a another propaganda (using fear) to take gold lower for next week's option expirations.
If it goes lower I am buying another stack. Every time I bought, I thought that it may be too high to buy. So far none of my buys have gone lower than purchase price.
Buy with conviction. They are printing stealthily and openly. They have no qualms. they are now desparate. there is no going back for Bernanke and co. Inflate or die.
I've been adding physical the last few weeks ever since it started trading sidewise between $1750-1900... anything under $1800 is a go for me. After October I think $1800 is gonna be pretty far back in the rear-view mirror.
I buy gold and silver just as much as an investment as a philisophical stand agaist the bankers. Please take it down to a dollor. I'll buy it hand over fist.
theres millions of chinese with "gold" accounts in china right now they can't create the accounts fast enough and we are going to be confiscating? I call bullsh*t...........
After all Cramer sold all his stocks and bought physical. He's first to give up his gold one way or another.
I wouldn't believe Cramer if he told me 'the sun is going to rise tomorrow'.
LBO Bitchez!
i'll give you my gold when you pry it from my cold dead hands
get your shavels ready.
and your navels rooty..."we're going in"
I am a seller at $10,000. Any takers?
ps You can have my silver at $750 in a package deal.
Because they don't have any...
yep, thats what i was thinking, the author may want to fact check fort knox before positing this
YES; The author needs to do the math first. There just is not enough physical GOLD for that price (China for one would buy it all up in a heart beat). The price the author is using is for paper gold (futures markets). The physical Gold price is being held down for now by this paper gold. The longer the government keeps putting off a "REAL" change the higher the price of physical gold will go. People are watching their wealth destroyed. The first thing to getting out of this mess is to due away with this "crime with out punishment". As long as we have it, all we can hope for is more kicking the can down the road. All the laws congress passes don't mean a thing if the law is not enforced. We can't.... They are too big to fail, is a lie!
They have it, but they ain't parting with it. Even they know what REAL money is. PRINT BABY, PRINT!!
Here's my take:
The Treasury should just announce a call to BUY (not sell as the author suggests) ANY AND ALL gold for a very high price, say $5000 or $10,000 / oz. Create a new market price of gold. FOFOA thinks the price would then just go on UP from there (disclosure: I contribute to his blog and would love to see gold go to $55,000).
This would INSTANTLY cut the value of our debt outstanding by 80% - 90%.
There would be some casualties, there would be inflation.
But, those who have gold would profit immensely. SAVERS (the source of capital...) would benefit and then be in a position to INVEST in America (assuming we rid ourselves of stupid regulation uncertainty, etc.) and bring our country back to where we were: the bastion of LIBERTY and PROSPERITY to the world.
It wil never work; makes too much sense and would create a new unknown lower upper class.
If the Treasury were to BUY gold, they'd need to raise new $ cash to do so... either through new tax revenues or debt financing.
T'would only make federal financials worse, not better.
1 short ton of 2000lb (US) = 29,166.667 Troy ounces
29,166.667 x 800 x 2000 = 46,666,667,200.00
Only $46 billion. $92 if you double the price to $4k. Big deal. The fact they haven't done it already should alarm everone. If the gov't were to embark on such a plan, a true price discoery would be initiated. No telling what the true price would be - probably a lot more than $4k and the PTB knows this. What this means is that it's just not that easy of a solution for the PTB to just buy gold at $4k and Ag at $60 and be done with it. Hence, they've embarked on a path which stands a good chance of leading to a disorderly collapse as that is their only viable option for them.
I think that the tons used in CB reporting are metric tons, i.e., 1000 kilograms. One kilo is 32.15 troy ounces. At $2K per ounce, my figure is $64.3 million per metric ton.
If the US has, say 8000 tons (as is claimed), then the current value is around 500 billion. Not even enough for a stimulus package. Raise that to FOFOA's estimate of $50K per ounce and you have 13 trillion. This sounds about right to 'recapitalize' the US gov balance sheet.
Sounds like fantasy, doesn't it? I'm old enough to remember when today's bailout/debt/budget figures would have sounded equally fantastic, applicable only to laughable, third-world, half-ass places.
Something I've never seen talked about is the inflationary effect this would have. If the US govt starts buying gold at 50k an ounce, then a lot of people would be sellers. Wiki estimates that the 30,000 tonnes in the hands of central banks represents 20% of all gold holdings; now if, say, 25% of the other 80% want to exchange their gold for fiat, that would mean CBs forking out trillions of fiat to pay for it. There would be dizzying inflation.
It gets talked about a lot...
Per DCRB above: "There would be some casualties, there would be inflation."
See? It was mentioned. And it has been ad nauseum in years past here at ZH.
"There would be some casualties, there would be inflation.
But, those who have gold would profit immensely."
So like .5% of the population who have gold would profit immensely, and the other 99.5% would be fucked. Great plan.
Absolutely, completely, totally and utterly NOT true.
The vast majority of people are irresponsible assholes deep, deep, deep in debt. If they do this, THEY will be the biggest winners, the 90% who are totally irresponsible and deep, deep, deep in debt.
I refrain from moralizing, but what you say is irrefutable. My parents generation bought houses in the 1960s and had the weight of their mortgages greatly reduced by the inflation of the 70s.
Debt is indeed the problem, insoluble via band-aids and half-measures. Large-scale bankruptcy or high inflation are the only solutions; some combination of these will occur, whether controlled or spontaneous.
I own some physical gold, but don't like the reason I'm doing it. The idea of the vast majority of the people being crushed is repugnant. Some of us will be less destroyed be cause of the ownership of physical gold, and thus by a relative bases do very well. This is not the way for one to make money. Make money by providing some good to the one who's money you get. Cut my grass, and I'll give you some of my money. These guys who took the peoples money ($800 bl TARPs) to save their bank, and then took $30 bl as bonus, think they did nothing wrong ("just doing Gods work")!
Nothing can be any better than the people in it.
You are missing some conscience salve. :P
The fact is somebody will have to rebuild after the collapse. For that real capital will be required. It will be better for that capital to be spread out that held in large stores.
Sadly it's going to be "every man for their self in this land we be gunnin'"
What a load of insane drivel.
Who writes this kind of stuff?
Tyler, you can surely do much better than this.
Crisismode: I agree completely. Notice how Don jumps around, changing subjects and losing all traction. Don needs to retire and stop giving Basic Points that are neither basic nor points.
I've been following the guy for years and he has been spot on more times than I can count. He's been bullish on gold for as long as I've listened to him (at least since '06-'07). He was talking about the PIIGS and the troubles of the euro long before the MSM. His advice when Lehman went down was basically, 'sell everything now', which saved my ass from getting seriously burned in '08. Not to mention his calls on agricultural commodities like corn and wheat.
The majority of good trades and strategies I've taken over the past few years I owe to this man. So when he says 'go long gold miners', it's going to take more than a few reactionary crackpots commenting on ZH to dissuade me. The monetization of gold in one form or another is a highly plausible endgame given the current fiat crisis.
The stupider the ideas sound, the more likely they are to be implemented by the Overlords. So, the article is probably spot on, in spite of its idiocy.
Great. Just as congress outlaws incandescent light bulbs. Now where will I get my tungsten to paint?
Bill Buckler is wrong. It is HE WHO CONTROLS THE MONEY SUPPLY I.E. VELOCITY, CONTROLS THE RULES. For explanation and evidence check Max Keiser's interview today with Bill Still - he has the solution.
Bill Still is looking in the right direction but not seeing. He's just another paper apologist. Gold and silver coins, bitchez.
Italy in particular has so much gold that this could save them.
Biggest problem with the plan is that an open ened offer to pay $2,000 for an ounce of gold might bring large new amounts onto the market so the offer to pay $2,000 would have to be qualified.
they certainly would if they stormed and looted the vatican
the diocese is prolly too busy kiddy-fiddling to even notice
The Vatican has been looted at least twice that I can think of off the top of my head.
Not since the conquistadores... or the Nazis for that matter.
HA! You had one part partially right. if they are making a market at $2000 an ounce the large new amounts of gold on the market would be Central Bank gold.
Gold in SIZE at $2000..China would buy everything
Don Coxe: you are a babe in the woods of geopolitics, my friend.
You ask at least 3 times the question "Why"?
Same question that plagues all who don't get gold
Most of the gold sitting in vaults in the US and Europe was accumulated at significant cost to the taxpayers of the time. It is performing no usual function
LOL
Ask yourself "Why?" again. Why indeed is something that they all universally label as a "useless relic" so highly valued, sought after, kept, hoarded under the maximum security of a military fort.....and over time so highly paid by governments and investors all over the world?
Maybe after you think about that you'll see the fatal flaw in your logic. As you stated yourself, "he who owns the gold makes the rules". And that one golden rule has motivated all of the laws, acts, seizures, gold pools, conspiracies and wranglings over time.
Sell the US gold supply to bidders on bonds who are willing to offer paper in return? The paper they printed at turbo quant rates for decades?
LOL my friend, LOL
Good post.
I was thinking the same - how is this even credible?
The US once backed it's paper with gold.
spending caused the US to de-peg, and issue fiat paper.
Spending continues to increase at an exponential rate.
So how is making a claim that we will issue new paper backed by gold carry any credible trust in the marketplace?
Besides, the $2200 price point doesn't even approach reality - even rickards throws out numbers between 5 and 7 k
Why the fuck would I buy a gold backed bond from some entity (instead of owning the physical) when said entity has already proven itself a singularly undesirable counter-party with respect to honoring the very rules of law they are pledged to maintain, protect and enforce equitably amongst all peoples?
To wit, the absolute abrogation of contractual bondholders rights in the GM and Chrysler machinations to merely initiate such consideration.
QED
Cats and stoves....
Fucked once is enough...
It's a credibility problem, Don.
Careful Alice, the Rabbit Hole is Mighty Deep©
Sadly, I have to agree.
The social contract ended when they blatantly embraced a two tier legal code.
If the law does not apply to all equally, then fuck the law.
The mythical Social Contract is the Social Lie.
[search Social Lie]
Most no longer contribute because they believe.
They pay tribute because, if they don't, people with guns will show up to imprison, or kill them.
Yep, that ETF rabbit hole has a ( FOX) in it. Buy Physical, or miners.
Haha knukles, I wish I'd thought to say it.
Gold-backed bonds were one thing in, say 1910, after a century of gold-standard growth and prosperity. Coming on the heels of a recent crisis in paper and official impotence (incompetence or corruption, take your pick), who, indeed, would give up their metal for paper?
As far as simply grabbing it, this worked for FDR for many reasons, e.g.,
None of these things is true today. If Uncle Sam wants to grab the gold, he'll have to find it. Goldbugs are by nature a secretive and closed-mouthed group. The smart ones will have bought their holdings for cash, with no paper trail. It'll be easier for the govt. simply to raise the buy price (which costs nothing, as Benny hisself has stated) than to scour the countryside for the odd hoard of coins.
"The smart ones will have bought their holdings for cash, with no paper trail."
They will be easily outsmarted by a law that makes all undocumented purchases "money laundering" if not "terrorist financing".
Those *with* a paper trail will be in the govt database, but they will stand at least a chance of carrying their wealth through this clusterfuck and sell it for new gold-backed currencies.
You may be right. It's a risk either way.
If there's no paper trail, who's to know? It would take real detective work to sniff you out, especially if you move around a lot (I've been officially resident in 6 countries in the past 15 years).
In my experience govt. workers are lazy, and cops are govt. workers. They'll net the guy they can pull up with a database query long before they go out sleuthing for the cash-and-carry types.
And those paper-trail guys who played by the rules, when does playing by the rules get respected anymore? It's the rule-breakers who get bailouts, subsidies, and non-prosecution, all at the expense of the rule followers.
You may be right, but I know how I'll bet.
"Why the fuck would I buy a gold backed bond ?"
Because it will be what we in horse training call "the good deal". The alternatives will be more onerous, even if the state needs to create the onerous alternatives.
Oh my. I'm personally 7 figures long gold and love gold, but this article is off base on so many points. The gold market is tiny. It is not affecting stock prices as a hedge. Money does not flow from stocks and into gold by any significant amount. Second, if you price gold at $2,200 I have a feeling China would be absolutey giddy. China is accumulating slowly. It does not seem wise to open up Fort Knox to them at a price that values gold WAY below what the Bretton Woods agreement would have it at today. Implementing the Bretton Woods formula today would put gold at roughly $7,500.
And lastly, there is ample evidence that the government lies about what is in Fort Knox. Who here actually believes the reported numbers? Neither does Ron Paul.
Note that there have long been rumors and tales of hundreds of thousands of tons of gold confiscated at end of WW2 [in Philippines, Indonesia, Europe, etc.].
Any fixed offer to buy unlimited quantity at $1000s/oz would be swamped and overwhelmed if those ghost tons exist.
And if they do not, any forced confiscation would have to deal with FDR's very limited and somewhat illusory confiscation.
So what if the US is the continuation of the adventures of a certain figure who is 'honored' with a govt holiday next month?
As much as things change, they stay the same..
anonnn... Yeah, there are plenty of rumors about secret hoardes of 'hundreds of thousands of tons of gold'...
There are also the rumors that central banks hold thousands of tons of unemcumbered gold...
I believe neither until real credible proof is on offer.
wth, buy platinum.
Who is buying gold at these prices in America right now anyway.
APMEX does a promotion with Trump to encourage people to buy. The first national advertisement for APMEX.
And a week later talk of confiscation?
Great metal! Expensive, and open to violent swings. processing costs are high. Good investment over all.
I am. And apparently, a whole lot of people are buying gold at $1750+ since they have been unable to crush it below that number. Maybe you haven't paid attention to the fact the central banks in the east are buying as much as they can.
About a year ago a friend and I who had been advent followers of Don thought he was loosing it. After several back a forth wrong calls by Don, we realize he was a strong follower of Obama and similar ideology. Don has lost it totally. And like Obama Don should retire completely. While Don does have some good thoughts on his Basic Points, the US today is absolutely nothing like it was back in the early 20th Century. I am very disappointed in Don, he has lost it.
What bad calls? I've been listening to the guy for years as well, he hasn't made any severely wrong calls that I can remember. His historical perspective and anecdotes on geopolitics are more intelligent than 99% of what you'll read in the MSM or the doom-and-gloomers on ZeroHedge.
I'll sell my gold for fiat when my government suddenly becomes awesome. Could be a long time.
If your government becomes awesome, there won't be any fiat, and they wouldn't tolerate any fiat. But we get the point.
The author and similar assholes do not understand the basis of economics. Just fooling around taxes, regulations, and various stimulus and, at the same time, rewarding theft, corruption, and inefficiencies will not do a shit to revitalize the US economy.
As for US citizens rushing to surrender their gold to the government, it will be a "very slow" process.
Drugs are illegal but did people stop using them? The same goes for alcohol, i.e., the Prohibition did not stop drinking. It just created a black market for it.
$2'200! It will have to be a lot higher Mr Coxe! Try $12'500.
try $50,000.
Even that figure is right now. (Actually, FOFOA states that this is $50K in 2009 dollars.) Kick the can for a few more years, rack up more debt, and even $50K will be too little.
Old me: "Sonny, when I was your age, I could buy an ounce of gold for just 2000 bux"
Young punk: "Wow, granpa, you must be rilly old! Was that in newbucks or old bucks?"
Try $830,000
yeah, from what I've read, it would take $5-7,000/oz to make our debt to gold ratio feasible/acceptible/rational (? is there a word for this?)
Perhaps you mean 'plausible', but I doubt that $7K would pry much gold loose. As DoChen suggests in this thread, the govt could well try an offer like this, only to see how many suckers would take the bait.
I think the problem is how to measure debt. Is it just the USFed, or others that the US is likely to bail out when push comes to shove? These may include banks, state governments, big companies, social security, and many others whose names may even be closely-guarded secrets (think secret loan guarantees).
Most of those who still have physical will not let go until government itself has returned to plausibility. This is the other end of a long tunnel whose exit we cannot see from here.
Goldbricker... The gov could take a page from the Las Vegas bookies...
After the bookies decide on tentative 'lines' for the various upcoming games, they open the betting to a handful of professional gamblers. After watching the betting of the pros, the books readjust the lines in an attempt to get equal betting on the games.
If the govs 'buy/sell' window wanted to achieve a price where buying and selling were about equal, they could adjust the initial number to get the results they wanted.
However, I don't believe that the US Gov is interested in 'equal buy/sell' outcome. The gov wants real physical for bs fiat or bs bonds... all just more colored paper.
Interesting background on bookies, thanks.
The US Gov not only has no interest in an equal buy/sell; unlike bookies, they have no need to make a profit (perhaps for their hidden bosses, but not for themselves).
But you are right, they would need to test the water to come up with a number that works for them. I recall that FDR didn't immediately settle on a new gold price of $35, but experimented with one or two prices in between $20.67 and $35 beforehand.
But, at $35, FDR stood ready to buy or sell. If you are only buying (as the CBs will surely be) with free money then I suppose that a finely-tuned price is not a high priority.
crapolla.. squared
so who owns the gold .. not the usa ..they have sold off this gold under rubin , cigar face clinton..
the moment some one tried to grab the gold held by maybe 2% of the population .. is insane ,,, the central banks , nations china , india , russia own the gold .. Hedge funds,,
gold would leap to untold heights ,,
those who push this BS .. are like seeing spiders in their pavlovian sop.
Sadly, my gold went to the bottom of the lake with all my weapons.
Damn boats.
ever though about taking diving lessons?
Middle of Lake Tahoe, damn the bad luck.
goddamn RF,
that happened to me, too! So whatever gold i find at the bottom of lake tahoe is MINE, MINE, ALL MINE!!!!!
25% premium! I knew I should have bought some of that "worthless barbaric metal."
"Obama should, in our view, try to find one non-Keynesian economist who understands gold to advise him. We’re sure he could get an old-fashioned scholar from the University of Chicago to help him out if he made a few calls."
Penultimate sentence. Talk about anti-climactic.
this whole gold plan reads as if it is a method of keeping the status quo amongst the debt pile that is the gse's and the private banks and corporate and personal debt.
the author fails to appreciate that this is a huge problem not solved as simply as saying--let's back the currency with gold!.
if you think the world can keep going the way it is with some magic recapitalization plan that doesn't ACTUALLY address fundamental reform in the banks behavior as a PRECONDITION to recapitalization, than one may as well be in fairy tale land, because without behavioral reform for the capital markets adn banks, we are heading to a major financial free-fall. even with behavioral reform there will be collapse, but this is the difference between a building failure and a controlled demolition.
perhaps the difference could be visualized as the difference between tower 7 collapsing neatly and quietly like a controlled demolition and the twin towers making a HUGE mess when they collapsed.
First off, when you RE-value gold you DE-value the currency.
THose with long memories know what happened when Nixon RE-valued gold from $35 to $38 (December, 1971). Just 8.5%? That DE-valuation of the dollar sent the trade deficit spiraling out of control and launched the next phase of killer inflation in the 1970s. And we all know where that went and how hard (and lucky) it was to put that genie back in the bottle.
And, Mr Coxe, you're talking about astronomical DE-valuations. And this ain't 1971: we are totally import-dependent. You'd wake up the next morning with prices for everything spiraling.
Oh man.
+1
You'd wake up the next morning with prices for everything spiraling.
Maybe not. All the countries that export to us would curse us and then devalue in tandem, or at least try. Hell, they'd have to, if only:
I predict we'll have lots of new euphemisms before we emerge on the other side of whatever this is.
Cav Emptor...
2/3rds of US oil is imported. The large oil exporters have been accumulating gold, along with US Fiat, for generations.
Arabs/Persians opinions of fiat is about like that of all SE Asians... Negative.
The only reason that the large oil exporters still take dollars for gold is because the US Military will take out any dictator that refuses fiat.
The US economy is weakening and as it does the US military will weaken.
Can anyone imagine an America trying to restore the economy after 2/3rds of imported oil stops reaching our shores?
We know that this US Gov, and those that preceeded it, are playing for one more day in the sun... There is NO long term planning. I would not be surprised to learn that all the US gold has already been spent to keep oil flowing into the US. In which case taking gold from citizens would be a ploy to keep the oil flowing a few more weeks.
I call bs on this article.
"The US economy is weakening and as it does the US military will weaken."
So the US will have to act before then. In fact the US is acting, wherever the oil (and gold?) is.
Long term planning? We are up to our eyeballs in think tanks. In the 1930s we had a plan to fight the British.
http://www.marketwatch.com/story/spanish-mountain-gold-announces-don-cox...
Next problem: gold backed US treasuries? Good way to suck more liquidity out of a deflationary economy and encourage more saving, not spending
gold could go to 20k
tax could be 90 % when you sell..
When you sell in the US.
Even in the US, only when you sell with a paper trail. I worked for a coin dealer in the early 80s in a state with a sales tax. If you had to pay the tax, there would have been no business. Solution: buy and sell for cash, claim that it was all dealer-to-dealer transactions.
America certainly has a big enough cash economy to absorb cash gold transactions, which would still be tiny compared to drugs, illegal immigrant labor, and heaven knows what else.
Lol, sure "The US has lots of gold to sell". It's uh... somewhere in JPMorgans' vaults. I guess. And we are talking about the same US gov't that sold all its gold at around $300/oz and then went and bought it back for $1300/oz, right?
And besides, like everyone else said previously, why would any sane person give up their hard and shinies to the self-same megalomaniacs who brought us turbo-printing and institutional insolvency? Because the paper says "we promise to pay you gold"? EDIT: "we promise to hold gold somewhere safe for you"
Oh, and one more thing, when Roosevelt declared $35 gold, he was devaluing dollars, not revaluing gold. It would be fairly retarded to suggest that 35 pieces of paper for one gold ounce is better than 20 pieces of paper. Get this guy off ZH :|.
This might well become a reality @ some point going forward...But not yet...When you start seeing 'weirdness' with the miners and country vs. country gorilla warfare with the mines..then yes..absotively
I draw the line at sending gorillas to war.
That is just wrong.
Kudos RatMan
Ah, what's to stop the government from just outright confiscating the gold? It's not like they've never done it before, and before anyone says "they'll have to take it by force", I'm sure they'll be happy to accommodate that. Just saying anyone who thinks they'll be able to set the terms of the transaction is delusional.
I agree, but the US hopefully can not control the world gold market.
The US can't control its own borders.
If I had any gold and I don't I would just shove the little one ounce bars up my ass and hike across the canadian border. If someone is willing to look up my ass to get it, they can have it.
Cheers
Are you trying to say you're willing to pay people an ounce of gold to look up your ass? Fuckin sick man.
TSA has been practicing that search.
Anyone who reads ZH and doesn't own any PMs will have an epic case of the regrets.
correction, mr obama does not want to control america's borders
It's totally impracticle and won't work, it didn't work very well in the 1930s either. If you are talking about inviduals how will they even know who has it?
It isn't a matter of force. It is a matter of dealing with "I don't have any gold". And if they can prove you once purchased gold, they can't prove it wasn't stolen, and they can't prove you didn't trade it for something, and they can't prove you didn't give it away, or lend it to relatives out of the country, and they can't prove you didn't forget where you burried it, and... so forth. No way, no how will more than a tiny percentage surrender their gold, ESPECIALLY if they try insanely desparate moves such as this.
A very superficial analysis. Waste of time to have read.
Hear Here.
This can be their last bullet. Until all other tricks have been tried and failed completely, this ultimate bullet won't be fired. By then, the nominal price of gold will be over $10K USD.
First of all, who really believes that TPTB want to fix anything, other than their own schemes to cheat the public even more.
And how can the Bernankster sell gold bullion that he knows is tungsten at best?
Maybe that's why we have the new CFL bulbs, McFadden said the gold went to Germany.
http://www.youtube.com/watch?v=pUAr57KS3wA&feature=channel_video_title
...Bill Still says there is no gold at Fort Knox. http://www.youtube.com/watch?feature=player_embedded&v=CrSWpmtm0kY <<< Max Interview with Billy.
Do you think we might end up on some DHS list for watching RTV and Al Jazero.
...lol, I have never spoken with any DHS employee that was not a dipshit. List? lol ...is that why the hardline is makinging funny ringing noises while it's on the hook (started recently) and no one is calling. lol. No my friend, The Book of Life is in my hand, not the accuser. The host of darkness can't see the light, no matter what flag they wave. Fear not, go with our Father in Christ. http://www.youtube.com/watch?v=74faOGYz89k&feature=related
Last thing any country will do is allow foreign entities to lay claim to the gold supply. Once that happens it's considered the transition point from decline to collapse. Ask any formerly powerful royal family, former empire or once glorious nation. Spain in the glorious 16th century? I'm looking in your direction. And they had lots and lots of gold and an empire that included a good chunk of the USA.