Various reports coming out of last week’s G20 meeting in Cannes are suggesting that some member countries had proposed Germany use its gold reserves as collateral for a Eurozone bailout fund. This brought a series of quick and unequivocal responses:
“German gold reserves must remain untouchable” said the German Economy Minister Philipp Rosler.
“Germany’s gold and foreign exchange reserves, administered by the Bundesbank, were not at any point up for discussion at the G20 summit in Cannes,” said Steffen Seibert, a German government spokesman.
An MP from Angela Merkel’s Christian Democratic Party stated that it is out of the question that Germany’s gold be used to fund Rome. However, Italy could use its gold instead.
Well, isn’t that interesting. Central banks and their governments (I believe that is the correct hierarchy.) don’t bat an eyelash at creating billions of dollars worth of their currencies to intervene in a market, or peg their currency to a sinking ship, but suggest that they might put some gold at risk and suddenly everyone has their hackles up.
If gold really is just a barbarous relic, or “tradition” as Fed Head Ben Bernanke stated this past summer before the House Committee on Financial Services, then why would anyone care? Warren Buffet says it’s a useless metal that we spend money to dig out of the ground, then spend more money to guard in a vault.
Don’t believe a word of it.
Central bankers know that the only real asset they have on their books, apart from their fancy buildings, is gold. It’s tough to get excited about accumulating a bunch of currency units created by another bank at will, in exchange for a bunch of currency units that you just created at will. It all seems rather valueless doesn’t it?
The Federal Reserve is the ultimate example of how little central banks value the currencies they produce. Over the last several years the Fed has created trillions of dollars to be handed out willy nilly to seemingly anyone who knows the proper person to ask. After the crisis of 2008, two Wall Street wives created a legal entity called Waterfall TALF Opportunity (Get it?) to grab $220 million from the Fed in near 0% rate non-recourse loans. These ladies invest the money and pocket the profits. If they lose money, they just send a bunch of sub-par paper back to the Fed and call it even. Getting rich is easy when you are an insider to the criminal currency creation monopoly.
Privately, central bankers are the ultimate gold bugs. They, more than anyone else, understand the fleeting value of the digital currency units they produce at the stroke of a key. They understand that the current money paradigm won’t last forever, because at the finish line for the race to devalue, waits the number zero. And when the ultimate restructuring comes, it will largely be the amount of physical gold each possess that will determine their pecking order in whatever monetary system replaces the current one.