Gold in a Coronavirus World
“The price of gold is rising, but that’s not the most important thing.”
That’s the start of a compelling article our CEO, Keith Weiner, wrote this week about our current environment.
In it, he illustrates your role – and mine! – as creditors in the ever-expanding US debt burden. Eye-opening, indeed.
You can see it on Jordan Goodman’s Money Answers blog. Here’s an excerpt:
Gold is the way to opt out. It’s the one financial asset which is no one’s liability. A piece of gold does not depend on a debtor who must keep making payments. Gold exists regardless of who defaults.
Click to read the full article. Enjoy!
Why does Keith saying the strange thing quoted below? I’ve been reading this blog for at least a year and still can’t unscramble it:
> The challenge is that, to own a dollar is to be a creditor. The dollar bill—bill is a word for credit—says on its face “Federal Reserve Note”. Note is another word for credit. To own that piece of paper is to be a creditor to the Fed. The Fed uses that credit to finance its purchase of Treasury bonds.
OK, I have a $20 bill in my wallet so I’m a creditor to the Fed. A creditor is “a person to whom money is owed”. How much money does the Fed owe me when I hold my $20 bill, and what type of money? When do they have to pay me? Can I sue them in a court when they don’t pay? If not, why are you calling me a creditor? Do you have a different definition of creditor? What exactly do Keith’s sentences above actually mean, in very simple and explicit language?
Here’s my understanding, FWIW:
“How much money does the Fed owe me when I hold my $20 bill, and what type of money?”
==> “Only gold is money, everything else is credit” (J. P. Morgan). Going back a century or so, your $20 was a vault receipt for an ounce of gold, and that is what the Fed owed to you. But they reneged on the debt.
“When do they have to pay me?” ==> Never. Imagine a person who owes you money but you have no leverage to force them to pay you back, and they don’t have the money even if they wanted to pay you back. Which they don’t.
“Can I sue them in a court when they don’t pay?” ==> Nope. Because all the judges, attorneys, and potential jurors are 100% embedded in the illusion that the $ is “money.”
” If not, why are you calling me a creditor?” ==> You’re still a creditor, but you’ve been cheated. Your $20 bill is a bad debt that will never be repaid. Or rather, the person who held the $20 over a century ago was cheated when FDR repriced gold to $32 and prevented people from owning gold, and again in 1971 when Nixon closed the gold window, and all through the last century as the dollar (and all fiat currencies) continue to be devalued against gold. The bad paper has now been passed to you, and when you spend it you will pass it on to someone else. Like the card game “Old Maid.”
” Do you have a different definition of creditor?” => No. Just not buying into the collective dream that fiat currency is money, when it’s actually credit, and long ago was redeemable for gold.
Your explanation jumps to the conclusion that the Fed’s obligation is bogus. As long as the Treasury Bonds have value then the Fed’s obligation is not bogus and the Fed Note is truly a debt against the balance sheet of the Fed. What you express is your belief in the inability of the US to ever pay ITS debt. As I mentioned in my direct reply to “Bernanke”, the Treasury could drop its indebtedness to one of its lowest points in the history of the country over one weekend by simply calling in the Gold Certificates held by the Fed on a Friday afternoon and re-issue them on a Monday at $40,000/oz versus their current book value of $42/oz.
The $20 Federal Reserve Note you hold represents a lien against the assets of the Federal Reserve. Most of the assets of the Fed are debt instruments of the US Treasury. Therefore most of what is backing the credit bill called the Federal Reserve Note is Treasury debt. To understand the assets of the Fed better just google “assets of the Federal Reserve”. Coins and Gold Certificates are listed by the Fed as assets whereas their Notes are listed as liabilities. That is because coins and Gold Certificates are considered real money. If the Treasury wanted to improve the Fed’s balance sheet by $20 Trillion almost instantly, it could call in the Gold certificates which are booked now at the stated value of $42/oz and then re-issue them $40000/oz.