Thursday, January 17, 2013

Krauts Bring Gold Home

This NYT article gives an overview of Germany's plan to repatriate 674 tons of gold bullion stored in New York and Paris. Supposedly, the once gold-less Germans, having used their reserves to finance their confrontation called WWII, were forced to store their newly acquired bullion in the West, so the evil Commies from Moscow wouldn't be tempted to invade and haul it away for more gilding on the dome of St. Basil's. If this is true, it makes one wonder if the German government was more worried about the possibilities of Soviet theft than the actual lives of its citizens.  It's similar to the US government creating nuclear weapon-proof sanctuaries in Maryland so leading  members of the government can emerge unscathed after an atomic weapons exchange and resume running the now citizen-less country.  Interesting thinking.

 That's history, however, and Angela Merkel and Wolfgang Schnauble aren't as worried about the threat of the neo-corporatist Putinite gangsters as they are about the potential for the collapse of the Euro and the likely revival of the Deutschmark. The most interesting aspect of central bank concern with gold is that the malleable metal is no longer part of the fiat money equation. Countries can enpixelate trillions of dollars or zlotys or shekels without having a stack of gold bars hidden away somewhere that those enpixelations represent. If the central bankers really believe that gold is, as John Maynard Keynes said, "a barbarous relic" why do they care?

 Obviously, they're hedging their position. Historically, all fiat currencies have failed and there's really no reason to believe that creating incomprehensible quantities of symbolic money will be the final solution to whatever the problem might be. That's not to say that even in a fiat money paradigm gold has no value. It is, and has always been, a commodity, like cotton or pork bellies. But the basement of the Federal Reserve Bank in New York isn't filled with bolts of denim or frozen bacon. It's a gold repository.

 The logical Teutons have been around the block. If the Euro monetary experiment fails, Merkel will have seen five different fiat national currencies in one country during her lifetime. They know better than to assume the infallibility of fiat money.

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