3 Minute Gold News – Jim Rickards – May 5, 2016

3 Minute Gold News

A Quick Read for Busy People

A synopsis of an interview with Jim Rickards, New York Times bestselling author of The Death of Money, Currency Wars, and the newly released bestseller The New Case for Gold by Max Keiser at The Keiser Report.

Jim is the editor of Strategic Intelligence, Chief Global Strategist for West Shore Funds, former general counsel for Long Term Capital Management, and a consultant to the U.S. Intelligence community and U.S. Department of Defense.

by: Elaine Diane Taylor

PART 1 of 2

Topics:

Enough Gold in the World?
Anti-Gold Reserve
Warren Buffett
Determining Value

 


Jim Rickards

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Interview Link

ENOUGH GOLD IN THE WORLD?

The gold supply doesn’t grow fast enough to support the world economy. The world economy groww about 3 -4% per year and mining output is maybe 1.6% per year.

Obviously gold can’t keep up.

But this is irrelevant to whether there’s enough gold to use as a reserve because it doesn’t distinguish between official gold, which is gold held by central banks and finance ministries, and total gold which includes the watches and jewelry and all the gold in private hands.

If central banks are on a gold standard and want to increase the money supply all they have to do is buy private gold — just print money and buy gold.

Today they print money and buy bonds.

There’s approx. 30,000 tonnes of official gold and 170,000 tonnes above ground.

Mining output isn’t really relevant to whether there’s enough gold.

ANTI-GOLD RESERVE

People who are anti-gold fall into two groups:

1. Those who know and understand the arguments for gold but prefer the system as it is — the PhD economists and central bankers.

If you had a monopoly on printing money why would you want to give up that much power? Janet Yellen, Mario Draghi and other central bankers control the money supply.

If you control money you control politics and you control behaviour. No one gives up that kind of power voluntarily.

2. Those who take the statements they hear from those in power at face value. They either trust those in power or haven’t thought hard about it.

The arguments against gold don’t hold up.

WARREN BUFFETT

Warren Buffett says he doesn’t invest in gold because it doesn’t have a yield.

Gold is money and money doesn’t have a yield.

If you have a dollar, which is money, it doesn’t have a yield. You can put it in the bank to get a yield but it stops being money. When you put it in the bank it stops being money and becomes an unsecured liability of an ocassionally insolvent financial institution.

Jim isn’t suggesting taking all money out of the bank, he’s just saying it’s good to understand what you’re doing. You take a little bit of risk and get a little bit of yield by putting dollars in the bank.

You can get more yield by taking more risk.

Gold is money and doesn’t have a yield because there’s no risk.

DETERMINING VALUE

How do we determine the value for something?

Cartesian economics said to figure out the labour and the capital that went into making something, and that was its intrinsic value.

Then Carl Menger came along in 1871 and said the way you value something is the utility, not the cost of making it.

What’s the utility of gold?

The way to think about the value of gold isn’t the intrinsic value (how much labour and capital went into making it), but instead in how gold performs as money.

In a world of really good central bank policy, structural changes and lower taxes, then maybe you would trust paper money and gold wouldn’t be interesting.

But instead taxes are too high, there are lots of structural problems and central banks don’t go by sound economics, so you see a loss of confidence in paper money and you have more confidence in gold as money.

From the book, The New Case for Gold, page 27:

“The confidence of the entire global financial system rests on the U.S. dollar, confidence in the dollar rests on the solvency of Fed balance sheet, and that solvency rests on a sliver of gold.”

Jim had dinner with a member of the board of governors of the Federal Reserve. Jim, with his history in the bond market, had taken the Fed’s portfolio and marked it to market and found that from time-to-time the Fed was insolvent.

He asked the board member about it and she denied it. When Jim said he had done the math she said that maybe it was, but that it doesn’t matter. In other words, it doesn’t matter if the Fed is insolvent.

Jim then had another conversation with a Fed insider, who was adamant that the Fed is never insolvent, even if you mark bonds to market.

So Jim went back to the Fed balance sheet to look again and he found a gold certificate that they valued at $42 per ounce.

Jim converted the face value of the certificate to ounces and then to tonnes, and low and behold it was 8,000 tonnes of gold.

That’s approximately what the Treasury has in gold, and the Treasury got the gold by confiscating it from the Fed and giving them the certificate in exchange.

This told Jim that the Treasury can’t sell any more gold because they need it to back up the certificate the Fed has.

If you mark the gold to market then it adds about $350 billion to the Fed’s capital.

The Fed’s leverage right now is 113 to 1 — they look like a really bad hedge fund.

But accounting for the gold it takes them down to 13 to 1 which is normal leverage for a bank.

So the Fed’s hidden asset is not in their bond portfolio.

It’s in their gold portfolio.

So, the Fed has a certificate which they got from the U.S. Treasury and the U.S. Treasury took the gold.

This goes back to 1934.

Remember, the Treasury is the U.S. government and the Federal Reserve is privately owned.

Under the 5th Amendment to the U.S. Constitution the government cannot take private property without just compensation.

So when the Treasury took the Fed’s gold, which they did, they gave them this gold certificate. It’s not a title to gold, but there’s at least a moral and ethical obligation, if not a more binding legal obligation to it.

If the Treasury doesn’t hang on to the gold to back up the certificate have they broken the 5th Amendment? Arguably yes.

But leaving that aside the certificate is there on the Fed’s balance sheet, and when you mark that certificate to market then you find that the Fed’s capital is sound.

Not because of the bonds but because of the gold.

FORT KNOX

Jim says he has good reason to believe that the gold is in Fort Knox.

Is some of the gold leased out? That’s almost certain.

He believes that gold has been leased out as a paper operation designed to suppress and manipulate the price. He believes there’s good evidence to support his belief and he talks about it specifically in The New Case for Gold.

But Jim believes the physical gold is in Fort Knox.

The notion that J.P. Morgan through the BIS (Bank of International Settlements) leases Treasury gold doesn’t mean that J.P. Morgan has to back up a truck and take the physical gold away. It can be done with right of hypothecation and paper transactions.

Jim favours an audit of the Federal Reserve.

Open the doors, bring in members of the press, members of Congress and everyday Americans and let them see the gold. Do a register, weigh it and write down the bar numbers.

Jim is all in favour of an audit.

The New Case for Gold is available now at Amazon.

 

Jim Rickards can be found on Twitter and at James Rickards Project.

 

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The Tower of Babel is a good model for when you have an idea, code it in words and music and send it through a medium, like music or a blog, and then a reader or listener decodes the message on the other end. And it gets mixed up. A confusion of languages. Not quite what you were saying. Joni Mitchell said in an interview in the past few years that she has often been misunderstood. I look at Joni Mitchell as my guru. I once had Matt Eakle, the brilliant flutist who works with Jerry Garcia and the David Grisman Sextet, ask me if I would sing a Joni song at a house party. I told him I didn’t really cover Joni songs because for me it would feel like covering God. But I wrote something that includes and quotes her, called Six Feet, so I sang that for him instead. It was a song about being in an alone and misunderstood place. I think Matt might have understood me. He had tears in his eyes so I think he may have been feeling what I was feeling in the song, and that is a deeply wonderful thing for an artist.  I appreciated Matt saying such nice things to me, and I suppose that would be an anti-Babel moment.

Had a great time having dinner last night with silver guru David Morgan, who was keynote speaker at an event in Vegas where I’m visiting the desert. Lots of good stories. Here’s a link to his youtube channel: https://www.youtube.com/user/silverguru for silver info.

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Elaine Diane~

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Not Much of a Holiday
words and music Elaine Diane Taylor
© 2015 Intelligentsia Media, Inc. All rights reserved.
SOCAN/ASCAP
Single available on iTunes

The Greek bank holiday and long lines to get a few euros for the day. Debt deals behind closed doors. The media telling us what opinions to have. China building islands in the South China Sea and claiming all the international waves. More dealing to come. More standing in line for those who owe. Who owes? There’s a long line of nations in debt and this is far from done.

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AlbumCover.PreparingfortheFall

Preparing for the Fall live boutique album available on iTunes — featuring Wag the Dog, Black Swan Dive,  American Pie and Gods of the Copybook Headings.

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Coins and Crowns
words and music Elaine Diane Taylor
© Intelligentsia Media Inc. All rights reserved.
SOCAN/ASCAP
from the album Coins and Crowns available on iTunes

Single featured in Episode 1 of Mike Maloney’s documentary series Hidden Secrets of Money.

When a nation leaves the gold standard and sound money, and borrows to go to war, then hunger goes up, hope goes down, anger goes up, then it all goes down.


The Gods of the Copybook Headings
words by Rudyard Kipling and music by Elaine Diane Taylor
©2014 Intelligentsia Media Inc.
SOCAN/ASCAP
from the album Preparing for the Fall available on iTunes

The copybooks of the early 1900s gave us all the wisdom we need. The sayings that were copied are the truths, the gods, of our world. All the empires who followed the gods of the marketplace instead have fallen, and there’s terror and slaughter when the gods of the copybook headings return. The lyrics are by Rudyard Kipling. One of my gurus.

Another Week on Wall Street
words and music Elaine Diane Taylor
© 2013 Intelligentsia Media Inc. All rights reserved.
SOCAN/ASCAP
from the album Coins and Crowns available on iTunes

See the bankers wave their Wall Street wands and conjure piles of paper green. Naked short selling is like betting that your neighbour’s house will burn down. But in this scenario it happens to burn down. If the bankers win then we lose the whole world as we know it. I wrote this in 2009, with a lyric “A little grease (Greece) is floating out to sea, and little pigs (Portugal, Italy, Greece and Spain) are bobbing up and down, they’ll send a storm and we’ll see, when the tide goes out who’s naked on the beach“, and it’s coming on now. The world is changing as we know it.

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Nothing on this site is intended as individual investment advice. We’re all watching which way the wind is blowing.

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