Political Metals

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When asked by Ron Paul what is his definition of the Dollar,  Bernanke answered:

The Dollar is what it can buy….food, gasoline & clothes - Consumers don’t want to buy gold”.

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The market, despite being suppressed, has proved him wrong! Gold was at it’s all-time high around the time he spoke. Gold’s cousin, silver, made another 31-year high today.

To a separate question from Sen. Jim DeMint about returning to a gold-backed economy, Bernanke said returning to a gold standard won’t work, one of the reason being there is not enough gold in the world to support the US money supply. WSJ reported:

Bernanke, appearing before the Senate Banking Committee, was pressed by Sen. Jim DeMint (R., S.C.) on the viability of a return to a gold-backed economy or the idea of the Treasury Department issuing bonds payable in gold. Bernanke, who has studied the issue, said a return to the gold standard wouldn’t work.

“It did deliver price stability over very long periods of time, but over shorter periods of time it caused wide swings in prices related to changes in demand or supply of gold. So I don’t think it’s a panacea,” Bernanke told DeMint.

Additionally, Bernanke said there were a number of practical issues that would prevent the return of gold as the world standard. Namely, there’s not enough gold in the world to effectively support the U.S. money supply.

Let’s do some arithmetic.

1. According to the most recent FED Money Stock Measure Report Mar 3, 2011, the narrowest measure of money supply (M1) stands at $1.8538 trillion.
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2. According to the most recent Status Report of US Treasury-Owned Gold Jan 31, 2011, the US Treasury owned 261,498,899 oz of gold, with a book value of $11,041,058,82. That works out to be $42.22 per oz (set since 1973).
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3. If all the gold held by the Treasury were allowed to be valued at current market price of about $1,400 per oz, every US$ would be backed by about 0.2 oz of gold.
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4. If today, the Treasury revalued its gold to $7,089 per oz, the USD will be fully backed by gold… and that’s only gold supposedly owned by the US, let alone all the “gold in the world” Bernanke talked about!
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Note: The US has revalued gold upwards (a politically correct way of saying they have devalued the USD) several times in recent history:

• 1913:  Roosevelt confiscated gold at $20.67
• 1934: Roosevelt re pegged gold (devalued the dollar by 69%) at $35.00
• 1971:  Nixon closed the gold window and re-pegged gold at $38.00
• 1973: Nixon re-pegged gold (devalued the the dollar by 11%) at $42.22

Herein lies the politics of gold (and silver). We’ve seen how the dollar has lost more than 98% of its purchasing power since the creation of the FED in 1913 (see Precious Metals or Political Metals?). Like a frog in a pot of rising water temperature, the general populace do not feel the heat of this devaluation. But if Obama were to suddenly re-peg gold at the above calculated price to return the US to a gold-backed economy, the glaring failure and fraud behind the FED system is out for everyone to see. The elites cannot let this happen (yet), hence they continue to hold the ball under water.

Or does Bernanke know something that we don’t when he insisted that there is not enough gold to back the US money supply? Is the gold at Fort Knox really there? Is the gold held by the NY FED swapped or encumbered? Why is the FED guarding so tightly records sought by GATA?

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Thus far, Ron Paul has not fired his silver bullet yet - to question Bernanke about gold and about auditing the FED. Let’s wait. He will.

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning … Henry Ford

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