“If there were political willingness to do so . . .”: IMF Strategy, Policy, and Review Department, “Enhancing International Monetary Stability—A Role for the SDR?”
“non-members . . . and other official entities”: IMF Articles of Agreement, Article XVII, Section 3(i), http://www.imf.org/external/pubs/ft/aa/index.htm#a5s1.
The BIS is notorious for facilitating Nazi gold swaps . . . : Adam Lebor, Tower of Basel: The Shadowy History of the Secret Bank That Runs the World (New York: Public Affairs, 2013), chap. 3.
China had acquired the equivalent of $1.24 billion . . . : Annual Report 2012, International Monetary Fund, Appendix VI: Financial Statements for FY 2012, Independent Auditors’ Report on the Special Drawing Rights Department, June 21, 2012, Schedule 2, http://www.imf.org/external/pubs/ft/ar/2012/eng/pdf/a6.pdf. The IMF also records the positions of those members whose holdings of SDRs are less than their allocations because they have swapped SDRs for convertible currencies with other members. Such members are subject to a requirement of “reconstitution” in accordance with Article XIX, Section 6(a) of the IMF Articles of Agreement, which means that the shortfall in SDRs must be made up at some future date, presumably through repurchases of SDRs with convertible currency earned subsequent to the liquidity crisis that gave rise to the initial issuance. However, the IMF Articles of Agreement are extremely flexible with regard to how the reconstitution requirement will be applied, and Article XIX, Section 6(b) allows the rules to be changed at any time. The United States does not have effective veto power with respect to proposed changes of this kind.
“They are fake money . . .”: Min Zhu, conversation with the author.
“In all its decisions with respect to the allocation . . .”: IMF Articles of Agreement, Article XVIII, Section 1(a), http://www.imf.org/external/pubs/ft/aa/index.htm.
Chapter 9: Gold Redux
paranoid, fear-based . . . : Nouriel Roubini, “After the Gold Rush,” Project Syndicate, June 1, 2013, http://www.project-syndicate.org/commentary/the-end-of-the-gold-bubble-by-nouriel-roubini.
“I only know of two men who . . .”: Quoted in Gary Dorsch, “What’s Behind the Global Flight into Gold?” Financial Sense Observations, June 30, 2010, http://www.financialsensearchive.com/Market/dorsch/2010/0630.html.
220“Money is gold, and nothing else”: J. P. Morgan, Testimony of J. P. Morgan Before the Bank and Currency Committee of the House of Representatives at Washington, D.C., December 18–19, 1912, http://memory.loc.gov/service/gdc/scd0001/2006/20060517001te/20060517001te.pdf.
President Nixon ended U.S. dollar convertibility into gold . . . : For a learned review of the workings of the Committee for Reform of the International Monetary System, the “Committee of 20,” its recommendations, and the eventual entry into force of the Second Amendment to the IMF Articles of Agreement in 1978, see Kenneth W. Dam, The Rules of the Game: Reform and Evolution in the International Monetary System (Chicago: University of Chicago Press, 1982), pp. 211–90.
the United States dumped 412 tons of gold on the market . . . : Ibid., p. 273n92.
The total gold supply in the world today . . . : This measure of total gold and all further reference to specific gold quantities in this chapter are as of July 2013 and are available from the World Gold Council, www.gold.org.
money supplies of the ECB, the Bank of Japan, . . . : These figures are taken from the websites of the Federal Reserve System, http://www.federalreserve.gov; the European Central Bank, http://www.ecb.int/home/html/index.en.html; the Bank of Japan, http://www.boj.or.jp/en; and the People’s Bank of China, http://www.pbc.gov.cn/publish/english/955/2013/20130313140427964275661/20130313140427964275661_.html, as of July 11, 2013. Japanese yen were converted to U.S. dollars at 100 to 1; euros at 0.77 to 1; yuan at 6.1 to 1.
chose to return sterling to gold at the prewar rate. . . : For an extended analysis of this topic, from which this section is partly drawn, see Murray N. Rothbard, What Has Government Done to Our Money? part 4, “The Monetary Breakdown of the West, 3. Phase III: The Gold Exchange Standard (Britain and the United States) 1926–1931,” at Ludwig von Mises Institute, http://mises.org/money/4s3.asp.
he recites it ad nauseam . . . : See, for example, Paul Krugman, “Golden Instability,” New York Times, August 26, 2012, http://krugman.blogs.nytimes.com/2012/08/26/golden-instability.
The facts speak for themselves . . . : Statistics on gold production, gold demand, and gold supply in this section are from the World Gold Council, www.gold.org.
No such prearranged central bank or IMF sales to China have been reported . . . : The closest correspondence to potential prearrangement appears in the fourth quarter of 2002, when China’s reported gold reserves increased 99.84 tonnes and Switzerland’s declined 70.4 tonnes at the same time; see World Gold Council, www.gold.org. However, no evidence of prearrangement between Switzerland and China has been found. If a Switzerland-to-China trade were prearranged, it would likely have been handled through the facilities of the Bank for International Settlements (BIS) in Basel. The central bank of Switzerland, the Swiss National Bank, has been a member of the BIS since its inception in 1930; see the Swiss National Bank website at http://www.snb.ch/en/iabout/internat and UN treaty archives at http://treaties.un.org/Pages/showDetails.aspx?objid=0800000280167c31.
The agents are principally located . . . : Senior bankers and asset managers with firsthand knowledge of China’s global gold-buying operations, conversations with the author, Hong Kong, September 2012.
In a masterpiece of market savvy . . . : China’s gold purchasing agents, conversations with the author, New York City, August 7, 2013; Perth Mint, e-mail to the author, dated September 25, 2013.
Partly as a result of these large-scale covert operations . . . : Brendan Conway, “China: Soon to Be World’s Biggest Gold Importer, If It Isn’t Already,” Barron’s, February 6, 2013, http://blogs.barrons.com/focusonfunds/2013/02/06/china-soon-to-be-worlds-biggest-gold-importer-if-it-isnt-already.
By 2012, China was producing over 370 tonnes per year . . . : See U.S. Geological Survey, “Gold,” Mineral Commodity Summaries, January 2013, http://minerals.usgs.gov/minerals/pubs/commodity/gold/mcs-2013-gold.pdf.
Russia is the world’s fourth-largest gold producer: Ibid.
The Federal Reserve vaults hold approximately 6,400 tonnes . . . : See Scott Mayerowitz, “Welcome to the World’s Largest Gold Vault,” ABC News, September 19, 2009, http://abcnews.go.com/Business/story?id=5835433&page=1; and Mike Hanlon, “The Big Picture: This Vast Vault of Gold Under the Bank of England Should Weather Credit Crunch,” Daily Mail, October 22, 2008, http://forums.canadiancontent.net/news/78369-vast-vault-gold-under-bank.html. Since the Daily Mail report, which cites a figure of 4,600 tonnes, approximately 100 tonnes have been repatriated to Venezuela.
an eight-year plan to repatriate all the gold . . . : “Deutsche Bundesbank’s New Storage Plan for Germany’s Gold Reserves,” Deutsche Bundesbank, press notice, January 16, 2013, http://www.bundesbank.de/Redaktion/EN/Pressemitteilungen/BBK/2013/2013_01_16_storage_plan_gold_reserve.htm.
an initiative that requires all Swiss gold . . . : Luzi Stamm, “‘Gold Initiative’: A Swiss Initiative to Secure the Swiss National Bank’s Gold Reserves,” Volksinitiative Rettet unser Schweizer Gold, press release, September 20, 2011, http://www.goldinitiative.ch/downloads/goldinitiative-english.pdf.
“I don’t know . . .”: Katharina Bart and Albert Schmieder, “Swiss Right-Wing Forces Referendum on Banning SNB Gold Sales,” Reuters, March 20, 2013, http://www.reuters.com/article/2013/03/20/us-swiss-gold-idUSBRE92J0Z320130320.
The remainder is divided . . . : Jaco Schipper, “90% of Dutch Gold Reserve Is Held Abroad,” Market Update, January 7, 2012, http://www.marketupdate.nl/nieuws/valutacrisis/90-of-dutch-gold-reserve-is-held-abroad.
The international monetary debate . . . : For a scholarly, in-depth study of efforts at reform of the i
nternational monetary system including the C-20, the Jamaica Meeting, and the Second Amendment to the IMF Articles of Agreement, see Kenneth W. Dam, The Rules of the Game: Reform and Evolution in the International Monetary System (Chicago: University of Chicago Press, 1982).
“You are . . . asking this to someone . . .”: Mario Draghi, lecture at the John F. Kennedy Jr. Forum at the Institute of Politics, Harvard University, Cambridge, Mass., October 9, 2013, https://forum.iop.harvard.edu/content/public-address-mario-draghi.
Chapter 10: Crossroads
“a chronic condition of sub-normal activity . . .”: John Maynard Keynes, The General Theory of Employment, Interest, and Money (San Diego: Harcourt, 1964), p. 249.
Based on duration if not strength . . . : John H. Makin, “Third Time Unlucky: Recession in 2014?” American Enterprise Institute, July 30, 2013, http://www.aei.org/outlook/economics/monetary-policy/third-time-unlucky-recession-in-2014.
Despite cheerleading in late 2013 . . : Daniel Alpert, “The New Sick-onomy? Examining the Entrails of the U.S. Employment Situation,” EconoMonitor, July 24, 2013, http://www.economonitor.com/danalperts2cents/2013/07/24/the-new-sick-onomy-examining-the-entrails-of-the-u-s-employment-situation.
By August 2013, total student loans backed . . . : “The Rolling Student Loan Bailout,” Wall Street Journal, August 9, 2013, http://online.wsj.com/article/SB10001424127887323968704578652291680883634.html.
“the test of a first-rate intelligence . . .”: F. Scott Fitzgerald, The Crack-Up (1936; reprint New York: New Directions, 2009).
The bitcoin phenomenon began in 2008 . . . : Satoshi Nakamoto, “Bitcoin: A Peer-to-Peer Electronic Cash System,” November 1, 2008, http://bitcoin.org/bitcoin.pdf.
the history of barter is mostly a myth: David Graeber, Debt: The First 5,000 Years (Brooklyn, N.Y.: Melville House, 2011), pp. 21–41.
“Sept. 11 was not a failure of intelligence or coordination . . .”: Thomas L. Friedman, “A Failure to Imagine,” New York Times, May 19, 2002, http://www.nytimes.com/2002/05/19/opinion/a-failure-to-imagine.html.
Chapter 11: Maelstrom
“The broad question is whether central banks . . .”: Arthur F. Burns, memorandum to President Gerald R. Ford, June 3, 1975, U.S. Department of State, Office of the Historian, http://history.state.gov/historicaldocuments/frus1969-76v31/d86.
“We . . . feel strongly that some safeguards . . .”: President Gerald R. Ford to Chancellor Helmut Schmidt, June 6, 1975, Gerald R. Ford Library, Ann Arbor, Mich., http://www.fordlibrarymuseum.gov/library/document/0351/1555807.pdf.
the secret Gold and Foreign Exchange Committee . . . : Adam Lebor, Tower of Basel: The Shadowy History of the Secret Bank That Runs the World (New York: Public Affairs, 2013), p. 189.
“In May 1996, the market traded the equivalent . . .”: Dino Kos, Gold and Foreign Exchange Committee Discussion on Gold Market, April 7, 1997, http://www.gata.org/files/FedMemoG-10Gold&FXCommittee-4-29-1997.pdf.
“information relating to swap arrangements . . .”: Kevin M. Warsh, Board of Governors of the Federal Reserve System, to William J. Olson, September 17, 2009, http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf.
“We bought 300 tonnes of gold . . .”: Eisuke Sakakibara, conversation with the author, Seoul, South Korea, May 31, 2013.
The gold was transported to Japan . . . : Retired official of Brinks, conversation with the author, Hickory, N.C., November 10, 2013.
The most notorious and heavily criticized case . . . : Holly Watt and Robert Winnett, “Goldfinger Brown’s £2 Billion Blunder in the Bullion Market,” Sunday Times, April 15, 2007, http://www.thesundaytimes.co.uk/sto/Test/politics/article63170.ece.
“Around 90% of customer placements . . .”: Bank for International Settlements, Financial Statements, updated June 24, 2013 , http://www.bis.org/banking/balsheet.htm (accessed July 21, 2013).
“The Bank transacts . . . gold on behalf of its customers . . .”: Bank for International Settlements, 83rd Annual Report, March 31, 2013, p. 110, http://www.bis.org/publ/arpdf/ar2013e7.pdf#page=44.
“Gold loans comprise fixed-term gold loans to commercial banks”: Bank for International Settlements, 80th Annual Report, March 31, 2010, p. 158n15, http://www.bis.org/publ/arpdf/ar2010e8.htm; emphasis added.
“Gold loans comprise fixed-term gold loans”: Bank for International Settlements, 83rd Annual Report, June 23, 2013, p. 133n15, http://www.bis.org/publ/arpdf/ar2013e7.pdf.
on September 18, 2009, the IMF authorized the sale of 403.3 tonnes . . . : Information in this extended analysis of IMF gold sales comes from “Questions and Answers, IMF Gold Sales,” International Monetary Fund, updated May 16, 2013, http://www.imf.org/external/np/exr/faq/goldfaqs.htm.
“China’s acquisition of gold makes sense . . .”: Dr. Min Zhu, conversation with the author, New York City, November 8, 2012.
“Somebody’s got to own it . . .”: High-ranking intelligence official, conversation with the author, McLean, Va., December 13, 2012.
“I never hear any discussion . . .”: James Himes, conversation with the author, Southport, Conn., July 15, 2013.
Mishkin warns that the Fed is dangerously close . . . : David Greenlaw, James D. Hamilton, Peter Hooper, and Frederic S. Mishkin, “Crunch Time: Fiscal Crises and the Role of Monetary Policy,” U.S. Monetary Policy Forum, February 22, 2013, rev. July 29, 2013, http://dss.ucsd.edu/~jhamilto/USMPF13_final.pdf.
“In the extreme, unsustainable fiscal policy . . .”: Ibid., pp. 61–62.
Conclusion
“The piecemeal engineer will, accordingly . . .”: Karl Popper, The Open Society and Its Enemies (Princeton, N.J.: Princeton University Press, 1971), pp. 157–59. Popper is quoted in George Soros, “How to Save the Euro from the EU Crisis—The Speech in Full,” Guardian, April 9, 2013, http://www.guardian.co.uk/business/2013/apr/09/george-soros-save-eu-from-euro-crisis-speech.
the state is well armed with SWAT teams . . . : Radley Balko, Rise of the Warrior Cop: The Militarization of America’s Police Forces (New York: Public Affairs, 2013).
Author Jonah Goldberg has documented fascism’s history . . . : Jonah Goldberg, Liberal Fascism: The Secret History of the American Left from Mussolini to the Politics of Meaning (New York: Doubleday, 2008).
More ominous was his remark . . . : Quoted in Balko, Warrior Cop, p. 333.
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