Thursday, November 19, 2009

Geithener Sends US Gold to China???

The IMF just sold 403 metric tons of gold, this amounts to 12,965,649 fine troy ounces. 200 tons of it went to "India." In order to sell gold, the IMF has to have an 85 percent approval of all of the members and from what I can surmise the US has about 17% of the voting rights, the toys were ours so no one objected to this transaction.

To the IMF and the countries of the world, gold has no real value. Each country can purchase gold from citizens with their own currency. It used to be that a currency was backed by gold and could be redeemed at the gold window. President Nixon closed the gold window for the US. So in essence, gold has little meaning as far as trade goes. With the financial markets, options can be bought to cover currency fluctuations. Gold has been removed from the equation.

One factor not often considered is that there are security considerations for storing gold. You have to keep it in a secure and controlled environment. In third world countries that is just about impossible. Several countries have “gold rooms.” This is where gold is stored in different locations around the world. So if the US was to transfer gold to Brazil in the New York office, it would go from room 10A to 12b. If the room 12b got filled up, Brazil would send a boat to pick up the surplus. This is how it worked when the world was on a gold standard; that all ended 35 years ago.

Figure that the IMF doesn’t deal in gold, it deals in currency. It loans money not gold. Gold is not a commodity that is useful in lending, it is not bad as collateral, but to a bank, it has to be sold for currency before they can use it. The IMF doesn’t need gold, it needs currency. Gold has no value to them. It is like a person in the desert with 1000 ounces of gold and no water, you can’t drink the gold.

I contend that the IMF never had any gold and doesn’t need any; it has no functional purpose to them. They have the rights to currency valued with gold for each country, based on their current conversion rate and that is all they need to operate as a bank lender. Our representatives at the IMF are Tim Geithener and Ben Bernanke.

So what are we looking at here? Figure that India was just the middleman. Let me suggest that China wanted some assurances that the money loaned to us was not just paper. I am suggesting that the US transferred to the Chinese 403 metric tons of gold as a down payment on our 1.5 trillion dollar tab with them. That figures out to be about a 10% 1% cash payment on debts owed. Can you imagine the headline “US gives China 12 billion in Gold.” Let’s face who else has 403 tons of gold and a need to back the paper they have already printed?

I could be dead wrong on this, but something smells funny here.


Joe said...

At least its just gold and not our real American paper money...ahh crap! We should make a bunch of bootleg indian dollar coins out of lead and send them to china. Thats their M.O.

Tyrone said...

Hey, I think Joe's on the right track. Use our mint presses to crank out paper currency for all other countries. Why debase your own currency when you debase your neighbors. Simply pay off your debts in the foreign currency. Brilliant!!

Anonymous said...

403 tons of gold = 12 billion? 12billion is spare change to wall street, or to Washington.
12 billion into 1.5 trillion is not ~10%, it is under 1%. Its more like an interest payment than a down payment.

NMMM.NU said...

I also thought China will buy it, but I do not think India is middle-man. India also likes gold.

Jim in San Marcos said...


When a country buys gold, it either has to print currency or buy it with foreign currency that has been used to purchase local product. Printing money is inflationary and the gold purchased serves no real internal purpose.

Now if a country like China sold a lot of goods to say the US and was paid in dollars, a problem could arise. The gold is worth more dollars every day. So holding a trillion dollars in US currency, as gold went from $1,000 to $1,100, the Chinese took a 10% hit on their US denominated debt.

The Chinese see our printing presses running and make one phone call. They call Geithner and tell him that they are not taking any more American dollars; they want real money, gold. Any future imbalance in trade between the two countries would be made up with gold.

Cutting off our credit line could have set off a world panic which wouldn’t have been good for China (the creditor) and the US (the debtor). Geithner probably suggested a trade of gold for dollars to show our good faith. This transaction gives China something more tangible than an American dollar. So they meet in a hotel in India and sign the papers.

China is the only country in the world that has nothing to lose with this trade. The people of India love gold as individuals; the country itself needs capital to finance their economy not government owned gold.

Look at it this way Germany had to pay war repatriations after WWI in gold. Common sense says that Germany could print Marks and buy gold and pay off the debt. It didn’t quite happen that way. The US printed a hell of a lot of paper. You can’t print gold and everyone except Geithner seems to realize that fact.

I caution everyone, these ideas are just my musings, there is very little fact to base any of this on. To me though, it appears to fit together very nicely.

Jim in San Marcos said...

Hi Anon 11:58

It seems like petty change, but that is a very big chunk of gold.

The Treasury can't print gold and it looks like they just sold some to keep China from tipping over the apple cart.

Jim in San Marcos said...

Hi Tyrone

Believe it or not the idea is not new. Counterfeiters in several countries in the old Soviet Union print a lot of US $100 dollar bills. Nobody is much the wiser, the people there, think the money is real.

Armenians in Glendale were paying a few mom and pop shops to deliver cash to relatives in Armenia. You gave them real dollars here and they issued phony ones over there.

I wrote a letter to the FBI advising them of what was going on and they gave me a nice thank you note and did nothing.

dearieme said...

The trouble with giving China gold is that in just a few hours they'll want some more.

Jim in San Marcos said...

Hi Dearieme

I agree, it smells like blackmail. I heard Giechner in front of Congress on the PBS channel today mentioning that the IMF was to get 100 billion from us. I am not quite sure what that means, but I would expect to see a few more large gold sales staggered in three month intervals.

I can't imagine any country selling gold for paper currency. This "sale" was to retire a debt.

Thank you for your comments, and take care.

frakrak said...

Jim here’s a ”what if,” say, in the next year the U.S. dollar has a wild ride and slides another 30% in value against major currencies. The gold price seems to be set on an inverse pricing course to this! Say the gold price reaches $2000 per troy ounce. Would this place the U.S. in a better position to meet its debt obligations to China?

If the convention is 100 bill per trill (as it is in this country), then your government could cover it’s debt with China, considering they (Chinese) have bought debt in U.S. bonds. My math for this would be a little over 2000 metric tons to flick the Chinese and give a totalitarian regime a lesson in capitalism 101.

The U.S. would still have 11,000 metric tons (conservative estimate by the world gold council, if you minus the 2,000 MT), then go back on the gold standard.

I am so glad I passed my math in primary school …

frakrak said...

Oops just read your correction, I'll put this one squarely with my primary school maths teacher!!

Jim in San Marcos said...

Hi Frakrak

I think our country has about 8,000 metric tons of gold not the 11,000 you mentioned. Your suggestion that the US might sell 2,000 metric tons to China sounds pretty acceptable theory wise. All we need to do is keep track of new IMF gold sales, we know whose doing the selling.

The real factor to realize, is that there are people out there that have very little faith in the dollar. Can't say that I blame them.

Your comment is spot on, I don't see any error.

Take care

frakrak said...

Thanks Jim for what I would call a generous response