Thursday, October 6, 2011

Speaking of conspiracy theories...

The one that seems to be popping up left and right today is the question of whether or not there is any gold still stored in the vaults at Fort Knox.

I've read the books and seen the shows... no public audits of the vaults since 1974, and absolutely no access to anyone (public or private) is allowed by the US Army onto the vault complex. National security is the official line, and perhaps there is some kernel of truth in the opinion that the public has a right to know whether that gold is there, and if it is... how much it is worth. I find it curious that, given the current value of gold and the nature of its value on the global commodities market at any given time over the last 40 years, the "value" of those hundreds of tons of bullion hasn't changed more than $0.45 an ounce since 1971. However...

I just don't see how it is pertinent to discussions about our current financial crisis.

The dollar hasn't been "backed" by gold since 1971, when Nixon removed the convertible nature of the US dollar into gold... so what is the problem? We have been a confidence currency ever since. The strength of our currency lies in the strength of our national economy, and when that economy slips, the value of the dollar slips accordingly.

Beck and other pundits love talking about how FDR and the other "progressives" in the White House destroyed the American financial system by making it "illegal" for citizens to own gold bullion (constantly referencing the New Deal policy of removing gold coins from circulation). This was NOT a seizure of private assets as it is so often described by Congressman Ron Paul... it was a means of buying the coins back from private ownership by the Fed at an established rate and building a stockpile of bullion (at Fort Knox) to have on reserve for the US Government. Period. Were this NOT the case, Glenn Beck would not be making hourly claims to "owning" such a precious and protecting commodity as gold in his own portfolio, would he?

Let us, for a moment, imagine that there is no gold in Fort Knox. Would the fact that the Fed has used, spent, traded or stored the gold somewhere else (roughly $300,000,000,000 worth of the stuff) really crash our financial system completely? Would banks fail? Would interest rates go through the roof? Would major companies go down the toilet?

How much does gold really effect the financial and industrial heart of America? How much does your daily life revolve around gold? What portion of your day is directly and measurably impacted by the fact that gold has now reached an all-time high in commodity pricing? Chances are, the answer to all these questions is very, very little.

But...

What if the price of a barrel of oil doubled tomorrow? Or tripled? Or increased by an order of magnitude over the course of a single decade? How different would your life be in ten years if THAT were to happen? How different would the national landscape be?

In 1971, the price for an ounce of gold was $40.62 (un-adjusted). In less than 40 years, that price has gone to over $2,000 an ounce... and most of THAT climb was in only the last 10 years. How different, and I mean fundamentally different, has our daily life been from before 1971 to beyond 2011? Different yes, but not fundamentally so.

The same timeline and increase in cost applied to the average barrel of light, sweet crude oil would mean an average price in 2011 of $890.00 per barrel. That would give us a price for gasoline (at the same tax rates as we have now) of just about $38 per gallon.

Which commodity do YOU think has the bigger impact on American and global financial matters?

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