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This is what passes for financial journalism at The Telegraph and CNBC

Section: Daily Dispatches

2:12a CT Thursday, October 25, 2012

Dear Friend of GATA and Gold:

Appended is another example of the idiot journalism the planet is up against -- a rambling and practically unconscious discourse about the German federal auditors office's call for an inventory of the country's gold reserves, held at the Bank of England, the Bank of France, and the Federal Reserve Bank of New York.

Please see an update to this commentary:

The author, CNBC Senior Editor John Carney, asserts that it doesn't matter whether Germany's gold exists provided that everyone just pretends and acts as if it exists: "As long as the Fed says it is there, it is as good as there for all practical purposes to which it might be put. It can be sold, leased out, used as collateral, employed to extinguish liabilities, and counted as bank capital just the same whether it exists or not."

But if gold is money, the mere pretense of its existence is money creation -- potentially infinite money creation. And since, as even establishment luminaries like former Treasury Secretary and Harvard Professor and President Lawrence Summers can attest --

-- gold is a powerful determinant of interest rates and the value of other currencies and government bonds, the pretense of potentially infinite gold reserves that "can be sold, leased out, used as collateral, employed to extinguish liabilities, and counted as bank capital" is actually the seizure of infinite power by government.

... Dispatch continues below ...


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At least Carney acknowledges that disproving this pretense could have explosive results. "If the gold isn't there," he writes, "well, calamity could follow as trust in the central bank gold depositories evaporated instantly."

Yes indeed, Mr. Carney. So might this be why central banks won't answer certain very specific questions about their gold reserves?:

How about trying to put such questions to them yourself, Mr. Carney?

Even The Telegraph's Ambrose Evans-Pritchard, who has a bit more wit and experience than Carney, failed Journalism 101 tonight with his report about the controversy over the German gold reserves:

Evans-Pritchard acknowledged that the withdrawal of much of the German gold from the Bank of England was a "mystery," but did he pick up the telephone and question Bank of England Governor Mervyn King or Bundesbank President Jens Weidmann about it? King and Weidmann surely could explain the "mystery," and, as he represents an influential news organization, Evans-Pritchard surely could have gotten them to come to the phone at least to be quoted with an embarrassing refusal to explain.

But no; instead Evans-Pritchard telephoned ... a gold mining company chairman, Peter Hambro, who of course could only speculate on the mystery.

Once again the original sources in government, the responsible officials, go unchallenged by supposedly expert journalists.

CNBC's Carney apparently didn't try to question any original source at all. Instead he just speculated moronically, failing to grasp the obvious and inevitable consequences of his own speculation. Representing an international television network, Carney too might have gotten King or Weidmann on the phone -- or at least a publicist for Kim Kardashian.

As long as stuff like this passes for financial journalism, the absolute power that corrupts absolutely and indeed has corrupted the West can rest easy.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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The Germans Are Coming for Their Gold

By John Carney
Senior Editor
CNBC, New York
Wednesday, October 24, 2012

A German federal audit court has said that country's central bank should conduct annual audits and physically inspect its gold reserves worldwide, including gold in the custody of the Federal Reserve Bank of New York. In addition to the New York Fed, Bundesbank gold is stored in London, Paris, and Frankfurt.

For decades the Bundesbank has relied on written confirmation of its gold holdings in London, Paris, and New York. According to the report from the German audit court, the last time Bundesbank officials physically inspected the central banks gold holdings was, well, never.

(It should be stated that the folks at FT Alphaville quote a report saying an inspection took place in 1979/1980.)

Interestingly enough, the Bundesbank is apparently quite happy with taking the word of other central bankers about the existence, location, and size of its gold reserves. It put out the word that it disagrees with the audit court, which has only advisory power and cannot force the Bundesbank to follow its recommendations, about the need for inspections. Nonetheless, the Bundesbank is actually going to follow the recommendation that it verify the gold stocks. It also has plans to ship some 150 tons of gold back to Germany for a more "thorough examination."

The Bundesbank is, of course, quite right in its opinion of the value of the examinations. In reality, it does not matter one bit whether the Federal Reserve Bank of New York actually has the German central bank's gold or whether the gold is pure. As long as the Fed says it is there, it is as good as there for all practical purposes to which it might be put. It can be sold, leased out, used as collateral, employed to extinguish liabilities, and counted as bank capital just the same whether it exists or not.

The actual presence of the gold wouldn't make a lick of difference unless, say, Germany's central bank decided it wanted to start using the gold for some practical, non-monetary purpose like making watches.

But there's long been a paranoia about central bank and government gold reserves. (

The gold of the United States government, which officials say is held in the United States Bullion Depository in Fort Knox, has been rumored -- probably since the depository's founding in 1937 -- to have been looted and replaced with gold-painted tungsten, for instance. The government treats this as nonsense -- which it most likely is -- but nonetheless it does conduct regularly scheduled audits of the gold in Fort Knox, including doing purity tests on a small sample of the gold.

This paranoia is not entirely irrational, for one reason. As I mentioned above, for almost all imaginable operational purposes, the actual existence of the gold in Fort Knox or in the vault beneath the New York Fed's Liberty Street headquarters is irrelevant. The bookkeeping is what really matters here. So long as the Fed says Bundesbank owns X tons of gold, the Bundesbank can act as if it did own the gold -- even if the gold had somehow been swallowed into a gold-eating galactic worm hole. But the irrelevance of the facticity of the gold does quite easily lend itself to thinking: If the gold being there doesn't matter, why would it be there?

I'm sure the Bundesbank officials understand this quite well, even though the German audit court does not. There is nothing to be gained by inspecting the gold. If it is all there and pure, there is no difference from an undiscovered absence. But if the gold isn't there, well, calamity could follow as trust in the central bank gold depositories evaporated instantly.

In any event, it looks like Bundesbank officials will soon be visiting the Fed's vault, which is located 80 feet below street level and 50 feet below sea level. The vault is accessible only by elevators controlled by an operator in a remote location. I've been told by a source that the elevator operator is actually not in New York City at all, although I can’t confirm this and the Fed won't discuss this sort of thing.

Down in the vault there are 122 compartments assigned to depositing countries and international organizations. Smaller gold depositing countries get shelves in shared library compartments.

The compartments do not have labels reading "Germany's gold" and so on. They are instead numbered, and only a few people at the Fed know what numbers correspond to which country. The Fed says it does this to protect the privacy of the depositors. But this also makes actual inspection less reliable. There's no way for Germany to know that the gold it is being shown is Germany's, as opposed to some other depositor's. In an extreme case -- which I have no reason to believe is true -- miscreants at the Fed could just show everyone who came to visit the same pile of gold.

This is related to another mystery about gold reserves: Why do they persist?

The central banks of the world's established economic powers do not actually do anything with their gold, apart from rare and occasional sales of gold limited by the Washington Agreement to no more than 400 tons per year.

Some central banks lend out their gold to speculators and gold miners (who borrow the gold to finance mines -- basically, a risk-free hedged loan since the borrowed gold can be repaid with newly mined gold, regardless of what happens to the price of gold on the market), which can be a somewhat profitable activity -- especially when the alternative is just letting it sit around doing nothing but fluctuating in value with the market price. But, as far as we know, this isn't something the Bundesbank or the Fed do.

When Congressman Ron Paul recently asked Fed Chairman Ben Bernanke about the rationale for central banks holding gold, Bernanke said it was the result of "tradition." But that's not really a satisfactory answer. The lack of a satisfactory answer actually contributes to the suspicion that the gold isn't really there at all. If there's no purpose for it, why would it be there?

So is the German audit court nuts? Not necessarily. For one thing, there probably is some value to putting to rest suspicions that the public is being deceived about central bank gold reserves -- although I doubt an audit will really do very much in this regard. For another, there's always the off-chance that someone has embezzled the gold, enriching himself unjustly. Might as well check if the gold is really there.

The Fed wouldn't comment on the record about how it will handle a German request to inspect the gold. A source says they would likely work out a deal with the Germans permitting some sort of inspection.

But I like to imagine that the Fed officials would bring the Germans to the door of the a compartment labeled, say, No. 322, and then pose the question: "Are you absolutely sure you want to see what's in here?"

* * *

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