[A-List] On the Role of Gold

[Henry C.K. Liu]

Dollar hegemony enables the US to use its trade deficit as the bait for its
capital account surplus. This makes the need for a gold-backed dollar
superfluous.

Henry C.K. Liu

Anne Williamson wrote:

> On the Role of Gold
>
> by Otto Scott
>
> Although The Wall Street Journal lists gold as a commodity, and scorns the
> concept of gold as a currency, it continues to play its ancient role as the
> only true standard of value in times of war or crisis. These are presumably
> times of peace, but in fact we are riddled with cultural wars that continue
> to evoke murders, bombings, riots, and rebellions on the international
> stage.
>
> A new level in this global conflict was reached fairly recently when Stuart
> Eizenstat, a former senior Carter Administration official and until recently
> an Undersecretary of Commerce,(1) issued a report accusing Swiss banks of
> accepting "gold pulled from Holocaust victim's teeth intermingled with
> central bank gold" during World War II, and later refused to return the
> deposits of Holocaust victims to their heirs.
>
> This Report escalated a campaign against Swiss banks led by former Fed
> Chairman Paul Volker, who has been appointed head of an Independent
> Committee of Eminent Persons, to audit the records of Swiss banks for the
> deposits of Holocaust victims. Lawsuits claiming very large sums have been
> filed, and the air is thick with charges hurled by the headline-seeking
> Senator Alfonse D'Amato, indignant denials fading into apologetic offers
> from the Swiss government, and the abrupt dimming of Switzerland former
> reputation as a tiny, remarkable democracy, into a nation and system
> motivated by unconscionable greed.
>
> Nazi gold, in other words, is not unimportant even after 57 years. All gold,
> in fact, remains immensely valuable in the views of all governments. That is
> why every central bank of any significance buys and holds gold in reserve in
> a world of almost universal paper money.
>
> The reason for this is not mysterious. History tells us that only gold
> retains its value during wars and upheavals, changes of empires and
> governments, and times of crisis. Although now officially held to be of only
> industrial value, gold is the oldest and most respected currency in the
> world and the only one respected when national paper monies lose value.
> Islam, the Orient, and citizens everywhere familiar with the uncertainties
> of governments such as in Italy, France, Asia, Africa, central Europe, and
> Latin America, often bank gold in private repositories.
>
> Some indication that such times loom today can be gained by the recent
> effort of Chancellor Helmut Kohl to improve Germany ability to help create a
> common European currency. This program, which instead of uniting has greatly
> divided Europeans for several years, and is encountering continuing
> difficulties. Its main sponsors France and Germany established certain
> requirements before the nations involved can weld their currencies and issue
> a new common currency. These requirements now embarrass both governments.
> Their unemployment statistics are insupportably high, and their debts are
> beyond the minimums established for entry. Chancellor Kohl wanted to alter
> his nation economic statistics (though not circumstances) by raising the
> value of the 95 million troy ounces of gold held in the reserves of his
> nation's central bank (3) to its market price.
>
> If the bankers had agreed, that would have allowed Kohl not only to balance
> his annual budget, but would have made several billion marks available to
> fund his entry into the European common currency as well as launch efforts
> to both save his welfare state and to placate his unemployed with new
> programs. Although it is unlikely that the Chancellor thought about it, the
> fact is that his proposed solution exactly paralleled the one chosen by
> President Franklin Roosevelt when he first took office in 1933. The new
> president first persuaded Congress to enact enabling legislation granting
> his office the power to demand all gold held in private hands under pains of
> fines or imprisonment or both, and then raised the price of gold. That
> launched an inflation that enabled the White House to launch its
> governmental employment programs, and become the idol of the poor and
> unemployed. Helmut Kohl was not as fortunate as President Roosevelt. Germany
> central bank, irretrievably scarred by memories of not only the inflation of
> the early twenties but also by the worthless paper left to the people by
> Hitler, brusquely refused to cooperate in changing the official price of
> gold in reserve to the far higher price of gold in the marketplace.
>
> In the meantime, however, the frugal Swiss, under intense bombardment by the
> American Jewish community, "released" some of their reserve gold and raised
> it to the market price, in order to fund a special effort to locate and
> repay survivors of the Holocaust from the deposits they made during the
> thirties and forties if they (or their heirs) can be discovered.
>
> It is interesting to note that both steps one refused and one accepted
> treated gold as currency by cashing it in the marketplace. That is as close
> to a return to a gold standard as any German administration has come in fact
> since its recovery in post World War II. Switzerland, of course, has always
> been on a gold standard in the sense established after World War I. It will
> of course be recalled that at one time the international financial community
> relied upon a real gold standard. Paper currencies were issued, backed by
> gold. Citizens could present paper money to banks and receive gold coin in
> exchange. (The West in the U.S. used silver dollars.) Raw gold could be
> turned in to the Treasury, which would mint it and return it to the citizen.
> All that ended in World War I.
>
> In the twenties the franc, dollar, and pound were backed by gold and
> therefore had a relatively stable value. (That is one of the reasons why
> such a heavy exchange of property took place in Germany in the early
> twenties, when those citizens who had access to "hard" money were able to
> buy property at bargain prices from people beggared by inflation.) This was
> a factor in the rise of Hitler.
>
> In the twenties, however, citizens no longer had access to gold through an
> exchange of paper currency with the banks. As the twenties extended, the
> post-World War I depression was temporarily lifted by international loans
> and a credit inflation through the introduction of installment payments for
> both tangible (farms, houses, and goods) and intangible property (stocks and
> bonds), which created production based on promises to pay. These promises
> collapsed in late 1929 with the declines in the stock exchanges and losses
> in many banks. When payments were not met, bankruptcies almost halted
> production; jobs vanished and a global economic crisis occurred. The crisis
> was especially severe in Germany when all banks failed.
>
> The German debacle meant that World War I reparations, paid in the twenties
> by Germany from international loans, would cease. That brought a group of
> international bankers together in 1930 to create the world's first
> international bank. It was named the Bank for International Settlements. It
> originally consisted of the central banks of Belgium, France, Germany, Great
> Britain, Italy, and some commercial banks from the U.S. and Japan. In 1931
> the Federal Reserve began active participation in the BIS, and soon more
> than two-thirds of the BIS funds in America were held by the Federal
> Reserve.
>
> All this resulted in the world first group of bankers operating
> internationally independent of their governments. Only the German directors
> were, in this coalition, entirely controlled by their governments; later an
> exception of great value to Hitler. The charter of the new bank, approved by
> the various governments, certified its immunity from "expropriation,
> requisitions, seizure, confiscation, prohibition, or other restrictions of
> gold or currency export or import, or any other similar measures."(4)
>
> The role of gold was central in the creation of the BIS. The new bank was
> authorized to "arrange with central banks to have gold earmarked for their
> account and transferable on their order, to open accounts through which
> central banks could transfer their assets from one currency to another and
> to take such measures as the Board might think advisable within the limits
> of the powers granted. . . . Therefore the BIS was ready to lend gold
> without delay. . ."(5) That meant that gold transfers from one central bank
> to another could be made quite swiftly and did not have to lag behind
> physical transfers.
>
> As the thirties extended and Hitler came into power, the situation of
> Switzerland worsened. Gestapo agents were especially interested in Jewish
> properties and holdings, and began to make demands that Jewish deposits in
> Swiss banks be disclosed to German authorities. In 1935, as a measure to
> protect German Jews, Swiss banks introduced secret numbered accounts. These
> enabled the Swiss banks to prove that depositors were not identified by
> name, and that therefore their identities could not be disclosed.
>
> That practice amounted to an expansion of Switzerland's ancient role as the
> protector of foreign funds deposited in Swiss banks safe from the pressures
> of tyrannical governments. This tradition remains a very important one.
> Switzerland's name is almost synonymous with secret accounts. It has always
> refused to open its books for investigation by foreign police in pursuit of
> refugees either political or financial from other countries.
>
> This has been a cause of increasing irritation to American authorities ever
> since World War II, who have watched the steady increase of international
> depositors into Swiss banks. Washington's frustration with Switzerland has
> been deepened by the fact that its influence in other nations has, since
> World War II and the end of the Cold War, grown enormous. Both nations have,
> in fact, grown increasingly apart in recent years. Their differences are
> economic, political, and moral. The United States is in the midst of what
> President Nixon launched and named a Drug War. This effort has led to the
> expansion of American police authority to global levels. (6) The Swiss
> believe that an effort to escape taxes is human and understandable, and not
> basically criminal. In the U.S., despite its former reputation for
> individualism, paying taxes until recent expansions has been considered the
> duty of every good person.
>
> An equal conflict consists between the U.S. and Switzerland regarding
> banking rules. In recent years the Drug War, and the huge sums it entails,
> has led Washington to enact laws not only opening bank records of all
> transactions to the government, but rules that force banks to inform the
> authorities of any transaction beyond the ordinary. (7) Switzerland's bank
> secrecy, created after the Vienna Conference of 1820 led by Metternich, was
> deliberately encouraged by the leading nations of Europe as an escape from
> the confiscations of the type installed by the briefly-lived Napoleonic
> Empire. (8)
>
> World War II did nothing to lessen the Swiss belief that the inviolability
> of its banks was crucial to its survival though that survival was by no
> means certain. "After Germany invaded Poland in September 1939, the Swiss
> army mobilized up to ten percent of the population and throughout the war
> went through long periods when it expected imminent attack from the Germans.
> That Hitler wanted Switzerland as he wanted Europe for the rest of his
> thousand-year Reich is well documented. As Gerard Weinberg writes in his
> history of the Second World War:
>
> At 1:35 a.m. on June 25, 1940, the armistice between Germany and France went
> into effect; a few hours later orders went out of the high command of the
> German army to prepare an invasion of Switzerland. . . .The plan was to
> crush Swiss resistance quickly. . . . It was never launched as more
> important projects came to the fore in German planning. The end of
> Switzerland, that pimple on the face of Europe as Hitler described it in
> August 1942, would have to wait until Germany had defeated her European
> enemies. (9)
>
> "The estimate among Hitler's generals was that at least eighteen divisions
> were needed to dislodge the Swiss from their redoubts, and after the failure
> to defeat Britain and the Soviet Union, the cost of a Swiss invasion became
> a mountain too far." (10)
>
> During the war the BIS became the center of international trades even
> between the warring powers. Its directors were well acquainted and
> congenial, and shared some interesting ties. Per Jacobson, economic director
> oft he bank,(11) was the brother-in-law of Sir Archibald Nye, Vice Chief of
> the Imperial General Staff for the British Army. Meanwhile, President
> Roosevelt froze the gold holdings of most of the belligerent nations in Fort
> Knox. At the same time, the governors of nearly all the European banks from
> France, Hungary, Romania, Italy, Spain, and Portugal as well as Germany were
> regular visitors to the BIS in Basle.
>
> Swiss National Bank vaults were, during this period, open to all trading
> nations. And as a neutral, Switzerland traded with all governments. If
> Germany wanted to sell gold for grain or fuel, the Swiss National Bank moved
> the gold from Germany's share in the National Vault to the section reserved
> for Portugal's gold. Meanwhile, while serving Germany's international needs,
> Switzerland was also dependent on Germany for its fuel including coal and
> oil and most of its food. The tiny nation is, after all, landlocked, and
> Germany controlled all the land of Europe around it. Switzerland only direct
> trading route by sea is down the Rhine river northward to the North Sea also
> controlled by Germany. Switzerland was technically independent, but in
> reality its freedom was precarious. Its only window of free commerce was a
> strip of territory from Geneva to Vichy France, which was severed when the
> Germans occupied all of France.
>
> Yet Switzerland held some strong cards. If forced to fight, it could block
> access to its north-south tunnels whose rail lines would have cut Germany's
> access to its forces in Italy. An invasion would also have ended the
> activities of the BIS bank, through which Germany traded gold with the world
> beyond (and inside) Europe. The role of gold in World War II was, obviously
> crucial. In March 1938, when Hitler marched into Vienna, "much of the gold
> of Austria was looted and packed into vaults controlled by the BIS. This
> gold was immediately credited to the Reichsbank accounts."
>
> In March 1939 the Nazis invaded Czechoslovakia. Storm troopers, holding the
> bankers at gunpoint, ordered them to transfer their nation's national store
> of gold, which they had placed in a BIS account in the central bank of
> England, transferred to the Reichsbank account. Jacobson afterward said that
> the BIS learned only later that this transfer was ordered at gunpoint, but
> this statement can be disregarded as pro forma. The facts were that the
> conquest of a small nation by a larger one is historically accompanied by a
> looting of assets, and Jacobson's added comment that "The Czechs never held
> this against the BIS" can be taken as far more significant. Losers in a war
> seldom expect the world to be shocked.
>
> Neither was trading with Germany unique in World War II. Spain, for
> instance, cooperated with Nazi Germany, although Franco did manage to obtain
> the freedom from German concentration camps for thousands of Jews descended
> from Sephardic families, whom he had returned to Spain for the first time in
> centuries. (12) The Irish, who had no such ancient ties, not only traded
> with the Nazis but gave their submarines refuge at a time when their toll of
> Allied shipping was deadly. Sweden, which benefited economically from
> trading with both sides in World Wars I and II, allowed the German army to
> cross Sweden without protest as part of this arrangement.
>
> There is no question that fortunes in trading with and for Germany were also
> achieved by businessmen and institutions in Portugal as well as Spain, in
> some U.S. banking circles and some large corporations as well as in Vichy
> France, Portugal, and Sweden. All these nations, (13) however, also rendered
> services to the Allies without which the war might well have tipped the
> German way. Switzerland, as not only the Dulles family but also Winston
> Churchill pointed out, provided an invaluable listening post that kept the
> Allies apprised of events, policies, and even plans inside the Reich.
>
> "Switzerland also protected its own 18,000 Jewish citizens completely,
> unlike France, which obediently deported thousands to Germany. Switzerland
> did more: it accepted more Jewish refugees, in terms of percentage of
> population, than any other country. And Switzerland was and is a very small
> country. Its population is only 7 million now, and was probably less then.
> More than 14,000 Jews escaped Germany to Switzerland during the same period
> that 55,000 left for the United States and 15,000 went to France . . .
>
> [Switzerland also] accepted 50,000 French and Polish soldiers. In 1944 the
> Swiss National Assembly voted to admit up to 14,000 Jews who were trapped in
> Hungary and were in the charge of Swedish diplomat Wallenberg. But Eichmann
> allowed only 1,400 to leave." (14)
>
> To put this into perspective, "the United States accepted only 21,000 Jewish
> refugees during the war."(15) In fact, the United States, which
> retroactively assumes that its role in World War II was purely heroic,
> seldom admits that some of its bankers not only traded with the Nazis
> through the BIS all during the war, but that the entire nation remained
> aloof when Britain fought Nazi Germany alone for two years. Even then, we
> did not declare war against Hitler: he declared war against us. Otherwise we
> might have fought only against Japan.
>
> These points are made not to review the war, in which an estimated 40
> million persons died and more lost their homes, possessions, and relatives,
> but to broaden the frame of reference beyond the fates of the bank deposits
> of only some sufferers in the largest of all the world many tragedies. One
> later tragedy was surely the Soviet-inspired Cold War, which was
> unnecessary, frightening, and divisive for over a generation. In that long
> and expensive continuation of war by other means, the role of gold continued
> to be central. The central banks continued to amass and hold massive gold
> reserves, but all the governments functioned on paper money alone in the
> postwar world. From the end of World War II until 1971, the world functioned
> with the United States pledge to buy gold at $35 an ounce, and to thereby
> maintain a dollar standard by which all other currencies would be measured
> in the international marketplace.
>
> In 1971, however, the Central Bank of France began to use its accumulated
> dollars to order gold from the U.S. Treasury in immense quantities. The gold
> reserves in Fort Knox began to fade like summer snowballs. The dollar was
> falling, imports began to soar and President Nixon grew alarmed. On August
> 15, 1971 he went on the air to announce a 10 percent Job Development Credit
> for investments in new equipment, a 7 percent excise tax on automobiles to
> assist Detroit, a small tax break for individuals, a $4.7 billion cut in
> federal spending, an additional 10 percent tax on imported goods a freeze on
> wages and prices for 90 days and a temporary suspension of the
> convertibility of the dollar into gold." (emphasis added.) (17)
>
> Only specialists seemed to grasp the importance of the end of the
> gold-backed dollar. It meant that from the 15th of August 1971 through
> today, the dollar has had nothing behind it but the promise of politicians
> and the printing press. The media in 1971, as economically feckless then as
> now,18 seemed to consider a "floating dollar" as they labeled it simply
> another arcane measure of importance mainly to bankers and international
> speculators.
>
> In reality it meant that a world currency was released to float as a balloon
> without limits, without roots, without stability, as high as the credulity
> of the world would carry it. One result was the release of a flood of
> dollars that washed everywhere. The world eagerly accepted those dollars,
> because the memories of the immense power achieved by World War II America
> had become imbedded in the mind of the globe. The legend of the dollar and
> the wealth of the U.S. dazzled the world long after the dollar became simply
> another paper currency.
>
> One result was that desperate people everywhere scrambled to obtain dollars
> that seemed to be safety nets from untrustworthy governments. Dollars
> "floated" abroad through foreign "aid" programs, through loans to foreign
> businesses, to U.S. investments abroad, and from millions of prosperous
> American tourists who seemed to be visitors from a remote earthly paradise.
>
> The Cold War made this appear a reasonable and even necessary situation. The
> media discussed "Eurodollars" as though they were somehow separate from the
> dollars used at home, on the theory that despite the fact that they issued
> from our Treasury printing presses, they were somehow different. In effect,
> the U.S. internationalized its welfare state. American dollars rained upon
> virtually every nation in the world in an effort to prevail in the Cold War,
> even as they enlarged our welfare rolls to maintain domestic political
> stability. This raised so attractive a lure to the world's poor that our
> borders were besieged even while our guards were withdrawn or weakened by
> the Courts. As in previous periods of hysterical inflation when paper money
> appeared to replace gold, from the history of China, the time of John Law in
> France, and the Tulip Craze in Holland, the laws of economic gravity
> appeared to be repealed.
>
> In 1975, a few years after President Nixon's amazing economic recklessness,
> (19) the U.S. Government restored America right to own and trade in gold.
> Legal gold returned for collectors. As the international price of the paper
> dollar declined, the international price of physical gold rose. Greenspan,
> chairman of the Federal Reserve, a former follower of Ayn Rand, regards gold
> as a measure of the "strength" of the dollar. Since the purchasing value of
> today's dollar is roughly equal to a nickel in 1969, this does not mean
> much.
>
> Meanwhile President Reagan, elected after President Carter watched the
> official U.S. interest rates rise to 20 percent and inflation soar, slowed
> official inflation by slowing the Treasury's printing presses. He
> accomplished this, however, by switching the Treasury presses to bond
> issues. These borrowings, slated to be repaid in the future, met with
> seemingly miraculous success in the international financial world. They
> crowd the vaults of the central bank of Japan and many other nations, as
> well as the private holdings of tens of millions of patriotic Americans.
> Unfortunately, they are all payable in dollars. What President Reagan
> accomplished was to halt the retail production of dollars, in exchange for
> wholesale borrowings.
>
> One result was that foreign nations could hardly refuse to subscribe to
> successive new bond issues by Washington, lest such a refusal precipitate a
> drop in the price of holdings already in their possession. Sales of these
> holdings may do the same. Such runs could bring down the great global empire
> of paper dollars, which every government lists as assets.
>
> This situation has long since alarmed the central banks of Europe. That is
> the reason for the European drive toward a common European "Euro" currency
> to replace the dollar. The plan makes it clear that Western Europe does not
> want to be inside the house that Washington built when the roof falls. This
> has led to a drive in both European and American financial circles to
> industrialize the Orient, through a multitude of joint ventures, to avoid
> being caught in a global collapse. Meanwhile, every financial center is
> neck-deep in paper currency except for Switzerland.
>
> Switzerland alone has a gold-backed currency and bank secrecy. The Swiss
> franc is the only existing alternative to fiat money floating everywhere
> else, whose purchasers (and depositors) represent very conservative
> investors. That is the reason that Europe led by France and Germany has been
> attempting to put together a new global financial system that will continue
> the welfare state that is only possible with paper money and inflation. Such
> a system cannot succeed indefinitely of course. It might last as long as the
> tenure of our present rulers and that is all that most rulers can conceive.
>
> But Switzerland, with its real currency, is an alternative and reachable
> system. As it stands, outside NATO and outside GATT and outside the new Euro
> plans conceived in Berlin, Paris and Brussels, (20) it remains in silent
> competition to a New World Order that cannot be ignored. It is in that
> context that the campaign on behalf of Holocaust victims and their deposits
> assumes an unexpected and unanticipated, but very timely, global importance.
> That is why Washington has taken the rare step of supporting a minority
> campaign by threatening to freeze Swiss assets in the U.S. unless its banks
> placate their critics. Switzerland cannot, in other words, be allowed to
> remain outside the Club. That is why the Swiss are understandably alarmed,
> because bankers rely upon reputations for honesty and fairness and a
> campaign that attacks Swiss banks on moral issues can be deeply injurious.
>
> Therefore, the overall role of gold in the world economy today is even more
> important than ever before as a growing threat to the rulers of a paper
> empire.
>
> NOTES
>
> 1. And now an Undersecretary of State.
> 2. It is interesting that there is also talk of a gold coin: the écu.
> 3. As of 1995, in World Almanac, 1997.
> 4. Trading with the Enemy: The Whole Story by Ron Holland and Rachel
> Murdock, Independence Press, a division of Offshore Seminars, P.O. Box 1201,
> Skyland, NC, 28776.
> 5. Ibid.
> 6. See: Cops Across Borders: The Internationalization of U.S. Criminal Law
> Enforcement, by Ethan A. Nadelman, The Pennsylvania State University Press,
> University Park, Pennsylvania, 1993, Passim.
> 7. In recent years Swiss banks have also added regulations against accepting
> money "laundered" from criminal activities and have instituted checks on the
> backgrounds of depositors.
> 8. Which so closely resemble the even shorter reign of Hitler over Europe.
> 9. Going for the Gold by Matthew Stevenson, The American Spectator, May
> 1997, p. 26.
> 10. Ibid.
> 11. Situated in Basle.
> 12. Giving rise to a rumor that Franco himself was descended from a
> Sephardic Jewish family on the maternal side.
> 13. Except France as a nation.
> 14. The American Spectator, op. cit.
> 15. The Abandonment of the Jews: America and the Holocaust, 1941-45, by
> Daniel S. Wyman.
> 16. WWII has been termed "The Four Trillion Dollar War that Cost 40 Million
> Lives," although the overall cost in resources and property cannot be
> accurately ascertained. Civilian casualties can only be estimated; military
> statistics are more precise. Forty million is compiled from The World
> Almanac, The Encyclopedia Americana (International Edition 1966), the
> appendix of Battles Lost and Won, Hanson Baldwin (N.Y. 1966), the overall
> cited from A World in Flames: A History of World War II by M.B. Hoyle,
> Atheneum, N.Y. 1970, p. 323.
> 17. Nixon: The Triumph of a Politician, 1962-72, by Stephen E. Ambrose,
> Simon and Shuster, N.Y., 1989, pp. 458,459.
> 18. Economics are not, apparently, taught in schools of journalism. Even the
> news staff of The Wall Street Journal learns on the job, which is one reason
> for its uneven market coverage. Some do not learn quickly or well.
> 19. It's doubtful if he ever realized the full extent of his folly: a
> lifelong pursuit of political office did not leave much time for true
> self-education or deep reflection.
> 20. And perhaps London.
>
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