Dialogue #2 on the American Gold Standard:
A Temporary Interruption of Service

by Gary North
by Gary North

The Private Money Guy (PMG) and the State Money Guy (SMG) are still going at it. For Dialogue #1, click here.

PMG: You still believe in gold.

SMG: Yes, I do. I own gold coins.

PMG: Is that because you don't trust the Federal Reserve System?

SMG: Yes.

PMG: Why don't you trust the FED?

SMG: Because the country isn't on a government-enforced gold standard.

PMG: So, if the country were on a government-enforced gold standard, you would trust the FED.

SMG: Yes.

PMG: Why did the country go off the government-enforced gold standard?

SMG: Because of the Great Depression.

PMG: What caused the Great Depression?

SMG: Federal Reserve monetary policy in the 1920's.

PMG: So, you believe Murray Rothbard.

SMG: I believe Paul Johnson in Modern Times.

PMG: Johnson explains what happened by summarizing Rothbard's book, America's Great Depression.

SMG: Then I guess I believe Murray Rothbard.

PMG: FED policy in the mid-1920's expanded the money supply by increasing the monetary base.

SMG: Yes.

PMG: This led to the Great Depression, when the FED stopped inflating in 1928.

SMG: Yes.

PMG: Then the government-enforced gold standard did not protect the country from the FED.

SMG: Not in the 1920's.

PMG: Did it protect the country from the Great Depression, 1929–33?

SMG: No.

PMG: So, the FED was not trustworthy in the 1920's.

SMG: Correct.

PMG: When we had a government-enforced gold standard.

SMG: Yes.

PMG: But you would trust the FED today if we had a government-enforced gold standard.

SMG: Yes.

PMG: Why now?

SMG: Because the FED has learned its lesson.

PMG: What lesson?

SMG: That the FED made a mistake 1929–33 by not inflating.

PMG: The way it inflated from 1924–28.

SMG: Yes.

PMG: The way it's inflating today.

SMG: Yes.

PMG: Which is why you are buying gold coins.

SMG. Yes.

PMG: Where did the FED learn this lesson?

SMG: From Milton Friedman.

PMG: Who hated every variety of gold standard.

SMG: Yes.

PMG: Roosevelt took the country off the domestic gold coin standard in 1933.

SMG: Yes.

PMG: Why did he do this?

SMG: He wanted to jump-start the economy by spending more money.

PMG: What did that have to do with confiscating the public's gold?

SMG: I thought we had come to an agreement. We do not use the word "confiscate" when speaking of U.S. government policy.

PMG: What should we call it?

SMG: A temporary emergency transfer for safekeeping of a non-industrial metal.

PMG: Safekeeping by whom?

SMG: The United States government.

PMG: How much did the government pay Americans for their gold?

SMG: $20 per ounce.

PMG: So, you are saying that the government did not confiscate the people's gold.

SMG: Correct.

PMG: Because it paid $20 an ounce.

SMG: A fair price.

PMG: Set by whom?

SMG: The government.

PMG: So, the government sets the price of gold in a government-enforced gold standard.

SMG: Yes.

PMG: What did the government do with the gold?

SMG: It sold it to the Federal Reserve System.

PMG: What price did the government get for the gold?

SMG: $35 per ounce.

PMG: So, the government made a profit of $15 per ounce.

SMG: Yes.

PMG: Let's see. I calculate that 15 is 75% of 20.

SMG: So do I.

PMG: So, the government made 75% on the deal.

SMG: Yes.

PMG: The FED paid the government $35.

SMG: Yes.

PMG: Did the FED did complain about price gouging?

SMG: Are you trying to be funny?

PMG: I ask the questions here, remember?

SMG: Sorry.

PMG: Why didn't the FED complain?

SMG: It's part of the government.

PMG: What did the FED use for money?

SMG: Federal Reserve credit.

PMG: It created the money.

SMG: Yes.

PMG: Couldn't the government have sold T-bills to the FED to get the same amount of newly created money?

SMG: But then the government would have owed interest payments to the FED.

PMG: In 1933, T-bills paid one-third of one percent.

SMG: But the government paid no interest at all on the sale of the gold. Paying nothing is always better than paying something. That's free market economics. Plus, it made 75% on the deal. It was a sweet deal.

PMG: Whose gold was it after March of 1933?

SMG: The nation's gold.

PMG: Not the people's gold.

SMG: Not after the people sold their gold to the government.

PMG: Because it was a felony not to.

SMG: Yes.

PMG: Because Roosevelt made them an offer they could not refuse.

SMG: I get it. "Godfather" language. We've already agreed that the government is not a criminal conspiracy.

PMG: I've agreed because I need the interview.

SMG: A deal's a deal.

PMG: Where is the gold now?

SMG: In Fort Knox.

PMG: All of it?

SMG: Some of it – we don't know how much – is at 33 Liberty Street, New York City.

PMG: The Federal Reserve Bank of New York.

SMG: Yes.

PMG: A private corporation.

SMG: Yes.

PMG: Which still stores the government's gold for safekeeping.

SMG: Yes.

PMG: You're sure.

SMG: Yes.

PMG: How do you know?

SMG: The Board of Governors of the FED has said so.

PMG: A government organization.

SMG: Yes.

PMG: Which has hired a private corporation to execute its policy.

SMG: Yes.

PMG: Therefore, to safeguard the government's gold, the government has turned over the gold to a private corporation.

SMG: Yes.

PMG: Is this because a private corporation is more efficient than the government?

SMG: Yes.

PMG: We are agreed. But why should the gold be safer in the vault of a private corporation instead of in the possession of millions of Americans?

SMG: Economies of scale.

PMG: A safer vault?

SMG: Yes.

PMG: So, you didn't believe Die Hard 3?

SMG: Of course not. No thieves could have broken into the vault at 33 Liberty Street. The Federal Reserve Bank of New York is not like the Post Office. It's private.

PMG: Let's review. How did the gold get there?

SMG: Because the Federal Reserve System bought it.

PMG: With what?

SMG: With a check.

PMG: Drawn on what bank?

SMG: The Federal Reserve Bank of New York.

PMG: A private corporation.

SMG: Yes.

PMG: Which now holds the gold for safekeeping.

SMG: Yes.

PMG: So that thieves cannot get at it.

SMG: Yes.

PMG: Where the public also cannot get at it.

SMG: Temporarily.

PMG: Since 1933.

SMG: Yes.

PMG: And you're sure it's still in the vault.

SMG: Yes.

PMG: Even though it has not been audited by an outside agency.

SMG: Yes.

PMG: Why hasn't it been audited by an outside agency?

SMG: It's too risky.

PMG: What risk?

SMG: Didn't you see Die Hard 3?

PMG: You mean the auditors might be part of a criminal conspiracy?

SMG: Yes.

PMG: And we wouldn't want a criminal conspiracy to get its corporate hands on the nation's gold.

SMG: Correct.

PMG: What would a criminal conspiracy do with all that gold?

SMG: It would sell it.

PMG: To the public.

SMG: Yes.

PMG: To individuals who want to own gold, you mean.

SMG: Yes.

PMG: To individuals in the free market.

SMG: Yes.

PMG: Where it would not be safe.

SMG: Exactly.

PMG: Where it was no longer safe in early 1933.

SMG: Yes.

PMG: When will it be safe to return the gold to the public?

SMG: When the economic turmoil stops.

PMG: When will that be?

SMG: When the country goes back on the gold standard.

PMG: The way it was in early 1933.

SMG: Yes.

PMG: When the country was in economic turmoil.

SMG: Yes.

PMG: Forcing Roosevelt to call in the gold for safekeeping.

SMG: Yes.

PMG: Was the extra 75% that the government got for the gold a safekeeping fee?

SMG: No. The Federal Reserve Bank of New York stores the gold.

PMG: What does it charge the government for this service?

SMG: I don't know. There are no public receipts.

PMG: Why are there no public receipts?

SMG: You don't need public receipts when you are not subject to an independent audit.

PMG: But Congress is audited.

SMG: By auditors hired by Congress.

PMG: These auditors don't ask Congress for receipts from the Federal Reserve Bank of New York.

SMG: Correct.

PMG: Why not?

SMG: It's not necessary.

PMG: Why not?

SMG: Because the Federal Reserve System pays about $20 billion a year to the Treasury.

PMG: Where does it get all that money?

SMG: From the Treasury.

PMG: Which pays interest to the FED.

SMG: Yes.

PMG: Part of which the FED returns to the Treasury.

SMG: Yes.

PMG: After deducting expenses.

SMG: Yes.

PMG: Does the FED provide receipts for these expenses?

SMG: No.

PMG: The Treasury takes the FED's word for this.

SMG: Yes.

PMG: The government does not audit the FED.

SMG: No.

PMG: Why not?

SMG: It's not necessary.

PMG: Why not?

SMG: Because the FED conducts its own audit.

PMG: Can Congress see this audit and verify it?

SMG: No.

PMG: Why not?

SMG: Because the Federal Reserve System executes its policy through the Federal Reserve Bank of New York, which is not a government agency.

PMG: Why can't the Internal Revenue Service audit the Federal Reserve Bank of New York?

SMG: It lacks the legal authority.

PMG: From Congress.

SMG: Correct.

PMG: Can the public get access to the receipts?

SMG: Bloomberg News tried that in 2008.

PMG: How?

SMG: Using the Freedom of Information Act.

PMG: What was the result?

SMG: The Federal Reserve Bank of New York refused to comply.

PMG: On what basis?

SMG: The FOIA protects trade secrets.

PMG: What trade secrets are involved?

SMG: We don't know. It's a secret.

PMG: That's all the space I have for today's interview.

SMG: Will this be the last interview?

PMG: Probably not. I always need more copy.

February 21, 2009

American Gold Standard Dialogues

1. Who Ya Gonna Trust?
2. A Temporary Interruption of Service
3. Science Is as Science Does
4. Trust and Distrust in Banking
5. Winners and Losers

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2009 by LewRockwell.com. Permission to reprint in whole or in part is gladly granted, provided full credit is given.

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