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Paper Bugs at BusinessInsider Attempt To Defend Bernanke

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by Aaron Krowne
Founder, ML-Implode.com

Joe Weisenthal at BusinessInsider has thrown Bernanke an assist on the “is gold money” question brought to the fore by Congressman Ron Paul last week:

One thing that riled me a bit this week was Ron Paul’s questioning of Ben Bernanke on whether gold is money. After questioning, the established tin-foil haberdashery contingent went wild about how “silly” Ben was made to look. Even people you’d think might know a thing or two about money like JP Morgan’s FX strategist Ken Landon decided it was time again to pile on and mock with the hyperinflationistas.

To be clear here: money, from the Latin moneta, means “medium of exchange.” I do recognize that clearly gold is an asset and one might argue that it is relatively liquid and regularly is exchanged. However, the medium of exchange on nearly every gold transaction taking place in the world today is in sovereign issued currencies.

So unless you know of some market where gold is the functioning medium of exchange it’s prima facie absurd to even make the argument. If you’re not convinced, try to buy your post-market-close drinks today with unmarked metal and please let me know how that goes.

Weisenthal called this the “best response” pro-Bernanke/anti-gold.  If that is the case,  then I suspect the dollar really is doomed.

No, the problem with the above sentiments is, firstly, that they distract from the central issue with fiat currency: its structural (by design) inability to preserve value. In fact, that is why I prefer to call them a “currency” and not a “money”, and I think that clearly is the more technically-accurate and intellectually honest nomenclature.

Notably, a real “money” is supposed to be a reliable store of value (the other properties are medium of exchange, unit of account, and to have the “physical” properties of being portable, divisible, and durable).  The store-of-value property is obviously the one Congressman Paul was drawing attention to, and on that measure, the dollar fails spectacularly.

I will note also that while it’s true gold isn’t used often in day-to-day commerce (these days)  as a medium of exchange or unit of account, there is really little preventing it from doing so.  Gold stands ready waiting in the wings.   Even more importantly, the dollar itself used to be defined by a fixed weight in gold, so were that system (scrapped not even 40 years ago, in desperation) to be restored, the medium of exchange and unit of account properties would instantly be had by gold once again. So really the “failure” of gold in this sense is an administrative, political failure — not any intrinsic “deficiency” of gold.

But it gets worse for Weisenthal’s crack trader.

We actually now have, in some of the most important markets in the world, gold once again functioning as a medium of exchange.  How quickly we forget the BIS gold swap intrigue from last year, or the recent IMF gold sales, which were quickly snapped up.

This was clearly not not all just taking place for giggles — the monetary authorities hate admitting gold is being “used” for anything other than to help keep their massive palace shrines to neo-liberal economics from blowing away.   Yet, here we have gold being exchanged, and for reasons directly due to how fiat money has eroded the firmament of Western banking.

Most likely, gold contemporaneously has a much more active role behind the scenes at the “power money”/central bank level than even these episodes indicate.

Much of this has come out in the past, around the 1971 dollar gold de-pegging event.  It was discovered that gold swaps and transfers were going on between global central banks at much higher than “spot” valuations.  Those interested may find Antony Sutton’s “The War On Gold” illuminating.

Finally, the anonymous trader’s suggestion that one test gold’s “moneyness” by attempting to buy a beer with it is patently ridiculous — there’s been no time in history where gold was considered so value-less as to be on par with a beer (no matter how diluted the fineness of the gold coin).

Of course, if he wants, I will certainly give him a beer (hell, a whole round for him and his office) for the smallest denomination of gold coin he can find.

There Are 2 Responses So Far. »

  1. Joe Weisenthal is a know-it-all POS. His thinking is puerile. I avoid BusinessInsider because I can’t stand him. Henry Blodgett loves him because he gets the clicks, but I guess that tells you something about Henry. He hasn’t changed spots. He’s still as shallow as ever.

  2. Aaron, this was posted on our forum too – and (for any interested) I wrote a much longer reply to this topic there:

    http://www.bullionbullscanada.com/index.php?option=com_kunena&Itemid=122&func=view&catid=6&id=10232

    To abbreviate it, Weisenthal is 100% incorrect. It is the CENTRAL BANKERS who have NEVER stopped using gold as “money”, “24/7”, year after year, decade after decade.

    Gold is listed (and treated) as an “asset” EXACTLY like the all the other foreign “currency” reserves of central banks, around the world. Indeed, they use the exact same rules on international “transfers” of gold which apply to all international transfers of “currency”.

    Thus the ONLY argument which shills like Weisenthal (and Bernanke) could make is that gold is “currency”, but not “money”. As most well know, PAPER would fare even worse in that duel of semantics.

    In the case of Weisenthal, we could simply conclude that he is “an idiot who does not know any better”, but NOT with Ben Bernanke.

    It is 100% impossible for Ben Bernanke (as Chairman of the Fed) NOT to know that gold is “money”. Thus (to me) the beauty of the Paul/Bernanke exchange was that it is conclusive proof that Bernanke is a COMPULSIVE liar.

    Not only is his statement to Bernanke an obvious, intentional lie, but only COMPULSIVE liars are arrogant enough to believe they can SUCCESSFULLY fool people with a lie so blatantly false.

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