YOUR HEALTH AND YOUR JOB

I think you might be losing some sleep and are stressed due to work related problems. It is clear that you are a clever man but I am not sure that you have a free hand in writing your own script. From day one you have been subjected to bully boy tactics from various quarters including name calling such as "Helicopter Ben" and recent threats by that old man Ron Paul who wants to snoop through your offices and then close you down completely and send your 20,000 employees home.

THAT HYPOCRITICAL CONGRESS

Believe me, I understand you. I've seen how politely you keep telling those congressmen that they have to restore some fiscal rectitude to the US budget. They have been spending like crazy running the biggest pork barrelling plant in the world at home. Instead of looking at their own backyard however, they want to come over to your place and trash it. I mean for crying out loud, the Federal Reserve is a privately held entity. Have they no respect for private property? Instead of giving the Federal Reserve special awards and subsidies for manufacturing US dollars at home rather than China, they just accuse you of every problem the nation has.

Just keep your chin up as you always do. I have to hand it to you because you always appear neatly dressed and not a hair out of place. Cool, calm and collected. I just wish that that youngster Geithner would take a few lessons from you. The poor boy has the look of someone who has just been caught doing something wrong and is about to be tortured. Hopefully they will close Guantanamo Bay so his nightmares can stop. That Hank Paulson after all did set the poor boy up.

BRIEF BACKGROUND TO THE PROBLEM

Anyway, I am writing to you with an idea. It's only half baked but what the heck, so are most of the other schemes Washington has been running. My idea has to do with the Gold Standard and the crazy people who want to see the nation return to it. You and I know that this is very difficult, but what if we could make a start? Before I get into the detail, I want to quote a passage from an article your old boss Alan Greenspan wrote in 1966. It's a bit long but I think he wrote it while he was still perfectly in control of his senses and a free man.

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

Now whilst everyone (including me sometimes) makes fun of your old boss and accuses him of being the original Mr Bubbles, I must say that the above passage is one of the most lucid, compelling, profound and timeless pieces ever written by an economist, at least in my estimation. In fact it should be printed on every US dollar bill as a reminder of the truth.

In fairness to Mr Greenspan the Gold Standard had already been abolished when he got the job as Chairman of the Fed in 1987. The great printing experiment had already taken root and the roaring 80's had given rise to superstars like Mike Milken.

Anyway, I must get back to my idea.

THE IDEA

I believe we all agree that gold is the purest form of money with silver being a very close second. They both speak all languages telepathically, cross all borders, and defy time. Those that have sought to expel them are still ruing the day. Strangely though, lessons are not learnt as sales have recently continued through the IMF. They must have hired new staff who never heard about Gordon Brown's unfortunate sale a decade earlier.

People have been insinuating that the Fed has for some years been leasing out its gold to bullion banks so as to make a little bit of money on an otherwise unproductive piece of metal. The idea sounds good because warehouses cost money to maintain and guard. But once again there are a whole lot of pests like James Turk who are accusing the Fed of having lost most of the 8,000+ tonnes it's supposed to have. They are conspiracy theorists who stay up late at night making up stories about how the gold was sold by the bullion banks who borrowed it from the Fed when it was worth $300 and now can't give it back to the Fed because they can't afford to buy it back by going into the market at current prices.

People must believe these scaremongers who make similar claims about other central banks because Hong Kong for example, has asked for the return of its gold which was held by various London gold repositories for safe keeping.

So the issues confronting the Fed are three-fold:

• Firstly, it has half empty warehouses that could do with a little bit of topping up.
• The second problem is that it has provided the Federal Government and the banks with a whole lot of cash to spend or lend, but the economy is still gasping for breath.
• The dollar's value and credibility are under attack by those ungrateful Chinese to whom the American people have given their know-how and manufacturing plants as well.

THE PROPOSAL

My proposal is therefore quite simple. Let's do some reverse engineering and make the world take notice of the USA. We must first accept that gold (and silver) are the ultimate forms of money and that by sitting in a private safety box in a bank or in some kind of Gold ETF's like GLD, the gold is not doing anything other than acting as an unopened parachute.

The proposal is therefore as follows:

• Government offers anyone with gold (individual or institution) the opportunity to store it with the Federal Reserve at no cost.
• The Federal Reserve lends interest free the cash equivalent of the gold's value to the owners of that gold. Alternatively it could also offer a small leasing fee of say 1.5% as an inducement.
• The owners of that gold can at any time return the cash advance to the Federal Reserve and ask for their gold back.

ADVANTAGES OF THE PROPOSAL

The advantages of this simple proposal are as follows:

• Gold would no longer have to be stored in a safety deposit box, under the bed, in the garden or some other mysterious place.
• The Gold ETF style funds could earn fees for their clients or at least cover the costs of administration and not have to pay for storage. In addition they would continue to be buyers of gold on behalf of small purchasers who would otherwise not be able to deal directly with the Fed.
• The balance sheet of the Fed would be improved by the incorporation of a true asset in its holdings rather than more of that second grade toilet paper known as toxic assets.
• Finally, it would bring out true money from "under the pillow" and allow it to circulate for the benefit of the economy. You see people who hold gold hold it outright. If they were given the guarantee of having their gold and eating it too, they may be encouraged to put the interest free loan to productive use. It's not mortgaged or committed to some other purpose other than as insurance against some future calamity. If the people of the USA had 8 tonnes of gold bars, jewellery and non-collector type coins, this would equate to almost $290 billion. If you revalue gold upwards who knows how much could enter the economy as debt free money.
• The Federal Reserve could possibly from time to time make a limited offer to buy small amounts of gold (or silver) at a tax free premium from the owners. In this way it builds up its stockpile and allows money to enter the system that is not created as debt.
• People in countries where the political or financial stability are not up to scratch would have the assurance that the US Federal Reserve is the custodian of their gold and would therefore consider the USA safer than perhaps Switzerland for storage purposes. In fact the US could supplant Switzerland as the keeper of the gold for individuals.
• Perhaps owners of a whole lot of jewellery might be encouraged to have their gold melted down and put to good use. In fact I can see an army of Indian gold owners shooting their gold across in no time at all. You never know, gold and silver might once again become predominantly money in the eyes of human beings.

Mr Bernanke, this is your chance to do something towards restoring the credibility of the USA as well as getting the system going. This is the first step towards a return to the gold standard. Perhaps a full return will not be achieved but any movement in that direction is a good start to at least stem the rot that has currently set in.

SAFEGUARDS

You must keep in mind however, that a lot of people will not trust you or the Fed so I recommend the following:

• The repository must be in a glass enclosure in a public place surrounded by a heavy duty metal cage and 24 hour guards and surveillance.
• This enclosure must be visible at all times either physically or by internet access.
• The gold must be stacked in such a way that an observer can easily calculate what gold is in there. Gold Eagles in one section, kilo bars in another and so on.
• A similar but separate enclosure should be built for silver.
• Allow Ron Paul to be the "Guardian of the Pile". This will get him off your back.
• Allow James Turk to be the Auditor.
• The US Congress to pass a law that prohibits the appropriation of any portion of the gold by the Fed or the US Government under any circumstances.
• Every Federal Chairman upon appointment must swear to answer all questions relating to the gold and silver pile and never claim confidentiality etc.

PRECEDENTS & OTHER OPPORTUNITIES

Now I can almost guarantee you that this could become the number one tourist destination in the United States. Furthermore, this proposal is not as dumb as you might think. After all, the Ancient Athenians' Treasury was in part made up of 1,100 kilos of removable gold plates on the 12 metre statue of Athena situated in the Parthenon. The Parthenon was a public building accessible and visible at all times. You see the Greeks knew that gold could make scoundrels out of public officials so they came up with this simple but effective solution.

I would also like to remind you that in your not so distant past there was a time when Americans could take their mined silver to the mint and have it turned into coin of the realm.

Mr Bernanke, you have a lot of clever people over there and it's a pity that the US finds itself hostage to a gargantuan debt, a powerful major creditor, unproductive wars and a hostile world. It's time to use the accumulated wisdom of your forefathers to reclaim the US's stature in the world.

The world must therefore return to standards in all aspects of life if this planet's population can hope to be increasingly civilized. The gold standard is one of those standards and it is within your power to take the lead.

Please don't think I am trying to be some sarcastic bastard from Down Under with what I have written. As I said at the outset, I know you have a tough job but I also know you want to write a brighter chapter of history than the one currently being written.

By the way, you are welcome to visit me whenever you like. There is a golf course bordering my back yard where you can land your helicopter at any time. I'm sure they won't mind.

Yours sincerely,

PETER SOULELES B. Com LLB
Sydney Australia
12 November 2009