Gordon Brown the Stone Thrower

Dear Reader,

This is just a short follow up on my recent article "Iceland Beckons and America Reckons" which deals with the predicament that Iceland finds itself in, over its failed banks and the demands of the UK and the Netherlands for Iceland to pay around $5 billion to compensate for the loss incurred by depositors.

First of all I want to confess that I have nothing personal against Gordon Brown. It's just that he has made himself such an easy target and being a fairly big bloke he is hard to miss when taking a shot.

I also wish to apologise for making use of bible passages in the process of being a little un-Christian to Gordon Brown. The stone I will be throwing at Gordon is one of his own making so I rest my case and allow you to be the judge. As an act of brotherly compassion I will also offer him a few suggestions that might help.

BACKGROUND

On May 7th, 1999 Gordon Brown without consulting the Bank of England and without even debating the timing of the sale, decided to sell off a sizeable portion of England's gold holdings. To be precise, the amount sold was 395 tonnes over a period of 35 months beginning on July 6, 1999 and ending on March 5, 2002. A total of 17 auctions netted an average price of $274.92. That equates to $3.49 billion.

The price today is let's say, $1,100 per oz, which would have yielded the princely sum of $13.96 billion. For those without a calculator, the loss amounts to $10.47 billion. Even allowing for some interest on the original $3.49 billion at 4% compounding, the amount lost would still have been around $9 billion.

So there you have it in a nutshell. Gordon Brown is in my view being a tad uncharitable to the Icelanders considering his own past failings. There are of course two interpretations and approaches that need to be considered here:

INTERPRETATIONS AND APPROACHES

1. Would Gordon Brown be more of a statesman if he was to support the entry of Iceland into the EU and also support the IMF giving aid to this beleaguered nation? By maximizing Iceland's future economic potential might he not make it that much easier for them to pay without holding the proverbial knife to the throat? In other words, try the carrot rather than the stick approach.
2. The second interpretation is that Gordon Brown may be doing the Icelanders a favour by stopping their entry into the EU and getting IMF aid. By some accounts, the prospects of the largely dysfunctional EU do not sound very favourable with many predicting implosion given its rag tag membership of underperforming and unstable nations. As for IMF assistance, there has been many a nation that found its cures worse than the disease.

THINKING OUTSIDE THE BOX

There is of course one more option. May I suggest to Gordon Brown that he sell the remaining gold holdings of Britain of around 310 tonnes to Iceland at the price of $1,100 per oz. This comes to an amount of $10.96 billion.

Now follow the maths:

Value of gold in 10 years (assume a mere doubling)    $ 21.92 billion

Less: Amount owing on gold purchased    $(10.96 billion)

Less: Amount owing for bank failures    $(5.00 billion)

Balance left to Iceland    $5.96 billion

Less: Interest debited at 4% p.a. on $15.96 billion    $(6.38 billion) (for 10 years)

Balance payable by Iceland    $(420 million)

If the above seems far-fetched then you just have to remember the massive amounts of gold that have been leased to bullion banks by Central Banks for pitiful amounts of interest. No government complains about those deals nor do they complain about the fact that the bullion banks probably have not and cannot return the gold.

If the Bank of England charged leasing rates on the gold and also charged the same rate on the $5 billion as it does to its banks then Iceland could probably even make a profit.

Most importantly, what would be the result if gold actually tripled over the next 10 years?

The point I am trying to make is that preferential deals should not be just for bullion banks and banks that are in trouble. If the international community wants to help, they can, without becoming barbarians at the door. But as always this is probably about bringing another nation under the control of the international vampire squids.

Now I know what you are thinking....."What if gold goes down?"

My answer is simple. The devices used to date by the governments and central banks of the world to heal the financial crisis, ALL amount to thinly disguised schemes whereby money is printed and lent out at low interest rates to their preferred "clients". This is all they are willing to do and will continue to do it until confidence collapses. As paper currencies are also based on confidence they too will collapse. Is there any doubt where the price of gold is going?

Allow me one more idea. If the US could "lend" over $170 billion to AIG to save the collective butts and bonuses of the banking scam artists, then surely it can come to the rescue of an entire nation with a paltry $5 billion.

If Mr Brown does not like the idea of a gold lease it simply means that he has seen the error of his decision back in 1999 and I do not blame him. It also means that he expects the price of gold to rocket in the next 10 years. Repentance is the virtue of every great man. Foresight is to be envied.

The bottom line is that Gordon Brown needs to be high minded and not high handed. Over to you now Mr Brown.

PETER SOULELES B. Com LLB

Sydney Australia

10 January 2010

P.S. My apologies to any readers who read the original version of this article which contained errors which have now been corrected.