Inflation Via Gold Revaluation Could Take Just Minutes But Probably Needs Longer

October 3, 2015

Fund manager, author, and geopolitical strategist Jim Rickards, writing for the Daily Reckoning, noted again yesterday that central banks can always create inflation by devaluing their currencies against gold.

Rickards writes: "The Fed can cause massive inflation in 15 minutes. They can call a board meeting, vote on a new policy, walk outside, and announce to the world that effective immediately, the price of gold is $5,000 per ounce.

"The Fed can make that new price stick by using the Treasury's gold in Fort Knox and the major U.S. bank gold dealers to conduct 'open market operations' in gold. They will be a buyer if the price hits $4,950 per ounce or less and a seller if the price hits $5,050 per ounce or higher.

"They will print money when they buy and reduce the money supply when they sell via the banks. This is exactly what the Fed does today in the bond market when they pursue QE. The Fed would simply substitute gold for bonds in their dealings. The Fed would target the gold price rather than interest rates."

True enough as far as it goes, and as Rickards notes, it has been done before, more or less. But there may be a couple of problems with such an approach.

First, somebody is massively short gold in the fractional-reserve gold banking system. The short position is probably shared between central banks, bullion banks, mining companies, and ordinary investors. A sudden spectacular rise in the gold price could destroy some of those institutions and people, unless force majeure could be declared to nullify their obligations or government agreed to assume them. There would be immense legal difficulties there.

Second, it's unlikely that any such upward revaluation of gold would ever be attempted without international agreement and coordination with all major governments and central banks. Otherwise it would destroy international finance, debt, and trade.

But three years ago the U.S. economists and fund managers Paul Brodsky and Lee Quaintance speculated that such a scheme may already be in the works -- that to inject some fairness into the worldwide devaluation of otherwise unpayable debt, central banks were quietly redistributing gold reserves among themselves in preparation for the monetary metal's upward repricing:

In proprietary commentary shared this week with Zero Hedge --

-- Brodsky argued that massive money creation remains necessary to offset debt, since there are five times more claims on U.S. dollars than actual dollars. (Of course the claims to gold that doesn't exist are far larger still.)

All this stuff may be important mainly for establishing again that there is no longer any point to market analysis when central banks are intervening in markets largely surreptitiously every day and when the very measures of markets -- currencies, including gold -- have little consistency, when there no longer is any "stable numeraire," to use the term used by the British economist Peter Warburton in his far-seeing essay 14 years ago, "The Debasement of World Currency -- It Is Inflation, But Not as We Know It," and when the very purpose of central banking has become to deprive the world of a "stable numeraire":

That is, in financial matters these days, the only worthwhile pursuit is to try to discover what central banks are doing and planning in secret with the world's financial weights and measures. Of course that's GATA's work:

By contrast, the Financial Times, Wall Street Journal, Reuters, Bloomberg News, and other purportedly financial mainstream news organizations have no interest in anything that really counts. Their work is to distract from what counts, and from their perspective and the perspective of central banks, this is very important work.

Rickards' commentary about generating inflation instantly through gold revaluation is headlined "How Inflation Could Be Caused in 15 Minutes" and it's posted at the Daily Reckoning here:


CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Nearly 40 percent of all gold ever mined was recovered from South African rocks.