When should a nation buy or sell gold?

“The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” Ben Bernanke, former Chairman of the Federal Reserve

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….

When should a nation buy or sell gold? Here is an article that gives the “The Daily Bell” answer to that question. (Spoiler alert: The Daily Bell is gold-bug paradise.)

How the poster boy for bad financial management lost shareholders $25 billion
By Simon Black – April 19, 2018

In January 1980, the price of gold hit a record high of $850 per ounce. Then it began a nearly two-decade slide. By the summer of 1999, gold hit $250 per ounce– a level not seen since the 1970s.

So naturally it was at this point that the British government made the infamously stupid decision to sell the bulk of their gold reserves.

They began dumping their gold on July 6, 1999. And it took more than two and a half years to auction all 395 metric tons. Gold prices remained depressed during the auctions. The Brits received about $275 per ounce on average.

Almost immediately after the sale, the price of gold started to rise. By the summer of 2002, gold was over $300 per ounce. It was over $400 in 2003… then $500 in 2005. Gold cracked $1,000 in 2009. And it’s $1,350 today.

The British government literally sold most of its gold reserves at the bottom of the market.

In retrospect, the decision looked completely short-sighted and idiotic. And taxpayers were rightfully furious.

Now, let’s get back to the title question: “When should a nation buy or sell gold?”

This is not meant to be a market-timing question like, “Is now the time to buy gold or to sell gold?” Instead, it means, “Should a nation ever buy or sell gold?”

The answer is: It depends upon whether the nation is Monetarily Sovereign, and whether its currency is widely traded on foreign exchange markets.

The above article specifically describes the UK, which is Monetarily Sovereign and whose currency is widely traded. The article claims that the UK was “completely short-sighted and idiotic,” because it should have been able to predict that gold prices would rise.

If the British government were not so “short-sighted and idiotic” it could have received more British pounds for its gold.

I suggest that the article itself is “completely short-sighted and idiotic.” Examine the premise: That the British government should have waited until gold prices were higher.

But why? If they had waited until prices were higher, they would have received more British pounds.

But, being Monetarily Sovereign, the British government has the unlimited ability to create its sovereign currency, the British pound.

Having that unlimited ability, the British government has no need for, and obtains no benefit from, receiving pounds from any source. Even if the Monetarily Sovereign British government levied zero taxes, it still never could run short of pounds.

Visualize that you own a special computer; it allows you to add unlimited pounds to your checking account. You just press a couple keys and (poof!), your checking account has a few billion additional pounds.

You also own a bicycle, that two people wish to buy from you. One offers you ten British pounds and one offers you a million British pounds. To whom would you sell?

The answer: Clearly, it makes no difference. 

You don’t need the pounds; you create them at will. And if your goal simply is to get rid of the bicycle, you can give it to either person, or to anyone else.

The result would be the same. You would be rid of the bicycle, and you would have access to exactly the same number of pounds — i.e. infinite.

Does the British government need to own gold? No. If ever it wishes to make a new crown for the queen or to fill a prince’s teeth, it can get all the gold it needs simply by creating some British pounds, and exchanging them for gold on the open market.

Back to the question: “Should a nation ever buy or sell gold?” This time, let us consider a monetarily non-sovereign entity, like London or France, or you, or me. None of us uses our own sovereign currency. We don’t have one.

Cities, people, and businesses, even those in Monetarily Sovereign nations, need income, so they may have reason to trade — buy or sell — gold, silver, copper or any other commodity or product.

Being monetarily non-sovereign, we do not have the unlimited ability to create a sovereign currency. So we need income to fund our spending. London and France need taxes; you and I need salaries or some other form of income.

There may come times when you have a greater need for whatever currency you use than for gold, and those would be good times for you to sell gold.

There may be other times when you prefer to own a little-used product of limited functional value, that pays you no interest or dividends, costs you money to store and ship, and even more money to insure, and subjects you to more risk than does owning shares in an S&P index fund.

When that time comes, you can trade your currency for gold.

One other question should be answered: If net exports grow an economy, why don’t net exports of gold grow the economy?

Net exports are, in fact, imports of currency, and are part of the equation for Gross Domestic Product:

GDP = Government Spending + Non-government Spending + Net Exports

However, there is a vast difference between imports of currency to a Monetarily Sovereign government and imports of currency to the monetarily non-sovereign economy.

The former, having the unlimited ability to create its sovereign currency, does not benefit from imports of that sovereign currency. The latter grows because of currency imports, as the above equation demonstrates.

If a Monetarily Sovereign government exports gold, the currency goes to the government, where it is destroyed. If a person or business sells gold to another nation, the money goes into the economy, and is stimulative.

In summary, Monetarily Sovereign nations, whose currency is freely traded on foreign exchange markets, never need to sell anything to obtain more of their own sovereign currency. These governments need no income.

Yes, the Daily Bell article was “completely short-sighted and idiotic,” from the standpoint of financial advice, but it made perfect sense for a gold-bug web site.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

The most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-lesses.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich can afford better health care than can the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE A MONTHLY ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA (similar to Social Security for All) (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Economic Bonus)) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:

Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012

Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONE Five reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefitting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
5. SALARY FOR ATTENDING SCHOOL
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
6. ELIMINATE FEDERAL TAXES ON BUSINESS
Businesses are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the federal government (the later having no use for those dollars). Any tax on businesses reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all business taxes reduce your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and business taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

———————————————————————————————————————

MONETARY SOVEREIGNTY