A Huge Mystery Remains To Be Solved

Yesterday marked the 39th anniversary of the day when the US Government declared bankruptcy. Oh, they didn’t call it that at the time. But what happened on August 15, 1971 was that the US defaulted on its promise to pay gold for dollars.

Before that day, gold was the legal linchpin of the world monetary system. Although every currency was defined in terms of the US dollar, the dollar itself was legally defined as 1/35th of a troy ounce of gold.

Since then, there really has been no center to the international monetary system. The “reserve currency” continues to be the US dollar. But there is no official definition of what a dollar is. Like every other currency, its value changes every ten seconds as it is traded on the global currency markets. It is a promise to pay nothing. Its value has been devalued for years. On top of that, enormous effort has since been put into the global currency markets: buying, selling, manipulating…none of which has caused anything productive to the world economy. Oh, sure, currency investing has made some of us rich, but is it really the same kind of wealth that, say, Steve Jobs has created with Apple?

After cutting that last tie to gold, there was no longer any discipline left to keep the value of the dollar steady. The US dollar of August, 1971 is as of 2009 worth just over 18 cents, according to the Inflation Calculator. Thus, in purchasing power, the dollar has lost over 80% in the past 39 years.

Only foreigners were legally able to turn in their US dollars and get gold from the US Government from 1934 to 1971. August 15 of that year closed off that last power of convertibility.

In 1934, gold was confiscated from US citizens, melted from coins into bars, and gathered over the next few years into a new storage facility at Ft Knox, Kentucky. After that, the official price of gold was raised from $20.67 to $35, a devaluation of the currency that was an attempt to inflate the economy out of depression. It didn’t work, but what it did do was to attract more gold in one place than had ever been seen.

At a time when deflation was depressing prices for all assets, the drastic rise in the official gold price made people all over the world want to sell their gold to the US Treasury. For many years, $35 an ounce was higher than the market price, so foreign sellers got a bargain.

The peak amount of gold held in Fort Knox reached 701 million ounces of gold. This was in 1949. This amount equaled 69.9% of all the gold in the world; never before had so much gold been gathered in one place.

But soon after that, gold began to leave Ft Knox and was shipped to the foreign persons and institutions who ponied up their $35 in Federal Reserve Notes for each troy ounce of gold they wanted. At some point in the 1950s, $35 became too cheap a price for gold.

From then until 1972, at least 75% of official US gold left the nation in exchange for paper dollars which can be printed at will. However, I think the total amount of real gold which remains is even less. The exact amount that remains is now officially listed at 147.3 million ounces. From the peak, that is a decline of 79%.

In 1988, 22 years ago, I wrote a book about Fort Knox, the gold there, and the documented history of official lies, evasions and incompetence of those who were entrusted with the gold.

I say “documented history” because when writing the book, I was very careful to only include official documents and private correspondence from the US government, stretching from 1934 to 1987. Using their own responses to the questions of just how much gold is left, and what that gold’s quality is, for the first time this book put all these governmental attempts to answer the questions about their own gold policies in one place. What their responses revealed was shocking to me.

Nothing since 1988 has happened to change my views.

Read the whole article here.

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