The Germans Are Coming for Their Gold

Recently we looked at some popular conspiracy theories and how many if not most of them have little basis in fact... if of course you are willing to look for more reasonable, non-conspiratorial explanations. One of these is the idea that there really is no gold stored at Ft. Knox. It was all stolen years ago or else spent on some secret government project or other. At least that's what the conspiracy theorists would have you believe.

I thought my rebuttal was pretty effective but I guess not because some German officials must have come across my musings and now the German government accounting agency wants to come to the U.S. and inspect the tons of gold Germany has stored here. Our country stores gold for some three dozen countries around the world, most of it in a huge vault eight stories below the Federal Reserve Bank in New York City. We hardly ever let anyone into the vault which has only one elevator and that elevator is controlled from a secret remote location outside of New York.

It turns out that Germany is second only to the US in the size of its gold stockpile. We have a little over 8,000 tons while the Germans have 3,400 tons, a sizable chunk of which is stored in New York. Why would all these nations store their gold here? Because many of them feel it is safer than in their own country and besides, its probably cheaper to use our high tech, super secure vault than build and maintain one of their own. In the case of Germany it grew out of Cold War fears that the country might someday be overrun by a Soviet invasion of Western Europe.

Anyway, for some reason after all these years German government bean counters have decided it would be a good idea to go take a physical look-see, you know, just to make sure their gold is really there. Oh, and by the way, they say they'll want to take a few random samples for testing so they can be sure all those gold bars really are 99.9% pure gold and not gold painted lead or tungsten like the conspiracy theorists claim.

It would be easy to snicker at this seeming silliness but this is no joke. For the first time in anyone's memory the Germans really do want to inspect their gold. Actually this whole matter portends something a lot more serious than either government wants to discuss, and that assumes of course that Germany's gold really is in the vault in New York. Let's stick with that assumption, at least for now.

So what's going on that would suddenly prompt the German audit? Outside observers speculate that its connected with the fragility of the European currency, the Euro, and indeed the survival of the European Union.

Unless you've been stranded on a desert island or living deep in the Amazon jungle for the past couple of years you already know that the European Union is in serious trouble economically. The southern tier of EU countries - Greece, Spain, Portugal, and Italy – is sinking ever deeper into debt to finance a lifestyle not supported by their economic productivity. They want ever larger loans from the northern, financially sound countries like Germany to keep them, and the Euro, from collapsing.

But a growing number of Germans are saying enough is enough. If the southern tier countries cannot or will not cut spending and get their finances in order, then let'em go down the drain. Sure it would probably mean the end of the Euro and maybe even the European Union itself. Germany would reinstate its traditional currency, the Deutschmark, and for a time German exports would suffer, but in the long run that is preferable - so goes the argument - to going bankrupt bailing out those lazy wastrels down south.

Final action on all this has been delayed until German elections this fall. Chancelor Angela Merkle is running for re-election and the last thing she wants is a European wide economic crisis. She has committed Germany to propping up the Euro but if she and her party lose the election all bets are off.

Now you begin to see the connection to gold. If a new German government dumps the Euro and goes back to the Deutschmark, it will want to assure the world of the mark's value and the strength of German banks through a large gold reserve. Also that reserve is so big the Germans can use part of it to buy oil, natural gas, and raw materials on the world market to keep the German economy humming, even during a global recession triggered by the collapse of the Euro.

And lastly, given the unspoken but very real expectation among financial elites that a collapse of the Euro would likely spark a big, if temporary, spike in the price of gold, then it makes a lot of sense that the Germans would begin counting up their gold bars, maybe in preparation for their repatriation to the Fatherland. Who knows, if the Euro goes it might trigger a flight from all paper money worldwide and that for sure would lead to global chaos. Germany, France, and some other countries with large stockpiles of gold might even create some sort of new, gold-backed currency, something we have not seen since the Great Depression.

Admittedly much of the above is speculation. Yes, the Germans have the world's second largest stockpile of gold. That we know. Yes, the Germans for the first time want to physically audit their gold holdings in New York. That we know. Yes, the economies of the European Union are weak and its currency shaky with no realistic long term solution in sight. Many if not most financial experts agree on that.

And we know that massive corruption is undermining government legitimacy and stability in China while our country runs up unsustainable debts that threaten the destroy the dollar as the world's reserve currency.

Any rational person, looking at these facts, would have to conclude that all the pieces are in place for global economic upheaval, perhaps even chaos. What we don't know is what is the tipping point for the first domino and how fast and how many dominoes might fall if the world economy begins to shake.

There is certainly no shortage of potential triggers. Some observers have noted that even the sudden interest by German officials in the country's gold supply, if it ever resulted in a move to actually repatriate the gold from the US, could by itself touch off a worldwide panic.

If the Germans really do ask for their gold back we all better hope that it really is there underneath the streets of New York, that it hasn't disappeared like some conspiracy theorists claim. Published reports say that each of the three dozen nations with deposits in the New York vault has a designated section for its gold bars. The sections don't have signs in front of them identifying them by nation. Instead the sections are identified by number and only a few people in the American government have access to the list of numbers and which number corresponds to which nation's stash of gold.

So in theory it would be possible at different times to take visitors from different nations to the same pile of gold bars and tell them it's theirs. That is, unless most or all of the depositor nations suddenly decide to collectively take their gold back home.

Can you imagine what would happen if the gold really is gone? I can just see the Treasury Department now mailing out IOUs with a note that says something like 'terribly sorry, we seem to have misplaced your gold, but as soon as we locate it we'll send it back to you on the next FedEx flight heading your way...'

[Roll “When Johnny Comes Marching Home Again”]

Why does 'Dr. Strangelove' keep popping up in these articles? Oh, Stanley Kubrick, I wish you were still around. And Peter Sellers, you too. You could reprise your role as President Mervin Muckley, Jr. along with Treasury Secretary Timothy Gotchanutz replacing Dr. Strangelove. And instead of Group Captain Lionel Mandrake you can play the pilot of the Fedex jet as it drops 100 tons of radioactive gold bars on the Bundesbank in Berlin as punishment for Germany plunging the world into yet another global conflagration.

[Roll “Some Sunny Day”]

Please note that I haven't said a word about errant asteroids hitting the earth, or the supervolcano under Yellowstone Park, or terrorists with nuclear bombs or poisoning the water supply. I guess I don't need to...

©2013 by Allen B. Hundley

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