Posted by: Dirk | October 25, 2012

Golddämmerung in Germany

Somehow some fringe group led the Bundesrechnungshof (Federal Audit Office) to doubt the existence of gold reserves of the Bundesbank. The gold reserves shall be counted, it was decreed. Why are German gold reserves – worth about €144 – billion outside the country anyway? The FT has the story:

The decades-long practice of storing the gold abroad is thought to have been prompted by the lack of infrastructure immediately after the second world war and a desire by the Allies not to store gold near what was the Iron Curtain. But the Bundesbank said on Tuesday that for the gold to fulfil its purpose as foreign exchange reserves it was practical to keep it in places where it could easily be converted into those currencies.

Why does a central bank hold gold reserves in a world where the ECB creates the monetary unit by keystroke I do not understand. What the Bundesbank said I see as caving in to pressures from the lunatic fringe. It is rather shameful to see that during times of economic crisis the Bundesbank apparently has nothing better to do than shuttle some gold reserves around in order to “keep it in places where it could easily be converted into those currencies”. As if Germans are starving for US-dollars, Japanese yen and Chinese yuan and what not and only gold will bring relief.

Wolfgang Münchau has it right in his article in the SPIEGEL. A legend is created on one end of the political spectrum about Germans getting ripped off in the financial markets by evil foreigners. That legend is spun on the same day that ECB president Mario Draghi visits the German Bundestag (federal parliament) to explain his proposals.  Hans-Werner Sinn and his TARGET-2 nonsense hits exactly the same chord. Grexit is the plan, and it will be sold as betrayal. The preparations in Germany for returning to nationalism are gaining speed, driven by the unwillingness of both politicians and the financial sector to tell the truth about the German Exportweltmeister system. Net exports led to a portfolio with more and more non-performing loans from the periphery, and this – together with the birth defects of the euro – is what led us into the crisis.

A Grexit and then an exit of more euro zone members would lead to high unemployment in Germany. The export sector would find itself priced out of markets as the new currencies will all devalue against the euro (or the deutschmark). Once again, international finance would be the scapegoat for German mass unemployment after a financial crisis.

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Responses

  1. There was also an alarm raised in Croatia a couple weeks ago about Croatian gold reserves received in Yugoslavia split settlement, some 15 tonne and were sold right away. The issue is a non issue but many were excited thinking about some kind of treason or corruption.
    The main fake controversy was about the price of gold then and now, how we would be so rich if we had that gold now and could keep it gathering dust. Then after the most people recognised the gold gathering dust would be useles then the problem was price difference in 2001 and now.
    That was a week long worth of fake controversy that subsided rather quick. It is rather amusing that both controversies in Croatia and Germany appeared almost at the same time. It started with publication of international list of gold reserve holding countries and Croatia was not on it.
    Since our currency is pegged to euro not to gold, people realized the non issue. I know, peg to euro, how to tie your own hands behind.


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