Is There Gold In The Hills

Procuring physical gold seems to be a rather problematic and time-consuming process.

While most of America was fully immersed in the Christmas holiday, Glenn Beck and his team noted a troubling story presented on the fantastic financial website Zero Hedge.

The story centers around a request from the German government to repatriate portions of their gold reserves held in America by The FED.  There are many tentacles to this story, which would leave many of my readers deep in the weeds, but the story itself from Zero Hedge offers a strong overview of the situation, complete with opportunities to seek additional depth on the story.  Please see the Zero Hedge blogpost HERE.

There are seemingly logical reasons for the retrieval of physical gold to issue plagued.  Perhaps foremost on the list is covered at the end of the Zero Hedge piece, in that China and India are hoarding physical gold.  An overview of the reasons behind this demand shines a spotlight on the real elephant in the room.

Meet the theory of hypothecation.

David Buckner joined Glenn Beck back a year or so ago to effort to explain hypothecation in what most would consider English. Please take a listen:



In reflecting on the Christmas season, the wonderful Frank Capra movie Its A Wonderful Life comes to mind when attempting to provide a basic overview of hypothecation.

The Bailey Building and Loan Association, of which the central character George Bailey was the president, engaged in mortgage lending, lending out portions of monetary deposits to qualified buyers in an affordable housing project.  Provided the association retained proper reserve requirements without commingling funds, this was a quite ordinary and profitable enterprise for such a loan association.  Failure to adhere to regulatory banking laws would appropriately lead to fraud likely commensurate with incarceration upon conviction.

Enter The Federal Reserve.  The FED, as the holder of the physical gold, may lend to banks, and others, utilizing the gold as collateral, provided the depositors have consented to such an agreement.  An agreement in this regard would certainly have reserve requirements, although the FED, not being a public company and a quasi-governmental firm, has no regulatory requirement to publicly release terms of such agreements or asset balances.

Back to the request by Germany to obtain portions of their physical gold deposits from The FED.  The Zero Hedge piece noted the agreed upon amount of the first batch to be delivered was short, and Germany noted it was not the same gold initially deposited, as it was marked.

Why was did The FED short the batch size, and why were the gold bars not the original ones deposited?  Glenn Beck asks some legitimate questions about the batch and potential reasons for the alteration of the originally deposited gold bars, and the conclusions drawn are hair on fire troubling.





Has The FED deviated from common banking guidelines with respect to collateral requirements of gold reserves?  Does The FED actually possess the physical gold?  Are adequate reserves in place to accommodate the subsequent levels of hypothecation?

Where would these reserves be if not in the possession of The FED.  The financial crisis of 2008 was the greatest theft in history, and we still wonder who got all the loot.

If the gold is not possessed by The FED, given gold the position gold holds as the cornerstone of finance, the result would be catastrophic for everyone, and global collapse would be imminent.

Even Mr. Drysdale won't be able to fix this.