He’s probably afraid of Draghi’s policies?

Or got long gold in his personal account, has his CB run it up for him to sell?

No telling!

Why is Putin stockpiling gold?

By Brett Arends

September 5 (WSJ) — I can’t imagine it means anything cheerful that Vladimir Putin, the Russian czar, is stockpiling gold as fast as he can get his hands on it.

According to the World Gold Council, Russia has more than doubled its gold reserves in the past five years. Putin has taken advantage of the financial crisis to build the world’s fifth-biggest gold pile in a handful of years, and is buying about half a billion dollars’ worth every month.

It emerged last month that financial gurus George Soros and John Paulson had also increased their bullion exposure, but it’s Putin that’s really caught my eye.

No one else in the world plays global power politics as ruthlessly as Russia’s chilling strongman, the man who effectively stole a Super Bowl ring from Bob Kraft, the owner of the New England Patriots, when they met in Russia some years ago.

Putin’s moves may matter to your finances, because there are two ways to look at gold.

On the one hand, it’s an investment that by most modern standards seems to make no sense. It generates no cash flow and serves no practical purpose. Warren Buffett has pointed out that we dig it out of one hole in the ground only to stick it in another, and anyone watching this from Mars would be very confused.

You can forget claims that it’s “real” money. There’s no such thing. Money is just an accounting device, a way of keeping track of how much each of us produces and consumes. Gold is a shiny and somewhat tacky looking metal that is malleable, durable and heavy. A recent research paper by Duke University’s Campbell Harvey and co-author Claude Erb raised serious questions about most of the arguments in favor of gold as an investment.

But there’s another way to look at gold: As the most liquid reserve in times of turmoil, or worse.

The big story of our era is not that the Spanish government is broke, nor is it that Paul Ryan apparently feels the need to embellish his running record. It’s that the United States, which has dominated the world’s economy for several lifetimes, is in relative decline.

As was first reported here in April of last year, according to International Monetary Fund calculations, the U.S. is on track to lose its status as the world’s biggest economy—when measured in real, purchasing-power terms—to China by 2017.

We will soon be the first people in two hundred years to live in a world not dominated by either Pax Americana or Pax Britannica. This sort of changing of the guard has never been peaceful. The declines of the Spanish, French and British empires were all accompanied by conflict. The decline of British hegemony was a leading cause of the First and Second World Wars.

What will happen as the U.S. loses its pre-eminence?

Maybe this will turn out better than similar episodes in the past. Maybe the Chinese will embrace an open society and the rule of law. If you believe that, there is probably no reason to hold any gold.

13 Responses

  1. Money is just an accounting device, a way of keeping track of how much each of us produces and consumes.

    Es verdad. That’s why fiat money is so wrong. Money created out of thin air doesn’t represent an accounting of production.

  2. Its funny Warren, what part of your example with the business cards did Putin Miss? The guy with the BIG GUN makes the rules. If putin has all the worlds gold, but we have all the nukes, drones, satellites, CIA tony perkins economic hitmen spooks, bioweapons and its time to go get some oil in syria, who gets the oil? The sucker holding all the gold, or the guy with the big gun who will blow your head clean off? I don’t get it, I thought putin was smarter than that.

    I remember there was an entire CONTINENT of aztecs who had MASSIVE hoards of gold, and a few hundred spaniards with superior weapons and armor and more advanced immune systems eliminated the gold hoarders.

    I don’t understand the mentality of these gold hoarders, Obama has already proven he will use the state to execute and lock up humans with free abandon, so what if ed rombach walks up with a gold coin to try and do business under that government.

    The founding fathers wanted us all to have guns to shoot warren moslers who try to force their wills upon us, they knew having the gold without the weapons was silly. I see palm beach is buying military grade tanks for thier police, its hard for me to take my puny 38 special and fight off police who have military grade tanks, and drones who will all be controlled by robots since humans are the weak part of the police force. WE ARE FREAKING DOOMED!

  3. Russia defaulted once, so Putin may feel more secure with a currency that cannot default. It also pokes a stick in the eye of the U.S. “I have no faith in your dollar”

    And he buys it for the same reasons that Paulson, Soros and Einhorn are buying it.

      1. @WARREN MOSLER,
        Gold to RUB is though, RCB accepts it as collateral and purchases all offered by Russian credit institutions.
        I think the reasons are pretty old fashioned and rooted in tradition and custom.
        Standing agreement to buy gold and having it -offers some liquidity, -gives a little push to exchange rates, -provides a buffer during international calamities and -though irrational, it does buy trust in the currency by backing it with a little bit of gold in the vault.

  4. Warren – a question – I like your analogy of business cards in the room and the demand for tax payable in dollars creates value for the dollar and am trying to read and get up to speed on the MMT. Having been reading on Austrian Economics as well – and following Peter Schiff – I also think that his analogy of dropping money on a deserted island – while thought provoking is also a little too simplistic. The totality of conditions needs to be taken into account. My question is – is it possible your analogy no longer is correct because no one is locked in the room with only one way to get out? To add to it – anyone in that room can now open a window and seek to exchange those dollars with gold, Euros, yuan, etc? If the value of the dollar depreciates cant I just exchange more valuable currencies for what I need to pay the government? In a floating exchange then, it seems to me that the relative value of the dollar may trump the desire for the government to demand payment in kind, thus severely crippling its utility. Thoughts? (Thanks for having such a valuable site.)

      1. @WARREN MOSLER,
        I want to chime in on this. If only MMT stuck to the “monetary” part of the “theory”, MMTers may have been able to predict the housing crash. Instead, however, MMT doesn’t just limit itself to “monetary” aspects (where it gives an accurate understanding of how money functions), but also uses a bunch of flawed Keynsian add-ons that have nothing to do with “monetary” considerations.

        For instance, MMT makes much of “aggregate demand” (and then wonders why most countries don’t consume their way into prosperity), it uses “consumption” as the biggest part of GDP, it fails to differentiate between spending borrowed money on consumption and spending borrowed money on production, it fails to account for the subjectivity of value, and so on. Again, but for these flaws, MMTers may have been able to predict the housing bubble and the crash.

        And Warren Buffet is a perfect example of the fact that people that make the most money are usually far from the smartest. I have nothing against it. It’s just an observation: most intellectuals (Einstein, etc.) generally make far less money that the street-smart “dumb” capitalists.

        The point is, Buffet doesn’t understand the definition of the “market” — that it is the totality of decisions made by 7+ billing people. You can be right about gold being dug from one hole and put into another, but if 7+ billion people don’t agree with you, your are gonna lose as much money as Buffet has been losing lately.

        As with any experimental science, the trick in economics is not to come up with a syllogism that is correct in isolation (e.g., Buffet’s statement on gold), but to make sure you take account of all the variables in the system (or at least of all material variables).

      2. you are confused and i’d suggest re reading the 7 dif, sce, and the other mandatory readings.

        also, i did forecast the recession but not the housing crash until after the I became aware of the fraud aspect,
        and even them the crash of the real economy could have easily been avoided with my full fica suspension proposed mid 2008, for example.

        the real economy did not have to suffer. it’s been a total failure of govt. govt. could have suspended fica at any time, and still can, to restore sales, output and employment.

      3. @Nick Boyd,

        Hmm… unfortunately, mortgage fraud (even “concealed”) is a pretty weak excuse in this context. Ponzi lending, where lending was driving up home prices and the prices were diving more lending, was taking place quite apart from the fraud (although fraud accelerated the “growth”). It was a self-feeding loop of rising lending and rising prices, of nominal “growth” without any real growth (growth in things of value) — a classic Ponzi scheme.

        fica suspension would have made things better, but it would have done nothing to address the Ponzi nature of the housing bubble. Thus, the crash that MMTers failed to see would have happened anyway, fica suspension or not.

      4. Banking regulation required the incomes to be sufficient to service the loans.

        Asset based lending where income was not required was also allowed by banking regulation with limitations.

        With the FICA suspension, yes, housing prices would have come down some, and maybe a lot, but full employment would have been sustained
        and we wouldn’t be talking about the ‘crisis’ the way we now are, much like the crash of 1987 where the financial sector crashed but the real
        economy did reasonably well.

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