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News & Analysis
India Buys 200 Tonnes of Gold From IMF
Thursday, November 05, 2009 – by
Staff Report
Manmohan Singh
The Reserve Bank of India has purchased 200 tonnes of gold valued at Rs 31,490 crore ($6.7 billion) from the International Monetary Fund (IMF) under the latters's limited gold sales programme. "The purchase was done as part of the foreign exchange reserves management operations. It was an official sector off-market transaction, executed over a two-week period starting from October 19 at market-based prices," the RBI said in a press release on Tuesday. Of the total foreign exchange reserves of $286 billion as on October 23, the RBI holds gold valued at $10 billion. With the latest purchase, the RBI's gold holding will touch 557.7 tonnes. India has come a long way since 1991, when foreign currency reserves shrank to almost nothing and default on external borrowings appeared imminent. The then Prime Minister, P. V. Narasimha Rao (pictured left), and the Finance Minister, Dr. Manmohan Singh's (pictured left) immediate response was to secure an emergency loan of $2.2 billion from the IMF. The Government had to offer the country's gold reserves as collateral. According to the World Gold Council's latest report, the RBI has become the 11th largest gold holder among various central banks, placing it ahead of the European Central Bank but behind Russia's. Mr. Dominique Strauss-Kahn, Managing Director, IMF, said in a statement, "The transaction is an important step toward achieving the objectives of the IMF's limited gold sales programme." – Hindu Business Line
Dominant Social Theme: Sell this barbaric relic!
Free-Market Analysis: Once upon a time, the sales (many never went through) of gold by central banks were an expression of contempt for the yellow metal. We recall that British Prime Minister Gordon Brown sold gold out of Britain at something like US$300 or US$400 an ounce and has never lived it down. But he pronounced himself satisfied at the time and still doesn't make any apologies, though he has been well excoriated on this as on other matters.
The IMF, too, is "satisfied" with its sale of gold to the Indian central bank. Since we believe gold is going much higher, we wonder if the IMF brain-trust will be satisfied in several years. In fact, it won't matter. They would have been satisfied to sell their gold for one dollar a ton, in our opinion. More satisfied in fact (as it would mean that the monetary elite had managed to get gold down to a "realistic" price). The IMF and the central banks that cluster around it can print all the money they want. If the IMF REALLY wants or needs funding, it can get it any one of a number of ways. So far as we are concerned, the point of the sale was to illustrate once again what money is and is not.
And what is money? It is what the IMF says it is. The IMF sold gold (which the IMF wants you to know is not money) in order to fund its indescribably important monetary activities (which are neither important nor effective, but that is besides the point.) The IMF is alone in this game, we note, this time. Used to be that it could talk other central banks into going along with such sales or at least announcing them. So, yes, the IMF has tried this hoary trick once more – showing the world that gold is merely a commodity to be disposed of at any convenient opportunity – but we think the message is getting lost in the world's growing lust for honest money.
We bet India (a very old society with much experience with fiat money collapses) is also "satisfied" with the IMF gold transaction. The Indians as a society still value this "barbarous relic" (gold). In fact, Indian women often wear a great deal of family wealth on their persons in the form of gold and silver jewelry. The idea, we think, is that one knows exactly where the family treasures are at all times – and they are easily accessible as well.
Conclusion: Gold has accrued in value from US$300 to US$1,100 this decade alone. In America, millions of families with their wealth in the stock market are ruined. Not so for Indians who wear their wealth on their arms and legs. Sometimes ancient cultures are wise, not merely backward.
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Posted by Joseph May on 11/5/2009 2:41:12 AM
Why don't you send this to Geanokoplos?
Reply from the Daily Bell:
Would he read it?
Posted by Bowman W. Davis on 11/5/2009 8:56:04 AM
They (the anti free marketeers) are not acting out of ignorance of the facts, that central banks, fiat money and evermore government controls are the reasons for the economic ruinization of millions of people. They are acting with great deliberation to create more constructed calamities to which they will offer more controls,regulation, more government and less freedom. This is not to say there are not a bunch of totally incompetent people espousing pure dribble out of total ignorance of historical facts.
Reply from the Daily Bell:
"This is not to say there are not a bunch of totally incompetent people espousing pure dribble out of total ignorance of historical facts."
You think?
Posted by Richard Daughty on 11/5/2009 9:39:23 AM
Your recent article, "Economic Crisis Yields Idiocy at Wall Street Journal", with the inane Wall Street Journal quote followed with a delicious Free Market Analysis extolling the Austrian School of economics in a context of ridiculing the neo-Keynesian econometric stupidity running rampant in the world, is the best thing that I have read in a long, long time. A LONG time!
So, not only do I say "Thank you!", but I also stand to applaud! Bravo! Bravo!
Reply from the Daily Bell:
High praise indeed, coming from the pre-eminent Mogambo, stalker of truth, slayer of falsehoods, one of the most incisive hard-money commentators ever spawned (and the funniest), the biggest gorilla in the economic (and econometric) jungle.
Anyway ... we assume this is he, whom we admire a great deal, and thus are mightily complimented. (If it's not, we'll pretend it is and take the pat-on-the-back anyway!)
Posted by Adrian W on 11/5/2009 2:28:05 PM
An analogy. Its like the 3 Stooges trying to re-arrange the deck furniture on the Titanic. Oblivious to the real problems at hand.
Reply from the Daily Bell:
Oblivious -- or ignoring them?
Posted by Ralph Tamm on 11/5/2009 3:23:52 PM
NOT CAPITALISM
We really don't have a Capitalist system in this country. At best it can be classed as a secondary entity, or pseudo capitalism. State meddling is entwined in every facet of our private sector, mainly in finance, from political legislation and other actions causing many problems from unintended consequences.
In addition it should be recognized that in the state's quest for power they favor the groups with the greatest number of votes, as examples, labor unions and the vocal masses of many groups who consider themselves the disenfranchised, causing many class wars. Also, Lobbies are employed to gain favor with the voting bureaucrats for specific groups. We have come close to being a Fascist Dictatorship where businesses are steadfastly influenced by the state's agenda.
Proving that the state is responsible for our many problems is almost impossible to establish because of the above, so violation of sound and moral principles must be examined to show that it is logical that the state and only the state can be blamed, not capitalism.
False Premises in Logic: If the premises are wrong, the derived conclusions are also wrong even though the thought processes were impeccable. Almost everyone today is a pragmatist relying on observable facts and building premises to explain them. Interpreting facts are generally faulty based on Sir Arthur Edington's epistemological discovery that there is no such thing as pure objective knowledge.
In the volitional realm a person's life experiences and history influence the way he will see things thus deriving the wrong premises he uses in his analyses. Other thoughts derived from many bizarre hand-me-down beliefs acquired from those who preceded us are another source of false premises. As an example, we have been told over and over again that those residing in the USA are a free people.
The definition of a "free" people is left vague so it is impossible to verify the freedom premise. Therefore, we need filters and semantic precision to develop true and valid premises. It is not surprising that with absolute definition (where no equivocation can be both true and valid) for key societal words, an understanding of our real world is easily acquired.
Moral Principles: Moral is defined as: Absence of coercion. Before Andrew J. Galambos we lacked an absolute definition for morality independent of time. Heretofore the ideas involving moral behavior were time and place dependant (in a constant state of flux). I am sure the state leadership would not like the Galambos definition because everything they do involves one or another form of coercion. This definition is an excellent way to identify and filter immoral, therefore, wrong actions on all political proposals.
Tamm's Law of Coercion: Coercion is the mechanism that progressively diminishes quality in the marketplace. It is a known fact that all states use universal coercion (coercion on a massive scale) as the modus operandi (non-contractual power over people through political laws, rules, controls and other enactments). No private citizen has the power to suspend and refuse to pay for one of the states services or entitlements clearly coercive.
Severe restrictions are enacted by the state making it illegal to compete for the "services" rendered. And, when a competing service is not illegal, our tax dollar supports the state service restricting profit potential, from an unfair advantage, for the private service.
First Postulate of Volitional Science: All volitional beings live to pursue happiness. This postulate tells us that if ones property is in jeopardy he will take steps to minimize losses. Therefore all kinds of unintended consequences occur for each political law enacted. Unintended consequences cause additional political laws to be enacted to "solve" these additional problems, which cause more unintended consequences - an unending spiral of stupidity.
The Law of Least Actions is another law of nature that can be used in the Volitional domain. The law tells us everything takes the path of least resistance - water moves down hill. To avoid thinking most humans prefer to allow the politicos to implement plans to insure his well being never thinking that he will lose control if the state is in charge. The end result is a form of slavery. Those in control make the rules. The irony is that our own money -- taxes -- is the state's only source of income is used to enslave us and for all politicians to advance their own agenda (maintenance of power).
Corollary to First Postulate: A man's concept of rational thinking dictates his actions. This Corollary tells us that the owner of a business may find it rational and expedient to use the coercive power of the state to gain an advantage over competition.
It is surprising that many people that should know better are jumping on the band wagon saying capitalism is broke and needs to be fixed by state entities. We forget so soon! It is not surprising that state workers, the media, educators and even corporate leaders have been convinced capitalism has somehow gone astray and needs to be fixed. The adage that one can't see the forest for the trees fits this dilemma.
There are so many variables involved that it's almost impossible to ferret out the big picture to refute the non-believers in capitalism using the current methods of analysis.
Capitalism, a mechanism for the production of products goods and services for profit, is alive and well if the meddling state would get off the backs of all business and let them function without interference if, of course, each individual business is not acting immorally.
Community service, providing jobs, et cetera is used only as a way to increase profit and not as an end to itself. Health care, paid vacations along with other fringe benefits were added to attract better employees, not as a public service.
It is a paradox that capitalist operations, who working for profit, will do far more good are beneficial for everyone than where the nation state which claims to work for the common man is a destroyer of men.
In other words, Democracy is a poor unworkable societal system as are all others.
Reply from the Daily Bell:
Interesting post. Thanks for the feedback and many insights.
"It is a paradox that capitalist operations, who working for profit, will do far more good are beneficial for everyone than where the nation state which claims to work for the common man is a destroyer of men."
Posted by James Kluttz on 11/5/2009 3:29:27 PM
Thank you for your article Economic Crisis Yields Idiocy at Wall Street Journal. I read the article in question and agree wholeheartedly with your reaction. Their is one part with which I disagree, however, where you talk about firing off a letter to the editor that won't be published. On November 5, one of mine was published (I would send it to you, but don't have access to the Online Journal).
The Letter was in response to an article about climate change models and pointed out that models of complex phenomena such as climate, the economy and the stock market are worthless and always will be worthless because simplifying assumptions make them so. Maybe there is someone on the editorial staff at the Journal who would like to set things right?
Reply from the Daily Bell:
We were talking about the pre-Internet days. Congratulations on getting your letter published. Maybe it is a little easier now, on-line certainly, with feedback postings ...
Posted by Dave Kress on 11/5/2009 4:23:35 PM
OK. You have trashed WSJ, the journalist, and well they both deserve it. NOW it is time for you to "expose" the monetary elite pulling the media's strings. If we dont have specific names, we dont have targets to attack, and it is well past the time to attack individuals and not opaque institutions or media. If Ron Paul
is Christ who is antichrist?
Reply from the Daily Bell:
Is Ron Paul Christ?
Posted by William on 11/6/2009 12:24:17 AM
And how many years was it that the catholic church denied Galileo? When are you going to wake up to the fact that policy is a function of power, not reason?
Reply from the Daily Bell:
We think we are awake. There have been numerous episodes of freedom throughout history. Not all is power and problems.
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We look forward to reading your feedback. All comments are automatically posted. However, please note that any posts containing harassment, vulgarity, personal attacks or those which are deemed to be of a violent nature are not welcomed and will either not appear or be removed.
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