The Private Money Guy (PMG) and the State Money Guy (SMG) are still going at it. For Dialogue #1, click here.

PMG: You still believe in gold.

SMG: Yes, I do. I own gold coins.

PMG: Is that because you don’t trust the Federal Reserve System?

SMG: Yes.

PMG: Why don’t you trust the FED?

SMG: Because the country isn’t on a government-enforced gold standard.

PMG: So, if the country were on a government-enforced gold standard, you would trust the FED.

SMG: Yes.

PMG: Why did the country go off the government-enforced gold standard?

SMG: Because of the Great Depression.

PMG: What caused the Great Depression?

SMG: Federal Reserve monetary policy in the 1920’s.

PMG: So, you believe Murray Rothbard.

SMG: I believe Paul Johnson in Modern Times.

PMG: Johnson explains what happened by summarizing Rothbard’s book, America’s Great Depression.

SMG: Then I guess I believe Murray Rothbard.

PMG: FED policy in the mid-1920’s expanded the money supply by increasing the monetary base.

SMG: Yes.

PMG: This led to the Great Depression, when the FED stopped inflating in 1928.

SMG: Yes.

PMG: Then the government-enforced gold standard did not protect the country from the FED.

SMG: Not in the 1920’s.

PMG: Did it protect the country from the Great Depression, 1929—33?

SMG: No.

PMG: So, the FED was not trustworthy in the 1920’s.

SMG: Correct.

PMG: When we had a government-enforced gold standard.

SMG: Yes.

PMG: But you would trust the FED today if we had a government-enforced gold standard.

SMG: Yes.

PMG: Why now?

SMG: Because the FED has learned its lesson.

PMG: What lesson?

SMG: That the FED made a mistake 1929—33 by not inflating.

PMG: The way it inflated from 1924—28.

SMG: Yes.

PMG: The way it’s inflating today.

SMG: Yes.

PMG: Which is why you are buying gold coins.

SMG. Yes.

PMG: Where did the FED learn this lesson?

SMG: From Milton Friedman.

PMG: Who hated every variety of gold standard.

SMG: Yes.

PMG: Roosevelt took the country off the domestic gold coin standard in 1933.

SMG: Yes.

PMG: Why did he do this?

SMG: He wanted to jump-start the economy by spending more money.

PMG: What did that have to do with confiscating the public’s gold?

SMG: I thought we had come to an agreement. We do not use the word “confiscate” when speaking of U.S. government policy.

PMG: What should we call it?

SMG: A temporary emergency transfer for safekeeping of a non-industrial metal.

PMG: Safekeeping by whom?

SMG: The United States government.

PMG: How much did the government pay Americans for their gold?

SMG: $20 per ounce.

PMG: So, you are saying that the government did not confiscate the people’s gold.

SMG: Correct.

PMG: Because it paid $20 an ounce.

SMG: A fair price.

PMG: Set by whom?

SMG: The government.

PMG: So, the government sets the price of gold in a government-enforced gold standard.

SMG: Yes.

PMG: What did the government do with the gold?

SMG: It sold it to the Federal Reserve System.

PMG: What price did the government get for the gold?

SMG: $35 per ounce.

PMG: So, the government made a profit of $15 per ounce.

SMG: Yes.

PMG: Let’s see. I calculate that 15 is 75% of 20.

SMG: So do I.

PMG: So, the government made 75% on the deal.

SMG: Yes.

PMG: The FED paid the government $35.

SMG: Yes.

PMG: Did the FED did complain about price gouging?

SMG: Are you trying to be funny?

PMG: I ask the questions here, remember?

SMG: Sorry.

PMG: Why didn’t the FED complain?

SMG: It’s part of the government.

PMG: What did the FED use for money?

SMG: Federal Reserve credit.

PMG: It created the money.

SMG: Yes.

PMG: Couldn’t the government have sold T-bills to the FED to get the same amount of newly created money?

SMG: But then the government would have owed interest payments to the FED.

PMG: In 1933, T-bills paid one-third of one percent.

SMG: But the government paid no interest at all on the sale of the gold. Paying nothing is always better than paying something. That’s free market economics. Plus, it made 75% on the deal. It was a sweet deal.

PMG: Whose gold was it after March of 1933?

SMG: The nation’s gold.

PMG: Not the people’s gold.

SMG: Not after the people sold their gold to the government.

PMG: Because it was a felony not to.

SMG: Yes.

PMG: Because Roosevelt made them an offer they could not refuse.

SMG: I get it. “Godfather” language. We’ve already agreed that the government is not a criminal conspiracy.

PMG: I’ve agreed because I need the interview.

SMG: A deal’s a deal.

PMG: Where is the gold now?

SMG: In Fort Knox.

PMG: All of it?

SMG: Some of it — we don’t know how much — is at 33 Liberty Street, New York City.

PMG: The Federal Reserve Bank of New York.

SMG: Yes.

PMG: A private corporation.

SMG: Yes.

PMG: Which still stores the government’s gold for safekeeping.

SMG: Yes.

PMG: You’re sure.

SMG: Yes.

PMG: How do you know?

SMG: The Board of Governors of the FED has said so.

PMG: A government organization.

SMG: Yes.

PMG: Which has hired a private corporation to execute its policy.

SMG: Yes.

PMG: Therefore, to safeguard the government’s gold, the government has turned over the gold to a private corporation.

SMG: Yes.

PMG: Is this because a private corporation is more efficient than the government?

SMG: Yes.

PMG: We are agreed. But why should the gold be safer in the vault of a private corporation instead of in the possession of millions of Americans?

SMG: Economies of scale.

PMG: A safer vault?

SMG: Yes.

PMG: So, you didn’t believe Die Hard 3?

SMG: Of course not. No thieves could have broken into the vault at 33 Liberty Street. The Federal Reserve Bank of New York is not like the Post Office. It’s private.

PMG: Let’s review. How did the gold get there?

SMG: Because the Federal Reserve System bought it.

PMG: With what?

SMG: With a check.

PMG: Drawn on what bank?

SMG: The Federal Reserve Bank of New York.

PMG: A private corporation.

SMG: Yes.

PMG: Which now holds the gold for safekeeping.

SMG: Yes.

PMG: So that thieves cannot get at it.

SMG: Yes.

PMG: Where the public also cannot get at it.

SMG: Temporarily.

PMG: Since 1933.

SMG: Yes.

PMG: And you’re sure it’s still in the vault.

SMG: Yes.

PMG: Even though it has not been audited by an outside agency.

SMG: Yes.

PMG: Why hasn’t it been audited by an outside agency?

SMG: It’s too risky.

PMG: What risk?

SMG: Didn’t you see Die Hard 3?

PMG: You mean the auditors might be part of a criminal conspiracy?

SMG: Yes.

PMG: And we wouldn’t want a criminal conspiracy to get its corporate hands on the nation’s gold.

SMG: Correct.

PMG: What would a criminal conspiracy do with all that gold?

SMG: It would sell it.

PMG: To the public.

SMG: Yes.

PMG: To individuals who want to own gold, you mean.

SMG: Yes.

PMG: To individuals in the free market.

SMG: Yes.

PMG: Where it would not be safe.

SMG: Exactly.

PMG: Where it was no longer safe in early 1933.

SMG: Yes.

PMG: When will it be safe to return the gold to the public?

SMG: When the economic turmoil stops.

PMG: When will that be?

SMG: When the country goes back on the gold standard.

PMG: The way it was in early 1933.

SMG: Yes.

PMG: When the country was in economic turmoil.

SMG: Yes.

PMG: Forcing Roosevelt to call in the gold for safekeeping.

SMG: Yes.

PMG: Was the extra 75% that the government got for the gold a safekeeping fee?

SMG: No. The Federal Reserve Bank of New York stores the gold.

PMG: What does it charge the government for this service?

SMG: I don’t know. There are no public receipts.

PMG: Why are there no public receipts?

SMG: You don’t need public receipts when you are not subject to an independent audit.

PMG: But Congress is audited.

SMG: By auditors hired by Congress.

PMG: These auditors don’t ask Congress for receipts from the Federal Reserve Bank of New York.

SMG: Correct.

PMG: Why not?

SMG: It’s not necessary.

PMG: Why not?

SMG: Because the Federal Reserve System pays about $20 billion a year to the Treasury.

PMG: Where does it get all that money?

SMG: From the Treasury.

PMG: Which pays interest to the FED.

SMG: Yes.

PMG: Part of which the FED returns to the Treasury.

SMG: Yes.

PMG: After deducting expenses.

SMG: Yes.

PMG: Does the FED provide receipts for these expenses?

SMG: No.

PMG: The Treasury takes the FED’s word for this.

SMG: Yes.

PMG: The government does not audit the FED.

SMG: No.

PMG: Why not?

SMG: It’s not necessary.

PMG: Why not?

SMG: Because the FED conducts its own audit.

PMG: Can Congress see this audit and verify it?

SMG: No.

PMG: Why not?

SMG: Because the Federal Reserve System executes its policy through the Federal Reserve Bank of New York, which is not a government agency.

PMG: Why can’t the Internal Revenue Service audit the Federal Reserve Bank of New York?

SMG: It lacks the legal authority.

PMG: From Congress.

SMG: Correct.

PMG: Can the public get access to the receipts?

SMG: Bloomberg News tried that in 2008.

PMG: How?

SMG: Using the Freedom of Information Act.

PMG: What was the result?

SMG: The Federal Reserve Bank of New York refused to comply.

PMG: On what basis?

SMG: The FOIA protects trade secrets.

PMG: What trade secrets are involved?

SMG: We don’t know. It’s a secret.

PMG: That’s all the space I have for today’s interview.

SMG: Will this be the last interview?

PMG: Probably not. I always need more copy.

February 21, 2009

American Gold Standard Dialogues

Who Ya Gonna Trust?A Temporary Interruption of ServiceScience Is as Science DoesTrust and Distrust in BankingWinners and Losers

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2009 by LewRockwell.com. Permission to reprint in whole or in part is gladly granted, provided full credit is given.