Tuesday, June 16, 2015

The National Gold Depository of Texas

In a move that harkens back to the Civil War Era "Confederate Dollar" monetary system created by rebellious confederate southern states, just before the shooting started, Texas Governor Greg Abbott last week signed House Bill 483 to establish a state gold bullion depository.  The gold depository will be administered by the Office of the Comptroller.

The gold bullion depository created by HB483 will serve as the custodian, guardian and administrator of bullion that may be transferred to or otherwise acquired by the State of Texas.

Governor Abbott issued the following statement about the bill he signed:
“Today I signed HB 483 to provide a secure facility for the State of Texas, state agencies and Texas citizens to store gold bullion and other precious metals. With the passage of this bill, the Texas Bullion Depository will become the first state-level facility of its kind in the nation, increasing the security and stability of our gold reserves and keeping taxpayer funds from leaving Texas to pay for fees to store gold in facilities outside our state."
Sponsors intend for Texas to repatriate $1 billion of gold bullion from the Federal Reserve Bank of New York’s vault in lower Manhattan to Texas, preparing for the U.S. currency collapse and financial Armageddon (or secessionist revolution) conservatives are convinced is just around the corner. (One of the problems with this, of course, is that Texas has no gold on deposit in any federal reserve, nor in Fort Knox. There is also the inconvient fact that Texas falls under the Federal Reserve of Dallas, not New York, so any such request would be filed with their local Reserve branch.)

Republican state legislators unsuccessfully tried to advance gold repository bills over the last two legislative sessions. Many tea party conservatives and libertarians like Ron Paul, a former Texas congressman, have long advocated the U.S. should return its monitory system to the gold-standard. Paul over the years also repeated raised concerns about the safety of of the country's gold supplies held by the federal government and commercial financial institutions around the U.S.
"If you think gold is a hedge, or a protection, you always want it as close to the individual and the entity as possible," Paul told the Tribune for a 2013 story. "Texas is better served if it knows exactly where the gold is rather than depending on the security of the Federal Reserve."
 On June 5, 1933, the United States went off the gold-standard, a monetary system in which currency is backed by gold, when Congress enacted a joint resolution nullifying the right of creditors to demand payment in gold. The United States had been on a gold standard since 1879, except for an embargo on gold exports during World War I, but bank failures during the Great Depression of the 1930s frightened the public into hoarding gold, making the policy untenable. Soon after taking office in March 1933, Roosevelt declared a nationwide bank moratorium in order to prevent a run on the banks by consumers lacking confidence in the economy. He also forbade banks to pay out gold or to export it. Republicans have clamoring for the U.S. to return to the gold standard since that time.

HB483 authorizes the creation of an electronic payments system that will allow gold, silver, platinum, palladium, and rhodium depositors to write checks against their accounts, making the depository into a bank – one that will create a gold-backed money supply intended to rival U.S. currency issued by the Federal Reserve - or "Yankee dollars" as one of the law's top supporters calls them.

HB483 authorizations violate Article I, Section 10 of the US Constitution:
"No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility."
The law also violates Article I Section 9 of the US Constitution:
No money shall be drawn from the treasury, but in consequence of appropriations made by law; and a regular statement and account of receipts and expenditures of all public money shall be published from time to time.
The Confederate States of America dollar was first issued as a "Yankee dollar" replacement just before the outbreak of the American Civil War by the newly formed Confederacy. It was not backed by gold or hard assets, but simply by a promise to pay the bearer after the war, on the prospect of Southern victory and independence.

In case the Fed (or Obama) intends to confiscate Texas's gold as part of a Jade Helm style military take over harkening back to the post Civil War reconstruction era takeover of the state by Northern forces, HB483 also explicitly declares that no “governmental or quasi-governmental authority other than an authority of Texas” will be allowed to confiscate or freeze an account inside the depository.

Talking Points Memo:
A Tea Party site described the depository as a “game changer.” The author of the piece, a metals dealer named Franklin Sanders, wrote that “since at least 1991 I have firmly believed that whenever an electronic payments system could be established using silver & gold, it could supplant fiat currencies worldwide within two years at most, less time given a crisis. Now Texas steps forward to make it stick. And if Texas has the nerve to carry though, it will make Texas a center of world finance to rival New York and London better than Switzerland, because it contains 27,695,284 Texans and all but two of ‘em are armed & serious.” (Sanders favors the term “Yankee dollars” to describe paper currency.)

Other gold enthusiasts go further in blowing the secessionist dog whistle. “If the Fed gets too carried away with its digital money printing, then Texas will already have some kind of system to work off of in terms of not using the dollar. I’m not saying it will come to this, but it is symbolic in retaining some liberty, similar to gun ownership in this country. It is not something that will likely be used against a tyrannical government because the symbolism itself keeps tyranny in check,” writes Geoffrey Pike at Wealth Daily. The Tenth Amendment Center, meanwhile, predicted that “while [the bullion depository] won’t nullify the Fed’s monetary monopoly on its own, it represents an important step forward in that direction.”

The depository, then, will insulate Texans from a just-around-the-corner economic and geopolitical catastrophe brought on by paper money and cauterize the seemingly-still-fresh trauma of Franklin Roosevelt’s 1933 executive order making gold coin hoarding illegal during the Great Depression.

But to the trained ear, there’s an even more aggressively anti-Fed term being invoked in praise of the Texas depository: “repatriation.” Ordinarily it’s a word used to describe the movement of assets or currency from one nation to another. Yet on the website of SchiffGold, the gold brokerage owned by onetime U.S. Senate candidate Peter Schiff - whose claim to fame is to have predicted the 2007 housing crash (it happened!) followed by a death spiral of hyperinflation (still waiting!) - Texas is described “join[ing] the ranks of major global economies that want to bring their gold home from New York.” “Germany, Austria, the Netherlands, and other European nations have already begun to repatriate gold from the New York Fed or have proposed to begin doing so,” said a post on the firm’s website that ran on the same day as another predicting the coming of a “cashless society.”

According to this narrative, then, Texas isn’t just setting up its own depository, payments system, and a safe haven for gold that can’t be confiscated by the federal government. Instead, it is signaling a loss of confidence in the United States by pulling its gold out of the largest gold vault in the world eighty feet below the Federal Reserve Bank of New York’s Florentine-inspired headquarters in lower Manhattan. There, a special police force guards some 530,000 gold bars protected behind a 140-ton airtight steel and concrete framed door sealed with a 90-ton steel cylinder and time locks. Nobody enters the vault alone, ever; three people are present, even if it’s just to change a light bulb. Most of the gold in the vault belongs to other nations; the Fed stores and guards it as a courtesy to allies. Thus, the idea that Texas is somehow taking on an unwise risk by lodging $1 billion in bullion in the vault – so much so that it regards the New York bank as a foreign entity from whom gold ought to be justly “repatriated” – is to reject the practical and geopolitical realities of gold ownership in the 21st century. Even in fiction it is hard to recall a more secure site that has at its disposal more robust resources to guard and defend itself.

This is why, if you were suspicious about Gov. Abbott’s claim that “the [depository] law will repatriate $1 billion of gold bullion from the Federal Reserve in New York to Texas,” you were on to something.

Indeed, Texas has no gold bars in the Federal Reserve’s New York vault. And what the state has is not worth a billion dollars. Instead some 4,200 gold bars bought in 2011 by the University of Texas’s endowment fund (the second largest in the country after Harvard’s) are stored in the basement vault of HSBC’s headquarters at 450 5th Avenue in New York City, just south of the New York Public Library. For the last four years, the endowment has paid an estimated $1 million per year to store their gold there. (If it had been at the New York Fed the cost would have totaled about $15,400 over that period). And the new depository law does not require the university’s endowment fund to relocate the gold to Texas.
In case you’re wondering why the university’s endowment fund ever bought real physical gold to begin with (not just paper assets), that's a story almost as odd as the state's new effort to bring its gold back to Texas to ward off financial Armageddon in the country's other 49 states. That story seems to begin and end with a hedge fund manager named Kyle Bass. Bass, a former Legg Mason and Bear Stearns managing director and outspoken Fed critic, was named to the endowment fund’s board of directors (listed – and pictured – here… ahem) and immediately began pressing his apparently suggestive colleagues to shift their gold options investments into a stake of physical gold.

Bass isn’t just a casual metals speculator. When he believed nickel was undervalued he bought 20 million nickel coins to prove his point (they’re stored on a pallet in a Brinks vault). A brave new world mix of country club and pepper compound, in a Michael Lewis profile, Bass revealed that he’d prepared for a collapse of the government and economy by accumulating – in his words – “guns and gold.”

Like the others mentioned in this story, Bass believes that gold has an intrinsic value. In 2010 and 2011, he steered the University of Texas Investment Management Company’s board of directors to put nearly 5% of the then-$19 billion university and pension fund they manage into physical gold by converting options into bullion. Many large institutions invest in gold through paper investments like options. But most agree that owning actual physical gold bullion is a poor choice for a number of reasons - unless you're expecting a financial cataclysm so great you need actual physical possession of the metal. But coming off the 2008 financial crisis that's what Bass was expecting and he managed to convince his fellow board members. So for $764 million, the fund bought 664,300 ounces of the stuff in 100-ounce bars. Each of those 6,643 bars has enough of what Auric Goldfinger called “divine heaviness” that they can chip a concrete vault floor if dropped.

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