Monday, November 26, 2012

J.P. Morgan on Gold and Credit - What did he say?

I have seen quotes from J.P. Morgan used to support the Gold/Silver is money meme. Sound bites such as:
"Gold and Silver are money. Everything else is credit." or "Gold is money. Everything else is credit."
These have been thrown around for a while now. The quote comes from testimony in front of congress (1912) only 3 months before Morgan passed away at age 75. The real quote that the modernised versions originate from is:
Money is gold, and nothing else. 

If a man had the credit, and I had the money, his customer would be badly off.
Apparently a silverbug added the Silver reference which is definitely not in the original transcript. You can read the transcript in full here. Even the above two lines (as they appear above) were taken separately from different answers and pieced together in the 'Morgan Epigrams', so are not necessarily in context.

The comment on credit came from the following question and answer:
Q. If a man controlled the credit of a country, he would have a control of all its affairs? A. He might have that, but he would not have the money. If he had the credit and I had the money, his customer would be badly off.
One might consider the position of China and the US at the moment, with the US having Gold reserves approximately 8 times the size of China, while China holds well over a trillion dollars in US Debt. Who holds the credit and who holds the money? The reports of the United States death may have been greatly exaggerated.

Other interesting snippets epigrams include this nugget:
I think manipulation is always bad. 

I never sold short in my life that I know of, but I do not see how you will get along without it. It is a principle of life, I think.
Most amusing given the activities of the modern investment bank that JP Morgan is today:
As a result of Chilton’s  public statement,  several individual investors  brought lawsuits against JP Morgan and HSBC, claiming  they lost money on positions they took in silver futures on  the Comex. One such suit claims that in  August, 2008 JP Morgan and HSBC controlled over 85% of the commercial net short position in COMEX silver futures, and that this represented a short interest of 169 million troy ounces of silver, equal to about 25% of annual world mine production. Forbes
Something to keep in mind when considering these quotes is that the US was on a Gold standard when the comments were made. Would Morgan make the same comments today? I wouldn't be drawing any conclusions from a 100 year old quote from a bygone era.

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  2. "One might consider the position of China and the US at the moment, with the US having Gold reserves approximately 8 times the size of China, while China holds well over a trillion dollars in US Debt."

    In fact, China holds about 8% of US Debt. US entities hold over 65% and this is increasing.

    Nobody knows how much gold either China or the US have. The US hasn't audited its Gold reserves for almost 40 years, which has led to suspicions that it has disappeared. It would be surprising if the largest debtor nation in the history of the world, still had a huge stockpile of Gold, don't you think?

    ReplyDelete
  3. Agree regarding China, we don't know how much Gold they hold.

    The US may not have had an externally performed audit, but they publish their holdings regularly via the US Treasury (http://www.fms.treas.gov/gold/current.html). There is a pretty big difference between not reporting the figure and explicitly lying about it. IMO the US has the 8,000+ tonnes, thought some may be leased into the market.

    There are some heavily indebted Eurozone countries who have needed bailouts and still hold significant Gold reserves...

    ReplyDelete
  4. If it has been rehypothecated multiple times, who ultimately owns it? The Chinese are melting their Gold into kilo bars. Very sensible. The gold market is very murky indeed.
    I take your point about eurozone countries having Gold, although I wonder for how much longer? If you look at the asset grab in Greece and Ireland, it will surely only be a matter of time before Gold is coughed up?
    If the US has so much Gold sitting around, why is it taking Germany 7 years to repatriate a fraction of their Gold?

    ReplyDelete
  5. Even recent comments from Cyprus suggest they want to avoid selling their Gold at all costs. It's an asset of last resort so should be the last sold (or sale avoided where possible),

    IMO the speed of German Gold repatriation was set by Germany, not the Fed (due to not having it). Germany made an earlier request (Oct 2012 if I recall) before the repatriation request. They were going to bring back 50 tonnes a year for 3 years to test it. That later changed to repatriation at a similar rate, but over 7 years.

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