I don't think anyone is saying gold cannot be loaned. However, it is the derivatives that are the problem.
Wayne, I think that the argument has been made before that, since paper loans have been made on gold that cannot feasibly be obtained (since the Treasury can't sell gold), there should be no gold "leasing".
But any instrument that is derived from an underlying asset is a derivative, so I would tend to believe that whatever instruments that are based upon leased gold may fall under that realm.
But let's look at our own fractionalized banking system. If I have a bank with $1 million in deposits, theoretically speaking, I can loan out many times that amount of money, up to 20X, or $20 million, if I remember correctly.
Thus, that loan(s) is not really representative of the actual liquidity the bank has through its depositors ($1 million), but it is considered an appropriate business risk to derive $20 million in loans from $1 million in deposits.
And since business risk and assessment is the heart of any good financial system, it is up to its managers to ensure that proper reserve requirements are maintained, or that the client has the proper liquidity to get him out of his shorts or derivative positions.
In sum... deriving paper instruments that exceed the assets that back them up is an inherent part of the banking system and has been for centuries, even when there existed a gold standard.
If we have a run on our banks, that would obviously be bad. But I have difficulty believing that will happen anytime soon minus some catastrophe, manmade or natural. (and I have always stated that gold would fill a role in such an event as the minute on financial system collapses, we regress back to the previous one).
Regards,
Ron |
