Gold leasing explained - 'ONE DISMISSAL OUT OF HAND (curious) Feb 10, 16:42
Further, more sophisicated, defense. Central to my theory is the creation of gold out of nothing.
Let's assume that I have 100 oz of gold in my desk drawer.
I have a deal for you. I will lease you my 100 oz. of gold for one year. You pay me $100 for the privilege. I further will subordinate my interest for one year to a bank, if you want to borrow some money.
Great you say, off to the bank and you borrow $30,000 with my 100 oz for collateral. But the only thing you have is an agreement from me to you to borrow my gold to be given back in a year.
But, I am not going to give you the gold because its to much of a bother to transport it. I trust you. Would you agree that in effect I have created, at this point, 100 oz of gold that doesn't exist? Not only that but I have 10 other friends that I do the same thing.
Now, where are you? You have a lease with which you effectively subleased my 100oz of gold to the bank. I have my gold and $100 and you have $30,000. It would seem to me that you are now on the hook for 100 oz of gold. This would only make any sense whatsoever, if you and I KNEW that the price of gold would be the same or lower at this time next year when payup times come.
It's now a year later and its time to pay up. Things went well and you made a killing in the stock market and now it is time to pay up. The bank agrees to take $30,000 plus interest and you pocket $30,000. Everybody is happy.
Let's do it again. The next year, things didn't work well. Yahoo went down and you lost $30,000. I am happy because I have the gold in my desk drawer and you and I are even. I took my lease fee in advance. Now, it is you and the bank. This year, a strange thing happened. The price of gold went up considerably and the bank wants the gold. What do you do and where do you get the gold? Remember, I didn't agree to sell it to you at the end of the year, you only borrowed it to give back.
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