Thanks to GATA consultant Dimitri Speck and U.S. economist James K. Galbraith, a copy of the so-called Blessing letter, written on March 30, 1967, can be published for the first time on the Internet. The letter's text refutes the widespread assumption among German gold bugs that the letter promised the U.S. government that the German central bank, the Bundesbank, would never relocate the German gold reserve from New York to Germany as long as U.S. troops were stationed in Germany. The letter has nothing to do with the location of the German gold reserve. Instead, the letter, written by the Bundesbank's president at the time, Karl Blessing, and sent to the then-chairman of Board of Governors of the U.S. Federal Reserve System, William McChesney Martin Jr., made this important promise on behalf of the Bundesbank: "By refraining from dollar conversions into gold from the United States Treasury, the Bundesbank has intended to contribute to international monetary cooperation and to avoid any disturbing effects on the foreign exchange and gold markets. You may be assured that also in the future the Bundesbank intends to continue this policy and to play its full part in contributing to international monetary cooperation."
And so the long anticipated incursion by the PBOC, whose holdings of gold are behind even those of GLD, begins. Bloomberg has just reported, that "China central bank adviser Xia Bin said the country should increase its gold and silver reserves, the Economic Information Daily reported today, citing an interview with Xia." But how can this be: after all China has trillions in USD-denominated reserves, and any indication that it believes these are based on a currency that may actually be impaired will be an act of Mutual Assured Destruction. Well, yes and no. China is merely taking the next defection step in what is already failed Nash equilibrium. The first? The Fed's gross monetization of all US debt. The observant ones will realize that Chinese holdings in November were lower than they were in June of 2009! Who has picked up the slack? Why the Federal Reserve of course. Simply said, the Fed is explicitly making China's creditor status increasingly less relevant. Zero Hedge has long been wondering how much longer China will take this direct defection in what previously had been a stable equilibrium balance in which China provides the US vendor financing, while the US imports China's crap. As the Criminal Reserve is increasingly taking away the leverage that China used to enjoy as Creditor numero uno, it is only a matter of time before China fires back. And it may have just done that.
I was lucky enough to be at Cheviot Asset Management's conference on sound money last week. As a result of what I heard there, I've begun reading Andrew Dickson White's Fiat Money Inflation In France, a short but utterly compelling history of the monetary events leading up the French Revolution. The whole process has turned me into even more of a gold bug, if such a thing were possible. In fact, it's put me in one of those frames of mind where I want to get rid of every last pound, dollar and euro I have, buy bullion, and make a run for it. One thing in particular was really rammed home to me – what an absolute, complete and utter dog the pound has been for the last 97 years. Even by the standards of other Western government currencies – most of which, ultimately, will be worth little more than the paper they're printed on – it has been awful. Let me explain.
