The True Gold Standard (Second Edition)
The BBC reports:
Venezuela has received its first shipment of gold bars, after President Hugo Chavez ordered the repatriation of 85% of the country's bullion reserves.
The gold was unloaded from a plane and taken under heavy guard to the Central Bank in the capital, Caracas.
President Chavez has explained the move as an act of sovereignty that will protect Venezuela's reserves from global economic turbulence.
However critics say it is expensive and unnecessary.
Much speculation has swirled around what Mr. Chavez is up to. The shrewdest assessment may be that of investigative journalist Richard Miniter, in Forbes.com who observed last September:
The mystery only deepens the more one thinks about the costs and risks. An insurer, if one can be found, could easily charge 4% of the market value of the stockpile, plus security and shipping charges. All told, that could be almost $100 million. And moving the gold will almost certainly lower Venezuela’s credit rating, which Moody’s Investors Service puts at B2—well into junk-bond status. Standard & Poor’s also rates the nation’s creditworthiness as junk. Making Venezuela’s government assets more opaque will only lower their value. So shipping bullion makes matters worse and means Venezuela will pay even more in borrowing costs.
Don’t forget the risks. A bold pirate could seize tons of gold in a single brazen raid. Or a storm could take it to the muddy bottom of the Atlantic.
So why is Chavez moving his gold? What’s the strongman’s real reason?
Foreign investors are harassed and work under the ever present threat of expropriation. Coca-Cola, PepsiCo, McDonald’s, Wendy’s, ExxonMobil, ConocoPhilips and more than a dozen other publicly-traded American companies have seen their assets seized. The total value seized tops $23.3 billion, according to Ecoanalítica, a Caracas-based research firm. Since 2007, the rate of nationalizations has climbed 924%, according to Coindustria, the equivalent of Venezuela’s chamber of commerce. The World Bank, in its 2011 Doing Business Report, finds that Afghanistan is a better place to do business than Venezuela.
Meanwhile, a Spanish judge has found that Chavez’s regime is linked to two terrorist groups, ETA in Spain and the FARC in Colombia. When Walid Makled, a drug lord with family roots in the Palestinian territories, was arrested in Colombia, he admitted to paying some $40 million to the Chavistas. He is also suspected of financing terror plots.
Finally, at the World Bank’s International Center for Settlement of Investment Disputes (ICSID), American and European companies have filed at least 18 claims against Venezuela for illegally seizing their properties. Those claims total more than $14 billion.
The value of Venezuela’s overseas gold reserves? Roughly $12.3 billion.
So let’s connect the dots and solve the mystery of the moving gold.
Chavez knows that ExxonMobil and ConocoPhilips will eventually prevail before the World Bank’s arbitration panel and win roughly $14 billion in compensation. If Chavez balks at paying his debts, court orders could be secured to seize Venezuela’s only real asset under American and European control—the gold in their vaults.
Even if Chavez could somehow hold the World Bank at bay, the growing evidence of human rights abuses and links to international terrorism boosts the likelihood of international sanctions. And the most effective sanction is holding Venezuela’s gold reserves until it reforms.
So Chavez is moving his gold to continue to cheat American shareholders out of their just compensation for their looted lands, plants, and oil fields as well as to continue to punish his own people with his miserable misrule.
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Key Monetary Writings
THE most disturbing aspect of the current financial crisis is that no U.S. official has correctly identified its primary cause.
Kathleen M. Packard, Publisher
The Gold Standard Now
Board of Advisors:
Sean Fieler, James Grant,
Senior European Advisor