WEBVTT NOTE Gold and Banking 1 00:00:00.000 --> 00:00:05.000 The Use of Gold and Gold Reserves in Modern Banking 2 00:00:08.000 --> 00:00:20.000 I suppose that most people today, and I'm speaking now in 1970, are aware of the fact that there has been something in the nature of a gold crisis. 3 00:00:20.000 --> 00:00:27.580 And I suspect that this gold crisis has been something of a mystery to many people, because 4 00:00:27.580 --> 00:00:32.940 most of them, I presume, are aware of the fact that insofar as gold being used as money 5 00:00:32.940 --> 00:00:40.960 is concerned, this country got off the gold standard back in 1933. So I presume that there 6 00:00:40.960 --> 00:00:47.600 is a little bit of a mystery here that perhaps would bear the spotlight for a few moments. 7 00:00:47.600 --> 00:00:54.740 So let's go into this area. When our system of money was established, it was established 8 00:00:54.740 --> 00:01:01.740 first of all on a bimetal system with both gold and silver being constitutionally approved 9 00:01:01.740 --> 00:01:08.480 as legal tender. That is the only constitutionally approved legal tender that we have. That part 10 00:01:08.480 --> 00:01:15.820 of the constitution has never been amended nor changed. Now basing our money system on 11 00:01:15.820 --> 00:01:21.120 On gold and silver meant that although the Congress passed laws relating to how much 12 00:01:21.120 --> 00:01:27.980 money would be in existence or what the ratio between gold and silver would be and so on, 13 00:01:27.980 --> 00:01:35.140 there was a basic recognition that if the government printed a piece of paper, that 14 00:01:35.140 --> 00:01:40.320 the paper was merely an evidence of credit and that there was on deposit a certain amount 15 00:01:40.320 --> 00:01:47.360 of Gold and Silver to redeem the credit money that had been put out into use. 16 00:01:47.360 --> 00:01:54.320 Actually, there never was a one-to-one ratio used. Basically, insofar as the issuance of 17 00:01:54.320 --> 00:01:59.760 credit money is concerned, although private banks sometimes did it on a one-to-one basis 18 00:01:59.760 --> 00:02:06.080 or a two-to-one basis, the standard in government was to do it on a four-to-one basis. That is, 19 00:02:06.080 --> 00:02:09.120 When the government issued a paper certificate that said, 20 00:02:09.120 --> 00:02:16.640 we have on deposit one dollar in silver, what they actually had on deposit was one twenty-five 21 00:02:16.640 --> 00:02:22.880 cent piece in silver. There was a four to one ratio, usually. It fluctuated from time to time, 22 00:02:22.880 --> 00:02:28.800 but that was basically the idea. And of course, with gold, it was the same. There was never 23 00:02:28.800 --> 00:02:35.680 an attempt on the part of the government to issue paper limited on a one-to-one basis to the amount 24 00:02:35.680 --> 00:02:42.640 held in reserve. However, we got along fairly well with this system, especially during the 20s, 25 00:02:43.280 --> 00:02:52.480 and then we began to run into a situation in this country which we have later called the Great 26 00:02:52.480 --> 00:02:57.760 Depression. Beginning with the stock market collapse of 1929, and then the other things 27 00:02:57.760 --> 00:03:05.120 that seemed to stem out and broaden from that collapse, we had apparently a great dearth of 28 00:03:05.120 --> 00:03:23.200 of Money, the amount of money in circulation. If your money is related to gold or silver 29 00:03:23.200 --> 00:03:29.320 on deposit, it follows that in order to increase the amount of money in circulation, you have 30 00:03:29.320 --> 00:03:34.280 to increase the amount of gold and silver on deposit. You can't increase the amount 31 00:03:34.280 --> 00:03:40.560 of Gold and Silver on Deposit, unless you have the gold and silver on hand. And we didn't. 32 00:03:40.560 --> 00:03:45.860 So here we were facing a dilemma. This was a dilemma that was met in various ways by 33 00:03:45.860 --> 00:03:51.080 President Hoover, and then President Roosevelt, who followed him, met it in a rather unique 34 00:03:51.080 --> 00:03:56.640 way. He decided that the way to free up the government printing presses so they could 35 00:03:56.640 --> 00:04:02.040 print all the money they needed was to go off the gold standard. And then you wouldn't 36 00:04:02.040 --> 00:04:08.280 If you could have to print just four dollars for every say silver or gold dollar on deposit, 37 00:04:08.280 --> 00:04:13.260 you could print as many paper dollars as you wanted to. The only thing is you would have 38 00:04:13.260 --> 00:04:18.920 to stop saying that there is so much on deposit because obviously there wouldn't be that 39 00:04:18.920 --> 00:04:27.520 much on deposit. So this became a program of the American government in 1933 and we 40 00:04:27.520 --> 00:04:36.000 unmoored our economy from a gold base fundamentally. That is, in so far as the private sector was 41 00:04:36.000 --> 00:04:42.620 concerned, gold became only a commodity. You could get gold if you were in the jewelry 42 00:04:42.620 --> 00:04:48.200 business or if you were a dentist or had other commercial use for gold. Fine, you could obtain 43 00:04:48.200 --> 00:04:57.240 it. But gold stopped being money by governmental decree. In fact, there hasn't been any minting 44 00:04:57.240 --> 00:05:03.520 of Gold Coins from that time or from before that time. I think the last minting was about 45 00:05:03.520 --> 00:05:11.820 1932 or possibly it wasn't 28. I haven't checked that out but we haven't minted anything 46 00:05:11.820 --> 00:05:21.900 certainly since 1933 in the way of a gold coin. The effect of this was rationalized 47 00:05:21.900 --> 00:05:27.820 This way by the politicians. They took exactly the same position that the early bankers had taken. 48 00:05:28.780 --> 00:05:34.460 Why do we have to have gold behind the currency? People don't come in and take the gold out. 49 00:05:34.460 --> 00:05:41.100 They don't use the gold. It's really useless. The thing that sustains the money is the faith 50 00:05:41.100 --> 00:05:47.740 that people have in the money. So people don't need the gold. They don't want the gold. They 51 00:05:47.740 --> 00:05:53.180 They don't use the gold, so why fuss with it? Why delude ourselves? We don't need 52 00:05:53.180 --> 00:05:57.940 the gold behind the currency. We'll simply put the credit of the United States government 53 00:05:57.940 --> 00:06:02.340 behind the currency. And what is the credit of the United States government? Well, that 54 00:06:02.340 --> 00:06:08.220 is the credit of the taxpayers that support the United States government. So in essence, 55 00:06:08.220 --> 00:06:12.260 and it became a slogan at that time, we don't have to worry about the money because any 56 00:06:12.260 --> 00:06:17.180 debt that is involved is merely a debt that we owe to ourselves. We simply take it out 57 00:06:17.180 --> 00:06:42.180 Gold was something we didn't need. And on the basis of taking us off the gold standard, Mr. Roosevelt then turned around and was enabled to print a great number of Federal Reserve notes. 58 00:06:42.180 --> 00:06:45.180 Now that's what they began to be called at that time. 59 00:06:45.180 --> 00:06:52.060 They were Federal Reserve notes, and in order to convince the people that these notes were good, 60 00:06:52.060 --> 00:06:57.660 even though they no longer said on them that this is a certificate backed by so much gold or silver, 61 00:06:58.220 --> 00:07:06.460 instead they said on them, this note is legal tender and is good for all debts public and private, 62 00:07:07.660 --> 00:07:14.060 but it is redeemable in lawful money. And that's the way these first notes came out of the Federal 63 00:07:14.060 --> 00:07:20.500 at a Reserve Bank. In other words, they appeared to be redeemable currency because the word 64 00:07:20.500 --> 00:07:27.340 redemption or redeemable appeared on the face of the note. In actual fact, the notes were 65 00:07:27.340 --> 00:07:32.180 redeemable only in terms of other notes that were redeemable, in terms of other notes that 66 00:07:32.180 --> 00:07:40.980 were redeemable and so on back into the woodwork. There was no place here for this money tied 67 00:07:40.980 --> 00:08:10.060 The market makes good on the government's promises, and that is exactly what we have 68 00:08:10.060 --> 00:08:17.140 have had, in essence, from that day to this. So we went off the gold standard. In fact, 69 00:08:17.140 --> 00:08:23.580 the certificates that had been issued by the government in which they had said, this certificate 70 00:08:23.580 --> 00:08:29.980 is redeemable in gold, the government repudiated these. The people that had those certificates 71 00:08:29.980 --> 00:08:36.860 and went down to the treasury or the various banks to get those cashed out in gold were 72 00:08:36.860 --> 00:08:43.420 were not given gold. This became illegal. The government passed a law against it. Instead, 73 00:08:43.420 --> 00:08:48.940 these certificates that were redeemable in gold, according to the government's promise, 74 00:08:48.940 --> 00:08:54.520 were instead redeemed in Federal Reserve notes. So the people were defrauded. They were not 75 00:08:54.520 --> 00:08:58.060 given what the government had promised to give them. It's an important point to keep 76 00:08:58.060 --> 00:09:03.620 in mind. Your own government can defraud you legally. It's just a matter of how you write 77 00:09:03.620 --> 00:09:08.940 by the law. So that happened at that time. Now another very interesting thing occurred. 78 00:09:08.940 --> 00:09:16.580 When this began, the government began to feel, I suppose, the same way that the government 79 00:09:16.580 --> 00:09:23.440 of England had felt when Henry VIII decided to get into the minting of spurious coinage. 80 00:09:23.440 --> 00:09:29.040 There's a fear that the public will catch on. And when they catch on, they may repudiate 81 00:09:29.040 --> 00:09:33.420 the whole currency and if they do the government would collapse. 82 00:09:33.420 --> 00:09:41.760 And so as a hedge against that happening the government took what was called a 25% blanket 83 00:09:41.760 --> 00:09:49.880 cover in gold and they earmarked it for redemption of the American currency in the event repudiation 84 00:09:49.880 --> 00:09:50.880 should occur. 85 00:09:50.880 --> 00:09:55.360 And that money was earmarked and kept at Fort Knox, that is that gold was kept there. 86 00:09:55.360 --> 00:09:59.100 It wasn't to come out of Fort Knox unless this happened. 87 00:09:59.100 --> 00:10:03.840 If the public in general stood up and said, this is just paper, there's nothing to it 88 00:10:03.840 --> 00:10:09.760 and we won't use it, then the government could redeem it, not to give the money, that 89 00:10:09.760 --> 00:10:17.500 is the gold, to the people, but the government would then use this 25% gold cover to become 90 00:10:17.500 --> 00:10:22.660 the base of a new currency which would be backed by gold and that way they could perhaps 91 00:10:22.660 --> 00:10:25.020 retain their positions of power and influence. 92 00:10:25.020 --> 00:10:29.820 So that was the purpose of it. Now the minute they passed that law granting the government 93 00:10:29.820 --> 00:10:35.660 a 25% cover, the bankers came in on it and they said, wait a minute, we're the fellows 94 00:10:35.660 --> 00:10:40.460 that handle this stuff. And if there is a general repudiation, we are the boys that 95 00:10:40.460 --> 00:10:46.120 are going to get our fingers burned. If the government can have a 25% cover, so can we. 96 00:10:46.120 --> 00:10:51.340 And this was approved. So the bankers also got a 25% cover. You understand, none of this 97 00:10:51.340 --> 00:10:57.300 This gold now, in the event of repudiation, would flow into the hands of people like you 98 00:10:57.300 --> 00:11:04.340 and me. It would flow into the hands of the bankers or the government or both in the event 99 00:11:04.340 --> 00:11:07.460 of repudiation. And that's the way it was set up. 100 00:11:07.460 --> 00:11:15.080 So insofar as you and I were concerned, we could not get our hands on gold coins unless 101 00:11:15.080 --> 00:11:22.060 Yes, we were numismatists or engaged in collecting coins or something of this sort. 102 00:11:22.060 --> 00:11:29.560 Insofar as gold was concerned, it was banned as money from public use in this country. 103 00:11:29.560 --> 00:11:36.300 So here we have a 25% gold cover reserved to protect the government, another 25% gold 104 00:11:36.300 --> 00:11:40.440 cover to protect the bankers, and we've got a lot of gold besides that. 105 00:11:40.440 --> 00:11:48.160 So the government decided that they would not repudiate gold redemption in European countries 106 00:11:48.160 --> 00:11:50.080 or elsewhere in the world. 107 00:11:50.080 --> 00:11:52.800 Only the American people were to be defrauded. 108 00:11:52.800 --> 00:11:55.560 Everybody else could get gold if they wanted to. 109 00:11:55.560 --> 00:12:03.720 So we had the interesting situation of having an American able to go abroad and redeem American 110 00:12:03.720 --> 00:12:08.300 currency for gold and use gold as money abroad. 111 00:12:08.300 --> 00:12:12.860 But when he came back here, the law forbids him to use gold as money and he cannot redeem 112 00:12:12.860 --> 00:12:16.400 American paper money for gold in this country. 113 00:12:16.400 --> 00:12:23.640 So that was the system that developed following 1933 and it continued this way for a number 114 00:12:23.640 --> 00:12:25.800 of years. 115 00:12:25.800 --> 00:12:36.000 Actually we got up to about 1940-41 and as you know World War II began in this period 116 00:12:36.000 --> 00:12:37.000 of Time. 117 00:12:37.000 --> 00:12:44.920 We usually date it with 1939 and the advance of Hitler into Poland, although actually, 118 00:12:44.920 --> 00:12:51.000 if you want to be accurate, World War II really began in China in 1936 with the incident of 119 00:12:51.000 --> 00:12:52.000 Muktin. 120 00:12:52.000 --> 00:12:57.840 But usually we in the Western world think of the World War beginning in September of 121 00:12:57.840 --> 00:12:59.920 1939. 122 00:12:59.920 --> 00:13:05.400 And then of course we were involved after Pearl Harbor in December of 41. 123 00:13:05.400 --> 00:13:11.420 So we tend to think around 1940 as the beginning of this whole period. Now at that time, getting 124 00:13:11.420 --> 00:13:18.320 back to the gold question, we had on deposit in the Federal Reserve Bank and in the Treasury 125 00:13:18.320 --> 00:13:25.620 approximately $14 billion in gold reserves, a portion of which was earmarked to redeem 126 00:13:25.620 --> 00:13:30.680 the government, a portion was earmarked to redeem the banks, and the rest was available 127 00:13:30.680 --> 00:13:37.800 for foreign redemption. Nothing was available here. Well, this meant that there was about 128 00:13:37.800 --> 00:13:46.080 a total of 8 billion that was reserved to redeem federal and banking practices in this 129 00:13:46.080 --> 00:13:52.920 country and the balance of the 14 billion was available for redemption of foreign claims. 130 00:13:52.920 --> 00:13:59.400 And that's the way it was in 1940, just before we entered World War II. 131 00:13:59.400 --> 00:14:08.280 Now, this helps to explain the political view relating to loans and grants to Europeans 132 00:14:08.280 --> 00:14:14.400 to help them insofar as the war economy was concerned. Keep in mind now that the political 133 00:14:14.400 --> 00:14:19.920 view which had been sustained by such economists as John Maynard Keynes and other very noteworthy 134 00:14:19.920 --> 00:14:26.360 and very well-known economists was that gold isn't needed. You don't need it. So here 135 00:14:26.360 --> 00:14:31.920 Here we have a stockpile of fourteen billion dollars worth of gold that is just so much 136 00:14:31.920 --> 00:14:39.120 useless material you're not using it commercially, you're not using it for money and there it 137 00:14:39.120 --> 00:14:42.300 sits and it's expensive even to keep it there. 138 00:14:42.300 --> 00:14:48.000 So the government took a very liberal view of gold and so when the pressures began to 139 00:14:48.000 --> 00:14:55.240 mount in Europe the government turned around and granted loans on a very open-handed base 140 00:14:55.240 --> 00:15:03.240 To every one of our allies or potential allies in Europe, we gave them what we call the first 141 00:15:03.240 --> 00:15:08.560 lend-lease. That is, we lent them things, money, we leased them things, and we didn't 142 00:15:08.560 --> 00:15:15.400 even ask for a payment. And when we put out credits over there, these credits were redeemable 143 00:15:15.400 --> 00:15:21.100 in gold because the politicians took the view, why not redeem it in gold? Gold isn't worth 144 00:15:21.100 --> 00:15:27.900 with anything anyway. So, fine, if this pleases the European governments, great. We're winning 145 00:15:27.900 --> 00:15:33.620 their friendship with some worthless stuff that we've got over here in surplus, and isn't 146 00:15:33.620 --> 00:15:38.900 that wonderful that we can do it? This was the political attitude, you see. And so we 147 00:15:38.900 --> 00:15:45.360 became open-handed and we began this process of lending and loaning to various European 148 00:15:45.360 --> 00:15:52.360 and some Asiatic powers, directly or indirectly, and then suddenly we were involved in the 149 00:15:52.360 --> 00:15:59.360 war. Well now when this happened we became even more open-handed. We not only lent and 150 00:15:59.360 --> 00:16:05.940 leased but now we gave outright in an effort to spur and bolster our allies. Now the way 151 00:16:05.940 --> 00:16:11.600 we do it, I mean the physical method is one like this. We appropriate a sum of money, 152 00:16:11.600 --> 00:16:19.600 Congress passes a law that says we will offer so much economic aid to a foreign country. 153 00:16:19.600 --> 00:16:25.600 A slip of paper is drawn up and sent to the appropriate authorities of the foreign country, 154 00:16:25.600 --> 00:16:32.600 and it simply states on it that so many dollars have been appropriated for their use. 155 00:16:32.600 --> 00:16:38.600 And all they have to do is to take this paper, which becomes a negotiable instrument, you see, 156 00:16:38.600 --> 00:16:44.600 and they can go to the bank and they could redeem it in terms of other letters of credit 157 00:16:44.600 --> 00:16:50.600 so that they could purchase our material or if they wanted to, they could merely convert it into gold. 158 00:16:50.600 --> 00:16:54.600 Now the gold wouldn't leave the country and be shipped over to Europe. 159 00:16:54.600 --> 00:16:59.600 It would simply be transferred from one account, ours, into a foreign government's account. 160 00:16:59.600 --> 00:17:03.600 The gold wouldn't even be moved at Fort Knox probably or wherever it was. 161 00:17:03.600 --> 00:17:09.960 was that it would stay in the same vault. It's just a bookkeeping entry that's made. This 162 00:17:09.960 --> 00:17:14.800 gold is no longer ours. It's been redeemed, and France has it, or England has it, or whoever 163 00:17:14.800 --> 00:17:20.040 has it, you see. It's just moved over in the bookkeeping process. So physically, the gold 164 00:17:20.040 --> 00:17:21.720 remained right where it was. 165 00:17:21.720 --> 00:17:30.780 But here is an interesting thing that happened. During World War II, about the only place 166 00:17:30.780 --> 00:17:38.980 in what we call then the free world where the manufacture of heavy military hardware 167 00:17:38.980 --> 00:17:46.940 could occur was the United States. Britain was under heavy attack and bombardment and 168 00:17:46.940 --> 00:17:52.820 the V1s and V2s were dropping and there wasn't very much armament production there. France 169 00:17:52.820 --> 00:17:57.980 as far as armament production was concerned had virtually been wiped out. Italy was on 170 00:17:57.980 --> 00:18:02.020 on the other side and wasn't doing much that way. Germany of course was our opponent and 171 00:18:02.020 --> 00:18:07.580 Germany was a very productive area producing all kinds of heavy armaments and equipment 172 00:18:07.580 --> 00:18:12.820 for their side of the contest. Russia didn't have any heavy equipment to produce heavy 173 00:18:12.820 --> 00:18:19.740 armaments and so on, they had some but not much. The allied forces including China had 174 00:18:19.740 --> 00:18:26.740 no real manufacturing center except the United States and so we became in essence the arsenal 175 00:18:27.980 --> 00:18:31.980 for the military hardware that went to the Allies. 176 00:18:31.980 --> 00:18:34.980 And we had a very cute little device here. 177 00:18:34.980 --> 00:18:43.980 Any time a foreign country was to buy military goods, we wanted to sell it to them for gold. 178 00:18:43.980 --> 00:18:46.980 Now, why did we do that? 179 00:18:46.980 --> 00:18:49.980 Well, we did it because we didn't think the gold was valuable. 180 00:18:49.980 --> 00:18:56.980 You see, what we wanted to do was to get these arms into their hands as quickly as possible 181 00:18:56.980 --> 00:19:02.820 and we didn't want to have a drain on them to get it and so we said well we'll 182 00:19:02.820 --> 00:19:07.460 take your gold because in our judgment this was the most useless thing they had 183 00:19:07.460 --> 00:19:12.940 anyway and we could just store it and in the meantime we are giving them paper 184 00:19:12.940 --> 00:19:18.220 letters of credit which can be redeemed in gold which they can then use to buy 185 00:19:18.220 --> 00:19:23.420 our military stuff with and it doesn't cost them anything and we're using in 186 00:19:23.420 --> 00:19:29.140 In our political judgment, the least valuable thing we've got in order to move heavy armaments 187 00:19:29.140 --> 00:19:37.080 into the hands of our quote-un-unquote allies. So that's how we did it. And so during World 188 00:19:37.080 --> 00:19:45.900 War II this interesting phenomenon occurred. While we began in 1940 with approximately 189 00:19:45.900 --> 00:19:52.900 14 billion dollars of gold in reserve, in the U.S. Treasury and in Fort Knox. We ended 190 00:19:52.900 --> 00:20:01.420 World War II with a deposit of better than 46 billion dollars' worth of gold, on deposit, 191 00:20:01.420 --> 00:20:08.780 because during that time the golds in the world, in the hands of Britain, France and 192 00:20:08.780 --> 00:20:15.900 and the other allied countries had flowed into our coffers in exchange for arms. 193 00:20:15.900 --> 00:20:19.920 And we had armed that part of the world for gold. 194 00:20:19.920 --> 00:20:22.740 So now we had even more gold than we had before. 195 00:20:22.740 --> 00:20:29.700 And we had adopted a liberal policy of getting rid of it, and now it had trebled in supply. 196 00:20:29.700 --> 00:20:31.700 So what were we to do? 197 00:20:31.700 --> 00:20:37.300 Well following the war, we took an even more liberal attitude in respect to it. 198 00:20:37.300 --> 00:20:40.980 We became just absolutely generous to a fault. 199 00:20:40.980 --> 00:20:45.720 We decided we had to rebuild the countries that had been damaged in the war, whether 200 00:20:45.720 --> 00:20:50.860 they had been damaged by our friends or our foes, it didn't matter, we have to now rebuild 201 00:20:50.860 --> 00:20:51.860 the world. 202 00:20:51.860 --> 00:20:56.420 And so we now began foreign aid on a grand scale. 203 00:20:56.420 --> 00:21:02.060 We began pouring out these letters of credit to the various governments involved, and these 204 00:21:02.060 --> 00:21:08.740 These letters of credit are backed by gold and, of course, to begin with, foreign powers 205 00:21:08.740 --> 00:21:13.660 avidly use these letters of credit to buy our equipment. 206 00:21:13.660 --> 00:21:17.740 They didn't want the gold either, so they didn't redeem in gold. 207 00:21:17.740 --> 00:21:23.820 They redeemed in the purchase of wheat and of motor cars and of heavy manufacturing tools 208 00:21:23.820 --> 00:21:29.900 of production and canned goods and things of this sort because their economies had simply 209 00:21:59.900 --> 00:22:02.860 for the credits that we issued to them. 210 00:22:02.860 --> 00:22:06.800 But now, with the passing of time, this happened. 211 00:22:06.800 --> 00:22:10.220 These various countries began to get back on their feet. 212 00:22:10.220 --> 00:22:12.900 They began to establish heavy industry. 213 00:22:12.900 --> 00:22:15.720 They began to have economies of their own. 214 00:22:15.720 --> 00:22:21.560 And we continued our very open-handed way of giving foreign aid that would run into 215 00:22:21.560 --> 00:22:26.220 multiple billions of dollars every year. 216 00:22:26.220 --> 00:22:32.880 As a matter of fact, since the end of World War II, since the end of World War II, we 217 00:22:32.880 --> 00:22:42.580 have given approximately $300 billion away. And this, of course, has been backed by gold. 218 00:22:42.580 --> 00:22:46.500 But as I say, at the outset, people weren't interested in that fact. They were interested 219 00:22:46.500 --> 00:22:54.840 in the tools of production and the other goods and services that people want to use. As European 220 00:22:54.840 --> 00:23:01.360 When an industry is reestablished, then when a country began to get these large payments, 221 00:23:01.360 --> 00:23:07.120 these large credits from us, they began to hedge against the future. And so they began 222 00:23:07.120 --> 00:23:16.120 to redeem in gold. And thus, instead of having 46 billion, which we had in 1945, the amount 223 00:23:16.120 --> 00:23:22.080 of gold reserves began to shrink because now the foreign powers were more interested in 224 00:23:22.080 --> 00:23:44.500 in France. 225 00:23:44.500 --> 00:23:51.360 We had been giving France a billion dollars a year or more ever since 1945. 226 00:23:51.360 --> 00:24:01.360 This is 1965. This is 20 years after World War II was over. We're still handing it out on the basis of at least a billion dollars a year to France. 227 00:24:01.360 --> 00:24:07.360 Now, France was not, they didn't get the lion's share. Actually, Great Britain got the lion's share. 228 00:24:07.360 --> 00:24:15.360 Western Germany got the lioness' share, I guess, and France was about third in the great American giveaway. 229 00:24:15.360 --> 00:24:23.560 Anyway, about this time we were giving Charlie a billion a year, and in 1965 we took a good 230 00:24:23.560 --> 00:24:29.120 look at the reserves that we had, and you know we didn't have as much as we'd started 231 00:24:29.120 --> 00:24:30.120 with. 232 00:24:30.120 --> 00:24:37.880 Not only had France been redeeming gold and taking it when other things were no longer 233 00:24:37.880 --> 00:24:44.880 of Money, The Theory of Money and State, The Theory of Money and State, The Theory of Money 234 00:25:07.880 --> 00:25:19.880 He said, I'll take about $200 million in materiel. I'd like some canned goods and some wheat and some automobiles up to $200 million, and I'll take the other $800 million in gold. 235 00:25:19.880 --> 00:25:28.880 And we confronted Charlie, and we said, Charlie, that's not very high-type and friendly. You know that our gold reserves are getting a little skimpy. 236 00:25:28.880 --> 00:25:32.880 Why don't you take some more canned goods and some more cars and some more wheat? 237 00:25:32.880 --> 00:25:37.560 and he said no I don't want it because if I take those things I'm going to put 238 00:25:37.560 --> 00:25:42.200 French production out of line I'm going to dislocate our own ability to produce 239 00:25:42.200 --> 00:25:46.760 and look after ourselves and I don't think you want that so just let me have 240 00:25:46.760 --> 00:25:53.160 the 1 billion and I'll take 200 million in materials various types and then I'll 241 00:25:53.160 --> 00:25:57.340 take the other 800 million in gold and we said okay Charlie if you insist on it 242 00:25:57.340 --> 00:26:01.920 we'll do it because we've promised to do it and we want to keep our promise so 243 00:26:01.920 --> 00:26:30.920 Charlie said, Well now wait just a minute, fellas. I've been doing a little checking on what you've been up to, and it so happens that you have issued letters of credit, something to the tune of around $36 billion, and these are unredeemed, and they are in Europe and Asia at the present time. 244 00:26:30.920 --> 00:26:38.920 So, if you get tough with me and tell me that I'm not going to get any more foreign aid, 245 00:26:38.920 --> 00:26:44.920 I'm going to tip off all my fellow politicians in Europe and Asia. 246 00:26:44.920 --> 00:26:48.920 And they will discover that they're not going to get any more foreign aid either. 247 00:26:48.920 --> 00:26:53.920 And the result of that is going to be that they're going to take those letters of credit that they have 248 00:26:53.920 --> 00:26:55.920 and they're going to demand gold redemption. 249 00:26:55.920 --> 00:27:10.940 Well, here was a pretty picklement that we'd gotten ourselves into. 250 00:27:10.940 --> 00:27:13.020 And so we compromised with Charlie. 251 00:27:13.020 --> 00:27:15.420 We did it his way. 252 00:27:15.420 --> 00:27:21.080 We continued to give him the money so that he wouldn't ask for all of it in terms of 253 00:27:21.080 --> 00:27:22.240 gold. 254 00:27:22.240 --> 00:27:29.440 And so from that time up till now, and this is five years since this confrontation occurred, 255 00:27:29.440 --> 00:27:34.920 our gold supplies have been reducing more gradually. 256 00:27:34.920 --> 00:27:39.920 We have reduced the number of claims against us until overseas now they're only about 257 00:27:39.920 --> 00:27:42.120 32 billion against us. 258 00:27:42.120 --> 00:27:44.760 Meantime, no wait a minute, it's down from that. 259 00:27:44.760 --> 00:27:51.160 It's about maybe perhaps 30 billion against us now overseas as of this moment when I'm 260 00:27:51.160 --> 00:28:02.160 In terms of our gold reserves, we now have right around $10 billion, according to the last report. 261 00:28:02.160 --> 00:28:10.160 So we still cannot meet the claims against us that we ourselves have issued. 262 00:28:10.160 --> 00:28:16.160 And so we continue to operate on the basis of the goodwill of other people as they consider us 263 00:28:16.160 --> 00:28:27.480 Thanks very much.