Why are you doing so well, dummkopf?

The Economist has its needle so stuck in liberal economics that its leader writer almost audibly busts a gut trying to find something wrong with Germany. As far as I can see, the daft Krauts are to be roundly condemned for...

1. Basing their economy on manufacturing
2. Running a trade surplus
3. Saving money instead of spending it on more imports
4. Not paying others to provide services they can perform for themselves
5. Not lending money to encourage more new businesses to start up (despite the fact that, as I learned years ago, 80% of new enterprises fail within two years)
6. Allowing women to stay at home
7. Saving jobs in order to preserve the skill base

We should all be so stupid.

A couple of days ago, I tried reading The Guardian newspaper again, and although there were one or two peanuts to pick out of the ordure, mostly it was, as I said to my wife, "Facebook for tw*ts". The writers even include their pictures in their by-lines so you can see they're still congratulating themselves on how well they used to do in the sixth form debating society.

But I think The Economist may have beaten them by a short head this week.

Where to turn?

People are starting to run around looking for a haven for wealth. German bond issues partially unsold; US bonds yielding virtually nothing yet at risk of default and dollar devaluation; the UK's economic fundamentals worse than America's (without the advantage of having the world's reserve currency); others saying the PIGS (Portugal, Greece, Italy, Spain) may crash out of the Euro, and that the Euro itself may not see out another ten years.

Marc Faber is predicting that precious metals will outperform equities and bonds; this commentator reckons silver will outperform gold.

Dear me.

More on the Euro as the dollar's replacement

From the website of the Campaign for an Independent Britain, a point about Britain's gold reserves. This strengthens the speculation that the Euro might become gold-related and take the reserve-currency mantle from the US dollar.

Is it really true that Britain's gold reserves would be transferred to Germany in the event of monetary union?

The arrangements for Economic and Monetary Union are set out in a Protocol annexed to the Maastricht Treaty signed by the British Government in 1992. Article 30 of the Protocol would require Britain, on joining EMU, to transfer around £8,000 million of our gold and dollar reserves irrevocably to the European Central Bank in Frankfurt, Germany.

Article 42 provides that more of our remaining reserves could be transferred to the European Central Bank if a majority of the other EMU countries required it.

Britain would not be able to veto this process.

If so, perhaps holders of these German gold bonds from between the two World Wars might end up with Britain's bullion!

Good luck, Tampa investors.

UPDATE

The suit for German gold was brought by a farmer called Ronnie Fulwood. Here's the (English edition) German Spiegel article from 2004. His attorneys seem to have a history of long-shot claims, as this blog from May 2007 explains.

Weakness of UK M3 relative to gold

Relating total national money and credit to gold holdings, we've seen that the USA would price gold at around $45,000 an ounce, Germany at maybe $14,000 an ounce.

World Gold Council June 2007 figures say the UK has 310.3 tonnes of official gold, and Mike Hewitt's table shows UK M3 at $3,532.1 billion. Using the same gold value per kilo as with the other two countries, if the UK's M3 were entirely gold-related, this would imply a price of about $35,4046 per ounce.

From this perspective, although Britain's economy is much smaller than America's, its currency weakness is much closer to America's than to Germany's.

Could the German DM be stronger than the US dollar?

Another thought experiment. We've seen that if the US stock of gold (if it hasn't been replaced by IOUs) had to back all of its M3 money supply, then this would imply a gold price of something like $45,000 per ounce.

I've tried to find equivalent figures for Germany. The latest I can find is from May 1998, when M3 was then estimated at 3,243.70 billion DM. The Deutschmark is pegged at 0.51129 to the Euro, and the US dollar currently buys around 0.73581 Euros. So in dollar terms, German M3 is/was in the region of $1,559 billion.

The World Gold Council's June 2007 figures show Germany holding 3,442.5 tonnes of gold, and there are 31.1034768 grams to the troy ounce, so that's 110,678,945 ounces. If this gold covered all of Germany's M3 at the latter's 1998 estimate, it would imply a gold price of $14,085 per ounce.

Granted that German M3 must now be greater than in 1998, it still suggests that in terms of the ratio of gold to money supply, Germany's currency is around 3 times stronger than the USA's, or one-third as vulnerable in case of hyperinflation.