When we started reading the LA Times article reporting that "the federal government has quietly been completing an audit of U.S. gold stored at the New York Fed" we couldn't help but wonder when the gotcha moment would appear. It was about 15 paragraphs in that we stumbled upon what we were waiting for: "The process involved about half a dozen employees of the Mint, the Treasury inspector general's office and the New York Fed. It was monitored by employees of the Government Accountability Office, Congress' investigative arm." In other words the Fed's gold is being audited... by the Treasury. Now our history may be a little rusty, but as far as we can remember, the last time the Fed was actually independent of the Treasury then-president Harry Truman fired not one but two Fed Chairmen including both Thomas McCabe as well as the man after whom the Fed's current residence is named: Marriner Eccles, culminating with the Fed-Treasury "Accord" of March 3, 1951 which effectively fused the two entities into one - a quasi independent branch of the US government, which would do the bidding of its "political", who in turn has always been merely a proxy for wherever the money came from (historically, and primarily, from Wall Street), which can pretend it is a "private bank" yet which is entirely subjugated to the crony interests funding US politicians (more on that below). But in a nutshell, the irony of the Treasury auditing the fed is like asking Libor Trade A to confirm that Libor Trader B was not only "fixing" the Libor rate correctly and accurately, but that there is no champagne involved for anyone who could misrepresent it the best within the cabal of manipulation in which the Nash Equilibrium was for everyone to commit fraud.
Far more importantly, for all those financial novices who fail to grasp the simplest relationship between assets and liabilities, the allegation expounded by the "conspiracy theorists", as the LA Times calls them, has never been that the gold at the NY Fed is not there. It is by all means there: after all what safer place to keep it than 80 feet below the Federal Reserve itself, the same Fed which has exclusive access to the 1000+ strong Federeal Reserve Police whose "primary duty is to provide force protection to Federal Reserve facilities. Secondary responsibilities, depending on the particular location, may include liaison work with other law enforcement agencies and/or investigative work related to administrative matters."
And not only the gold belonging to the US: it is well known that the bulk of Europe's sovereign gold is also contained deep under downtown Manhattan: we wish them all the best when they attempt to repatriate the physical when they need it, such as the day after the EUR finally collapses.
No - what the "conspiracy theorists" allege is that claims existing in paper format on the physical gold held under Liberty 33 are orders of magnitude greater than the actual physical gold these claims supposedly have recourse to. Indeed, this too was a conspiracy theory until the failure of MF Global proved it to be a conspiracy "fact" and the entire asset-liability rehypothecation daisy-chain threatened to begin unwinding in November of 2011, at which point forced delivery of hard assets would expose the entire facade of the modern financial system to be a hollow sham.
So unless the Treasury will also conduct a full "audit" of every single paper trail and every physical bar is mapped to all of its existing obligors, then the entire operation is absolutely meaningless and simply a waste of taxpayer money. Because the physical gold may well be there (and furthermore it is the gold at Ft. Knox that was questionable; never the gold held by the Fed, but who cares about details). The problem is if the paper claims on this gold are far greater than the actual deliverable physical gold for that moment when the latest attempt to kick the can down the rehypothecated road finally fails.
Of course, none of the this was addressed in the simplistic LA Times narrative whose sole purposes is to "frame" the issue for those uninformed and on the fence that, look officer, America is proactively doing something to address all those tinfoil hat nut job gold hoarders' allegations that the Fed actually is not in possession of its gold.
Here is what was addressed:
The Treasury Department has refused to disclose what the audit has revealed so far, saying the results will be announced by year's end. But as one former top Fed official said recently, the testing may finally prove that "Goldfinger didn't sneak in at night" and take the gold.
"The calls for audits are saying, 'We don't trust the government for the last 200 years,'" said Ted Truman, a former assistant Treasury secretary and Fed official. He called perennial questions about the country's reserves "the gold bug equivalent of the birther movement."
The Treasury's auditing operation, including drilling, is a first for the New York Fed. The department's inspector general previously audited and tested only gold it keeps under heavy guard at Ft. Knox, West Point and the U.S. Mint in Denver. These three locations hold 95% of the country's bullion.
In New York, about $21 billion in U.S. gold is locked inside the Fed's vault. It's stored alongside bullion from three dozen other countries and organizations such as the International Monetary Fund. All told, about 23% of the world's official gold reserves are stored in the central bank's vaults.
Of course, what attempt at framing would be complete with an actual quite vivid description of the frame.
The process involved about half a dozen employees of the Mint, the Treasury inspector general's office and the New York Fed. It was monitored by employees of the Government Accountability Office, Congress' investigative arm.
The bars were first weighed on a small electronic scale, then transferred to a table mounted with a long, thin drill used to burrow into the gold, said a person familiar with the operation who was not authorized to speak publicly.
Workers were careful to collect any stray gold bits, the source said. Based on the market price of about $1,600 per troy ounce, the Treasury removed more than $110,000 worth of gold samples.
A Mint spokesman said about 1 to 1.5 grams of each sample is destroyed in the assaying process, with the remaining granules returned to the government.
Gasp: will someone think of the sacrifices. Oh wait, that is precisely what one is supposed to think of. And none of what actually matters.
At this point, the Times piece almost grasps what the real issue is, once again courtesy of Ron Paul:
"If the gold is there and everything is in order, they should welcome an audit," Paul said in an interview.
He said he doesn't suspect that anyone has replaced the gold bars with fakes. He's more interested in examining paperwork that would show whether the gold has been used in any transactions that were never disclosed to the public, such as loans to other governments.
He is not alone. In Germany, there have been calls by some politicians to "repatriate" the country's foreign gold reserves and return to a gold standard as the euro common currency faces an uncertain future.
Philipp Missfelder, a prominent German legislator in the country's ruling Christian Democratic Union party, visited the New York Fed in February seeking to inspect his country's gold.
Missfelder was not given access to Germany's gold bars, though it's unclear why, according to German magazine Der Spiegel. He declined to comment.
The LA Times' conclusion redirects however to more important things. Such as the Fed's current role of preserving "ze price stabeeleetee."
These days the New York Fed focuses on more pressing roles: implementing the country's monetary policy by expanding or tightening the money supply. It played a central role in propping up the financial system in 2008.
And so forth. The whole piece can be found here in its entirety.
One thing which will not be found after the jump, however, is this rather extensive explanation of a topic we touched upon: in essence how under the guise of the Fed "gaining its independence" in 1951, the Fed lost all of it.
Below we repost our article from April in which we explained every nuance of the tortured relationship between the Fed, the Treasury, and the US presidency, which finally hits a screeching crescendo in 1951... and afterwards was silent.