So this happened: Republic Metals, a gold refiner, filed bankruptcy on November 2. The company had found a discrepancy in its inventory of around $90 million while preparing its financial statements.
We are not going to point the Finger of Blame at Republic or its management, as we do not know if this was honest error or theft. If it was theft, then we would not expect it to be a simple matter of employees or management walking out the door with the gold. $90 million is about 2.6 tons. Unless it happened very slowly, over many years, that seems like a lot of gold to disappear. And if it occurred over years, why didn’t regular audits and other internal controls catch the discrepancy until now?
We want to make a different point altogether. We define inflation as the counterfeiting of credit. Legitimate credit has four criteria. Most of the focus is on the latter two: the borrower has both the means and intent to repay. Did Republic have the means to repay? They had a good business for 38 years, so we will assume yes. Did they have the intent? Well, unless this was a simple theft and theft by the owners, then we have to answer yes again (with one quibble which we will get to, in a moment).
The other two criteria are often overlooked. Does the lender know he is extending credit, and does the lender agree to do so?
This is a real problem in the regime of irredeemable currency. People think if they have a Federal Reserve Note (i.e. a dollar bill) that they have money. In fact, they do not. They have extended credit—lent—to the Federal Reserve. The Fed further lends it on to the US government or to the banking system. As an aside, this is a very aggressive kind of not-knowing. People seem to want not to know. Even after one explains it, they still don’t.
And even when people know that the Fed uses their credit to finance the government and banks, they have no way to express their disapproval. And they have no way to opt out. That is the (evil) genius of the design of our monetary system—it disenfranchises the saver.
Anyways, back to Republic. We will skip over the banks who are the secured lenders, they obviously knew they were lending. And will also not address the biggest unsecured creditors, such as a subsidiary of Tiffany & Co. They’re sophisticated and they knew (or should have known).
