Duncan’s Economic Blog

Wasting our money.

Posted in Uncategorized by duncanseconomicblog on April 28, 2009

The Tories love to bang on about how Brown ‘cost Britain $7bn’ with his sale of gold reserves at the ‘bottom on the market’.

I’ve never really understood this argument. Is it premised on us selling our gold now? What if it goes up further? Surely we should have sold above $1,000 per ounce back in February this year or last March last?

Actually scratch that. Thatcher should have sold all the gold in January 1980 at $835 then bought it back at only $291 in March 1985. She could have then sold it at $496 in April 1987. Or is this getting silly?

I’ll tell you something sillier.

According to John Hawksworth, PWC’s chief economist, if, instead of blowing the money from the North Sea we had saved it, then right now the UK would be sitting on a sovereign wealth fund worth £450bn, bigger than the funds in Russia, Kuwait and Qatar combined.

So , let’s be clear on this – Brown’s gold sales: £4.8bn, Thatcher’s squandering of oil revenue: £450bn. People who live in glasshouses and all that…

10 Responses

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  1. Brian Hughes said, on April 28, 2009 at 9:44 am

    Glad I’m not the only one riding the North Sea Oil hobby horse! Two voters down, 42 million to go…

    • duncanseconomicblog said, on April 28, 2009 at 9:53 am

      We’ll get there in the end…

  2. DanH said, on April 28, 2009 at 5:40 pm

    The best bit about this is that it is invariably the most right-wing of the lot who come out with this sort of moaning garbage. I guess they haven’t heard of the blessed efficient market hypothesis.

  3. VinoS said, on April 28, 2009 at 9:32 pm

    Good point, Duncan. We should have built up a soverign wealth fund from our North Sea oil revenues. The Thatcherites squandered it. It was a one-off windfall and they wasted it.

  4. Tony Maher said, on April 28, 2009 at 10:11 pm

    The only way of assessing the gold sale is not against the price of gold at any one time but against the performance of the substitutes actually purchased with the proceeds – mostly US and European treasuries. What return would gold have provided from the BoE’s gold lending operations and from changes in it’s value as against the contribution made by the alternatives?

    In particular it is the comparative contribution of gold vs. treasury paper to reserves during a crisis (such as this) that is surely the defining question. Crises like this are what reserves are for. The point isn’t the price at which gold could have been redeemed on this date or that but the ability to retain the asset and plausibly announce an increase in the value of Banks reserves. This is not negligible in a crisis such as this.

    Gold has done in this crisis precisely what it has always done – it has apreciated in value. The “end of history” financial thinking that reclassified gold from being a store of value to being just another commodity was just flat out wrong – as such thinking always is.

    As for the oil revenues – it is surely counterintuitive to retrospectively dam the public expenditure undertaken by the tories in the recession of the 80’s whilst (rightly in my view) damming them now for opposing such public expenditure in this recession.

    Such pointless party point scoring doesn’t just expose Tory stupidities – Labourites have no special immunity from inconsistency either….

    • duncanseconomicblog said, on April 29, 2009 at 6:10 am

      Tony,

      You think Bank of England having more gold in its reserves would increase its credibility in the crisis? Why? We are on a fiat money system.

  5. crossland said, on April 29, 2009 at 1:01 pm

    Are those 1980 prices ?
    I remember reading that todays equivalent would be about $2,000 a troy ounce.

    Also worth mentioning the 3G auctions which were much more sucessfull than predicted.

    • duncanseconomicblog said, on April 29, 2009 at 4:01 pm

      Yep – nominal not real prices.

  6. […] Duncan has said it far better than I have. Selling the gold was a move to diversify Britain’s reserve stocks, and (as Duncan rightly points out) pales into insignificance when set against Thatcher’s £450bn oil revenue spree in the 1980s. […]


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