a small scale, there would remain enough surplus gold on the market to cover such a call.
“However, your greed got the best of you all. As it stands today, twelve thousand tons of gold valued at one trillion euros is on the books of central banks but is, in fact, on the fingers and around the necks of women all over the world. In a word, gentlemen, it is beyond redemption.
“Several central banks are aware of the situation and continue to accept their quarter percent on the gold’s value, but some are asking for the gold’s return. Two years ago the French national bank announced they were going to sell some of their reserves. We got together to finance the purchase of enough gold to replenish their treasury so the sale could go through. As you recall, the price of gold rose fifty euros in just a few weeks when traders realized such buying was taking place. The French then sold their gold, and the price stabilized once again. Our scramble to cover the call cost us nearly a billion euros. We told our stockholders it was a one-time charge-off, but in truth it is a charge-off we will face any time a central bank calls in their assets.”
“Bern, we don’t need a history lesson,” a New York banker said testily. “If you look around you’ll see there’s a few familiar faces missing because they were canned by their boards of directors.”
“Being ‘canned by their boards’ as you put it, Mr. Hershel, is now the least of our worries.” Volkmann gave the American a stare that silenced any follow-up rejoinder.
“Banking is a business of trust,” he continued. “A worker cashes his paycheck, spends what money he needs to survive, and trusts a bank to hold the rest. What happens to it afterward is frankly beyond his understanding or threshold of interest. He has done his job of converting labor to capital and trusts us to do our job of maximizing that capital. We lend it to entrepreneurs who build new businesses to employ more workers to transform more labor into more capital in a system that has worked well for centuries.
“But what happens when that trust is abused? Surely there have been banking scandals in the past; however, what we now face is a crisis of confidence of unprecedented proportions. The store of capital that governments use to assure their people of the country’s strength, their gold reserves, has been sold off for what is in essence an IOU that can no longer be paid. We cannot honor our promise to the central banks. Even if we had the money to buy the gold to return to the central banks, there isn’t enough of it in the world to cover what we owe.”
“Production can be increased to buy us the time to fill a call order.” This from an Englishman in a Savile Row suit.
“It can’t.” The answer was short and blunt, like the person who gave it. He, too, had an accent, somewhat British in nature but with a Colonial twang.
“Mr. Bryce, would you care to explain.”
Bryce stood. Unlike the others, he had tanned, weathered skin, and his blue eyes were hidden behind a permanent squint. His hands were large, with swollen knuckles. He was someone who’d worked to obtain his wealth, toiled in ways the bankers could never understand.
“I’ve been chosen to represent South Africa’s mining concerns here,” Bryce said. “Mr. Volkmann told me what we were to discuss, so I talked with my people beforehand to give you accurate information. Last year South Africa produced about thirty-four hundred tons of gold at a cost of around two hundred and eighty dollars an ounce. This year we project the same tonnage but at a price of three hundred and eighteen dollars an ounce. Labor costs have risen since the end of apartheid because of the power of the trade unions, and we’re under heavy pressure to sign a new contract that’s even more generous.”
“Don’t give in to them,” the president of Holland’s biggest bank interjected.
Bryce shot him a look. “Hard rock mining isn’t assembly line work. It takes years of training to become proficient. A strike now would cripple us all, and the unions know it. They see gold trading near five hundred an ounce and know the mines aren’t losing money.”
“Can you increase production?” Another at the table asked.
“Our mines are two miles deep now. Every level we sink farther is a geometric increase in cost. It’s like building a skyscraper. To make it taller you can’t simply add a floor to the top. You must first reinforce the foundation and the structure. You must make sure the elevators can reach and that your water and sewer lines can take the additional capacity. Adding a floor to the top, architects say, costs as much and is as difficult as slipping a new floor under an existing building. Every new level we dig in our deepest mines costs two to three times as much to excavate as the one above it. We could get the gold, sure, but the expense far outweighs the profit.”
“Then we need to find alternative sources of bullion. Russia perhaps? Canada? The United States?”
“Not enough capacity to make a dent in the shortfall,” Volkmann answered. “Also, environmental protections in North America add a thirty to forty dollar premium per ounce.”
“What about exploration? We develop new mines, maybe bring order to the chaotic gold mines of Brazil so they can increase production.”
“Even with the latest equipment and management, the veins in Brazil aren’t big enough to fill an armored car in a year,” Bryce replied. “And as for exploration, there are gold reefs out there. We even know where some of them are. It would take years just to cut through the bureaucracy to stake claims, and then you’d need to invest billions of dollars to bring any of them up to the production levels you gentlemen require.”
“Then the solution is simple,” a Frenchman said into the short silence following Bryce’s gloomy assessment. “We must convince the central banks to never call in their reserves. Perhaps we could promise them a greater interest rate to ensure their cooperation.”
“That’s just a temporary fix,” said another New Yorker. “We can’t run from our obligation forever.”
“But if we have time to refill the central banks’ coffers, we can maintain price stability and avoid what happened when my country announced their sale.”
“And when the
“Which is precisely why I said earlier this is a crisis of unprecedented proportions,” Volkmann said. “We have removed the foundation of the capitalist system, and as soon as the public learns of this, it is going to crash down like a card house.”
The Swiss banker paused, scanning the room. He saw that he had their attention, and he could tell by the dour
