Claudio Grass interviews Professor Antal E. Fekete

GLOBAL GOLD: “Prof. Fekete, it is a pleasure to have this opportunity to talk to you. You are a fierce critic of the current monetary system and a strong proponent of the gold standard, particularly the variety that combines with the Real Bills Doctrine (RBD) of Adam Smith which we shall get into later. We are very much interested to learn how this interest of yours started in the first place and what led you to believe in gold and Austrian Economics in general.”


Antal FeketeProfessor Antal E. Fekete (see further below for biographical details)

Photo credit: verlagjohannesmuller


AF: “I have been a lifelong student of gold money which led me to Austrian economics. However, I find that the writings by Austrian authors such as Hayek and Mises on gold somehow deviated from Carl Menger’s basic idea of marketability of goods in favor of the Quantity Theory of Money. For this reason, I find they did not address the nexus between gold and interest. I take pride in pioneering a new departure to develop a theory of interest based on the idea of marketability of goods (also known as hoardability) that puts this nexus right into the center. My own view is that gold and silver are the only monetary metals for reasons having to do with the fact that they are the most hoardable substances in existence. I also believe that if Menger had lived longer, he himself would have developed his theory of interest along the lines of indirect exchange of income and wealth that are an improved version of hoarding and dishoarding (direct exchange). As a matter of fact, here we are talking about the dual theory of the evolution of direct exchange (barter) into indirect exchange of goods and services (monetary economy). Essentially what we see is the direct conversion of income into wealth (and vice versa) evolving into indirect conversion. More specifically, direct conversion of income into wealth (hoarding) and wealth into income (dishoarding) is evolving into indirect conversion of income into wealth (selling bonds) and wealth into income (buying bonds).”

GLOBAL GOLD: “In an article you published last year you accused the United States of fraudulently defaulting on its international obligations payable in gold. Could you tell us more about this story?”

AF: “There were two instances of default, one in 1933 under a Democratic president and again one in 1971 under a Republican president. Both were fraudulent in the sense that the U.S. Treasury did possess the gold in question that should have been paid out to meet claims. In particular, in 1933 the U.S. defaulted on its gold bonds. As a result, people were denied the facility of converting income into wealth and vice versa through buying and selling gold bonds. They still are.”

GLOBAL GOLD: “Let’s talk about this in more detail after discussing the polarity among U.S. policymakers when it comes to the gold standard. I find this quite interesting. In the 1980’s you joined the staff of California Congressman William E. Dannemeyer in Washington, D.C., to work on a plan proposing monetary and fiscal reform to the Administration of President George Bush Sr. This involved the refinancing of the entire debt of the federal government through issuing gold bonds (i. e., bonds paying both principal and interest in gold). Could you simplify for us how this would function? Do you believe that this proposal had any chance of ever being accepted?”

AF: “A self-respecting, upright government should not issue irredeemable debt, which essentially is the debt that is only redeemable in irredeemable currency. The mechanism involved in issuing irredeemable debt is check kiting: it is a form of fraud and therefore a crime dealt with by the Criminal Code. It is a conspiracy between the U.S. Treasury and the Federal Reserve to defraud the general public. It will take a very long time for the U.S. to live down the infamy of robbing the rest of the world of its savings. Governments should not issue debt unless they can clearly see the revenues with which the debt can be retired. Contrary to some views, the gold standard is not designed to stabilize prices, which is neither possible nor desirable. It is designed to stabilize the interest rate structure which it has done admirably well over the one hundred year period between 1815 and 1913.”


US_$20_1905_Gold_CertificateA US gold certificate of yore


“When the interest rate is changing capriciously, bond values change arbitrarily, thereby rewarding some without merit and penalizing others unjustly. It invites bond speculation which will feed upon itself. Gold bond financing of the public debt is not merely a matter of honor. It is also a matter of sound economics to avoid the vicious spiral of fast breeding debt.”

“In presenting the gold bond plan, Mr. Dannemeyer led a delegation of ten Republican congressmen to the Oval Office in the White House in October, 1989. Present at the meeting also was the Secretary of the Treasury. Mr. Bush listened to the presentation attentively and then turned to his Treasury Secretary suggesting that the staff of Congressman Dannemeyer and the Treasury staff should get together to iron out possible wrinkles in the plan.”


DannemeyerCogressman William E. Dannemeyer (R/California), who led the gold bond delegation in 1989

Screenshot via C-SPAN


“At that time, yes, we had high hopes that the Treasury was acting in good faith and the plan would get a fair hearing in academic circles and in the financial press, particularly after it became widely known that they are studying the proposal at the Treasury. Of course, we had no clue that the Treasury had a “better” idea: to conspire with the Federal Reserve to hatch Q.E.”

“A date for the meeting between the staffers was duly set, a day before which Mr. Dannemeyer’s office got a call from the Treasury advising that ”because of other urgent business” our meeting had to be rescheduled. A new date was agreed upon, a day before which another call from the Treasury came and we had to reschedule once again. This was repeated a few more times. I saw that the Treasury had no intention to take Mr. Dannemeyer’s proposal seriously in spite of the President’s wishes. It is not known whether President George Bush ever realized that he was double-crossed by his Treasury Secretary. I decided to pack my bags and return to my university to resume my teaching career. I did what I could. I could not knock down a brick wall with bare hands. But there is an interesting twist to end of this story.”

GLOBAL GOLD: “We are coming to that. Back in 1989 Alan Greenspan, the Chairman of the Federal Reserve Board went on a mission to Moscow to suggest uncannily to the Soviet leadership to refinance their foreign debt by issuing gold bonds to prevent the imminent collapse of the Soviet economy. Do you believe that if Greenspan’s proposal had been accepted, it would in fact have prevented the Soviet Union from collapsing two years later in 1991?”

AF: “It is not known whether Greenspan was aware of Mr. Dannemeyer’s gold bond initiative. Be that as it may, he is a smart man and certainly very knowledgeable about gold. It is quite possible that it has been decided at the highest level that the economic collapse of the Soviet Union was not in the interest of the U.S., and Greenspan fully believed that gold bond financing of new Soviet credit could be used to prevent that from happening. It is characteristic of the man’s duplicity that he did not go public with his message saying: “what is sauce for the goose must also be sauce for the gander”.

“I think that if the Soviet Union had issued gold bonds in 1989, it would have changed the course of history. Instead, the financial markets had to do without gold bonds for 56 years between 1933 and 1989 and there was a great pent-up demand for gold bonds from insurance companies, pension funds and other financial institutions. Gold is the ultimate extinguisher of debt and, as such, it has no substitute. In particular, no irredeemable currency can ever measure up to gold as the ultimate extinguisher of debt.”


GreenboinkAlan Greenspan: Mission to Moscow?

Photo credit: Federal Reserve


“Other countries could have successfully issued gold bonds to take advantage of the latent demand for them. But the U.S. Treasury retained veto power over such plans. If put into effect, they would have created discomfort in Washington during the time frame between 1933 and 1971 due to the breach of faith with creditors.”

“If a Soviet gold bond issue could have been successfully floated, and the Soviet authorities would have let it ride on its own success without default, then it is in my opinion, that this extension of perestroika to economics would have saved the skin of the “the Evil Empire” and the example thus set would have saved the world economy from the disaster resulting from the collapse of the international monetary system.”

GLOBAL GOLD: “Could we argue the same for the global financial crisis? Could we have avoided the 2007/2008 financial turmoil, or was the financial system bound to go through that paralyzing crisis regardless of what the politicians could or would do?”

AF: “The problem in 2007 was that by then it had dawned on the world that the American banking system was insolvent. This was partly a consequence of the deliberate relaxation of capital ratios that banks were supposed maintain. The banks understated their liabilities and overstated their assets in their balance sheets by wide margins. The various derivatives representing insurance against the collapse of bond values picked up the sorry state of the American banking system and the cost of insurance spiked. In fact, the spike signaled the onset of the great financial crisis.”


BKX-2BKX (bank index) weekly, from January 2006 to April 2009 – click to enlarge.


GLOBAL GOLD: “Back in 2011 you published an open letter to Texas Congressman Dr. Ron Paul with the title: DON’T LET BERNANKE WRECK THE AMERICAN ECONOMY WITH HIS Q.E. EXPERIMENT! Some analysts and economists argue that the economy has improved based on recently released data thanks to the successful implementation of Q.E. What would you say to them?”

AF: “The serial Q.E.’s made the condition of the economy worse, not better. Bond speculators got a powerful backwind to help their effort to bid up bond prices. Interest rates were further suppressed, and more capital was destroyed. The crisis has deepened further. Q.E. helped them to front run the Fed in the bond-buying race, and so to reap risk-free profits on their bond-purchases.”

GLOBAL GOLD: “You made some interesting suggestions in an article a few years back on European currencies. Europe is sinking in a massive debt crisis involving Greece but also several other more important countries. In your opinion, is there a way out from the quagmire?”

AF: “I am a firm believer that there is. All the banks in Europe have to be recapitalized on a gold basis. Bank capital in the form of irredeemable bonds is quicksand on which it is impossible to build a sound financial system.”

GLOBAL GOLD: “On the other end of the world, Russia, China, and India are amassing great amounts of physical gold. Do you think that they are heading towards a gold standard?”

AF: “No, I don’t think so. The gold standard to them is the same as holy water is to the devil. The governments of these counties are out and out socialist. Socialists do not believe in the gold standard because a true gold standard imposes the obligation on banks and governments to meet their liabilities by paying out gold. The gold standard is a thoroughly decentralized system, the very antithesis of central planning.”

“It delegates power to ordinary people who can successfully veto wasteful government welfare/warfare spending, as well as any unjustified relaxation of bank credit across the board by withdrawing gold coins against bank notes and bank deposits. Russia, China and India use gold for propaganda purposes that have nothing to do with sound money. The hints they drop about gold are disingenuous, and therefore we should question their motivation to accumulate more gold. It’s as Virgil said: “Timeo Danaos et dona ferentes” or ‘beware of the Greeks bearing gifts’”


Trojan_horse_2Ante portas: the most famous of Greek gifts is received by the unsuspecting citizens of Troy

Image via Wikimedia Commons


GLOBAL GOLD: “What is the connection between the gold standard and Adam Smith’s Real Bills Doctrine? Could you please clarify the difference between the two for our readers? Which of the two would be more important to rehabilitate in the present monetary system? Or, perhaps, is it already too late?”

AF: “As a sidenote, this a bit of background about Adam Smith’s Real Bills Doctrine: Adam Smith argues that the money market acts as its own self-liquidating system and clearing house. Bank notes are exchanged for goods, goods in process or services, and accordingly represent their real value. Credit is not part of this transaction, as real bills become the means of payment for the trade taking place. Accordingly, there cannot be a situation of excess money supply or inflated nominal values. The market will clear itself as the excess money returns to the issuer.”

“Adam Smith’s RBD can be restated by saying that it makes the bill market the clearing house of the gold standard. The gold standard is not viable without a clearing house where bills of exchange representing various stages of production and distribution of semi-finished goods on the way to the ultimate gold paying consumer are discounted and cleared. No rehabilitation of the gold standard is possible without prior rehabilitation of real bills. I don’t think it is too late to rehabilitate the gold standard, provided that the RBD is rehabilitated first.”

GLOBAL GOLD: “You once mentioned that the gold price is headed for extinction. Someday, perhaps fairly soon, no one will quote you an asked price for gold. No amount of irredeemable paper dollars will buy a gram of gold because no seller will part with it unless he can clearly see how he could replenish his holdings. Could you elaborate on this?”

AF: “The gold futures markets routinely quote gold for delivery in the nearby future at prices that are at a premium to prices for on the spot delivery. The technical term for this condition of the market is contango, the exact opposite of backwardation under which spot gold sells at a premium price to future gold. The economic law behind this fact is specific to gold. It is fundamental for understanding the dynamics of gold trading. It signifies the scarcity of spot gold relative to gold futures. No one will ever sell gold spot without clearly seeing how he will be able to replenish his depleted inventory. The spread between the price of gold futures for nearby delivery and the price for spot gold delivery is called the gold basis. The gold basis is a fundamental indicator, which is even more important than the gold price itself, because, unlike the latter, it is not falsifiable.”


huvishka11Gold: money since ancient times (without any authority decreeing so, it became money all over the civilized world). The coin above depicts emperor Huvishka of the Kushan Empire (approx. AD 152-192). The obverse (rhs) shows Pharro, resp. Hermes/Mercury, the messenger of the gods.

Photo via


GLOBAL GOLD: “You were the first to call attention to the historic fact that all gold future markets were inexorably marching towards permanent gold backwardation. Why is permanent gold backwardation such an important, not to say frightening, event? Are you suggesting that this event, in and of itself, is more important than the fraudulent default of the U. S. Treasury in 1933 and again in 1971?”

AF: “Yes, I am suggesting exactly that. The question is whether or not holders of the U.S. Treasury debt have a way to extract themselves from their losing position and, if they can, to what extent they can do so. When the gold basis goes and stays negative, it will be a globally significant event, heralding the advent of permanent gold backwardation. The advent of permanent gold backwardation is still in the future, but inevitable.”

“I wish to note here that the basis for all agricultural commodities behave cyclically. For example, the basis for wheat reaches its low (possibly negative) just before harvest. It indicates the shortage of wheat that can be immediately delivered. It reaches its maximum representing full carrying charge after the wheat harvest is brought in and put in storage. Thereafter, the wheat basis declines as stores are brought down during the remainder of the crop year.”

“The behavior of the basis for agricultural commodities is in marked contrast with that of the gold basis. The gold basis is declining from its maximum that is equal to the full carrying charge. This means that that virtually all the gold above ground is available for delivery. That situation occurred back in 1971 when gold futures trading started on the Winnipeg Commodity Exchange in Canada. After that, the gold basis exhibited a steady decline until 2000 when it reached zero for the first time ever. This was a watershed-event in economic history. All readily deliverable gold was gone. Academia has completely ignored the saga of the gold basis. In particular, it failed to study the question whether the gold basis could go and stay negative, and if so, what the consequences would be.”


Gold futuresA snapshot of cash gold and gold futures in overnight trading in Asia on 21 December 2015 – nearby futures are trading very closely together, and the nearest three are at a slight discount to spot – click to enlarge.


“As it turns out, since 2000 the gold basis has exhibited a pattern of sporadically going negative. But so far it has always bounced back. Similar warning signals have also been flashing, such as the negative gold lease rate. Technically this is not yet permanent gold backwardation, and it is a matter of debate how the situation will evolve from here on. Points that bear watching are: 1. The flight of gold from the Occident to the Orient, thereby reversing the opposite trend that had prevailed over several centuries; and 2. The increasing scarcity of cash gold in the markets, especially in the approved warehouses of COMEX, and the persistent premium prices available to holders of mature gold futures contracts upon delivery. This I consider as bribe money as it would persuade holders of gold certificates to cease from collecting their gold.”


Professor Antal E. Fekete is a renowned mathematician and monetary scientist with many ideas and contributions in various fields. He is an expert on the central bank bullion sales and hedging and their effects on the gold price and the gold mining industry. With his essay ”Wither Gold?” he won the first prize in the international currency essay contest in 1996, sponsored by Bank Lips, which was founded by the renowned Swiss Banker, Ferdinand Lips. Lips was an expert on gold and gold markets and therefore known as the “Pope of Gold”. One of his famous publications is his book ”Gold Wars: The Battle Against Sound Money As Seen From A Swiss Perspective”. Today Prof. Fekete devotes his time to writing and lecturing on fiscal and monetary reform with special regard to the role of gold and silver in the monetary system.


This interview has been conducted by Claudio Grass, and appeared in the newest Global Gold Outlook Report. Subscribe for future updates on


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One Response to “Professor Fekete About Gold And The Debt Society”

  • therooster:

    For those who might be interested in a little Christmas cheer on the basis of being a proponent of gold in the monetary system, that moment has ALREADY arrived. I think God has a subtle surprise that may have been a little unexpected. Mysterious ways, as usual.

    Each and every monetary step up to and including the peg severance of $35/oz in 1971 has led us to the eventual capability of using gold properly, such that gold based currency has debt-free qualities and fully scalable and expandable liquidity for the sake of ever expanding demand in order to grease the wheels of trade.
    The focus was to be able to use gold weight as the unit of account, where the weight had a trade value that was scalable as per market needs.

    Gold could never be properly monetized with fully scalable liquidity on the back of requiring ever expanding gold supplies to satisfy the need for liquidity. We’d simply run low and run out. Like fish existing in water, it’s easy to overlook your own environment. In the monetary gold context, this challenge amounts to the history of fixed and pegged value for bullion such that liquidity was directly tied to weight on hand and weight, alone. This can have the casual observer draw some inaccurate conclusions about bullion and its monetary liquidity.

    Special note: Gold’s monetary liquidity is the PRODUCT of (weight x USD/oz) , not just tied to weight on its own. If the price (measure of value) is fixed, however , the liquidity of a single ounce of gold would also be fixed. What was required was a contrast between the price model and the medium of exchange. Enter the free floating USD in 1971.

    The free floating dollar would make for a very nice pricing model as a measure of value for widget pricing. This is the value ! The paradox was how to develop this value without using the same numerical value as a fiat currency that specifically acts as a medium of exchange, with debt attached. It’s as if the dollar was a segment of rope and that segment of rope has two ends, one being the measure of value, while the other is the medium of exchange (debt). Guess what ? You can’t ! Market traction is required.

    What could be done, however, was to extend the use of that price model by tying on a commodity based medium of exchange such that it used the same USD price model and pricing in USD’s. Comparative price values (of the fiat creation) could then be made in order to trade a weight of gold for a new suit priced in a fiat currency. No debt in the transaction. The trade is a debt-free item with another debt-free item. Consideration for the instantaneous use of the measure (fiat) can be fee based (transactional) where the wealth has already been created. No new credit or lingering credit is involved in the actual trade of the gold for the suit.

    The “necessary evil” of the dollar’s exclusive tenure as a medium of exchange(debt by fiat) is but a stop gap measure in monetary history. One thing leads to another.

    Support debt-free liquidity which can only come from the market in order to make a relatively smooth transition to a new monetary paradigm . No crashes please ! We get to choose between plan A and Plan B

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