GORDON BROWN CAN RESCUE ICELAND

We are all aware no doubt of the predicament that Iceland finds itself in, in relation to its failed banks and the demands of the UK and the Netherlands for Iceland to pay around $5 billion to compensate for the loss incurred by depositors.

It seems to me that in the present situation, Gordon Brown is being depicted as a bully and perhaps rightly so. Let us not forget that he himself owes England far more than Iceland. If you do not believe me keep reading.

More importantly though he might be able to repeat one of his past mistakes for a good cause and in the process earn some brownie points (no pun intended).

BACKGROUND

On May 7^th, 1999 Gordon Brown without consulting the Bank of England and without even debating the timing of the sale, decided to sell off a sizeable portion of England’s gold holdings. To be precise, the amount sold was 395 tonnes over a period of 35 months beginning on July 6, 1999 and ending on March 5, 2002. A total of 17 auctions netted an average price of $274.92 per oz. That equates to $3.49 billion.

The price today is let’s say, $1,100 per oz, which would have yielded the princely sum of $13.96 billion. For those without a calculator, the loss amounts to $10.47 billion. Even allowing for some interest on the original $3.49 billion at 4% compounding, the amount lost would still have been around $9 billion.

So there you have it in a nutshell. Gordon Brown is in my view being a tad uncharitable to the Icelanders considering his own past failings. Clearly he lost a great deal more on behalf of his nation than what those poor Icelanders are being pressed to cough up.

There are of course three interpretations and approaches that need to be considered here:

INTERPRETATIONS AND APPROACHES

1.   Gordon Brown feels that might is right and that Iceland can be forced to pay. He is seen as the defender of Britain’s purse.

2.    A different approach by Gordon Brown would be to support the entry of Iceland into the EU and also support the IMF lending funds to Iceland. By maximizing Iceland’s future economic potential might he not make it that much easier for them to pay without holding the proverbial knife to the throat? In other words, try the carrot rather than the stick approach.

3.          The third view is that Gordon Brown may be doing the Icelanders a favour by stopping their entry into the EU and getting IMF aid. By some accounts, the prospects of the largely dysfunctional EU do not sound very favourable with many predicting implosion given its rag tag membership of underperforming and unstable nations. As for IMF assistance, there has been many a nation that found its cures worse than the disease.

                   The reality is that Europe as an entity with one currency and parliament is in danger of failing. Calling everyone a European does not create workable cohesion. Imagine an extended family all deciding to live under one roof because they share the same great, great grandparents. Sounds very cosy, but the reality is that in that household you will have aristocrats, middle class, unemployed and peasants all trying to co-exist. The result is something that would either make for a comedy scene or a crime scene. This is the reality of the European Community.

THINKING OUTSIDE THE BOX

There is of course one more option. May I suggest to Gordon Brown that he try repeating his 1999 trick of selling the nation’s remaining gold. Specifically I recommend he sell the remaining gold holdings of Britain of around 310 tonnes to Iceland at the price of $1,100 per oz.  This comes to an amount of $10.96 billion. As Iceland does not have cash, Britain would keep it in its vault as security.

Now follow the maths:

Value of gold in 10 years (assume a mere doubling)   $ 21.92 billion

Less: Amount owing on gold purchased                      $(10.96 billion)

Less: Amount owing for bank failures                                $  (5.00 billion)

Balance left to Iceland                                                         $   5.96 billion

Less: Interest debited at 4% p.a. on $15.96 billion      $  (6.38 billion) (for 10 years)

Balance payable by Iceland                                              $(420 million)

If the above seems far-fetched then you just have to remember the massive amounts of gold that have been leased to bullion banks by Central Banks for pitiful amounts of interest. No government complains about those deals nor do they complain about the fact that the bullion banks probably have not and cannot return the gold.

The beauty of the above proposal is that England still gets to keep the gold, Iceland only ends up paying $420 million in interest over 10 years instead of $5 billion and Gordon Brown is given Iceland’s highest honour and possibly a Nobel Prize for Economics or Peace. On top of that, Gordon Brown will be earning interest on his pile of gold that he otherwise would not have been able to earn.

If the Bank of England charged leasing rates on the gold and also charged the same rate on the $5 billion as it does to its banks then Iceland could probably even make a profit.

Most importantly, what would be the result if gold actually tripled over the next 10 years?

The point I am trying to make is that preferential deals should not be just for bullion banks and banks that are in trouble. If the international community wants to help, they can, without becoming barbarians at the door. But as always this is probably about bringing another nation under the control of the international vampire squids.

Now I know what you are thinking…..”What if gold goes down?” 

My answer is simple. The devices used to date by the governments and central banks of the world to heal the financial crisis, ALL amount to thinly disguised schemes whereby money is printed and lent out at low interest rates to preferred “clients”. This is all they are willing to do and will continue to do it until confidence collapses. As paper currencies are also based on confidence they too will collapse. Is there any doubt where the price of gold is going?

Allow me one more idea. If the US could “lend” over $170 billion to AIG to save the collective butts and bonuses of the banking scam artists, then surely it can come to the rescue of an entire nation with a paltry $5 billion.

If Mr Brown does not like the idea of a gold lease it simply means that he has seen the error of his decision back in 1999 and I do not blame him. It also means that he expects the price of gold to rocket in the next 10 years. Repentance is the virtue of every great man. Foresight is to be envied.

The bottom line is that Gordon Brown needs to be high minded and not high handed.

Over to you now Mr Brown.

Peter Souleles

Sydney Australia.