April 19, 1979

New Alaskan Gold Rush

A new Alaskan gold rush is on - this time to put the precious metal back into the ground from whence it came.  The State of Alaska has petitioned Congress for permission to invest its public employee pension funds in gold and foreign securities.

It is somewhat unnerving.

Do government money managers know something we don't?

Gold, you will recall, is the traditional hedge against economic collapse.  You and I are urged to buy U.S. savings bonds and treasury notes as nest eggs for the future.  Yet, government itself has lost faith in the dollar and flees to Swiss franks.

Peter Bushe, Alaska's deputy commissioner of revenue, declares, "It's the only way left we know of to protect beneficiaries of our public pension plans against continuing inflation."

Legislation awaiting a hearing by the House Finance Committee would allow the state's $520 million of retirement funds to be invested in gold bullion, certificates of deposit in foreign banks and in real estate.

Alaska's pension funds currently are invested in U.S. mortgages, bonds, money-market securities and common stocks for an average return of about eight percent.

"These traditional outlets simply can't maintain the purchasing power of the pensioner's dollars," says Michael Riley, state investment officer.

If this sounds familiar it is because many Americans have been saying the same thing for years.

The federal government has taken to itself the monopoly of creating money from paper.  The competition with gold coins was abolished by President Franklin Roosevelt back in 1933.

True, Congress restored to Americans the privilege of owning gold bullion four years ago.  Yet the gold standard of money measurement remains a nostalgic memory.

In the old days, a U.S. citizen could take his gold to the Treasury and get stable currency.  He also could take his dollars back to the Treasury and get gold.

It was a wonderfully simple and efficient monetary system.  Gold was - is - a valuable commodity in and of itself.  Swiss, Turks, and Japanese readily accepted gold but sniffed warily at printers' ink.

When times were good, and dollars in short supply, an American could turn in his coins or old rings and buy dollars from the government.

When the citizen stopped bringing in gold, the government stopped printing money and the economy shortly regained balance.

Tinkering with this free market process brought on the Great Depression, followed by today's runaway inflation.  Imposition of more than 200 protectionist tariffs in the 20s triggered collapse of world trade.  Abandonment of the gold standard in favor of printing press money bound us to an inflationary rocket.

Congress finally has reawakened to the merit of gold as an economic regulator, but still hasn't found the courage to mint some old-fashioned gold coins.  The South African Krugerrand - consisting of exactly one ounce pure gold - circulates widely in the U.S. as a coin substitute.

Our world trading partners - not burdened with the political necessity of courting special interest spenders - disdain America's funny money.  They take our devalued dollars and trade them quickly for gold.  Consequently gold has climbed in value to $231 an ounce, and the U.S. dollar has cheapened on the world market to a record low.

President Jimmy Carter and Treasury Secretary Michael Blumenthal are attempting to cope with monetary reality by some ancient techniques.  Each month a million and a half ounces of gold are taken out of the vaults at Fort Knox and auctioned off to the highest bidders.

In addition, our government mops up unwanted dollars by exchanging them for bonds that guarantee a fair return.

These moves quench gold fever for that short period which the printing presses require to churn out more cheap dollars.  It is a treadmill that fools no one but American consumers.

If Alaska's gold fever were an isolated germ we might dismiss it as economic hypochondria.  However, the City of New York is another recent example of government's distrust of the very conditions it forces on you and me.

When the Big Apple had spent itself in bankruptcy, and had to borrow money to stay afloat, it appealed to its own teachers, subway workers and trash haulers.  The various public pension funds had enormous hoards of cash.

Public employees stoutly resisted such "unsafe" investments as New York municipal bonds.  They had to be forced by Congress to invest one-third of their pension savings in their own welfare.  Taxpayers in the rest of the country furnished most of the bail-out.

Under these circumstances, our government can not chide us for demanding Propositions 13, balanced budgets, and tax cuts.  The $18.75 we invested in a Savings Bond 10 years ago and yields $25 at maturity has lost $1.50 in purchasing power.

Gold does not earn one cent of interest.  But it maintains its purchasing power at par.  Those who trust the government promise that is printed on a dollar bill pay a premium for their gullibility.

The gold bugs, who trust only the metal they bury in the ground - whether a Swiss bank vault or an old mayonnaise jar in the back yard - are the only ones who survive catastrophe.

We have got to hold the feet of government spenders to the same fire that scorches our bunions.

If monetary stability inherent in gold is good for Alaska's public employees, it is good also for the nation's private taxpayers.

Author: Lindsey Williams