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George Osborne’s failure to buy gold cost up to £4.5bn

John Rentoul

gold 300x264 George Osbornes failure to buy gold cost up to £4.5bnEvery time the gold price hits a new high, some foolish Conservative gets out the plastic recorder and plays the same old tune: Gordon Brown lost the taxpayer billions by selling the national reserves of gold in 1999-2002.

The Tory press office did it again today:

Gold hit another record high today of $1,826: Labour’s decision to sell off the nation’s gold in 1999 at a 20 year low has cost £12 billion.

This is the same figure as the last time gold hit a record price a few weeks ago, but the point is that it is nonsense.

And just because Gordon Brown made the decision does not necessarily mean it was wrong.

It is not the job of Government to gamble on commodity prices on behalf of the taxpayer, and it is simply unfortunate that the Treasury advised Brown thus at a time of what turned out to be low gold prices.

The Tories ought to be embarrassed that the gold price has continued to rise since the election last year. At a rough guess I thought £2bn of the £12bn “loss” that they cite occurred while George Osborne was Chancellor - Thomas Penny of Bloomberg thinks it is more like £4.5bn.

The corollary of their argument is that Osborne should have bought the gold back in May 2010 – it need not have cost him anything because he could merely have speculated in the gold futures market. If the Conservatives knew that the gold price was going to go up, the logic of their attack on Labour is that they should have ensured that the taxpayer benefited.

Also, Francis Maude, shadow chancellor in 1999, said nothing about the sale of gold in the House of Commons at the time, and I cannot find anything he said about it before it took place. After the gold sales started, and the gold price fell, he told journalists that he was opposed to it.

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  • mactheanti

    Gordon Brown actually reduced John Major’s debt interest payments to less than 5% of the total government spending. Not quite the spendthrift which you are trying to lead us to believe
    In Gordon Brown’s first budget, debt interest payments made up over 9% of total government spending. To be exact, debt interest was 30% higher as a portion of total government spending in 1998 than it is today – FACT

    This country’s borrowing at low rates is not down to the George Osborne’s austerity measures, we actually had a triple A rating before he became chancellor and we actually maintained that triple A rating all through the great global financial recession and near banking collapse. The only time this country’s triple A rating has been threatened was a couple of months back while under the present government. Further, if Osborne does not get a grip on this economy and fast, then the likelihood is that we will lose that rating. Are you aware that growth has stalled? Take a look at Q4..Q1 and Q2. Take a look at the construction industry (it’s in recession) take a look at manufacturing industry (now teetering on the edge of recession). Alarming when we have been told by Osborne that our recovery is dependent on being manufacturing led.

    You should stop worrying about gold reserves, they were never meant to be sold at profit or loss, if they are then we must ask what Osborne thinks he is doing by not selling at the current price, because let me tell you this, over the next few months the gold bubble is going to burst, what then? If you think it is such a big deal to be selling gold at the right price, what happens when we actually lose as a result of Osborne’s inadequate grasp on economics? Instead of worrying about gold reserves that are an anathema anyway, why not lobby the chancellor to order H M Revenue & Customs  pursue the names of 500,000 people in this
    country who have offshore bank accounts and go after them for their unpaid tax, it runs into hundreds of billions of pounds. Or maybe ask George Osborne why just about every other country condemns short selling and naked short selling and he refuses to? Could it have anything to do with the fact that the £42 MILLION donated to Tory coffers comes from City fat cats, hedge funds (the Tories profit out our recessional misery) City bankers etc?

    Naked short selling and short selling will harm this country far more than selling gold off at a lower price, it directly impinges on our economy to profit greedy hedge funds who sell things that do not actually exist. (The Tories are very good at that phenomena, look what they have managed to sell you)

    Gordon Brown made major changes to the system of economic and financial management, increased the country’s investment in health and education, reduced the budget deficit, and resisted pressures to join the European Monetary Union. Subsequently, as Prime Minister, he took the lead in the international response to the financial crash of 2008 and managed the United Kingdom’s recovery from the recession of 2009.When he became Chancellor of the Exchequer in 1997, he introduced major changes to the conduct of the country’s monetary and fiscal policies. His monetary policy was targeted directly upon the control of inflation, the stated purpose of his fiscal policy was the maintenance of stability, and his public expenditure plans included major increases in spending on health and education – without increasing his predecessor’s budget deficit.Now you may ignorantly and completely without facts refer to this as “madcap spending”, but you are completely wrong. Perhaps if you retrieved your head from the sand and stopped believing Conservative party website rhetoric, you may actually learn something.

    If the country was not in such an appalling state in 1997, with 4 million (at least) unemployed the NHS near terminal, schools falling to pieces and severe shortage of nurses, doctors, teachers and police and crime doubled, it could be argued that Brown would not have had to spend the billions labour spent in improving this country and our public services, which they in fact did – vastly.

  • rjj149

    In many knowledgeable peoples’ opinion, gold is not in a bubble, it is representative of complete failure of first world nations to deal with their debt crisis. IMHO, $2000 per ounce will be small potatoes and by end of year. Some gold bugs are forecasting an eventual $5000 an ounce.
    Adjusted for inflation the 1980’s price would be over $3000 per ounce and today there are many more fiscal problems than there was then.

  • humourme

    Part of the reason why banks had to be bailed out was the lack of transparency in their exposure to risks and to each other – in late 2008 almost all forms of credit including trade credit dried up as banks sought to reduce their exposure to each other. Without trade credit firms cannot make shipments. It was disastrous for the real economy.

    Secondly, banking is a business based on confidence. Because banks lend long and have short term liabilities, they are always at risk of liquidity crises – banks take demand deposits (have your money back at any time) and lend to businesses for say 3 years, they cannot repay all depositors immediately. Central banks as lenders of last resort can prevent liquidity crises, but the odds of a systemic loss of confidence was very large. Even when banks are insolvent and needed to be wound up, most jurisdictions didnt (and still dont) have proper procedures for an orderly transfer of business and assets and an apportioning of losses.

    Thirdly governments have chosen to treat banks as special – due to their role in credit creation. This led to deposit insurance and implicit guarantees. Whether they should have been allowed to do this is open to debate. The banks took advantage of this to gamble with their deposits.

    Some actions have been taken to resolve these issues. Transparency is better for some major issues such as some forms of derivatives. Banks have been forced to increase their equity levels and there are plans for more capital raising. Government have been pruning their guarantees. In the UK there are supposedly going to be rules that allow for an orderly bank wind up. (I’ll believe that when I see it.) Prop trading has been reined in.

    There is great deal more to do and I’m not happy about the direction of some the ideas (too pro-cyclical or just ill defined). I worry about the banks holdings of government debt (treated since BIS I as requiring no capital reserves). Will we have to bail out the banks again? Possibly. Should we? I think they remain too central to proper economic functioning to avoid a bailout. We cannot return to narrow banking (google Laurence Kotlikoff for details), but the status quo isnt great either.

  • Expatnhappy

    Well the thing is the Chancellor and indeed Treasury officials have their competence judged by the decisions they make and the advice they give. The only conceivable reason for selling off so much gold by G Brown was because he was foolish enough to accept the Treasury’s advice that it was somehow in the National Interest for this to be done: because the gold was ceasing to be a store of value, the alternative of foreign currency holdings was in some way superior etc. The decision was a very bad one and the advice he was given was utterly wrong. He has to take responsibility for his actions just as the mandarins must take responsibility for their bad advice.

  • http://twitter.com/harrygjackson harry g jackson

    he didn’t spend the money from selling the gold, it’s still in the treasury reserves. he sold gold and bought foreign currencies and sovereign bonds. this has nothing to do with the deficit. and he didn’t print money to pay the debt, quantitative easing doesn’t work that way.

    i’m sorry to say that your understanding of these issues is extremely poor.


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