On Monday, My wife and I toured the gold vault in the New York Federal Reserve Building in New York City.
Was this because my book on hyperinflation makes me a VIP or because my wife works for the San Francisco Fed? No. It’s open to the public, although it is hard to get a spot in a tour. You have to try to make a reservation online on a certain date and time and the slots “sell out” in seconds.
The biggest gold cache there is
The U.S. government stores its gold famously at Fort Knox, and less famously at West Point. When I was a cadet at West Point, it was just the government’s silver repository.
So how could there be more at the New York Fed? The gold in the basement of the New York Fed does not belong to the U.S.. It is there as a free safe-keeping service to foreign governments.
Think about it. The various countries of western and eastern Europe were “under new management” a couple of times during the 20th century as a result of invasion by Germany and the Soviet Union. The invaders, other than the non-Soviet allies liberating Nazi-held areas, steal the gold of the country they invade.
Russia continues to threaten its neighbors and took over Crimea and is agitating in Ukraine. Europe is not a safe place to store gold. How about Africa or Asia? Surely you jest. South America? There is no country in that continent that has both a strong enough military and police to defend gold and lack of corruption to not steal it themselves.
Australia and New Zealand and honest enough, but their populations and militaries are relatively weak compared to criminal regimes like China.
Why New York City?
But why New York City? That’s sort of a high-crime area and congested and has lots of nearby buildings from which criminals might tunnel into the Fed vault. There is plenty of noise and vibration that might cover the sound of digging. When we were in the vault you could hear the subway trains going by—above us mind you.
Why not, say Cheyenne Mountain in Colorado where the NORAD headquarters was? Probably because New York City was the first banking center in the U.S. and they were used to handling money and gold and had safes and it would have been very expensive to move gold al the way to Colorado. If they were starting over now, I expect the gold would be in Cheyenne Mountain or someplace like it.
The vault is 80 feet below street level, not to mention 50 feet below sea level and the sea—The East River—is only 1,800 feet away. The walls and ceiling of the vault are steel-reinforced concrete—built in the 1920s. But they did not build a floor. It is bedrock, albeit ground down to a flat surface flat surface and smoothed over to shiny surface.
Photos of what we saw
We were not allowed to take photos in the vault, but you can see what we saw in photos at http://www.newyorkfed.org/aboutthefed/goldvault.html. We went through the entrance that is between the large wheels. Once inside we were separated from the work and gold area but we could see them about 10 or 15 feet away. They have 122 compartments that look like jail cells without beds, toilets or sinks. You can see the gold inside but the metal mesh you are looking through does not have big enough holes to remove any of the bars inside. The work area has just two scales: one a big one for weighting multiple bars at the same time and another for weighing one bar at a time. You can see the big one in one of the photos at the above link. Because gold has an extremely high value density, the scales are extremely sensitive to the smallest difference in weight. The smaller one cannot even tolerate any air movement like a hand waving over it while it is weighing.
Is there going to be a Manhattan equivalent of Ocean’s Eleven to steal a bunch of the gold? Wouldn’t make sense. You could steal all the gold you wanted to elsewhere with a lot less trouble. True, there’s more here, but what are you going to do—steal all 6,700 tons of it? And might not your attempts to sell that on Ebay or Craigslist attract attention?
My wife was really excited about going on the tour. I was grateful to be allowed, but underwhelmed. The tour they give at my wife’s Federal Reserve of San Francisco is more interesting. There you go into a secure area where they handle cash. Looking at a pallet containing $43 million in 100-dollar bills is more exciting to me than looking at a stack of gold bars.
Generally, the armored cars you see on the streets are either coming from the regional Fed or going back there. All that cash has to be counted and credited to the appropriate bank’s account. Also cash that is in bad physical shape is removed from circulation and replaced with new bills or coins.
And extremely sophisticated high-speed computers remove from circulation the counterfeit bills. The bank says to the Fed, “Here’s $10 million in cash” and the Fed bays back, “No, it was 9.8 million and $200,000 of counterfeit money.” The bank is given credit for the $9.8 million and the $200,000, they have to write off as a loss.
They also have what I believe is the most comprehensive collection of U.S. currency anywhere at the San Francisco Fed.
Now that I am in the novel-writing business I am starting to see plots. The recent revelation that the Speaker of the House—who is third in line for the presidency in the case of death or incapacitation of the president and VP, does not have to be a member of the House—is one.
The NY Fed gold vault door triggered another. That door, which you are looking at in the photo with the two brass wheels, is a sort of Matryoshka-dolls pair of solid, silo-shaped steel cylinders. The outer cylinder is fixed. It has a rectangular, door-shaped-and-sized hole in it. It weighs 140 tons. The tight-fitting inner cylinder rotates and has a matching rectangular, door-shaped-and-sized hole in it. It weighs 90 tons. When the vault door is open, the holes align. In the photo, they are aligned and you are looking through both holes. The slight curve in the brass strips on the floor is the seam between the inner and outer cylinders. Also, the notches on the horizontal brass strips on the side walls of the door show the demarcation between the inner and outer cylinders.
At close of business each day, they rotate the inner cylinder until the hole in the inner cylinder is facing nothing but the solid steel of the outer cylinder. I don’t know if anyone has ever been trapped in the vault or in the inner cylinder overnight or over the weekend, but that would be rather disturbing mentally. There would be Stygian darkness. Probably, you’re just going to be hungry and thirsty and need to turn part of it into a toilet for the duration, then they take you out.
But if there were some social upheaval like 9/11—the World Trade Center is about 1,500 feet away—or sea water got into the vault area—you are essentially in a similar situation to those trapped way underground in a mine.
They say the vault is both air- and water-tight when the vault is closed. The might mean the trapped person suffocates—especially inside the very confined, inner-door cylinder. One thing is for sure: there will be no self-help escape. There are probably phones in the vault, but not in the door cylinder.
When I was there, you just had the feeling of moving around in windowless parts of an office building—elevator, hallways, desks, storage. But later when I thought about it: 80 feet down, all concrete and steel, 50 feet below sea level and the sea is 1,800 feet away—creepy. Like being in a submerged submarine. If all goes according to plan, fine. If not, you’re dead.
Gold is generally useless and is a lousy hedge against inflation
One might think seeing the world’s biggest gold cache was interesting research for me as an author of a book on hyperinflation. Nah. I wrote an article about the disadvantages of gold as an inflation hedge.
I agree with the American Indian assessment of gold: it’s “the yellow metal that makes the white man go crazy.”
Not this white man, of course I am told I am 1/16th Cherokee so maybe that’s why it doesn’t make me go crazy.