LILA RAJIVA: The Mind-Body Politic
Individuals Not Ideologies
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Eric Janszen On The Bubble In Economic Fallacies
Eric Janszen at iTulip on how the masses never connect an excess of past circuses with a deficit of current bread:
“Ten years from now, when the full impact of the U.S. asset bubbles of 1998 to 2008 are fully felt, the dot com era, when money flowed like oil from a geyser, before the wars and financial crisis, will be remembered as the good old days, the high water mark for American power and influence. Not one in a million Americans will connect the antecedents to financial crisis and excessive government borrowing to the inflation that we will experience in the future. Not our readers, of course.
World Gold Council, Rothschild-backed Fund Buy Stakes In BullionVault
London’s BullionVault, an Agora friend and possible partner/affiliate, and, so far as I know, a very reputable firm has recently announced that the World Gold Council and Augmentum Capital (backed by Jacob Rothschild’s RIT Capital) has bought stakes in it, in return for a 12.5 million P. investment. I must say I’m not too happy about the news and may look into James Turk’s Gold Money as an alternative. The World Gold Council has been an integral part of the gold-suppression scheme that is at the heart of the financialization of the economy from 1970 onward. (Full disclosure: I have an account at BV). (more…)
Gold Reacting To Anxiety, Says ECRI Chief
Lakshman Achuthan, managing director of the influential Economic Cycle Research Institute, has said he’s sure the economy is “rolling over” but can’t definitively call it a recession yet. Today he adds that the elevated price of gold signals anxiety more than inflation concerns. ECRI has a good track record as a trend predictor, from all accounts. On the other hand, it’s also true that gold is hitting new highs and the financial media has to put a good spin on that. Wall Street doesn’t like physical gold, because whenever it dominates the news stories, it undermines the stock and fund selling on which the Street mainly depends. (more…)
Rothschild (Dec. 2008): Buy Bonds, Oil, and Raw Materials
Video 1: An interesting interview by Maria Bartiromo of Sir Evelyn de Rothschild on the financial crisis (December 2008). Here’s a quick break down of his main points: (more…)
John Hussman: Not Concerned About Inflation
“The bottom line is that we can expect real wages to stagnate for several years, as a predictable reflection of slack capacity in the labor market. While credit concerns will be helpful in augmenting the demand for U.S. government liabilities as a default-(food poisoning)-free alternative to other assets, there is a continued prospect for significant price inflation beginning in the second half of this decade. With the ECB surrendering monetary discipline for the sake of short-term expedience, that prospect has become even more hostile.
Barrick Gold Threatens Vancouver Publisher
CBC News in Canada reports that bankster-associated gold miner Barrick Gold is shutting down critical writing on the Canadian mining industry. (Thanks to Chris Cook).
An excerpt:
“The threat of legal action from mining giant Barrick Gold has forced Vancouver-based Talonbooks to postpone publication of a book about the Canadian mining industry.
Publisher Karl Siegler calls it a clear case of “libel chill” by one of Canada’s largest mining companies.
The book, Imperial Canada Inc.: Legal Haven of Choice for the World’s Mining Industries, was to be published in spring 2010, but in February, the publisher and everyone else involved with the book got a threatening letter from Barrick lawyers.
Nina Simone Sings “I Wish I Knew How It Would Feel To Be Free”
The artistic genius of Nina Simone found expression not only in piano playing, singing, and composing (she despised the term ‘jazz’ and always called herself a black classical pianist), but also in passionate activism for civil rights. Simone embodied an individualist and nonconformist spirit that was truly libertarian…. (more…)
Where In The World Is Iraq’s Gold?
A thought occurred to me late at night. Do you remember these stories from the Iraq war?
WASHINGTON (CNN) –For the second time in a week, U.S. troops have discovered what appears to be a cache of gold bars hidden in a truck, which could be worth just less than a quarter of a billion dollars, according to a Pentagon official.
Refuting Kucinich’s Funny Money Platform
Kaj Grussner, a tax-adviser in Finland, has a piece at the Mises blog that responds to Stephen Zarlenga. Zarlenga is the director of the American Monetary Institute and the author of “The Lost Science of Money.” He had previously criticized the Austrian position at Gnostic Media.
The critique is important because Zarlenga’s ideas have been adopted by Dennis Kucinich and they may very well bear fruit in policies (the American Monetary Act) that could make things worse (if you can imagine that). Here’s Grussner:
“Zarlenga criticizes economists for many things. One of these is that economists have taken morality out of the science of economics. He also says that economists have tried to hide this exclusion of morality, because if people were told about this atrocity they would be outraged.
Of course, morality has no place in the science of economics.
[Lila: I see where Grussner is coming from, but actually he's mistaken, mainly because economics isn't a science, but also for other reasons].
Science is, by its very nature, value-free.
[Lila: Actually, this too isn't quite right. Science has a different set of values, but I take his point].
When you try to explain why action A had consequence B, you should examine theory and fact. It is only when you start too advocate certain actions or programs, such as the 100-percent-reserve solution, that morality comes into play. Let us therefore examine the moral aspects of Zarlenga’s monetary reform.
From the very outset, printing dollars out of thin air, declaring them legal tender, and purchasing goods and services with them is tantamount to theft. The printer acquires property without giving anything of real value in return. After all, the money is merely ink on paper with no value of its own except what it derives from the violent force of the government.In addition, it is always those who get the new money first who benefit the most. In this instance, it would be the government. But those who are second in line will benefit too, while the new money still has most of its value. The recipients of the new money can turn around and again acquire something for nothing. The amount that can be acquired diminishes over time, so those who get the money last are the ones who pay for the early recipients’ gains.
Zarlenga explicitly mentions healthcare and education as being areas of government spending, as this would benefit the masses, who otherwise couldn’t afford such services. What he fails to understand is that it isn’t the students and patients who benefit, but the hospitals and universities. It is the medical professionals and academics who are the true recipients of the money. It is to them that the money is paid for the services they provide, and the constant influx of new money into these sectors will of course raise prices significantly over time.
[Lila: All this is true, and, in addition, cheapening will actually strengthen big business, because it is big business that takes on the most debt. This is an act that will win the approval of the underclass that doesn't pay taxes; debtors, who get to see their debts diluted; the governing class and all its clients, who live on public money; and the corporate class that pays taxes, but extracts much more back from the government in the form of subsidies and the use of infrastructure].
Every bout of new money will draw value from the existing amount of money, which means that after the initial theft of property by the government and its preferred interest groups, the debasement of the currency will continue at an ever-increasing rate; the more devalued the dollar gets every year, the more dollars must be printed every year to pay for the same things. For people far away from the printing press, this means that the value of their savings and income is transferred to the money printers and first recipients of the new money, much as it is today.
Another obvious problem with having the government print money is that it creates rent-seeking behavior. With fresh supplies of money coming from the government at an increasing rate, it becomes more and more reasonable for private corporations to lobby for a part of the public-spending cake than to appeal to consumers. In the long run, this means that an ever-increasing part of the private sector will become dependent on the influx of new government money.
From a moral point of view, it makes no difference who counterfeits the money and acquires property for nothing. It is still fraud and theft.
ConclusionThere is no point in making the Austrian case for commodity money here. There are many easily read books that do that. The purpose of this article is to explain that no matter how bad a system is, it can always get worse. Not all reforms are improvements. As we have seen, the 100-percent-reserve solution is ripe with unintended consequences.
When this economic crisis evolves into a currency crisis, which it most probably will, reform will become inevitable. The question then is what ideas for reform are lying around for the people and the politicians to choose from.
The reform advocated by Zarlenga and introduced to the Congress by Dennis Kucinich may very well appeal to politicians and bureaucrats. Also, the increasing animosity toward both the Fed and the banking establishment as a whole will likely encourage ordinary Americans to support Zarlenga and Kucinich’s initiative. On the face of it, the solution sounds rather reasonable and has the support of a very popular congressman.
Just think about it. It would strip the banks of their privileges and put the money power back into the hands of the people through their elected representatives; it would break the bankers’ secretive monopoly racket, which enables them to pay out billions in bonuses while ordinary people suffer. Doesn’t that sound familiar? Isn’t that how the Federal Reserve system was sold to the American public following the Panic of 1907?
For Austrians, it is easy to dismiss Zarlenga as a crank, which, based on the ridiculous claims he makes, he undoubtedly is. So why should we pay attention to someone like him? Because if we don’t, we increase the risk of him being successful in making the American Monetary Act become law. After all, similar monetary systems have been tried before.
This is why Austrians need to expose the real dangers of such a system. It would be a mistake to simply assume that that everyone will recognize its inherent problems and reject it. If the government can pass a constitutional amendment to sign the Federal Reserve Act into law and thus create a private central bank, they can certainly do this too.
So in addition to making the case for the free-market solution in money and banking, Austrians need to take up the debate with all their intellectual opponents. Zarlenga is one of them, and he should not be taken lightly.”
I’m posting a response to Grussner I saw here.
I can’t say I was impressed by Zarlenga’s original criticism of the Austrians or the response to Grussner. The monetarists seem completely mistaken on fundamental economic principles, and I’m appalled that they are being taken so seriously.
In the first place, Zarlenga does not seem to understand that both money and debt represent claims to real goods. But while debt is a claim to real goods not yet produced, money is a claim to those goods in the present. That is, money represents production.
If a bank (either private or public) issues money without sufficient real goods to back that, the money is essentially “funny money” and it represents a theft from people who have savings based on real production. That’s what’s happened already. Savers have lost the high interest rate they ought to have received for the past two decades, and have subsidized an orgy of debt and spending by other people. Now the “other people” are using the force of the law (the gun, really) to make the savers give up more, so that the debtors can walk away from their debts. If the debts were fraudulently contracted, the defrauders should pay, not innocent savers who had nothing to do with the fraud. And if the debts were fairly contracted, the debtors should pay up.
Invoking imaginary golden ages where “the people” simply gave themselves whatever they wanted doesn’t cut it. Ain’t no such thing. Proof? Look at countries where there is “public” money. Inflation runs even higher in India than in the US. Corruption is rampant. A resource-laden, skilled and manpower-rich country has a per capita income no better than some of the poorest countries in sub-Saharan Africa.
The banking mafia is a symptom, not the root cause of our problems. The root cause is the state, and the philosophy that allows the state to set aside natural law because it is “the lawgiver.”
Peter Schiff said it in a nice way:
“We Americans also must be honest with ourselves and recognize that we have been living beyond our means and that our lifestyle has been largely financed by austerity in China.”
And here, Peter Gorenstein (who, amazingly, seems to approve) states the obvious - the Fed wants to inflate away debt because it believes it will grow the economy (I kid you not):
“The Fed can’t admit that one reason it wants high inflation is to reduce the real burden of our debt, but you can bet that that’s one of its objectives. What’s more, says Nobel-winning economist Paul Krugman, inflation should be one of the Fed’s objectives. Because that’s how we’ve gotten out from under debt burdens in the past.
So how did the U.S. government manage to pay off its [World War 2] wartime debt? Actually, it didn’t. At the end of 1946, the federal government owed $271 billion; by the end of 1956 that figure had risen slightly, to $274 billion. The ratio of debt to G.D.P. fell not because debt went down, but because G.D.P. went up, roughly doubling in dollar terms over the course of a decade.
In other words, after World War 2, we didn’t “pay down” our debt. We grew into it.
And, importantly, this growth came from a combination of real growth AND inflation:
The rise in G.D.P. in dollar terms was almost equally the result of economic growth and inflation, with both real G.D.P. and the overall level of prices rising about 40 percent from 1946 to 1956.
So inflation is an important tool in getting us out of this mess. It’s painful and unfair–those who have been responsible and saved money will pay the price for those who borrowed money, racked up huge debts, and spent more than they could afford. But it’s what the Fed is (quietly) aiming for.”
Someone might say that the system where I do the borrowing and spending, and you do the saving and working is a version of slavery.
[That isn't an anti-American statement either. It was made by a rather plain-speaking CEO of an American company...]
Debtors are demanding that savers work for them, through foregoing their own consumption and the market- price of money. Monetarists are demanding that people walk away from the obligations of their government with a slow-motion dilution of the currency. People on fixed income will be destroyed. People dependent on wages in industries where wages are not rising (nearly every industry) will find prices rising beyond them. Responsible workers and savers, here and around the world, will get stiffed. Future borrowing costs will soar. The US will suffer retaliatory treatment from foreign countries. Other countries will default on their debt or renege on their contracts. So will citizens everywhere. Corruption will rise. Gamblers in the stock market will benefit, as their portfolios of cash now get plumped up. That is banana-republicanism.
Daily Bell Interview of GATA’s Bill Murphy
The Daily Bell interviews Bill Murphy of GATA (Gold Anti-Trust Action Committee):
“It’s something like out of a James Bond movie. What are the odds that my testimony gets blotted out from live coverage and then our whistleblower and wife get hit by a car the next day? … The gold scandal story is larger than life to begin with. Now throw this spooky stuff on top of it. Veteran Cafe (Le Metropole Cafe, Murphy’s website) members will recall that in the early part of this century what happened to me during a six week period …
My car was stolen and then found on a nearby highway one day after the insurance company paid me off. There was no damage to the car, money left in the console, and a cashmere sweater in the back seat.
My web site was hacked and somebody sent out a very goofy email supposedly from me, but it was not me.
Coming out of a restaurant/night spot less than two blocks from where I live, somebody jumped out from behind a wall and sucker-punched me with brass knuckles. I was out cold and thought my jaw was broken.
Nothing like this has happened before or since.
Daily Bell: Do you think, this time, that the CFTC must take all this seriously.
Bill Murphy: Outside of Bart, it appears none of them want to go there. GATA is like their worst nightmare because they are like everyone else … kowtowing to the rich and powerful. However, a firestorm is growing about what GATA has to say, partially ignited by the Andrew Maguire revelations. I suspect we are finally going to receive some mainstream press in the months ahead, which will be like shining a light on Dracula.
Daily Bell: Why hasn’t it already?
Bill Murphy: The relationship between a government agency like the SEC and the CFTC is insidious. Nobody wants to rock the boat. Heck a number of these people at these agencies end up working on Wall Street, or interact business-wise in some other manner. The Chairman of the CFTC is a Goldman Sachs alumni. That about says it all.”
My Comment:
To follow..
Gold, Silver, and “Suspicious Foreigners”
Mark Mitchell comments on the CFTC hearings and the manipulation of trading of gold and silver derivatives (read IOUs):
“Maguire added: “What’s going to happen, if you’re an Asian trader, or a non-Western trader, who has no loyalty, or doesn’t care about homeland security or anything else, who says, now wait a minute, if I can establish in my mind that there is 100 ounces of paper gold, paper silver for example, for each ounce of real silver, than I have a naked short situation here that I can squeeze and they can go on the spot market which is basically a foreign exchange transaction, short dollar, long silver to any amount they want – billions, trillions — whatever they want, and they can take this market, squeeze this market, and blow it up…”
In other words, the problem isn’t just that criminal naked short sellers manipulate the metals market downwards. It is that they have created a condition where a foreign entity can merely demand delivery of real metal to induce a massive “squeeze” that sends the price of metals skyrocketing, putting huge downward pressure on the dollar. Meanwhile, says Maguire, with prices rising, “for 100 customers who show up there is only one guy who is going to get his gold or silver and there’s 99 who will be disappointed, so without any new money coming into the market, just asking for that gold and silver will create a default.”
This would be a point, except…except..
1. This kind of fraudulent activity in the markets in the West is going to be seen by most foreigners as a direct act of financial aggression against them, not just domestic market participants. You can’t admit that your entire market system is rigged in favor of US and European banks, and then expect that the rest of the world is just going to stand there and not retaliate in some way…with justification.
Turnabout is fair play. Defense is not offense.
2. I doubt that Chinese, Saudis or any other foreigners are interested in squeezing the dollar, since they are the primary holders of dollars. In international markets, the dollar is still the reserve currency and most people save in it. Nor is the American middle class, loyal or disloyal, going to want a weaker dollar. They earn their money in dollars. The only people likely to attack the dollar are speculators, who will do it because they see a gain to be made from it. And the people most likely to do it successfully are the same people who are involved in manipulating it in the first place...the corrupt bankers and financiers who’ve got the most to gain in this and the least to lose.
Nothing that Paulson, Greenspan, Geithner, Summers, or Bernanke have been doing adds up to anything like a “strong dollar” policy. They’ve done everything but shout “bail” to dollar holders.
Roubini: Significant Risks Of Gold Correction
Downside risks to gold, writes Nouriel Roubini at The Globe and Mail:
“But, since gold has no intrinsic value, there are significant risks of a downward correction. Eventually, central banks will need to exit quantitative easing and zero-interest rates, putting downward pressure on risky assets, including commodities. Or the global recovery may turn out to be fragile and anemic, leading to a rise in bearish sentiment on commodities – and in bullishness about the U.S. dollar.
Another downside risk is that the dollar-funded carry trade may unravel, crashing the global asset bubble that it, with the wave of monetary liquidity, has caused. And since the carry trade and the wave of liquidity are causing a global asset bubble, some of gold’s recent rise is also bubble-driven, with herding behaviour and “momentum trading” by investors pushing gold higher and higher. But all bubbles eventually burst. The bigger the bubble, the greater the collapse.
Gold’s rise is only partially justified by fundamentals. And it is not clear why investors should stock up on gold if the global economy dips into recession again and concerns about a near depression and rampant deflation rise sharply. If you truly fear a global economic meltdown, you should stock up on guns, canned food and other commodities that you can actually use in your log cabin.”
A Brief History Of The War On Gold
GATA posts a helpful compilation of links to articles on gold price manipulation and a page on the history of that manipulation at The Privateer.com. And excerpt from that (from the period after 1960):
“The End Of the “Fixed” Dollar
Gold War I - The “London Gold Pool” - 1961 to 1968
By the beginning of the 1960s, the $US 35 = 1 oz. Gold ratio was becoming more and more difficult to sustain. Gold demand was rising and U.S. Gold reserves were falling, both as a result of the ever increasing trade deficits which the U.S. continued to run with the rest of the world. Shortly after President Kennedy was Inaugurated in January 1961, and to combat this situation, newly-appointed Undersecretary of the Treasury Robert Roosa suggested that the U.S. and Europe should pool their Gold resources to prevent the private market price for Gold from exceeding the mandated rate of $US 35 per ounce. Acting on this suggestion, the Central Banks of the U.S., Britain, West Germany, France, Switzerland, Italy, Belgium, the Netherlands, and Luxembourg set up the “London Gold Pool” in early 1961.The Pool came unstuck when the French, under Charles de Gaulle, reneged and began to send the Dollars earned by exporting to the U.S. back and demanding Gold rather than Treasury debt paper in return. Under the terms of the Bretton Woods Agreement signed in 1944, France was legally entitled to do this. The drain on U.S. Gold became acute, and the London Gold Pool folded in April 1968. But the demand for U.S. Gold did not abate.
By the end of the 1960s, the U.S. faced the stark choice of eliminating their trade deficits or revaluing the Dollar downwards against Gold to reflect the actual situation. President Nixon decided to do neither. Instead, he repudiated the international obligation of the U.S. to redeem its Dollar in Gold just as President Roosevelt had repudiated the domestic obligation in 1933. On August 15, 1971, Mr Nixon closed the “Gold Window”. The last link between Gold and the Dollar was gone. The result was inevitable. In February 1973, the world’s currencies “floated”. By the end of 1974, Gold had soared from $35 to $195 an ounce.
Gold War II - The IMF/U.S. Treasury Gold Auctions - 1975 to 1979
On January 1, 1975, after 42 years, it again became “legal” for individual Americans to own Gold. Anticipating the demand, the U.S. Treasury in particular and many other Central Banks sold large quantities of Gold, taking large paper profits in the process. This had two results. It depressed the price of Gold, which fell to $US 103 in eighteen months. More important by far, it “burned” large numbers of small individual investors.But this “pre-emptive strike” against the Gold price did not solve the imbalances inherent in the floating currency regime. As the Gold price began to recover from its August 1976 low, the (US-controlled) IMF along with the Treasury itself, began a series of Gold auctions in an attempt to hold down the price through official means. But the problem of yet another free fall in the international value of the Dollar got in the way. Between January and October of 1978, the Dollar lost fully 25% of its value against a basket of the currencies of its major trading partners. By early 1979, due to this precipitous fall, the demand for Gold was overwhelming the amount that the IMF/Treasury dared supply, and the Gold auctions came to an end.
Gold regained its ($195) December 1974 level by July 1978. It then pressed on to new highs, hitting $250 in February 1979 and $300 in July. Also in July, Paul Volcker was appointed as Fed Chairman by a desperate Jimmy Carter. Gold continued to surge, hitting $400 in October. While this was happening, Mr Volcker was attending a conference in Belgrade. There the assessment was made that the global financial system was on the verge of collapse. When Mr Volcker returned to the U.S. from Belgrade, he took a momentous step. He announced that the Fed was switching its policy from controlling interest rates to controlling the money supply.
This new Fed policy took some time to have effect. In the meantime, Gold soared from $381 on Nov. 1, 1979 to $850 on Jan. 21, 1980. The public, who had been burned in 1975, were late on the scene. The great burst of public Gold buying came in the four weeks between Christmas 1979 and the Jan 21, 1980 high. As in 1975, they were “burned” again.
The Paper Era Begins
In early 1980, Mr Volcker’s new Fed policy began to bite. U.S. interest rates began to skyrocket. As they rose, the Dollar first slowed its descent, then stopped falling, and then began to rise. Both the public and the investment community which had stampeded into Gold was lured back into paper by this huge rise in interest rates - and by the prospect of a higher U.S. Dollar. The threat of financial meltdown was averted, but at a cost. The U.S. Prime rate hit 20% in April 1980 and stayed there (with a brief dive in mid-1980) until the end of 1981. There was a rush out of Gold and back to Dollars.Once interest rates began to come down, in early/mid 1982, the choice of where to put the Dollars faced investors once more. The initial solution was just as it had been in the 1970s. The Dow took off - rising from 776 to almost 1100 between mid August 1982 and late January 1983. Gold started earlier and took off even harder - rising from $296 in late June 1982 to $510 at the end of January 1983.
That’s where the similarity to the 1970s ended. Gold fell $105 in the last four trading days of February 1983. As it fell, the Dow broke above the 1100 point level for the first time. The long bull market in stocks, and the long stagnation of Gold, had begun…..”
CFTC Hearing: Paper Gold Is A Ponzi Scheme
Adrian Douglas at GATA on another revelation at the CFTC hearing (a “revelation” that’s actually well known):
“As dramatic as this revelation was at the CFTC hearing, there was another bombshell at the hearing. This was the testimony I was able to deliver at the hearing while assisting Harvey Organ with his testimony. I was able to show that the London Bullion Market Association (LBMA) over-the-counter gold market is nothing but a massive “paper gold” Ponzi scheme. What was then astonishing is that the bullion bank apologist, Jeffrey Christian of CPM Group, who has always been staunchly against GATA, endorsed my comments as being “exactly right” and went on to confirm that the LBMA trades more than 100 times the gold it has to back the trades.
There were lots of almost as equally explosive admissions at the hearing, so I have made a transcript of the relevant section of the webcast. I have posted the two short video clips here and here which are what have been transcribed.
http://www.youtube.com/watch?v=9wIMpe9SjfQ
http://www.youtube.com/watch?v=e9bU0r6JP4s
The transcript is given below with some notes added by me.
Hanky-Panky At The Counting House
I thought I’d repost a piece that I wrote in Dissident Voice, way back in 2006. It helps give some background to the JP Morgan manipulation story.
And it also adds some background to the ongoing re-valorization of the once discredited IMF. Along with that re-valorization, is the hyping of anyone supporting even further central regulation, although the financial crisis occurred in all sorts of places that have plenty of it.
All this centralization and global government is supposedly for the welfare of the world - but there is no “welfare of the world” that can be safely accepted as gospel from the mouths of the financial industry and its political and media allies.
Note the date of the piece below - back on June 6, 2006, when, dare I say it, most of the financial talking- heads and blogs now being treated as the only legitimate interpreters of reality were doing…well, they weren’t reading GATA or supporting its work, I’m pretty sure. To have done so then would have made them persona non grata in the very same liberal media that is now embracing this research and that GATA, in turn, seems to be endorsing….for its own reasons..
Check it out for yourself.
Here’s an excerpt from the piece: “Hanky-Panky at the Counting House” (June 6, 2006)
Also, at Dissident Voice, you can find “Was The IMF Involved in Gold Price Manipulation” (June 8, 2006) which was also posted at Daily Reckoning and on one of the gold sites. I think it’s been taken off Daily Reckoning since.
“The unofficial theory is naturally a lot juicier, although described by even sworn enemies of paper currency as conspiratorial. Still, it’s managed to rear its head in the Wall Street Journal, so it can’t be all wet. Here is what widely respected libertarian Congressman Ron Paul had to say on Feb 14, 2002:
While the Treasury denies it is dealing in gold, the Gold Anti-Trust Action Committee (GATA) has uncovered evidence suggesting that the Federal Reserve and the Treasury, operating through the Exchange-Stabilization Fund and in cooperation with major banks and the International Monetary Fund, have been interfering in the gold market with the goal of lowering the price of gold. The purpose of this policy has been to disguise the true effects of the monetary bubble responsible for the artificial prosperity of the 1990s, and to protect the politically-powerful banks that are heavy invested in gold derivatives. GATA believes federal actions to drive down the price of gold help protect the profits of these banks at the expense of investors, consumers, and taxpayers around the world.
GATA has also produced evidence that American officials are involved in gold transactions. Alan Greenspan himself referred to the federal government’s power to manipulate the price of gold at hearings before the House Banking Committee and the Senate Agricultural Committee in July, 1998: Nor can private counterparts restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise. [Emphasis added] (3)
More specifically:
Gold is borrowed by Morgan Chase from the Bank of England at 1 percent interest and then Morgan Chase sells the gold on the open market, then reinvests the proceeds into interest-bearing vehicles at maybe 6 percent.
At some point, though, Morgan Chase must return the borrowed gold to the Bank of England, and if the price of gold were significantly to increase during any point in this process, it would make it prohibitive and potentially ruinous to repay the gold. (4)
In plain English, the strong dollar policy that put the sizzle in the stock market under Clinton was made possible only by manipulating the gold market to keep prices low. The low interest rates which kept the economy on the boil went hand in hand with low gold prices. Investment banks used the low rates to borrow gold from the central banks and sold them short (short selling being the technique of selling assets you don’t actually own in the hope of buying back at a cheaper price because you anticipate a fall in the price). This allowed the banks to make billions from a market rigged to take the risk out of their shorting. And it kept the dollar pumped up. And who was the architect of this strong dollar policy? Why, none other than Robert Rubin of Goldman Sachs — one of the bullion banks most implicated in the gold fixing scenarios.
So, the appearance of another Gold-man at this critical moment is all the proof the gold cartel theorists need that more manipulation is in store to keep the dollar up, gold down, and the bullion banks from losing their . . . er . . . shorts. (5)
And if this seems conspiratorial, consider what Paul Mylchreest, investment analyst at Cheuvreux, top ranked for its research in Western Europe and part of Credit Agricole, the largest bank in France says today, “Central banks have 10-15,000 tonnes of gold less than their officially reported reserves of 31,000. This gold has been lent to bullion banks and their counterparties and has already been sold for jewellery, etc. Non-gold producers account for most and may be unable to cover shorts without causing a spike in the gold price…” (6)
Or what the Wall Street Journal itself wrote about what took place in the seventies:
Worried the falling dollar was undermining its anti-inflation efforts, the Carter administration announced a multi-part support package on Nov. 1, 1978: The Treasury would use gold sales and foreign borrowing and draw on its reserves with the International Monetary Fund to defend the dollar. At the same time the Federal Reserve raised its discount rate a full point. (7)
And that was in the ’70s, when there was no credible alternative to the dollar, India and China were sleeping giants, Russia was still the Soviet Union, and the United States was not threatening to nuke the Middle East.
How bad is the situation?
[A]s of June 2000, J.P. Morgan reported nearly $30 billion of gold derivatives and Chase Manhattan Corp., although merged with J.P. Morgan, still reported separately in 2000 that it had $35 billion in gold derivatives. Analysts agree that the derivatives have exploded at this bank and that both positions are enormous relative to the capital of the bank and the size of the gold market.
It gets worse. J.P. Morgan’s total derivatives position reportedly now stands at nearly $29 trillion, or three times the U.S. annual gross domestic product. Wall Street insiders speculate that if the gold market were to rise, Morgan Chase could be in serious financial difficulty because of its “short positions” in gold. In other words, if the price of gold were to increase substantially, Morgan Chase and other bullion banks that are highly leveraged in gold would have trouble covering their liabilities. (8)
That was 2000. This is 2006.
So long as gold remains a mere relic . . . a yellow reminder of what used to be money . . . no harm done. Unless something absurd happens, that is. Something absurd like, say, gold doubling to $573 an ounce inside 5 years. If that happened, then the “carry trade” of borrowing gold to invest in paper could become a very expensive way to bankrupt the entire global financial system. (9)
This spring gold hit over $700. And that’s why the hanky-panky is likely to begin in earnest now.
Lila Rajiva is a freelance writer in Baltimore, and the author of the must-read book The Language of Empire: Abu Ghraib and the US Media (Monthly Review Press, 2005) She can be reached at: lrajiva@hotmail.com. Copyright (c) 2006 by Lila Rajiva
NOTES
(1) “Good as Goldman: Bush drafts Hank to bat third,” Daniel Gross, Slate, Tuesday, May 30, 2006.
(2) “Please, Sir, I Want Some More. How Goldman Sachs is carving up its $11 billion money pie,” Duff Mcdonald, New York Metro, Dec 21, 2005.
(3) Speech of Congressman Ron Paul, U.S. House of Representatives, February 14, 2002, www.house.gov/paul
(4) “All That Glitters Is Not Gold,” Kelly Patricia O’Meara, Insight Magazine, March 4, 2000.
(5) According to GATA, the cartel includes J.P. Morgan Chase, Deutsche Bank, Citigroup, Goldman Sachs, Bank for International Settlements (BIS), the U.S. Treasury, and the Federal Reserve
(6) “How Central Banks Have Kept Gold Down,” Adrian Ash, Money Week, February 9, 2006.
(7) “As Dollar Weakens, Hidden Strengths May Stave off Crisis,” Wall Street Journal, January 17 2005.
(8) See Note 4.
(9) See Note 6.Whistleblower Reports Precious Metals Manipulation By JP Morgan
Bill Murphy, chairman of The Gold Anti-Trust Action Committee (GATA) reports that on March 23,2010, GATA director, Adrian Douglas, was contacted by a London metals trader, Andrew Maguire, who had been told directly by JP Morgan traders how they manipulate the precious metals (PM) markets on non farm payroll data release, COMEX contracts rollover, and similar recurring occasions, to make money.
Maguire had previously contacted the enforcement division of the CFTC (Commodity Futures Trading Commission) to report this. On February 3, 2010, he gave a two-day advance warning of PM manipulation on the release of the non-farm payroll data on February 5 that took place as predicted.
Read more at GATA.
Soros: Gold In Bubble; But Keep Stimulus Going…..
Always nice to see people talk out of both sides of their mouth.
Here is currency speculator George Soros (ex of legendary hedge-fund Quantum) at the World Economic Forum at Davos:
“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.”
So far so good. Mis-price money (cheap interest rates) and people don’t want to keep their savings in it. They want it in something that isn’t subject to mis-pricing (so they hope) - hence gold.
But then Soros shows how disingenuous he’s being by adding this:
“I think that since the adjustment process to the recession is incomplete, there is a need for additional stimulus. Some countries, like the US and European countries, have plenty of room to increase their deficits. The political resistance to doing so increases the chances of a double dip in the economy in 2011 and after that.”
That is, he’s suggesting running more deficits and keeping the money spigot going, just the thing that’s caused the gold price to rise.
So how do we understand this?
Gold is due for a technical correction, but it’s also probably responding to deflation in the general economy. It’s not going down that fast, because a lot of people are also buying it speculatively.
That’s the tug of war.
Meanwhile, who know what Soros’ holdings are and who knows what his motivations are in making such contradictory statements.
But anyone who takes these sorts of pronouncements as any kind of lead for their own investments/speculations, should be prepared to part fairly soon from their money.
David Tice On King World News: Trouble Ahead….
David Tice on Eric King’s King World News, December 23, 2009
- This is not another inventory recession; this is unprecedented
- There’s trouble all over the globe - Europe, China, Japan..
- Hunker down, cut back expenditures, get out of stocks, own gold
- Look for deflation followed by competitive currency devaluation, then inflation.
Lanka Needs Soros Like A Hole In The Head
“In 1992, Soros earned the epithet “the man who broke the Bank of England” by demanding the Bank to raise its interest rates or to float the currency (so that he could make more money). The Bank did neither. He retaliated by selling “short” more than $10 billion worth of pound sterling, forcing the Bank of England to depreciate the pound: Soros amassed an estimated US$ 1.1 billion in the process.
GATA Sues Federal Reserve For Records On Gold Manipulation
From the website of the Gold Anti-Trust Action Committee, the leading activist against gold price manipulation in the market:
“GATA today brought suit against the U.S. Federal Reserve Board, seeking a court order for disclosure of the central bank’s records of its surreptitious market intervention to suppress the monetary metal’s price.”
For some of my warnings of gold price manipulation, see the following:
“Was the IMF Involved in Gold Price Manipulation?” Dissident Voice, June, 2006
“Hanky-Panky at the Counting House,” Dissident Voice, June 6, 2006
Gold Sinks Further, Dollar Surges..
We will need to see a few more days of supporting action, but as of now, it looks like gold might be beginning the long-awaited correction.
How deep that will go is anyone´s guess, though the recent central bank buying is supposed to lay a floor for it above $1000. Now, normally I wouldn´t bet the house on that, but I´ve come to see that pronouncements from insider analysts (at GS) are no longer just market analysis to be weighed. They are announcements about the course of action the banking cartel is going to be supporting.
The trigger for this? I think it´s that upbeat jobs number, which is probably taking some speculative money out of gold …especially as gold is technically very overbought and institutional buyers want to lock in profits before the year end.
Dubai is more important than most commentators think, even Marc Faber. They say the numbers involved are too small.
But, as I blogged earlier, they´re not seeing the contagion possible.
Here´s what they´re discounting:
1 We don´t know what the numbers from Dubai really are. We can´t be absolutely sure. They keep changing them. $125 billion (the highest figure I´v heard) may not be enormous in a global context, but we don´t know how its tied up with investments and where. A firesale of Dubai Worlds real estate could have unsettling effects all over the world.
2. Dubai has an impact on the property market, not just in Dubai, but in London and New York where Dubai Worlds has holdings, and also in India, where real estate and employment could take a hit.
3. Banks have leveraged exposure through derivatives, beyond what they are admitting in public.
4. These are banks that are already broke, for all purposes.
5. When the banks involved are not themselves broke, they are backed by governments that are broke, or near-broke.
6. The government with likely the most exposure is Britain. Britain is on the verge of sovereign default.
7. This happens just as the second down-leg in real estate is unfolding, and along with it the just-as- leveraged commercial real estate market (see the recent zero hedge post on an ongoing CRE failure in Chicago), where there´s little pressure for the Feds to step in.
8. This happens after a 10-month run up in the stock market in what is essentially a bear rally, according to many experts.
9. This happens when the government has escalated an unpopular war in Afghanistan, calling for more troop commitments and more money
10. This happens after massive further government commitments in health care and other social spending.
Would the dollar move up just on the back of an employment number that was widely acknowledged to be misleading? I don´t know.
Do I know if gold will sink below $1000? No.
But CB (central banks of India etc.) buying is said to have set the floor. Me, I think that was a bit of help given by the RBI (CB of India, Sri Lanka, etc.) to the IMF, seat of power of the globalists. Even the IMF admitted it got lucky.
Will that bit of market manipulation to the upside be enough to stave off the deflationary effect of develeraging asset derivatives?
I don´t know, but I suspect it won´t.
I’m anticipating a rush into the dollar like we had in 2008…maybe not as strongly…
maybe gold will sop up some of the rush this time. I think that´s what the CB´s are hoping will happen.But again, one can´t be sure, for the simple reason no one knows how much more bad debt there is and where it is.
Gold Down On Biggest Volume In History..
“The exchange-traded fund, SPDR Gold Shares, that holds gold bullion was down 5% Friday afternoon on record trading volume as the gold price fell. More than 70 million shares have traded hands with an hour of trading to go. It’s the highest volume in its history. The gold ETF was launched in late 2004 and has assets of more than $40 billion”
China Warns of Gold Bubble
The Telegraph reports that China warns of a gold bubble:
“Experts say that China is putting a floor under the gold price but does not chase rallies once they are under way.
There is also a double-edged twist to news that Barrick Gold, the world’s biggest gold mining company, has closed the final 3m ounces of its notorious hedge book ahead of schedule. While the move is a bet that prices will continue to rise, it also means that Barrick has been a big buyer of gold lately. These purchases have now stopped. One of the key drivers behind the spike this autumn has been removed.”
This article is one of the few out there that takes into account the time lag between an announcement and an action. Many of the events that reporters tout as proof that the gold price will spike much higher right way are actually events that have taken place in the past - for eg., purchases at lower prices - or are hedges that have a more complex function than the usual retail investor has in mind, with the siren call of “gold´s going to the moon, jump in now or you´ve lost it forever” sounding in his ears.
Take trader John Paulson´gold purchase. It took place in January, apparently. And remember that it was a position taken by his hedge-fund, with his clients money. Paulson gets his fee no matter how that trade turns out long term,
and if his fee is a percentage of the assets under management, a purchase when the price is high is better than one at rock bottom, even if his clients´profits are not maximized that way.(sorry: thoughtless blunder there)Notice finally that Paulson´s own fortune is in gold to a much lesser extent - only about $250 million of his reported $6 billion net worth. That comes to about 4% of his assets….(Correction: that´s 6.8 billion and less than 4%)
Not an earth shaking proportion by any means.
So, what gives?
Paulson Has More Gold Than Australia…
Or Argentina, or Brazil, or Thailand, or Ireland…or..
Check out EconomPic for a nice chart.
Speculation Drives Metal Prices
Geologist Brent Cook at Mineweb explores the speculative frenzy behind metal prices:
“Now I do not know if Paul’s [Van Eeden] thesis on gold is accurate or not: if it is it could still take many years to play out. Likewise, I do not know how or when the base metal prices will re-equilibrate to the reality of end demand-whatever that is. What is obvious is that gold and now base metals have become speculative investments that in addition to being bought as hedges against inflation and a falling US dollar are the latest get rich quick scheme. The end result is that absent the faith that metals and markets are all headed higher, we here at Exploration Insights are finding it difficult, although not impossible, to find value in junior mining and exploration companies.
Hot money on the other hand is not.
Over the past few months we have witnessed bought-deal equity financings for individual mid- to junior tier gold companies in the 10’s to 100’s of million dollars. These are being bought at nearly the absolute 52-week highs by funds that I know have not looked into the mining, metallurgical, social or political intricacies that make or break a mine. This fearless hot money jumping into the sector worries me. It always precedes a market bubble and correction: sometimes serious, sometimes temporary- sometimes by weeks, sometimes by years.
Adding to the absence of fear and proper due diligence in the market, my recent discussions with corporate financiers confirm that both large and mid-sized gold companies are being offered substantial unsolicited bought-deal financings-no questions asked. At the same time, some of the very same companies being offered the quick money are being hit with heavy selling when a fund manager becomes “concerned” because there has been no news for a couple of weeks or gold backed off $15.
Hand in hand with heavy fund demand for new metals investment ideas most of the major research firms have increased their commodity price assumptions to reflect the “new reality”. The primary advantage afforded by the commodity price revisions is that previously overvalued mining companies can instantly become “Buys”. Recall that the last major upward revisions from many of these same research firms came as the new reality of higher prices set in 2008.
The problem is that greed is driving the market and so any small hiccup or change in sentiment and the hot money tends to bolt. As last year taught us (remember last year?) when the fast money going in is the liquidity, there ain’t no liquidity getting out.
I remain cautious and somewhat concerned by what appears to be hot and fickle money jumping into a sector that is apparently taking its cue from pig farmers”.
IMF Sells Gold to India (Updated)
Update 2 (Nov 3): The only other explanation I can think of is that the Indian government is privy to information indicating that the demise of the dollar is much closer at hand than is being given out..
Update 1:
OK. As you know, I’ve found this Indian purchase a bit puzzling. I have a bunch of questions:
*Why didn’t the Indian government make a big purchase earlier this year, at $900, rather than now, at the top?
*What, if any, is the connection between this and the Fisk report a few weeks ago about the Gulf Arabs moving out of the dollar, which a lot of people found odd, despite the reputation of the reporter? The report bumped up the price of gold.
Now, here’s Chuck Butler of Everbank, via The Daily Reckoning:
“I told you yesterday that I thought it would be a “wash” for the dollar and the gold price… But that was before I learned that the Reserve Bank of India paid for their $6.7 billion dollars worth of gold with… SDRs.”
(Note:Reuters reports that the sale was in dollars - which would be dollar negative).
What does this mean? That, over the whole past 15 -20 years of “globalization” while the US Govt. inflated its money and sold its treasuries and fake derivatives all over the world in return for real work and real savings, who were the buyers?
Countries like India, where large parts of the middle-class stored its savings in dollars. Now those dollars are seen as so unsound that the IMF (which is the new locus of Anglo-European global domination) won’t accept them for payment of gold.
That means the Indian government has to give up its SDRs (Special Drawing Rights) in exchange.
Now the resurgent IMF is where the globalists are exerting their power and not in the G20 (which was supposed to augment the power of developing nations when it was established in 1999).
As I blogged earlier, the Financial Stability Board is the new regulatory agency that will coordinate with the IMF, but it includes the G20 and also Spain and the European Commission and is headed by ex-Goldmanite, Mario Draghi and it’s housed at the Bank for International Settlements in Basel. So that is a double hit to any representation India will have in the forum.
India sold gold at the bottom in the 1990s; and is now buying it at the top nearly 20 years later - thus selling part of the gains of these past years. At least, so it seems to me. To me this smacks of neocolonialism.
And now, it becomes easier to understand why the center-liberal establishment media is interested in co-opting the anger against Goldman and channeling it into various subplots of the financial crisis (naked short selling, the bail-outs etc.etc).
I see this as an elaborate feint to divert world attention from the reprise of Anglo American and European colonization over the last two decades - accomplished, with a “black” president in charge.
Here’s a piece on IMF sales of gold in 1999. http://www.independent.co.uk/news/business/imf-sells-gold-to-hep-debt-of-poorest-nations-1090154.html
Notice how similar the language is - they’re doing it to increase funding to the poorest countries, etc. etc.
In the news, Bloomberg reports:
“The International Monetary Fund sold 200 metric tons of gold to the Reserve Bank of India for about $6.7 billion, its first such sale in nine years.
The transaction, equivalent to 8 percent of global annual mine production, involved daily sales from Oct. 19-30 at market prices and is in the process of being settled, the IMF said in a statement yesterday. The average price to India, the biggest consumer, was about $1,045 an ounce, an IMF official said on a conference call. Gold for immediate delivery gained 0.2 percent.”
My Comment:
Interesting. The Indian government doesn’t buy gold at the bottom (2000) but now, when it’s at all time highs (shades of the British government selling gold at the bottom).
Now, the Indian central bank is reputed to be very savvy, as are Indian gold buyers. Most commentators expect gold to consolidate, if not correct, before pushing on. It would make sense for the Indian government to wait and buy it on dips.This is a good move for the IMF. But for the Indian government, which managed to steer the banking system past the whirlpool of unwinding derivatives, I wonder if this move is astute.
Look at the peculiar facts, as reported in the New York TimesWall Street Journal)
“In the last one year, China has increased its gold holdings, by weight, by 75.69%, Russia by 18.78%, the Philippines by 18.50% and Mexico by 108.91%.
Compared with this, India’s central bank did not add anything to its gold reserves in the last one year, according to Bloomberg data.(Lila: Why not? Why buy gold at record prices when the government was unwilling to buy when it was trading much lower, only this year?)
In fact, the share of gold in India’s total reserves has dwindled over the decade.
In March 1994, the share of gold in the total reserves of the country was 20.86%; by the end of June 2009, gold constituted only 3.7% of the total reserves.”
Even the IMF expressed surprise, as Breitbart.com notes:
“A senior IMF official said that the IMF was “lucky” in selling the 200 tonnes to India for roughly 1,045 dollars an ounce, compared with 850 dollars an ounce in April 2008.”
(Lila: In other words, over the whole period of globalization, India sold it’s gold and bought US treasury…dollars…just what the US government was desperate to get rid off, so it wouldn’t drive inflation at home…)
Again, India sold gold cheap and bought it back at its height. Does that sound like savvy behavior from a country renowned for well trained economists and smart gold buyers?
A former governor of the Indian central bank (Reserve Bank of India), Bimal Jalan, said it was to help the IMF meet its funding needs for loans to the poorest countries, for which it had looked to India and China.
As an aside, in an earlier post, I speculated that the report (by Robert Fisk, a very respected source) about Gulf Arabs moving out of the petrodollar - which was promptly denied - might have been a rumor circulated to bump up the price of gold to help IMF gold sales….maybe, I wasn’t so far off, after all.
I went back to an earlier post this year, in February, which quotes from a list in Richard Russell’s letter:
Note: The list looks inaccurate. I’ll go back and find why Russell’s numbers are so different from the World Gold Council figures below them). (Note: Russell is referring to tonnes of gold; the WGC figures are for dollar amounts. So the discrepancies we refer to at in the percentages).The US has 8,135 tonnes….64.4% of reserves
Germany — 3,412… …64.4% of reserves
IMF — 3,217… … …(1)
France — 2,508… … …58.7%
Italy — 2,451… … …61.9%
Switzerland — 1,040… …23.8%
Japan — 765.2… …1.9% …(a potential gold-buyer)
China — 600.0… …0.9% …(should be a big buyer)*A reader notes that this number is too low. I assume it’s a number from before China started buying off market. Compare with list below.
Russia — 495. 9… …2.2% …(is a buyer)
Taiwan — 422.2… …3.6% …(should be a buyer)
India — 357.7… …3.0% …(should be a buyer)
UK — 310.3… … …14.5% …(sold most of its gold at the low price)
Saudi Arabia — 143.0… …11.4% (should buy gold)
South Africa — 124.4… …9.0%
Australia — 79.8… … …6.3%So there you have it. Among countries, Italy, France, Germany, and the US have the most gold. Switzerland has a third of what they have. The UK, South Africa, Australia, and Saudi Arabia are next with about 1/5th - 1/10th as much. Russia and Japan have only a small percent in gold. China and India have even less. What do most Asians have? Debt (treasuries and dollars) from the US. Neo-colonialism anyone?
Correction:
CNBC has the following completely different list of top gold holding countries compiled by tradermark via Seeking Alpha, posted October 13, 2009.
(Note: Data is based on the World Gold Council’s September 2009 report and is converted to US short tons at a rate of 1 T = 1.102311 US tons. All monetary estimates are calculated at the rate of 1oz gold = $1042 US).
United States $298.4 N/A
Germany $125.0 69.2%
International Monetary Fund $118.0 N/A
Italy $89.9 66.6%
France $89.7 70.6%
China $38.7 1.9%
Switzerland $38.2 29.1%
Japan $28.1 2.3%
Netherlands $22.5 59.6%
Russia $20.9 4.3%
European Central Bank $18.4 18.8%
Taiwan $15.5 3.9%
Portugal $14.0 90.9%
India $13.1 4.0%
Venezuela $13.1 36.1%Gulf Arabs to Move Out of Petro-Dollar (Updated)
Update:
I’m adding my comment at the top here after watching this puzzling day. Gold shot up to new highs over $1040 (and not just in the US but elsewhere). Is this the bull break-out the bugs have been waiting for? Maybe. Central bankers and officials from the Gulf states came out to pooh-pooh the story, but it couldn’t be put back in the box.
My puzzlement is this: If gold is soaring because of this “revelation” of the dollar’s death - then why did the dollar itself sink only modestly (at least, as I write).
I note also that the stock market recovered some of its ground. That might have something to do with the Australian Reserve Bank announcing a tighter policy, quite unexpectedly, and in apparent belief that the recovery is real, never mind Joseph Stiglitz, George Soros, Marc Faber, Jim Rogers, and other no-longer-strange bedfellows who think the opposite.
V-shaped, U-shaped, Square-root shaped, or corkscrewed, the recovery isn’t your grandfather’s recovery, that’s for sure. And someone is trying to make a silk purse out of this sow’s ear. That skepticism leads me to wonder whether this very convenient rumor, which coincides with the IMF meeting in Istanbul, might be a certain kind of saber rattling in anticipation of negotiations - except that these very public meetings are never where anything substantial takes place any way. (So says Simon Johnson in a recent blog post). But the IMF is selling gold, we know, and we know also that it wants to make sure it doesn’t hit the markets too hard when it does. Could this little upswing be helpful toward that end? Probably. Could this rumor - widely denounced as insubstantial - have something to do with that? Perhaps.
In the news, the Independent’s Robert Fisk reports on the coming fall of the petro-dollar:
“In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading
In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.”
The Fed’s Market Manipulation Scheme…
The St. Louis Federal Reserve Bank has a document on file, marked confidential, taken from the papers of William McChesney Martin Jr. (Chairman of the Board of Governors of the Federal Reserve from 1951-1970, the longest tenure). The collection is housed at the Missouri Historical Society. The paper was discovered by researcher Elaine Supkis and is cited by James Turk at the Gold Anti-trust Action Committee’s website.
Note the following:
“There can be little question that the interconvertibility of gold and the dollar at a fixed price will have to remain the keystone of the international currency structure. At the same time, foreign exchange dealings by the United States monetary authorities, when judiciously applied, can serve to reduce capital flows, to dampen speculation, to minimize potential reserve effects, and hence, to minimize the impact on the United States gold stock.
The basic purpose of such operations would be to maintain confidence in the dollar* Foreign exchange operations would, of course, not be a substitute for other appropriate and basic actions to maintain the integrity of the dollar* but would serve as a highly useful and flexible addition to other monetary and fiscal policy measures..”Dollar Dilemma…
At Lew Rockwell, David Calderwood writes:
“If one believes that the failure of the Federal Debt system is imminent, then one should be preparing for TEOTWAWKI (Lila: The End of The World As We Know It). In this event, prudent preparation includes quitting the job, selling the house, moving the family to a temperate rural area and converting all assets to guns, food, ammo, farmland, livestock, barter goods, and books on how to live an 18th century lifestyle.
The trouble is that preparing for TEOTWAWKI renders one in a very poor position should things not be quite so catastrophic. People are incredibly resourceful and the history of communism shows us that even unsustainable systems don’t necessarily collapse all at once.
If the federal government system survives for a period of time after the Federal Reserve banking cartel crashes (or more likely, is seized by an Act of Congress), instead of an immediate dollar collapse, surviving dollars would soar in value. Ironically, the closer any dollar credit exists to the U.S. Treasury, the longer it may survive. The idea in this case would be to hold the last surviving dollar credits, stepping off that boat to the dry land of hard assets when all vulnerable credits have disappeared and asset values have declined about as far as they’re going to. Then will be the time to flee dollars in fear of the appearance of ever-larger denominations of currency, the hallmark of currency hyperinflation.”
My Comment:
I’m playing both sides. I’ve left for a temperate clime, started scouting out my rural retreat, am on my way to learning how to skin squirrels, drive a buggy, and forage for roots (in a manner of speaking)….AND I cling to my dollars.
I’ve been a dollar contrarian…all through the ups and downs of the last three years. (It’s been a sickening ride) Why? Because someone who knows a lot about the world told me this a few years ago: “Don’t bet against the United States of America.”
[Note: That’s not a vote for the dollar, which I think has terrible fundamentals. It’s a contrarian approach to moving out of the dollar. And as always, if things change fast, I’ll change my mind with them. I’d modify that: don’t bet too confidently against the United States.
Gold Action Vindicates Caution
All the bugs who were rah-rahing and telling people to buy gold over $1000, instead of cautioning them to take profits and watch out must be feeling subdued. Despite the thrust upward to yearly highs, the gold action this year never struck me as spectacular at all. Considering everything that’s gone on, it’s been rather staid.
The most common explanation for that from the gold bug community is manipulation. GATA has recently got confirmation of Federal Reserve gold swap arrangements that would certainly fall under the category of market intervention.
A second reason is that we still haven’t come out of the deflationary movement of the economy. We had the first wave of contraction last year, followed by an artificial bounce provoked by stimulus money and a lot of happy talk from the pundits. Now the second contraction has begun. Gold might do well in a deflation relative to other commodities, but so far it’s tended to sink when the market sells off, and that’s precisely what happened yesterday. No surprise there for me at all.
But it seems to have been a surprise to some traders out there. Rick Ackerman at Rick’s Picks expresses his puzzlement over the rush to dollars - it’s a rush to the Titanic, he argues.
Well - that’s why fundamental analysis is something you need to put on the back-burner when trading. I don’t care how bad fundamentals are. Nothing moves in a straight line down or up. Besides that, Ackerman, like many American commentators, assumes that his view of the dollar is the world’s view. That simply isn’t so. The dollar has terrible problems, but at least for now, there aren’t that many currencies that are free of problems - some of them worse than the dollar’s. And since the dollar is the currency used in a majority of transactions, moving out of them (which would be the case if you felt the economy was contracting) would entail buying dollars. It’s simple logic.
Finally - never pile onto a trade that has too many people on one side. That’s logic too.
Gold rose, but only wishful thinking would call it as powerful an upthrust as the gold experts have claimed it was. If you watch gold prices regularly, you’ll know it’s nothing for gold to move $40-50 in a day. It’s volatile. That’s its nature.
Add to its inherent volatility, the other things going on - the G20 meeting, much talk about altering the SDR’s backing, Bernanke’s comments about the recession ending, international tensions over Iran, the fact that September is usually a strong month for gold, Chinese comments about walking away from derivative contracts, China’s instructions to its population to buy gold — put all of that together and it’s not surprising that gold should have moved up by about $70.
If you bought earlier, you should have taken profits and you should be watching to see how things play out. I didn’t buy earlier, so I’m just watching.
I still firmly believe we are due for a correction - and a relatively big one. I’ll buy then (with reluctance - since I think it’s a terrible industry in many ways). But what if we don’t correct, and gold shoots up?
Well, what if? Then I’ll be out. So what? if it goes up, it’s likely to go to $1200 or so. That’s a 20% upside. It could also go down to $800. Equal downside.
That’s not a good ratio of reward to risk. There are any number of stocks which will give you that kind of movement if you like gambling. But if you’re investing - and not gambling - then you should act like an investor and ask if you really want to buy at prices that high at the end of a long upthrust.
It doesn’t make investing sense. So wait and buy on dips.
That said, I’m prepared to eat my words…
PS: Seems like Ackerman is in the deflationist camp (along with Shedlock, Prechter and others) - as opposed to the hyperinflationists like Schiff. [Correction: I accidentally had this in reverse, with Shedlock as inflationist. I've posted on why both Schiff and Shedlock are correct - and why that sort of face-off is misguided. Deflation in some areas and over a certain time frame can certainly take place with inflation over other areas. But if you consider inflation to be only the kind that shows up in CPI and on the grocery shelves then obviously, we haven't see the kind of hyperinflation that gold bugs are waiting for. One thing I fail to see from a lot of people is an awareness that what's anticipated from the Fed might already be priced into the dollar.]
Rick Ackerman’s Response:
RE: gold and the titanic?
From: Rick Ackerman
Sent: Fri 9/25/09 10:00 PMHey, Lila!
I’m using a $1074 target for Comex December Gold and have told my subscribers, many of whom are hard-money guys, that I can’t promise them any higher than that, at least not based on the evidence of GCZ’s daily and weekly charts. My gut feeling is that this is not the rally cycle that will take gold into the Promised Land, assuming it gets there at all. I’m still a hard-core deflationist who believes hyperinflation must ultimately play out, but not in time to save 80 million underwater U.S. homeowners from going through the ringer.
No matter what happens, the Baby Boomers’ retirement plans have already been deflated away to nothing. And concerning the dollar, I’ve moved beyond the idea that the currency is fundamentally worthless, accepting the reality that it trades, simply, as a share in USA, Inc.
With kind regards,
Rick
That’s a pretty good take on things from one of the more astute traders around.China’s Gold Rush..
From Adrian Ash at Bullion Vault, via goldseek:
“The International Monetary Fund confirmed on Friday that it will sell 403 tonnes from its hoard to finance development projects in poorer countries, offering gold to central banks before considering steady, pre-announced open-market sales.
“China has no need at all to Buy Gold from the international markets,” counters Lila Lu, chief precious metals trader at Minsheng Bank Corp. in Beijing, speaking to Reuters.
“Because China is a large gold producer, it can source gold directly from its domestic makers, most of which are state-run enterprises.”
Off-market purchases direct from domestic Gold Mining firms enabled South Africa – then the world’s No.1 producer – to double its gold reserves during the late 1960s.
“Why should we use US Dollars to Buy Gold?” Lu added today. “We can use Yuan instead to purchase gold from domestic producers.”
Early Tuesday the state-owned China Investment Corp. announced taking a 15% stake in Singapore-listed commodities trading house Noble Group at a cost of $850 million.
Physical gold demand from private Chinese households rose 9% in the first half of this year, trade marketing-group the World Gold Council said today, announcing an “unprecedented” sales push across rural China.”My Comment
There are several terribly important things going on in the capital markets and in international politics.
I’ll start with what most investors are probably watching anxiously - the teetering of the dollar at the lower end of the long term band of support (76-80), below which it plunged only a year ago. After showing some strength yesterday, the dollar is down again and gold is back up strongly over 1010. The reason seems to be the whispering in the markets that China will be buying IMF gold to supplement what are said to be meager reserves.
Rumors like these could be seen as a threat by the Chinese, for they expose China’s weakness in relation to other countries, especially those that possess better gold reserves. I suspect the comments by Lu are intended to diffuse that threat.
Another reason for dollar weakness is that the relative strengths of currencies are on the table at the G20 meeting, which is scheduled to take place in Thursday in Pittburgh, Pennsylvania and trade deficits are going to be considered - which is likely to be dollar negative.
The IMF sales are pretty interesting, although it’s hard to tell exactly what’s involved. It seems the gold will be sold to central banks (which ones?) and the proceeds will go to supplement and improve the financing now available to low-income countries (how?).
Question: Why should these professed good intentions be taken at face value, given all we know about the IMF?
At present, the IMF also allocates SDRs (or Special Drawing Rights) to each member country based on its contribution to the IMF (this is supposed to be a way to improve members’ liquidity in the international markets).
The SDR’s are based on a basket of currencies - currently, the US dollar, the euro, the sterling, and the yen - that can be traded for other currencies or used directly.
The IMF will use the gold sale proceeds to invest in other things. The interest from those investments will then benefit low-income countries. At least, that’s what I took away from my reading.
It all sounds suspiciously convoluted and opaque. My fear is that this is all an elaborate charade to leave some countries/institutions holding the “paper” bag, while real value is siphoned off by other countries/institutions.
I’ll leave you to decide who the winners and the losers will be….
Meanwhile, this is only my suspicion. I’ll need to go and do some more digging. But I’m putting my suspicions out here to fuel some leg work in the blogosphere.
Here’s a link to some relevant information on gold market manipulation at the website of the Gold Anti-Trust Action Committee (GATA), the leading activist group on gold price manipulation.
Especially read through the events surrounding the sale of Britain’s gold by then Chancellor of the Exchequer, Gordon Brown. Unlike other countries, UK gold sales are under the authority of the politicians. Brown sold British gold at a price lower than the market price at the time. The timing was extremely suspicious and followed on Robert Rubin’s unsuccessful attempts to get the IMF to sell its gold. The ostensible reason was to “help poor countries” - the same reason being given now. But the actual reason was a simpler one and one I’ve discussed a number of times. It was to keep the gold price low to support the dollar, disguise the rate of monetary debasement, and pump up the stock market. That in turn helped the derivative market, which Rubin and Greenspan had also helped to keep out of regulation. This was in the late 1990s….
Now, a decade later, the IMF hasn’t been weakened by the revelations of its sins. Instead, it’s been strengthened. And now, again, the IMF is selling gold - and again, the excuse is “helping the poor.”
Bernanke Declares Depression Over…
That’s it folks. Wrap it up. This here recession…correction…depress…oh whatever..is over. Time to go home. Put away your pens and paper, boys and girls.
Professor Bernanke says there’s going to be no test. Or there’s going to be just a take-home. Or better yet, you just get to write in and ask for whatever grade you want. Bob Rubin and Jamie Dimon get A’s, of course. The rest of you get good B’s…. No one fails. Ain’t life great?
Whew. That depression stuff was so, well, depressing. Glad it’s over.
Wasn’t so bad, after all, seeing as how it was the worse one in half-a-century and the sky was falling and we were all going to live in the Ozarks on canned peas and mackerel until we got raptured up… and really all that happened was some green paper got printed and we had a to listen to a lot of speeches in Barackistani (not quite as strange sounding a dialect as Bushlish but just as daft…) and then, bingo, everything’s back to normal again.
Yessir. The economy is healthy.
Except for jobs. No jobs.
What kind of recovery is that, you ask? It’s the new jobless, rocketing-inflation, trashed-currency, falling-house-price, bankrupt-government, kazillions-in-debt, trade-warring-with-China recovery - that’s what it is.
Glad you asked. Now you know…
Old Ground Hog Ben.Here’s the news clip:
“Gold futures climbed back above the $1,000-an-ounce mark on Tuesday, after upbeat U.S. economic reports and as Federal Reserve Chairman Ben Bernanke said the recession is likely over.
However, he and other Fed officials reiterated views that unemployment will remain high and economy stay weak well into next year, fueling expectations that the central bank will continue to provide ample liquidity. ”
More at Market Watch.
Gold Below $1000, While Dollar Slides
In the news, gold failed to find a foot-hold above $1000, despite a weakening dollar. A better-than-expected jobs report probably had something to do with that.
From Market Watch via Goldseek:
“Gold futures fell Thursday for a second session, continuing to pull back from the $1,000-an-ounce level as a slightly better than expected U.S. weekly jobless data reduced the metal’s safe-haven appeal.
The number of people filing for initial unemployment benefits fell to a seasonally adjusted 550,000 last week. Economists surveyed by MarketWatch expected claims to stand at 558,000.”
Major Market Move in Offing
Looks like there’ll be a good deal of volatility ahead in the markets this coming week and through the fall:
*From Monday last week onward, New York has been riled up by the news out of China that Chinese SOEs (State Owned Enterprises) might walk away on derivative contracts that they think have been deeply manipulated. (They’re right on that). The SOEs involved are Air China, China Eastern, and Cosco.
*The derivatives are not mortgage-backed securities (the cause of the 2008 melt-down) but - likely- hedged oil futures in the OTC (over the counter) market, which is unregulated (that is, the SEOs hold synthetic longs).
*The threat - if it is that - has forced gold out of its summer trading range to within points of the $1000 mark, before falling back..and it pushed up the Chinese market by about 5%.(Sept 3)
*The counter-parties are 6 foreign banks, said to include Goldman Sachs, UBS, and JP Morgan. Goldman could take a hit on the contracts for around $15 billion, it’s rumored.
Note: The Chinese have been buying IMF bonds (50 billion) and watching the US meltdown and “stimulus” hocus-pocus with a good deal of warranted alarm, because all it means is their investments are being manipulated and driven down.
Obama’s reappointment of Bernanke was also taken as a bad sign by the Chinese. (correctly).
*Rumors have been swirling of further defaults of major US banks.
*The G20 has a preliminary meeting this weekend and the Chinese are said to have put the purchase of off-market gold on the table.
*The Chinese are pushing gold and silver on their populations, probably in anticipation of a currency meltdown.
*Meanwhile, Hong Kong has asked for all its gold to be returned from London.
*Last week, Germany asked for all its gold to be returned from London.
*Meanwhile, Abu Dhabi Commercial Bank and King County, Washington State have brought suit against Moody’s, S&P, and Morgan Stanley on fraud charges for the contracts they wrote, a case that would have massive implications for how other contracts are treated.
*[Oddly (?), Washington State is also where the earliest swine flu cases in the US were detected and where one of the largest outbreaks on campus just surfaced today - with some 2000 students at Washington State University coming down with the virus. Washington State had previously received large grants from Homeland Security for emergency preparations for pandemics, had TV Public Service Ads in place, had written up plans and practiced exercises].
Gold Spike Related to Chinese Derivative Contracts Busting?
Here’s a zinger that might explain gold’s sudden spike since yesterday:
“Some of the State Owned Enterprises that stated their potential intentions to default were Air China. China Eastern and Cosco. Mainly in part because they took major derivatives losses over the past year but also, concerns are arising that the derivatives that they were sold by these foreign institutions are garbage, underwater and may never see the light of day. So why continue to pay for them? So the concern in the financial world is that holders of these losing products may just walk away, not unlike a home owner with a $600,000 mortgage on a home valued at $475,000 deciding to just hand in their keys. However, read on…this has nothing to do with morgtgage backed products. This time, the concern may be over Oil.
They (Reuters) cited 6 foreign banks. Where the story gets really intriguing is that among the major derivatives providers according to Reuters but also widely known in the industry, are Goldman Sachs, UBS and JP Morgan.
Here is the looming problem. These products are worth billions. One report that a good friend of mine did showed that if Goldman Sachs for example were to take this one up the rear, they could stand to lose 15 billion dollars. (This number is by no means confirmed)……. I would imagine that China, being the biggest purchaser of US debt, could surely collapse the US institutions that were at one point deemed too big to fail if they decide to go ahead with this plan.
This is why I don’t take tonight’s news that China purchased 50 billion dollars of IMF bonds lightly. In fact, I take it very seriously. This is why I take the buzz on the floor over the past two days very seriously as well as I do the incredible spike in Gold today. Most importantly, I do not take lightly the recent 25% correction we have seen in the Chinese Stock Market. Can all these events be interconnected some how? Is the Chinese stock collapse giving us a hint?”
Tips to Survive Hyperinflation..
Greg at Holy Cause has actually lived through the infamous Zimbabwean Zaire’s hyperinflationary crisis in the 1990s, so his words carry their weight in…er..gold (dollar-holders, I know that stings).
“Most Americans have not lived in hyper-inflationary environments. I have, and assure you that your primary protection is to not hold cash. Treat it like a hot potato, let it rot in somebody else’s hands. This is repeated as Rule #1 below, but it bears saying several times. Never forget it, when you get cash, flee to something else as quickly as possible…..
Just don’t hold an inflating currency - pass it on to the next guy like a hot potato, let it rot in his hands rather than yours.
Rule #2 – Have some type of business, even a “black market” one. Businesses which survived the inflationary hurricane in Zaire included those which were involved in the supply chain of basic consumer goods….money changing was also a profitable business…..
Rule #3 – Own a house and enough land to farm to feed your family. Houses (a primary residence), well bought and paid in full, served as a good hard asset, and provided a roof over one’s head as well. Having a little land to garden or for raising small animals helped keep a family from starving….
Read the rest of this great post at Holy Cause.
The Muddled Market
The market is talking out of all sides of its many mouths:
- USD/JPY is rallying and most currencies strengthened against the dollar, except the pound, suggesting a return to the risk trade.
- But……the pound sank..suggesting risk aversion
- But…the stock markets are up, suggesting an increase in risk appetite
- But……. the bond market is teetering as long bond yields are soaring, an indication that bond traders are skeptical about the future outlook
- But…..gold and silver prices are hitting resistance and falling back, suggesting either technical exhaustion or some return of risk appetite
- But….gold and silver prices are still high, especially for the season, which suggests widespread uncertainty about the economy
- But….jobless claims are down, which is good news for the economy
What does your earnest blogging-trader do on a day like this? She sits on the sidelines and spends the day printing charts of the indices. She also reviews her most recent trading sins and repents. Here’s her mea culpa.
I repent that I entered a trade with panic rather than reason.
I repent that I entered it on a Friday morning before a long weekend (last week) when the markets were thin and volatility greater than normal. I also didn’t calculate the spread and bought higher than I should have.
I repent that I forgot about position size and just dumped whatever I could into it
I repent that when the trade moved in my favor, I didn’t sell the whole position but left half in
I repent that I didn’t do the fundamental analysis but did a multicultural trade - picking 12 currencies that sounded good to me.
I came out alright, but it was pure fluke.
Your blogging-trader did not lose money. She made a bit. Enough to pay some pressing bills. She should be thankful, but being a trader, she knows that making money on a bad trade, is not the way to go.
Update: Non-farm payrolls came in at negative 345k after an expected negative 525k - signaling that the recession could have bottomed. This should feed the risk trade, which means my multi-currency trade (Koruna, Nordic currencies, and Singapore dollar) should end up alright (I’m a bit in the red now). The time frame is one more week or two)
Royal Canadian Mint Missing Gold, Silver, & PM Holdings
In the news, a Canwest News report notes that the Royal Canadian Mint has been caught with its gold, silver and other precious metals AWOL…
“A significant quantity of gold, silver and other precious metals is unaccounted for at the Royal Canadian Mint.
External auditors are investigating a discrepancy between the mint’s 2008 financial accounting of its precious metals holdings and the physical stockpile at the plant on Sussex Drive in Ottawa.
The mystery raises possibilities from sloppy bookkeeping to a gold heist.
Officials with the commercial Crown corporation are saying little and refuse to confirm the amount and value of the unaccounted for gold, silver and palladium.”
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