I posted this on the Stockman forum, but felt it had relevence here.

But first, the Vancouver mining and general index were up in spaces yesterday. The Vancouver index was up almost 4%. The DOW was down about 1%, Oil service stocks were up. Gold finished the day higher but I believe from last year within a percent lower, I believe.

Anyway here it is:

Leroy,

Derivatives are important to understand, yet they are the least understood of all financial instruments because they take futures, options, and swaps and add a layer of additional complexity. Their primary purpose is to increase or reduce risk. My opinion is that risk can never be eliminated. After studying the below material I find myself less assured that even the most astute derivative manager can fully understand let alone control a derivative transaction. I will let you come to your own conclusion. I am certain that the list of derivatives listed below are not comprehensive. As we find ourselves in the new year, two years away from the millenium (2001), derivatives will likely cause more pain than gain. This may be a timely article that gives each of us a deeper understanding of a complex topic AND one that may have significant impact on our future.

SteveH

The following is borrowed material. A bank investment officer wrote it in 1994:

What is a derivative instrument?

Derivatives are financial contracts or exchange agreements, the value of which is linked to, or derived from, the value of an underlying asset or reference rate, such as commodities, equities, interest rates, exchange rates, or other indices. Derivatives can be privately negotiated (OTC) domestic or global transactions. They also include standardized forwards, futures, options, options on futures, and swap contracts that are actively traded on organized exchanges. Hybrid combinations of these contracts form more sophisticated derivative instruments such as caps, floors, collars, and swaptions. Debt instruments that (1) have forward or option characteristics reflecting embedded derivatives or (2) are created by "stripping" particular components of other instruments, such as principal or interest payments, also fall under the general derivatives umbrella.

Who are the Major Players in the Derivatives Market?

Participants in the derivatives market can be divided into two groups -- end users and dealers. end users consist of corporations, government entities, institutional and individual inves6tors, and financial institutions. Dealers include banks, securities firms, and insurance companies. An institution may be involved in derivative instrument activities both as an end user and dealer. For example, a moneycenter bank acts as an end user when it uses derivatives to take positions as part of its proprietary trading or for hedging part of its asset and liability management. It acts as a dealer when it quotes bids and offers and commits capital to satisfy customers' demands for derivative instruments.

Why Are Derivative Instruments Used?

Derivatives are used primarily to help dealers and end users identify and manage fundamental financial market risks. These include interest rate, currency, credit, legal, market, and operational risks. However, they are also used by end users to take market positions, exploit inefficiencies between markets, lower funding costs, enhance yields, and diversify sources of funding.

What is [our] policy on the use of Derivative Instruments?

Derivative instruments are used [to] "cover" cash positions held in the various funds in order to maintain a fully invested position and to quickly and efficiently raise/lower exposure of an asset class in a cost effective manner when making asset allocation moves. Derivative securities are not used in speculative manner,nor to leverage the exposure to the financial markets in the funds.

Derivative Instruments:

Derivative: Forwards. Market: OTC market for customized contracts. Definitions: Forwards and futures obligate the holder to buy or sell a specific amount or value of an underlying asset, reference rate or index at a specified price on a specified future date. Example: U.S. importer promises to buy machinery at a future date for a price quoted in German marks and wishes to fix cost of converting to German marks at that future date.

Derivative: Futures. Market: Organized exchanges primarily for standardized contracts. Same definition and Example as Forwards above.

Derivative: Options. Market: OTC market and organized exchanges. Definition: Option contracts grant their purchasers the right but not the obligation to buy or sell a specific amount of the underlying asset, reference rate or index at a particular price within a specified period. Example: A mutual fund buys an option on a given amount of Treasury bills. The fund will benefit if the price of the Treasury bills moves in a favorable direction. if the price moves in an unfavorable direction, the fund will not recover the option's price.

Derivative: Swaps. Market: OTC market. Definition: Swaps are agreements between counterparties to make periodic payments to each other for a specified period on a notional amount of principle. Example: In an[sic] simple interest rate swap, one party makes payments based on a fixed interest rate, while the counterparty makes payments based on variable rate.

Derivative: Floating Rate Notes. Market: OTC market. Definition: Obligates the issuer to pay an interest rate on borrowed funds at a specified rate above or below or based on the relationship between more than one market rate, index, or reference rate. Example: Mutual fund buys a floating rate instrument that pays the yield on 91-day Treasure bills plus 25 basis points and is reset weekly.

Derivative: Mortgage-Backed Securities. Market: OTC market. Definition: Debt security that is secured by a pool of mortgages. Also known as a pass-through security. Example: Mutual fund buys mortgage-backed security issued by GNMA, FHLMC, FNMA or private issuer (bank or S&L) and receives interest and partial principle payments and the right to receive par value at the end of the life of the security.

Does the first poster of the year get a gold double eagle?

Steve

Hey Michael, the excerpt from the piece written by Tom Rose that you quoted on the Daily Market Report is not in the text of the actual post. Is some of the post missing ??

Turbo.....It's there. Towards the end just before the last section. What's your take on Tom Rose's thinking? On the inflationary consequences of the Asian problem, I see it as very consistent with Austrian analysis.

Steve H......I'll tell you what big guy: I will give you or anybody else a one tenth ounce gold coin who can guess the exact close on the February contract next Friday -- the end of the first week of the big year -- 1999. You get one guess and it has to be on the board by Sunday midnight so that all the technicians out there have the time to get their slide rules out and make an accurate assessment. The reasons why must also be stated or no prize. The price has to be exact! Please indicate your entry by putting three stars in the subject box to start (***). Good luck fellow meisters.
(We need something to do today between football games.)

mcphx.....Welcome aboard.

by Lawrence M. Parks

http://www.FAME.org/famennews/ART-007.HTM

Question: How reckless and irresponsible do banking practices need become before Mr. Greenspan considers them so? As of this writing, the banking system has outstanding more than $60 trillion worth of derivative bets. Is that "reckless and irresponsible?" (When I was growing up, these are numbers that were reserved for astronomy.) How about when the amount reaches $100 trillion, or $500 trillion? Perhaps he will one day share with us his criteria for "reckless and irresponsible practices." Also, maybe he will tell us why taxpayers should provide a safety net/subsidy to the banking system so that it may engage in this kind of gambling.

In the meanwhile, it appears to this writer that Mr. Greenspan is telling us, albeit in an obtuse fashion, that there is substantial systemic risk. The only way that risk can be adequately hedged, it seems to me, is with gold.

A Question of Justice
Gold people can help the nation and help themselves by emphasizing the injustice of our present fiat money system. It unjustly empowers the banking system, a small cartel of private companies, to create money out of nothing and get the interest on it. It constitutes stealing from savers who are mostly working people and seniors. It compels taxpayers to subsidize the banking system�s derivative and currency trading bets and to bail out the banks when they lose their bets (but if they win, they keep the winnings). It puts all of us at fantastic and unwarranted risk that the entire monetary edifice will come crashing on our heads as with the Great Depression. It is not fair.

This does not mean that you should not act to protect yourself and your families. While you may not be able to protect your purchasing power, you can preserve wealth. You can buy gold and encourage others to do the same.

When should you buy gold?
Better five years too early than a day late!

yeah, this is straight out of the Austrian handbook. Thanks go to you for making it available.

I still don't think I'm receiving it all ... the problem must be on my end, most likely caused by AO(HEL)L.

PH....Mr. Parks get's right to the point doesn't he. "Reckless" describes it. I've always wondered why Greenspan always clams up and get's real evasive when the subject of derivative's comes up at those Congressional hearings. You would think that he might have a problem with tools that so warp and distort the free market process. Instead he not only looks the other way, he applauds their use.

Happy New Year...PH. I appreciate and gain from you consistently strong and well-considered posts, as do we all.

If you continue to have a problem, call the office Monday and we'll send you a copy.

Michael:

Is it too late to make a suggestion for the new contest? Your proposal of guessing the POG for Friday is more like gambling than prediction and thereby tends to erode the character of participants rather build it by encouraging thought. Why not insist that each poster include a reason and/or reasons why he/she thinks the closing price will be so (in 25 words or less?). That way, the rest of us can profit from the winning thinking as we allow the marketplace to define which "thought" was correct.

I think I did that....."The reasons why must also be stated or no prize!" I had the same thought you did and tried to cover it. Let's make it "at least" 25 words. Any other ideas out there before we get rolling??

My last message was for PH and all...

While we're at it...All first time posters between now and Sunday midnight will get the usual choice of book: The ABCs of Gold Investing or In the Footsteps of Giants. It has to be a good, solid post. Just post it, e-mail us a heads-up and the book's out the door to you.

I'll check e-mail from time to time for newbies.

All are welcome.

"Now that system broke down -- Bretton Woods broke down -- because eventually, after the inflation caused by three wars, the price of gold at $35 an ounce was repressed;
monetary discipline breaks down under the exigencies of war. It became too low in real terms, and when the U.S. ceased feeding the private market, the price of gold went up to its natural level. The price went higher in the 1970s and early 1980s than expected because in 1975 American citizens were, after 30 years of prohibition, allowed to have gold. But gold hasn't done anything different from oil. About 10 to 14 barrels of oil still exchange for an ounce of gold as they have throughout most of the 20th century. That ratio, the real ratio, has been fairly stable. What has been unstable is that the currencies have come down against gold, oil, silver, platinum, copper etc. just as there are two types of fixed exchange rate systems, there are two types of gold standard. There is the type of gold standard where you simply stabilize the price of gold and not allow fluctuations in gold reserves to have an impact on monetary policy, sterilizing gold movements and preventing any impact
on bank reserves. The other type is a completely automatic system where gold policy becomes monetary policy and open market operations are dispensed with (except possibly to supplement gold with credit in the growth process)...."

Robert Mundell, Columbia University, Professor of Economics
Speech delivered May 17, 1983

USAGOLD comment: At present it takes 25 barrels of oil to purchase an ounce of gold. In effect, the oil producing states have borne the brunt of monetary inflation and stability in the West. Recently there was talk of Saudi Arabia being forced to devalue the ryal. This state of affairs could signal a clean break with the dollar over a very short period of time making the events of the mid-1970s a command/repeat performance.

Mundell's complete speech is worth a bookmark and study for students of monetary economics. Mundell favors a gold standard.

www.polyconomics.com/searchbase/12-18-98.html

My reason is that the PPT and other powers unknown shall be attempting to hold the markets from falling until the US Senate determines the fate of the President. After all, a crash would not make his popularity rating make good press, would it ? GC9G close = $290.50
<;-)

Thanks for the invite to post. It's hard to see what will make the POG rise short of a collapse scenario. The fed has a lot of muscle and will use it to keep things afloat. I wee no evidence that the hedge funds are being forced to cover 'leased' gold, by the fed in order to reduce the overall risk to world markets. In fact they seem to have plenty of lattitude to keep the scam going. That leads me to believe that we need to see lower prices before higher ones will come. If any sort of organized covering comes it will drive prices up in a hurry, so I believe that any attempt at this will begin from lower levels, so as to be able to safely cover under $300. I don't think any sustained rally is possible until CBs pull the plug on 'leasing' ,or they lose control. I'll take a stab at 282.50 for next Fri.
That said, I'm optimistic that after one more stab at support around 278( while the dow makes a triple top) we'll get to higher prices when the markets crack open. It's over when the internet mania ends, but it may go quite a bit higher first. I see a distinct chance that gold may see 250 before 300
On another note, I had a chance to hear Frank Veneroso speak at the recent SF mining show. He went on at length about the gold shortfall and how gold must eventually rise. Eventually is not quantifiable however so no help in the short term. He was asked if he was familiar with the postings of Another. While not knowing of Another he was familiar with the ideas, and it was his opinion that these were ideas from the far fringes of reality (my paraphrase, not his words), and not likely to be based on reality.
Good signs of life today in some of my favorite stocks like NSU, FOM, MIQ and even KRY!

The POG will hit the $308.20 because of the following:

EU will announce 30% gold backing.
Drudge will announce his breakneck news.
SA will announce it will only accept Euros for oil.
PC will resign.
Other than that I can't think of anything.

Redtail...Interesting that ANOTHER would become a subject of discussion at the San Francisco gold conference.

SteveH...Admirable post. Admirable prediction. But who is PC??

On ANOTHER note: If they truly want to have a national college football championship, they need to have a game between numbers one and two after the bowl games, not before. From what I've seen there's not doubt that Ohio St. is the best team in the college game -- one man's opinion. Yet its going to get down to Tennessee or Florida St. from what I've been able to gather.

It will go up a couple days, will go down a couple days, then it will go up again on Friday.

Really it depends on the hedge funds and whether they take the offensive early in the year. Possibly every one will just kind of wait and see, in which case gold would be up by about ANOTHER three dollars.

GF

SteveH- Who is PC?

From an email newsletter: good analysis (the news behind the news):


Y2Knewswire.com

Date: Fri, 01 Jan 99 17:27:51
Subject: Y2K Alert - 1/1/1999 - USA Today poll reveals banking threat

USA TODAY POLLS REVEAL THREAT TO BANKS [News]

USA Today proudly announces, "Y2K bug fears subsiding," quoting from
a poll that indicates only 35% of those polled expect "major
problems" compared to 48% last June.

Story details at: http://www.usatoday.com/news/ndswed10.htm

BUT WHAT'S THE REAL STORY? [Commentary]

But the headline belies the right story. There are only two ways
rational people reduce fear: they either see evidence of Y2K repairs
being completed or they reduce fear by getting prepared. And what
we're seeing in this case is a dramatic *increase* in the number of
people planning to undertake major preparations. (Poll numbers quoted
below...)

It's also important to note there are two categories of questions the
pollsters asked here: 1) Questions about personal preparedness, which
the respondents are highly qualified to answer, and 2) Questions
about the general impact of Y2K on society, which the respondents are
almost universally not qualified to answer.

Once you realize this, the poll responses start to take shape. On the
answers the public is least qualified to answer, the picture shows
that Y2K fears are subsiding. But on the answers the people are
qualified to answer, it shows that things are headed into the danger
zone. We'll explain in great detail why this is true. Keep on
reading...

THE WILD GUESSES

On the questions the poll participants are not qualified to answer,
their answers still reveal a trend toward concern. The USA Today
headline mentioned only one statistic. There are many others that
paint a different picture, such as:

* 16% of the general public is now "very concerned" about the Y2K
problem, compared to only 7% a few months ago (taken in a different
poll)

* Over 1/3 think the Y2K problems will last for several months.
Another 1/3 think the problems will last several weeks.

* 6% of the respondents now believe Y2K will result in disasters
that could cause loss of human life (a few months ago, almost nobody
believed this. A year from now, everyone will believe it.)

* 25% think Y2K will seriously affect the U.S. economy in a negative
way

.. but as we've pointed out, these numbers are all but worthless. No
member of the "general public" is qualified to provide meaningful
answers about what will happen to the world when Y2K hits. Even the
best "experts" agree that the end result is largely unpredictable. In
addition, the opinion of the public has rarely been a reliable gauge
of what will happen in large, complex, unprecedented situations.

THE IMPORTANT ANSWERS

But there's a part of the USA Today poll that *does* provide
meaningful information. And when you look at this information
closely, you realize how little the public really understands Y2K.
That's because their own answers of what they're going to *do* about
Y2K contradict their wild guesses about what those actions will
*cause*.

Here's the best example: the poll revealed that 16% plan to withdraw
ALL their money from the bank. 31% plan to withdraw and set aside a
"large amount" of cash. While previous polls have revealed similar
plans from people in the information technology industry, this poll
shows that not only is the general public planning on withdrawing
their cash from the banks, it provides numbers that, if followed,
would without question deplete the entire banking system of its cash.
Bank runs and bank holidays would likely follow.

Here's how the numbers work out: the banks currently hold
approximately $44 billion in cash reserves. This is reportedly going
to be shored up by the Federal Reserve at some point in 1999 with up
to $200 billion in cash reserves that they claim to have set aside.

Banks currently owe depositors approximately $3.7 trillion. That's
money the banking customers have deposited with the banks. The USA
Today poll reveals that 16% of the customers plan to withdraw ALL
their cash. 16% of 3.7 trillion is $592 billion.

In cash.

Look at the numbers again: the banks have $44 billion. The Fed has an
extra $200 billion. The people want $592 billion. But the banks don't
have it.

THAT'S NOT THE END OF IT, THOUGH

This is only considering the 16% who said they would take out
everything. What about the 31% who said that would withdraw and set
aside a large amount of cash? What impact might this have?

While it's difficult to put a number on such vague statements, we'll
suppose that $2000 is a "large amount of cash" for the average
American household. You can run the same calculations with $1000 if
you wish: the results still lead to massive bank failures.

If 31% of the 100 million households each withdraw $2000, you'll need
another $200 billion in cash. While there's some overlap here with
those in the 16%, we're still talking about hundreds of billions more
in U.S. currency than exists on the entire planet. (Less than $400
billion in U.S. currency is currently in circulation around the
entire world according to Federal Reserve estimates, and only about
1/3 of that is in the United States.)

WHY HAS THIS CONCLUSION SLIPPED PAST EVERYONE?

The polls are now nationwide news, but the conclusions we've just
demonstrated here are only being pointed out by a handful of people.
If the people answering these polls are to be believed, their actions
will, without question, deplete the entire system of cash. The banks
and the Fed are going to have to come up with a solution here, and
there are only a few months remaining.

Think about this: to run a nationwide poll that concludes people will
withdraw *at least* $600 billion in cash from a system that currently
only holds $44 billion, and then to print a headline that claims
fears are subsiding completely sidesteps the important point here. It
is time to ask that question: what will the banks give people when
they run out of cash?


THE REAL HEADLINE

Had USA Today considered the obvious ramifications of the poll
results, the headline *should* have been this: "Y2K To Collapse
Banks." Of course, this would have been *far* too frightening for the
general public to handle, so a positive headline was chosen instead.
Nevertheless, the underlying truth still exists. We are now facing a
monetary crisis of unprecedented proportion. Our current banking
system has never been faced with a global, simultaneous forced
conversion of the money supply to cash. These things aren't supposed
to happen in a stable economy, and the fractional reserve nature of
the banking system simply wasn't designed to deal with this event.

Make no mistake: the banking system as we know it will soon be
history. It *must* undergo radical changes to survive. The USA Today
poll numbers demonstrate this with uncanny clarity. It doesn't
necessarily mean you'll lose any money, it just means you might find
yourself using electronic money at some point rather than cash. Cash
obligations are quickly becoming a deadly liability to banks. But in
the turmoil, nobody really knows what might happen. That's why other
people are taking their cash out: just in case.

Remember, on the questions the poll participants are most qualified
to answer, (that is, what will they DO) they've indicated they will
collectively bankrupt our current banking system. This is no longer
mere speculation. The public has spoken, and they have said they will
bankrupt the system in their desire to withdraw their cash.

Y2KNEWSWIRE has predicted the Federal Reserve will not allow this to
happen. It can't allow it. Cash will somehow have to be restricted,
rationed, or made illegal. The mass conversion to cash will be
halted, and it will happen in the next 12 months.

OTHER USA TODAY POLL RESULTS

The poll also reveals that 26% plan to stockpile food and water. This
is very encouraging, and it perhaps explains why some fears are
subsiding. This number is MUCH larger than what we've seen in the
recent past. Now a full quarter of the population is planning on
taking action. Once Clinton addresses the nation on Y2K, that number
will leap to 50% - 75% of the population. Remember, the Red Cross is
now recommending a one-week stockpile of critical supplies, including
cash. This recent announcement was a great leap forward in Y2K
preparedness progress, because it liberated "preparedness" from the
realm of whackos into the mainstream.

As it turns out, the only crazy people are now those who aren't
getting prepared.

NOT GONNA FLY

Almost half those polled revealed they plan to avoid air travel
on or around 1/1/2000. Smart choice.

CONFIDENT THE GOVERNMENT WILL WORK

Here's the most fascinating result of the poll: over 2/3 are
confident the U.S. government, including all federal offices and
agencies, will have corrected the Y2K problem in time.

This is again strong evidence the general public is poorly
qualified to comment on anything other than their own private
plans. To see that 2/3 of the people actually believe the entire
federal government will operate without a hitch is to understand
how little these folks really understand about Y2K. For the
record, the federal government continues to award *itself* a
failing grade on Y2K progress. Several agencies won't be finished
until 2002 or later, and even the best-prepared agency, Social
Security, won't be finished until June of 1999. And it's been
working on the problem for two years.

There's really no question here: the federal government will
experience some Y2K-related problems. Perhaps large ones.
Two-thirds of the general public are going to find out they were
wrong.

GETTING CASH OUT OF THE SYSTEM: A PRIMER

This item appeared on a Y2K newsgroup recently. The subject was an
unconfirmed rumor of some new draconian cash-withdrawal (rationing)
restrictions. This particular item offers an excellent list of
how-to ideas.

Mark my words: Today's "unconfirmed rumor" will be tomorrow's
reality, for reasons that should be obvious after reading the USA
Today analysis below. Think and act, now. -- AEL

-----------------------------------------------------------------------

michael,

If properly presented as a temporary measure due to Y2k (oops, an
admission that Y2k is very real, very serious), then it might get by,
though the limit is laughably too low for many people. As a general,
permanent policy -- highly unlikely.

In either event, counter-productive currency hoarding would begin as
soon as this hits the wind, a black market would quickly spring,
forcing many normally law-abiding citizens into criminal activity,
and "mostly cash" transaction businesses would immediately see a
surge in popularity, though small, discretionary purchases would
begin to suffer.

Some work arounds:

Have accounts for your wife and each of your dependent children. Then
have each withdraw the maximum each month. Load 'em all into the car
the first Saturday of each month and head to the bank. Then barter
your "excess" currency for other goods and services, probably at a
discount.

Open mutliple bank accounts for the sole purpose of pulling extra
currency, as needed.

Use your business/hobby to tap extra currency as needed.

Seek out people who use very little cash (e.g., retired parents) and
have them deposit your personal check (this would appear to be a
"gift" to them). Then, have them immediately withdraw the cash for
you.

Buy your stuff at places that will allow you to write a check for
more than the items purchased and who will give you the difference in
cash.

In an emergency, take cash advances against a credit card.

If the Feds make all of the above illegal, it's time to find some
other place to live.

-- Nathan (nospam@all.com), December 29, 1998.

MK What you have said before about "Great Minds" must surely be true ! As Goldfly has also confirmed that the close of the Feb Gold contract (GC9G) will be $290.50 ALSO !
Does this mean that when you see that it comes true, that you will make duplicate awards ?
<;-)

Ok, just to make it different- 290.60


Next contestant! Come on down to the POG is right!

Didn't know if you guys saw it but Colin Semour's Financial Pages in Britain awarded USAGOLD FORUM! the runner-up position for best gold site behind Kitco Discussion Group.

Go to: www.users.dircon.co.uk/~netking/finan.htm

Thanks for the recognition, Colin, and while we are passing out kudos, I would like to compliment you on your excellent site as well as your solid, on-going contribution to the internet in general and gold's cause in particular. I'm glad you're on our side. Happy New Year, fellow goldmeister.

PC=President Clinton

Frank Veneroso is a gentleman and his contribution to the discussion and research on gold is invaluable, however, I would have thought his comment more palatable if he had read ANOTHER's postings. I think if Mr. Veneroso took the time to read ANTOHER's postings as a body of work, he would recognize at the very least the educational importance of ANOTHER's work which certainly supplements, aids and supports his own. If he comes to the same conclusions having read ANOTHER's work, then I would have to take what he has to say about it. His thinking is to be respected.

Let me just say this: Both have made breakthroughs worth noting on the all-important subject of gold. Veneroso's have to do with the algebra of gold; ANOTHER's the theology. One appeals to the left side of the brain; the other the right. Where Veneroso relies on the formula; Another relies on the intuition. With Veneroso the future price of gold is quantifiable; with ANOTHER anything is possible. What is interesting about both is that their knowledge of the gold market apparently comes from contact with European central bankers and major traders in the yellow metal. Both believe that an exceedingly high dollar price of gold is possible if the current leasing/derivative strategies promoted by the bullion banks breaks down.

Does one have more to offer than the other? Not really. Both have great value to the gold advocate and investor and I wouldn't restrict my store of knowledge by rejecting one or the other. I might add that when Veneroso's work on central bank gold leasing (some 4000-5000 tons when he first broke the story) first came out, he was accused of being on the fringe in some circles. Now his thinking has become mainstream and there few involved in gold who do not accept that something other than free market forces is at work in the gold market.

An educated aware, gold investor is the most important weapon we have against the forces of fiat money. ANOTHER and Frank Veneroso have both contributed greatly to that end.

AND note that Colin Semour quotes redtail from the USAGOLD FORUM on his Brittish web page !
<;-)

I posted the following analysis to csy2k regarding the collapse of banks that is being speculated. DD and Mr. McIsaac are posters to that group. Post follows;

Subject:
Re: Guaranteed Collapse Of Banking
Date:
Thu, 31 Dec 1998 22:16:36 -0600
From:
ET
Newsgroups:
comp.software.year-2000
References:
1 , 2




It might be a good idea to actually examine what happens when people
withdraw money from the bank. Initially, they take it home, but they
still have to pay bills. Is it more convenient to leave money in the
bank or pay your bills with cash? In either event, the cash ends up
back at the bank. Busineeses have bills to pay, and to pay them they
must put the cash back in the bank. DD has made this point several
times, in his own idiosyncratic way. The only bank run that is
possible in my view is one comprised of taking excess cash, over and
above monthly cash. I don't know how much excess cash people keep in
banks, but as a percentage of other investments, it is likely small.
Now if people try to liquidate all investments, that would be a
different story, but I can't assign an extremely high probability of
this happening at this time. I think Mr. McIsaac is entirely correct in
his view that banks will do their best to reassure customers that their
ability to process checks and credit cards will remain intact. I would
expect their arguments to be very reasonable and honest. The honesty
part is regarding the ability to access such money, not the value of
such money. From what I can gather about the processing of
transactions, it appears that for the most part this end of the
remediation work is going about as good as any out there. I expect we
will know more over the next few months as systems start to look
forward, but if the problems are minor and don't effect commerce in any
great way, I would suspect the industry's ability to handle the rollover
seem pretty good. I don't foresee bank runs as being the demise of the
banking system. They have plenty of other problems to keep them busy.

ET

End post;

Comments?

ET

If I understand what you are talking about:

You are getting close to the legal argument about what constitutes money. I think the reference to "the value of the money" as opposed to its accessibility is the key discussion. I think if you have some legal representation that the money was there on deposit as of your last statement you may believe that you have that money, but in a court of law it might come down a burden of proof issue. In other words can you prove that the money was there? The bank could always argue that you withdrew it. We are dealing no longer with whether or not paper is money, but whether or not silicon book entries are money. Neither are and that is the root of the problem. I am not as certain as you that bank runs will not be a problem. The stories of multi-million conversions of dollars to gold are the child of this problem. There might be some advertising as the year progresses that one bank is better prepared than the other; or even that a euro deposit in Europe might be more Y2K proof than an American counterpart.

It would be interesting to hear the opinion of a legal expert on the matter of proving that you have x amount of dollars deposited at y bank. Perhaps one practical step would be to have a statement pulled on 12/30.

From Clint H

Much has been written about preserving wealth and protecting purchasing power by owning gold. Reading the post #1581 by PH in LA promped me to post an idea.

There exists an opportunity to increase wealth by implementing the proper plan before the big event, the coming global depression. This opportunity did not exist before the last depression because the price of gold was fixed. It will not exist again for several decades once the dominoes start falling.

Here are factors that must be considered in labeling this a good or bad idea. Consider Y2K, the EURO, the overvalued stock market and the possibility of hyper-inflation. (you decide the importance of each) These factors could push gold prices up as valued in US$. Also assume a bottom gold price at $300 US. If gold were to bottom at $200 and stay there the following would be a bad plan.

If you believe gold will go to $1000 - $6000, this can and will work. The key is found in the words written on all US currency, "This Note Is Legal Tender For All Debts Public And Private." Until the US currency is changed as a result of inflation or hyper-inflation, debts or mortgages can be paid in US$. This is a plan based on contracts to be paid in US$.

Example: Purchase assets now that will be held thru bad times and have a high value in the future. Purchase now at little down and low long term payments. Let's assume a $100 thousand mortgage on a like priced asset. Low down with low monthly payments. Set aside a trust fund of gold bullion for $100 thousand at $300 per ounce. If nothing happens, it's even money except for interest paid.

Assume gold goes to $6000. You now have $2 million in US$ exchange rate. Sell 5% of the gold for US$ to cover the US$ contract of $100 thousand. Use the 95% left over ($1.9 million US$) for normal deal making during the depressed times.

Paying bills that do not have assets attached gets a person even but does not increase wealth. It only spends gold.

The banking system uses fiat money to create leins against assets of value. Most valuable assets in the US will revert to the banking system in a severe deperssion because most carry some form of morgage. To most, cash flow to make morgage payments will be impossible. It's not fair but it is the system.

Play the system but play it backward.

The opinions are my own

Clint H

Good strategy. Might also be helpful to park the gold account in Switzerland where it is beyond the reach of US authorities and can be easily converted and transferred upon your request. I know of people who have done exactly as you suggest, but the gold account is offshore.

ET

Usagold - my observation is based on a couple of factors. First, how much money do people actually keep in the bank anymore? Real estate, equities, credit instruments, gold and silver all take the place of cash. None of these are generally found at the bank. I would suspect that most people just don't have a lot there nor could they take it home for any great period before it makes its way back to the bank because they needed to spend it on something or pay a debt. It doesn't matter anymore whether it is 'green' cash or 'electronic' cash, it is all the same. As long as credit/debit cards work, there is no reason to secure green cash, it is inconvenient. I believe that will be the banking industry's message this year. Secondly, the reference to the 'value of money' refers to the Fed's ability to maintain the purchasing power of the dollar. The banks will not be able to guarantee this. Ha - neither will the Fed! Hence gold or other hard assets might be a better choice for investment purposes but cash is about all you have for paying bills and such. So my point in the end and why I don't believe bank runs are going to be a big problem is that little green cash is needed to maintain commerce if credit/debit cards remain working. You can go to the bank and yank your cash or you can simply write a check or use your debit/credit card and they are equally money in the vendor's eye. The vendor is guaranteed payment if the bank authorizes the card upon use. I think once people realize this is the case, bank runs won't have near the significance they did in the past.

ET

I see your point and it is well taken. I also agree that the bigger problem will be maintaining the value of the dollar in the face of euro introduction. Next week could be interesting.........

To be sure, I haven't considered the Y2K related problem with the banks as important as the power companies and telephones. Let's face it no matter what the banks do, if the power goes off, we're in trouble. Agreed?

Yeah - that would be tough. As I told you earlier, after following this issue for several years, I do believe that for the most part utilities, telcos, and the payment system should remain mostly intact. There hasn't been much effort spared in these areas, especially the last 12 months or so. It pays to prepare nevertheless. There are no guarantees.

On an unrelated note - have you or anyone else been able to determine the exact amount of gold assigned to each Euro? Did the total gold backing come in at 15%? Is it too early to be asking these questions?

Thanks for the site - you deserve the praise.

ET

There are about 100 Million households in the US. With an admitted figure of $150Billion in cash reserves plus the additional $50Billion being stored, that allows each US household to withdraw $2000 each for Y2K related purposes. That leaves $0 for business transactions. The only cash or money available if the lights go out will be what is in physical possession. What about the $5Trillion or so of money market accounts and demand deposits?? They will vanish from the system for the duration of the emergency. As for Switzerland, over the past several years, swiss banking has been co-opted for MLATs and treaties with the USTreasury for drug-induced fishing(revenue)expeditions. The world banks are a sieve for private information ever since The USG stole the PROMIS software from Inslaw. If Y2k is the trigger, martial law and asset repatriation and confiscation will be the standards by which we eke out our sorry socialist lives in the near future. I have no doubt the USG will do whatever neccessary to maintain power and control. What will our masters leave us with in the new fuedal age??

"More than 30,000 people yesterday joined a street party on the lawn in front of the European Central Bank in Frankfurt to celebrate the launch of the euro and first economic union in Europe since the Roman Empire."
--- Financial Times 1/3/99

"...many analysts believe the euro will prove to be a strong currency and could even end the US dollars long standing dominance in the world's financial markets. The banking community is likely to purchase large quantities of euros in preference to currencies outside Euroland such as the pound sterling or even the dollar."

"...an Indian public-sector bank has already purchased 5m euros and several leading financial institutions in the City of London are believed to have been active in the euro market."
---BBC NEWS 1/3/99


"A recent analysis by the Merrill Lynch investment house cited estimates that investors could shift as much as $US1 trillion into euros, and central bank shifts might convert as much as $US300 billion, if the euro proves highly attractive...

Experts say that if the dollar were to lose some of its unique status, it - and the US economy - would become more vulnerable to the fierce tides of global financial markets. The US now is able to run huge trade deficits without risking investors fleeing the dollar. That is an enviable difference from the plight of emerging nations, whose currencies face ferocious speculative attacks when investors lose confidence in their economies. In 1997 and 1998 they had to push interest rates into the stratosphere to combat investor flight and retain foreign aid.

If an ascendant euro took away some of the dollar's unique standing, goes one point of view, the Federal Reserve would have to weigh the dollar's strength in making decisions about US interest rates - raising them to attract foreign investment, for example, if the dollar were deemed too low.

'We don't normally think about that at all,� said Mr Kurt Karl, chief international economist at economic forecasters the WEFA Group in Philadelphia. In a world where the dollar is less in demand, "you can't borrow as easily on international markets" without offering high interest rates, added Mr Karl, who expects the euro to become an established, reserve currency along with the dollar, over the next decade. 'What it really comes down to is that money becomes more expensive.�

And, of course, a weaker dollar diminishes Americans' purchasing power by making imported goods more expensive. At the same time, it makes US products more competitive overseas - good for US jobs....

The biggest dollar impact, however, might come from Asia, where financial officials have made no secret of their wish to diversify foreign exchange holdings that long have been concentrated in dollars."

--- Jonathan Peters/Los Angeles Times

"Joseph Yam, chief executive of the Hong Kong Monetary Authority, the territory's de facto central bank, yesterday floated the notion of an Asian version of the euro, saying market unity would bolster the region against speculative attack...Asia has flirted with various intiatives, largely led by Japan, particularly since the regional crisis began in July last year."
--- Financial Times 12/31/99

"The markets previously thought a broader EMU meant a weaker euro but the sheer size of the euro zone means that the euro has much more potential to be a reserve currency than many think."
--- Avinash Persaud/J.P. Morgan

"Goldman Sachs, the U.S. investment bank, has chosen volatilities in euro/dollar foreign exhcnage options as one of its 'top 10 trades� for 1999."
--- Financial Times 12/31/98

Beautiful, you're beautiful, as beautiful as the sun
Wonderful, you're wonderful, as wonderful as they come
And I can't help but feel attached
To the feelings I can't even match
With my face pressed up to the glass, wanting you
Beautiful, you're beautiful, as beautiful as the sky
Wonderful, it's wonderful, to know that you're just like I
And I'm sure you know me well, as i'm sure you don't
But you just can't tell
Who you love and who you won't
And I love you, as you love me
So let the clouds roll by your face
We'll let the world spin on to another place
We'll climb the tallest tree above it all
To look down on you and me and them
And I'm sure you know me well, as i'm sure you don't
But you just can't tell, who you'll love and who you won't
Don't let your life wrap up around you
Don't forget to call, whenever
I'll be here just waiting for you
I'll be under your stars forever
Neither here nor there just right beside you
I'll be under the stairs forever
Neither here nor there just right beside you.Beautiful, you're beautiful, as beautiful as the sun
Wonderful, you're wonderful, as wonderful as they come
And I can't help but feel attached
To the feelings I can't even match
With my face pressed up to the glass, wanting you
Beautiful, you're beautiful, as beautiful as the sky
Wonderful, it's wonderful, to know that you're just like I
And I'm sure you know me well, as i'm sure you don't
But you just can't tell
Who you love and who you won't
And I love you, as you love me
So let the clouds roll by your face
We'll let the world spin on to another place
We'll climb the tallest tree above it all
To look down on you and me and them
And I'm sure you know me well, as i'm sure you don't
But you just can't tell, who you'll love and who you won't
For most of December there has been substantial consternation over the failure of the
Euro and its possible gold backing to raise the POG. Simultaneously, the ongoing Swiss
Referendum indicates that even a nation noted for fiscal conservatism, was considering
liquidating its gold assets to fund social programs. Aligned to this is the fact that the other
EU nations have extensive social costs requiring high taxation. It is not much of a
speculation to presume that the gold in their CBs is a tempting target.

The quantitative fundamental is that while gold earns no interest, if the holder of gold is
paying out interest on debt, than the reduction of that debt by the sale of that gold ,
creates "earnings" by divesting that holding.

Now, per "selling into strength", it can be seen that the increased demand created by the
impending Euro could create the opportunity for a CB to move out a large amount of
gold. The media could even have been "encouraged" to give exposure to the Euro, Chinas
intentions, gold backing etc. It could be that the "mission was not to denigrate gold to
assist the Cbs to buy it, but for the moment, to promote demand, for the CBs to be able to
sell it.

The trading action of the last few months would be more explicable in this theoretical
scenario. My belief is that when a traded instrument moves counter to both fundamental
and technical indicators, there is an unknown other fundamental activity going on. This is
the rational behind the old adage "The tape doesn't lie". Somewhere in the scheme of
things, an event is transpiring that is yet to be uncovered.

So, regarding next weeks trading, the Belgian cat is out of the bag and I predict that other
such events will lay low for a bit, to allow the POG to recover. However, as seeds of
doubt have been sown, I don't see that much recovery.

My estimated Friday close is $292.40

Borrowed computer

That poem was in the memory of our host's computer, author unknown. I removed it once and it popped up anyway. Start reading at "for most of December"

You have given us updates on Gold lease rates. I used to get them from Kitco but they haven't updated theirs for months. Can you tell us how to get them on the net?

I have been getting lease info. from kitco. Look for Dabchick (I believe that is the spelling). He posts everyday, I think around 4:00, but am not for sure.

Steve

In 1913, the Federal Reserve was created, at least in part, to facilitate the introduction of socialism into the largely capitalist US. In 1999, the EMU is created to facilitate the introduction of capitalist-style monetary reform into largely socialist Europe. Ironic isn't it ??

It appears we're about to see the collapse of the welfare state in America. Europe is apt to share the same fate ... the introduction of the euro is only an effort to treat the symptoms. The socialist governments offer no hope for fundamental capitalist reforms.

This period of change is good, as it promises to destroy the power structure of the puppetmasters and will likely usher in a new period of freedom and prosperity into world history. But getting from here to there is gonna be a bear (no pun). Waiting with anticipation ...

$1.1739 from $1.16675. +.61%

Japanese buying for reserves pushes up new currency, according to Bloomberg.

Gold opens up on Globex 40�.

There you have it. The official start of the new year. Ok Euro, do your thing.

$290.00!!!

"Bank of Japan Governor Masaru Hayami said in an interview with business daily Nihon Keizai Shimbun last Friday that he expects the euro to become a 'strong key currency.' He was also quoted as saying that the yen's status may falter, making it necessary to make the yen easier to use."

Tokyo, Jan. 4 (Boomberg) -- The euro rose agaisnt the dollar in its first day of trade on optimism Europe's new single currency will rival the dollar as a reserve for central banks. .. "I expect the euro to be strong in the first half of this year," said Mikiyasu Yuasa, a foreign exchange manager at Bank of Tokyo Mitsubishi Ltd. "Economically and politically, Europe looks like the most stable region."

Japan is concerned about yen becoming a distant # 3.....

I've read a dozen articles on the euro today -- all similar to what you've just read above. Much has changed since the days when market analysts were telling us that the euro would never get off the ground. So how will the dollar measure up to the new competition? This could get interesting..............

Looking good so far!

The euro debut and the Y2K computer problem are similar in that we know when it will happen and what will
happen. The consequence of these events is the wild card. Considering the uero, will the monetary guidelines of
this new currency be maintained? Even countries that hold the euro in reserve will have to protect their own
currencies? If the US dollars held in reserve drops in value will this not lead to further selling? It seems that all the
things that make up the dollar's value are at their peak, I would think that there is nowhere to go but down. With
the myriad of problems revolving around a modern day currency, a person could wonder why we ever left the
original reserve currency (GOLD).On the subject of the Y2K computer problem I believe it will have an effect, to
what extent I do not know. I have been, for a year, and continue to prepare myself. I am even considering buying
a motor home as that would address the majority of my habitation concerns. The things I find most disturbing
about the Y2K problem is the lack of urgency on the part of most people and the fact that the people who
program and troubleshoot the computers are concerned with this issue.Since the emphasis is on repairing "mission
critical" applications I believe that there will be problems.I also did not consider the Y2A factor but thanks to ET's
post I am aware of that now.It seems I have more questions that answers, so the search continues.PS: MK, I had
to chuckle when I read about the money munching mice.Maybee Russia can use that the next time they meet with
the IMF.( the dog ate my homework excuse)

http://www.elpais.es/p/d/19990104/economia/euro.htm

El euro ha iniciado con �xito su primera jornada en los mercados financieros mundiales. En Sydney, la plaza financiera que dio la bienvenida a la nueva moneda a las 19 horas de ayer en Espa--a, las cinco de la madrugada en Australia, la nueva divisa europea se revalorizaba frente a las otras dos grandes divisas mundiales, el d--lar estadounidense y el yen japon�s. El euro cambi-- a 1,1747 por d--lar, con una ganancia del 0,68% respecto a la paridad oficial fijada por los Once ministros de Econom'a y Finanzas de la zona euro el pasado jueves, y a 133,200 frente al yen, lo que significa una revalorizaci--n del 0,301%. A la apertura oficial del mercado de Tokio, el euro se mostraba a�n m�s fuerte y se cambiaba a 1,1754 frente al d--lar, seg�n el Banco de Jap--n, lo que significa una ganancia del 0,74% respecto a la cotizaci--n fijada el pasado 31 de diciembre. El resultado final de la primera prueba, sin embargo, no se conocer� hoy hasta que cierren los mercados europeos, Londres y Nueva York.


The Euro started out with success on its first trading day in the worldwide financial markets. In Sydney, the first place to welcome the new currency at 7 PM yesterday Spanish time, at 5 AM in Australia, on the new European exchange the Euro settled higher against the two largest world currencies, the US Dollar and the Japanese yen. The Euro traded at 1.1747 to the dollar, which represents an increase of .68% over the same official price fixed by the eleven economic and finance ministers of the Euro zone last thursday and according to the Bank of Japan at 133.200 yen, which means a gain of .74% over the exchange fixed on 31 December. The final result of the first test (of the new currency) nevertheless, will not be known until the European, London and New York markets close.

NIKKEI 225 Index opened down sharply and fell to the 13500 support level where it stayed most of the first session until near the end of the session when it broke the 13500 support level to close at 13415 down 426 on the session !
This is equal to a drop of 3.08% Looks as if the action is picking up !
<;-)

I got a kick out of that too though I wouldn't want to find myself in that unfortunate position. Better comfortable people than fat mice. Just completed the January N&V ....Unfortunately, not much humor in this issue. Perhaps its deep, gray winter setting in -- and an unremittingly bleak, January mood. The Denver Stock Show is starting and the weather is awful...the two usually go together. I'd make a run to the Colliseum to see what's happening with the ranchers (makes us city folk feel connected to the land and all that) but as poet/large animal veternarian Baxter Black said in the Denver Post the other day with great sensitivity: "Agriculture's in the toilet." So drooling cows and cute little lamb are not likely to have their usual cheering effect. (Though there's was one heck of a cowboy painting featured in the Denver Post this morning on display there.) Even ebullient Baxter sounds a little bleak these days....Think I'll find another way to elevate this blue mood in this month of the blue moon.... Don't know if you guys know about that: January will have two full moons this month -- the second is referred to as the "blue moon." The last time that happened was at the turn of the century -- hence the phrase "once in a blue moon -- as in "that happens once in a blue moon." They must be talking about the new currency.

Michael, not only are there two full moons in January, but there is NO full moon in February, then TWO MORE in March. That oughta be worth something in the Cosmic sheme of things!

$296.10 I am purposely posting late. Did not want to take advantage MK geneeerous offer with my scientific formula.
The reason for 296.10. I asked my dog what she thought, she circled three times, lay down and scratched twice, a car driving by honked twice, then my wife sneezed twice, and I threw in the price of the new Euro. = Equation

Gold price when Nixon stopped sales X 3 X 2 X 2 X 1.1747
__________________________________________
divided by 2 sneezes

Wishing everyone a Healthy and prosperous 1999........

Maybe we can eliminate the 2 sneezes by 1/1/2000.....el

Was listening to BBC during the night, probably should have turned it off but did manage to hear that the Euro faired well with low volume in overnight trading. Comments heard were Euro was up in the 1.18s/1 US/Euro with one pundit expecting it to reach 1.20/1 US/Euro soon. Another said 1.10/1 would be better for exports. They all said that large currency dealer were cautious, taking a wait-and-see attitude.

Gold is back to its old tricks -- holding pattern at $289.

Summers Says Euro Won't Replace Dollar as Reserve

Washington, Jan. 4 (Bloomberg) -- The single European
currency doesn't pose a threat to the U.S. dollar as the world's
reserve currency because U.S. economic fundamentals are so
strong, Treasury Deputy Secretary Lawrence Summers said.
"As far as the dollar is concerned the buck stops here,"
Summers said in an interview with CNBC. "As long as we keep our
fundamentals strong, the dollar and U.S. borrowing costs will do
just fine."

In the current decade, Summers said, financial markets are
going to absorb about $2 trillion less of Treasury debt. "That's
a lot of the reason why our economy is so strong and robust." As
long as that's the case, "there'll be demand for dollars."

It is a priority of the Clinton administration to "keep our
currency attractive to foreign holders," Summers said. "I don't
see a reason why the euro should be a threat as long as we can
keep our own emphasis on our fundamentals."

The euro rose to $1.1790, up from the initial reference rate
of $1.16675 set by European Union finance ministers Thursday. At
its opening in Asian trading, the euro was at $1.1735. The euro
was boosted by speculation the U.S. economy will slow, requiring
another interest rate cut by the Federal Reserve, while the
European Central Bank leaves rates on hold.

Flexible Economies

Summers said it's important that European countries "reload
the fiscal cannon" by working to make their economies more
"flexible and dynamic" and to bring down unemployment rates.

Summers said he doesn't expect the European central bank to
use the euro as a trade weapon, undercutting U.S. exports.
European officials know the importance of keeping currencies
stable and that devaluation isn't the way to bolster economic
growth, he said.

The U.S. economy, Summers said, "is strongly positioned to
be resilient come what may" because the U.S. now has a budget
surplus, inflation expectations are low and banks are well-
capitalized.

Meantime, Summers said the U.S. can't be an "oasis of
prosperity" -- echoing the words of Federal Reserve Chairman
Alan Greenspan -- and he urged Japan to implement its banking
reforms and for Brazil to hold to its promise of reform.
--------------------------------------------
"is strongly positioned to be resilient come what may"...the phrase "come what may" was the most revealing insight into the true but largely unspoken mind of the Deputy Secretary.

Further disection...it is all statements like this that most agitate me; consider his words--
"It is a priority of the Clinton administration to "keep our
currency attractive to foreign holders," Summers said. "I don't
see a reason why the euro should be a threat as long as we can
keep our own emphasis on our fundamentals.""

A Nation's "currency management", when necessary, should keep in mind its 'attractiveness' to that Nation's CITIZENS in priority over 'foreign holders'. (Yet with gold-money, these become the same.) Contrast that sentiment with his following remark--"keep our own emphasis on our fundamentals". These 'fundamentals' are not much more than the Americans' will to spend (and prudence in doing so, I might add) as fast as their money is earned because a dollar at rest is a dollar soon lost in purchasing power. When the spending stops in a system of fiat currency, no amount of effort at shortcuts can regain what is lost--truly demonstrating the old observation about 'pushing on a string'. Once broken, the economic evolution must start afresh--it starts with a supply of permanent and reliable money...gold. You will see Russia recover only when they allow themselves to discover this principle. In America, before it is too late, the 'devolution' should be officially effected to the point to which sound money had been abandoned.

Trading in the new currency began simultaneously today in
Australia and New Zealand -- in Sydney at 5 a.m. local time and Wellington, where it was 7 a.m. Television cameras captured the first trades as government VIPs looked on.
Phil McGrath, the chief trader for spot currencies at
Westpac Banking Corp., said he encountered steady Japanese buying of euros -- possibly the Bank of Japan building up its reserves.
"If the trend continues, it would be significant," he said
Japanese institutional investors also bought euros, pushing
it to 133.39 yen, from the initial reference rate of 132.80 yen.

The euro also got a lift as a report showed U.S.
manufacturing unexpectedly dropped last month, suggesting the economy may be slowing. The National Association of Purchasing Managers index fell to 45.1 in December from 46.8 in November.
Economists surveyed by Bloomberg News projected the index to come in at 47.4. A reading below 50 suggests the economy is slowing.
"It's difficult to make an argument to buy the dollar over
the euro," said Jeremy Stretch in London, a currency strategist at NatWest Markets, who said the euro could rise to $1.23 by the end of the first quarter and $1.27 by the end of June.

The single currency is seen gaining as central banks convert
some of their foreign currency reserves into euros.
At the end of 1997, the dollar accounted for 57.1 percent of
global foreign currency reserves, while European currencies in the monetary union totaled 19.4 percent, according to the
International Monetary Fund.
"We'll see some central banks switching reserves into the
euro," said Bill Bertha, manager of foreign exchange at Mellon Bank in Pittsburgh.
The dollar remains the world's most-actively traded
currency. Last year, it represented one side of 87 percent of all transactions in the $1.5 trillion-per-day currency market, while the deutsche mark was No. 2 with about 30 percent of all trades.
***** It seems that there is the usual wait and see attitude among the players in euroland. As more time passes and there is no perceived problems, the buying of euros will accelerate to a brisk pace. Look for more negative rhetoric to come from the USTreasury as the euro outflanks the $US. Is this the beginning of the final chapter for the $US? The first chapter for gold?

"The U.S. economy, Summers said, "is strongly positioned to
be resilient come what may" because the U.S. now has a budget surplus, inflation expectations are low and banks are well-capitalized."

I might add to your analysis one fundamental:

THE BUDGET IS NOT BALANCED! The last time I checked the government added nearly $70 billion to the national debt.
THE BANKS ARE NOT WELL-CAPITALIZED! In fact they are on the brink of derivative induced apoplexy which will drain their capital in a blink. INFLATION EXPECTATIONS ARE NOT LOW! To the contrary, Alan Greenspan is in a constant state of agitation about the threat of inflation.

How can we, under the circumstances, assume as Mr. Summers has the U.S. economy is "resilient"....This is not the read of a whole host of economists outside the government including Lester Thurow.

This is typical of the Beltway -- both the Clinton administration and Congress. When the facts don't fit what you want the people to believe, warp the facts to create a new reality. The Clinton administration knows it can't get away with the deficits anymore because of the euro and they know that we know that they can't keep running the red ink. So what better way to deal with these nettlesome problem than to pretend that it doesn't exist. Europe certainly won't buy it; and it won't be long until the American people won't buy it either. The subtrefuge will soon be exposed to economic realities in the form of inflation and higher interest rates. I don't take this first day of the euro driven gold market as the final outcome. This is simply Day 1!

Be the first nerd on the block (actually, the 2nd- I'm the first!)


http://www.microsoft.com/windows95/downloads/contents/wurecommended/S_WUFeatured/w95EuroPatch/w95europatchread.asp

Excellent! You are precisely correct.
It is troubling when you realize that so few people are inclined to give any thought to such a key element in their well-being...the state of their currency and related national policies. Without independent thought or investigation, the mantra of Washington pundits is all too easily taken at face value--yet when the test of time proves differently there is too seldom even a modicum of accountability brought to bear against them for their misdirections. Most tragic is the effect of these statements upon those few who timidly stray from the herd and act in response for their trepidation over the state of affairs--the 'reassuring words' of these shepherds undo the resolve of the most timid of those few enlightened to do what is surely in their individual best interest.

In these early days, the air will be filled with voices of these similar shepherds. The shepherd will certainly act in the best interest of the shepherd, generally in the best interest of the flock; but only through self-determination and independence can any one of the flock ever hope to rise and walk as a man in pursuit of individual needs and ambitions.

ALEXANDER HAMILTON
"To emit an unfunded paper as the sign of value ought not to continue a
formal part of the Constitution, nor even hereafter to be employed;
being, in its nature, pregnant with abuses, and liable to be made the
engine of imposition and fraud; holding out temptations equally
pernicious to the integrity of government and to the morals of the
people."

ROTHSCHILDS BROS. OF LONDON
"Those few who can understand the system (check book money and credit)
will either be so interested in its profits, or so dependent on it
favors, that there will be little opposition from that class, while on
the other hand, the great body of people mentally incapable of
comprehending the tremendous advantage that capital derives from the
system, will bear it burdens without complaint, and perhaps without even
suspecting that the system is inimical to their interests."

ROBERT H. HEMPHILL (Credit Manager of Federal Reserve Bank, Atlanta, Georgia)
"If all the bank loans were paid, no one could have a bank deposit, and
there would not be a dollar of coin or currency in circulation.
This is a staggering thought. We are completely dependent, on the
Commercial Banks. Someone has to borrow every dollar, we have in
circulation, cash or credit. If the Banks create ample synthetic money,
we are prosperous; if not, we starve. We are, absolutely, without a
permanent money system. When one gets a complete grasp of the picture,
the tragic absurdity, of our hopeless position, is almost incredible,
but there it is. It is the most, important subject, intelligent persons
can investigate and reflect upon. It is so important that our present
civilization may collapse, unless it becomes widely understood, and the
defects remedied very soon."

DARRYL R. FRANCIS (former President of the Federal Reserve Bank of St. Louis)
"Since the direct method of printing money to finance government
expenditures is prohibited in the United states, the monetization of
government deficits has occurred indirectly . . . government debt is
ultimately being financed by the creation of new money . . . I doubt
that monetization of debt has a conscious act . . . I can find no
benefits accuring to the whole of society from debt monetization, but
the risks are very serious and can be expressed in one word, inflation"
"In the case of debt monetization the emmediate and even the short run
impact is neither an increase in interest rates, and yet real resources
are still being transferred from private to government use."

RUSSELL L.MUNK (former Assistant General Counsel, Department of the Treasury)
"Federal Reserve Notes are not dollars."

PRESIDENT JOHN ADAMS�
"All the perplexities, confusions and distresses in America arise not
from defects in the constitution or confederation, not from want of
honor or virtue, as much as from downright ignorance of the nature of
coin, credit and circulation."

JOHN MAYNARD KEYNES (chief architect of the current fiat-paper money system)
"By a continuing process of inflation, governments can confiscate,
secretly and unobserved, an important part of the wealth of their
citizens"

DENNIS KARNOFSKY (Chief economic adviser St. Louis Federal Reserve Bank)
"....what is a dollar its just something artificial we throw out
there....what youre doing is you're fooling people...."

BOB PRECHTER
"I cannot morally blame all Americans for allowing, for instance, the
birth of the Federal Reserve System (a private cartel with full control
over the issuance of national debt) and the money destruction that has
followed. They are simply ignorant about it and don't know what happened
or what is happening. They think that prices go up rather than that
dollars go down. Unsound money imposes an� environment of immorality,
which in turn makes people behave in different ways for reasons they
know not. Sometimes you can blame immorality for the imposition of bad
structures (bad people do it with full knowledge of what they are
doing), but sometimes it is simply stupidity. People revere democracy,
but democracy ends in plunder by the majority. Are people immoral for
supporting democracy? I think rather that they lack a deep understanding
of its essence. At a very deep level, I would say that the reason such
structures are created is due to both a lack of knowledge and a false
morality, which in turn is due to a lack of knowledge."

ALAN GREENSPAN (Chairman of the Federal Reserve Board)
"The abandonment of the gold standard made it possible for the welfare
statists to use the banking system as a means to an unlimited expansion
of credit.... In the absence of the gold standard, there is no way to
protect savings from confiscation through inflation. There is no safe
store of value.... Deficit spending is simply a scheme for the "hidden"
confiscation of wealth.... [Gold] stands as a protector of property
rights."�
"This is the shabby secret of the welfare statists' tirades against
gold. Deficit spending is simply a scheme for the "hidden" confiscation
of wealth. Gold stands in the way of this insidious process. It stands
as a protector of property rights. If one grasps this, one has no
difficulty in understanding the statists' antagonism toward the gold
standard."

What makes these quotes remarkable is the honesty and complete lack of hyperbole in their construction.

It seems to me that a couple of other issues were glossed over by Mr. Summers. As Michael said, the budget is not balanced, which is true, but to make that worse, can you imagine how much worse things would have looked had the stock market not had these past couple of stellar years (lots of extra income taxes). The market tanks, and then let's see how the budget looks. Also, interest rates are going to have to go back up. Inflation is a worry, and the USD will need it to attract buyers. So what does that do to the interest on the massive debt? To pay the interest, they'll have to borrow. Then there's the massive trade deficit. I do beleive that the European countries have a trade surplus. This brings us back to debt again. The US has been able to support the massive debt, but only because it was the reserve currency, and because the world was happy to buy US assets in the market (as well as their debt). It's not the US' game alone anymore. I think Mr. Summers may have missed a lot of points, as I am now the third to attack the comments.

I would like to first of all thank Aragorn for posting the quotations over a span of years and disciplines -- academic, business and political. It is helpful, at least for me, to know that I am not alone in this thinking. Sometimes I forget that even my own philosophical progress results from absorbing the thoughts of many of a like mind who have walked this planet before me. The verification is good.

As for Mr. Summers, bmacd, he was widely advanced a couple months back as the follow-up for Mr. Rubin. I do not think he is the right man for the job and these latest comments justify my reticence. Most of studied opinion reject this type of discussion out of hand, but I suppose its good for public consumption (but quite possibly counter-productive especially if the right people consider it a weak argument). Rubin didn't do much better today. There's got to be a better way for the administration to deal with the euro. All this talk about it "not being a problem", "not really competitor", etc. is a bit unnerving.

I heard from one of my sources late this afternoon that the euro trading lines were sizzling today and the big traders had trouble dealing with the euro volumes. I also heard that as busy as it was, the big corporations were not in the market. They are expected to arrive on Wednesday. If that's true, look out. I don't know why Wednesday, but that's what I was told.

I think things are unravelling in the Clinton administration and the rather lame response by both Rubin and Summers might be a sign just how bad it is. This results from the lack of leadership at the top and a symptom of much deeper problems. I hate to say that but I think it's true.

Down to 13,159 ---- nearing last years low while Yen strengthens to 111 to the US$
<;-)

Why did the DOW Collapse toward the end of today's session?
With all the hoopla about the euro, don't forget.......

THE ASIAN CONTAGION.................

From Reuters:

"Barry Hyman, senior equity analyst at Ehrenkrantz King Nussbaum, said investors are also worried that Brazil's new government, which met for the first time today, will fall short of the ambitious economic goals it agreed to in order to receive a $41.5 billion credit line from the International Monetary Fund and other lenders.

If the Brazilian government fails to comply meet the goals, 'that immediately brings to mind the specter of the devaluation of the Brazilian real, which is extremely negative for the markets,' Hyman said.

Glad you brought up your last post. I was kind of wondering where the old problems went to. Seems that the market assumed all was well.....NOT...in Asia, Brazil, Mexico, and I hear that Saudi Arabia is in trouble (no small wonder). It amazes me that these catastrophies seem to disappear and become forgotten so quickly. They're still out there.

Paper money functions as a form of bookkeeping by being a monetary equivalent of "payto the bearer on demand, one gallon of milk in return for cutting one rafter". In other
words a Dollar or Euro or Yen is a "production chit". This function works as long as the exchange ratio of all activity in that system remains constant. However, even gold cannot
keep the relationship between milk and carpentry in place, as the price of milk and carpentry will fluctuate depending on the scarcity or abundance of cows,pastures, refrigeration and workers.

The power of gold is that it maintains a trading value external to any economic system.You could probably use gold to trade with Extraterrestials!

The more that economic systems conflict with each other, the more vital the role of gold . the more stable the
relationship the less necessary gold becomes.

Excessive debt will cripple any economic system by triggering default and in its wake, the cessation of production. Gold's role as a monetary standard can prevent this, but if it has already occurred, the necessary gold production would weaken the system even further in the attempt to monetarize the situation.

So, while the possibility of backing the Euro with gold could have raised the price, the event of coinage is two years in the future and might not be economically feasible anyhow.

Finally, the merging of eleven nations into one system, and the possibility someday of a one world currency could also be damping the desirability of holding gold.

Regardless of all this, gold's role as storage of value against economic collapse will always exist. This is where the threats of Y2K, extended markets and excessive debt are pertinent; any and all of them are looking for a time and place to happen.

Todays DOW could be a triple top where the overhead supply is and has been, or it could be a pause while the belivers in this take their profits!

P.S. do you have any way of deleting that mess that piggybacked in on my post yesterday?

Peter, somehow I get the feeling that you are still combining gold, dollars and "Euro"s as all being the same things. As Aragorn III discussed, gold and US$ have a relationship that has been defined as the POG for a great number of years. Gold and "Euro"s may not have the same relationship with that of the US$. The 100 "Euro" coin having say, eight grams gold will always be worth 100 "Euro"s, BUT may be worth far more US$ than say the 86 or so of today. It is very difficult for Americans to not think in US$. Everyone else in the world does though. We should start thinking in "Euro"s and have two more years to practice before the real monies comes out, BUT we shall see financial instruments NOW and will see a change in the way the world sees the US$ and "Euro" SOON. I beg Aragorn III to expand this confusing concept in his illustrative manner, as he is far better at creating a written picture than I.
<;-)

The post by AEL (Msg. ID 1594) held some interesting numbers. Perhaps someone could enlighten me if the following slant on the numbers is wrong.

According to the post the banks currently owe depositors $3.7 trillion. The Federal Reserve estimates there is less than $400 billion in US currency in circulation in the world with only 1/3 of that in the US.

Question: Does this mean that the difference between $3.7 trillion and $400 billion is just silicon money created thru incremental banking? The rest is pine. The pine being the $400 billion created with pine trees and ink.

Question: Where does the wealth purchased and transfered (stolen?) with this fiat money end up?

It appears once again that the only way to recapture some of this wealth is to transfer as much silicon and paper into gold as possible.

I know... This is an over simplification.

Dabchick is posting at 0400 or 4:00am, here is this mornings:

For Monday 04th Jan calculated from data published in Today's FT.
Period-1- month---3- month---6- month---------12- month
Rate---0.91-------1.03-------1.26-----------------1.62
Change - 0.04 -- ( - 0.02 )- ( + 0.06 )--------- ( + 0.03 )

The $US is created out of thin air and loaned to us. We are taxed to pay for it. The only way to get out of the vicious and illegal scam is to trade all the FRNs (also known as F.R.A.U.D.s, "Federal Reserve Accounting Unit Devices.") you can steal into something of real value---food guns and PMs.

If the above is a reasonable synopsis of your position, RIGHT ON !!!!!!!

Watch the 30yr T-Bonds. They appear to me to be about ready to break down through thier intermediate uptrend (from March/97). I believe this is the first stage of igniting the new gold free-for-all, rush, panic, stampede or whatever tantalizes your imagination, type move in GOLD!!
Keep Well

FOA's first E-Mail to me............

Mr. Kosares, This "new gold market", it is interesting, yes? The Euro is about to create "much stress" for bulls and bears, in gold! Perhaps, we discuss the past and the future? You have a "more private" e-mail address, as it be for eyes of three, yours, mine and Another.

*************

Lester Thurow in a recent Nation magazine feature article:

"While Americans must reinvigorate fiscal polcies to remain prosperous, the world is going to have to build a new economic locomotive for itself. That can only be done with close cross country coordination of monetary and fiscal policies among Europe, Japan and the United States, a project they have thus far demonstrated no ability to undertake. But the euro signals the end of the post World War II American era and the onset of a new economic era, which demands new monetary and fiscal policies throughout the world."

When we first talked, the discussion was the euro being introduced at par with the dollar -- one for one. Yesterday the new currency traded officially for a time $1.20.

Under the circumstances, is it not difficult to "bite one's lip?"

Please read the following posts in order...bottom to top starting with the first entry..

I've been so disgusted the past couple of days...
Let's boogie!

I'll bring the music....

Ladies and Gentlemen ---- The Fifth Dimension!

( Big intro heavy on the horns...... )

Dah-da-da-da dah da da dah
Dah-da-da-da dah da da dah

Up Up and away
with my beautiful Doubloons
Wouldn't you like to ride
with my beautiful Doubloons?

And we can soar above the marketplace
you and I
for we can buy!
BUY!!

Don't you have your eye
on my beautiful Doubloons?
Wouldn't you like to buy
into my beautiful Doubloons?

And we can chase the precious metals index
to the sky
for we can buy!
BUY!!

Up Up and away with my beautiful
my beautiful
Doubloons!!!

( fade )
Up Up and away
Up Up and away
Up Up and away��


Hey, with a bunch of heavy-hitters like the 5D on your side, you know you can't go wrong!

MK said: is it not difficult to "bite one's lip?"

Michael, are you intimating that perhaps the Dynamic Duo are sandbagging? Not wanting to spill too many beans?

When last we tuned in, Another and his faithful sidekick FOA, had just vanquished a horde of orcish Central Bankers. But then suddenly they dropped from the scene�

Now���

- With the World markets in upheaval and disarray�..
- With the Blonde One taking it on the chin�..
- With the new Kid stretching his muscles�..
- And the Old One looking green and doddering, barely a false image of his former self�..

Everyone wonders: When? When will they come riding out of the dunes to save the day? (Or at least let us in on what the heck is going on?)

Stay tuned to the ongoing discussion that asks the questions:

-Will Another *ever* reveal his true identity?
-What will the February Gold contract close at next Friday?
-Is Janet Reno really Alan Greenspan in drag? ( Do you ever see them together?)

And last but not least�

-Will investors ever find the Pot o� Gold?

Come back for the next installment of our riveting adventure.

Does anyone have a reliable source for up-to-the-minute dollar/Euro trading quotes? Yahoo currency seems to be locked up as of January 4, 99. They have always reported European currencies very well and timely. Now they are stuck.

That 3.7 trillion of deposits would represent first, per my post last night, all the "production chits" earned by people and not spent. These become deposits loaned to others. This should corelate with the actual production of the populace; some kind of balance between product and money supply. There would then be the other quantity, which would be all the extra money put into the banking systym by the Fed; this would be accounted for by further loans outstanding. The great unknown is how much of the 3.7 B are "production chits" issued against future earnings. This unknown quantity is the driving force behind the potential for inflation, devaluation and default!

Your first sentence in post #1643 does not align with my second paragraph in #1641

you can see it is trying very hard to go higher.

Yes, I do feel like the POG and junior golds just are going to make it, that things are in the dumps. But then I reassure myself, "things are always darkest before the dawn." That just at point of maximum pessimism, that is the time to jump into the fire with both feet because, it can't get any worse. And you know, I feel better.

Hey USAGOLD,

I read your posts in the order you said, but could you make the obvious more apparent for us?

Thanks,


Steve

-- markets have short and long term cycles.
-- Cycles mean that when a market is at a high, it will go lower, when at a low it will go higher.
-- anyone care to add to the list. Just remember that a priori is that which is before all others or the underlying truth or truths.
--(one more) Markets are fueled by sentiment. So a confident market will run, a scared market will drop. (as a side note, nothing has scared this bull of bull markets yet).

The "stolen" money that taxpayers are saddled with is that portion of the borrowing against future earnings [$ created by the Fed] that is loaned to the USG. created money loaned to the citizenry is payed back out of their future production.

On the Thurow quote; thats what I'm saying in the next to last paragraph of Post# 1641. The big questions I would like to debate are; how does a gold standard fit in with this, and to what degree will gold be held against the possibilty of this new era failing to appear?

In case you are inclined to express your opinion regarding anything relevant:

http://www.visi.com/juan/congress/

The Dow and stock Indexii are blasting into the ionosphere, BUT the rate on the long temp bond in slowly moving upward, the XAU gap opened up today, but is slowly falling back, and the GC9G Feb Gold contract is bouncing about in the 288 range with an increase in volumn level. However, the most interesting change for me are actions of the commodities --
WOW -- HAVE they awoken ? Things are undergoing a metamorphosis --- and I believe that what shall be hatching are GOLD BUGS !
<;-)

Fed's Greenspan to visit Hong Kong, Beijing

WASHINGTON, Jan 6 (Reuters) - Federal Reserve Chairman Alan Greenspan
will visit Hong Kong and Beijing for meetings at the beginning of next
week, a Fed spokesman confirmed on Wednesday.

Greenspan will attend a session of central bank governors sponsored by
the Bank for International Settlements in Hong Kong next Monday. He will
travel on Tuesday to Beijing for a meeting at the invitation of Governor
Dai of the People's Bank of China, the Fed spokesman said.

Representatives from Asian and some other central banks are set to meet
in Hong Kong on Sunday and Monday. A Fed spokesman said it would be
Greenspan's first meeting at the BIS's new Hong Kong regional office
though he has previously attended similar BIS sessions in Europe.

Greenspan will meet Hong Kong chief executive Tung Chee-hwa, the Fed
spokesman said, but added that no information was available on what they
might discuss nor about the topics on the BIS's agenda.

But a spokeswoman at BIS headquarters in Zurich said on Monday that a
review of the global economy and bank restructuring would be among the
topics.

Greenspan last visited Beijing in May 1997, the Fed official said.

He added that the U.S. central bank chief would make no public
statements nor hold any press briefings during his visit.

This organization is dedicated to the abolishment of the fed reserve. www.norfed.org.
All their money is backed by silver. I sent for some and it is quite beautiful and I wish I could become a bank for them.
Check it out.

Most posters here and on other gold-related sites believed that the Euro would drive down the dollar relative to other currencies, thereby resulting in a higher POG as priced in U.S. dollars. Within the last two months, both the yen and the European currencies appreciated against the U.S. dollar, but the POG went down. Today, the U.S. dollar went up, as did the POG - a relationship inverse to that predicted. Any explanations?

Feb Gold has hit 289.4 and has drastically increased the levels of volume both the Bid and Ask sides. Please note that there were only about 142 new highs of the 3,000 issues traded on the NYSE. Does that seen right for such a huge blastoff to over 9,500 on the DOW ? Hang on and get ready to hold your breath when the bottom falls out.
<;-)

I have been trying on and off for about 2 hours to get quotes and nothing is happening. Is anybody else having similar problems?

$289.10... sure looks like someone wanted to knock it down right at the close.

GOLD gc9g hit 290.00 Early AM EST

Silver is on the move too. Don't have current quote.

Dollar at 111?

Euro was lower on the dollar yesterday 115-116?

DOW at all time high but only 2 gainers for each looser, Kaplan says 4:1 is normal, 2:1 not good for DOW longer term.

VSE index over 403!

Some silver stocks starting to move.

GOLDFLY --- look quick as the GC9G is bouncing back and forth at 290.5 and 290.6 ! I have worked the magic and brought it up to this level --- NOW you freeze it here until tomorrows close.
<;-)

Checked in to see what's happening. Apparently gold now at $291.00. Interesting.

Dow down almost 100.

VSE now 406. A junior rally in progress.
VSE mining up 1.28, now over 300, a junior mining rally in progress.

Neither their silver nor their gold shall be able to deliver them in the day of the Lord's wrath. -- Zephaniah 1:18.

Sorry GOLDFLY and Steve --- I made an error and thought that I was using the freeze magic poopoo dust at 290.5 BUT found that it was the ZOOM dust and now GC9G is tween 292 and 293, going UP and out-of-control ! Look out above !
<;-)

Frankfurt, Jan. 7 (Bloomberg) -- European Central Bank Vice-
President Christian Noyer said the bank hasn't set a specific
target for its gold reserves, suggesting it's not planning to
sell or buy gold.
"There's no target," Noyer said at a press conference
following the first meeting of the ECB's 17-member Governing
Council after taking over monetary policy on Jan. 1.

The ECB decided only initially to hold 15 percent of its
foreign exchange reserves in gold, Noyer said. Changes in the
price of gold that would alter the percentage of gold reserves
would therefore not prompt the ECB to buy or sell gold, he said.

The ECB's gold holding is less than half the size of
Germany's or France's, and is only 12 percent of that held by the
U.S. Federal Reserve. Still, any change in it's gold policy could
create expectations that other banks may follow.

Gold dropped to a 19-year low of $271.13 an ounce in late
August, partly on concern that central banks worldwide,
collectively the largest gold holders, want to sell their gold.
Sales by the Netherlands and Belgium in 1996 and 1997 focused
attention on European central banks, which now coordinate moves
with the ECB.

In 1997, gold fell 22 percent as Australia and Argentina
announced the sales of most of their reserves.

The region-wide ECB sets monetary policy for Germany,
France, Italy, Spain, Portugal, the Netherlands, Belgium,
Finland, Luxembourg, Ireland and Austria.
-----------------------------------

"...any change in it's gold policy could create expectations that other banks may follow."
The ECB will not sell gold. Translate this accordingly...

I am not the type to say I told you so... but you've got to make your way through the following because it amounts to a very strong proof of themes we have discussed throroughly at this site.

To wit: Many points of view expressed in the press, particularly by those on the short side of the market, need to be understood for what they are -- a public attempt to defend and promote a market position they may have already taken.

I too speak from a bias when I talk publicly as a defender of gold, but there is no doubt where I'm coming from. I'm a gold owner who owns a gold firm and a strong believer in the metal's attributes. The difference between me and others is that they make their public anti-gold pronouncements without anybody knowing they are short the market. The public reads the quotes thinking they are unbiased observers. They are not.
\
I will let the following recapitulation speak for itself. The first three are from this FORUM on 12/15/98. The final entry is from today's Bridge News Report.

If you want to read the comments by Mr. Armstrong that prompted the strong responses from myself and PH in LA they are in the 12/15 discussion and I think they were posted by AEL. When we read anti-gold comments, we should immediately understand the comments in context of the individual making them and what their self interest might be. In other words, do what you mother told you: Always consider the source...

There is another reason for my reposting this: It illustrates the enduring value of this FORUM to gold advocates.

*******************
USAGOLD
12/15/98 Gobbledygook.........
I don't want to sound dumb but if anybody out there understands what Martin Armstrong is talking about would you please explain it to me? This is Keynsian gobbledygook that academics like to read and ivy league economists throw around to try to make the rest of us feel inferior. I don't know how much it's going to do for me in the real world. So what does it all mean? I stopped at the point that "the euro was wiped off the face of the earth." Difficult for a currency that doesn't even exist yet. It seems to be that a more legitimate concern would be whether or not the dollar was going to be wiped off the face of the earth.

Comments? If I'm out of line here please let me know and I'll try to spend more time with what was posted. jinx, what is he trying to say? Can you get it down to a paragraph or two? If he's saying we should have all our money in cash, I don't buy that, do you?

As for Germany no longer being opposed to IMF gold sales because it needs its cash at home, I don't even get how the two concepts go together? What does German cash have to do with IMF gold sale? Is he saying that if the IMF sells its gold, that Germany won't have to participate in the international bail-out game? If that's what he believes, he lacks a real understranding of the depth of the problem before us. At current prices the IMF couldn't have bailed out Brazil with its gold -- and Brazil is just the tip of the iceberg.

So what is Martin Armstrong saying of benefit to the rest of us?

Gobbledygook II.......
I might add a small addendum to my previous post:

The Germans will not be that easily misled. What would be better for Germany -- to allow the IMF to sell its gold, part of which is owned by Germany, for a swan, or repatriate that gold to stand solidly in the reserves of the Euroland he so casually disparages.

A prediction: If IMF gold is sold ( and I doubt that it will be, but if it is ) Europe will buy most of it for reserves. What they don't buy Japan and China will.

If there is an IMF auction, there is a possibility that competing nations will bid up the price. Perhaps that is one reason why we may never see such an event.

**************************

PH in LA (12/15/98; 20:46:05MDT - Msg ID:1358)
gobbledegook and mumbo jumbo
Michael: I remember the first time I ran aground on Martin Armstrong over at Kitco, rumors were rife that Princeton (and Martin as their spokesman) was VERY heavily short in the Silver market. That was during the slight runnup brought on by the Warren Buffet revelations. It was painfully obvious then that he (and they) were scared sh*itless and had abandoned all pretense of intellectual integrity in favor of outright deceptive advocacy. Now that silver has returned to a more quasi-deflated level, he is probably feeling a little braver and willing to sling the academic mumbo jumbo around more freely and let the muddy waters speak for themselves.

I second your call for anyone who thinks he can translate the article into something even faintly intelligible. Until then, I take it with a grain of salt, too.

**************************

USAGOLD (12/15/98; 20:50:24MDT - Msg ID:1360)
Thanks, PH... I was worried that I might be losing my ability to understand what other people were saying. Somebody in our office brought up the same situation with silver that you just mentioned. I didn't have to the time to research whether or not it was true, so I thank for bringing it up. I simply mentioned his name and this individual said "Isn't that the guy who lost a bunch shorting silver when Buffett was buying?" Thanks for the verification.

***************************************
From Today's (1/7/98) Bridge News at the Close:

"The jump in silver was the catalyst for the overall precious metals rally, said traders. Many attributed the rise to the activities of Westport, Conn. based John W. Henry and Co. While some suggested that the CTA was taking on speculative long positions, another trader said that the move was simply short-covering as silver moved above some technical levels. John W. Henry officials refused to comment on the firm's activities.

Some players also suggested that Princeton Economics International was also covering shorts, although chairman Martin Armstrong could not be reached for comment. In addition, traders said that some players were covering positions ahead of Friday's COMEX Feb silver option expiration. One trader noted that some players were either short calls or long puts at $5 and $5.25 strike prices."

It was jinx 44 who originally posted the Armstrong piece. Thanks jinx for getting it on the record. By the way, do you think Mr. Armstrong might be short gold as well?

I don't know if you happened to see the number published on ECB reserves -- currency and gold. They are numbers at a level that surprises me. I can remember the initial estimates were supposed to be around 1000 tons being transferred from the national central banks to ECB. But the French wire service, AFP, tells a different story: 99.6 billion euros in reserve and all the gold in Europe -- 12,000 tons! ECB currency reserves are a total of 227.4 billion euros. That too seems to include all the reserves in Europe. Its seems that there is much in terms of future European monetary policy in these numbers. The AFP report quotes an ECB press release and I tried for awhile to find the ECB web site but couldn't. I did however talk to a reporter for AFP who verified the numbers for me.

This amounts to 30% gold reserve they way I read the release, but its a bit hazy as to whether or not they include in their overall currency reserves (the 227 bn figure) or separately.

My follow-up thought is that the realization that all the gold has moved onto the books of ECB (which is a strong gold advocate) and out of the hands of the national banks (where they might come under politically induced selling pressure), might be the real reasons for gold's strong move today.

Can anybody help me find access to ECB's site as I would like to see the actual numbers?

When you tie the balance sheet with some of Europe's rhetoric yesterday and today, it would seem we get a far different picture of Europe than anybody anticipated. It would seem that the role of gold is twelve times larger than we originally anticipated.

It's been a stunning debut to say the least for this euro. Perhaps these number bespeak a more unified Europe than its adversaries anticipated.

Nice report to read- re Euro gold reserves. On another positive note, did anybody catch the CEO of Homestake Mining on CNBC earlier? Also very positive. Interesting point, that the market fundamentals for gold weren't really discussed at all, and his attitude was just that, this is all just a matter of time. Gold will be back. Nice positive thinking. I forgot the name of the reporter who did the story (apologies), but at the end his commect was to buy gold now. Now even CNBC has some room for positive gold talk!!

I don't suppose all you magicians & chearleaders can leave gold alone for 24 hours so it will close again at my $292.40 ???

Michael and all, here is the ECB home page:

http://www.ecb.int/

I think this is what you are looking for:

http://www.ecb.int/press/pr990105_2.htm
The actual statement (You must have Adobe Acrobat Reader [It's free!]):
http://www.ecb.int/press/pr990105_3.pdf

This looked like it could be interesting:

https://mfi-assets.ecb.int/dla_EA.htm

GF

I too have noted the change in coverage on gold not just at CNBC but elsewhere. I have always thought that the press, Wall Street and Washington hated gold and that the people loved it. I will take the press on our side anytime, but as a veteran in the War on Gold, my heart is telling me to be happy and my head is asking "Why the sudden change?"

Time to let the metal go??

http://www.adobe.com/prodindex/acrobat/readstep.html

Goldfly...Thanks. Too late tonight, but will take a look tomorrow.

Peter....I completely forgot about the contest. Did you really say 292.40? Now I'm getting nervous...

Aragorn and All:

I did not see a distinction in Mr. Noyer's remarks between the dollar price of gold and the euro price. The euro price of gold might be expected to remain stable? It used to be that when a country devalued its currency, the gold price would immediately rise in that currency proportionate to the devaluation against the dollar. What will happen now if a currency devalues against the euro? What will happen to the dollar price of gold if the dollar depreciates against the euro in a world of competing reserve currencies? Will that devaluation be reflected in the dollar price of gold?

You see where I'm going with this:
If you take the dollar price of gold when the whole question of European gold reserves came up months ago, we were told that one euro would equal one dollar. Now the euro is up 17%. Should gold be up 17% as well?

We sail into uncharted waters.

The Spanish newspaper "El Pa's" has been running an ongoing series of articles on the Euro, extending back as far as September 1998. Mostly consisting of blatant public relations, it is only interesting to see how the Euro is being sold to the Spanish Man-in-the-street. A sample translation of one of tomorrow's (1/8/99) articles appears below:

http://www.elpais.es/p/d/temas/euro/1eur82.htm

The President of France, Jacques Chirac, and the Prime Minister of Japan, Keizo Obuchi, released a joint statement yesterday in which they stated that "the stability of exchange rates between the Euro and the Yen is especially important for exchange markets." Both leaders committed themselves to the developement of mutual cooperation and to improvement of dialogue concerning macro-economic policies. Chirac, in addition, confirmed his intention to propose to the G-7 the need to reduce the fluctuations between the Euro, the Yen and the Dollar.

After granting an interview yesterday in Paris, Chirac and Obuchi underlined in their joint statement together that maintaining stability between the Euro and the Yen is of "crucial importance" not only for the French and Japanese economies, "but also for the world economy as a whole"...

Obuchi took out of his pocket a wad of travellers' checks in Euros that he had purchased on Monday and after exhibiting them theatrically to the audience, observed that the Euro settled at 135 Yen on January 4 and yesterday at 131 Yen. "It looks like they were a little expensive, so I hope that there isn't too much fluctuation (in their value)". he commented further by way of expressing his desire that the Euro "be a stable currency worthy of confidence".

Speaking to French business owners, Obuchi applied himself with enthusiasm to the task of instilling confidence concerning the future of the economy of his country, the second objective of his trip. He said that Japan will take off this year and that it has been decided to assume all the responsibilities implied in being the second most powerful economy in the world. "The Japanese government wants to promote a less static economic policy and to vigorously encourage deregulation" he pointed out.

Jan 1 P.M. bottom post, the one that got capped with a cached poem.-- Tonights MRCI has the same price the last two hours!!

Re- Euro\gold. The opening Euro figure was based on the 11 currrency basket at the year end, true? So the POG would not be affected by the 17% that differed from the *estimate* given earlier.

Michael:
According to my recollection, the idea that the Euro would equal one dollar was expressed very vaguely back then. Something like "more or less aproximately on a one-to-one basis" etc. The fact that it has actually come in a bit higher probably reflects the fall in the dollar that took place between the middle of August and the middle of September of 1998, when the Spanish peseta rose from 154/dollar to 139, a drop of almost 10% in the dollar against the peseta alone. The Yen also appreciated rather drastically during that time also.

As far as the percentage of gold included in the Euro's offical reserves is concerned, I have yet to hear even a glimmer of definition in the 15% figure that has been bandied about so much. Nowhere has it been specified in any official manner what the 15% (or higher) number was ever supposed to be a percentage of. I would be much more comfortable hearing about the amount of gold involved rather than a percentage of some unspecified comparison. Today there was an article in "El Pa's" about the initial auction offering in the amount of 75 billion Euros, which was alledged to be only about 15% of the total demand at the auction, whatever that all means. Also, there has never been suggested any form of convertability for the new currency. No credible assurance has ever been offered that the gold held as reserves would in any way be used to maintain the issuance of new currency within non-inflationary limits, either.

Surely, there is much that still needs to be defined in these matters before we can pretend that we have any real and true understanding on exactly where we are going on this.

Re: The Summers CNBC Post
I'm new to this post and the thoughts contained herein by all manner of novice (like myself) and experts. It is the most exciting information I studied for many a year. Sooo. . .I need some educating on what the US "Financil Fundementals" are. They did NOT come out in the article and were not even questioned by the interviewer (I guess). Please educate this questioning soul.

By the way, for any novices like myself reading this, MK's book 'The ABC's' is outstanding. I got it for Christmas and finished it a week later. Now I think I read it again. Goooood stuff.

That was jan 3RD P.M. I'm posting from a ladder access attic in hollywood with a photo shoot going on around me.

Peter Asher, 02:49 NY Friday Jan 8th the price of GC9G was exactly 292.40 and I tossed a whole bag of my magic poopoo "FREEZE" power on the screen ! Hope it holds. BTW, do not fall down the ladder in that loft when the director yells "CUT & WRAP !"
<;-)

www.quote.com: the spin...their comments on the dow just tickle me. What analysts? In the same paragraph they talk about two notable figures talking about over valued market and then say that today's not-so-far fall will add fuel to the January effect and the market will go higher. Don't you love it?

The market slipped today as investors took
profits after yesterday's record setting run. The
DJIA(sm) dropped over 100 points early in the
session before clawing its way back in the
afternoon, giving traders reason to be optimistic
that the run is far from over. Today's sell-off is
being blamed on comments by Fed Vice
Chairman Rivilan that the market is overvalued
and a downgrade of stocks by prominent
Goldman Sach's bull Abbey Joseph Cohen.
Overall though analysts are confident that this is
only a minor consolidation and stocks will head
higher over the next few weeks. Analysts expect
the market to continue to benefit from an
infusion of new cash as funds receive inflows
from 401K allocations and year end bonuses. In
addition, analysts believe that yesterday's rise
was at least partially fueled by cash that was
taken out of the market during the slump last fall
finally being put back to work. If this is the case
it should greatly strengthen the January effect.

Found this on another site (kitco):

Coming of the Euro Sparks Debate On What Banks Will Do With Gold

By NEIL BEHRMANN Special to THE WALL STREET JOURNAL

LONDON -- Will European central banks continue to dump gold now that the euro is up and running?

Following massive sales this decade by central banks in the Netherlands and Belgium, among others, analysts and
traders are sharply divided on

the issue. And, although the dollar's slide Thursday boosted gold's price to $290.15 a troy ounce, up $2.60, in late
London trading, its price in euros languished. At 248.50 euros ( $288.91 ) , the price of gold is just 6.50 euros
above this week's two-year low of 242 euros and is 21% below February 1997 levels, dealers said.

"The good news is that there haven't been any European central bank sales since Belgium sold in the first quarter
of last year," said Andy Smith, a

London based commodity analyst for Mitsui Bussan Commodities Ltd. "The bad news is that gold continues to
behave poorly even though there

hasn't been any pressure from central banks."

Valuation Change

Despite the absence of sales since the first quarter of last year, the 11 European central banks comprising the euro
zone could still sell in the

future, analysts said. The most significant change to official holdings of gold is that the European Central Bank is
valuing the precious metal at market values, they said. This contrasts with previous conservative European central
bank gold valuations in which the metal was priced at varying levels below market price, they said.

Changes to the ECB's and euro zone's gold reserves are "now upfront," showing that European central banks
don't believe that gold is "something

special" any longer, said Mr. Smith. This transparency will make central bank treasurers acutely aware of gold's
performance compared with other assets and will encourage them to manage their gold reserves much more

aggressively, he said.

Despite these concerns, Rhona O'Connell, a metals analyst at T. Hoare & Co, forecast that European central
banks won't sell more gold this year as the metal's price in euros is too low. Regardless of whether one believes
they will or won't sell, central banks will continue to lend their gold to obtain interest income, dealers said.

Gold accounts for 14%, or 99.6 billion euros, of total foreign exchange, gold and other assets of euro-zone central
banks and the European Central Bank, the ECB's consolidated accounts at Jan. 1 showed. Official gold figures
from the ECB aren't yet available, but based on the price of gold and the dollar/euro exchange rate at the end of
last year, gold held by euro-zone central banks and the ECB amounted to 12,574 metric tons, according to
estimates from the World Gold Council. The council also estimated that the ECB's own gold and foreign-exchange
reserves totaled 39.5 billion euros at Jan. 1, of which gold accounted for 15%, or 747 metric tons.

Price to Dictate Strategy

The strategy of euro-zone central banks, who still control about 11,827 tons of gold valued at more than 90 billion
euros, will depend on price perceptions. While gold's depressed price -- when valued in euros -- deters selling by
central banks, it also illustrates that the metal hasn't done well as an investment, dealers said.

"The Maastricht treaty rules that any gold transactions above a certain [undisclosed] limit must be approved by the
ECB," said Robert Pringle,

a director at the World Gold Council. The market is unsure about policies because ECB guidelines on foreign
exchange and gold transactions haven't

been made public, he said.

However, Germany, France and Italy recently said they "weren't looking to sell any of their gold reserves," he said.

An ECB spokesman declined to comment on its gold-trading policy.

*Now* you use the whole bag!

I will be back this afternoon schedule allowing to make some replies and comments. Please consider today's Daily Report as my first post over what could develop into a very important weekend. In all this, don't forget that a president is being impeached, Brazil is teetering, and Japan could still fall into a deflationary abyss (the recent confused statments by their financial leadership being symptomatic of the fear developing there).

Peter Asher....A bead of cold sweat has developed on the brow. I have opened my golden wallet (from which the moths departed in haste) and still see that glittering one-tenth ounce gold Philharmonic that could be yours.

Gandalf...Could you please be a bit more equitable in the rendering of goodies from your potent wizard's chest?

the volcano is rumbling, siesmic activity is off the end of the charts! get ready for warp drive scotty!

For most of December there has been substantial consternation over the failure of the
Euro and its possible gold backing to raise the POG. Simultaneously, the ongoing Swiss Referendum indicates that even a nation noted for fiscal conservatism, was considering
liquidating its gold assets to fund social programs. Aligned to this is the fact that the other EU nations have extensive social costs requiring high taxation. It is not much of a
speculation to presume that the gold in their CBs is a tempting target.
The quantitative fundamental is that while gold earns no interest, if
the holder of gold ispaying out interest on debt, than the reduction of that debt by the sale of that gold,creates "earnings" by divesting that holding.
Now, per "selling into strength", it can be seen that the increased demand created by theimpending Euro could create the opportunity for a CB to move out a large amount of
gold. The media could even have been "encouraged" to give exposure to the Euro, Chinasintentions, gold backing etc. It could be that the "mission was not to denigrate gold to
assist the Cbs to buy it, but for the moment, to promote demand, for the CBs to be able to sell it.
The trading action of the last few months would be more explicable in this theoretical scenario. My belief is that when a traded instrument moves counter to both fundamental
and technical indicators, there is an unknown other fundamental activity going on. This is the rational behind the old adage "The tape doesn't lie". Somewhere in the scheme ofthings, an event is transpiring that is yet to be uncovered.
So, regarding next weeks trading, the Belgian cat is out ofthe bag and I predict that other such events will lay low for a bit, to allow the POG to recover. However, as seeds of
doubt have been sown, I don't see that much recovery.
My estimated Friday close is $292.40

Anyone got the Feb close yet ???

Turbohawg:

You posted: "random thought: In 1913, the Federal Reserve was created, at least in part, to facilitate the introduction of socialism into the largely capitalist US. In 1999, the EMU is created to facilitate the introduction of capitalist-style monetary reform into largely socialist
Europe. Ironic isn't it ??"

Turbo...I thought that was an interesting insight and well put. I had to think about it some. A question: Do you believe that the introduction of gold is sneaking capitalism back into Europe through the side door so to speak -- through ECB? Do you see this as an historical imperative?

**

Peter Asher:

You posted: Michael -- "On the Thurow quote; thats what I'm saying in the next to last paragraph of Post# 1641. The big questions I would like to debate are; how does a gold standard fit in with this, and to what degree will gold be held against the possibilty of this new era failing to appear?"

Peter...The new era has already dawned with the euro. The change brought about by the euro is so fundamental to the world monetary system, it cannot be viewed as anything but revolutionary. The dollar will no longer stand alone atop the hill. That alone will change the world monetary system, as Thurow points out in the beginning of the Nation article. "...for the first time since World War II -- with far reaching consequences for American monetary and fiscal policy -- countries looking for somewhere to turn with their currency reserves will have a choice beyond the US dollar." He goes on to cite the example of the recent plunge in the dollar against the yen from 115 to 80. "Countries holding the dollar," says Thurow, "were hammered financially losing a third of their purchasing power. But there was no stampede to get out, a Mexican or Asian-style run on the dollar." The implication is that the next time there very well could be a dollar and more than that, countries are likely to diversify ahead of such indiginities -- a state of affairs that could pressure on the dollar long before a crisis crops up. As a matter of fact the run from dollars to the euro could very well be the next crisis. As for gold in all of this, my view is direct and to the point: The euro will force Asia first and the United States second onto some sort of a gold reserve standard perhaps modelled after the euro. It was interesting that the head of the Hong Kong Monetary Authority called for an Asian euro on the weekend just prior to euro launch. In the United States that cannot happen except at substantially higher prices. This is one of the reasons why I advocate gold ownership for Americans across the boards.

**

Steve H:

You posted from today's Wall Street Journal: "Gold accounts for 14%, or 99.6 billion euros, of total foreign exchange, gold and other assets of euro-zone central banks and the European Central Bank, the ECB's consolidated accounts at Jan. 1 showed. Official gold figures from the ECB aren't yet available, but based on the price of gold and the dollar/euro exchange rate at the end of last year, gold held by euro-zone central banks and the ECB amounted to 12,574 metric tons, according to estimates from the World Gold Council. The council also estimated that the ECB's own gold and foreign-exchange reserves totaled 39.5 billion euros at Jan. 1, of which gold accounted for 15%, or 747 metric tons."

Steve H: Did you note that WSJ showed the 14% figure for reserves which conveniently comes in under Wall Street's comfort zone of 15% but fails to show a total reserve figure or some other means to check their math? 14% of what? The real number is 30.45% of overall reserves and much higher than anyone expected -- one that might cause some interest in gold once it is absorbed by investors around the world. Millions of investors depend on this newspaper for information and they cannot get the numbers right on so important an accounting? If you were reading this WSJ article critically (particularly the paragraph cited), you would have to wonder if it even made sense. The copy editor must have been asleep at the keyboard last night.

**

Sorry, Peter. So close yet so far away. It was a noble effort though -- worth a silver eagle for getting so close. It's out the door to you! Who knows the way things are going for silver eagles they may be worth $35 someday soon.

Bridge News (1/8/99)....Feb gold built on Thursday's gains to hit a fresh 3-week high of $293.30 early in the session. However, it was then "kept from advancing any further by a stronger dollar and a fairly steady stock market," said Steel. Like silver, Feb
gold was also helped higher by today's COMEX Feb option expiry, said traders.

COMEX options expiry today in the US was thought to have sparked some delta hedging interest, and unconfirmed talk of producer buy-backs emerged. Also, positive figures came from Tanaka, the largest gold retailer in Japan, Which showed December sales of gold bars in December leapt by 40% from November Levels. The low Yen prices triggered so much interest recently that in the first three trading days of January, Tanaka has achieved its target levels for the whole of the month, a T Hoare and Co report said.

Reprinted with permission. For the full report: www.crbindex.com

Peter -- REALLY GREAT call Mr. Asher ! SOOOOO close. Right after todays opening the price spiked up to 293.30 on big volume. Slid to 291.20 on light volume and then rose to the 292.2 to 292.6 area for the last hour of trading. Seven minutes before the close the trade was at 292.40 ! BUT at the end on high volume, it dropped to the 291.6 area and then tried a comeback, failed to reach 292.40 and had to settle at 292.00 All the Hobbits were cheering for you. Congrates on a valiant effort.
<;-)

Thank you for the consolation prize!! I was wondering if anyone was shorting paper gold on that last seven minutes after finding out that there was still some physical gold on the market in the form of that philharmonic in your wallet

Gandalf -- Thanks for the validating commentary and thank you ALL fo the cheering on.

OK, so we now have gold reserves on the ECB's books of �30% to be marked at current market prices for each quarter's balance sheet. Furthermore, all of the member nations' gold holdings are to be included in the ECB's reserves. And the ECB has said from the beginning that it has no intention of changing its policy on gold, and has no plans to sell any of it.

But what does the concept of "reserves" traditionally imply?

My understanding has always been that currency reserves were held by central banks to be used to defend their currency in case intervention should ever become necessary. For example, should the currency come under speculative attack. This was seen to happen during the Asian crisis. Various countries' Central Banks, who held dollars in reserve, coming under attack by international speculators and hedge funds (ie. George Soros and Company) exhausted their reserve dollars by buying up their own currencies from speculators and were left standing by helplessly while their currencies were sold in massive quantities to the point of devaluation. The same process took place in country after country as international capital discovered and went on to prove that their currencies had been valued at unrealistically high levels.

Of course, so far, this has not happened to the dollar. Until now, the status of the United States' Dollar has been unique. Since the whole world holds them as their hard-currency reserves, the United States has enjoyed an immunity in the face of speculators due to the fact that they could always create more dollars by loaning them into existence in world-wide markets. In former times, of course, this was not possible. In those days, with the dollar underpinned and redeemable by gold as per the Breton Woods international treaty, any weakness in the dollar was countered and corrected by selling gold reserves. Actually, the gold was delivered directly to foreign holders of dollars on demand. When it became clear that the US had abused its role as the supplier of the world's reserve currency, foreign governments began presenting their claims in such numbers that the convertibility had to be stopped, thereby renouncing the Breton Woods system based on international treaty.

From that time forward, the US, by supplying dollars in practically unlimited supply, maintained the world's reserve currency needs singlehandedly; borrowing fiat dollars into existence whenever needed. They had no need to sell gold, their fiat dollars, with no other alternative available, were sufficiently in demand.

Now, with the advent of a new alternative for world reserve currency status in the Euro, a new system of reserve currencies struggles into existence. As the process unfolds, it is no wonder that we, here at USAGold find the new ground rules somewhat mysterious and conflicting.

In the first place, the new European Central Bank asserts that they count enormous quantities of gold as part of their "reserves". Yet almost in the same breath, they tell us that "they have no plans to sell (or alter) those reserves". But if they have no plans to sell gold, just what are their plans for their gold reserves? Are they to be simply stored in basement vaults throughout Europe? Just what makes them "reserves", anyway? The US Treasury owns large amounts of gold, too. They are not, as far as I am aware, counted as "reserves". If the Europeans have no intention of selling their gold under any circumstances, what plans do they have for them? How do they intend that these supplies of gold function as "reserves"?

It is assumed that the presence of these reserves somehow offers stability and/or value to the new currency. That the currency is somehow "gold-backed" by a "percentage" of reserves. Yet we hear no suggestion of any commitment whatsoever that the famous "percentage" would be maintained. None of the "reserves" will be converted into currency by handing it over to currency holdrs on demand. It is taken for granted that gold will continue to trade on an open market somewhere. That its price will fluctuate freely according to popular perceptions of current economic conditions. How will this affect the "percentage" of reserve backing enjoyed by the currency? For if the "value" of the reserves fluctuates, so will the "percentage" of those reserves. Remember, no gold is to be sold by the ECB. If this is to be so, how do stored bars of gold in basement vaults function as "reserves"?

Are we to conclude that the enormous amounts of inactive metal involved will serve simply to restrict the world's supply sufficiently to maintain its price as they sit gathering dust in Central Bank vaults? Is that all the Europeans think they mean by "gold reserves" in today's economic lexicon?

"Eventually, ...the euro is going to collapse as a viable reserve currency. (The euro could not survive any extended period of time in any case, as economic union is meaningless without political union. If a deep recession hits Portugal, for instance, and its citizens are not permitted to move to, say, Germany to take advantage of a boom there, then Portugal may have no choice but to withdraw to prevent severe societal unrest.)" Steven Jon Kaplan, January 8, 1999.

http://www.investor1.com/topframe_kaplan.html

It never ceases to amaze, the depth of ignorance that some are willing to trumpet throughout the civilized world via the internet without seeing the slightest need to inform themselves beforehand. According to my personal sources (family members) in Spain, any citizen of any country in the European Economic Community is legally permitted to take up residence with full permission to work in any other country of the EEC. This has been the case for some time; since well before the advent of the Euro.

Just how this totally inaccurate statement proves that "the euro is going to collapse as a viable reserve currency" is way beyond my own simple powers of rational (or irrational) comprehension.

Greetings All. The computer experts have assured me that the gremlins have been excised from my computer modem. It took 3 changes of modems to get a good one. Once again I can join in with the fun and speculation(?).

In this time of forced silence while being electronically held incommunicado, an article on the op-ed page caught my eye. It clearly underlines specifically what has been said here in several different ways. No one in the media wants to address the influence of Gold in relationship to economies.

The article by syndicated columnist William Pfaff, Paris, "Euro Will Protect Europe's Economy", danced all around everything possibly related to the Euro without one time even mentioning the fact that gold was in any way related to the Euro. In fact, the word 'gold' was not used even one time in the entire piece. In the mean time he washed just about every conceivable theory through the piece that anyone could imagine. Just a few particular quotes of the mumbo jumbo:

"The successful launch of the European single currency, the euro, has brought two kinds of American comment, both of which fail to grasp one essential point, which is that the euro exists not to Americanize the European economy, but to prevent its Americanization." Now just what kind of comment is that? Of course it is not to 'Americanize' the European economy, we know it is to establish a currency that has some sort of rational basis. Not only rational, but stable and fixed basis. Yep, It is the old faithful - - Gold.

Mr. Pfaff continues later with this gem: "This writer happens to believe that the emergence of a powerful European currency can in the long run be good for the United States, but that position rests on the assumption that American society would benefit from being in a pluralist and balanced international system, with more than one power center. Few in Americas's current leadership share that assumption." Pause, breathe, breathe, whew! If this is as good an example of what the general populace gets, there is more serious trouble ahead that we can imagine. This last statement shows just how little he knows of what economics is all about and one can be assured that balance cannot occur without some common basis. "The full faith and credit" of the greatest debtor nation on earth vs. a solidly backed currency with gold.

The article goes on with much mundane explanation of who started the euro idea, how it got here, and relative risks associated with the start of the euro with respect to the $US. However, he did acknowledge that "Lester Thurow of the Massachusetts Institute of Technology has warned that among other unpleasant consequences for the U. S. economy, a run on the dollar might develop, provoked by the euro strength." Still no mention of the difference, gold.

His closing paragraph: "They want the single currency (the euro), industrial integration, opened frontiers, and the single Europe-wide market to provide them with industrial and economic weight and influence to better compete with the U.S. The purpose of this is to defend their model of society, not to renounce it."

As heard as a child, "Oh my heavens and little fishes, what have we here?"

Is this not a sample of the media playing into the hands of whomever(s) is against gold?

Excellent posts here tonight. Still ruminating on the thoughts, but this came to mind;

If the ECB has no plans to offer gold as a true functioning reserve asset, then maybe the strength in the euro will be in how few can purchase an ounce of gold compared with the $US. Have they just re-invented the $US circa the 1960's, with another 20 years of expanding left? If they can manage the printing of their NEW fiat currency with any deftness and skill, they could end up cornering the gold market after several years of concerted goldbashing and quite purchasing. Too farfetched?? Someone is buying it.

Thank you for your Reflections on the Function and Role of "Currency Reserves". It cleared up several questions in my mind.

Along with those same reflections, if ECB is playing a bit of a game by including the market value of gold as part of their 'reserves', then why cannot the US do the same thing. Since supposedly the US has the single largest stock of gold in the world, why not do the same thing in stating the US 'reserves'?

Does that then mean that the US debt really isn't there or just isn't so bad?

Of course, this must also beg the question of whether or not the gold is really there as some conspiracists theororize. OK, so this is another can of worms.

Fishing anyone ?

backlash

Thank you for your Reflections on the Function and Role of "Currency Reserves". It cleared up several questions in my mind.

Along with those same reflections, if ECB is playing a bit of a game by including the market value of gold as part of their 'reserves', then why cannot the US do the same thing. Since supposedly the US has the single largest stock of gold in the world, why not do the same thing in stating the US 'reserves'?

Does that then mean that the US debt really isn't there or just isn't so bad?

Of course, this must also beg the question of whether or not the gold is really there as some conspiracists theororize. OK, so this is another can of worms.

Fishing anyone ?

backlash

Take another look at msg. #1697 in light of what you have just said tonight.
Gold in a vault, uncommited as a reserve, is a temptation for any spending scheme that would be unpopular with taxpayers. I agree with what I think your saying; that this +\- 30% is not neccasrily going to stabilize anything

If the UST truly has 260 million ounces in the vault, at $300/oz they have $78 billion in gold reserves. With $5,500 billion in admitted debt, that's a reserve ratio of 1.45%. Not too impressive.

On the question of the POG rising when the dollar drops.

I may be uninformed but isn't the dollar the lynch pin around which the POG in other
currencies revolves. For instance, when the "Aussie" was down against the dollar, gold in
that currency went up, rather than down in the dollar.

So, it would seem that when the dollar goes up against another currency, than the POG
goes up in that country and when the dollar goes down, so does the POG. Therefore, if
the Euro were to climb against the dollar, it would follow that the POG would go down in
Euros, but not up in dollars.

It also appears that the Euro is, in some ways, only an" accounting" currency for now;
being in effect a market basket of the 11 nations money just as stock index futures are a
market basket of stocks. The mechanics of gold vis a vis currency, are still affected by a
multitude of exchange factors; sort of a mathematical tower of Babel, both in the EU, and
the global marketplace.

The actual effect of the Euro/$ ratio would be that of supply and demand. When the falling
Aussie raised the POG in that country, there was heavy forward selling by the mines, and
so the POG in dollars went down due to selling pressure, not as an automatic function of
currency exchange.

My point is that if gold is not pegged as a standard to a currency, then its price will be
affected primarily by the technical factors of commodity trading.

I imagine this viewpoint is going to see a few lightning bolts from Minas Tirath and the
Wizards tower, so fire away!

Does anyone know if the Euro crowd is using reserve gold to mint there talked about coins, or will they be buying in the open market? I can see big ramifications either way they go. Another question, will the coins be bullion priced or issued at a premiun? Either way I would guess a lot of gold will be taken out of some big vaults.

The POG has been fairly stagnate in the last year and a half. With one minor exception when it moved up to $340.00 US, it has stayed in this narrow band since it fell 2 years ago. So the only price changes seen have been with the currency swings (and there have been some big ones in the last two years). I would imagine that 20 years ago when thePOG was over $800 US, that it was still high relative to any currency, with again, some differentials due to currency movements.
It's early Saturday morning, and believe me, I'm not trying to be argumentative at all, so I hope my comments are not taken that way, but while you're right that right now the Euro is more or less accounting, the implications are so huge that it makes it, even before it is the only currency in Europe very significant. It's new existance, make huge economic and political statements about the present and the future of world economies, all of which have been discussed here.

PH in LA....You post: "As far as the percentage of gold included in the Euro's offical reserves is concerned, I have yet to hear even a glimmer of definition in the 15% figure that has been bandied about so much. Nowhere has it been specified in any official manner what the 15% (or higher) number was ever supposed to be a percentage of. I would be much more comfortable hearing about the amount of gold involved rather than a percentage of some unspecified comparison."

Are you more comfortable now knowing that the weight of gold sitting behind the euro is roughly 12,000 tons? The lack of specificity to which you allude might be traced to the Wall Street Journal but the ECB was very forthcoming in their release of January 5, 1999 -- reserves of EUR 227.4 billion in foreign exchange and EUR 99.6 billion in yellow metal.

**

You post additionally: "Also, there has never been suggested any form of convertability for the new currency. No credible assurance has ever been offered that the gold held as reserves would in any way be used to maintain the issuance of new currency within non-inflationary limits, either."

Ah, yes. Once again, you bring us the heart of the matter, PH. I break euro discussion into two segments. The first has to do with political and economic philosophy. I agree with you that I would rather have full convertibility, gold in circulation and something akin to a self-regulating currency board (or a gold exchange standard). The second segment though has to do with financial matters and asset preservation. This is where the rubber meets the road in terms of our daily lives (at present). The euro most likely will create problems for people who hold their assets in the form of dollars. The euro may not be the best of all possible worlds in terms of political economics, but because of the strong gold component behind it, it will likely be preferrable, or at least mount a credible challenge, to the dollar. That has enormous financial implications for American investors beyond the philosophical cosiderations. So, in this matter, I disagree with you in the short run but agree with you in the long run. Like any currency lacking full convertibility, it is likely to be politicized, debased in fits and starts ( as the dollar has been) and finally destroyed.


Peter Asher:

You post: "My point is that if gold is not pegged as a standard to a currency, then its price will beaffected primarily by the technical factors of commodity trading."

Gold is the only commodity that is stored for future use as money. That is why Europe did not put a 30% pork belly reserve behind its currency -- though there are some who would be just as comfortable with a pork belly reserve, or, (as one client laments every time he sees the "gold is just another commodity" argument) throwing their gold bars in the silo along with the corn. (He's from Nebraska.) As for pricing, by some definitions everything is a "commodity" and can be priced in terms of some other "commodity", if you so wish, including currencies like gold, the dollar and the euro. In fact when I see the typical commodities trading advisories from most high end brokerage firms, I think that these relationships are the only comparative analysis taught in economics schools these days. I don't know how far that's going to get you in terms of guesstimating the future though. (By the way, who is Minas Tirath. I even tried spelling it backward and got nothing.) But let's just say that you are right for the purposes of discussion that the price will be affected primarily by the technical factors of commodity trading. What do you mean by that? Which factors?

The real question I've been asking and probably not doing a good job of it is to what extent will the dollar be treated like the Indonesian rupiah (for example) in the future?










I will have more comments and replies later.

el St.One: Re: Msg ID:1712 Euro Gold Coins

The idea floated by the ECB of a 100-Euro gold coin is another half-baked concept pitched at the marketplace in the hopes of winning points in the public relations wars surrounding the introduction of the Euro. Reminiscent of the un-definition of their foggy and still ill-defined use of the term "gold reserves" there has been so little real definition attached to the 100-Euro gold coin that the whole thing must be taken very warily, indeed.

The ECB has nowhere (that I have seen) suggested even whether the 100-Euro gold coin will be a circulating, legal-tender coin, or a commemorative baubble destined for collecters. Their intention in this regard is, of course, fundamental.

If the idea of the coin is to be a mere commemorative oddity, the implications of its existence are totally mundane. The face value of the coin (ie. 100-Euros) will bear no relation to the value of its gold content. Exactly like the US Gold Eagle (face value $20) or the Vienna Philharmonic (face value 170 Austrian Schillings). The gold content of the coin will fluctuate with the open market and the true value of the coin will also fluctuate with the rise and fall of world-wide currency markets. Business as usual/Same old, same old!

The concept of a circulating 100-Euro gold coin, on the other hand, can be considered revolutionary in this, our modern, era of fiat currencies. It implies, nay virtually mandates, a fixed gold price maintained by the Central Bank through use (ie sale) of its gold reserves in the traditional manner of true reserves. To suggest otherwise is to proclaim that Gresham's law has been repealed. (Gresham's law asserts that any more valuable currency will be hoarded out of existence.) An unlikely revision in human nature, indeed!

Consider: For a circulating gold coin to maintain its face value, the issuing entity must be prepared to supply the gold content for the striking of the coin at a fixed price. Obviously, part of this process would have to be to stabalize the value of the gold in world-wide currency terms, ie world markets. There could be no "floating" of the price of gold. It would have to be secured to the value of the Euro and maintained there. Otherwise, the coin would simply be hoarded by collectors as the Euro currency inflates, driving the value of the Euro itself through the floor. "...and unto dust thou shalt return."

Ergo: Discussions about the weight, percentage of gold content, value, color, design and/or shape of any 100-Euro gold coin logically await clarification of the intention of its issuers on this point: Is the coin to be a real circulating coin? Or is it to be another public relations fraud aimed at deceiving the gullible? All other questions about it should be considered subservient to this one.

Still hoping for some agreement and/or disagreement/reaction on this subject, hence the repost:

To: el St.One:
Re: Msg ID:1712 Euro Gold Coins

The idea floated by the ECB of a 100-Euro gold coin is another half-baked concept pitched at the marketplace in the hopes of winning points in the public relations wars surrounding the introduction of the Euro. Reminiscent of the un-definition of their foggy and still ill-defined use of the term "gold reserves" there has been so little real definition attached to the100-Euro gold coin that the whole thing must be taken very warily, indeed.

The ECB has nowhere (that I have seen) suggested even whether the 100-Euro gold coin will be a circulating, legal-tender coin, or a commemorative baubble destined for collecters. Their intention in this regard is, of course, fundamental.

If the idea of the coin is to be a mere commemorative oddity, the implications of its existence are totally mundane. The face value of the coin (ie. 100-Euros) will bear no relation to the value of its gold content. Exactly like the US Gold Eagle (face value $20) or the Vienna Philharmonic (face value 170 Austrian Schillings). The gold content of the coin will fluctuate with the open market and the true value of the coin will also fluctuate with the rise and fall of world-wide currency markets. Business as usual/Same old, same old!

The concept of a circulating 100-Euro gold coin, on the other hand, can be considered revolutionary in this, our modern, era of fiat currencies. It implies, nay virtually mandates, a fixed gold price maintained by the Central Bank through use (ie sale) of its gold reserves in the traditional manner of true reserves. To suggest otherwise is to proclaim that Gresham's law has been repealed. (Gresham's law asserts that any more valuable currency
will be hoarded out of existence.) An unlikely revision in human nature, indeed!

Consider: For a circulating gold coin to maintain its face value, the issuing entity must be prepared to supply the gold content for the striking of the coin at a fixed price. Obviously, part of this process would have to be to stabalize the value of the gold in world-wide currency terms, ie world markets. There could be no "floating" of the price of gold. It would have to be secured to the value of the Euro and maintained there. Otherwise, the coin would simply be hoarded by collectors as the Euro currency inflates, driving the value of the Euro itself through the floor. "...and unto dust thou shalt return."

Ergo: Discussions about the weight, percentage of gold content, value, color, design and/or shape of any 100-Euro gold coin logically await clarification of the intention of its issuers on this point: Is the coin to be a real circulating coin? Or is it to be another public relations fraud aimed at deceiving the gullible? All other questions about it should be considered subservient to this one.

PH in LA: I saved this for the afternoon/evening board:

You post:

"Are we to conclude that the enormous amounts of inactive metal involved will serve simply to restrict the world's supply sufficiently to maintain its price as they sit gathering dust in Central Bank vaults? Is that all the Europeans think they mean by "gold reserves" in today's
economic lexicon?"

Just as the United States maintains an arsenal of nuclear warheads as a deterrent against military aggression, so the Europeans will maintain gold as a deterrent against currency aggression. This will in all likelihood be sufficient to keep the George Soros� of the world at bay. The gold also acts as a warning that the central bank is serious about protecting the value of the currency. All that need be is that the gold be there ready for use. This deterrent capability, I believe, will be a fundmental aspect, of the modern national currency -- which is a child of its times. It is interesting to me that when Joseph Yam, chairman of the Hong Kong Monetary Authority, called for an Asian version of the euro, he stated as the first needful reason the vulnerability to speculative attack. There have been similar well-publicized musings along these lines from Japan and other Asian nations.

Now, let me make one more point and this ties in with el St. One's timely questions (#1712). You could be getting a semblance of what we want out of the new gold coin to be minted there. If the currency drops in value, it can be exchanged for the gold coin and the gold coin in Gresham fashion goes into the safe deposit box. I am assuming that the coin will be stamped 100 euro as the legislation suggests. This would act as a check to money expansion plans of the ECB.

PH...I agree that having another bullion coin along with the Philharmonic, U.S. Eagle, et al will not act as a check. If we get the bullion coin, it will be the result of an ill-conceived compromise. There is a continous battle in the European government between hard money advocates and those pushing the legal structure underneath the money toward a soft euro. Europe is not a monolith as we are now becoming aware, but a cauldron of concerns, ambitions, politics and economics. There are those in Europe who want the money of which you speak; but there are those oppose it and it is the opposition to hard money that is in power at the moment.

PhD in LA -- you have defined the conundrum well ! As ANOTHER might have said, "We shall await the birth of the 100 Euro Gold Coin together, YES ?"
<;-)

This was published on World Net Daily & written by David Bresnahan. I am uncertain of their reliability but post it for your consideration.

Go to:
www.worldnetdaily.com/bluesky_exnews19990107_xex_national_gua.shtml

**

"If you're in the military, particularly the National Guard, don't plan to go anywhere next December. All leaves will be
canceled in anticipation of problems expected to be caused by the Y2K computer bug.

In fact, don't even plan your own New Year's Eve party Uncle Sam is planning to host one for you. Just be sure to bring your toothbrush and a change of socks -- you may not be going home after the stroke of midnight.

Secret meetings at the Army Readiness Center in Washington have been going on for some time dealing with the Y2K computer bug. They have concluded that disruption of communications, transportation, and power are likely, and plans are underway to call out every member of the National Guard."

Thanks jinx44, that is precisely what I am alluding to. Someone is someday going to wake up to the fact that the emperor is wearing no clothes. However, let's get apples and oranges sorted out, shall we.

The fact that the US has an 'acknowledged' debt of $5.5 trillon is not necessarily the correct comparison that should be made. The 1.45% gold backing of the debt represents only a backing of debt and completely ignores backing of the outstanding printed currency. So, what is the amount of the $US outstanding currency? (I don't know what it is - can someone help?) By using the amount of gold in the UST, lets figure out the amount of gold backing for the outstanding (or circulating) $US. This figure is the one that properly compare with the euro backing with gold at the +/-30% level of outstanding currency.

This is the comparison that is so frightening. If the 1.45% figure looks bad, as a gold reserve to debt ratio, just wait until you see the gold reserve tooutstanding currency ratio. Hopefully my understanding that the 30% gold reserve for the euro currency in circulation is correct.

How would a euro gold reserve to debt comparison be made? Would the euro really, in fact, have a debt? And, if so, what would it be and how would it be structured? Just because the ECM countries use the same currency, does the issuing entity of that currency incur the debt of the members using the currency or do the individual countries incur the debt? Maybe I am dense or totally naive, but just how does this all work.

Politically speaking, keeping sufficient confusion around the points/questions above preclude many persons from getting to the heart of the matter, much less understanding it. This practice of comparing non comparables allow for much chicanary both politically and economically. CONFUSION is the operative in this game.

Now it is time to consider whether the 'reserve' gold is to be used for defense of a currency or as an active part of actual exchange. 'Fiat' now moves into the picture to help define the status of any and/or all currencies. This all being now a matter of degree. Which currency is more 'fiat' than another? Who knows without some standard by which to compare. For now, the $US is the standard for comparison and yet, by any reasonable logic, it is the most 'fiat' currency of all.

It would appear that, the closer a currency is to an absolute (gold as we understand it), the more sound and viable it should be. This being a logical case, how then is it that the $US is pulling this thing off? By default!! There has been nothing available to challenge it. Plus, the USA has been in the position of being the biggest kid on the block. Whether one considers the USA to be a bully or a benevolent bailer-outer of the less fortunate is immaterial, it is still the biggest one. And being the biggest, this charade has quietly continued to grow since decline of the UK.

A correction is due. Is the euro the one to precipitate the correction? Though the euro may or may not survive the correction and the return to basics, it well may be the catalyst to start the process.

Although forward selling, derivatives, stronger yen, and so many other terms used in this forum are a bit foreign and awkward for me, it is quite clear that substantial economic basics are being either ignored or very heavily manipulated, or both. Please excuse these ramblings from a neophyte, but I believe they reflect the thoughts of many who have never run in the circles that this forum obviously encompasses.

As a neophyte, rest assured that gold is now my asset of choice. You guys have done a good job in this conversion. Thank you.

backlash

I came across the following post at Kitco by Rhody (20:08) at the Kitco site and found it relevant to our discussion here:

"I think the ECB was concerned with maintaining a low price of gold only until Dec 31 1998, when they used the last London fix to set the value of their gold reserves. They should allow the price to rise from here, and therefore show a positive on their books re the gold portion of their reserves.

It is the Fed and Wall street that hates gold. The ECB can use a rise in the price of gold as a means of enhancing the
value of the EURO. All of this is old hat here on Kitco.
Wall st hates gold as a rival for investment dollars that they want directed into bonds or equities. Wall st earns no commission selling gold."

That last sentence grabbed me. You cannot hype the value of gold. It is what it is. The only way Wall Street and London have found a way to make a substantial profit on gold is to short it and then try to manipulate it to the downside. This is the problem we have dealt with for many years in the gold market.

It was back the early 1970s that Wall Street commissions were de-controlled and many of the festering problems on Wall Street trace back to that seminal event. Upon decontrol, commission rates plummetted and Wall St. firms were forced to become market players who earned their bottom line playing markets rather than agents earning their living on commisson. I don't mean this to be an argument for controls on the investment markets; I am simply pointing out a reality that has led to many excesses on both Wall Street and in London and has largely been forgotten. Wall Street has never adjusted to this change even to this day.

Hats off to Rhody and an invitation to take a seat at this fabled round table of yore.......By the way I think he has the right perception on gold. The Europeans no longer have a strong vested interest in a low dollar gold price. However, they do have a strong interest in a low euro gold price. More on this as we proceed in these most interesting of times............

I never saw a post in response to my post #1689 asking for some 'wisdom' in understanding the CNBC Summers interview post #?.
I want to know what the "Financial Fundementals" are, that Summers referred to in his interview, that are going to keep our economy in excellent going as long as we, all US citizens, support them. The only thing I gathered is that WE need to KEEP spending so that there is a strong 'cash flow' and probably keep putting money into the 'market' (boy did someboby do that on Friday!). Don't save, don't do anything that would NOT keep cash flowing. Anybody out there care to respond. I'd REALLY appreciate a response on anyones take with Summers statements. Richard

First, Michael, Minas Tirath is the city where king Aragorn and princess Arwyn dwell. Just sharing some inside stuff with the Middle Earth gang.

What I meant by Commodity technicalities, was that the fluctuation of the Euro against the dollar, would cause a change in the demand for gold in the EU nations based on the POG going up or down in those countries as happened in Australia and Asia when their currencies went down. that would in turn put buying or selling pressure on gold causing it to rise or fall in dollars. It was specificaly stated at one point a few months ago, that the POG had dropped in Australia do to a spurt of mine selling forward due to the high domestic price of gold.

I am posting the following as a matter of record. Marsten Webb hits on many of the themes already outlined here by USAGOLD. It doesn't hurt to have this verification available from another highly respected source. Please note the starred paragraph (***) in particular. There are also Maastrict Treaty obligations pointed out by M-W worth noting.

I would add three important factors to this analysis which come into play when comparing the position of the United States to that of Europe. First, the United States gold reserve is not at this time available to defend the dollar. That would require an act of Congress. Second, the United States balance sheet carries a $5.6 trillion outstanding debt against its reserves. Europe carries a euros9 billion. In effect, the U.S. is a net debtor nation -- in fact the largest debtor-nation in the world. Third, the United States runs chronic trade deficits which would drain the gold reserve were it made available to defend the currency at current prices. Europe runs chronic trade surpluses which might eventually cause a gold flow to ECB.

____________________________

Friday January 8, 10:56 am Eastern Time

Company Press Release

Euroland -- The World's Largest Gold Holder

NEW YORK--(BUSINESS WIRE)--Jan. 8, 1999--

This statement was issued by Marston Webb International on behalf of the World Gold Council.

In the light of various speculative press reports concerning
gold and this week's publication of the first reserves' statement by the European Central Bank, the Centre for Public Policy Studies of the World Gold Council is issuing
this press release to clarify the key issues.

It is important to emphasise that the mere publication of this reserves' statement carries no implication for future gold sales by either the ECB or the 11 individual EU member states which comprise euroland.

The European System of Central Banks (ESCB or 'Eurosystem') is now -- as a consequence of the changes resulting from the introduction of the euro -- the world's largest single holder of gold, easily exceeding the amount held by the world's previous largest holder, the US.

The ESCB consists of the European Central Bank (ECB) in Frankfurt and the national central banks of the 11
countries (Note A) that have joined the European Economic and Monetary Union (EMU), under the terms of the 1992 Maastricht treaty.

On 5 January the ECB published an initial balance sheet for the Eurosystem, which will be updated weekly. It showed the ESCB's total gold holdings to be worth euro99.6bn. The gold valuation used by the ESCB was set at euro246.368 per troy oz, equivalent to the London am fix on the morning of 31 December ($287.45). This valuation will be updated quarterly according to gold's market value on the last day of the preceding quarter.

Euro99.6bn of gold was therefore equivalent to 404.3m oz or 12,574 tonnes of gold. This is more than a third of all the gold held by central banks and international monetary institutions (around 34,000 tonnes).

The same balance sheet showed euroland's other foreign reserves (ie foreign currencies) totalling euros227.4bn.
Gold therefore makes up some 30.0 per cent of euroland's total foreign reserves, a much smaller proportion than in
the US, which currently holds around 53 per cent of its reserves as gold.

The creation of the euro involved various changes in the gold holdings of EU central banks, as follows:

-- Previously all EU central banks deposited 20 per cent of their gold and foreign exchange holdings with the European Monetary Institute (EMI -- the ECB's forerunner) in exchange for ecu. These deposits were returned at the end of 1998.

-- The 11 euroland central banks had together to transfer a total of euro39.47bn of gold and foreign exchange reserves to the ECB. 15 per cent of this - euro5.92bn - was in gold. This is equivalent to 747 tonnes of gold at the price adopted by the ECB.

-- The amount each central bank had to transfer to the ECB was determined according to its ECB shareholding.

***While the gold and foreign exchange reserves of the national central banks will remain in their possession, it is important to emphasise that -- under the terms of the Maastricht treaty -- all gold and foreign exchange reserves are at the disposal of the ECB. According to the Maastricht treaty, transactions above a certain limit will be subject to approval by the ECB. Guidelines covering any gold and foreign exchange transactions carried out by the former national central banks have been adopted but have not, however, been published.

The largest individual gold holders within euroland -- Germany, France and Italy -- have all confirmed in the recent past that they will not be looking to sell any of their gold reserves.

Top 20 Central Bank And Financial Institutions Gold Holdings

Gold Holdings % share of gold(Note B)
Tonnes in total reserves

1 Euro'system(Note C) 12,574 30.5%
of which:
Germany 3,469 N/A
France 3,024 N/A
Italy 2,452 N/A
Netherlands 1,012 N/A
ECB 747 15.0%
Others 1,870 N/A
2 United States 8,135 53.0%
3 IMF 3,217 ...
4 Switzerland 2,590 38.3%
5 Japan 754 3.2%
6 United Kingdom 716 17.3%
7 Russia 446 33.5%
8 Taiwan 422 4.5%
9 China, Mainland 395 2.4%
10 India 357 10.9%
11 Venezuela 304 19.1%
12 Lebanon 287 28.3%
13 BIS 199 ...
14 Sweden 184 9.5%
15 Algeria 174 18.1%
16 Philippines 171 14.9%
17 Brazil 149 3.3%
18 Saudi Arabia 143 14.6%
19 Greece 141 7.2%
20 South Africa 132 21.9%

Others 1,994


Notes

N/A Data not yet available. Foreign exchange reserves data for euroland countries after the introduction of the euro have not yet been published.

... Not applicable.

Note A: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain. The four
remaining members of the EU 'Denmark, Greece, Sweden and the
UK' are not, for the time being, participating.


Note B: With gold valued at $287.45 per troy oz (London am fix on 31.12.98 and the valuation used by the ECB).

Note C: Euro - system includes Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain. Source: Centre for Public Policy Studies, World Gold Council. Based on IMF, International Financial Statistics and other sources. The data are the most recent available.

This statement was issued by Marston Webb International on behalf of the World Gold Council.

Hi Michael, been out carousing the last few days and saw your question when reviewing the posts.

> A question: Do you believe that the introduction of gold is sneaking
capitalism back into Europe through the side door so to speak -- through
ECB? Do you see this as an historical imperative?<

Really good question ... wish I had the answer. It seems to me that the move to the euro signals a macro trend change that will probably play out over the next few years/decades in the same way that the creation of the Fed preceded socialism in this country and fascism and communism elsewhere. Clearly, it is a tacit recognition of the failure of Keynesianism. One wonders if the people behind this move recognize this fact in this way or if they simply see it as just a type of self defense. Furthermore, one has to wonder, even if they do recognize the failure of Keynesianism as economic policy, whether they understand that this necessarily means the failure of socialism as social policy. And if they do, will these financial leaders be able to exert the influence in the political arena to move the political infrastructure away from socialism towards capitalism.

The introduction of the euro, the internet and it's ability to move information before government can package it, the acceptance of free trade in concept if not totally in practice, and the outright collapse of welfare states such as the Soviet Union (ours to be added to the list) lead me to believe we're ultimately moving to a freer world. This may be just wishful thinking on my part. There certainly are no high profile political leaders out there making the case for freedom and capitalism as the only moral system, regardless of whether it benefits everyone the most, which it does (except parasites and bureaucrats).

But that could be the silver lining in an economic collapse. People are going to get hungry and they're going to get pissed. They will be looking for answers and it is under such conditions that dramatic change may be possible. What kind of change they will produce is anybody's guess. I don't believe they will lunge us into totalitarianism here in the US because I just don't think people will give up that much more freedom. More likely is that the competing interests of the government spoils system will clash and chaos will ensue for awhile. During that time of confusion is when it will be absolutely imperative for the freedom fighters to step forward and loudly make their case. It's too bad no one is publicly making the case for individual liberty/freedom from government now so that the concept will already be established and incubating in the minds of the individuals who are the herd.

Sorry about running off at the mouth ... you struck a nerve.

Still trying to figure out the right way to do the postings. The double post was one more lesson.

Richard, OR

I agree and am also in the dark. Would someone please help clear up what the "Financial Fundamentals" was referring to.


turbohawg,

The question posed by MK was precisely the same one being fronted by that syndicated columnist article. It does seem that both economic and social agendas seem to run in cycles. Apparently we humans just cannot seem to learn from history. Good Post.

backlash

Backlash.....

Here's a good overview of current dollar policies, Greenspan in Hong Kong, Key factors for next week:
http://biz.yahoo.com/rf/990110/h.html

Do you think the weak dollar policies are a long term policy or a short term fix? Seems to be the major question...They talk as if the U.S. has a choice. We may not.......

******

Turbo....Strong post. I like your optimism. I just finished the Poole book on Hitler's financial backing. You might like it. Good insights. Major German corporations weren't as interested in capitalist principles as they were in subscribing the government as the gaurantor of their market share. Hitler's biggest backers were Krupp, Farben, et al who thought Hitler would hand over the industrial base of Russia, France, etc. to them. They had no interest in the moral aspects of such cravings but instead were willing to sell out the German people for their own self interest and overlook the slaughter of millions of Jews (and Polish Catholics, by the way) in the interest of corporate hegemony......By the way, did you know that Hitler was a cocaine addict at the end? It explains much.

Reuters says, "...analysts have some worries on the IMF itself in light of President Clinton's impeachment trial. Experts fear the IMF's ability to continue helping emerging economies may be curtailed if the U.S. Senate removes Clinton from office. Clinton is a strong supporter of the IMF."

Look out for Brazil......

http://biz.yahoo.com/rf/990110/cu.html

Good evening all. Each weekend I gather the posts of the week for reading ( I don't have a chance to go online everyday). That
said please forgive me if my comments are more representative of past rather than present discussions on this forum. This is
also why I tend to write on topics in a more general sense. The insights that I receive from this forum are invaluable. It has
allowed me to gain a greater understanding of what ANOTHER has said. For instance the ideas that gold transcends
generations, gold's price is constant - it is the dollar's value that changes and gold's value is hidden.
Gold is not a commodity, gold always remains gold. If you were to put gold into a coin form it is still gold, yet if you put corn
into a cow it becomes beef and if you put beef into a human you get- well you get the point. Gold is not a part of the food
chain. When crude oil is refined it is transformed and consumed .Gold is gold forever
Gold could be used as a currency without having to fix the price. The value of the dollar changes but you don't have to check
the markets before you by groceries( I realize this is not true of all currencies). A person may then say that gold is not
convenient for these small purchases, yet this shows how gold's value is hidden. That is why the currency system ( non fiat) was
developed, at 100% gold backing, this is the ideal bartering system.
The fiat currency systems have not been around very long, historically speaking. Each time the alchemists of the fiat currency
charade can only fool some of the people some of the time, and from what I have read in this forum the posters are not fooled.
Judging by the comments made by some of the government's officials and others I have to wonder if the Euro is the last gasp
effort to save the fiat system.

Well said. Especially your earthy food chain description. Never seen that point made that way before.....Effective... very effective.....

USAGOLD -- question. Your businesswire passthrough in AM dtd Jan 8, 1999 stated US reserv of 53%. Is this accurate?

Dear Michael,
In one of your recent posts it was stated that Euroland holds 30% of its reserves in Gold. Comparibly, the US holds 53% (I'd like to know what makes up the remaining 47%). You made the statement that the US is the worlds greatest debtor nation, with a debt of "$5.6 trillion against its reserves." My question is this -- why does US debt have to be paid back with reserves, specifically US gold? Couldn't the US allow hyper inflation to reset the POG to $10,000 per oz, instead of the current $292. This would effectively reduce the US debt obligation to $175 billion of current purchasing power (ie. $5.6 trillion then would equal $175 billion now) because the national debt is valued in dollars and not gold. After "paying" our national debt back to other countries and US investors, with worthless paper, and holding onto its gold reserves, couldn't the US then rejoin the gold standard by issuing new US gold backs?

If this WERE to become a US strategy to defend against the Euro, and the US effectively did not give up any of its gold, wouldn't the US remain the worlds most wealthy nation based on the sheer amount of gold the US would still control?

Although this post was addressed to Michael, I'd appreciate comments from anyone who could help me understand how a return to the gold standard wouldn't ultimately benefit the US given the above possible scenerio. Granted, the average US citizen, with little or no gold reserves, could end up severely screwed in the process.

For your comments and consideration,
Critical Mass

Dear Michael,
If the Senate were to remove Clinton, Gore would replace him as President of the United States and his views on most matters are supposedly identical to those of Clinton. Therefore, what we'd lose is Clinton's charisma and track record of standing up to Congress, but the ideology of the Office of the President would remain the same.

I suspect Gore would hold Congress to funding the IMF as previously agreed vs a policy change, therefore, I doubt the IMF is in real jeopardy of losing US funding in the immediate future. However, I have doubts that the IMF's programs will have any real, lasting, positive effect on the economies receiving "aid," simply due to the size of the problems they are being presented with. It's very much like Chevy Chase in Vegas Vacation trying to patch a leak in the Hoover Dam with bubble gum and only making matters worse.
Sincerely,
Critical Mass

Steve H...Yes, that is correct if the World Gold Council's analysis is to be believed. Please keep in mind though the huge foreign held debt figure that should be counted against reserves. Note, that this is what the Europeans did in their first financial statement. Too often, the liabilities are overlooked and the assets over-played. They must be viewed in tandem.

Critical Mass -- You bring up an excellent point and important discussion. I will make a stab at it later.*
Keep in mind though that (if I recall correctly) ANOTHER made the valid point months ago that if the gold reserve of the United States were offered as a defense of the dollar it would migrate to Europe (and the BIS) in short order. I'd like to get various opinions from the think tank here as to what would happen if the United States actually allowed the price of gold to go to $10,000. ?????

The floor is open....

*In the meantime, does anybody have handy the external debt figure for the United States -- held as Treasury obligations? It will help with this analysis. If it doesn't get posted I'll try to dig it up when I get to the office.

Have a good day, fellow meisters.

GC9G just jumped above 293 !
Oh, MK do you think that the USA can stop Gold from going to $10K ? How would AG do that ?
<;-)

As a newbie to this forum I'd like to add my thoughts about the euro, particularly the proposed 100 euro gold coin.
AS of 1-8-99 the euro was worth $1.17 , so 100 euros
would be worth $117. Since gold that same day was worth
$290. per ounce dividing $117 by $290/oz we find the euro would contain about .4 oz of gold. So I think then the
price of the 100 euro will fluctuate like any other gold coin such as the African rand.

... what is the Poole book on Hitler that you referred to ?? I'd like to take a look at it ... thanks

GC9G has hit 293.9 and XAU just broke above 75 !
<;-)

With gold and the yen up sharply at 9:45 MST and no related activity in the European currencies and euro, this has the tell-tale markings of **hedge fund short covering**.

I have enjoyed reviewing the past days of comments by everyone. It is good the see the general progress of knowledge, though some food for thought frequently finds itself to be chewed twice. Many of general questions can find their answers in the archives, but perhaps the flavor is to be enjoyed time and time again?

Hello Critical Mass: you pondered the thought, "...'paying' our national debt back to other countries and US investors
with worthless paper..." The debt cannot be vanquished with paper...only gold (perhaps best done after your suggestion to equate 10,000 dollars per each ounce, and not before!). You must realize that although we frequently alluce printing dollars from thin air, it is actually the credit that comes from thin air. The dollars themselves, when created, are always 'backed' by the promise to repay with interest at a later date. To add up the nation's creditors is to see a 5.5 trillion dollar debt that is owed. If they would for the sake of U.S. convenience allow the Govt to print one paper bill, a 5.5 trillion dollar Federal Reserve Note with a picture of all the Presidents on it, you might choose to think the matter to be settled. It is not. The Federal Reserve Note would be created only upon the Treasury issuing a bond for the 5.5 trillion dollars to be repaid to the holder at a later date, with interest. This is debt consolidation, not debt repayment. The debt itself can only grow larger when paid in paper. The debt can only be vanquished by payment in gold, and the dollar must first find its true relative valuation in gold to allow for settling the debt.

Richard, it would be helpful if you would reference the Msg number that contained Mr. Summers comments. I (or others) might be able to address your questions more easily--as it is, I could not locate the original text. Your words have not been ignored.

Feb Gold (gc9g) has hit 294.3 and the volume is picking UP!
<;-)

This is a partial post from one month ago. The topic seems to be again at hand.
--------------------------------
Recall that 'Friend of ANOTHER' and I had dialog not long ago in
which the nature of the 100 euro gold coin was discussed. At the time,
there were many ill-informed or premature press releases that gave
conflicting information regarding gold content and commemorative vs
circulation status. While only time can serve to accurately predict
(with hindsight!) the actions of men, evidence is such that the european
currencies will hold their relative value with respect to gold, and the
'price' of gold will only be seen to rise in dollar denominated terms.
In other words, the exchange rate for the dollar to buy the euro (and
member currencies which are fixed in the interim) will change on par
with the dollar price of gold. Specifically, a 100 euro coin can be
expected to contain 8-10 grams of gold, and 100 euro face value will be
inherently understood to equate with that amount of gold. The euro
'price' of gold will be stable, whereas the dollar exchange rate/price
of euro/gold will reveal a drastically weakened dollar. Think on
this...it has been stated that the gold euro coin could require 1,000 to
21,000 tonnes of gold. Only as money would the latter figure be
approached, not as commemoration! You may withdraw money from euro
accounts as paper bills or small coins, always knowing that 100 euros
can also be withdrawn and held as a specific gold coin. Personal
preference will dictate whether the gold sits within bank vaults due to
trust and confidence, or whether it is held in a shoe under the bed. So
we see 1,000 to 21,000 tonnes, as necessary, rendered into coins!
In all of world history, Americans are unsurpassed in their imaginative
craft of monetary affairs. It should come as no surprise that the
responsible return to a gold standard is ushered in by the European
community. Not in all things does "Might make right". So take a simple
lesson from your government, which holds much gold with which it can
settle its accounts and move into the future. What do you hold? Think in
these terms...it has been a quaint experiment to price gold in terms of
printed paper. The analysis supports discontinuation...this is acheived
with the euro. Gold shall once again be used to price paper. Be
forewarned--not all paper is created equal!
------------------------
On the recent topic of U.S. foreign reserves comprised of 53% gold value, consider this as more a commentary on the very low amount of foreign paper held by the U.S. (as is to be expected by the world's leading debtor nation).
----------------------
USAGOLD, you might consider altering the 'change' column of the euro on your Daily Market Report page to reflect the change since inception rather than since previous day. This will help keep the forest in clear view in spite of the trees. While too soon comment intellegently on the matter, a daily repetion of 10 up followed by 9 down looks to the casual observer as up, down, up, down...while the trend remains up, up, up...
--------------------------
I have seen recent press releases that tend to discourage the consideration of individuals to hold gold with statements such as "while gold was up modestly in the US dollar, it languished in euros." Correct, and they fail to see the point of it. The euro is designed to hold its purchasing power. Gold reveals that purchasing power. Should gold be seen on occasion to "drop in price" when valued in euros after the exchange calculations are done, this is fine; the mechanism should allow for non-exuberant upward preference of the euro--but it has a golden floor that will not be violated.

Gandalf, where are you getting the volumes traded?

The Belgian government is pushing to step-up the timetable for introduction of the euro circulation coins and notes. EU nations had agreed to delay the introduction of euro notes and coins until Jan. 1, 2002, three years after merging their currencies, by most appearances to leave enough time to print and mint euros. You may see more to this if you look below the surface.

The task at hand for the European Union is to avoid doing battle against ones own troops. Or more analogously, avoid saving the infantry at the expense of the cavalry...restoring sound money yet destroying the economy.

Gresham's Law is not of the legislative or judiciary books. It is an accurate summation of human behavior. Most people today do not have practical experience with 'real' money. If the announcement were made tomorrow that euro notes and coins were available; moreover, that among these representative tokens there would be the real euro manifested in the 100 euro gold coin of few grams, two events are predictable. First, the public would test the system, all wanting to withdraw their savings in gold alone. This should be welcomed. It is their money, is it not? No government acting in the best interest of its people should ever withhold a citizen's access to his own money, and beyond doubt or argument, gold IS the money of all mankind. Second, having now in their hands real money, people will be inclined to 'hoard' their money (which certainly is their prerogative) in accordance with Gresham's Law, trusting that this is an abberration and they had best "get while the gettin's good". And while all euro money would be effectively "good" money, spending on general commerce would likely slow to only those expenses that are necessary...shelter, food, etc., while this new money is 'hoarded�. This switch from spending to 'exuberant saving� would wreck the economy in the short-term. The long-term prospects, however, would be a more perfect order.

To mitigate this effect, a three year period of symbolic quasi-currency (the "euro of account") will allow citizens to get accustomed to spending euros as money--a re-education process to undo generations of propaganda that does not recognize spending gold.

Many thanks for your insightful posts.
Sincerely,
Critical Mass

Lomg time lurker--first time poster--does anyone have information on drooy--no movement (other than down) in the past week with good movement in the xau and overall gold market--would appreciate any commentary and/or links as to what is occurring with this SA stock. Really appreciate the postings on this forum. Keep up the good work. Will post as I have anything that may be of interest to participants.

Marston Webb's press release on behalf of The World Gold Council (http://biz.yahoo.com/bw/990108/world_gold_1.html) last Friday was noted and commented upon here at USAGold. Someone over at the Gold-Eagle forum has noted that some significant changes have occurred in European gold reserves during the last18 months. It appears that Gold reserves in several European countries have risen by almost 19%. They are:

Germany: up 509 Tonnes from 2960 to 3469 Tonnes.
France: up 474 Tonnes from 2550 to 3024 Tonnes.
Italy: up 378 Tonnes from 2074 to 2452 Tonnes.
Netherlands: up 169 Tonnes from 843 to 1012 Tonnes.

Great Britain: up 144 Tonnes from 572 to 716 Tonnes.
Sweden: up 35 Tonnes from 149 to 184 Tonnes.
Greece: up 32 Tonnes from 109 to 141 Tonnes.
Japan: no change.
USA: down 4 Tonnes from 8139 to 8135 Tonnes.

Difference: 1741 tonnes (9257 tons before/10998 after) = +18.8% increase

(Curiously, the Dutch, who sold off about 240 tonnes a year or so ago, must have bought even more during the 18-month period to have come out 169 tonnes ahead.)

The "18 month ago" data is from IMF data released in July 1997, and listed in a Vronsky article . (http://www.gold-eagle.com/analysis_98/vronsky020798.html)

Gold down $1.10, ICK.

bmacd...It's been a confusing day. It seems we have Japan defending the dollar and the hedge funds (and the United States) defending the yen. The yen has already given up more in Asia overnight than it gained in New York today. Gold appears to have been bounced involuntarily on this trampouline. "Ick" just about says it all. We will see if the short covering resumes in New York tomorrow.

PH...At first review, there's seems to be something wrong with those figures. The current numbers including the gains claimed by the Gold-Eagle poster are lower than 1996 IMF numbers (which are all I have here in the home office). Something's wrong. Don't know what. If there is a gain of that magnitude, it would be amazing.

Critical Mass...I really can't say it better than Aragorn already has...Clarifying post, Aragorn III. I would love to see a $5.5 trillion dollar bill (with all the presidents on it).

Turbo...That title: "Hitler and His Secret Partners" by James Pool, Pocket Books Non-fiction

Gandalf @ $10,000 gold...Have you ever heard of the Retenmark (or Rentenmark) Miracle? I'll bet I got you on that one....

Date: Mon, 11 Jan 1999 12:57:58 +0000
To: uk-y2k-action@egroups.com
From: Paul Swann
Subject: [uk-y2k-action] Fwd: Bank Crash Predicted

I'm forwarding this as background information/speculation
from a friend named Boudewijn who is a reliable source.

1999 BANK CRASH PREDICTED AT THE LE METROPOLE CAFE

I have trial access to www.lemetropolecafe.com, an upmarket source of
information for financial analysts. Membership is $149 per year (when
fully opened) or $14 per month. Well worthwhile for those with
portfolios to maintain.

Today Bill Murphy came through with an unusually long for him long and
unusually effusive for him write-up of the latest offering on the menu
at the "Hemingway Table" from Charles Peabody, a highly regarded bank
analyst in New York, who provides independent analysis unencumbered by
bureaucracies and corporate pressures.

"Nobody sifts through banking reports like Charles Peabody," writes
Murphy. "He has discovered significant information that may affect the
market place very soon."

Charles Peabody sees big banking problems on the horizon. What seems to
have been happening is that "a goon squad" as Murphy calls it, led by
Goldman Sachs, have overextended themselves in their attempts to keep
the gold price down and thereby the value of currency, bonds and stocks
up via massive shorts--- (Elsewhere I read that the group led by Goldman
Sachs have derivatives outstanding totalling five to six times the
annual production of gold!--- and they are in danger of being caught
short, badly short. This because there are major defaults and looming
crises on national debts in Asia and Latin America that just will send
investors chasing after gold.

Le Metropole patrons at "the Midas table" learnt last Thursday that
Goldman Sachs and JP Morgan are heading up a crises risk management
team. "We hear (from this table) that Credit Suisse is on the ropes,"
writes Murphy. "Brazil is in the news as one of its states has
defaulted. As result of all of this, PEABODY PREDICTS the US banks will
go down 60 to 80 percent in value. We will have a liquidity crash. The
risk spreads have not come in and that is what that is telling you.
Interestingly enough, Charles is loading up on gold stocks."

What is really happening to the dollar, lately?

While it quietly crashes against the Yen these past few days, it has been appreciating against the Euro and the Spanish peseta. At the same time, both gold and even more so, silver have been rising.

Does this imply that the Europeans have been buying dollars for the purpose of buying precious metals? Certainly, the Japanese have been sellers of dollars.

Didn't ANOTHER predict that we would one day see the dollar and gold going up together?

What does it all mean?

Add Lynden LaRouche to the list of thinkers that see a crisis just around the corner:

http://www.larouchepub.com/lar_defeat_confed_2603.html

"Right now, your mind, like the mass media, is occupied by the impeachment fight. Soon, your opinion will be radically changed. In a few weeks from now, you will realize that the recent stock-market bubble was all an orchestrated delusion, a swindle. Soon, you will begin to realize that the present economic system, as you have known it, is already collapsing into something far worse than the 1930s Depression. During the weeks ahead, other, global crises, even much more frightening than the already terrifying economic crisis, will grab your attention." L. LaRouche

Germany (1923)-- The hyper inflation after WWI caused the Mark to drop by a factor of 1,000 each month! At the end of the year, prices of one TRILLION Marks were common for everyday goods. A NEW German currancy, the Rentenmark, was
introduced, rendering the old Mark worthless. This new monies was replaced the next year by the Reichsmark (RM)which was used until the Allied Forces introduced new currencies in the German "Zones" in 1948.

SO, MK you think that the new USA "monopoly" money will not last long enough to be counterfitted ?
<;-)

To: Aragorn III - Sorry, I did not take the time to research the post regarding Summers comments. Now I have. The post is #1629, dtd 01/01/99 by Aragorn III, down near the bottom of the page. Tres Dep Sec Law. Summers gave an interview to CNBC and referred to economic fundmentals being strong and that they need to remain strong. Down further he states "I don't see a reason why the euro should be a threat as long as we can keep our own emphasis on our fundamentals." Again I quote "These 'fundamentals' are not much more than the Americans' will to spend (and prudence in doing so, I might add) as fast as their money is earned because a dollar at rest is a dollar soon lost in purchasing power." Is he eluding to a healthy cash flow, not hoarding $'s(cash) or probably gold/silver/etc? (I guess with the just mentioned three, there are NOT $'s(debt), stocks, or bonds that have been offset by a buy. Therefore with gold, silver, etc.the value is in the buyer hand, NOT with IBM, MicroSft, Cisco, etc.)

The question I have is "What are the US economic fundmentals that are so strong today and that will keep the US out of troubler in the future?" I'm new at this and this is Economics 101 (w/Protecting Your Wealth) for me. Richard

Part of #1629
Summers Says Euro Won't Replace Dollar as Reserve
Washington, Jan. 4 (Bloomberg) -- The single European
currency doesn't pose a threat to the U.S. dollar as the world's reserve currency because U.S. economic fundamentals are so strong, Treasury Deputy Secretary Lawrence Summers said. "As far as the dollar is concerned the buck stops here," Summers said in an interview with CNBC. "As long as we keep our fundamentals strong, the dollar and U.S. borrowing costs will do just fine."

In the current decade, Summers said, financial markets are
going to absorb about $2 trillion less of Treasury debt. "That's a lot of the reason why our economy is so strong and robust." As long as that's the case, "there'll be demand for dollars."

I believe Aragorn was showing that Deputy Sec of Treas. L. Summers is trying to demonstrate that he can "spin" as well as Mr. Ruben and is "preparing" for the future Treasury boss replacement. HOWEVER, Mr. Summers has been inside the beltway for too long and does not realize that everyone outside the beltway are not mushrooms and need not be feed the same stuff that is common in D.C. He does speak "gobbledegook" well though !
<;-)

We here at the Forum, along with a few other isolated examples such as David Tice of the Prudent Bear Fund, have been out in front on the inevitable banking crisis, which seems to now be gaining recognition as pointed out in AEL's interesting post. Perhaps some of the experts and pundits out there have been reading over our shoulders. I've thought that before regarding other topics.

Leveraged debt and fractional reserve fraud form an explosive banking mixture. Add in the possible run on cash caused by Y2K fears and banks appear extremely hazardous to one's wealth.

We haven't really talked much about strategy, other than to suggest the accumulation of gold and cash. When the bank dominoes do start falling, what action is the government going to take ??

The power to ration cash appears to be the unstated aim of the FDIC's proposed Know Your Customer regulations. Therefore, we can probably expect to have cash withdrawals limited when the banking system becomes threatened. So-called bank holidays are possible. To discourage/prevent the rational hoarding of cash, they may pull the 1934 FDR stunt and seal safe deposit boxes. If it gets bad enough, they may devalue or put an expiration date on the old $20, $50, and $100 bills to flush them out.

How should we protect our wealth from both an unsound financial system and rogue government ?? A few obvious ideas: Take action now, before the crisis hits. Accumulate precious metals and actual physical cash, in new bills, outside of banks. Anyone care to add to the list ?? I know someone is going to suggest hauling ass across the border but I'm not sure that would be practical.

Thanks for your discussion on the Euro coin.

It's always interesting to hear how other people view things. A very elderly great aunt of mine, who is not by any means a pessimist and is usually quick to defend anyone or anything that she supports (including even Klinton) and who has never studied economics nor been an investor, recently said she is about to pull at least some of her money out of the bank. With out going into great detail, she says that she is old enough to remember the times leading up to the Depression and sees similar signs again. She's been warning her family ... and said she hopes to live long enough to see what happens.

Curiously, of the people I've talked to about this topic, the individuals who seem to have the most confidence that someone else will take care of things mostly come from the boomer generation. That obviously doesn't apply to those boomers hanging out here, so please don't take offense.

On a related note, let me make a prediction: The Bonnie's and Clyde's of this era's bust will be the hackers.

turbo writes: "A few obvious ideas: Take action now, before the crisis hits. Accumulate precious metals and actual
physical cash, in new bills, outside of banks. Anyone care to add to the list?"

SEE: (especially the last two):

The Golden Bear (Investments):
http://www.provide.net/~aelewis/gold/goldbear.htm
Surviving the Flight to Cash:
http://www.provide.net/~aelewis/gold/realchek.htm
Commentary on the above (IMPORTANT!):
http://www.provide.net/~aelewis/gold/realcomm.htm
Y2K Stockpile Rationale and Table/List:
http://www.provide.net/~aelewis/gold/y2kstock.htm

Thank you for the assistance. I had a memory of the post you referred to, but thought it was from a different week and therefore could not find it.
The U.S. economic fundamentals are confidence and not-TOO-much confidence. This may sound peculiar. With all fiat currencies, 'confidence' is necessary to keep the system alive. Without it, we have no choice (if we are to remain a free society) but to return to the standard of real money--gold. You mentioned Economics 101. Fiat currency is money by government decree...it is money because the government says it is money. Fiat means decree. This is an attractive arrangement for governments because it allows them the lattitude to make money in abundance with which to pay for highways, military, and social programs without taxing the citizens for the total money that would be necessary. As long as federal workers, contractors, and welfare recipients continue to accept this form of payment, and as long as all others (barbers, bakers, tailors, etc) allow the first group to pass this fiat money along as payment, the system works. But, you might argue, how could it NOT work, as the laws require us to accept this money as legal tender to pay all debts, public and private. To this I remind you, the government can indeed choose what PASSES for fiat money, but they cannot SET THE PRICES! PLease recall 1923 Germany. The barbers, bakers and tailors simply raise the prices in face of the reality that they are giving something for "nothing" in return.
The first fundamental, confidence, ensures that all people and trade-nations will continue to provide a valuable product or service for a 'reasonable' payment priced in the fiat dollars. This keeps the economy on its rails.
The second fundamental, not-TOO-much confidence, means that enough people realize that this fiat phenomenon results in ever-increasing amounts of money being created, thereby destroying the purchasing power of all money created earlier. You see this as prices of goods and services do rise, albeit not too fast in accord with the first fundamental, confidence. Not-TOO-much confidence means that with the realization that the money IS IN FACT losing its purchasing power over time, the citizens are better served by spending NOW on the items they need rather than saving and spending later. In fact, much money is often borrowed for spending today, with repayment to occur with cheaper dollars in the future. This flurry of purchases also helps keep the economy on its rails. Japan's current economy is an example of a spending slowdown.
Here is the developing trouble. Much money is no longer fueling the real economy, putting a demand on pruducts and services to keep people employeed. Much money is passing from hand to hand in exchange for stocks. Those with money spend it to buy stocks, those who receive money from the sale of those same stocks spend it on more attractive stocks, and so on. Only when a seller of stock chooses to spend the money on a car, house, food, or clothes does the 'real' economy thrive.
As Gandalf said, much of Mr. Summers' comments can be viewed as his necessary 'spin' to help maintain the fundamentals of confidence. The financial market bubble has slightly altered the fundamentals, its eventual bursting will end the U.S. economic fundamentals. An informed public, wise to the nature of money past present and future, will also end these current U.S. economic fundamentals, and evolve them into a more sound system for economic prosperity. It will be a struggle because the Government enjoys its temporary free ride on the back of a fiat currency system, and they fight the otherwise natural evolution of the sound money fundamentals.

Re: Post #1755, banking accounts
turbohawk - In the last para. you stated 'Accumlate prec, metals and actual physical cash, in new bills, outside banks.' Yet in the para. just above you speak of devalue or expirartion date on the old cash to flush them out. Can you elaborate why they would want the old bills?

Thank you very much for your post explaining "Financial Fundamentals". Although I understood most of it by basic intuition, your clearly stated concise explanation put a number of the interrelated factors into perspective.

It is unquestionably people like you, MK, Another, FOA, Peter Asher, and so many others on this forum that will eventually enlighten many, many of the general public to the real world of solid economics.

I have copied your post and, with your permission, would like to send it to a number of people very close to me so that they too will have an opportunity to share the knowledge you impart so well.

Thanks from me and, I suspect, Richard also.

backlash

If cash withdrawals and hoarding become a problem, one strategy the govt might employ to root out those dollars and put them into circulation would be to threaten devaluation. Fearing loss of purchasing power, people would want to exchange those dollars while they still could. Now that the govt has 2 bills in circulation, this type of tactic is possible, which very well may be the real reason behind the move. If a person were accumulating physical cash, it seems prudent to go with the new bills.

For those looking for reasons why.......

New York-Jan. 12-FWN--Gold futures have extended their
losses to new session lows on broad-based selling, with
stops being triggered, sources said.
A floor trader related that the market did not find
much fresh buying today after reported Bank of Japan
intervention on behalf of the U.S. dollar drove the yen
sharply lower.
Then as gold fell, stops were hit "all over the place,"
notably under $290 and $289 basis the February contract,
this source said.
"It's broad-based," the trader said of the selling.
"You're seeing funds and trade houses."

Reprinted with permission.

One other person I inadvertently forgot to mention is PH of LA as one of the bards who will help in extricating the masses from the nonsense from the govt.

I also must correct myself for stating "Financial Fundamentals" when "Economic Fundamentals" was the correct terminology. 'Economic' covers a much broader spectrum.

CNBC talking heads this morning were talking about where the market might go from its current dizzying heights. One presented that so long as the liquidity of the investors continues, it has to go somewhere. Although admitting that stock prices exceed rational basis for being at this level. This being the case, what is to actually stop this rat race so long as the govt. keeps printing more currency and people continue to mindlessly pile it into the market?

Logic says this cannot continue, but what is going to precipitate the collapse? Oh, I guess that is what we have been working to figure out, and when!

backlash

While most of the attention today has been directed toward the plummeting yen and gold, it may turn out to be another one day wonder. The greatest day to day motivator for gold purchases is the perception that the DOW is going to break. Watch for a blindside from south of the border while our attention is rivetted elsewhere -- a blindside which could throw the world economy back into a monetary crisis and threaten the viability of Wall Street's largest financial corporations.

Consider:

The Brazilian Bovespa is down 9%+...
The Mexican Bosa is down 3.33%
The Venezuelan market is down 6.58%

The Dow is down nearly 100.

Brazil and Venezuela need to be watched.

Of interest from Reuters:

BUENOS AIRES, Jan 11
(Reuters) - Argentina could very soon issue a global-style bond of at least $1 billion in euros, which could turn out to be the first major emerging sovereign issue in the new
currency, analysts and market players said Monday.

As would ever be my thought--Permission Granted. You are noble to ask.

This is an excerpt from today's news...an interesting piece to follow my comment in yesterday's Msg 1744 regarding Belgium's desire to advance the issue of notes and coins and an unspoken reason for the scheduled three-year delay.

Bonn, Jan. 12 (Bloomberg) --
Finance Secretary Heiner Flassbeck, possible successor to retiring
Bundesbank President Hans Tietmeyer, told Bloomberg News he "fully agrees"
with the Belgian government's call for euro notes and coins to be
circulated sooner if the coins and bills can be printed. He
acknowledged that there are "technical reasons I cannot judge in
detail" for the three-year gap between introducing the euro and
circulating notes and coins.

European Commissioner Yves-Thibault de Silguy said the
European Commission opposes bringing forward the introduction of
euro notes and coins, Austrian news agency APA reported. De
Silguy said he will tell European Union finance ministers meeting
in Brussels on Jan. 18 that the 2002 start date still applies,
APA said. The commission is the executive arm of the EU.

As I see it, the four horses of the apocalypse remain: The Y2K Bug; The Asian Contagion; Introduction of the Euro; The Overvalued Stock Market.

I was reading an article in the local paper describing how "ordinary" citizens are cautiously pessimestic about Y2K. Several such citizens had purchased remote real estate and learned how to survive without electricity. MREs at bulk food stores were reported to sell out as quickly as they are put on the shelf. There is already a 3 month wait for freeze dried foods. And this is in JANUARY! As time progresses this "better safe than sorry" mentality could cause a run on the banks for which the Treasury is preparing by printing $50 Billion. Even if the Y2K Bug doesn't bite, if a "beter safe than sorry" mentality causes large numbers of people to withdraw their cash, bank closures could occur, which, in turn would cause increased withdrawls at other banks. This would cause a credit crunch effecting US businesses and Wall Street would take a serious hit.

The Asian Contageon IS having an effect on this country. There have been over 350,000 layoffs announced in 1998. Retailers for the past holiday season had dismal profits because of competitive discounting. Eventually, we will see unemployment numbers increase and numerous store closures, which will have adverse effects on consumer confidence and which will negatively effect Wall Street.

Introduction of the Euro. Whereas this hasn't been as exciting as some of us were expecting, the Euro is cementing its foundation. As more countries purchase Euro bonds instead of US Treasuries the US Governments ability to borrow for the illusion of prosperity will be reduced.

The Overvalued Stock Market: " When everyone thinks they're right, they're usually wrong." We've been witnessing "panic buying" by masses who believe the magic of compound interest will make them millionares by the time they retire. There is a tremendous amount of money being thrown at the market every day. Investors have been taught to "buy on the dips" (especially with the last dip to 7,400 which has rebounded to 9,600 inside of 3 months). The Dot Com stocks are purely driven by speculation and this will be the first segment to crash. Momentum from this will effect the Dow. Add a string of bad news from Brazil and more hedge fund bail outs and we'll see Euro bonds become more attractive. As we move further into 1999, average consumer purchases of precious metals will begin. All this will move the dow lower.

Add to the above mankinds facination of 0's. For some reason, we all get some sort of a thrill watching our cars odometer when it advances to 5000, 10,000, etc. The world's odometer is about to change to 2,000 -- three zeros is a once in 15 lifetimes event! Religeous militants will use the year 2,000 as a catalyst for various terrorist acts. There is a good likelyhood that the world will go through unpleasant circumstances simply due to the very fact that three zeros holds such great superstious power.

As time progresses, these forces will gain momentum until reaching critical mass, at which time they will all converge and feed upon themselves. One event could become the catalyst, triggering the others -- or these independent factors couldl each have their own flash point-- but when all factors are ignited, they will fuel and spill into each other until looking like a single wild fire.

Sincerely,
Critical Mass

Reuters reports that investors continue to "yank" money out of Brazil and that dollar flight is accelerating. Minas Gerais, Brazil's third largest state, declared a moratorium on interest payments to Brazilian federal government yesterday sending waves of uncertainty through the world's financial markets. U.S. banks and financial institutions have a high level of exposure in Brazil and that sector led the U.S. stock market down today. Treasury Secretary Robert Rubin said on Tuesday he was hopeful ailing Brazil could work its way through a serious economic crisis but cautioned there were no "certainties".

Long time observers of the Asian contagion know that quite often these reports of capital flight and the accompanying drain on national reserves are a prelude to devaluation. It will be interesting to see how Asian markets react to the Brazilian situation when they open later.

Bloomberg just reported that the Labor Department screwed up and posted tomorrow's PPI numbers on the internet just a short while ago. Producer prices came in .4% higher with cigarettes leading the way (+ 30.7%). The core rate -- excluding food and energy -- was up 1% in December. One analyst interviewed by Bloomberg said "the next PPM number will be quite high as well." He predicted winter time energy prices will take the overall number higher.

The Labor Department blamed the "premature posting" on an "internal programming error."

Visit Bloomberg for the full story:
www.bloomberg.com/bbn/topww1.html

http://www.kenraggio.com

Cashless in 1999?
Will the Banks put the "Squeeze" on us soon?
By Ken Raggio
[edited for length]

A close friend of mine was conducting a Y2k seminar in mid-November
with about 300 people in attendance. At the end of the session, a lady
introduced herself as a bank official at the largest bank in her
state. My friend asked her if her bank was ready for the Year 2000
computer crisis.

Her reply was very interesting. First of all, she said that every bank
employee had been instructed to answer all public inquiries by saying
"Yes, our bank is Y2K Compliant." Any employee who answered otherwise
would be fired.

Then she informed him candidly that their bank had already conducted
two Y2k tests on their computer systems. BOTH TESTS failed completely
-- shut down! So in spite of the public assurances that this huge
bank is ready for Y2k, they are plainly LYING to the public.

Secondly, she offered additional information. She said, "We have also
been informed that in April, 1999, WE WILL NO LONGER ISSUE CASH!"
What?? Friend, can you tell me why the largest bank in that state has
informed it's officers that it will not issue cash in April? I
suspect that something big is about to happen, and it's going to
happen a whole lot sooner than we think.

I just received a short email from one of my readers with a one-line
message;" My daugher works for ____ (one of the largest banks on the
East Coast), and they have advised them to set aside enough cash for
3-6 months. They say the bank could be closed for days at a time."

Can you imagine how high the PPI would be (and the CPI) if oil were higher? We'ld sure have a few inflation worries then. I still believe that interest rates are going to have to go back up. As for the Japanese defence of the dollar last night... well a higher Yen really isn't in Japan's best interests either, as it makes their exports more expensive. So my question is, what happens when everyone wants their currency lower to export more? The USD has to come down so that the assets will be more affordable to foreigners and the market can stay up. THe trade imbalance is becoming a very real issue, and not a good one at all.

Others must have been thinking along the same lines today, as Rubin spent a good portion of his day explaining that the United States had not abandoned "The Strong Dollar Policy" -- seemingly in response to Japan's "Strong Dollar Policy."

Meanwhile, the PPI is way up, the money supply is spiking, and Argentina makes it debt more market attractive by offering to repay in this strange new currency that has now discovered America.

biz.yahoo.com/rf/990112/6f.html

Hello, all. We're back from our voyage and ensconced on the home computer terminal. No ladder lofts or distractions. Just three weeks of neglected work due to holiday and travel.

Thoughtful and enlightening posts appear to be occurring rapidly, and there seems to be an increasing level of agreement. We can put the lie to that famous slur: "If all the economists in the world were laid end to end, they wouldn't reach a conclusion".

Backlash: Thank you for the vote of confidence. I hope I will continue to live up to it.

Aragorn III: Well stated on the primary and secondary fundamentals. I've been working on the same subject as follows:

To re-cap, I've stated that money is a form of bookkeeping, and that a dollar is a "production chit." So, let's say a dollar is a note that says, "Pay to the bearer on demand one dollar worth of goods or services from the people of the USA. My point is that the government is not the writer of that note. The USG is the Title Company guaranteeing that note. The govt. doesn't really owe it; that note is based on the American People's ability and willingness to honor it.

As long as the citizens of this country are getting up and going to work and keeping the economic machine going, they are the primary underpinning of the US dollar. The secondary factor is how the trade value of the dollar floats in the currencies game. This massive debt that occurs from printed money represents goods and services consumed in return for goods and services not yet created. So, maybe there is a check and balance here. If global money games devalue the dollar, then the demand for American goods and services would rise, the trade balance improve, and the debt level decrease. The threat to the global economy comes from excesses. If default or devaluation of sufficient magnitude occurs and the domino effect gets triggered, then there will be real trouble.

The gist of all this is that fiat money depends on maintaining the agreements behind it. (Dun and Bradstreet's motto is "Credit: Man's Confidence in Man") If the agreement can not be held in place, then a medium of exchange is necessary to hold onto value earned, and this is where GOLD functions, "always and ever, now and forever"..

The big question is to what degree does one need to devote production into hoarded gold, in order to secure earnings.

Having said that, I'm hitting a triple fork in the road of topics. Gold - Global Trade - and the Stock Market. So I'll post this and get back later with more.

I have been reading these short market comments from www.quote.com. This is the first where analysts seem to agree that the market is overbought. Go figure:

Market Wrap: Tues., Jan. 12, 1999
The market succumbed to prof it taking today with
stocks slipping across the board. The NASDAQ
broke its seven day winning streak this afternoon
as investors moved to lock in their profits fearing
that Yahoo and Intel may not meet earnings
expectations. Both companies are scheduled to
release earnings after the closing bell. The blue
chips were also lower today, taking a breather after
last week's 463 point gain. While analysts had
initially hoped that the DJIA(sm)'s pullback would
be a mild affair with the major indexes moving
sideways instead of down, today's close below
9500 leaves traders less than optimistic. Despite the
pullback, predictions that the DJIA(sm) will reach
10,000 in the near future continue to circulate on
Wall Street with analysts remaining confident that
this pullback will only last long enough for traders
to consolidate their recent gains. However, the
predictions for Internet stocks are less optimistic.
While a few analysts believe that they can still go
further, there is a growing consensus is that this is
the peak, at least for right now, and there will
probably have to be a long period of backtracking
before they can start back up again.

THANKS AragornIII! Your wisdom has been imparted to this student. I really appreciate your insite and the time YOU took to respond. I'll be filing a copy of your teachings in my ABC's book. Also, I see I'm not the only one to benefit from your teaching. Again, thanks!

Now, down to another thought. You said "Only when a seller of stock chooses to spend the money on a car, house, food, or clothes does the 'real' economy thrive." What if the seller of this stock decides to buy precious metals or deposit the money in a CD? [Like all of a sudden there is a concern about Y2K or the EURO vs $, or the stock market, what does this (and I hate to use this word) panic of NON-buying of a car, house, food, or clothes do to the 'real' economy?] What effect would this have on the EconFund's? Would there a different effect if precious metals were preferred over a CD or cash?

With all this talk of cash shortages; what about credit ? Besides the potential wipe out of paper money reserves, there is the threat of the cessation of credit card transactions.

I would think there is a far greater quantity of commerce done via plastic, both debit and credit, than by bank note. Countless numbers of people depend on their credit float or ATM card for day to day expenditures. The former don't have cash to draw on even if it were available.

Could this be an even bigger threat to the "House of Cards" that the Y2K wind will blow upon ?

Also, I'm wondering; do any of the Money Supply Categories include the unused authorized credit outstanding ???

Since I'm on line right now, I'll take a crack at that. If the money goes into a CD it gets used by someone else [loan]. If it goes "into" gold, then its cash in the hand of the gold seller. Money flows through the economy as a record of exchange, and I think that continues until the cycle comes home to roost back in the federal reserve or other CB.

Since I'm on line right now, I'll take a crack at that. If the money goes into a CD it gets used by someone else [loan]. If it goes "into" gold, then its cash in the hand of the gold seller. Money flows through the economy as a record of exchange, and I think that continues until the cycle comes home to roost back in the federal reserve or other CB.

Regarding your question on credit vs cash. Behind all that credit there are supposed to be reserves. Not all lending institutions face the same standards as banks, however ... not that banks have real standards.

Fractional reserve banking laws require that banks hold about 10% of their loans as reserves. Put another way, banks can loan out about $9 for every $1 they have on hand. They can get away with this because they know statistically that not everyone is going to show up at the same time to demand their money. But what if a lot of people do start showing up ?? What if those $1's on hand start disappearing ?? The banks would not only have their ability to make new loans taken away, but they may have to start calling in loans (and selling assets/securities, if they can), to raise money. The banks with the riskiest loans and lowest reserve ratios would be the first in serious trouble.
This points out the corrupt nature of our fiat money/fractional reserve system. Consider that the aggregate money supply is about $6T ... the currency supply is about $600 B, or about 10% of the aggregate ... so then the other 90% is credit. For arguments sake, let's say we decided that we all wanted to get totally out of debt. How does $600 B in currency pay off $5.4 T in credit ?? It's not possible !! The expansion of our money supply is not based on the expansion of a tangible asset (such as gold) backing our currency but rather the expansion of debt. When the bubble bursts, the money supply is going to contract rapidly because credit is going to contract rapidly, taking the economy down with it, and there will be nothing the Fed can do. The Fed tried (contrary to myth) and failed in the '30's in what was a much smaller bubble then.

I wonder if there are any bankers lurking that would like to expand on what is a very important topic ??

Brazil causing concern:

From reuters:

Wednesday January 13, 5:04 am Eastern Time

FX IN EUROPE -Dollar falls as Brazil worries mount

LONDON, Jan 13 (Reuters) - The dollar fell across the board on Wednesday amid
mounting concern about Brazil and the damage economic and financial turmoil there would
inflict on the U.S. economy and stock market.

Local media reports that Brazil's central bank president Gustavo Franco is asking to resign
fanned such concern and fuelled speculation that there could be a change in Brazil's foreign
exchange regime.

"There is only one burning question in the market today and that is what the Brazilians are going to say later in the day --
whether there is going to be a currency devaluation or not," said a currency trader at a U.S. bank in London.

"People are unwinding all sorts of positions and there is a lot of deleveraging going on for fear we will see the sort of moves we
got after Russia."

The dollar fell to 1.3704/14 Swiss francs and weakened to $1.1642/52 per euro from 1.3873/83 and $1.1554/63 late in
Europe on Tuesday. It also retreated to 111.40 yen from Wednesday peaks of 112.75 and yesterday's late European close of
112.03.

Concern that U.S. stocks would be hit on concerns about Latin America were fanned as European stock markets fell sharply
and S&P March futures traded over 10 points down.

Dollar fell 35% against Yen in last five months.
Reason for Yen being ultimately stronger than the dollar is trade deficits. The economy with trade deficit will fall against the economy with a trade surplus and fundamentally that has and will continue to be the reason the dollar continues into the future to fall against the Yen.
Also, 110 yen/dollar seems to be the lower limit of acceptibility (whatever that means).
Dollar continues its slide even with yesteday's intervention.
-end-
Do you remember when gold followed almost cent for cent the dollars climb agains the Yen, as the dollar climbed, gold dropped. Then when the reverse happened the link was broken and gold didn't correct 35% in the opposite direction? Ahh, the web we weave.

From the World Net News?



Mint runs short of gold, silver
coins
Y2K panic cited as contributing factor in
demand


By Jon E. Dougherty
� 1999 WorldNetDaily.com

Because of unprecedented demand, the U.S. Mint
has announced they are out of certain types of
gold, silver and platinum coins and won't have
any new ones minted until spring.

"The five coin proof set, silver proof set and
premier silver proof set, and the 10 coin
uncirculated set are no longer available," said the
Mint in an official statement.

According to details published on the U.S. Mint
Website, sales of certain precious metal coins and
coin sets rose dramatically last year, surpassing
the 1 million-ounce mark for the first time since
1987.

In August, the Mint said American Eagle gold
bullion had sold 1,025,000 ounces compared to
about 489,000 ounces during the previous year, an
increase of about 110 percent.

Mint officials believe the increased demand is
likely to remain high well into 1999.

"The intense interest in the 1998 sets promises to
carry over into the New Year as we introduce the
first annual sets containing 50 State Quarters,"
said Mint Director Philip N. Diehl in a press
release.

Robby Noel, co-owner of the Patriot Trading
Group -- a precious metals wholesaler -- said the
demand for gold and silver coins has gone up
sharply because of fears over the Y2K millennium
bug and the prospect for runs on cash and
because of the perception of instability in
Washington with the Clinton administration.

"If you look at units sold in gold there is an
interesting fact," Noel said. "At the start of 1998
when most people thought Clinton was toast,
sales went up mainly for one ounce units As the
country moved into spring things cooled off
politically and so did sales."

Noel pointed out that the Mint's own figures
substantiate another sharp increase in sales by
mid-summer because of concerns over the
economic calamities facing Russia, Asia and South
America.

"Y2K awareness has also been a contributing
factor," Noel said. "The smallest U.S. Eagle (gold
coin), the $5 tenth of an ounce unit, started to
skyrocket," and that unit is one of the most
affordable.

Noel said that the price of precious metals
reported on Wall Street "has nothing to do with
the real world of precious metals," where gold and
silver are traded on paper and "players never have
any intention of taking delivery." Physical metal
buyers -- in this case, ordinary consumers -- who
actually take possession of the metals they buy is
what has led to recent shortages.

"Can the U.S. Mint keep up with demand?
Maybe," he said, "but if ... stockpiles are any
indication the answer is no."

Current gold holdings in the U.S. Treasury are
about 260 million ounces, he said, but production
is also down because the prices are depressed.
Consequently, he explained, there is a
phenomenon occurring where gold and silver are
relatively inexpensive at the retail level even
though demand is high and production has fallen
off.

"As for 1999, the prices (retail customers pay) may
not rise, per se, however premiums could
explode," he said. For example, a junk bag of
silver, which should be selling for about $3,700 is
currently priced at $5,600. "The price of silver has
not changed yet, but the supply and demand
factors have caused a huge premium increase,"
Noel said.

He also said the price of gold is typically very
"political." That's because governments
traditionally use the price of gold as an indicator
of the people's confidence in their paper
currencies. "The dollar is a perception of value"
rather than an actual one, he said.

"I have no doubt we will test this perception real
soon," Noel predicted. "The Euro (the new unified
European currency) is trying to sell perception
after a week and it doesn't look good yet. That's
good news for the dollar -- for now."

If this is a precursor to the markets future actions, we will not need fireworks anymore. Markets around the world are showing bigtime RED ink ! Brazil was down over 9%. Asia was mixed, but Europe TOTALLY RED and some BIGTIME.
It took the "dipsters" over a half hour to start buying this morning. Feb Gold took a $4 hit at the start, but is rebounding. Hold on to your GOLD !
<;-)

The amount of funds that are exposed to withdrawal would be the significant factor, I would think. First there would be "demand deposits" and secondarily all CDs of 12 months or less, which would take us through Y2K. I don't know those numbers, but if we had them, we could evaluate the threat.

If there is a cash crunch though, why wouldn't the Fed print money to cover it. Additional liquidity only creates inflation if it fails to stimulate production sufficiently to keep pace with the money supply. The real danger is Y2K freezing up production and creating an instant recession, Than the shortage of goods in the presence of lots of cash gets us a replay of the inflationary recession of the 1970s or worse. ---- Good for Goldbugs of course, but we'd rather win on a different scenario, wouldn't we ???

What all this boils down to is 16 tons more gold hoarded than last year. The big issue of course is the paper trade.

I think what's most significant is the degree to which short gold paper, or Physical, is being settled in cash. This has been alluded to, and it surprises me that such an option exists. If it was there going in than the writers or lenders were basically dumb about it. There is also the possibility this is only being allowed as the alternative to default. Regardless of which permitted it, this form of short covering will do nothing to raise the POG.

Take LTCM for example. They borrow 400 tons, sell it, buy Russian bonds, beg new funds from their banks and settle the gold in cash. Result; the gold lender has sold gold cheaper than LTCM did, and LTCM made a profit based on not having to pay the higher cost of actually covering the gold. What's left is the new indebtedness to the bankers and the Russian bonds.

I would love to hear any more dollar & sense [not a misprint] detail on this, if available.

Hi Peter, you are right that curtailed production due to Y2K problems would be recessionary. But maintained or increased production does not necessarily mean a healthy economy. In fact, over production from malinvestment as a result of govt cronyism is part of the reason we're seeing imploding economies around the world. Decreased demand from other countries for our products and increased demand in this country for imports in competition with domenstic goods will cause a contraction in our economy, as sales drop and layoffs increase. The Fed has gotten away with papering over these contraction problems for some time now, hoping they can create a "soft landing".

What would cause a hard landing ?? A stock market crash is one possibility. Another possibility is large cash withdrawals (due to Y2K fears or any other reason), which would lower the reserves of banks and be contractionary in itself. The Fed can't increase liquidity if nobody is borrowing money. The market can dictate the amount of liquidity in the system to the Fed by deflating the economy in this way. The extent and momentum of those withdrawals will be key. I bet if people start fearing problems with their bank, cashing in those CD's under penalty won't be a concern.

The Fed is obviously aware of this potential problem and they have tried to get out in front of it. That $600 B in currency figure includes the $150 B they say they've stashed to meet an increase in demand for cash due to Y2K fears. My guess is they also fear bank runs from a market crash. And note, the $450 B in circulation is mostly outside our borders, up to 2/3 from the numbers I've seen. So, our cash supply is very low in terms of our money supply.

The Fed could do nothing if the momentum turns into a panic. That was proven in the '30's. The debt bubble is much bigger this time. That's likely why we face the prospect of the FDIC's Know Your Customer regulations, to ration cash in order to keep the banks solvent.

Hyperinflation becomes a threat down the road. If we do have a credit collapse, it's realistic to think the Fed will resort to the printing press to re-start the economic engine. This is the worst possible outcome. A deflationary collapse will take out all the debtors, but those with savings will have something to conduct trade with as the economy slowy rebounds. Hyperinflation will destroy everyone, except those with honest money, because it will destroy the currency.

AEL: thanks for posting those links yesterday ... I hope to read through them in detail when I have more time.

Your kind words have been an honor. Aditionally, you posted--
"Now, down to another thought. You said 'Only when a seller of stock chooses to spend the money on a car, house, food, or clothes does the "real" economy thrive.' What if the seller of this stock decides to buy precious metals or deposit the money in a CD? [...] what does this panic of NON-buying of a car, house, food, or clothes do to the 'real' economy?"

Keep in mind as I offer this answer I take the 'real' economy to mean the spectrum of economic affairs that are meaningful to PEOPLE...the system of interaction of human effort to enhance quality of life through a give-and-take market of goods and services.

There is no disputing that division of labor--or call it specialization--is essential for mankind to realize full potential. Acting alone with self-sufficiency, each person would travel from cradle to grave with precious-little extra time to ponder thoughts beyond meeting his immediate needs for existence. All time would be spent securing food, repairing shelter, fashioning clothes, devising tools to aid his efforts, and resting.

Specialization (division of labor) allows a person to devote his time to doing one thing very well and efficiently. Yet, that one thing alone would not meet his needs for life and he would die of one shortcoming or another. A tool-maker would die of starvation or exposure. A food grower would die of exposure. A shelter-builder would die of starvation, etc. Cooperation among specialists for their collective survival requires mutual trust and good will. Among unrelated people, this becomes ever-more difficult to sustain. Money solves this problem. It allows each person to act and make decisions based on his own best interest, as he is individually 'rewarded' based on the relative value of his efforts. A house-builder gets more than a meal from a baker, more than a suit from a tailor. Money eliminates the need for trust (which you must admit is difficult to come by), as years of promised tailoring or baking is replaced by immediate settlement of the claim upon payment-in-full with money at the time of the delivered service or sale of the product.
This money had to have value, and had to be difficult to come by, or else people would not employ themselves in various difficult tasks within the real economy. Instead, they would all be inclined to short-circuit the system and simply create the money with which to purchase their life's needs. Under such an arrangement of easy money creation, there would be no-one willing to produce food, tools, clothes, etc. Specialization and division of labor would end, as each is left to fend for himself while "easy money" becomes meaningless.

This is why gold has evolved as money in the real economy. The specialization of gold mining requires effort, and is not a pursuit attractive to very many. The miners are rewarded for their efforts to the extent that the gold, as money, will purchase a quantity of their life's needs, while the gold enters the permanent money supply.

Enter the banker. He offers a scheme whereby the heavy gold need not be carried around or cut into ever-smaller pieces for transactions in the real economy. Representative notes will be used to account for transfer of gold ownership within the banks vault. The people see the merit of this and all is well.

Time passes. The banker sees an opportunity to "cheat" as there is no distrust after years of his finest of all operations, and few people ever come to take possession of the entirety of golden money they own. The history of banking is a hstory of scandal and abuse that you should well know. In an effort to end the abuses, governing bodies chose to meet them halfway (via fractional reserve lending rules) rather than restoring the perfect system. Banks could now legally create money that is "backed" by a borrower's future efforts to repay the loan with interest. The central bank within the U.S. was created to regulate the disorderly state of affairs among commercial banks. The government seized the opportunity presented by this "most lofty of all banks" and said, "Me too!". Gold was phased out of money as citizens and the Government were all too willing to allow "easy money" to be created for them upon their request to their respective banks. "Phased out", but not really. Residing within the subconscious of all is the truth of the matter, and gold is consciously or subconsciously looked to as an indicator for the value of one's money. The easier the money comes for all through practises outside the real economy, so suffers the individual's motives for specialization within the real economy. Played to its end (approaching even now), the majority focus efforts on money "manufacture" directly. When few find comperable returns in their efforts offering for sale goods or services in the real economy, they cease the effort. In the end you may find that everyone is a millionaire with nothing for sale!

As you ask, putting money from a sale of stock in a CD will help increase the number of monetary units you have, but it might not increase your purchasing power. It also does little to enhance the real economy. The money you deposit is not the lender's to spend on other products of specialization. And it does nothing to enhance his ability to lend. Those who think so underestimate the lattitude with which loans can be made. They may borrow money from the Federal Reserve in need be to maintain fractional deposit obligations. Further, fractional reserve lending requirements apply only to transaction deposits (checking accounts). A savings deposit or time deposit do not present similar obligations for the bank. They may be lent beyond exhaustion. Any money lent need not fuel the real economy.

Perhaps you buy gold instead with your money (or anything else you feel you need). This supports a demand for a resource that requires effort to obtain. Specialists are therefore employed to meet this demand, requiring specialized tools, requiring other specialists, etc. At the end of the day, because they efficiently produced something of value, they received something of equal value (money) that they my use to their advantage with what free time remains to them. They may purchase their needs and still have time and capital to devote to enjoyable pursuits.

Such a purchase of gold is a means for the free market to constantly assess the value of their money, and creates a de facto gold currency. Because history's commercial bankers and national governments betrayed the citizen's monetary trust, this free-market operation of converting cash surpluses to gold remains a viable means to restore more perfect order. This must remain a world of mankind's interacting individual interests, not collective governmental intentions--however well-intentioned they may be.

Sovereign individuals realize the sobering power of gold. Gold ownership and possession grants an aloofness toward the 'government economy' or the 'Wall St. economy'. As more people come to understand gold savings, they will soon come to insist on gold wages directly. A fiat currency cannot survive the rigors of the real economy over time.

Your post #1787 is an elegant argument for long term gold ownership. Well said.

Rather, I fear that length and mis-types have rendered it rather 'inelegant'.

Modern money machinations remain a zero-sum game, and ultimately, less than zero. Efforts toward gold savings, and gold wages and payments is the road to travel. Every "long-term" as you mention includes the present location, does it not? People miss much when they judge the destination by the condition of the road at their feet. Current events, while ponderous for the long view, actually make the road all the easier to enter for travel. It is pleasant to find such gifts along the way. Yet, to be a Brazillian paid in local currency, the gift is not so apparent.

I have many clients who run thriving businesses and/or professional practices who have no other goal with gold than to maintain the wealth they have worked so hard to gain. They find a great deal of comfort in the gold they hold in the palm of their hand. It is wealth that cannot be taken away from them by the government's "inelegant" use of monetary policy as a hidden form of taxation -- a point I believe you made in the recent past.

P.S. So you thoughts run faster than your fingers? Perhaps one day we can all throw our money together and hire a FORUM EDITOR.

As for length...as someone once said ( I can't remember who)..."It is precisely the right number of words. My point required no more, no less."

down. Somewhere in the mid to high 280's...

This article is opinion, editorial, certainly not based on all the facts.

Date: Wed Jan 13 1999 19:07
Spock (I rest my case.) ID#210114:
Copyright � 1998 Spock/Kitco Inc. All rights reserved
Well there you are. As long as the Europeans are coy about what they're doing with their gold, the Andy Smiths of
this world will continue to right articles like the following.


http://www.afr.com.au/content/990114/feature/feature1.html

The end of the gold era

By Stephen Wyatt

Nothing is stopping the demonetisation of gold. The
metal's key role as a monetary standard has been in
decline ever since the United States dropped the gold
standard in 1971, and its reduced status was highlighted
this month with the introduction of a major new currency,
the euro.

Still the second largest asset of the world's central banks,
gold did not rate a mention in the launch of the euro.
Never before in the history of major currency reform has
gold not played a prominent part. A sea change is
occurring in the gold market.

It seems we are "moving further away from metal money.
The residual role of gold has been undermined," said
Andy Smith, commodities analyst with Mitsui Metals in
London.

The attention of traders and analysts has been squarely
focused on the potential impact of the euro on the US
dollar as the world's omnipotent reserve currency; on the
value of other currencies relative to the euro and whether
Europe will be able to adequately harmonise policies,
especially on taxation, to give the euro longevity.

So what of the old common currencies -- gold and silver
? Do they have a place in the new euro world.

For silver, the game was up a century ago. Back in the
1870s silver lost its place in the global financial system.

In 1871, the silver standard or a bi-metallic standard
applied to the currencies used by 80 per cent of the
world's population. Within a decade, silver was
effectively demonetised.

"The monetary world as 95 per cent of people knew it
was obliterated," said Andy Smith.

This was a result of exploding silver mine production,
imploding Indian demand and an official stampede away
from silver as a reserve currency.

National treasuries, especially Germany, stopped buying
silver and started liquidating some of the silver they held.
In 1869 Norway transformed its reserves from silver to
gold. In 1871, Germany withdrew silver coins and
introduced gold Reichs Munze -- one tenth of this unit
was known as the mark. In 1873 the US suspended the
free coinage of silver as did the Latin Monetary Union in
1874.

The silver price crashed. It was all over for silver in just a
decade after 200 years of trading within a 3 per cent
range against gold. This left gold as the only metal to
back money in almost all countries.

Now with gold's lack of prominence in the new European
Monetary System and the abandonment of the gold
standard over the 20th century, analysts and traders are
asking whether gold might be repeating silver's 19th
century performance ?

"In 1870 international monetary front events seemed to
be unfolding for silver in a sequence uncannily close to
today's in gold," said Smith.

He points to an unstable monetary union in Europe back
then, with the UK outside looking in, European central
bank silver sales, a lingering faith that the "East" would
soak up any official ( treasury ) sales by the "West" and
modest supply deficits of silver in the 1870s ( excess of
fabrication demand over mine plus scrap supply ) that
were filled by official sales. Sound familiar ?

And the history of gold over this century shows its role in
the international monetary system has steadily weakened.
The gold standard was dropped by Britain in 1931, by
the US in 1971, the obligation to accept gold payment
amongst IMF members was removed in 1978, the Swiss
are diluting the gold backing of the Swiss franc, and
central banks ( Canada, the Netherlands, Belgium,
Australia and Austria ) have been steadily selling down
their gold holdings. Perhaps more importantly those
banks are no longer major buyers of gold.

Back in 1960 the world's central banks held about
two-thirds of the gold ever mined.

"For most of recorded history, State treasuries were
astonishingly acquisitive [of gold]," said Tony
Warwick-Ching of UK-based commodity research
group CRU International. "But now with the growth of
currency blocks, co-ordination and free convertibility, it
is difficult to see central banks as offering any sustained
demand for gold in the long-term," he said.

Now, with the launch of the euro, gold has been
marginalised.

For the past two years, the gold price tells this story. It
has fallen from $US415 ( $658 ) an ounce in early 1996
to $US290 today, after hitting 18-year lows of $US273
early last year.

The primary reason for gold price weakness is that the
market has been spooked by fears that the world's
central banks and multilateral agencies, which hold about
34,000 tonnes of gold, will steadily reduce their holdings,
just as they reduced their silver holdings, 100 years ago.

The European Monetary Union, the formation of the
European Central Bank ( ECB ) and the euro launch might
have had a significant impact on gold. In fact, it could
have been gold's saviour.

In the middle of last year the gold market was on edge
about just how the ECB might structure its reserves. A
significant gold holding as part of the ECB's asset
portfolio could have given gold a much needed face-lift
and raised its status back towards being a reserve
currency.

"Because EMU ( European Monetary Union ) will be a
major step in the evolution of the international monetary
system, the composition of the ECB's reserves is being
viewed with keen interest by those who toil each day to
produce and sell gold," said Robert Pringle of the World
Gold Council back then.

Many gold producers and some analysts felt gold might
rediscover a role in today's global financial system if the
European Union endorsed its role as a reserve currency.

But it was a fizzer. The ECB decided to hold 15 per cent
of its reserves ( 39.5 billion euros - $72.6 billion ) in gold.
At current market prices, the ECB will hold around 670
tonnes of gold, leaving nearly 12,000 tonnes of gold
reserves with the national central banks.

What will happen to that 12,000 tonnes of surplus gold?

Some analysts do not see the level of ECB gold reserves
as all that important. The World Gold Council -- a body
representing gold producers -- argues that the ECB ". . .
will have effective control over all of the reserves -- both
foreign exchange and gold -- of all of the member
countries". It is control that is important, not the amount
of gold held by the ECB.

This, says George Milling-Stanley of the World Gold
Council, is in the Maastricht Treaty itself.

But interpretations of Maastricht, like beauty, are often in
the eye of the beholder.

"The Maastricht Treaty is unclear on the level of control
over the reserve assets remaining with national central
banks," said Kamal Naqvi, precious metals analyst with
the Macquarie Bank group.

Right now the formation of the euro is more like another
episode in gold's demise as a reserve currency, rather
than a reprieve for gold and its demonetisation process.

"This single event will not alter the fact that the
mobilisation of gold is on. It's wishful thinking that this is a
simple event risk. The structural issues remain," said
Andy Smith of Mitsui Metals.

It's a long time since Isaac Newton, master of the mint of
England in 1717, fixed the price of the gold guinea, so
called because of the African elephant on it, to 20 silver
shillings. He did this to check the rise in the price of gold
as commerce and trade with the East expanded.

This was the beginning, albeit an unofficial one, of the
gold standard.

For the next 254 years gold dominated world financial
markets. But after Britain dropped the gold standard in
1931 and the US in 1971, gold has steadily lost its
financial status and moved from currency to commodity.

And the launch of the euro did nothing to enhance gold's
fading financial status

I don't know how long we are going to have to continue listening to Andy Smith's tired old tune. He's been working on the central banks to sell their gold for more years than I can remember -- to little or no avail. Those that have sold ( or leased ) have paid a dear price by way of currency devaluation, Brazil being the latest victim.

As for the comment about the European central banks heading that post, I don't understand what they have to do in Europe to convince the nay-sayers that they aren't selling. Nearly every head of every major central bank there has made a public statement saying they do not even have a remote thought along those lines. Now with the gold in the firm control of the ECB people like Andy Smith must be ready to jump out the window.

One question, why do you think Andy Smith has this intense anti-gold interest? Seems like a strange preoccupation...

We need to understand that just because Andy Smith says that the European central banks will be gold sellers doesn't make it so. He's just one individual who for whatever reason get's alot of press. The off-center utterances of one individual are not going to lower gold reserves that haven't been touched since the London Gold Pool days. My suggestion to Mr. Smith would be to find something else to short. He's just about run out of ground.

This paragraph is an outright fabrication. Why do you think they do this?

"But it was a fizzer. The ECB decided to hold 15 per cent
of its reserves ( 39.5 billion euros - $72.6 billion ) in gold. At current market prices, the ECB will hold around 670 tonnes of gold, leaving nearly 12,000 tonnes of gold
reserves with the national central banks."

The correct numbers have been posted here verified and re-verified. The above amounts to outright propaganda. The question is why? And why today?

One must just look for whom he works. Mitsui Metals in London -- could they be short ? I wonder.
<;-)

No argument for the "hard landing" scenario you depict. It probably only needs one good domino to go down to set it off. One maybe minor detail though: Doesn't cashing an unexpired CD require the bank's consent, penalty notwithstanding?

Regarding productivity: I thought that changes in the demand from other countries for our products were the result of 1] currency fluctuations and 2] drastically low wages in Third World nations that allow very few citizens to exchange for much of anything. "Malinvestment" would result from ignorance of that fact. The key to a beneficial, thriving global economy is some degree of fair exchange in the allocation of goods and services to those who create them.

Now let's have some fun and look at "a deflationary collapse will take out all debtors". Empirically correct!! But this is not the 1920s or 30s in the USA or Germany. The percentage of people owning their own home, cars and whatever, on credit, is exponentially larger than during those periods of financial disaster. Is the American public going to walk down to the nearest bridge with a sleeping bag, dropping the car keys off at the bank on the way? Even if the Govt. confiscates every gun and baseball bat in the land, it won't happen!

In a "collapse" scenario, only the providers of a debt moratorium on homes and cars will remain in office! Its the guys holding the paper that will be wiped out.

Finally, if hyperinflation is the game; how does that affect the vast majority out there with substantial mortgage and credit card balances, and who probably don't have much cash on hand to get devalued ?

I was down in Rio about 25 yearas ago. At that time, per my memory, the currency was 'Cruzeiros', when did it change to 'Real'
Also just for everyones info, at that time the old 1000 curzeiro bills and a new 1 curzeiro bills were equal, and they had prices posted in curzeiro and dollars. They preferred dollars. When the USA gets to that point will the prices be in dollars and euros or dollars and gold, or is there a pure barter system in the future.

This is an excellent article, imo.

Date: Thu Jan 14 1999 01:32
crazytimes (Good article on manipulation....) ID#344326:
Copyright � 1998 crazytimes/Kitco Inc. All rights reserved

Here's a piece for all you gold conspiracy theorists out there...

Inflation Manipulation

By A.Canon Bryan

The market for gold historically has not operated as a function of its fundamentals. On the other hand, gold has
acted as a store of value which provides a hedge against adverse socio-political conditions. We look in the world
around us and we see a global deflationary spiral; we see the world's only super military and financial power mired
in a leadership question as well as a brisk police action in the Middle East, to say nothing of a challenge to it's
reserve currency status; we see the collapse of major financial systems around the world, including Japan, Brazil,
and Russia; we see a growing uncertainty with respect to a technical glitch which threatens the very status quo of
orderly society.

These are all good examples of the symptoms that would tend to give gold extrinsic value. However, if this is true,
then why is gold performing so poorly?

World authorities in gold consistently report that demand continues to soar to record levels, and that central banks,
on a policy basis, have no particular desire to either accumulate or dispose of gold, save Switzerland. And yet
price has stagnated. This means that even on a fundamental level gold should be performing.

An extremely brilliant trader used to tell me over and over, "the market never lies". Reluctantly, I came to accept
this sagacious saying as being law. Extrapolating the ramifications of this onto the depressed market for precious
metals over recent months, one is forced to make the following inference: there are unseen forces which have
been, and may continue to, contribute to a burgeoning supply of gold in the marketplace.

The Financial Times of London has reported steady sales from Goldman Sachs. They also report that Goldman
Sachs is the broker of choice for United States Treasury Chief, Robert Rubin. They do not, however, ever make
the inference that the US Treasury could be on the short side of the gold market. Then there's Barron's, who won't
let it's readers forget that Rubin is absolutely the button man for the US. As well, they wonder how the IMF and
hedge funds can continue to be financed. And yes, they too, wonder about the bear market in gold. It seems to me
that all the piecesof the puzzle are there, but the major publications refuse to put them together. Why?

It's no secret that hedge funds, particularly in the US, have suffered astronomic losses last year, betting on weak
Yen and strong Rubles. It's also widely known and reported that the Fed is far and away the largest holder of gold
in the world. As a matter of necessity, it would seem prudent for the Fed ( or the Treasury ) to have a ( secret )
policy to dispose

of gold - slowly, in order to finance floundering enterprises within. But there may another motivation for the US to
sell gold.

The Fed - and the G7 it would seem - have gone out of their way to annihilate rates to their lowest levels in a
generation, while at the same time maintaining the lowest unemployment for the same period. As a rule, high
employment comes with a cost of inflation. But with low rates, how could there be inflation? Well, there is no
inflation - there's deflation. At any rate, what are the best indicators of low inflation? Low interest

rates and low commodities prices; particularly gold. Would it not suit the US Fed, in the interests of creating a
perception of low inflation, to manipulate the price of gold lower?

Why else would the US want to manipulate a perception of low inflation? The Barker Letter has reported
previously that the US Dollar is a currency in trouble. With unthinkable debt levels, growing fiscal deficits, and fast
disappearing global demand, no currency is safe from outright collapse. I believe the Fed understands this and
wishes to artificially manipulate the perception of strength in the Greenback. This could never

happen, however, with any hint of inflation. I believe this further quantifies my theory of "Inflation Manipulation".

Gold, in the meantime, continues to be subject to constant unexplained downward pressure. Under this scenario,
the gold price in US$ would not improve until the US$ began a significant decline; the supposition here being that a
gold price in a control currency would not change, but quoted in a declining currency would improve.

These are things that the gold investor may wish to ponder.

Be careful out there

You have free access to our archives and information at The Daily Barkerletter website -
http://www.barkerletter.com.

Gold As an Investment?!

By JOHN CUNNIFF AP Business Analyst

NEW YORK (AP) -- Gold is probably the last choice that performance-minded investors
would consider these days. It keeps going nowhere, as they say, while some Internet
stocks zoom 50 times in a couple of years.

In fact, the idea of buying gold is scorned by new-age investors as a cultural lag from a
more primitive time, a relic in a world that has outgrown its fear of the unknown.

But quietly, and with little of the commotion and promotion that accompanies high-tech
stocks, investors with more prudent aspirations have been loading up on gold bullion coins,
and making money doing it.

According to the 1998 Collectors Universe, which monitors prices, a $1,000 investment in
a basket of generic or common gold coins in 1970 would now have an average market
value of close to $22,500.

While that doesn't approach the two-year gains of Internet stocks such as Amazon.com --
which soared from $2.62 1/2 a share in 1997 to $185 recently -- it represents a 15
percent annual return versus a 60-year average 11 percent for stocks in general.

More recent buyers of selected gold items have been doing even better, as quiet, insistent
demand pushes up prices. Most of that demand is from small, savvy investors who doubt
the staying power of the high-flyers.

Obscuring the phenomenon is that widely published prices for what might be called
industrial gold show only limited movement. The action is mainly in rare, mint state,
collectible legal tender coins.

Rarity and mint state, or quality, have enormous impact, enough to raise the market value
of that 1970 investment to nearly $87,000. And still another vital factor is exemption from
possible confiscation.

Most U.S. legal tender gold coins minted after 1986 may be seized by the government in a
national emergency. However, post-1986 gold and silver proof (top quality), coins cannot
be confiscated, and thus are especially attractive for Individual Retirement Accounts.

While gold is the star, silver too has taken on a shine. A bag of pre-1964 junk silver coins
with a face value of $1,000 could be purchased for $3,600 six months ago. It might cost
$5,100 today.

There are literally hundreds of numismatic dealers in every state of the country, some very
large, such as Blanchard & Co., New Orleans; Investment Rarities, Minneapolis; and Lear
Financial, Santa Monica, Calif.

The business can be an intricate one, however, and investors shouldn't jump into the
market as uninformed stock market investors have been doing. Almost any library has a
good book or two on the subject.

The most recent of them, "The Bulls, the Bear and the Bust," by Kevin DeMerit, Lear
Financial's president, provides details on what to buy, how to store it, how to fit it into an
IRA, and how to sell. He offers it free.

The beauty of gold, silver and other precious metals, he and others in the trade sometimes
point out, is that the supply is limited by Mother Nature and may become more so when
stressed economies quit selling.

You really can't say that about stocks. Why, you can't even say that about dollar bills so
long as the printing presses remain oiled.

------

"The Bulls, the Bear and the Bust," the book referred to in this article, is available free from
Lear Financial, Inc., 425 Santa Monica Blvd., Suite 440, Santa Monica, Calif. 90401.
Phone: (800) 965-0580.

(PROFILE (CO:Amazon.com Inc; TS:AMZN;) )

AP-NY-01-14-99 0002EST<

Copyright � Associated Press. All rights reserved. This material may not be published, broadcast,
rewritten, or redistributed.

Money lent is purchasing power against future production regardless of the systems of fractional reserves or regulation. It is either someone's production value rented to others, or it is that right written against future earnings. The latter is printed money whether based on gold deposits or "production chits"

The use or abuse of this via depends on the quantity of this printed money, in relationship to the amount of goods in the pipeline. Visualize this Global economy in terms of inventory on the way to market. Look out over the acres of cars, trucks, motor & mfg. homes and appliance warehouses. All of that represents goods produced and not yet exchanged for. How could you begin to carry that "Float" on a Gold Standard?

But the workers must be paid, suppliers too. They will not wait until the market cycle is completed. So there must be a float of printed money to carry this. Even Monday's labor is on credit until Friday's paycheck.

The key discrepancy between "money as bookkeeping" and Gold backing, is where you say "they receive something of equal value [money]. "Bookkeeping Chits" are money if they are honored & gold is money, regardless of agreements, because it has the value of barter.

As to "A fiat currency cannot survive the rigors of the real economy over time", why not? Its a matter of Ethics and the maintaining of agreements. In a society of total trust and fair exchange, fiat money is fully workable and does not require the expense of a gold standard .

Bringing that about is another matter entirely.

My Son in law was in Portland today talking to an engineer who works for Intel. [They are a hard drive Co.] This fellow claims that if an imbedded chip in a computer shuts it down on "00", just restart it and it will run fine except for the date. ---- ?????

Check this out. Oh, you know the reference to Goldman acting as broker for Fed, isn't G.S. an owner of Fed.Res?

Midas touch loses grip

Gold drops lower in late European
trading due to Brazilian grief


January 13, 1999: 2:40 p.m. ET



LONDON (Reuters) - Gold fell further in late
European trade on Wednesday as Brazil's latest
financial crisis failed to attract safe-haven buying in an
already bearish market, dealers said.
Gold was fixed at its lowest price since September
1998 in the afternoon at $285.45 a troy ounce, $2.75
below the morning fix of $288.20.
Spot gold closed in Europe at 1615 GMT at
$285.20/$285.70, against Tuesday's New York close
at $288.30/$288.80.
"Brazil was the main focus of attention today and
the dollar has benefited initially on the back of that and
gold has suffered. I guess there is a fear that Brazil will
sell gold to cover its shortfall," one dealer said.
Global equity markets trembled on Wednesday
under Brazil's financial woes, which saw the country's
central bank president resigning and an effective
devaluation of Brazil's currency, the real.
The Dow Jones industrial average dropped almost
200 points in the first hour of trading and investors fled
to U.S. bonds, seen as safe-haven assets.
Dealers said gold had attracted little safe-haven
buying amid talk of producer sales on the back of
weaker currencies in major producers South Africa
and Australia.
With the gold price in South African rand and
Australian dollars firming on the back of weaker local
currencies, current levels were looking very attractive
for producers to increase forward sales, dealers said.
A Reuters poll of between 13 and 18 mining
analysts showed on Wednesday that gold would
average in the mid $280s in the first quarter of 1999,
dragged down by poor demand and sales from central
banks.
Silver would drop 6.8 percent to average $5.17 for
the year while palladium would rise more than 2
percent to $291.20 and platinum would drop less than
1 percent to $368.30, the poll showed.
On Tuesday gold fell after two industry reports
painted a bearish picture for the metal, including
declining costs for producers.
Investment bank J.P. Morgan said gold would
trade as low as $265.00 before the end of March as
commodity prices were likely to remain weak.
And industry consultants Gold Fields Mineral
Services (GFMS) said in an update to its Gold Survey
1998 that the gold price was expected to remain at
$270-$310 in the first half of 1999, due to weak
demand.
"There is an overall bearish sentiment toward gold
in the market and the reports from Gold Fields and J.P
Morgan were not very positive.
"It is all adding up at the moment. You hear a bit of
not good news, bad news there...there is really no
reason for gold to go higher," one German dealer said.
London dealers said gold was supported at
$285.00, but if bullion fell below that level it would
establish a new trading range between $282.00 and
$285.00.
"There is good physical support below $285.00,"
another dealer said.
Silver ended trading in Europe at $5.13/$5.15 a
troy ounce from the previous New York close at
$5.22/$5.25.
Platinum and palladium held relatively steady
despite gold's fall.
Platinum ended at $352.50/$354.50 an ounce from
the close in New York at $354.50/$356.50. Palladium
closed at $310.50/$315.50 from $314.00/$319.00.

Feb Gold is playing a yoyo tween 286.0 and 287.0 while the PPT keeps the PREM up --- therefore the S&P is near NC while the DOW is down more than 50 and the OEX down less than 2 ------OOPS the dam just BROKE -- forget the above and look out below !
<;-)

Peter Asher, these are important points, hence my line-by-line treatment for response. "You say" [I reply]

"The use or abuse of this depends on the quantity of this printed money, in relationship to the amount of goods in the pipeline."
[Who is the omnipotent guru to oversee and regulate this proper relationship to ensure "use" rather than "abuse"? Is such an arrangement prone to error?]

"Visualize this Global economy in terms of inventory on the way to market. Look out over the acres of cars, trucks, motor & mfg. homes and appliance warehouses. All of that represents goods produced and not yet exchanged. How could you begin to carry that "Float" on a Gold Standard? But the workers must be paid, suppliers too. They will not wait until the market cycle is completed. So there must be a float of printed money to carry this. Even Monday's labor is on credit until Friday's paycheck."
[Why have you adopted the preference for placing the cart before the horse? Consider this example, similar to the one you present, yet slightly altered in detail to achieve the better view.
This inventory poised for market you mention...how was it known by the producers and suppliers what the market would bear? Your example seems obvious. Now consider this. A team of ambitious laborers decide to produce wooden socks to complement the Dutch wooden shoes. With an understanding that an inventory shortage will undermine their credibility in the eyes of their future retailers, they toil for a long period on the production of an ample supply prior to the introduction of this product to the markets. During this time, your view would have these workers paid in a lent money. In your words, "Money lent is purchasing power against future production. It is either someone's production value rented to others, or it is that right written against future earnings." As you surely recognize the dubious value of this wooden sock enterprise, surely you must recognize the dubious value of a money that may spring into being based upon such an endeavor. What happens to the concept of value when an army of out-of-work laborers find that they can earn production wages on products (such as an entire line of wooden apparel) before the market can demonstrate the value of these products, and therefore more pertinently, the value of the work of production to be paid as wages? To be sustainable, business decisions must be made based upon the value of money determined by PAST production, not future production. Capital necessary to pay start-up and intermediate cost must come from savings which are a product of past production from something, anything, that clearly demonstrated a value...hence the ability to amass savings from the profits. There will be no profits from the wooden socks, and the integrity of the type of money created against future production to finance the failed operation suffers as a result. When the operation fails, if originally funded by money saved from past successful ventures, the value of the loss is easily recognizable, and the value of money is thereby sustained.]

"'Bookkeeping Chits' are money if they are honored & gold is money, regardless of agreements, because it has the value of barter."
[I am glad to acknowledge our agreement on this.]

"As to 'A fiat currency cannot survive the rigors of the real economy over time', why not? Its a matter of Ethics and the maintaining of agreements. In a society of total trust and fair exchange, fiat money is fully workable..."
[My good sir, have you ever known such a society as this? And for what period was it sustained?]

"...and does not require the expense of a gold standard."
[Expense? In that same view, should we not also do away with the products that are bought with money due to the expense? Gold has VALUE. These products have VALUE. It is particular to fiat currencies that there is fostered a distorted notion of an 'expense' of money.]

The authorities are indeed putting on a good "show". For how long, I wonder, how long...?

WASHINGTON, Jan 14 (Reuters) - The United States added pork to the list
of items that will be hit with punitive 100 percent import tariffs in a
dispute over banana trade, a senior U.S. trade official said Thursday.
----------------------------
Steel from Japan is yet another item of contention...

good morning ... Regarding production and demand: absolutely, there are many crosscurrents that are playing out in the global economic mayhem. The bottom line is: take the govt/bureaucrats/politicians out of the mix, establish a sound currency standard, minimize taxes and regulations that drive up the cost of production and lead to winners being chosen by the power brokers rather than the market, and the world would be much freer, much safer, and much more prosperous.

I've copied below a post I noticed over on the Prudent Bear Message Board. The poster articulates very well the problem of deflation. Regarding his point about the multiplier effect, Martin Armstrong did an excellent piece on that awhile back ... maybe someone has the link.

Oh, I don't know the answer to the CD question. But if the bank can say no, and if I'm the holder of a CD, that increases my incentive to close it out before they excercise their discretion.

>DrJ: No, the printing press is no match for the deleveraging effect of deflation. The multiplier is going in reverse and the printing press is just too slow. It is a slowing of velocity which is another way of saying pushing on a string. In good times, printing one dollar becomes 10 because people are willing to borrow, reinvest, and redeposit, over and over. In bad, or deflationary times, ten dollars becomes one because people are not willing to risk their credit by borrowing, banks are not willing to risk their capital by lending, and money is being lost through bankruptcy. This is proved by the widening of credit spreads between highly rated governments who can repay their debt through the barrel of a gun at the head of the taxpayer, and all other borrowers.

Printing more money in a deflationary environment just devalues the money outstanding. Consumer products increase in price dollar for dollar created while the aggregate money supply numbers decrease as the economy declines. Witness Indonesia in a depression while consumer prices rise.
Eventually, bankruptcy strips people of the extra money and prices fall once again. Alternatively, maybe prices never rise as new money is being printed and people just lose money quicker through deleveraging. Same thing. Purchasing power is lost. <

...is a must-read, IMO:

http://www.gold-eagle.com/gold_digest_99/murphy011299.html

Could this be having an impact on the DOW ? NOT ! :)
XAU seems to be holding well.
<;-)

Halted after loss of 564 points or 10 % !
DOW off more than 200 points. Headed toward 9100.
XAU holding 69
GC9C trying to hold 287
<;-)

After the reopening the Brazilian market moved up 60 or so points and then closed back DOWN to 560 = off 9.97% DOW broke 9100 and is now headed toward 9050 at the close. XAU may hold 69 by the close.
<;-)

Bridge News Gold Report: "With the big increase in open interest Wednesday it was a touch overdone on the downside," said one trader, noting that the "waves of fresh fund selling" seen Wednesday had simply "run their course."

USAGOLD: Someone say hedge funds? I thought gold was down yesterday because Brazil was going to sell their official holdings -- that all those high class, sophisticated investors out there woke up yesterday morning, saw the news of Brazil's devaluation, immediately realized that gold would have to drop as a result, at which time they immediately got on the horn and shorted gold driving it lower...en masse. Any idiot could have seen that as soon as Brazil devalued and brought the world financial system to the brink of collapse that investors would sell their gold. I mean, duhhhh....cmon......get a life....

**********

Bloomberg (1/14/99 5:50pm EST) reports that Brazil might let its currency float against other currencies. A currency trader is quoted as saying that "This Brazilian situation could turn into another Asian crisis or Russian crisis." The articles goes on to say the Brazilian situation could spill over to other Latin American countries. Investors have withdrawn as much as $1.4 billion from Brazil in the past two days and that "Brazil might just give up". James Shrugg of Wespac Banking Corp. in London "sees the dollar weakening to $1.22" against the euro.

USAGOLD: Wasn't the Russian default what almost brought LTCM to ruin? What effect would an actual default in Brazil encourage? And what happens if international investors go to the euro in this crisis instead of the dollar -- a proposition contemplated often at this site. Well, fellow goldmiesters, will this be the first test in this battle of titans?

***********

From CNNfn: " Elsewhere in the market, financial stocks suffered a second day of heavy selling, hurt largely by fear that their exposure to international markets could hurt performance badly. Among members of the Dow 30, shares of Citigroup (C) dropped 1-5/16 to 50-7/8, J.P. Morgan (JPM) shed 4-9/16 to 102, and American Express (AXP) lost 2-11/16 to 96. Other financial losers included Chase Manhattan (CMB), down 3-3/8 to 68-1/4 and BankAmerica (BAC) off 2-15/16 to 62-1/2.

USAGOLD: I have heard the comment that the Brazilian situation will be much like the 1994 Mexican situation wherein the stock market quickly rebounded. One difference: The market recovered in 1994 because the U.S. government bailed out Mexico out of the Exchange Stabilization Fund. Don't forget it was just 30 days ago that the Brazilian bailout was approved by Congress. Now we are back in the soup...So what happens now? Another even larger bailout? Now with what is going on in Washington? How do you go to Congress in these circumstances and ask for money for Brazil?

**************

The mad scramble begins!

**************

Do any of the posters here attach significance to the fact that Egypt stocks dropped 24.74% today?

Or is Yahoo in error?

Thank-you for the immediate response. Before answering I would like to relate a "banker" tale that is relevant to the current discussion. In the 1970's, we were producing hand-crafted wooden furniture. One of our "hot" items was wide plank butcher block table tops and kitchen counters. We were using hand-held belt sanders at great labor expense, and so I went into the bank to see about a loan of several thousand dollars for a planing machine and a drum sander. I showed figures on how the labor savings would increase our income far more than the cost of servicing the loan.

The loan officer says, "No", looks out the window at my 12-year-old van and says, "HOW ABOUT A NEW TRUCK"! So I say, "A new truck won't increase my income." He says, "I can sell your truck for the full loan amount if you default, but I'd get next to nothing for the planer and sander."

Maybe that's that particular decade's inflationary recession in a nutshell � plenty of funding for consumption, but tight money for production. So, back to the present.

I think we are in agreement on how the economic machinery works, but are questioning the desirability of some of the components. Your "Wooden Sock" analysis is truly valid. Indeed, a start-up company should not (and usually does not) qualify for funds from lenders. I was referring to the flow of the huge global economic machine where goods are being produced for existing markets and the risk factor is only one of quantity.

As to an "omnipotent guru," that's a good description of Mr. Greenspan, but "wise" would be another matter, and who knows what his agenda is?

A "monetarist" is defined as one who believes the economy should be regulated by the money supply. Now if the CB's were operating for the best interest of global trade, they would more or less keep the printing presses in pace with the needs of "the float," so as to have a fully lubricated economic machine. However, politics and cronyism rule our times. The former allows printing for all sorts of nonproductive activity, in the form of blatant or covert welfare. The latter can go so far as to float a small fortune for a Wooden Sock factory.

The enacting of a Gold Standard would certainly put the necessary stops on creating money for nonproductive purposes, but please describe the scenario for bringing this about

Quantitatively, it seems that, to create that gold standard, all the hoarded gold in the world would have to be confiscated and then equated to all the outstanding fiat money in all of its forms. That would create the "true value" of gold so often discussed here. Then having done that, we would have to deal with future mine production beyond what would be needed for jewelry and space shuttle insulation.

Operationally though, how would we continue the flow of economic exchange in this modern world? I see us still needing all sorts of paper and electronic gold to keep the wheels turning.

That's it for now. I hope you and I and Turbohawg can provoke some input from the rest of the group, even if it's only to say, "What the ---- are you guys talking about?"

From the Associated Press: . . . if an economic downturn in Latin America spreads to the United States and causes the dollar to fall, that could cause a route on Wall Street that could make last summers dizzying drop tied to problems in Asia and Russia look like a cake walk, said Peter Canelo, U.S. investment strategest at Morgan Stanley Dean Witter.

"The U.S. dollar can be threatened, and if the U.S. dollar goes down, people can pull their money out of U.S. stocks and bonds," Canelo said.

Dow ended at 9,120 (-228)
Gold ended at $285.20/285.70 troy oz (-0.90)
Silver ended $5.10/5.18 troy oz (-0.08)

According to Reuters: "If the Brazil gets worse, it is bad for ecomonic growth which is therefore bad for commodities. And if Brazil stabilises or gets better it will probably be positive for gold."

This mentality is why gold and silver will probably continue to decrease in price over the short term -- thinking of gold as a commodity instead of the ultimate store of wealth -- the debt obligation of no one..

If there is a flight from U.S. stocks and bonds, where will this money go? To stocks and bonds in other countries? Highly doubtful, given the U.S. is considered the strongest economy on Earth. Wealth from the sales of foreign held U.S. stocks and bonds (and dollars) could find their way to Euro bonds, since the Euro should stand out as the one currency not being devalued, and infact, gaining ground compared to other currencies.

The Euro is tied to gold, which is presently considered a commodity and is going down in price. This should cause the value of the Euro to fall in relation to the price of gold and currencies it holds as reserves (until the price of gold reverses). However, the Euro, being tied to a set amount of gold, requires a finite amount of currency to exist. A limited supply in the face of significant demand could cause the Euro to increase in currency value, even if gold goes in the opposite direction in the short term.

A flight to electronic Euros and Euro bonds could increase downward pressures on the US dollar. At some point, people will come to their senses and realize that Gold is not a commodity whose value is tied to factory/consumer consumption, it is the ultimate, immutable store of wealth. This will probably occur when the dollar begins being devalued and it takes more U.S. dollars to purchsae gold the commodity (to the uneducated eye, the price of gold "rises"). In U.S. terms, the price of gold would be seen as increasing even though there are no factory orders for this commodity to explain it, because the dollar is worth less and therefore it takes more dollars to buy the same amount of gold.

What I find truly amazing is just how similar all this is to events preceeding the Great Depression. A global economic slowdown. The tulip craze (can anyone say "Beanies"). People borrowing money to put into the stock market (most people are spending more than they're making yet still finding a way to throw money at Wall Street). Technology stock mania (just before the Great Depression it was Broadcasting stocks, now its Dot Coms). Those of us with our eyes and minds open enough to see reality, not the world as we'd like it to be, can predict where this is going. We've been here before -- sort of.

After the Great Depression the world went to war. Germany, which had experienced severe hyper inflation (like what the US will probably experience this time around) discovered a charismatic leader who promised to restore Germany to the proud country it once was and the Nazi movement was born. The U.S. joined World War II and suddenly the U.S. was back to work and, the Allies having won the war, has been prosperous ever since.

What will it take this time -- after the Asain Contageon and the crash of our overvalued stock market -- after severe devaluation of the dollar -- after the Y2K bug bites -- to bring the United States, indeed the world, back from the brink?

For your comments and consideration,
Critical Mass

I can't imagine a better time to hang the IMF around Klinton's neck.

>USAGOLD: I have heard the comment that the Brazilian situation will be much like the 1994 Mexican situation wherein the stock market quickly rebounded. One difference: The market recovered in 1994 because the U.S. government bailed out Mexico out of the Exchange Stabilization Fund.
Don't forget it was just 30 days ago that the Brazilian bailout was approved by Congress. Now we are back in the soup...So what happens now? Another even larger bailout? Now with what is going on in Washington? How do you go to Congress in these circumstances and ask for money for Brazil? <

I am 50 years old. I began my trading career in 1985 with $12,000. I have never added any money beyond that original amount. Today, my account is worth almost $1.3 million. I AM NOT A "GOLD BUG", but about $1 million of my money is presently divided between five gold mining stocks - Newmont, Placer Dome, TVX, Barrick and Echo Bay, all purchased in the past year. Yes, I am aggressive. I have not paid any taxes yet, because the account is a retirement account. I do not own, nor have I ever owned, an internet stock. I have made all of my own decisions. I believe my record is a good one, but I only post it here so that you will know something about who is writing these lines. From what I have read in this forum, I am sure most of you have more money and more sophistication than I do. I know next to nothing of hedgefunds, plots, conspiracies, or fiat money. I hope somebody will benefit from what I am going to say.
From the day Paul Volcker was named by Jimmy Carter to be Chairman of the Federal Reserve until late 1997, American monetary policy was aimed squarely at killing inflation and establishing confidence that it was gone for good. Nobody here needs me to remind you how successful Volker, and later Greenspan, were in this endeavor. Nor do I need to remind you what this success meant for gold prices over the years.
Throughout my investing career, disinflation has ruled benevolently in the United States. I credit relative price stability with having spawned the great economic expansion of the last decade and a half. I am a (grateful) beneficiary, as are the many nations of the world who, by virtue of having cheap labor, were able to pull themselves up by exporting to us. Pull themselves up, that is, until, one by one, currencies began to collapse.
Blame it on whomever you please, the result is still the same: when our trading partners grossly INFLATE their currencies by devaluing, they diminish their own ability to import from the U.S., or anywhere else, for that matter. This drying up of America's overseas markets causes a glut here at home which has been making dollar prices FALL. INFLATION over there, has meant DEFLATION over here.
Just this week, Brazil devalued (inflated). But if that means DEFLATION for the dollar, then why am I buying gold?
Because, what all this means for our monetary policy is that, for the first time, in a very long time, WE ARE NOT FIGHTING INFLATION ANYMORE. All of that has changed. Today the Fed is fighting deflation. If you want to know whither the price of gold in the next year or so, this is all you need to understand.
It is very hard on the nerves to wait month after month to be proven right. Believe me, I've been there. But what I know of the effects of monetary policy are that they are always slow to materialize, usually requiring a year or more. The supply of dollars in our banking system has been growing in the past year at a truly extraordinary rate. In my view, Greenspan has little alternative but to allow this growth, unless he wants our economy to go the way of Japan. Therefore, he clearly is using U.S. monetary policy try to bring the world economy back from the brink. He will worry about the resultant inflation (and there will be resultant inflation) when the time comes. Will he succeed? You are damn straight, and so will I.
Thanks.

When I first started writing about manipulation (control) of the gold price by some outside force (beyond the fundamentals) a few years ago, many of my industry colleagues, fellow analysts and writers took exception to my viewpoint. It was considered radical. One good friend asked me what I had been smoking.

Gold analysts were divided into two camps back then: technicians and fundamentalists and most of the analysis fell into either one of those two categories. I represented a new viewpoint -- and brought an almost political component to the discussion. ( I was not alone in this. Frank Veneroso and others were headed in the same direction.)

I can remember at the time worrying about how the growing contingent of private gold investors would react if I tried to develop a theory that some major force -- governmental, quasi-governmental (the central banks) or even private -- were working to keep the price of gold down. Would investors want to own gold knowing that major societal forces were out to keep it down? Did I want to be party to opening Pandora's box? I still worry about that even though we should all understand that what is going on now with gold has actually happened before. In that go around in the late 1960s and early 1970s (the London Gold Pool) not even the prodigious presence of the enormous U.S. gold reserve was enough to restrain the free market. Eventually it had its way and gold rose by over 20 times. Now you cannot pick up a newsletter or go to a gold discussion group on the internet where the subject of gold manipulation does not dominate the conversation. Most investors aren't the least bit concerned about price manipulation. They are preoccupied with protecting themselves against the new four horsemen -- Y2K, euro introduction, the Asian contagion and an overvalued stock market. Today's developments has been a vindication in this respect.

I made the decision almost three years ago now, that the greatest weapon of gold's advocates would be to expose the truth and let the chips fall where they may. An educated public is far preferrable to one in the dark no matter the consequences.

One happy consequence of this whole ordeal has been the satisfaction obtained from witnessing top notch thinkers like James Turk of the Freemarket Gold & Money Letter lending his first rate mind to this quest for the truth. A few months ago Turk published an important analysis in his newsletter which actually speaks to the point of view you raise, Critical Mass. He essentially says that historically whenever price controls are imposed upon a commodity that shortages of that commodity eventually develop which force the controls to be abandoned and the price to rise dramatically. I published the piece in either the November or December newsletter. At the end of the piece, we mentioned that anybody who wanted a copy of the article in full (titled "Grist for Conspiracy Theorists") should call and we would send it. In all the years we have published News & Views we have never had a stronger response to an offer for an article than we had for that one. (When I told Mr. Turk about it he simply chuckled and in his way started talking about another subject entirely. He was very interested in the story I am about to tell you.)

As we speak, the low gold price is allowing holders of inflated dollars and equity portfolios to purchase large quantities of gold (by weight). We have already seen some distortions albeit in the silver market but they are instructive nevertheless for current and prospective gold owners. I was amazed today when Marie told me that she had priced a bag of 90% silver to a client for nearly $6000 dollars. It contains roughly $3700 worth of silver. This highlights the point Turk attempts to make and is instructive to all of us who accumulate gold for asset preservation purposes. I think the same distortions will eventually visit the gold market.

There is a 60s type dictum (Dare I resurrect it?) that goes "The Truth Will Set You Free." We might not like the truth sometimes, but at least once we know it, or at the very least, a good portion of it, we can act in what we believe is our own best interest (and that of our loved ones). As we walk this perilous road and look for comfort at this site, keep in mind that the principles of economics are not abrogated by governmental or quasi-governmental (or even private) intrusion in the free markets, they have simply been temporarily suspended. Of this, you can be assured and act accordingly. Gold will have its day and I stick with my view that the euro will be the catalyst for gold going much higher......I also think that day is rapidly approaching.

about the silver bag that two months ago that same bag was roughly $4000 and the silver price has been rangebound....An important point I neglected.

That forwarded post was describing what I would call "monetary deflation". There is another form of deflation that I observe, that may not have occurred before. What I'm looking at is the current price stability in our domestic economy that is being alluded to as a deflation problem.

Now, if deflation is a result of lack of demand forcing prices down and diminishing earnings, then yes, there is trouble. But is this the case? What I see is the new age of the internet at work.

Mercantile profit has been the lion's share of most production and delivery for the last 3 or 4 centuries. Back about 1950 I remember hearing that the price of an automobile was four times the cost of producing it at the factory.

Now, with the "Net", the gap between the cost of creating a product and what one pays for it is narrowing. The ferocious competition of WWW marketing is not reducing peoples earnings. It eliminates unnecessary economic traffic and diminishes that "Float" I've been referring to. This lowers peoples cost of goods without hurting their purchasing power. From an early post of mine "In a utopian society, we would all earn more and spend less". Deflation in that form is not a negative factor for anyone This phenomena I am describing happens all the time with new products. Look at Fax machines, dropping from $1500 to $200 in 10 years etc. etc.

Visualize these events occurring across the whole economic spectrum and it opens up a new concept of production and reward. Unfortunately, in the free enterprise world of today, all games are subject to predatory factors. This vision will not take place until such time as a higher code of social ethics is the norm.

Could thou be from Middle Earth also ?
<;-)

A great first post and I hope the first of many. Welcome to this round table of yore.

I posted my analysis on price stability and there was yours on the screen! Abought that "cheap overseas labor and the currency collapse". I mentioned in post #1796 early this morning, the fact of these low wages not enabling those workers to purchase much. Obviously if trade does not flow both ways, that particular piece of the economy will cease to function well, if at all. If most of the exchange for Third World production winds up in the hands of corporate owners, then there is not enough local demand to create production within that nation. That nations economy continues to decline and there goes its currency. Not all problems and solutions come in the form of monetary activities. A near term bottom line can lead to a subsequent red ink event. The allocation of goods and services is ultimately the controlling factor in all economic endeavor This may appear to be a radical statement and it is certainly my own personal conclusion, but I do believe this is a prime axiom of economics!

I'm a new subscriber to this forum, and have learned much from reading the Forum Archives and the daily postings for the last couple of weeks. Most of the discussions and comments are at a fairly sophisticated level and "worldly", so I ask indulgence for the questions of a novice. I have done extensive reading of newsletters and books on the subject of gold, and have recently made a purchase of some pre-1933 U.S. gold, with the intent of balancing my portfolio with either modern gold bullion coins or other gold coins. Some individuals of late are recommending European Gold Crowns over bullion coins such as Maple Leafs or American Eagles based on protection from recall, privacy from reporting, and increased appreciation potential. What do other subscribers think? I would appreciate any comments and opinions regarding this line of thought. I look forward to continuing my gold education and future discussions in this forum. Thank you.

I posted this elsewhere:

EVERY time a negative world-economic event occurs, the gold naysayers emerge to talk down gold. It is a remarkable pattern. Fact is gold remains a viable Central Bank asset that continues to play an important role as there are reported to be 32,000 tons in the vaults. Take that amount and divide into the balance sheets of these banks and you begin to appreciate why Buffett bought all that silver (I know that isn't gold) and why gold coins enjoy the highest sales level in years. That math figures out to over $6000 per oz. AND, history gives us a precedence to make this a viable occurence. From 1973 to 1981 gold rose around 10 times. What is 10 times $286.40? $2,864.00, that is what it is. Pundits acknowledge for every dollar rise in gold, a good gold stock will rise time three, or a three to one leverage.

My question is when will this occur as history seems to take time to repeat itself. Will it happen in 1999? Some say yes, most say no. Fact is nobody knows but I have this theory that the harder the players who are negativizing gold negate it, knock it down, and generally bad mouth it, the greater and the sooner the rebound. Markets have a way of findng their own level, it is only a matter of timing. Pressure from more gold coin buying, Y2K fears, and world-economic uncertainties won't hurt the counter-negative move in gold. But the most likely cause for the rise in gold will be when the general stock market crowd begins to recognize the DOW bear is real and that gold and silver and oil stocks become the popular and trendy investment. The dominoes of financial bastions continue to fall (Brazil). This will continue the pressure on the system. Eventually something will give. It is happening now....

...BTW, US banks have a $65 billion exposure in Brazil.

Date: Fri Jan 15 1999 07:31
Greenstone Gold (Extract from Colin's financial pages) ID#428218:
Copyright � 1998 Greenstone Gold/Kitco Inc. All rights reserved

Today, the UAE said that the euro could become part of an oil pricing system, and the UAE's oil minister
pointedly explained that the euro is in competition with the
dollar. Two more stories showed that the euro is now considered a "safe haven" currency, even against the dollar
and the yen, and on a par with the Swiss franc.

Up until now the dollar has been the mainstay of large scale international settlement. However, if the dollar is
weakened by Latin American contagion, and investors
seek the euro, the value of dollars taken in exchange for goods that form the bedrock of international trade, such
as oil, will be seen to drop. Oil suppliers may very
well seek payment in a currency that is expected to be more of a "safe haven" of value. As this process gathers
momentum, the notion of multiple reserve currencies
will be seen to be flawed, as only one currency may hold true reserve currency status.

Brazil's Real Trading "Freely" - Forex Traders

SAO PAULO (Reuters) - Brazil allowed its real currency to float freely on Friday, traders said. They said the embattled currency was quickly devalued by a further nine percent.

The Central Bank had no immediate comment, but traders said the bank was not intervening to support the real at its previous set limit of 1.32 per dollar.

http://dailynews.yahoo.com/headlines/ts/story.html?s=v/nm/19990115/ts/brazil_5.html
___________________________

The picture they have with this is really cool..... it's a trader waving his arms but his body is hidden by a divider so it looks like he's drowning.....

GF

Date: Fri Jan 15 1999 07:31
Greenstone Gold (Extract from Colin's financial pages) ID#428218:
Copyright � 1998 Greenstone Gold/Kitco Inc. All rights reserved

Today, the UAE said that the euro could become part of an oil pricing system, and the UAE's oil minister
pointedly explained that the euro is in competition with the
dollar. Two more stories showed that the euro is now considered a "safe haven" currency, even against the dollar
and the yen, and on a par with the Swiss franc.

Up until now the dollar has been the mainstay of large scale international settlement. However, if the dollar is
weakened by Latin American contagion, and investors
seek the euro, the value of dollars taken in exchange for goods that form the bedrock of international trade, such
as oil, will be seen to drop. Oil suppliers may very
well seek payment in a currency that is expected to be more of a "safe haven" of value. As this process gathers
momentum, the notion of multiple reserve currencies
will be seen to be flawed, as only one currency may hold true reserve currency status.

Hear ye....Hear ye......

All those gathered at this august forum -- this fabled table round -- are hereby called to participate in a highly competitive struggle of wits and wisdom on the following subject(s):

Do you believe that the next economic paradigm will be

A. Deflation, like the 1930s?
B. Inflation, like the 1970s?
C. Hyperinflation, like 1920s in Germany?
D. Disinflation (staglflation)?
E. Inflationary Depression (like Brazil now)?

Of course, you must weave gold into this tale, how it will react under the circumstances chosen, etc. and you must provide reasoning for your selection. You can post as many times as you wish but you must stick to a single malady. From the outset, all posters must agree that when another poster chooses a malady, he/she is not relegated to defending that proposition for the remainder of his/her life. We do allow people to change their minds here.

No post will be impeached and though a sense of humor is tolerated, we must remember that this is a solemn event and that we must comport ourselves accordingly in this most Senatorial of gold venues. Ho Ho Ho

As always, first time posters will get one of two books (your choice)

The ABCs of Gold Investing: Protecting Your Wealth through Private Gold Ownership, or

In the Footsteps of Giants which comprises the early and remarkable postings of ANOTHER with my comments.

This time around we will throw in a copy of a very interesting study we have had here at the office for quite a few years, but still holds up in the modern milieu called "The Nightmare German Inflation". By that we do not intend to shade anybody's choices, it just fits into thematically with this particularly contest.

Just post it, e-mail your request and the book is out the door to you. We will be checking from time to time for new registrants. We greatly encourage newbies to register and get involved.

The winner will get a shiny one-tenth ounce Austrian Philharmonic. There will be at least two runners-up who will receive the hard to get U.S. silver eagle.

The contest goes through Monday midnight. This is a long weekend so you have plenty of time to dust off those well-constructed arguments you've been thinking about in recent weeks and get them up for everybody's perusal.

Off subject posts will be considered as well. If you've got a great post lurking in the inner recesses gasping for air and the light of day now's the time to shake it loose. We want to hear about it.

Good luck to all. May the best poster get the gold.

P.S. We will allow mike 55 and The Stranger to qualify for the book since they first posted just last night. Pls e-mail your request. We will also consider The Stranger's great post last night serve as the first contest entry.

P.P.S. While I'm in the Forum Business mode, I want to mention how pleased I am as the sponsor of this site with the level of discussion that goes on here. I have had several complementary letters from individuals who say how much they enjoy and learn from what's been posted here. We are on the cutting edge here in this little corner of cyberspace and I want to thank all of you for your considerate and well-honed opinions. As a famous internet philosopher once said, "We watch this new gold market together, yes?"

... and simply my take on things ... not a contest entry. I have been tossing around lately just how to construct a post that would fit in well with the contest, so I'll try to "shake it loose" over the next few days.

Peter, yes, technical advances leading to more efficient production may produce a healthy deflation of commodity prices if left in a free market. We've been here before ... in the '20's ... Japan in the '80s. But, when not rigging the stock market, the Fed claims their role in the universe is price stability. In order to have relative price stability in a deflationary environment they have to inflate. That's what they did in the '20's and that's what they've been doing the last several years ... and the excess money creation led to credit and stock market bubbles each time.

I really enjoyed Stranger's post (don't be a stranger, Stranger... and welcome Mike55), but I respectfully disagree with his conclusion ... that Greenspan will successfully inflate his way out of this. You can't necessarily extrapolate the past into the future. All AG has been doing the last several years is expanding credit everytime there is an economic slowdown or threat of one, such as after the '87 crash. Everything appears to stabilize, but all he's actually done is put off the day of reckoning. It's a game the Fed can not win. The money supply can contract faster than a central bank can inflate. The move from disinflation to deflation is part of the same trend. Disinflation accelerates into deflation. Look at the growth of the money supply ... it's surged in the last few years, growing now at about a 14% clip as the Fed tries hard to counteract the acelerating deflationary forces. At one point last year, it was reported that Japan's money supply was growing at a 51% annual rate !!! When the bubble pops, the money (credit) supply is instantly going to be much smaller.

The Fed/Treasury/Save Klinton's Ass team (remember: it's the economy, stupid) has used the same strategy internationally. Three or four years ago there was the IMF sand bagging of Mexico. A year and a half ago there was SE Asia ... 6 mo ago Russia ... today Brazil. To borrow from SteveH: Holy acceleration Batman !!! Who's next ... and when ?? Stay tuned ... same bat time ... same bat channel.

Reuters San Antonio 1/15/99 13:57PM...The president fo the Federal Reserve Bank of Dallas, Robert McTeer, on Friday said the United States will likely help Brazil overcome its financial crisis, but probably will offer little done for them will be through agencies like the Internation Monetary Fund," McTeer told business executives in San Antonio,

USAGOLD: Reprinted just as it appeared on wire -- bad grammar and all. So how is this going to be done? A collection at all the churches in America this weekend? Or perhaps a direct tax on the people? This will have to be done by executive order with the impeachment going on, don't you think?

This afternoon I must endure a simple surgery to restore proper vision to my left eye. I look forward to the view of gold on Tuesday. I enjoy this thought as I borrow a partial phrase from ANOTHER...this view of gold is "not as before!"

Peter Asher, I enjoyed the banker's anecdote. There is much insight to be gained from that tale. I hope to discuss further as my condition allows.

USAGOLD, this good thought warrants repeating...
-------------------------------------------------------
USAGOLD (01/14/99; 18:22:37MDT - Msg ID:1818)....
There is a 60s type dictum (Dare I resurrect it?) that goes "The Truth
Will Set You Free." We might not like the truth sometimes, but at least
once we know it, or at the very least, a good portion of it, we can act
in what we believe is our own best interest (and that of our loved
ones). As we walk this perilous road and look for comfort at this site,
keep in mind that the principles of economics are not abrogated by
governmental or quasi-governmental (or even private) intrusion in the
free markets, they have simply been temporarily suspended. Of this, you
can be assured and act accordingly. Gold will have its day and I stick
with my view that the euro will be the catalyst for gold going much
higher......I also think that day is rapidly approaching.
-----------------------------------------------------------

The spirits of some perhaps need a boost, as the dollar seems to sit still upon a throne while gold plays the jester? In the past I have called this 'technical inertia'. The king has slow digestion, yet the tainted wine has been swallowed. All those that feasted at the king's court will fall, and the jester shall be left to dance upon the chair.

I have revealed this before. Take yet another, reassuring look through the keyhole...
http://www.bank.lv/naudas/latvian/index.html
Select 100 latu, and laugh with the jester. It is good for the circulation!

Good luck on your surgery, my friend. We look forward to your quick return. I appreciated the the little piece about the jester...tainted wine indeed...and Keynsian poison.

Pretty quite tonight, everyone must be cogitating. Could we get a definition for disinflation, to have some common ground on that item?

We've had disinflation for almost 20 years!!

"Nature abhors a vacuum," and an empty Forum on Friday night. I wonder if everyone's peeking to see if anyone else has risen to Michael's latest challenge.

On the chance that some may feel a little intimidated by the scholarly set of topics our host has set out for us, I'd like to take the liberty of posting a little missive I wrote about 14 years ago. My own attempts to sort out the mysteries of the world of economics come mostly from this source (until the advent of this Forum!!). I was in an anti-establishment mode back then and I apologize in advance if this offends anyone who worked hard for their "sheepskin."

The Tutor

For those seeking knowledge
By going to college,
Learning will be by rote.
They'll develop the skill
Of the run-of-the-mill,
And the world will change by their vote.

But the powerful few,
The eternally new,
Seek a tutor who's greater by far.
Than those who pass on
Conclusions foregone,
That prevent you from being who you are.

So, don't let it be told
By those who so bold
Claim the truth
With rhetorical bluster.
To have knowledge complete,
You must sit at the feet
Of the Wright Brothers' flight instructor.

Copyright Peter Asher 1985

Well, I was going to ask all these questions - then I decided not to and tossed my list in the trash - and then decided it wasn't stupid so here's my questions.

1st - Can someone give me a SIMPLE, CLEAR & CONCISE definition of MK's 5 words (A-E) in his contest for this weekend (or is this request an oxymoron, that is, those five words and simple, clear & concise not possible). Remember I'm in Economics 101 and need it simple.

2nd - AEL (Murphy's latest) 01/14 Your post 1807 referred to an internet address I keep getting a 'Not Found' message on. Can you recheck and post the site again.

3rd - Does anyone beside me suspect that the US economic policies of late have everything to do with keeping this economy going NO MATTER WHAT IT COSTS! This is probably the biggest "Cash Cow" to be invented yet. I don't doubt that these policies have generated the most tax $s ever. And guess what, NO NEW TAXES. The market is just plain crazy at times and the high values just don't make sense in many, many eyes. But, it just keep chugging along. Asia, Russia, Brazil, just speed bumps. So Mr. Greenspan throws on a little more coal and it's off and runnin' again. Thoughts anyone?

I have more questions but, later.

Lying in bed I realized that one more difference between 1929 and current market conditions aside from any others mentioned previously is computers. Given all the similarities, computers didn't exist in the 20's. What that means is that real-time information is now available to run through modeling programs on fast computers giving the modeler information to use to test ways in dealing with markets before implementing policy. Think about it. Personal computers as an extension of the mind are available to the Fed, to the brokers and investment bankers, hedge funds, and single investor. Sophisticated models can be created in Excel, Access, SQL, C++, and more. All it takes is a few accurate assumptions and the know-how to put it to disk. My thought is that one could say, "Ok, how do we extend the bull market a little longer?" Computer returns, "Increase M-1 through 3 to X%, short gold with x contracts, maintain DOW at 9xxx, keep commodities here, leak disinformation there...."

Maybe LTCM mis-programmed or maybe the human misread data, but it would seem that markets and computers have changed the real estate of action-reaction and gives us a new paradigm and that is why 1929 vs 1999 is similar yet different. Thoughts?

I think you're on to something. And are the Masters of the Universe trying to maintain gold in a **band** between $278 and $302.50?

Let me continue the line of reasoning you started:

The MOU's thought they had computer modelling down to a god-like, infallible science until LTCM came along and toppled this cybernetic Tower of Babble. I consider LTCM one of those historically important events of which we will not understand the full implications until well after the smoke clears. With its breakdown the idea fell into disrepute that computers and Nobel Prize winners could somehow defeat free market forces. Why?...Because you cannot program-in the unforeseen event (fate?) and history is replete with the unexpected. Not even with multi-billion megabyte thrusters that can crunch numbers, numbers and more numbers at the speed of light....a beautiful weapon in the new paradigm....

The LTCM debacle undermines the notion that man can defeat the free market cycle through computer modelling. That had to sting the MOU's. We have not yet seen the full psychological effects of the LTCM breakdown let alone the financial as the **band** shall be broken (even though LTCM has temporarily disappeared on the radar screen).

Everytime man tries to imitate the gods, the gods crush such arrogance -- history's most repeated lesson starting with Eden's tale. (I'm in a Biblical mode of reference this morning.) Let me know where your thought processes take you on the subject, Steve. It is one of great interest to me and I am sure others who frequent this site.

I absolutely agree with the computer aspect. There is much more to it, as per Thursdays conversations of mine with Turbohawg regarding WWW commerce [and what's coming in my contest post]. Regarding LTCM, remember always GIGO! Garbage in -garbage out. The absurdity of the situation in Russia was obsevable, unless one choose to be the monkey that "would see no evil"

Another thing I think will be forever altered by the instant flow of information, is the potential for Hyperinflation, which is a result of panic more than from the fundamentals behind it. The availability of data on pricing, the fact of the global market place, and the more direct flow of goods from source to consumer, could make that Paradigm a part of history.

More thoughts on LTCM and Russia. Here was a nation where thinking for yourself equated with a visit from the KBG and a there was a huge, out of work, brutal police force. The introduction of free enterprise into that environment required the awareness of the human condition, not just economic principles. On the investment end of it, maybe the people in charge were paid by commission and free from any resultant liability. Try putting greed and avarice into the computer model!

Mr. Murphy says it better than I, after reading a lengthy discussion about Brazil by David Tice, -- "Allow me to put in my two cents worth. The inmates have taken over the alysum as the stock market in Brazil goes up 32% in one day after awful news that can only get worse!!!"
AND this was THE basis for the big rally on the DOW ? NOT !
<;-)

Reading economics and figuring out what is going to happen
is more like looking at a poem than a script. In a script
all is laid out and seems clear. But in a poem, while all is
laid out, inferences are made, intuition is used and time
gains a poetic existence. Take the following question
as to what is going to happen: Inflation, Deflation, Hyperinflation, Disinflation, or Deflationary depression.

My reading of the tea leaves is as follows: They are all
here right now in full view for all to see!

INFLATION: The stock market has been inflating for the past 10 to 15 years at an annual rate of 15%. This is more
than the CPI ever went up in the 70s which were considered
"inflationary". Inflation is here now!

DEFLATION: From cotton to pork: from gold to silver these
and most commodities have been losing purchasing power for
a long time. Deflation is here now!

HYPERINFLATION: The internet and tech stocks are rising
at rates exceeding 50% a year and some at 500% a year.
I would say hyperinflation is here now!!!!

DISINFLATION: Has been with this economy since the Raegan
Revolution. Most wage earners are experiencing a loss of
purchasing power with their paychecks as expenses rise faster than incomes. Disinflation is here now!

INFLATIONARY DEPRESSION: Now that a really good car costs
$40,000+ and a good 40 foot sailboat costs $275,000+ all
but a few can afford these things. For most of us earning
a living an inflationary depression is here now!

The future of which you ask is in the here and now! Therefore the only changes that can take place are changes
in direction.

So I offer the following:

If you own commodities in general you will experience
inflation to your assets over the next 10 years.

If you own stocks in general you will experience a deflation in your assets over the next 10 years.

If your own gold and certain gold stocks, and perhaps silver, you will experience hyperinflation at some point over the next 10 years.

Disinflation will happen to all those who just keep their cash in a bank or bonds as currency depreciation will give
you less purchasing power over time. Real estate will suffer
disinflation as large mortages are harder and harder to service.

An inflationary depression will happen to
all those who keep buying every decline in the stock market
and ride the great bear all the way to the bottom. The
purchasing power of stocks is going to suffer the largest
loss of this century and put you into an inflationary depression because you just won't be able to buy as many goods with your stock in the future as you can now. Not even
close.

All these terms that we were asked to deal with are really
the result of money flows. As we have seen in Asia, Russia and Brazil money flows are subject to change of direction.
As they change direction inflations become deflations and
vice versa. Psychology plays a large part in determining these money flows. Once items become expensive % gains are
hard to come by. Is YHOO going to give you a 300% gain from
$400 a share? Pretty hard to see. But can DROOY go from
2 1/2 back to 10? That seems much easier to achieve. So
money will fall down hill and bottoms will become tops and
tops will become bottoms. And that is what we call inflation and deflation. And they are with us all the time and our
experience of inflation is whether we are invested with the up trend. If we are not we experience deflation.

Hyperinflation just refers to the rate of change: the
negative experience of which is an inflationary depression.

Should the government interfere with the natural ecomonic
flows we can end up, and have ended up with, disinflation
which is usually a drawn out affair with only a few winners
in the ecomomic game.

An honest currency is the only way to allow the majority of people win over long periods of time. Honest money is comming but not before people decide that honesty is what they want. We are not there yet.

Thanks, Gold Dancer

Hello everyone,

Just thought I'd throw in a few musings to the weekend chatter.

1. SteveH. Your comment concerning reflects somewhat the debate between Oskar Lange (a Marxist economist who posited that computers obviated the need for market pricing as a means transmitting market information) and Hayek (who claimed that even with computers man required markets because of the finite capacity of the human brain to process and understand information). Hayek won the argument, I would say, given what Lange helped do to the Polish economy. Your basic point is valid, however, in that a market manipulator can do much more damage assisted by computers. Re gold, a great difference is that I understand the gold price was regulated during the Depression era, and gold played a central role in the monetary system. Gold now floats according to market forces, and is not as important to the monetary system.

2. What is "manipulation" as it relates to gold. I submit it is a matter of intent, whether the market actor is acting in good faith. If the central banker genuinely believes gold is worth only $292, and sells whenever it hits that price, he is not a manipulator, but merely a market actor doing what he thinks is right. His beliefs and actions help determine the free market value of gold in US dollars. If the CB gold sales are done for an alterior or improper purpose, then he is a manipulator.

3. The effect of gold sales by CB's may be the same, regardless of the motivation. If one holds shares in a penny gold miner, the CB sales kill one's hopes for a really big score if they kill the gold price, though ascertaining the motivations may go to the CB's future actions. Iff one holds physical gold solely as insurance against a monetary collapse, this is less important.

3. If the Japenese are now paying interest to those who borrow yen, the yen is less attractive to the carry trade. Thus, gold will become more attractive to the carry trade, given lease rates. Will this increase demand for gold, driving up the POG.

4. Right now, gold trades based on so many different considerations, no one really knows what's going on. I'm reduced to hoping that the rumours of the uncoverable short position are true.

Not finished, but gotta run. Have a nice weekend, everyone.

Sorry for typos below.

Gold Dancer...Wecome back, o thoughtful one. You do dance well. It seems I should have included the choice "All the Above?"

Canamami...In Europe, only Netherlands and Belgium (to my knowledge) have sold any significant amounts of official gold in recent years and in the case of Netherlands it was only after accumulating reserves in years previous to their sales. (Netherlands is one of the only countries in Europe to have increased their gold reserves over the past three decades -- a little known fact.) Belgium is another story. The rest have stayed pat. So gold sales by central banks are planned events usually intended to defend a tanking currency not to transfer to an interest bearing (non-barbarous relic) currency as some would have us believe. If Brazil were a gold seller, the sale would have occurred long before devaluation because the purpose of the sales would have been to defend the currency before it became apparent there was a problem. This is its purpose as a reserve -- at least partially. In other words, the central banker responsible for decisions on that level of policy-making is not a market player -- more a currency defender in most cases unfortunately grasping at straws. In almost every case of gold sales in recent years, including the ones beyond Europe, there followed a severe currency depreciation against the dollar -- Australia, Belgium, Netherlands -- even the United States. Watch now what happens to the Argentine currency since they've been forced to part with gold.

In the case of the dollar it depreciated against other major currencies, not itself...

Turbo....thanks for the kind words. I am not sure I buy your argument that "the money supply can contract faster than the central bank can inflate". (I remember stagflation). But suppose I accept your position and assume that it can. How does that apply to the current environment, where money velocity has been increasing right along with money supply? Am I missing something?

Also, I should have worded my earlier post more carefully. I believe Greenspan will succeed at restoring dollar commodity prices. But while I think our next recession is a good way off, and I am optimistic about the global economy, I make no claims as to his lone ability to bring the rest of the world "back from the brink".

As to whether monetary policy, in and of itself, is sufficient to accomplish reflation, I would argue most strenuously that it is. There was an excellent op-ed peace in the WSJ last week that attempted to explain just how important money supply is by comparing the mess that is Japan with the bubble that is America. In the nineties, Japan adopted a policy of heavy fiscal spending and tight monetary control. The U.S. did precisely the opposite. I think the results are self-evident.

Thanks for a thoughtful welcome. No, I am not from Middle Earth. Sorry, I have missed the whole "Hobbit" experience, if that is where you are coming from.

Did you say script?

Are you reading my notes?

GF

Do you think because Goldman Sachs and other major Wall Street brokerage firms have changed to bullish on gold, that the short-covering of which you speak may be about to begin?

Act 1
Scene1

The scene opens on an airy, sunlit salon. A small chamber band is playing Mozart. A number of persons chat lightly and amiably. Among them are Aragorn III, Peter Asher, PH in LA, Goldfly, bmacd, Buean Fe, and many others. The shot cuts to a man in the center of the largest clique---

Michael Kosaris (with much humor): ���and I tell you that was the last time _I_ ever shook hands with a Central Banker!

The group about him laughs heartily. Seeing a man dressed elegantly, but in an older style, Michael deftly maneuvers to the edge of the group. He makes eye contact and smiles.

Michael: Gandalf, my friend, it is good to see you! Please, tell our companions here of the time we were riding a balloon that began disinflating. (Looking at the group): He rescued us with a golden parachute!

Gandalf the White: Gold leaf it was, actually. (Sniffing.) It was a trifle. Nothing really. A bit of binding powder�..

Michael: You are too modest my friend, too modest. Had had it not been for your quick thinking that day, I imagine _we_ would have been disinflated as well! (Changing gears and looking to the group.) Would you all please excuse us for a moment?

Michael smiles to the group. He then takes Gandalf by the arm and draws him away from the people.

Michael: Tell me Old Wizard, what do you see today?

Gandalf the White takes from his bosom a fist-sized object covered with a lavender scarf. He delicately removes the kerchief to reveal a small but beautifully radiant crystal ball. He glowers intently at the mellifluous glass

Gandalf speaks (demurely, perhaps sullenly):: The times are turbulent, Michael. It is difficult to see past the haze of human events. When times were simpler, 'twas a small matter to peer into the morrow. The music of the spheres was clear and sweet as your four-piece today. But now-

Michael: Yes, now.�.. The cacophony of the present causes the resonance of the future to grow discordant and faint. But then- this is an old story for wizards, non, mon ami? Perhaps my friend, perhaps we ourselves can attain to the simplicity of old. We�

Michael's words fade as his gaze becomes focused on some point not in the room. Gandalf says nothing but stares intently at Michael, and continues to do so as Michael excuses himself and continues to move across the room greeting his guests.

After a time, a butler appears at a doorway (it is Sean Connery!).

Jeeves (Bowing slightly): Dinner is suhved.

The shot cuts to the butler's point of view as it appears that Aragorn III and Goldfly are in a race to make it to the banquet line first. The rest of the guest are equally unreserved in their haste to partake of the repast The view cuts back to the face of the staid butler as he attempts (but too late!) to make way for the oncoming stampede.

The next shot is of a the back of a crowd of people pressing through the doorway. This is followed by a wider shot that shows the doorway empty, save for Jeeves lying on his back, his clothing in a much disheveled state. Trailing the group, Gandalf the White steps over him gingerly while making a quick examination, and allows a bit of powder from a heretofore unseen sachet to sprinkle upon the fallen servant. He then continues on to the banquet. Gandalf is followed by Michael and Jeeves speaks�

[Upper body shot of Jeeves lying on the floor]

Jeeves (his dignity wounded but intact): It should also be noted sir: That the remainder of your instructions have been carried-out. All is prepared according to your directions.

Michael (looking again at that place not in the room): Good�. good. (Then looking down) I say Jeeves, do you require assistance?

Jeeves: No sir, I am merely..�.resting.

Michael: Well then! Hup too, my good man! Time is of the essence! And we must not allow our guests to think us unworthy hosts!

Scene fades as Michael strolls out of view.

Gold Dancer, I hope you don't mind.... Your handle really seamed to fit as the title of my script!

GF

A Serial; fantastic. we will be glued to our seats, er, screens throughout the long weekend, awaiting further developments.

Act 1
Scene 2

The scene opens with a shot of a sumptuous buffet table. The angle of the shot grows to include a number of tables with white-jacketed servers and serving utensils at the ready. A trampling of feet can be heard as the guests approach. Aragorn bursts in just ahead of Goldfly. The others follow in short order and there is quite a bit of commotion.

Turbohawg: OK. All the engineers to the back of the line!

PH in LA: Yeah, we *know* about you engineers!

Aragorn (his mouth full): Mmmph, umph, whaddya -gulp- mean?

While Aragorn is looking at his detractors, Goldfly sneaks around him and holds a plate over his so that the food he thought was being dished out for him goes to Goldfly. Aragorn looks down just as Goldfly is withdrawing the plate.

Aragorn (As Goldfly scoots off): Hey!!!

The scene continues uneventfully but boisterously as the people file through the elaborately laid-out tables. Goldfly manages to be the first out of the serving line even while carrying four plates. He exits the serving area to where he expects to find the tables. As he moves through the doorway he slows down and then stops. Looking around him he sees that he has entered a huge hall, perhaps as big as an airplane hanger. In the center of this hall is an colossal oak table. It is perfectly round. Other guests enter behind him and stop, gaping, equally astonished.

Michael appears, and ushers them along, bringing his guests back to their senses. All the while jovially encouraging their spirits---

Michael: Come friends, sit, enjoy! Take your place the Round Table! We will feast and share the companionship of our peers! We will make read----

Here, Michael stops short, catching himself. In the bustle, no one seems to notice except Gandalf the White. Gandalf again levels a piercing look. But if Michael is unsettled, he does not show it.

The banquet proceeds, growing in animation. Conversation is lively, the laughter loud: stories are told, boasts are made. Servants fill glasses and the mood of the group is highly charged. As the last dessert dishes are being removed, Yellowbird stands, raises a glass, and proposes a toast�

Yellowbird: My friends! To our host! May his beneficence and hospitality be returned a thousand fold!

The toast is met with general acclamation and good cheer. Michael beams and blushes slightly. He then moves across the room to a small stairway near the table. A servant unropes the entry as he approaches. Standing on the first step, he looks upon his assembled guests�

Michael: Come! Let us withdraw to the viewing room. For I have much yet to share with you this day.

As Michael turns and begins to ascend the steps, the guests begin to file in behind him. The stairway is low and arched. The taller of the guests must stoop a bit to avoid bumping their heads. After a few moments of watching people file in, the scene cuts to Scene 3

Incredible...One question: How did you know it would be Mozart?

FUNtastic !!!
and moi as an Leading Actor ?
<;-)

It's bound to be no surprise to Forum participants that my prediction of the coming economic event will come from the deflation angle, given the content of several recent posts. If the defense of my position has seemed a bit (over?)zealous at times, it's a reflection of a literary talent-less individual determined to arrange the same words into just the right combination so that readers say to themselves "That's it !!!" or "He's crazy !!!" and proceed to take action or shoot me down. I have no formal economics training. My views are the result of several years of personal study of economics and politics (when not working, imbibing, or admiring pretty girls) and interaction with people of similar interests, such as those here at the Forum, who bring a wonderfully eclectic mix of backgrounds and experiences. I'm sure I can count on thoughtful questions and comments from Peter Asher but, as always, the floor is open.

Another, Friend of Another, Aragorn, Michael and others have done a great job explaining how gold is the currency of currencies, so I'll not attempt any of that, nor will I be foolish enough to try to predict timing of expected events. I'll repeat few of the details of my deflation argument, so as to not beat a dead horse. What does bear repeating is the recognition of the accelerating trend of world deflation: Japan (10 years), Mexico (4 years), SE Asia (1.5 years), Russia (6 mo), Brazil (< 1 wk). It appears that the movie has already begun, we just haven't gotten to our scene yet. If the trend continues we'll see another major collapse within 3 months (what was that about timing?). With the exception of Japan (with huge reserves and an annual trade surplus with which to defend the yen), all of the countries have experienced a similar phenomenon: a dramatic slowing of their economies in conjunction with suddenly higher prices, or an inflationary recession/depression. We are witnessing an historic rolling world devaluation of assets. The world money supply, with its dollar reserve currency, is contracting at an accelerating pace.

The US will inevitably be a part of this devaluation. Other markets are going away. Domestic businesses now compete with cheaper imported goods. With the slowing economy, layoffs will continue to rise, business troubles will increase, and yields on the riskiest bonds will rise first (already happening) with the most secure rising last (Fed govt).

The more I think about it, the more I believe Greenspan knows he's already lost the battle. Now the strategy is too soften the eventual blow. My guess is that, using the same strategy as the IMF pre-bailout of Brazil, the Fed has printed that $150 B in extra cash and placed it at the ready as a firewall to mitigate the effects that will occur when it sinks in to the world dollar and American security holders that the US is the greatest debtor nation in the history of the universe and can not possibly make good on its debts. (The Y2K issue makes a convenient excuse). It didn't work in Brazil and it won't work here. Those dollars will come home. Given the credit outstanding, the extra dollars that will then be in domestic circulation will not be inflationary within our borders but they will suffer a sharp devaluation in terms of other less weak currencies and the currency standard, gold. Domestically produced goods won't be any more expensive, in fact, they will probably have to get cheaper in order to sell them to people without much money and no credit, but imported goods and gold will be a lot higher in dollar price terms. Our very own inflationary depression.

A friend relayed a true story to me, with a little time-induced embellishment I'm sure. It seems his grandpa raised hogs in the '20's. His grandpa said, when the market crashed, hog futures plummetted, and people were jumping out of tall buildings with paper in hand, he didn't go into a depression. He had the hogs !!!

Well, when the dollar crashes, I'm not going into a depression. I've got the gold !!!

... Stranger. Let me run this by you.

That money velocity is largely credit velocity. When times get tough, people quit wanting to borrow and banks quit wanting to lend. The expansion of credit ends. When loans start getting called in and margins calls can't be made, credit contracts. That can happen really fast, such as when a stock market crashes. The printing press can't keep up with that kind of situation.

When Reagan came in, he slowed down the printing presses (which had been causing the stagflation) and increased bond sales (which racked up debt). Along with the tax cuts and deregulation, one can make the case that he bought us some time. In the end, though, the root of the problem, this country's addiction to spending, will be our undoing. Contrary to Keynesian philosophy, you just can't spend your way to prosperity. Of course, the blame will be attributed to capitalism. In reality, it's not capitalism that should carry the blame but the LACK of it.

Lack of Capitalism really say's it. When I was in my own early obsevations of economics, like you, learning from the Wright Brothers flight instructor, I considered that consumer spending, as opposed to creating productive capability, was the cause of the recession. (Per the Banker Tale). I called it "Economic Cannibalism."

Act 1
Scene 3


The scene opens with a long shot of the viewing room. It is narrow and has a low, rounded ceiling. It has seating for about 100 people, but each row has only six seats across. There is a rather smallish aisle that runs down the middle so that there three seats on either side. At the far end is a door, and over the door is a 6x4 screen, rather small for and audience of this size. As his guests enter and are seated, Michael works his way to the front. Goldfly finds a seat next to Gandalf the White. Gandalf is visibly agitated.

Goldfly: Gandy, baby! What's the deal? I'm sure Michael's got a bathroom in this place��.Probably that door under the screen. Why don't y---

Gandalf (Hissing): Something's afoot Goldfly! I can feel it. And Michael has been acting strangely all evening. He's made�

bmacd (Loudly across the room): Hey Michael! What's the deal with the seatbelts? What is this, one of those sensesurrond rumble-rides like at the fair?

All the guests turn to Michael, some begin asking more questions. Michael raises his hands until they quiet--

Michael: All in good time my friends. If you'll fasten your seatbelts please, we will begin in a few moments.

Michael looks a signal to a servant standing near the entry and ducks through the door under the screen. The entry closes with the unmistakable sound of an airlock. Goldfly glances at Gandalf.

Goldfly: B-mac, what kind of ride were you saying?

bmacd: Well, you know. They have seats that bounce around and with the screen in front of you it's like your riding a jeep in a jungle or a spaceship through an asteroid field or something. Who knows? Maybe this is supposed to be like we're on an airplane��.

Aragorn III: Maybe we _are_ on an airplane��

bmacd: You don't think-

At that moment Michael Kosares� face appears on the screen and the room begins to fill with a soft, high-pitched whirring.

Michael: Forgive me the subterfuge, my friends. But the utmost secrecy has been necessary to allow us to make the journey on which we are about to embark.

Cut to a larger view about six rows back showing the screen and the backs of the heads of some guests watching the screen. The passengers get begin to feel a swaying as though they were in motion. The plane has begun to taxi.

Michael: In a few hours we shall touch down in an undisclosed location in the Middle East. Have no fear, it has all been arranged.

Aragorn: A few hours? The Middle East? The only thing that could make that would be an HSCT, a High Speed Civilian Transport. I thought those were only on the drawing board.

Michael (Looking at Aragorn from the screen as though he can see him): True. On many, many drawing boards. We shall be coming to the edge of space, it should afford a remarkable view. (Michael looks down, then smiles.) Oh yes, the in-flight movie will be�what else? Goldfinger!

Pan the cabin as the passenger look at each other perplexed, but not overly anxious. Zoom and hold on Gandalf as he looks to a point not in the room, nodding to himself.

Cut to the cockpit, Michael Kosares is in the captain's seat. Jeeves the co-pilot.

Michael: Well Jeeves, are you ready?

Jeeves: Certainly sir.

Michael (Easing the throttle forward): Well then, let us proceed�.

Shoot Michael's hand moving the throttle forward. Show the passage of time through various shots of the exterior of the plane mixed with the passenger relaxed and interacting. As the movie reaches the point where Goldfinger is about to irradiate Fort Knox, Jinx44 stands up�

Jinx44: Go on Bond! You might as well let him do it! There's nothing in there anyway!

This draws appreciative smiles from around the cabin. Shortly after the end of the movie Michael's face appears on-screen again�

Michael: If you will please be seated and fasten your seatbelts, we will be arriving at our destination shortly.

Cut to the outside of the plane as we now begin Act 2

Mo is the man. Bach is great. Beethoven rocks.

Mozart is the Genius

GF

I'm going way out of The Box on this one. Conservative thinkers beware!

The five maladies listed for discussion have been brilliantly aligned and defined by Gold Dancer. But do any or all of them have to occur?

I have been having some very stimulating discourse this week with our resident experts in Monetarism, Aragorn III and Turbohawg. I would describe myself, however, as a "Productionist"; meaning having a theory that the most efficient means of production would be to use the allocation of wages and profits in such a way as to obtain participation from the greatest number of people possible. This would create the most abundant flow of goods and services. SteveH and I have been commenting on the computer; the endeavors that have been created with it, and how this has changed the world. Turbohawg has pointed out that technology has at earlier times created healthy commodity deflation, but that, in turn, led to measures creating stock market bubbles.

What I see now is that this unprecedented economic boom has been enhanced by healthy deflation in all sorts of commerce, due to the expedient flow of the internet and the expanding flow of commodities and labor from the third world. Though, at the moment, excessive debt has created a lull in Asian expansion, the new electronic capabilities pointed out by SteveH & Richard From Oregon appear to be enabling the monetarists to prevent disaster.

Regarding the market "bubble", much has been made over the dramatic rise in P/E ratios; but let's take a look at that. Thirty years ago, a price of 10X earnings was considered proper for a Blue Chip stock, but even then TI or Xerox or Syntex could command a P/E of 30X or 40X. Nowadays, growth of earnings from breakeven to substantial profit is occurring more rapidly. But more significantly, a much greater percentage of stocks in the S&P 500 are "growth stocks," so 30X earnings doesn't really make a "bubble" out of it.

To be sure, "Tulip Bulb Mania" has taken the senses of Internet investors at the moment, but look at the broad market. The S&P peaked in July '97 at 960 and is now at 1243, up 19% annually, and the DOW has gone from 8340 to 9340, up at a rate of 8%. Not too shabby, but not exactly hyperinflation! Therefore, the Global Boom theory may not be as far-fetched as we have been thinking.

When plotted over thirty years, the 9X expansion of the Dow averages out to less than 5% (compounded annually). Many economic theories have been put forth to explain what has transpired over these past decades � various maladies followed by this current boom. Before that time, only the poor required two incomes to support a family, but in the sixties that began to change. Feminism provided the "sucker bait" that made two-parent income socially acceptable in all economic classes. So we had a long term covert depression. Imagine if right now every working spouse were out of a job. What would the economic landscape look like?

Now, with the maturation of the Internet, we have entered an age where a serious business venture can be launched with minimal capital. As a journalist recently put it, "A garage operation is instantly connected to the global marketplace". Genetic science and robotics have created a new technological age that is still in early childhood. And there is more to come.

Whoever develops a method for extracting vastly larger amounts of energy from matter, without creating radiation, will make Bill Gates look like he's sleeping under a bridge. Our solar system has enough resources from the planets and the asteroids to support centuries of growth limited only by reaction mass and by the ethics of exchange.

So, what can occur to thwart this Utopian future? We've heard a lot about the astronomical sums exposed to derivative trading. However, as I have been stressing, market stability can wring out a lot of that exposure and dampen the enthusiasm for future trading.

Economic systems can only fail by closing down production, by creating products that have little value in a healthy civilization, or by creating products that destroy (as in the arms race).

I think that the five paradigms all occur due to one very basic fundamental. Money becomes a game unto itself. Many trading activities exist solely to get the "highest gain" on capital, creating an ongoing maelstrom of negotiation and power plays from war to corporate raiding, etc. etc. The product of all of this is who gets how much of the goods and services produced. So, we have the economics on planet Earth. The struggle is, not just to produce, but to receive allocation. Production, distribution, lending, taxation and "the dole" are the fundamentals underlying the monetary maladies.

Regarding that last item; I've talked about the possibilities of CB's being tempting targets for government spending, as evidenced by the Swiss referendum. The welfare state is not going to be eliminated by purely monetary activities. But first, a quick pass through history. With the advent of global sailing fleets, merchant kingdoms were founded, first on spice and silks and then on the opium trade. This century gave birth to the massive armament industry. Then two events changed that world, Harrisburg and Chernobyl. Suddenly the men who ran it all, were no longer thinking, "It's not in my back yard," but, "It is my back yard!"

Now there is a new game, prescription drugs. Prozac, Ritalin and their many cousins turn pennies into dollars at the stroke of a pen. Psychiatrists have become shills for the drug companies, trading their dubious treatments for the alleged solution of legal drugs to alter brain chemistry.

All of this is founded on one untenable premise: That inherent chemicals in the brain are the cause of all emotional disorder. Nowhere do we see it considered that emotional disorder can cause changes in brain chemistry. Not in the mainstream media, that is. (The denigration of Gold is nothing compared to this situation.) But, most important, they have been doing this to the children and are now starting on the infants! The Western world is allowing the devastation of the productive capabilities of the next generation. Even now, the bulk of the homeless are people whose health insurance has run out and therefore can no longer support the drug companies by their presence in mental institutions. What ungodly sums will be taxed upon us in another decade if this activity continues. That is why I wonder, purely as supposition (or maybe it's economic Sci-Fi) if western CB's are liquidating gold, while China and whoever else are planning to accumulate it in the next version of, "We will bury you."

Where will all this lead? There is public awareness building about the drug threat which will hopefully thwart it. I bring this up out of a personal conviction that this is the biggest threat to economic survival in the new millennium.

Which malady will occur next? I think some will be present as phenomena in the ebb and flow of the chaotic game. But as a paradigm, I vote for "none of the above."

What roll will Gold play in the unfolding drama? SteveH has masterfully located a relationship between oil and gold mining costs. In the new millennium boom, oil the finite resource, and therefore must rise in price as demand increases. Only the need for hard cash keeps OPEC pumping at the current rate. Either the people of the Arab worlds will become part of the great global exchange or the wells will run dry. Gold will rise on the back of oil, and in its own right, as the affluent public increases consumption.

Lastly, no matter how rosy the future may appear, there will always be another hill, with maybe another Hun galloping over it! The prudent will always store some of their wealth in gold. And there is another reason why gold, especially coins, will always have a place in things. Coins are a tightly disciplined form of savings. When money is in a passbook or a CD, it is a bit loose. It's a bit tempting when you see that ad for that beach lot, mountain cabin or BMW. But gold � Gold says, "Leave me alone. I will be here when the need is the greatest."

And that is, after all, why we are all here on this Forum!!
,

Turbohawg-you may be very clear in your own mind on the difference between dollar DEflation and local currency INflation. But, with all due respects, I don't think you adequately distinguish between the two in your writing. And I think the distinction is too important to gloss over.

What most of the nations you mention have been experiencing is obviously INFLATION. Brazil, for example, did not raise the value of the real last week. They lowered it. This, of course, enables them to reduce their dollar export prices to the U.S., which is deflation to Americans. It also dimishes Brazil's ability to import from the U.S., more deflation to Americans. In short, it is mostly INflation over there which is causing DEflation over here.

Much is being made of the fact that Brazil or SEAsia, or anywhere else for that matter, constitute only a small portion of our total trade. But when you add all these countries together, the picture becomes more serious, for the creditor nations anyway. For those countries who do the devaluing, the resultant ability to export more and to lower domestic interest rates is actually a boon.

Unfortunately, however, as you point out, devaluation also makes dollar-denominated debt more difficult, if not impossible, to repay. This threat to the world banking system is what must surely be keeping central bankers awake at night. I am not smart enough to know what the best solution to the problem is, but I do think it is obvious what course our Fed has taken. We are "devaluing" right along with Brazil and the rest of them. This strategy is as evident in the currency markets as it is in the money supply numbers. And it seems inevitable to me that we will continue to "devalue" until we see a recovery in dollar-denominated commodity prices, which, I believe, is nearly at hand. I would also expect that such a recovery will include pre-eminently a rally in the precious metals.

By the way, is it axiomatic that as America reflates, we will, in turn, find ourselves exporting deflation to the rest of the world. Perhaps. But whatever happens, I think dollar policy alone accounts for the coming rally in gold. Not much else will really matter.

This site is a work of art. Extraordinary. I await our future in Goldfly's tale with great anticipation and excitement. Thank you all for making USAGOLD FORUM a special place....

I will comment on some of the posts soon.

Good post, you make the data easy to follow. I think the next step in analyzing the threat to the banks is seperating the principle from the interest obligation. The former is what is so much harder to service, the latter can be lessened or forgiven by the operations of Greenspan & Co.

... between inflation and deflation. This may be like poking a hornets nest, but you're right Stranger, how are we ever going to get on the same page if we can't agree on the definitions ?? Even 'real' economists wrestle over these definitions, as well as what actually constitutes money. I wanted to attempt an answer the other day in response to Richard, Oregon's post, but didn't want to be the one to stir this up and bring my own personal bias to possible answers to Michael's challenge.

I think it's fair to say that in common usage inflation is the rise in average prices paid by consumers. Deflation is just the opposite, the decrease in average prices paid by consumers.

In the Austrian school of economic philosophy, which I believe is the only one that adequately explains economic forces/cycles, inflation and deflation are considered strictly a monetary phenomenon.

A boom tends to be inflationary ... a central bank is expanding the money supply (cash + credit), a policy of easy money, where an increase in the supply of money leads to a decrease in the demand for that money, lowering its relative value, or purchasing power, and reflected in the form of higher prices.

In a bust, or depression, the money supply is contracting. (In the '30's, the contraction of the money supply occurred despite Fed attempts to inflate or re-flate, illustrating that the contraction of credit in our fractional reserve system can overpower the Fed's expansion efforts). The excess production capacity and malinvestment that stemmed from the easy money policy during the boom has reached its limit and unwinds with business failures and layoffs. Money increases in relative value, or purchasing power, as average prices of goods and (in an ideal world) labor fall and due to it's scarcity. Cash is king.

An important point that should be reiterated: the expansion of the money supply that caused the boom is what sets the stage for the bust. The bust is the natural corrective process.

So what is an inflationary depression ?? Isn't that an oxymoron ?? How can prices be rising and falling at the same time ?? As shown by what's going on the world now, much of the inflation of the money supply has found it's way into the assets of stocks and real estate as investors sought out increasing returns in weakening economies. When the bust occurs, stock and real estate prices quickly DEflate. Currencies are devalued once the govt stops maintaining artificial controls. Investors don't want to hold the currency of a country that they are not confident can make good on it's future promises, so they get out of it. (Countries also purposely play this devaluation game in the foreign exchange markets to gain trade advantages). This devaluation has the same effect as INflation (prices of imported goods are suddenly a lot higher and prices of domestic goods get higher and higher as confidence is lost in the local currency) but occurs for reasons other than the expansion of the money supply (inflation). In a nutshell, asset prices drop in price and commodity prices increase in price.

It is my contention that hyperinflation (wheelbarrows of currency) is impossible in the US until after the bust occurs. Once the debt washout takes place, the printing presses that are likely to be running at warp speed will be flooding the nation with paper, making hyperinflation a real threat, if the Fed chooses this course of action. That's what appears to be about to happen, or may already be happening, in Russia.

As the standard by which currencies are measured, gold will stay the same over time as currencies fluctuate in relative value. If central banks have been manipulating gold in order to make the dollar, the world reserve currency, look stronger, then we'll probably see a sharp spike up once the market wins out. Those who live in countries that have had their currencies devalued have suddenly seen a much higher price of gold.

We can all thank govt for the mess that has been created. Governments hate gold and sound currencies because it takes the power out of their hands to create money and play these money games. The money supply would increase only if the gold supply increased, not by running the printing press and expanding credit. They would have a much harder time rewarding their cronies and adopting their socialist wealth redistribution schemes if they had to tax the citizens directly to get more money to spend.

Hey, I'm tapped out. Time for a brewsky.

You say: "Lastly, no matter how rosy the future may appear, there will always be another hill, with maybe another Hun galloping over it! The prudent will always store some of their wealth in gold. And there is another reason why gold, especially coins, will always have a place in things. Coins are a tightly disciplined form of savings. When money is in a passbook or a CD, it is a bit loose. It's a bit tempting when you see that ad for that beach lot, mountain cabin or BMW. But gold � Gold says, "Leave me alone. I will be here when the need is the greatest."

***********

It has been my experience that it is very difficult to let loose of a gold coin once you have it in your possession. Somehow, the tale it tells is one of true savings and value its owner does not take lightly. I also know that I am not alone in this observation...Those who sell their gold always do so with much regret. At the same time, its purpose is to bridge the unforeseen event whether it be personal or part of a larger, social dissembling. Ultimately it is there to be sold to protect what is dear -- whether it be an individual or a central bank doing the selling. That is the fundamental tour de force in human nature that the Keynsians have spent most of the post war period attempting (albeit in complete futility) to extinguish.....

Act 2
Scene 1

The scene opens with a chasing shot of the HSCT. Ahead of the plane is the open desert. The earth is darkened, but the sky ahead is lit up, as the sun is near rising. A tarmac, with it's lights, comes into view and the plane descends toward it.

The view cuts to ground level and the plane is coming down toward it. As the plane descends the scene grows brighter with the dawning day. The plane touches down and after a few seconds, roars past.

The shot cuts to high above the right wing, looking across the plane as it speeds down the runway. The desert beyond grows brighter each second. Then in the near distance a clump of palm trees springs into view. Then many more. Soon the plane is slowing, and the desert gives way to a lush oasis. The shot cuts back to above the right wing. Suddenly a line of Lear jets springs into view, then another and a third. Next is a line of large passenger planes with coats of arms and presidential emblems emblazoned on their tails. This is followed by row upon row of luxury cars-- Rolls, Jags, and Mercedes.

Then an enormous Tent.

The camera stops traveling with the plane and focuses on the tent. The tent stretches as far as the eye can see. Along the front are large numbers of men wearing $800 suits with antennas growing out of their ears. These men appear able to eat steel bearings for breakfast and because of this, have never smiled in their natural lives.
The camera focuses beyond the tent, where there is a huge dust cloud. As the cloud comes into focus, you can see a mass of humanity pouring into the tent. People on camels, on horses, on llamas, in jeeps, old jalopies, and on foot. Old and young. Families with small children. Rich and poor. From every tribe and nation and people. However, they all enter at the rear of the tent, wherever that is.

The focus comes back to the front of the tent, where Michael is now leading his entourage to the entrance. He stops, looking around to make sure there are no stragglers. Satisfied, he leaves the group and strides up to one of the steel bearing eaters. No dialogue is recorded, but the SBE nods his head and reaches for a phone. Michael motions the group toward the entrance as he also goes in.

The shot cuts to near the front of the group as Michael leads the procession through a well-lit tunnel, wide enough for three or four across. As they walk along the thrumming of generators and air handling equipment can be heard from time to time. There is little conversation as all are intent on keeping up with Michael's pace.

After what seems like a mile or more the tunnel meets a cross-tunnel, much wider and taller, and not as well lit. The air begins to smell of straw, and animals, and popcorn. On the wall opposite the small tunnel a large black arrow can be made-out pointing to the left. Michael follows it. Immediately a large opening appears. Not much can be seen through it, as everyone's eyes are still adjusting to the darkness. The group walks through and into:

Scene 2.

I was just going to put up an old post and make my comment based on it. But as I read it, and FOA's reply, it started growing. It's a monster now- I hope I can get it under control.....

BTW, there is a surplus shot cut in the middle of the 3rd paragragh, Act 2 Scene 1. Sorry.

...Never before has the base of knowledge in our society been so broad and so specific. But it is often graphic-based knowledge, not vector-based. That is, an autocad drawing is vector-based because you can zoom and zoom and zoom and see more detail underneath as with an electron microscope. Graphic or raster-based knowledge leads the investigator to larger and larger gaps in knowledge. So, most knowledge is finite. Not because knowledge is finite but because our tools to measure the breadth of knowledge is limited in scope. That is why enabling technologies come in spurts and not a constant stream. One technology enables another, that sparks the next, and on and on. The thought-stream is similar to that in Flatland whereby the person from the third dimension converts a two-dimenensional being into thinking of the third dimension. The two-dimensionalist begins to enlighten his peers only to be locked away by society as crazy. The two-dimenionalist then asks the third-dimensionalist if there is a third dimension then why isn't there a fourth, a fifth, a sixth and so on. The third dimensionalist then can't see beyond his own dimension because he believes that the dimensions obviously stop at the third.

Yet, the only problem for the third dimenensional being is that it doesn't have the tools to measure the higher dimensions; he doesn't have the enabling technology to see the fourth dimension. Therefore how could it exist? So here is the dichotomy of knowledge and truth. Truth is knowledge personified in vectors awaiting enablement. Knowledge is only what our senses and tools of perception allow us to see of truth. The truth is out there. Only we see but a part. The four sight impaired people explaining the parts of an elephant story exemplifies wrongful knowledge based upon the same element of truth. The reason the impaired individuals couldn't figure out what the elephant was because they lacked the tools (sight) to see it for what it was.

That brings the conclusion that truth can only be perceived through the lens of knowledge or through the bias of tools. A spreadsheeter solves their problems through spreadsheets. The databaser solves their problems through databases.

So how does all this rhetoric lead us to truth about gold and where we lead ourselves? Nothing and everything.

The knowledge you and I share on the gold market is limited in scope to the knowledge we have. The truth is there awaiting its fate, lying in waiting to reveal itself to us, piece by piece. Fact is we don't see it yet. We are like the sight-impaired men trying to describe the elephant. The only difference is that we await the tool or the enabling technology to allow us to see (if we choose as the two-dimensionalist did) or to ignore (as did the three dimensionalist) the truth as it is slowly revealed.

Third concept. We as humans are part of the truth in that we co-constitute the truth. In other words we affect it as it affects us. How and when we see the "real" truth depends on how open we are to it and which tools we learn or acquire to see greater and greater parts of it. What this means to our knowledge of the gold market is simple. As bystanders or market players we only see indications or indicators of the truth. No human player sees all the truth, they maybe closer to it or have tools that give them different perceptions or insights but no one of us has the whole truth, only knowledge and that varies by the factors mentioned above.

So what of truth here at USAGOLD? Do we have the truth of the gold market, of the world-wide economy? I believe that we have knowledge limited by tools, by access, by postion.

Clearly, to say that a recession or depression, or continued economic boom is imminent falls into the hand of a future teller. What our knowlege tells us is that the boom cylce like the sunspot cycle is about to turn. Ironic that they may actually coincide (or is it?).

Here is what our knowledge tells us:

The boom cycle is being sustained longer than it probably should.
Computer and knowledge of markets is stronger and more focused than ever.
Physical deliveries of precious metal coins is higher now then in along time.
Like weather persons, markets can't be totally predicted. The computer models are just too complex.
Fractal technologies and chaos theory align with Murphy's law to prevent 100% manipulation of markets.
Paper trades of gold are eating into CB inventories and forward sold gold, meaning little if no gold exists to satisfy all the paper gold trading.
The trigger to reverse the greatest bull market in history hasn't been pulled or if it has nobody heard the shot yet.
The opposite cycle of printing more and more money is retract the money supply.
The opposite of gold buying is gold selling. Gold buying is increasing.
The opposite of stock buying is stock selling.
The opposite of depressed prices is increasing prices.
The opposite of employement is unemployment.
The opposite of paying debts is not paying debts. Bankruptcies are up.
Employment is at an all time-high. The opposite of this is an all-time low. More bankruptcies.
With bankruptcies up then properties and goods would come down in price.
As properties and goods came down, then adjustments begin to set equilibrium in place.
If local prices are low, distant prices are high. (imports vs exports).

Conclusion: gold and commodities will lower to an 18 year low and are now. Employment will lower. Property values will settle lower. Bankruptcies will increase more. Prices of foreign goods and oil will rise giving us a general rise in all prices. Currencies will fight for equilibrium. This is the knowledge or conlusion of knowledge we hold. What the truth is, only a few may know and they aren't talking because they may be too busy co-constituting the truth as it perceives them. In other words, give us more information including the intent of those who make company in circles only a few can travel.

Thank you, Peter.

Respectfully, again, I must disagree. You say "in the 30's, the contraction of the money supply occurred despite Fed attempts to inflate, or reflate..." That just isn't so. In fact the very extent of the depression has been widely attributed to the Fed's mistaken policy of contracting money at the very time they should have been expanding. They did this because they thought, at the time, that allowing too much money to float around in a slow economy would compound their troubles be pushing up prices at the very time people couldn't afford to eat. It was not until 1940 that the Fed significantly grew the monetary base. History books speak of how World War II brought America out of the depression, but, in fact, a quantifiable recovery was already underway.

By the time the stock market crashed in 1987, the Fed had learned its lesson. Greenspan immediately injected enormous reserves into the banking system, avoiding even a recession in the process.

Well, now he is doing it again. As soon as disinflation started to become deflation, he had no choice but to turn on the jets. Results are already developing. The widely predicted slow down in American just ain't happening. But soon, higher inflation numbers will be. Bet on it!

We all need to be careful here not to run around in ever decreasing circles, at an ever increasing rate of speed, lest we run up our own -------- and disappear!

Seriously though, let me take a crack at this from my viewpoint as a "productionist".

Firstly, my definition of the cause of inflation is "the power to command price". You can print the money, but if no one wants to spend it, it won't drive up prices just by being there. You can open the discount window and offer it to the banks, but if no one borrows it, it won't be in the money supply.

This is why I say that an economic system fails by the closing down of production. If people aren't working, they aren't spending or borrowing. Sure there's some fatalistic desperation activity, but it won't cause inflation. Loose (cheaper) money can stimulate borrowing to a point, but it's what people do with the capital that creates the result.

Why not an inflationary depression? Everybody holds out for a high price and nobody buys; probably doesn't last too long though.

My point is that monetary controls will alter the decisions of human beings, but they won't command them. It may be that monetarism works best when its repairing the system and is at its worst when its trying to direct it.

Act 2
Scene2

The shot is a half-light view of an empty two-ring circus floor, 50� wide and 100� long. From an opening halfway along the left side Michael enters followed by the group. They are met by an SBE who guides them to nearby stairs. Gandalf the White and Goldfly don't notice the group heading off. Goldfly looks around at the floor. While Gandalf stands beside gazing up and around them with searching looks.

Goldfly: Gee whiz, man. With a layout like this, you think they'd at least spring for a third ring!

Gandalf (With a sense of awe.): Goldfly, look around you.

Goldfly does, and the camera with him.

All around them are faces. Faces of millions. Hundreds of millions. Billions. Every eye is turned to this ring. To them.

Goldfly puts a hand on Gandalf's shoulder to steady himself, suddenly feeling woozy, as he grasps the enormity of the situation. Gandalf takes Goldfly by the elbow and guides him to where the SBE is gesturing at them with somewhat frantic motions. They make their way to the last open seats which happen to be behind Michael, who is seated in the front corner where the entryway and circus floor meet. As they sit down they notice Michael looking across the divide formed by the entryway to a man dressed as an Arab Sheik. Beside him is a man in a most fashionable business suit. They both seem to nod almost imperceptibly to Michael, who also nods almost imperceptibly. The two have escaped the notice of no one in the group, and many innocuous glances are cast in their direction.

Suddenly, the lights dim. The subtle roar of the crowd ceases. The silence is oppressive.

The world looks on. In the ring in front of the Michael and company, a single spotlight shines, a man walks out from the entryway and picks up a microphone--

Typical American: For my whole life, I have not understood that those Dead Presidents in my wallet are not money. I've used them as though they were, and I've accepted them in return for my services and goods; but truly, they don't store much value. Not only that, but the number of dollars has grown to where if they all came back to the U.S. to be redeemed for something, there wouldn't be enough of any sort of valuable goods to go around. As the culture of debt has come unraveled around the world, the dollar's markets are coming to be shambles. So dollars have actually become
worthless......

The man walks out of the ring and sits in a folding chair along the far wall. The crowd stares dumbfounded.

A second spotlight shines and from the entryway comes Gold in the form of a 15,000 oz. Suisse Credit ingot. Humbled and stooped. Maligned of late. Misunderstood by analyst. Spurned by investors. Despised by paper-mongering governments. Attacked by central bankers and short-sellers. All of whom accompany her holding her chains and cracking whips to show their mastery. They take position in the second ring and force her to kneel before the masses.

The crowd looks on without pity.

Then circus music bubbles forth: Enter the EURO!! Several people dressed as human-sized Euro bills enter and begin dancing and somersaulting around the ring. Dogs dressed with styrofoam replicas of Euro coins on their backs enter and begin jumping through hoops, and climbing ladders. Then a barker steps forward and bellows:

Barker: Look all you good people!! The new Paper! Full of promise. Tabula Rasa. No debt. No inflation. No Alan Greenspan. (Yet!) Quick all you dollar-holders! Buy something now with which to trade for EUROs! Because soon oil producers will not accept your stacks of greenbacks. And if the basic commodity that drives the engine of commerce is dealing in EUROs!, who could soon be using anything else?

The crowd gasps with such force the Gandalf thinks he is going to begin floating away.

Suddenly a stampede erupts. Everyone to the exits! All whipping out their wallets and scribbling in their checkbooks. Yelling and screaming. Trying to buy something -ANYTHING! that will hold their earnings, savings, and equity with safety and liquidity.....

Curiously, the panic that grip most of the world seems to hold no sway over Michael and his friends. They, along with a few small pockets of people elsewhere, merely sit and observe the pandemonium with great placidity.

Then a change occurs, a change missed by all. By all that is, except for Michael and the Pair opposite him. For they have never taken their eyes off of gold. Michael smiles broadly and a knowing look is exchanged across the entryway.

Then the spotlights all swing to the center ring, and the people who had been running amok stop in dead silence. They stare about them at the radiance filling the tent. And there down in the circus ring stands GOLD!! Now holding the whips and leashes of those who had oppressed her. Gleaming and bright, no longer covered with the shame of irrelevance. Gold spreads it's wings, buoyed by the influx of cash as the heads of governments scramble to lay prostrate at her feet, and the people throw their life savings to her for safekeeping. Gold is free to soar the heavens and shine on those that have had the foresight to take her into their bosoms.......

Through the ensuing roar of the crowd and crush of humanity, Aragorn III sees a woman sitting nearby who is shaking her head and muttering to herself. He approaches�

Woman: How can this be? I don't understand..... My YHOO was up just yesterday. Gold was just another commodity. Now everything has changed...

Aragorn (Gently): My dear lady, surely you...

Aragorn stops, and looks over to Goldfly.

Aragorn: Goldfly! Handle my light work?

Goldfly, with a bit of trepidation, works his way over to the place where Aragorn stands. He has pity on the woman as she sits hugging her knees and rocking to and fro slightly. He sits down in the row in front of her and looks up----

(Cut.)

Goldfly's reply

Goldfly: Ma�am, I'm going to cut to the chase. It's like that gentleman said at the first. Those dollars are nothing but, paper. What you've been doing is piling paper in a paper bin. When those paper bins suddenly no longer have the same amount of paper in them, that is deflation. You'll see it was inevitable if you can take a detached view of it. There has never been anything in the realm of human invention that continues forever.

Goldfly warming to the topic continues�

Goldfly: Think of all that money that you and your friends have been conferring on stocks. Now, look at those hog futures over there.

At this point Goldfly motions to spot a few feet away and several squealing baby piglets appear. Goldfly smiles at Gandalf, for that's where he learned the trick. The woman merely looks at the piglets, not realizing what occurred. Her mind is still numb from the mornings proceedings.

Goldfly: Those piggies are going to go hungry because you have been investing in tulip.com.

The woman looks at Goldfly uncomprehendingly.

Goldfly: Follow me. When you were stacking up all those dollar bills on the stock market, what was the farmer doing with those pigs?

Woman: (Annoyed.): Feeding them, I suppose.

Goldfly: Why, do you suppose?

Woman: (Frustrated at stating the obvious, but still too numb to resist.): To SELL them!

Goldfly: But no dollars have been stacking up on his piggies. They're not worth feeding. What happens then?

Woman: (Seeing some light, but still not comprehending it): He�.. goes out of business?

Goldfly smiles grimly. This maybe tougher than he thought.

Goldfly: Yes and a recession has come to the farmers home. Then what? (Not waiting for her reply.) I'll tell you what. He stops buying things. He and all the farmers in his neighborhood. That's a depression sister.

Goldfly is getting a little too warm to the topic, but he's losing patience with this product of the 90's.

Goldfly: Now look! What happens when there is only three pig farmers left in the whole country and _they_ only have a couple dozen pigs? That's right. The price goes up! Inflation! Why? Because now there is a nation full of paper millionaires and 24 pigs. What's going to happen?

The woman looks down at the floor still not comprehending. Goldfly wonders if she's ever even heard the phrase "Supply and Demand." He presses on--

Goldfly: Someone's kids get hungry and the order hits the floor�Sell my YHOO! And the price of pork skyrockets!! That is, the value of the YHOO relative to those piggies over there falls. (Pauses.) Now do you see what's happening? This paper bubble in stocks creates an off-balance economy. When pressure is applied, there is no strength in another sector to take up the slack.. Now, apply this notion on a broader scale. What if we talk about a money system instead of a farmer?

Woman: Huh?

Goldfly: That's right, gold has been languishing while people have bought into the paper bubble that is the U.S. Dollar. But gold is the real money, just like those porkers are the real commodity. So the Euro is backed with gold. A surety that the value of that currency will be maintained. What happens then, when people on a worldwide scale need Euros -that is, gold stability- to get the things they want? Things like oil? The order goes out� SELL MY DOLLARS and the price of dollars, relative to every commodity and currency, -and you may put gold into either category- plummets. And that, my good lady, is hyperinflation. Because the dollar has no substance, it cannot maintain any value.

With that Goldfly holds his tongue. If she doesn't get it now, perhaps it will sink in at a later time. After a few moments Goldfly stands and the entire entourage vacates the tent via a route that circumvents the economic bacchanalia taking place on the floor behind them.

(Cut.)

I may write an epilogue if my wife will allow any more PC time. If not, it's been fun!

GF

I am sorry for being such a pain in the caboose, but I know of no historical example where the value of cash did not work just like the value of any other commodity. When the supply of a currency exceeds demand, purchase power simply falls. I am not much good on all this theoretical stuff, but I do know a little history (emphasis on "little"). If someone can find an exception to the rule, I will stand corrected. Meantime, please forgive a stranger for being such a blowhard. I like coming here. I like reading everybody's posts. I came to learn, not to teach.
Does anybody know how I can keep up with gold prices when markets in the U.S. are closed? I'd be grateful.

Dear Michael,

I would like to compliment you on your discussion site, while it may not be as active as the Kitco site for example, the quality of the information is better and more consistently on topic. On your site I don't have to sift through the information and determine what is worth reading.
It's for the most part all worth reading.

Thanks
JA

*************

So you see, your efforts are appreciated. I have had many phone calls and e-mails complimenting the site. I'll start posting them as they come in if the sender will give permission.

This is the last day of the contest. So far it's been an incredible journey, and as usual you are making it difficult on me. Those of you who have been holding back that big-time, super-dynamic entry, better get it on here. We're at the two minute warning. Time's running out.

I note that there have not been many new posters. Today's your last chance to get a book free. So let's get with it lurkers! Let's see some big time ice breaking!

Peter Asher mentioned Something that interested me, about two incomes and a covert depression (msgId1863). I believe that
the robin hood tax schemes have caused a destruction of wealth, especially the estate tax which stopped wealth from being
transferred to the next generation. These taxes taxes take from the productive and give to the nonproductive and the reason that
these people are nonproductive won't be changed by receiving someone else's wealth. I would think that this is deflationary.
When I think about how much of my money is being taken through taxes, whether directly or indirectly, its no wonder I have to
work harder and smarter just to stay in the same place. This is where gold would fit in, wealth could be covertly transferred
through the generations and not destroyed by socialistic governments. Have just been whining or do I have a valid point?
Comments please.

The Fed did try to reflate after the '29 crash. They lowered rates from 6% to 4 1/2% by mid-Nov '29. They continued to lower rates to 2% by the end of '30. Murray Rothbard's "America's Great Depression" makes this very clear.

Cash is rumored to burn holes in peoples pockets, but alledgedly remains cool in mattreses.Lot's of cash and no work,will tighten money held by individuals. Sentiment, outlook. hope, faith, whatever you want to call it, Is the primary fundemental. People are not automatons marching to the tune of a moneterist drummer. Remember,there's an engine pulling that caboose!

Overherd:
The question of inheritance taxes and destruction of wealth can be seen as a coin with two sides. You see it as a passing of wealth from the productive to the non-productive, but it is also a stimulation to creativity.

In the first place, there is little productivity to be gained from the transference of wealth to the next generation. We have all heard the phrase "He made enough money that neither he nor his children or grandchildren will ever have to work another day in their life." Now, I ask you: What is actually to be gained by society having those children and grandchildren coast through life without producing anything? Anything more than additional incentive for the original worker?

I suggest that man is creative; it is part of his basic human nature to produce. The vast majority of the human race since time immemorial has searched for ways to overcome boredom. By far, the most effective way to vanquish boredom is to do something. To produce something. Very few, if any human beings actually pass their time doing nothing. Certainly, those that do, find little respect and favor from the rest of the human race. The various ways to produce, to create, are myriad. Our economic system, evolved for thousands of years offers reward to producers and creators. But even without that, just producing something gives its own satisfaction. Even in our spare time, most of us choose to do something, rather than sitting around doing nothing. Even the "non-poroductive" among us, receiving wealth from others mostly occupy their time doing something. It's just that sometimes, what they do offers less benefit to society at large and is perceived as un-economic. But to the individual doing it, it has some value; otherwise, he wouldn't bother doing it.

Now, in the USA, where an individual is perceived as a free being, directly responsible to himself and to his God, each one of us is expected to choose some field of endeavor; to produce something. In parts of Europe (Spain for example) where family ties are much stronger, an individual is seen more as a member of a family than as a free-standing and self-responsible free being. And surprise! We find a far different tradition with regard to the passage of wealth from one generation to another. Family fortunes are passed, more or less intact from one generation to the next, from father to son. This creates a much more tradition-bound and static society. There is more continuity to society. Things change more slowly. But there is a huge price to pay for this stability.

Individuals are far less imaginitive as their incentive to create is supressed. There is far less initiative in society. People are far more willing to accept things as they are. "It has worked so far. Why change it?" Each member of society tends to depend far more on others. Government becomes more socialistic. Individuals are far less dynamic. They don't take chances. They each tend to produce less. And this is the real price paid for the passage of wealth intact from one generation to the next.

In the USA, this has traditionally been more frowned upon. Wealth is taxed much more severely as it passes from father to son. We see this as stimulative, as incentive inducing, freeing up vast individual resources to create a vital and more productive society. And in the end, it creates more happy and productive individuals too, who in their turn produce more, and contribute more to their fellow man.

Human beings are creative, social animals. Always have been. Always will be. Taxing the excessive accumulation of wealth out of existence is a way to stimulate their creative social instincts, by safe-guarding and encouraging each one's individual incentive to create. It is not necessarily a bad thing!

Lowered rates?-yes. Raised the money supply?-no. After the crash, the fed deliberately wiped out 30% of the nation's money supply, thinking that somehow that would offset lower stock prices. I guess the logic was something like, "well, we all have less money now, so let's make the money have more value." To be sure, under FDR (1932 and after) money supply did grow substantially, and the economy did improve, but the damage had already been done. In 1940, the growth of money finally reached levels similar to those we have been witnessing for the past year. Fortunately or not, gold was frozen at $35/oz. and Americans weren't allowed to own it anyway.

The only other comparable period in this century, that I know of, is the 1970s. Again, money supply growth was just about what it is now, and once the window was opened, gold took off. I was too young to buy gold then, but I'm not this time!

Disclaimer: I am not a perennial gold bug. Every gold-based investment I have was made in the past 10 months. The Fed is now fighting DEFLATION, not inflation. Everything is different now from what we have been accustomed to in the last twenty years. Ignore this advice at your own risk!

I was going to reference the same book. Rates actually went to 1.5% in mid '31. Further, the author, Murray Rothbard, says that during the week of the crash the Fed added almost $300 M to the reserves of the nation's banks. He goes to say "...the weekly reporting member banks expanded their deposits during the fateful last week of October by $1.8 B (a monetary expansion of nearly 10% in one week) ... "

Unemployment was about 25% in '33 ... 20% in '38. To quote Henry Hazlitt from Economics in One Lesson: "One often hears New Dealers and other statists boast about the way government "bailed business out" with the Reconstruction Finance Corp, the Home Owners Loan Corp and other government agencies in 1932 and later. But the government can give no financial help to business that it does not first or finally take from business. The government's funds all come from taxes ... When the government makes loans or subsidies to business, what it does is to tax successful private business in order to support unsuccessful private business."

To the victors go the spoils ... and one of the spoils is the power to interpret history.

Like you Stranger, I'm not really a gold bug ... and all of my gold related investments have come recently as well --- in the last year. And we agree that the Fed is fighting DEflation. Seems we're simply taking 2 different lines of reasoning to get to the same destination. See you there !!

I love your point about using physical gold to transfer wealth to one's heirs. Anybody who thinks that turning over the fruits of his life's labor to the government is a productive use of capital is either naive, poor or looney, as far as I am concerned.

First of all PH, I couldn't agree more. However, there is another aspect of the inheritance tax that does more than just transfer wealth. When family farms and businesses pass on to the next generation, taxes often cause that enterprise to be liquidated. The heirs loose their "jobs" and society loses the efficient production created by the long term learning and experience of the generational chain. In most cases a productive enterprise becomes only real estate and auction fodder.

There was debate in the legislature recently over this, but I don't know the outcome.

Now that we're on the subject of "Confiscation, covert and overt", Lets look at recent decades. Not so long ago most welfare came from church of charity; there wasn't enough economic affluence to tax for it. Now, of course, Government enforces charity at gunpoint, and surprise, the "need" always outpaces the funding.

Democracies Achilles' Heel is ----- "I VOTE TO TAX YOU"

Anyone interested in corroboration to my claim that money shrank by 30% after 1929 may go to "Timelines of the Great Depression" at www.scruz.net/~kangaroo/Timeline.htm
Scroll down to 1932 and read for yourself.

Would anyone else like to try and cite an example of a period when excess money growth did not lead to inflation?

How about right now, or is the current money supply not exsessive after all?

M-2 is now growing at a rate exceeding 10%. M-3 is above 12%. All money supply growth rates have been accelerating in the past year. With the economy growing at only about 3-4%, you are damn right it is excessive. As I have posited over the last couple of days, this is for a good reason. Unlike the Fed of the early '30s, this Fed does not intend to follow policies which will result in bank failures (witness LTCM). As far as I know, excess money creation has always led to inflation, but it takes a year or so.

The money supply did shrink during the 30's, but not due to the Feds actions. It shrunk because of the collapse of the cerdit bubble. Look at Japan. They are in a deflationary sprial dispite using every Keynesian trick in the book. Bottom line... the Fed can try and inflate(increase the money supply) all they want, but they can't force banks to lend or people to borrow. When the bubble bursts and banks are afraid to lend and people are afraid to borrow, we shall see if the Fed can inflate, or will they just be "pushing on a string."

The true definition of inflation is the increase in money and credit. Rising prices is one of the possible results of inflation. During the '20s, Strong, NY Fed chairman, initiated massive monetary and credit inflation to help the Bank of England. Greenspan has been doing the same since '95. Today as in the '20, the results of the inflation has not distorted prices, but has distorted securities. This is the Austrian view. Stranger, you seem to adopt the Monetarist view. I've read the Keynesian and Monetarist views of the Depression, but feel that the only real explaination of what happened and is happening now comes from the Austrians. See... www.mises.org

What is money? The definition according to the U.S. Constitution is that which is backed by either silver or gold. With all the turmoil in the world currencies, it
appears that gold, which has moved away from the center of the monetary system will soon come to rescue it. The
aggressive attack against gold will soon end. I hear from a good source that short covering of over 8 million ounces will take place before the end of January 1999.

More later.......

scp- The Fed could have stepped in at any time to save those banks. They chose not to for reasons I have already attempted to explain. I don't make this stuff up.

In the current cycle, the dollar did not even begin its decline until last August. Soon import prices will react by rising. What possible relevance will the Fed's inability to force people to spend have to do with this matter? People are spending like crazy. They call it the wealth effect, and believe me, money creation has a lot to do with that, too.

As to Austrians, monetarists, etc., I am afraid you are one up on me, scp. I just don't pay much attention to theory.

T. Remittal- Yes. There is an expiration coming up in 2 weeks which will force short covering. Let's hope we get a good ride out of it.

Au contraire mon frer. The Japanese bubble burst when their central bank finally pulled away their punch bowl. Their policy since, has been to stimulate with fiscal spending and to maintain tight monetary controls. The results speak for themselves.

As to your reference to "pushing on a string", that is a term which applies to what can happen when monetary policy is applied too late to reignite an economy. I have not heard it used to apply to inflation, presumably because nobody has ever "tried" to have inflation.

So, Peter, what do you make of the claim made by some that the US can continue to watch its manufacturing base leave for other countries and still thrive as a service economy ??

scp: I want to compliment you on the consistent high quality of your posts. A warm welcome to this table round....you represent the Austrian view well.

T. Remital: A bold beginning, dare I say....Pull up a chair to this fabled table, my friend. I look forward to your next post and hope it is soon. I trust that you will more fully develop the short covering theme you mentioned -- a subject of immense interest around here.

Turbo: I agree that you and scp are close in your thinking. Let me ask this: Is not the crux of the matter whether or not the inflation that has been channelled into the stock market is erased through a crash or allowed to continue through easy money Fed policies? Interestingly Duisenberg said today that he did not expect a bubble in Euro-stocks. He also said that Greenspan had stopped talking about "irrational exhuberance." I am not sure how I should take that statement. I thought it a bit odd at this juncture -- almost out of place. Any comment?

http://biz.yahoo.com/rf/990118/ia.html

To have a belief in what the next economic paradigm will be one must know the sequence of such paradigms and where in the sequence the current economy fits.
I know neither, but, all systems are necessarily incomplete.
I can only assume that the posed question is meant to imply the global economy as it is otherwise not sufficiently specific.
There are few, if any, countries of the world that exist as capitalist states. The best I have seen so far is Dubai (U.A.E.); the prices are agreed by both buyer and seller. In Dubai there is no shortage of any form of Gold or Silver.
This city state is booming, building cranes are everywhere on the horizon and older buildings are being replaced at a very rapid pace. Dubai's gold souk (market) has more gold (and silver) than I had ever seen before my stay there during the 1st and 2nd week of Nov'98. One necklace (out of several hundred in many (500+)shops) was 1700 grams of 24K Au; there must be TONS of gold in this souk.
Not far from Dubai (25 mi.) is another Emirate, Sarjah (I probably spelled this wrong) where I went through a fairly small museum. One portion of this museum housed a collection of very old coins. Inscriptions on these coins did not appear (to me) to contain dates, however, the displays dated these coins to about 650H (and forward in time) which I understand to translate to about 600 AD. The inscriptions on the gold (dinar) and silver (dirham) coins were all the same, arbitrary of the hundreds of years that had passed from the oldest to the most recent.
Dubai has NO unemployment
Dubai has about 50 years of oil reserve
About 5-6 years ago my brother-in-law was in Thailand, he talked about all the building construction going on at the time. Subsequent to that time Thailand's market boomed and now it is bust.
When Korea went bust its government wanted (demanded) the population to hand over the gold they possessed. But surely the crony capitalists that formed the government could have come up with more than the population??
Canadian official numbers will indicate unemployment of about 9% but do not include those people that have stopped looking for work or have run out of benefits. Unofficially unemployment is likely running around 18-25% nationwide. There are fewer and fewer good paying jobs around and lots of 30-year olds holding 3 McJobs. I am certain it is similar in the U.S.
(supposition).
There is a lot of physical war in the world, and a lot of potential physical war. Arguably there exists more economic than physical war and more war is inevitable.
In Canada and France hog farmers can't sell the hogs for as much as it cost to raise the hogs, the price of pork at the butcher has not decreased? Everywhere commodity prices are collapsing and if the CRB index makes and sustains a drop below about 180 then it will likely go to about 100 (not seen since early '70s).
In all countries jobs are vanishing. As the job markets dry up, demand dries up. Then companies that use the raw commodities will also vanish.
Throughout history civilizations rise and fall; they always seem to fall due to internal decay. Today global civilization is on the verge of TOTAL collapse.
With the CRB index expected to go to about 100, expect the US$ POG to go to about $150 but be aware that a non-US currency may well drop by 50%+ beforehand. I buy gold whenever I have the cash (I expect the CDN$ to be worth 25US cents before gold is worth US$150).
This is not to say I know what I am doing; I may not be able to buy a can of tuna for a piece of gold if tuna is harder to get than gold and I have gold and no tuna.
The next year of two (if it takes that long) should see more and more world currencies going down the drain.
The Euro has potentially bought 11 countries a little more time.
Currently when a currency gets hammered the people flee it and go to the US$. When they come to realize that the US$ is nothing more than un-payable debt they will flee it as well. When all currencies are equally viewed as worthless, the masses will have no place to run but gold.
When all currencies are equally viewed as worthless there will be a world wide war, too effect the required debt liquidation necessary to start over.
After the war the currency will be GOLD, then after a time the government (of the time) will come up with the NEW concept of the fiat currency (so that they may spend more than they produce)...
The stated question has no answer, the current global economic environment displays each of the choices A through E in different areas of the world.
The coming depression may well be the beginning of the next dark age.

Service is a form or part of production. --More later

Duisenberg and Greenspan obviously read my Post yesterday.

Michael, that pretty much sums it up from this vantage point. My contention is that the inflation won't be allowed to continue through easy money, not because the Fed's going to change policy, but because the market is going to do it for them. Furthermore, I believe it has already happened ... the worldwide inflationary credit bubble has reached its limit of excess and is now unwinding in deflationary collapses. The most unstable economies are getting hit first. The Fed has shown through the actions officially taken by the IMF that it can't be stopped ... economies are falling at an increasing rate. So, it's a competition between central bank inflation and market correcting deflation. When meeting head on, the score is: Market correcting deflation - 5 Central bank inflation - 0 (counting SE Asia countries as 1)

In this country, it remains to be seen if it will be the stock market correcting, Y2K fears, or something else that first pops our part of the world credit bubble. The stock market is a very likely candidate because corporations like the one I work for have been squeezing out every ounce of fat they can for 5 years through layoffs and mergers just to maintain profits ... and there just ain't any fat left. With markets disappearing, where are sales and profits going to come from ?? Sooner or later, stocks have to fall from their own unjustifiable weight.

As far as Duisenberg's comments, odd and out of place indeed. The fact that he felt it important to say he did not expect a bubble in Euro-stocks indicates to me that he's worried about the bubble in Euro-stocks.

Re msg # 1891. Definition or schools of thought are not senior to events.

If your wages are stagnant and the price of groceries, utilities rent and clothing goes up; your experiencing inflation. Whether its explained by the Austrians, Keynes, Turbohawg, Michael or me, it's the same standard of living regardless.

If securities are inflated than the holders of them have an expectancy that can be adjusted out from under them in a heartbeat; --- and threaten them with having to produce something.
Put another way, if inflation is a relationship between paper and product, then inflated paper is an oxymoron.

* Some* of our manufacturing base is leaving the country. The globe is experiencing all sorts of redistribution of source of product. When we all do what we're best at, we will all do better. Also, it has been pointed out that the U.S. is way ahead of the rest of the world in .com technology and delivery, that's not small change in the global cash register.

Though you paint a bleak picture, you offer thinking to be reckoned with. Can I draw you out on the following point? I do not understand the connection: "When all currencies are equally viewed as worthless there will be a world wide war, too effect the required debt liquidation necessary to start over." Will the creditors nuke the debtors? Or vice-versa? An outstanding, thought-provoking post, Truthseeker.

What a day this is. Feels like a volley ball game between monetarists and fundamentalists, every time a ball goes over the net somebody jumps up and whacks it

What is the word on this supposed 8,000 contracts newly short???

As you may have noticed, when things start getting real serious and scholarly, I like to try to lighten it up a bit. So. since I declared myself "way out of the box' this weekend, how about this.
70% of the world and 40% of the U.S. reportedly believe in past lives. Deja Vu, familiarity, have I been here before? etc. So, when one has those sovereigns in the palm of their hand, maybe some of that special feeling is a tickle of a memory; a marketplace, a trading wharf, a monastery or a castle: --- Once upon a time

T. Remital said that 8000 short contracts are to be covered by end of January,1999. Caught my attention too. That's about 25 tons according to my calculations. Is that a significant number?

There is an eternal aspect to gold. Perhaps that is why we associate it with fidelity and love -- a poet's territory. Transendence is an important quality of gold and transcendence is an important yearning of every individual -- perhaps the primary building block of civilization? What were you guys saying about inheritance?

This is just to provide (hopefully) brief replies to a couple of posts.

USAGOLD. You are providing a great service to the investing public by maintaining this site, particularly for novice investors such as myself. I find the quality of discussion to be top-notch, and very informative. In reply to your post# 1851, I'm honoured anyone would ask my opinion on when the short covering of gold positions will begin, but I know substantially nothing about the mechanics of the gold market. My source of info was a post on the "Dutch Central Bank" thread on Silicon Investor, where a man named Bill Murphy referred to rumours of an uncoverable short position of 700 tonnes. My training and experience is in political science and law (mainly administrative law), and I have only about a year experience in serious investing, so I'm afraid I can't answer your question. I do however have a question about a post# 26395 on the "Gold Price Monitor" thread at Silicon Investor. It is stated therein that the Weiss Report alleges the ECB has declassified gold as a reserve asset. Do you have any insights to offer on this matter?

SteveH. Your post# 1871 is a classic, and ought to enjoy wide circulation. I make the friendly suggestion that you circulate it among various of the gold discussion sites, as I believe it (a) contributes significantly to discussion on gold, and (b) would elicit quality responses. I found your comments that (a) gold buying has increased and (b) paper gold outstanding exceeds physical gold available to be central to the scenario of gold price manipulation you at least implicitly sketched out.

This gives rise to the fundamental question: "Is there presently manipulation of the gold price, which is artificially suppressing the gold price?"

To answer this question, I will state my first premise: there are actors who possess the capacity to artificially suppress the gold price, particularly certain central banks, but also perhaps large producers and/or other holders of gold. Given that CB reserves are equal to about 12 years of production, and given that a few CB's hold massive reserves, I believe this premise is valid for at least the central banks.

A further question: "Is there anyone with an interest or motivation to suppress the gold price?" It is alleged that the Fed has an interest to protect certain hedge funds vulnerable to a large short position in gold, to preclude such funds or similar entities from defaulting, and to avoid the consequences of such defaults. Others claim that large producers which have hedged their positions forward at a favourable price wish to keep the short term price low, so they can pick up cheap gold for resale at the higher forward price.

Just as the early Christians looked to Greco-Roman philosophy to help explain and understand their new belief system, I will apply some principles of the law of evidence to this question of gold price manipulation, to see if any insights can be drawn. First, there are factual presumptions in law - i.e., if A can be demonstrated, then B will also be presumed to be true, unless the other party can demonstrate otherwise. This is called a rebuttable presumption. In civil matters, a theory must be proved on the balance of probabilities - i.e., more likely than not. When the theory involves an allegation of criminal-type conduct like fraud, clear and convincing evidence is required to discharge the civil onus of proof. Finally, when the nature of the allegations or the situation is such that a party would not likely have access to "air-tight" evidence, inferences favourable to the party can be drawn from the evidence that is available.

Here, I believe that the quoted market prices for gold futures and spot gold are accurate. (Different prices for small amounts of gold - for example, coins - can logically and reasonably be attributed to economies of scale and different distribution systems). Thus, there is a presumption that the quoted prices truly reflect the natural market value of gold. The onus to demonstrate that manipulation exists, and that the true and natural price is different to the quoted prices, rests on the party alleging manipulation.

Insofar as it is alleged paper gold exceeds the physical gold available, this would appear to be similar to alleging that paper gold was issued fraudulently. Thus, such an assertion must be proved on the basis of clear and convincing evidence. Is there clear and convincing evidence available to support such an assertion? I can't really say so, but I haven't seen any. (Caveat: I'm a novice investor). However, if the appropriate analogy is similar to an airline overbooking a flight, then issuing excess paper gold (if such excess paper gold exists) may not be fraudulent; some sort of freebee or premium may have to be paid to a party holding a gold call, to induce him to accept cash instead of gold, just as some people accept airline miles to take a later flight. Is it accepted in the gold futures market that some calls can or will be satisfied with cash instead of gold? If the airline analogy is correct for gold, there is an chance the clear and convincing evidence requirement does not apply.

I'm pressed for time, so I will make this part shorter than I had planned. Obviously, if there is a conspiracy to manipulate, it would be difficult to non-parties to the conspiracy to procure evidence of it. The manipulation need not involve fraud, so the clear and convincing rule need not apply. However, if the conspiracy had to be widespread for it to be executed, then evidence of it would seep out, and some evidence would reasonably be expected to be available. How many people would have to be in on a conspiracy to manipulate the gold price for the conspiracy to be effective?

The evidence is that the Fed arranged a loan to help save LTCM, something out-of-the-ordinary for the Fed to do. There was an unexpected and unusual interest rate cut two days before an options expiration Friday, which led Bill Fleckenstein to allege manipulation. Such an action would appear to be focused on those trading in derivatives. Further, the POG has tracked and traded in what is alleged to be an unusually narrow band, notwithstanding currency volatility respecting the US dollar. Can one infer gold price manipulation based on this evidence? Has the presumption that the quoted POG is the true and natural price been rebutted?

Hopefully this post will be of some assistance to everyone in determining whether there is a conspiracy to manipulate the price of gold.

Thank you for your kind words. I hope you will continue to bring those strengths in law and political science to this table round for the benefit of all.................

canamami, Your post superbly delineated the mechanics of the gold trade. I wonder if you, SteveH or Michael might be able to address a supposition as follows. An entity wishes to liquidate 25 tons of gold. If they simply sell the physical, that activity rattles the market to a much greater degree than if they short paper and then subsequently cover it. Therefore, the price obtained is higher than if they took the straight sale route. Furthermore the market is kept ignorant of their intent, should that entity wish to sell more. If this strategy were truly workable and was in fact afoot, a lot of mystery could be explained.

They could also earn a little more lease money before the paper came due

The following was copied from SI Gold Monitor tonight. It is a little hard to follow some of these threads but for those with a little imagination, it certainly seems to indicate that things just MIGHT start moving soon.

From: Bill Murphy

Monday, Jan 18 1999 8:52PM ET


Ron,
You are very right on. My guess is more than what you think. That is why Goldman may be changing their tune. A gradual up in gold from now on is what they should want. You can be sure Goldman has the word from "Her Rubin". They are very bright people that also happen to be the casino ( easier to win that way when you are the house and make the rules ) I would prefer a gradual move too. A big move is not that good for me. Need time to build the congregation. A big move,too fast,if you will pardon the expression would be like having sex too quickly. Still, it is time NOW to move up and up with consistency. I still see gold at $405 by year end and silver at $9.78

Bill


To: Richard Harmon (26415 )
From: Bill Murphy

Monday, Jan 18 1999 3:44PM ET

Hello Richard,
I went through the proper netiquette on this, and am putting this up because I am going to do what I can to run for daylight for us gold and silver family people. This press release will go out to 600,000 analysts, 500 on-line services and the mainstream press at 5 AM tomorrow. If I am given a chance, I am going to do whatever I can to raise the heat level for the gold shorts. We in the gold industry have paid the price too long to support the junkie habits of hedge funds and fears of our "offialdom". It is time to point out what is going one and rage like lions about how the "big boys" have been playing with the gold market. The time to strike is NOW. Today-AP- Tokyo-Miyazawa-"The dollar's one-currency dominance is over". This can only be construed constructively for gold and might finally put some wind at our back. The second piece is from Le Metropole member, who is very highly regarded in the financial community. His commentary is right on.

The bugler is sounding attack,
Bill

Le Metropole
http://www.lemetropolecafe.com

January 18, 1999

Le Metropole Inc.
1079 Ocean Boulevard
Rye, New Hampshire, 03870
USA

For Immediate Release

Contact:

Bill Murphy
Le Metropole Inc.
603 433 9389
midasnh@aol.com

Peabody, Tice and Murphy Predict Coming Chaos in the Financial Markets

Three of the prominent contributors to www.lemetropolecafe.com
have issued commentary, alerting Le Metropole members to severe financial market stress that looms on the very near horizon.

Charles Peabody is one of the most highly regarded banking analysts on Wall Street and is often quoted by Alan Abelson, Editor in Chief of Barrons. Peabody, in his recently posted commentary at the Hemingway Table:

" As for the fundamental themes, I shifted my emphasis earlier last fall when the Fed began to ease in an effort to bail out the capital markets and when the world's government bodies set out to rescue Brazil. As I state back then, significant changes in government policies will create unintended consequences and it is our job as analysts to anticipate when the next sea change will be"�..After a brief Fed-induced rally, bank stocks are likely to resume their descent�.I see no value in bank stocks and at current levels and expect at least two more years of price weakness and 60% to 80% of downside�.it will unfold in the form of a CRASH".

David Tice is often seen on CNBC, articulating the bear case. He has a vast array of institutional clients and also is the portfolio manager of the Prudent Bear Fund, which was the number one performing mutual fund in the United States in the third quarter of last year. Tice, in his recently posted commentary at the Dos Passos Table:

"Recent data provide clear evidence that Japan and Asian economies are still in depression, Latin America is quickly sinking into recession and acute financial stress, European (and particularly emerging East European economies) economies are slowing rapidly, and the American manufacturing and agricultural sectors are faltering".

"The reality remains that the global crises has made it very close to home just as we have reached the climax of an unprecedented speculative mania and economic bubble. We are in the very early stages of a Latin American crises that will prove much more troubling for the US financial markets and economy than the bulls believe today".

Bill Murphy was written up in the Wall Street Journal in August 1988: "Trader Bill Murphy's Correct Call On Rise in Price of Copper Pays Off". He also thinks we are headed for financial market turmoil and believes that after many years of benign neglect, both the gold and silver markets are poised for dramatic bull market moves.

It is his opinion the gold market has been controlled by "officialdom and their henchmen" for some time, but that there are very recent signs that times could be changing. In his commentary at the James Joyce Table, Murphy has presented a great deal of anecdotal evidence over a period of time that Goldman Sachs ( Secretary Treasury Rubin's former firm ), for many reasons, has led a price capping attack on gold along with other New York financial institutions.

The first sign of a change of this environment was the recent break out in silver. Second, is a recent Goldman Sachs foreign exchange department release predicting a " a gold breakout". Third, is a Goldman Sachs conference call calling for a major fall in the dollar. Fourth, is the urging by U.S. officials to the Brazilians to devalue their currency after congratulating the Chinese for not doing so.

To review all this commentary:
http://www.lemetropolecafe.com

BRAZIL, GOLD & THE APPLE

Dear Ms Press:

You raised some good questions with your 1/15/99 Gold, Brazil wire. The questions are in abundance, the answers are rare.

I believe you are attempting to report on one of the most intriguing financial mysteries of the last ten years. Sharpen your instincts and pencil....the answers are out there. Remember this; the gold market is very opaque and lacks transparency. It is also, much much larger and active than people realize. I do not envy your task, however I do wish you luck.

As a reporter, always start by asking yourself.... why am I getting this answer; from this person? What do they have to gain or lose? Also, if possible ask those who give orders....not take them. Take your questions up the ladder and you will find very few willing to talk with you...Why? Because your questions are now very close to home.

Gold is a proxy....Its composition is both political as well as financial. The role it plays is far greater than what Newspapers have been conditioned to report, just ask Alan Greenspan or review various papers he has written over the years.

Some will have you believe gold is a mere commodity, again, who is saying this and more importantly ....why?

The answer is because gold is a threat and its upward movement presently brings more harm than good.

Ask yourself : What is a gold carry, what is a yen carry? Answer: Cheap sources of money. Tremendous amounts of monies from these simple transactions have helped to fuel the market's. Over the last three years as gold was leased into the market it was often sold short, which in turn was leveraged again into various other derivatives.....A chain has been created...... all stemming from the source or first link.

Ms Press, try to get an estimate of how short the gold market really is? Estimates range from 4,000 to 12,000 tons. Ask Mr. O'Neill . No one really knows or they are scared to tell you. Again the market is very opaque. A lease is an I.O.U. , however, in this case what was borrowed in reality has been sold....This is THE problem because it is to a great extent unrecoverable. Historically, no one sounds the alarm until the damage has been done. The situation came to attention in Asia was exposed in Russia , now plays out in Latin America (Brazil). Excessive reward, as in the Asian miracle usually comes at the expense of excessive abuse: In this case poor or totally ignorant lending practices.

Because gold practices are very secret and closely guarded...One can only speculate on why it has not responded in dollar terms... YET. If that market was transparent for one day, gold would be up $200. Because the stakes are too high, this would never happen. It is allot like a pressure cooker the parties involved can't take the lid off , for fear of the financial affects on other positions and they can't keep the lid on, for sooner rather than later market forces will blow it off. The parties involved need time to slowly relieve the pressure.

Ms Press, there is plenty of ignorance and abuse to go around, starting with Central Banks and carrying down to the producers.

Again, I will say you are sitting on a huge story about to unfold. Efforts over the last couple of years to debunk and discredit are smoke screens to cover up unchecked abuse. Gold did not fall before or during the Brazilian debacle, rather it was pushed and held by some very large players who have a lot to loose. There are systemic problems that have to be addressed; the last thing parties want to do is compound it with a runaway Gold Market. Ask the question of your various sources, just how short is the Gold Market? The "worm is in the apple" and it is now time to tell the story .

Le Metropole member


To: Bill Murphy (26441 )
From: banco$

Monday, Jan 18 1999 7:56PM ET

"Long-Term Capital Prepares to Seek New Funds" -

http://www.iht.com/IHT/TODAY/MON/FIN/itcm.html

To: Ron Reece (26434 )
From: Bill Murphy

To: banco$ (26442 )
From: Bill Murphy

Monday, Jan 18 1999 8:26PM ET


Banco,
Many thanks. I did not realize Goldman Sachs was so involved. I should have. That is a good deal of what I talk about( as you know by my post) as to why the price of gold has been held down here. This is just one more anecdotal evidence of what their "goon squad" was put in place and why they have terrorized the industry. If I were a "yout" I would try and write my PHD on this. Since I have become a Dr.Strangelove of sorts to mainstream thinking, I will just do what I have to do with my media assault. This is good stuff. I should have known.

Bill



Monday, Jan 18 1999 7:51PM ET

Ron,
You have a very good mind, if I may say so myself, and I certainly understand your points. Very well put. I am blessed to be a part of a wonderful family. Two of them, with a chock full of kids, are in the title reinsurance business. Tops in their field in Southern California. I do not want a disaster for them, or anyone else. But, I am irrelevant in that sense. Let me turn it around for you. My camp says there is a ridiculous bubble out there and cheap gold loans are just one facilitator of this bubble. For every action, there is a reaction. The bubble will burst. If it bursts now, the reaction may not be too bad. If it goes on, from here, who knows. Even if what I am trying to do works, ( I should be so fortunate)I could be doing much good not harm. Que sera'sera.

Bill

Shorting gold to unload 25 tons, are we crazy? Hello?!

Rumblings, rumblings, rumblings. Let's see some action. On with the show.

Good posts all.

Gold still $287.50.

BTW, has anyone looked at www.ebay.com. Do a search for gold coins. Mostly numismatic stuff, but gold coins are enjoying a new life in 1998 and 1999, coming off bottoms. Bids are strong over there. Kind of fun to watch but also a leading indicator too.

The post on the proof of manipulation was excellent but ended in a question. My thought was that as a juror I wanted to get out of my box and call and interrogate my own witnesses, the same feeling I had when I was a juror once. What is presented as evidence is filtered by the laws of evidence. Yet this isn't a trial here but we are spoon fed our evidence all the same.

I guess the best indicator of manipulation would be to answer the question, if all gold and silver contract were to take delivery would the market be able to fill the orders at the price stated without going to market thus driving the market higher. From that basis it is only a question of extent of leverage used by the market then or the amount of reserves held to fill such a happenstance. Of course, here is the gray area: how many gold and silver markets are there? We must define the entire scope of markets to grasp the extent of the contracts, to grasp the extent of the reserves. My guess is the markets run deep, the reserves extend into CB's and thus the plot thickens. Give us answers not more questions.

I frequent this site often as a reader and am rather impressed with the quality of the posts and the discussion that takes place. I am not nearly as fluent or articulate in my writing as many of you who post here and thus limit my posts to late at night which seems to be the only time I can find to put down some thoughts. Michael's contest's seem to provide a little extra encouragement for me. So here are a few thoughts just before the deadline. That's assuming Michael meant 12:00 midnight west coast time.

In the way of background I have been interested in Gold for the past 15 years or so. My initial interest in this precious metal was sparked when I acquired some gold mining claims some years back. My investments in gold over the years all began after 1980 and unfortunately have performed for the most part consistent with the price of gold since then. While my gold investments have been rather disappointing over the years I have added to them rather than divesting. I have always viewed gold as a protection against our fiat money system. The American Heritage Dictionary defines fiat money as "paper money decreed legal tender, not backed by gold or silver." Fiat money systems need the power and backing of the government to work. Fiat money has no intrinsic value it only has value because the government decrees it to have value. As long as the citizens have confidence in the government and it's decrees fiat money systems work. Unfortunately people are losing conficence in our government and I believe loss of confidence in the money system will follow.

Throughout history governments have expanded the money supply through various means. Kings would clip a portion off of coins they received in taxes. As governments became more bold they would substitute or dilute the gold or silver content of coins. The citizenry would simply adapt by discounting the value of the new coins. In the early history of this country Banks would hold gold and issue gold certificates. Early on they realized they could issue more certificates than they held backing for in Gold.

In recent times rulers of nations have been duped by international bankers to allow for even more sophisticated methods of debasing the currency. Our current system of fiat money being created out of nothing or as some would say out of debt will always eventually produce inflation. It will always produce inflation because the powers that be will always increase the money supply. Alan Greenspan who most would agree is someone who understands how the monetary system works, wrote in 1966.

"The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit�
The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. (there you have it from the fed guru, we will have inflation) There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold� The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists� tirades against gold. Deficit spending is simply a scheme for the "hidden" confiscation of weatlh. Gold stands in the way of this insidious process. It stands as a protector of property rights."

It's unfortunate that Mr. Greenspan has apparently been compromised or corrupted by power and wealth in recent years.

The expansion of the money supply is the primary cause of inflation. There was a huge expansion of the money supply leading up to the stock market crash in 1929.

There has been a huge expansion of the money supply in recent years that has inflated the stock market which has served to mask the inflationary impact on other parts of the economy. In addition to this inflated stock market bubble hanging over our heads we have another bubble that will eventually come home to haunt us.

Hundreds of millions of dollars that are now resting in foreign countries will quickly come home to rest once the dollar begins to tumble against other currencies. As this flood of dollars bids up prices, we will finally experience the inflation that should have been caused in years past because foreigners were kind enough to take the dollars out of our economy in exchange for their products and the stock market has been able to provide that other false prop.

I should note that some of my thoughts above are taken for "The Creature from Jekyll Island" by G. Edward Griffin. A book I have mentioned on this site before and would highly recommend for those who would like a better understanding of the Federal Reserve and our money system. Mr. Griffin starts out by reminding us that "It's not federal and there are no reserves."

I believe we are beyond a soft landing and the fed is aware of that as well. That is why they took such bold collusive actions to salvage LTCM. The Stock market was about to collapse and they were able to postpone that collapse. When one considers the players involved those actions, a scandal should have ensued to create the biggest anti-trust litigation is history but the media has treated this as the appropriate role of the fed. And Congress is too involved with impeaching a president that lacks character to deal with the issue. Then to top it off the timing of the feds surprise rate increase just before the market was to close was not by accident.

In summary I am saying we will see major inflation in the not too distant future.

The impact on Gold? Inflation in the past has been good for gold. However, I don't see Gold's path as an easy one because the worse thing for the fiat money currencies of the world would be widespread interest in precious metals that hold intrinsic value.

If I am right that the currency accelerator is tied to the floor and the breaks are gone. Then I think the fed may try one of two things. 1. Attempt to keep the market and dollar propped up until the year 2000 and then blame any problems on Y2k rather than on the fiat money system and it's polices of expanding the currency. Or 2. Attempt to replace the dollar with a new world wide fiat currency system.

But who knows, I have often been wrong on things pertaining to money and investments, it all makes for interesting times we live in.

I frequent this site often as a reader and am rather impressed with the quality of the posts and the discussion that takes place. I am not nearly as fluent or articulate in my writing as many of you who post here and thus limit my posts to late at night which seems to be the only time I can find to put down some thoughts. Michael's contest's seem to provide a little extra encouragement for me. So here are a few thoughts just before the deadline. That's assuming Michael meant 12:00 midnight west coast time.

In the way of background I have been interested in Gold for the past 15 years or so. My initial interest in this precious metal was sparked when I acquired some gold mining claims some years back. My investments in gold over the years all began after 1980 and unfortunately have performed for the most part consistent with the price of gold since then. While my gold investments have been rather disappointing over the years I have added to them rather than divesting. I have always viewed gold as a protection against our fiat money system. The American Heritage Dictionary defines fiat money as "paper money decreed legal tender, not backed by gold or silver." Fiat money systems need the power and backing of the government to work. Fiat money has no intrinsic value it only has value because the government decrees it to have value. As long as the citizens have confidence in the government and it's decrees fiat money systems work. Unfortunately people are losing conficence in our government and I believe loss of confidence in the money system will follow.

Throughout history governments have expanded the money supply through various means. Kings would clip a portion off of coins they received in taxes. As governments became more bold they would substitute or dilute the gold or silver content of coins. The citizenry would simply adapt by discounting the value of the new coins. In the early history of this country Banks would hold gold and issue gold certificates. Early on they realized they could issue more certificates than they held backing for in Gold.

In recent times rulers of nations have been duped by international bankers to allow for even more sophisticated methods of debasing the currency. Our current system of fiat money being created out of nothing or as some would say out of debt will always eventually produce inflation. It will always produce inflation because the powers that be will always increase the money supply. Alan Greenspan who most would agree is someone who understands how the monetary system works, wrote in 1966.

"The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit�
The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. (there you have it from the fed guru, we will have inflation) There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold� The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists� tirades against gold. Deficit spending is simply a scheme for the "hidden" confiscation of weatlh. Gold stands in the way of this insidious process. It stands as a protector of property rights."

It's unfortunate that Mr. Greenspan has apparently been compromised or corrupted by power and wealth in recent years.

The expansion of the money supply is the primary cause of inflation. There was a huge expansion of the money supply leading up to the stock market crash in 1929.

There has been a huge expansion of the money supply in recent years that has inflated the stock market which has served to mask the inflationary impact on other parts of the economy. In addition to this inflated stock market bubble hanging over our heads we have another bubble that will eventually come home to haunt us.

Hundreds of millions of dollars that are now resting in foreign countries will quickly come home to rest once the dollar begins to tumble against other currencies. As this flood of dollars bids up prices, we will finally experience the inflation that should have been caused in years past because foreigners were kind enough to take the dollars out of our economy in exchange for their products and the stock market has been able to provide that other false prop.

I should note that some of my thoughts above are taken for "The Creature from Jekyll Island" by G. Edward Griffin. A book I have mentioned on this site before and would highly recommend for those who would like a better understanding of the Federal Reserve and our money system. Mr. Griffin starts out by reminding us that "It's not federal and there are no reserves."

I believe we are beyond a soft landing and the fed is aware of that as well. That is why they took such bold collusive actions to salvage LTCM. The Stock market was about to collapse and they were able to postpone that collapse. When one considers the players involved those actions, a scandal should have ensued to create the biggest anti-trust litigation is history but the media has treated this as the appropriate role of the fed. And Congress is too involved with impeaching a president that lacks character to deal with the issue. Then to top it off the timing of the feds surprise rate increase just before the market was to close was not by accident.

In summary I am saying we will see major inflation in the not too distant future.

The impact on Gold? Inflation in the past has been good for gold. However, I don't see Gold's path as an easy one because the worse thing for the fiat money currencies of the world would be widespread interest in precious metals that hold intrinsic value.

If I am right that the currency accelerator is tied to the floor and the breaks are gone. Then I think the fed may try one of two things. 1. Attempt to keep the market and dollar propped up until the year 2000 and then blame any problems on Y2k rather than on the fiat money system and it's polices of expanding the currency. Or 2. Attempt to replace the dollar with a new world wide fiat currency system.

But who knows, I have often been wrong on things pertaining to money and investments, it all makes for interesting times we live in.

I frequent this site often as a reader and am rather impressed with the quality of the posts and the discussion that takes place. I am not nearly as fluent or articulate in my writing as many of you who post here and thus limit my posts to late at night which seems to be the only time I can find to put down some thoughts. Michael's contest's seem to provide a little extra encouragement for me. So here are a few thoughts just before the deadline. That's assuming Michael meant 12:00 midnight west coast time.

In the way of background I have been interested in Gold for the past 15 years or so. My initial interest in this precious metal was sparked when I acquired some gold mining claims some years back. My investments in gold over the years all began after 1980 and unfortunately have performed for the most part consistent with the price of gold since then. While my gold investments have been rather disappointing over the years I have added to them rather than divesting. I have always viewed gold as a protection against our fiat money system. The American Heritage Dictionary defines fiat money as "paper money decreed legal tender, not backed by gold or silver." Fiat money systems need the power and backing of the government to work. Fiat money has no intrinsic value it only has value because the government decrees it to have value. As long as the citizens have confidence in the government and it's decrees fiat money systems work. Unfortunately people are losing conficence in our government and I believe loss of confidence in the money system will follow.

Throughout history governments have expanded the money supply through various means. Kings would clip a portion off of coins they received in taxes. As governments became more bold they would substitute or dilute the gold or silver content of coins. The citizenry would simply adapt by discounting the value of the new coins. In the early history of this country Banks would hold gold and issue gold certificates. Early on they realized they could issue more certificates than they held backing for in Gold.

In recent times rulers of nations have been duped by international bankers to allow for even more sophisticated methods of debasing the currency. Our current system of fiat money being created out of nothing or as some would say out of debt will always eventually produce inflation. It will always produce inflation because the powers that be will always increase the money supply. Alan Greenspan who most would agree is someone who understands how the monetary system works, wrote in 1966.

"The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit�
The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. (there you have it from the fed guru, we will have inflation) There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold� The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists� tirades against gold. Deficit spending is simply a scheme for the "hidden" confiscation of weatlh. Gold stands in the way of this insidious process. It stands as a protector of property rights."

It's unfortunate that Mr. Greenspan has apparently been compromised or corrupted by power and wealth in recent years.

The expansion of the money supply is the primary cause of inflation. There was a huge expansion of the money supply leading up to the stock market crash in 1929.

There has been a huge expansion of the money supply in recent years that has inflated the stock market which has served to mask the inflationary impact on other parts of the economy. In addition to this inflated stock market bubble hanging over our heads we have another bubble that will eventually come home to haunt us.

Hundreds of millions of dollars that are now resting in foreign countries will quickly come home to rest once the dollar begins to tumble against other currencies. As this flood of dollars bids up prices, we will finally experience the inflation that should have been caused in years past because foreigners were kind enough to take the dollars out of our economy in exchange for their products and the stock market has been able to provide that other false prop.

I should note that some of my thoughts above are taken for "The Creature from Jekyll Island" by G. Edward Griffin. A book I have mentioned on this site before and would highly recommend for those who would like a better understanding of the Federal Reserve and our money system. Mr. Griffin starts out by reminding us that "It's not federal and there are no reserves."

I believe we are beyond a soft landing and the fed is aware of that as well. That is why they took such bold collusive actions to salvage LTCM. The Stock market was about to collapse and they were able to postpone that collapse. When one considers the players involved those actions, a scandal should have ensued to create the biggest anti-trust litigation is history but the media has treated this as the appropriate role of the fed. And Congress is too involved with impeaching a president that lacks character to deal with the issue. Then to top it off the timing of the feds surprise rate increase just before the market was to close was not by accident.

In summary I am saying we will see major inflation in the not too distant future.

The impact on Gold? Inflation in the past has been good for gold. However, I don't see Gold's path as an easy one because the worse thing for the fiat money currencies of the world would be widespread interest in precious metals that hold intrinsic value.

If I am right that the currency accelerator is tied to the floor and the breaks are gone. Then I think the fed may try one of two things. 1. Attempt to keep the market and dollar propped up until the year 2000 and then blame any problems on Y2k rather than on the fiat money system and it's polices of expanding the currency. Or 2. Attempt to replace the dollar with a new world wide fiat currency system.

But who knows, I have often been wrong on things pertaining to money and investments, it all makes for interesting times we live in.

I was getting an error message saying it could not send.

My "crazy" thinking was,

#1, If there is more paper than physical, then it threatens the marketplace less

#2, Short paper carries with it the supposition of an equivalent future purchase. therefor depressing prices less.

#3, "crazy" inexplicable actions such as gold coming down to the 280s and staying there, may be best explained by theories that appear crazy.

You have my vote for the hours grace.

Your post was the closest to being diametrically opposite my msg #1863. It is the best foil for me to test my theories against. BTW re Greenspan; 1966 is a long time ago, peoples viewpoints do change. More later.

Info for The Stranger ...An easy way to get after hours quotes is at mrci.com ....... quote.com also has them if you can locate their all sessions area.

Doesn't the surging demand for precious metal coins indicate that the people are, in fact, going on a standard, with or without the permission of our omnipotent govt ??

He predicted in November that the Brazilian realwas overvalued and would be devalued. He is predictingwe are headed for deflation not inflation as many on thisgroup seem to feel will happen.

You have given me more work than I intended when the original "hear ye, hear ye..." was posted. I think all would agree that this was the best weekend we have had in a long time. I'll take a few days to mull over the posts and declare a winner. In the meantime, there is no reason why we shouldn't continue with the discussion.

It's going to be tough to narrow it down to a winner.

I agree with Peter on JA's post. We'll include it. Welcome to the FORUM JA. I can see you will be an important presence here.

PH in LA, The Stranger, Peter Asher, and all. The more ideas I am exposed to the better I am for it. Specifically PH in LA
MsgId1882. You do make a good argument and have taught me something that can only be gained by the sharing of ideas with
others. I agree that man is creative. We all can see the instances of "riches to rags" stories, but what is unseen is the "what
could have been". In order to foster mans creativity certain elements need to be in place. This is why as man, and society,
evolved from being hunters and gatherers inventions increased exponentially. If lack of wealth were that beneficial then Somalia
would be full of doctors and engineers. I don't think that wealth passed on suppresses the incentive to create, quite the
opposite, I say it provides the ability to create even more and wonderful things. I believe that there are many instances of tax
dollars being spent productively in this country, but I do not believe in subsidizing fraud and corruption, in this country or any
other. I further don't believe that the tradition of the USA has been, until recently, that a man's life long efforts should be
distributed by anyone other that himself, especially when that wealth has been taxed through out it's existence and then taxed
again just because it can be. It was the dream of almost every immigrant to this county to provide for their heirs what they didn't
have for themselves. Also who is to be the one to decide what is "excessive" wealth. It is a great disincentive to creativity and
productivity to say to a person that he should work hard and take risks to gain that reward only to have it taken away.

BRUSSELS, Belgium ( January 18, 1999 2:58 p.m. EST
http://www.nandotimes.com ) - European finance ministers will consider a Belgian proposal to move up the launch date for banknotes and coins in Europe's new currency, the euro.
The officials ordered a study into the feasibly of a proposal from Belgium's Jean-Jacques Viseur for introduction of euro-cash "a few months earlier" than the current planned date of Jan. 1, 2002.
"An introduction from Oct. 1, 2001 shouldn't pose too many
problems," Viseur told the meeting. Belgium's Deputy Prime
Minister Elio Di Rupo last week said the launch could be
brought forward by a whole year.
****Looks as if a new dawn is coming soon.
<;-)

"WASHINGTON, Jan 19 (Reuters) - President Bill Clinton will propose transferring the bulk of projected budget surpluses over the next 15 years, more than $2.7 trillion, to shore up the Social Security System, the White House said on Tuesday.

In his State of the Union speech, Clinton will call for dedicating 62 percent of the surpluses to the retirement income system, with 20 to 25 percent of this sum being invested in the private sector through the stock market."

http://biz.yahoo.com/rf/990119/xq.html
(Note: this article is "in progress"; there will likely be an update soon.)

This hair-brained idea has been around for some time. Last night I heard mention of it on the late news. Now it looks like it will be part of the State of The Union speech tonight.

This dangerous concept is probably one of the most insidious ideas ever proposed as a direction for the federal government to take in regard to our (so-called) free market democratic system. Talk about "market manipulation"? Sheesh!

If we fall for this one, there won't even be a recognizable market to manipulate. We'll surely be having lots of discussion here at the USAGold forum on this one as this story unfolds; but let me suggest right off the bat: With the federal government putting money into the bubble, not only will that bubble become an institution that will not be allowed to fail; (until it does, that is!), but the government will become the majority owner of industry, too. There will be no private sector left. Period. It will be all government from here on in. Shades of the Soviet Union and Communist China rolled into one.

What's next?

How about that "implied income" concept scheme they were floating as a trial balloon a few years ago? Remember that one? It went something like this:

"A citizen who owns his own home is thereby relieved of the expense of rent or paying a mortgage. This is like extra income, since such a citizen wouldn't have to work for rent/mortgage like every other conventional, law-abiding contributor/member of the system. By declaring this windfall "implied income" it can thereby be taxed. Should be good for revenues."

But, why stop at shelter; when one's need for transportation can be treated the same way? Why should one citizen avoid paying all that interest by owning his own automobile? More implied income to be taxed! Of course, underlying this whole idea is the concept that the state is the true "owner" of everything; private homes, autos, etc. Allowing the government to buy up the stock market, would be a big move in that same direction; making government the "rightful owner" of industry, too.

De facto totalitarianism!

This is the real reason we should not even be thinking about impeaching a validly elected leader for some nit-picking, partisan, shred of an excuse in the Congress. We do not want to go down the road to a parlimentary system of government! We citizens have precious little effect on the present government system via the ballot box as it is already. Turning the presidency over to the whims of Congress via impeachment gives the citizenry that much less influence on government! Leaving the doors that much more open to totalitanianism!

In England, we know that senators (members of the aristocracy in the House of Lords) gain their seats by being born into them. The King (or Queen) gets his (or hers) the same way. The prime minister is elected by the parliment, not the citizenry. Our founding fathers saw fit to invent a radically different system. Our leaders and lawmakers are elected by the citizens. Do we really want to do away with this crucial element (ie. elections) of our (already-quasi-)democratic system? I don't!

The longer the Congress and the Republican party persist in their idiotic impeachment, the more they subvert our 250-year-old constitution; the longest-running system of government on earth. I can hardly wait for future elections to start voting against them!

(I'll be voting against investing government revenues in the stock market, too!)

"If lack of wealth were that beneficial then Somalia would be full of doctors and engineers."

Overherd:
I certainly do not pretend to be an expert on African history, but I have long had the impression that what has traditionally kept the African continent from creative use of its vast resources has been European/American domination and exploitation, rather than confiscation of their natural wealth and human creativity through inheritance taxes.

The SS system as been runninng a 50+ billion dollar surplus
for years. Where is all this money? Gone. The Admin writes an IOU to future generations and puts the surplus against the regular budget. This year's alleged budged surplus is simply the SS surplus. So Clinton is saying that he will invest a portion of the SS surplus, but only if there is a budget surplus. More lies.

Three cheers for Alan Greenspan. Keep this cycle going a little while longer. That is as long as gold is "fixed" at below $300. Both of these are good if one accumulates gold at these depressed prices.
Greenspan knows the house of cards will fall. His job is to delay the collapse as long as possible.
In the twenties the price of gold was fixed at $20. Then fixed at $35 and later at $42. At the time the US of A had the stroke to make the price stick. No longer. The genie is out and can't be persuaded to return to the bottle.
Gold at $6000 US would allow forward thinking planners to pay off US$ contracts at 5 cents on the dollar. However, when the dominos fall the preplanning portion is gone for another three generations.

Frankfurt, Jan 19 (Reuters) The European Central Bank on Tuesday said gold reserves held by the European System of Central Banks (ESCB) slipped by nine million euros ($10.44) in the last week due to the sale of gold by one national central bank.

"The stock of gold decreased slightly due to a samll sale by one national central bank," the ECB said in its regular weekly consolidated financial statement.

Interesting isn't it?

Gold is asset item #1. NUMERO UNO that is.

GF

Thanks, friend.

Excerpted from a report received from Morgan Stanley today:

"...in the third quarter of last year, sales of gold coins in the U.S. broke the previous record three times over--due primarily to Y2K preparations."

"...easy money threatens to reignite inflation - together with all the problems that inflation brings. After a twenty year battle against inflation, the Fed seems willing to risk a little inflation, prescribing a little hair of the dog that bit us.
While global disinflation may be hurting a few sectors in the U.S., it is crippling entire economies overseas...monetary policy may be directed more at arresting and reversing these disturbing global trends than at sustaining the U.S. economy. The Fed might not command armies or have embassies, but it is exercising some monetary diplomacy against the disinflation that is underlying so many of the troubles in emerging economies. In other words, it seems to us that the Fed is risking an inflation resurgence in the U.S. in order to stabilize world markets and help secure the victories of the Cold War."

I can't put it any better than that

T.REMITAL

In the last posting I indicated that gold will rescue the monetary system once again. The questions most will ask are " 1. when trade countries fail to have confidence in an unstable currency as a means of payment
2. when money supply increases are out of control and need disciplinary measures to keep in check.
when?" and "how?"

The "when" will take place based upon two factors:
My guess is that both of the above are approaching this window of time, perhaps within a year or sooner.

The answer to the "how" is much more complicated. The paper (fiat money) game is about to commit suicide. The bubble is about to pop. The only medicine that will stabilize this phenomenon it to put value back into the $.

More on this later.........

"The total ECB gold valuation declined by the equivalent of one tonne during the past week, though it is unclear whether this was a central bank sale of gold or merely an accounting revaluation caused by marking to market."Steven Jon Kaplan

USAGold:
Kaplan is not very specific about this but what do you think? Seems funny to find out that some CB sold so much gold with so little fanfare and in such a climate.

Here's the link to the ECB press release. The plainly refer to it as a sale..... a _small_ sale.

http://www.ecb.int/press/fs/pr990115en.htm

My guess is a national CB flexing some muscle, showing who really owns the gold. As in "We sold it, what are you going to say about it?"

GF

Perhaps someone finally counted and or weighed some of that "yellow stuff" in those old vaults, and found out that ---- OOPS missed it by that (====) much. Call the Accountant !!
<;-)

I haven't seen the balance sheet, I would like to. For anyone who has, is gold (as asset #1) the largest asset in value? As items on balance sheets are generally ranked from the most liquid to least, and from largest to smallest, it would be interesting to see if it is the largest asset, or simply the easiest to liquidate.

Liquid, and liquidate were bad choices of wording. Convertable to cash is better. Mind you, gold is money.

Reuters reports the following:

"Dealers said gold briefly reacted to the news that one NCB had sold around nine million euros worth of gold which is
about 36,400 ounces or 1.13 tonnes of gold. Traders said gold came off a little at the unexpected news but recovered
later amid short-covering following the return of U.S. traders after the Martin Luther King Day holiday.

'It did come off a little bit but is holding surprisingly well. What has happened over the last couple of weeks is that the funds have been on another sell spree, so the market is incredibly short.

'So anything negative like that will just bring in short-covering,' one dealer said.

He said in theory the news had to be bearish because it was unexpected and given that it was an European central bank
which sold the gold.

'I am a bit surprised that it didn't react but it shows you how short the market really is,' the dealer said.

The ECB did not say in its regular weekly consolidated financial statement which bank has sold the gold.

********************

This sale surprises me. If the ECB wanted to show the world that they had control of Euro monetary policy, this is not the way to do it. The report above tells the story why this didn't effect the market today, but it doesn't tell us why ECB would weaken its hand so apparently. One thought that comes to mind is if a national bank loses gold in the gold carry trade, it might serve the interests of ECB to show it as a sale rather than a bad loan. Perhaps the sale was contracted at an earlier date. I don't know and they obviously aren't saying much. Regretably, I can't think of a good reason why ECB would allow the gold to go outside Europe as it apparently has -- an inconsistency when compared to other actions of this new central bank. For all the appearances of transparency, perhaps there's more to this "sale" than meets the eye. I will be watching with great interest for further information from ECB. I am particularly interested in who the seller was and why ECB allowed the gold to leak outside the system.

Let me just say this about this sale, I have learned in my many years in the gold business that market is its own best spokesman. Just when you think a series of actions will the send the market in an obvious direction, it goes in exactly the opposite. Quite often it is because we only have a small part of the story. Apparently that is what happened today. We will see what tomorrow brings.

The link is......
http://www.ecb.int/press/fs/fs990115en.pdf

You need Acrobat Reader --- Free software
http://www.adobe.com/prodindex/acrobat/readstep.html

Your instincts serve you well.

First Goldman Sachs goes bullish on gold. Now Morgan Stanley. Next thing you know Merrill Lynch is going to be bullish on gold. Whoaaa....Why do I feel uncomfortable in this group's company?

Thanks.

Your post reminded me of soemthing my Dad (a huge gold bug) has been saying for a long time. Gold will move when it wants to, and it will. Like me, he has been very frustrated with these markets. An interesting thing about this gold sale is that for once a gold sale is being 'minimized' in the press. Usually it's announced with gloom for the future of gold that the massive amount has been dumped into the market. I'ld be curious to know if there was a buyer, perhaps it's already been absorbed, like so many other CB sales were absorbed by other CB buys.

When I picked a price target for gold, in answer to Michael's challenge two weeks ago, I raised the possibility of CB's covertly liquidating gold; [msg #1697]. Jan 8 PM, My analogy was constructed as follows:

1) The advent of the Euro, the talk of gold behind it, and claims that there would be no more CB sales should have moved gold considerably higher.

2) Gold went lower.

3) Therefore, things were different then we thought they were.

So, now we have this little "surprise" of another CB sale. It may be an isolated anomaly, or it may be part of the scenario I depicted in msg #1863.

I seem to be slipping into the role of being the resident contrarian at the Forum Round Table.
"The 6th Paradigm" is my concept of men of foresight and goodwill prevailing over the actions of the leeches and the lemmings. There have been many forecasts of major events occurring as we enter and continue into the new millennium. I merely choose to think it will be an event of survival rather than a calamity.

Having laid out a vision for the future, I plan on targeting additional posts towards expanding specifically on the logics and forecasts put forth. Hopefully, I can allay some of the doubts I hear and assist in successfully predicting the evolution of this complex economy. The other five paradigms do indeed threaten the road, but they are, I believe, just threats.

The hopes and intentions of the people of Earth are for the paradigm I've depicted. Only the predators and the indolent have an interest in the other five.

Back from an extended vacation in the South Pacific,made a few notes relevent to our on going discussions that I will share at a later time.


Just a thought on the 9 million EUROS worth of Gold sold today.Could an entity'such as an oil producing nation,or anyone else,have accumulated 9 million EUROS in trade and sold them back to the ECB for physical Gold??? Our dear friend ANOTHER alluded to this if I'm not mistaken.......beesting

Perhaps the Social Security Aministration, could buy LTCM? Think of the potential returns! Why, I'll retire a wealthy man!

Maybe the SSA should just start it's own hedge fund. They certainly can't do any worse than LTCM. And if there is any trouble, Alan Greenspan can bail us out! Perfect!

Maybe I shouldn't talk so loud...... you know how things are said here and then actually show up on the outside......

GF

opposite opinions. When something is so unpopular, that is the time to buy. Daah!

Date: Tue Jan 19 1999 23:04
MoReGoLd (@OF GOLD, Y2K, and BIASED Reporting..... (Let's all keep our money in paper and stocks))
ID#348129:
Copyright � 1998 MoReGoLd/Kitco Inc. All rights reserved
January 18, 1999

Mint cashes in on millennium

But gold coins may be bad investment

Paula Aven Business Journal Staff Reporter

Investors scrambling to prepare for the Year 2000 are snapping up gold coins and gold bars as a hedge against
the potential disaster they believe could occur on the first of the year.

That's good news for Colorado's coin dealers. But some financial planners believe that stocking up on gold and
other precious metals such as silver and platinum is a bad idea.

People are "buying coins because they believe the market is going to crash and they are hedging their positions in
case of an emergency," said Michele Stell, executive director of the Denver Gold Group, a gold mining
association.

"A lot of people are preparing for the worst," she added. If the Y2K disaster occurs as some soothsayers believe
it will, they "want something they can spend. They don't have confidence in the dollar."

Computers across the globe are being checked to ensure they will keep working after Dec. 31, 1999. Some
computers only read the last two digits of a date, so could become confused and think 2000 is actually 1900. That
could cause computers to fail or spit out inaccurate information.

The Federal Reserve is increasing its printing of dollars in anticipation of people wanting cash in hand instead of in
the bank where their account balances possibly could be lost.

And collectible coin brokers have noticed an increase in business during the past couple of months that they expect
to continue at a more frenzied pace the closer it gets to the millennium.

"People are buying a variety of gold, silver and platinum coins because of Y2K concerns," said Margaret Olsen,
president of Westminster Coin & Jewelry Ltd. Because all metals prices have hit rock bottom, it's a good time to
buy, she added. "People want insurance, something available if banks have computer problems," Olsen said.

Also hot are silver dimes, quarters and 50-cent pieces that were minted prior to 1964.

People are buying old silver coins in quantity as a way "of hedging against possible inflation down the road and
hedging against a problem with paper items," Olsen said.

The Y2K phenomenon also has driven investors' interest in the U.S. Mint's American Eagle Bullion Coin
programs.

"These are what we call legal tender coins, meaning they have a dollar amount to them," Olsen said. "That does not
mean you find them in change. They are what I call noncirculating legal tender. In order to be classified as a coin, it
needs to have a legal tender to it. If it didn't, it would just be metal," she said.

American Eagles are minted at West Point and are distributed to coin dealers around the country.

The millenium bug "could cause a slowdown in economic growth or a recession," said Peter Tedstrom, a certified
financial planner with Brown & Tedstrom, Inc. in Denver. But, he added, in that type of scenario "I don't think
gold is attractive to own because a recession is not an environment where gold performs. It typically loses money
in a low interest rate environment."

That hasn't stopped consumer demand.

"It's a frenzy," said Michael Kosares, owner of Centennial Precious Metals.

The Mint's American Eagle Gold Bullion program, which was founded in 1986, broke all-time sales records in
1998. For the first time ever, the Mint sold more than 1 million ounces of gold in less than 12 months.

According to the Mint, its gold American Eagle sales average between 300,000 to 350,000 ounces per year. But
in 1998, demand for the coins began to pick up considerably when the price of gold fell below $300 an ounce.

The Mint also sold 114,250 ounces of platinum in the first nine months of 1998 and silver American Eagle Bullion
Coins reached 2.86 million ounces sold in 1998.

Along with the Y2K problem, a "large number of people are worried about the stock market being way
over-valued. Another group is worried about the introduction of the euro and some are concerned about all three,"
said Kosares.

Centennial Precious Metals has a waiting list of people wanting to buy American Eagles and the Austrian and
Canadian equivalents of the American Eagle.

"In a worst-case scenario, a complete breakdown, people could barter these straight across for what they want to
buy," Kosares said.

Tedstrom agreed that investing in gold as part of an overall investment portfolio is "not a bad choice as long as
someone doesn't expect it to do something different than it normally would in these economic times. It's a piece of
mind investment."

But he reminded investors that gold, which soared to the $800 an ounce range in the hyperinflation of the late
1970s and which traded at $400 an ounce a few years ago, has been trading at $288 per ounce recently. Many
people who dreamed of wealth from gold found instead they owned a wasting asset -- which paid no dividends
and could be tough to store safely and sell.

"Gold has been a terrible investment because it has lost money relative to inflation," said Tedstrom.

To be fair, the report doesn't actually discuss the prospects for gold per se. What it does say, however is that higher commodity prices in general are coming this year. This is a quarterly publication called "Stratagem" that is prepared by Joseph McAlinden, their chief investment officer. I think it is significant that a major wire house is suggesting that rapid money creation may be the Fed's way of saying, "Hey, disinflation has reached the danger zone." If they are right, this is the most significant change in Fed policy since Volker.

For reasons that I have already explained, ad nauseum, I predict a resurgence of inflation for the U.S. dollar. I do not expect it to reach 1970s proportions, however. Interestingly, gold is so underpriced right now that even 5 or 6% inflation will be enough to propel it to $500/oz in about a year. Do I win the contest?

Merc Members Vote Overwhelmingly For Side-By-Side Trading Of
Eurodollars

Jan. 14, 1999�Members of the Chicago Mercantile Exchange today voted overwhelmingly in every division in favor of a
proposal to introduce "side-by-side" trading of the exchange's flagship Eurodollar contract. The plan to establish
concurrent daytime electronic and floor trading brings to life a key recommendation of the CME's Strategic Planning
Committee unveiled at the annual members� meeting Nov. 17.

The measure passed with 92.8 percent of the weighted votes cast in favor of the proposal. Votes were weighted
according to each member's division.

"Our Eurodollar contract is the world's premier short-term interest rate hedging tool," said CME Chairman Scott Gordon.
"Our members have wisely agreed with the Board of Directors and Strategic Planning Committee that side-by-side
trading will enable us to thwart potential competitive threats and meet customer demands for an electronically traded
version of this popular contract."

CME President & CEO Rick Kilcollin said: "It is not surprising that our Eurodollar contract, the most liquid short-term
interest rate contract in the world, is the focal point of competitive efforts. Today's vote helps us guard our coveted
position while giving customers an important choice."

Said Jim Oliff, CME Second Vice Chairman and Chairman of the exchange's Strategic Planning Committee: "The vote
clearly demonstrates that our membership appreciates the competitive threats in our industry and the need to respond
meaningfully to customer needs. I'm extremely gratified by the results of the referendum, and we will now proceed
expeditiously on implementation of side-by-side trading, as well as the other elements of the strategic plan."

The exchange plans to introduce side-by-side trading in Eurodollar futures beginning in June. Increased capability
designed to handle more complex trading strategies and Eurodollar options will be phased in by January 2000.

The rest of this article can be seen at cme.com

Gold being the cash asset of choice, As bmacd has pointed out, is exactly why I wonder if the CB gold is seen as public spending money looking for a place to happen. Obviously one ton is no big deal, it's the trend that is of concern. Anyhow, though I may disagree with many about the gold standard, money supply and the market bubble I, am not negative on gold. I bought coins last month and this past morning I caught the low point, on the button, and got a couple of dirt cheap, 4 week, 295 strikes on the April gold. SO ---- I need you once again to sprinkle some of that magic powder around to keep those Orcs at the CB tower of Mordor from throwing any more gold off the ramparts.

What gives?

Social Security and the DOW? Not.

Silver Committment of Trades reportedly 4:1 vs normal 2:1. Something up?

VSE still in rally mode.

Am I missing something--have heard no comments on the sales of CB gold as a means to provide physical for massive shorts to buy to alleviate shorts in the market prior yo expiration. Coincides with the brokerages bullish announcements on the price of gold to lure in the sheeples. Birds of a feather flock together--you scracth my back--I^ll scratch yours--NAH--YEA--DAMN STRAIGHT!!!!

Not to worry Peter about those Orcs at the CB Tower Mordor! Tis the overexuberance of the Sheepel cause of the charm of the conjob by the Master Wizard Klinten. I am not certain that double fortnight option has enough time to outlast the effect of this black magic mixed with truth and gifts for all. Good Luck! Tis nice to have yourself about to hear the view from the other side of the valley as the Hobbits and I get tunnelvision at times. Tis great also to see the outbreak of the Lurkers jumping into the fray to voice their feelings and try to define thoughts that matter to each. This is the only way one really learns the truth !
<;-)

I apologize for the editing problem in my last posting---one whole sentence was cut by mistake ' The question most
people would ask regarding increasing the confidence in a currency is "how?".

In order to make our currency more stable we should return to gold or silver as a backing. In that gold is a cb item'
it would be the preference. Our currency is a fed reserve note, without any conversion to gold or silver-therefore
no intrinsic value. in other words fiat paper]...the only value , is the confidence for trade. the increase in the
money supply is the biggest cause of devaluation and eventually, inflation. a return to convertibility would be the
disciplinary action needed to keep a lid on money supply increases. it is obvious that in order to return to
a gold backed dollar ..based upon the huge money supply...there needs to be a large increase in the supply of gold
or a higher price for same. for the sake of the argument...increasing the price would be easier. the ideal issue here
is to reduce the money supply and raise the price of gold with the stroke of a pen..

stay tuned.......

I apologize for the editing problem in my last posting---one whole sentence was cut by mistake ' The question most
people would ask regarding increasing the confidence in a currency is "how?".

In order to make our currency more stable we should return to gold or silver as a backing. In that gold is a cb item'
it would be the preference. Our currency is a fed reserve note, without any conversion to gold or silver-therefore
no intrinsic value. in other words fiat paper]...the only value , is the confidence for trade. the increase in the
money supply is the biggest cause of devaluation and eventually, inflation. a return to convertibility would be the
disciplinary action needed to keep a lid on money supply increases. it is obvious that in order to return to
a gold backed dollar ..based upon the huge money supply...there needs to be a large increase in the supply of gold
or a higher price for same. for the sake of the argument...increasing the price would be easier. the ideal issue here
is to reduce the money supply and raise the price of gold with the stroke of a pen..

stay tuned.......

I apologize for the editing problem in my last posting---one whole sentence was cut by mistake ' The question most
people would ask regarding increasing the confidence in a currency is "how?".

In order to make our currency more stable we should return to gold or silver as a backing. In that gold is a cb item'
it would be the preference. Our currency is a fed reserve note, without any conversion to gold or silver-therefore
no intrinsic value. in other words fiat paper]...the only value , is the confidence for trade. the increase in the
money supply is the biggest cause of devaluation and eventually, inflation. a return to convertibility would be the
disciplinary action needed to keep a lid on money supply increases. it is obvious that in order to return to
a gold backed dollar ..based upon the huge money supply...there needs to be a large increase in the supply of gold
or a higher price for same. for the sake of the argument...increasing the price would be easier. the ideal issue here
is to reduce the money supply and raise the price of gold with the stroke of a pen..

stay tuned.......

More likly at the stroke of a sword!! If you raise the POG by fiat decree, how do you prevent that gold currency from being undercut by the open market in gold

Yes GOLDFLY, you had no reason to be worried about any potential ECB gold sales! Did not FOA and ANOTHER say that it would not happen ? AND yes, I did see in my crystal ball as was posted yesterday, a human error ! For those nonbelievers, see the following.
=======
USAGOLD (01/19/99; 12:15:07MDT - Msg ID:1931)
Surprise gold sale....
Frankfurt, Jan 19 (Reuters) The European Central Bank on Tuesday said gold reserves held by the European System of Central Banks (ESCB) slipped by nine million euros
($US 10.44 Mil.) in the last week due to the sale of gold by one national central bank.
"The stock of gold decreased slightly due to a samll sale by one national central bank," the ECB said in its regular weekly consolidated financial statement.
-------
AND Mr. Kaplan was thinking also, as shown by the PhD of LA
------
PH in LA (01/19/99; 17:51:19MDT - Msg ID:1936)
CB Gold Sale According to Kaplan
"The total ECB gold valuation declined by the equivalent of one tonne during the past week, though it is unclear whether this was a central bank sale of gold or merely an accounting revaluation caused by marking to market."
Steven Jon Kaplan
------
Goldfly (01/19/99; 18:13:37MDT - Msg ID:1937)
PH in LA - ECB gold sale
Here's the link to the ECB press release. The plainly refer to it as a sale..... a _small_ sale.
GF
------
Gandalf the White (01/19/99; 18:17:13MDT - Msg ID:1938)
ECB "Gold Sale" ?
Perhaps someone finally counted and or weighed some of that "yellow stuff" in those old vaults, and found out that ---- OOPS missed it by that (====) much.
Call the Accountant !!
<;-)
-----
Goldfly (01/19/99; 13:41:03MDT - Msg ID:1932)
USAGOLD ECB Balance Sheet
Interesting isn't it?
Gold is asset item #1. NUMERO UNO that is.
GF
*****And to end by fully agreeing with you, GOLDFLY,
GOLD should be EVERYONE's number 1 asset !!!!
GW
<;-)

Has Allen Greenspan been possessed by a body snatcher from the planet "Wisdom", or does my comment to JA about changing his viewpoint apply. Regarding Klinton's S.S. idiocy, Mr. Greenspan has stated, "It will create sub optimal use of our capital resources and those assets which create our standard of living".

Fortunately, the true leader of the western world sees that those "production chits",[ money], should be used to build the economic machinery, rather than passed through the stock market for profit takers to spend. Maybe A.G. is, after all, One of those "men of foresight and good will: � With his work cut out for him.

Arthur C. Clarke Warns Of Y2k Bug Chaos

By Rahul Sharma

COLOMBO (Reuters) - Science fiction writer Arthur C. Clarke, at pains to point out that the new millennium does not start until 2001, says the so-called millennium bug could cause chaos in 2000...........
http://dailynews.yahoo.com/headlines/tc/story.html?s=v/nm/19990120/tc/clarke_1.html

That's supposed to be "2000: A Space Odyssey".....

this is taken from www.kitco.com who got it from www.lemetropolecafe.com. Suggestion? Send it to everyone you know. This is good stuff, no?

Date: Wed Jan 20 1999 18:43
PMF (Bill Murphy's Comments - Interesting read...) ID#224363:
Copyright � 1998 PMF/Kitco Inc. All rights reserved

January 20, 1999 - Spot Gold $287 up 60 cents - Spot Silver $5.155 up 3 cents

"SCANDALE GOLD"

We are pleased to say that we have raised to the level of awareness about the "Goon Squad" and their activities.
Queries have come back to us from everywhere:
"Could Goldman Sachs ( Secretary of the Treasury, Rubin's, former firm ) really be a part of a cabal that has been
holding down the gold price?"

We will continue to sound off that we believe that this has been just such the case. We will do so as we try to "turn
up the heat" on the interlopers that have created havoc for those in the gold industry. We also believe this "Goon
Squad", and their cronies that has been led by Goldman Sachs, have muscled all their forces to knock the price of
gold down one more time, so that they, and their fellow bullion dealer shorts, can begin to cover their massive gold
short positions from strength, and not cover because they are forced to buy in a panic.

When Le Metropole opened its Caf� doors last Labor Day Weekend, the price of gold was below $280 and the
price of silver was $4.83. We were very bullish at the time and were calling for bull market moves. Midas
commentary recruited David Niven, Anthony Quinn, Gregory Peck and James Darren to take out powerful central
bank and producer selling resistance at $290. They did so and we thought the 19 year old bull market finally had
began. But, every time gold poked its head above $300- WHACK. The trading patterns of both gold and silver
started to look extraordinarily peculiar, unlike anything I have seen in my 25 years of watching commodity
markets.

When Le Metropole opened, Midas du Metropole was a supply/demand man and was very bullish on his
forecasts for the prices of gold and silver because the fundamentals looked so attractive.

The visible silver stocks continued to dwindle, the silver premiums in India were very strong as were the premiums
of silver products ( silver coin bags ) . All of this was visible evidence that silver inventories were tight.

The gold mine supply for 1998 was 2529 tonnes according to GFMS, a leading trade organization. Demand for
gold for 1998 is expected to be around 4159 tonnes. That means that there is a 1600 tonne natural deficit (
demand over mine supply ) that has to be filled by gold from scrap supply, the central bank coffers, forward hedge
sales from producers, or leased gold. Gold can be leased and sold into the market place ( adding supply ) due to
its cheap borrowing costs ( say .75% to 1.8% ) The resulting cash from the sale of the gold is then used for a
variety of investment purposes. This is similar to what was done with loans borrowed in yen.

The yen carry trade was a big winner for years. It was fostered by incredibly low interest rates in Japan. Money
was borrowed in yen and then invested in, say, US Treasury instruments. Our Treasury loved it as it supported our
debt instruments, keeping interest rates lower than they would have otherwise been. It also has fostered the credit
bubble that is fueling the stock market bubble. As long as the yen remained flat against the dollar, or did not gain
against the dollar, this trade was a windfall winner for banking proprietary trading operations and the hedge funds.
When the yen rose from 146 to 111 in the late summer, the yen carry trade soured for many of the Johnny Come
Lately borrowers. Now, they had to face principal losses that skyrocketing their realized borrowing costs to 20%
and more. AND, some of their risk free arbitrage trades also went amuck, compounding the situation. Voila-Long
Term Capital Management.

The big boys scored early and big with the yen carry trade. If it could be done with yen, why not gold? The gold
loans were similar to the yen loans in borrowing costs. As long as the price of gold did not take off ( so that the
principal did not have to be paid back as a result of a much higher gold price and thus making the loan an
expensive one ) , it was a winner.

In the old days, gold was only lent out to fabricators and producers by bullion dealers. That was before the golden
age of gogo central bankers. Before the days
when they ( The Central Bank of Italy, for example ) began to invest in the likes of Long Term Capital
Management. But, when the word leaked out ( the Wall Street "in crowd" always gets the "leaks" ) in the winter of
1996 that the central banks were going to be dumping some of their gold holdings, the bullion dealers and hedge
fund jumped into bed together. The bullion dealers made money by encouraging the producers to hedge and by
lending out their bullion to willing borrowers. One fed on the other, the gold supply hitting the market ballooned,
the gold price collapsed. Not only did the borrowers have money at a very low borrowing cost, they had a
bonanza windfall profit because they could pay back their loans with much cheaper gold.

All has been well for those playing this game. Until NOW. The price of gold has been trading around the low $290
area for about a year and one half now. Deflationary forces have taken hold and the bears have fostered the notion
that there is no reason to own gold. "Look how lousy it acts and look at its lowly price" has been the commentary
dished out to the press. Behind the scenes, however, there is entirely different wordspeak going on.

Remember that deficit. It is some 1600 tonnes. That means to keep the price of gold down here, the scrap people,
central banks, gold borrowers and producers have to feed 1600 hundred tonnes of gold into the market place.
But, times are a changing. Many producers are not so comfortable selling gold forward at these low prices ( gold
supply thus reduced ) .

The pre EMU central bank selling is over for the most part. Dow Jones - Frankfurt - Jan. 7 -ECB Vice President
Christian Noyer - " the national central banks ( ESCB ) will keep their gold holdings for the foreseeable future".
The ECB has also made well reported statements that is has no plans to sell any of its 15% foreign exchange gold
reserves in the formative stages of the creation of the euro.

That leaves the gold borrowing crowd and gold scrap people to feed the junkie bear habit and supply heavy
tonnage of gold to the market place. The gold market has little transparency. No one really knows what is what. It
is very, very hard to find out what the facts are in the gold market, especially about the gold loans. The best work
on this subject was done by Frank Veneroso of Veneroso Associates. As a result of yoeman, Sherlock Holmes
like. detective work, he has come to the conclusion that the gold loans have risen to 8,000 tonnes, or so. This is a
big deal as gold mine supply in 1998 was only 2529 tonnes. If the shorts had, or wanted to cover, in a short
period of time ( like they tried to do in the yen carry trade ) there is not a chance in China that they could do so.
What is worse, many of the borrowers may have, or had, no idea, until recently, how large the gold loans have
grown

The jig is up time, is here. Enter Long Term Capital Management. When this Nobel Prize winning led hedge fund
blew up last fall, it was discovered that they had a big short gold position of say 300 tonnes that had been sold into
the market place. Again, the proceeds were used to finance their "so called" riskless arbitrage trading positions.
When the Fed and fellow financial institution big shots came in to bail them out to prevent a "systemic" financial
crisis, they found out about their short gold position. What to do? A buyback of 300 tonnes, or so, in a short
period of time would cause a sharp up spike in the gold price that already was moving up as a result of the serious
collapse of this hedge fund. Thus, they arranged an "off market" transaction with someone, or someones, to let
them out of the trade."

From here on in, the gold game changed a bit. The gold genie was let out of the bottle. As a result of this hedge
fund fiasco, financial institutions everywhere began to scrutinize their investment practices and risk taking policies.
What was good for the goose was not good for the gander anymore. John Corzine, CEO of Goldman Sachs has
been canned, for example. A brand new day is evolving. We know from our banking sources that "risk
management reviews" are the name of the game today. That is one reason why the credit spreads have not
narrowed like the fed hoped they would when they cut US interest rates 3 times in a panics late last year. Risk
lending is being curtailed. There is a coming liquidity crisis coming. That will call for even greater reduction in risk
taking financial activities.

Back to the ranch. What is to be done about the gold loans? The Fed and the big shot financial boys in New York
had to learn about the size and potential problem of the gold loans when they discussed it with each other during
their scheme to bail out Long Term. I am absolutely convinced they found out how large the gold loans were,
JUST in that group alone. Good grief, they must have collectively thought. They had to come to a conclusion to try
and develop and exit game plan.

Maybe the plan ( not conspiracy ) went something like this:

1. Foster the notion that gold is a dead duck for the time being. Make sure that your highly respected analyst
reports project dismal future gold prices. This will encourage producers to sell rallies and help to continue to
attract gold borrowers for leased gold.

Whether planned or not, the gold price projections for 1999 by this "in crowd" are very uninspiring. We know for
a fact that one of these heavyweight institutions TOLD their respected analyst to come up with a bearish
projection.

2. Make sure that gold is available for forward hedging purposes to the producer community.

Whether planned or not, Goldman Sachs was running around last fall offering credit terms to producers ( South
African in particular ) at previously unheard of credit terms. Practically, no credit restrictions at times, at all. Just do
it.

3. Defend the $300 price area at all costs for the time being. Every time, gold breaks through $300, kill it. Defend
your positions and discourage gold buying as it approached $300 in the future and encourage producer hedging
right below $300. We will make sure the gold is available for any of you that need it to do so. Nice to have a little
help from your friends. House Banking Committee, July 24, 1999 - Alan Greenspan - "central banks stand ready
to lease gold in increasing quantities should the price rise".

Now, why did Alan Greenspan utter this in the first place? Gold traded at $385 for years and that did not bother
anybody. What is he trying to protect? Why mention mobilizing gold reserves when gold is trading below $300?

Whether it was planned or not, the price of gold has been bombed every time it has reached, or tried to reach, the
$300 area the past 6 months.

While Midas du Metropole is shouting this from the mountain tops: " if it looks like a duck, acts like a duck, trades
like a duck, it is probably a duck", we are not the
only ones who are aware about the time bomb, explosive nature of the gold loan situation.

Bloomberg -Nov 26 - Sydney - " Normandy Mining Ltd. said it will realize 85 percent of the value of its forward
gold sales booked over the next 10 years, giving it a profit of A$650 million. The Australian miner, one of the
world's 10 largest gold miners, said it bought back 4.1 million ounces of its previously contracted gold sales, and
says it replaced the sales with options. Reuters- Nov. 25 ( US time ) - Sydney - " The transaction will
simultaneously eliminate potential bank counter party risk," Normandy said in a statement.

Why did Normandy even bring up "counter party risk"? What do they know?

The two most vociferous, and right on, pontificates of the bear case the past few years were Merrill Lynch and
Union Bank of Switzerland. They encouraged their clients to go short and encouraged gold borrowing. They, more
than anyone else, would have a very good idea of how large the gold loans have become. Whether planned or not,
both have withdrawn from the gold derivative business. They were so right on the gold market. Why did they exit
the gold derivative business? They were the bears' heroes!

Whether planned or not, 12 major banks chaired by Goldman Sachs and JP Morgan in early January formed a
"Counterparty Risk Management Group" "with the intent of enhancing best practices in credit and market risk
management. The policy group will develop standards for strengthened risk management practices". We realize
this group was not just formed because of the gold issue, but why the need for it to be formed now? Is this not a
"cabal planner" of sorts. Looks like a duck to me.

That there is a "cabal" to hold down the price of gold for a period of time really should be no surprise. They are all
in cahoots together anyway- the Fed, the "plugged in" investment firms and the banks.

Bloomberg News - NEW YORK - Jan.18 - Partners at Long-Term Capital Management LP, the hedge fund that
was taken over by 14 banks after losing more than $4 billion, are meeting with lenders, investors and regulators to
explain their losses and pave the way for raising new money, people familiar with the fund said over the
weekend�..........The partners, led by John Meriwether, a former vice chairman of Salomon Inc., have spoken to
about 20 institutions in Europe and the United States and will hold similar meetings in Asia........The 14 banks,
including Goldman Sachs Group LP and Merrill Lynch & Co., bought 90 percent of Long-Term Capital for $3.6
billion in September with the agreement they would keep their money in the fund for no more than three years........
The firm was taken
over a little more than a month after Russia's default and devaluation in August, which caused many investors to
abandon all but the safest securities and made many
of Long-Term Capital's market positions unsustainable. The fund, whose net assets have climbed about 14 percent
since the banks took over Sept. 28, is now run by an oversight committee of six of the banks.

Why did Terry Smeeton, a top official at Bank of England who recently retired, completely clam up about the size
of the gold loans when confronted? Why did a top executive of one of these 14 banks turn red when confronted
about the same issue last weekend?

We, in the gold industry, only ask for a fair shake. We ask for full disclosure, ransparency of operations and some
truthful answers about what is going on. So did CFTC Chairwoman Brooksley Born, who sent a letter of
resignation yesterday to President clinton, because her efforts were thwarted in this area too.

PARTIAL REMARKS OF

BROOKSLEY BORN, CHAIRPERSON

COMMODITY FUTURES TRADING COMMISSION

UNKNOWN RISKS IN THE OTC DERIVATIVES MARKET"

SILVER USERS ASSOCIATION

WASHINGTON, D.C.

October 28, 1998

I am pleased to be asked to speak today to members of the Silver Users Association. Having represented a client
in the cases and investigations relating to the 1980
manipulation of the world silver market by the Hunt brothers and others, I continue to have a special interest in the
silver market.

Today, I would like to discuss recent events in the over-the-counter ( "OTC" ) derivatives markets and to share
some thoughts about the appropriate role of
regulation in responding to them. The events surrounding the financial difficulties of Long-Term Capital
Management L.P. ( "LTCM" ) raise a number of important
issues relating to hedge funds and to the increasing use of OTC derivatives by those funds and other institutions in
the world financial markets.

LTCM is a hedge fund that was able to borrow billions of dollars based on the reputation of its principals and its
profitable trading. It entered into enormous
positions in exchange-traded and OTC derivatives. When prices moved against it, it was on the verge of defaulting
on its commitments. The Federal Reserve Bank
of New York encouraged its major creditors and counterparties -- many of the largest U.S. and European banks
and investment banks -- to infuse $3.6 billion into
LTCM to prevent its collapse and the possible disruption of the global economy.

Most of the regulatory issues posed by the LTCM episode were raised by the Commission in its Concept Release
on OTC Derivatives in May 1998, which initiated
the Commission's current study of the OTC derivatives market. The issues include lack of transparency, excessive
leverage, insufficient prudential controls, and the
need for coordination and cooperation among international regulators.

1. Lack of Transparency

While the CFTC and the U.S. futures exchanges had full and accurate information about LTCM's
exchange-traded futures positions through the CFTC's required
large position reports, no federal regulator received reports from LTCM on its OTC derivatives positions.
Notably, no reporting requirements are imposed on most
OTC derivatives market participants. This lack of basic information about the positions held by OTC derivatives
users and about the nature and extent of their
exposures potentially allows OTC derivatives market participants to take positions that may threaten our regulated
markets or, indeed, our economy without the
knowledge of any federal regulatory authority.

Furthermore, there are no requirements that a hedge fund like LTCM provide disclosure documents to its
counterparties or investors concerning its positions,
exposures, or investment strategies. It appears that even LTCM's major creditors did not have a complete picture.
A hedge fund's derivatives transactions have
traditionally been treated as off-balance sheet transactions. Therefore, even though some hedge funds like LTCM
are registered with the Commission as commodity
pool operators and are required to file annual financial reports with the Commission, those reports do not fully
reveal their OTC derivatives positions.

THE FEDERAL RESERVE AND THE TREASURY DEPARTMENT HAVE BEEN THE MOST
PROMINENT CRITICS OF HER REVIEW OF
DERIVATIVES.

Did she resign because she was tired of talking to ducks that do not want their activities exposed? What kind of
activities do they not want exposed? Is there a
smoking gun here?

Yes, " Something IS Rotten in the State of Denmark" and in Washington. The people in the gold industry are
paying the price for the errant ways of the financial
community and what they have wrought. These ducks in Washington talk out of two sides of their mouths. They
talk integrity, and practice hypocrisy and
skullduggery .

I may be misinterpreting your brief comments following my recent post. But I take it that your perception is that Alan Greenspan has only the best of intentions for the good of the economy and the good of the country. And While in the past he may have understood that in the absence of the gold standard, there is no way to protect savings from confiscation through inflation, now he has simply become better informed and changed his mind.

The Federal Reserve system is in my mind a cartel born in intrigue and secrecy and continues to operate that way today. It's an unconstitutional central bank that was legalized by congress. Contrary to it's supposed goal of stabilizing our economy, in reality it's been a major cause of the series of booms and busts over the years causing misery and suffering for millions of citizens. Now I do not doubt that Alan Greenspan wishes to maintain full employment, high productivity, low inflation and a generally sound economy, he is not interested in killing the goose that lays the golden egg. But when there is a conflict between the public needs and the needs of the private cartel as has been occurring almost daily in recent months the public interest will be sacrificed. That was evident in the recent LTCM bailout and the timing of an interest rate cut just prior to market closing and the day before options expiration.

Here is a comment that Mr. Greenspan apparently made to the House Banking Committee, July 24, 1998 - "central banks stand ready to lease gold in increasing quantities should the price rise". It sounds like a willingness to manipulate to me.

The fact that Mr. Greenspan does not think social security funds should be placed in the equity markets does not convince me that he has my best interests at heart. If he were honest he would remind congress that there is no surplus since our social security taxes are simply borrowed and replaced with a piece of paper through means of magical governmental accounting to make it look like we have a surplus. In the private sector people go to jail for such actions. Those are just a few of my thoughts.
I could go on but time won't allow and I need my sleep.

Forgive me for excessive optimism, sometimes I am seized by fantasies of a better world and have imaginitive ideals that may not be based on reality. Maybe it comes from having two young grandchildren living with us. Sorry to keep you up.

I guess I haven't been paying close enough attention. What did gold do in Brazilian real terms in the aftermath of the devaluation ??

Peter, help me out ... I'm know you're not sleeping.

Weak gold price seen trimming S.Africa mine profits (Reuters)
By Darren Schuettler JOHANNESBURG, Jan 20 (Reuters) - South Africa's gold producers, riding a roller-coaster gold price
in recent months, will serve up weaker profits when the reporting season for the December quarter kicks off on Thursday,
analysts say. South African firms, including giants AngloGold and Gold Fields , felt the pinch of a stronger local currency which
dampened gold prices in local terms during the quarter to December 31, analysts said.
- Jan 20 4:48 AM EST

Looks as if the DOW will be heading south and Feb Gold has really increased in volume and bouncing about 287.4 Looking forward to some action today !
<;-)

Hold on to your hat Steve, as Feb Gold just blew through 280 on good volume, but is bouncing tween 287.7 and 280.1
<;-)

Look at the Kitco spot gold chart. Apears to be agenuine eruption.

Good morning. I didn't see any numbers but as I understand things, if their currency drops 30% then their domestic POG goes up 30%. That means a Brazilian gold holder has more purchasing power at home but is "running in place" everywhere else. If he did not have the gold, his international buying power would now be down that 30%.

So, I'm suddenly thinking, Except for the U.S., as gold trades in dollars and fluctuates in all the other currencies, Then don't the other nations citizens actually have the function of a gold standard available to them by merely buying gold.

Really, all you said last night, (#1967) is probably the bitter truth, especially "when there is conflict" etc.

Re: announcing just before option expiration; it would be logical, given the derivative mess, to direct some of the profiting on the announcement into the pockets of the derivative holder, rather than waiting a day and have it all go to the share holders. That's not a "free market" out there, it's a profit competition, so whose to say what's "fair".

On the CB gold leasing comment, was he divulging valuable information which could help one avoid losses from going long, or was it a "fake out" to lower sentiment to facilitate purchasing?

It's a "house of mirrors" out there!!

Turmoil cont.--
Stoke ofa pen not a sword.
Many wonder how gold can be introduced back to the monetary system....when the collapse of the $ becomes a real
crisis [front page news]...A bank holiday will be declared , perhaps on a thursday...the treasury dept, or other selected
officials, will announce to the country that a new monetary system will be introduced on the following monday.
Proposal;
10 greenbacks to be exchanged for 1 yellowback new issue
the new yellowback to be backed by gold pegged at $300 /oz. [the price of gold could be
more depending on what measures the Fed. takes leading up to this crisis [increases in M3, etc. ]

What has happened? [example]
On thursday your home @ $400,000 On thursday your mortgage @ $200,000
On monday " " @ $ 40,000 On monday : : @$ 20,000

On thursday price of gold @ $300
On monday price of gold @ $300

You can see that all assets and liabilities have been marked down by 90% ..gold remains the same[defacto $3000] and
we have wiped out 90% of the national debt and stabilized our currency by a stroke of a pen. Nobody has been hurt
except those who have shorted gold or gold related derivatives.

More later...
those who have shorted gold or gold related derivatives.

More later...
r

On the surface, that seems logical. I would think uncertainty and fears of possible further devaluation would spark demand. On the other hand, holders might sell what they have and the price would retrace somewhat. I doubt if fluctuations in the supply/demand would cause immediate direct fluctuations of the currency relative to other commodities.

We agree ... the fact that individuals can purchase gold allows them to create their own de facto gold standard.

http://www.wired.com/news/print_version/politics/story/17404.html?wnpg=all

Foes Target 'Know Your Customer'
by Declan McCullagh
3:00�a.m.��20.Jan.99.PST
A controversial plan to monitor all US bank customers may not happen after all, if congressional opponents get their way. In early February, a coalition of Republican legislators will attempt to block the Know Your Customer proposal, which is backed by a broad array of bank regulators and scheduled to take effect by April 2000.

The legislation will include two bills that bar regulators from following through on the plan, while a third will grant Americans access to files that the IRS and Treasury Department have collected on them.

"If we require private credit agencies to establish a process by which citizens have access to their records, we should expect nothing less from the government," says Bradley Jansen, an aide to Representative Ron Paul (R-Texas), the chief sponsor of the legislation and a member of the House banking committee.

The proposed Know Your Customer regulations would require banks to review every customer's "normal and expected transactions" and tip off the IRS and federal law enforcement agencies if the behavior is unusual. Agency officials say such monitoring is necessary to detect drug-related money laundering.

Since the plan surfaced in December, thousands of irate Americans have flooded regulators with complaints. As of Friday, the Federal Deposit Insurance Corporation had received over 10,800 email messages -- a new agency record -- that overwhelmingly oppose Know Your Customer.

At a Monday meeting on Capitol Hill of the Ad Hoc Coalition for Financial Privacy, representatives from a dozen organizations gathered to rally support for Paul's three bills:

�Know Your Customer Sunset Act: Aimed solely at Know Your Customer, this would bar agencies from following through on the plan.

�Bank Secrecy Sunset Act: Bank regulators claim that existing laws such as the Bank Secrecy Act give them monitoring authority. This bill would repeal the measure one year after the date of enactment.

�FinCEN Public Accountability Act: The IRS and Treasury's FinCEN jointly run a mammoth searchable database with information about nearly every American. Over a dozen agencies can browse the data, including the FBI,
IRS, Secret Service, bank regulators, and state law enforcement. This measure would let consumers check their own files and challenge information they believe to be false.

The amount of widespread support for these measures is unclear. But in December, 11 members of the House banking committee joined Paul in a letter to the FDIC saying they "oppose the draft regulation" and were prepared to fight it.

Phil Gramm, the new chairman of the Senate banking committee, has also said he believes regulators may "have gone too far." He said in December that he plans to hold hearings early this year.

The Federal Reserve, the Office of Thrift Supervision, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation have published identical versions of Know Your Customer. The rules currently will not apply to credit unions. Comments to the agencies are due by 8 March 1999.

Conservative and libertarian groups have been the most vocal in opposing Know Your Customer, though the ACLU and civil liberties groups also expressed concern. The Libertarian Party complained the plan "will force banks to spy on their customers." The Eagle Forum's Phyllis Schlafly called it "one more tentacle of the Clinton administration's plan to
monitor the daily business of law-abiding citizens and treat us all as if we are criminals."

Thursday, you can cash your $20,000 T Bill and buy a $20,000 Pontiac. Or wait till Monday, cash your $2000 T Bill and buy a $ 2000 Pontiac.

All the holders of paper have had their balance adjusted by X/10, and therefore all products will be 1/10 of their previous price figure. Just like that mortgage debt, The national debt or any other debt will maintain it's right to buy the same goods, at least domestically. You could devalue internationally, if you think we can survive on all exports and no imports. But other than that, you've just moved a decimal point..

There other options, but they will require that sword!

Drrrrrrrrrrruuuummmmmm Rollllllllll Puhhllllllllease......

After much weighing of the evidential offerings by our esteemed posters, we are now ready to announce the winners from last weekend's jousting and frivolity........
This was not an easy decision....

We are going to award the silvers to:

Steve H Post # 1871 for bringing computers into the discussion in an interesting way

JA # 1917 for a great first post on inflation

And the GOLD goes to:

Gold Dancer #1843 for deftly dancing around making a commitment on a paradigm but provoking good discussion nevertheless....

They're out the door to you.

As for the rest of the posters, I want to say it was a great contest and you could just see that people's minds were being tested. That's the whole idea. My hat's off to all.

We'll do it again soon. By the way, the awards had nothing to do with the positions taken -- only the depth and clarity of the thinking being communicated.

My own view tends toward inflationary depression much like what happened in Asia simply because we are facing the very same problem of inability to export our wares and pay our debts from the income -- to wit, yesterday's trade numbers. As Greenspan pointed out yesterday, we have been able in the past to make up the difference by attracting foreign capital into our bond market simply because the dollar was preferred as the world's only reserve currency. That leniency becomes suspect in a world of competing reserve currencies as Greenspan pointed out yesterday as well. What this will mean to holders of dollars in a dollar monetary crisis is not a mystery. These are unpleasant fundamentals falling to close to the unpleasant Asian contagion experience (not including Japan).

Also, we have experienced disinflation in this country for many years -- even the 1970s were essentially a disinflationary experience only magnified. The inflationary depression is related to disinflation -- the same phenomena only the numbers are bigger in terms of unemployment, inflation, bankruptcies...the gamut. Don't forget the 1970s experience was preceded by a dollar devaluation. Asia was preceded by devaluations. Brazil was preceded by a devaluation. I think the dollar is next only it won't be a formal devaluation but a concerted, consistent depreciation of the currency. Don't expect the Fed or Treasury to announce it. That will be followed by the next paradigm... inflationary depression!

In essence I was asking a trick question. The answer very well could have been all the above. Gold Dancer came the closest to catching it, that's why he gets the shiny one-tenth ounce Austrian Philharmonic.

The bottom line is that gold protects against any and all of these paradigms and in no matter what order they come.

I just got back to my computer, went to the USA gold
forum and I saw the I won the gold coin. Many thanks USA GOLD. I really like your forum and always check in every day
although I don't always have anything to say myself. I
found the contest question to be most interesting and enjoyed reading all the posts.

Just a comment on the gold market. I have felt the tennor
of the market changing over the past couple of months and
expect gold to hold $285 and head higher. I think the US
is now backed into a corner and the gold shorts are about
to lose theirs!!! Now that the internet bubble has cracked
that psychology may move onto the next group. I think
that group is going to be the golds. Long term chart patterns of gold stock charts suggest a possible hugh move
up during the next 3 to 4 months. Or gold may just grind out
a big move over the next 12 months. Either way I think our
time has come.

Thanks again and best wishes to everyone.

Gold Dancer

I know I bring this subject up repeatedly, but did anyone else besides me get a raised eyebrow out of this mornings trade figures. The deficit widened considerably. Well, if foreign buyers don't keep buying US bonds and stocks, there's going to be a problem. Good thing the dollar is coming down. I think it's a question of time now before the house of cards comes down.

You've unsheathed your "sword" a couple of times now. What are you saying...that the U.S. (will or) should nuke Japan? Europe? Please elaborate. Are you prepared to extend Tomahawk Diplomacy to the First World or are you talking about something else entirely?

JA referred to creating a gold standard at the "stroke of the pen". My analog was to use the famous quote, "the pen is mightier than the sword as in "oh yeah? Not in this case."

I've been stressing for some time now, my belief, that a gold standard requires: 1) enough gold at current prices to equal the money supply. Or, 2) an enforced control of the POG dictating it can only be bought and sold at the price necessary to equate the gold on hand to it. Or it may very well include forbidding any trade in gold, and/or confiscation. With gold having a "value at 10 or 20 times the cost of mining it, there would be a lot of unpopular enforcement required. Hence the reversal "the sword is mightier than the pen."

R.S.V.P.

That was T.Remital I was responding to, JA & I were debating Greenspan.

Thanks for the clarification. I'm with you now. I also see your point. If I remember right, ANOTHER and/or FOA made the point that we might see some type of heavy taxation of the mines, or even nationalization. (I could be wrong on that perhaps one of the ANOTHER scholars could help us out on that.) But T. Remittal's point is interesting-- a new gold backed currency might be the only government recourse if a tidal wave of dollars starts crashing ashore. How do you get there? Remittal's view is unique to us but perhaps not unique to history? By reducing all assets and liabilities by a factor of 10 and not touching the gold price, we go back on convertibility, or even partial backing in least painful way possible. Most wouldn't even know what happened except, of course, gold owners (and the now insolvent gold shorts) unless, as you point out, they've had their gold confiscated before the remonetization. An interesting speculation but I have to think about under what circumstances it could all be possible. It might be a stroke of both the pen and the sword. Who knows. Right now I would lay my money on a euro type new currency in the United States, but Remittal's view is interesting.

T. Remittal: We have heard rumors of a new currency for years. Do you think that this is something that is likely to happen, something you suggest as a response to a dollar debacle or something you think might be actually in the planning stage?

What you are talking about is certainly a strong argument for the various nations to add significantly to their gold reserves? Don't you think?

Feb gold now $288.10...Looking better, eh Gandalf?

Here is something Another said about that:

8/19/98 ANOTHER (THOUGHTS!)

Supply And Demand for Gold; Does this change the value of this "Metal Currency"?

I ask, why do many look to the "commodity" supply and demand of this element for direction of price? The use of gold for
jewelry and other fabricated forms is but a small amount of the buying and the selling. The mines do produce perhaps 2,500
tonnes a year, and "fabrication demand" does use perhaps 3,000 tonnes. Yet, all look closely to see if the usage does change
and move the price up or down. However, the "fabrication demand" has been much greater of the mine supply for many years
and the dollar price still falls!

Truly, the selling of 3,000+ tonnes of gold, for the making of things, does not influence the dollar price of an item of that trades
13,000 tonnes a year at LBMA alone! And the gold does trade much greater amounts in the small places of which you have
little knowledge. Perhaps this "metal currency" is used for "the money transactions" as 20,000+ tonnes per year? The Central
Banks still hold a billion ounces of gold:

Does your broker of "leverage gold" tell you these banks watch the "jewelry production" for the intent to value gold reserves in
vault? Do the other holders of perhaps, two billion ounces of gold, held worldwide, also look for "fabrication demand" to raise
the price? Do the billions and billions of currency/gold/swap transactions all see value only if "jewelry" is selling well?

My friends, events will change your thoughts. Often you are sold gold that is called "deliverable", yet the broker does lend you
much percentage cash to buy. Perhaps this transaction is "deliverable after full payment" and as such the broker doer deliver
"little real gold", yes? Much of the western world does "attach" to gold in this form. This metal is sold with the "modern concept"
of "gold is the commodity for fabrication" and "is dead as money" in "this new era". This "concept" say that only "leverage" and
"trading" does add to your estate. In this fashion, many have lost the long term benefits this "world class money" will soon bring.
These persons wait for the event that does not come. In the future, many "salesmen of leverage" will tell stories of the fact that
could not be. "The demand for gold "the element" will vanish, as the dollar price for "gold the money" does soar". What chart
will be used to view this new high gold price, that will remain, for many years, "unaffordable" as a commodity, yet all bid for
daily as the right to buy "money"? In this future time noone will deliver a leveraged commodity that has become, "leveraged
money", no? The physical gold, it will trade by the dealer that has seen the Euro as the gold and oil settlement currency of
worldwide use. Many will learn the price of gold in Euros, as even the American Eagle will be quoted as such!

Canada does continue to sell, however they lust not for the Euro! Perhaps the American dollar will change this thinking! Poland,
the BIS did deliver them more gold for the future of their children. We watch, as the BIS does continue to buy gold under $360,
for it's account, as they fill Central Banks with a new world currency reserve. Countries that now begin to think in Euro terms,
find the dollar gold as "the good exchange rate" for joining the Euro Group in future! From spring of this year, this demand,
makes gold be above $280? The ECB says, "this gold has been sold in dollar terms but has yet to replace the dollar reserves."

I think, now it comes time to sell the dollar. As the Belgian gold was purchased to replace dollars, it did announced the end of
EMCB leases. Now the BIS transactions do create a gold market that is "not as before"!

We watch this new gold market together, yes?

Thank You

Another

Thanks for the rapid response, I'm still stuck in the gold mining cost/money ratio though. In this new currency gold would be $300, but mining costs would be only $26 of the new "yellow backs". So how do you prevent people from acquiring the metal as a commodity, but spending it as cash.

Maybe we have a "Lurker" out there how could explain the math better or more correctly than I'm doing.

Few "people" in fewer locations would be able to mine enough gold to circumvent the system ! If the companies were required to sell all production to the treasury and heavy taxes (remember winfall oil taxes) were deducted from the gold sales at the point of sale, the vast majority of mined gold would be under Gov' control. Sales of stored or recycled gold would be the "peoples" option.
<;-)

Thanks for tying up the loose end. Windfall profits, of course! That is if they don't just nationalize the mines and shoot unautorized prospectors.

A small apology, you did say that actually. To much speed reading here during the evening modem compition.

MARKET UPDATE (1/22/99): Gold stayed in a range under the $290 mark failing to build short-covering momentum to take it higher. Those on the short side of the gold market have not spent the morning without worry:

1. In Brazil both the currency and stocks continued to drop. Reuters reports that "persistent capital flight will force an even deeper devaluation" -- an event which could send Wall Street stocks careening. An additional $410 million fled Brazil yesterday alone. Most stock bourses around the world reacted nervously to the news coming out of Brazil. Argentina, Venezuela and Mexico falling precipitously. Asian bourses are doing even worse with Hong Kong, South Korea and the Philippines posting the biggest losses. Europe was also down with Holland, Germany, Italy and France all posting losses in the 3-4% range. Wall Street is not faring much better.

2. Though the gold price is stagnant, you wouldn't know it judging from physical demand for the metal around the United States. Most major dealers are reporting strong numbers and we are again being affected by shortages in the pre-1933 gold coins -- both European and American. Wholesale premiums on the pre-1933 British sovereign were up $3 yesterday and
the rest of the European group were up between 50� and $1. As we have said frequently here and in News & Views ,Wall Street and Main Street have two different views on the
yellow-- and it's only a matter of time until the pooled strong physical demand of the average investor overwhelms Wall Street's gold market manipulators. Our feeling is that, no matter what Wall Street does to keep the gold price below $300, the premiums on the pre-1933 gold coins will rise as a result of the building demand with Y2K being the prime motivator.

3. An article just published in this morning's Denver Post illustrates the point. Editor Chuck Green wrote candidly about Colorado banks, stock brokerages, credit union and trust companies asking the recently convened legislature "to protect them against lawsuits filed by customers in case Y2K bug infests the nation's financial system." The financial institutions wasted no time getting the legislation on the docket. Says Green, "While your friendly banker might reassure you that there is no need to panic and start keeping your cash under a mattress, your friendly banker might be talking with a forked tongue...Apparently your
banker isn't very confident that his computers will keep whirring, or that the electric company will keep the transmission lines buzzing, or that the telephone company will keep the phones ringing. And if your banker isn't comfortable with Y2K preparations should you be. Suddenly the Y2K threat seems more personal than it did just a couple of days ago. In fact, it's really starting to bug me." (Knowing how the financial industry works, I would not be surprised if you discovered a similar bill rattling around your own state legislature. Nor would I be surprised to find Fed and Treasury memos/directives to be the prime mover behind a national movement toward Y2K legislation. Check it out. If you find something in this regard, please post it at the FORUM or send an e-mail and we will post it.)

Wall Street and Main Street have two different views of this gold market....no question.

Aragorn III...Haven't heard from you lately. Hope all's well.

Goldfly...Just discovered Schubert's Piano Sonata's recently. Good stuff.

Peter...Hoping T.Remital comes on today with more.

Turbo...Thanks for KYC post...Seems there's much turmoil in banking industry these days. That training binder for the bank v.p. has to getting pretty thick. How do they keep it all straight? Do you have a feel for how they will treat safety deposit areas during a banking holiday? It seems to me it would be difficult to close them down because of the wills, insurance policies, stock certs, etc. stored there.

We know now that floating exchange rates don`t work ...note turmoil at hand. With the meltdown of global
currencies taking place almost daily,there is a obvious need for a anchor to stabilize internatiolnal commerce.
With the reserve currency of the world tied to gold...all trade countries would adjust their currency to the new
dollar which would stabilize the problem we have today. Peter... the decimal point is moved on the $ world wide,
A monetary system encompasses all trading countries...the $ 2000 pontiac wud be qtd. in new us. $ not yen nor
rubles. More later...

http://www.gold-eagle.com/gold_digest_99/hein012099.html

The information being given Congress about this [KYC] program states
that "the regulation would require each nonmember bank to develop a
program designed to determine the identity of its customers;
determine its customers' source of funds; determine the normal and
expected transactions of its customers; monitor account activity for
transactions of its customers; monitor account activity for
transactions that are inconsistent with those normal and expected
transactions; and report any transactions of its customers that are
determined to be suspicious, in accordance with the FDIC's existing
suspicious activity reporting regulation.."

The big boys are frightened! They realize that large numbers of
people dealing in cash, for example, will be able to transact
business privately, and without providing information about their
economic activities. To manage the economy, knowledge of such things
is important, particularly as the economy deteriorates and the
bankers find themselves on that tightrope balancing between runaway
inflation and global depression. Millions of bucks disappearing into
the black hole of the "underground" economy is, for them, a
terrifying concept.

Saw it was the same ol same ol --- foreign markets down -- DOW down alot at the opening --- gold holding fairly steady -- the PPT holding the S&P up rather well -- and the NYSE volume only --- WOW !!! -- LOOK at that -- nearing TWELVE MILLION SHARES with about two hours to go !!!! Could that be an error ? Naw, just the blowoff start of the end.
<;-)

MK, Schubert is nice but the piano is in the ballroom. I don't dance!

Speaking of banks- I have a tale to tell. But no time right now- later.

GF

Wall Street Journal discusses y2k gold bugs on 1-21-99

asked in the TimeBomb 2000 (Y2000) Q&A Forum

Some points of the WSJ gold bug article.

1. Harvard business school grad (non-survivalist type) increases gold and mining stocks to 20% of portfolio (from 5%). Says foreign countries not paying attention to y2k.

2. US Mint set record in 1998 selling 1.8 million oz. Eagle coins. No more one oz. silver coins for time-being because manufacturer ran out of blank coins to supply mint.

3. NY commodity analyst finds significance in rash of Silicon Valley gold purchasers. Likens it to when doctors decided to stop smoking.

4. Cites example of person switching 401(k) assets into short term treasuries and precious metals funds.

5. y2k gold purchases are uniquely American; not an international phenomenon. (Hey! we caused the problem, maybe we know how to solve it! WORK-AROUNDS! This parenthetical comment supplied by Puddintame. The publishers of Puddintame ask that you bear with his weak humor for a little while longer while we still have a chance to chuckle. . .unless you're a COBOL programmer and in that case get back to work
immediately!) 3.

-- Puddintame (dit@dot.com), January 22, 1999

JUST AS SOME HAVE SUSPECTED ! ! ! Now here it is !

What is being posted herein comes from an extremely reliable source, but I have not personally verified the accuracy. It however does explain some of the posturings of the media, the Dingy (er, White) House, and several other figures in the news. The source of this information it can be revealed is a Senor Senator who has been in the US Senate for several terms, chairs several committees, and has significant influence. Obviously the Senator is a Republican.

A DEAL HAS BEEN STRUCK BEHIND CLOSED DOORS AND IS ALREADY DONE WHEREBY PRESIDENT WILLIAM JEFFERSON CLINTON WILL NOT BE REMOVED FROM OFFICE. All the Senate Trial activities are a farce. The deal is done ! ! All the current activity is a dog and pony show for the American people and signifies nothing.

The American sheeple have been had ! ! Whether the media is in on this scam or not is not known at this time, but it is high time the real situation be brought to light. It was by pure happenstance that this information came to me. Again, I am unable to personally verify the accuracy of this information, but by my observations of this particular senator (who is known throughout congress as a truthful, honest person with total integrity) as well as the actions of several other senators, the above bulletin most likely is correct.

Please look at the shift that has been occurring in the past few days by the media. BUT, just look at Mr. Klintons demeanor the last few days particularly. There is no way anyone could interpret that he is in the least bit concerned.

Folks, we have been had ! !

The most dangerous person to this country is now going to lead (?) this country for another two years. One and all Americans, let us all now pray. And I do mean this most sincerely, for everything for which this country stands is in grave jeopardy. This is not meant to be political. Dealings like this are the very thing that will bring the USA to its knees. Both Democrats and Republicans had to be a party to the deal or it could not happen. This is not to insinuate that all Democrats or all Republicans are involved in this travesty, for there most assuredly are honorable people in both parties. Is highly unlikely that anyone in congress (either house) would at this time publicly admit that this has in fact happened.

This is indeed a shame for all Americans to bear.

Is there not ANYONE in the media with the integrity to investigate this? Or are all of you in on, and party to, this sham? What is the terrible down side of this whole story that is so bad that the American people will be unable to handle it. Tom Brokaw, are there none left who will even attempt to fill even a few of the shoes of "The Greatest Generation"?

It is with great sorrow that this post is made. One that no one would ever wish to see, but it is a burden that cannot be ignored or freedom is indeed dead. It will only need to be buried.
Let us pray - - - -

The President of the United States has already been impeached. It now appears that the articles of that impeachment, ratified by a Republican-controlled House of Representitives, are on the verge of being thrown out of the Senate without even proceeding to a fully-implemented trial as specified by the Constitution.

This entire issue has been debated and re-debated throughout the entire spectrum of American society; from the media, to the Congress, and from every other conceivable point of view. Lately, the media has even resorted to interviewing children in a desperate attempt to fan flames that might otherwise burn themselves out. Bandwidth at the Kitco forum has been clogged for over a year with every manner of diatribe against the President of the United States. Anyone with any other point of view has been effectively silenced and eventually repulsed by the endless stream of mindless invective and generic drivel/gibberish about "dirtbags, scumbags" and worse, that appears every time even a hint of rational discourse on the subject is initiated.

The level of discussion here at USAGold has, so far, never degenerated to any such level. Granted; gold as the ultimate political metal demands that many political subjects be carefully considered. However, confusing political points of view with hatred for individual political figures does not have to contaminate our forum.

I would like to entreat in the strongest possible terms that we all voluntarily restrain ourselves on this subject and post only new ideas that can actually offer something not yet heard thousands of times. In keeping with this thought, I hereby decline to take up the theme so eloquently posed by Overherd in his Message #1999; merely allowing the resolution introduced by Senator Byrd in the Senate (to throw out the articles of impeachment without further consideration) to speak for itself. Letting the absurdidity of the House managers' partisan case twist slowly in the wind will prevent its lack of substance from infecting this forum.

Of course, by restraining ourselves in this matter we will all profit. Lots of bandwidth will be preserved for more productive discourse. And contributors to this forum will be spared the alienation and disgust so easily conjured up by the passions that surround and permeate this theme.

Reference: Restraint

Please do not encumber Overherd with Msg # 1999. It was mine. I agree with you that this forum should not digress into a political free-for-all; however, can you not conceed that secrecy is a problem for all and particularly when it will eventually impact finances and economics.

The point is "secrecy from the public regardless of your political preferences or feelings. Is not this the issue you have so eloquently presented in numerous postings in regard to gold surrounding manipulation, price fixing, etc.

It seems to me that POG is not totally independent from politics. Particularly when it is politics that govern relationships of various fiat currencies. So - - - let us just discuss gold in its purity and with purity of subject matter.

That post was not intended to be political as regards to taking a stance for or against either side, but to inform with reference to the secrecy issue.

If you are in some way offended, please accept my apologies. And to others offended also. Future posts will be restrained to gold.

backlash

Yes, yes, yes. Let's keep away from that subject. Our local paper has had so many days, where every item on the letters to the editor page was on this, we actually went to sunday only, partly due to the abundence of this drivel.

Mea Culpa! Backlash and Overherd for confusing one of you with the other.

And forgive me, Backlash, for missing your point on secrecy.

I couldn't agree more with you that secrecy offers little to the political process in our democracy. I'm afraid that your point was obscurred by its context; ie. the impeachment issue.

And I was in no way offended by your post. I think/hope I was just suggesting that we avoid any grounds for offence by not allowing politically-inspired personality issues to cloud our debate of gold-inspired political questions.

Rest assured that no harm has yet been done. But from your post I can see that there would be much to disagree with between us should we ever find ourselves debating some of those issues. Fortunately, there is no need for us to that without in any way restricting our friendly debate on issues that really do matter.

I for one am no fan of WJC.

Just to make myself clear-- I think Bill Clinton is a poor cousin to the Anti-Christ.

But I did cringe to see post #1999.

Peter, several years ago, we also cut back to just Sundays. Then we figured out that it was the absolute WORST day to get it. Now, no paper coupled with no TV, I find my family and myself to be much better for it.

Thomas Jefferson (1743-1826):
"The man who reads nothing at all is better educated than the man who reads nothing but newspapers."

"I do not take a single newspaper, nor read one a month, and I feel myself infinitely the happier for it."

"The advertisement is the most truthful part of a newspaper."

"Banking establishments are more dangerous than standing armies."

-GF

We also kicked the TV habit 10 years ago when we moved beyond the reach of cable and couldn't stand the thought of a dish. When our children were growing up we had a lifesyle that exposed them to very little TV and they became voracious readers and prolific writers. Now, TV is worse than ever, and has little bearing on the "nuts & bolts realities of life. Hopefully as The Net evolves, TV will fade away.

A very important side issue is: when children read, they must conjure up mental image pictures to go with the words as opposed to being fed the pictures of others. This ability to visualize, in fact, atrophies if not developed. So,an essential tool for life is weakened by this exposure.

Backlash posted a worthy message that, if true, has important implications for gold investors who frequent this site. As such, I believe he did us all a service by bringing it to our attention. It is information that is not part of mainstream press considerations and worthy of our attention. I would never want this site to become such that somebody would not want to post something of such importance because they felt it would be offensive to others politically. In other words, I do not want anybody to fear speaking their mind, or deliver a piece of news, because somebody else might deem it politically incorrect, offensive, or off subject. All I ask is that an opinion be delivered in good taste and with consideration for those reading it. At the same time, I do not want this site to become a political free for all ala the McLaughlin show. I ask all to use their discretion and good judgement. At the same time, I do not consider backlash's post #1999 in any way indiscreet, but a matter of immense interest and importance. If you have further information along these lines, backlash, please post it. I think you handled the information well and posted all the necessary caveats. We are all intelligent commentators/readers here and can judge for ourselves the validity or lack of validity in a piece of news and file it accordingly. And PH you are right as well, I do not want this site to become another impeachment extravaganza, but I think you must admit that if backlash's post #1999 turns out to be true, the whole fiasco we are witnessing in Washington takes on a new dimension of which we should all be cognizant -- no matter our political affiliation.

Well guys, I guess I won't post the promised story. It's not that much about banking and is too drawn out to be interesting. Besides, I'd be posting some things that probably shouldn't be left hanging in cyberspace.

Suffice it to say that my wife almost gave our Y2K cash stash to the St. Vincent de Paul store in what she considered to be a white elephant. I only saved because I was taking stuff out of my trunk and it happened to be on top of the things in a plastic grocery bag. Needless to say we have taken steps to better preserve and protect such commodity.


Peter, you don't have to tell me about the reading. My daughter was five when she was reading (and comprehending-- after we had read it through once with her) the Little House series. The library is my kids Nirvana. My little boy (now five) is currently walking around quoting passages from a book about Alvin York.

What you say about the imagination is true too. While I've never taken the time to sort out my reasoning, I don't allow my children much PC time. I allow very little computer gaming (such as "Chip") and I throw away every offer of free "Children's software." I didn't start developing *any* computer skills until my late teens. While they may need it sooner (word processing and such), they _don't_ need it now (seven and younger). They DO NOT need a digitized version of Green Eggs and Ham.

Am I getting completely off-topic here? Well it is kinda slow. And I DID issue a new version of a Y2K warning. Don't let it happen to you!

As for #1999, your point is taken MK. I think the first thing that popped into my head was the fear of a door being opened that could take us down a muddy path that "others" have tread. That would be a sad loss in my estimation.

-GF

GF

Unfortunately, I know no more about expected bank policy regarding safe deposit boxes than I did before, and I knew nothing before.

Glad to see you weigh in on the post issue. It would disappointment me to think a person might decide not to post in fear of being off topic. One doesn't have to agree with it ... one doesn't have to respond to it.

In yesterday's Fiend SuperBear Market Report, the Fiend posted Lawrence Lindsey's report to the Senate Budget Committee. Very interesting. It's still up at:

http://www.fiendbear.com/marketre.htm

Scroll to the bottom of the page.

Give Bill an email if you are interest:

The following is posted at another site
(www.lemetropolecafe.com), and after reading it I found
the idea intereating. With the permission of Midas,
'lepatron' here is the post:

Invitation to a Lawsuit

Chris Powell

Manchester, Connecticut USA

January 22,1999

cxpowell@aol.com

For months now Midas has written more and more
convincingly of evidence that certain major brokerages
are conspiring with financial authorities in the federal
government and possibly a mining company or two to
suppress the price of gold.

Some of these brokerages recently announced creation of
what they call the Counterparty Risk Management Group,
whose purpose seems frankly to manipulate the price of
certain securities, particularly derivatives, some of
which likely involve gold, in the name of preventing
disruption of the market (and, of course, preventing,
most of all, damage to the brokerages themselves).
I don't get it. For if Midas is right about what is
happening, the brokerages and their accessories are part
of a vast criminal conspiracy that is breaking antitrust
law. We of the Gold Party should be suing to stop them.
If Midas' interpretation is correct, we'd win.

Antitrust laws protect economic competition. To quote
the World Book Encyclopedia, "These laws prohibit price
fixing, an agreement among business firms to control the
price or supply of a product or service." The major
federal antitrust laws are the Sherman and Clayton acts,
but there are others, and all states have their own such
laws. Whenever two or more parties cooperate in limiting
prices or supplies of a product or service, the free
market is defeated and antitrust law is broken. (There
is an exemption for labor unions.)

The federal government, through the Justice Department
and the Federal Trade Commission, can enforce antitrust
laws. But private parties can seek enforcement as well
by filing federal and state lawsuits.

It doesn't take much to start such a lawsuit -- a sworn
affidavit based on sincere belief. And once a lawsuit is
started, the plaintiffs have the power to compel the
production of testimony and evidence from the
defendants.

My guess is that the announcement of the Counterparty
Risk Management Group would be in itself more than
sufficient for the basis of a price-fixing complaint.
And just imagine what might be uncovered by a lawsuit
whose discovery process could compel the production of
such a group's minutes and the testimony of the
brokerage officials believed to be involved in
suppressing the price of gold.

Such a lawsuit could be internationally explosive. And
because violations of antitrust law are liable to triple
damages, it also could be profitable to the plaintiffs
and expensive to the defendants.

But the great thing about such a lawsuit is that the
Gold Party would not have to win financial damages to
win financially. If there indeed is a conspiracy to
suppress the price of gold, its exposure alone probably
would bust it up and liberate the market. The
mere filing of the suit would warn the perpetrators that
they were in jeopardy. Busting up the conspiracy alone
would prove very profitable to the plaintiffs.

The practical question is the financing of such a
lawsuit. But it shouldn't require much -- a law firm
with a little familiarity with antitrust law and a
retainer of, say, $50,000 or so. Surely there are a few
mining companies that have been injured by this
conspiracy that should consider contributing, as well as
many ordinary mining company stockholders and people
with a philosophical interest in gold. It could be filed
as a class-action lawsuit and thereby qualify gold
interests everywhere for damages. If the suit discovered
evidence of a price-fixing conspiracy, the plaintiffs
would be likely to recover at least their legal
costs as part of a settlement.

Of course we'd be up against what have been called the
Masters of the Universe, including the federal
government. But so have been a lot of people of no
special influence, most lately the woman who was derided
as Arkansas trailer trash, Paula Jones. She
was wrong on sexual harassment law -- what Bill Clinton
did to her was disgraceful but not illegal -- but she
stood up for her right to her day in court, and because
her legal representation was financed by a foundation
pursuing a political aim, she not only
won a substantial settlement but also changed American
politics.

If Midas is even close to being right, the Masters of
the Universe are flagrantly breaking the law, and
catching them up in a lawsuit might be easy, thanks to
the power of discovery and deposition.

I'm a nobody but I pledge $500 to underwrite such a
lawsuit. To start we probably need a lawyer and mining
company or two and a few dedicated precious metals
shareholders of means who would like to shake things up
and even change the world. Any volunteers? If so,
contact Midas. We can change the world. Anybody can.
This is still America if we'll act like it is.

What are the merits of SteveH's post?

GF

I have no legal training, but I've had wins at self representation. So, since I can't resist putting my unqualified two cents in, --------

The first thing that comes to mind is that this is not price fixing, but a consortium designed to move a market by strength of numbers. It seems similar to something covered by anti dumping laws but I doubt that would apply to paper gold. It's the sell side of cornering the market. So, if there was a law broken when the Hunt brothers did that by buying up silver, I would think that would apply.

http://www.iionline.com/tbd/anfdt_frm.asp?ff_id=786

Is Alan Greenspan Manipulating the Gold Market?

Almost to the day, the second great manipulation of the gold market
began 132 years after the first.

On September 24, 1869, a pair of rascals named Jim Fisk and Jay Gould
cornered the New York gold market, forcing short sellers to cover at
any price. Around the same week of 1998, a man named Alan Greenspan
began controlling the price of gold by lending the metal to
investment bankers who sold it short each day to keep the market
price from rising above $300 a share.

Fisk and Gould were out to make millions squeezing the short sellers.
Greenspan's objective is to protect our economy. When the Fed head
organized the bailout of the Long Term Capital Management hedge fund,
a part of the problem was the fund's surprisingly big short position
in gold.

Then it turned out that other hedge funds and institutional
speculators were--and many still are--short of 8,000 to as much as
14,000 metric tons of gold, many times annual production. If even a
few of these shorts were forced to cover their frantic buying, it
would send gold skyrocketing by hundreds of dollars an ounce.

Can we prove this? No. But Fed Chairman Greenspan said that he
would control the gold market if he had to. He spelled it out on
July 24 in little-noticed testimony before the House Banking
Committee. The chairman was trying to downplay the risk that some
derivative contracts might produce a squeeze on short sellers.

He explained that there was no danger that the supply of oil to
fulfill derivative contracts could be restricted. Then, he added,
'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.'

You can hardly get clearer than that. We should never have wondered
why gold couldn't seem to break through the 300 level. The answer
was right there in the Banking Committee hearings. It was buried in
pages of boring testimony, but we have missed it. In other words,
Greenspan told us two months in advance what the Federal Reserve
would do to keep gold from going to the moon.

The market performance of the yellow metal shows clearly that it was
controlled in a narrow band from 300 to about 305 from the last week
of September--the 132nd anniversary of the 1869 gold corner--to the
third week of October. Since then, control has kept gold bouncing
from 292 to 300 and back again. And in the last three weeks the
selling pressure has created a slight downtrend.

The possibility of manipulation of the gold market first hit us in
the spring. We'd been predicting that gold would eventually recover
from its long bear market, but every time it rallied the rally was
aborted by sales of central bank gold.

It wasn't just the sales themselves that kept gold down, it was the
way the central banks sold. Instead of carefully metering out their
sales to get the best price and not disturb the market, they
carelessly dumped their bullion and usually denied they were doing
it.

At first we thought this was deliberate. Eventually we realized it
simply reflected the attitude of the present generation of central
bank bureaucrats. They hate markets, don't know how to deal with them
and don't want to know.

As gold waterfalled down, producers continued to hedge the price of
their future output and put further pressure on the market. Gloom
reigned. It seemed to some of us that with inflation dead the
naysayers might be right and gold was just another commodity. And
then, in a move that rarely happens in any market all of the negative
factors keeping the yellow metal down seemed to evaporate so abruptly
that gold gained an amazing $20-an-ounce in only a couple of trading
sessions, a $35 jump from the lows.

It rocketed straight up in a way not seen since the great gold bubble
of the early 1980s. Gold rose as far as $315 and then settled back
around $308. To traders and portfolio managers the question was: is
the move for real or only another fake out?

The spring rally wound up going nowhere. It spent the summer
trending down, down, down--until September, when it came back to life
again with a sudden runup from its 18-year low of 277.90 to 300 in 10
days of heavy trading.

The buying was enthusiastic enough to shrug off the Czech central
bank sale of 31 metric tons of gold thrown at the market right in the
face of its upward surge. At the same time, the central bank of
Luxembourg said it had sold most of its reserve, perhaps 10 metric
tons.

The market ignored both sales. The problem for gold bears was that
world currencies and its stock markets were all tanking, banks were
reporting huge trading losses and Russia was coming apart.

Why was the barbarous relic moving up? Because people all over the
world were beginning to worry whether the money in their pockets and
purses was really as sound as all the central bankers claimed.

Without admitting any danger, the European Parliament backed calls
for the creation of a 100-Euro gold coin as legal tender once the
European Union's single currency becomes widely circulated. Sales of
gold coins around the world were surging. U.S. bullion coin demand
reached an 11-year high.

There were rumors that an Asian-type International Monetary Fund
might be launched based on a gold-backed Japanese Yen. Indian gold
demand was 19% higher for the first three quarters of the year over
the same period of 1997. Demand for gold was up in Southeast Asia
and in South Korea.

None of these factors was crucial; but they indicated that gold was
sneaking its way back into fashion. And this was bad news for
Greenspan & Company. So, it's reported that Washington got on the
horn and asked Asian governments not to be aggressive buyers of the
yellow metal while the Fed was trying to engineer a soft landing for
the short sellers.

The Swiss government cooperated by asking its Parliament to approve
sale of 1,300 metric tons of gold. The lawmakers cooperated but the
people will get to vote on it in 2000.

It's reported that the countryside Swiss are not in favor of
lessening the strength of the world's hardest currency. Even worse
for the Fed, it's rumored that the gold backing of the Euro may be
raised from the currently planned 15% to 30-35%. France has strongly
pushed for this to make sure that the Euro will be strong enough to
rival the dollar.

It's intriguing that half a dozen of the biggest investment banks
have issued reports on gold in the past couple of weeks. Bear
Stearns weighed in with a handsomely printed 86-pager announcing that
precious metals are 'back on the radar screen,' and gold is a
'disappointing metal showing signs of life.'

Chief among the reasons given for this is that there has been less
exploration and development, which has reduced supply, mining company
costs have been cut, and gold is underowned and underrepresented in
investment portfolios. The report also suggests that it may no
longer be easy for speculators to lease gold and sell it.

Prudential Securities' study says 'we are warming up to gold' because
there is more upside than downside in the next year. It forecasts an
average price of $320 an ounce for 1999 compared with $297 this year.
The Pru will not be surprised to see short covering rallies as hedge
funds unwind their positions. It also notes the possibility that the
European Central Bank will increase the percentage of gold in its
foreign reserves.

Salomon Smith Barney says it's positive toward the gold sector and
expects the metal will breech the $300 an ounce resistance level and
average $350 next year as fears of central bank sales subside and
short pressure eases.

Morgan Stanley Dean Witter's gold analyst, Douglas M. Cohen, comes
down on the bear side of the fence. No crisis seems able to trigger a
rise in gold and continued central bank lending are his principal
negatives. Indeed, he says that Venezuela, Germany, Portugal,
Austria, and Switzerland are new entrants into the gold lending
market.

Old friend Bill Murphy, a veteran gold trader, who writes on the
metal under the name 'Midas' [www.lemetropolecafe.com] says there's a
cabal of investment banks who are leasing and shorting in cooperation
with the Fed and others to cap gold at $300 an ounce. H believes
that Goldman Sachs is a leader of the group which includes J.P.
Morgan. Perhaps that's the reason, says Bill, that Morgan issued a
report predicting that the price of gold will fall in early 1999
before steadying up later in the year.

If being negative on gold is an indication of membership in the short
selling gang, then Lehman Brothers must be a suspect. A week ago,
Lehman issued a flash meeting report titled 'Reiterating our Bearish
View of Gold Equities.' In somewhat snotty tones, the report says,
'gold equities continue to discount a significant and sustainable
rise in gold prices as if it were inevitable. It isn't.' Lehman
maintains its long-term average gold price forecast of $290 an ounce,
ending the note by pointing out proudly that this price forecast is
'the lowest on the Street.'

Though there's a ceiling on the price of gold created by
Fed-facilitated borrowing and short selling, there appears to be a
floor under the metal that keeps its price from collapsing below the
$295 area. Each time gold hits the floor, it bounces just a little
and then hits the ceiling. We assume that the floor consists of
official buying by central banks. Poland and Russia have bought
openly; China and Japan are believed to be buying and it's likely
there are others. In addition there's growing private demand for
gold in Asia as a shield against currency devaluation.

With gold unable to climb, it may seem strange that the gold-oriented
mutual funds have recently performed so well. According to
CDA/Wiesenberger Editor Stephanie Kendall, the month of September was
truly golden for these funds with eight of the top 10 jumping over
50% in total return for the month. The reason: bullion did
relatively well during the month and gold equities historically move
three times as much as the price of gold. The move can be up or
down. For September, Fidelity Select Gold posted a hefty return of
54.93%. But its year-to-date return is a minus 9.1%.

No one knows when gold will trade in a free market. The amount of
the metal sold short by speculators is huge and the Fed and its
associates may work at the unwinding for some time. And even when
all shorts have been covered, the Fed may find itself riding a tiger
wondering how to get off without being eaten.

The gold corner in 1869 only lasted days. Fisk and Gould had bribed
the brother-in-law of President Grant to use his influence to keep
the Treasury from releasing any of its reserves. But, the game was
lost when Washington changed its mind and overwhelmed the corner with
Federal gold.

We don't see a quick and easy end to the present control.

John Tompkins, a frequent contributor to Reader's Digest and former
regional business correspondent for Time Money Talks,
http://www.talks.com