Price of Gold (POG) at $2,000/oz and accelerating!

[reproduced for fair use and educational purposes only]

This dream has been with us who are regular visitors at GOLD-EAGLE for quite some time. And for a few of us this dream has already been the reason for many years of frustration.

Every time the price sinks another dollar and whenever another pronouncement of intended official gold sales puts the market in a tizzy and when the Financial Times (FT), the New York Times or Bloombergs or some other media heavyweight writes that "GOLD IS DEAD"  as an FT banner headline read in December of 1997  we all find the dream is becoming that little bit more of a nightmare.

For a long time now the big question has been, "When will the golden dawn come to wake everyone to a new day; a better day than was yesterday? A day to party and rejoice, because gold has at last broken from the shackles and is rising free  free from manipulation to assume its rightful and historic place as THE store of value."

I fear that for some people the question has now changed to "Will we ever experience such a day?"

In this essay that may well be the question I am trying to explore.

Not the "When?"  that is too uncertain, as will be seen from the discussion, but the other question, "Can we expect to ever realise the dream?"

Some basic facts about gold and money

As background I want to mention a few facts, without belaboring them as most of us have lived with this knowledge for some time. Yet, in combination they will set the scene for what follows.

Gold has been valued and appreciated for many thousands of years, if not as coin then as adornment. (I have seen a picture of a finely detailed gold head-dress, a mass of small leaves, each exquisitely formed and independently suspended on a cap of small entwined golden branches, that  if memory serves correctly from 30 years ago  was excavated from a habitation on the Russian steppes and dated to 17,000 years ago. Beautiful! and so well done that it could find a place in any jewelry shop of the present. Unbelievable!)

For many thousands of years gold was either the most sought after and highly valued coin for purposes of trade and as recognised store of value, or, as it became later, the standard against which the value of paper currencies could be set  and judged.

A gold standard does not allow the willy-nilly creation of money. The supply of money is fixed by the amount of gold available to back the currency. An increase in the money supply is effectively only possible by increasing the available amount of gold or, alternatively, by reducing the degree to which the currency is backed by gold. The latter option is then really a devaluation of the paper currency  and not strictly a revaluation of the price of gold in that currency. In principle, since the value of everything is measured against gold, there should be no or merely minimal inflation.

Debt is still possible, provided the debt is incurred with a hard asset as collateral and with a bank as intermediary in the acquisition of that asset. In effect a loan to buy, say a house, becomes a two-phased transaction. The bank pays the seller for the house and the purchaser buys the house from the bank on an installment plan. In this process no real money is created, as the bank has to use whatever money is available to it for the purchase of the house. It does not create new money.

A gold standard in effect keeps both the government and the individual honest in its or his/her financial dealings. Undoubtedly the greatest advantage of this proposition accrues to new generations. If no new money can be created to be a debt to the individual or to government, then the inheritance of new generations to come are safeguarded. They will enjoy the fruits of what previous generations have produced.

At the moment, government and individuals both are improving their standard of living at a cost that will descend directly or indirectly onto later generations. If an individual makes fiat debt to spend on today's brief pleasures, he is squandering his children's inheritance. A government that borrows to spend today what future generations have to repay, is saying to the children. "We know far better than you will ever do how your money should be spent!!" This is an arrogance I am sure none of today's leaders of finance or government, if they could have the opportunity, would willingly accept from their forefathers!

The above would be bad enough if government squandered people's savings, as would have to be the case under a gold standard. It is an abomination forced onto the taxpayers of tomorrow if the money that is so easily and freely spent by government was generated by the central bank, merely by making two entries in their books  one to purchase the debt instruments of government, while the other entry places the liability for repayment of that loan on the taxes to be paid by generations to come.

No wonder government was so keen to go off the gold standard, once the populace's ever higher expectations for "the good life" became the major platform on which a party was elected to rule (Note, not "govern", because the latter term implies two things: striving after wisdom and having the interest of the people as the primary priority. Rulers have only one priority  to ensure the succession of their heirs, so that they too can enjoy the trappings of power.)

Back to gold: we are all aware of the fact that the gold carry became substantial, probably under intense marketing from banks and brokers who saw a lucrative opening to continue the principles of the Yen carry at a time when a much weaker Yen made the latter risky and impractical. Then after the events of 2nd half 97, when demand for gold picked up again as people realised gold was still a store of value, hedge funds that shorted gold unwisely were threatened by the risk of default, or going belly up, if POG should suddenly rise steeply. The first solution was to keep shorting gold  as the steep rise in the lease rate in October 1997 offers evidence  and the second was to entice the assistance of more powerful forces on their side, namely the central banks who were running the risk of seeing their leased gold disappearing down the drain hole if the hedge funds should fold.

The situation today

Today we have a situation where the total short position  producer forward selling and the short position of hedge funds  could be anywhere from a low of probably 8,000 tons to perhaps as high as 14,000 tons. I include producer forward selling in this figure since expectations of a substantial rise in POG will in all likelihood inspire producers to begin buying back the gold at a much lower price than what they had received when they had sold forward.

It would be rather embarrassing to producer management if they had to admit to shareholders in years to come, with POG up in the blue beyond, that they had already sold their current production for a measly $450 or even less. They might even find themselves without a job!!

The estimates therefore relate to the amount of physical gold that would be sought in the market if gold begins a substantial bull market. There is no need, really, to compare this to annual production of less that 3,000 tons and with current demand already exceeding this natural supply by a good margin.

The first question that now needs attention is whether there is a possible supplier that could satisfy this short demand if POG really took off. Apart from known reserves in central banks  to the total of about 35,000 tons, less of course what has already been leased  and the reserves of the IMF and World Bank, there is no real source of gold in the required quantity. Unless there is a fire sale of whatever gold remains in the vaults of these institutions, there is little chance that the demand of hedge funds and producers can be met.

If the LBMA really were trading 1,000 tons of physical gold every day, there would be no problem. Hedge funds could simply step up to one of the LBMA members and place an order for say 200 tons per day. Within 2 months they could have purchased 8,000 tons and that is surely a lot more than the hedge funds sold forward. Producers could do the same, but they are under much less pressure to cover.

The fact that the funds were caught short as early as October 1997 and that they have been battling ever since then to create a panic situation where gold would be dumped by whoever is holding it, shows that the LBMA offers no alternative  they are largely paper traders.

Of course, the gold that was sold short did not disappear down a drain. Someone must have been buying the excess gold that flooded the market during this period of forward and short sales. If we assume an average of 750 ton p.a. excess demand over production since about 1992, then perhaps as much as 5,000 tons have been taken out into what could be termed "legitimate purchases", i.e. jewelry, industrial use and private hoarding in India and the Arabian countries in particular. That still leaves at least 3,000 to perhaps 9,000 tons to account for  quite a lot of gold!! Whoever has been buying this gold surely has a private agenda for doing so.

If we assume an average price of $350 for the 100-300 million oz purchases by the mystery buyer(s) over the past 5-6 years, the amount involved ranges from $35 billion to $105 billion. Not exactly peanuts, but not that large an amount with which eventually the whole world could be held at ransom!! The US and NATO probably spent as much just on liberating the Albanian immigrants to Kosovo!

Will this "somebody" become a willing seller again as the gold price rises through the levels of $350 and $400? I doubt it. The purchases were surely made with a long-term objective in sight and, just like the identity of the buyer(s) still being very uncertain, we have to wait until that the nature of that objective is made known to the world. I think when it is made public, it will come as a surprise to many who are quite complacent about the current state of affairs!

Which means that there has only been small amounts of gold leaked out from central banks and now the IMF sale (IF they can get US Congressional agreement, which I'm beginning to doubt, seeing that the G7 have already decided on Congress' behalf that the sale can go ahead!  an act Congressmen/women and US Senators may consider a little premature) and the proposed sale of gold by the Bank of England (IF they can survive the potential scandal of the sale being orchestrated by Goldman Sachs). Apart from these there is no known large and willing supplier who will (or can!) sell to the shorts at reasonable prices and then sit back to see POG playing at Superman  UP UP and AWAY!

So, if the likelihood of the short positions being covered is small to vanishing, the next question becomes, "What happens if the hedge funds default/fold?" Note that the producers are excluded here  if worst comes to worst and POG goes through the roof, they can change management and produce like blazes to get their commitments on their forward sales behind them as soon as possible, so that they, too, can enjoy the benefit of a gold price well above $1,000/oz.

The nature of the beast of which nightmares are made

In trying to estimate the effect of a steeply rising gold price, it is necessary to look beyond the positions  long and short  in the gold market and to speculate about what would happen if the hedge funds were not able to buy back the gold they have shorted. If we assume that such a development could put the funds into a well-painted corner from where they can not get out and thus face the risk of going belly up, what would be the implications?

The only partially reliable evidence of what the largely unregulated hedge funds have been up to, comes from the LTCM case where it is not clear what is rumour and what is fact. The "facts" seem to be that LTCM was a hedge fund with about $4 billion in assets. It is thought that they may have been short of 300-400 tons of gold and that their spread, or hedged, position in the US debt market (short Treasuries and long corporate debt was mentioned) amounted to about $120 billion. Later, stories circulated about off balance sheet positions in derivative markets that were estimated in excess of $1 trillion.

On the GOLD-EAGLE Forum a post by goArmy (Global hedge funds fail to hold investors (goArmy) June 15, 22:29) contained the following very interesting information:

"About 62 global macro hedge funds with $35.4 billion in assets turned in a meager 2.5 percent return in the first four months of this year. Performance last year was not better. Macro hedge funds as a group were up 3.7 percent in 1998, with the S&P 500 climbing a whopping 26.7 percent."

Lets disregard the performance of the hedge funds and also the existence of the remainder of the approximate 2,000 hedge funds and only look at the implications behind these 62 large funds. In round figures, they are on aggregate 9 times the size of LTCM, as far as assets are concerned. If we assume the same ratio as for LTCM in their investment portfolios, we can assume that they are short of about 3,600-4,500 tons of gold; they have a combined real hedged position of almost $2 trillion in debt and other markets and they have an off-balance sheet derivatives position that approaches or even may exceed $10 trillion.

If, as the somewhat meager evidence so far suggests, these funds are leveraged to the maximum, with relatively little cash on hand (even no cash, if redemptions are beginning to bite!!) then a jump in the gold price could catch them with the proverbial pants around the ankles. A very unenviable position indeed!!

They might be even so finely balanced that a steep rise in POG would necessitate the same kind of bailout LTCM received, courtesy of the Fed and the large banks who were scared of the effects of an LTCM failure on financial markets. Now, if gold became the common denominator in the scuttling of hedge fund fortunes, the bailout would have to be more than 10 times the size of LTCM, if the smaller hedge funds also begin to sink, which implies a rescue operation of about $40 billion. And after that money has been spent, the very large short and derivatives positions are still hanging over the market.

It follows that the threat of a rising POG has very little to do with gold as metal  a mere commodity!  but a lot with the vulnerability of the hedge funds.

With the spectre of having to unwind say $4 trillion in hedged positions and more than $10 trillion on the derivatives markets popping up in his nightmares, do we really blame Greenspan for his famous quote on how central banks stand ready to relieve a short squeeze on gold?? Wouldn't you promise the same if you carried responsibility for a stable (US) economy??  with the (US) in parentheses, because Greenspan really has a global commitment, even though his mandate is restricted to the US.

The real nightmare

What could happen if someone really stepped on the rake? If POG rises steeply, either as the trigger of a financial meltdown or as the consequence of another failure within the interlinked system?

What nightmare would motivate Greenspan et al to use every means at their disposal to keep POG down, well below $300/oz, in an attempt to keep their dreams alive?

Let us use Japan as a recent example of what could happen when a financial bubble bursts. Japan experienced two major bubbles in the late 80's  in equities and in property prices. The bubbles burst at the start of this decade and Japan is even now still in deep deep trouble. The main reason for their economic problems is that consumers are saving and not spending  with the key to the whole problem being the steep decline in the latter activity.

In the final resort, an economy grows on increased consumer spending. Everything else is merely the window dressing that allows economists to differ from each other and so ensure that they enjoy full employment.

So, despite Japan increasing their trade surplus month after month, thereby adding to their national wealth, the up to 30% savings rate of the Japanese family is killing the economy. Even though the average Japanese  man woman and child  has about $100 thousand dollars of savings already in the bank, their precarious outlook at living in retirement on an interest rate of less than 1% compels them to save every Yen they lay their hands on.

What would happen to the US  the economic powerhouse of the world  if the nightmare feared by Greenspan and others should come to pass?

Quite some time ago I heard a figure of $25 trillion as the total amount of US debt  individual, corporate and Federal. How close this is I do not know, but, if true, it means that every American  again man, woman and child  has to service the amount of $90 thousand of debt, in round numbers. This is done by paying interest on mortgages and loans, buying goods from corporations that have the cost of their debt factored into their prices and by paying Federal taxes, from which the Federal debt is serviced.

That amounts to about $350 thousand per family of four. At say 8% on average, the annual interest cost for a family of four is therefore $28 thousand. Not peanuts at all, if we assume that the annual average income per worker is of the order of $35 thousand (my guess). No wonder so many American families cannot survive without both partners working, or without state assistance in the case of single parent families.

We also know that the savings rate of the US has gone negative, as more and more borrowed funds firstly found their way onto Wall Street. Later, when these investments showed good capital gains, further borrowings, using the paper profit as collateral, made additional investments in equities possible. Also, because markets gave better returns than the cost of a loan, borrowing against an investor's portfolio was the cheaper way to satisfy a desire for the material good life. So even more debt was taken on to fund the purchases of homes and the other high cost items that kept the US economy in gear.

If  and one can say, "Heaven forbid" with deep feeling  a financial meltdown in US markets should occur, for whatever reason, slashing the value of investments in equities and sending interest rates soaring as risk to lenders assume unattractive proportions, the situation in America will be much the same as in Japan over the last 10 years, with a few exceptions.

The similarity that really counts will be that the US consumer, too, will not spend any amount, however small, on anything that is not strictly essential. To be sure, not for the same reason as the Japanese, but the general effect will be the same.

The US economy will experience the same deflationary death spiral as did Japan. A very sharp decrease in consumer spending  which will initially be ascribed to excessive debt obligations and insufficient cash flow/income to service the debt  over time results in reduced production and then excess workers being laid off. Not long after, management too begin to receive pink slips.

Reduced income in the hands of consumers as a result of these layoffs and even further tightening of the domestic belt because of the fear of being laid off, is soon followed by further reductions in production and more workers/management being laid off. A vicious cycle has started, with the construction and service industries likely to be the hardest hit of all. A process that could take many years to complete, as we have seen in Japan.

Those are the similarities.

The differences are firstly that the average American does not have $100 grand in savings per person. Secondly, unlike Japan, when a collapse comes the US will not have a Great Big Consumer on the other side of the ocean to absorb exports and to at least keep some industrial activity in high gear, and thus many workers employed  thereby helping to alleviate the worst effects of the death spiral. Unlike Japan, there is also no tradition of lifetime employment to cushion the shock of all this for the man on the street.

Few American owners of failed businesses will commit ritual suicide, because they failed in their obligations to their employees, as was frequently reported in the Japanese press.

Given the current scale of US individual, corporate and Federal debt, the situation will be even worse than in 1929. The recent US budget surplus  the first in decades  was I believe largely the result of a significant increase in capital gains taxes based on the roaring profits people made on Wall Street. Let economic activity decline into a depression, thus reducing the tax base, while taxpayers now claim for losses made during the bear market, and tax revenue takes a dive. The old familiar Big Budget Deficits will be back with a vengeance.

Speaking of effects on a wider front, we now have, unlike in 1929, that the majority of workers in the world are not engaged in agriculture, where they could at least stay alive through their own efforts, even if they had to do so with no new clothes or any shoes at all. Today, for the majority of workers, if you do not have money, you do not eat. As simple as that.

This, then, is the real nightmare.

A depression much, much worse than the 30's.

And not a word yet about Y2K!!

The implications for gold

Until quite recently I often wondered why Soros and others of his ilk did not exploit the situation. Simply acquire a large position in gold or gold related investments and then announce to the world what you have done and intend to continue doing. Bingo!!

Every man and his dog also starts buying bullion and gold stocks and the hedge funds panic and join the eager throng, each one out to grab the next tidbit of gold or the next 100 gold shares that come on offer. Of course, supply is very limited as holders of gold or gold shares who are aware of the fundamentals are sitting back, quaffing champagne to celebrate their good fortune. They are not even thinking of selling before POG breaks $1000, still accelerating!! If then.

Now, as a very optimistic estimate, Soros or whoever could probably invest somewhere between $2 billion and perhaps as much as $5 billion in gold before the market runs up a head of steam. At ruling prices that would be between 4% and 10% of the total number of gold shares in issue (gold mine global market cap is said to be $50 billion, of which about half is tightly held). Alternatively, that amount would represent the purchase of between 8 and 20 million ounces of gold (250 and 750 tons). Say that an optimistic $4 billion could be spent before prices begin to rocket and that the split is 50-50 between stocks and bullion.

If POG goes to $500/oz the investment in stocks may increase say 10 fold to give a gain of about $18 billion. The $2 billion invested in gold itself delivers almost 100%, for about another $2 billion, to give a total profit of $20 billion. Meanwhile, other markets, in which Soros has invested $60 billion plus, tank by 60%, for a loss of $36 billion!

A billion does not go as far as it used to, as Getty sr remarked when the media discovered that he was the world's first billionaire. Yet nobody wants to run the risk of losing a net $16 billion on what even at the outset seems a most optimistic gamble. If Soros, or whoever, started on this gambit and news leaked out, he might have only $1 billion invested by the time POG takes off, and then his net loss when events take their toll might be close to $30 billion, or almost half his fund  despite him riding the tiger that he has unleashed!

This means that every large institution heavily invested in all markets is almost forced to either help keep POG down or to remain on the sidelines. They simply cannot offload their positions and then get into gold, as their positions are too large and any attempt to close them out would trigger exactly the events they want to avoid.

This does not mean that they won't all join the gold rush when it gets under way  that would be the one and only way to self-preservation!  it is just that they simply cannot stir a finger to help gold get its head start.

In fact, practically everyone in that position will do everything they possibly can to avoid being fingered by history as having started the catastrophe!

(Note that someone else  apologies; I cannot remember who - also mentioned Soros' dilemma on the GOLD Forum not too long ago)

Implications for other markets

Gold is of course not the only "finger on the trigger" of potential financial collapse. If inflation in the US should soar, raising fears of higher interest rates, a major sell-off on Wall Street would have the same effect.

If the economy of a major country  to which US banks have a large exposure  should take a nose-dive, say because of currency and debt problems, the effects could escalate to precipitate a crisis in the US.

If a major war erupts  say one that involves India or the Koreas  with risk of nuclear weapons being used, the effect on the markets could build up to become an unmanageable crisis.

If economies in SE Asia and Japan really start off on the path to recovery, the repatriation of funds invested by their citizens in the US  to escape the risk of overheated US prices and to invest at the bottom of what appears to be a new bull market  could weaken the dollar and trigger further repatriation of foreign investments. Then the bond market and Wall Street will begin a spiral of ever steeper descent as US investors try to get out while the value of their investments still exceed the borrowings that the investments made possible.

If US citizens find that they cannot increase their debt load in order to finance further purchases of durable and other consumer goods  many of which were made ever so affordable by the sharp devaluations in the currencies of the exporting countries  they might decide to cash in on their investments on Wall Street, firstly to reduce their debt and secondly to buy all the nice imported goodies they have always desired. That, too, could be the trigger of what soon becomes a deflationary spiral  initially in equity prices and later in the rest of the economy.

In all these cases the end will be much the same. Two features will stand out.

The US and the rest of the globe will get to experience what Japan has gone through the past almost 10 years. In spades. Secondly, the price of gold will skyrocket. This simply has to happen under all the above starting scenarios, because when push gets to shove Soros and the other fund managers as well as your man on the street will all search for any means to safeguard whatever paper wealth they have remaining.

The only answer will be physical gold and shares in gold mines. (Silver too! Of course.)

Conclusion

Think kindly of all the individuals who carry the responsibility of keeping the world on an even keel.

Not only do they have to keep POG below $300, they also have to keep the lid on inflation  to the tune that they will cook official figures for the CPI??.

They have to ensure that the bond market remains steady and that the bear trend is reversed  and this applies to the US and other major countries.

They have to ensure enough liquidity to reduce the pressure on lenders who have bought into Wall Street  and the other bourses  using borrowed funds. In fact, people should be encouraged to keep on borrowing and investing, because the market has to keep on rising to provide the leverage to afford new borrowings to fund new purchases on Wall Street.

They have to encourage US consumers to borrow more in order to spend more, else the steady increase in corporate quarterly profits will reverse and decline and then even the most ardent bulls will have to admit the party is over. It will be time to get out the exit before the rush traffic starts.

They have to manage the currency exchange rates. The yen must not appreciate too much against the dollar, because then repatriation would be triggered; yet the dollar cannot weaken too much against the Yen else the trade deficit goes through the roof.

European investors have sold off the Euro, but first they exported capital to invest in the US because they feared this would happen. If the Euro took on a new lease on life, these funds could flow back to Europe, with exactly the same consequences as any of the other triggers. The ECB has to be kept in check, because if they raise the amount of gold behind the Euro in order to buy stability, the whole card castle comes tumbling down.

Which probably means that authorities in Europe will try to  or be seriously requested to  maintain the status quo. Keep in mind that, if at all possible, they too want to avoid having the finger of history pointing at them as the cause of the Great Catastrophe of the New Millenium.

Somehow, however desirable, the economies of South-East Asia must not explode into new growth, but must ease into recovery very gradually  else the calamity is on us when investors from this region begin to repatriate funds from the US. A strong dollar will help to keep funds in the US, so that markets do not begin to wobble, but again the dollar should not become too strong, else the flood of imports will increase to where US industry is forced to reduce output, again with very bad consequences for all the markets.

And the list of things the authorities have to manage  busy, busy, busy  to avoid the nightmare is not exhausted.

A last thought

We end with two questions:

Would you like to have the job of preventing the catastrophe?

Do you think the people who currently have that job have enough fingers to keep plugging all the new holes in the dyke?

The answers are self evident. So, too, is the answer to the question "Will we ever get to live our dream and see POG at $2000?" asked right at the beginning.

Even if reality later tops out at only $800/oz.!!

It does not seem to be a matter of "if", even if we as yet do not know "when".

This discussion nevertheless provide a number of factors that one can monitor to see how successful the powers that be are in their attempts to keep the beast in its cage.

And to warn us when it is finally breaking out.

PS: I end with a question for which I have no true answer, even though I can rationalise it to myself. What was written here is the first part of my exploration in search of an answer: Can one in all honesty, knowing what the results are likely to be, really wish for Greenspan & Co to fail so that POG could go through the roof??

21 June 1999

) June 1999 Daan Joubert

-- Andy (2000EOD@prodigy.net), June 20, 1999

Answers

Andy, here is another NEW article regarding gold from the Gold Eagle site:

Let's Call The Bankers Bluff

Ray

-- Ray (ray@totacc.com), June 20, 1999.

Andy-

Is your email address real? Would you mind discussing gold and silver acquisition? Thanks.

-- (seekinginfo@aboutbuying.com), June 20, 1999.

Yes, for goldbugs, this is the "appllecart syndrome". I would like to hear some scenarios of what the central bankers have in mind for after 2000. Sure chaos shall rein, but they know that. People will be looking for someone to pick up the pieces. That, I think, will be the strength for the central bankers. They have a massive organizational structure. They expect Y2K. After Y2K they may launch the three new global currencies: Euro, Yen, and North American. Gary North may be wrong about a currency shortage of long duration; I say "may be". Still like others I'm more concerned with "survival with honor" than investments. These global games are fascinating to watch. OK, bring on the flame throwers, Tim

-- Tim Johnson (timca@webtv.net), June 20, 1999.

His is real, so is mine. In a nutshell, buy from a reputable dealer. As mentioned many times in other threads ( you can look up the 1-800#s in the threads) good dealers are amoung many Blanchard, The Money Changer, Camino Coin, Ron Paul & Co. A great dealer to talk to for first time purchasers is Burt Blumert who owns Camino Coin and runs Ron Paul & Co.

To point out the obvious, the reason that Andy is posting all this stuff about gold is that he is convinced, and I concur, that the present monetary system will collapse, either totally or in terms of "storehouse of value". This will cause great suffering of the lower, middle class, and low-mid upper class. Andy encourages people to take any funds excess of preparation expenses and put that buying power in a safe place. Now many people place those excess funds in excess "stuff" (to use Gary North's phrase) for trade goods and recovery goods. This is great if you are staying in one spot. If you should be forced to flee, gold (not silver) is very portable. Andy encourages you to purchase gold for the same reason that I bore people to death about buying dry bleach, we wish people to remain healthy and safe.

-- Ken Seger (kenseger@earthlink.net), June 20, 1999.

"We will line the toilets of the world with GOLD" Marx.....or was it Lenin?

-- Ralph Kramden (piss@onthis.net), June 20, 1999.

Andy,

Thanks again for this excellent essay. It ties a lot stuff together really good. I especially like his last comment and question regarding how much we would really want Greenspan to fail. Personally, I think it is out of AG's hands and control even right now, and that the current system *will* fail, in the near future.

-- Gordon (gpconnolly@aol.com), June 20, 1999.

Dry bleach? What thread/link do I look that up in? Thanks!

-- Mumsie (Lotsakids@home.com), June 20, 1999.

I wrote to Daan, I'm sure he wouldn't mond me posting his reply...

"I just read your most excellent article on the Gold Eagle site. I pretty much agree with everything that you said apart from one thing... Y2K

I am a programmer of 22 years, and have worked in the banking field for six years (with VISA in San Francisco). It is my expectation that the interdependent system of banking systems will crash or hose up monumentally at rollover - primarily due to the problem of corrupt data sloshing around the system and exponentially causing further corruption to databases - so much so that the whole system will come to a standstill.

I believe that this will be the trigger that you are talking about.

Furthermore, survey after survey has found that a very large percentage of the US public intend to take part or all of their cash out of the banks prior to rollover. The specter of bank runs looms, I do not discount this possibility.

So yes, I am buying physical gold and silver, I believe that once the cat gets out of the bag, late this year or at rollover, the POG will go ballistic - if we have a banking system to measure a currency against POG - catch 22.

I would be interested in your thoughts.

I post frequently on the TIMEBOMB 2000 forum, check out the banking archives.

Hi Andy

Thank you for kind words - always good to know the articles do get read and hopefully give rise to thought process too!!!

I did not imply Y2K is of no consequence - just mentioned it to show that I haven't forgotten and to plant the seed of though that if things are ss bad, what would happen if Y2K came on top of it all??

IMHO we are approaching a crunch and I am not sure whether AG can feed enough liquidity (as he did in 1987 and 1998 witn good success!) to keep a floor under the collapse. This time I think the debt levels have just gotten too high. I do not think people will continue to borrow more and keep on buying long enough in a sell-off to stem the tide.

Just a thought: Consider what would happen if the day traders ( say 8 million left, trading $5000/day = $40 billion of funds weight) should realise that a bear trend has set in and that they can make as much selling stock short as they made on Dot.coms on the way up??

If we last long enough for the y2K to hit first - Yes. You are right. (I entered computers in 1969 - systems programmer employed by Control Data Copr in SA - worked on op.system development)

If the fans begin to strain before then, well, then they'll grind to a halt as the (electrical and/or financial) power goes on 1-1-00.

Thanks again for your response.

best regards

Daan"

-- Andy (2000EOD@prodigy.net), June 20, 1999.

Thanks, Andy, for your continuing threads on educating us on precious metals. Another web site to buy gold and silver from is www.ajpm.com, their prices are on-line; thats where I bought mine from. And for a really great education go to www.certifiedmint.com; they also have some nice policies regarding junk silver purchases from them that are worth checking out (they ship in two $500 face value bags, rather than one big heavy $1K bag; they never subcontract to other dealers, and they say they always go through their junk silver and replace the real worn coins).

-- Jack (jsprat@eld.net), June 20, 1999.