THE WORLD DECLARES MONETARY INDEPENDENCE FROM THE U. S. DOLLAR AND HANNIBAL'S WORST NIGHTMARE BEGINSgreenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
John D. Meyer GATA Vice Chairman, Treasurer September 28, 1999
THREE CHEERS TO MIDAS MURPHY !!!
THE WORLD DECLARES MONETARY INDEPENDENCE FROM THE U. S. DOLLAR AND HANNIBAL'S WORST NIGHTMARE BEGINS
Pinch me quick and tell me I'm not dreaming. How can this be? Fourteen European central banks plus even the English "Poodle", announce that they will restrict gold sales and lending for the next five years. In one dramatic sweeping step the "reign of terror" besieging the gold bullion market has been broken. But the question remains why would the European central banks wish to reassure the gold markets?
For the past many years the gold world has been throttled by perceptions and short selling. Central banks gold sales were in fact never the problem, but the gold lending and the well orchestrated propaganda directed by the United States was. Since early 1996, the threat of central bank gold sales and a raising volume of gold lending strategically timed and presented by the mainstream financial press attacked gold whenever an uptrend threatened. This has now ended.
THE TWILIGHT OF THE DOLLAR
With the monetary system facing the greatest defaults since the 1930's, the manipulation of gold, the ultimate preserver of wealth serves precisely to conceal the bankruptcy of our current monetary system.
Single events often appear distant and unrelated, yet with a more critical eye they can be seen to be part of a pattern. It is my position that the European central bank announcement is a defining moment in monetary history. The propaganda windmills, mostly English speaking, would have you believe that "money" is a creation of government. As Martin Armstrong liked to say gold has been demonetized. We hold a different view. Namely, that money is determined by a market process. The European central bank decision is a major part of this market process, which has two consequences. First, it partially restores gold's monetary role. Second, and more importantly, it is a determined attempt to turn away from the dollar as a reserve currency.
The reality is that the greatest crisis in credit since the 1930's is underway. While the problem may appear to have begun in Asia, in fact its origin is a monetary system which allows the United States "Deficits without Tears". Every nation in the world has suffered as they have been forced to import our inflation (i.e. buy dollars and U.S. debt) because it is the reserve currency of the world's financial system. The dollar as the reserve currency forces other countries to accept our paper as payment for their goods and services. Jacques Rueff named this dirty little secret - "The Monetary Sin of the West."
Our present global monetary system is dysfunctional. The Asian currency epidemic was the first act in a play ultimately destined to take down the U.S. dollar. Starting with Mexico in 1995, Asia in 1997, Russia and Brazil in 1998 we have experienced an escalation in each crisis as larger and larger countries are ravaged. The monetary mischief of competitive currency devaluations claimed its first victim in North America with the collapse last fall of Long Term Capital Management.
As 1998 was ending the Japanese authorities (December 22nd) blind-sided the financial markets, saying that they would cut back their purchases of Japanese government bonds. Japanese long term bond prices were pummeled and the U. S. dollar crumbled. Then on January 1, 1999 Prime Minister Obuchi proposed the establishment of a monetary system composed of three key currencies - the yen, the U.S. dollar and the euro. Japan signaled its intention to internationalize the yen turning it into the key currency of Asia.
On Monday (September 20, 1999 ), despite warnings, the Bank of Japan refused to ease monetary policy to curb a rapid rise in the yen against the dollar. Now a week later the European central banks befriends gold.
The Russian default in 1998 launched us into a new phase of this meltdown, which directly impacted the derivative arena. Default has been staved off for decades through credit expansion (i.e. bailouts). New debt piled on the old. Finally, when the excesses are too great and the economies too anemic, default becomes the final solution. Default immediately exposes systemic weaknesses. Since derivatives are leveraged contracts dependent upon an underlying "asset", default of the underlying asset immediately wipes out that derivative. The Wizards' computer model programs are not programmed for events that might cause a non-standard deviation movement.
For the Federal Reserve to admit that a single hedge fund, with a mere $4 billion in equity, jeopardized the entire financial system is an admission of a profound failure in the Federal Reserve policy. What can be the justification for bailing out a den of gamblers? Frankly, it proves the mutual dependency and just how cozy the alliance is between Wall St. and Washington. LTCM was bailed out because officials realized other hedge funds and Wall Street trading desks had similar leveraged positions. This crisis is still largely unknown to the public. It is the story of the "carry trade" . The naked borrowing of yen and gold to finance these extraordinarily leveraged positions of the financial community. Between August and October of 1998 the yen fell from 147 to 112. Then on October 15th, facing a breakdown in the interbank payment system, the Fed initiated the first of three rate cuts. As 1999 commenced the U.S. financial system had been brought back from the brink by another massive ballooning of credit.
These fixes have merely exacerbated the underlying systemic risks. After decades of "too big to fail" the Fed's unwillingness to address underlying structural problems of debt has led to putting the entire system at risk. The Bank of Japan and the European central banks are declaring an end to the present state of affairs. The United States financial markets have become a fools paradise and the affairs of LTCM down to the current scandals involving Martin Armstrong and others has not been lost on the global banking community. As a younger man Alan Greenspan wrote an essay entitled "Gold and Economic Freedom", which correctly detailed and identified the cause of the 1929 crash. It appears to this writer as though he repeats the same mistakes that he accused The Fed of committing in 1927-28. Greenspan has created a bubble (i.e. hyperinflation) in our financial markets. Wall Street has become a casino. The greatest fear for the central bankers of the world is the U.S. dollar which comprises the bulk of their monetary reserves.
For years now the mainstream gold analysis has been fixated on the supply side of gold. This is not the issue. The critical determinant in the price of gold ultimately is the supply side of dollars. As the worlds largest debtor, with endlessly mounting trade deficits, negative savings and inflated security markets it is not hard to image the fear motivating recent developments by the Japanese and the Europeans. Enough is enough. Gold reserves are not the problem for central banks of the world but rather their bloated and excessive position of dollars, which has entered a major secular down trend.
THE COMING DOLLAR BACKLASH
The European central banks gold policy must be viewed as an aggressive escalation in their policy to establish monetary independence. There is no doubt that the monetary world has crossed the threshold into a monetary system which will be comprised of three reserve currencies. Gold is no longer to be held hostage to American monetary policy. On this point it is quite interesting to see that the English "Poodle", in an obvious break with their American friends, has turned her leash over to the Europeans.
It will be interesting to see what response the Bank of Japan will make to the European central banks. An Asian yen backed currency has a long way to go in order to equal the gold reserves backing the dollar and the euro. Up until now the currency world has been engaged in a competitive race to the cellar. It could be that the race for competitive legitimacy has begun. Central banks bid for gold is likely to far exceed the sale limits just established by the Europeans. The historic actions by the European central banks and Japan over this past week are extremely bearish for the dollar and U.S. financial markets. So far the markets have failed to understand this threat.
WHERE DOES GATA GO FROM HERE?
As Treasurer of GATA I wish express our sincere appreciation for the support from hundreds of individuals who have rallied to our cause. Your letters and notes have been a source of strength to The Committee. We salute and thank you. We are likewise indebted to a select and courageous few within the gold mining community. Unfortunately, the majority of the mining companies have yet to come on board.
Clearly the surge of events is vindicating and confirming the task set out by GATA. No matter how sweet this first victory may be a long battle still lies ahead. We need to capitalize on this moment by moving on to the next level of our investigation. It would be gratifying to see some of the senior gold mining companies step forward to publicly support GATA. Bill has detailed one of our failed attempts (The Vancouver Affair) to find corporate support. Hannibal seems to have a long reach. We have made numerous other attempts to enlist the larger mining houses. One senior North American producer approached us last spring and actually explored for nearly a month a relationship. We cooperated in every possible way opening all of our work for their review. Then suddenly they disappeared without explanation. Phone calls were not returned. We were just plain dumped. Someday we may tell the world about this episode. The story rivals "The Vancouver Affair". For now we continue patiently with restraint, but hope that the larger members of the mining industry will awake and throw aside their fears.
One way or another GATA is here for the duration. Keep up the support We will prevail.
A FINAL WORD
The heroic effort and foresight of Bill Murphy is only now beginning to be understood. Bill and his Le Metropole Cafe have absolutely nailed the events that are now unfolding. If the Bank of England sale didn't convince the world that the gold market was being manipulated, maybe a $60 explosion in the gold price might. The extreme price action in gold should clearly indicate that the market has been artificially suppressed. One wonders how much it will take to generate an acknowledgment of Bill's incredible performance.....................Party's Over....
-- dax (email@example.com), September 30, 1999
Dax, Isn't the reason that the mining companies can't play ball with you because they are in hock to the central banks for delivery at a set price/oz by virtue of the fact that they(mining cos.) have sold forward their production.They did this just to stay afloat since the price was to low to produce. In other words,the bank holds the mortgage on their mines! I'm sure this is an oversimplification on my part...but it's obvious a big player(s) has them all by the short hair.
If this theory is remotely correct, aren't there any mining companies which haven't sold forward (if that is the correct terminology)their production (not beholdin' to the banks). If there are and they still don't want to cooperate then that leads me to believe that there is a more sinister operative "out there"
Appreciate your efforts... keep up the good work...and watch your backside
-- Larry (Rampon@cyberramp.net), September 30, 1999.
Dax...never mind, your backside is safe. I forgot who the author was. thanks for the posting!
-- Larry (Rampon@cyberramp.net), October 01, 1999.