This is the third in a series by David Cohen. parts one and two may be found at gold-eagle.com.

Mr. Cohen is a graduate of Yale with a degree in Economics. Over the past few years, Mr. Cohen has worked as a professional speechwriter, specializing in the areas of American economy, politics, casino gaming, and film entertainment.

He is currently completing a book -- a satirical examination of contemporary America -- entitled, "The Dumbing Down of America" (Is Everybody on Prozac Except Me?)."

"The Gold Market as A Metaphor for America"

FINAL PART

The answer: in the extreme case in which the money printing Presses cannot work or in the more possible case in which a US Dollar crisis results, along with an accompanying repudiation of the US Dollar by foreigners for their most vital goods and services. In other words, gold and silver...not necessarily for domestic transactions but rather for foreign transactions.

For those who think such an eventuality is impossible, you might well ask the South Koreans how much in terms of real goods did their collapsed currency purchase during the country's financial crisis in '97?

The answer: NOT MUCH!

In fact, the Won fell so hard that the Korean government solicited its citizenry to turn over all their gold. This gold was then melted down, refined, and sold to other governments, the proceeds used to resuscitate the Korean economy.

But for those who have any doubts, the real source of demand for physical gold in the future will be coming from US banks and other major financial institutions. Thanks to the recent European Central Banks' cap on gold lease activity plus their cap on future gold sales, the gold carry trade is now forced to unwind its enormous short positions in gold.

Major Wall Street investment banks and hedge funds have been using the gold carry trade, the silver carry trade, the Yen carry trade, the Aussie Dollar carry trade, the Canadian Dollar carry trade, etc. to obtain cheap, if not effectively free money, this past decade. The various carry trades involve the borrowing of the respective precious metals or currencies, that are then shorted aggressively into the market, the resulting dollar proceeds used for either US treasury bond purchases or other more speculative US Dollar investments. Profits result in almost a brain-dead manner.

In the case of precious metals, profit is simply the difference between the low lease rates and the much higher rates received from the US bonds....or in the case of currencies, the difference between the much lower interest rates required to borrow foreign currencies and the much higher bond rates. So long as either the borrowed precious metals or borrowed currency depreciate in value, caused by the relentless sales pressure brought to bear by Wall Street firms in the face of little to no counteractive buy pressure from any other source, then repayments of the loans will always result in profit.

Virtually free money! What a scam!

Contrary to popular belief as shaped by mainstream media, it is really the carry trades that provided a flood of cheap money to Wall Street and it is owing primarily to the carry trades that we now have bubble stock and bond markets in America.

Contrary to Mr. Greenspan's spin, the stock market verticality has less to do with productivity improvements based upon technological innovation....and more to do with Wall Street's longstanding raids against precious metals and foreign currencies, hammering them into the ground. The carry trades have been the ultra-cheap fuel driving the surging stock and bond markets throughout the Nineties. It is that simple!

However, now faced with the reversal in currency and commodity trends especially in the form of a strengthening Yen and a resurgent Gold price, the most dependable carry trades are falling apart.

So prepare for the shit to hit the proverbial fan!

The dramatic unwinding of once reliable carry trades means the fuel for the great Bull market is fast running out. With US Dollar weakness comes foreign repatriation of US investments, one of the most essential components of the Nineties' equities Bull market.

Scariest of all, America's bullion banks and hedge funds -- some of the largest financial institutions in the country including JP Morgan, Chase Manhattan, Goldman Sachs, Deutsche Bank, Tiger Fund, etc. -- are rumored to hold aggregate gold short positions and gold- based derivatives, amounting to some 10,000 tons amassed over the past decade. To provide you some perspective on that figure, let me remind you that each year only 2500 tons of gold are mined in the entire world.

So, in effect, some of America's major financial institutions might be holding a gold short position equivalent to FOUR ENTIRE YEARS OF GLOBAL GOLD PRODUCTION!

For those of you who have read the papers and seen gold jump up $70 in a matter of 10 days recently ( a figure equal to the total price movement of gold over the past four years!), then my revelation of the total gold short position held by America's finest financial institutions should send shivers down your spine. Because it seems that short of major intervention by the US government to either cap the precious metals prices via emergency sales of gold from Fort Knox -- currently prohibited by America's constitution except by congressional approval -- or else a complete suspension of all trading in the precious metals markets, then we are quite likely to witness the most spectacular short squeeze ever seen in American history.

Let me remind you once again: Gold guru, Phil Spicer of the Central Fund of Canada, has called for an equilibrium price of around $2000-$3000 an ounce, and that is most likely on the conservative side.

So in getting back to the question posed by gold's most feverish critics:

"What can you do with gold today besides make jewelry and fill teeth?"

The answer is this: restore gold's former role as a necessary constraint upon money supply creation. Without such constraint, then the world, this country, is always under threat of a possible super-inflation resulting from excessive credit creation. However, this time, bring gold into the Hi Tech Age and convert it into a hybrid, that is digital gold or E-gold. Re-invent gold and turn it into the "new tires" for the New American economy. What this means is that physical gold still would be required to create money supply . No gold, no credit creation. However instead of transferring heavy gold bars back and forth from one vault to another, the transfer would be effected digitally. The only physical aspect of E-Gold would be the real imperative verification of the physical gold backing each digital ounce in every single country's account. Furthermore, the amount of physical gold in each country's "account" would determine the amount of money supply allowed within each particular country. People would still continue to transact in digital bits, plastic, and paper proxies...but always subject to each country's gold allowance for credit creation.

Critics of such a plan argue that any Gold Standard would constrain money supply thus triggering one recession and /or one depression after another. The same critics claim that America could never have effected its current bull expansion if it were constrained by available gold in a vault.

In fact, those critics are speaking the Truth.

Under any Gold Standard, America's hyper economic growth would have been reigned in many years ago. However, on the positive side, the current global inflation threat would be much much less. Or on the flip side of the coin, a Gold Standard would have precluded the threat of an imminent debt implosion arising from problems in the 80 trillion dollar derivatives market.

Yes, paradoxically, Americans today are facing a simultaneous threat from both inflation and deflation. Either result could occur, depending upon which lever is thrown by the monetary authorities.

Conceivably, we might even end up with what is popularly called "inflationary depression," or what some economists call "stagflation." No matter what the result, it is safe to say that a Gold Standard would never have tolerated the creation of such huge ridiculous debt levels in our financial system. Without the gold backing, the debt could not exist. It is that simple.

Furthermore, under a Gold Standard, America might have escaped its current tulip bulb craze aka the internet mania, with all its harmful effects to the economy, as capital is grossly misallocated from real goods production into the creation of websites and dot coms. Thus America finds itself in the scary predicament of watching its farms and mines shut down for lack of funding while a plethora of inane, inessential websites flourish.

If it comes down to a choice someday between food versus internet websites...between strategic metals versus Ebay...then I think most Americans would opt for the former.

Naturally, for the self-interested reasons I described earlier, the Wall Street Establishment does not want any semblance of a Gold Standard and resists all efforts to promote gold as a financial asset. Young Americans, who have prospered in this Decade of Plenty here in America, have no knowledge nor interest in gold and are quite happy to see their stocks and bonds soar toward the heavens. Furthermore, young Americans have grown up within a world in which America always gets its way. Whatever America wants, America gets. They are accustomed to this decade-long status quo and cannot imagine any reason why it will end.

Unfortunately, the American dominated global status quo appears to be under siege. The first shot has been fired by the Europeans with the creation of the EURO, the continental currency, designed to challenge US Dollar hegemony. The second shot will likely be fired by the Asians who are busily attempting to create an Asian Currency Standard. Finally, the Middle Eastern nations are attempting to patch together a money standard based upon the Islamic Dinar, and the South Americans are hatching their own common currency surprise.

This new international rebellion against the US Dollar should be no surprise to anybody following world events the past few years. Under US Dollar hegemony, playing capitalism by the American set of rules, whole regions have seen incredible progress stopped dead in its tracks, inevitably followed by economic crisis and despair.

Try telling the family in Indonesia -- compelled to eat the bark of trees during that country's recent currency collapse -- the great wonders and benefits of American-style capitalism.

Or try telling it to the Brazilian businessman who spent years busting his butt to create a successful company, only to have it destroyed via double digit interest rate increases designed to protect his country against currency collapse.

Or finally try telling the Russian street-woman about the glories of American capitalism, as she watches in horror while gangsters take over her entire nation and turn it into a bloody chaotic killing field.

Whilst all this misery has been occurring the past several years, Wall Street has been having one helluva party. The tears of foreigners have been cause for rejoicing in America as Wall Street analysts extol the deflationary benefits to America of financial chaos in various countries all over the world.

You say the Korean currency collapse forced the people there into a desperate barter system for survival?

So what! It brought down the prices of TV's in America.

You say that the Russian economic collapse left its citizens lined up outside their banks, urgently trying to get their money out?

Big deal! At least while they're preoccupied trying to save their houses, they can't threaten America with their nuclear weapons.

You say that the economic collapse of Asia left them unable to afford to drive their cars?

Who cares! Americans can now afford all the Sports Utility Vehicles they want, at 10 miles to the gallon, and never worry about excessive foreign demand for oil sending gas prices through the roof.

Is it any wonder that Americans have never been more despised by foreigners than they are today?

It has taken some time but these foreigners have come to realize that US Dollar hegemony is one of the major reasons why this great debtor nation can produce so little yet consume so much, at the expense of other countries. America derives great unearned benefits by virtue of its role as "provider of the global RESERVE currency." So, the developing international race for gold is much less a case of GOLD-LOVE and more a case of US DOLLAR-HATE. Increasingly, countries are searching for a transactional medium that frees them from US Dollar tyranny.

Will gold become the "new tires" necessary to drive America's New Economy?

Actually, I really doubt it! Even in a reconstituted, digitized form, gold is anathema to a variety of powerful international interests.

So here's my prediction: I think that this never-ending global financial chaos will reach a climactic point and we will know it has finally arrived when there is a huge economic crisis right here in America. When America finally realizes that it, too, is not immune from the last several years of global economic turmoil, then I predict a meeting of the nations of the world will result. Forced to sit down at a table together, the community of nations will redesign once and for all a viable economic system free of its persistent, chronic dysfunctionalities.

So the new tires, if I might hazard a guess, will consist of a multi- regional currency standard, comprised of a fixed proportion of US Dollars, Euros, Dinars, Asian Currency Units, etc. or some such facsimile.

In effect: equal regional currencies...all combined together into a new, money unit.

This evolution to a more enlightened world reserve currency basket will take time however. It surely will not happen overnight and the interstitial period will be a tough one. There will be numerous bankruptcies, foreclosures, margin calls, and debt reworkings. America's "New Ferrari" might have to spend some time sitting in the mechanics shop while they send out for the brand new tires essential to its proper function.

However, during this time when America's New Economy experiences a critical shock, I expect gold will once again reassert itself as the most desired financial safety haven during times of economic crisis. Once again, gold will serve as a "bridge" to better financial times.

Let us hope America gets itself out of the mechanics shop as quickly as possible and let us also hope that when it does, the ENTIRE community of nations will have designed their own "new Ferraris" and can join America on a most wonderful, prosperous ride into the Future."

David Cohen

November 1, 1999

-- Andy (2000EOD@prodigy.net), October 30, 1999

Answers

The relation of gold and currency in our system has virtually nothing to do with how Americans are viewed in most parts of the world. We are envied by most our riches - and are despised by many for our foreign policies.

"these foreigners have come to realize that US Dollar hegemony is...."

How many foreigners have realized this? If you think anywhere close to 1% even think in those terms then your imagination is over-ripe. Even with the few that are prosperous enough, idle enough, and educated enough to speculate along those lines there wouldn't be widespread agreement on the issue.

-- Gus (y2kk@usa.net), October 30, 1999.

Gus.

Been to the Lebanon rcently? Anywhere in the islamic world? perhaps India or Pakistan? Indonesia - South America? Russia?

Get real.

The days of $3 Nikes and Cathy Lee T-shirts for 50 cents sold at a few thousand per cent mark up are over. In precisely 8 weeks time.

Gus I don't think you like reality - and David Cohen has hit the ugly truth on the head.

The world has had it with America - they want out. That simple.

-- Andy (2000EOD@prodigy.net), October 30, 1999.

P.S.

"If you think anywhere close to 1% even think in those terms then your imagination is over-ripe. Even with the few that are prosperous enough, idle enough, and educated enough to speculate along those lines there wouldn't be widespread agreement on the issue."

What arrogance.

The all too common attitude laid bare above is precisely why the US flag is burnt so often abroad. Sheesh.

-- Andy (2000EOD@prodigy.net), October 30, 1999.

Neither Ole Vic or Nelson are coming back Andy. Try not to take it personal.

-- Carlos (riffraff1@cybertime.net), October 30, 1999.

More arrogance but at least marginally funny :)

-- Andy (2000EOD@prodigy.net), October 31, 1999.

Whoa horse, lighten up. No arrogance meant. Big dogs walk while little dogs hide but by itself that isn't arrogance it's just the way it is. Friendship bridges that. I need to read you posts more carefully. Caught the gold bump thanks to you but never tried to read you.

-- Carlos (riffraff1@cybertime.net), October 31, 1999.

Sorry Carlos, my trigger finger is itchy, as are my teeth...

-- Andy (2000EOD@prodigy.net), October 31, 1999.

Thanks for the post Andy. Carlos that 1% that you mention is really the only percentage that matter since most of a countries economic direction is handled by less than 1%. While I'm not part of any conspiracy nwo believer group, I am close enough to some figures who are in that group, who i converse with regularly, to realize that the truth is, these people run the country. Don't kid yourself. They have more money and power than most will ever see.

I have been wondering for some time when the world would wake up to the fact that we were the only economy to skate through unscathed. Our personal wealth level on average is far above most countries and in some cases astronomically so. I'm a capitalist at heart and will always be. But capitalism requires responsible adults at the wheel, not punch drunk, intern screwing, chinese pandering, military dismantling slick talking spinmeisters. One of the smartest things Bill Clinton ever did was give Bob Rubin free reign. One of the smartest things Bob Rubin ever did was bail out before the piper began asking for payment. I agree with Cohen and Andy, we're in trouble on the international scene and Billy Bob had better get his shit together soon. I don't think Larry Summers is the guy for that. Just look at the Japanese yen problem. Look no further. The Japenese finally figured out that our inflation numbers were bullshit and manipulated and started to do the same. Do you really believe they recovered in one year? Give me a break. They just learned how to lie in a consistent manner like the Americans. Yikes.

-- Gordon (g_gecko_69@hotmail.com), October 31, 1999.

Hey gordon,

regarding Larry Summers...

This from Lyndon LaRouche...

"The global financial system is presently in the midst of the third "LTCM-type" crisis of systemic dimensions, since the LTCM hedge fund had to be rescued, at enormous cost, in September 1998, and the Tiger Fund had to be bailed out in June 1999 because of its Japanese "yen carry trade" exposure. This time, the gold carry trade of US and other financial institutions, has become a systemic threat. Following the sharp post-Sept. 26 rise of the price of gold, financial institutions with vast "short positions" on gold, i.e., having speculated on an ever-lower price of gold, have faced very serious liquidity problems.

According to informed market insiders, key central banks, most notably the US Federal Reserve, have been involved in covertly manipulating the gold price downward during the past two weeks. In a few weeks, if the gold price were manipulated down to the level of $280-$300, it would permit the highly-leveraged gold carry trade positions of New York banks - Chase Bank, J.P. Morgan, Morgan Stanley and others - to be closed down. These moves would be similar to what was done during June, to ease the Tiger Fund out of its Japan yen carry trade exposure. The Federal Reserve has reportedly intervened with derivatives or gold call options on the New York Comex exchange, in order reverse the gold price rise.

Gold market sources have pointed to one of the world's largest mines, Barrick Gold, as an example. Were the price of gold to have broken above $335 per ounce two weeks ago, Barrick Gold would face financial ruin on its gold forward contracts. A default by Barrick would severely impact two of its bankers, Goldman Sachs and Chase.

Because of the fury in the US Congress and public, over the September 1998 Federal Reserve decision to arrange a public bank rescue of LTCM, to avoid meltdown of the global financial system, Alan Greenspan has decided to pursue a far more concealed strategy of "crisis management." Greenspan fears that if there is a disaster in financial institutions' gold carry trade, the hyper-fragile financial markets, especially the US stock markets, would plunge. This, in turn, would drive the price of gold up, into the range of $400 or beyond, and would likely trigger a stampede by foreign investors out of the US dollar. To prevent a dollar free-fall, Greenspan would be forced to impose a sharp rise in US interest rates, which would guarantee a collapse of the US stock bubble.

The Fed's efforts are being quietly supported by Treasury Secretary Larry Summers, who fears any market crash now would finally destroy the Presidential ambitions of Al Gore and with it, Summers' plans to be confirmed as Gore's Treasury Secretary, or perhaps Fed chairman."

Lyndon LaRouche

-- Andy (2000EOD@prodigy.net), October 31, 1999.

outstanding post.. The implications are real. Your summary is based on more heartfelt hope than realism. Predictions about a NWO or an ability of the nations to group themselves into currency bases, and then get together to "work things out" supposes way to much capability on mankind's part. I don't believe that a US crash will do anything less than create a poorer world and uncapitalized one at that. The only real result will be a depression of 5-10 years, with an obvious "creation" of "fascist" or other totalitarian governments that can "prevent" the rise and fall of economies. The rise of Russia or China, or someone else, to challenge this government, is a foregone conclusion. The old gun-boat diplomacy of the British government, and the now "high-tech" similar arm of restraint by this government...can they really protect this world from the future? The future of the governments and the economies, no matter what they propose or claim, is one of despair and ruin for most. The governments of the world are likened to beasts in the Bible, and no wonder. They devour and exploit the people, and in the name of the themselves, they have authority to kill one another..... The movement of economic forces, money, and governments, is all a sign of what so many consider important. Money and power. The stock market is now trading greedily on WWF, nothing less than making violence a commodity to make money!!! and that should pretty much put another nail in the coffin for what type of world we are in. Who is listening to the murmurs of the masses? Where has the goodness of man gone? Look at what is prospering! Greed, violence, gambling!!! Where have hard work and family values gone? down the worlds toilet... What does the future hold for mankind? If we rely on this government, or on man's capabilities to govern himself, is that not being blind to the facts? Indeed, I am compeletely convinced only God will fix things....the world is way to far gone to think otherwise.

-- rickoshade (rickstershade@aol.com), October 31, 1999.

Andy, do *you* hate Americans? America?

As an American, mixed feelings here. Since I do fundamentally love my country, I wish it would get its ACT together and start,as a country, acting more grown up. But have patience with us, we are only 223 years old, a virtual teenager in the world of nations.

My mother did geneological research for the last three years and traced us back to the late 1600's and Virginia. From there backing up across the sea, and guess what? We were Welsh. Whaddaya know. Apparently the problem was we were those nasty little Protestants and really didn't want to be burned at the stake so we jumped ship.

Sorry I know the above was off topic. Forgive me.

-- preparing (preparing@home.com), October 31, 1999.

Andy, do *you* hate Americans? America?

As an American, mixed feelings here. Since I do fundamentally love my country, I wish it would get its ACT together and start,as a country, acting more grown up. But have patience with us, we are only 223 years old, a virtual teenager in the world of nations.

My mother did geneological research for the last three years and traced us back to the late 1600's and Virginia. From there backing up across the sea, and guess what? We were Welsh. Whaddaya know. Apparently the problem was we were those nasty little Protestants and really didn't want to be burned at the stake so we jumped ship.

Sorry I know the above was off topic. Forgive me. (Just a sweet Southern girl not wanting to be CUSSED out by an irritable Brit.)

-- preparing (preparing@home.com), October 31, 1999.

Sorry about the double post, it left off the last sentence the first time!!!

BTW, I have no gold. Couldn't afford it then, can't afford it now. Oh well.

-- preparing (preparing@home.com), October 31, 1999.

America ceased to be great when it ceased to be good.

-- land of the duped (Home @of the shee.p), October 31, 1999.