2013 A Fateful Year

Featuring

P.J. O’Rourke
author of 17 books, including On the Wealth of Nations, an examination of Adam Smith’s seminal work.  O’Rourke uses his trademark wit to good use and shows us why Smith is still relevant, why what seems obvious now was once revolutionary, and why the pursuit of self-interest is so important.

James Grant
Editor of the incomparable GRANT’S Interest Rate Observer.

Flyer 

Program

May 2013 Reservations

Contact: Elizabeth Currier, email: CMRE@bellsouth.net
10004 Greenwood Court, Charlotte, NC 28215   704-598-3717

Registration begins at 5:00; Program begins 6:00 sharp.

Reservations

Full Program

The Challenge: Does the Nation Face Hyperinflation,
Crushing Deflation – Or Possibly Restoration?

CMRE welcomes with pleasure:

James Rickards
author of the powerful book, Currency Wars; the Making of the Next Global Crisis
Rickards is just returning from Asia and lectures there, following his great success in London
addressing the GATA conference.

Alex J. Pollock & Walker Todd
two distinguished bankers and economists of AEI and AIER, respectively
to discuss banking reform essentially as life before the Federal Reserve. Indicative of Pollock’s work is his recent introduction to the book, “The Global Crisis of the Federal Reserve” by Brendan Brown CMRE’s own economist and banker.  Walker Todd also understands the need for banking reform. We have long recommended his important monograph: From Constitutional Republic to Corporate State: The Federal Reserve Board 1931-1934. 

Howard Segermark
gives coverage of Richard Duncan’s book, The New Depression: The Breakdown of the Paper Money Economy. (Richard Russell called the book a “must read.”) Duncan considers the work of Greenspan and Bernanke the greatest credit boom in recorded history and as Ludwig von Mises wrote… a credit expansion boom must unavoidably lead to a depression.

Richard Rahn
of the Cato Institute  and chairman of the Institute for Global Economic Growth  joins in with his recent editorial, “Stop Global Economic Malpractice; growth in spending requires cutbacks.”

Gilles Bransbourg
of the American Numismatic Society and NYU’s Institute for the Study of the Ancient World. Curator of “Signs of Inflation”, the exhibition recently launched by the American Numismatic Society at the Federal Reserve Bank of New York, Bransbourg’s career as a banker, economist, and historian gives him deep insights into the perennial temptations offered rulers by management of currency.

Victor Sperandeo
joins the international talk with views from his own extensive international investment world. Edwin Vieira years ago shared ideas with Sperando to write The Crash Maker.

Now!  Having covered Inflation and Deflation…as of August 2012, there is an effort for Restoration! With the possibility of a new Gold Commission in the Republican platform, the nation may restore its money.  Howard Segermark served on the first Gold Commission. This is an opportunity really to understand the Gold Standard.

Chairmen for the Evening

Chris Powell-GATA; Walker F. Todd-CMRE Director, Author;
Daniel Oliver Jr. CMRE Director; J. William Middendorf II - CMRE Chairman

To continue this important study, Participants are urged to obtain CMRE Monographs:

From Constitutional Republic to Corporate State: The Federal Reserve Board, 1931-1934
by Walker F. Todd CMRE Monograph No. 51;

The American System or the Corporative State?
By Edwin Vieira

and

Constitutional Foundation of American Economic Power
with Philip Bradley CMRE Monograph No. 48

“The reimplementation of constitutional money and banking would go far toward mitigating the present crushing public and private debt burden, restoring confidence in the economy, and making at least moral reparation for decades of dishonesty at the highest levels of government” pg. 15; Edwin Vieira       

Monographs may be ordered at the front desk at this meeting, or ordered from CMRE

Reservation Form

Early Reservations by Mail Recommended – Registration and Gathering begin at 4:00 PM May 17.

Contact: Elizabeth Currier, email: CMRE@bellsouth.net
10004 Greenwood Court, Charlotte, NC 28215   704-598-3717

PUBLISHED BY INSTITUTIONAL ADVISORS

Address to the Spring Dinner of the

Committee for Monetary Research and Education (cmre.org)

May 17, 2012

Policymakers Are Getting Margin Calls

PDF

Many in this assembly would agree that policymaking has been the biggest promotion in history and in recent desperation became unusually reckless.

Since the crisis began in 2007, Mother Nature has been issuing margin calls on governments. What’s more, even with the most complacent of taxpayers governments will not be able to meet the margin calls on their own folly.  But to be fair, the establishment has had some moments of glory.

The feature of the 1970s was a horror show of soaring inflation for commodities, wages and consumer prices. Eventually, many in Wall Street realized that inflation had something to do with money supply and the critical numbers were released late on each Friday. Repeat “late on each Friday”. Often the numbers would prompt big moves in the bond market so traders had to stay at their desks – until late on Friday. No early weekends.

Then the Fed changed the release day to Thursday.  This has been one of the most brilliant of policy moves, ranking right up there with the New York Stock Exchange ending trading on Saturday mornings.

The rest of the history of policymaking has been “same old, same old” to the point where I recently had a startling revelation. Ninety percent of all central bankers who have ever lived are alive today.

Daunting isn’t it?

It gets worse. Ninety-five percent of all the reckless central bankers in history are alive today.

If that isn’t bad enough, 90 percent of all of the gold bugs in history are alive today.

To be serious, the gold bug original assessment of central bankers has been appropriate as is current condemnation.

However, we are at a fascinating point in history when Mother Nature and Mister Margin take apart all the schemes of financial promoters. Actually, financial history provides an impartial due diligence on all of the grand promotions – including interventionist economics and central banking.

Also financial history indicates that the massive experiment in government intrusion is coming to an end – thankfully.

Why do I state this?

In the past 2,000 years there have only been three great experiments in authoritarian government and each was accompanied by deliberate currency depreciation. Of interest, is that each ran for around one hundred years and can be called a Century of Tyranny.

Then a major change in politics ended the game. The mechanism has been simple. Essentially, the state spent, borrowed, inflated and taxed away all of the wealth. Consequent hardship became widespread and forced folks to tighten their belts, who in turn, forced local and federal governments to tighten theirs.

The last such century ended with the financial contraction that began with the 1618 crash.  Details are fascinating and even amusing, but time only permits one important irony. The hardship prompted intellectual concerns such that Edward Misselden theorized that throwing credit at a credit contraction would make it go away.

That was in 1622 and any number of intellectuals have since had the same revelations. John Law was the next big name to make the personal discovery as he was becoming the first reckless central banker during the first huge bubble that blew out in May-June of 1720.

In London this was labeled as the South Sea Bubble and in Paris it was the Mississippi Bubble. This extravaganza set the pattern on all five subsequent great bubbles – right out to the 2007 example.

The climax of each bubble has had enough common features to conclude they are methodical.

• Government has a vested interest and will do anything to keep the boom going. In 1720, England was on a bi-metallic standard but quasi-government agencies such as the South Sea Company and the Bank of England provided plenty of ease to accommodate speculators.  Also, politicians were bribed. In France there was no restraint upon currency issue and John Law had some eight printing presses running and he could not keep that bubble from lasting past its “best before date”.

• This one is worth repeating – real printing presses could not keep a mania going.

• Typically in the year the bubble maxed out, gold’s real price set a significant low. And then increased for some twenty years.

• Since the calculation of the Consumer Price Index became compromised we have used a proxy and that is the price of gold deflated by our commodities index. This set a low of 143 in May 2007 and turned up as the credit markets turned down. Eventually to disaster.

• Another example of methodical is that most booms run for 12 to 16 months against an inverted yield curve. In early 2007 we counted the reversal to steepening out to June of that fateful year. Along with gold, the change began in May and that included spreads reversing to widening.

In bringing this up to date, the panic ended in 2009 and liberated the first business cycle out of the crash. This has become mature and, globally, the economy is rolling over right now. This will prove that all of the stimulus was in vain. Particularly so, with the knowledge that the fundamental post-bubble condition is severe recessions and weak recoveries.

Policymakers did not prevent the bubble from climaxing, did not prevent a financial collapse, could not restore a “normal” business cycle and haven’t a hope in hell in preventing this recession.

In which case, central bankers have not materially altered financial history, and in taking a larger perspective they have played an important role in assisting a great bubble.  Beyond this, it will become evident that their main function has been to fund another experiment in unlimited government through depreciation. What’s more, it is unwinding in the same old way.  Relatively high unemployment that hurts, especially with the governing classes still living well. This is a classic – what’s new is the extortionate monopoly of unionized workers at local, state and federal levels.

Similar dissatisfaction with the governing classes in Eastern Europe in 1989 brought down one of the most murderous police states in history. The state had tanks, AK 47s and the Berlin Wall.  The public will prevailed.

The current administration is pushing America’s experiment in authoritarian government to an alarming level. Or, according to David Alinsky, to the ideals of his father’s Rules for Radicals, which intends to transfer all power to a community-organized mob.

In this case, all the administration has is propaganda on how good Obama’s ambition for change is and that won’t fly.

Why?

The economy can’t afford existing levels of government take, let alone a massive increase.

The irony is that while the administration has been building the regulatory equivalent of the Berlin Wall, the opposing political will is beginning to take it apart – brick by brick.

When will it get exciting and what has this to do with gold?

Credit markets have been likely to be benign into May and then reverse to another disaster later in the year. With this, many asset classes will decline with some suffering forced liquidation, and this will again curb the ability of the Fed to print.  The old pushing on a string problem.

Another methodical feature of the post-bubble world is that the senior currency eventually becomes chronically strong relative to most commodities and most currencies for most of the time. One explanation has been that during the mania most of the debt issuance is due and payable in the senior currency in the financial capital. It used to be sterling and London, now it is dollars and New York. Such debt service represents a huge short position.

Technically, the Dollar Index has been in a pattern that is leading to a major advance. This is confirming the historical imperative of a firming senior currency.

Now, as we can all imagine an outbreak of sound money will be disquieting to central bankers as well as to those “banking” upon the status quo of depreciation. Don’t toss out your gold positions because of the resumption of another liquidity crisis. Gold stocks are unusually cheap relative to bullion and have recorded a significant departure from the longer trend of the stocks correlating well to the advance in the dollar-price of gold. That pattern ended during the completion of our late bubble in 2007.

This has been frustrating as base metal mining stocks were outstanding performers into 2008 and 1Q2011. Particularly as they outperformed metal prices when gold shares were underperforming bullion prices. This is typical of the conclusion of a bubble. The best time for the gold sector has been during the post-bubble contractions when the mechanism is the equally long advance in real prices for gold. Reliable copper data are available since the 1830s and the real price has generally declined through the three subsequent Great Depressions.

For traders, market historians and supply/demand researchers, this becomes very interesting. On three Great Depressions when sterling was the senior currency and the calculation of the CPI was reliable, gold’s real price increased by a factor of 1.7 times. No matter what was going on in domestic politics or foreign affairs, gold’s price went up by the same factor.

Despite the consistency of each advance, the associated increase in gold production varied all over the place.  In the 1825 to 1846 Great Depression annual World gold production increased by a factor of ten times. With the same price increase during the 1873 to 1895 Great Depression gold production only doubled, which was the case during the post-1929 Great Depression. This suggests that trying to determine gold prices from even a thorough analysis of supply and demand may not be practical. This, of course, includes all of the informed comments about the Indian monsoons and the number of camels in the Arab souks.

To be serious, there is a methodical and obvious reason why Mother Nature increases gold’s real price during a Great Depression. She wants production to increase.

Why?

During a great financial mania normal instruments of credit expand inordinately. As if this isn’t bad enough, new and weird instruments are created. In our own new financial era the madness created derivatives, such as “credit default swaps”, and even “contingent credit default swaps”.  In the 1720 madness a bewildered participant wrote “The poor English nation run a madding after new inventions, whims, and projects [promotions] … They can ruin men silently, undermine and impoverish, fiddle them out of their money by strange, unheard of engines of interest, discount, transfers, debentures, shares, projects, and the Devil and all of figures and hard names.”

Then, both normal and innovative credit instruments contract within a brutal disappearance of liquidity, otherwise known a crash. This in turn inspires policymakers to throw credit at a credit contraction to make it go away, which never worked in the past.

Fortunately, Mother Nature has had a methodical way of restoring liquidity to the global banking system. She raises gold’s real price such that mine profitability improves and production increases. Gold companies make money when most industry and commerce are having trouble staying alive.

For example, Homestake was the premier producer and its earnings were hit in 1929 largely due to the weak real price that goes with a bubble. Gold was fixed at 20.67 per ounce then and until the end of 1932. The stock soared by 130 percent as earnings increased by a similar amount. All with no change in the dollar price of gold. Then Roosevelt got in line with history and assisted the natural increase in gold’s real price.

Homestake stock could have been accumulated during 1930 at 9 dollars. It soared to 65 during the mid-1930s and was paying 4.50 per share in dividends. Canada’s big producer Dome Mines soared as well, as did many, many juniors.

My own experience in the exploration business began with a degree in Geophysics and a couple years in the field. Then, like a fool, I made money on my first stock purchase and thought I was a genius. No more living in the bush as I got an indoor job with a large investment dealer in Toronto. In 1965 I noticed that on any given day when New York and Toronto were strongly up, gold stocks would be strongly down, and vice versa. I asked a veteran on the equity desk “Why?”. He said “That’s the way it works”.

It wasn’t until the 1970s when the historical research was really advancing that I realized that gold miners did well in a depression and that was still driving the action. Then for a couple of decades such opposing action was barely evident.

Last September, gold set a high of 1900 and, for example, Royal Gold registered an Upside Exhaustion. That’s technical talk for a buying panic.

September also recorded selling pressures in orthodox stocks with the selling panic in sovereign debt. The point to be made is the opposite action came in as gold stocks went up as the big board went down.

Move ahead to this spring when opposing action was again in play. Orthodox stocks up as gold stocks declined. Now both are down, but with the distinction that the golds are really down.

How much?

In a hundred years of data, starting with Homestake and changing to the XAU in 1983 there was only one selloff to a monthly RSI worse than now. That was a reading of 21 in 1924. Now its plunged to 23.9 and the “terrible” lows were few in number.  24.8 was clocked in 1942, 27 in 1948 and 25.3 in 2008.  That’s the list and all were followed by outstanding rallies – virtually immediate to the reading.

Action in the gold/silver ratio has provided an outstanding guide to important tops and bottoms. This worked very well a year ago in April and silver’s action now is accomplishing the opposite extreme.

The S&P is nowhere near such a severely oversold condition.

Market history is poised for the start of the next stage of a lengthy bull market for the gold sector and within a global recession – an even more compelling condemnation of policymaking.

As welcome as this would be to many in our assembly, it is worth noting in closing, that there is no guaranty that financial history will continue along the path that accomplishes another Great Depression. On the other hand, there is no guaranty that it won’t. It is prudent to consider the odds. 

Part I

Part II

Full Program

Money and the Corporate State

In the 1990’s CMRE presented its studies of Corporatism with monographs by Walker F. Todd, “From Constitutional Republic to Corporate State” and by Edwin Vieira, Jr., “The American System or The Corporative State?”

Since then, corporatism has so increased that government influence and power are evident to many but real understanding of the consequences – while unpopular – still is not clear. This meeting clarifies the problem, and suggests solutions.

CMRE welcomes with pleasure:

H.S.H. Prince Michael of Liechtenstein
to speak on:
European Fiscal and Economic Crisis and the Problems of Growth

Jim Sinclair
from his famous Mineset News, has observed:
“…as far as the dollar is concerned, no one is focused on the ‘utilization’ that is fading fast
and will negatively impact the value of the US dollar in 2012.”  

Bob Hoye
Financial Historian
Today’s central bankers have been unable to prevent the distinguishing feature of the
post-bubble contraction - a world of strong recessions and weak recoveries.
Typically, this is accompanied by a rising real price of gold that prompts exploration success.
The party is still ahead of us.

Frederick Sheehan
Investor and Author of Panderer to Power
how we got here…a world run by central bankers with Bernanke more powerful than Obama.
Sheehan follows the career of Alan Greenspan and shows how
the Fed was at the center of the 1% vs. 99% imbroglio  

Paul Brodsky
Principal of QB Asset Management
  analyzes macroeconomics and has concluded that all the world’s fiat currencies are experiencing
a significant devaluation against gold and that this secular trend is in its early stages.

William J. Bergman
Director of Research, Social Movement Sciences
Formerly a financial markets policy analyst  at the Federal Reserve Bank of Chicago
Money & Power: The Chicken or the Egg?

Francine McKenna
A distinguished journalist on international economic issue,
she writes The Auditors and is an Accounting Watchdog for Forbes.
How Hot Money and Hubris Stole $1.6 Billion of Customer Funds

Bill Rochelle
bankruptcy columnist and editor-at-large for Bloomberg News 
On MF Global

What is to be Done?
Restore Sound Money

Edwin Vieira   and   Thomas Selgas
Selgas is the Constitutional law advisor for the United States Bill of Rights Foundation and has been called by several state legislators to testify and educate about constitutional, statutory lawful money. He is also a successful industrial executive. Vieira, a long-time associate of CMRE, has received standing ovations as he has concluded meetings. His monographs are essential reading.

Chairmen for the Evening

Chris Powell-GATA; Walker F. Todd-CMRE Director, Author;
Daniel Oliver Jr. CMRE Director; J. William Middendorf II - CMRE Chairman

To continue this important study, Participants are urged to obtain CMRE Monographs:

From Constitutional Republic to Corporate State: The Federal Reserve Board, 1931-1934
by Walker F. Todd CMRE Monograph No. 51;

The American System or the Corporative State?
By Edwin Vieira

and

Constitutional Foundation of American Economic Power
with Philip Bradley CMRE Monograph No. 48

“The reimplementation of constitutional money and banking would go far toward mitigating the present crushing public and private debt burden, restoring confidence in the economy, and making at least moral reparation for decades of dishonesty at the highest levels of government” pg. 15; Edwin Vieira       

Monographs may be ordered at the front desk at this meeting, or ordered from CMRE

Reservation Form

Early Reservations by Mail Recommended – Registration and Gathering begin at 4:00 PM May 17.

Contact: Elizabeth Currier, email: CMRE@bellsouth.net
10004 Greenwood Court, Charlotte, NC 28215   704-598-3717

CMRE President Elizabeth Currier chose the title of my remarks — “Where in the World Is the Gold?” — and I didn’t argue with her, but if I knew where the gold was, they’d have to kill me. And if I knew and told you before they got to me, you’d all have a big problem too.

But for our purposes tonight it is enough to know that we will never be permitted to know, at least not in the current political circumstances.

Having been raising questions about the gold market for 12 years now, I’ve realized that the amounts, location, and disposition of government gold reserves are secrets more sensitive than the amounts, location, and disposition of nuclear weapons. Indeed, under nuclear weapons control treaties, governments with nuclear weapons have often shared that sort of information, even with hostile powers. But gold reserve information is far more tightly held and most gold information provided officially is actually disinformation.

Why is it this way?

It’s because gold is an even more powerful weapon than nukes — an alternative currency that is not necessarily under any governments power, a determinant of the value of other currencies, interest rates, government bonds, and equities.

It’s not just me saying this. Lawrence Summers, former U.S. Treasury Secretary and off-and-on economics professor at Harvard, said so in the study he wrote with University of Michigan economics professor Robert Barsky in the Journal of Political Economy in 1988, a study titled “Gibson’s Paradox and the Gold Standard.” This study is posted at the Internet site of my organization:

http://www.gata.org/files/gibson.pdf

A few weeks ago, maintaining that his “Gibson’s Paradox” study remains dispositive of the gold price issue, Summers provided it to New York Times columnist Paul Krugman — and did so by giving Krugman the link to it at GATA’s Internet site. That’s what Krugman wrote on his blog.

This close correlation among gold, interest rates, and government bond values is why central banks long have tried to control — usually suppress — the price of gold. For gold is the ticket out of the central banking system, the escape from coercive central bank and government power. As an independent currency, a currency to which investors can resort when they are dissatisfied with government currencies, gold carries the enormous power to discipline governments, to call them to account for their inflation of the money supply and to warn the world against it. Because gold is the vehicle of escape from the central banking system, the manipulation of the gold market is the manipulation that makes possible all other market manipulation by government.

That manipulation operates through the largely surreptitious mobilization of Western central bank gold reserves and the gold nominally held by the major exchange-traded funds. If the manipulation was done completely in the open, as governments used to manipulate the gold market, through the gold standard and then through what was called the London Gold Pool, the Western central bank gold dishoarding scheme of the 1960s, the manipulation would fail, because then the world would understand that there isn’t a free market in gold — or in any currency, any more than there is a free market in government bonds.

Anyone can determine this for himself just by putting the unanswerable questions to central bankers and treasury officials.

For example, three years ago, as the International Monetary Fund was constantly announcing plans to sell some of its gold, I wrote to the IMF to try to determine exactly where its supposed gold was kept and whether the IMF had control of its own gold or if that gold was only pledges of gold from its member nations. The most I got out of the IMF was that its bylaws allow its gold to be stored in the United States, Britain, France, and India.

When I asked if there ever had been an audit of the IMF’s gold, the IMF’s publicist terminated our correspondence. I was refused information as to where the IMF’s gold was.

At the hearing held on March 25, 2010, by the U.S. Commodity Futures Trading Commission to inquire into the precious metals market, the managing director of the metals consultancy CPM Group in New York, Jeff Christian, a consultant to central banks, testified to what he had published in an explanatory essay in 2000. Christian testified that the world’s biggest gold market, the London bullion market, is actually part of a fractional-reserve gold banking system where many times more gold is sold than is delivered. Most London gold buyers don’t take delivery, and so most gold in client accounts on the books of the London bullion banks doesn’t exist. It is just an unsecured claim against the bullion banks, which presumably have assurances that, in an emergency like a short squeeze, they can obtain gold from central banks.

That is, Western central banks have figured out how to increase gold’s supply by vast amounts without going through the trouble of digging it out of the ground. They help to invent and sustain “paper gold” — imaginary gold that many buyers accept, never suspecting that they’re being deceived and cheated, fooled into thinking that they are buying a finite resource to hedge against the infinite creation of currency, when what they are buying is just as subject to infinite creation as the currency they want to hedge against.

Exchange-traded gold funds are very popular now. Yet the prospectus for the major gold exchange-traded fund says its gold may be held not only by bullion bank HSBC as custodian but also by subcustodians that may not be known to the ETF itself. Further, HSBC is not just custodian for the gold of ETF investors who want their asset to appreciate in value; HSBC is also the biggest known short in the gold market. This is a conflict of interest. And when, a few weeks ago, HSBC tried to respond to concerns about its custodianship of GLD’s gold, the bank committed a very revealing public relations blunder.

HSBC invited CNBC reporter Bob Pisani for a tour of HSBC’s gold vault in the London area. Pisani and his camera operator were placed in a van whose windows had been covered up and then they were driven around for a while and led into the vault. They saw a lot of gold bars, and Pisani was given one to hold up for the camera and represent as a bar belonging to GLD. But some sharp-eyed gold bugs recorded Pisani’s report, transcribed the hallmark and serial number of the bar, and determined that it actually belonged not to GLD but to another gold ETF.

Of course that didn’t prove any impropriety on HSBC’s part — only that it’s very easy for the world’s biggest gold short to merge the gold it is vaulting for customers of its fractional-reserve gold banking system and to apply the gold to where the demand of the day might happen to be.

In August 2009 the international journalist and provocateur Max Keiser reported an interview he had with the Bundesbank, Germany’s central bank, in which he was told that all of Germany’s gold reserves were held in New York. That interview is posted at the YouTube Internet site:

Some people saw the Bundesbank’s admission as a suggestion that Germany’s gold had become the tool of the U.S. government. GATA consultant Rob Kirby of Kirby Analytics in Toronto then pressed the Bundesbank for clarification. The Bundesbank quickly replied to Kirby by e-mail with a denial of Keiser’s report, but the denial was actually pretty much a confirmation:

http://www.gata.org/node/7713

“The Deutsche Bundesbank,” its reply said, “keeps a large part of its gold holdings in its own vaults in Germany, while some of its gold is also stored with the central banks located at major gold trading centers. This,” the Bundesbank continued, “has historical and market-related reasons, the gold having been transferred to the Bundesbank at these trading centers. Moreover, the Bundesbank needs to hold gold at the various trading centers in order to conduct its gold activities.”

The Bundesbank did not specify those “gold activities” and those “trading centers.” But those “activities” can mean only that the Bundesbank is or recently has been surreptitiously active in the gold market, perhaps at the behest of others — like the United States, the custodian of much of the German gold.

Last year the German journalist Lars Schall, at GATA’s urging, pressed the Bundesbank for clarification about the German gold reserves, and particularly about whether the Bundesbank had undertaken gold swaps with any U.S. government agency. Gold swaps are trades of gold that allow one central bank to intervene in the gold market on behalf of another central bank without getting the latter central bank’s fingerprints directly on the transaction. Schall sent the Bundesbank 13 questions. But the Bundesbank brushed him off, even as it seemed to acknowledge meddling surreptitiously in the gold market:

http://www.gata.org/node/9363

The Bundesbank replied:

“In managing foreign reserves, the Bundesbank fulfils one of its mandated tasks as an integral part of the European System of Central Banks. We trust you will understand that we are not able to divulge any further information regarding this activity. Particularly with respect to the confidential nature of information about where gold holdings are kept, we are unable to go into any greater detail concerning exact locations and the quantities stored at each of these. Likewise, owing to the strategic nature of the activity, we are not at liberty to provide you with more detailed information about gold transactions.”

In 2009 a New York financial market professional and student of history, Geoffrey Batt, posted at the Zero Hedge Internet site three declassified U.S. government documents involving the gold market. The first was a long cable dated March 6, 1968, sent by someone named Deming at the U.S. Embassy in Paris to the State Department in Washington. It has been posted at the Zero Hedge Internet site:

http://www.zerohedge.com/article/declassified-state-dept-data-highlights-global-high-level-arrangement-remain-masters-gold

The cable described the strains on the London Gold Pool, the gold-dishoarding mechanism established by the U.S. Treasury and the Bank of England to hold the gold price to the official price of $35 per ounce. The London Gold Pool was to last only six months longer.

The cable is a detailed speculation on what would have to be done to control the gold price and particularly to convince investors “that there is no point anymore in speculating on an increase in the price of gold” and “to establish beyond doubt” that the world financial system “is immune to gold losses” by central banks.

The cable recommended creation of a “new reserve asset” with “gold-like qualities” to replace gold and prevent gold from gaining value. To accomplish this, the cable proposed “monthly or quarterly reshuffles” of gold reserves among central banks — what the cable called a “reshuffle club” that would apply gold where market intervention seemed most necessary.

Of course these “reshuffles” sound very much like the central bank gold swaps and leases of recent years.

The idea, the cable says, is for the central banks “to remain the masters of gold.”

Also disclosed in 2009 by Zero Hedge’s Geoffrey Batt was a memorandum from the Central Intelligence Agency dated December 4, 1968, several months after the collapse of the London Gold Pool. This too has been posted at the Zero Hedge Internet site:

http://www.zerohedge.com/article/cia-chimes-gold-control-highlights-historical-gold-foreign-holdings-shortfunding

The CIA memo said that to keep the dollar strong and prevent “a major outflow of gold,” U.S. strategy would be:

“– To isolate official from private gold markets by obtaining a pledge from central banks that they will neither buy nor sell gold except to each other.”

And:

“– To bring South Africa to sell its current production of gold in the private market, and thus keep the private price down.”

The third declassified U.S. government document published by Geoffrey Batt at Zero Hedge in 2009 may be the most interesting, because it was written on June 3, 1975, four years after the last bit of official fixed convertibility of the dollar and gold had been eliminated and the world had been told that currencies henceforth would float against each other and against gold and that gold would be free-trading.

The document is a seven-page memorandum from Federal Reserve Board Chairman Arthur Burns to President Gerald Ford. It is all about controlling the gold price through foreign policy and defeating any free market for gold. It has been posted at GATA’s Internet site:

http://www.gata.org/files/FedArthurBurnsOnGold-6-03-1975.pdf

Burns tells the president: “I have a secret understanding in writing with the Bundesbank, concurred in by Mr. Schmidt” — that’s Helmut Schmidt, West Germany’s chancellor at the time — “that Germany will not buy gold, either from the market or from another government, at a price above the official price of $42.22 per ounce.”

Burns adds, “I am convinced that by far the best position for us to take at this time is to resist arrangements that provide wide latitude for central banks and governments to purchase gold at a market-related price.”

Yes, government can’t abide markets in gold.

While the Burns memo is consistent with the long-established interest of central banks in controlling the gold price, it was written 36 years ago.

But there is a contemporaneous admission of U.S. government intervention in the gold market. It came out of GATA’s long Freedom of Information Act struggle with the U.S. Treasury Department and Federal Reserve for information about the U.S. gold reserves and gold swaps, information that first was denied to GATA on the grounds that it would compromise certain private “proprietary” interests. (Of course such a denial, a denial based on “proprietary” interests, is in itself confirmation that the U.S. gold reserve has been placed, at least partly, in other hands.)

Responding to President Obama’s declaration, soon after his inauguration, that the federal government would be more open, GATA renewed its informational requests to the Fed and the Treasury. These requests concentrated on gold swaps.

Of course both requests were denied again. But through its Washington lawyer, William J. Olson (http://www.lawandfreedom.com), GATA brought an appeal of the Fed’s denial, and this appeal was routed to a full member of the Fed’s Board of Governors, Kevin M. Warsh, formerly a member of the President’s Working Group on Financial Markets, nicknamed the Plunge Protection Team. Warsh denied GATA’s appeal but in his letter to our lawyer he let slip some stunning information:

http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf

Warsh wrote: “In connection with your appeal, I have confirmed that the information withheld under Exemption 4″ — that’s Exemption 4 of the Freedom of Information Act — “consists of confidential commercial or financial information relating to the operations of the Federal Reserve Banks that was obtained within the meaning of Exemption 4. This includes information relating to swap arrangements with foreign banks on behalf of the Federal Reserve System and is not the type of information that is customarily disclosed to the public. This information was properly withheld from you.”

So there it is: The Federal Reserve today — right now — has gold swap arrangements with “foreign banks,” and the public and the markets must not be permitted to know about them.

Eight years ago Fed Chairman Alan Greenspan and the general counsel of the Federal Open Market Committee, Virgil Mattingly, vigorously denied to GATA, through two U.S. senators who had inquired of the Fed on our behalf, that the Fed had gold swap arrangements, even though FOMC minutes from 1995 quote Mattingly as saying the U.S. indeed has engaged in gold swaps:

http://www.gata.org/node/1181

But now the Fed has admitted such arrangements, if only inadvertently.

As GATA was not willing to let Fed Governor Warsh’s letter be the last word on access to the Fed’s gold records, on December 31, 2009, we sued the Fed in U.S. District Court for the District of Columbia under the Freedom of Information Act. The Fed told the court that the Fed really couldn’t find many records involving gold. Implausible as this was, the judge, Ellen Segal Huvelle, denied GATA’s request to interrogate Fed officials under oath about what seemed to us to be their grossly inadequate search. Whereupon the judge reviewed, privately in her chambers, the few documents the Fed had submitted, and on February 3 this year she ruled that the Fed indeed could keep secret all but one of those documents. She ordered the Fed to disclose that one document to GATA within two weeks.

On February 18 this year, heeding the court’s order, the Fed released the document — the minutes of the April 1997 meeting of the G-10 Gold and Foreign Exchange Committee as compiled by an official of the New York Federal Reserve Bank. The minutes showed government and central bank officials from around the world conspiring in secret to coordinate their gold market policies. The minutes are posted at GATA’s Internet site:

http://www.gata.org/node/9623

Perhaps of equal importance, the Fed claimed not to be able to find minutes of any other meeting of the G-10 Gold and Foreign Exchange Committee. Either the the G-10 Gold and Foreign Exchange Committee has met only that once, in April 1997, or the Fed was not represented at any other such meetings, or, more likely, such minutes were conveniently misplaced to keep them away from GATA’s lawsuit.

Thus GATA’s lawsuit established that, despite its public denials, the Fed has many gold secrets after all. Our lawsuit also managed to pry a couple of those secrets loose and publicize them — first, that the Fed has gold swap arrangements with foreign banks, and second, that at a secret meeting in 1997 the Fed was conspiring with other central banks to coordinate their gold market policies and that there was never any announcement of this undertaking.

Almost as gratifying to us was that, since the court found that the Fed illegally withheld from us the minutes of the secret G-10 Gold and Foreign Exchange Committee meeting, the Fed was ordered to pay court costs to GATA, which the Fed did in May, sending us a check for $2,870. An image of that check also is posted at GATA’s Internet site:

http://www.gata.org/node/9917

Years ago GATA disclosed that the International Monetary Fund, the leading compiler of official gold reserve data, allowed its member nations to count gold they had leased, gold that had left their vaults, as if it was still in their vaults. The effect of this accounting fraud is to deceive the market into thinking that central banks have much more gold left to bomb the market with than they really do.

But that’s only the start of the false official gold data.

In April 2009 China caused a sensation by announcing that its gold reserves had increased by 76 percent, from 600 tonnes to 1,054 tonnes. For the previous six years China had been reporting to the IMF only 600 tonnes. Had China acquired those 454 new tonnes only in the last year? Very unlikely. Most experts believe that China acquired those 454 new tonnes over at least several years, largely by purchasing the production of China’s own fast-growing gold mining industry. So for as many as six years the official gold reserve data about China was way off:

http://www.gata.org/node/7380

Last June the World Gold Council reported that Saudi Arabia’s gold reserves had increased by 126 percent, from 143 to 323 tonnes, just since 2008. That the world’s oil-exporting superpower had made such a new commitment to gold in its foreign exchange reserves also caused a sensation.

But a few weeks later the governor of the Saudi Arabia Monetary Authority, Muhammad al Jasser, insisted to news reporters that Saudi Arabia had not purchased the gold cited in the June reports but rather had possessed that extra gold all along, holding it in what he called “other accounts”:

http://www.gata.org/node/9094

That is, the seemingly new Saudi gold had been held in accounts never reported officially, just as the true status of China’s gold accounts was not reported officially for six years, if the true status is being reported even now.

Some analysts think that China and Saudi Arabia have accumulated far more gold than they’re reporting and are accumulating still more gold surreptitiously — China to hedge its dollar foreign exchange surplus, Saudi Arabia to hedge both its dollar surplus and the depletion of its oil reserves — but that China and Saudi Arabia can’t acknowledge this accumulation lest they spook the currency markets, explode the gold market, and devalue their dollar surpluses before those surpluses are fully hedged.

In May this year Mexico’s central bank announced that it recently had purchased 93 tonnes of gold, bringing its gold reserves to 100 tonnes. But last month the Mexican journalist Guillermo Barba reported that the Bank of Mexico refuses to disclose where it is keeping those 93 tonnes and apparently doesn’t even know the form of the gold it claims to have purchased:

http://www.gata.org/node/10481

Apparently in purchasing gold this year the Bank of Mexico became only an unsecured creditor of banks that are members of the London Bullion Market Association, home of fractional-reserve gold banking and primary mechanism of the gold price suppression scheme.

The United States claims to hold more than 8,100 tonnes of gold. But has any of that gold been swapped with other central banks through the gold swap arrangements Fed Governor Warsh disclosed in his letter denying GATA’s request for access to the Fed’s gold documents? The Fed refuses to release its records on the issue.

Keep all this in mind when you hear the common disparagement about gold — that even with its steady rise in price over the last decade, gold has not come close to keeping pace with inflation, that gold is a terrible inflation hedge. Oil has kept up, food has kept up, other metals have kept up, all the things that are used as measures of inflation have, by definition, kept up with inflation — but not gold.

So why not? Why hasn’t gold kept up with inflation?

It’s because Western governments found ways of vastly increasing what the world thinks is the supply of gold without having to go through the trouble of mining it — to dishoard and lease it from central bank reserves and, through Western bullion banks, to issue certificates of deposit against gold that never existed in the first place.

So where in the world is the gold? Most likely in your dreams.

J. William Middendorf II

at the

Mundell Rountable Conference on Global Money

Palazzo Mundell, Siena, Italy

July 9-11, 2011

Some thoughts on monetary reform,
the role of gold in such reform,
gold supplies and fiscal tomfoolery 

I read with interest the report of Bob Mundell’s interview with Pimm Fox on Bloomberg (May 26th) on money and gold. The good professor was kind enough to elaborate on his comments to me, for which I am most grateful. It got me thinking about how the current and future monetary problems in Europe and the U.S. might be solved by moving toward mobilizing the gold reserves in Europe and the U.S.

There are some added questions and it seems that they are all more political than economic. Of course this is speculative and any movement toward monetary reform is dependent on political forces making reform possible.

As you put it, it isn’t impossible that some nations might consider it to be in their national interest to fix gold and Europe has more reserves than does the U.S. I understand that you think that it more logical for central banks to be the only official traders of gold within such a system and this has historical precedent.

Of course, should the U.S. and Europe be paftners in such an agreement – that both the European Central Bank and the Federal Resele agree to fix their currencies in terms of a set quantity of gold, then the currencies themselves would effectively be pegged to each other. This would bring the advantages of greatly reducing the costs of trans-Atlantic trade and saving the costs of cuffency instabilities that are bome today by both trading partners.

One question that comes to mind is the experience of the Bretton Woods system. That too, allowed only central banks to redeem cllrrency for gold. And since central banks are inherently political institutions, one might ask if politics might prevent automatic corrections from occuning should one currency or another appreciate or depreciate. In the past, under the Bretton Woods system, individuals or individual banks could not redeem curency for gold. Thus when profligate fiscal policy in the 60′s lead to an inordinate increase in the U.S. money supply, we saw Lyndon Johnson blackmailing the Germans with a threat of troop removal lest they cash-in dollars for gold. It seems that this weakness of Bretton Woods should be remedied in any future gold standard by allowing the public to impose the discipline of gold on the monetary authority and thus the fiscal policy makers. Under the classical gold standard individuals were allowed allow to get gold for currency whenever they felt that there was a danger of the loss of value of the currency. This shift of gold out of the banking system in a traditional gold standard, meant that there was a diminution of the money supply more in line with demand.

Judy Shelton makes this point in her excellent Wall Street Joumal article of July 6th. “Gold Serves to enforce monetary discipline only if people (emphasis mine) can redeem cuffency at the fixed-convertibility rate when they suspect increases in money and credit are unwarranted by the economy’s real growth prospects.”

One might speculate on the international impact of a dollar or a euro as good as gold. Logically, if it were credible, it would make the euro into a world reserve currency, and supplement the current role of the dollar. With planetary economic growth comes a need for added central bank reserves. In other words, a credible standard would likely ease the ability of the U.S. and the euro community to finance its debt while it shifts to more rational fiscal policies.

Is the alternative to monetary reform and fiscal policy reform, the stagflation of the Carter years? In an inflationary spiral, interest rates demanded would soon be translated to the interest rate paid on the national debt. Logically, then massive consequences would follow. Let us speculate for a moment. The Congressional Budget Office estimates projected deficits in the next ten years of an added $9.7 trillion. Add that to the current $14.3 trillion debt for a total of $24 trillion. And, what if that sum would have to be financed at stagflation rates of up to 12%? A $24 trillion debt financed at 12%(which ten-year Treasuries hit in 1981) would cost an annual interest payment of $ 2.88 trillion – a sum which exceeds total projected federal revenues for next year.

Now, a credible gold standard would greatly reduce that possibility and would bring added economic benefits, not the least of which is lowing the risk of investment and savings and thus increasing economic growth. US/European trade would be greatly facilitated by the stability of fixed exchange rates and other nations would logically “fix” so as to take advantage of this benefit.

Given the experience of the late 1960′s , 1970 and 1971 when the Bretton Woods international monetary system collapsed, skeptics might argue that a system restricting gold exchanges to central banks would hold little promise to assure long-term monetary stability. They might reasonably argue that a truly credible gold standard must remain as insulated as possible from the political pressures of governments willing to embark on foolish fiscal policies. Surely, if money supply is created without regard to the value of the currency, a new gold standard would face a run on it as did the Bretton Woods system at its end. A stabile gold standard would allow the money supply to change as the market dictates – not the politician – to keep stabile the price of gold and the thus the value of the unit of currency. A run on such a currency would be futile, because an apparent reduction in the demand for the currency (indicated by an uptick in the price of gold), would be automatically handled to reduce the apparent over-supply.

There are other skeptics that ask whether the U.S. actually has the claimed gold reserves. Congressman Ron Paul, Chairman of the Subcommittee on Monetary Policy and Technology of the House Banking Committee has called for an independent audit of the gold reserves at Fort Knox. No such audit has been undertaken since 1955.

The status of the gold reserves is a political question with some saying that there is no gold left in Fort Knox. We do know that in the late sixties and up to August 15,197, when Nixon closed the gold window, thousands of tons of gold were claimed by the French. The Swiss, too, claimed at least $50 million in July of 1971. But the French were by far the greatest takers of the gold.

One concern is that much of the U.S. gold reserves are not “good delivery” gold. In other words it is not gold that has been refined to .999 pure gold. In fact there is reason to believe that during the ’60′s when there was a run on the dollar, most of the U.S. good delivery gold was claimed by France and others exercising their right under the Bretton Woods system to get gold for dollars at $35 per ounce. The bulk of our gold reserves today may be ingots of melted gold coins which were called in by the Roosevelt administration in 1932.

In fact, under President Ford, then Secretary of the Treasury William Simon oversaw the sale of roughly three million ounces of gold in four sales of approximately 780,000 ounces each. Of interest is that those were sales of coin-melt ingots.

Some people say that the current U.S. supply of gold, with a current market value of $228.1 billion is not much compared with the trillions of debt. But, it is the largest single supply of gold in the world – 8,13 1.5 metric tons or 162.7 million troy ounces. Most of that is in Fort Knox – roughly 4,578 metric tons – with the remainder spread between West Point, the New York Fed and the various mints.

Sales of gold reserves would do little to affect the debt, but mobilization of the gold reserves to establish a true gold standard that could promise generations of stable money would do much to put the world’s economy on a pro-trade, pro growth path.

Should the Euro adopt a gold fix without the dollar, it could be expected that the euro would gain over the dollar. A gold-backed euro, accompanied by rational policies would stimulate investment and lead to higher levels of employment and economic growth.

S. S. Tarapore, former deputy governor of the Reserve Bank of India has espoused a gold standard. Zhou Wiren, a member of the People’s Bank of China Monetary Policy Committee agreed, saying, “a gold standard would effectively prevent each country’s government from recklessly levying ‘inflation taxes’ domestically and passing troubles to others by manipulating currency exchange internationally.”

Finally, in answer to the question: “What price?” we should refer to Senator Jesse Helm’s Gold Reserve Act of 1982, which posited a return to the gold standard at a market-determined price – the market price on 12:01 a.m., January 1st after enactment. In other words, the market will react and buy or sell gold on the supposition that the dollar will be as good as gold after a date certain. It would determine the correct gold/dollar ratio that will not precipitate inflation (if the “price” were too high) or a deflation (if the “price” were too low).

Congress would have to relieve the Fed of the Keynesian responsibility of boosting demand to boost the economy: monetary stability itself creates jobs. Keynesian demand stimulus hurts the economy and manipulating the value of the currency destroys jobs. Under the gold standard the Fed would be charged with changing the monetary base so as to keep the COMEX price of gold practically at the target price. This system would allow for an expansion of credit to allow for non-defl ationary and non-infl ationary economic growth.

Gargantuan educational hurdles remain: politicians and policy leaders must leam about the rational gold standard alternatives and their benefits; we must educate all who support “sound” money; and that we educate those opinion leaders in the voting, general public.

As Judy Shelton put it, “The absence of a gold anchor – the immutable firewall between fiscal indulgence and compromised currencies–dooms the integrity of both the dollar and the euro. Former Fed Chairman Alan Greenspan rightly observed earlier this year that they are both ‘faulty fiat currencies.’

Crises are opportunities. We have been given an opportunity.

Tilden’s masterful work examines the nature of credit and its inverse, debt.  He explores the aspects, theories, colorful history, and the inevitable collapses of this most dangerous of financial innovations.

Annual Fall Dinner Meeting Thursday, October 20, 2011 –  October Reservations Form

The Union League Club 38 E. 37th Street, New York City

A powerful program with speakers covering conditions in China, Europe,
Great Britain, the United States, with a conclusion on what the US must do.

From Singapore: James Rogers,
with his unique view of China’s economy.
(A special exchange with Jim via Skype)

From the Great Britain: Alasdair MacLeod,
with more of his London GATA Speech, “Beyond the Tipping Point,” from his articles,
“Keynes vs Hayek” and “2011 – The year when money starts to die.”

From the United States:
Read: “Reckless Endangerment,” Co-authors Gretchen Morgenson and Joshua Rosner
Josh Rosner on the American market of 2008, the steepest downturn since the Great Depression,
called the worst financial calamity of modern time. 
Walker Todd, CMRE Director, Read CMRE Monograph No. 51, “From Constitutional Republic
to Corporate State: The Federal Reserve Board 1931-1934”  (Order from CMRE)

America’s Outlook

Lewis E. Lehrman, Founder of the Lehrman Institute, Gold Standard US.
The True Gold Standard: A Monetary Reform Plan without Reserve Currencies
How We Get from Here to There

        Prof. Thomas Rustici, Professor of Economics and Economic History, George Mason University
His understanding of money draws crowded class rooms.

Dr. Edwin Vieira, author of the major books on Money and Law – basis for his reputation as the sage of monetary education.
Both Prof. Rustici and Dr. Vieira have received standing ovations. 

Chris Powell, Secretary Treasurer of Gold Anti-Trust Action Committee,
Managing Editor, Journal Inquirer, Manchester, CT.

 Answers the question:  Where in the world is the gold?  

Early Reservations by Mail Recommended – Registration and Gathering begin at 4:00 PM Oct. 20.

October Reservations Form

Contact: Elizabeth Currier, email: CMRE@bellsouth.net
10004 Greenwood Court, Charlotte, NC 28215   704-598-3717