Annual Spring Dinner Meeting Thursday, May 17, 2012

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

Details to Come

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

by Dr. Edwin Vieira, Jr., Ph.D., J.D.

There is mounting concern these days about the fragility of America’s monetary and banking systems, and especially about the possibility that, as a result of foreigners’ loss of confidence in the Federal Reserve Note as a viable world-reserve currency, huge amounts of foreign holdings of “dollar”-denominated instruments of credit may suddenly pour into America’s domestic economy, to buy up hard assets with ever-depreciating paper currency. Yet there should be no cause for alarm. For America’s political and financial leaders have the legal tools to respond to any crisis in the same timely and brilliant manner with which they and their predecessors have managed this country’s financial affairs up to now.

First, Title 12, United States Code, Section 95(a) declares that,

[i]n order to provide for the safer and more effective operation of the national Banking System and the Federal Reserve System, to preserve for the people the full benefits of the currency provided for by the Congress through the national banking system and the Federal reserve system, and to relieve interstate commerce of the burdens and obstructions resulting from the receipt on an unsound or unsafe basis of deposits subject to withdrawal by check, during such emergency period as the President * * * by proclamation may prescribe, no member bank of the Federal reserve system shall transact any baking business except to such extent and subject to such regulations, limitations and restrictions as may be prescribed by the Secretary of the Treasury, with the approval of the President. Any individual, partnership, corporation, or association, or any director, officer or employee thereof, violating any of the provisions of this section * * * shall be fined not more than $10,000 or * * * be imprisoned for a term not exceeding ten years. Each day that any such violation continues shall be deemed a separate offense.

Plainly, these savage threats of prison and penury should deter, and if not prevent then quickly correct, any serious upheaval in America’s monetary and banking systems.

Second, if the foregoing powers in the Executive Branch were not sufficient, in Section 30 of the Federal Reserve Act Congress “expressly reserved” to itself “[t]he right to amend, alter, or repeal” that Act at any time, in each and every present particular and in other ways not yet imagined. So, Congress may rewrite Title 12, United States Code, Sections 411 and 412, such that —

*The Board of Governors of the Federal Reserve System may not issue Federal Reserve Notes on the collateral of “dollar”-denominated assets held by foreign individuals, corporations, or governments; or may issue Federal Reserve Notes only if those foreign assets are first exchanged for United States Treasury Notes or bonds.

*Federal Reserve Notes that foreign interests hold within or attempt to transfer into the United States through the Federal Reserve System will no longer be treated as “obligations of the United States”, and will no longer be “receivable * * * for all taxes, customs, and other pubic dues”—and even may be “blocked” from all expenditure in this country—or required to be exchanged for some other currency, such as United States Treasury Notes, at a rate decidedly unfavorable to those foreign interests.

*Federal Reserve Notes held by foreign interests will no longer be redeemable in lawful money on demand at the Treasury, or will be redeemed only at some rate of exchange other than “dollar-for-dollar”, such as 1 “dollar” in “lawful money” for 10, 100, 1000, or more Federal Reserve Note nominal “dollars”.

Congress may also repeal that part of House Joint Resolution No. 192, of 5 June 1933, that declared Federal Reserve Notes to be legal tender.

These powers are of decisive importance, because Federal Reserve Notes are the only actual currency the banking system generates. Bank deposits are not currency, but simply the banks’ debts possibly payable to their depositors in currency if the banks remain solvent. Bank deposits are not “obligations of the United States”; are not required to be “receiv[ed] by all national and member banks and Federal reserve banks and for all taxes, customs, and other pubic dues”; are not “redeem[able] in lawful money on demand at the Treasury Department of the United States * * * or at any Federal Reserve bank”; and are not “legal tender”.

Plainly, then, Congress has plenary ability at any moment to prove to avaricious foreigners the truth of John Exter’s incisive characterization, that “Federal Reserve Notes are an I owe you nothing currency”.

Of course, all these powers could be applied to common Americans, too. But every American knows that Congress, Presidents, and Secretaries of the Treasury always put America’s national independence, security, and prosperity ahead of all domestic special interests, let alone foreign ones—and therefore would never leave common Americans holding the bag in the event of a catastrophic failure of the Federal Reserve System.

So, to sleep soundly at night, Americans need only imagine how these extensive powers would—or one should presume, will—be used by such political figures of outstanding caliber as Hilary Clinton, Rudy Giuliani, Mitt Romney, or Barrack Obama—and by the unselfish, pubic-spirited individuals they likely would appoint to the key position of Secretary of the Treasury. Or by the great statesmen who will serve in Congress during the next Administration. Americans can thank Providence that they have entrusted such learned, prudent, and patriotic individuals with all the powers they need.

So, in the spirit of that great popular philosopher, Alfred E. Newman, Americans should simply say: “What, me worry?” And then join the spirit of Franklin D. Roosevelt, one of the senior architects of today’s regime of fiat currency, in exclaiming: “We have nothing to fear but fear itself.”

At least until the roof caves in.

Thank you for this opportunity to visit again. Today I want to challenge your thinking about globalization – and to present a historical perspective that has both bullish and bearish elements. So buckle up your seat belts – it is October and the 70th anniversary of the crash of 1929!

One of the questions I want to raise today is whether the new global economy is real or whether it is another bubble? Is globalization a mirage, or something enduring? And if the latter what does it mean for all of us in the years ahead? My own opinion is that globalization has the potential to define the 21st century, and perhaps even the next millennium. But, as many of you know, the road to the future frequently involves detours and unforeseen obstacles.

Let’s talk briefly about the concept of globalization. For many people it seems synonymous with pop culture. Those of us here today know that there is much more to this subject than the worldwide spread of Nike, McDonalds and MTV. The term globalization relates to the process in which technology, economics, business, communications and even politics dissolve the barriers of time and space that once separated peoples. The end result of the globalization process, Pulitzer-prize winning historian Daniel Yergin points out, is a new reality — which he calls “globality.” It is the world after globalization — a “24-hour, interconnected, hyperactive, e-mail fueled, sleep-deprived world.”

Proponents of globalization often seem to associate it with perpetual prosperity and perpetual peace. Many even envisage an economic utopia in which money, capital and skilled workers move rapidly across national borders in response to private sector decisions. In such a market-driven world national regulators, such as the people from OSHA, the EPA, the SEC, the FTC, and the anti-trust division of Justice, will have declining influence. According to the “Washington consensus,” which includes business and political leaders, the triumph of market-driven economics is both inevitable and irreversible – something as revolutionary to world politics as was the break down of feudalism and the rise of the nation state in the 17th century.

Among the more amazing claims made in behalf of globalization are these two: Japanese management consultant Kenichi Ohmae has written that “nation states are dinosaurs waiting to die.” Strobe Talbott, currently President Clinton’s Deputy Secretary of State, once wrote in Time magazine: “I’ll bet that within the next hundred years, nationhood as we know it will be obsolete; all states will recognize a single, global authority. A phrase briefly fashionable in the mid-20th century – ‘citizen of the world’ — will have assumed real meaning by the end of the 21st century.”

As one trained to think in historical terms, I am always fascinated when people talk about globalization as if it is something new, and something inevitable. While the term is new, the concept has been around for a long time. This is evident, if we think of the 20th century as having three distinct phases: (1) The first a long period of globalization that preceded the outbreak of World War I in 1914; (2) The second a long period of nationalistic reaction and disintegration (or de-globalization, if you prefer) extending from 1914 to the mid-1970s. (3) Then, finally, a quarter century of re-globalization.

A few comments about the first global economy may help us to understand present day problems. It emerged in the mid-19th century after Great Britain adopted unilateral free trade and the gold standard. It was centered in the Atlantic region and had little impact on much of the non-Western world. American colonists participated in this first global economy as suppliers of raw materials — cotton, rice, timber and tobacco — and importers of English manufactures. While the British system had many shortcomings, it exhibited many features of modern globalization — trade expanded rapidly, and long-term investment capital flowed to emerging areas. Moreover, there was massive human migration — in the 19th and early 20th centuries from Europe to the Western Hemisphere and Australia.

This first global economy came about because of policy changes – the shift from government controls to market de-regulation – and because of advances in critical technologies. In the late 19th century it became possible for the first time to move large numbers of people and goods cheaply and rapidly over vast ocean distances. Before the arrival of the steamship, sailing vessels took about 25 days to cross the Atlantic. By 1907 steamships needed only 4.5 days. Now, it is a matter of a few hours. Other key developments occurred in communications. In 1866 when the transatlantic cable opened it cost $100 to send ten words. Twenty years later, it had dropped to as low as twelve cents a word. Soon the London and New York stock exchanges were only minutes apart. The telegraph was no internet – widely used by ordinary people – but it did link the world for business and governmental purposes.

To make a long story short, Britain’s 19th century decision to open its home market to foreign goods and its capital market to the world, which accompanied the revolutions in transportation and communications, created an early version of Marshall McLuhan’s “global village.” Before World War I the prominent economist John Maynard Keynes marveled at how “the inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep.” At the same time he observed how Londoners could invest their savings in natural resources and enterprises in any part of the world. The global village he was describing had emerged nearly a century before the internet and Fedex.

In light of the present-day belief that globalization is inevitable and irreversible, it is worth recalling that in the early years of this century business and financial leaders had a similar view. They celebrated “economic liberalism” – the deregulation of markets – as the grand panacea. Commerce, like a medical discovery, they thought, served to inoculate all nations with the prosperity and respect for civilization. Perhaps the ultimate statement of this prosperity-and-peace vision appeared in a book published in 1911. The author was Norman Angell, a British peace advocate, and the title The Great Betrayal. In it Angell asserted that “international finance has become so interdependent and so interwoven with trade and industry that . . . political and military power can in reality do nothing.”

Three years later the bubble of optimism burst with the famous guns of August, signaling the beginning of World War I, and a half century of economic disintegration. World War I was a calamity — costing 13 million lives. In modern prices the direct costs of the war were perhaps $1.5 trillion.

The second period of decoupling and government intervention extended approximately 60 years from 1914 to the mid-1970s. It is difficult to summarize in only a few words, but it included a Great Depression, two world wars, two periods of reconstruction from the wars, a period of decolonization and nationalism in emerging nations, a long Cold War struggle between the U.S. and the Soviet Union. It was a period of rising economic nationalism and active government intervention in all aspects of economic life. Because of the enormous risks associated with this political turbulence, private capital flows were restrained, and trade was often managed by governments.

In thinking about this second period, it useful to recall that in physics one learns that actions produce reactions. The same frequently occurs in politics. In the context of our globalization discussion, it is at least arguable that the long period of liberalization and economic integration before World War I triggered pressures for de-globalization.

World War I, when submarines and trade restrictions impeded the flow of food and fuel, residents of Britain and Germany both came perilously close to mass starvation, and their military machinery stalled for lack of gasoline. The lesson of World War I for many Europeans was that interdependence was a fair-weather system. In times of war and economic dislocation the system proved volatile and nations vulnerable. As a consequence, the pendulum swung away from laissez-faire and de-regulation toward greater government intervention. During the 1920′s governments intervened in markets and actively regulated every thing from flows of trade, to money and immigrants. That trend accelerated during the Great Depression. Even economists trained in the neo-classical liberal English tradition began to question the benefits of globalism. In 1933 Keynes noted that “the age of economic internationalism was not particularly successful in avoiding war. . . .” He thought that free trade, combined with capital mobility, was more likely to provoke war than to keep peace. He said: “I sympathize . . . with those who would minimize, rather than with those who would maximize, economic entanglement between nations. Ideas, knowledge, art hospitality, travel – these are the things which should of their nature be international. But let goods be homespun whenever it is reasonable and conveniently possible; and above all, let finance be primarily national.” Keynes was also critical in 1933 of something we hear much about today – short-term capital mobility. He criticized speculators “who buy their interest today and sell it tomorrow and lack altogether both knowledge and responsibility towards what they momentarily own.” In short, the Keynes of 1933 was saying many of the same things we hear today from President Nelson Mandela, Prime Minister Mahathir, and other leaders of the developing world.

The first experiment with globalization produced many other reactions as well. Not only did its collapse in 1914 produce a swing toward more active government intervention, it stirred nationalism in colonial areas and resentment of British dominance among those who thought themselves disadvantaged by globalization. The rise of Leninism in the Soviet Union, and the emergence of Nazism and Fascism in Europe fit the latter pattern.

What about the much ballyhooed notion that trade promotes freedom and democracy, and that business moderates political extremism, you ask? One must be cautious with historical generalizations, but experiences in the 1930′s raise questions about the popular notion that expanding commerce and investments can alter totalitarian regimes. During the 1930s, many multinationals, eager to establish their market positions in Germany, invested heavily in Germany. They did not anticipate World War II, and so their rational business decisions aided and abetted Hitler’s rearmament with investments and technology transfers. Ford built a truck plant in Berlin, which later served the German military well in World War II. Standard Oil of New Jersey entered cartel arrangements with I. G. Farben that handicapped the development of synthetic rubber in the U.S. IBM worked closely with the Nazis. Thomas Watson, the head of IBM, promoted the slogan “You can do business with Hitler.” Hitler later decorated him with the Order of the German Eagle.

I know that many intelligent people believe that conditions have changed, and think that many of the present generation of educated business leaders are more clairvoyant, socially conscious, and principled than their predecessors. Possibly, they will be more successful in restraining aggressive political behavior and improving human conditions. Perhaps too expanded commercial and financial contacts will bind emerging powers, like the People’s Republic of China, to the Western market system and promote a more democratic political system, as many think. But if the experience of the 1930′s has any relevance, the skeptics could enjoy the last laugh.

The second phase of 20th century history – the period of economic disintegration and regulatory nationalism – lingered until the 1970s. As you know, it ended with a whimper, not a bang, collapsing slowly over a 20-year period, as the Cold War competition between East and West subsided. The architects of the new world economic order – the world of the World Trade Organization, mandatory dispute settlement, and global deregulation – are, I believe, the real revolutionaries of the 20th century — seemingly far more successful than the Lenin’s, Hitler’s, and Castro’s who could destroy but not create. The new revolutionaries are pin-striped international lawyers who pressed their plans for giving the system order and structure.

While it is too early to issue a final judgment on the ambitious dispute resolution process, WTO panels have rendered some far-reaching panel decisions — touching on environmental, cultural, and other issues of national sovereignty. Did the founders of the WTO bite off too much? Were these incremental internationalists too ambitious and too idealistic? Stay tuned — the final chapter has not been written. The WTO dispute resolution system will either open markets and expand the opportunities for economic globalization, or the system will founder, having aroused a grassroots backlash that may in turn rejuvenate national regulatory efforts. The WTO critics are using the internet effectively to press their criticisms that the trading system encroaches on national sovereignty and endangers food safety, cultural diversity, and environmental and labor standards.

Let me also speak briefly about events in international finance. Here the architects of globalization have been far less successful. The principal international financial institutions — the IMF, the World Bank, and the Bank for International Settlements — were conceived in the Great Depression or World War II, and designed for a simpler world when currency rates among major currencies were fixed and when capital flows were regulated. The so-called Bretton Woods financial system designed for the post-World War II order envisaged only convertibility for current account transactions – trade and income on long-term investments – it did not authorize capital account convertibility. The experience between the two world wars with volatile currencies convinced experts of that generation that open capital markets were incompatible with international monetary stability. There was a consensus in Britain and America that governments needed to regulate short-term capital flows and that bankers could not be trusted to act responsibly. President Roosevelt’s Treasury Secretary put the idea quite vividly. He said the task of public officials was to drive the “usurious money lenders from the temple of international finance.”

During the 1980s as the trend toward deregulation in financial markets gained momentum, IMF began pushing developing countries to open their own capital markets. In pressing this objective the Fund may have over-reached. In pursuit of a good idea – open markets and efficiency – they gave too little attention to the necessary underlying conditions: high levels of transparency in information and symmetrical standards and regulatory procedures. In the aftermath of the Asian financial crisis the Fund has admitted that it overreached. Opening economies prematurely to free flows of capital, the IMF said in its latest annual report, “constituted an accident waiting to happen.”

As you know, some economists who enthusiastically embrace free trade and open markets have been the most severe critics of those who pressed for open capital markets. Jagdish Bhagwati of Columbia University, has asserted that a “Treasury-Wall Street complex” had hi-jacked the free-trade movement in support of open capital markets. He has argued there was no proof for the “flag-waving” assertions that open capital markets stimulate growth, citing the examples of Japan and Mainland China, which he says grew rapidly without foreign capital.

I think Bhagwati has a point. It is at least arguable that the Washington consensus pushed their own grandiose ideas too fast and too far in international finance, as the proponents of mandatory dispute-resolution may have done in the WTO negotiations.

This conclusion suggests the key paradox – that the doctrinaire and zealous proponents of globalization and de-regulation may be the real enemies of sustainable globalization. In aggressively pressing their vision of an open system and unregulated system, they may have succeeded in creating a system that is crisis-prone and in igniting nationalistic reactions. In effect, the doctrinaire de-regulators have met the enemy and discovered, as the cartoon character Pogo did, that “they is us.”

So, where is globalization going? I am both bullish and bearish. Obviously, the technological advances will continue. What could significantly change our lives would be the availability of large capacity supersonic airliners that can transport large numbers of people cheaply from continent to continent in half the time now allotted. We are apparently some time away from this development. This together with wider public use of internet communications has the potential for expanding global awareness and developing a global outlook similar to the Euro-centric outlook which is emerging in Western Europe.

Nonetheless, if the history of the last century is any guide, the path forward is likely to have major obstacles. Rather than a linear future – suggested in the notion of a 25-year boom – I envisage a zig-zag future – 2 steps forward, 1 or 2 back – with actions producing reactions.

Among the recipes for disaster: Financial contagion could produce a global meltdown. I do not think it imminent. The rise of totalitarian leaders in major countries could ignite another World War, although this too is not imminent. Or, ordinary citizens may simply conclude that they prefer autonomy and independence to efficiency and harmonization in a global economy. We are seeing signs everywhere that this may be the real challenge of the future. Traditional appeals of localism, regionalism and nationalism.

I think that we should be cautious about celebrating the death of these alternative “isms.” Yes, Norman Angell is dead, but his celebration of globalism on the eve of World War I endures as an example of a bullish forecast gone bust. The Washington consensus about the advantages of globalism has not yet converted large numbers of opinion-leaders, activists, and ordinary citizens around the world — particularly in developing countries. Many of them still question whether communities, cultures, and nations should be subordinated to the logic of an unregulated, market-driven system, or to a system regulated by international authorities. Many of these activists can be expected to demonstrate in Seattle next month when the World Trade Organization holds a ministerial in late November. Over the last year, we have heard much in the last year about the potential disruption of the millennium bug. I would not be surprised if the G2K Bug — globa-phobia — proved more disruptive in the new millennium than Y2K.

Constitutional Foundations of American Economic Power, by Dr. Philip D. Bradley

The American System or the Corporative State?, by Dr. Edwin Vieira

An essential companion piece to Walker Todd’s above. The authors provide analyses of the descent of the government political economy model into corporatism and the difficult monetary and fiscal tasks necessary to extract us from it.

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