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A mining company president''s compliment
9:15p EDT Thursday, September 30, 1999
Dear Friend of GATA and Gold:
Here's an essay by GATA's vice chairman and treasurer,
John D. Meyer, founder of Berkshire Financial Advisors
in Great Barrington, Mass., and a 30-year veteran of
the money-management business, posted at
www.lemetropolecafe.com.
Better than anything else I've seen, John's essay
explains the meaning of the decision by the European
central banks to stop facilitating the gold carry
trade.
Please post this as seems useful.
CHRIS POWELL, Secretary
Gold Anti-Trust Action Committee Inc.
* * *
THE WORLD DECLARES MONETARY INDEPENDENCE
FROM THE U.S. DOLLAR
AND HANNIBAL'S WORST NIGHTMARE BEGINS
By JOHN D. MEYER
Vice Chairman and Treasurer
Gold Anti-Trust Action Committee Inc.
September 28, 1999
Three cheers for Midas Murphy!
Pinch me quick and tell me I'm not dreaming. How can
this be? Fourteen European central banks plus even the
English Poodle announce that they will restrict gold
sales and lending for the next five years. In one
dramatic sweeping step the reign of terror besieging
the gold bullion market has been broken. But the
question remains: Why would the European central banks
wish to reassure the gold markets?
For many years the gold world has been throttled by
perceptions and short selling. Central banks gold sales
were in fact never the problem, but the gold lending
and the well-orchestrated propaganda directed by the
United States was. Since early 1996 the threat of
central bank gold sales and a raising volume of gold
lending strategically timed and presented by the
mainstream financial press attacked gold whenever an
uptrend threatened. This has now ended.
THE TWILIGHT OF THE DOLLAR
With the monetary system facing the greatest defaults
since the 1930s, the manipulation of gold, the ultimate
preserver of wealth, serves precisely to conceal the
bankruptcy of our current monetary system.
Single events often appear distant and unrelated, yet
with a more critical eye they can be seen to be part of
a pattern. It is my position that the European central
bank announcement is a defining moment in monetary
history. The propaganda windmills, mostly English
speaking, would have you believe that money is a
creation of government. As Martin Armstrong liked to
say, gold has been demonetized.
We hold a different view. Namely, that money is
determined by a market process. The European central
bank decision is a major part of this market process,
which has two consequences.
First, it partially restores gold's monetary role.
Second, and more importantly, it is a determined
attempt to turn away from the dollar as a reserve
currency.
The reality is that the greatest crisis in credit since
the 1930s is under way. While the problem may appear to
have begun in Asia, in fact its origin is a monetary
system that allows the United States to have quot;deficits
without tears.quot; Every nation in the world has suffered
as they have been forced to import our inflation (that
is, to buy dollars and U.S. debt) because it is the
reserve currency of the world's financial system. The
dollar as the reserve currency forces other countries
to accept our paper as payment for their goods and
services. Jacques Rueff named this dirty little secret
quot;The Monetary Sin of the West.quot;
Our global monetary system is dysfunctional. The Asian
currency epidemic was the first act in a play destined
to take down the U.S. dollar. Starting with Mexico in
1995, Asia in 1997, and Russia and Brazil in 1998, we
have experienced an escalation in each crisis as larger
and larger countries are ravaged. The monetary mischief
of competitive currency devaluations claimed its first
victim in North America with the collapse last fall of
Long-Term Capital Management.
As 1998 was ending the Japanese authorities (December
22) blind-sided the financial markets, saying that they
would cut back their purchases of Japanese government
bonds. Japanese long term bond prices were pummeled and
the U. S. dollar crumbled. Then on Jan. 1, 1999, Prime
Minister Obuchi proposed the establishment of a
monetary system composed of three key currencies -- the
yen, the dollar, and the euro. Japan signaled its
intention to internationalize the yen turning it into
the key currency of Asia.
On Sept. 20 this year, despite warnings, the Bank of
Japan refused to ease monetary policy to curb a rapid
rise in the yen against the dollar. A week later the
European central banks befriended gold.
The Russian default in 1998 launched us into a new
phase of this meltdown, which directly affected the
derivative arena. Default has been staved off for
decades through credit expansion (i.e., bailouts). New
debt piled on the old. Finally, when the excesses are
too great and the economies too anemic, default becomes
the final solution. Default immediately exposes
systemic weaknesses. Since derivatives are leveraged
contracts dependent upon an underlying quot;asset,quot; default
of the underlying asset immediately wipes out that
derivative. The wizards' computer model programs are
not programmed for events that might cause a non-
standard deviation movement.
For the Federal Reserve to admit that a single hedge
fund, with a mere $4 billion in equity, jeopardized the
entire financial system is an admission of a profound
failure in the Federal Reserve policy. What can be the
justification for bailing out a den of gamblers?
It proves the mutual dependency and just how cozy the
alliance is between Wall Street and Washington. LTCM
was bailed out because government officials realized
other hedge funds and Wall Street trading desks had
similar leveraged positions. This crisis is still
largely unknown to the public. It is the story of the
quot;carry trade,quot; the naked borrowing of yen and gold to
finance these extraordinarily leveraged positions of
the financial community.
Between August and October 1998 the yen fell from 147
to 112. Then, on Oct. 15, facing a breakdown in the
interbank payment system, the Fed initiated the first
of three rate cuts. As 1999 commenced the U.S.
financial system had been brought back from the brink
by another massive ballooning of credit.
These fixes have merely exacerbated the underlying
systemic risks. After decades of a policy of quot;too big
to fail,quot; the Fed's unwillingness to address underlying
structural problems of debt has led to putting the
entire system at risk.
The Bank of Japan and the European central banks are
declaring an end to this state of affairs. The U.S.
financial markets have become a fool's paradise, and
the affairs of LTCM down to the current scandals
involving Martin Armstrong and others have not been
lost on the global banking community.
As a young man Alan Greenspan wrote an essay titled
quot;Gold and Economic Freedom,quot; detailed the cause of the
1929 crash. It appears to me as though he repeats the
mistakes he accused the Fed of committing in 1927-28.
That is, Greenspan has created a bubble
(hyperinflation) in our financial markets. Wall Street
has become a casino. The greatest fear for the central
bankers of the world is the U.S. dollar, which
comprises the bulk of their monetary reserves.
For years now the mainstream gold analysis has been
fixated on the supply of gold. This is not the issue.
The critical determinant in the price of gold
ultimately is the supply of DOLLARS. As the United
States is the world's largest debtor nation, with
endlessly mounting trade deficits, negative savings,
and inflated security markets, it is not hard to image
the fear motivating recent developments by the Japanese
and the Europeans. Enough is enough. Gold reserves are
not the problem for central banks but rather their
excessive position of dollars, which has entered a
major secular downtrend.
THE COMING DOLLAR BACKLASH
The European central banks' new gold policy must be
viewed as an aggressive escalation in their policy to
establish monetary independence. The world has crossed
the threshold into a monetary system that will be
comprised of three reserve currencies. Gold is no
longer to be held hostage to American monetary policy.
On this point it is quite interesting to see that the
English Poodle, in an obvious break with its American
friends, has turned its leash over to the Europeans.
It will be interesting to see what response the Bank of
Japan will make to the European central banks. An Asian
yen-backed currency has a long way to go to equal the
gold reserves backing the dollar and the euro. Until
now the currency world has been engaged in a
competitive race to the cellar. It could be that the
race for competitive legitimacy has begun. Central
banks' bids for gold are likely to far exceed the sale
limits just established by the Europeans. The historic
actions by the European central banks and Japan over
recent days are extremely bearish for the dollar and
U.S. financial markets. So far the markets have failed
to understand this.
WHERE DOES GATA GO FROM HERE?
As treasurer of GATA I wish express our sincere
appreciation for the support from hundreds of people
who have rallied to our cause. Your letters and notes
have been a source of strength to the committee. We
salute and thank you. We are likewise indebted to a
select and courageous few within the gold-mining
community. Unfortunately most mining companies have yet
to come on board.
Clearly the surge of events is vindicating and
confirming the task set out by GATA. No matter how
sweet this first victory may be, a long battle still
lies ahead. We need to capitalize on this moment by
moving on to the next level of our investigation.
It would be gratifying to see some of the senior gold
mining companies step forward to support GATA
publically. GATA Chairman Bill Murphy has detailed one
of our failed attempts (the quot;Vancouver Affairquot;) to find
major corporate support. quot;Hannibalquot; seems to have a
long reach.
We have made many other attempts to enlist the larger
mining houses. One senior North American producer
approached us last spring and actually explored a
relationship with us for nearly a month. We cooperated
in every way, opening all our work for the company's
review. Then suddenly the company disappeared without
explanation. Phone calls were not returned. We were
just plain dumped.
Someday we may tell the world about that episode too;
the story rivals the quot;Vancouver Affair.quot; For now we
continue patiently with restraint, but hope that the
larger members of the mining industry will awake and
throw aside their fears.
One way or another GATA is here for the duration. Keep
up the support. We will prevail.
A FINAL WORD
Murphy's heroic effort and foresight are only now
beginning to be understood. Bill and his Internet site,
www.lemetropolecafe.com, have nailed the events that
are now unfolding. If the Bank of England's gold sale
didn't convince the world that the gold market was
being manipulated, maybe a $60 explosion in the gold
price will. The recent extreme price action in gold
should show that the market has been suppressed. One
wonders how much it will take to generate an
acknowledgment of Bill's tremendous performance.
