-- Posted Tuesday, 8 July 2003 | Digg This Article
July 7 - Gold $347.90 down $2.90 - Silver $4.71 up 4 cents
"History fails to record a single precedent in which nations subject to moral decay have not passed into political and economic decline. There has been either a spiritual awakening to overcome the moral lapse, or a progressive deterioration leading to ultimate national disaster." --General Douglas MacArthur
When I went to sleep last evening, gold was a bit higher in Asia. When I woke up, gold was unchanged in Europe in spite of a much higher dollar. By the time The Gold Cartel got around to the US opening it was $2 lower. The good news is the loathsome crooks ran into all they could handle as the physical market was on fire, demand extremely large.
Gold continued to do some "work" as it fills out its megaphone formation:
Bullion fell today looking to close a downside gap, but most everyone I spoke to was impressed how well it held up under the cabal's massive assault to break it down. The stock market was ramped with the DOG (1721, up 58) going into orbit. The dollar's fundamentals remain bearish, yet it went into orbit along with the DOG. The Sep dollar rose 1 to 95.90, while the euro was trashed, falling 1.57 to 113.04.
All in all, gold did OK. On Thursday, I stated that gold was ready to rocket this week. Based on the activity in the physical market, I will be surprised if the initial phases of the rocket launch have not been ignited by week’s end.
One more positive technical for gold: The Café's sentiment index has turned very bullish. Not like it was when gold was at $320, but considering the wonderful action of the shares and a much higher gold price, we are coming close. Hits, trials, full membership renewals, NEW full memberships, and various email activity have all dropped sharply over the past five days. Activity over this July 4th holiday period was one of the slowest for any holiday period ever. In the past, this indicator has predicted a coming turnaround, a big one!
At the same time, silver was ALLOWED to rally as gold was smothered. Another ridiculous and orchestrated price divergence. Technically, silver looks great with no resistance surfacing until $4.88. No gaps to fill below either.
The John Brimelow Report
Monday, July 07, 2003
Indian ex-duty premiums: AM $5.79, PM $6.29, with world gold at $351.65 and $349.90. (Friday: AM $5.97, PM $5.92 with world gold at $350.95 and $351.20) Ample for legal gold imports. Reuters this morning runs a story from India quoting Indian gold dealers about a pronounced slow down (but not a cessation) of shipments into Madras and Bombay. This is in sharp contrast, not just to recent premiums, but also to recent Government import data. As mentioned on Wednesday and Thursday, these show an extraordinary acceleration in March, April and May. Probably more credible are the dealers’ suggestion that demand would rise immediately were world gold to sink to the low $340s, and the report’s comment that
"..crop prospects are bright due to good rainfall so far this monsoon.",
which blocks off a lair much frequented by gold bears at this time of the year.
Further evidence of robust physical offtake comes this morning from Turkey, where the Istanbul Gold Exchange reports imports for last week of 4.757 metric tonnes. This is down from the previous week’s very heavy 7.525 tonnes, which benefited from gold’s last excursion into the $340s, but still 28% above the YTD average. As also noted on Thursday, Turkish gold imports so far this year are twice as large as last year. ScotiaMocatta, which conducts a large trade in the main bullion offtake markets, adds:
"ScotiaMocatta also believes gold is building support at current levels
thanks to physical demand factors. "We see strong physical demand below 350 underpinnning the market," explained (Alistair McIntyre, director of precious metals with ScotiaMocatta in Hong Kong)."
All of this was completely lost of the Japanese (despite gold, as usual nowadays, being firm in their time zone). Only the equivalent of 9,123 Comex contracts traded, half the volume of the previous two days, with the active contract edging up a yen, as it did also on Friday. Open interest was static (down 73 Comex contracts net since Thursday). With the Japanese seeing such entertainment from their stock and bond markets, Nihon Unicom is probably right to blame this inertia on a "shortfall of motivation". On Thursday Comex traded 20,969 contracts in an abbreviated session: open interest was up 190.
On Friday the Bank of Canada announced that it substantially accelerated its gold sales program as gold weakened in June, selling a quarter of the remaining reserves, the largest (3.7 tonnes) sale since early 2001. Today Mitsui London reports remarks in a Sunday Newspaper in Germany by senior SPD politicians raising the possibility of asset sales including gold to finance last year’s tax cut. This of course would require navigating the Washington Accord, and the Bundesbank’s possessiveness about the capital value represented by the gold it holds.
Over the past couple of years, this type of news especially from the Germans has tended to mean that gold is about to break above some resistance barrier. That Central Banks have been engaged in large scale disposals of their gold has not been news for several years. The only question of interest is how much of it has been done surreptitiously, via leases or swaps. Perhaps the threat of the remaining Central Bank gold will turn out to be the WMD myth of the International Financial system!
CARTEL CAPITULATION WATCH
The DOW (9216, up 146) joined the DOG in the bubbleized stock market action. The bonds continue to be bombed, slumping another ’22 to 115 ’08. What a rout!
A reason given for the stock market run-up:
July 7 (Bloomberg) -- U.S. stocks surged, led by technology companies, after a Goldman, Sachs & Co. survey of corporate executives indicated the decline in technology spending is ending. –END-
Note the executives say the decline is ending, but no mention of any pick up. Stock P/E’s run anywhere from a high 34 to an EXTRAVAGENT 43, depending on the stock group and the calculations. Shows you markets can do anything for a brief period of time.
Canada continues to contribute putting pressure on the gold price, which subverts one of its most valuable industries:
OTTAWA, July 4 (Reuters) - Canada sold about one quarter of its official gold reserves in June but lost $2 million on the transaction because of slumping bullion prices at the end of last month, a government official said on Friday.
Gold sales in June totaled 114,064 ounces, leaving government holdings at about 300,000 ounces on June 30, when the metal closed at $346 an ounce from May 30 when it closed at $361.40 an ounce, Finance Department data showed.
"The gains or losses are based on what the selling price of the gold was relative to its previous valuation at the end of the previous month. So, it was $2 million lower than the previous month-end valuation," the official said.
Canada has a policy of gradually selling off its gold reserves and replacing them with interest-bearing instruments.
Overall Canadian foreign reserve holdings fell by $724 million to $36.7 billion in June, largely due to exchange rate effects which accounted for $395 million in declines.
Slightly more than half of Canada's foreign reserves are held in U.S. dollar-denominated assets so the Canadian dollar's appreciation of more than 15 percent so far this year has trimmed the relative value of government holdings….-END-
Nice going Canada. In addition to your efforts to keep employment in the gold mining industry as low as possible, you are on your way to losing a great deal of money in the process. The gold move is only in its early stages, yet you sell gold to buy dollars. Whatever small interest you made recently has been obliterated by a 15% depreciation against the dollar.
The good news is you have so little gold left, you are not really a factor anymore, joining Australia as another hapless gold reserveless country. What do you have, ten tonnes in the coffers, all of which is probably lent? Australia has lent out all but 3 ½ tonnes of its gold. England dumped more than half its gold the past few years to suppress the price and it has cost them dearly. What is going on with the Anglo-speaking countries and gold? GUESS!
Canada ought to reverse its policy. Can you imagine the psychological plus to the vast number of gold mining companies in Canada if they did so? Perhaps some advice from this Moroccan gold trader might help:
I'm a professional Trader from Morocco, Marrakech
i share with you my last gold analysis
and would like to have your opinion, if you agree
Gold will rise in 2003, 2004, 2005 …
This is what I recommend to the Central Bank of my country : increasing the gold stock and getting gradually rid of the American dollar
While stressing the difference between the movement of ordinary stocks and gold ones, I shall start by explaining why securities will continue to fall over the 3 coming years, while the king of precious metals will continue to rocket. I shall also try to show the amplitude this movement is likely to take.
Then we shall look into the probable evolution of the dollar over the 4 coming years while taking into consideration two facts that are certain right from the beginning:
1- when the dollar falls, gold rises and vice-versa.
2- the dollar has well and truly started to decrease.
Now we have to answer two crucial questions that all professionals are asking themselves:
1- how long will the fall of the US dollar last?
2- And to which level will this currency fall?
The technical and chart analyses of inter-market relations will once again prove to be precious for us. The message is clear and does fit in with the above-mentioned analysis: the fall of the US dollar will accelerate in the coming months and its amplitude will be considerable.
Peter Spina at www.Goldseek.com alerts us to a draft Congressmen Ron Paul for President effort at:
Over the years, my greatest insight into the financial markets, and into the way the US really does its business, has come from the opening this web site almost 5 years ago. One of those insights was the realization that many (certainly not all) in the Wall Street investment houses and financial reporting media are nothing but a bunch of groupie buffoons, all spouting a certain party line without any independent-thinking as backup. Many of these institutions are nothing but rah-rah machines who mock those who confront their credibility, the supposed hallmark of their existence.
Two cases in point. The first is the Best of the Web critique of The Café by Forbes:
Le Metropole Cafe
Gold bugs of the world unite...and please have your credit card handy. LeMetropole Cafe features commentary throughout the trading day and into the nights and weekend. Conspiracy theories are frequent fare but so is some trenchant insight into the world gold markets. At $149 a year, it's an intellectual amusement park that you'll have to be willing to pay to enter.
BEST: Gold's true believers seem to gather here.
WORST: More hot air than a ballooning festival.
Hot air? Perhaps that should be regarded as a compliment from the same magazine who voted Enron the most well run company in America year after year. GATA has come up with the goods on The Gold Cartel for over four years. It is the gold establishment who is full of hot air. Their statistics don’t hang together in any way at all. And they refuse to deal with the facts GATA has uncovered, all of which support our case of gold market manipulation and a serious depletion of central bank gold reserves to the tune of almost 50%.
In contrast to the GATA camp, this is the kind of garbage the corrupt, mainstream gold world offers its clients:
04 Jul 13:00
JP Morgan leaves 2003 gold price forecast unchanged
REUTERS - JP Morgan has left its 2003 average gold price unchanged at $340 an ounce, preferring to wait for further clarity in the precious metal's direction, it said in a summer price forecast review on Friday…
Moore pegged average prices in 2004 at $335 an ounce and in 2005 at $345 an ounce, both unchanged from his previous forecast. –END-
This is from the London gold desk, the one Treasury Secretary Snow met with soon after taking office. Moore completely missed the last two-year gold bull market, failing to call the price rise. Now that gold has risen modestly to $350, Moore has turned slightly bearish for the next two years without explaining why. BEARISH, even though the gold fundamentals are the most BULLISH in history!
Did Morgan tell him what to publish? Did Snow? Did Snow tell him the US won’t let the gold price rise? Is Moore a nitwit? One thing for sure, Morgan and Moore are talking their own books. Keeping the price of gold down and lying to the investment world about what is really going on in the gold market is far more important to Morgan’s financial health than telling the truth. Morgan will NEVER turn bullish. They have too much at stake.
You want hot air Forbes? Turn to your establishment friends at Morgan. They’re hot air, or perhaps better, no air at all, and certainly not a breath of fresh air. Meantime, the GATA camp will chuckle in the weeks, months and years to come as the gold price and our investments soar. Forbes will remain both ignorant and clueless, preferring to mock those that shine light on an insidious darkness!
Some goodies from Richard Russell on July 4th:
Here we see widespread disinterest in gold. More than disinterest, the public believes gold is a lousy "investment." They've been told that gold is a "relic" of the past, and is of no importance in the modern system of money management. And that tends to be what the public believes.
Thus, I see gold, regardless of the fact that it's well above its price of a few years ago, still very much in the first phase of a gold bull market. In other words, the item, in this case gold, is either ignored or actually disliked in the first phase of a bull market. And all the while, informed investors are using the herd’s ignorance has an opportunity to accumulate the item at bargain prices.
Since gold turned up from its recent low in August of 1999, the first phase of the gold bull market is already four years old. This is an unusually long time for a first phase of a bull market to be in place, but so be it. The market is not interested in fixed rules.
Turning to the stock market, I can make a case for the stock market still being in the first phase of a bear market. One of the characteristics of a first phase of a bear market is that in this phase the froth and wild enthusiasm of the previous bull market's top is erased. The public is disheartened, volume simmers down, and some sanity returns to the market.
On this basis, my belief is that the bear market, which began in September 1999, is still in its first phase. Volume on the NYSE and the Nasdaq is still huge, margin debt on the NYSE is still high at $147 billion, stock valuations remain sky-high, dividend yields remain extremely low, and the public is still very much in the market and has even recently stepped up its investments in mutual funds.
Based on all of the above, I continue to believe that the stock market remains in the first phase of its bear market, and I believe that gold remains in the first phase of its bull market.
Turning to the "frantic Fed," the latest figures are as follows – M-3, the broad money supply, rose $21.1 for the week ended June 23. That’s roughly $50 billion over the last two weeks reported. Annualized, that’s around a $1.2 trillion rate. The printing presses are going all out as the Fed pits its full strength against the power of the primary trend of the market.
Chuck checks in:
The Rydex Precious Metals numbers which have been an excellent predictor of the gold share movements, particularly when there is liquidation, has dropped very sharply even in the face of the positive action of the shares. This indicates that the shares are moving up as nervous holders get out. We should have a launching very shortly especially in the juniors. Chuck
Hubris...and then the fall
Thoughts of gold suppression denials filled my mind yesterday during a round of Golf. My regular Sunday match was progressing nicely when, having hit our second shots on the 7th hole, we noticed a teen picking up two balls which had missed the green to the left (mine missed to the right). We yelled but to no avail. As we drove up to the green we walked over to the adjoining green where the ball thief was hiding behind his parents. We asked him for the balls he picked up. He denied any transgression. His parents, getting a bit upset, began to ask, why would he lie? We tried to explain that we all saw him pocket the balls and we just wanted them back so we could finish the hole. His mother was nearing hysterics, repeating her question, why would he lie? but his father, noticing his son's hanging head, asked him to empty his pockets, from which emerged the two balls. In this case, all ended well as a higher authority, the father's will, was imposed on those exhibiting wayward behavior.
While the exchange was unfolding I was quite intrigued by the personality dynamics on display. The son, perhaps fearing retribution, or simply desirous of the balls, after all, one of my friends plays Pro-V1s, denied the obvious. The mother, and initially the father, reflexively leapt to the defense of their son. While the easiest route to the truth, at least in my view, was for the young man to empty his pockets, the allure of enforcing a pleasant view with no evidence proved too seductive.
If a small group of humans can evidence these dynamics over something as trivial as Golf balls imagine what duplicity manifests when the object of desire is real money, the collection of humans are nations, and the tools of behavior modification include incarceration, torture and death. The symbolic power of the President, Treasury Secretary and Fed Chair and the fear of entertaining the opposite view are sufficient to lead most to agree that US markets are free from manipulation. Me, I want 'em to empty their pockets.
Me too Dave.
Some of the latest on the Yandal/Newmont/bullion bank mess:
The West Australian
Yandal debts about $713m: administrator SYDNEY DEBTS of troubled gold miner Newmont Yandal Operations Pty Ltd were around $713 million, its administrators said today.
KordaMentha administrators Mark Mentha and Mark Korda spent much of today assessing the financial scope of Yandal's debts, a day after the Newmont Mining Corp Australian subsidiary went into voluntary administration.
Denver, Colorado-based Newmont, the world's biggest gold miner, said Yandal's board had resolved to place the company into voluntary administration because it was insolvent or likely to become so.
Its creditors will meet in Perth on July 10 to discuss the company's debts of about $713 million.
"Financing creditors are about $650 million, trade creditors are around $40 to $50 million, and employee entitlements are around $13 million," Mr Mentha said.
It was business as usual today at Yandal's Jundee, Wiluna and Bronzewing gold mines in Western Australia, and employees had been assured their pay would continue as normal, Mr Mentha said.
He said the administrators would consider a $US200 million ($A295 million) offer by a Newmont subsidiary, to bring Yandal out of voluntary administration.
Newmont said it would honour any prior unpaid obligations to Yandal's employees and offer trade creditors payment in full.
Standard & Poor's Ratings Services said today that the corporate credit rating and US-dollar bond rating on Yandal had been lowered to 'D' from 'SD'.
S&P noted that to date, Newmont had received acceptances from hedge counterparties representing 76 per cent of Yandal's negative mark-to-market liability as of May 22, 2003, and noteholders representing 83 per cent of the senior bond, due April 2008, not already owned by a Newmont subsidiary.
In order to comply with applicable requirements and to allow noteholders more time to assess these material developments, Newmont's subsidiary, Yandal Bond Co Ltd has extended the consent payment deadline and the expiration of the offer to acquire the notes to July 11.
"Under the administration process, Newmont will make an offer to the administrator for Yandal that would bring the company out of voluntary administration," S&P said.
The offer valued the assets at $US200 million, and might result in Yandal's outstanding third-party noteholders and hedge counterparty receiving no more than US 40 cents on the dollar, S&P said.
If Newmont's offer was accepted, Yandal would emerge from administration and return to the control of its directors, S&P said.
The Newmont offer would require Yandal to enter into a deed of company arrangement at a meeting of creditors, S&P said.
Still have no real inside input on what heck is really going on with that one. However:
Here is a Café loverly for you. Barrick Gold has told its employees at its Goldstrike Mine in Nevada to cancel all vacation plans of any kind, including taking off holidays. Great move to boost morale. The implication is their production at this key mine is off, probably way off. Another source tells me that one of Barrick’s senior mining engineers is going to resign. What a shame. Many of the Barrick field personnel are first rate. It is their conceited and cabal-cooing management that stinks up the place. Barrick shareholders should throw the bums out; let new management cover their hedges and build that once proud company back up again.
This news is also gold price friendly as it is a further indication gold company "high-grading" the past years has taken its toll. It means gold supply out of the mines is going to contract in the years to come, regardless of how high the price goes. The decreasing supply, accompanied by increasing demand (India, China, Mid East, etc.), will create havoc for the doomed Gold Cartel.
ONCE AGAIN, the gold shares performed admirably with the HUI falling only .69 to 153.96. The XAU dropped .97 to 78.84, with Barrick leading the way down, falling 53 cents to $17.76. Newmont only dropped 16 cents to $32.81.
I thought I would have a little fun with the hot air comment by Forbes by focusing on the MIDAS commentary over the past couple of years. While I do not give specific investment advice, I let the Café know my largest positions and what other gold companies I have put my money in. Two years ago, I ranted the gold market was rigged (when haven’t I), but The Gold Cartel was losing control of their fraudulent operations because of an increasingly strong cash market. It was my thinking (as well as many other Café contributors) that a big move in the price of gold was coming. At that time, it was trading in the $260 to $270 area. Meanwhile, you could not find a bull at any of the New York bullion houses.
Most of the Wall Street houses who would even mention gold then were jumping up and down about Barrick. My thinking was the big money was to be made in the junior/exploration sector, a sector priced at bankruptcy levels. The choices that many of us in the Hot Air Café crowd made have been far superior than those who listened to the advice coming from the bullion banks on Wall Street. It is truly embarrassing how poor the advice has been emanating from those banks (please check the record Forbes).
It was the effort of the entire GATA crew that helped me in my conclusions/investments. They were:
*The non-hedgers (slightly hedged) would way outperform the hedgers.
*The junior/exploration golds would perform best of all.
That analysis was passed on to Cafe members OVER AND OVER!!!
The difference between investments chosen is dramatic. To understand that difference, please review the charts of Barrick (big hedger), Newmont (small hedger), Golden Star Resources (unhedged junior gold producer/exploration company and my largest holding) and Samex Mining (exploration company and my second largest holding):
Barrick ($17.76) – one-year low is $13.46
Barrick – two-year low is approximately $14
Newmont ($32.81)– one-year low is $20.80
Newmont – two-year low is approximately $18
Golden Star Resources ($3) – one-year low is 73 cents
Golden Star Resources – two-year low is approximately 45 cents
Samex Mining (27 cents) – one-year low is 9 cents
Samex Mining – two-year low is approximately 3 cents
*Barrick fell over the first 52-week period and has only risen 24% during the big gold move over 2 years.
*Newmont has risen 82% over the same two-year period.
*Golden Star has risen 660% over the same two-year period.
*Samex is up 800% over the same two-year period.
Who has been blowing hot air over the past two years, Forbes and its friends at the bullion-banking houses, or MIDAS and the other Café contributors?
Now, there is a reason to go through this illustration. The next two years are likely to be very akin to the last two with the quality gold juniors and explorations FAR outpacing the gold seniors. The non-hedgers will outshine the hedgers by a wide margin. Everyone needs to do their own homework and make their own decisions. But the most important thing of all is to know what the GATA camp knows, to understand where the price of gold is going and WHY. As oft-mentioned here, this is the historic investment opportunity of a lifetime. Gold is going to $800/$1,000 per ounce. One caveat: when gold is featured on the cover of Forbes . . . consider selling!
GOT TO BE IN IT TO WIN IT!
This from the bank that orchestrated the activities of The Gold Cartel:
The Bank of International Settlements fears a deflationary crisis because the global economy is too tied to America. William Keegan reports
Sunday July 6, 2003
Unless the leading industrial countries get their act together and pursue compatible economic policies, the world economy may be threatened by 1930s-style competitive devaluation and an outbreak of protectionism. This warning comes from the Bank for International Settlements (BIS), one of the world's most prestigious international financial institutions.
In its authoritative annual report, the BIS warns that: 'The global economy faces a fundamental dilemma, which is becoming more acute with time. How can imbalances in growth and external accounts across the major economic regions be resolved while maintaining robust global growth overall?'
The bank suggests that the rest of the world has been far too dependent on the economic stimulus provided by the United States and that the ongoing decline in the dollar is going to make life much more difficult for Europe and Japan.
The report warns that unless other countries supplement fashionable 'structural reforms' with 'more expansionary demand management policies' there must be a question mark over 'whether domestic demand will expand elsewhere, notably in continental Europe and Japan, after a long period of weakness'.
Known as 'the central bankers' bank', the BIS, headed by Malcolm Knight, is involved with banking and other financial regulation and has a particular concern about the dangers of systemic weakness in the world economy.
It says that 'the institutional underpinnings of the financial system require further strengthening' and expresses grave concern about the erosion of trust in financial markets. 'If trust in the integrity of the capitalist system is crucial to its proper functioning,' says the BIS, 'then it is important that wrongdoers are punished and are seen to have been punished.'
From its position as a central observer of the regulatory effort, the BIS plainly believes that some financial operators have been getting away with murder. 'Given the flagrant excesses of recent years, it is by no means clear that enough has yet been done to re-establish trust in the system,' it comments.
The central bankers' bank points to the large overhang of industrial excess capacity in the US from the earlier boom, with capacity utilisation at a 20-year low and debt levels still high, and argues that the current level of Wall Street 'can only be justified by expectations of an economic rebound and sharp increase in profits'.
The BIS highlights the fact that, although devaluation of the dollar is a necessary part of the current adjustment process (ie, making American exports more competitive and lessening US dependence on foreign funds to finance its imports) 'about half of the US current account deficit today is concentrated in countries whose currencies have closely tracked the dollar'. The main culprit here is China, which, by maintaining its link with the dollar, has now become supercompetitive in international trade.
The BIS warns that this adds to the upward pressure on the yen and the euro. The implication is that the European Central Bank, and individual European governments, should be doing more to boost domestic demand. In which connection it is noteworthy that the German government is now bringing forward tax cuts originally designated for 2005, and Chancellor Gerhard Schroeder last week dropped heavy hints to the ECB that it should ease further.
It is especially interesting - and disturbing - that the BIS is so concerned about the threat of deflation. Central bankers are traditionally more concerned about inflation, even when it is at comparatively low levels. A schism has now opened up in central banking circles, with the Federal Reserve and the BIS worried about deflation, but Wim Duisenberg, the retiring president of the ECB, still issuing warnings about the 'need' for Germany and other countries to adhere to the Stability Pact.
In this context it was interesting that Sir Edward George, in his recent retirement interview with The Observer, indicated that he thought 'structural reform' was not enough to resolve continental Europe's economic difficulties and that active measures should be taken to expand demand. (George was also, until last week, chairman of the high-powered Group of 10 leading central bankers that meets most months under the auspices of the BIS in Basle.)
The BIS states: 'One of the most daunting challenges faced by central banks in a deflationary environment is the zero lower bound constraint' - the fact that interest rates cannot fall below zero, thereby weakening the effectiveness of monetary policy.
As the BIS concedes: 'There are limits to the effectiveness of monetary policy.' It calls upon central banks 'to explore systematically, along with fiscal and prudential authorities, the set of policy options available to address deflationary forces well in advance of their actual emergence.'
The bank acknowledges that such an approach would involve 'co-ordination of policies across separate institutions' and might raise questions about central bank independence. But it emphasises that the issue is too important to ignore: 'This risk could be worth bearing if the exploration of such options helped to inspire confidence in the ability of the central bank, and policymakers as a group, to fight deflation.'
Implicit in the BIS's remarkably frank admission of its concerns is a historic acknowledgement by the kings of Central banking that the once-fashionable monetarist belief in price stability as the great economic panacea has proved seriously defective.
Referring to 'excessive optimism and credit expansion, asset price and spending bubbles, and balance sheet problems that subsequently rebounded on the financial system' the BIS concludes: 'Clearly, the achievement of price stability, with its unquestioned merits, has not been sufficient to ensure the avoidance of financial instability.'
That, in central bankers' speak, is quite an acknowledgement.
Musings of Yoshaviahv
I have learned a lot from your site and, as a consequence, I was considering that deflation is part of the natural order and would like to know if you believe my conclusions are correct about this.
Deflationary periods are the natural order because as population increases the demand for money increases and prices fall. Thus, the purchasing power of money increases to restore equilibrium between more people and more products. But this is only true if the money supply is held constant, which it is not. The function of the Fed is to increase the money supply. It is the job of the Fed is to fight deflation by increasing the money supply. This is against the natural order. As population increases and the purchasing power of money decreases (on account of the Fed increasing the money supply) everyone losses purchasing power, which is seen in price inflation. But the Fed wants to control the inflation, it does not want to increase it too much at one time or else money will lose value too fast. In free markets the price of gold cannot fall so long as the Fed increases the money supply at a rate sufficient to compensate for the increase in the supply of gold, which arises due to an increase in the demand for gold from a growing population. In the absence of inflation the only way the price of gold can fall is through an increase in the supply of gold or a decrease in its demand.
In free markets as interest rates rise the price of gold falls as a consequence of reduced demand. A decrease in interest rates causes the price of gold to rise due to increased demand. Hence, the axiom, "gold moves inversely to interest rates." And this is why the Fed, in a manipulated market, has to add to the supply of gold through leasing when it cuts rates or when it bails out a big hedge fund like LTCM or a country like Mexico. Any sizable increase in the money supply causes an increase in the price of gold. Thus, rate cuts make money cheaper and require the Fed to add gold to the market to hide the inflation from bond dealers. If bond dealers see the price of gold rising they will demand higher interest rates. The Fed knows this too, which is why it eliminated the 30-year bond and has begun to buy up bonds at the long end to control interest rates and reduce the spread between the long and the short end. But rates at the short end continue to fall as nature continues to assert its influence.
The Fed must always present some paper-based asset as an alternative to gold by keeping the price of that asset higher than the price of gold. On the international scene the Euro and US bonds have been offered as alternatives to gold. At the domestic level asset-back paper in real estate is promoted. Stock markets are also propped up in an effort to hide the debasement of the currency. But fiat money is debt and a tax on future earnings. So when the present population can no longer carry its debt-based burden the economy will implode into a black hole of deflation if the Fed fails to inflate, and if it does continue to inflate the economy will explode into a hyper-inflationary spiral.
Thus gold is the barometer of inflation. It measures increases in the money supply. It reports all hidden taxation through inflation in the money supply, which is why bankers hate it. It exposes them for the thieves they are. Gold knows no fear of government. It is natural money, God given, and not subject to debasement through over issuance. It has intrinsic value and does not promote its usage through force by decree.
At the present time central banks continue to fight the natural order through gold dishoarding and derivative schemes in an effort to keep growing populations confined within their paper-walled prison of debt. Central banks also finance wars to reduce the demand for gold simply by reducing population growth rates. Those countries that have gold or that can demand gold in exchange for oil are attacked economically or labeled as terrorist regimes and attacked militarily. For some strange reason there is also a disproportionate outbreak in plaques and diseases in such countries as well. Note also that the arms trade is never eliminated, but rather controlled, so that inferior countries are always armed with outdated weapons, making them no match for the superior fiat powers when the time is right for a war………………………….
Take the Biblical nation of Israel for example. God brought them into the promised land - "a land flowing with mike and honey" - and gave them land without cost. Each tribe had its own portion. Within each tribe the various families received a lot or plot of land to inhabit and farm. The money in those days was silver. (Gold was reserved for ornament and idol making.) Relatively speaking there was a fixed quantity of silver in the land; basically, it was an agricultural society with silver as the medium of exchange. The silver served as a unit of account, a store of value, and a medium of exchange. The scales were not to be tampered with and the unit, i.e. the fixed weight of the unit of exchange, was held to an unchangeable standard. The problem of excess debt (as a result of charging interest) building up in the system was solved through laws, such as that of the Jubilee, regarding debt-relief at predefined intervals. Land was returned to the original owners or to the families of the original owners if it had been sold. The right of inheritance was strictly enforced. Slaves, who had sold themselves in exchange for the necessities of life, were set free after 6 years of service. Debt was not allowed to increase forever. There was no means for a permanent wealth transfer to a favored segment of society. Banks did not exist. The judges and priests made sure that the fatherless and widows were provided for from the 10 percent tax that was brought to the temple. The tax also provided for the priests who had no land or right to inheritance. The tax was the actual 10th part of the produce of the land.
In this society as the population increased each family would remain in their own land with no tax to pay on the land itself. Only the produce of the land was taxed. Since the goods and services increased with the increase in the population and the money supply remained relatively fixed prices tended to fall as the purchasing power of silver increased.
Throughout the land, on average, everyone held less and less silver as time went on, but the purchasing power of the silver increased to compensate each individual holder for the reduction in his personal supply. One hour of labor would still produce the same amount of produce for each individual, but the overall total amount of goods and services would increase in the general population. This would result in an increase in total output and wealth in general. Individuals would no longer need to hold as much silver as they did before to buy the product of the labor of others. The existing money supply, although constant, would spread throughout the population without harm to anyone.
Now let the fixed weight of the unit of account be cut in half and the money supply in nominal terms would double, which would increase prices by the same amount. There is nothing unjust in this unless someone owed an amount of silver in nominal terms to someone else. The loan would then be "repaid" with a quantity of silver equal to half the original amount. But the lender would then only be able to purchase half as much as he could before when his loan was "repaid" because of the rise in prices. This was the reason a standard was required (and just scales too) so that no one could be defrauded. The tax rate was fixed so society as a whole never paid anymore than 10 percent of its actual produce. But let the tax rate increase and then the individual members of society would forfeit more of their produce to the ruling class then what was necessary. Under such circumstances a direct wealth transfer would take place to the detriment of the producing members of society. Each individual family would be left with less for the same amount of labor as before. This would cause a rise in prices for what remained and would be reflected in a decline in the purchasing power of the unit of account.
Now let the unit of account be reduced at a predefined rate (nominal inflation) as the weight in the unit of silver is reduced (in effect a change in the standard of weight, or an imbalance in the scales) and the tax rate increased at the same time and you have a growing population that gets poorer and poorer as its produce is transfered to the ruling class. The result of a reduction in the weight of the unit of account is also a reduction in the value of the store of wealth. In modern times fiat money has no literal weight, it does, however, have a labor value, and when the money supply is increased or taxes are increased then the working members of society are robbed of the produce of their labor. More of the wealth is then concentrated into fewer and fewer hands. The divide between rich and poor grows wider and wider, until there is some sort of social upheaval that culminates in an economic disaster. Let this happen between countries and you have wars. Let all this happen at the same time and you are near to the kingdom of God.
The purpose of an economy is to manage a household. In ancient Israel God was the architect of that divine economy and it functioned so long as Israel was willing to keep his standards and observe his laws. Today we have no standard underlying the world economy. The fiat money powers have placed themselves in the place of God. They have instituted a defective system for the purpose of enriching themselves at the expense of others.....
To read the full daily Midas commentary every day, try a free trial or purchase a subscription!
Copyright (c) Le Metropole Cafe, Inc.
Le Metropole Cafe is a Membership site. Visit and experience a 2-week Free Trial!
-- Posted Tuesday, 8 July 2003 | Digg This Article
Previous Articles by Bill Murphy & John Brimelow, Le Metropole Cafe