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ARCHIVED DISCUSSION FROM 9/10/2006 All times are U.S. Mountain Time (Yesterday's Discussion.) Goldilox (9/10/06; 22:27:22MT - usagold.com msg#: 147354) MONEYIZATION, PART 29: Process of Elimination Leads to Gold http://www.financialsense.com/editorials/schmidt/2006/0910.html snip:Much discussion has begun on whether or not the housing industry is approaching a "buying opportunity." Such talk is premature and largely ignores the systemic nature of the problem. The massive housing finance system of the U.S. is only beginning to have its structural integrity attacked. With foreclosures likely to reach levels beyond anyone's guess, the ability of that system to provide financing for home purchases will be seriously constrained. If the fuel injection system on your car fails, it will not heal itself overnight in the garage.The implosion of the housing bubble should benefit Gold investors. Two responses are likely to this massive economic problem, and both should push the value of Gold higher. First, the Federal Reserve will indeed panic and attempt to lower interest rates. Any attempt by the Federal Reserve to reverse the collapse will fail. Putting gasoline in the tank of a car with a broken fuel injection system will not make the car run. The same is true for the housing situation. As the financial system that connects monetary injections from the Federal Reserve to the housing industry will be in near total disrepair, this easing will be ineffective. The market response to this policy action will be felt on the foreign exchange markets where the dollar's value will fall. $Gold will move nicely higher in such an environment.Second, we can expect foreign investors to become reluctant to purchase U.S. dollar-based debt. This action will put further pressure on the dollar's value. Something approaching $60 billion a month of dollars could be dumped on the foreign exchange markets. At some point foreign investors will begin to liquidate their holdings of U.S. debt. US$1,375 Gold will not be hard to reach in such an environment. The Invisible Hand (9/10/06; 21:06:51MT - usagold.com msg#: 147353) IMF should know that TINA is dead EURO BANKERS KNOW ITEU-POLITICIANS REFUSE TO ADMIT ITThe IMF is an organisation charged with keeping the global economy stablehttp://news.bbc.co.uk/2/hi/business/5304688.stm Its managing director, Rodrigo de Rato is therefore saying that the world economy is stable http://news.bbc.co.uk/2/hi/business/5275746.stm?lsOr do you expect that De Rato will concede that he is unable to fulfil his impossible task in the present world of dollar-dominance?His aim is to help further developing the debt-inflating dollar-monopoly of the FED. This becomes more difficult by the day as the strict monetary policy of the ECB is continuously displaying that there is an ALTERNATIVE. (TIAA).This makes it more difficult for De Rato to have his way. Attention is indeed automatically turned to the EMU-euro-concept This is the POINT FOR THE IMF. It is the system of the dollar-regime which, through dollar-globalisation, directs the whole planet. The ECB is here the pain in the neck for the IMF. We have a choice between - a dollar world economy based on dollar debt creationand- a euro economy which wants to control debt-policy in its internal householdThese are two DIVERGING MONETARY SYSTEMS/REGIMES/POLICIES. Is it really a surprise that the world is watching which of the systems/regimes/policies obtains better results?The ECB (EMU) can NO LONGER accept that the system of the dollar-regime determines what the EU should economically/financially/monetarily do.This is a pain in the neck for De Rato and some European politicians who are saying that it is a SHARED RESPONSIBILITY of everybody to end the economic imbalances.The ECB DISAGREES and thus refuses to admit that the global imbalances are, as De Rato, Juncker, and Heinaluoma. argue caused by those who refuse to follow the system of the dollar-regime and policies which the IMF devises to perpetuate the regimehttp://www.gulf-times.com/site/topics/article.aspx?cu_no=2&item_no=106927&version=1&template_id=48&parent_id=28The Europeans used the Helsinki gathering to set out where they stood on those fronts, mandating two men to explain their position in Singapore - Luxembourg's Jean-Claude Juncker, chairman of the Eurogroup club of finance ministers, and Finnish Finance Minister Eero Heinaluoma.A draft of their Singapore speaking notes called for orderly correction of global economic imbalances."This is a SHARED RESPONSIBILITY and should be done in a way that minimizes disturbances to sustained growth," it said.But EUROPEAN CENTRAL BANK President Jean-Claude Trichet and Juncker suggested that RESPONSIBILITY LAY OUTSIDE EUROPE.What we see here is a DIVERGENCE within the EU between the POLITICIANS and the BANKERS. The euro-gold concept is thus NOT the result of a POLITICAL WILL BUT of the fact that SOME PEOPLE HAVE APPARENTLY MANAGED TO CONVINCE some central bankers of their UNBORROWED VISION that gold needs in some way to given back its monetary use, by instituting Freegold and the marking to market of gold reserves. (1)Interest rates are now 4.5% in dollarland, 3.5% in euroland. This is a difference of a FULL PERCENT. This is enormous. The cause of this difference is the fact that the two DIVERGING MONETARY SYSTEMS/REGIMES/POLICIES. have of course DIVERGING, PURPOSESThe IMF wants to keep the two diverging monetary systems/regimes/policies to CONVERGE whereas they are …. DIVERGING.That's where Freegold can fully play its role. The bankers know it . The politicians refuse to admit it. Remember the gold sales by (the now future prime minister of the UK) Gordon Brown?ENDNOTE(1)The Invisible Hand (9/9/06; 06:37:04MT - usagold.com msg#: 147315)The dollar-IFMS is kaputdollar-IFMS = dollar-International Financial and Monetary SystemTHE UNBORROWED VISION OF FREEGOLD THROUGH MTM-ING OF GOLD-RESERVES"Throughout the centuries there were men who took first steps down new roads armed with nothing but their own vision. Their goals differed, but they all had this in common: that the step was first, the road new, the vision unborrowed, and the response they received—hatred. The great creators—the thinkers, the artists, the scientists, the inventors—stood alone against the men of their time. Every great new thought was opposed. Every great new invention was denounced. The first motor was considered foolish. The airplane was considered impossible. The power loom was considered vicious. Anesthesia was considered sinful. But the men of unborrowed vision went ahead. They fought, they suffered and they paid. But they won."Ayn Randhttp://www.nasonart.com/personal/lifelessons/fountainhead.htmlOn Sunday September 26, 1999, 15 European Central Banks concluded the Washington Agreement on the sidelines of an IMF-World Bank meeting. By this Agreement, the politicians wanted to set limits to gold lending. This agreement recognised that gold will remain an important part of global monetary reserves and that the involved central banks will, apart from the sales which have already be decided, not sell gold in the next five years. +The ECB reserves [...] are still being, marked to market on a quarterly basis. The Agreement [... has been] renewed on stricter terms between more than the 15 original parties at the IMF-World Bank meeting in Dubai on September 23-24, 2003. http://www.free-europe.org/blog/english.php?itemid=56Some people have apparently managed to convince some central bankers of their unborrowed vision that gold needs in some way to given back its monetary use, by instituting Freegold and the marking to market of gold reserves. Armageddon (9/10/06; 20:10:45MT - usagold.com msg#: 147352) Gold Buying Opportunity in next 2 weeks!!!! As I am looking at the price of gold its down $10 and under $600 per ounces. Just as I thought since the European Central banks are probably unloading their 160 tons of gold or gold paper products before Sept 26. Hmm... Mid Term Election is just around the corner too and the House and Senate are up for grabs. Oil is coming down, gas is coming down, I just heard Iran is now thinking about suspenstion of uranium enrichment for 2 months (just in time for the election..) and now guess what?? Gold is coming down. However, we don't know if this drop in gold price is going to be accompanied by a major terror strike or not. Thats why I am NOT going to sell the gold I have. If the terror strike is a nuke attack and if it affects my area, if I survive I probably wont have electricity, phone service, and mail service since the nukes can destroy electrical circuits through EMP. My bank accounts and credit cards may not work and thus I won't be able to buy after the Gold Cartel Knocks gold down. The supercriminal known as Henry Paulson the current Secretary of the Treasury is a 700 million dollar Goldman Sach's goon and super criminal. I am pretty sure he is a master crook who can manipulate the financial system in innovative and sneaky ways. Because of this I suspect gold is going down to somewhere around $300-$500 in the next 2 weeks and I am sure Paulson is going to try and hold it down there through the election. I guess if there was a gold price guessing contest right now then I would say on Sept 26, 2006 the price of gold will be $425 per ounce. Other board members opinions are welcome. Actually I think this is a good time for another gold price guessing contest. :) Golden Lionheart (9/10/06; 19:34:17MT - usagold.com msg#: 147351) Satire?....... I thought it was true! Great post Contrarian. The Invisible Hand (9/10/06; 19:23:56MT - usagold.com msg#: 147350) There are the Fascinating Minutes in today's msg#: 147341 http://www.siliconinvestor.com/readmsg.aspx?msgid=22789705 AND THEN THERE IS MORAL HAZARDSNIPSMORAL HAZARD - A problem whereas investors, after being insulated from the consequences of risk by intervention, might pay insufficient attention to similar risk the next time, or operate on the expectation of official intervention.+In 1999 the 'Counterparty Risk Management Policy Group' (CRMPG) was formed to address the issues with LTCM and to develop policy that would protect the financial world from another threat to the financial markets such as the LTCM incident+The CRMPG filed their report in July of 2005. Here are some selected excerpts with my comments.The report can be found here. http://www.crmpolicygroup.org/docs/CRMPG-II.pdfCRMPG: "The primary purpose of CRMPG II — building on the 1999 report of CRMPG I — is to examine what additional steps should be taken by the private sector to promote the efficiency, effectiveness and stability of the global financial system.==There is also the Washington Agreement (WAG) I and WAG II.And the dates of these Agreements seem to coincide with those of CRMPG I and CRMPG II.In insurance theory, moral hazard is the name given to the increased risk of problematic (immoral) behavior, and thus a negative outcome ("hazard"), because the person who caused the problem doesn't suffer the full (or any) consequences, or may actually benefit. Such a concern typically arises in the context of a contract (for example, an insurance policy).http://en.wikipedia.org/wiki/Moral_hazardInsurance?What was the use of gold in one's portfolio again? Clink! (9/10/06; 18:29:20MT - usagold.com msg#: 147349) @ contrarian The best satire is where there is only a fine line between farce and supposed possibility. I find it heartening that the satire of the last year or so has had more teeth than in the preceding four. It's always good to see the nervous smiles of TPTB when they see the people laughing ..... at them. A good find, sir.C! Ten Bears (9/10/06; 17:39:53MT - usagold.com msg#: 147348) FROM KNOW-HOW TO NOWHERE :Addison Wiggin http://www.gold-eagle.com/gold_digest_05/wiggin090806pv.html Another guy who understands the true situation; snippets:The first thing to realize about a deficit in foreign trade is that, by definition, it reflects an excess of domestic spending over domestic output. But such spending excess is actually caused by overly liberal credit at home, and not really by cheaper goods produced elsewhere.The diversion of U.S. domestic spending to foreign producers is, in effect, a loss of revenue for businesses and consumers in the United States. Is this important? Yes. The loss is higher than $500 billion per year. This is America's income and profit killer, and it can't be fixed with more credit and more consumption.The need for ever-greater credit and debt creation just to offset the income losses caused by the trade gap is one of our big problems.An equally big problem is a distortion of the numbers. We are officially in great shape, but the numbers don't support this belief. Personal consumption in the past few years has increased real GDP at the expense of savings, while business investment has grown only moderatelyIf we were to measure economic health by credit expansion, the United States has the worst inflation in history. And still our experts are puzzled by a soaring import surplus.The problem here is that American policy makers and economists fail to understand the significance of the damage that is being caused by monetary excess and the growing trade gap. The trade gap is hailed as a sign of superior economic growth, while the hyperinflation in stock and house prices is hailed as wealth creation."Foreign ownership of our assets will grow at about $500 billion per year at the present trade-deficit level, which means that the deficit will be adding about one percentage point annually to foreigners' net ownership of our national wealth. As that ownership grows, so will the annual net investment income flowing out of this country. That will leave us paying ever-increasing dividends and interest to the world rather than being a net receiver of them, as in the past. We have entered the world of negative compounding - goodbye pleasure, hello pain." Bizarro-Greenspan (9/10/06; 16:34:03MT - usagold.com msg#: 147347) Bizarro pop-in "If there is one principle more deeply rooted in the mind of every American,it is that we should have nothing to do with conquest."Thomas Jefferson a banker (9/10/06; 16:21:07MT - usagold.com msg#: 147346) For Flatliner; tempests in teacups In the minority are people of independent thought and action. The majority are guided by the combined influences of the behavior of the surrounding crowd which in turn is given further shape by the deliberately-worded narration of all such events as spun by the popular media.Those few of independent thought and action will not benefit from anything I have to say. Cutting to the chase they are already the owners of gold and the buyers of more when monies allow it. My comments are for the trembling masses who bow and sway to the guiding winds like the compliant twigs and servile leaves of the birch tree.Among the many varied powers of the earth there are those that would have the market use (and value) of gold constrained as an adversary. Also there are those that would see gold set free in a beneficial allegiance. A basic delineation of these two sides I expressed in my other post.The battle is ongoing to constrain or to free the gold function and resulting value. In the ebb and flow many lazing birch leaves were stirred to life by the winds blowing $730 in May's mid days. This was even as many central banks were making their first bold choices to join the freedom-fighting side of the mark-to-marketeers in the war over the fate of gold's reserve function.These CBs are among the thinking few and are not going to be disoriented by a change in the wind. The ECB as a pioneer of unborrowed vision blazed the early trail. They weathered two full years of deep gold-value suppressions by the incumbant powers that were blowing constantly for gold constrainment.Compared to the past I likened this current gold constrainment (fall from $730 mid-May) to a tempest in a teacup. The teacup is among the least of things to any man of independent thought sitting at the table and is largely ignored with his eyes and thoughts upon the disposition of the long-awaited entree.But again, these comments were not for those august philosophers among men, but for the many leaves of the quaking birch trees who were swept into a frenzy of action on the strong breeze of $730 and who hang limp and despondent when not being blown wayward and confused by the alternating winds of $600.I meant only for my words to help some of the trembling leaves come to a firmer grounding of thought and walk their own deliberate path like any man able to put a shoulder into swirling winds and to ignore the silly teacups served by the other side. Ten Bears (9/10/06; 13:55:57MT - usagold.com msg#: 147345) BOND MARKET HAS IT RIGHT by Jim Willie http://www.gold-eagle.com/editorials_05/willie090806pv.html Jim Willie discusses Ricardo's ‘iron law of wages’ labeling it ‘iron ceiling’, bond rates, and other pertinent topics, which mainstream economist consistently refuse to see clearly, (or perhaps just refuse to accurately portray publicly).Snippets: the GDP is exaggerated by at least 4%. Its cousin lies is the Consumer Price Index, which is suppressed by at least 4%. Keyword is "lie" here.The labor cost differential between the United States and China is NOT RESOLVABLE without airtight trade protection.Prices have risen in the wrong places, named COSTS, and prices cannot seem to rise in the right places where people live and work. That is the key problem.Exploitation is the name of the game in capitalism, which curiously has been forgotten. The object of exploitation has shifted with the new paradigm, namely us in the developed inflated aging world.Reflation engineered and dictated by the USFed was a snap, so often repeated that the procedure earned the label of the Business Cycle. Of course, that is a misnomer if there ever was one. It was the Credit Cycle.In a sense a new Hot War wrought by globalization has wrecked USFed policy effects. Chris Powell (9/10/06; 13:23:48MT - usagold.com msg#: 147344) Australian central banker admits disinformation campaign to dupe FX markets http://www.theage.com.au/news/national/markets-duped-in-dollar-crisis/2006/09/10/1157826813774.html Markets 'Duped' in Dollar CrisisBy Tim ColebatchThe Age, Melbourne (Australia)Monday, September 11, 2006Reserve Bank governor Ian Macfarlane has revealed that the Reserve teamed up with Prime Minister John Howard and Treasurer Peter Costello in the 1997-98 Asian financial crisis to hoodwink foreign exchange markets into thinking interest rates might rise.In an hour interview last night with ABC radio, Mr Macfarlane said the "unusual" collaboration was intended to prevent interest rates rising, in response to a worrying plunge in the value of the Australian dollar.In the panic of the Asian financial meltdown, foreign exchange markets spread "contagion" to most Asian currencies, dragging down the Australian dollar from 73.91 US cents on October 13 to 58.45 US cents eight months later. At one point the dollar fell by more than 5 US cents in a fortnight. It then had several more sustained falls before turning back up.Mr. Macfarlane said in most other countries whose currencies were falling, central banks had raised interest rates to try to shore up the currency. But the Reserve, which had cut cash interest rates from 7.5 percent to 5 percent over the previous 15 months, thought this would be ineffective and decided to try another strategy: "to make sure that a lot of people thought interest rates might go up"."It was very important to get the rhetoric right," he said. "Canberra was very helpful. We sat down and talked to the treasurer and the prime minister, and we all agreed on various things that should be said, and should not be said."We agreed -- and it's an agreement which by and large has held very effectively since then -- that the treasurer and the prime minister do not talk about the value of the Australian dollar."They could, however, always hint that rates could rise.Mr. Macfarlane, who steps down as governor on Sunday, will present the ABC's annual Boyer Lectures later this year. Ten Bears (9/10/06; 11:45:40MT - usagold.com msg#: 147343) GREED=AVARICE http://www.richardreeves.com/column_archive.html @ osa104c # 147332I think that Reeves would agree with you. More from Reeves archive referenced above. Knallgold (9/10/06; 08:31:26MT - usagold.com msg#: 147342) #147308 ANOTHER banker saying Freegold without spelling it... contrarian (9/10/06; 05:57:12MT - usagold.com msg#: 147341) Fascinating Minutes http://www.goldensextant.com/MinutesII.html#anchor163744 MinutesIIMeeting of theExchange Stabilization FundSeptember 2, 2006[Unauthorized, Unredacted and Apocryphal]STRICTLY CONFIDENTIAL A meeting of the principals of the Exchange Stabilization Fund was held at Camp David, Maryland, on Saturday, September 2, 2006, at 11:00 a.m.PRESENT:THE PRESIDENTTHE SECRETARY OF THE TREASURYTHE VICE PRESIDENTGuests:Mr. Bernanke, Federal ReserveMr. Gonzalez, Department of JusticeMr. Hazmat, Goldman Sachs InternationalMr. Shortz, Goldman Sachs London Mr. Jetski, JP MorganMr. Fu, HSBCMr. Apnea, CitibankStaff and Aides, Working Group on Financial MarketsMs. Miers, Secretary THE PRESIDENT. I appreciate you all being here for this special meeting of the Gold Stomping Fund, or whatever you want to call it. I understand we got a lot to go over. I'm going to turn things over to Hanky Panky directly. We start talking about this financial stuff and I'm out like an odd man. But first, Dickie has something.THE VICE PRESIDENT. Unauthorized disclosure of the existence or content of these proceedings will be deemed to be an act hostile to the vital interests of the United States. Violators will be tortured and shot.SPEAKER. (?) Surely the Vice President is speaking figuratively. Such -- uh, extreme -- penalties for a simple leak would raise serious issues under the Constitution.THE PRESIDENT. I got all the Constitution I need right here, son. It's called the Bible. Albertini?MR. GONZALEZ. Sir. Under our reading of the relevant provisions of the Constitution and the enabling legislation promulgated thereunder, the President, in his capacity as Commander in Chief, has very broad powers in certain narrowly defined circumstances. Such powers include, without limitation, classifying certain individuals as enemies of the state, and administering such extrajudicial remedies as he may deem useful in his sole discretion, including, without limitation, corporal and capital punishment. Qualifying circumstances include, without limitation, preemptive war initiated by the CIC. Accordingly, it is our position that it is currently within the CIC's prerogative to cause those persons suspected of breaching applicable confidentiality stipulations to be tortured and shot.THE PRESIDENT. Like he says. I'm the Decider. Well all right then. Hanky?MR. PAULSON. Thank you, Mr. President, ladies and gentlemen. I'll get right to the point. As I expect you are all well aware, the financial condition of the United States is best described as catastrophic.The St. Louis Fed has recently confirmed that we are staring at a fiscal gap of 66 trillion Dollars. This assessment is based on our -- the Treasury's -- numbers. It is conservative.You all know how we got here. Over a period of many years, many of us in positions of public and private power have betrayed our trust, looting the system and creating third world wealth disparities in the United States. We have abused our stewardship of the global reserve currency, and sequentially engineered the most dangerous and irresponsible series of credit expansions in history. The superficial effects of these credit expansions have, until now, masked the underlying rot. But a reckoning is upon us.Today, the country is hemorrhaging from a ruinously expensive series of mismanaged foreign military commitments and runaway domestic entitlement programs. We have made trillions of Dollars worth of promises we cannot -- and will not -- keep. By all standard measures, by any rational calculation, we are in a state of national bankruptcy.THE VICE PRESIDENT. Deficits don't matter.THE PRESIDENT. To me, the question comes down to this: Is our seniors saving?MR. PAULSON. The situation is dire. It is widely held in financial circles that we have no exit strategy. Indeed, I hold my present office at the insistence of certain important interests with a major exposure. They are increasingly alarmed at our drift. My charge is to oversee the development and implementation of a viable end game. Now, our only realistic policy option is painfully obvious: we must repudiate our debt through radical devaluation of the Dollar. But I am here to see that we do so in a way that will enable our favored creditors to salvage something from the process.THE PRESIDENT. I met some radicals once. In college. Don't know what ever happened to them.MR. PAULSON. The outlines of the strategy have now been drawn. It has four key phases.Phase One extends from the date of my confirmation through the November elections. Our objective is to continue to preserve the apparent stability of critical financial indicators. To achieve this goal, we will continue, and intensify as warranted, our ongoing program of market intervention. On the one hand, we will support the Dollar, the domestic equity markets, and the fixed income markets. On the other, we will keep the prices of certain precious metals, notably gold and silver, in check. We will do this in collaboration with certain friendly central banks and finance ministries. Phase One will create a window within which our favored creditors may exchange a substantial portion of their Dollar holdings for alternative currencies and other assets, including precious metals, of their choice.Phase Two will start immediately following the midterm elections and extend for an indeterminate period currently estimated at approximately six months. As a practical matter, the length of time will depend on political factors. Our objective will be to trigger a temporary, but wrenching, recession. To achieve this goal, the Fed will stop pushing down the far end of the yield curve, and allow interest rates on Dollar-denominated assets to rise well above the actual rate of inflation. Phase Two will create a window within which the Dollar will temporarily strengthen against other currencies and assets, and our favored creditors may exchange a substantial portion of their Dollar holdings for certain assets adversely affected by the rise in rates.[Disturbance: Sound of extreme flatulence; groans; laughter.]THE PRESIDENT. The smeller's the feller!MR. PAULSON. Phase Three will commence as we approach what we deem to be the point of no return. We cannot allow the liquidation to gather such momentum that we risk a downward spiral beyond our power to reverse. Our objective will be to devalue the Dollar and effectively repudiate Dollar-denominated debts. We propose to achieve this by means of adopting what will be popularly perceived as a hyperinflationary monetary policy. We will work closely with the Fed to monetize virtually all assets. Phase Three will leave our less favored creditors with worthless claims, an outcome which is expected to have a commensurately negative effect on their own financial systems and productive economies. Our friends will already have taken advantage of Phases One and Two.Phase Four is frankly a work in progress. It will commence when we conclude that we have reduced our debt to manageable proportions, and extend indefinitely into the future. Our objective will be to restore confidence in a stable currency unit. We propose to achieve this by introducing a new currency with a nominal -- but not an actual, to the extent we can avoid it -- relationship to precious metals. This should enable us to start over once the brush has been cleared, as it were.We're obviously going to need the full cooperation of the Working Group in each Phase to make this a success. That's why I'm delighted to see so many old friends from the Street here this morning, wearing their quasi-official hats. We'll provide further detail of the program at the staff level over the course of the next few weeks. But I'll be pleased at this time to entertain any questions with respect to the broad strokes. Yes. Kung.MR. FU. Hank, what is point of Phase One? Why we not rret rates rip now?MR. PAULSON. A change in control of either House will introduce an undesirable element of uncertainty, putting at risk the successful execution of Phases Two through Four.That said, I must caution you that control appears likely to shift irrespective of the outcome of the midterm elections. Bob?MR. HAZMAT. What the Secretary is alluding to is a decision by the Olmert-Peretz coalition to retain Goldman Sachs to explore a sale of Israel's controlling interest in Congress. We haven't announced it yet, but we are enormously proud of this mandate.THE PRESIDENT. Holy moly. Condi know about this?SPEAKER. (?) What ingrates! Why would they give up on us now? Because we're broke? Because that resolution endorsing the destruction of Lebanon was a few votes short of unanimous?MR. HAZMAT. No, no, nothing like that. The engagement covers only the Legislative branch. The Executive and the Press are expressly excluded. They're quite happy with their relationship with the United States. Really. No, this deal is driven by economics. They get just $3 billion each year from the United States. They then have to turn around and reinvest a huge slug of that just to maintain the message discipline network in all 435 Congressional districts. But as we all know, the Legislative function is all but irrelevant in today's America. They're just not getting a fair return on their investment. Add to that the big turnover expected in November, with old assets going out the door, a slew of new guys to buy: the numbers just don't work. Plus, there's that stupid study out there putting a spotlight on the whole thing. Under present circumstances, divestiture is an attractive option.MR. PAULSON. Thank you, Bob. I'll defer to the political experts on the broader implications of the pending sale. I bring it to your attention only to underscore the delicacy of the situation as it relates to executing our strategy. Other questions? Yes. Dopey.SPEAKER. (?) Hank, how can you call back the deflationary process you plan to unleash after the elections? How can you have a little deflation? And what if you get a cascading series of defaults and the system enters an irreversible downward spiral?MR. BERNANKE. If I may. The conclusion that deflation is always reversible under a fiat money system follows from basic economic reasoning. A little parable may prove useful: Today an ounce of gold sells for $300, more or less. Er, make that $600. Now suppose that a modern alchemist solves his subject's oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal.What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.THE PRESIDENT. That's deep, Benny. I like it. Nice slacks, by the way.SPEAKER. (?) But how will we maintain domestic order? First deflation, then hyperinflation. Then whatever. No one has a clue this sort of thing is coming. That's if it works. If it doesn't work, we're facing a thing without a name. Hyperdepression? Either way, we're going to have riots, mutinies, rude behavior everywhere.THE PRESIDENT. Two words, son: Marshall Dillon.THE VICE PRESIDENT. Any expression of dissent from this policy will pose a direct threat to our way of life. Therefore at the first hint of opposition this Administration will have no choice but to declare martial law. Important elements will include: internal passports with imbedded transponders, exchange controls, a military draft, civilian detention centers outside the major metropolitan areas, and extensive restrictions on all non-essential travel and communication.THE PRESIDENT. That includes the Internets.THE VICE PRESIDENT. With these measures in place, we will have the ability to deter, detect and suppress any domestic opposition. And so preserve our freedoms.THE PRESIDENT. Hard core objectors will be sent hunting with Dickie.SPEAKER. (?) Jesus Christ. Aren't there any Constitutional impediments?THE PRESIDENT. I'd appreciate it if you wouldn't take the Lord's name in vain, son. And I'm getting pretty sick and tired of hearing the C word every time I turn around: Constitution, Constitution, Constitution. These are important times. We've got to stay the course. You're either with us or against us. Albertini?MR. GONZALEZ. Sir. Under our reading of the Constitution, in a declared domestic emergency, the CIC assumes divine powers.MR. PAULSON. Yes. Sleepy.MR. APNEA. Hank, this seems like a pretty blunt instrument. How do we make sure we stiff our enemies but not our friends? And what's to stop the bad guys from dumping their Treasuries before we destroy their value?MR. PAULSON. As to stiffing our friends, we don't worry so much about this, since we have so few -- most of the world is already dancing on the grave of the American empire, thanks to our maladroit foreign policy -- and they'll be in the loop anyway, helping smooth the markets. As to our enemies striking first, yes, we do worry about that. But the Chinese authorities, who have the largest exposure by far, are focused on preserving power through promoting China's industrialization, and, conversely, our deindustrialization. Selling their Dollar assets precipitously would put their own development at risk by triggering a global contraction with major blowback into their own economy. So we're betting this strategic emphasis will lead them to defer Dollar sales, to the point where they end up with a total loss on their positions. Worst case, they figure out the game and crash the party, loading up on cheap metal like our friends. We see that as an acceptable risk.MR. PAULSON. Sneezy.SPEAKER. (?) I'm a little unclear on how we get people to think things are stable in Phase One when we're obviously heading over a cliff.MR. PAULSON. We target two main audiences with our communications policy. One is the public. While we've had serious slippage in other policy areas, generally speaking, the American public still believes what we say on financial matters. So when we release economic statistics -- however inconsistent with objective reality --, and when the markets generate averages -- however absurd --, to date, we have found the public receptive or at worst disinterested.The second target audience is the financial community, a more sophisticated crowd. They know what's happening. But as long as they make money at it, they're happy to play our virtual reality game. These people are not in business to defend the principle of free markets or otherwise make trouble. They are in business to make money. We set up a simple incentive system. If they do what we want, we let them make their numbers. If they don't, we destroy them. It's an easy call.THE PRESIDENT. I love this guy. He cracks me up. Hanky Panky Bo Banky....MR. PAULSON. The wild card is real estate. The big mortgage resets don't start kicking in until next year. But if housing collapses before November, we have a major problem. The public won't listen to us on the subject of how much their houses are worth, and we don't have a price support mechanism for this market.SPEAKER. (?) Perhaps in that event we'll experience some sort of shock that will take people's minds off their declining house prices. Remind them how lucky they are to have us in charge.[Laughter.]MS. MIERS. Hank, in the markets you do control, how do you do it? Doesn't this create a rather awkward paper trail?MR. PAULSON. No, Harriett, it's a lot more subtle than that. But that's a very discerning question. You care to amplify on this, Joe?MR. JETSKI. Sure thing, Hank. We tell the markets what we want in several ways. One way is direct -- we create a trading environment where only those prop desks who position themselves according to our playbook ever make it home. We make things go up when they should go down. We make things go down when they should go up. We're very easy to read when we're doing policy trades. The guidance is so obvious a blind squirrel could see it. It's mostly just computers responding to our algorithms anyway. You'd have to want to lose money in a big way to override your systems and go against that flow.Another way is indirect -- we goose or pressure assets in one market by trading derivatives in another. We buy or sell in size, futures, say, in market A, creating obvious arbitrage opportunities relative to the underlying assets in market B. The big players that aren't brain dead pile in for free money. They go long or short against us in the derivatives market and do the opposite simultaneously in the cash market. They book an instant, risk free gain in the amount of the differential we just created. They keep doing it as long as we supply the juice. At the end of the day, the cash markets go where we want. The leverage is huge.Still another way is my personal favorite, "Operation Rolling Plunder." Every so often, we rain terror from the skies. We bomb the trading pits and exchange posts with massive sell orders. Without letup; all the way down. At the same time we pull all bids, blocking the exits. The refugees get trapped like rats, then panic and dump their holdings. We snarf up their discards and reload, all the while bombing and shorting the stragglers. By the time we finish, the only survivors are a few miserable deadenders and nutcases. All they can do is piss and moan about "market manipulation," and hatch their kooky conspiracy theories. They call themselves "gold bugs."THE PRESIDENT. A-holes is more like it.THE VICE PRESIDENT. Big time.SPEAKER. (?) But Hank, how will you have the gold you need as a platform for a new hard currency when you're selling so much of it now to maintain stable prices?MR. PAULSON. We don't actually sell much metal any more. There are some wash trades among friends - the central banks - from time to time, but for the most part we sell claims to metal. When the time comes, the exchanges and OTC counterparties will declare force majeure and settle out the claims in paper.THE PRESIDENT. Force majeure?MR. PAULSON. French for screw you. Sir. Besides, we're gathering up plenty of accessible metal in the ETFs. And Barrick holds a lot of reserves we can monetize if needed.THE PRESIDENT. American Barrick? Is that the exploration company No. 41 helped Mr. Khashoggi and Phelonious Monk set up a few years back?MR. PAULSON. The very one. They're big now, and getting bigger all the time. We -- the government, that is -- are the indirect owners of most of their reserves. By the time we're finished with Phase Two, we expect Barrick will control most of the known reserves on the planet. Except for all the stuff we -- at Goldman and the other banks, that is -- are picking up in our personal accounts. Throughout Phases One and Two, we'll be buying gold in the ground at a fraction of its future monetary value.I would also point out that in any event, we don't expect to have to use real metal backing for the new currency. Just the promise of metal should be enough, based on historical experience. People will be so exhausted by that time that they'll clutch at anything. The Rentenmark had no gold backing, for example. So we plan to keep the metal right where it belongs. With us. Broadly speaking.THE PRESIDENT. The Renten-Who?MR. SHORTZ. I would be most pleased to address this topic, Excellency. What the Secretary is referring to is the Rentenmark, which was the immediate, interim successor to the German Reichsmark. In the course of the German inflation, the Reichsmark declined in value from an exchange rate of about 12 to the U.S. Dollar in 1919 to over a trillion to the Dollar in 1923. A very large decline indeed, Highness. The Rentenmark was a cracking good success, and although it was presented to the German public as a currency unit linked to gold, in fact there was not a single gram of gold behind it. It was all a very great spin. Of course, the circumstances then were very different. The hyperinflation of the Germans came before their internal repression and external aggression.THE PRESIDENT. Who's the towelhead, Hanky?MR. PAULSON. This is Mr. Grunji Shortz, sir. He's our -- Goldman's -- head trader in London. He quarterbacks a lot of our market management activities.THE PRESIDENT. Well, this is all very interesting, Hanky. No, I mean it. But I got a bike date. Then I need a nap before the Rangers game. Pablo Escobar's pitching. So let's wrap it up. Do I hear a movement?A motion having been made, seconded and carried unanimously, the meeting then ADJOURNED.Faithfully,Harriet Miers,Secretary contrarian (9/10/06; 05:54:44MT - usagold.com msg#: 147340) Buying 40,000 ounces of gold--a CIRCUS UNMASKED http://www.gold-eagle.com/cgi-bin/gn/get/forum.html?date=2006%3A09%3A09%3A20%3A00%3A00 This is an excellent comment on the gold market. Just to keep things in perspective.By querying bullion dealers for buying 640,000 ounces to hear that he could get it right away, no problem, and then placing an order for only 40,000 ounces to hear that next time two weeks notice will be required for any such order, Rob McEwen established that so called gold market is a tightly scripted show.It's like theater performance where all the scenes and dialogues flow smoothly and naturally as long as they follow the playwright's scenario. But when one of the actors all of the sudden says and does something that is not in the script the whole circus collapses.It's September 1999. Gold is in 250s and Dow in 11,000s.And one evening Reverend Pat Robertson says on 700 Club TV program that what the markets are doing is beyond belief. He advises his one million audience to cash in and park the proceeds in sovereign debt.Dow right away drops below 11,000, and obviously not all sellers put their money in Treasury securities, because gold went up from $255.40 on Monday, September 20, to $270.00 on Friday, September 24.The number of new buy-orders for gold must have been increasing too fast, for the governors of all European central banks were brought to Washington on Saturday to sign on dotted line the authorization for dumping their gold (kept on deposit at Federal Reserve Bank of New York). The "Washington Agreement" was announced on Sunday by Wim Duisenberg, President of the European Central Bank, but it had no effect whatsoever on the gold spike.In other words, governors of 15 central banks announced wholesae dumping of their gold, but the price was climbing even faster as if their announcement was never heard.It wasn't until October 5, 1999, for the spike to get arrested at $325.50, and then it took sixteen months of seesaw struggles until February 2001 (!) for the price of gold to be beaten down into $250s.It is easy for the fiat racketeers to terrorize big buyers (vulnerable to IRS methods) to accept paper for gold. But no viable method exists for threatening a multitude of Jacks and Jennies trying to buy their small share of gold to protect however little of their wealth they still have. The power is in numbers. Goldilox (9/10/06; 02:38:03MT - usagold.com msg#: 147339) BACKGROUND OF JOBS FRAUD http://www.gold-eagle.com/editorials_05/willie082406.html snip:Some background, a little history, and a scorecard puts the aggregate fraud into perspective. Valuable details help to establish, in legal parlance, a prima facie (first face) for fraud. Back in year 2000, the Bureau of Labor Statistics decided to enhance their primitive "bias factor" which bridged the gap between its employment surveys and the IRS tax data. What was once a simple fixed addition each month has become an elaborate model, one certain to rival the slick devices utilized in the other doctored statistics. The jobs estimate and its parent model have come of age. The Birth-Death (B-D) model was up to the job of creating an ever increasing number of jobs, in itemized categories no less, to aid the political charlatans seeking approval and re-election. It joined the other equally massive statistical lies which clutter the financial journals.As new businesses are formed and new jobs arise, they are nearly impossible to properly track when business deaths occurs simultaneously. After the fact, the BLS learns the details of job creation which lag in time, slow to become known. As they occur, the BLS learns of details of job deaths. So they created a statistical model in order to estimate new job counts. They offer little information in defense, and do not even bother to include the B-D additions in the official statement, making no reference to it. Each month my monitor takes a gander at the latest fiction. See the official CES Net Birth-Death Model thumbnail description and data, being sure to scroll down to the current year. It seems they choose to claim plausible deniability in fraud by providing the information, but sending it to disjointed destinations without links. Their bread crumbs are thus scattered.The actual method is a very sophisticated time series technique, one called an autoregressive integrated moving average model, this one of eleventh order, or ARIMA(11). It takes the ratio of job births to job deaths each month, then treats those differences sequentially, then estimates future ratio differences based upon a long weighted combination of eleven previous ratio differences. Nearby months matter more than distant past months. With known job deaths come estimates of job births in the most recent months, after working out differences. It sounds pretty cool, but is overly complicated and indefensible. Please demonstrate the model efficacy by F-stats on the ratio difference model, and why not simply the ratio model utilized. However, the basis of the model is built from the dynamics of yesteryears. So many changes have come to the global economy since 1999 that defy quantification, let alone continued trends to permit assumptions to be deemed valid. Please demonstrate the validity in past historical years in backcasting (past forecasts versus actuals), which pass through the 1999 to 2002 time frame where structural changes in global trade occurred. Outsourcing to China and India are so rampant that the entire system continuity cannot be taken for granted anymore. In 2007 it is very possible that a stall to outsourcing might again render the Birth-Death a further embarrassment.The autoregressive models from my past experience make sense, in forecasting sunspots and tidal reaches in nature. This is due to the minimal influence of external forces, perhaps with the exception of Halley's Comet. These models are useful in other cyclical settings, but few applications in my judgment make sense in economic settings. Cycles within nature make sense, since the human organism cannot yet screw it up. Well just wait, as global warming and carbon dioxide levels might prove the exception. Economic cycles are so skewed, that rational devices to forecast them have been rendered nearly meaningless, even by most Nobel Prize Economists who sport their farcical models of 200 variables with little claimed accuracy whatsoever. We tend to be impressed by either elaborate nonsensical soliloquies from Greenspan, or elaborate nonsensical statistical models. A rule in statistical artistry prevails, that parsimony is preferable to complexity. That means being stingy in building only a few components for a statistical model is a wise practice. Pay attention, Samuelson and Friedman, since you violate this rule yet receive adulation without merit. There is no business cycle anymore, only the credit cycle, and even it has been turned on its ear with a credit explosion soon to challenge the Weimar period. Goldilox (9/10/06; 02:35:34MT - usagold.com msg#: 147338) The Tragedy of Busted Myths http://www.321gold.com/editorials/willie/willie090206.html snip:Mythology is powerful. Just a few thousand years ago, men would go to war over strange beliefs about gods and goddesses, or make decisions of state, or act upon the fate of cities and hamlets, or enter into big trade agreements, or embark on grand voyages, or agree to marriage, all after consulting the oracles. They were the gurus of their day, replaced today by economists from many corners. Budget advisors, brokerage analysts, government spokesmen, and academic charlatans are the modern soothsayers, hardly ever correct, always revered, never understood. It seems whenever things are about to go badly, we face more economic myths in the process of being shattered, and are soon subjected to new ones. In their failed wake, we install more controlling (corrupting) mechanisms like the Plunge Protection Team after crises like the 1987 Black Monday and the 2000 Tech Telecom bust.Once again the motive in promoting silly myths is the same, or at least the nucleus motive is the same. Domestically, that is to deceive the hapless ignorant hopeful public to continue to trust the leadership out of Washington DC and New York City, to continue to remain invested in the Wall Street game, to continue to participate in the consumption game, to avoid a panic and head for exits before the losses mount. On the foreign front, the motive is to encourage other nations to continue to send their hard earned savings into the Great Black Hole that is the USEconomy, to continue to supply and satisfy its desperate credit needs, to continue to pay for the entry fee for selling in its vast marketplace. The unspoken motive is to enable the aristocrats to continue to churn their machinery, to ply their trade of exploiting the great paper game, to further the squeeze on the middle class. In fact, the middle class is the greatest loser from inflation's impact and heavy cost.INFLATION WRECKAGEInflation has its hidden costs. Writers, analysts, and pundits catch the easy victims, like savers who are robbed of the stored value from the drip drip drip of erosion. Like small-time participants who shun the opportunity to grow big. Rising wages, which at first seem like an advantage from a steadily inflating economic system, have turned on the masters of the inflationary machinery. Job outsourcing to Asia has ripped the manufacturing foundation of the USEconomy clean off its mooring and capstone, deprived it of legitimate wealth generation. Consequently, the participants of our mfg-less society have been deceived into believing that consumption within retail chains can stand in its place. It offers the benefit of cleaner air, less sweat, and more fun. What's not to like? Let's go shopping, the great medication for the depressed. Instead of factories belching out smoke, noxious fumes, and rendering its workers musclebound but with damaged bodies from chemical intake, we have clean tidy shopping malls, nifty prevalent consumer retail chains, really cool electronic stores, and nice smelling furniture marts. Complimenting the networks of consumer havens are our homes, the veritable piggy banks. Who needs to save anymore, so passé? We have mutual funds and trading accounts. So we have suffered a deadly transition from making products in an industrial setting, wherein added value is gained from human labor with the aid of sophisticated machines. We now stand with one foot in the financial credit spin cycle replete with mortgages and car loans and vendor financed sales, not to mention the world of stocks and bonds, and the other foot in the service collage known to keep our devices and grounds in working order and looking spiffy.Is this progress? No way! It is a tragedy in the making, fully denied. We crossed the Rubicon ten years ago, maybe as long ago as the 1971 date. At that time, we both abrogated the Bretton Woods gold standard for the USDollar, and embraced the USGovt social & military contract. The dual pact often called "Guns & Butter" committed to provide a vast social safety net (despite claims we are not socialist) and to wage war wherever we can. The Medicare plan is the latest socialist plan passed under the current Administration is certain to worsen the national bankruptcy condition, fully fingered by the St Louis Fed this summer. So since 2001 we have a grand scheme identified by Nationalism & Socialism, the former brandished proudly, the latter quietly engrained more deeply, all against a backdrop of growing fear, withering civil liberties, and wider war. My concept is that military actions represent the ultimate in fixed business investment, although with as much cleared paths for trade benefits on the positive side as global backlash on the destructive side. Whereas the multiplier effect reaps benefits in six to seven steps from trickle down in commerce, military and defense spending reaps benefits mainly to the contractors in an abrupt one to two steps as some degree of destruction results. On rare occasion, military contract engineering has civilian benefits, however far more being evident in NASA space research.The most reckless and irresponsible phase change has been the overdue dependence within the USEconomy on the inflated equity of the entire housing sector. Indeed it sustains the system to a great degree. Americans have not saved actively since the mid-1990 decade, when Greenspan endorsed irrational exuberance by warning about it, but continuing to feed the destructive damaging condition. Several years later, Greenspan actively shocked the world by claiming that gains in home equity suddenly realized should be regarded as legitimate wealth. This is unprecedented in the modern era for a central banker. Worse still, in 2005 Greenspan added insult to injury by stating that "People who took on too much debt were desirous of financial harm." He urged the housing bubble stampede, then stepped out of its path on political fallout. The central question should be "Will the Greenspan legacy be directly linked to the upcoming crisis in housing and the USEconomy, which is of his own making?" Given the utterly imbecilic naïve confounded lack of comprehension of economic matters, blame is likely to go to the current USFed Chairman Bernanke by the present public and current leaders alike.The entire nation has been dumbed down on all matters economic, at least on the macro level. The crisis will happen on Ben's watch. It is not preventable. Its pathogenesis was designed and laid out carelessly but meticulously by Mr Greenspan. He split town to leave Bernanke with the headache, and likely blame. Without a doubt, Ben was selected to become the bagholder. Poor Ben has less charisma than Alan, perhaps equal ability to explain and confuse, but he tragically has no more available bubbles to engineer like Alan did. Housing is the last bubble. Well, to be more clear, the commodity bull is the final bubble, but it is of a cost nature. The Invisible Hand (9/10/06; 00:58:43MT - usagold.com msg#: 147337) GCC to introduce common currency on time in 2010 http://www.gulfnews.com/business/money/10066298.html SNIPSAbu Dhabi: The common currency of the Gulf Cooperation Council is expected to be issued on schedule on January 1, 2010, according to a senior UAE government official.+"We have discussed a draft monetary agreement based on the draft agreement that was provided by the European Central Bank (ECB), which included the general guidelines."+He expected the new common currency to be pegged to a single currency, but he declined to speculate. He also said that pegging to a basket or current would not be efficient.==Anybody in doubt to which "single currency" the new common GCC currency will be pegged? The Invisible Hand (9/10/06; 00:31:17MT - usagold.com msg#: 147336) The ultimate decadence of the dollar regime http://today.reuters.com/news/articlenews.aspx?type=reutersEdge&storyID=2006-09-08T023607Z_01_N07301410_RTRUKOC_0_US-FINANCIAL-GRASSO.xml&src=cms DISMISSAL COMPENSATION IN ORDER TO KEEP QUIET ABOUT PPTSNIPNEW YORK (Reuters) - Former NYSE Chairman RICHARD GRASSO said on Thursday he wants to run a company after the upcoming trial over his controversial $187.5 million pay package ends.==This monster was during 8 years the big boss of NYSE and then gets a golden handshake of $187.5 million! The monster is demanding this fortune in order to keep quiet about the NYSE practices (Plunge Protection Team - PPT) of course. Spitzer is now regularly on CNBC talking about Liu's theories.This happens in order to justify the excessive appetite of the practitioners of the financial industry for public opinion. In the meantime, those practitioners continue to plunder.Grasso admits that he wants to run a real company instead of a virtual wealth machine (the stock-exchange).That's how this SHAMELESS MONSTER wants to quiet his conscience.The story indicates very well what we are actually doing.The system of FINANCIAL CAPITALISM is destroying the healthy sense of entrepreneurship. Hence, many businesses are rotten to the core and are artificially being kept alive through the phenomenon of financial industry. The system is a pure BUBBLE FACTORY. It is this mentality which is globally exporting the dollar-regime.This is also happening in HOUSING where it has become a generally admitted (expected?) practice to MORTGAGE HOUSES IN ORDER TO DEVELOP SPECULATIVE INVESTMENTS. As a result of this, prices increase to such a level that no more buyers can be found. Monetary policy loses its grip on such a system. MONETARY POLICY CAN NO LONGER DIRECT THIS SYSTEM and is there by being forced to assist the system in inflating, in order to prevent the bubbles from exploding.This is what the dollar-regime is continuously blaming the ECB for – THE FACT THAT THE ECB DOES NOT WANT TO PARTICIPATE IN INFLATING THE SYSTEM AT THE SAME PACE AS THE FEDEXCEPT, OF COURSE, FOR GOLDFor gold, this all-comprehensive (financial) inflation is not allowed to occur.HENCE,It is of the utmost urgency/necessity for the dollar-regime to have the sheeple perceive the dollar as strong.If a lunatic would now let the price of gold increase, she would unmask the enormous underlying inflation and thereby deny the dollar of the US of A the last pillar on which it still standing.When that happens to the "system", it will be GAME OVER for the dollar-regime.That's why our masters are postponing this as long as possible. ViewYesterday's Discussion.
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