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ARCHIVED DISCUSSION FROM 5/19/2000
All times are U.S. Mountain Time
(Yesterday's Discussion.)
ORO
(05/19/00; 23:36:04MT - usagold.com msg#: 30874)
Post correction
ORO (05/19/00; 15:51:02MT - usagold.com msg#: 30860)
"5. The purchasing power of a pure commodity money is completely unstable. There has yet to be a mechanism available to solve that problem."
Should read
"5. The purchasing power of a pure DEBT money is completely unstable. There has yet to be a mechanism available to solve that problem."
THC
(05/19/00; 22:59:38MT - usagold.com msg#: 30873)
Solomon
Thank you for your comments, my brother in SILVER!!!
My question is all about liquidity. If I accept that 20% premiums are a "good deal", then perhaps I will buy. But then, how much lower will the premiums be when I sell? If the premiums are significantly lower when one sells, then I must either hold until there is a big move, or take the loss when I need cash.
It's a question of liquidity.......
I agree, silver is great........and I do own some........but for now paper plat is my favorite.....I love the backwardation money pump!!!!
I will buy more silver when I see backwardation there.
Cheers,
TheStranger
(05/19/00; 22:06:49MT - usagold.com msg#: 30872)
Thanks, Michael
Flattery will get you everywhere.
Chris Powell
(05/19/00; 20:53:59MT - usagold.com msg#: 30871)
Nuclear bomb hangs over the gold market
http://www.egroups.com/message/gata/462?
Latest from GATA Chairman Bill "Midas"
Murphy.
To subscribe to GATA's dispatches by email
and get them immediately so you don't have
to go look for them, send an email to:
gata-subscribe@eGroups.com
Solomon Weaver
(05/19/00; 20:25:03MT - usagold.com msg#: 30870)
back to ORO and gold liquidity -first posting of the day
ORO
Thank you for your detailed post on liquidity in the gold market.
In digesting your comments, I come to the conclusion that there are two forms of liquidity:
1. Financial physical gold backed liquidity which derives from a central bank leasing physical gold (to a creditworthy borrower) who then offers this gold to the market as a liquid asset for exchange. The gold liquidity may correlate in general to gold lease rates...assuming an elastic willingness to borrow with lower rates is in effect.
2. Paper gold liquidity which derives from the willingness of two creditworthy parties to exchange bets on the direction of gold price.....in this market dollar reserves are able to create liquidity...the lease rate need not have any correlation to this form of liquidity.
oldgold - really appreciate your willingness to be a devil's advocate here on the forum....let's keep our perceptions about the role this lease rate is playing very open as we move into the future. Perhaps you are right and as soon a borrowers are ready, they can get more gold out of CB vaults.
Poor old Solomon
USAGOLD
(05/19/00; 20:06:13MT - usagold.com msg#: 30869)
Stranger. . .
Watching the Rockies hockey match, but I had to say that I truly enjoy your dissection of the LA Times article and think you should do that sort of thing more often. You have a way of cutting to the heart of the matter that I am sure most of us appreciate and gain from -- myself included. I also had the thought that there are those new to this forum who learn from such efforts -- that there is "reading the news," and then there's "reading the news with your head screwed on."
Thanks, Stranger, and please keep it coming.
Solomon Weaver
(05/19/00; 20:04:04MT - usagold.com msg#: 30868)
Premiums are the price of making gold ownership fun.
THC (5/19/2000; 9:13:45MT - usagold.com msg#: 30844)
The real question is not why there is a 20% premium on these German coins, but what is the comparable premium that other vendors are charging for identical coins. And perhaps the premiums on other simlilar sized coins of similar era like Swiss and French 20 Francs.
THC....suggest you use some of those paper Yen and some real German gold...
and don't forget.....silver is the poor man's gold.
By the way, the premium on a new 2000 one ounce silver eagle is on the order of 60%!!!! Fair???
Poor old Solomon
lamprey_65
(5/19/2000; 18:36:00MT - usagold.com msg#: 30867)
P.S.
OK, he's blaming the Fed's rate increases for everything bad in the market. How convenient, eh? Oh, no inflation in the April CPI! Can you say - DRIVEL?
lamprey_65
(5/19/2000; 18:31:48MT - usagold.com msg#: 30866)
The REAL news this week...
The Fed raises rates, the dollar moves higher (as expected), yet...
The CRB index soars and the dollar falls today.
People, this is the sign - we're getting ever so close to the endgame.
-----
Time for Lou Rukeyser...I'm sure he'll have a flippant comment or two about gold, always does. That's ok, watching him in the Great Bear Market of 2000- will be fun, if he doesn't retire, that is!
lamprey_65
(5/19/2000; 18:21:17MT - usagold.com msg#: 30865)
Mr. Turk's Article
I agree, wholeheartedly. As many of you may remember, I stated a similar opinion 6 months or so ago. As the CRB moves higher, it's going to be harder and harder to hold down the price of gold. I disagree with Kaplan in this respect - when gold moves up for good, it won't be like '93 (slow and methodical)...it's going to go very fast, first to the $335 an ounce level and then higher. The longer it's held at these ridiculous levels, the more it will have to play catch-up with the CRB and the more explosive the move will be.
I'm finding more mainstream columnists recognizing that gold is being manipulated (even as they ridicule us gold bugs). Will the Republicans seize on this new Clinton scandal? I'm not convinced...this is the BIG TIME - we're talking gold here, not some sexual indiscretion and cover-up. Finding yourself on the wrong side of this issue can cost you in a big way...ask Safra.
Elwood
(5/19/2000; 18:13:16MT - usagold.com msg#: 30864)
ORO (05/19/00; 15:51:02MT - usagold.com msg#: 30860)
"5. The purchasing power of a pure commodity money is completely unstable. There has yet to be a mechanism available to solve that problem."
Why is this a problem? Money is nothing more than a good subject to the economic laws of supply and demand. That prices change should be seen as no more of a problem than the fact that grass grows better in sunlight than in shade.
TheStranger
(5/19/2000; 17:54:10MT - usagold.com msg#: 30863)
They Still Don't Get It
If you want to be wealthier than the guy next door, you are going to have to be very lucky or else develop an ability to see farther into the future than he can. But, despite the carnage on Wall Street these days, it seems there are still very few who even understand the present, much less what is coming. Witness these comments culled from Wednesday's LA TIMES. And I don't have to pick on just the TIMES. This kind of stuff is ubiquitous. My reactions are inserted parenthetically.
Fed Targets Inflation, Hikes Rate
Half-Point
Economy: Central bank hints at still more tightening. Banks
quickly raise their prime rates, meaning consumers will soon feel the
pinch.
By THOMAS S. MULLIGAN, Times Staff Writer
NEW YORK--Escalating its campaign to preempt inflation(PRE-EMPT? HOW CAN ANYBODY STILL THINK THE FED IS OUT AHEAD ON THIS) , the
Federal Reserve on Tuesday raised a benchmark interest rate by
one-half of a percentage point and hinted that there may be more
credit tightening ahead (MORE THIGHTENING? THERE HAS BEEN NO, ZERO, ZIPPO "TIGHTENING" SO FAR).
It was the biggest Fed rate hike in five years and underlined the
central bank's determination to squelch what it called "inflationary
imbalances that would undermine the economy's outstanding
performance."
"The Fed is flying blind on interest-rate policy," Sen. Byron L. Dorgan (D-N.D.)said in a
statement. "Inflation is down (FIRST QUARTER CPI WAS UP 5.8% YEAR OVER YEAR), productivity is up (FIRST QUARTER PRODUCTIVITY GAINS FELL TO 2.4%) . There is no excuse
for central bankers to impose another increase in interest costs on
the American people."
Martin Regalia, chief economist for the U.S. Chamber of
Commerce, chided the Fed for impatience.
"It often takes over a year before interest-rate changes affect the
economy, and the Fed began to tighten(SIC) less than 12 months ago,"
he said. "At this point, to escalate from quarter-point increases
seems premature, but it seems they got the OK from Wall Street
and the next thing you know--bingo!--they go a half-point."
Many analysts believe the Fed's rate hikes, and the threat of
more to come, were one factor contributing to many stocks' sharp
declines over the last two months (GOD FORBID WE SHOULD SEE INFLATION, BUBBLE.COM, OR AN 18 MONTH BOND BEAR MARKET AS RESPONSIBLE FOR ANY OF THIS). The Nasdaq composite index
has dropped 26% since March 10. The blue-chip Standard &
Poor's 500 index is off 4% from its March peak.
In a four-paragraph statement accompanying its rate-hike
announcement, the FOMC said it believes that "the risks are
weighted mainly toward conditions that may generate heightened
inflation pressures in the foreseeable future."
The hawkish language in the statement, released at 2:15 p.m.
Eastern time, caused the stock market to dive briefly. But by the
end of the trading session, market indexes recovered to close
broadly higher. The Dow industrials added 126.79 points, or 1.2%,
to 10,934.57.
Wall Street was encouraged by the government report earlier
Tuesday showing that consumer inflation advanced only weakly in
April, following a disturbing leap upward the month before.
The new data convinced some economists that the March spike
in the consumer price index was an anomaly and that inflation
remains tame. "There's very little real inflation (THE CRB COMMODITIES INDEX ONLY HITS NEW HIGHS ALMOST DAILY - despite the recent 30% decline in oil prices - AND IS NOW UP OVER 20% IN LITTLE MORE THAN A YEAR)," said Carl Weinberg,
chief economist at High Frequency Economics in Valhalla, N.Y.
"The Fed's goal is to keep inflation risks from getting traction."
Clearly, the Fed thinks the risks are high. Despite five straight
quarter-point rate hikes since June 30, the economy has stubbornly
resisted Fed efforts to restrain it (STUBBORNLY RESISTED WHAT? WE'VE HAD HIGHER MONEY GROWTH DURING THIS PERIOD THAN DURING ALMOST ANY OTHER TIME IN HISTORY!). Just Monday, the government
reported that factory production remained strong, growing 0.9% in
April.
Even though consumer inflation indexes remain relatively
subdued (THE FIRST QUARTER'S CPI INCREASE WAS THE HIGHEST IN A GENERATION), there are signs more companies are putting through price
increases. The National Federation of Independent Business
reported in a survey Monday that 25% of its small-business
members reported higher selling prices in April.
Key commodity prices also have been on the rise this year, from
energy to pork to wheat to cotton. The Commodity Research
Another factor on the Fed's mind may be the presidential
election. To avoid accusations of political motivation, analysts said,
Fed governors would like to get their tightening (WHAT TIGHTENING?)done before the
campaign heats up in the fall, ideally before their Aug. 22 meeting.
That could imply a bigger rate-hike in June, these experts said.
There is a danger, as implied by the criticisms from Dorgan and
Regalia, that the Fed will squeeze too hard and tip the economy
into a recession (I WOULDN'T STAY UP NIGHTS WORRYING ABOUT THAT ONE, NOT YET, ANYWAY).
************************************************************
Stranger: Something wicked this way comes and IT AIN'T HIGHER INTEREST RATES (although those are coming too). No, what I am talking about is a collapse in the public's faith in the Fed to restrain inflation! Finally, when that happens, writers, like the one who wrote the article above, will begin to make sense of what is going on. Only then, for the poor schmucks who read and believe such drivel, it will be too late to benefit.
TownCrier
(5/19/2000; 16:34:24MT - usagold.com msg#: 30862)
Another update to the Gilded Opinion has been provided!
http://www.usagold.com/gildedopinion/crbturk.html
This time, thanks to James Turk, whose style of writing makes for easy reading. In his commentary, Mr. Turk discusses the latest jump in the CRB index and his related thoughts on gold.
Click the link above to see the full text from which I have drawn these excerpts:
"...the run-up in the CRB cannot easily be blamed on bad weather, poor crops or oil embargoes. We are seeing a fairly broad-based rise in the index, which can really mean only one thing - the Dollar is being inflated. ... Sooner or later though the Dollar is going to 'fall out of bed', and I don't think it will be a very pretty sight when it happens. The Dollar is vulnerable, and when it falls, it will probably do so quickly and persistently. ... Gold still is money, so it still is sensitive to inflationary pressures of the Dollar. So why isn't Gold leading the CRB Index higher as experience and logic say it should? Gold has stopped leading the CRB for the moment because the Gold price is being manipulated. That observation should not come as any surprise to the readers of these letters. ,,, If Gold were trading freely here, it's price would be a lot higher. ... This manipulation is a reality that we have to contend with at present. But it is also a reality that no market can forever be manipulated by any government or any group of governments working in concert because markets are bigger than governments. In time, Gold will head higher. ...I think the big jump in the Gold price will probably begin in the last half of this year."
ORO
(05/19/00; 15:54:57MT - usagold.com msg#: 30861)
Continued - from "garble point"
Thus, in summary:
a. Pure debt currency is discounted in value according to both the view of future productivity and future income streams. These views change abruptly.
b. Demand for cash balances moves from currency to financial proxies as borrowing grows at given interest rates. (Under these conditions, bank lending and monetary aggregates do not increase but bond lending grows tremendously.)
c. When resource limitations are met late in the inflation stage, real goods prices start rising and depositors move from cash to real goods and commodity money accounts.
d. When interest rates are raised due to the increase in real goods prices, financial asset prices fall, increasing the currency discount and the rate of escape from financial assets to real assets.
e. As interest rates rise, defaults cause a parallel effect of increasing defaults without decreasing currency supply and costs of goods and services rise.
f. Defaults prolong the period in which high interest rates are necessary for maintenance of currency demand and prevention of further currency supply.
g. Because of central bank guarantees of currency deposits the currency simply does not recede in quantity - it just moves from being a bank liability to being a central bank liability - an addition to the monetary base.
We call this stagflation.
Note on international currency issues:
The creation of currency debt traps outside the central bank's region of authority allows excess issuance of currency within the central bank's region without prices rising. The supply of currency to the trapped foreign debtors prevents them from defaulting en-masse, and keeps their supply of goods to the central bank's region, thus hiding the fact of regional goods demand being much higher than regional supply by the needs of foreign debtors to cover their loans by selling of goods. As these debtors pay down debt (which they will certainly do after their near death experience) their need to supply more goods abates and they may quickly collect an excess of currency in their reserves.
When real goods prices start a climb, there is further supply of currency to the indebted foreigners balanced against higher currency reserves and less debt. The resulting situation is such that in order to maintain absorption of the same quantity of currency by the foreign debtor or reserve holder, the interest rate must be increased in proportion to the drop in outstanding debt of the foreign debtors and sufficiently high so that reserve holders are not tempted to sell reserves and buy commodity money and real assets.
Eventually, a different currency will have lower interest rates and the foreign debtors would preffer to roll over loans into the currencies offering a lower interest rate instead of rolling them over into the high interest rate currencies.
This system of debt currency tends to simultaneously implode and explode as bank liabilities increase whether or not accompanied by an increase in bank assets.
Debt currency money with commodity money having legal tender status.
The debt money system would suffer from the same problems denoted above and would implode/explode anyway.
The parallel cash commodity money would not be used for debt payment, but would instead be used as security for borrowing currency. The borrowed currency would pay down debt, thus not decreasing debt demand's contribution to currency demand. However, everyone would take down their currency cash reserves and put them into commodity money, thus making for a further slide in currency purchasing power. The currency purchasing power would further decline because of loans created for the purpose of using commodity money to produce currency for debt payment. Because of this, the transition to a pure cash commodity money legal tender parallel would destroy the debt money completely. Bank physical costs would overcome their interest income as prices rise, and no interest rate would be sufficient to block the transfer of assets to commodity money.
This would only work if there were a parity for exchange of currency and commodity money, thereby reintroducing the central bank managed commodity money standard - the gold standard that failed in 1929 and in 1970-71, and is about to fail again this year or next.
Parallel debt currency and cash commodity money:
The debt currency system would undergo its standard boom and bust process.
During both stages people would borrow currency in order to buy commodity money, if a commodity money is not available for borrowing, and if its price increases in proportion to excess currency being created in the present, or the fear of future creation of currency to alleviate a credit crunch. Therefore, the currency cash holding demand would remain next to zero, and only enough to cover immediate needs for debt payment.
The fact that no paper proxy for the physical money is available would destroy the possibility of stable commodity money currency prices. They would go up under inflation and under deflation and no interest rate would be able to induce people to let the precious go. People would transfer their gold to "trusted" others and go bankrupt before letting it go. In order to prevent the lending of the commodity money it would be necessary to also avoid enforcement of its use as security for currency lending.
Besides this, even without government enforcement of commodity money debt, the interest rate needed to induce people to keep the currency cash balances vs. the purchase of commodity money, would need to be so high that a "black market" in commodity money debt would arise and a whole new Cosa Nostra would grow around enforcing it.
In summary:
The cash balance function and the debt denominator function are not seperable in money. It is a logical fallacy.
Pure debt money goes through one or two cycles of inflation and deflation within no more than 20 years (enough for two) and is forever discredited after that.
If a parallel system of gold debt is functioning, it can stabilize the system for a long while, particularly if hidden from public view as it has been for the past 20 years with the currency's parity kept as a closely held secret.
The current situation in which US banks had a 10-11% margin between assets and liabilities at mid 1998, has seen the margin decline. With a three to five year average maturity for bank assets, the assets have fallen in market value about 5-6% as interest rates rose from 5% to near 7%. Though their assets also grew with the ongoing boom in new lending, their liabilities have grown more rapidly than their assets.
Foreign owned income producing US assets are producing higher incomes as interest rates rise and these incomes further help reduce the foreigner's dollar debt and increase the dollar income stream going into reserves.
Since the gold accounts and gold derivatives tend to rise in proportion, the rise in gold derivatives outstanding would imply a 20% rise in the parallel gold accounts. This would imply a significant increase in cash holding preference from dollar assets to real assets in the international arena. At some point, one would expect the gold reserves that the bankers are draining in order to supply the deficit in the physical markets to dry up. As this nears, more and more people, many with far less patience than current account holders in the know, will start converting the paper gold into physical.
The gold derivatives indicate investment demand for gold proxies of up to 4000 tonnes. If this is added to the 1000 tonnes of gold supplied from reserves in the last 12 months, this ammounts to a 5000 tonne deficit in supply. Though the derivative numbers are not directly representative of 4000 tonnes of deficit in supply being covered by paper, a great proportion of this would certainly be expected to be part of the deficit which is being filled by paper gold obligations.
The scenario for gold banking with a central bank applies as to the end game of this system.
ORO
(05/19/00; 15:51:02MT - usagold.com msg#: 30860)
AragornIII - Future and Past wealth and the impossibility of a dream
http://www.usagold.com/halldiscussion.html
My criticism of Aristotle's suggestion and the FOA suggestion and the program ANOTHER implied is that:
1. It implies that a debt money is stabilizable in the presence of an alternative. It is not. Even without an alternative commodity money it is not stable.
2. The cash and the denominator of debt must be the same, or tied together indirectly so as to make it close to being so.
3. The value of the currency is tied to maintenance of its parity with a universally accepted commodity money/monies. Without the hook-up, debt currency spirals out of control and with no relationship to the economy.
4. The ppurchasing power of commodity money is limited when the debt induced demand is not available.
5. The purchasing power of a pure commodity money is completely unstable. There has yet to be a mechanism available to solve that problem.
A review of the discussion in the URL above can help with understanding the caveats I pose.
Below is a set of explanations covering most [I hope] of the aspects to consider.
Selling the Future
The obvious problem of debt money is that the value is provided by the intentions to return the balances created by a bank loan in the specified time in the future. As the view of the future incomes and production of the borrowers changes, so does the value of the currency that represents that future. Furthermore, the greater the certainty in future capacity, the greater the obligations borrowers are willing to commit to and lenders willing to back. However, the view of the future changes significantly more quickly than the present and the accumulated productive capacity. Thus the view of the future dictates the preference of currency cash balances that people want to hold. So long as the view of future availability of goods and services grows rosier, so would the willingness of people to hold large amounts of currency and currency denominated paper on account rather than buy real items and services. Thus the inflation of currency is not reflected in pricing of current goods and of contracts for future supply until the perception of the future begins its move from positive to negative - or just less positive.
Thus, an inherent instability is part of any debt currency system on account of its being a call on the future alone.
This is not to say that people should not attempt to discount the future and take obligations against it. Nor is this to imply that the future expectations would necessarilly be inflated.
Liquidity
The structure of debt currency is such that at any given time there are more obligations written than there is currency to cover it. It is deflationary in its nature. This brings into focus another point: a monopoly currency in any region allows no recourse for borrowers against the cartel if the cartel finds it to be in their favor to arbitrarilly decide to stop lending - and thus create an immediate shortage of currency. Under these circumstances, the cartel can call in loans and seize security put up against it. This is part of the inflation and deflation cycle by which cartel member banks have denuded the globe of large scale private capital.
Jefferson warned against this very loudly. He was forever harping on the issue - stating that banks never be allowed the central bank that makes it possible for them to enforce coordination of lending policies on the members. Without a central bank the banks lack a mechanism to coordinate policy and prevent each other from "cheating" when the cartel decides to close the lending faucet.
Obviously, without a central bank it is in the interest of banks to act AGAINST the decisions of the cartel. The cartel decides to stop lending and the corporations become desperate to roll over debt and create new loands. A non-cartel bank would use this opportunity to lend to good credit risks that are the targets and clients of the cartel - those corporations who's assets the cartel wants to seize. The maverick bank would expand its business and the cartel would loose its best customers, losing both the loans and the cash balances.
This is the free banking restriction on deflation.
Another restriction arrises in the process of inflation and comes from the math of settlement. Without a central bank, the bank that issues more debt relative to reserves is the one most likely to become insolvent. This is because the bank creates a liability when it lends that may be drawn by clients of another bank upon settlement.
A great discussion of this is given by Mises in rather condensed form at the URL:
http://www.mises.org/humanaction/chap17sec12.asp
"...within a market system [with] several independent banks ... Each bank has a clientele and has issued a certain quantity of fiduciary media [currency] ... in the cash holdings of various clients. ...
"But now, we assume further, one bank alone embarks upon an additional issue of fiduciary media while the other banks do not follow suit. The clients of the expanding bank--whether its old clients or new ones acquired on account of the expansion--receive additional credits, they expand their business activities, they appear on the market with an additional demand for goods and services, they bid up prices. ... The clients buy more from the nonclients than they sell to them; they have more to pay to the nonclients than they receive from them. ... In order to settle the payments due to nonclients, the clients must first exchange the money-substitutes [checks etc.] issued by their own--viz., the expanding bank--against money. The expanding bank must redeem its banknotes and pay out its deposits. Its reserve--we suppose that only a part of the money-substitutes it had issued had the character of fiduciary media--dwindles. The instant approaches in which the bank will--after the exhaustion of its money reserve--no longer be in a position to redeem the money-substitutes still current. In order to avoid insolvency it must as soon as possible return to a policy of strengthening its money reserve. It must abandon its expansionist methods."
As this demonstrates, the natural system has a limitation on lending that causes a bank's agressive lending policy to endanger its solvency. It does not matter whether the currency unit is gold or fiat, the bank has a consideration of solvency to weigh against inflation.
By introduction of a regulating authority to dictate a certain level of reserves, the force of this limitation is gone since all banks will race to create as much debt as the reserve requirement allows. By introduction of a lender of last resort, the fear of insolvency not due to client default is removed since the lender of last resort can buy the loans from the bank's books and provide the funds necessary for settlement.
It has been claimed that the regulation limits over-extension of the banks. In reality, banks have allways managed to staff the regulating agency with cronies that consistently lowered the reserve requirement. Today there is no effective reserve requirement and there is an active lender of last resort - so that banks are limited only by the good performance of their loan portfolio.
Therefore we come to the conclusion that inflationary limitations are inherent to banking but may be removed by use of regulation and a lender of last resort that issues currency as required. These functions are served by the central bank as bank regulator and lender of last resort.
To summarise:
Free banking, where government serves only to enforce bank-client contracts, there are natural limitations to the power of a bank cartel to inflate or deflate. The historical figures on reserve holdings are such that banks hold reserves of 25% to 60% of deposits when there is no regulator or lender of last resort.
Gold and other commodity money
These are cash monies that are the product of the past. Even when artificially limited to gold only, the production of the money commodity grows in tandem with economy, enjoying the same technological advancements and investments in productivity improvement and new capacity. With a variety of commodity moneys, but also with only one, the quantity of the commodity money stays in proportion to the productive capacity of the economy as a whole.
If too much commodity money is produced, prices denominated in it will rise. The general rise in prices will cause a rise on costs and will make further production in marginal producers uneconomical.
If the economy expands without increases in the production of commodity money, prices will fall and will cause costs of production in commodity money production to fall. Thus marginal producers will find expansion of production to be profitable.
Banking with commodity money:
In the historical perspective of commodity money being the unit of denomination for bank debt currency, the banks can do the following:
1. Free banking:
- Banks can lend into existence new paper money that eventually increases prices because of the monetary inflation.
- Commodity money producers find prices are rising and they restrict production from marginal operations because costs have gone up.
- The decline in supply of physical commodity money causes demands for redemptions to rise at the banks, causes difficulty in debt repayment and the banks reduce lending.
The understanding of this process induces banks to limit new lending when slightly rising prices indicate that future supply of physical money is about to be reduced. Those banks that have failed to see this find themselves trending towards insolvency as reserves recede.
2. Central banking with commodity money
- Banks will lend to the reserve limits set by the central bank causing an inflation of the money supply that eventually moves into prices.
- Because of higher prices, the commodity money production is reduced in proportion as the costs of production rise.
A note on the interplay of these factors: bankers can do their best to control commodity money producers and thus extend the supply well past the limits of production profitability when costs are high or limits of opportunity costs in not producing when costs are low.
- A shortage of physical money causes physical draws on banks to increase and causes the debtors more difficulty in repayment of debt.
- Banks are then restricted from further lending by declining reserves and a rise in bad loans .
- The lending restraint causes a reduction in availability of paper money as well as physical money.
- Large cash holders who understand the system will tend to have already converted paper accounts into physical holdings - thereby exacerbating the reserve shortage when it comes. These would typically be bankers.
- A credit crunch ensues against which there is no remedy through further expansion of lending. - Unless initial expansion was limited to the same level of reserve holdings that occurs naturally in free banking. Since the purpose of central banks is the extension of leverage of the reserves in the first place, it is impossible to expect that this would be the case.
- If the bankers lowered reserve requirements during expansion from the natural free banking bottom of 25% to 40% to an artificially low figure agreed upon and enforced by the central bank (typically at or below 5%, historically - e.g. 3.75% by the Fed in 1929) then banks will fail and corporations and individuals lose their assets as they are seized by banks and bank creditors. Prices will collapse untill commodity money production rises to the point of supplying significant new physical money.
- Because of the extended period of paper money expansion, the marginal producers would have been closed and exploration would have ceased long before. Borrowing for the purpose of funding exploration and capital for new commodity money production would be difficult because of the reserve shortage and would delay further the solution to the crissis.
In short, the system will break.
Some would simply lose their accounts at insolvent banks altogether while losing their property as well.
The holders of physical money (typically bankers holding for their private accounts- rather than corporate accounts) would then buy up the seized security assets slowly and at fire-sale prices. While this would be increasing reserves, the slow legal process of bankruptcy would still limit the ability of surviving banks (or new ones) to use these reserves to supply new money for lending.
Pure debt money systems.
As described earlier, banks may succeed in displacing cash physical money through legal enforcement by a government.
1. If the central bank, i.e. the bank cartel's coordinating authority, is interested in maintaining the steady supply and demand balance of money for cash balances and debt service, it would severely limit lending in bank, bond, and derivative markets to the current or near future income generating level of the economy. However, banks and borrowers alike would exert pressures to allow further expansion. Citing price stability, they would quickly find support in government and in popular opinion to increase lending levels allowed.
Furthermore, this policy would eliminate the inflationary effects necessary for bankers to cash in aand allocate a greater portion of the economy for themselves. Thus the purpose of the cartel would be eliminated and banks would preffer a free market. Government would find no benefit in a system that does not shroud the effects of its seigniorage nor allows it borrowing at artificial below market rates.
Because of the tendency of the future discount to change, often in sudden moves of mass hysteria, the central bank would find no clue in the level of prices of anything as to whether it has allowed too much or too little expansion. It would succumb to demands of loosening policy when debt balances expand but no price changes are noticed in optimistic environments, and would be assaulted with demands to tighten when prices are out of control but debt balances are falling after the pessimistic transition or during pessimistic periods.
It is also difficult to judge what it is that people consider to be proxies for cash balances. Furthermore, people tend to change their view of these instruments as market conditions change. Therefore, central bankers will find no clue to guide them in making decisions but for the narrow interests of whomever pressures them most.
Therefore, it is highly unlikely that the central bank would pursue this policy. Indeed, none have done so.
2. Structural inflationary banking
The central bank guarantee of bank liabilities to bank depositors is the key element in inflationary banking.
- There is no limit to borrowing but for the bank's view of the credit worthiness of borrowers coupled with the borrower's willingness to borrow at particular rates.
- Cash balances are held at banks with the best returns, the best service, or the best promotional results.
- As discussed above, the issues of knowing what, aside from cash balances in limited or free withdrawal accounts, constitutes a cash balance in the mind of the holder, is still a problem. Stocks, bonds, commodity money accounts, and physical commodity money and funds who hold them may be considered accessible and liquid enough for the holder to think of them as cash.
- Interest rates are set by the markets - long term - and by both the markets and the central bank in the short term. Interest rates reflect both price inflation expectations of the market and of the central bank.
- Settlement liquidity problems are handled by the central bank buying government or commercial paper through permanent or temporary purchase agreements (repos etc.) and supplying cash accounts in return.
- The demand for currency for the purpose of debt repayment is the main factor for demand for currency accounts, since excess cash holding demands will tend to flow into other means (stocks etc.) beyond that ammount necessary for commercial/private debt settlements at particualr dates.
- The currency supply demand balance is given by the rate of new lending less the sum of the products of contract interest rate times the debt outstanding at each set of conditions.
Note: This does not consider the possibility of net debt repayment of principal. Why? because the creation of a bank account cash balance during accumulation of the funds for the principal payment coming due induces the bank to lend that balance at the best rate it can obtain. If borrowers are not available at the current market rate, it will lend it at a lower rate, or use the funds to buy a bond, thereby lowering interest rates - and the demand for money in the immediate future. (Remember that no currency is created when a bond is issued but currency is created when a bond is bought by a bank.)
- When the rate of new borrowing falters to that below that necessary to create the currency needed for interest payment, the borrowers tend to reduce the prices of their goods and services to a point where they sell at a sufficient volume while maintaining a sufficient margin to increase company cash flow. In parallel, the debtor will unload costs of inventory and employees to limit the costs, even if they threaten the future of the business. Defaults start occurring as the process continues develops. The CURRENT rate of defaults is equivalent to the FUTURE loss of interest payment demand for currency. Default, however, reduces interest payment demand permanently. The commercial paper a bank sells to the central bank in order to make up the lost cash flow increases the monetary base as defaults occur, but at no point does it decrease the bank client's cash balances to any significant extent.
- Banks that have taken excessive credit risks will reach a point of insolvency, where assets are lower than liabilities (customer accounts), at market values of assets or at book values of assets.
Note that when a bank feels the interval between market value of assets and its liabilities is shrinking (as debt assets do when interest rates rise) it will sell assets to the markets or the central bank. If sold into the markets, interest rates will rise further, making the value of the remaining assets even lower. As interest rates rise, borrowing recedes. This pushes towards increasing rates of default.
- The banks will often buy interest rate derivatives from each other in order to prevent exposure to the loss of market value of assets. The large banks that have the wherewithal to sell these derivatives are the same banks that enjoy the strongest central bank support and are "too big to fail". Their staffs often run through the central bank's revolving door at some points of their careers, and will bias central bank decisions to the directions that benefit them most. When the central bank sees the liabilities of these major banks to other banks growing, the central bank will - without exception - act to supply further currency (monetary base) so that the interest rate derivatives that tie these banks to the whole system are not in jeopardy of defaulting. It is also important to the central bank to avoid having to fulfill its commitment to back the depositor accounts at the greater banks.
- The result of the rise in interest rates is a decline in all financial assets, including bonds and stocks. This increases the rate of defaults as holders of these securities as substitutes to cash balances tend to sell them. Since the buyer's cash is a bank account entry before the sale, as is the seller's after the sale, the amount of currency had not changed at all.
- Earlier, I covered the effects of optimism vs. pessimism on cash preferences of holders and how they discount the value of future productivity and future income streams. I noted that the change in perception is rather violent. This change in view tends to affect financial allocations towards real holdings and currency cash rather than currency proxies (financial assets). The tendency is to both increase prices and reduce liquidity at the same time. The response by the central bank exacerbates the problem by adding to the monetary base which runs after commodity money accounts and real assets, while interest rates rising maintain the lack of liquidity as fewer borrowers are available as net perceived rates rise.
Commodity money accounts tend to see a great rise in incoming flows, however, because of the limits of reality in commodity money accounts, as discussed in the commodity money with central banking section, there is eventually a point where inteligent depositors "grab the [physicl] money and run". The banks are then faced with a settlement problem and must change the terms of deposit to settlement in currency cash. As the currency cash increases, the commodity money buyer will tend to cash out of the account and buy physical. Once the process starts there is no turning back and the government guarantee of cash accounts at the bank cause the rise of money supply to rocket up in the worst way - with no counterweight in debt demand.
- Cash holdings in currency are dumped during a change in view of the future supply of product and of income. The cash is thrown into the real goods markets but can't disappear because of the central bank's guarantee of bank cash balances. They just don't go away. Furthermore, as this starts, it is nearly impossible to stop without external supplies of goods that somehow do extinguish the cash.
- Raising interest rates AFTER this process starts simply moves costs higher. As demand for goods as replacements for cash balances increases, the costs are easier to pass on - interest costs included. Some get the idea to borrow more and buy further goods beyond their normal needs as a substitute for cash and financial cash proxies. If bonds and stocks were absorbing the price effects of monetary inflation, the move out of these proxies into real assets will not be seen in the monetary aggregates since the buying and selling of real goods and of financial assets does not change the outstanding amount of currency in bank accounts.
- Though initially a rise in interest rates may induce further demand for currency for interest payments, it will most probably result in further draws by great banks from the central bank to cover defaults by weak borrowers that these same interest rate increases caused. The defaults reduce demand for currency soon after they occur.
Thus this system induces monetary inflation, than asset price inflation, then financial asset price decline and real asset price rises accompanied by defaults and drops in currency demand - which cause a further push away from financial assets and into real ones.
Thus, in summary:
a. Pure debt currency is discounted in value according to both the view of future productivity and future income streams. These views change abruptly.
b. Demand for cash balances moves from currency to financial proxies as borrowing grows at given interest rates. (Under these conditions, bank lending and monetary aggregates do not increase but bond lending grows tremendously.)
c. When resource limitations are met late in the inflation stage, real goods prices start rising and depositors move from cash to real goods and commodity money accounts.
d. When interest rates are raised due to the increase in real goods prices, financial asset prices fall, increasing the currency discount and the rate of escape from financial assets to real assets.
e. As interest rates rise, defaults cause a parallel effect of increasing defaults without lry <br>8e` "àLÃ n the only f5å0of wealth a woman has <br><br>Bottom line is scheme has failed miserably. <br><br>PH in LA (9/20/99; 12:33:17MDT - Msg ID:13984)<br>India's Gold Plan: More Rechless Abandon by the IMF<br><br><br>It is not too difficult to imagine a big ulterior motive present in the IMF's encouragement of the frighteningly reckless plan currently being floated by the government of India.<br><br>We have seen desperate-looking machinations on the part of the IMF recently. First they wanted to sell 10 million ounces of gold "to provide debt relief to impoverished nations"; an absurd idea on many levels...(as if the IMF had ever had any interest in alleviating the debt load of already impoverished nations: On the contrary, their austerity restructuring plans always seem to make things worse for the country on the receiving end of their "generosity".) More likely it would seem that someone desperate for gold was pressuring the IMF to provide some. The same motive behind the bizarre BOE auctions. What a co-incidence!<br><br>When the US Congress shot that idea right out of the water, the IMF decided that instead of selling 10 million ounces, they would merely mark those ounces to market. Details of the plan that have been suggested to accomplish this boggle the mind in their outright absurdity. Allowing a bankrupt nation to buy gold at book price to immediately sell it back to the IMF at market prices would be a novel new way of doing business, to say the least. I'd like to get in on such a deal, myself.<br><br>Obviously, the IMF is desperately looking for new sources of gold to supply a world situation on the brink of massive gold shortages, even likely defaults. And their latest plan in India to bring more world supply online leaves one aghast in its implications. <br><br>Gathering in a nation's privately-held gold by paying interest on it sounds harmless enough on the surface. But thinking about the all-too-likely effects of such a practise is frightening. Let's say a depositor turns over gold in exchange for interest. What happens to that gold? It would have to be sold to give the plan any viability at all. There could be no point at all in merely holding the gold whild paying interest only to return it to the depositor on demand! No! The gold would have to be "mobilized"...that is, sold (in one way or another). <br><br>So let's say the new owner of the gold decides to deposit it with the same government. OK, now we have a government paying interest to two depositors for the same gold. Has there ever been a government capable of restraint when it came to printing promises? Never!<br><br>So we can imagine a whole industry growing up around the idea of paying government interest on the nation's privately-held gold. A good idea for the government until the depositors decide they would like their gold back, probably in a moment of national uncertainty, which would be the worst possible moment for the government. Suddenly, the government has to supply the metal or face the consequences; with revolution rearing its ugly head, gold would have to be purchased to cover the ponzi scheme.<br><br>The inevitable outcome? Worldwide shortage and upward price pressure, even in "innocent" countries with no involvement in the renegade nation's reckless gold practises. Internation destablization! This is why a responsible IMF should be reacting with horror to India's gold plan, not encouraging it. Their reaction of approval is just another indication of their desperation. <br><br>They are obviously out of control! And their desperation is obvious!<br><br>Where will it all end?<br><br>FOA (9/21/99; 10:01:04MDT - Msg ID:14042)<br>The Ro
SHIFTY
(05/19/00; 15:02:27MT - usagold.com msg#: 30859)
NY Ponzi
Nasdaq 3,390.40 + Dow 10,626.85 = 14,017.25 divide by 2 = 7,008.62 PONZI
Down 149.37 Ponzi points
Leland
(5/19/2000; 14:09:38MT - usagold.com msg#: 30858)
Some Background on the H.L. Hunley...
http://www.history.navy.mil/branches/org12-3.htm
For history buffs, like me.
Leland
(5/19/2000; 13:44:47MT - usagold.com msg#: 30857)
Story of a VERRRY Valuable $20 Gold Coin...Let's Hope it's Recovered
RAISING CONFEDERATE SUB
HUNLEY A QUEST TO SOLVE
136-YEAR MYSTERY
By Dahleen Glanton
Tribune Staff Writer
May 19, 2000
CHARLESTON, S.C. -- On a February night in the
midst of the Civil War, a Confederate submarine, one of
the earliest submersibles ever built, slipped out into the
Atlantic Ocean and into history and mystery.
The H.L. Hunley, a vessel crafted out of locomotive
boilers, made history the night of Feb. 17, 1864, when it
sank the USS Housatonic, a Union ship blockading the
Charleston Harbor. It was the first time a submarine had
ever brought down a warship. But after signaling to
shore that it was returning to port, the Hunley vanished,
creating a mystery that has baffled Americans for more
than 130 years.
This week, marine archeologists began a long-awaited
recovery mission that will help explain what happened to
the craft.
In mid-July, the crew plans to raise the 16-ton vessel,
believed to be superbly intact, from the muddy ocean
bottom near the mouth of Charleston Harbor, not far
from where the Civil War began.
Inside the 40-foot-long iron structure, buried under 27
feet of water and 3 feet of sediment, researchers expect
to find the skeletal remains of the nine crewmen and
finally an answer to the nagging question: What caused
the Hunley to sink?
Over time, the Hunley has become a legendary part of
Southern folklore. It is believed that the crew, the third
group to die on a Hunley mission, had a pact to go
down with the vessel rather than refloat it.
Since the Civil War, adventurers and treasure hunters
have combed the Atlantic Ocean in search of the
submarine. Showman P.T. Barnum once offered
$100,000 to anyone who could find it.
But the Hunley's whereabouts remained unknown until
divers, funded by author Clive Cussler, discovered the
sunken vessel in 1995, 4 miles off the Carolina coast.
For scientists, the recovery effort is a marvel of
technology, and they will employ state-of-the-art
retrieval equipment never tried before. Inside the
submarine, forensic archeologists hope to find clothing,
provisions, letters, photographs, documents and
weapons--items that could lead to a better
understanding of one of the most devastating episodes in
American history, the war that divided the nation.
In the Deep South, where Civil War relics sometimes
are given the status of a national treasure, the recovery
of the Hunley is more personal. It is a step toward
closure to a chapter in Southern history that is looked
upon both fondly and bitterly--the end of the
Confederacy.
"A lot of people say this is a grave, and we should leave
it there," said state Sen. Glenn McConnell, a Charleston
Republican and chairman of the state Hunley
Commission overseeing the project. "But the Hunley tells
us something about who we are as a people and where
we came from. It's a story of honor, courage and valor
that has endured forever."
South Carolina has earmarked $3.3 million and the U.S.
Defense Department has added $2.3 million to help
bring the Hunley back to shore and start restoration.
The total cost of recovering the submarine and
preserving it is estimated at $18 million, most of which
will be funded through private and corporate donations.
The Hunley is one of a small number of vessels that have
been on the ocean floor more than a century and
remained intact, researchers said. Most ships deteriorate
too much to be recovered in one piece.
Scientists believe that in the first 25 years after the
Hunley sank, the tides off Sullivan's Island swirled
around the submarine and buried it in a hole on the
ocean floor.
Silt eventually covered the iron hull and combined with
coral and shell formations to form a half-inch thick,
rock-hard shield that protected it from saltwater
corrosion.
Within the first two or three months, sediment filled the
sub through a viewing portal. Researchers said the
sediment might have helped preserve the Hunley and
provide a rare archeological site with all its historical,
scientific and human aspects intact.
Though a renowned recovery team of underwater
archeologists, engineers and conservators are leading the
mission, plucking the fragile submarine from the ocean
will be no easy feat.
Divers working in water with near-zero visibility first will
sink hollow pilings on both ends and place a steel truss
resembling a railroad trestle over the vessel. As the
submarine is uncovered a section at a time, belts
attached to the truss will be slung beneath the Hunley,
cradling it from bow to stern.
Using a new technique, divers will wrap the submarine
with vinyl slings filled with liquid foam. With the foam
slings cradling it, the Hunley will be raised, put on a
barge and pulled up the Cooper River to a
46,000-square-foot conservation building at the old
Charleston Navy Base.
The building formerly was the sound stage for the filming
of a TNT television movie, "The Hunley," which aired
last year.
In the lab, the sub will be placed in a tank of chilled
freshwater to prevent bacterial growth and deterioration.
Researchers will then use a state-of-the-art digital
radiography unit to locate the sub's seams underneath
the thick coat of sediment.
"The Hunley is the most difficult composite iron artifact
ever undertaken and it is by far the largest and most
complex object ever recovered," said project director
Robert Neyland, who also directs the Navy's
Underwater Archeology program.
"It's unique because it is so intact. It's like uncovering a
time capsule. And because it is so intact, so pristine, it's
like uncovering an egg."
The excavation could take up to six months, and the
restoration from 5 to 10 years, said Neyland. Though a
replica of the Hunley has been on display for years, it
could be more than a decade before the real submarine
is placed on public display in the Charleston Museum.
The remains of the nine crewmen will be buried with
military honors in the Hunley plot of Charleston's
Magnolia Cemetery. Two other crews that died during
the submarine's test voyages also are buried there.
Conservation of small artifacts, such as textiles, shoes
and buttons will begin immediately, Neyland said.
But it could take longer to find out if the tale of a $20
gold coin is true.
Legend has it that Lt. George Dixon, the 25-year-old
captain of the Hunley, carried the gold coin, given to him
as a good luck charm by his girlfriend, with him on the
fatal voyage.
He had carried it in his pocket at the Battle of Shiloh,
and when he was shot in the hip, the coin caught the
bullet and saved his life.
According to McConnell, who wears a replica of the
coin around his neck, the bent coin could be among the
artifacts buried in the submarine.
"We have heard that fortune hunters would love to get
their hands on the gold coin, and the submarine could
possibly be raided for that," McConnell said, adding that
officials deliberately gave out misleading information
about the sub's actual location for the past several years.
"That's another reason we have to move quickly. If we
don't bring her home, we will have left her for the
plunderers."
(Thanks to the CHICAGO TRIBUNE and Fair Use for Educational/Research Purposes Applies.)
TownCrier
(5/19/2000; 13:44:27MT - usagold.com msg#: 30856)
Hear ye! Hear ye! A new addition to The Gilded Opinion!
http://www.usagold.com/gildedopinion/mcmastercosmos.html
This latest commentary is courtesy of R.E. McMaster on "What's Important."
I think you will find that it provides a timely tie-in with recent conversation here at the forum on the nature of modern capitalism verus free markets.
Here are some exerpts from the text to entice you to visit the full commentary at the link provided above.
--------
The hands down winner regarding the key philosophical economic insight I have gleaned so far this year came from the pen of Dr. Kurt Richebacher in the January 2000 Richebacher Letter. His comments are as follows:
"Dogmatic socialism is dead. Welcome dogmatic Anglo-American capitalism. The more we have thought about this new capitalism, the more we have effectively realized that it really puts everything on its head that historic capitalism stood for. The essence of that capitalism was capital accumulation out of savings. What is the essence of this new Anglo-American capitalism: deal-making for quick profit and inherent neglect of new investment, a dissaving public and unfettered credit creation for consumption and speculation. The old capitalism had a sense of high responsibility for future generations. The rising responsibility of corporate managers under the new Anglo-American capitalism begins and ends with today's stock prices.
"Capitalism has always been about profit; this 'late' capitalism is about greed. Yet, the decisive reason for our aversion lies in the fact that this capitalism, with its manic search for quick profits, essentially undercuts capital accumulation for the future. The effective result of this Anglo-American capitalism is that the present generation raises its living standard at the expense of future generations. In the last analysis, there are two ways one generation can betray and burden future generations: by bequeathing them: (1) a mountain of foreign debts and (2) a depleted capital stock.
"It is the great, negative peculiarity of this capitalism that the entrepreneur and the corporate manager is discouraged from building new factories because it tends to depress profits in the short run. In a desperate search for quick profits, imposed by the imperative to raise shareholder value, cost-cutting, mergers and acquisitions are going to excess in Corporate America with negative effects. Readily, the stratospheric rise of stock prices is regarded as the direct outgrowth of this new corporate strategy, although every child meanwhile knows that this surge of valuations is chiefly courtesy of the most generous monetary accommodation by Mr. Greenspan.
"In reality, this is not new capitalism but late, degenerate capitalism dominated by the most narrow-minded financial interests.
"It is late, degenerate capitalism because it propels asset trading at the expense of asset creation with inherent negative effects on economic growth and overall profitability."
What Dr. Richebacher is telling us, is that our economic system is no longer capitalism in any traditional sense of the word. [...] Profit used to be a byproduct, a result, of producing a desired good or service for people-at-large, for the marketplace. Yet today, greed, the root of all evil, is what is at the forefront of what Richebacher calls "dogmatic Anglo-American capitalism." Far from providing a base for the future, too, this present warped Anglo-American capitalism steals from the future and raises its living standard at the expense of our children and our children's children. This is totally opposite from what has produced a successful free market society longterm - savings, a long-term view, investing for the future. Those who have done such historically are those who have risen to the top, have led, become the elite, and provided a heritage for the future. This does not exist today. Richebacher properly calls this new capitalism "degenerate capitalism dominated by the most narrow-minded financial interests." This means we need to be very, very careful, cautious, even protective, in defending our assets against a rapacious and elitist political and economic system. [...] Moreover, day traders account for nearly 20% of daily NASDAQ volume. This is a clear indication that the U.S. stock market has turned into a speculative leveraged gambling casino. I'm amazed in conversations that I have had with professionals in Austin at how many of them have told me that their friends have given up their jobs to become day traders. This is a sign of the times, of a bubble, a mania, and a sign of an approaching end. Day trading is a non-productive economic activity. It adds no new goods or services to the economy.
Elwood
(5/19/2000; 12:24:10MT - usagold.com msg#: 30855)
Gold still flowing out
From latest Commerce figures
Gold Exports for March 77.12 tonnes (not as much as Feb but about same as Jan), and still way over production.
Imports more than doubled, however, to 46.01 tonnes in March from 22.28 in Feb. This figure is the highest level of imports in the 10 years of data that I have. Next highest is about 40 tonnes in May '98.
Anyone subscribe to the Federal Reserve Bulletin? Is the May issue out yet with March numbers in Table 3.13?
Elwood
Journeyman
(5/19/2000; 12:17:11MT - usagold.com msg#: 30854)
Seidman Says a little inflation is like being a little pregnant @TheStranger, ALL
Caller: ~"What's wrong with an economy growing at 10%. So what if there's a little inflation?" ~"A little bit of inflation is no longer possible. We know from experience that once it starts, it's very difficult to stop. It goes like the wild-fires in New Mexico. If inflation gets out of control, that's the end." -CNBC Chief Commentator Bill Seidman, 18-May-00, 11:25:54 AM
Regards, J.
Farfel
(5/19/2000; 11:20:50MT - usagold.com msg#: 30853)
P.S. Beware of scare tactics by "Trend Followers"
Kitco guru APH called for 252 gold today, and missed by TWENTY bucks.
So much for the accuracy of trend following chartists.
The trend is changing, the bear is growling, we are NOT in an equities bull market anymore.
Ergo we are at the cusp of a major gold bull market.
Thanks
F*
schippi
(5/19/2000; 11:06:34MT - usagold.com msg#: 30852)
XAU & HUI Gold chart
http://www.SelectSectors.com/xauhui.gif
XAU and HUI are now BOTH Up!
Farfel
(5/19/2000; 10:55:16MT - usagold.com msg#: 30851)
Fast recovery from gold losses!
Closed out a position in Cisco 60 dollar puts and made another good pile.
I am fast on the road to financial recovery. The thing that kept me afloat through all this misery: NO Debt! Thank God for that or I'd have been bankrupt several months ago.
Now here's the latest: on Monday, another $40 billion of Nasdaq locked up stock begins to hit the market.
I would expect another recovery in the Nasdaq of sorts (maybe today) but it can only be a sucker's rally AGAIN. The next downturn takes the Nasdaq under 3000, it will be swift and hard and high volume. Anybody expecting any kind of pre-election runup in the Nasdaq is dreaming, the new Nasdaq bear market will last for years.
If the Nasdaq is not gaining strength by the end of the day
then you might have to dive in and pay the higher premium for short side action because it means that the "Buy on the Dip" mentality is disappearing, a prelude to a panic dump.
Spoke with a fellow at an internet incubator and he expects a crisis in internet Etail stocks to break out any day now. They are ALL running out of money, most having little more than three months cash to operate their businesses.
As for gold, I honestly believe the only reason they've taken it down so low is to position themselves for a full contrarian explosion in the price once the bonds, stocks, and US dollar are all dropping together.
So be skeptical of any new developments in the gold sector that smack of manipulation to bring down the price of gold or gold stocks. When hell hits in all three mainstream financial markets, there is nowhere else to go but gold and the rise should be stunning.
Thanks
F*
Cavan Man
(5/19/2000; 10:49:36MT - usagold.com msg#: 30850)
Mr Gresham
Ditto for me.
How was your trip to Italy? Hope all's well
Mr Gresham
(5/19/2000; 10:21:55MT - usagold.com msg#: 30849)
FOA's Gold Trail
http://www.usagold.com/goldtrail/
I don't know how many of us have already done this, but I strongly recommend:
Take the Gold Trail page off into a separate WP document, re-arrange the posts in order from their current last-first arrangement, print out the 40-50 pages FOA has already given us, and take them out with you on sunny spring days to read in your favorite backyard hammock or lawn chair. To read in about 3 or 4 sittings, as your comfort allows.
I thought I had read and mostly understood FOA before, on our Forum, and as I watched for each of his 22 posts to appear on the Trail, but I find in spending an hour or more at a time following his story on my 40-page printout (through #19), that he carries an amazing coherence and thoroughness in everything he gives us. My underlines and questions to follow up on fill the margins, and I can't wait to get some time to do some Sherlocking on my own! I wish I knew his sources, and I wonder how to locate their equivalents on my own.
The new insights we get each time we read through a body of work like Oro's or FOA's show our own individual growth in understanding, on a month-by-month basis. I see how fast my 4-year-old daughter is growing and learning about the world, and I feel like I get to parallel here by this experience here with you all.
FOA's is an insightful, playful, integrating and responsive mind at its playful work -- I wonder what understandings and experience he brought to the cooperation with Another, and which insights are pass-throughs from Another. What a prospect to meet them both some day! We can hope.
Prophetic or not, as time will tell, FOA has put it to us to do our OWN research (and action) in response to the very complete picture written for USAGold readers.
Someone asked me yesterday what my hobbies are. This pursuit of ours was the first thing that sprang to my mind, so I remained silent. (Yes, I need to re-activate the old ones everyone mentions, like sailing and hiking, that don't quite happen to get done anymore...) How could I have explained this to anyone?
I also find myself thinking around the fringes of my daily activities what career or business opportunities might follow from the learning taking place here? Maneuvering (and helping others do so) through chaotic times with my eye on the game (not the ball). Reading is not experience, I know, but it is hard to know just how much of a leap it might be, if nearly everything is turned upside down anyway. The experience many think they have will only burden them, rather than prepare them.
YGM
(5/19/2000; 10:00:31MT - usagold.com msg#: 30848)
Blanchard on Soros...1997
http://blanchard.stockscape.com/archive/97feb2-0.htm
From: Ken Reser....YGM <yukongold@y...> Date: Fri May 19, 2000 6:54am Subject: Soros/Chinese and Gold....Jim Blanchard..../97
This is a 6 part series Jim ran on Soros Feb /97
http://blanchard.stockscape.com/archive/97feb2-0.htm
The one below is # 6........Myself I believe what Jim wrote then still applies today more than ever.....Ken
CHINESE AND GOLD
According to Yasuro Morita, Soros' interest in China may be far
greater and it may involve gold. In "Behind the Scenes Mampulators of
the Gold Market," published by Shima Media Network (Tokyo, Japan),
Morita says that Soros has developed quite a relationship with the
Chinese when it comes to gold.
According to the article:
"Overseas Chinese were unable to just watch from the sidelines when
the news hit about Soros buying Newmont Mining Company. To the
Chinese, gold is the common currency fir overseas Chinese...their
history of manipulating the market for gold (which is easily
converted into money and provides good investment opportunities) has
given them not only a considerable fortune but a good deal of
confindence in their ability. They were not about to let this latest
opportunity pass them by, and they joined with Soros in his
manipulation of the market...Gold suddenly jumped to $400 per troy
ounce. Soros and the overseas Chinese saw this as the ceiling and
ended up earning hundreds-of-millions of dollars through the sale of
gold."
Morita also alleges:
"...The main figures from groups of overseas Chinese across the world
hold secret 'gold hedge' meetings. It serves as a forum for the
exchange of information on the gold market, as well as on
international politics and economics. This meeting, which determines
money-making methods for overseas Chinese, has at times decided to
move the price of gold. At other times it has decided to work on the
market. To date, there have been two known meetings. The first was
held in November 1987 to deal with the confusion in international
stock markets caused by the so-called Black Monday crash, which
resulted in instability fir the Hong Kong dollar. The second known
meeting was held in May of1994, when the Bank of China issued Hong
Kong dollars in Hong Kong for the first time. However no one knows
that this group has joined with George Soros to manipulate the gold
market."
According to Morita's report, some profits from this "manipulation of
the gold market" are being used to fund expansion of China's
electrical power infrastructure: "China, which suffers from a severe
energy shortage, will be the main recipient Since this energy
shortage may prove a big obstacle to China's double-digit economic
growth, it has provided an opportunity for Soros and overseas Chinese
to join hands to promote their ambitions in the China market...when
speculating about what will happen to gold prices, the yen exchange
rate, and the development of the Chinese economy, one cannot ignore
Soros and the 'gold hedge meeting' of overseas Chinese."
whether Soros is eyeing another major move in the gold market any
time soon (with or without the "overseas Chinese," Morita refers to),
no one knows. However, it is generally under stood that Soros is a
long-term bull on the gold market, and one reason may be the outlook
for higher growth and inflation in China.
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THC
(5/19/2000; 9:37:24MT - usagold.com msg#: 30847)
Gandalf
It's clearly past my bedtime.
Using the Kitco quote of $273 the premium is slightly over 20%........
G'night!
THC
PH in LA
(5/19/2000; 9:29:37MT - usagold.com msg#: 30846)
Then and Now... Indian Gold Plan: Interest by any other name
REALITY CHECK!!...
The Indian plan was discussed here last September when it was proposed and implemented. Looks like it didn't work out quite like anybody predicted. Oh well... That's reality for ya. Just when you thought you knew what was happening (and what was going to happen)...
FOA/Trail Guide: Are we still "on the road" or are we stuck in some kind of an unexpected time warp? Is ORO onto something with his "next four years" scenario?
Date: Fri May 19 2000 05:46
SlangKing (Crusty@The Economist reader) ID#293152:
Copyright © 2000 SlangKing/Kitco Inc. All rights reserved
Did you read the article this week about the failure of the Indian gold scheme?
India who import 600 tonnes of Gold a year was hoping to solve it's balance of payments problem by getting it's citizens to turn in their gold for a 3-4% interest rate return p.a. The target was 100 tonnes in the first year, they achieved 3.5 tonnes in the first 6 months.
Reasons given for failure:
1. Gold is the black market currency, depositing it would invite the attention of the taxman
2. Gold is often in jewellry form, and they have to pay 10% to have it melted down, if they redeem their gold loan they get back gold bars, which then cost ANOTHER 10% to be fashioned back into jewellry
3. Gold is often the only form of wealth a woman has
Bottom line is scheme has failed miserably.
PH in LA (9/20/99; 12:33:17MDT - Msg ID:13984)
India's Gold Plan: More Rechless Abandon by the IMF
It is not too difficult to imagine a big ulterior motive present in the IMF's encouragement of the frighteningly reckless plan currently being floated by the government of India.
We have seen desperate-looking machinations on the part of the IMF recently. First they wanted to sell 10 million ounces of gold "to provide debt relief to impoverished nations"; an absurd idea on many levels...(as if the IMF had ever had any interest in alleviating the debt load of already impoverished nations: On the contrary, their austerity restructuring plans always seem to make things worse for the country on the receiving end of their "generosity".) More likely it would seem that someone desperate for gold was pressuring the IMF to provide some. The same motive behind the bizarre BOE auctions. What a co-incidence!
When the US Congress shot that idea right out of the water, the IMF decided that instead of selling 10 million ounces, they would merely mark those ounces to market. Details of the plan that have been suggested to accomplish this boggle the mind in their outright absurdity. Allowing a bankrupt nation to buy gold at book price to immediately sell it back to the IMF at market prices would be a novel new way of doing business, to say the least. I'd like to get in on such a deal, myself.
Obviously, the IMF is desperately looking for new sources of gold to supply a world situation on the brink of massive gold shortages, even likely defaults. And their latest plan in India to bring more world supply online leaves one aghast in its implications.
Gathering in a nation's privately-held gold by paying interest on it sounds harmless enough on the surface. But thinking about the all-too-likely effects of such a practise is frightening. Let's say a depositor turns over gold in exchange for interest. What happens to that gold? It would have to be sold to give the plan any viability at all. There could be no point at all in merely holding the gold whild paying interest only to return it to the depositor on demand! No! The gold would have to be "mobilized"...that is, sold (in one way or another).
So let's say the new owner of the gold decides to deposit it with the same government. OK, now we have a government paying interest to two depositors for the same gold. Has there ever been a government capable of restraint when it came to printing promises? Never!
So we can imagine a whole industry growing up around the idea of paying government interest on the nation's privately-held gold. A good idea for the government until the depositors decide they would like their gold back, probably in a moment of national uncertainty, which would be the worst possible moment for the government. Suddenly, the government has to supply the metal or face the consequences; with revolution rearing its ugly head, gold would have to be purchased to cover the ponzi scheme.
The inevitable outcome? Worldwide shortage and upward price pressure, even in "innocent" countries with no involvement in the renegade nation's reckless gold practises. Internation destablization! This is why a responsible IMF should be reacting with horror to India's gold plan, not encouraging it. Their reaction of approval is just another indication of their desperation.
They are obviously out of control! And their desperation is obvious!
Where will it all end?
FOA (9/21/99; 10:01:04MDT - Msg ID:14042)
The Road to $30,000
PH in LA (9/20/99; 12:33:17MDT - Msg ID:13984)
India's Gold Plan: More Reckless Abandon by the IMF...Where will it all end?
PH,
Everyone is holding up the new India plan in the light of BB gold loans. Don't be so sure it's headed in that direction. Banks in India can lend currency against gold holdings. It's not entirely viewed as a currency asset, but it is seen as a worthy collateral to be held as reserves. As such they don't have to lend gold to make a return.
Watch the physical gold import figures and we should see that no major bullion is leaving that country to satisfy world BB paper. The IMF and LBMA would love to paint a picture showing India gold flowing out to balance loans. Especially now that they are trapped. No. The India operation is going to fit well because the new Dinar offers a different context for that part of the world.
I look for China to flow in the same direction. Absolutely huge amounts of gold were brought into China over the last several years. Yet, these physical flows were not reflected in official Hong Kong bookings, nor were they placed into the Central bank of China accounts. They were holding there cards back from US /IMF eyes just in case they needed to dash for the Euroland economic arena. These people are sharp and can play us for fools in the financial chess game. Just like the India scheme, that gold will not be lent out for IMF / dollar paper. Believe it! Several large traders brought this gold some time ago through the LBMA when paper was still exercised. Most likely they used the BIS to move that gold. Hence their (BIS) new offices in HK.
It's going to end, PH. But some gold assets will not work during most of this change. We are, "On the Road Now"......... FOA
Gandalf the White
(5/19/2000; 9:26:24MT - usagold.com msg#: 30845)
THC's calculations !
Where do you get the Spot Price of US$270. ?
<;-)
THC
(5/19/2000; 9:13:45MT - usagold.com msg#: 30844)
Question for USA Gold
Dear USA Gold,
I am interested in your 20 Mark gold coins.
I note that the price is $76 each, or a premium of 22.5% over the bullion value of the coins, as calculated below.
Spot price = ($270 x .2304) = $62
Premium = $14 / $62 = 22.5%
I would assume that this is because the coins are uncirculated.
Now, just so that I know the bid/ask spread, at what percentage premium will you buy back these coins should a potential customer such as myself decide to sell in the future?
Thank you,
THC
THC
(5/19/2000; 9:05:08MT - usagold.com msg#: 30843)
Question for Oro
Dear Oro,
I have this terrible problem. Every day, those who are short platinum on the Tocom keep sending large amounts of yen into my futures account.
What should I do? I know they are hoping that I will choose to hold their paper instead of taking delivery of the platinum bars when my contracts expire in June......
My inclination is to take their bribe and allow them to bring me cash each day.........
Your thoughts on this awful dillema?
THC
USAGOLD
(5/19/2000; 8:34:49MT - usagold.com msg#: 30842)
Sorry Goldfly and all. . .
That supposed to be:
The Pre-BOE Gold Sale Blues
way down yonder in the bottom of my shoooooo oooo ooooes...
OK.....
Goldfly, I'm not.
USAGOLD
(5/19/2000; 8:32:50MT - usagold.com msg#: 30841)
Today's Market Report: Shedding the Pre-BOW Gold Sale Blues
5/19/00 Indications
Current
Change
Gold June Comex
274.50
+0.80
Silver July Comex
5.02
-0.02
30 Yr TBond June CBOT
93~08
+0~06
Dollar Index June NYBOT
112.20
+0.11
Market Report (5/19/00): Gold showed some signs of life this morning as it attempted to shed
the Pre-BOE Gold Sale Blues and look toward life after the auction. Cratering stock markets in
both Asia and Europe overnight played a role as investors shed the techies and looked around for
places to put their money. Gold has done well against the euro, and the euro, is well. . .acting like
the euro -- down another half cent in New York this morning. Weak currencies tend to bolster
physical gold demand. The U.S. stock market in sympathy with the international equities' sell-off
is experiencing its own version of the blues this morning with the Dow dropping nearly 100 points
from yesterday's close. Malaise, it would seem, turns to decay. One is reminded through all this
that the typical bear stock market can last up to 15 years and increasingly it does appear that we are
in a bear market. As they say, nothing lasts forever -- not even gold bear markets.
The one bright spot in the investment landscape these days appears to be the commodity sector and
in the next few days we will have two excellent articles going up at the Gilded Opinion section of
this page dealing with the developments there. R.E. McMaster, who has done long service as a
commodity analyst and generally viewed as one of the best, believes that the age of paper assets is
over and a new age is dawning -- the age of hard assets. His current thinking will be presented for
the benefit of our readers. James Turk, a familiar name hereabouts, zeroes in on the CRB Index
and its usefulness as an indicator of gold's future. He says gold will probably make a "big jump"
in the second half of the year. These two will join Mr. Alan Brown's visions of delusions and the
madness of crowds and why gold held firmly in one's hands might be the best alternative these
days. The "leverage is in the physical," he concludes.
As for gold itself this morning, the story remains good physical demand in juxtaposition to paper
traders selling their hearts out for reasons only they truly understand. It certainly cannot be based
on the fundamentals or visions of a deep downside. As we point out in the upcoming issue of
News & Views, borrowing from Newmont Mining CEO Ronald Cambre's recent study presented
in Australia, the standing shortfall between gold supply and demand at present hovers near the 900
ton mark with the official sector making up that difference. That shortfall, it is anticipated will be
made up from 400 tons in sales and 500 tons in the lease pool (presumably). These numbers are
locked in via the central bankers' agreement to freeze sales and leasing. Mr. Cambre suggests that
by degree, from year to year, the Gold Gap will grow in size to the point that in the year 2020, it
will stand at 2700 tons -- a figure roughly equivalent to a current year's production in an industry
that has the propensity for shooting itself in the foot mercilessly. The fissure could even be worse
when you realize the net result of all the hanky-panky in the gold carry/forward trade has produced
an end result akin to a virtual standstill in the production figures. The implied question begging an
answer is: "Where will this gold come from?"
That's it for today, fellow goldmeisters. Have a good weekend. We'll see you back here Monday.
To receive a gold information packet geared to physical ownership please go to link above.
Cavan Man
(5/19/2000; 7:37:01MT - usagold.com msg#: 30840)
USD vs Swiss Franc
Dollar at high mark vs Swiss? What's wrong with that picture?
Black Blade
(5/19/2000; 6:51:01MT - usagold.com msg#: 30839)
Euro Continues To Sag, Dollar Hits 11-Year High Against Swiss Franc
http://www.quicken.com/investments/news_center/story/dj/?story=/news/stories/dj/20000519/on20000519000250.htm&column=P0DFP
Dump your gold and unlink the currency. Oh yeah - good idea. Notice that the English Pound is also getting pounded. Smooth move people!
SteveH
(5/19/2000; 6:32:48MT - usagold.com msg#: 30838)
Record trade deficit at ...
$30.2 Billion. Expected was $29.5b.
Black Blade
(5/19/2000; 6:16:22MT - usagold.com msg#: 30837)
Morning Wakeup Call!
Source: Bridge News
Asia Precious Metals Review: Gold recovers on short-covering
By Hiroyuki Fujiwara, BridgeNews
Tokyo--May 19--Spot gold slightly extended late overnight recovery Friday in Asia. Players were hesitant to decide price directions, while light short-covering--buying by players who had sold--underpinned gold ahead of the weekend, dealers said. Platinum was firmer on short-covering and some fresh speculative buying, they said. Spot gold is likely to slip to U.S. $270 per ounce in the near-term under the weaker sentiment toward the U.K. Treasury's auction scheduled Tuesday, the dealers said. However, few want to open fresh selling positions due to the unclear forecasts after the auction, they said.
Black Blade: Ho Hum. Wait until Wed., the day after the UK auction. Rather the Barbarians get their due when they have their auction, let gold rise on Wed.
Europe Precious Metals Review: Gold supported at $273, rest steady
By Gavin Maguire, BridgeNews
London--May 19--Gold prices kept mainly to within a U.S. $273-274 per ounce range after having crept to those levels late Thursday and overnight on the back of short-covering. Dealers said spot metal was expected to drift slowly lower over the rest of the day as end of week book-squaring "leads to players taking profits," in the words of one. The rest of the complex edged sideways at overnight levels in thin trade. Sources said profit taking in the $274 area would continue to cap trade in that vicinity and define the upside in the near term. However, one dealer argued that as the amount of short-covering dies down, the end of week profit takers would drive prices slowly lower. Support is expected to remain firm on the dips towards $272, although buyers are expected to increasingly shuffle toward the sidelines ahead of Tuesday's Bank of England gold auction, which may mean spot prices drift lower to test support in the $270 area, a dealer warned. Silver kept to within a $4.96-5.00 range to extend the recent trading pattern, but dealers warned of further probes lower in the short term as the $5.00 level--ominously reinforced by the 10-day moving average this morning--solidifies as resistance. Platinum and palladium stuck to overnight levels in thin trade.
Black Blade: Same song and dance as in Asia. Ho Hum.
SteveH
(5/19/2000; 6:02:41MT - usagold.com msg#: 30836)
ORO
ORO,
Based on your comments, the price of gold is steady as she goes for four more years? OR, can we expect all heck to break loose a bit earlier? When?
Richard640
(5/19/2000; 5:52:19MT - usagold.com msg#: 30835)
Gee. O option expiration day and the S&P is down about 10 pts--gold up 50 cents
This set up seems to indicate that we will NOT bottom the first 15 minutes but may close on the lows--but ya know what?--it's still the same old shuttlecock market--we just went up 500 pts. prior to the Fed meeting--that created a cushion--we gotta break out of this 9800 to 11,000 range before we can show the slightest bit of bearish glee---this shuttling about is just a dumb show for the bears...Have you noticed how all the analysts are upping their earnings projections? Contraryinvestor said don't be surprised to see another 1/2% rate hike and a statment that the Fed is on hold for the year....then, "mysteriously", all the economic reports will be friendly through the election. Yep, the bulls are pulling out all the stops!
Black Blade
(5/19/2000; 5:52:18MT - usagold.com msg#: 30834)
(No Subject)
http://www.cnnfn.com/markets/morning_call/
European Markets are getting CRUSHED this morning. Looks like several people are ready to bail out at the open on Wall Street. The s&p Futures are down -9.00, -10.55 fair value. Meanwhile gold is anemic this morning, slowly passing into a coma. Maybe at the open in NY, the poor old boy may perk up a little.
Richard640
(5/19/2000; 5:49:03MT - usagold.com msg#: 30833)
Why gold should....Nay! Must, go up! What it will take to duplicate 1994
The bulls are in trouble--world "paper asset" markets are like a pie crust stretched across the roof of a volcano. The bulls hope for a repeat of 1994 not 1929--in expiation for their sins, they'll settle for '94. So far, with minor variations on a theme, this is 94--we have fed rate hikes and the marvelous "stealth bear" mkt. in the old economy stocks The bulls and Pollys could argue, we have been in a 2 yr bear mkt. that started about March 98--the New Economy stocks have had their own compressed bear mkt. the past 3 or 4 months. Like 94, the popular averages are holding up at high levels and investor cofidence is shaken but FAR from broken. Like 94, we bears have high hopes for a crash and other mkt. mayhem that never seems to materialize, as just at the last moment, "mysterious" buying comes in to save the day.----------So how is it that gold will soar eventually? To answer that, we must look to the wisdom of my good friends, Hong Kong based financier Steve Saville and Don Wolanchuk-top S&P timer of the year for the past 12 or 13 years. Steve maintains that the more than decade long debasement of world currencies guarantees, eventually, that gold will have its day. This ties into HOW the U.S. Fed will, again, try to engineer, a 1994 scenario--no big mystery-they'll just whip out the old U.S. charge card and create a lot of liquidity-(ot turn a blind eye to the non-Fed sources that can do the same)-foreign C.B/s will follow suite which ties into the Wolanchuk scenario of a world boom, rising inflation, rising rates, and stocks-politicians will always choose to reflate-(no guarantee of success-the world could end up like Japan-hope! hope!)--Wolanchuk says, under his scenario, that gold and crude will "go to the moon". As world currencies get worn to a frazzle, the cabal will be powerless to restrain investor demand for gold.
Aragorn III
(5/19/2000; 4:56:04MT - usagold.com msg#: 30832)
Last burden on your eyes
Michael, from your post USAGOLD (05/18/00; 19:47:08MT - usagold.com msg#: 30804),
"If you owned gold in Europe, you have gained significantly because the gold price has risen and price on everything else has remained relatively stable"
Yes, that is a fine summary to describe the behaviour (performance?) to be anticipated by "free gold" within any such currency system that can inflate apace with economic growth (stable prices) while "free gold" may only be "inflated" at the pace of new mining. The initial revaluation of gold--to be in tune with this developing platform--is one not to be missed, and one that will only provide its full benefit to those with metal in hand.
Solomon Weaver (05/18/00; 20:14:48MT - usagold.com msg#: 30807), your comments serve as a good alternative for a person seeking the "short and sweet" of my earlier post today. Had I read through the day, my effort could have been spared, along with Michael's bandwidth. You offered...
"I see the Euro not as an attempt to "politicize" Europe into a "United States of Europe", but rather as an attempt to create a fiat currency which goes beyond the interests of a given nation...the learning curve on today's Euro will benefit the world as we strive for new fiat models (disconected from politics). The Euro is the "concept seed" of a future which can hold any number of separate Sovereigns (including individuals) under a single money...gold and other mechanisms will reinforce discipline. The dollar on the other hand is an attempt (through dollarization) to "cast a net of political influence" across the globe. In the end, the targets are the same...but as the zen teachers understand, the goal is the path itself..."
Michael also said later "There is a very clear message emerging that a private gold owner in Europe will benefit from his or her ownership should the euro falter and that this message is officially sanctioned -- far from the message U.S. policy makers are fostering here."
That is so true! As you are aware, Germany's Bundesbank has designs to issue next year a one-mark gold coin, offering at market prices one million of the 11.8 gram items (12 tonnes) for the purpose of fostering, in the words of the Bundesbank, "monetary and currency stabilty consciousness" among the general public. They might seek to take notes from the fine example you are currently setting in that same regard using German gold coins...a pioneering effort for which our fellow man at large would do well to take notice.
Some additional thoughts on finding gold's value in a modern world...
Those familiar with conditions in "third world" type nations knows that a dollar enjoys a tremendous purchasing power there which is not to be found here. The explanation is the desire by the citizens to hold dollars for their superiority over the local currency. How is it that the dollar is deemed superior, while both currencies are cut from the same fiat air? Scarcity. The local perception is that the scarce dollar requires effort to attain, whereas the locally manufactured currency is perceived as worth "a dime for a dozen". And make no mistake, in many of these locations, gold enjoys the same superior purchasing power over what it demonstrates on our own shores. However, there is no reason to expect that gold is any less scarce here than there when compared against the available economy. This example might help some people begin to form the tiniest grasp of the nature of the gold "re-evaluation" to be expected and enjoyed for gold owners against real things even here in banker's paradise.
To borrow again from Michael's good words as I conclude for the day, "It will also mean a time of economic hardship in the United States as the adjustment is made, but not as bad as it would have been had the euro never existed. It will be dangerous time, but more hopeful for those who understand the nature of money. Those who own gold will be immune..."
The reason the euro is key, as Michael says, is that its independence offers a viable shelter into which the international world of commerce may run and yet function while the dollar and its banking system is sorely tested.
got gold?
HI - HAT
(5/19/2000; 3:58:17MT - usagold.com msg#: 30831)
Mutually Assured Co-Dependancy
The term, "He's a rugged individualist", will if present trends continue make the expression as relevent as, "T-Rex was an awesome hunter".
From grade schools on up, the collectivism Zeitgiest is to find strength, fulfillment, and security in the GROUP.
This is what is weakening the Constitution.
The promuligation of this theme marginilizes the individual and predicates a grey area where laws and norms undergo a co-dependant homoginization.
As is inevitable the soulless group thunders as a mighty herd until the false premise induces them to turn into Lemmings.
Handily one can see why the holding of the strong wealth gold is to be shunned, while fully embracing the Fiat debt symbol, that collects all into NOTHING.
Aragorn III
(5/19/2000; 3:38:57MT - usagold.com msg#: 30830)
Very good thoughts to consider from John Doe (05/18/00; 17:51:10MT - usagold.com msg#: 30797)
Sharing this excerpt to stimulate today's participation, and to voice support for Michael's wish to place this into the Hall of Fame. As indicated, we would all do well to strive to appreciate the dynamic and evolutionary nature of life. Business, politics, and economics are not immune to change, particularly when viewed globally, and a dollar tomorrow may not be the same dollar you know today.
From John Doe...
"Any monoculture is stifling, inherently counter-productive, and doomed to destruction. Yet, the current moneyed interests and power-hungry never cease to see or admit this situation. Rather than designing and implementing equitable, sustainable systems, they instead endlessly pursue various forms of monopolism in wave after wave of failure and destruction, all in the name of temporary (or lineal?) advantage.
"A global government will not work any better than a global religion would, and a global currency will not succeed any better than chopping down every other type of plant in the jungle for the sake of a single one. A healthy, dynamic, evolving system requires a continuously varying multiplicity of inputs. Nature tells us as much and, in my opinion, nature has it exactly right. Good government needs a two-way flow of corrective feedback and new ideas and the free means to inspect, select, and apply the corrective feedback and new ideas. Likewise, a healthy economic and monetary system requires multiple viable choices among freely operating investment vehicles, stores of wealth, and transmissions of value. What passes for Capitalism these days actively and forcefully subverts both the proper functioning of a rational, viable governance and a long-term, sustainable, equitable economic and monetary system."
You are a fine communicator...a man with a golden tongue (pen...keyboard?)
got more?
Leland
(5/19/2000; 3:13:59MT - usagold.com msg#: 30829)
From Colin J. Seymour...Overseas Markets...Looks bad
Nikkei ends [May 19] "nosedive" "heavy selling"
Nikkei ends lower, investors drop high-techs [May 19] "Tokyo stocks dipped to close on
Friday at lows last seen last September"
IHT: WTO Allows Ecuador to Impose Tariffs on EU in Banana Dispute [May 19]
IHT: Tech Stocks Drop Amid Rate Jitters [May 19] "Technology stocks fell Thursday amid
the threat of higher interest rates and a growing perception that stock valuations are not
justified by earnings"
IHT: South Korean Stocks Plummet [May 19] " ''Fears mostly originate from declines in
the U.S. market,'' said Kim Gi Ho, a fund manager at CJ Investment Trust"
Aragorn III
(5/19/2000; 3:00:10MT - usagold.com msg#: 30828)
Currency comments...
Henri (05/18/00; 10:01:08MT - usagold.com msg#: 30773), I am honored to receive the depth of your reply to my "challenge", and this Round Table has been well-served by your efforts, and your subsequent refining dialogue with ORO.
I am particularly pleased to see your careful and clear use of the terms wealth, gold, capital, money and currency. For long I was myself one who preferred to reserve the term "wealth" only to those goods that were directly needed to preserve a body's wellness + health (hence, "weath"). However, through Aristotle's "thinking out loud", I have seen the need for relenting, agreeing that discussion is better facilitated by abandoning my strict definition and allowing gold, this nearest and most universal proxy for items of "wellness + health", to be included in the short list of wealth assets. I see "capital" as that larger class that may include wealth, but also the tangible means with which to create new wealth...mining equipment comes to mind as a suitable example, or the factories that manufacture Levi Strauss jeans used to clothe the miners and their families. As has been discussed here already, "money" is that confusing term that originally applied to the items of wealth or capital that were nearly universally accepted in trade, but has in time been the bankers' blurry bridge for the introduction and acceptance for wide use of this other creature we call "currency".
Evolution has shown me that modern currency and banking is not to be reviled for the world we live in. But it must be said that that comes with TWO important conditions: 1) ALL users of the banking and currency system MUST be made knowledgeable of the nature of and distinction between wealth, gold, capital, money, and currency. Woe (or an infant) is the person that believes bank currency is the equivalent of capital or wealth. 2) There must exist an unmanipulated safe haven for the saving of wealth outside of the currency system. An educated person will use currency only for the purposes for which it is suited...borrowing and immediate spending.
When a person finds himself blessed with time, talant, and energy, but precious little capital with with to make a proper go of his life, we would not need bankers if venture capitalists were in abundant supply. And yet, there would always be those with the need to borrow nevertheless. To borrow a "thin air" currency is essentially to make a temporary creditor (venture capitalist) out of every person involved in accepting this currency until they have been paid in full at such a time that the currency they accepted in return for their own ventured service or capital has been "redeemed" for an equivalent level of capital from another. The "dirty little secret" of the banking system that "allows" us all to particpate as erstwhile venture capitalists is that under normal circumstances, the currency--for receipt of which we each venture our capital today--is ever in a state of supply inflation. Therefore, when we seek to "reap the gains" of our part of the venture by passing along the currency which represents our stake in the original borrower's grand design, not only do we find that we fail to achieve a small gain on our risk of participation, but invariable we take a loss! Such is the nature of currencies and inflation.
Mark my words, this inflation effect from the lending/borrowing process is as real whether the currency units be the product of thin air, or whether they be "backed" by a real good...such as gold. The effeciency of banking assures it. I felt this item to be well-addressed through the Aristotle posts of early February and well-supported at the time by Trail Guide. <Found at http://www.usagold.com/halldiscussion.html > A review of an abridged executive summary would serve us all well here:
Aristotle (2/7/2000; 7:15:24MDT - Msg ID:24589)
*** Any monetary system that attempts to coin gold, or otherwise use gold as currency will naturally give rise to banks--for security and quality assurance if for no other reason.
*** History reveals time and time again that this seemingly "perfect" gold-only system naturally evolves into fractional-reserve lending because it is what the people want.
*** While lending depositors' money, the efficiency of banking to reallocate fungible funds allows many people to behave as though they all are owners of (have access to) the same original money on deposit.
*** The artificial increase in the money supply erodes its per-unit purchasing power.
*** A growing economy (complete with rising prices from a "softer" currency) raises the customers' demands upon the banker's art of money creation, widening the gulf between here and reality...between the vast amount of banking credit and the small original amount of real wealth-money upon which it was all built.
*** Because coin and bank-credit circulate as equivalent, interchangeable currency, the value the currency-unit regardless of form (Gold coin or paper) falls in accord with the growing supply of bank-credit.
*** When the value of the coin comes to be viewed as a simple representation of the abundant currency and fails to reflect the value of its metal, it might as well be made out of anything at that point.
*** The concept of money gradually loses its original meaning and its ties to real wealth; it comes to be built upon the thin ice of confidence and good loan performance of the banking system.
*** Fixed gold convertibility of the currency on account looms large as a threat to the banking system.
*** What then is the role for Gold? Gold qualifies as the only TRUE money. Among the many national currencies, only Gold fills the three important monetary criteria: store of value; medium of exchange; and unit of account. Gold, therefore, remains the ultimate king of them all and subject to none...as long as it isn't attached in any official capacity to the fate or fortune of any one of them. Therefore, the monetary system architecture must be such that Governments find no temptation; they are unable to derive any benefit to their own situation through any efforts to "keep a lid" on Gold.
*** Gold must be set free to float, seeking its proper value among the world of circulating currencies; preserved as a unique currency that may NOT be lent (because lending effectively causes a perceived increase in its supply and decrease in its purchasing power, as outlined above.) Gold must only be bought and sold outright, and must remain free of the attachments of any and all financial derivatives.
*** All people, regardless of nationality, must be free to exchange their national currency for Gold at prices established by an open physical Gold market.
*** Gresham's law predicts that the world's supreme currency, Gold, will not actually circulate in the conventional sense. Gold will be saved (and will appreciate in value without lending/leasing it out for interest,) while national fiat currencies will circulate under the needs of the economy. It is these national fiat currencies that will continue to satisfy the demand of borrowers for loans. National fiat currencies will also serve as the means to satisfy the various governments' unrestrainable inclinations to "manage" their economies to the extent that they are able. They, too, will hold Gold in savings (reserves) for the same reason we do.
-----end of repost excerpts---------
While there are many that remain nostalgic for the fixed convertible gold standard of our father's day, I beg that a reassessment is in order. While I have said earlier that we all pay a little for particpating as the unwitting "venture capitalists" in a thin-air currency system, I hope you can see that we fall as incremental victims under any currency system that allows for the lending of the currency be it in the form of paper OR gold. The solution is to ensure that a safe harbor is provided such that we may park our wealth to escape this insidious effect in addition to weathering the occasional currency/banking storm.
The full removal of gold from the currency/banking/derivative system will result in a natural revaluation of gold as pure wealth property so much higher than you can imagine...you will be more than compensated for your bruised egos and ongoing currency-related losses. I have become fond of Trail Guide's term "free gold". With the euro currency system, we are given a framework that will facilitate this standard of "free gold"; a "gold standard" not like your fathers', not like any known before...lest you revisit the pre-banking days where a man in a bearskin plucked a heavy yellow pebble from a stream, whereby the envy of his fellow man taught him the meaning of its true value in trade.
ORO, I compliment you on this commentary...
ORO (05/16/00; 06:47:59MT - usagold.com msg#: 30615)
"...The Euro structure - in which the governments are separating from their old symbiosis with commercial banking is the major change. The dollar system is based on the US government's debt (until last year, when commercial paper was allowed into the mix) whereas the Euro is obligations of whatever borrower created the outstanding Euro, and the Euro's monetary base is based on commercial debt - not government debt."
whereas I question you on this commentary...
ORO (05/18/00; 10:08:14MT - usagold.com msg#: 30774)
"Debt money is bad on a national level. Therefore all modern currencies are bad, since they are all debt currencies. A global debt currency is worst. It allows grand theft on a scale from which none can escape, find recourse to, nor otherwise avoid. No people can opt out of a global currency, once established, because of the disaster of default on transnational obligations specified in that currency."
Do you see no validity in the case presented above where even the use of gold as currency provides "grand theft", and worse, leaves simple people with no escape to opt out? By this my meaning is, if you can no longer run TO gold, where CAN you run to? What you say there IS true enough, but consider also what you have said with regard to the euro, particularly when coupled with the notion of "free gold". Will you soften on "currency"? To be sure, it is not that a "euro" functions differently than a "dollar", but the supporting framework is better, and not burdened with a relic world reserve overhang that only awaits the moment to come home to roost.
On governments you offered this commentary from the same post...
"National government is best suited to protect people against other governments, domestic and foreign. Checks and balances must be strong enough to keep government preoccupied in fighting against itself."
That all sounds like a waste of money in a modern, civilized world. (smile) I might suggest their best purpose is in paving interstate highways through the middle states that do not have the population to foot the bill while the whole country benefits.
You also offered...
"Jefferson found it necessary to repeatedly tie the hands of government and clarify its purpose, yet it was to no avail, and the power of government was taken over by the same powerful interests Jefferson fought throughout his life. I repeat what I said before, government power will be used to plunder its people and its friends and allies if there is some profit to be had by any possessor of capital or by government officers themselves through the use of this power. For this reason, only the most narrow powers should ever be bestowed on a government. The people must stand vigil constantly so as to catch those attempting to expand government power and boot them out."
True enough. And are private forces immune to temptations at pursuing a similar advantage? Microsoft? It would seem that goverments and corporations grow under a similar sun, though they employ different tools to extract what they can from those with the ability to pay. As with Microsoft, do we see an element of the people banding as yet a third force, albeit acting through their support of the goverment, to bring about conditions for their own advantage? And social programs/entitlements...an example of one man picking the pocket of his fellow man with the strong arm of the government? With the government as its tool, I fear the "majority vote" far more than I fear the government in and of itself, or the individual confronting me in a dark alley.
When you suggest in a following post that banking should be taken away from the government and left to the people, please consider the above thoughts, and also our natural, proven history of banking and what the results were. I suggest that the people had their go of it, they still do, and the result is utter rot. By this I do not suggest that government control is the answer. Far from it. However, calling the largest lender (there surely will be one) by the public name of United States Bank, the quasi-public/private name of Federal Reserve System, or the private name of Bancrosoft will do little to materially change things on the street level.
I am in agreement with you in principle as you say...
"Government should only enforce contracts as they are written, holding bankers to their promisses and allowing them the positive and negative consequences of their judgement. People do not need the patronage of government to make their decisions. ...I propose that government have no choice but to accept as legal tender what people have chosen to use as money and do so at the exchange rates and proportions in which the money is used in trade, debt, and cash holdings. Government should have no choices in the matter. ... The best money is that which people choose of their own accord."
However, you must not fail to appreciate that the will and the best judgement of an individual in such matters becomes quite another thing when it is amplified through the circuitry of the population. There seems to be an unmistaken desire for easy money and bottomless punchbowls, even if they (the masses) must ultimately use their government as their tool to extort themselves for it. Given all as it is, I ask...
got gold?
elevator guy
(5/19/2000; 0:49:15MT - usagold.com msg#: 30827)
@Aragorn, Henri, Oro, et al
First, I must ask your indulgence, as economics is not my chosen field of endeavor, nor is it even a hobby. I'm just an average Joey-Six-Pack, who is only very recently giving any thought at all to currencies in general.
The discussion of the most perfect currency got me thinking-
Since the US dollar ("FRN") is the leverage of the Federal Reserve, and hence the constituent banking interests who profit from the transfer of wealth thereby,
And since the whole United States, and much of the world at large is "forced" to use FRNs for trade,
And since there is no other "game in town" or currency at this time that can compete sucessfully against the FRN,
And since the Federal Reserve has "rigged" the game of commerce and trade to benefit them exclusively,
Why can't we institute several competing currencies, right here in the United States? Maybe each region (Eastern, Southern, Southwestern, Northwestern) could issue a fiat currency. Or maybe each state could have their own.
To what advantage?
Each currency would have to compete with others, sharpening its value, and reducing the abuse of the issuer.
The FRN would lose its place as the worldwide tyrant of economic theivery.
No doubt ideas like this are bashed soundly, labeled as subversive, revolutionary. But I say that the FRN is subversive, and has become the task master of the people.
Is there nothing we can do? Shall we carry gold in our pockets, and trade little hunks for bread and milk? Obviously not.
Ok, enough for me. Just thought I'd shoot a post towards the center ring. Good night all.
ORO
(5/19/2000; 0:42:38MT - usagold.com msg#: 30826)
Solomon - gold liquidity and rates
The lease rate is the interest rate on gold.
Looking into the greatest incident of liquidity crisis in history - the 1929-1930 crack up of US financial markets, one can note the following phenomena:
Commodity prices were suddenly rising as the crissis first started, earlier in 1929 (if memory serves right). They later receded and fell steadilly for another 3 years.
Short term interest rates spiked up to double the rates just a couple of weeks before. Soon after, the rates fell and continued falling.
To understand what happened today we should look at the causes for the above phenomena. As then, so now in the gold markets, the "gold standard" was functioning. Then, as now, paper gold debt (then called dollars) diluted the physical metal and caused its value to fall relative to other financial instruments (stocks and real estate) that were purchased by issue of increasing quantities of gold debt.
As the liquidity crissis started (a planned and coordinated event - by the Fed and its European and American member banks then, and now by the ECB and its European member banks) interest rates rose to a steep spike (as occurred in September in gold and more recently in Pd and Pt). After this, borrowing stopped at first because lenders were reluctant to lend, and later borrowing never recovered because borrowers were reluctant to borrow.
The gold markets then (1929) could have had a liquidity recovery if the banks rushed to lend further funds as they do today under Fed leadership (e.g. in 1998). Morgan seems to have done this in the gold markets in Q4 1999 and prior to that in Q2 1999 (taking BT - and Deutsche - off the hook). We all saw the gold supplies coming onto market from the small non-EU CBs, and how Morgan and others supplied options in order to prevent many producers from buying back hedges (I assume the options were sold at a discount to market value, which is why they were accepted in preference to physical by the producers).
In the aftermath of the 1998 Russian default and the resulting LTCM crissis, dollar lending in the international arena dried up. Dollar creation outside the US fell into negative values and exacerbated a small shortage and turned it into a big one. The carry trade borrowing in Euro is reflected in the last BIS report (see YGM post) in a rise of Euro derivatives to 34% market share relative to the Dollar - which fell to 27% market share in the currency derivative markets. Dollar illiquidity resulted in a steep acceleration in short term Eurodollar rates. The Fed simply raises rates so as to reduce the spread between US short term rates (particularly Fed lending rates) and the Eurodollar rates. The purpose is to prevent US banks from lending into the international arena and creating more dollars that could satisfy the surplus demand (for debt payment) without imports enetering the US. In this way, the only way dollars enter the international currency markets is through US income payments and the trade deficit. The increased imports serve to dampen price pressures in the US and are the conduit to exporting our inflation into the rest of the world.
In the gold markets, Morgan absorbed some of the liabilities, as the US bank positions grew from 8600-8700 tonnes to 9300-9400 tonnes in Q4 alone, and from 7300 tonnes in Q2 99.
The BIS report, however, shows an increase to 26000 tonnes, from 21000-22000 at end Q2. This comes out to a 4000 tonne increase, coming half (2000 tonnes) from the US half from outside the US.
Needless to say, the liquidity in the paper gold market was maintained by the issue of much paper gold.
The appearance of Credit Suisse at the London Fix, and the increase in non-US bankgold obligations may indicate that HSBC did not unload the Republic position.
On the other hand, the 1/2 and 1/2 split in new positions between American and non-US banks may have to do with Credit Suisse and perhaps HSBC covering their positions indirectly; i.e. they took out long positions with Morgan and Citi as indirect counterparties - possibly through an intermediary fund or producer that is short and in which they hold a gold debt interest - having lent them the gold.
The 2000 tonne figure fits perfectly with the Washington agreement and the growth of Citi and Morgan positions by exactly that amount. The agreement put an end to further growth in leveraging of the gold market while supplying the necessary liquidity to prevent an immediate unwinding by providing a publicly known source for the gold that would cover these new obligations. The path could have been: EU member CBs guarantee accounts at CS to 2000 tonnes, CS lends gold to a desparate group of over-hedged miners and funds who buy calls from Morgan and friends to hedge the loan. In return, the Brits join the EU with the LBMA intact, and CS gets a seat at the Fix - the first non-Anglo bank to hold one.
So we have all the elements in place to show a resumption of liquidity powered by the EU member banks providing finite credit and allowing the increase in gold obligations by 400 tonnes per year - 400 tonnes after 5 years (and the appropriate increase in the 5 year and over position in the OCC report), 1600 tonnes within 1-5 years - enough to cover 1/2 of the 2500 - 3000 tonnes due in that time frame.
Interesting?
Comments?
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