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Welcome to the USAGOLD Gold Discussion Archives. The archives of this gold discussion forum are a treasure trove of information to educate investors about protecting their wealth through portfolio diversification with private gold ownership. The discussion forum also covers the wider issues of the past, present, and future role of gold in international monetary policy and the dynamics of the modern gold markets...   (Discussion Forum Hall of Fame) (The Gold Trail) ("Thoughts!" by ANOTHER)   The opinions posted by all guests are expressly their own and do not necessarily represent the views of the management or staff of USAGOLD - Centennial Precious Metals. The hosting of the public discussion shall therefore not be construed as an endorsement by USAGOLD - Centennial Precious Metals of any of the opinions posted here.

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ARCHIVED DISCUSSION FROM 12/22/1999
All times are U.S. Mountain Time

View Yesterday's Discussion.

Netking (12/23/99; 0:01:00MDT - Msg ID:21546)
'BOE Auctions' for forum five?
Gandalf the White - You & some of the others make no mention of the BOE auctions. Whilst not an end in themselves they did precipitate the lowest POG in a long while Sir, would you agree & would that rate a mention in our 'Forum Five'.

Solomon Weaver Re:21538 Why would anybody want to keep coming back to this 'fallen earth' buddy(or contemplate it), I would prefer to go where the streets are paved in, you guessed it, Gold!


Gandalf the White (12/22/99; 23:23:14MDT - Msg ID:21545)
< ; - )
That Hobbit does not need a Eagle !
<;-)

THX-1138 (12/22/99; 23:09:42MDT - Msg ID:21544)
Sorry Gandalf ... I can't resist
Hey there little Hobbit, is that an Eagle in your pocket or are you just glad to see me.

Gandalf the White (12/22/99; 23:01:49MDT - Msg ID:21543)
OOPS !
NOTE: To whom it may concern !
The last thirty words of my entry are the summation of the above five headlines ! (sorry, that it was not clearly stated.)
<;-)



Gandalf the White (12/22/99; 22:46:19MDT - Msg ID:21542)
***MY TOP FIVE EVENTS for GOLD MARKET 1999***
"Major Events in the 1999 Gold Market" as seen through the eyes of the Hobbits. Each with a short explanation as to why each was important, followed by a 30 word review of the events and their impact, as a group, on the psychology of gold investors. Stated in normal Hobbit order. (ie. Reverse)

#5 -- "Continuations of the financial "Asian Flu"
That which began in Thailand in July of 1997, were now seen in a number of South American countries and Russia early in the year." These financial defaults and currency devaluations caused shock waves in many segments of the financial markets, including gold. One major impact was the required bailout of the U.S. Hedge Fund by the US FED and FatCat Banks. The Hobbits felt that this was the major eye-opening event of the year. The FED said that the default of the Hedge Fund would cause major negative impacts in the financial markets and that the FED had saved the day by getting the FatCat Banks to bailout the Hedge Fund so as to not rock "the Good Ship Lollypop" stock markets!! -- How is this related to the Gold Market, you ask? Because, -- THIS showed that even with great minds (Nobel Prize Winners) and past performances, things could go haywire very easily !!! It was rumored that the Hedge Fund had engauged in the lucritive "Gold Carry Trade" in addition to defaulted Russian bonds and other forex speculation.

#4 -- "Royal Oak Mines (RYO) Files for Bankruptcy"
The first lesson in the impact of low gold prices on "local" mining operations was seen when Royal Oak Mines was forced to file for bankruptcy, when it could not cover loan payments from operation sales. Additional impacts of other mining firms unwisely using either forward sales or deriviatives trading to hedge, was seen in Ashanti and Cambior, when with a rising gold price, both firms were ask to make multi-millions of dollars of margin calls. This caused concern related to the level and type of hedging of all gold mining companies. Some Mining companies saw the light and either closed or minimized their hedges. Others, continued playing the "ostrich" game. (ie. "hiding ones head in the sand, so as to not be seen")

#3 -- "Armstrong is a CROOK !" (but remember that tricky Dick said too -- that he was NOT a crook.)
One of the most "highly" respected (by some) financer, and vociferous "Golden Bear" and financial talking head was charged with fraud and arrested for failing to play by the rules with Japanese clients funds. Then it is found that the "Golden Bear" is really a "closet" Goldbug, as he secretly maintained a large cache of gold bullion and rare gold coins. This real life story shows the level to which persons fall, in order to maintain the "selling of their book". Numerous other "Guru Golden Bears" continue to "talk down" gold as a "worthless old relic" and poopoo the idea that gold is the "ultimate" money. The real question is: are more of the Sheeple starting to see the real truth?

#2 -- "The "Washington Agreement" !!!!
At a meeting of CB Heads in Washington D.C., a large number of CB's defined the future five years of GOLD sales and the policies of Leasing practices. This announcement, known as the Washington Agreement in effect slamed the door on the Gold Carry Trade. Only by continuing the paper gold markets can the naked gold shorters hope to continue the sham and hold down the price of GOLD Bullion. This turned on the lights so that the darkness could not hide the golden glow of real money -- GOLD!

#1 -- GREATEST buying opportunity of the last two decades !
The price of gold was "maintained" at the lowest level in twenty years by the "BLACK" magic of the "evil corporate empires", so as to perpetuate the "irrational exuberance" that created the "Technology Stockmarket Bubble". This however, allowed the Hobbits the opportunity to gather together their lifetime financial insurance for their future years and therefore was the most important happening of the year for the Hobbits. If you see a Hobbit with a smile on his face, you know that he has either a Maple Leaf or an Eagle in his pocket!!
<;-)

Cavan Man (12/22/99; 21:14:29MDT - Msg ID:21541)
Tice speaks of Mises.
http://www.prudentbear.com/markcomm/markcomm.htm
This is for ORO:

"And, most unfortunately, the big loser here is the real economy. We see as the big surprise for 2000 the recognition that we have squandered massive resources and are left with a maligned economy hopelessly unable to produce enough to satisfy domestic needs, let alone able to begin to produce goods to reduce the mountain of debts owed to our trading partners. Sure, we know this sounds insane in the current environment. But, that is exactly our point: never has there been such a wide gap between perception and reality."

Solomon Weaver (12/22/99; 21:13:55MDT - Msg ID:21540)
priming the IMF pump
ORO's question:
"The IMF, now that they have this pump...would they not attempt to get further authorizations?"

I would say "Yes," as the need arises. To have the official throw in the towel to do this scheme for the FIRST time was the hard part. Everything afterwards is easy. Just like when our Federal government first allowed itself to run a budget deficit...it was accompanied with much hand-wringing. Now they sell bonds with much fanfare and run deficits (budgets beyond taxes) as a standard method of operation. Oh yes...this pump will likely be used again now that the hand-wringing is over.


--------


And just imagine how much more powerful this IMF pump is going to get when the market price of gold goes way up!!!

Gold companies are required to "mark to market" any of their hedge positions....creating "paper profits or losses" which do not involve cash movements...

Now the IMF comes along and uses the "mark to market" approach to empower a cash machine....this smells as if it is a way to create the illusion of gold backing a dollar but the reality of gold back in the vault and more dollars on the street.

In this way...the IMF can kill two birds with one stone...they can get away with "selling" their gold but not have to really sell it (keeping US Congress calm) in the sense that they relinquish possession of it. They can also use a rapidly rising gold price (which is a hedge book hand grenade nowadays) to print up dollar denominated liquidity to bail out countries who are defaulting...

Those countries bail out their CBs who bail out the BBs who pay off the short contracts...the world returns to normal...hopefully.

Poor old Solomon

TownCrier (12/22/99; 20:53:22MDT - Msg ID:21539)
RAP, a first time poster....I hasten to add...
that you should be sure to make a point of e-mailing Michael Kosares at Centennial Precious Metals to claim the one ounce U.S. Silver Eagle you've just now earned.

Pretty easy and painless, huh?

E-mail him at cpm@usagold.com

And please do keep him in mind if/when the day arrives that you choose to add gold to your person mix of assets.

To everyone else: I'll repost the latest contest rules on the other side of midnight. The deadline has been extended to Sunday at midnight in the Rockies.


Solomon Weaver (12/22/99; 20:45:28MDT - Msg ID:21538)
how beautiful the moon
Town Crier

Funny...I was just outside of the kitchen door this evening...outside temperature 18F...taking down some laundry in the dark...in my light house chlothes...slightly suppressing a shiver..by relaxing a little...and I looked at the moon and suddenly thought

"how beautiful she looks tonight".

Gandalf

All that is gold does not glitter....Tolkien spoke so of Strider...no?

Could this beautiful silver light tonight at the end of the millenium be an omen????

The ancient mystics believed that the moon's light shining on our souls allowed us to remember our past lives and our reasons for coming back in each life....like a COMEX of silver...holding precious memories.

Poor old Solomon

canamami (12/22/99; 20:40:12MDT - Msg ID:21537)
Who is (are) the guilty central bank(s) this time?

The one month lease rate took a tumble down .34% today, as part and parcel of snuffing out another attempted rally in the POG (that of yesterday's close and last night).

The last time a rally and the lease rates were crushed, we later found out that Kuwait, Russia, Jordan, etc. dumped gold on the market. Who will be found guilty this time?



Solomon Weaver (12/22/99; 20:37:00MDT - Msg ID:21536)
IMF sales of gold
RAP (12/22/99; 20:01:02MDT - Msg ID:21532)
Question about IMF's money pump
This is my first post, so forgive me if I am missing something obvious.
I understand the idea of the IMF's money pump and it's inflationary effect on the dollar. Isn't the USA (Federal reserve) a member of the IMF, and major one at that? Hasn't Mr. Summers said on several occasions that all he wants is a "strong" $? It seems to me these are diametrically opposed goals, and the fed would not go along with this scheme. Or could this is the reason for the statement: "Targeted amount of SDR 2.226 billion in profits." ?

------------

All signs seem to be pointing to the fact that Alan Greenspan is highly worried about a major cascade of international defaults...thus, the FED offering in advance to play lender of last resort to the tune of hundreds of billions of dollars...all short term (but up for renewal in a crisis). The "plunge protection team" is keeping the stocks up...the same team when in the shirts of the "surge protection team" are keeping gold markets down...now they have worked out a deal with the IMF to use the revaluation of gold (a purely bookkeeping game) to pay off some significant debts in nations which are at risk of major default...look into the books and you will probably see that the carry trade using gold goes both into stocks and into the bonds of nations with recent IMF bailouts....the hedgers have a big "sugar daddy" who can print dollars with computers and get away with it.

Of course these actions are "theoretically inflationary" but if they are done in the face of a major deflation (caused by default) they are rational...maybe not wise but rational...

Poor old Solomon

TownCrier (12/22/99; 20:36:35MDT - Msg ID:21535)
Full Moon
This info was recently received at The Tower. Give your eyes a rest from the computer long enough to enjoy it.
---
This year the Winter Solstice, December 22 -- the longest night of the year,
will be extremely special. This is because the solstice will coincide with a
Full Moon. Ah, but not just any Full Moon. The Moon will be within a few
hours of its perigee, its closest point to the Earth. This will make the Moon
appear to be about 14% bigger than usual. However, it is also only ten days
from the Earth's perihelion, its closest point to the Sun. Since the Moon
shines with reflected sunlight, then the moon
will appear 7% brighter than usual. These events occurring together are
extremely rare. This is probably the biggest, brightest moon of the Millenium
as well as its last. You will never see a Moon like this again, even
if the world does not end seven days later.

December 22
Winter solstice is at 2:44 a.m. EST
The moon is at perigee (221,614 miles from Earth), 5:55 a.m. EST
Full moon is at 12:31 p.m. EST


TownCrier (12/22/99; 20:33:18MDT - Msg ID:21534)
RAP, glad to have you join the discussion
The U.S. is in fact the largest member of the IMF, and controls enough of the voting power (18%) to kill any action that required their 85% majority for significant policy changes.

Your astute observation: "Hasn't Mr. Summers said on several occasions that all he wants is a "strong" $?" reminds me all too well of the wise words of my dear mother..."You can't always have what you want."

The Treasury's "strong dollar policy" was no *policy* beyond former SecTreas Rubin's willingness to stand up and state categorically that "as strong dollar is in the nation's best interest," or some such subtle variation on that theme. Voicing an opinion with out corresponding action does scarcely a *policy* make. Again, it looks to be a case of finally coming to terms with the reality that we can't actually have what we want. I touched on this in an earlier post today to ORO. Please see TownCrier (12/22/99; 13:16)

If you don't feel like scrolling down, this was the part that was pertinent to this particular issue:

"This is nearly exactly the scenario that either ANOTHER or FOA mentioned many, many months ago. The problem with the dollar being that it is a product (and tool) of an economic system that has thus far refused to let old debts die in default. They are all carried forward in one way or another until it has reached a point of utterly unsustainable farce...and the utility of the dollar itself is compromised. Sure, you can roll the old debts forward, but you can't force new loans upon a world that won't have them. This IMF mechanism will facilitate the pumping of new dollars into the system that are not themselves a product of debt. They will facilitate a smooth (non-deflationary/non-depression) transition into the next system. The days of the dollar as a world reserve currency are now ended. We'll just have to sit back and see how far we can yet coast on our momentum."

Gotta go below and warm up a meal.

TownCrier (12/22/99; 20:18:26MDT - Msg ID:21533)
The GOLDEN VIEW from The Tower
OK. We know how they VALUE it, but how do they SELL it?

As reported yesterday, the Dutch central bank fessed up that they were the ones who sold 119-million-euros worth of the ECB's gold assets in the week ended December 17 and reported as such on the Dutch and ECB weekly financial statements. To review the "official" quote, Dutch CB spokesman Bert Groothoff said "I can confirm the amount of 13.5 tonnes of gold, 119 million euros was what the Netherlands sold."

We all know by now that the ECB marks its gold assets to market on a quarterly basis, the next such revaluation coming December 31st. They have to this point been reporting the gold assets on their weekly balance sheets based on the last value established on September 30th. Sitting here in The Tower we can't be quite sure how to interpret the precise quote of Bert Groothoff as reported by Bridge News...how much lattitude should we allow for translation issues?

To be clear on this, as the ECB reports on its gold assets, any increase or decrease in gold ounces held will be reported and carried on the balance sheet according to the official price as determined at the end of the previous quarter. From this news, there can be no doubt that the Dutch sold 13.5 tonnes through the BIS, (and the ECB balance sheet reflects a decrease in gold assets by €119 million), but their can be room for doubt as to how much they were actually paid for it. Again, Mr Groothoff said, "I can confirm the amount of 13.5 tonnes of gold, 119 million euros was what the Netherlands sold." Can it possibly be the case already that there is an official price for official transfers of gold that don't rely on the daily market price at the time of the sale? From these precise words, it would seem that this gold was sold at the official price that was established last on September 30. We'll have to keep our eyes on this one.

ALPHABET SOUP

And on a final note...the 119 million euros gained by the sale of gold didn't show up as an equivalent corresponding upward revision to the paper reserve assets. Does this mean the Dutch government has had to use the proceeds for operational or other expenses? Clearly, this is not simply a swap of gold resrves for paper reserves. Who in their right mind would do such a thing?

The UK, you say? Call that gambit an LBMA-replay by the BOE of the Fed's act with LTCM.

AU

After a wild ride up and back again in the overseas markets, gold returned to its starting point as of 24 hours ago in NY. Spot price was last quoted at $286.30, down 25¢ after a night of thrills, chills, and spills. Derivatives were said to have traded quietly on COMEX, ending the day down 20¢ at $288.70. Some traders expect that gold might be in for heavier trading than would be normally expected for next in light of Y2K concerns. Bridge News quotes Merrill Lynch analyst Bill O'Neill as saying that there have been "pretty good buying of call options, just in case."

Some people just love their derivatives right to the bitter end. With the month of December rapidly running out, some traders actually paired up to write new December futures contracts yesterday, increasing the open interest by 10 postions to a total of 74 contracts. Trading of the February futures resulted in a net decline of 2,870 positions in open interest, leaving 68,058 contracts for Feb "gold." Delivery intentions announced this morning raised the December total by 30 contracts to 8,212. How many of these 821,200 ounces, that will have to change hands before the month is out, are already among those to be currently found at the COMEX depositories? There we find Registered 1,159,363 ounces, and 61,769 ounces of Eligible gold, down 257 ounces from yesterday.

PAPER

The breadth of market participation in these "good times" seems quite anemic when you look at the internals, as we do here from time to time. Your chances of holding a loser are greater that holding a winner. In New York Stock Exchange trading, declining stocks led advancers by 1,692 to 1,417...those reaching new 52-week lows crushing new highs by 312 to 80 corporations. And while the Nasdaq Composite Index muscled its way to a new record high, it did so on the back of a distinctly narrow selection of companies. Losers led advancers 2,254 to 1,914, although 278 found themselves riding high on the mania, reaching new highs, while 150 discovered who the phrase "the devil take the hindmost" applied to, as they faced new lows this day.

OIL

With only modest crude stockpile declines reported by the American Petroleum Institute and US Department of Energy, February crude lost 76¢ to $25.50 per barrel. In the words of one broker in an FWN report, "I don't know how they spin this inventory report to say it's bearish." It was suggested that light trading due to the holidays made it "easier to move the market significantly without any news."

And that's the view from here...after the close.

RAP (12/22/99; 20:01:02MDT - Msg ID:21532)
Question about IMF's money pump
This is my first post, so forgive me if I am missing something obvious.
I understand the idea of the IMF's money pump and it's inflationary effect on the dollar. Isn't the USA (Federal reserve) a member of the IMF, and major one at that? Hasn't Mr. Summers said on several occasions that all he wants is a "strong" $? It seems to me these are diametrically opposed goals, and the fed would not go along with this scheme. Or could this is the reason for the statement: "Targeted amount of SDR 2.226 billion in profits." ?


RossL (12/22/99; 19:23:49MDT - Msg ID:21531)
TownCrier (12/21/99; 12:59:41MDT - Msg ID:21452)

Sir TownCrier, sorry about my misunderstanding. You are right. I just went back and reviewed your message from yesterday, which I must have missed... I was under the assumption that the loans were non-performing. I thought the IMF had given a gift to the debtor. NO! They have given a gift to themselves! Merry Christmas!


Al Fulchino (12/22/99; 19:22:15MDT - Msg ID:21530)
Peter
Even more amazing are those that view this with a straight face and see nothing wrong. Those that are doing it, have to keep a straight face they are stunned that no one is saying anything.

Buena Fe (12/22/99; 19:16:23MDT - Msg ID:21529)
Peter Asher (12/22/99; 18:28:01MDT - Msg ID:21525)
"What amazes me is that grown men can do this thing with a straight face." And may I add "With no clothes on!!!!!"

Hee Hee Hee oh my oh my, they are naked, oh don't they look so silly standing there asking us to believe that they know how to manage the world's financial affairs. Pish Posh I say, OK everyone on 3..... 1 2 3 THEY ARE BANKRUPT!!!!

Some random event is somehow going to galvanize/change public perception very soon.....have you ever seen one of those rocket powered cars at the drag races....... you know how they hit the button a few times to flare the engine to move the car up to the starting line.......and then all of a sudden the light goes green and and......well imho the late Sept. price action was one of those little blasts to test the engine and move her up to the blocks.......and the christmas tree (thats what they call those lights at the starting gate isn't it?) is flashong yellow.....ho ho ho

Keep Wealthy


Buena Fe (12/22/99; 18:53:38MDT - Msg ID:21528)
TC - you da best
Thanks TC, I forgot that the entities (Brazil/Mexico) were in good standing and actually had the funds in hand to pay down thier obligations. You are most gracious in your response, which should have chastised me for not digesting your earlier posts more thoroughly. It must be that Christmas Spirit filling these halls, and I concur, FOA, bring on some morsels of further understanding!

Y2K is a picnic compared to the monetary adjustments which are upon us (IMHO of course) as we enter this epoch of US$ destruction!

Keep Wealthy

TownCrier (12/22/99; 18:44:15MDT - Msg ID:21527)
Peter Asher-- Only for the cameras, Peter...
"What amazes me is that grown men can do this thing with a straight face."

...only for the cameras. When the reporters leave they laugh and clap each other on the back.

Modern banking is just as incredible...but because it has become familiar in our everyday lives, it doesn't strike us with the same novelty or airs of a farce that this IMF deal does. But it's all the same. Gold is the real, unspoken foundation beneath it all...both on and off camera.

Loved your comment. Keep 'em coming.

TownCrier (12/22/99; 18:36:47MDT - Msg ID:21526)
Additional comment to Buena Fe
You were correct in the aspect of the price the gold was sold for, but I can't get my mind around your concept of the "new debt" that you say is created through this sale.

Your words:
"The day that the debt is payable the IMF sells gold to this country at market thus creating a "new debt" (to same entity). Then the IMF recieves back the gold to satisfy the "old/first debt" from this country and the "new debt" that this country created when it bought the gold is???????? what? Or does this country (Brazil/Mexico) not have to pay for the gold that it buys to settle the old obligation?"

You were correct that the IMF conducts these operations with borrowers that are in good standing, and that have the funds available to successfully make their next payment. But instead of making the payment directly, they instead use the funds to purchase whatever quantity of gold it will buy from the IMF at current market rates. There is no new debt here, just a simple swap of assets...currency for gold. The IMF is still tapping its foot, waiting for payment on the loan, Brazil or Mexico then surrenders their breif ownership of this gold over to the IMF in settlement of the expected payment. As explained in the earlier "Christmas tale," the IMF could then be expected to clear the balance sheet as needed. But unlike the earlier tale (where the factory or copper wire couldn't be used to write down the loan), here we see the IMF miraculously carry the gold as an asset using only a portion of its value, and exporting the remaining value to the BIS. Amazing, isn't it?

FOA ! !

Those of us here at The Tower are most eager to hear your explanation of this business, and to endure your gentle corrections to the various flaws in our perception of these events.

Peter Asher (12/22/99; 18:28:01MDT - Msg ID:21525)
Buena Fe

That's how i remember it. The IMF sells the gold at market value.

Peter Asher (12/08/99; 22:34:04MDT - Msg ID:20614)

Let's get this straight now.

1) The IMF sells 9 million ounces of gold to Mexico and brazil for about 2.5 billion dollars.

2) Mexico and Brazil hand the gold back to the IMF.

OK so far. It seems that Mexico and Brazil will have then paid the IMF 2.5 billion dollars, and passed some gold back and forth while making some ledger entries.

So, now having paid the IMF the 2.5 billion and not having, at the completion of the transaction, received anything, Mexico and Brazil's loan balance due is reduced by the amount of 2.5 Billion.
AND, the gold is in the same place from which it started.

Well, as regards Gold sales, that was a zero sum game. No gold has passed into the hands of a buyer or gold contract holder. All the Coins, Bars and Ingots are snug in their original beds. The price of gold will only be affected by market participants who are unintelligent enough to think some gold has been bought or sold to market by this silly children's game of make believe.

Why the IMF needs this revaluation of it's books to invest the proceeds of a loan payoff is something only your accountant can tell you, (Maybe). What amazes me is that grown men can do this thing with a straight face.

Please tell me if I'm missing something here.

TownCrier (12/22/99; 18:17:38MDT - Msg ID:21524)
Buena Fe...you are correct sir!
http://www.usagold.com/cpmforum/archives/21199912/default.html
RossL may have been bit hasty in his reply to your question. To follow the numbers as were developed over the course of discussion with ORO, click the link above to return to yesterday's posts, and scroll halfway down the page to TownCrier (12/21/99; 12:59).

And here is part of the confirmation that gold is not first sold at the SDR 35 ($48) rate as taken directly from the IMF News Brief posted here two days ago:

--In the first step, the IMF will sell gold to a member at the prevailing market price, and the profits from the sale will be placed in a special account [at the BIS] and then invested for the benefit of the HIPC and ESAF initiatives.

--In the second step, immediately following the first, the IMF will accept, at the same market price, the same amount of gold from the member in settlement of that member's financial obligations falling due to the IMF.

TownCrier (12/22/99; 18:07:24MDT - Msg ID:21523)
For Beowulf (12/22/99; 15:18)
Hi Beowulf...great name!

Someone asked the same question within the last two months, to which I typed up a response that was actually quite thorough and involved, and I therefore hesitate to embark on the endeavor again without first giving our many lurkers or other posters a chance to either provide their own answer or produce The Tower's original answer from the archives like a rabbit from out of a hat. I have no idea where it would be in the archives, but maybe we'll be lucky and someone has it conveniently saved in a file somewhere. I'll keep an eye open to see if this gets answered in such a manner. If not, I give it another go.

Some of the GOLDEN VIEW's not have been very clear on the point of these delivery intentions...they are in regard to gold Futures contracts traded on the NY COMmodity EXchange (COMEX), not on the various options--which would requiry "delivery" of a Futures contract. Each Futures contract is an agreement between two parties (one anticipating higher prices, one anticipating lower prices) to honor the contract no matter what the price may move to. If settled in cash, as is most frequently done (the December Furtures contract resulted in 8% exchanging their position in Futures contracts for Physical positions), the price paid by one party to the other is the difference between the new price and the contract price, then multiplied by 100. If physical gold is used in settlement, one side pays the contract price times 100 to the other party who delivers 100 ounces via the Commodity Exchange.

IF you received gold in such a manner, but trusted Scotia Mocatta or Republic National Bank of NY to guard it for you, you could simply leave it with either of these two official COMEX depositories, and the gold would be duly registered in your name. With such an account established, you could either add to or withdraw from this gold, or transfer it in name (registration) to somebody else in settlement of another futures contract that required delivery. Not all registered gold is necessarily up for grabs. And until we are told otherwise, the eligible gold is the house account...gold the exchange may use/sell in an "emergency" for traders without gold who are tapped for delivery that meets the proper contract specifications of weight and purity.

FOA (12/22/99; 17:53:18MDT - Msg ID:21522)
IMF
Town Crier,,,, ORO,

You both are moving now! Good work. I want to add some things, but cannot comment now. A few things going on, taking up time.

Season greetings to everyone. I'll be here this weekend. FOA

Buena Fe (12/22/99; 17:37:00MDT - Msg ID:21521)
RossL (12/22/99; 16:37:00MDT - Msg ID:21517)
Are we SUUURE that the IMF is selling the gold to Brazil/Mexico at $42 (the 1st leg of this monkey business?). For some reason it sticks in my head that this is not so, but I could be very mistaken.
Keep Well All

TownCrier (12/22/99; 17:33:48MDT - Msg ID:21520)
To RossL and ORO...Gold, IMF, and bank reserve destruction...a Christmas tale for all
RossL,
after all that has been laid out between ORO and those of us in The Tower over the past two days, how can you make this claim stand on its own legs? "Since the loan was not paid off, the dollars created were not destroyed. So both the dollars and the newly created accounting entities now exist."
Our ears and eyes are wide open to your support, but I could have sworn we've just now managed to put the wraps on this to the contrary. The loan and cash were both written down upon payement of the loan through the complicated cash/gold operation as detailed over a string of posts outlined in ORO's morning post:
**TownCrier (12/22/99; 13:16)
**ORO (12/22/99; 5:38)
7. TownCrier (12/21/99; 14:09)
6. TownCrier (12/21/99; 12:59)
5. ORO (12/20/99; 19:44)
4. TownCrier (12/20/99; 15:15)
3. ORO (12/18/99; 2:35)
2. TownCrier (12/17/99; 16:36)
1. rsjacksr (12/17/99; 13:20)

ORO's question:
"The IMF, now that they have this pump...would they not attempt to get further authorizations?"

I would say "Yes," as the need arises. To have the official throw in the towel to do this scheme for the FIRST time was the hard part. Everything afterwards is easy. Just like when our Federal government first allowed itself to run a budget deficit...it was accompanied with much hand-wringing. Now they sell bonds with much fanfare and run deficits (budgets beyond taxes) as a standard method of operation. Oh yes...this pump will likely be used again now that the hand-wringing is over.

So now that we've come to terms on this IMF scheme, what it is, how it works, and the implications thereof, let's turn to another matter...the one about the effects on currency supply when borrowers default on loans, and when banks go bankrupt. You gave some additional comments in your early morning reply today to my comments yesterday which I believe we need to discuss further.

In the event of loan defaults, you said, "So long as the bank itself does not go under, the bank loses assets, but it does not destroy "cash". Cash is not what the bank writes down. Cash is the bank's liability (you must remember how the FED does its accounting, where currency outstanding is a liability). A default by a debtor does not damage the liabilities of the bank - the cash - just the asset side of their double entry books."

Right there is the first problem: you made the very common slip of looking at the Fed's balance sheet as though it were similar to the balance sheet of a typical bank. It isn't, and it has everything to do the roles/relation of one entity to the other in the financial hierarchy.

You are absoultely correct that Federal Reserve Notes on the Fed's Balance Sheet are listed under Liabilities. Government Bonds would be found on the Asset side. Also found on the Fed's Balance Sheet on the side of Liabilities would be the various deposits...the reserves of private banks. I'm sure you are nodding in agreement. That's good. Now as FOA says, "Onward."

Looking the Balance Sheet of a typical private bank, we would not be surprised to see their own customer's Deposits listed on the Liabilities side of the ledger...just as is done on the Fed's Sheet. Looking at the Asset side of the typical bank's Balance Sheet reveals the difference from the Fed's Sheet. In addition to the Loans that you would expect to see there, you would also see listed the bank's reserves. Here we should find AT LEAST as much as is needed to meet the Fed's mandated Minimum Reserve Requirements as dictated by that specific bank's level of Demand Deposits on account by its customers. (Sorry for the over-explained tone ORO, I've been instructed by the Master of The Tower to write in such a manner that a novice may aspire to follow along and LEARN. That's why we're all here, after all!)

(This same body of Assets, the Reserves, is what the Fed has been adding to every day through the repo operations...something that we discuss here each and every morning. This morning, for example, the Fed arranged for the addition of over $20 billion.) These Reserves are made up of cash kept on hand in the bank's vault (to meet the reasonably expected immediate demand needs of its customers,) and also includes the bank's deposits of funds kept in account with the Federal Reserve. (The bank, as a corporation, can be loosely judged as stable by its percentage of overall assets that are not prone to default or devaluation.)

So you see, ORO, your statement in regard to a bank's reaction to a loan default is not precisely accurate..."A default by a debtor does not damage the liabilities of the bank - the cash - just the asset side of their double entry books." Cash outstanding is a liability only of the Fed, while cash in hand is counted as an asset of a typical bank.

Let's walk everyone through this money destruction thing...something that happens when a loan is repaid. To keep it simple, we'll look at the Henry Ford's account with the only bank in town. Henry doesn't have enough of his own money to build the assembly line of his dreams, so his bank writes him a loan...giving Henry a line of credit on which he can write checks to pay the suppliers, the builders and the machinery manufacturers. As he gets it up and running, starts to sell cars and generates an income, he deposits all these earnings into his own checking account.

Once a month, when he must make a payment to his bank for that loan, he writes them a check and his beautiful young secretary skips across town, check in hand, to give it to her boyfriend who is the assistant manager of the bank. This pasty white skinny guy (I don't know WHAT she sees in him) opens the ledger to the page with good ol' Henry's information on it. The banker, Morgan Powder, winks at his girl, discusses their dinner plans, then carefully cancels the check. He makes corresponding reduction to the value of deposits in Henry's checking account (on the Liabilities page), and also makes the appropriate reduction to the size of the outstanding loan as recorded on the Assets page. He tosses the cancelled check in a basket to be mailed back to Henry with his next monthly statement, and the deal is done. The money used to repay the loan simply...VANISHED. Right back into the thin air from whence it sprang when they gave Henry the go-ahead to start writing checks above and beyond his own funds to build his factory.

To complete this tale, any interest the bank charged Henry for the loan would show up on the Asset ledger as more payment than was striclty needed to cancel out the loan. This is what the bank derives as their profits. They may either hold this simply as cash, may pay salaries, dividends, or use it to buy Government Bonds, etc. All of the loans in good standing are a source of such profit for the bank.

As ORO and those of us here in The Tower have been discussing..."What happens when young Henry defaults on his loan?" As we rewrite history, and the assembly line is a stunning flop because vibrant people wern't willing to do the same monotonous thing over and over...there are no cars produced, and Henry has no new income with which to bolster his checking account. What little money he had is soon depleted in loan payments until the day arrives that he has nothing left. He defaults on the loan. Young Morgan Powder gnashes his teeth over his past "generosity" toward young Henry in granting the loan, and now he must sit down to the grisly task of settling the books on this non-performing "asset." What choice does he have but to cancel this year's Holiday party and slash the Christmas bonus he was going to give himself...he takes as much of the bank's accumulated profits (anything that is in excess of the total value of the Liabilities side of the Balance Sheet) as are needed to be cancelled in payment of this loan on poor Henry's behalf. But don't weep too much for the bank. In the collateral agreements the bank has now seized the property and will attempt to replace its lost funds with an emergency auction at firesale prices.

Now let's imagine that the concept of an assembly line was such a bust that there were no bidders. Imgine also that the economy has entered a depression, and no-one has much money to attempt buying the land for another purpose. The bank ends up holding the title to the property, and with no remaining liquid assets from this "Ford Fiasco" it hopes that the big loan it wrote to young Tom Edison doesn't go belly up too. The bank can seize the collateral--miles and miles of copper wire--but it can't liquidate it for funds adequate to settle the Balance Sheet. The bank is in trouble, and word gets out. The depositors rush to get their deposits because the corporation is about to fail with not enough assets to cover its liabilites. As the last asset is liquidated (often turning to other banks or the Fed) to return funds to the next depositor in line, those behind him raise their empty arms and begin calling for Morgan Powder (more gun powder) as the the Federal Reserve declares the bank to be insolvent and the doors are welded shut.

Money supply: inflationary, deflationary, or just plain stupidity?

apdchief (12/22/99; 17:01:38MDT - Msg ID:21519)
@RossL
Believe that quote was from the late Illinois Senator Everett Dirksen.

RossL (12/22/99; 16:54:56MDT - Msg ID:21518)
ORO

The POG was officially revalued in the 1930's, again in the 1970's, and now again in the 1990's. The time periods are getting shorter, which indicates exponential growth in the official value of these reserves. ON this scale, it would seem to be decades away from the time this becomes a crisis. I suppose it does factor in a contribution to the activity you describe in Msg ID:21515.


RossL (12/22/99; 16:37:00MDT - Msg ID:21517)
Buena Fe

IMF sells the gold at $42/ounce and buys it back at market. Since the gold never leaves the vault, this is essentialy a gift of $(market-42) per ounce to the debtor. The IMF uses hocus-pocus accounting to not only cover the loss, but generate "profits" from the transaction. Clear enough?

It's only a few billion. A few billion here and a few billion there, and pretty soon we're talking real money! (Who was it that originally said that?)

Buena Fe (12/22/99; 15:57:29MDT - Msg ID:21516)
IMF Burp! Oh excuse me.
Ok, I still don't quite understand this transaction scenario. The IMF does this monkey deal with a country that has a pre-existing debt to the IMF (right?), such as Brazil/Mexico. The day that the debt is payable the IMF sells gold to this country at market thus creating a "new debt" (to same entity). Then the IMF recieves back the gold to satisfy the "old/first debt" from this country and the "new debt" that this country created when it bought the gold is???????? what? Or does this country (Brazil/Mexico) not have to pay for the gold that it buys to settle the old obligation?
(&#&$@(&@(@%^$#@$ Did I lose myself somewhere in all this?

ORO (12/22/99; 15:52:38MDT - Msg ID:21515)
RossL - Significance
The non-debt cash dollar is a very small part of the total money supply, I have it as some 0.5 $T as the upper limit. These "special" dollars, to use TC's term, are the base money of the financial system. This is the cash that is recycled in the global economy and in the financial system something like once a day. Increasing this amount has more of an effect than any other increase in money supply through debt issuance or normal permanent FED monetization (though that comes close). Judging from the FED's monetization activity, I would say that the dollar is in danger of crashing more quickly if this kind of activity continues. This cash can be turned into ten times that in temporary cash (and I am sure it will), and do the weekly round in the financial markets and the quarterly run through the global economy.
Impact of this on dollar price levels should show up pretty soon.



Beowulf (12/22/99; 15:21:46MDT - Msg ID:21514)
Sorry TownCrier
whoops I misspelled your name.

Beowulf (12/22/99; 15:18:29MDT - Msg ID:21513)
Town Cryer question:
TC in your daily reports you mention the number of options that people want delivery on. Each option representing 100 oz. of Gold. Could you explain what is the difference between the registered and eligible gold at the COMEX. Are these options good for delivery from both piles or is it just from the eligible. If these calls for delivery are just for what is in the eligible group then there isn't much there to take delivery on. Am I understanding this correctly?

Beowulf (12/22/99; 15:09:43MDT - Msg ID:21512)
January 2000 Mutual Fund Magazine
Someone gave me a subscription to "Mutual Fund" magazine. I'm guessing it's my father. Anyway, the front cover has what looks like a big picture of a Gold Eagle coin on it. However, looking through the whole dumb magazine the only article on gold is the last page. Here is what it says:

GOLD'S GLOW GOES
Was the recent gold rally a flash in the pan? Bill Martin of American Century Gloval Gold says yes; the end was hastened by gold producers, who pessimistically sold short.
But there's more to this story, says Caesar Bryan of Gabelli Gold. "You have an amazing technical situation where people have shorted and shorted and can't pay it back," he says. "Some 10,000 tons of gold has been lent by central banks. It must be returned. But how do they move gold from around someone's neck back to the central bank vault?" They buy it, Bryan says, and prices rise again but who knows when?

At least they got some of this correct. Anyway that's all they had in the whole magazine on Gold after puting a huge picture on the front cover. So dissapointing, although it does sound like he's been reading from this forum or at Le Metropole Cafe.

-Beowulf

RossL (12/22/99; 15:00:42MDT - Msg ID:21511)
Cutting to the chase
The new money was, in effect, created by the original loans and is already in circulation. Since the loan were not paid off, the dollars created were not destroyed. So both the dollars and the newly created accounting entities now exist.

As new inflationary money causes the POG to rise, that will allow the IMF to revalue again and more create new paper money under the fractional reserve system.

The result is exponential money creation as the cycle repeats over and over again. Faster and faster.


ORO (12/22/99; 14:33:11MDT - Msg ID:21510)
Town Crier - When will they stop?
The IMF, now that they have this pump and have gone to the BIS faction (so it seems) would they not attempt to get further authorizations?

Another point - the custodial FED gold vault in NYC has steadilly declined in the volume of metal entrusted to them at 500 to 1000 tons every year. It has occurred to me that this gold was held hostage by the US more than once, and was part of the raison d'etre of the SDR. This is such a Kissinger kind of idea, that it would come as no surprise to me if I found that this been the case.

TownCrier (12/22/99; 14:09:56MDT - Msg ID:21509)
Sir Peter...cutting to the chase!
Our most worthy friend RossL is exactly right. With the physical gold remaining in the IMF, and SDR 35 on their ledger of assets, we see a pure notion of value being entered into the Bank for International Settlement's books.
We can see from the IMF News Brief what the value of it is, as RossL points out, "Our profits from the two gold sales so far has reached SDR 1.3 billion." Ahhh...but hold for a moment....the big question is "How is this BIS account denominated??" Is this pure notion of value held as units of dollars, of Swiss francs, or in the IMF accounting unit known as the SDR?

Perhaps the denomination doesn't really matter, because this is a relatively new kind of financial creature--born not out of debt (borrowing) but rather out of gold. As I said, it is a pure notion of value. As with a pure notion of length, it wouldn't matter if you marked it down using angstroms, inches, yards, meters, or light-years. We're in new territory here, folks, and it doesn't bode well for the future artificial value of the dollar.

RossL (12/22/99; 13:43:36MDT - Msg ID:21508)
Sir Townie

It's a funnny feeling reading this statement where "profits" is what they call the proceeds of this gross creation of paper money.

Sir Peter, it's not paper gold, it's just a highly inflationary pile of new paper money.


"Our profits from the two gold sales so far has reached SDR 1.3 billion," Mr. Brau said. "Similar transactions are planned in the coming months with Mexico, until we reach the targeted amount of SDR 2.226 billion in profits."



Peter Asher (12/22/99; 13:35:20MDT - Msg ID:21507)
ORO, Town Crier
To "Cut to the chase"
The net result of all of this, is the creation of more paper gold, correct??

TownCrier (12/22/99; 13:22:10MDT - Msg ID:21506)
RossL, what a fine coincidence of good timing!
Your (12/22/99; 12:13:29) made for a fine introduction and transition into my post which followed it in time. Thanks, good sir!

TownCrier (12/22/99; 13:16:51MDT - Msg ID:21505)
ORO, thanks for the concurrance in your (12/22/99; 5:38:23)
http://www.imf.org/external/np/sec/nb/1999/NB9986.HTM
It would seem that we've successfully reached an agreement and understanding of this gold-revaluation process through the IMF. After the fancy footwork with the books (sleight-of-hand...le(d)gerdemain...call it what you like), at the end of the day the IMF's loan books are balanced as they should be, they retain their physical gold as before, and the key is that while they continue to carry the SDR 35 per ounce valuation in their IMF accounts, ANOTHER account is established at the BIS to *receive* the valuation of the gold which is in excess of SDR 35.

For those of you new to our gold party, SDR is a unit of account with the IMF that stands for Special Drawing Right. It is a quasi-currency that was originally invented by the IMF in 1969 to act as a form of "paper gold" for use in international reserves. It was devised as a means to patch the failing monetary system of that day...too many currencies (notably dollars) had been issued (with fixed convertibility to gold) than there was available gold in the system to provide for proper settlement. SDRs were meant to serve as a supplemental reserve asset with a strictly limited issue so that they wouldn't be diluted in value like all of the paper currency that was being issued in that day. While SDRs were defined in value as 35 per ounce of gold, after the 1971 U.S. dollar-gold convertibility default, the IMF retooled its mission, all currencies were made free to float, and the SDR's value ("exchange rate") was then determined based on a basket of currencies. (One SDR is currently equal to 1.373230 U.S. dollars.) However, the IMF continued to maintain the gold in their accounts at the set rate of one ounce per 35 SDRs.

Here's the latest information from the IMF on its latest operation...
-------------------------------
International Monetary Fund News Brief No. 99/86
December 21, 1999
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Completes Second Off-Market Gold Sale

As part of the previously announced financing for debt relief and financial support for the world's poorest nations (see News Brief No. 99/62), the International Monetary Fund (IMF) completed the second off-market gold sale on December 17, 1999.

"We sold slightly more than 655,000 ounces of gold to Mexico and accepted it back immediately from Mexico for payment of an obligation due the same day," said IMF Treasurer Eduard Brau. "As planned for this transaction and all gold transactions, the gold did not enter the market." The IMF retained about SDR 23 million on its own account as required by the Articles of Agreement. The remainder of the proceeds-SDR 111 million (about US$ 152 million)-was invested with the Bank for International Settlements to generate income for the Heavily Indebted Poor Countries (HIPC) Initiative.

"Our profits from the two gold sales so far has reached SDR 1.3 billion," Mr. Brau said. "Similar transactions are planned in the coming months with Mexico, until we reach the targeted amount of SDR 2.226 billion in profits."
---------------------------------------

Again, the notable portion is "The IMF retained about SDR 23 million on its own account as required by the Articles of Agreement. The remainder of the proceeds-SDR 111 million (about US$ 152 million)-was invested with the Bank for International Settlements..." This corresponds to the SDR 35 per ounce value multiplied by the 655,000 ounces involved in the operation.

While this seems wildly inflationary for the dollar under the reasons we've previously discussed (you gave a great outline of the several posts in which we've discussed this issue,) the reason for doing it is abundantly clear. The world has reached the limit for which it will tolerate new dollars. As the demand for dollars wane, a deflationary collapse is threatened through a rate of loan repayments (and the resulting currency elimination) that outpaces the rate of loan origination (and the accompanying currency creation.) Without resorting to this type of money pump, the entire banking system would collapse while the dollar-based economy folded in on itself. With this "money pump" (as you have called it) in operation, the banking system will be saved...meaning that it won't fail through an abundance of loan defaults. And the economy will be able to limp along, although it will have to adjust to a currency that is a mere shadow of its former self. The cost of saving the banks and the economy is a near complete destruction of the dollar, and a destruction of the value of world reserves and individual savings that are held as dollars.

This is nearly exactly the scenario that either ANOTHER or FOA mentioned many, many months ago. The problem with the dollar being that it is a product (and tool) of an economic system that has thus far refused to let old debts die in default. They are all carried forward in one way or another until it has reached a point of utterly unsustainable farce...and the utility of the dollar itself is compromised. Sure, you can roll the old debts forward, but you can't force new loans upon a world that won't have them. This IMF mechanism will facilitate the pumping of new dollars into the system that are not themselves a product of debt. They will facilitate a smooth (non-deflationary/non-depression) transition into the next system. The days of the dollar as a world reserve currency are now ended. We'll just have to sit back and see how far we can yet coast on our momentum.

Any other nation could conceivably utilize this type of "money pump" with regular mark-to-market operations on their gold assets. The important distinction between them and the dollar would be that the dollar has already reached the saturation point where this has become a necessity! Other nations could conceivable do it in lieu of issuing bonds to raise "new" money. Sure, they'll be cheapening their currency's value by doing this, but that's precisely the reason that individuals worldwide will regularly use gold as their form of savings. It's a beautiful "about-face" from where we've been with our financial architecture. Got gold?

RossL (12/22/99; 12:13:29MDT - Msg ID:21504)
IMF bailouts
http://www.usagold.com/AllWorkandNoPay.html#anchor182958

I succumbed to the prodding of Sir Town Crier and re-read the Dr. Hein book in the Gilded Opinion archives. At the end of chapter 16 he describes the rationale behind what we are seeing with the IMF-Brazil debt elimination gamem. There is no easy way out of this game. As more "too big to fail" debtors become non-performers, the volume of money created goes exponential. The only question is how long can the music be kept playing.

Quote begins:
It is not a matter of conjecture that the banks of the world are cooperating to provide further funds to Poland, for the reason that its default would be unthinkable. But it is equally unthinkable that Poland's inability to pay its debts can be remedied by placing it still further in debt. But when money is perceived of as debt, what is the alternative?

You will occasionally hear people express concern that the United States government may go bankrupt if it does not curtail spending. That is nonsense. The banks will not allow that for the same reason that they will not allow Poland to go belly-up. A bankruptcy of that magnitude would pull the entirely monetary system down. The fractional reserve requirement is a very sharp two-edged sword. It permits my deposit of $1,000 to be parlayed into $10,000. But it also permits an equally drastic contraction of loans (deposits) if the reserve should cease to exist, as in a bankruptcy. So why should the government go bankrupt, and bring the entire economy down? It isn't as though the government owes something like silver or gold. All it "owes" are its "obligations," which are not obligations at all.
Bankruptcy is out of the question.

So much for the "good" news. The "bad" news is that the means by which the government avoids bankruptcy leads to what is at least as catastrophic: namely, runaway inflation. The government can always pay off its debts by borrowing ("rolling over" the debt) from the banks, which can hardly refuse the loan request, for to do so would trigger catastrophe. But the rapidly mounting flood of "money" tends to quickly become worthless. So the choice is between disaster on one hand, and catastrophe on the other. But you are forewarned. The people who will be hurt the most are the holders of---"money!" Do you have an IRA, or time-deposit?
END quote


ORO (12/22/99; 11:27:14MDT - Msg ID:21503)
Snippet from Veneroso on the net economy
http://www.venerosoassociates.com/PDF/0524%20Internet%20I.PDF
In his articles he skewers Amazon:

"Amazon cut its prices on NY Times best sellers to
half of list prices. Everyone immediately followed suit. Some cut prices by 55% or 60%. The theory
was that, when Amazon achieved volume, it would turn a profit. It now sells books at a $1 billion annual
rate and its loss margins are not improving. In fact, Amazon appears to be madly diversifying into other
areas it knows nothing about in order to find something that does make money."

He is just plain amazing.


ORO (12/22/99; 11:02:03MDT - Msg ID:21502)
Spreads
Have the $1 to $1.50 spreads I'm seeing now been there all day?


ORO (12/22/99; 10:55:17MDT - Msg ID:21501)
Internet economy Veneroso's view
http://www.venerosoassociates.com/PDF/0524%20Internet%20I.PDF
http://www.venerosoassociates.com/PDF/INTERNET%20II.PDF

Frank Veneroso has put together some choice words on the subject. Going well beyond most commentators, and even myself, he unveils the nature of the internet business as a stock kiting scheme used to fund money losing businesses in a hopelessly competitive environment, where the users will only pay for what they get through the stock market.
Where the older tech companies provide equipment in return for warrants and stock that they sell when the start-up goes public.
Where a company cooks the books so thoroughly, that the difference between a roast duck and plain hamburger are indistinguishable.
Where gearing to stock is so high, that most ad revenue, even that of the established firms, comes from the IPO money.
Where even the stallwart AOL is being sued by unpaid volunteers that are defacto employees, asking to paid with something.


TownCrier (12/22/99; 10:43:51MDT - Msg ID:21500)
Makin' money like it's goin' out of style... $20.915 billion!!
http://biz.yahoo.com/rf/991222/rs.html
Yesterday the Fed was focused on their FOMC meeting, and participated in the the temporary addition of only $2.525 billion to the banking system through overnight repurchase agreements.

Today has been a completely different story.

"They're just pumping more money in running into Y2K," was what Kim Rupert, an economist at Standard & Poor's MMS, told Reuters.

The Fed said it added $8.995 billion (that's right, nearly NINE billion dollars) to the banking system today using 36-day repurchase agreements.

Commenting on this morning's adjustment to banking reserves, Dana Saporta, an economist at Stone & McCarthy Research Associates, said "It was huge -- my guess is that they won't have to come in with another (repo), but we remain on coupon pass watch this week." .....The speculation from The Tower is that we haven't seen the last of the repo operations. Even Dana quickly hedged on the original thought. "It just seems that we continue revising already aggressive add need forecasts."

It was only moments later that the Fed pulled another rabbit out of their hat, announcing that it had completed a forward 11-day repurchase agreement (to settle December 27 with maturity on January 7) to add yet more reserves to the banking sytem.

The amount? Say hello to $10.935 billion.

The Federal Reserve then made an outright purchase of U.S. Treasuries (those having maturities dated from March 2000 - February 2002,) thereby adding more "permanent" reserves to the banking system to the tune of $885 million.

For those of you joining our little party late, the Fed is adding these reserves to offset the reserves that are drawn down as banking customers find other uses or places for their currency than as deposits for the banks to use and lose.

tedw (12/22/99; 8:59:33MDT - Msg ID:21499)
Congress to reign in the Fed and Treasury
www.usagold.com

Whether they will or not, I dont know. BUT THEY ARE SUPPOSED TO.

May I politely suggest to members of this forum to write
Congressman Ron Paul of Texas regarding allegatons of manipulations in the Gold market. My sense is that his long
standing interest in honest money and Constitutional government would provide a receptive ear, and if enough people write him maybe we/he can get the Treasury department to respond to GATA's 11 questions.

Its harder for them to rebuff a US Congressman than it is us.




tedw (12/22/99; 8:59:30MDT - Msg ID:21498)
Congress to reign in the Fed and Treasury
www.usagold.com

Whether they will or not, I dont know. BUT THEY ARE SUPPOSED TO.

May I politely suggest to members of this forum to write
Congressman Ron Paul of Texas regarding allegatons of manipulations in the Gold market. My sense is that his long
standing interest in honest money and Constitutional government would provide a receptive ear, and if enough people write him maybe we/he can get the Treasury department to respond to GATA's 11 questions.

Its harder for them to rebuff a US Congressman than it is us.




USAGOLD (12/22/99; 8:56:00MDT - Msg ID:21497)
Today's Gold Market Report: Late Day Call Option Buying Yesterday Drives Market



MARKET REPORT(12/22/99): Gold was down in the early going.
Yesterday, near the COMEX close, gold spurted $3 higher to close at a
three week high. The up move continued in the Asian market, then lost
steam in European trading. London traders characterized the market as
"thin" in advance of year end holidays in most gold centers around the
world. The recent "rapid fall" in the dollar has Japanese officials
proclaiming that it will act "appropriately" in the foreign exchange
market if the situation doesn't correct itself, according to a Reuters
report this morning. Likely it is that drop, along with continued
weakness in the bond market, that drove gold at the close yesterday.
That coupled with year end Y2K concerns and stock bubble worries has
investors attempting to get their hands on the yellow before year end --
a difficult proposition due to the tight supplies. The overall mix of
news was enough to send call option buyers scurrying for cover at
yesterday's close. We'll see if that covering carries over into today's
session. It very well could. "People are a little bit concerned of an
upside move, and if you can't get your options because they are too
expensive, then you go and buy spot," one options dealer told Reuters.

That's it for today, fellow goldmeisters. See you here tomorrow.

Leigh (12/22/99; 8:30:38MDT - Msg ID:21496)
Willo the Warthog
Dear Willo: I've been thinking about you as I've heard the flood reports. Don't you live in Venezuela or thereabouts? Won't you please check in and let us know you're OK?

The Invisible Hand (12/22/99; 7:14:39MDT - Msg ID:21495)
Watch this url
http://www.kitco.ca/image/gold.gif
Gold continues its New York rise in Sydney a.m. and once Hong-Kong opens, it falls back. Who are these manipulators?

RossL (12/22/99; 06:21:17MDT - Msg ID:21494)
Confidence game

ORO said:
"Is there a limit to the number of times the cycling can go on? I have not found one yet.

A money pump is a mechanism whereby a loop action reinforces itself while draining or filling a reservoir."

To me it looks like the lhe limit is worldwide confidence in the US dollar. This bailing out of debts is an exponential money creation game.


ORO (12/22/99; 5:38:23MDT - Msg ID:21493)
TownCrier - IMF debt trick - is it truly the greatest money pump ever?
7. TownCrier (12/21/99; 14:09:14MDT - Msg ID:21457)
6. TownCrier (12/21/99; 12:59:41MDT - Msg ID:21452)
5. ORO (12/20/99; 19:44:14MDT - Msg ID:21420)
4. TownCrier (12/20/99; 15:15:36MDT - Msg ID:21415)
3. ORO (12/18/99; 2:35:37MDT - Msg ID:21249)
2. TownCrier (12/17/99; 16:36:43MDT - Msg ID:21217)
1. rsjacksr (12/17/99; 13:20:11MDT - Msg ID:21214)

IMF program

-------TC, in your #6, you wrote :
The key statement above as I see it is "The IMF retained about SDR 250 million on its own account as required by the Articles of Agreement." This value corresponds to SDR 35 for the 7 million ounces, and would offer some great degree of credibility to the my statement offered yesterday:
"Could the answer to my two-fold difficulty be that the IMF then writes their gold back down to SDR35 in value ($48), therewith canceling out the corresponding principle value from the Brazil loan repayment, and also thereby eliminating the double increase in value on both the BIS and IMF balance sheets? At the end of this operation, the ledger issues on the Brazil loan would be properly squared away, and the newly created dollars would be held free-and-clear within the BIS account."
--------

As they indicate that gold is subsequently repriced back to the levels in the Articles of Incorporation as revised (1976), that is 35 SDR per ounce, this leaves the gold available for subsequent cycling - repricing each ounce more than once. Your last post on the subject indicates, with quotes from their PRs (6), that this accounting scheme is correct, bringing us back to #3 with your modifications of #6. This removes debt from the books, keeps most of the cash $ alive, and as a resource for the IMF. Since the repricing back to 35 SDR leaves the IMF with the gold priced as before, they can do this over and over. We have here a new money pump. They can do more damage than the FED would ever dare to do. Could Summers have been so chagrined about the IMF's continued role because of this scheme? This money pump reduces future demand for debt repayment by 2 $B while keeping 1.67 $B alive in the Eurodollar arena through an account at the BIS.

Imagine the IMF using this trick over and over with their gold cycling through this. The rewards are smaller on this first go, but they get to do it over and over. Each time they kill only debt, without extinguishing the cash. In my wildest dreams I never imagined that they would be allowed to get away with anything even close to this. This would make them more powerful than the FED.

Is there a limit to the number of times the cycling can go on? I have not found one yet.

A money pump is a mechanism whereby a loop action reinforces itself while draining or filling a reservoir.

The reservoir being drained is Emerging Market debt - the source of dollar strength and low US price inflation. The pool being filled is the cash base of Eurodollars. Obviously, the pool is not limited, the reservoir is. It still has 2.6 $T in it. If they eradicate this debt, the results for the dollar could be catastrophic. There must be a limit somewhere.

-------TC, in your #7, you wrote :
.... If a loan is defaulted upon, it is then incumbent upon the bank, as a corporation, to write down their own accumulated profits in equal measure with the outstanding principle of the defaulted loan. In this manner, you can see that the money supply still must contract as this amount of money is still stricken from existence. It is when so many borrowers default on their loans that the bank runs out of their own money in writing off these non-performing loans that the bank corporation goes bankrupt. If they are owned or bought by another banking corporation, it would fall upon this next bank to pony up the funds necessary to clear the books. Each time, this money is wiped out. This is the grim truth behind Sir turbohawg's scenario for spiralling deflation that that would outpace any government or banking attempt at reinflation. In his discussions with The Stranger, I'm not sure that Turbohawg ever quite painted it that way, but at any rate, The Stranger never quite recognized this potential for deflationary collapse. If loans are defaulting and banks are collapsing, the temporary currency supply can contract quite quickly. What a mess!
----------

The key here is that they write off " their own accumulated profits in equal measure with the outstanding principle of the defaulted loan." So long as the bank itself does not go under, the bank loses assets, but it does not destroy "cash". Cash is not what the bank writes down. Cash is the bank's liability (you must remember how the FED does its accounting, where currency outstanding is a liability). A default by a debtor does not damage the liabilities of the bank - the cash - just the asset side of their double entry books.
When a bank goes under, the uninsured bank liability is destroyed - this is the destruction of cash. This portion, though significant, is not as great in magnitude as the size of defaults of assets held by the banks. In each credit mini-cycle the banking system gives up some of its early profits through default during the the downward portion of the credit cycle. FED and RTC in combination print up the necessary funds to eliminate some of the lost cash - actually most of it.






gidsek (12/22/99; 1:46:10MDT - Msg ID:21492)
ORO
http://www.amazon.com/exec/obidos/ASIN/0262621088/o/qid=945851255/sr=2-1/104-1874922-2193262
Many thanks for all your posts, I don't have time to read them all so I can imagine what goes into the writing of them. While searching the archives on another site I even stumbled across a post of yours of which you'd asked my opinion! THAT made me smile :). In lieu of comment allow me to recommend an excellent book on the subject of your post of "ORO (12/21/99; 02:11:50MDT - Msg ID:21429)" about the financing of our great leap forward (computers) and it's frustrations.

The Trouble With Computers : Usefulness, Usability, and Productivity
by Thomas K. Landauer

http://www.amazon.com/exec/obidos/ASIN/0262621088/o/qid=945851255/sr=2-1/104-1874922-2193262

"Editorial Reviews
Midwest Book Review
Governments and the general public are spending a fortune on computers, but the real potential of the new technology has remain largely unrealized: that's the hard-hitting message of the latest to join others in criticizing the computer."

Landauer has compiled some amazing statistics...

A typical business letter once underwent an average of three edits, that number is now fourty. Why? because we CAN!

The average salary of the person doing the typing of these letters has grown astronomically since the practice of dictation has been abandoned.

He has noticed some interesting corelations between the advent of computers and economic productivity figures as well.

Thanks again,

gidsek






TownCrier (12/22/99; 0:08:44MDT - Msg ID:21491)
Q: What is it that stands between most citizens and taking steps toward a responsible position in gold?
A: The people don't think for themselves.

"The daily press has more power in the shaping of public opinion than any other force in America." Jerome Barnum, American Publisher, 1936

"A newspaper is always a weapon in someone's hands." "The hired journalist, I thought, ought to realize that he is partly in the entertainment business and partly in the advertising business - advertising either goods, or a cause, or a government. He just has to make up his mind whom he wants to entertain, and what he wants to advertise." "The humbug and hypocrisy of the press begin only when the newspapers pretend to be "impartial" or "servants of the public." And this becomes dangerous as well as laughable when the public is fool enough to believe it." --Claud Cockburn, 1956

"The difference between a politician and a statesman is: a politician thinks of the next election and a statesman thinks of the next generation." --James Freeman Clarke (1810-1888)

So, turning to two noted statesmen...

"Advertisements contain the only truths to be relied on in a newspaper." "I read but one newspaper and that more for its advertisements than its news." --Thomas Jefferson, 1819-20

Lastly, a ringing endorsement for free trade and gold (universal money) from Big George...

"The great rule of conduct is for us, in regard to foreign nations is, in extending our commercial relations to have with them as little political connection as possible." --George Washington's farewell address to the People of the United States, September 1796



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