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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...

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ARCHIVED DISCUSSION FROM 2/3/2000
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SteveH (02/03/00; 23:51:14MDT - Msg ID:24270)
Goldfan
Oscillation. Your theory would seem to hold plenty of merit. I can see that perhaps after the system might break-away from norms, that it may end up where you predict but the peak or high of the breakaway may be lower and or higher than you suggest and then as the oscillation dampens, it will settle where you suggest.

All I know is my intuition factor is on high alert with all the news hitting from all corners. Let's take a look:

Soros saying he knows where the bubble stands and won't say.
GS in the news and talk of bunkruptcy.
Gold OI lowest in longtime.
Deutshe Bank and Bank of America rumors.
Gold Market manipulation rumors.
Talk of reducing US debt in 13 years, 12 years too late perhaps.
Talk of Comex and LBMA trade stoppages.
Derivative discussion and wrong side of bond yield reversals.
Rate of news in the above is coming all to frequently now. Frequency increases and harmonics are starting to break loose peripherals. Ouch.

Yes, Goldfan, this is all too much to fathom. Thanks for the cogent analysis.

For FOA, post here, just ignore the posters that offend.

THX-1138 (02/03/00; 23:41:27MDT - Msg ID:24269)
ESxchange Stabalization Fund

Anyone else get the feeling that the ESF is the actual Plunge Protection Team?

****I hope they keep the price of gold down tomorrow. It's my payday and I want to get two more coins at a reasonable price.
They can go ahead and let the market blow UP on Monday.

Peter Asher (02/03/00; 22:55:25MDT - Msg ID:24268)
Bonedaddy --- Goldfly
Happy to here that.

Your favorite could be the scource of another Gold song.

The earnings of my life,
No No, they can't take that aw-ay,
From me.

Goldfly, you got any free time?

Journeyman (02/03/00; 22:55:24MDT - Msg ID:24267)
Rumor that SOMEONE's goin' under
@ SHIFTY (02/03/00; 21:54:43MDT - Msg ID:24261)
Goldman Sachs possibly going under!!
http://www.sightings.com/politics6/emergsession.htm

They were talking about a similar rumor on CNBC this afternoon --- but didn't mention anyone by name.

Regares,
J.

goldfan (02/03/00; 22:42:39MDT - Msg ID:24266)
Marius (02/03/00; 21:09:16MDT - Msg ID:24255)
Sir Marius....Thou art fooling with my most precious musings...have a care sir.. anyhow I agree about the pie and coffee. the equation is e (base of natural logs) to the power of Pi times i (sq. root of minus 1) + 1 = 0. Ist not beautiful sirrah??? We can derive all the integers from just 1 and 0, and e, Pi and i are not otherwise related, but the equation is true!!! What a miracle!!!

Goldfan

goldfan (02/03/00; 22:33:54MDT - Msg ID:24265)
WHOAAAAA
I swear 'm not smokin anythin...
Goldfan

goldfan (02/03/00; 22:31:59MDT - Msg ID:24264)
gidsek (02/03/00; 21:22:19MDT - Msg ID:24257) gidsek (02/03/00; 21:22:19MDT - Msg ID:24257) gidsek (02/03/00; 21:22:19MDT - Msg ID:24257) gidsek (02/03/00; 21:22:19MDT - Msg ID:24257) gidsek (02/03/00; 21:22:19MDT - Msg ID:24257)
nice to hear from you again, I put these errors in to find out who's reading my stuff....(smile)

Goldfan

NORTH OF 49 (02/03/00; 22:15:51MDT - Msg ID:24263)
Just when you thought it was safe to go into the gold mining biz---
Gold scam busted
City precious mineral dealers tied to worldwide smuggling conspiracy

By PETER SMITH, CALGARY SUN
Calgary precious mineral dealers were part of a worldwide organized crime syndicate smuggling gold ore stolen from a Newfoundland mine, say cops.

At least $100,000 worth of gold ore was recovered when the RCMP raided city businesses.

"One piece of gold ore alone recovered from Calgary was worth $10,000," said Newfoundland RCMP Sgt. Bruce Whillans, who headed up "Operation Billions" which arrested the gang.

CONSPIRACY TRACED

RCMP investigators traced the entire conspiracy -- which started in Newfoundland, spread across Canada, down into the U.S. and finally to Europe -- said Whillans yesterday.

The end product was especially rare and beautiful gold in the form of leaf-like patterns embedded in quartz, and much-coveted by collectors.

Police were called to the Nugget Pond mine near Snook Arm, Nfld., last August, where owners feared precious ore was being stolen.

They feared employees were throwing chunks of gold-bearing ore over the fence and picking them up later by snowmobile.

"The ore was being distributed to organized crime outlets in Montreal, Quebec, and passed on to precious mineral dealers in Calgary and Edmonton," said Whillans.

CALGARY CONNECTION

The Mounties caught up with the Calgary connection in November, when busts were made. "On Nov. 29, we seized 90 kg of gold ore worth $100,000 in Calgary," said Whillans.

Charges are pending against 14 people, including one from Calgary.

TheStranger (02/03/00; 22:04:45MDT - Msg ID:24262)
koan on Robert Ruben
Believe it or not, someone else raised your same jawboning point to me by email. But remember, Ruben is now a co-chair at Citicorp (or is it co-CEO?). You are suggesting he runs the nation's largest bank according to his own privately held convictions while making public pronouncements to the contrary to somehow benefit Alan Greenspan. Believe me, all economists are accutely aware of the influence their own forecasting record has on their reputation. It seems to me a stretch to say this very prominent one would so easily discard his personal reputation to favor a former colleague.

The other thing is that the inverted yield curve seriously raises the specter that Rubin is right. That was my point to begin with.

Where do you live, anyway, that you have all these bears? I don't recall your ever having said.

SHIFTY (02/03/00; 21:54:43MDT - Msg ID:24261)
Goldman Sachs possibly going under!!
http://www.sightings.com/politics6/emergsession.htm
Don't ya just love it!

Chris Powell (02/03/00; 21:49:03MDT - Msg ID:24260)
Gold Fields chairman denounces overhedging
http://www.egroups.com/group/gata/358.html?
He sounds just like GATA.

Chris Powell (02/03/00; 21:47:53MDT - Msg ID:24259)
Latest from GATA Chairman Bill "Midas" Murphy
http://www.egroups.com/group/gata/357.html?
GATA Chairman Bill "Midas" Murphy outlines
the hidden stresses in the financial markets
and their implications for gold.

Bonedaddy (02/03/00; 21:27:05MDT - Msg ID:24258)
Peter Asher (A Seriously Off-Topic Post)
Thanks for steering me toward Gershwin. As planned, I stopped by the music store tonight. It's only 60 miles from here to the nearest shopping maul. Some of the tunes were familiar to me, Rhapsody in Blue, I Got Rhythm, Summertime. I think my favorite so far is "They Can't Take That Away". There are several advantages to being so far from modern civilization. One is that you can digest an entire music CD on the way home if you don't drive to fast. Who would want to drive fast while listing to Geshwin? (Not exactly Sammy Hagar, is it?) I'm looking forward to the morning commute tomorrow.

Mellowly yours, Bd.

gidsek (02/03/00; 21:22:19MDT - Msg ID:24257)
Goldfan , Just Nitpicking here but...
"When Hillary was asked "why climb that Everest mountain, man, are you crazy? He is reputed to have answered,
"because it's there"."

It was in fact Mallory who gave this answer not long before he died in a summit attempt in 1924. His body was found last year.

gidsek

agbull (02/03/00; 21:13:00MDT - Msg ID:24256)
Common sense and common men
Common Sense and Common Men

As an exercise in understanding value, this article is useful in assessing money versus value and wages as a constant in history.

If we look at the Bible we find that a Shekel was four day's wages for the common worker. A shekel is about .364 troy ounces of silver. Therefore one troy ounce of silver would be worth about eleven days worth of work.

A month's wages would be equal to three troy ounces of silver and a years worth of effort would equate to 36 ounces of silver. Let's compare this to today's standard. The minimum wage is nearly six "dollars" per hour. Or perhaps better stated as one ounce of silver per hour, so a typical day is worth eight ounces of silver. A month is worth about 275 ounces and a year's worth of effort would equate to 3300 ounces of silver.

If you were working toward a retirement fund in 1BC a savings of 1000 ounces of silver would represent about 27 years worth of savings. In today's world a thousand ounces of silver represents about four month's work.

Let's be really ridiculous for a moment and wave our magic wand. Our wand is capable of making the "people" all wish to preserve some of their savings in silver. Let's say for our example that everyone in American decides to buy a day's wages in silver. Although the average wage is greater than the minimum, let's simply use eight ounces as previously discussed. Now eight troy ounces times 100 million workers is equal to 800 million ounces of silver or a year's worth of silver mining for the entire world.

Let's get real funny and wave our wand again and pay our workers in money (silver) for a year, why not if enough people demanded money rather than credit life might be different. OK, so a day's wages in the USA would be 800 million ounces of silver. Right now there is about 900 million ounces of silver available to the market and the potential to mine about that much per year, so all known silver would be used in two days!

We could go to Gold, since there is four times more gold in reserve than silver we would use up all gold reseves in eight days if it were priced the same as silver. Of course we all know gold is about 50 times more expensive than silver. So for our example gold would last 8 days times 50 or 400 days, therefore people could be payed in gold ( in the USA only) for over a year before the reserves were completely depleted.

Marius (02/03/00; 21:09:16MDT - Msg ID:24255)
godfan's message 24232
Goldfan,

Please accept a gentle jest & correction:

The power of Pi is infinite.

"The power of pie" is that it goes really well with coffee!

Golden Truth (02/03/00; 20:48:40MDT - Msg ID:24254)
TO F.O.A
HI F.O.A!!! I,am so glad to see you back :-) I think your idea about writing your "thoughts" in letter format is excellent. It would keep the RIF-RAF from just tripping over it, and then start shooting from the hip.
If posted somewhere else it would be a little more work to find and then, i think one could not claim all kinds of ridiculous conspiracies with mean, mean intentions!

In other words any one who goes looking for your letters, should not be allowed to "deride" them over in the public forum. Yes we can discuss among ourselves in a polite way, but any and i mean any ABUSE in the verbal sense gets your "passcode" pulled.

Why? on the grounds that whoever, went looking for the post to begin with. Knew it was out of the way and if they don't like F.O.A's message they are not being forced or accidentally exposed to it. More to the point if you don't like what you see, change the CHANNEL! and leave us and F.O.A alone who do enjoy what we read and talk about.
I think personally anyone who resorts to personel attacks that come out of left field, especially from new posters who don't ask F.O.A questions politely, but just start to attack and attack, should be the first ones to GO!

Dear M.K i,am just trying to get some ground rules in place to keep F.O.A posting here. I really don't think we want to lose someone as knowledgable as F.O.A, I know I DON,T!!!!!!!!
P.S Lets keep this hike down the GOLD trail alive!
Welome back F.O.A we'll get this set up yet, believe it!!
G.T

pdeep (02/03/00; 20:41:53MDT - Msg ID:24253)
Ulysses
Thanks for that answer. I had the same epiphany driving home from work, not quite so tired. Of course, the T-bonds held in the SS Trust Fund are held in a non-tradeable account. For now. But at some point in the future, those bonds will be redeemed. Now *that* should be interesting.

meanwhile, there's still time to buy the real stuff at great prices!

YGM (02/03/00; 20:21:08MDT - Msg ID:24252)
SHIFTY
ADD A BIG YAHOO TO YOUR "GO GOLD!"
and a "GO GATA" My smile is going to crack my face. :-))

SHIFTY (02/03/00; 20:15:01MDT - Msg ID:24251)
Le Metropole Cafe really big news!
I just read Bill Murphy update "Class action lawsuit filed against Ashanti officers and board of directors". Go Gold!

YGM (02/03/00; 20:13:20MDT - Msg ID:24250)
From Bill Murphy
http://www.lemetropolecafe.com

Le Metropole members,

Midas du Metropole has served commentary at
The James Joyce Table.

"CLASS ACTION LAWSUIT FILED AGAINST ASHANTI
OFFICERS AND BOARD OF DIRECTORS
"
"A class action lawsuit was filed today by a New
York law firm against the Board of Directors
and officers of Ashanti Goldfields Co. in Ghana,
Africa. It is for shareholders that purchased
Ashanti stock between July and October of last
year. The details will be all over the press
tomorrow."

"This is a big event for the gold market. In essence,
the suit was filed because of their excessive
hedging policies. That now puts all Board of
Directors of gold producers that they are on
notice that they will be held accountable if
the hedging policies of their firms are overly
aggressive and subject the shareholder
to penalties as a result of a rising gold price."

"YEAH!"

"If the supposed smartest minds in the gold world -
the investment bankers led by Goldman Sachs were
advisors to Ashanti - and they blew it - how can
any Board of Director of any gold company be
comfortable with any kind of excessive hedging
structure for a company that they oversee? Almost
no one thought the $84 price rise in late September
was possible. That fast a price rise was not even
put in the computer models that were presented
to the Ashanti officers for option volatilities
by its Goldman Sachs advisors."

"Yes, indeedee. This is big news for the big
picture. With 10,000 tonnes of gold loans
outstanding, what are the shorts going to do if
a bond market run up like today occurs in the
gold market again. Another yen type move! Another
$84 gold type blitzkrieg move! What if that move
is $284 in gold next time? Yen could be found.
Money can be printed. Gold? Is the United States
willing to donate the 8,000 tonnes we supposedly
have in Fort Knox (or under Fed/Treasury auspices)
to bailout the collusion bullion dealer crowd?
How will Greenspan and Summers explain that to
the Congress and the American public? How will
the dollar fare in that type of scenario? Yikes!"

"Hello Barrick Gold. I have a question. When is
your next hedging seminar planned for your
Board of Directors?"

<A HREF="http://www.LeMetropoleCafe.com/scripts/products.cfm">Le Metropole Cafe</A>

All the best,

Bill Murphy
Le Patron
www.LeMetropoleCafe.com

schippi (02/03/00; 20:10:12MDT - Msg ID:24249)
XAU & FSAGX Chart
http://www.SelectSectors.com/xautoday.gif
Chart shows local bottom being formed?

YGM (02/03/00; 20:08:40MDT - Msg ID:24248)
Two Very Pertinent Quotes........
"We have far more people selling derivatives, index funds and mutual funds [unit trusts] than there is intelligence for the task *"
"When you hear it being said that we've entered a new era of permanent prosperity with prices of financial instruments reflecting that happy fact, you should take cover *"
"In the late Twenties it was impossible to read any discussion of the economy without encountering the new paradigm, namely radio and electronic communications. One should read about that before putting too much emphasis on the computer world as the new paradigm *"
* Professor J K Galbraith, 1999

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

"The fate of the world economy is now totally dependent on the growth of the U.S. economy, which is dependent on the stock market, whose growth is dependent on about 50 stocks, half of which have never reported any earnings..." Former Fed Chairman Paul Volcker, Friday, May 21, 1999

Jade (2/3/2000; 19:24:35MDT - Msg ID:24247)
at Yahoo....The Action in the Bonds.............
The 30-year Treasury bond was up 1-31/32, or $19.6875 on each $1,000 of face value. The yield, which moves in the opposite direction, fell to 6.14 percent from 6.29 percent on Wednesday. The 10-year bond was up 30/32 with a yield of 6.43 percent.

The move in bonds resulted in the yield curve, which normally reflects higher yields on longer-dated bonds, becoming even more inverted than it had been. Because many financial players borrow at the short end of the curve and lend at the longer end, an inverted curve can turn profits into losses.

..................``The move in bonds is the most humongous I've ever seen. It indicates that there is a problem somewhere. Hedge funds are getting murdered and we don't know that it's over. I suspect there is something at work that is not totally in the public's eye yet,'' said Alan Newman, technical analyst at H.D. Brous & Co, Great Neck, N.Y.
The bond market action

koan (2/3/2000; 19:17:22MDT - Msg ID:24246)
Reubin
My guess is that anything he says (even out of office) will be choreographed through the White House and Greenspan. They are all trying to effect a soft landing. They want the mkts down, and cooled down, but gradually. They need to get the point across that this is an overheated economy, but they don't want a crash; and they don't want to stifel the world recovery. The Reubin text you gave Stranger has exactly the right tone. In my opinion.

goldfan (2/3/2000; 19:01:06MDT - Msg ID:24245)
Amazin'.com
Now look at this....

Amazon loss in quarter biggest yet
Expansion triples sales from year ago
GEORGE ANDERS
The Wall Street Journal

Amazon.com Inc. reported a $323.2-million (U.S.) net loss for the fourth quarter, its largest to date, but said its book division achieved profitability and overall sales nearly tripled from the year ago period, to a record $676-million.

These results continue Amazon's tradition of increasing its on-line retailing business faster�and with bigger deficits�than Wall Street analysts had expected. The Seattle based company said fourth-quarter sales were up 90 per cent from the previous period, its fastest quarterly growth since going public. The company added 3.8 million customers, bringing its total to 16.9 million.

Amazon said its fourth-quarter pro-forma net loss totalled $185-million, or 55 cents a share. [hat figure excludes non-cash charges related to acquisitions and stock-based compensation. In the year-earlier quarter, Amazon had a $46.4-million net loss, and a proForma net loss of $22-million, or seven cents a share.

Amazon's chief financial offlcer, Warren Jenson, said the company's results were hurt by an inventory sharge of $39.4-million. Amazon had previously said it would be taking a charge relating to overstocking of toys and electronics gear that didn't attract customers.

Cheered by the results and outlook, investors boosted shares in Amazon 13 per cent to $78.62 in after-hours trading, following a rise of nearly 3 per cent in regular trading on the Nasdaq, where it closed at $72 yesterday.

>>>>>>>I hear they call this the burn rate, how fast they spend the CHEERING shareholders money on current expenses so they can inflate the gdp and the productivity numbers with goods sold below cost.
Step right up and throw your money on the fire folks, magician Bezos man of the year this year, President soon, will spiral your stock right out of sight.<<<<<<

>>>Wonder what they can possibly do for an encore??? Maybe these guys understand the true worth of a dollar. This is all proforma too. Meaning it's not audited. The real numbers could be a lot worse.<<<

It really burns me up too...

Goldfan

Gandalf the White (2/3/2000; 17:58:41MDT - Msg ID:24244)
YES, Holtzman -- The Hobbits read your every word ! ( +others)
AND, in keeping with the attempts to understand the "deep" level of knowledge extended to all at this TableRound, the following posting is extended. -- ORO, if you could please use this logic format in your next explaination, the Hobbits would appreciate it!!! --
PS: IF anyone has questions, please ask the lost one, Aragorn III.
PPS: Hi Stranger -- Twas me that was the official "greeter" of the early days. -- MK just madeup the contests.
<;-)
---
(From a rec.arts.books.tolkien posting dated 21 July 1995.)
In an effort to compare the relative strengths of the Maiar, a recent poster to r.a.b.t. compared Sauron's strength to Gandalf's and the Balrog's by stating:
S>G and G=B implies B<S.
It's an intriguing way of stating the problem.But Gandalf the Grey, who fought the Balrog, wasn't as powerful as Gandalf the White. Also remember that we're talking about a Sauron who has invested much of his native power in the Ring, which has weakened him greatly while he is not in posssession of it; he is not as strong as he was with his original native power:
Gg < Gw

Sn = S + R

Sn > S
Now Gandalf was afraid of using the Ring, for fear it would conquer him; yet if he had used the Ring, he would have had enough power to defeat Sauron (Fellowship pp. 70-71 hardback):

Gg < R

Gg + R > S
But if the Balrog had arrived at the Bridge of Khazad-dum first it may have been possible that, though greatly weakened by Gandalf, it might have obtained the Ring. So, if the Balrog had been victorious,

Bv = B + R - Gg
would the Balrog have been able to overthrow a Sauron whose native power had been diminished by the loss of the Ring?:

B + R - Gg > Sn - R
And when Gandalf had returned from death, would he have assisted the Balrog, hoping that

(B + R - Gg) + Gw > Sn - R
then

Bv - 1/2(Sn-R) < Gw - 1/2(Sn-R) ?
===
ORO, Is this TRUE?

SOS (2/3/2000; 17:39:43MDT - Msg ID:24243)
Rhodium & Ruthenium
Would Black Blade or others know if Rhodium and Ruthenium are traded exclusively in a cash market environment (and if so where?), or are they also traded in futures markets somewhere in the world? Links, sites to such information?

TheStranger (2/3/2000; 17:25:38MDT - Msg ID:24242)
nickel62
I want to pick up on your comments about the inverted yield curve. Yes, some inverted yield curves have resulted in recession, though some have not. But the fact that we find ourselves in this situation certainly makes Farfel's stagflation scenario look plausable.

On his way back from Davos, Robert Rubin stopped off in London for a speech he delivered yesterday at the London School of Economics. My daughter, who is a student there, was fortunate enough to sit in on the event. I don't know how much his remarks reflect what was said quietly between the giants at Davos, but they were none too reassuring for investors just the same.

According to my daughter, and to a report from Adrian Van Eck, Rubin said that American spending and investing habits have reached a level of optimism which may not be sustainable. He said that we must be cautious in times of prosperity because prosperity breeds an unwillingness to make responsible financial descisions. He talked about globalization, technology, and the liberalization of trade being moves which will eventually increase the welfare of everyone. But he said such things are no insurance against the present danger inherent in the rising complacency among investors and policymakers.

Perhaps Rubin's timing in leaving Washington was no accident.

YGM (2/3/2000; 16:57:14MDT - Msg ID:24241)
Gold, The Fed, Money Supply & A Little Past History......
From the Von Mises Institute...
Money and Freedom

by Joseph T. Salerno

[This talk was delivered at the Mises Institute conference on The History of Liberty. It is posted here February 2, 2000]

The historical embodiment of monetary freedom is the gold standard. The era of its greatest flourishing was not coincidentally the nineteenth century, the century in which classical liberal ideology reigned, a century of unprecedented material progress and peaceful relations between nations. Unfortunately, the monetary freedom represented by the gold standard, along with many other freedoms of the classical liberal era, was brought to a calamitous end by World War One.

Also, and not so coincidentally, this was the "War to Make the World Safe for Mass Democracy," a political system which we have all learned by now is the great enemy of freedom in all its social and economic manifestations.

Now, it is true that the gold standard did not disappear overnight, but limped along in weakened form into the early 1930s. But this was not the pre-1914 classical gold standard, in which the actions of private citizens operating on free markets ultimately controlled the supply and value of money and governments had very little influence.

Under this monetary system, if people in one nation demanded more money to carry out more transactions or because they were more uncertain of the future, they would export more goods and financial assets to the rest of the world, while importing less. As a result, additional gold would flow in through a surplus in the balance of payments increasing the nations money supply.

Sometimes, private banks tried to inflate the money supply by issuing additional bank notes and deposits, called "fiduciary media," promising to pay gold but unbacked by gold reserves. They lent these notes and deposits to either businesses or the government. However, as soon as the borrowers spent these additional fractional-reserve notes and deposits, domestic incomes and prices would begin to rise.

As a result, foreigners would reduce their purchases of the nations exports, and domestic residents would increase their spending on the relatively cheap foreign imports. Gold would flow out of the coffers of the nations banks to finance the resulting trade deficit, as the excess paper notes and checks were returned to their issuers for redemption in gold.

To check this outflow of gold reserves, which made their depositors very nervous, the banks would contract the supply of fiduciary media bringing about a monetary deflation and an ensuing depression.

Temporarily chastened by the experience, banks would refrain from again expanding credit for a while. If the Treasury tried to issue convertible notes only partially backed by gold, as it occasionally did, it too would face these consequences and be forced to restrain its note issue within narrow bounds.

Thus, governments and commercial banks under the gold standard did not have much influence over the money supply in the long run. The only sizable inflations that occurred during the nineteenth century did so during wartime when almost all belligerent nations would "go off the gold standard." They did so in order to conceal the staggering costs of war from their citizens by printing money rather than raising taxes to pay for it.

For example, Great Britain experienced a substantial inflation at the beginning of the nineteenth century during the period of the Napoleonic Wars, when it had suspended the convertibility of the British pound into gold. Likewise, the United States and the Confederate States of America both suffered a devastating hyperinflation during the War for Southern Independence, because both sides issued inconvertible Treasury notes to finance budget deficits. It is because politicians and their privileged banks were unable to tamper with and inflate a gold money that prices in the U. S. and in Great Britain at the close of the nineteenth century were roughly the same as they were at the beginning of the century.

Within weeks of the outbreak of World War One, all belligerent nations departed from the gold standard. Needless to say by the wars end the paper fiat currencies of all these nations were in the throes of inflations of varying degrees of severity, with the German hyperinflation that culminated in 1923 being the worst. To put their currencies back in order and to restore the publics confidence in them, one country after another re-instituted the gold standard during the 1920's.

Unfortunately, the new gold standard of the 1920's was fundamentally different from the classical gold standard. For one thing, under this latter version, gold coin was not used in daily transactions. In Great Britain, for example, the Bank of England would only redeem pounds in large and expensive bars of gold bullion. But gold bullion was mainly useful for financing international trade transactions.

Other countries such as Germany and the smaller countries of Central and Eastern Europe used gold-convertible foreign currencies such as the U.S. dollar or the pound sterling as reserves for their own domestic currencies. This was called the gold-exchange standard.

While the U.S. dollar was technically redeemable in honest-to-goodness gold coin, banks no longer held reserves in gold coin but in Federal Reserve notes. All gold reserves were centralized, by law, in the hands of the Fed and banks were encouraged to use Fed notes to cash checks and pay for checking and savings deposit withdrawals. This meant that very little gold coin circulated among the public in the 1920s, and residents of all nations came increasingly to view the paper IOUs of their central banks as the ultimate embodiment of the dollar, franc, pound, etc.

This state of affairs gave governments and their central banks much greater leeway for manipulating their national money supplies. The Bank of England, for example, could expand the amount of paper claims to gold pounds through the banking system without fearing a run on its gold reserves for two reasons.

Foreign countries on the gold exchange standard would be willing to pile up the paper pounds that flowed out of Great Britain through its balance of payments deficit and not demand immediate conversion into gold. In fact by issuing their own currency to tourists and exporters in exchange for the increasing quantities of inflated paper pounds, foreign central banks were in effect inflating their own money supplies in lock-step with the Bank of England. This drove up prices in their own countries to the inflated level attained by British prices and put an end to the British deficits.

In effect, this system enabled countries such as Great Britain and the United States to export monetary inflation abroad and to run "a deficit without tears"that is a balance-of-payments deficit that does not involve a loss of gold.

But even if gold reserves were to drain out of the vaults of the Bank of England or the Fed to foreign nations, British and U.S. citizens would be disinclined, either by law or by custom, to put further pressure on their respective central banks to stop inflating by threatening bank runs to rid themselves of their depreciating notes and retrieve their rightful property left with the banks for safekeeping.

Unfortunately, contemporary economists and economic historians do not grasp the fundamental difference between the hard-money classical gold standard of the nineteenth century and the inflationary phony gold standard of the 1920s.

Thus, many admit, if somewhat grudgingly, that the gold standard worked exceedingly well in the nineteenth century. However, at the same time, they maintain that the gold standard suddenly broke down in the 1920s and 1930s and that this breakdown triggered the Great Depression. Monetary freedom in their minds is forever discredited by the tragic events of the 1930s. The gold standard, whatever its merits in an earlier era, is seen by them as a quaint and outmoded monetary system that has proved it cannot survive the rigors and stresses of a modern economy.

Those who implicate the gold standard as the main culprit in precipitating the events of the 1930s generally fall into one of two groups. One group argues that it was an inherent flaw in the gold standard itself that led to a collapse of the financial system, which in turn dragged the real economy down into depression. Writers in the second group maintain that governments, for social and political reasons, stopped adhering to the so-called "rules of the gold standard," and that this initiated the downward spiral into the abyss of the Great Depression.

From either perspective, however, it is clear that the gold standard can never again be trusted to serve as the basis of the worlds monetary system. On the one hand, if it is true that the gold standard is fundamentally flawed, that in itself is a crushing practical argument against the principle of monetary freedom. On the other hand, if the gold standard is in fact a creature of rules contrived by governments, and it is politically impossible for them to follow those rules, then monetary freedom is simply irrelevant from the outset.

The first argument is the Keynesian argument and the second the monetarist argument against the gold standard.

Two recent books have elaborated these arguments against the gold standard. The economic historian Barry Eichengreen published a book in 1992 entitled Golden Fetters: The Gold Standard and the Great Depression. Eichengreen summarized the argument of this book in the following words:

"The gold standard of the 1920s set the stage for the Depression of the 1930s by heightening the fragility of the international financial system. The gold standard was the mechanism transmitting the destabilizing impulse from the United States to the rest of the world. The gold standard magnified that initial destabilizing shock. It was the principle obstacle to offsetting action. It was the binding constraint preventing policymakers from averting the failure of banks and containing the spread of financial panic. For all these reason the international gold standard was a central factor in the worldwide Depression. Recovery proved possible, for these same reasons, only after abandoning the gold standard."

According to Eichengreen, then, not only was the gold standard responsible for initiating and internationally propagating the Great Depression, it was also the primary reason why the recovery was delayed for so long.

It was only after governments one after another in the 1930s severed the link between their national currencies and gold that their national economies finally began to recover. This was because, unbound by the rules of the gold standard, governments were now able to bail out their banking systems and run budget deficits financed by bank credit inflation without the constraining fear of losing their gold reserves.

Thus, the phrase "golden fetters" in the title of Eichengreens book is a reference to Keyness statement in 1931, "There are few Englishman who do not rejoice at the breaking of our gold fetters."

Of course, what Keynes and Eichengreen fail to understand is that the end of the classical liberal era in 1914 caused the removal from government central banks of the "golden handcuffs" of the genuine gold standard. Were these "golden handcuffs" still in place in the 1920s, central banks would have been rigidly constrained from inflating their money supplies in the first place and the business cycle that culminated in the Great Depression would not have taken place.

A second book that inculpates the gold standard as a leading cause of the Great Depression was published in 1998 and is entitled The Great Depression: An International Disaster of Perverse Economic Policies. According to the authors, Thomas E. Hall and J. David Ferguson, one of the most perverse and destabilizing economic policies of the 1920s involved the Fed violating the rules of the gold standard by allegedly "sterilizing" the inflow of gold from Great Britain.

This means that the Fed refused to pyramid inflated paper dollars on top of these newly-acquired gold reserves in quantities sufficient to drive U.S. prices up to the inflated level of British prices. This policy would have made U.S. products more expensive relative to British products on world markets and would have helped mitigate Great Britains ongoing loss of gold reserves through its balance-of-payments deficits.

These deficits were the result of the fact that Great Britain had returned to the gold standard after its wartime inflation at the prewar gold parity, which, given the inflated level of domestic prices, significantly overvalued the British pound in terms of the dollar.

These deficits could have been avoided if the British government had either deflated its price level sufficiently or chosen to return to gold at a devalued exchange rate reflecting the true extent of its previous inflation.

Hall and Ferguson, however, ignore these considerations, arguing that when the U.S. sterilizes gold:

"The impact on the system is that Britain bears the brunt of the adjustment. Since the money supply in the United States did not rise, neither did U.S. incomes and prices as they were supposed to, which would have helped Britain eliminate their payments deficit. Since Britain was not aided by rising exports to the United States, Britain must experience a more severe decline in incomes and prices than would have been the case if the U.S. money supply had gone up. In this way Britain would bear the brunt of the adjustment in the form of a more severe recession than would have occurred if the United States had been playing by the rules. Thus it was critical that each country play fair."

Thus, in Hall and Fergusons view, the rules of the gold standard dictate that when one central bank irresponsibly engages in monetary inflation and subsequently attempts to maintain an overvalued exchange rate, less inflationary central banks must rush to its aid and expand their own nations money supplies in order to prevent it from losing its gold reserves.

But if a nation losing gold due to inept or irresponsible monetary policy can always count on those gaining gold to share the brunt of the adjustment by expanding their own money supplies, this is surely a recipe for worldwide inflation.

Now, this line of argument indicates that Hall and Ferguson completely misunderstand the true purpose and function of the gold standard. To begin with, a gold standard functions much better without a central bank, because these institution, as creatures of politics, are inherently inflationary and tend to promote rather than restrain the inflationary propensities of the fractional-reserve commercial banks.

But, second, under a genuine gold coin standard, the choices of private households and firms effectively control the money supply. As I explained above, if the residents of one nation demand to hold more money for whatever reason, they can obtain the precise quantity of gold coin they require through the balance of payments by temporarily selling more exports and buying fewer imports.

This implies that, if a central bank does exist and it wishes to act in accordance with a genuine gold standard, it should always "sterilize" gold inflows by issuing additional notes and deposits only on the basis of 100 percent gold reserves and insisting that the commercial banks do the same. It should not permit these gold reserves to be used as the basis of a multiple credit expansion by the banking system.

In this way, a nations money supply would be completely subject to market forces. By the way, this is precisely how the distribution of the supply of dollars between the different states of the U.S. is determined today. There is no government agency charged with monitoring and controlling New Jerseys or Alabamas money supply.

Hall and Ferguson reveal their uneasiness with and lack of insight into the operation of the money supply process under a genuine gold standard with the following example:

"[S]uppose a fad had swept the nation in 1927 because Calvin Coolidge appeared in public wearing one gold earring. Then every teenager in America wanted to wear a gold earring 'just like silent Cal'. . . . The result would be an [increase] in the commercial demand for gold. Since more gold would be used in earrings less would be available for money. . . . It would be beyond the power of government to do anything about this fact. What a scary thought, the teenagers of America would have caused the U. S. money supply to decline."

While it is true that the commercial demand for gold does play a role in determining the supply and value of money under a gold standard, it is hardly cause for alarm. Rather, it highlights the important fact that the gold standard evolved on the market from a useful commodity with a pre-existing supply and demand and was not the product of a set of arbitrary rules promulgated by governments.

Now, Hall and Ferguson conclude that by breaking the rules of the game and persisting in sterilizing the gold inflows from 1929 to 1933, the Fed caused a monetary deflation in Great Britain and throughout Europe. The nations losing gold were forced to contract their money supplies and this contributed to a financial collapse and a precipitous decline in real economic activity that marked the onset of the Great Depression.

Thus while the authors blame the initiation of the Great Depression on Fed sterilization policies, they attribute its length and severity to the gold standard. According to the authors: As long as European countries remained on the gold standard and U.S. sterilization continued, there could be no end of the Depression in sight. The U.S. gold stock would become a huge pile of sterilized and useless gold. Starting with the British in 1931, our trading partners began to recognize this fact, and one by one they left the gold standard. The Germans and ironically the U.S. were among the last to leave gold and so were hurt the worst, experiencing the longest and deepest forms of the Depression.

So although Eichengreen emphasizes the gold standard as a restraint on government monetary policy and Hall and Ferguson the failure of governments to play by its rules, in effect, they reach the same conclusion: the gold standard, and with it monetary freedom, stands indicted as a primary cause of the greatest economic catastrophe in history.

In the face of the historical evidence they adduce, can any defense be mounted in favor of the gold standard? The answer is a resounding "yes," and the defense is as simple as it is impregnable. As I have tried to indicate above, the case against the gold standard is from beginning to end a case of mistaken identity. The genuine gold standard did not fail in the 1920s, because it had already been destroyed by government policies after 1914.

The monetary system that sowed the seeds of the Great Depression in the 1920s was a central bank manipulated and inflationary pseudo-gold standard. It was central banking that failed in the 1920s and stands discredited to this day as the cause of the Great Depression.

A detailed case in support of this view can be found in the works of Murray N. Rothbard, particularly in his book Americas Great Depression and a forthcoming book on A History of Money and Banking in the United States: The Colonial Era to World War II.

In these works you will read that the U.S. money supply, properly defined, increased from 1921 to 1928 at the annual rate of 7 percent per year, a rate of monetary inflation that was unseen under the classical gold standard. You will also learn that during the 1920s the Fed, far from operating as the deflationary force on the money supply portrayed by some monetarists, increased the categories of bank reserves within its control at the annual rate of 18 percent per year.

Finally you will read that from 1929 to 1932, the Fed continued to exercise a highly inflationary impact on the money supply, as it feverishly pumped new reserves into the banking system in a vain attempt to ward off the cyclical downturn entailed by its own earlier inflation of the money supply. The Fed was defeated in this endeavor to pump up the money supply and "reflate" prices in the early 1930s by domestic and foreign depositors who reclaimed their rightful property from an inherently bankrupt U.S. banking system. They had suddenly lost confidence in the Fed-controlled monetary system masquerading as a gold standard, when they perceived at last the dwindling prospect of ever redeeming the rapidly expanding mountain of inflated paper claims for their gold dollars.

* * * * *

Joe Salerno teaches economics at Pace University and is co-editor of the Quarterly Journal of Austrian Economics.

See also the Austrian Study Guide on Money and Banking. This contains references and links to many online articles in .pdf format.

CoBra(too) (2/3/2000; 16:04:44MDT - Msg ID:24240)
The EU & the Austrian Debacle
Well we have a new government, a coalition of the Freedom and the Poeples Party, which presumably will be inaugurated tomorrow by an unwilling President Klestil, at the cost of not only being isolated throughout the EU and in all probability many other countries might follow suit -as Israel already did and the US seems ready too -. This is a no win situation for tiny Austria, but also may have sown the seeds of distrust and growing uneasyness among the "guaranteed equal" members of the EU family.

Mr. Holtzmann, your latest excellent thoughts on this topic are not only timely, but add a quality of reality to subconcious and nightmarish fears I declined to bring to the light of the day. This is a global play for economic, political "seignorage" power, where the small are the pawns in the fist of the big brother. In democracy all power comes from the people has now a new meaning and we're all the poorer for it. This episode leaves me more a sceptic of
the values claimed to (still) be the foundations of democracies.

On another topic I'm beginning to wonder for how long further the POG can be suppressed in view of ballistic PGM's, since the group of PM's and PGM's historically moved
in tandem.

Best regards CB2

PS: Ari - I'm sure you didn't miss Marshall Auerbach's great
essay on derivatives on the cafe. M.A. explains the topic a lot better than I ever will.
FOA - good to see you back.
MK - sorry about some of my recent "more bitter" posts

Julia (2/3/2000; 15:55:44MDT - Msg ID:24239)
FOA
I knew you wouldn't leave us. I've got on my hiking boots. Please let me know where you'll be writing your letters. Michael????

Thank you FOA and ANOTHER

Julia

Julia (2/3/2000; 15:46:40MDT - Msg ID:24238)
Aristotle
Ari,
Did I miss the salami? Not to rush you or anything. I sometimes miss things because I can only log on as time allows. Just didn't want to miss your piece.
Thank you for caring enough to serve your thoughts here.

Julia

TownCrier (2/3/2000; 15:33:15MDT - Msg ID:24237)
A good tale...
http://www.gold.org/Gra/Speeches/Hf000127.htm
Concluding remarks from Miss Haruko Fukuda's speech last week to The Business Club Zurich. Miss Fukuda is the Chief Executive Officer of the World Gold Council.
----------------------
'Before I end I want to leave you with an anecdote which for me reveals in a dramatic human form the practicalities of gold's historic importance. The great Russian opera singer, Feodor Chaliapin, lost his entire fortune - then worth more than a million pounds - in the Russian revolution. This disaster seared him. He left Russia after the Revolution and went to live in France where in 1931 he bought gold bars and put them in a safe in his cellar in Paris. He was interviewed by the British Sunday Express newspaper on the 5th of May 1935, when he said, "People in Britain think that governments cannot collapse. They think bank notes are money; banks are impregnable. But I have had everything I made in 25 years stripped from me. I was reduced to singing for tea in which there was sawdust, and bread in which there was wood. With my bar of gold and a pen knife I shall never go hungry."'

Jon (2/3/2000; 15:32:10MDT - Msg ID:24236)
Manipulation of POG
Has GATA come up with any evidence? Have MK, Another, FOA expressed opinion on this subject?

goldfan (2/3/2000; 14:46:04MDT - Msg ID:24235)
More on risk
From Webster's, Risk: 1. hazard, peril, exposure to loss or injury 2. Insurance. a. the chance of loss or the perils to the subject matter of insurance covered by the contract; also, the degree of probability of such loss. b. short for the amount of risk, that is the amount which the company may lose...

So this is the sense I am using the word, as when we talk about the risk/reward ratio of a particular contemplated stock purchase. The downside (risk) is the probability of loss of a certain amount, the upside (reward) is the probability of gain, probability as in 10% or 20% or quite likely( 80%?)or not very likely(maybe 5%?). (Fascinating how we use the word probable and possible.)

I'm hoping I can do this without going into the 10% plus or minus 2% 19 times out of 20 that the statisticians use.

Also a note on chaos dynamics. As I get it, the strange attractors, are cascading bifurcations of wonderful shapes that emerge when a recursive equation is repeatedly solved, output becoming input, over and over and the results graphed or displayed on a screen. Moreover, these patterns which repeat and repeat, are shown in reality, as changes in scale, but not dimension, fractal dimension, the shapes look the same, yet are different in "size". Think of a coastline, its shores bumpy and indented, the closer you look at a segment of shore, the more it appears to be the same "shape" as the large coast line itself. The shore of a mud puddle would display the same.

Studying the recursive equation that represents such a system, lets us figure out its fractal dimension. When the fractal dimension changes abruptly, we know we are at a saddle point, about to cascade over into another area of the pattern. Anyhow, I'm no expert on this. But It fascinates me. And I think it gives substance to our intuitions when it comes to human affairs. How many people do you know who get into a "saddle point" and then just fall back into the same old pattern, instead of changing habits, and getting to new territory?

Risk Taking Measures

Personal risk

What is a good measure for this risk?

I guess I'm speaking of the risk of great loss of savings, the risk of loss of employment, the risk of severe deprivation in material standard of living, as a worst case.

Maybe the unemployment rate (or the personal bankruptcy rate), today, compared to what it will be if current attitudes to risk persist. Maybe the unemployment rate will be 30% if attitudes persist.

So the risk index is 30/4.5=6.7 That's high.

What it says to me is, that the individual person's indifference to risk of loss in the equity market, or the high consumption rates, or high debt rates, will, repeated by enough people, create a high probability that this person could become unemployed, without savings.

However, I just plucked the number 30% out of the air. I'd like a better way of establishing the index.

Maybe, consumer debt payments as % of disposable income, divided by savings rate as same %, divided by probable % of DOW left after the crash.

A "good" index would be 10/10/90=.011 Today, its more like 18/1.5/.25=48 !!
And since the savings rate is really negative(more creative government accounting), the thing is infinite!!

Corporate Risk

What are average debt/equity ratios? How high is too high? Somewhere I read that corporate debt, at 26% of assets, that would be 36% of equity, is higher than it has ever been, is that right?

Among the most risky behaviors of corporations today are borrowing to buy back stock, selling Puts to buoy stock prices, and using a high proportion of ESOPs instead of paying wages.

I have no idea where to get data to measure these. But they're all reflected in stock prices, and in P/E ratios. Maybe the P/E ratio could be considered a measure of the degree of risk the company is taking, instead of blaming it all on the investors. After all, investors are taking their cues from the company and also , adding to it, their own desire for more and indifference to risk. The reason that P/E ratios are high, is not only because have made them so, but also because corporations have taken risks and risky attitudes, encouraging investors by hiding the truth.

So the total corporate risk index would be the DOW P/E today, divided by the DOW P/E in "normal" times. Say 25/10=2.5,

I think however, that the total value of the stock market is contirbuted mainly mainly by a few companies whose P/E ratios are much higher than this average, 100 or more.
So maybe a better index of risk would be the dividend yield ratio. Normal yield divided by current yield 6/1.2 = 5. Suggesting a drop in average stock prices of 80%.

The problem here is the corporate philosophy that says that increasing the stock price is the goal, not providing a reliable product , cultivating the market for it, and providing long term employment to people in a healthy community.

Aside on the effect of buy backs, puts and ESOPs:

This makes a really neat study of a recursive equation which would demonstrate chaos dynamics.

stock price(at time t) = P/E(ESOPeffect (stock price at time t-1) + buy back effect + P/E(earnings increase from operations(at time t-1)).

This is loaded with opportunities for wild oscillations due to uncontrolled feedback. The stock price depends on the earnings which are coupled to the stock price. (Thanks to ORO and Bill Parrish for this insight). And the buy back causes potential instability in earnings, because a drop in stock price will force a write down in treasury stock assets, making it harder to pay debt interest. Buying back stock with debt, increases the debt to asset ratio, creating instability.

Just recently, the wizards at several of Canada's banks announced a new fund for widows, orphans and other risk averse groups. A NASDAQ index linked mutual fund.
Just another financial service from your caring and capable local bankers.
Talk about helping the IRA carry the suitcase into the pub!!

Banking/Government Risk

What would be a measure of the risk taking behavior of Banks/governments? Maybe, the amount of the currency relative to some standard in gold? Let say the POG is traditionally at 40% of the Money supply divided by the gold in Fort Knox. Then today, the M1/gold ratio is $510 billion/8000 tonnes , works out to $2000 per oz. The traditional POG would be 40% of that, $800 per oz. So at $285, we have 2.8X too much money in circulation.

Effectively, the $ should be devalued by 64%. Lots of banking risk!!

Summary for today

Personal risk index: 4800 times normal.
Corporate risk index: 20% of present valuations.
Banking risk index: the dollar at 36% of current purchasing power

Comments and criticism invited.

Goldfan

goldfan (2/3/2000; 14:41:23MDT - Msg ID:24234)
cleaning up my Msg ID:24122)

Sorry I messed up some math and some numbers in this post. Cheerfully pointed out by Sir Happy.

for corporations, the current number is debt at 26% of assets (an all time high?).

for the value of the dollar, traditionally, POG is 40% of the M1/oz., not M3/oz. so the figures become, the M1/gold ratio is $510billion/8000 tonnes , works out to $2000 per oz.
The traditional POG would be 40% of that, $800 per oz. So at $285, we have 2.8X too much money in circulation. Effectively, the $ should be devalued by 64%.

Crazy, but that's close to what I had anyway. All routes lead to Rome...

Goldfan

ORO (2/3/2000; 13:56:10MDT - Msg ID:24233)
Currency systems - cool site
http://members.tripod.com/~poetpiet/guest_appearances/intro_to_currency_issues.htm
Following a link provided by SDRer I found this site.

He was suggesting this piece of work from Dr. Zander, 1935:

http://members.tripod.com/~poetpiet/guest_appearances/exit_monetary_chaos.htm

Enjoy

Particularly good for Aristotle, Journeyman, Nickel62, goldfan, 18K, and anyone else trying to figure out which currency structure is "better" or more likely to satisfy the needs of the various contenders for power.

goldfan (2/3/2000; 13:17:09MDT - Msg ID:24232)
OOPs!!!My Msg ID:24229)
that's e to the power of pie times i. This translator doesn't recognize my pie sign. Not enough ale, or it would be more pie eyed.

Goldfan

goldfan (2/3/2000; 13:16:44MDT - Msg ID:24231)
OOPs!!!My Msg ID:24229)
that's e to the power of pie times i. This translator doesn't recognize my pie sign. Not enugh ale, or it would be more pie eyed.

Goldfan

GD (2/3/2000; 13:16:44MDT - Msg ID:24230)
FOA re:your 24209
FOA, I have not posted to you directly in the last 8 months of following your posts but have searched this forum constantly for your THOUGHTS. I was deeply saddened last night when I read your final reply. The feeling I had was one of great loss, like if your best friend moved to another state.

Needless to say that my eyes got watery when I read your 24209. It's great to see you again. I look forward to our next hike.

GD

goldfan (2/3/2000; 13:13:11MDT - Msg ID:24229)
Solomon Weaver (2/2/2000; 20:57:33MDT - Msg ID:24172)
Solomon thanks for your cheerful response. Ale sounds good. Here's more....

You said
<<<In the same fashion, changes in the oscillation of economic activities, which appear to be outside of "classic" analysis, may be
understood better by using this chaos math...but why choose to study risk? The various parameters you suggest are not units of risk. <<<<

When Hillary was asked "why climb that Everest mountain, man, are you crazy? He is reputed to have answered, "because it's there". I really like probability theory, without knowing much about it. And I do really get a rush out of finding simple equations that seem to describe complex events. To me, a good equation is like contemplating a language of God. I like Art too, and beautiful gold coins, but I'm utterly transfixed by something like :
e*� + 1=0.

>>>>>>What is amazing in my opinion is that given the "stakes" involved (for example the financial survival of retirees who have saved their
entire life and have no options to earn new income) that we have developed many investment games which because they are sold with
glossy paper brochures are just sitting ducks waiting to have an "unexpected outcome" (i.e. eventually enter into a high risk mode). You
don't need chaos math to make this story any more compelling.<<<<<

No you don't need it, but I think we can use it like ships use radar in a fog, to avoid the big icebergs that would sink us. Hopefully, we won't just use it to go faster, thus increasing the risks again. Maybe use it to allow us to enjoy the voyage more, feeling safer, and in fact, being safer. nickel62 had a compelling story about the way the stock traders use derivatives, etc. to defraud us and eventually themselves. Maybe if we got good at detecting changes in fractal dimension, we would be able to spot the scams in the way the numbers came up, and stay away from them. I wonder if the pure stock trading isn't still in the small caps anyway, where the float isn't big enough to interest the big guys??

From Webster's, Risk: 1. hazard, peril, exposure to loss or injury 2. Insurance. a. the chance of loss or the perils to the subject matter of insurance covered by the contract; also, the degree of probability of such loss. b. short for the amount of risk, that is the amount which the company may lose...

So this is the sense I am using the word, as when we talk about the risk/reward ratio of a particular contemplated stock purchase. The downside (risk) is the probability of loss of a certain amount, the upside (reward) is the probability of gain , probability as in 10% or 20% or quite likely( 80%?)or not very likely(maybe 5%?). (Fascinating how we use the word probable and possible.)

I'm hoping I can do this without going into the 10% plus or minus 2% 19 times out of 20 that the statisticians use.

Also to respond to your note on chaos dynamics. As I get it, the strange attractors, are cascading bifurcations of wonderful shapes that emerge when a recursive equation is repeatedly solved, output becoming input, over and over and the results graphed or displayed on a screen. Moreover, these patterns which repeat and repeat, are shown in reality, as changes in scale, but not dimension, fractal dimension. The shapes look the same, yet are different in "size". Think of a coastline, its shores bumpy and indented, the closer you look at a segment of shore, the more it appears to be the same "shape" as the large coast line itself. The shore of a mud puddle would display the same.

Studying the recursive equation that represents such a system, lets us figure out its fractal dimension. When the fractal dimension changes abruptly, we know we are at a saddle point, about to cascade over into another area of the pattern. Anyhow, I'm no expert on this. But It fascinates me. And I think it gives substance to our intuitions when it comes to human affairs. How many people do you know who get into a "saddle point" and then just fall back into the same old pattern, instead of changing habits, and getting to new territory?

FWIW

Goldfan

SteveH (2/3/2000; 12:15:16MDT - Msg ID:24228)
question from a person
This was sent to me. Thoughts are not mine but his comments are interesting:

Dear Sir,

There are so many articles written on the U.S economy, its gov't debt,
current a/c deficit, the "bubble" market, gold manipulation, huge money
supply, US$ strength...etc.. It looks like that the whole situation is
going out of hand and we are heading towards a disaster. The only
strange thing is it still has not happened after so many years. Similar
to other crises happened in Latin Am., Asia or Russia, we need some
events to trigger the crisis and several "sniper" funds to do the
killing.

The strength of the US economy is under the blessing of these crises.
Historically, the US$ had been in a downward trend from 1985, e.g. :
- SFR - 85' US1=2.80 95' US$1=1.20
2/00 US$1=1.65
- FFR - =10
=4.85 =6.75
- DMK - =3.30
=1.35 =2.01
- BPD - =0.90
=0.50 =0.62
- YEN - =260
=80 =107
It bottomed in 1995 and started to improve since then. Reason? Probably
due to the several crises
that happened in : Mexico from 7/94 to mid-96 and
Asia from 4/97 to end-98 and
Russia from mid-98 to mid-99 and
Brazil from end-98 to end-99 and who is next ?

Suddenly US is a very reliable place to park your money and invest for
the long term because US has
the " master planner" of the universe that can prevent crisis from
happening (in the US only). For this to
continue, there has to be more crises around the world so as to make US
look good. The biggest challenge to US's status right now is Europe and
its EURO. So we need some events there to trigger a crisis (is there one
already?) and the "master planner" and its satellite "sniper" funds will
have to position themselves and get ready for the kill. The objective is
the "transfer of wealth".

US is a debtor nation. It owes others too much money but there are lots
of ways to get the money back. But don't worry, after you are being
shot, they will send in the "red cross" (IMF, BIS or a consortium of
banks) to save you and get you up so that the game can continue some
times in the future. This is different from the Vietnam or Korean or
communist warfare which are sure to lose. This is a money game that the
US is pretty sure to win. Nobody or no country is able to fight the
"master planner" and its powerful "sniper" funds. The tiny states of
Europe, even the Union, are no match to the US so the natural place to
invest is still US which is comparatively speaking, safer.

Europe has its own problem to solve now and its EURO is under pressure.
It is too young to stand on its feet and without the blessing of the US,
its survival is seriously in doubt. Indeed, it would be a naive thinking
that your enemy will help you to beat himself or to let you share his
fortune. Definitely not a good time to invest in Europe. The hunting
dogs (from US) are sniffing for the prey and very soon you will smell
blood in the street. If Europe falters, the US is really infallible.

Is my "imagination" a little wild.
Any comment? Thanks.

Al Fulchino (2/3/2000; 11:57:28MDT - Msg ID:24227)
Rhodium up 600$; 40% . What exactly is it?
Partial information on it:

Rhodium is a precious metal of the Platinum group with properties of wear and corrosion resistance that make it ideally suitable as a final finish for all types of jewellery whether real jewellery made from other precious metals such as gold or silver or fashion (costume) jewellery made from a variety of materials such as copper,brass,cast pewter or cast zinc.

Rhodium is a white bright metal as plated and has many advantages over other white metal finishes such as silver or tin in that it is very hard so as to provide good wearing ability but also rhodium is almost impervious to attack by most naturally occurring chemical compounds and so the finish

does not tarnish

goldfan (2/3/2000; 11:42:00MDT - Msg ID:24226)
nickel62 (2/3/2000; 10:54:52MDT - Msg ID:24222)
http://www.prudentbear.com/markcomm/markcomm.htm
Volatility exponentially increasing is the mark of the beast!!! If it were a bridge vibrating in the wind, we would be well advised not to drive onto it. Article by Auerback at link above is on this subject, some clips from that below. It may not be a new thought, but if Mr. AG. wanted to get the world back to some sort of gold backing for currency, is he not making all the right moves so as to have the result appear inevitable??

Auerbach>>>>Ironically, earlier statements of Mr. Greenspan suggest that the Fed chairman once had an appreciation of such counterparty risks. Giving evidence to a Congressional Committee in 1994, Greenspan noted that "the failure of a
major derivatives dealer could impose credit losses on its counterparties that could threaten their financial health. Second, the dynamic hedging of options positions (e.g. associated with portfolio insurance) and certain other risk
management techniques lead market participants to buy assets when prices are rising and to sell when prices are falling. In principle, such behavior could amplify market price movements."

The Fed chairman added that "even if derivatives activities are not themselves a source of systemic risk, they may help to speed the transmission of a shock from some other source to other markets and institutions." Such an analysis seems prescient in light of what occurred in Asia, Russia, and Latin America in 1998, yet by this time the leader of the Fed appeared to be singing a completely different tune. Rather than establishing a lead on restricting or, at
the very least, regulating derivatives' trading and exercising some oversight over the US banks and other financial institutions which employed such instruments, Greenspan came out against such measures.He pointedly
opposed the FASB proposal to make derivative positions more transparent for investors by requiring such companies to mark to market their positions. Both he and then Treasury Secretary Rubin also blocked then CFTC Chairman Brooksley Borne's attempt to bring over-the-counter (OTC) derivatives under the control of the Commodity and Futures Exchange. Ms. Borne eventually losther job for aggressively pushing the proposal.Greenspan argued that such reforms "may discourage prudent risk management activities and could insome cases present misleading financial information."<<<<<

Maybe AG doesn't want to fix the system until it is irretrievably broke, kind of like pouttting exlax in the hooch to make your kids stop drinking it.

FWIW
Goldfan

TheStranger (2/3/2000; 11:41:03MDT - Msg ID:24225)
The Round Table
When I arrived a little over a year ago, this forum was an inchoate group of goldbug intellectuals struggling to understand the machinations of a beleaguered market. I remember Michael used to post a greeting to every new member who happened along. Sometimes, on a slow day, he would challenge the room with a thought or two just to keep the discussion from dying.

But, today, the USAGOLD Forum has become a place where many intelligent people from many different backgrounds help piece together a gold mosaic which enlightens us all. This growth did not happen by accident. It happened because our host understood two heads to be better than one and a whole lot of heads to be better still. I often wonder if Michael, himself, isn't awed by the result.

I don't like to read inflammatory or disruptive posts any more than the next guy. But I submit the truth we seek has never been jeopardized by the heat of this debate. Yes, hotheads do get angry and storm out of the room (I've done it myself). But, perhaps because no other forum equals what is offered here, they ALWAYS come back.

It is in the nature of this beast, I believe, that no one of us shall ever deliver the whole truth. For this reason, as I have said before, I believe the table only serves us well to the extent that it is truly round. Let us hope that no one who shares his wisdom here will ever be granted a seat at its head. And, as for our proprietor, let us hope his wisdom continues to guide him towards an open debate where censorship and expulsion are limited only to those cases where deliberate attempts have been made to seriously disrupt the process.

SteveH (2/3/2000; 11:21:51MDT - Msg ID:24224)
It starts
www.lemetropolecafe.com

Le Metropole members,

Rumors are sweeping Wall Street that a primary
bond dealer is going under as a result of the
Treasury's announcement that it is reducing 30
year Treasury bond supply.

The Fed has denied an emergency session has
been called,but does not deny a big dealer in trouble.

30 year bond yields have collapsed in a very short
period of time from 6.76% to 6.06%. Forward price
30 years are even lower in yield.

There are many market players caught the wrong
way on yield curve trades as the curve has now
inverted in what must be record time.

>From a Cafe European bond dealer:

"something should happen because this thing is lethal for all asset swappers"

Banking stock index diving.

Meanwhile, the cash market for oil products are
on fire with cash prices way above NYMEX.
Situation very explosive.

Gold only up $1.40 in this VERY BULLISH gold
market environement. Manipulation crowd desperate
to hold gold price down to avoid a gold derivative
blow up as is occuring in the bond market.

More later

<A HREF="http://www.LeMetropoleCafe.com/scripts/products.cfm">Le Metropole Cafe</A>

All the best,

Bill Murphy
Le Patron
www.LeMetropoleCafe.com

Journeyman (2/3/2000; 11:01:57MDT - Msg ID:24223)
Defending Gold: Chapter 2a @Elwood (2/3/2000; 2:53:39MDT - Msg ID:24198)

Nicely put!!

Regards,
J.

nickel62 (2/3/2000; 10:54:52MDT - Msg ID:24222)
Inverted yeild curve means recession ahead!
Traditionally an inverted yeild curve means a recession is being picked up by the bond market. I hurry to add however since the number of outstanding 30 year bonds are actually very few and the proclivity of our financial masters to continue to manipulate every market in sight I might wonder if the plunge in 30 year yeilds is signalling something different this time. Economic chaos perhaps in the derivative markets?

Thriver (2/3/2000; 10:38:13MDT - Msg ID:24221)
A quick comment on FOA/Another's contributions
An old joke goes that two scientists will spend hours arguing over the expected results of an experiment that would take five minutes to perform.

What most people don't realize is that often it is more important to know and understand reasons and techniques behind something than just to somehow get the 'right' answer. Students who take enought math classes find this out.

The fundamental message of FOA/A that I get is to buy and hold physical gold. Most people I know would dismiss this out of hand as far too simple. Why, there is even less thought or timing involved than buying index stock funds.

For me, this I would anyways, even if I had never heard of FOA/A. BUT, it is truely interesting to get a peek behind the curtain, and see beyond the magician's hand motions. For we all know magicians are masters of the sleight of hand, and offical explainations we are given aren't designed to enlighten.

I'm a mere page here at the castle. But when my chores are done I do like to sit on the floor just out of sight, and hear the talk of the mighty ones sitting at the table.

TownCrier (2/3/2000; 10:01:51MDT - Msg ID:24220)
The Fed today added $4.765 billion to the banking system
http://biz.yahoo.com/rf/000203/1b.html
To help meet the system's reserve-maintenance needs, the Fed added these temporary reserves using overnight repurchase agreements. So what else is new?

Cavan Man (2/3/2000; 9:50:21MDT - Msg ID:24219)
Dear FOA and USAGOLD
FOA: Whether for ethics and honour or, love of man, your friend has let the horse out of the barn. I humbly submit to him that he has created for himself somewhat of a responsibility to continue with his THOUGHTS which demand his continued presence and consultation to some forum venue. as his time permits.

USAGOLD: You have said you do not agree with all FOA/Another have said, nor do I. However, I believe it is correct to say you do agree with much of it. Simply as an outlet for their collective insight, this forum is invaluable. I know from your words you intended from the beginning to make a home here for FOA/Another. At the same time, you rightly host an open invitation to comprehensive debate and disagreement for the benefit of all. But,either we see the wisdom and merit of the FOA/Another discussion or, we do not. If we do, then, realizing the highly controversial nature of the content of discussion, we make a concerted effort to maintain civility for their benefit on this forum. If you want to label that comment censorship then, fine. Conversely, if we do not see the merit of their THOUGHTS then, perhaps allow some other accomodation. In my opinion though, any other accomodation will be less than good although obviously better than none.

You are the best censor we know.

Indeed, this person, FOA, has a true and good heart; so generous is he/she with knowledge and understanding. This person has been challenged here by participants who are both esteemed and nitwits using highly inflammatory rhetoric. Please exercise a bit of diligence and editorial license when it comes to participants who engage FOA/Another in a manner not befitting the very high intellectual standards of this forum.

We live in an increasingly hostile and uncivil world. While we cannot control what surrounds us, we can make some modest attempt to influence what is written here at this web site.

Thank you for reading.

TownCrier (2/3/2000; 9:45:07MDT - Msg ID:24218)
Today's Market Report
Market Report (2/03/00): Gold drifted sideways, looking for a direction in overnight action. The path of least resistence it found was generally upward, particularly during the London session where the AM gold fix was $285.25, up $2.15 from yesterday's fix. In early NY trade the yellow metal is currently at $284.90 up 40� from yesterday's NY close. Financial World News reported that London gold was thinly traded "but physical demand continued to underpin general business" according to dealers there. With Hong Kong markets closed February 4th - 7th for the Chinese New Year holiday, activity is expected to decrease, with gold holding a narrow range during this time.

The Fed's widely anticipated rate hike of 25 basis points was taken by the market in stride yesterday. The early and heavy COMEX buying was said by traders to be from "a large NY trade house...along with a broker typically associated with fund activity," according to FWN. This was said to be followed by other funds joining in. Bridge News reported that UK officials with HM Treasury said today that the Bank of England is set to continue the auctioning of the 290 tonnes remaining in its originally announced program to sell 415 tonnes following the completion of this first phase of sales on March 21st. We can't help wondering why these Treasury officials felt compelled to make a point of this item today, unless it is a thinly veiled attempt to reassure jittery bullion banks (and their depositors) that this physical gold would indeed be made available to help satisfy their needs for the metal.

The World Gold Council is a self-stated proponent of gold in all its forms, and it is not opposed to sales, seeing these transactions to be the vital function of gold as a strategic economic asset. But they draw the line where the reasons for sales by the official sector are couched in a fog aimed at altering the public's proper perception. In a speech last week to The Business Club Zurich, WGC's CEO Haruko Fukuda offered these good words in regard to the circumstances surrounding the UK gold auctions: "Right from the start, we at the World Gold Council have been critical of Britain's gold auctions, a policy which has puzzled many observers. The British government argues that in terms of volume related to the size of the market these auctions are inconsequential. That is a fair point. After all, global demand for gold is currently exceeding newly mined supply by more than 1,000 tonnes a year. But we have consistently argued that this reasoning entirely misses the key message that is being sent to the market by these auctions. That message is not that 'the British government is mobilizing some of its gold reserves in order to help solve some domestic crisis' but instead it is that 'the British government is selling some of its gold reserves because it no longer believes in gold as a reserve asset', and it is this message which has been so intensely damaging. Parliamentary opponents to the British gold sales have persistently called upon the Prime Minister, Mr Tony Blair, and his Chancellor, Mr Gordon Brown, to deliver a coherent, economic rationale for these sales, but these calls have been dodged by the government. Instead, there have been obfuscation and evasion; the auctions have been defended by the government not on the basis of sound economic policy but along the lines of 'everyone else is doing the same', which is not only untrue but also astonishingly weak."

Meanwhile, the same parties (Deutsche Bank, The Bank of Nova Scotia, and HSBC Securities) continue to be on the receiving end of the growing number of delivery intentions announced for the February COMEX futures contracts. Today, another 285 contracts were added to those 5,142 contracts already called for during the previous three days, lifting the total amount scheduled to change hands by this month's end to 542,700 ounces of gold.

That will do it for today, goldmeisters. We'll see you here tomorrow.

Holtzman (2/3/2000; 9:43:47MDT - Msg ID:24217)
The Latest....Part 2

Though Yeltsin's campaign was briefer than George Washington's, I think the two men would have understood one another. In both cases, had they been younger, neither would have let go the reigns of power. The exhaustion of age gave Washington no choice but to let the fledgling U.S. begin its clockwork presidential succession. There's reason to hope the same exhaustion will now let Russia follow in the U.S.'s footsteps. I have no fear of Putin. Indeed, he seems quite rational.

The only motivations Russians ever had to reach out beyond their lands were the zeal of Communism and the fear of outsiders invading them. With Communism disgraced, the zeal is gone. That leaves only the fear of invasion. Regarding that, I deeply resent the way NATO and the EU have handled things. We should have invited Russia into NATO and the EU ahead of all others. Her economic shortcomings pale into insignificance compared with her military might (both the part which is still loyally Russian, and the part which is up for sale to the highest bidder).

So long as we fail to welcome Russia into Europe, especially if the EU quickly becomes a compulsory United States of Europe, we invite at best another cold war with a spurned Russia, and possibly even a hot war. Probably not under Putin, and hopefully not at all, but where's the sense in running that risk?

--------------
Why 2K?
--------------

To Strad Master, who wrote in (12/31/99; 19:34:42MDT - Msg ID:21933), "Well, it looks like Y2K may turn out to be the biggest hoax in world history." Certainly that was the sense one got in the innocently quiet dawn which followed the Hour of supposed Doom.

But was European monetary union a hoax? Everyone aware of its impending 1/1/1999 deadline was on edge in the months (even years) leading up to it. Would it work? Surely something would go horribly wrong. The whole of western Europe would collapse into financial anarchy without hope of recovery. Well, not exactly. What did in fact happen was that every involved individual did his or her panicking ahead of time. No-one over here in the financial community spent the 1998/1999 New Year's at home. Result: only a very few minor glitches which were beaten into submission well before opening hour the following Monday.

I'd been quite confident since then that the century date changeover would be navigated by the professionals just as EMU had been: smoothly and with minimal upset. Perhaps not every penny spent on Y2K remediation was efficiently spent, but the calm aftermath justifies almost any amount of waste. Though Y2K provided many opportunities for hoaxes, Y2K itself was no hoax.

Which is why I wrote on Tuesday 28 December 1999, "I personally expect there will be no significant software downtimes in any of the English speaking world's crucial systems (finance, military, power supply, communications)."

But my, was I wrong.

Barely a day later, the automated credit card equipment in my part of the world seized up. It did not seriously hinder me because I had, some months ago, tucked away one paycheque's worth of �5 and �20 notes. These functioned quite well as soon as I could make it to the front of the queue, past surprisingly dim people who kept hoping that perhaps it just needed one more attempted submission and their faith in plastic would be restored. It wasn't the end of the world as I knew it. All the same, it was certainly more obnoxious than I'd anticipated. And it arrived a few days ahead of schedule just to be especially tricky.

I'd also expected rather a stronger upward surge in financial investments come Monday 3 January 2000, and a rather stronger downward surge in metals. Neither materialised. Indeed, things then proceeded to become quite wonky in ways I'd never anticipated. So much for making specific predictions. I promise I'll stay nicely nebulous in future.

Dudley Moore: "But do you feel you've learned from your mistakes?" Peter Cook: "Oh, certainly, certainly, I've learned from my mistakes. I'm certain I could repeat them precisely."

Yours,
I.V. Holtzman

PS: Gandalf, Aragorn, there's a mining related page at http://www.speakeasy.org/~ohh/lossiel.htm I think you'll find most intriguing. Indeed, I highly recommend the entire http://www.speakeasy.org/~ohh/tolksarc.htm site.

PPS: There are deeper truths than gold, my friends, and Canuck Gold gloriously stated one in (01/20/2000; 09:49:02MDT - Msg ID:23254): "Idealists... If only everyone would come around to their way of thinking, everything would be right with the world. (I know this from practical experience because my wife is one of them.)" Thank you, Canuck, I'm relishing that maxim... in solitude of course, because if I share it with a certain someone I'll never hear the end of it <smile>.

Holtzman (2/3/2000; 9:41:46MDT - Msg ID:24216)
The Latest....
Holtzman here,

--------------
Wave Theory
--------------

I've no memory of whether this next bit is fact or simply historical fiction, but I recall a story set several centuries ago in a coastal village in Japan. One day the ocean pulled back, as if for low tide, but then it kept going and going until the beach was exposed halfway to the horizon. Shellfish lay helpless on the exposed sand. The fishermen left their boats where they lay aground and walked about, collecting their day's catch by hand. Children went out to collect pretty shells by the handful. No one seemed to think this ominous. Indeed, the villagers to a man assumed this was a gift of good fortune.

All but one. On the bluffs overlooking the beach lived an elderly gentleman. As he looked out upon the strange sight below him, he realised instantly what was going on. He'd seen this happen nearly a century before when he'd been little more than a babe. There was no time to lose, but his swiftest son would still take at least half an hour to reach the village below, and they were well out of shouting range. The man took up a torch and ran to his fields which were then quite dry as harvest time approached. He cast the torch into the fields and the fire quickly spread. He yelled to his sons to help him fan the flames. They thought he'd gone mad but thankfully they obeyed him.

Far out on the exposed beach, most of the villagers had their eyes on the sand, but one child looked back homeward and saw smoke rising from the headlands. Her cries roused the adults. The threat of losing the harvest overwhelmed the villagers' fascination for the beach, and they all ran, man woman and child, back through the village and up the hills to save the crops.

The last of them had just arrived at the top of the cliffs when they heard a roar behind them. They looked back and beheld what the old man had known was coming. The horizon looked wrong. It rose well above where it should have been, then could be seen for what it truly was: a dark grey wall of water towering in across the sands where they'd stood scant minutes before. It continued in, rushing over the boats that were still in their berths, crashing over the market at the beach's edge, howling inland with a ferocity unimaginable. In seconds the entire village was gone, and the waves were lapping scarcely a hundred paces from where they stood at the top of the high bluff.

Simply Me wrote in (1/13/00; 2:24:52MDT - Msg ID:22814), "Just a report from street activity. Gold and silver is being dumped all over the place! Small time dealers don't even want it because the premiums have crashed." Sadly, this is what I was afraid would happen. It's why the poor tend to remain poor: most never see the wave coming. And even among those who do hear the roar, most would rather die than be seen by neighbours as someone who dares to buck the trend. It's only a tiny minority of people who have the intestinal fortitude to do the opposite of what the neighbours do.

To everyone here reading these words, the simple fact that you Are reading this forum means that you are one of that farsighted minority. Now of all times, with the dot com seabed lain open enticingly in front of you, don't capitulate. The tide will return. Count on it. When the ocean is in its calm time, the beach is a wonderful place to reside and thrive. But when you see the warning signs, no matter how strongly you hear the call to follow the masses, have the sense to keep near high ground.

And should anyone ever wonder why so many people take time out of their busy lives to expose their observations to this Forum, let's just say that that old man's sacrifice set a standard worth aspiring to.

A few weeks ago, another poster said that I did not understand the road ahead. He was quite right: none of us have certain knowledge because there's always some aspect somewhere that we haven't considered yet. Far from upsetting me, his comments Inspired me to respond with what I hope will be yet more aspects for debate. And I very much hope that he will return and help us continue the exploration.

--------------
Gold in a Dollar Collapse
--------------

Mr Gresham made an excellent point in (01/02/00; 02:30:24MDT - Msg ID:22030). I'd previously stated that I didn't expect the purchasing power of gold to dramatically increase just because of a fiat currency crisis. Which is to say, a ducat buys dinner for two today, and I expect it will most likely buy dinner for two in the years following any particular fiat currency crisis.

But I should have more clearly stated that, during the onslaught of a fiat currency collapse, and especially at its epicentre, all bets are off. To discern what may happen in future, I find it best to look for similar situations in the past.

Before the imminent collapse of the USSR was visible to all, one Russian rouble had a purchasing power within the USSR of slightly more than one U.S. dollar. Even then, however, there was a certain favouritism for external currencies, particularly U.S. dollars, among those who bought and sold on the black markets (which, in practice, meant every Russian citizen). If you wanted to purchase forbidden goods, you had to do so with dollars. Still, the rouble/dollar exchange rates, both official and black market, didn't waver much from year to year.

As each Soviet citizen in turn became aware that the USSR was dead but simply hadn't stopped moving yet, he or she began doing what many readers here did prior to Y2K: they began converting their local currency into anything which would hold resale value and/or sustenance value. And, as always, there were those who did not see, who trusted in the authorities to keep things proper forever. It breaks my heart to think of the millions of people, most of them elderly, who within a few months' time saw the purchasing power of their rouble life savings dwindle to 1/1000 of its former purchasing power. How many pensioners do you know of who could withstand receiving the equivalent of $9 per month? However, those Soviets who had spare rooms full of vodka bottles or rice or U.S. dollars survived and in many cases thrived.

Did the purchasing power of a bottle of vodka increase within the Soviet Disunion? Did the purchasing power of a paper U.S. dollar rise there? In the heat of the collapse, most assuredly so. By one hundredfold? Perhaps in exchange for a few items, yes, but not across the board. Urgency plays a great part in short-term expenditure decisions. Would you spend $20 to post a letter? Without hesitation you would if that letter were a valuable contract which absolutely positively had to get there over night. But even a rich man wouldn't send Christmas greetings at such postal rates.

When faced with an urgent need to purchase a scarce commodity, desperate people will spend whatever is necessary. For example, the dollar cost of vital medicines in the collapsing USSR did indeed soar. Over the short term. Because the entire world had not collapsed along with the USSR, and because the black marketers' lines of import/export had not collapsed along with the official ones, a rising price quickly inspired suppliers to import more, which in turn brought prices back down. When considered in retrospect, those ex-Soviet citizens who were able to avoid spending their U.S. dollars managed to pass from one end of the storm to the other without a dramatic change in the purchasing power of their holdings. During the chaos, however, the U.S. dollar was seen as better than gold, simply because it was reliably steady.

But barely a decade before, that same U.S. dollar had been anything but steady. Following WWII, the U.S. experienced a multi-decade economic boom, brought about largely by the absence of competition (the rest of the planet's factories having been, in the main, bombed out of existence). By the Viet Nam war period, however, the rest of the planet had recovered. Meanwhile, the U.S. had made a strategic blunder by allowing its military/economic might to be fuelled by nations not under its control. The U.S. had then compounded its blunder by defending and sustaining Israel.

Do understand here that I appreciate the twentieth century jewish desire to return to the religious homeland, and I appreciate the U.S.'s long-standing inclination to come in on the side of the underdog. The problem is that, when any humanitarian gesture places a nation at a military disadvantage, the cost in vulnerability is generally higher than can be justified.

Certainly from the Muslim point of view, the modern nation of Israel was and remains nothing more than the latest crusader kingdom, an invasion from Europe populated by Europeans. Be clear on this: Arabs do not see Israelis as Middle Easterners. They see Israelis as Germans, Poles, Russians, Americans, etc., people who have the indecency to walk about in public with practically no clothes on. Time and again when Westerners launched crusades, they were worn down then turned back by the Islamic world's superior military might and tactics. This last time, in the mid-1900s, the Muslims discovered they were no longer superior in either. But then they realised they held an even more powerful tool of persuasion. They had the oil.

Interestingly, most U.S. citizens I've spoken with seem to think that OPEC's crude oil price hiking was responsible for dollar inflation in the 1970s. From what I've observed, though, OPEC simply provided the initial moment of clarity. It was the U.S. government itself which caused the inflation, indeed which encouraged it.

U.S. military commanders (who had, since the 1940s, assumed they were invincible) had already watched in growing alarm as tiny Viet Nam successfully snubbed its nose at them. Into this uncertain environment came a clarion call: oh my god, someone could pull the oil out from under us. Those of you who've read Tolkien will recall Sauron's moment of clarity when he looked out of his supposedly invulnerable fortress to see the source of his power poised to fall into the flames.

Fortunately for the U.S., there was more than one source of oil. But those domestic sources (and neighbourhood sources such as Latin America) came with a higher cost of production, and the infrastructure necessary for significant production had been neglected in favour of temporarily cheaper sources half a world away. For the same reasons the U.S. instituted rationing during WWII, the U.S. instituted inflation during the 1970s.

How would that help? The production cost to pull a barrel of oil from an American well was drastically higher than the cost from an Arabian well. With the U.S. suddenly realising it had allowed itself to become beholden to forces potentially outside their control, there came the urgent need to increase the retail price of a barrel of oil, at least within the borders of the U.S., to such an extent that U.S. wells could be profitably dug and operated. To safeguard the U.S.'s military support structures, it was consciously decided by the U.S. federal government that the U.S. economy should be sacrificed by inflation. Once sufficient domestic infrastructure had been restored, it was possible to reverse gears and enter the Volcker era. Texans be damned; Alaskan oil would still flow.

This, by the way, answers another question raised here some time back: why should the Bank of England be fool enough to sell its gold at what everyone could see was a 20-year low in price? The answer is simple: because there was something far more valuable in danger of being lost than whatever measly loss might be incurred on a sale of gold. To again reference Tolkien, a man who refuses to cast away something of value at need has lost all sense of proportion.

And what was that far more valuable something which the BoE was trying to defend? Not the LBMA: that's only a side issue intended to draw attention. The core issue is simply that Britain wishes to avoid becoming Europe's equivalent of Alabama, or worse yet Puerto Rico. The UK wishes to enter Euroland as the equivalent of New York. And history is on our side in this regard. Britain's historical tendency is to hold back and watch how some new era begins, learn by watching other people make mistakes, then join in when things are well under way.

--------------
Infinite Diversity in Infinite Combinations
--------------

FOA wrote in (12/29/99; 7:51:39MDT - Msg ID:21774) that, "the diversity and different social nature of Euroland will become it's most profound currency strength. If they were a more homogenizing people like the US, the Euro would become just another dollar! Their Old World, Hard Money conflicting nature will be reflected in a New Gold Market and a responsible world currency. Their practical Real World focus will not allow them to reject this digital currency as we move forward in world trade. The very best balance for the next 1,000 years. National states and broad based cultures, such as China and India will wholeheartedly embrace such a system. The prospects of using the Yen in such a world demonstrates the lack of understanding about how that currency and it's society functions."

I almost frantically hope you are right, FOA. But it does seem to me that, while the progress of an historical event may appear to be along a single path, very seldom if ever is there a single driving force behind it. Rather, like the tectonic plates I mentioned earlier, any resulting motion is caused by one opposing force failing to hold its position. There is a fault line running through the EU right now, and the American Experience has already provided the appropriate names for our adversary positions: States' Rights versus Union.

Ten years from now, will Germany be a sovereign nation, or just the European equivalent of Michigan? Will a portion of a Austrian citizen's retirement taxes be diverted to support a less productive Spanish citizen's retirement? That's how it is today in the U.S., with Chicagoans supporting Mississippians. I can see the benefits, and the perils, in both sides. I also have no significant say in which side will win out.

The average Californian does not know whether the earth beneath his feet will shift leftwards or rightwards, nor does he know exactly when the shift will occur, but he's quite certain the earth will shift someday in some way. As a result, he builds his house to withstand a shift in any direction. And that is certainly the situation in which I and my neighbours find ourselves.

I cannot say with any confidence, FOA, that loose and competitive confederacy will be the actual result for the EU. Interlocking alliances and even monetary unions have been implemented before, with widely varying results. Much as I sympathise with past American advocates of States' Rights, I'm not sure that Jefferson's loose confederation would have fostered a better standard of living for its people than the strong Union which was actually implemented. I do suspect, however, that it would have been less threatening to its citizens and indeed to its neighbours. For example, a loose confederation would have lacked the military might to have stolen the northern two thirds of Mexico. And it certainly would have lacked the ability to confiscate its own citizens' property.

While Spain, France, and Britain were taking turns vying for world empire, there was no rationale for European unification. The phrase "I am a European" occurred then about as often as the phrase "I am an Earthling" occurs today. Europe was a geographical abstraction only, not a source of commonality. But thanks to the end of Empire and in particular to the longevity of the Cold War, this continent now finds itself not so unlike the North American colonies of the 1700s. In contrast with the peoples outside the EU, we find to our surprise that Frenchmen are not so very different after all from Spaniards.

For that reason and others, I think that ultimately there's no chance of avoiding a United States of Europe. But there are two ways of getting there, and the first is the one I must say I prefer. That would be a gradual evolution over many generations, gently reaching a stage where Europe is as homogenous as, say, Australia. But much as I would prefer it, the odds of Europe developing this way are quite small in my opinion. A far more likely future as I see it, and a far more ominous one as well, involves a compulsory United States of Europe.

CoBra(too)'s posts on 2/2/2000 provide an early warning sign of the trend which I fear will continue, and indeed accelerate: Austria's sovereign right to elect its own leaders is already coming under increasing pressure from the EU. A loose confederation of equals would not do such things. A compulsory federal government like the present USA most assuredly would. I don't recall the details, but didn't an American State a decade or two ago elect a governor who was flagrantly in favour of apartheid? How did that go over in the other States, and what was the reaction of Big Brother? For that matter, isn't South Carolina currently being pressured to change its flag? I can think of few more emotional tokens of sovereignty than one's flag.

As to whether FOA's optimistic expectations will carry the day, or whether my and CoBra(too)'s more worried view will, I simply cannot tell. Although history is filled with the brevity of triumvirates and confederacies, it's always possible this time it will be different. Be reassured, FOA, I deeply hope you are right. I just don't feel sufficiently optimistic to bet my life on it.

The strategy which presents itself to me is to build my house to withstand any of several outcomes. That means to own British pounds because the UK is my nation today; to own euros because the EU is highly likely to become my nation all too soon; to own dollars because, who knows, the Fed may prove more reliable than the ECB; to own physical gold because no-one should trust any government overmuch; to continue to own unhedged gold mining stocks because they may yet have their day; and to own the stocks of well-established multinationals which are large enough to be their own nations, because they are often able to survive and even thrive when one of their many host countries convulses under them.

--------------
Peter's Neo-Feudalism
--------------

To Peter Asher regarding (12/28/99; 23:08:52MDT - Msg ID:21760), actually I quite agree with your conclusions about what you call neo-feudalism. As I allowed during a previous post, I'm rather a great admirer of Nicolo Machiavelli. You'll note that he wrote The Prince in the 1500s as something of an open letter to a self-made lord whom Machiavelli hoped might bring order to Italy. Heredity does often provide continuity, but every dynasty must start somewhere.

And dynasties have a way of changing their appearances over the millennia. I feel that The Prince should be required reading for anyone trying to make his way in the modern business world. Simply replace the word Prince with the word Manager as you read it and you'll see why. Individuals all over the planet have democratic voting rights as citizens of their nations, yet walk through the doors of their workplaces and immediately become, as you say, "Serfs and Lords."

The biggest single difference in today's neo-feudalism versus the medieval model is that heredity is no longer a given. In the U.S., the "all men created equal" credo is accommodated by allowing a schism between ownership and management. While the succession of managers ideally encourages survival of the fittest, the succession of ownership still allows for heredity. The Ford family, for example, has had on-again off-again generations participating in management, whilst the family fortune has descended through each generation regardless of management participation. But is Henry Ford the Whateverth a public figure? No. Is he secretive, or at least intensely private? Yes. Does any U.S. citizen fear him? Not that I've ever heard. Why? Because he isn't doing anything worth becoming alarmed about.

Interestingly, a similar owner/manager schism has been more slowly forming in the UK and in Europe. For example, Elizabeth Windsor is, in a manner of speaking, the largest shareholder of the kingdom, but it is Tony Blair who manages it for her. The ceremony to open parliament is very similar to an annual stockholders' meeting where the owners give their blessings to the managers' plans. While Elizabeth has far less influence over her corporation than does Bill Gates over his, this is because Elizabeth is no longer the majority shareholder of sovereignty.

Her predecessor, George III, had considerably more influence over his parliament's management, and let me be the first to say that this was to everyone's detriment. His arrogant disregard for the concerns of other shareholders (members of parliament, home country aristocracy, and also colonial aristocracy such as George Washington) resulted in the splintering of the English speaking world and came close to causing a revolution at home to boot. Thomas Payne, the man who wrote the Common Sense pamphlet so intensely popular in the colonies, was in fact a fresh-off-the-boat Englishman who had tried (and failed) to begin the revolt within the mother country.

I'll admit to being basically a monarchist, or at least a willing feudalist, and yet I do firmly believe that a man's actions are more important than his birth. For example, I think Prince Charles' actions have not earned him the throne, though the tradition of heredity will most likely place him on it. Pity. I would favour skipping him and placing the crown directly on William's head, allowing House Spencer to more quickly replace the obviously failing House Windsor. But as you can see I would still favour placing a crown on Someone's head.

I also think Bill Gates is someone to be far more concerned about than any Rothschild in the past half dozen generations. At least the Rothschilds' goal as a family is discreet continuity. They don't need to build an empire. They already possess an empire, just as the present generation of the Henry Ford family does. All they have to do is maintain and defend what they already have. By contrast, upstarts such as Bill Gates and the original Henry Ford must radically alter the world around them if they mean to rise above their humble beginnings and acquire great wealth. People with the Rothschild mindset living in California go out of their way to build earthquake-resistant homes. People with Bill Gates' mindset living in California are standing over the San Andreas fault working away at it with a jack hammer. Which sort of people would you prefer to live next to?

--------------
Putin: a good word
--------------

To The Invisible Hand, who was concerned about imminent nuclear war begun by Russia in (12/31/99; 7:16:55MDT - Msg ID:21891) and (12/31/99; 15:02:02MDT - Msg ID:21911)...

There's little mystery to why Yeltsin resigned.

elevator guy (2/3/2000; 9:36:42MDT - Msg ID:24215)
@FOA
Good to hear your "voice" again!

I didn't realize Another was caught up in pressure squeeze regarding your posting.

If you post by a different handle, I'll know it right away, as soon as you say: "We walk this trail together, yes?"

Ulysses (2/3/2000; 9:11:37MDT - Msg ID:24214)
pdeep msg#24173
http://www.usagold.com
The Social Security surplus buys NON-MARKETABLE Treasury securities ,i.e. worthless I.O.U.s.This is money owed to U.S. taxpayers by U.S. Govt.-kind of like owing money to a relative- if it doesn't get paid back, who cares?

Leigh (2/3/2000; 9:09:43MDT - Msg ID:24213)
FOA
Thank you for sticking with us! I can't wait to see your new "Trail Hike" site!

Leigh (2/3/2000; 9:05:01MDT - Msg ID:24212)
Diewarzu
Dear Diewarzu: In case you haven't noticed, this is an INTERACTIVE forum of human beings. We can't help developing friendships and relationships of all sorts. If that bothers you, there are other places (golden sextant, gold-eagle editorial archive, etc.) where you can read in peace. We won't bother you there.

JCTex (2/3/2000; 8:54:21MDT - Msg ID:24211)
FOA
I cannot tell you how nice it was to see "FOA" on the board, again. I am too damned proud to beg, but I was weakening fast. There is no way you could know how much many of us appreciate what you have done in the past, and we look forward to whatever you and MK work out. Your knowledge and perspective is not something easily replaced, if at all.

Diewarzu (2/3/2000; 8:22:51MDT - Msg ID:24210)
FOA, Permafrost, et al...enough already!
Just a lurker's perspective...
This forum seems to be becoming more of a soap opera than a gold discussion forum. Drop the egos and post your ideas. It seems that people here are more interested in making each other feel good about how good this post was and how intellectual that post was and how much of a wonderful thinker this person is and how foolish that person is and who is the most educated, etc, etc. GEE WIZ! Who cares about all that stuff...I just want to learn more about gold and related issues (I used to read this site daily several months ago, but now I rarely come here more than once a week due to all the extra "ego fluff" type posts). Nothing is either good or bad; only thinking makes it so. So drop the prideful thinking, get over it and use this forum as a means to share wisdom/insight/knowledge that is "relevant" to the subject matter: GOLD! Sheesh, didn't realize that "sensitivity" training was going to end up being a requirement to read/post on this forum. P.S...Hope I didn't step on any toes or offend any egos with this post;->

FOA (2/3/2000; 8:11:45MDT - Msg ID:24209)
Changes
Some changes I was asked to make.

Hello all,
The last post (s) by Rainman only underscored the point Another made to me earlier. His (Another's) message is so strong and political that it will always draw out "verbal assassins" in an effort to destroy the concepts (MK understands this and communicated it to me also). Especially as they (events) start to really confirm this new direction. Some of these (forum) disruptions are deliberate and some are due to mental dysfunction, but all of them divert most people from fully grasping the trail in the context given. I don't think everyone fully realizes just how much of an
impact these "Thoughts" (as political wills force the issue) will have on the international assets and business plans of major people. Some of them will argue against these viewpoints as if all their wealth depended upon it. Indeed, it just may!

Some time ago (many years), he privately planted these Thoughts very deep in the minds of a few. Only recently were these items produced on the Web for all to see. It was done in a way that did not betray things gained in confidence, but still made people see the world as others did. Another withdrew when the attacks (he knew would come), arrived. I wanted to continue on in a "narrative" fashion that would spell out these changes (events) more clearly as they occurred. As an American, I knew that most "Western Thinkers" would not ,did not and will not grasp these
political changes until they were well underway, or worse. Even then, every attempt will be made by special interest groups to show events in a different (more dollar friendly) light. Virtually assuring a stampede once the real bell is rung.

Truly, other major changes in world affairs are coming. Once they are visible, I believe Another will return and comment. Again, he does not write to engage people, he writes to place other minds "in the pipeline of political thoughts and directions". I truly think it has more to do with ethics and honour than the love of man. This may be a harsh observation on my part, but some cultures (as well as individual standards) require this.

So:
My posting here as FOA has attracted to much of the same caustic attacks that he walks right through. In reality, he is thick skinned as one could imagine such a person to be. As one of you posted an "A" item earlier, "these attacks are as boys having words with the wind, yet a strong wind has no ears" (or something like that). But, as the "thin skinned Westerner" I am, I do a poor job of representing his thoughts the way it was done before. After Permafrost continued his mindless comments, I was "asked" to no longer post as FOA in a give and take forum setting. Even
though I offered extended reasoning, it was never addressed in a clean logical fashion. The Rainman item only underscored this. But (if MK will allow), I will continue (as FOA) the "Gold trail Hikes" in posted letter form somewhere else on the USAGOLD site. We can still address many of the forum discussion items as deemed necessary. Yet, it will be done more in a letter format. If I am to post again on the forum (sparingly), I must use a different handle and debate the issues as myself, rather than represent the Thoughts of Another. This removes me from a conflict most of you did not know existed.

Also:

To everyone that wrote here in support of these writings, I reply with a thanks from a true heart. I accept this knowing that your words are also for all the other fine persons that post here.
MK, you are the Hollywood producer and director of this drama. A film being shown around the world for all to see. It's your call my friend?

Thanks FOA

Ulysses (2/3/2000; 8:07:11MDT - Msg ID:24208)
Lawyer's gold
http://www.usagold.com
Allen G's on his deathbed,tells his wife to put his gold in suitcase above his bed in the attic s that when his spirit ascends to heaven he can grab it on his way up. Six weeks after he dies, wife is up in attic, notices suitcase is still there.Silly man'she thinks,he should have told me to put it in the basement.

koan (2/3/2000; 7:32:18MDT - Msg ID:24207)
palladium up $14 to $512
Palladium is screaming and pulling the other metals with it. Platiunum is up $6.80 and gold and silver up lesser amounts. As I mentioned over the last two days this was a scenerio I thought could happen, but still along way from it. I think what is working in palladiums favor is that there just isn't "any" <g>. and I doubt that many users would have stock piled much, becasue the price has been rising steadily and you generally would not stock pile at percieved high prices - this is a great drama <g>. Thanks for keeping us informed Black Blade.

Julia (2/3/2000; 7:28:48MDT - Msg ID:24206)
MK, FOA, ANOTHER
Michael,
Thank you for clearing the "debris" from under our table.

Julia

Thriver (2/3/2000; 7:17:30MDT - Msg ID:24205)
on a lighter note...
Taking it with you

There once was a rich man who was near death. He was very grieved because he had worked so hard for his money and he wanted to be able to take it with him to heaven. So he began to pray that he might be able to take some of his wealth with him.

An angel hears his plea and appears to him. "Sorry, but you can't take your wealth with you."

The man implores the angel to speak to God to see if He might bend the rules. The man continues to pray that his wealth could follow him. The angel reappears and informs the man that God has decided to allow him to take one suitcase with him. Overjoyed, the man gathers his largest suitcase and fills it with gold bars and places it beside his bed. Soon afterward the man dies and shows up at the Gates of Heaven to greet St. Peter.

St. Peter seeing the suitcase says, "Hold on, you can't bring that in here!" But, the man explains to St. Peter that he has permission and asks him to verify his story with the Lord.

Sure enough, St. Peter checks and comes back saying, "You're right. You are allowed one carry-on bag, but I'm supposed to check its contents before letting it through."

St. Peter opens the suitcase to inspect the worldly items that the man found too precious to leave behind and exclaims, "You brought pavement!!!???"

Black Blade (2/3/2000; 6:50:53MDT - Msg ID:24204)
s&p futures up +8.50, Au up +0.80 at $285.30, Bonds up slightly again.
Looks like fun on the street today after only a puny 0.25% rate increase. Hmmmm..............

nickel62 (2/3/2000; 6:49:51MDT - Msg ID:24203)
Remember the old story about the dumb brokerage client?
who falls in love with a very micro cap Canadian mining stock and begins to buy a little every day. The thinly traded stock eventually begins to rise and the client becomes all the more in love with its possibilities. Soon he has sold some of his other stocks and buys more and more of the micro-cap mining stock and it continues to rise. Now fully convinced of his investment genius in finding the source of great future wealth he sells all other investments including his life insurance and house and buys yet more of the stock. Needless to say it rises still further as he purchases the last tiny bit on margin. Then becoming sated with his success he decides to diversify and calls his broker to suggest he sell a little to buy a new name. The brokers classic response of "To who?" sums up the problem of stock manipulation before they invented index funds and delta hedging. With these two new computer driven systems the market price can be obtained for a portion at least of the stock by increasing the number of shares at the margin that can be sold to realize real proceeds and therefore reward the manipulators.

Is money created? Well everyone who ones our little mining company stock thinks he has seen a "real" increase in his net worth. Being uninitiated in the "skam" these other owners are patting themselves on the back for their wisdom in being "buy and hold long term investors".They accordingly prepare to spend their newly acquired wealth either directly by selling to the computers or indirectly by increasing their margin debt either directly or indirectly.
In the US stock market if you replace our Canadian micro cap with GE,Intel,Cisco Systems and Microsoft you have over 27% of the NASDAQ valuation. While not all of these are necessarily in the NASDAQ the same effect is achieved. Sell to whom? The computers until the flows reverse.Then find out that MicroSoft et. all are worth 10 cents on the dollar best case. Don't think so? Then hang around and see what pricing stocks at the margin means when the leverage is reversed. No Bid!

Black Blade (2/3/2000; 6:19:05MDT - Msg ID:24202)
PM markets still look good, especially PGM's, look at Rhodium!
FOCUS-Key platinum metals comfortably above $500

By Marius Bosch

LONDON, Feb 3 (Reuters) - Platinum and palladium set new highs on Thursday, spurred by good demand and a supply shortage, dealers said. Platinum moved to its highest in nearly 10 years, while palladium set an all-time high. Both were fixed in London at $502.00 a troy ounce. A shortage of spot metal caused by a lack of deliveries from major supplier Russia was behind the soaring prices, with palladium and platinum already 13 percent higher than at the start of 2000.

Rhodium, another platinum group metal (PGM), continued its sharp climb, with dealers quoting the asking
price as high as $1,975 -- an eight-year peak but still well-off the highs of $7,000 reached in 1990. ``Rhodium and the PGMs once again are the only metals in the complex worth mentioning,'' said Helen
McCaffrey, Treasury Analyst at NM Rothschild & Son.

Russia supplies more than 70 percent of the world's annual palladium needs but political factors have
kept Russian palladium off the market so far this year and for most of 1999. Platinum and palladium, along with rhodium and ruthenium, are used in various combinations in autocatalysts to purge noxious gases from exhaust fumes.

PLATINUM LEASE RATES SKY-HIGH

McCaffrey said platinum and palladium were supported by a quarter percentage point increase in U.S. interest rates. ``It is difficult to argue against the trend at the moment, however, we will be watching the forward markets -- particularly platinum's - for signs of further lending which may see prices ease off slightly,'' she said. Lease rates, or the cost of borrowing metal, helped fuel platinum's rally with the rate to borrow one-month platinum now around 60 percent, double the rate in mid-January.

Palladium does not suffer too much from liquidity problems with the current lease rate around 8-9
percent, well away from the 200 percent seen in previous rallies. Dealers said platinum's premium over gold is the largest it has ever been. ``The platinum-gold spread is as big as its ever been, but bearing in mind the overall views on both metals, it would be brave to even sell it here,'' one bullion dealer said.

Russia was unable to export platinum last year due to loose wording in a December 1998 law which was
not amended until early 2000, and major South African producers said last week they would not be able
to increase exports. A decree on Russian platinum quotas, allowing exports, could be signed in 10 to 20 days or even sooner, a senior Russian industry official said on Wednesday.

GOLD STEADY IN EUROPE

Gold traded steady in Europe, and was last quoted at $285.00/$285.50 from the New York close at
$284.50/$285.25. Dealers said gold remained in its recent range of $280.00 to $290.00. ``Physical demand remains weak and fails to add some price support. The market is now a bit long and the risk for some profit-taking is increasing,'' a Swiss dealer said.

Silver remained stuck in its recent range and dealers expected the trend to continue. It was last quoted
at $5.19/$5.22, just up from the New York close at 5.17/$5.20.

18KARAT (2/3/2000; 6:05:41MDT - Msg ID:24201)
Re: ORO (2/2/2000; 23:02:53MDT - Msg ID:24188)
Wealth and value.
I heartily agree, Oro, with everything you said, but you know, it's still a very curious thing that Goldfan is drawing our attention to.

Let's say Microsoft's market cap goes up by a couple of billion dollars today as a result of a small rise in its share price negotiated by the few people who actually traded. and of course implicitly consented to by all the non-traders.
There is no corresponding movement of money that has occurred to explain where that rise in value has come from.
There is no place where a few billion bucks has disappeared to explain how it came to be in Microsoft.
The value of the wealth in the stockmarket is simply not a conserved quantity.
Likewise no-one had to labor to create the billions of extra dollars wealth.

Let's say a bunch of speculators go mad and drive up the price of a stock, daytrading amongst themselves.

The whole of the market finds itself so much wealthier.
In so far as the stock can now be sold at its new value, for dollars. Does this mean that money has been created?
and is it not true that even if you sell a share at twice the price at which you bought it, no money is created because the transaction of buying and selling is a zero sum game.
The share goes from seller to buyer, the money goes the other way.
The total wealth increases if the share is sold at a higher price than its previous transaction.
Yet no money has been created.
The money has changed hands at a higher rate of exchange relative to the shares.
Yet, the total number of shares and dollars that exist after the transaction is exactly the same as the number that existed before, though they are in different hands.
You could of course argue that the utility or public good has increased because both the buyer and seller are happier.
So is that what wealth is - a measure of happiness.

In 1987 when 40% (or whatever) of the capitalization of the market disappeared in one day.
Where did it go?
Who got richer when all those shareholders got poorer?
All those billions of dollars of shareholders' wealth just disappeared.
And the value of the shares is not just an illusion because you could at any time trade them for cash, houses, private jets etc...

Can you see why I'm suggesting that wealth defined by transactions at the margin in a securities market is purely a notional concept?
It really is just paper wealth until it's sold and in the bank.
Or exchanged for real goods.

18K

nickel62 (2/3/2000; 5:20:42MDT - Msg ID:24200)
Goldfan The post I was referring to was on the Three Risks.
"The problem here is the corporate philosophy that says that increasing the stock price is the goal, not providing a reliable product , cultivating the market for it, and providing long term employment to people in a healthy community."
You have pointed out many of the current problems in this article. Combining this with ORO's piece on the marginal nature of pricing assets at the value of the last sale leads to part of the answer in how we got here.
Twenty years ago I had the opportunity to visit the proprietary trading desks of several large Wall Street firms. This was in the quiet period between 1980 and 1982 when the stock market was a backwater and long term returns to equity for the prior ten years were 2% per year or less.Nobody and I mean nobody wanted to work in this business except a few obsessed individuals who thought stock investing was the only job in the world. The world of Wall Street was in transition from the clubby high commission old school tie days of the seventies , when "traders " almost always came from the New York fruit and fish markets and seldom had more than a high school education. They survived on their wits and their ability to do numbers accurately and reliably in their heads,thus the fruit and fish market served as a good training ground.The main trading room of Morgan Stanley (they had just started doing their own trading before that they had looked down on that part of the business)was a medium sized room with fifty or so people running around contacting clients over the phone and relaying the various bids and asks to a group of "position traders" who sat on a raised platform inthe front of the room so they could see the various sell side traders who sat at their phones and took calls from their respective client traders who worked at the major buy side firms. Thus a market was made. The power of the market was what determined price. But the really memorable thing was that under the raised table sitting on the floor was an MBA with a personal computer cranking the various information that the position trader wanted into the computer.now remember at this time personal computers were brand new and almost primitive. but what that young kid was doing was figuring out how to move the price so that the firm could make a profit on the block of stock they were positioning and resell it at a higher profit. ORO's analysis had been done by someone on Wall Street and they had figured out that if you could find a way to move that last trade all the stock you held could be "revalued" upward and maybe sold at that price. The various techniques of limited float and resricted stock and buy and hold investors could be manipulated by various means to make sure that the rest of the outstanding stock didn't reappear in the market to mess up your orchestrated price and vast profits beckoned. The simple story shows where this would lead. As index funds (and which stocks would go into them)
provided the means of generating predictable demand to be used to help lift stock prices when desired. The predictible nature of this index buying gave a clear direction of which stocks would rise and the effect this would have on future buying by how large a percentage this stock would represent in the indexed purchases of all future buyers. Pointing ut your vision of the unfolding dynamics allowed you to convince other non-indexed managers of the future price direction of particular stocks and thereby gain their willing purchasing power and/or willingness to buy and hold and therefore not mess up the manipulation. The targeting of uncooperative money managers with disinformation or convincing them to go short on stocks you were manipulating higher would both punish the non compliers and strengthen the play by providing additional non-price sensitive buying as the stocks that were shorted had tobe re-bought to cover at much higher prices. The use of delta hedging to protect the downside of clients could be sold at a price and this would allow the shorting of large amounts of a target stock that when the conterparties had to cover could provide explosive upside caused by non-price sensitive buying done in a panic as the underlying stock gets to levels not thought possible by other market participants. Those foolish enough to think they are playing in a free market are sucked in further as they continue to sell or buy thinking that the historical value points are still valid, or the techical trading points for that matter. In reality the game has been changed by the manipulators and these value and technical inflection points now become useful tools to use against their folowers. i.e. Get someone outside the game to sell a stock short because it is so obsuredly overvalued and then use your various tools to drive it much higher. Point out the direction to other follow the leader managers and they will jump on to help lift the price either through knowing cooperation or more commonly through the fact that they are twenty something kids who haven't a clue. So I now know where the young man sitting on the floor under the Morgan Stanley position trading desk has gone. Ultimately to allow the wiping out of my generations retirement savings through the concentration of indexed funds in a hand full of ridiculously over-valued "blue-chips" who are doing exactly what goldfan has so eloquently pointed out. Producing false earnings and restricting the shares outstanding and using all the corporate cash flow and additional borrowing power to enrich themselves and the investment bankers who help them control the deal.

Canuck (2/3/2000; 4:48:10MDT - Msg ID:24199)
Apologies
@M.K., Leigh
Sorry re: last night.

Still a little choked re: FOA.

Still puzzled (re: PFrost) shots at Oro ("Lord ORO" - the financial wizard; and "pagan ARI" - the sensible/sensitive
aristocrat)

@Stranger: You are the MAN. Your finesse is only overwhelmed by your intelligence.

Elwood (2/3/2000; 2:53:39MDT - Msg ID:24198)
Gold as Money
Aristotle wrote previously:

Aristotle (02/01/00; 14:42:52MDT - Msg ID:24055)
Journeyman and FOA

Begin quote:

Journeyman, in response to these words by FOA:
-------"a free world economy needs and demands a
currency that can expand and contract with changing
conditions. The curse of the old gold standard was that
it didn't allow this latitude and always created a
crisis when needs required this flexible money supply.
Only a separate gold market can offer a means to truly
measure the success of the money creating treasuries.
This is the direction we are heading, for better or
worse."------you, then, offered this challenge:
"I would suggest that any of us hard-core gold bugs who wish
to defend a return to some form of gold standard, need to
address the objection stated so well by FOA above."

The particular bone I have been gnawing on since the new year began has been an attempt to lay out the nature of a natural currency system in terms that don't overwhelm my own overtaxed brain cells--all three of them. It is very nearly ready for submission, and I can tell you now that the world as we know it needs, I repeat, NEEDS fiat currencies. At first blush, that my seem to run counter to everything that we stand for, but I assure you, it is the only way for Gold to truly have its day, as it should--as it will. The various failings in the past were due to a flaw in the architecture of the monetary system. If I have succeeded in my effort, the truth of the matter will be a source of extreme comfort to Goldhearts, and will strike everybody else as quite natural and, in fact, desired. The good news is that all signs point to the euro system as ushering in the repairman for the flaws in the old architecture. If they follow through with it, and get the support as needed, current Gold owners will reap the benefit of their foresight and wisdom--or else they will simply be basking as the beneficiary of plain ol' dumb luck. If these repairs are brought to completion, as I am inclinded to believe they will be, then we will never see Gold so cheaply obtainable--whether you choose to measure its price in dollars or by such means as loaves of bread.

End quote

Elwood replies:

No, Ari, I think this is one area where FOA has it wrong. Gold, like other forms of wealth, is nothing more and nothing less than an economic good. Like other economic goods its price, as determined by its value in trade with other goods, is set by factors relating to supply and demand. [Note: I'm speaking of physical gold, not paper gold.] If the supply of gold falls in relation to that of other goods its price will rise. That is, in a system which uses gold for money, the prices of other goods in terms of gold will tend to fall over time as technological advance occurs. This technological advance is what drives our civilization forward. Any society in which the laws and institutions promote the division of labor will experience this progress and economic growth.

FOA states, it seems, that our modern world, because it is modern, requires a money supply that is flexible or that is able to expand and contract as needs required it. This need cannot be fulfilled by a fiat currency since a fiat currency, history has shown, only expands. The same fate which is about to befall the dollar will, in time, consume the Euro as well, but that time is much further down this road we travel.

The reason that the Euro will be used widely in the near future is the choice that is being granted to those who engage in economic transactions: Gold or Euros. In essence, we have a system with parallel convertibility rather than the direct convertibility we've seen in systems of the past. This parallel convertibility will, at some point in the future, be outlawed due to its tendency to reduce the "flexibility" of those who issue the Euro fiat currency.

What I'm getting at is that, even today, gold, if used as money, will adequately suffice in that capacity. Over time as its value rises relative to other goods more will be mined or converted from other uses just as today more oil is produced when its price rises relative to other goods.

Regards,

Elwood

Chrusos (2/3/2000; 1:24:45MDT - Msg ID:24197)
FOA
http://www.usagold.com/cpmforum/default.html
Dear FOA
As a serious lurker who relishes your posts as the best on the net I have come out of deep cover with a message of support. I am based in Cape Town. I read extensively on many sites but there is nobody who does it like you. I have clipped all your posts and together they read so coherently, elegantly and intriguingly. If you leave us here on the trail after guiding us for so long what shall we do?

From my lawyer's perspective your posts, uniquely, best articulate and fit the momentous times in which we live. Your trail guidance has pointed out the landmarks and territory, which I would otherwise wander in, lost, not really knowing where north is.

I am very happy to be billed as one of your followers � this does not mean of the slavish mindless sort but rather as a student who has found a wonderful professor with a special worldview.

Mr. Permafrost is aptly named as frozen sterile subsoil. I would be very upset too if I was in your shoes and he insulted and baited me in public. So I hope that MK will remove Permafrost. Substituting him for you is like giving us a worn out, stinky old vagrant's shoe for a Rolls Royce. I also enjoy all the other wonderful posters but to me you are the best and have profoundly challenged my thinking.

May God bless and strengthen you. I wanted to quote you something from the book of Sirach 6:36 part of the apocryphal writings of the Bible " If you find a man of understanding, get up early to call on him; wear out his doorstep with your visits."

Thank you for everything you have given us � I for one deeply appreciate it. Please keep leading us on the golden trail and sharing your wisdom with us, your digital friends from around the world

Peter Asher (2/3/2000; 0:35:06MDT - Msg ID:24196)
Goldfan
Just got in. Robin forgot to cancel the forwarding from here, down to there and the dog was still chasing his tail. All fixed now.

Still reading 2/2 posts.

YGM (2/3/2000; 0:26:40MDT - Msg ID:24195)
GATA Bank Account Balance
http://www.gata.org
$148,698.00.......not too shabby for 12 months of so-called disgruntled gold stock shareholders whining....I think it was Martin Armstrong that dismissed GATA as such.........How's the cell Martin? Did you paint the bars Gold?......I truly hope your associates don't leave you holding the bag......They deserve MUCH more attention than you......Could be Rubin and his Goldman Sachs buddies will be paying the piper soon also.......YGM.

YGM (2/3/2000; 0:09:02MDT - Msg ID:24194)
Apologies if this has been posted previously.........
http://www.mcalvany.com
An Urgent Message from Don McAlvany:

<Picture: Under Construction>

Dear Friend,

If you are anything like me, you are growing increasingly perplexed by the price action of the financial markets. This past year the Dow Industrial Average was up nearly 25%, yet two-thirds of the stocks listed on the New York Stock Exchange were down! In fact, over 30% of the stocks on the NYSE hit their 52-week lows during the week of December 17th.

Additionally, the NASDAQ composite index was up an unbelievable 86%, yet virtually the entire move was accounted for by only four issues (Microsoft, Intel, Dell, and Cisco). Again nearly half of the stocks listed on the NASDAQ were down for the year! According to Media General Financial Services, a Richmond, VA market data company, the 1999 figures for the three major stock exchanges are very sobering. They reported that 4186 stocks declined in value, while only 3397 rose in value. Furthermore, if the interest and high tech stocks are removed from the equation, the stock market performed horribly last year.

Why then do investors seem to have such a peace about their stock portfolios? I believe we have been massively distracted from what is really going on. The news media is reporting only part of the story. Our attention is continually directed toward the indexes (like the Dow), toward the price action of the Internet stocks, toward the high flying IPO's (Initial Public Offerings), and toward the latest and largest takeover mergers. All these elements give the illusion of success, well being, and growth. But what is really going on?

For the vast majority of stocks, there is an ominous story developing. Stock yields, as measured by dividends are at historical lows (less than 2%). Price/Earnings Ratios (P/E ratios) are absurdly and historically high. Why aren't investors responding differently to the fact that 63% of the stocks listed on the NYSE are in a market decline?

I have been warning our readers of these facts while trying to make sense of some of the other financial markets. Long-term bonds, for instance, turned in their worst performance in over 20 years! 30-year bond values dropped nearly 25% from December 18, 1998 to January 12, 2000! During that 13-month period, interest rates soared from 5.0% to just over 6.7% (a 34% increase!). This jump in rates has actually devastated the market value of the 30-year Treasuries. How can investors remain so complacent in light of such grim results?

What is actually behind the rise in interest rates? What is causing this enormous shift to take place in the markets? I believe the answer lies in what the Federal Reserve has been doing while we were all being effectively distracted in other directions. Last year, the Fed embarked on the very perilous course of rapidly expanding the monetary base. So rapidly, in fact, that we now face some serious repercussions. We remember all too well the painful consequences of double-digit inflation in the late 1970's. But how many remember the reason for that inflation? The inflation that we experienced in the latter half of the 1970's was a direct result of the monetary expansion that took place in the preceding years.

The definition of inflation is an expansion of the money supply. What we term "inflation" generally refers to the rising prices of goods and services that we "see" and "feel." Yet rising prices are the result of inflation, not the cause. The problem is caused by excess dollars in the system vying for or chasing the same number of goods and services. In a perfect economic model, the money supply should only expand as rapidly as the growth of the economy, only as fast as new goods are created. But this isn't what has been going on.

The Fed has been on a "drunken binge" recently. According to the U.S. Financial Data published by the Federal Reserve Bank of St. Louis, the following increases have taken place. The Adjusted Monetary Base for the last two months of 1999 was up 48.1% on an annualized basis. For the entire year it was up a full 16%. Adjusted Reserves were actually up 41.8% for the year with an annualized rate of over 100% for the last six months!

The Financial Times of London reported in their January 10,2000 issue that in the three months ending January 3rd, the consolidated assets of the U.S. Federal Reserve Banks surged an annualized 64.3%!

These are huge increases. In their attempt to insure liquidity for our financial markets, I fear the Fed is on a collision course with inflation. The decade of the 1970s should serve as a cruel reminder of what happens when the restraints are removed from monetary expansion. It was a time when the government "ran the printing presses." Double-digit inflation ravaged the average investor. It only subsided with Paul Volker finally and decisively cut credit and raised interest rates to astronomical levels. (Remember interest rates between 18-21%?)

The Fed has only two choices now:

1. To cut back on liquidity, raise interest rates, and stop credit expansion; or

2. To continue to expand the money supply at an ever increasing rate to maintain and prop up the financial markets.

If they do the former, the U.S. could be thrown into a severe recession/depression. Stock prices would collapse and the current "prosperity" would come to an end. If they choose the latter, we could literally be heading towards runaway inflation. Neither choice is easy - both could end very badly.

What about the gold market? Of all the economic and world events that can affect the price of gold (ie., currency devaluation, economic uncertainly, military action, a rush to liquidity, Central Bank selling, etc.), inflation clearly stands out as the most dominant influence. In the same decade of the 70s, while the money supply was expanded and interest rates rose, the price of gold soared. Gold initially jumped from $35/ounce to $197/ounce before retracing to $102. From there gold continued its meteoric rise until it hit $850. Although gold's performance has been lack luster in recent years, it is worth noting that it still trades at eight times higher than it did in the early 1970s. Remember too that the purchasing U.S. dollar has lost 85% of its purchasing power since 1972.

Gold has always served as the world's "safe haven" for money. If we indeed are entering a period of inflation, we would all be well-advised to hedge against rising interest rates, lower corporate profits, falling bond prices, and a continuing decrease in the purchasing power of the U.S. dollar. The best insurance I know of for an economic portfolio is gold. Because economic trends today tend to be global in nature, I would expect world demand for gold to increase significantly over the next 6-18 months.

During a single day of trading last year, gold jumped $44.00. This was during a period of reasonably secure and normal markets. It was announced that the Central Banks might cease their gold liquidations. However, what would happen in a day or in a week if panic actually set in? There would be little or no time to act or react. I continue to encourage our investors to purchase gold now in quiet markets while it is still vastly under-priced. No one waits to buy fire insurance until the flames reach the second story at their house. Please don't wait to protect your portfolio until it is far more expensive to do so, or until there are too many others trying to do the same thing. I encourage you to read the information throughout this site carefully. I believe it will prove to be very helpful in preparing for the uncertain times ahead.

Sincerely,

Don McAlvany

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