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

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ARCHIVED DISCUSSION FROM 1/6/2001
All times are U.S. Mountain Time

(Yesterday's Discussion.)

YGM (1/6/2001; 22:43:59MT - usagold.com msg#: 45201)
"Der Spiegel" Commentary
Sent to the Cafe......
Commentary on the Der Spiegel story from a German
Cafe member:

Bill:

Congratulations! "Der Spiegel" ("The Mirror") has
the highest reputation in Germany as the most
important news magazine and has uncovered many skandals
in the past. The publication has never been afraid
to uncover and publicize findings after their own
fact-checking. This is really a big deal. I assume
that after this publication the story will be picked
up by other news media in Germany as well. Also,
"Der Spiegel" has a TV program and it may be a good
idea for you to proactively contact them for an
interview.

Regards,
KR


Also from KR:

Subject: GATA Lawsuit also in "Netzeitung.de" the
largest German internet based daily newspaper.

http://www.netzeitung.de/servlets/page?section=5&item=125655

on the frontpage:


****I'm imagining 1 million magazine readers and 8 million
Internet readers of "Der Spiegel" all gaining new interest in Gold.... Now where could 'ALL' this publicity lead..LOL
and seeing the tide of sentiment turning very soon......YGM

lamprey_65 (1/6/2001; 22:08:35MT - usagold.com msg#: 45200)
The Gold Elbbub
http://www.the-privateer.com/gold6.html
Well, you'll have to read this week's Privateer to get the meaning ;-)

dragonfly (1/6/2001; 21:45:10MT - usagold.com msg#: 45199)
Great Analogy
Randy (@The Tower) msg #: 45050

Greetings Sir Randy!!

Your pedagogical prowress is unsurpassed. Thank you for presenting us with another gem of inspired insight. It surely helps convey a great deal of information to others whose vision is clouded.

You wrote >>> "Transitional performances always appear crippled due to the suboptimal operating conditions for the ultimate design task. To wit, battleships getting a tug out of harbor...jet airliners being pushed around at the terminal...euro gold reserves under a dollar-based derivitive scheme of pricing as the euro begins to rise (dollar begins to fall)...etc." <<<

Regards,
dragonfly



Chris Powell (1/6/2001; 21:33:06MT - usagold.com msg#: 45198)
English translation of Der Spiegel article on GATA lawsuit
http://www.egroups.com/message/gata/614
Plus an editorial comment or two.

To subscribe to GATA's dispatches
by email and get them immediately so
you don't have to go look for them,
send an email to:

gata-subscribe@eGroups.com






SHIFTY (1/6/2001; 20:49:37MT - usagold.com msg#: 45197)
A $hifty translation of German magazine
German magazine Der Spiegel reports on GATA lawsuit


6 January 2001 Konspiration in the gentleman club? Against US central bank head Greenspan runs a complaint because of manipulation of the gold price. Also the German bank should be complicated into the zwielichtigen business. What US central bank head do Alan Greenspan, the bank for international clearing payment (BIZ) have, prominent global cash houses like German bank and J. P. Morgan as well as the separating US Minister of Finance Larry of buzzer together? " these gentlemen and these banks are responsible for one of the grossten scandals of restaurant history " - at least the US lawyer and Goldanalyst the Reginald Howe maintain. The advisor of the gold anti-anti-Trust Action Committee (Gata), an organization, which used up itself the fight against the alleged gold market manipulation, submitted therefore in December complaint with the United States District Court/District OF Massachusetts in Boston. Howe appoints itself to the Sherman act of the USA. The law forbids ausdrucklich the " Fixing " from prices in the grenzuberschreitenden trade. " in betrugerischer way the trust pressed the price for the precious metal over years on an artificially low level ", maintains the plaintiff. The Okay for the machinations came from the white house. As instrument of the " Konspiration " Howe constitutes the BIZ in Basel. There the bosses of the most important issuing banks maintain close gang in styles of a gentleman club. Howe is one of the few free shareholders of the BIZ - which hold predominant majority the central banks - and as troublemakers already well-known. Officially the Basler institute - just like the German bank - refuses each substanziellen comment, the US issuing bank left an inquiry unanswered to the complaint. Reproach are happig: " mine companies, their workers and owners are driven by the low gold price into the ruin ", say Howe. " in the developing countries the weak ones on the distance remain. " And, so paradoxically it first sounds: The barrier Street banks will spreader by the allegedly manipulated price billions. Actually the precious metal lost much of its gloss. Up to the First World War the currencies of the most powerful states were bound the international monetary system to the gold, after the Second World War to start of the seventies were based on the key currency US Dollar, which was convertable in gold. Still the myth of the glitzernden metal and likewise much emotion prevail in the trade. After its high-altitude flight end of the seventies however is sagged the price. For months the course sticks ounce in the range between 260 and 300 dollar for each. That meets above all producers such as South Africa. For the first time in their history the cape republic exported palladium than gold in the passed year more platinum and. Before 20 years the resplendent material still stated unquestioned the export list. At that time the dealers obtained dollar per ounce from time to time over 800. Today, then the Gata chairman Bill Murphy counts, would have to be situated the gold price with free market " over 600 dollar per ounce ". Would have. Because the financial elite trusts Howe according to plaintiff and the Gata of a simple equation: Only a deep gold price is a good gold price. An attractive course is considered generally as last warning of a monetary depreciation in the USA and a high-altitude flight signals a schwaechelnden US Dollar at the international financial markets. Both is a horror vision for Greenspan.
If the course pushes too much upward, then the critics maintain, gold in New York and London, the most important commercial centres, on the market are thrown. " the central banks are ready to lend gold in large quantities if the price rises ", acknowledged Greenspan in July 1998 before the bank committee of the US house of representatives. For Howe a clear case: " the statement equals the assertion that the gold price is controlled. "
With the check-out counter of gold the grosen cash houses made shining gains. However the German bank proved at the end of of 1999 business with an estimated equivalent of 5000 tons of gold - 1500 tons more than the official reserves of Germany. Morgan, Chase and the Citibank announced at the end of June to 2000 numbers, which would correspond to a gold mountain of 8461 tons. The business follows a simple pattern: Institutes borrow gold from the central banks to one aeuerst to low interest. The advantage for the national places: From the to a large extent useless gold mountains at least a small gain is drawn.
The banks sell the borrowed ingots. With proceeds they acquire securities, whose net yields exceed the leihzins far. Just as lucrative as risky business - and everything on pump. If the price breaks out too much upward, would have to bleed German bank, Goldman, Chase and CO: Then the leihzins would shoot also up. And, more badly still, the buy-back at the market would be almost unbezahlbar. Because the central banks require sometime the gold borrowed from them again. The " gold carry trade " ran already now from the rudder. Experts estimate that the business banks the central banks up to 7000 tons owe. ", to be over ever re-imbursed ", the experts of Salomon Smith Barney, a bank of the Citigroup warn too much. Therefore, Howe concludes, " Goldman, Chase and the German bank in the passed two years regelmaeig each appearing Goldrallye at the New Yorker produce exchange Comex by mass sales strangled ". But Howes theory is disputed. " also some my customers believe in a Konspiration ", say Analyst Martin Murenbeeld, publisher " gold monitor new type character ". " after me the available data I am however not convinced of the theory. " Gold Fields mineral services, a Londoner consulting firm, accuses statistical misinterpretations to Howe. The conspiracy theory is wrong. The experts analyse the sagged gold price rather as consequence of the strong dollar and low inflation rates. Besides many central banks used each still so small improvement in prices, in order to loose-will the dead capital. Approximately 33,000 tons gold nevertheless store in the safe deposits of the national institutes and international organizations. When it comes to the hostile exchange, the responsible judge in Boston must decide now. Howe hopes to uncover then " the machinations of the gold trust before public ". Greenspan and the representatives of the high finance would have then under oath
JANUARY DIRK HERBERMANN

- END


Cavan Man (1/6/2001; 20:09:41MT - usagold.com msg#: 45196)
@CB2
Good Sir Knight: There are very many highly intelligent people who grace these hallowed halls. However, you Sir are much smarter than the average (Wall@Broad) bear (and witty2)

All the best.....CM

CoBra(too) (1/6/2001; 19:30:45MT - usagold.com msg#: 45195)
@CM - Not being an expert ....
...meshugge ... crazy, depraved, raving mad in a fatalistic and typical sense of "Tante Jolesch (TM* Friedrich Torberg)", every Austrian's good old aunt stating among other great indictments, that "any improvement to your looks in comparison to an ape is a luxury"!
... A statement, I would gladly pass on to my broker - (a luxury I never could afford, anyway)- Can he be as cute as AG? ... may be the question? ... Oh, of course after reading Goethe's Faust, Gretchen, no Gretchen Morgenson's essay is out of the question - an essay answering the Quest of to be or not to be in the SM (aka: systmic meltdown)- Gretchen may answer with the bee in your bonnett.
Honett - say's old Austrian gent and went to the end
and overspent
a Sonnett, which meant the end of credit on rent...
and the tent
mortgaged at 125% (percent)...

As Mises, Hajek and co. won't even pretend
to give a cent
to AG's Waterloo - I don't think sooo - tooo- cb2


John Doe (1/6/2001; 19:24:26MT - usagold.com msg#: 45194)
California Scheming - Don't blame deregulation for the Golden State's electricity snafus
http://reason.com/ml/ml010401.html
"...In 1996, Assemblyman Steve Peace, considered by some to be the Sen. Pat Moynihan of the California legislature, decided to get in front of this parade. He organized the relevant players —big industrial customers, utilities, environmental groups, and consumer groups—and the result was an electricity restructuring bill that passed the legislature unanimously. Whenever that happens, you can safely bet something screwy is going on.

Politicians claimed the plan would provide consumers with more choice and lower prices. Big business figured its purchasing power would allow it to secure lower prices, of the sort the feds deliver up in the Pacific Northwest with the heavily subsidized Bonneville Power Administration. Consumer and environmental groups got lots of restrictions on how the utilities could operate, including price controls, which, as Cuba shows, do a great job of protecting consumers from such things as consumer goods, including necessities such as food, clothing, and, well, electricity. They also got a guaranteed 10 percent rate cut right off the bat...."

CoBra(too) (1/6/2001; 18:44:11MT - usagold.com msg#: 45193)
Cheers CM - it's getting stranger with the day -
though try pink -as in gin or Put'in's highly recommended potato destillate, called "Vodka" (whot can you put in without puttin' Putin in?)- No PGE's for sale- njet - gold -you bet!
... and the tale of NEM, (only big player in Uzbekistan)
a producer of value
withstanding the stratagem
of the usurer.

For too long, say some
as Ron Cambre leaves
no open doors, come!
to the thiefs.

And they try to steal
all value from me
I just might appeal
to the SEC and the CFTC -

Let it be - Just let it be
cb2 or even 3




Trurl (1/6/2001; 18:39:31MT - usagold.com msg#: 45192)
FOA/ gold confiscation
FOA, I like your latest 1/6/01 observation:

Truly, as peoples, we can know nothing if perception cannot separate "real" from "illusion".

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

In that spirit, I offer this suggestion for those worried about possible gold confiscation.

The Plan:

So the big, dumb storm troopers are pounding on your door, demanding your gold. You open the door and the squad leader demands, "we know you have gold, give it to us now!" Slowly, with great reluctance, you lead them to your kitchen sink. From under it you take out your old sock, clinking with coins.

They grab it and rip it open. Sure enough, the golden hue grabs all their attention. Your hoard of carefully saved Sacagawea ‘golden dollars’. All gone. Stolen by a government sworn to protect you. Sigh. Well, things could be worse…

Not investment advice.


Clint H (1/6/2001; 18:19:33MT - usagold.com msg#: 45191)
Black Blade msg#: 45087-45087)
Black Blade, my teacher in school said that in order give a good speech one must know ten times more about the subject than one actually delivers. I suspect that you read about ten times more articles than the quality posts that you pass on to us. I thank you so very much for your ongoing efforts.
Do you ever sleep?
I am taking the liberty of commenting on two of the articles that you posted. This is from a Joe Six Pack education but many years of hard knocks.

Black Blade msg#: 45087)
By JAMES FLANIGAN, Times Senior Economics Editor
<<A lowering of interest rates doesn't solve the energy problem, but it would ease the plight of California's embattled utilities by reducing their borrowing costs. That in turn would reduce pressure on banks and other participants in global markets that provide credit to those utilities as well as other businesses.>>

Clint H. One half of one percent on eight billion $ does not add any cash flow to the utilities that are furnishing the power. It just lowers expenses by less than one percent. Not any help that I can see.

<<Southern California Edison and Pacific Gas & Electric. The PUC staff issued an initial ruling giving the utilities a temporary 7% rate hike to alleviate their problem of uncollectible costs and rising borrowings. >>

Clint H. Key words here are temporary, uncollectible and rising (costs) borrowings. I think they also said that they may have to refund the money later. Really gives one a warm fuzzy feeling.

<<"It will be hard to refinance those loans," given the utilities' worsening credit situation, said Joan Payden, president of Payden & Rygel, a Los Angeles investment firm. "If their debts are downgraded, we could have illiquidity in the markets." >>

Clint H. If the key words from above apply and costs are not going to be collected, more money into this pit would be foolish. However California is "entitled" to the rest of the nations resources. Duh.

<<The PUC issues a final ruling today on the rise in electricity rates it will allow Edison and PG&E, so they may recover some of their short-term under-collections on electricity purchases. >>

Clint H. Recover some of their undercollections, how very generous of the PUC.

Black Blade msg#: 45155)
<<The state may issue bonds to give the utilities enough money to repay the billions of dollars they have borrowed to buy power on the wholesale market, according to the Los Angeles Times. The utilities--and their customers--would repay the money over time.>>

Clint H. Bonds must be repaid. Paying back eight billion $ on top of much higher monthly bills will make "their customers" squeal to high heaven. They will try to saddle the utilities and the investors for this bill. If you want the privilege of doing business in California you must do it at a loss.

<<On Friday morning, Philip Angelides, the state's treasurer, proposed setting up a financing authority that would issue $10 billion worth of bonds to buy the 75% of California's power transmission systems that is now in private hands. Some of the money would also pay for new, state-owned power plants. Construction on those plants could begin immediately, giving California an advantage over private power companies still waiting for state permission to build their own plants.>>

Clint H. The last sentence is the key. Sad.

Cavan Man (1/6/2001; 18:06:41MT - usagold.com msg#: 45190)
Article at Bloomberg
is calling for a possible rally in growth stocks.

Mishugunnah (spelling)!!!!!!

TheStranger (1/6/2001; 18:03:57MT - usagold.com msg#: 45189)
A Passage Regarding Wage Inflation from Gene Epstein's Column in Today's Barron's
As great a contributing inflation factor as is energy, labor costs are far greater. They are, in fact, by far the largest cost component in any economy. For the past two years the disinflation crowd has cited rising labor productivity and sluggish wage gains as proof that U.S.inflation was under control. Now, as the economy and capital investment slow, we all know that systemic productivity gains will be darn near impossible to achieve. But what about wages? Are they set to accelerate or not? It was with great interest that I read the following comments on this subject in today's Barron's:

"So with the tightest labor market in more than 30 years, and with productivity soaring, wages and salaries are rising a lot faster than the rate of inflation. The December report showed that average hourly earnings for "nonsupervisory" workers (about four-fifths of the total), rose at an annualized rate of 5.3% in the fourth quarter, which matched the peak set in October '97. The Commerce Department has found that if supervisory workers are added, then you generally mark that figure up by about 1.5%-2%, which would bring hourly earnings growth for all workers to about 7%."

Cavan Man (1/6/2001; 18:03:43MT - usagold.com msg#: 45188)
Cheers CB2
Have you a good remedy for the "brown bottle flu"?

Topaz (1/6/2001; 17:45:00MT - usagold.com msg#: 45187)
Usul (1/6/2001; 6:13:44MT - usagold.com msg#: 45160)
Hello Usul,
Your link to the Islamic banking article provided a synopsis of the 4 books by the Author.
In his 2nd (?) book he outlines a method of compensating for inflationary effects on invested capital under an Islamic (ie: NO interest) system of banking using only the POG as an inflation adjuster.
If perchance you have read his works, can you please elaborate on this method of inflation discovery?

CoBra(too) (1/6/2001; 17:31:50MT - usagold.com msg#: 45186)
@ FOA - I'm just stumbling along ...
... Well, while I'm considering myself a simpleton and one having had a few Scotches too many tonight - returning from a nice dinner with friends - I have to confess I'm at a loss following some recent steps of FOA/TG's trail, as I may have ended up in the imprint of a footstep of a giant- too big for a midget.
... this new dollar drop to kick off the next gold bull market. It will, but Another dynamic will happen first.
... the inability to reconstruct the present volume of paper gold into a new reserve currency, the Euro ...?
... Well why would I need this detour in acquiring physical at rock bottom, except as euro zone gold buyer lately it's getting cheaper with the dollar depreciating, though why should anyone wait for physical gold markets in euro, while you can buy physical anyway - and even in still inflated dollars?
... Granted paper gold (or future contracts) are setting the perceived POG today and granted it will not hold up in reality if delivery of reality or better physical will be required by only a few of the outstanding contracts.
All of that and much more of what you, FOA say I can easily accept - as I may be able to accept gold trading sructures and contracts are perceived to shift to another reserve currency... and cannot be converted at par ... at happy with today's physical parity - I mean you can effectively buy gold now at perceived paper gold prices... and yes it is getting even cheaper in euros - so while the dolllar hyperinflates and the new euro only inflates I'll be happy to utilze this window of exchanging currencies sub-par for physical gold (and some unencumbered "locked in peanut" reserves in the ground).
As it seems, Sir FOA, I'm still an ant at the Krakatoa and not at the relative begnign slopes of Mt. Rainer, where potential eruptions might be welcome to supplement
dwindling power supplies of the peoples west coast Republics. Give me real fire wood and bullion gold anytime and I could do without the next digital fiat currency - reserve or not - True? cb2


YGM (1/6/2001; 16:53:54MT - usagold.com msg#: 45185)
auspec..."Mr Gresham"
I'll second your nomination...
Mr "G" deserves special recognition for his timely and down to earth understandable (many) offerings here...YGM

Chris Powell (1/6/2001; 15:56:23MT - usagold.com msg#: 45184)
German magazine Der Spiegel reports on GATA lawsuit
http://www.egroups.com/message/gata/613
This genie is bursting out of the bottle
and there will be no putting him back in.

To subscribe to GATA's dispatches
by email and get them immediately so
you don't have to go look for them,
send an email to:

gata-subscribe@eGroups.com


Cavan Man (1/6/2001; 15:43:42MT - usagold.com msg#: 45183)
auspec on "Gresham"
He sure can write can't he!

auspec (1/6/2001; 15:40:26MT - usagold.com msg#: 45182)
Mr. Gresham!
Post #45146 Squeeze Is On- HOF Nomination
That was one fine post, my friend, and of tremendous help in INTERPRETING what you see and know for others to understand the complexities of the international payment system. Thank you! There are so many levels of knowledge among Forum posters and readers that multiple levels of INTERPRETATION are wonderful. I sometimes struggle to grasp what you are explaining, but grasp it I did, and that is exactly what is called for.
As far as SteveH's input in regards to giving Greenie "too much credibility" because he doesn't control all the Fannies, Freddies, Funnies, and other various Friends--- These entities are not directly under Fed's {AG's}responsibility, but the "strings" extend upward to the common masters for all the various F's {that speaks volumes, no?}. We are looking at the same creature here regardless how a blame game plays out. I am always truly appreciative of what SteveH posts because he is spot-on 99.9% of the time! Thank you SteveH.
You waxed eloquently in this post Mr. Gresham, and your analogy to molecular chemistry was splendid. Of course the streets of Money Heaven should have "streets paved with fiat". OUR MASTER must have sent that one your way! The CLHE-HoF guys have been inspired. More footprints to fall into and pull ourselves out of. I think AG will part the "Green Sea" that will turn Red after swallowing his chariots and his Fannie, but let us not quibble.
Well done and thus deserving of an official HoF nomination!

Chris Powell (1/6/2001; 15:30:09MT - usagold.com msg#: 45181)
Societe Generale follows GATA in suing BIS
http://www.egroups.com/message/gata/612
They have a lot more money than we do,
but we got there first.

Chris Powell (1/6/2001; 15:28:58MT - usagold.com msg#: 45180)
GATA lawsuit discussed on WABC-AM770 in New York
http://www.egroups.com/message/gata/611
This genie is getting out of the bottle,
and there will be more big news later
tonight.

YGM (1/6/2001; 15:20:31MT - usagold.com msg#: 45179)
Gold, CBs' and Dollar.......
Central Banks, Gold, -
and the Decline of the Dollar
Robert Batemarco
This article is adapted from a presentation given before a Freeman Society gathering in suburban Philadelphia in May 1995.

Are inflation, currency depreciation, and business cycles inevitable facts of life? Are they part of the very laws of nature? Or do their origins stem from the actions of man? If so, are they discoverable by economic science? And, if economics can teach us their origins, can it also teach us how to avoid them?

The particular need which all money, even fiat money which we now use, serves is to facilitate exchange. People accept money, even if it is not backed by a single grain of precious metal, because they know other people will accept it in exchange for goods and services.

But people accept the U.S. dollar today in exchange for much less than they used to. Since 1933, the U.S. dollar has lost 92 percent of its domestic purchasing power.1 Even at its "moderate" 1994 inflation rate of 2.7 percent, the dollar will lose another half of its purchasing power by 2022. In international markets, the dollar has, since 1969, depreciated 65 percent against the Deutsche Mark, 74 percent against the Swiss franc, and 76 percent against the yen.2

Many economists claim that this is the price we pay for "full employment." If so, I'd like to ask who among you thinks we've gotten our money's worth. We've experienced 11 recessions 3 since the advent of inflation as the normal state of affairs in 1933, with the unemployment rate reaching 10.8 percent as recently as 1982. Clearly, the demise of the business cycle - a forecast made during every boom since the 1920s - is but a mirage.

Other things being equal, if the quantity of anything is increased, the value per unit in the eyes of its users will go down. The quantity of U.S. money has increased year in and year out every year since 1933. The narrow M1 measure of the quantity of U.S. money (basically currency in circulation and balances in checking accounts) stood at $19.9 billion in 1933. By 1940, it had doubled to $39.7 billion. It surpassed $100 billion in 1946, $200 billion in 1969 (and 1946-1969 was considered a non-inflationary period), $400 billion in 1980, $800 billion in 1990, and today it stands at almost $1.2 trillion. That is over 60 times what it was in 1933.

For all practical purposes, the quantity of money is determined by the Federal Reserve System, our central bank. Its increase should come as no surprise. The Federal Reserve was created to make the quantity of money "flexible." The theory was that the quantity of money should be able to go up and down with the "needs of business."

Under the Fed, "the demands of government funding and refunding ... unequivocally have set the pattern for American money management." 4 Right from the start, the Fed's supposed "independence" was compromised whenever the Treasury asserted its need for funds. In World War I, this was done indirectly as the Fed loaned reserves to banks at a lower discount rate to buy war bonds. In 1933, President Roosevelt ordered the Fed to buy up to $1 billion of Treasury bills and to maintain them in its portfolio in order to keep bond prices from falling. From 1936 to 1951, the Fed was required to maintain the yields on Treasury bills at 3/8 percent and bonds at 2.5 percent. Thereafter, the Fed was required to maintain "an orderly market" for Treasury issues.5 Today, the Federal Reserve System owns nearly 8 percent of all U.S. Treasury debt outstanding.6

The Fed granted access to unprecedented resources to the federal government by creating money to finance (i.e., to monetize) its debt. It also served as a cartellization device, making it unnecessary for banks to compete with each other by restricting their expansion of credit. Before the emergence of the Fed upon the scene, a bank which expanded credit more rapidly than other banks would soon find those other banks presenting their notes or deposits for redemption. It would have to redeem these liabilities from its reserves. To safeguard their reserve holdings was one of the foremost problems which occupied the mind of bankers. The Fed, by serving as the member banks' banker, a central source of reserves and lender of last resort, made this task much easier. When the Fed created new reserves, all banks could expand together.

And expand they did. Before the Fed opened its doors in November 1914, the average reserve requirement of banks was 21.1 percent.7 This meant that at a maximum, the private banking system could create $3.74 of new money through making loans for every $1 of gold reserves it held. Under the Fed, banks could count deposits with the Fed as reserves. The Fed, in turn, needed 35 percent gold backing against those deposits. This increased the available reserve base almost three-fold. In addition, the Fed reduced member bank reserve requirements to 11.6 percent in 1914 and to 9.8 percent in 1917.8 At that point, $1 in gold reserves had the potential of supporting an additional $28 of loans.

Note that at this juncture in time, gold still played a role in our monetary system. Gold coins circulated, albeit rarely, and banknotes (now almost all issued by the Federal Reserve) and deposits were redeemable in gold. Gold set a limit on the extent of credit expansion, and once that limit was reached, further expansion had to cease, at least in theory. But then limits were never what central banking was about. In practice, whenever gold threatened to limit credit expansion, the government changed the rules.

Cutting off the last vestige of gold convertibility in 1971 rendered the dollar a pure fiat currency. The fate of the new paper money was determined by the whim of the people running the Fed.

The average person looks to central banks to maintain full employment and the value of the dollar. The historical record makes clear that a sound dollar was never the Fed's intention. Nor has the goal of full employment done more than provide them with a plausible excuse to inflate the currency. The Fed has certainly not covered itself with glory in achieving either goal. Should this leave us in despair? Only if there is no alternative to central banking with fiat money and fractional reserves. History, however, does provide us with an alternative which has worked in the past and can work in the future. That alternative is gold.

There is nothing about money that makes it so unique that the market could not provide it just as it provides other goods. Historically, the market did provide money. An economy without money, a barter economy, is grossly inefficient because of the difficulty of finding a trading partner who will accept what you have and who also has exactly what you want. There must be what economists call a "double coincidence of wants." The difficulty of finding suitable partners led traders to seek out commodities for which they could trade which were more marketable in the sense that more people were willing to accept them. Clearly, perishable, bulky items of uneven quality would never do. Precious metals, however, combined durability, homogeneity, and high value in small quantity. These qualities led to wide acceptance. Once people became aware of the extreme marketability of the precious metals, they could take care of the rest without any government help. Gold and silver went from being highly marketable to being universally accepted in exchange, i.e., they became "money."

If we desire a money that will maintain its value, we must have a money that cannot be created at will. This is the real key to the suitability of gold as money. Since 1492 there has never been a year in which the growth of the world gold stock increased by more than 5 percent in a single year. In this century, the average has been about 2 percent.9 Thus with gold money, the kind of inflations that have plagued us in the twentieth century would not have occurred. Under the classic gold standard, even when only a fractional reserve was held by the banks, prices in the United States were as low in 1933 as they had been 100 years earlier. In Great Britain, which remained on the gold standard until the outbreak of World War I, prices in 1914 on the average were less than half of what they were a century earlier.10

Traditionally, the gold standard was not limited to one or two countries; it was an international system. With gold as money, one need not constantly be concerned with exchange rate fluctuations. Indeed, the very notion of an exchange rate is different under a gold standard than under a fiat money regime. Under flat money, exchange rates are prices of the different national currencies in terms of one another. Under a gold standard, exchange rates are not prices at all. They are more akin to conversion units, like 12 inches per foot, since under an international gold standard, every national currency unit would represent a specific weight of the same substance, i.e., gold. As such, their relationships would be immutable. This constancy of exchange rates eliminates exchange rate risk and the need to employ real resources to hedge such risk. Under such a system, trade between people in different countries should be no more difficult than trade among people of the several states of the United States today. It is no accident that the closest the world has come to the ideal of free international trade occurred during the heyday of the international gold standard.

It is common to speak of the "collapse" of the gold standard, with the implication that it did not work. In fact, governments abandoned the gold standard because it worked precisely as it was supposed to: it prevented governments and their central banks from surreptitiously diverting wealth from its rightful owners to themselves. The commitment to maintain gold convertibility restrains credit creation, which leads to gold outflows and threatens convertibility. If government were not able to resort to the issue of fiat money created by their central banks, they would not have had the means to embark on the welfare state, and it is possible that the citizens of the United States and Europe might have been spared the horrors of the first world war. If those same governments and central banks had stood by their promises to maintain convertibility of their currencies into gold, the catastrophic post -World War I inflations would not have ensued.

In recent years, some countries have suffered so much from central banks run amok, that they have decided to dispense with those legalized counterfeiters. Yet they have not returned to the gold standard. The expedient they are using is the currency board. Argentina, Estonia, and Lithuania have all recently instituted currency boards after suffering hyperinflations. A currency board issues notes and coins backed 100 percent by some foreign currency. The board guarantees full convertibility between its currency and the foreign currency it uses as its reserves. Unlike central banks, currency boards cannot act as lenders of last resort nor can they create inflation, although they can import the inflation of the currency they hold in reserve. Typically, this is well below the level of inflation which caused countries to resort to a currency board in the first place. In over 150 years of experience with currency boards in over 70 countries, not a single currency board has failed to maintain full convertibility.11

While currency boards may be a step in the right direction for countries in the throes of central-bank-induced monetary chaos, what keeps such countries from returning to gold? For one thing, they have been taught by at least two generations of economists that the gold standard is impractical. Let's examine three of the most common objections in turn:

1. Gold is too costly. Those who allude to the high cost of gold have in mind the resource costs of mining it. They are certainly correct in saying that more resources are expended to produce a dollar's worth of gold than to produce a fiat dollar. The cost of the former at the margin is very close to a dollar, while the cost of the latter is under a cent. The flaw in this argument is that the concept of cost they employ is too narrow. The correct concept economically speaking is that of opportunity cost, defined as the value of one's best sacrificed alternative. Viewed from this perspective, the cost of fiat money is actually much greater than that of gold. The cost of flat money is not merely the expense of printing new dollar bills. It also includes the cost of resources people use to protect themselves from the consequences of the inevitable inflation which fiat money makes possible, as well as the wasted capital entailed by the erroneous signals emitted under inflationary circumstances. The cost of digging gold out of the ground is minuscule by comparison.12

2. Gold supplies will not increase at the rate necessary to meet the needs of an expanding economy. With flexible prices and wages, any given amount of money is enough to accomplish money's task of facilitating exchange. Having the gold standard in place in the United States did not prevent industrial production from rising 534 percent from 1878 to 1913.13 Thus it is a mistake to think that an increase in the quantity of money must be increased to assure economic development. Moreover, an increase in the quantity of money is not tantamount to an increase in wealth. For instance, if new paper or fiat money is introduced into the economy, prices will be affected as the new money reaches individuals who use it to outbid others for the existing stocks of sport jackets, groceries, houses, computers, automobiles, or whatever. But the monetary increase itself does not bring more goods and services into existence.

3. A gold standard would be too deflationary to maintain full employment. As for the relationship of a gold standard to full employment, the partisans of gold have both theory and history on their side. The absolute "level" of prices does not drive production and employment decisions. Rather the differences between prices of specific inputs and outputs, better known as profit margins, are keys to these decisions. It is central bank creation of fiat money which alters these margins in ways that ultimately send workers to the unemployment line. Historically, the gradual price declines which characterized the nineteenth century made way for the biggest boom in job creation the world has ever seen.

The practical issues involved in actually returning to a gold standard are complex. But one of the most common objections, determining the proper valuation of gold, is fairly minor. After all, the market values gold every day. Any gold price other than that set by the market is by definition arbitrary. If we were to repeal legal tender laws, laws which today require the public to accept paper Federal Reserve Notes in payment of all debts, and permit banks to accept deposits denominated in ounces of gold, a parallel gold--based monetary system would soon arise and operate side-by-side with the Federal Reserve's fiat money.14

A more difficult problem than that would be how to get the gold the government seized in 1934 back into the hands of the public. But even that surely can't be more difficult than returning the businesses seized by the Communists in Eastern Europe to their rightful owners. If the Czech Republic can do that, we should be able to get government--held gold back into circulation.

In all likelihood, the biggest problem gold proponents face is that people simply aren't ready to go back to gold. Most people aren't aware of the extent of our monetary disarray and many of those who are don't understand its source. Two generations of Americans have known nothing but un-backed paper as money; few realize that there is an alternative. In contrast, when the United States restored gold convertibility in 1879 and when Britain did so in 1821 and 1926, gold money was still seen as the norm. That is no longer the case.

It might take a hyperinflationary disaster to shake people's faith in fiat money. Let's hope not. In addition to the horrendous costs of such a "learning experience," it's not even a sure thing that it would lead us back to gold. Recent hyperinflations in places as disparate as Russia and Bolivia have not done so.

The desire to get something for nothing dies hard. Governments use central banks with the unlimited power to issue fiat money as their way to get something for nothing. By "sharing" some of that loot with us, those governments have convinced us that we too are getting something for nothing. Until we either wise up to the fact that governments can't give us something for nothing or, better yet, when we realize the moral folly of taking government handouts when of-fered, we will continue to get money as base as our desires.



--------------------------------------------------------------------------------
At the time of the original publication, In addition to editing the book review section of The Freeman, Dr. Batemarco was a marketing research manager in New York City and taught economics at Marymount College in Tarrytown, New York.
--------------------------------------------------------------------------------


1. Arsen J. Darnay, editor, Economic Indicators Handbook (Detroit, London: Gale Research Inc., 1992), p. 232 and Survey of Current Business, vol. 75, February 1995, p. C-5 .

2. The Wall Street Journal, April 7, 1995, and The Economic Report of the President, 1995.

3. As measured by the National Bureau of Economic Research.

4. Robert J. Shapiro, "Polities and the Federal Reserve," The Public Interest, Winter 1982, p. 123.

5. Shapiro, pp. 126-127.

6. Federal Reserve Bulletin, February 1995, p. A30.

7. Murray N. Rothbard, "The Federal Reserve as a Cartellization Device: The Early Years, 1913-1930," in Barry N. Siegel, editor, Money in Crisis (Cambridge: Ballinger Publishing Company, 1984), p. 107.

8. Rothbard, pp. 105-106.

9. Richard M. Salsman, Gold and Liberty (Great Barrington, Mass.: American Institute for Economic Research, 1995), p. 26.

10. Michael David Bordo, "The Classical Gold Standard: Some Lessons for Today," Federal Reserve Bank of St. Louis Review, May 1981, pp. 8-9.

11. Steve H. Hanke, "Critics Err-Mexico Still Needs a Currency Board," The Wall Street Journal, February 22, 1995.

12. For a fuller treatment of this issue, see Roger Garrison, "The Cost of a Gold Standard," in Llewellyn H. Rockwell, Jr., editor, The Gold Standard: An Austrian Perspective (Lexington Books, 1985), pp. 61-79.

13. Alan Reynolds, "Gold and Economic Boom," in Sicgel, p. 256.

14. Hans Sennholz, Money and Freedom (Spring Mills, Pa.: Libertarian Press, 1985), pp. 81-83.

Reprinted with permission from The Freeman, a publication of the Foundation for Economic Education, Inc., November 1995, Vol. 45, No. 11.



megatron (1/6/2001; 15:08:24MT - usagold.com msg#: 45178)
analogies
Even better than the proton/electron analogy is the 'supernova', the unbalance of gravity(mass) and energy eventually eating through/using up the different elemental layers until iron, and then swift collapse.

Genoo (1/6/2001; 12:47:03MT - usagold.com msg#: 45177)
Monday Market
Any trumpeting of the entry of the HOWE/GATA case, as it enters the doorways of the lawcourts, I believe on Monday Jan 8,2001, could be drowned out by the sickening sound of a crashing market.

To my knowledge, not much has been written as yet about the prospects for 'the day after' one of the most extraordinary weeks in US market history. However, for anyone still long the NASDAQ, this could be a long weekend...perhaps long enough to penetrate the denial mechanism that has kept them long to date. Should the latter prove to be the case, there could be a rush to the exits as panic and capitulation trigger the final stage of ' the triple waterfall'. Hopefully, the process of realization will proceed in a more orderly fashion and continue its currently angled downward trough.

However, how ironic and perhaps sadly appropriate, if these two events were to coincide. ie. the presentation of evidence of corruptive practice in one area paired with the inevitable payoff of any action that seeks to
mask/deflect/deceive true market forces.

lamprey_65 (1/6/2001; 12:27:27MT - usagold.com msg#: 45176)
Gold - Paper Technicals
http://www.bookmarkusa.com/goldweekly.jpg
The breakout attempt at the end of December failed (was there ever any doubt?...a breakout at this time of year would have been very unusual, indeed).

Notice how the upper trendline is becoming more important as every week passes. Notice also how the breakout price falls every week...it now sits near $272. Every week increases the odds of the breakout - I expect it to occur by the end of March at the latest (my guess is sooner rather than later). With the dollar now falling and the equity markets not rejoicing over Uncle Al's interest rate cuts, anytime after the next BOE auction on January 23rd looks prime for gold to make its move. The 1993 breakout took place on March 30th.

BTW, the bottom trendline is drawn from the 1996 bear market and shows this pattern from October '99 for what it is - backing and filling.

Mr Gresham (1/6/2001; 11:20:13MT - usagold.com msg#: 45175)
Trail Guide/FOA
I know a little girl that would be happy to take you on a bit of a walk from Paradise Lodge to a panoramic view of the trail. Anytime you're near, OK?

This sounds like the nub of it, the trigger: "It will be the inability to reconstruct the present volume of paper gold into a new reserve currency, the Euro, that breaks the gold pricing system."

In other words, two parties get to the point of finalizing a gold contract, and one of them says, "Now, ah, how much would you be willing to do that for, in Euros?"

And the other one says, "Mmmmm, well, ahhhhh, no can do, sorry. Now can we just sign this and get on our way?"

That one knows that the creators of dollars are very likely to bail him out in a force majeure situation, whereas the creators of Euros will not jeopardize their new currency's stability to do so. Playing in a different ballpark.

I'll keep reading for more, but might be interrupted (guests -- I'm such a BAD host!) so I'll hit "Submit" now.


Cavan Man (1/6/2001; 11:02:55MT - usagold.com msg#: 45174)
Interesting Anecdote
I have an acquaintance living in SLC, UT who reports his "customers" are having trouble paying their bills. One in particular, closely affiliated with the "new economy" is barely paying in 60 days and now is on a cash with order basis.

Cavan Man (1/6/2001; 11:00:44MT - usagold.com msg#: 45173)
Hello Trail Guide
I'd just like to ask, who does all this "planning" developing and implementing the "means" to achieve an "end" that is far off in the future. It would seem to require an impossible amount of coordination among individuals and nations with varied, conflicting objectives. Thanks..CM

Christian (1/6/2001; 10:59:38MT - usagold.com msg#: 45172)
The The power of $3000 credit creation gold price.
Most people lose money on Wall Street. For every loser there is a winner. The money that disapeared from your mutual fund and stock accounts did not vanish: it simply changed owners. Presently insiders are preparing another, even more massive sell-off for March, April and May. Many high tech excecutives and insiders will have a lot of shares that come out of lock up and will be dumping literally billions of dollars worth of their own companies stock. Most buy backs of company stocks is made possible by bank financing or ordinary investors brokerage accounts money to make possible the cashing in of insider stocks. Wall Street is a financial ponzi scheme made possible with credit creation gold at a price of $3000+. Gold money has been replaced by the "promise to pay". We have a controlled commodity gold price of $270 and a free underground credit creation gold market price of $3000+. This spring the markets will collapse like a house of cards it really is for it has become dependent on the "promises to pay" that are not payable because income cannot be dollarized excepy by becoming more debt. Many high flying wall street corporations have used their stock price as a means of buying income. As stock prices go so does the income. In our monetary system all money is debt money. There is no other source of money except to borrow it into existence. In this way income cannot be dollarized except by becoming more debt. The FED is using the credit creation $3,000 gold price to achieve parity in order to double the debt in our present context. It can easily reprice the credit creating gold price to $6,000 and double the debt of the $3,000 credit creating gold. The bottom line is that debt cannot be paid off with debt, and debt generates no aggregate income that is not offset by more debt. It takes production times price to generate aggregate income for an economy. Greenspan can not produce more electric power by increasing money supply with more and cheaper loans. Somebody actually has to built the real physical plants to do it. Greenspan can issue more greenbacks but he can not issue green beans. You actually have to grow them. Greenspan can not print electric power, print food or oil or a lot of other things we need. We in USA have two choices- 1 monetize the debt or 2 default. Russia is doing it right by defaulting. Default is a sure and prompt way to reduce debt where monetization reduces the value of the currency or your savings.--- Write your elected representative and ASK 1- What is the price that credit creation gold changes hands between central banks and 2- What is the price of gold USA settles its trade deficits with at BIS. It is sad that in a so called free country we the people are forced to gold at the controlled commodity price not the central banks credit creation price which is many times higher. I like GATA but I no longer agree to what they are doing. They already have the answere to 1+2 above and are doing nothing to make it public.

Mr Gresham (1/6/2001; 10:58:17MT - usagold.com msg#: 45171)
Wow!
I see Beesting's WOW over FOA's message and I'm almost afraid to click into it. Might be possessed to run out for one of those 125% mortgages to take more FRNs over to the local coin dealer...

CoBra(too) (1/6/2001; 10:55:27MT - usagold.com msg#: 45170)
Re: Mark Faber (Barrons)
Hello Stranger,
according to MF/Barrons 2 types of booms - either
a. consumption powered - or
b. asset bubbles in new tech. - capital spending.

Seems to me this time both boom types relied on each other and who knows which occurred first to lead the other to either monetary oblivion or capital malinvestments at the grandest scale bust- ever experienced? ... and the winner of the double bubble IS... (not Chicklet's bubble gum-is it Bazooka?) - No there are only losers - maybe double credit bubble losers are still manageable by the Greenspun hype - the accentuated derivative BUBBLE`of a 100 trillion $ Delta hype of the "Nobly" priced Black/Sholes type won't ever be work, even in and in spite of counter party risk group{ie)s - an association of naked and short 3-letter word - well knowing thhe scam won't work - when the party is over and the counter{s) are bare ... BAC was a scare ... and we'll have more of the same - end of game?
I'll ask you - cb2




Mr Gresham (1/6/2001; 10:42:45MT - usagold.com msg#: 45169)
Journeyman: To the MOON!
Oh Golly, says Miss Molly. Yes, yes, I say yes.

That would do it, wouldn't it? Now why didn't I think of that? Been working in the salt mines too long, must be.

beesting (1/6/2001; 10:42:10MT - usagold.com msg#: 45168)
FOA From The Gold Trail #52,,,,,All I can say is, WOW!!!
Sir,
In this part of your message:

<< The only paper owners that are not worried are the ones with an economic good that demands satisfaction, in gold if
needed. Oil! The rest of us must bolt towards the closest "par" conversion first. Real gold.>>

I take it to mean Producers of Oil will be paid in Gold or Euro's to keep the oil flowing.
Is this assumption correct?
And, if physical Gold supplies are at some point exhausted Central Bank Gold or Ft. Knox Gold will be used to pay for oil?

FOA, I would like to echo USAGOLD's strong welcome back and best wishes to you and ANOTHER and all your loved ones for the coming events and New Year 2001...beesting.

auspec (1/6/2001; 10:17:37MT - usagold.com msg#: 45167)
justamere Bear
Hello Friend. Sorry to not have been able to participate in your worthy contest yesterday. We were celebrating my ingenue's 50th and what a celebration it was. After post #44921, aka 1001 Clinton insults, I am currently fresh out of "truths" to throw back at him. It is really a very empty feeling for now, but eagerly await the Queen's next move for more fodder. Is it 14 days left now? Let the bad times go! In the interest of fairness to all I suggest we extend the season for the following 14 days. A few rules are appropriate: 1- There will be no high blows allowed. 2- When you hear the bell---ignore it. 3- Anything goes.
Thanks to the silent members, who would never dream of publicly insulting their prez, for allowing us these liberties here. Thanks also to those that are in complete disagreement with this line of thought for indulging those few of us that are so inclined. If it is any consolation to you, I anticipate the same treatment of new guys if they start clowning it up.
Did anyone see the photo op with Bill, Hill, & Al together as Hill was being sworn in? All three had at least a pinkie on some little black book, a bible hopefully. Ms. Rodham had that delerious & goofy grin on, she really needs to work on that. I do not remember if the 3 Stooges had their other hands behind their backs or not. Betting that some fingers, toes, or legs were crossed during this swearing in. Some of that emptiness seems to be leaving now, things are looking up. 14 days really isn't that much time.
Do you think HRC will attempt a Senate takeover in her first year, or will she have learned from her health care fiasco and wait until the 2nd year? Every time in the past when The Queen Mother got snared in the wringer she was able to retreat back to her unelected civilian status and hide there. That will no longer be possible and frankly I don't think she has a chance of withstanding the scrutiny she will be under.
That goofy grin is gonna wear real thin. Let's watch these folks closely and celebrate our American heritage.
Got Gold, GATA, Gall??

Gold Trail Update (1/6/2001; 9:49:52MDT - Msg ID:45166)
The Gold Trail Discussion has been Updated
The Gold Trail Discussion has been updated. Click on the link to read the latest updates.

Journeyman (1/6/2001; 9:28:38MT - usagold.com msg#: 45165)
Gold to the moon -- how it could happen @Mr Gresham msg#: 45146, ALL

"It's hard to see $30,000, no matter how much of the above occurs; hard to see that something else
wouldn't siphon off those $ somewhere on the way to that, but none of us really NEED that number
just now except as an attention-getter, right?" -Mr. Gresham

Hi Mr. G.!

Something that WOULD drive gold to the moon would be if a "new" and valuable use were suddenly discovered for which it has not previously been used. (By the way, this is straight from Mises.)

Suppose the U.S. dollar crashed and as a result, world-wide confidence in and support for fiat money crashed right along with it. Not an impossible scenario, yes?

What would people use to store their value in? Even us slow, de-facto ignore ant Americans?

By golly! A completely NEW use for gold!!

To the moon!

Regards,
Journeyman


TheStranger (1/6/2001; 8:51:24MT - usagold.com msg#: 45164)
Marc Faber's View (from Barron's)
What is it the market knows, or thinks it knows, that the rather hoarse but still game cheerleading crew on the Street doesn't? The sage of Hong Kong (and anywhere else he happens to light), Marc Faber, in his latest Gloom, Boom & Doom Report, supplies the likely answer.

Marc stresses that there are two distinct types of booms: The first is consumption-powered, the other "an asset bubble or new-technology-driven capital-spending" kind -- which, you doubtless recognize, is the boom we all, until recently, so greatly enjoyed. A consumption boom typically ends because, well, consumers tire of consuming. In countering the recession that follows, Marc comments, tax cuts and rate cuts can be effective, once inventories are liquidated, in rekindling growth.

The asset bubble or new-technology boom, however, is a whole different animal, and so are the causes of its demise. The main culprit is a surfeit of capital investment that inevitably leads to oversupply and glut. Margins and profits suffer, returns to the folks spending all that dough fail to meet expectations and asset values crumble. "Even zero interest rates," Marc ventures, "may not help."

Compounding the woe is that an asset bubble or capital-spending boom is financed largely by long-term borrowings at fixed rates. During the bust, the interest costs on the long-term debt assumed to finance capital investment do not decline; indeed, in real terms, they become more onerous, the sorry stuff of rising defaults and bankruptcies.

Bubbles and investment manias, Marc says, always mark the terminal phase of a business expansion, although mistaken for its start. They are followed invariably by "deflationary busts, sharply declining equity prices, a weakening currency and a downward spiral in the economy."


JavaMan (1/6/2001; 7:59:35MT - usagold.com msg#: 45163)

http://biz.yahoo.com/c/u.html
Mr. Gresham, in your msg#: 45146 you said:

"But, as he has pushed back each harbinger or lesser trigger of that implosion, he has aligned all of the disparate elements in a grand conjunction, a parting of the economic Red Sea (in which his own chariots must perish), and the almost meticulously calculated as-if-planned Perfect Storm that will fall upon the economy with full fury and spare no frivolous item of economic waste from dissolution."

Very colorful imagery. Either this business with the California Utilities and associated banks was just a bump in the road or it is only the beginning of more of the same to follow.

People seem divided over the competence of Alan Greenspan, some believe him to be all powerful while others perceive him to be a dolt. Japan should serve as a good object lesson that one can lower interest rates only so far. One thing seems for sure, if this is only the beginning of a "Herstatt" scenario, we will surely see what AG is made of.


Black Blade, re: your msg#: 45162: Gretchen Morgenson sounds just like Bill Fleckenstine who has lamented their game for quite some time now…he refers to them as "dead fish".

I don't know if it has been mentioned here before but the Yahoo link above shows what the analysts have had to say about a given stock over the last twelve months. Interestingly enough, there is hardly ever a recommendation to sell despite the markets’ decline over the last ten months. I entered Priceline.com (pcln) whose stellar performance brought it from $100 in March down to $1 around the end of the year. Contrary to the analysts’ recommendations, however, it is obvious the stockholders had a different opinion on the matter.


Black Blade (1/6/2001; 6:45:12MT - usagold.com msg#: 45162)
Analysts Misjudge The Market

Gretchen Morgenson, New York Times
Sunday, December 31, 2000
©2001 San Francisco Chronicle

Of all the rude awakenings that the bear market in stocks has brought to investors this year, perhaps the most jarring has been the realization of how wrong Wall Street research analysts have been on the stocks they follow. How can so many who are paid so much to scrutinize companies have blown it so spectacularly for their investor customers? The answer lies in a subtle but significant change in the way Wall Street analysts do their work and how they are rewarded for it. That shift, which has brought riches and stardom to many securities analysts, has cost investors billions of dollars in losses. The fact is, although brokerage firm stock gurus are still called analysts, their work involves more salesmanship than analysis.

"The competition for investing banking business is so keen that analysts' sell recommendations on stocks of banking clients or potential banking clients are very rare," said Arthur Levitt, chairman of the Securities and Exchange Commission. "Whether this is an actual or perceived conflict, . . . brokerage firm analysis has diminished credibility."

"What passes for research on Wall Street today is shocking," said Robert Olstein, a mutual fund manager with 32 years of experience analyzing companies' financial results. "Instead of providing investors with the kind of analysis that would have kept them from marching over the cliff, analysts prodded them forward by inventing new valuation criteria for stocks that had no basis in reality." Although no one can predict what stocks will do tomorrow, much less next year, Wall Street's analysts are supposed to help investors judge companies' shares. Investors look to analysts to advise them on whether to buy or sell a stock at its current price.

Until the mid-1990s, that is how most analysts approached their work. Today, there is virtually no such thing as a sell recommendation from Wall Street analysts. Of the 8,000 recommendations made by analysts covering the companies in the Standard & Poor's 500 index, only 29 now are sells, according to Zacks Investment Research in Chicago. That's less than 0.5 percent. On the other hand, "strong buy" recommendations number 214.

Analysts have long been known for unrelenting optimism about the companies they cover. But many investing veterans say the quality of research has sunk to new lows. That decline, they say, results from business shifts that have pushed many researchers to put their firms' relationships with the companies they follow ahead of investors. The commissions charged by Wall Street firms to their institutional and individual customers for trading stocks are one factor. These fees were much higher in the 1970s and 1980s, such as 10 cents per share on trades then versus 1 cent or less now. Because analysts' recommendations helped generate trades and commissions, research departments paid for themselves. More important, an analyst who uncovered a time bomb ticking away within a company's financial statements and who advised his customers to sell its shares made an important contribution to his firm in commissions those sales generated.

As commissions declined, Wall Street firms looked elsewhere for ways to cover research costs. Investment banking was an obvious choice. Analysts soon began going on sales calls for their firms, which were competing for stock underwritings, debt offerings and other investment banking deals. In this world, negative research reports carried a cost, not a benefit. The result is that the traditional role of analyst as adviser to investors has been compromised.

Black Blade: Most securities analysts are nothing more than charlatans and con men. Listening Abby Jo? I use them as contrary indicators along with simple fundamental analysis. The Mary Meeker's, Joe Battapaglia's and Abby Jo's of the investment world should be looked only as clowns who entertain and not for any serious consideration.


Black Blade (1/6/2001; 6:21:32MT - usagold.com msg#: 45161)
Petroleum Will Continue to Hammer the Markets!
There is a growing consensus that OPEC will soon cut production 1- 2 million b/d. Indications that Kuwait's and Saudi Arabia's are in agreement make a production cut make it almost a foregone conclusion at the cartel's meeting later this month will be positive for oil prices. Also lower interest rates should support the slowing US economy and buoy demand for petroleum.

The American Gas Association reported Wednesday that 209 Bcf of gas was withdrawn from US storage last week, slightly more than analysts expected. US gas storage is 708 Bcf, a record low for this point in the heating season and 29% below the level of a year ago. Remember that natural gas is a continental commodity, not a worldwide commodity. For example, in London, the February natural gas contract gained 4¢ to the equivalent of $3.86/Mcf.


Usul (1/6/2001; 6:13:44MT - usagold.com msg#: 45160)
Islamic Banking & Finance
http://users.bart.nl/~abdul/book4.html
"Historically people have stored their wealth in gold and silver.

Banks, including the central banks and the IMF, too hold a major portion of their reserves in gold.

In fact, until recent times gold and silver coins were used as medium of exchange — that is, as money.

The British Pound and the US Dollar owe the prestige of their use as reserve currencies to their (now historical) guaranteed equivalence to a certain amount of gold, as much as to any other new cause.

Even today, when people's trust ebbed as to the ability of the banking system to return their deposits or as to that of the government to guarantee the value of the currency, people resorted to gold to hold their wealth in, if it was possible..."


Usul (1/6/2001; 6:08:33MT - usagold.com msg#: 45159)
Central Banks, Gold, - and the Decline of the Dollar
http://www.libertyhaven.com/regulationandpropertyrights/bankingmoneyorfinance/goldstandard/centralbank.html
"People accept money, even if it is not backed by a single grain of precious metal, because they know other people will accept it in exchange for goods and services.

But people accept the U.S. dollar today in exchange for much less than they used to. Since 1933, the U.S. dollar has lost 92 percent of its domestic purchasing power..."


Canuck (1/6/2001; 6:05:51MT - usagold.com msg#: 45158)
Nail in the coffin
Cold weather expected later in week-end and next week. A NG close $10+ would really be another 'nail in the coffin' for the CA util's.

Shifty

Good idea with the tape(s). L.K. and the puppets with horror on their faces as the POG crosses over $300 at a 60 degree angle. Hee hee!!

Usul (1/6/2001; 6:04:33MT - usagold.com msg#: 45157)
H. J. Davenport's Loan Fund Theory of Capital
http://web.nchulc.edu.tw/~gunning/pat/subjecti/workpape/loanfund.htm
When gold money is replaced by "promises to pay", the system of exchange becomes dependent on confidence in those promises, and everything must be done to maintain that confidence.

Black Blade (1/6/2001; 4:41:56MT - usagold.com msg#: 45156)
Gold Bull becomes Gold Bear
http://www.goldminingoutlook.com/
I see that SJ Kaplan has sold his stake in gold companies a couple of days ago and bought Dot.Coms and Techs. This ought to be interesting. I guess that the phrase about not trying to "catch a falling knife" has no meaning here. I remember when he said to short ebay and Amazon.com during the most irrational time of the exuberant market. One would have been whip-sawed badly of course. Now I await to see how this new strategy fares. I think I'll hold my PM position, my share of petroleum, utes, and other now minor positions, all interspersed with fishing and hunting breaks. Let the games begin!

- Black Blade

Black Blade (1/6/2001; 4:29:48MT - usagold.com msg#: 45155)
Excellent Follow-Up Piece from Bridge News
New York--Jan. 5--The front lines of the fight to save California's two biggest utilities shifted to the government Friday as a court dashed hopes it would cap soaring electricity prices that have left Pacific Gas & Electricity and Southern California Edison near bankruptcy. As credit-rating agencies warned that the companies are less and less likely to repay their debts, a federal appeals court denied Edison's request to force the Federal Energy Regulatory Commission (FERC) to let power generators charge no more than the cost of production in the wholesale electricity market. If the Washington court had ruled in the utilities' favor, they would have escaped from a financial vise that has cost them more than $9 billion in the last few months. Until late this week, the rates the utilities are allowed to charge customers were frozen at 1996 levels even though cold weather and a shortage of generating capacity have boosted wholesale power prices as much as 60-fold from last year's levels. On Thursday afternoon, the California Public Utilities Commission voted 5-0 to let the utilities raise rates by an average of 10% for 90 days. The utilities said the decision gave them crucial breathing space, but it falls far short of the 26% to 30% rate increases they say they need. Now, the companies, financial markets and the ratings agencies are waiting for either the state or the federal government to act. The Clinton administration has invited California Gov. Gray Davis and leaders of the troubled utilities to a meeting at the White House next week. "We feel that this is a serious enough situation that every party has to be willing to compromise and go the extra mile to find a way out," a senior administration official told the Washington Post. "We believe every effort should be made to bring the parties together in search of at least a temporary solution." The California legislature is also working on ways to fix the situation -- a goal the ratings agencies say is essential. When Standard & Poor's cut its rating on both companies from A, a solid investment grade, to BBB-, a whisker above junk-bond status, the agency admitted more downgrades could follow quickly. "Yet, Standard & Poor's has concluded that while lower ratings may soon result, they are premature at this juncture because the California legislature is in special session and is endeavoring to craft a timely solution to the financial crisis of the state's utilities," the agency said. "It is precisely the dire consequences of inaction that leads Standard & Poor's to conclude that there is a reasonable chance that action is forthcoming." If Standard & Poor's and Moody's, its largest rival, cut the ratings to junk-bond levels, the utilities would move even closer to bankruptcy. The power companies have promised their creditors to maintain investment-grade ratings. Violating those agreements would mean the utilities had technically defaulted on their loans, opening the way for the creditors to claim their assets. Both Bank of America and J.P. Morgan Chase & Co. each have about $500 million in credit exposure to the utilities, according to people familiar with the situation. Fears that the banks could lose the money pushed their share prices sharply lower on Friday, even though analysts said any defaults wouldn't hurt earnings much. California's legislature wants to make sure the utilities stay solvent. Gray called the legislature into a special session to concentrate on the crisis on Wednesday. The state may issue bonds to give the utilities enough money to repay the billions of dollars they have borrowed to buy power on the wholesale market, according to the Los Angeles Times. The utilities--and their customers--would repay the money over time. As a longer-term solution, the state could take steps that would give it more control of power generation within its borders. On Friday morning, Philip Angelides, the state's treasurer, proposed setting up a financing authority that would issue $10 billion worth of bonds to buy the 75% of California's power transmission systems that is now in private hands. Some of the money would also pay for new, state-owned power plants. Construction on those plants could begin immediately, giving California an advantage over private power companies still waiting for state permission to build their own plants. Those private generators are some of the same companies that have profited as wholesale power prices hit unprecedented levels. Any deal faces formidable barriers. Steve Fetter, a former utilities commissioner now working as an analyst at the rating agency Fitch, said a bond-issuance scheme would require two-thirds votes in both houses of the California legislature. In addition, it would probably face court challenges from the state's powerful consumer advocacy groups, he said. "Something has to be done in the next three weeks," Lori Woodland, Fitch's California utilities analyst, said via a conference call on Friday. The agency cut its ratings on both utilities' debt to junk-bond status from investment grade on Thursday. She argued that FERC should impose an absolute cap on California's
wholesale power prices. The agency has limited prices to $150 per megawatt hour, but utilities can charge more if they can prove the rates are justified. Wholesale prices have reached more than $1,500 per megawatt hour, compared with less than $30 last spring. On Thursday, James J. Hoecker, FERC's chairman, said he could support a temporary price cap to create a "time out" during negotiations for a broad solution to the crisis. Hoecker is expected to attend the White House meeting next week. Meanwhile, both utilities' stock remained weak. Shares in PG & E Corp., Pacific Gas and Electric's parent company, were up 25 cents at $12.25 late Friday. The stock has plunged from a high of $31.81 in the last year. Stock in Edison International, the owner of Southern California Edison, fell 43 cents to $10.31--roughly one-third of its high over the last year.

Black Blade: What more can I add here. This says it all. Collapse is immenent!


Black Blade (1/6/2001; 4:21:39MT - usagold.com msg#: 45154)
NG Going Higher and Banks Quiver as Loans and Derivatives are Scrutinized
By Gloria Gonzalez, BridgeNews

New York--Jan. 5--NYMEX Feb Henry Hub natural gas futures ended up 29.5 cents at $9.261 per MMBtu, extending Thursday's strong rally with support from forecasts predicting cooler temperatures toward the end of next week and expectations for a further expansion of the year-to-year storage deficit next week. The market had a technical reversal Thursday after a two-day sell-off left the market oversold. The rally was also partly a delayed reaction to the latest American Gas Association storage report. Observers said the 209-bcf draw featured in Wednesday's report was bullish because it was larger than both the 1999 draw of 133 bcf and the five-year average draw of 135 bcf.
"I thought it was a very impressive performance," said analyst Jim Ritterbusch of Ritterbusch Associates. "Just a couple of days ago we were teasing $8.000 and now we're at $9 and a quarter." Fundamentally, the weather picture, which had been overwhelming negative this week because of predictions for warmer temperatures, may have helped the market rally because of a chance for cool weather toward the end of the next 10-day period. Another shot of cool air will pass through the eastern United States this weekend and early next week, according to Bridge Global Weather Services. The impact of the cooler weather will be much smaller than the intense cold air masses that moved across the region in recent weeks. Temperatures will turn a little cooler, however, and some snow will precede the coldest air late in the weekend. Western portions of the country will see a change toward cooler weather late next week. Meanwhile, low storage levels continue to underpin the market with early indications that the next storage report will feature a withdrawal larger than the 1999 draw of 111 bcf during the comparable period. "Traders are looking ahead to next week's AGA," Ritterbusch said. "Even with the moderate temperatures, I think we'll draw more than 110, but that could be the last expansion of the deficit." Several market observers noted that after next week, it would take significant colder than normal temperatures to surpass upcoming withdrawals of 195, 242 and 213 bcf, which should lead to a narrowing of the year-to-year storage gap.

OUTLOOK

Although National Weather Service continues to predict warm temperatures in the Midwest and Northeast, several private forecasters are calling for more cold in the latter half of next week. The possibility of cold weather at the tail end of some forecasts is forcing people to rethink their positions. This should lead to more strength early next week as some players will be afraid to be short ahead of any more cold weather, sources said. In the absence of more forecasts for warm weather, the market may be "poised for a test of contract highs," Ritterbusch said

UPCOMING:

--Feb futures expire Jan. 29; Feb options expire Jan. 26.
--American Gas Association storage data are released at 1400 ET Wednesday.


Black Blade: Going into situation critical? It's going to be a close call. Yet the Grasshoppers continue to suck up energy at a record pace regardless of the price. They regard energy as a right. They complain when the prices rise. Why? Once it is extracted from the "core-rate" it isn't inflationary! Just ask the boys and girls at CNBC ;-) The events in the Peoples Republik of Kalifornia should be a warning to the rest of the country. The rumors that affected the Bank of America (BAC) show just how fragile things are now. Remember LTCM? That is a preview of things to come as huge debts and derivatives positions come under pressure and eventually begin to collapse as one domino (bank) takes out the next domino, etc. As power companies find that they are unable to service loans and go tits up, the rest of the investment community will take notice. The shock to BAC was just a preview that shows just how vulnerable and unstable these dominoes are.


Pandagold (1/6/2001; 4:07:35MT - usagold.com msg#: 45153)
Steve (Must Read)
I read his comments every week. He makes a lot of sense, and is often right on the ball with predictions, and observaions. Definitely worth following.

Always remember, any of you readers, that these writers can't stick their neck out too far (they have family besides their own necks to consider) They know the 'elite' are ruthless in what they are about and in the preservtion their position.

So try to see not only what they are telling you, but also what they are trying to tell you. (Getting the message?)

If you doubt it - read (Mr) Christian his words are 'bountyful') and profound. (No, I am not sorry about the pun)

Mr Gresham (1/6/2001; 2:51:59MT - usagold.com msg#: 45152)
Steve H: Pay no attention to that fellow behind the curtain!
Thanks, YGM.

Steve -- I've gone way beyond my night's capacity, so I won't open a window and re-read our two pieces. I've got windows open with: Noland, 2 Flecks, Tarpley on the Great D, Bearforum up through 8pm and another through 3a.m., ContraryInvestor, Longwaves, Bonner, McCulley at Pimco, couple others. (Anyone who wishes to phone in at this point to scream "GET A LIFE!" can dial 1-900-EAT-****)

Been a busy, exciting day.

It seems we both were exploring and your mechanical vibration analogy carried thoughts pretty well. I'll re-read in the AM. (Hey, it IS the AM!)

My analogies were flying fast and thick as well, but I was trying to get at the old question of "what is money", and what will it be under crisis dynamics? Like electrons jumping orbits under different excitations, money will flow en masse between levels of risk based on mass judgments, which, in a major crisis, will preclude saving much of the money from passing through the needle's eye of salvation.

I don't remember praising AG so much, but maybe it could sound like it. He IS the central character of the Bubble mythology, rightly or wrongly, and you know he knows where the Goldbugs' lost hearts are buried. Anyway, his "invincibility" is a proxy for the market's bullish faith and he'll be tarred and feathered with the same idiotic lack of understanding of his limits.

I don't think about him much, but this week it's been hard not to. Oh yeah, and he cost me $20,000 in leap puts in '98. GRRRRR... (Nothing personal, right? ;)

Thanks many times for the posts you bring over from Kitco. You know we couldn't take the time to scan for the best ones and your skill at selection relieves me from the sense of missing something over there.


SteveH (1/6/2001; 2:11:39MT - usagold.com msg#: 45151)
Must read
http://www.the-privateer.com/gold6.html
For snippet (all of it in fact) proceed to above link.

SteveH (1/6/2001; 2:01:32MT - usagold.com msg#: 45150)
Interesting repost
http://www.nationalreview.com/comment/commentprint010401d.html
We have economists who rely on a low price of gold to explain deflation v inflation. Is there any predictive value in basing one's prediction on the price of gold being low as the reason for current conditions and taking or making decisions of an economic nature that rely upon that premise as to gold being low? What if the premise for gold being low is the opposite of why one believes it to be low? Wouldn't that make any decisions based on it being low for one reason be completely wrong and lead to the opposite desired result?

If those in the know, know that gold is low because the ESF makes it so, yet others (see link above) believe it is low because they believe natural market forces make it so, wouldn't these differing parties make decisions completely different or cause them to offer advice that would be completely contradictory even though they were using the same fact or statitic?

I believe the answer is yes, it would make a big difference. That is why GATA is on to something, they just want a little bit of truth about gold told so that those who are at the helm of this big ship will make the right decisions about an economy in stress. If you have to make decisions the best ones, I would hope, would be made knowing the truth.

It seems that this truth-gap may be widening for Mr. AG, as we all believe he is in the know about this gold thing. But, the pundits on CNBC and CNN don't seem to understand gold nor why it is down and assume that gold is down because of natural supply and demand. They don't get that demand is so high for physical that all shackles are being broken down to free as much as possible without causing a rise in COMEX pricing.

In other words, if one is to use gold as a true monetary indicator, one must understand the difference between paper and physical gold and how they play off each other and understand that gold is the indicator they really want it to be, but others in the know, know this too and have taken measures to make sure that it gives the false signal. And there in lies the key with this whole mess. Disinformation extraordinaire!

SteveH (1/6/2001; 1:46:52MT - usagold.com msg#: 45149)
Interesting repost
www.kitco.com
Date: Sat Jan 06 2001 00:49
Goldfish (A good one from GE .........) ID#433282:
Copyright © 2000 Goldfish/Kitco Inc. All rights reserved
( All ) International Economist urges Greenspan to let gold price rise for the wrong reasons!
( Deadeye ) Jan 05, 22:37

From National Review:
http://www.nationalreview.com/comment/
commentprint010401d.html

Rate cuts alone will not solve deflation problem. In fact, they may make it worse. Under its current operating procedures the Fed can only add enough dollar liquidity to hold its federal-funds rate target in place. But what if the banks expect the Fed to continue lowering rates? If they bid for fewer reserves on the expectation that the price of credit will continue to fall, it could force the Fed's open-market desk in New York to actually reduce the base money supply to keep the funds target from falling further.

This is precisely what occurred in Japan between 1990 and 1998. The Bank of Japan ( BoJ ) cut its interest-rate target in small steps from 9% down to zero, but the market was one step ahead of the Keynesian economists at the BoJ. When bidding activity stalled, the BoJ was forced to reduce the monetary base even as rates came down. The yen/gold price continued its downward march, pulling the rest of the price structure down with it. Errors in tax policy exacerbated the situation, which continues unabated to this day.

The best we can hope for in the current environment is that Greenspan shelves his Phillips Curves and hybrid Keynesianism and adds enough liquidity to get the price of gold - the commodity of the highest monetary order - up above $300/oz. If he could do that, financial markets would stage an extended relief rally, celebrating the end of Greenspan's deflationary squeeze on liquidity. Unfortunately, Greenspan seems to have forgotten about gold's ability to foreshadow price-level changes, which places the burden of relief on fiscal policy.


YGM (1/6/2001; 1:35:07MT - usagold.com msg#: 45148)
Mr. Gresham...
The 'Squeeze'
That was an EXCELLENT and easy to read/follow synopsis, and one I'm saving...Thank you.....YGM

SteveH (1/6/2001; 1:28:25MT - usagold.com msg#: 45147)
Mr. G.
I believe you give Mr. AG too much credibility. Your analogy of the atom or every increasing circles within circles is apropos in so far as the undulations of the volatility that are growing larger by the day, it seems, don't start to throw these outer-orbits out of orbit. And that is the risk here. How do you control an economy that you don't have control over? Hasn't he admitted that the money supply is now created outside of his area of responsibility? Fanny Mae, Freddy Mac, money market funds, etc?

We have a case of too many people controlling money or not controlling it, as the case actually would appear.

I can't help but think these wildly gyrating days of volatility aren't merely a nasty indicator that the system is vibrating out of control. My friend Roger is a PH.D. in vibrational mechanics. He says that vibration is the main enemy to anything mechanical. He says anything will eventually break if you shake it too hard. Well, Roger may have been prophetizing about money too. If we shake this economy too hard, she will break also. These wide swings of stock prices and dollar-euro exchange rates appear to be held in orbit only by keeping the price of gold and other commodities low. That there is such a concerted effort to do this with California natural gas, gold, silver and who knows what else tells me that the fear of inflation is so high that those who control or can control commodities justify commodity suppression to save the system from inflation.

In the meantime, we have all the volatility on the markets and forex that shows the system is starting to break up in flight because of the financial vibration. The gravity of your US dollar proton holding these financial electrons is only as strong as the commodities backing currency make it. Since the commodities appear to be kept from playing their stabilizing role of letting currency rise or fall to their proper value, we are waging this battle in the one commodity (oil and natural gas) and few markets stocks and bonds) that keeps this battle of inflation in check for now; but soon, this will change because of financial vibration breaking apart your monetary electrons, starting with those in outer orbits.

Sooner than later it seems now, gold, silver, natural gas, oil will all have to be allowed to rise in US dollar terms in order to keep the system in homeostasis. These vibrating forces of destruction will not get any better until a dampening effect is applied and that is the natural supply v demand of goods and money. As long as we have folks who can control the commodities downwards, inflation seems in check. It is now starting to get out of their control. Or so it seems.



Mr Gresham (1/6/2001; 1:00:31MT - usagold.com msg#: 45146)
AG and Payments System: Squeeze is On
I guess I should put it up top: This is the way I see the FOA gold rocket-price scenario happening. Combination of Fed "printing", public "flocking" and "fleeing", and ECB "re-balancing" reserves. It's hard to see $30,000, no matter how much of the above occurs; hard to see that something else wouldn't siphon off those $ somewhere on the way to that, but none of us really NEED that number just now except as an attention-getter, right? Somewhere around $1000 or $2000 (very explainable) we'd be getting "the rest of the story" from FOA & ANOTHER, and making our judgments from there.


AG and Payments System: Squeeze is On

In the interviews with Greider and others for their books on the Fed, Greenspan and Volcker have emphasized that their concern has been with preventing a breakdown in the payments system between financial institutions (US & worldwide). They couldn't guarantee which way markets would go, but they wanted to be sure that the winners and losers could settle their deals quickly and finally in USD, and move on to more commerce.

The Fed acts to stand behind institutions with the required capital levels so that they are not driven over the brink by interruption of payments from less-solvent counterparties. In one instance during Volcker's reign, the breakdown ("Herstatt Risk" from an early-70s European crisis) was somewhat threatened by the different clearing times between US and European banks. I think one system had three-day, the other five-day clearance, and that difference would have left some banks gasping for liquidity for a fatal 48 hours. The Fed and other CBs had to tide over that difference during a cash flow crunch.

Many of AG's speeches have been about technical improvements in the payments system, so that a glitch seemingly far-removed from the basic business solvency of the transacting institutions (which are playing brinkmanship enough as it is) does not bring down the system. "Cascading cross-defaults" I think was his phrase.

We get a whiff of that anytime a major bank or other institution is threatened with capital insolvency. The memory of Continental Bank, which was cleaned out by foreign overnight wired withdrawals nearly 20 years ago, must still be in the minds of some today.

Picture the money supply as somewhat concentric rings of asset types, perhaps akin to Dante's rings of Hades?, or the electron rings of a highly agitated atomic particle. At the outermost levels are the "flakiest" of funny moneys, but they exist because people can play with them in certain ways they can't with the more stable moneys toward the center. (Can you Goldhearts guess what these might be?) The players are willing to accept higher risk to attain their ends of greed and excitement, though their risk/reward calculations have been actually been lousy if done at all and their information inputs inadequate.

They analyze their transactions on a two-dimensional map of risk/reward considering only market directions and maybe the psychology of counterplayers. They do not question the third dimension which, from an elevated perspective, says that the chessboard they are now winning upon can at any moment be swept clear by the hand of market breakdown and payments system collapse.

The US money supply today might be, for example, $7 trillion of all types (honest, I haven't looked this up, and don't care to research harder toward some useless specificity.) But this money supply represents debt of all types that people and institutions have committed themselves to work toward repaying, circumstances permitting. (Subject to many ways of discounting in future.) It represents paper currency that people commonly accept as money. And it represents real assets that can be used as money, or act as direct backing for a currency money.

Suppose that those categories boil down, in an economic "hard landing" scenario, to only $2 trillion of "hard" money. Money that really will be trusted in use, debt that will be worked down to sustain homes, businesses, and credit ratings. Right now, the public is looking toward the $7 trillion "mountain" of money that they've always known (and still remember from its smaller and less-flaky days). Right now, they believe that by working harder and smarter, a piece of that big mountain is to be theirs. A shift in psychology later, they turn around and see instead the smaller "hill" of $2 trillion. And, voila!, THAT becomes the real money supply, either very immediately, or eventually, after a longer and still-painful workout.

If that is what people believe is out there, then that is what they are willing to supply their labor and capital to work toward. That is THE Money Supply.

Alan Greenspan's problem with the Bubble is that its puncture immediately puts the smaller amount on peoples' credulity screen. All the funny money in various way-out orbits -- whether created by flicks of the fickle Fed fingers, or by a lifetime of self-denying savings -- flees toward the stable center when it is threatened, but like the crowded theatre on fire, the doorways are not wide enough. The available niches for more stable money in closer levels are fewer and cannot readily accommodate the flood of scared money. Much money, both borrowed and saved, departs for Money Heaven (where streets are paved with fiat.) Of course, back on Money Earth, prices rise for items representing the more stable money items.

In market Technical Analysis terminology, there is not much "Support" between $7 trillion and $2 trillion. Most "buyers" of money ("suppliers" of labor) will sit out the market slide as able, once their expectations shift, and they will thereby produce a bottoming out of the supply/demand equilibrium at a new low, but supportable, level. They will not bid their hard labors for the outer, flaky (mostly departed or soon to) moneys anymore but for the nearer to hand, harder, trusted moneys. Newly risk-averse, the cycle will funnel more of the remaining $2 trillion toward gold and assets near its central orbit of stability.

Of course, economic activity, statistically-measured, slows to a crawl as people re-jigger their ideas of what is worthwhile spending their now poorly-paid labor and dwindling cash upon. The Depression scenario, scary as it may be, may cause many people to repeat what was said in an earlier time: "We had everything in those days, except money." Learning about values never ceases; money is just the warm-up.

The payments system is the artery through which trillions of dollars flow daily or weekly, and upon the constriction of those vessels, the economic "lifeblood" flowing will reduce to the lowest practical and supportable amount. Institutions will simply not hang out their entire corporate capital on a transaction or two, when a new "Creditanstalt" or "Herstatt" has occurred and more are waiting to happen, unknown which ones among all their routine transactions. This is how the payments system dies, regardless of Fed and CB backing. Even the Lone Ranger can fit only six Silver Bullets in his pistol.

Greenspan simply does not want the statistical implosion of the money supply to happen on his watch. He does not consider it inevitable, and believes that the Art of Fed Chairmanship, aided by public psychology, has a spitting chance of turning it back, or landing it "softly". If he fails, his consolation prize would be history granting that he "did his best, in an impossible situation," quite a re-write in itself. (If the camera is focused only upon the post-Crash period, though, he may get away with it. Awww, let him.)

But, as he has pushed back each harbinger or lesser trigger of that implosion, he has aligned all of the disparate elements in a grand conjunction, a parting of the economic Red Sea (in which his own chariots must perish), and the almost meticulously calculated as-if-planned Perfect Storm that will fall upon the economy with full fury and spare no frivolous item of economic waste from dissolution.



SHIFTY (1/6/2001; 0:57:16MT - usagold.com msg#: 45145)
TV Commercial
I saw a great TV commercial the other day on the Outdoor Channel . It was a spoof of the add where the two brothers are separated at birth and one is brought up reading fishing magazines and the other The Wall Street paper. Well in this version the outdoor channel was added in place of the fishing magazines. The end had a new twist too, the boy who watched the Outdoor Channel won millions of dollars in the Bass Master Classic. His brother lost it all when his new IPO went belly up. They show him sleeping on a park bench under his Wall Street paper.
Its a hoot.

Off to bed

Go GATA
Go Gold

$hifty

SHIFTY (1/6/2001; 0:23:39MT - usagold.com msg#: 45144)
It never ends.....
http://dailynews.yahoo.com/h/nm/20010105/pl/congress_electoral_dc_2.html
Like I said in the past : This whole thing reminds me of the movie Ground
Hog Day!
----------------------------------------------------------

Friday January 5 7:30 PM ET
Black Lawmakers to Challenge U.S. Electoral Vote

By Thomas Ferraro

WASHINGTON (Reuters) - The Congressional Black Caucus (news - web sites)
announced on Friday it will challenge final certification of Republican
George W. Bush (news - web sites) as the next president, but a spokesman
admitted they might well fail.

The challenge will made on Saturday during a joint session of Congress
chaired by Vice President Al Gore (news - web sites), who conceded defeat to
Bush last month in the contested Nov. 7 presidential election.

The rest of the story is at the link above.

$hifty





YGM (1/6/2001; 0:23:27MT - usagold.com msg#: 45143)
Christian......
Hello...
Glad to see you've pulled up a chair at this table....
Marcia told some of our old GE crowd of your being harrassed
and I'm very glad to see you are not being intimidated or silenced....You've awoken more than a few thinkers w/ your posts and links over the last couple years....Looking forward to more of the same...YGM



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