Gold Anti Trust Action (GATA) Vice Chairman & Treasurer Talks about Gold
John D. Meyer
GATA Vice Chairman, Treasurer
September 28, 1999
THREE CHEERS TO MIDAS MURPHY !!!
THE WORLD DECLARES MONETARY INDEPENDENCE FROM THE U. S. DOLLAR
HANNIBAL'S WORST NIGHTMARE BEGINS
Pinch me quick and tell me I'm not dreaming. How can this be?
Fourteen European central banks plus even the English "Poodle," announce
that they will restrict gold sales and lending for the next five years.
In one dramatic sweeping step the "reign of terror" besieging the gold
bullion market has been broken. But the question remains why would the
European central banks wish to reassure the gold markets?
For the past many years the gold world has been throttled by perceptions
and short selling. Central banks gold sales were in fact never the problem,
but the gold lending and the well orchestrated propaganda directed by the
United States was. Since early 1996, the threat of central bank gold sales
and a raising volume of gold lending strategically timed and presented by
the mainstream financial press attacked gold whenever an up trend threatened.
This has now ended.
THE TWILIGHT OF THE DOLLAR
With the monetary system facing the greatest defaults since the 1930's,
the manipulation of gold, the ultimate preserver of wealth,
serves precisely to conceal the bankruptcy of our current monetary system.
Single events often appear distant and unrelated, yet with a more critical
eye they can be seen to be part of a pattern. It is my position that the
European central bank announcement is a defining moment in monetary history.
The propaganda windmills, mostly English speaking, would have you believe
that "money" is a creation of government. As Martin Armstrong liked to say,
"gold has been demonetized." We hold a different view. Namely, that money
is determined by a market process. The European central bank decision is a
major part of this market process, which has two consequences.
First, it partially restores gold's monetary role.
Second, and more importantly, it is a determined attempt to turn away from
the dollar as a reserve currency.
The reality is that the greatest crisis in credit since the 1930's is underway.
While the problem may appear to have begun in Asia, in fact its origin is a
monetary system which allows the United States "Deficits without Tears."
Every nation in the world has suffered as they have been forced to import our
inflation (i.e. buy dollars and U.S. debt) because it is the reserve currency
of the world's financial system. The dollar, as the reserve currency, forces
other countries to accept our paper as payment for their goods and services.
Jacques Rueff named this dirty little secret - The Monetary Sin of the West.
Our present global monetary system is dysfunctional.
The Asian currency epidemic was the first act in a play ultimately destined
to take down the U.S. dollar. Starting with Mexico in 1995, Asia in 1997
and Russia and Brazil in 1998, we have experienced an escalation in each
crisis as larger and larger countries are ravaged. The monetary mischief of
competitive currency devaluations claimed its first victim in North America
with the collapse last fall of Long Term Capital Management.
As 1998 was ending, the Japanese authorities (December 22nd) blind-sided the
financial markets, saying that they would cut back their purchases of Japanese
government bonds. Japanese long term bond prices were pummeled and the U. S.
dollar crumbled. Then, on January 1, 1999, Prime Minister Obuchi proposed the
establishment of a monetary system composed of three key currencies - the yen,
the U.S. dollar and the Euro. Japan signaled its intention to internationalize
the yen turning it into the key currency of Asia.
On Monday (September 20, 1999), despite warnings, the Bank of Japan refused
to ease monetary policy to curb a rapid rise in the yen against the dollar.
Now, a week later, the European central banks befriends gold.
The Russian default in 1998 launched us into a new phase of this meltdown,
which directly impacted the derivative arena. Default has been staved off
for decades through credit expansion (i.e. bailouts). New debt piled on the
old. Finally, when the excesses are too great and the economies too anemic,
default becomes the final solution. Default immediately exposes systemic
weaknesses. Since derivatives are leveraged contracts dependent upon an
underlying "asset," default of the underlying asset immediately wipes out
that derivative. The Wizards' computer model programs are not programmed
for events that might cause a non-standard deviation movement.
For the Federal Reserve to admit that a single hedge fund,
with a mere $4 billion in equity, jeopardized the entire financial system,
is an admission of a profound failure in the Federal Reserve policy.
What can be the justification for bailing out a den of gamblers?
Frankly, it proves the mutual dependency and just how cozy the alliance is
between Wall St. and Washington. LTCM was bailed out because officials realized
other hedge funds and Wall Street trading desks had similar leveraged positions.
This crisis is still largely unknown to the public.
It is the story of the "carry trade," the naked borrowing of yen and gold to
finance these extraordinarily leveraged positions of the financial community.
Between August and October of 1998, the yen fell from 147 to 112.
Then on October 15th, facing a breakdown in the interbank payment system,
the Fed initiated the first of three rate cuts. As 1999 commenced the U.S.
financial system had been brought back from the brink by another massive
ballooning of credit.
These fixes have merely exacerbated the underlying systemic risks.
From decades of "too big to fail" the Fed's unwillingness to address underlying
structural problems of debt has led to putting the entire system at risk.
The Bank of Japan and the European central banks are declaring an end to the
present state of affairs. The United States financial markets have become a
fools paradise and the affairs of LTCM down to the current scandals involving
Martin Armstrong and others has not been lost on the global banking community.
As a younger man, Alan Greenspan wrote an essay entitled
"Gold and Economic Freedom",
which correctly detailed and identified the cause of the 1929 crash.
It appears to this writer as though he repeats the same mistakes that he
accused The Fed of committing in 1927-28. Greenspan has created a bubble
(i.e. hyperinflation) in our financial markets. Wall Street has become a
casino. The greatest fear for the central bankers of the world is the U.S.
dollar which comprises the bulk of their monetary reserves.
For years now the mainstream gold analysis has been fixated on the supply
side of gold. This is not the issue. The critical determinant in the price
of gold ultimately is the supply side of dollars.
As the worlds largest debtor, with endlessly mounting trade deficits,
negative savings and inflated security markets it is not hard to imagine
the fear motivating recent developments by the Japanese and the Europeans.
Enough is enough. Gold reserves are not the problem for central banks
of the world but rather their bloated and excessive position of dollars,
which has entered a major secular down trend.
THE COMING DOLLAR BACKLASH
The European central banks gold policy must be viewed as an aggressive
escalation in their policy to establish monetary independence.
There is no doubt that the monetary world has crossed the threshold into a
monetary system which will be comprised of three reserve currencies.
Gold is no longer to be held hostage to American monetary policy.
On this point it is quite interesting to see that the English "Poodle,"
in an obvious break with their American friends, has turned her leash
over to the Europeans.
It will be interesting to see what response the Bank of Japan will make
to the European central banks. An Asian yen backed currency has a long way
to go in order to equal the gold reserves backing the dollar and the Euro.
Up until now the currency world has been engaged in a competitive race to
the cellar. It could be that the race for competitive legitimacy has begun.
Central banks bid for gold is likely to far exceed the sale limits just
established by the Europeans. The historic actions by the European central
banks and Japan over this past week are extremely bearish for the dollar
and U.S. financial markets.
So far the markets have failed to understand this threat.
WHERE DOES GATA GO FROM HERE?
As Treasurer of GATA, I wish to express our sincere appreciation for the
support from hundreds of individuals who have rallied to our cause.
Your letters and notes have been a source of strength to The Committee.
We salute and thank you.
We are likewise indebted to a select and courageous few within the gold
mining community. Unfortunately, the majority of the mining companies have
yet to come on board.
Clearly the surge of events is vindicating and confirming the task set out
by GATA. No matter how sweet this first victory may be a long battle still
lies ahead. We need to capitalize on this moment by moving on to the next
level of our investigation. It would be gratifying to see some of the senior
gold mining companies step forward to publicly support GATA.
Bill has detailed one of our failed attempts (The Vancouver Affair) to find
corporate support. Hannibal seems to have a long reach. We have made numerous
other attempts to enlist the larger mining houses. One senior North American
producer approached us last spring and actually explored for nearly a month
a relationship. We cooperated in every possible way opening all of our work
for their review. Then suddenly they disappeared without explanation. Phone
calls were not returned. We were just plain dumped. Someday we may tell the
world about this episode. The story rivals "The Vancouver Affair." For now,
we continue patiently with restraint, but hope that the larger members of
the mining industry will awake and throw aside their fears.
One way or another GATA is here for the duration. Keep up the support.
We will prevail.
A FINAL WORD
The heroic effort and foresight of Bill Murphy is only now beginning to be
understood. Bill and his Le Metropole Cafe have absolutely nailed the events
that are now unfolding. If the Bank of England sale didn't convince the world
that the gold market was being manipulated, maybe a $60 explosion in the gold
price might. The extreme price action in gold should clearly indicate that the
market has been artificially suppressed. One wonders how much it will take to
generate an acknowledgment of Bill's incredible performance. |
