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To: Rarebird who wrote (38219)	8/3/1999 2:11:00 AM
From: PaulM	Respond to of 116759

Miyazawa, Summers Discussed Forex Tuesday biz.yahoo.com P.S. The BOJ's failure to depreciate it's own currency is ominous. Compare with Bundesbank's unsuccessful attempt keep the DM lower against the dollar some 30 years ago as set forth in this link... zolatimes.com Because he losers of WWII have economies that are export based, they have always done what they can to maintain the dollar. In very recent years (the 90's) the U.S. has also joined in wholeheartedly for a different reason: we have become especially dependent on imports. Today, an inability to support the dollar would have extreme consequences for the global financial system in general.

To: Rarebird who wrote (38219)	8/3/1999 8:11:00 AM
From: Rarebird	Respond to of 116759

The British are coming has been the battle cry since May 7th, but on Thursday, July 29th gold's Paul Revere marshaled gold's forces in the form of a high employment cost index report, a lower dollar, and declining bond and stock markets. The ECI could easily have been explained away as an aberration since it followed a lower than expected rise in the first quarter. Nevertheless, gold rose $2.80 on Thursday and broad indices of stocks and bonds continued to decline on Friday. Gold declined early Friday on reports of producer forward selling activity. By the close, however, gold had recouped about half of the decline to close just $0.90 lower for the day. Several points can be made about producer forward selling. The gold lease rate remains stubbornly high, probably indicating creditor reluctance to lend at depressed prices, fearing a short squeeze on marginal borrowers during a gold rebound. The high gold lease rate plus transaction costs has resulted in a very low forward sales premium, making these transactions less attractive to all except those companies which have not established a hedge position and now seek to ensure cash flow. Now that gold leasing and other potential official sector activity have been widely disseminated their effect on the market must be greatly diminished. This can be no one who could be surprised at news of central bank gold coming into the market in whatever guise. From this point forward monetary and general economic conditions are more likely to dominate market sentiment. The employment cost index report was just one more in a series of inflationary warning signs. In addition to the Purchasing Managers Price Index, now up more than 70% this year, both crude and intermediate producer prices have begun to rise and industrial metal prices are far above recent lows. Credit expansion, of coarse is the key to inflation, speculation and financial distress. Even excluding the government's debt to social security public and private debt in the US grew 11% during the twelve months ended March. Total private debt rose 13% and financial sector debt, the most speculative, rose 20%. Annualizing first quarter results produces even higher growth rates. During just the last five years financial sector debt is up almost 140%. The far faster rise of debt than economic output increases financial fragility, particularly when speculative uses of that debt rise. The Federal Reserve, meanwhile, is expanding the monetary base at a 10.8% rate despite the small rise in the Federal Funds rate. Sometimes the news buried in an article can be more sensational than the story's headline. One in the Financial Times: "The Tigers Turn" later conceded that financially strapped Daewoo's debt to equity ratio of 407% was less than the 508% of Hyundai, Korea's largest conglomerate; while one foreign banker being solicited for another debt roll over said: "We are getting nervous, because I don't know what will be the news tomorrow". It was also reported that the Korean government's public debt and guaranteed liabilities have risen from 10% to 40% of GDP in three years. The income statement of emerging markets may have improved due to surging American imports, but the balance sheet remains weak. Meanwhile, the monetary machinations of Brazil and Argentina threaten the entire Latin American economy with currency turmoil, which could easily spread to other regions. Recently, despite a rise in interest rates and the prospect of more to come, the dollar has fallen. Improving European and Japanese investment opportunities are the favored reason. The decline of the dollar, however could be exacerbated by the trillions of dollars invested in US securities markets by foreign interests, who have accumulated their holdings in the coarse of persistent US current account deficits. In a commentary on the fate of the dollar the Financial Times acknowledged the chance of a gradual dollar decline. It also noted that the odds may be "stacked against such a resolution". Quoting a currency strategist the article concluded" "Investors buying dollar assets have been like a crowd slowly filtering into a cinema. But once they smell smoke, there will be a panic and a rush for the exit". In these circumstances the virtuous circle of low interest rates, low inflation and a strong dollar might turn vicious. To put central bank gold sales in perspective, if either Japan, Taiwan or China, each of which has expressed an interest in adding to its puny gold reserve were to convert 10% of their paper reserves to gold any one of these could absorb three times all the British auctions. At last month's Financial Times Gold Conference Robert Sleeper, Head of the Banking Department – Bank for International Settlements, who we noted said a gold rebound "will take few prisoners" also said "Despite their success in curbing inflation, it is the central banks themselves who are most sensitive to the vulnerabilities of the world economy to the many exogenous forces that could potentially re-ignite inflationary fears. It is for this reason that central banks will always hold gold. It is still their job to protect the financial system from crises of confidence in FIAT currencies. In his prepared text Mr. Sleeper capitalized each letter of the word Fiat. gold-eagle.com