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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: long-gone who wrote (40678)	9/23/1999 10:35:00 AM
From: Rarebird	Respond to of 116921

Although it is not my turn to prepare the update, the September 18th issue of "The Economist" magazine inspired these comments. First, however, there can be little doubt that this Tuesday's British auction of 25 tons of gold dominated the past week's gold trading activity, particularly on Friday when traders who swap 1000 tons of gold a day trembled at the thought that the Bank of England might entice only a low ball bid. But then why wouldn't "The Old Lady' be exploited when 10 Downing Street has given her no option but to accept the bid? This week's Economist concentrated heavily on financial condition and credit expansion. Reporting on Korea and the near collapse of Daewoo, the county's second largest conglomerate The Economist noted: The county's corporate bond market has almost ceased to function. The difficulty of Daewoo companies in paying interest to foreign banks has made these banks more reluctant to lend to other Korean companies. The Korean Government has threatened sellers of Daewoo bonds or certain investment trusts with up to a 50% confiscation of their principle. Investors have withdrawn $20 billion from other investment trusts in just the last two months. Those companies which can issue bonds are "paying through the nose," as much as 450 basis points over the previous prevailing rate. Since banks have largely ignored government pleas to buy bonds, the government has promised to supply $17 billion of liquidity even though it is "fearful of sparking inflation". The point is that after a $57 billion IMF bailout program, an export boom to the Untied States and the roll-over of tens of billions of dollars of loans by foreign banks, Korea's income statement has revived but its balance sheet remains precarious. It is the inability to meet current liabilities, not a lack of revenues that leads to bankruptcies. The questions are: Would a Korean default and/or spiraling inflation and devaluation spread throughout Asia including to China? What would be the refuge if another massive rescue package had to be unexpectedly cobbled? Asian central banks, excluding Japan and India hold approximately $600 billion of reserves, almost half of the world's official dollar holdings. Would US stocks and bonds again be viewed as safe havens for a cascading outflow of these funds in the aftermath of a visibly failed international credit support program? On Europe The Economist reported; A tripling of European corporate bond issuance this year. Increased demand for these bonds because of better yields than on government bonds. The increasing use of debt for mergers and acquisitions. A stretching for yield by banks in order to satisfy shareholders' demands for higher returns. Credit growth is in full bloom in Europe as the 13.4% growth rate of European Central Bank credit noted by Grant's Interest Rate Observer clearly reveals The Economist reported Goldman Sachs opinion that higher common stock prices are indications of an expansionary monetary policy. The proof is in the printing. The Federal Reserve just reported that credit outstanding in the Untied States is $23.8 trillion (closer to $26 trillion if the governments' debt to Social Security and other trust funds is included) and has grown at the following rates during the twelve months ended June 30, 1999. Total Debt +9.9% Private Debt 13.1 Private Debt 9.6 Financial Debt 19.3 Excluding financial sector debt Each category of credit is rising at least three times the probable sustainable growth rate of the economy. Financial debt, which among other uses finances stock and real estate activities, has doubled in five years and recently has compounded at an ever faster rate. When credit demand continues to expand as interest rates rise, the only way the Federal Reserve can tighten credit is to shrink or at least slow the growth of the monetary base. The Federal Reserve System was not conceived as an instrument of international financial policy nor as a defender of the securities markets and was not used as such until the mid 1920's. In 1914 just after its inception, one of the system's principal architects Henry Parker Willis wrote: "The Federal Reserve Act regards the duty of the bank as being above all things else that of maintaining specie (gold) payments and sustaining the solvency of the community, and it declines to consider the banker as one whose duty it is to promote enterprise, float issues of securities or aid in stock speculation." In March 1929, several years after the Federal Reserve abandoned Mr. Willis concept but before the crash, Paul Warburg, perhaps the principal architect of the system wrote: "History which has a painful way of repeating itself, has taught mankind that speculative over-expansion invariably ends in over-contraction and distress. If orgies of speculation are permitted to spread too far, however, the ultimate collapse is certain to affect the speculators themselves, but also to bring about a general depression involving the entire country". Courtesy Edward Chancellor "Devil Take the Hindmost". Mr. Chancellor also recounted Scotland's Lord Stairs comment in 1720 about the conversion of John Law (The Mississippi Company) to Catholicism: "There can be no doubt of Law's catholicity since he has proved transubstantiation by changing paper into money." The lesson of credit fueled speculations has always been that when the Devil takes the hindmost the people take the gold. gold-eagle.com Harry Bingham