(GATA) Little is know about a secretive meeting of the IMF in 1976.
Subj: Steve Hickel - Open Letter to Congress on Euro, Gold Market and Dollar.
Date: 1/27/00 0:03:08 AM EST
From: LePatron@LeMetropoleCafe.com
Le Metropole members,
Steve Hickel has served commentary at
The Toulouse-Lautrec Table entitled,
"An Open Letter to Congress on the Euro, the Gold Market, and the Dollar."
Steve Hickel is one of the more astute minds that is read in certain select
circles of the internet. Whether you agree or not with what this very bright
illuminary has to say, it will put your mind to task.
Steve's presentation is a keeper.
The Toulouse-Lautrec Table
Discussion du Jour: World Markets
Steve Hickel
smhickel@iserv.net
January 26, 2000
An Open Letter to Congress on the Euro, the Gold Market, and the Dollar
Executive Statement
... US dollar has enjoyed a long history as the world reserve currency.
It is the author's opinion that the Euro is.....
... and stands behind oil's.....
... net effect of the Euro replacing the dollar as reserve currency would
be a return of foreign-held reserve dollars into circulation. Should that
happen, the following could be a direct result of this:
Dollar to devalue relative to Euro possibly by ___% or more.
Foreign goods, especially oil, could.....
US goods purchased overseas or with oversea components would see a
significant price increase (___% or more).
US fuel purchases would see a dramatic rise in price (___-____%).
US strategic commodities (precious metals) would see a dramatic rise in
price (___-____%). US existing inventory would see a dramatic.....
... US petroleum-based goods surging in price in proportion to.....
The author's purpose is to point out the possibility of the Euro
replacing the dollar as the world reserve currency. The author believes
the wheel for this is already in motion and demonstrates numerous events
and indicators that shows this might just be the case. This paper is not
meant to convert, convince, or construct the Euro as the better currency
or that the Euro is the replacement for the dollar; rather, it is to
merely demonstrate a phenomena that can be observed once one is aware of
certain facts, events, and principles. Being Euro-aware is the point.
With this awareness, then, certain long-range business decisions can be
made that would allow the US to position itself better for a possible
significant dollar devaluation. This paper discusses the dollar's spar
with the Euro. Finally, the author offers alternatives and possible
postures the US could take if the Euro continues to replace the dollar
as the world's reserve currency. Ultimately, the author merely wishes to
point out a significant financial event that could take most people by
storm unless they become Euro-aware.
Dollar Twice Defaulted
Internal Default
To understand the Euro and its potential as the future reserve currency,
one must first understand the role that gold has played in monetary policy
from the early 20th Century. From the late.....
See chart 1.
Chart 1
As Chart 1 indicates, bank failures increased through.....
It allowed what is called fractional reserve lending and the printing.....
The author intends to prove that a recent myth, to wit: gold is no longer
at the center of the financial universe, is a false myth and that it actually
remains at the center world finance, albeit more opaque than in the past.
It is seeing around the corner of that myth that allows one to see how the
Euro may actually be well along the road to replace the dollar as the reserve
currency. The impact on the US and its mission could be significant. It is
this potential impact that warrants understanding the birth of the Euro
and its potential impact on the dollar.
External Default
Post-World War II, the Bretton Woods agreement created the IMF
(International Monetary Fund), whose role it became to manage the
currency exchange markets with gold backing of the dollar at the
rate of $35 per ounce. At that time, circa 1950, the US produced 50%
or more of the world's oil production. Chart II depicts the production
of Saudi Arabian (SA) oil over a period of decades up until 1973,
when the US defaulted on its external gold debt. As can be seen by
the chart, SA oil production, the cheapest in the world.....
Chart 2
... defaulting on its external gold debt in 1971. It just couldn't
keep up with the demand for its gold as these dollars worked their
way home to exchange gold for dollars.....
... to own physical gold but no longer honored the exchange of foreign
dollars for gold bullion. It was quickly draining the US gold reserve.
"General de Gaulle summed up the sentiment, saying that America had
'an exorbitant privilege' in ownership of the key-currency. By that he meant
that the dollars America was able to issue via simple printing carried
the same value in trade as the dollars that had to be earned by other
nations through meaningful productivity. It quickly became clear that
too many claims had been issued on the limited Gold, and President Nixon
was prompted to close the Gold exchange window in the face of a certain
run on the Treasury."
"In the mid 1970's, the finance ministers of both Kuwait and Saudi Arabia
stressed that their needs were only to.....
... and that oil in the ground is better than paper money. So in 1971,
while the Texas.....
... at which point OPEC saw the writing on the wall.....
... " Understanding the Mid-eastern strong affinity to gold and not dollars
is critical. As long as they could get gold with dollars from their oil,
they were content. Later, when the size of paper gold loans increased such
that __K metric tons were sold forward, serious thoughts of contract default
changed the nature of the paper gold market.
... This open bid for gold by oil caused a near failure of the dollar,
it caused gas shortages at pumps across America, it caused the highest
interest rates, set by the Volker Fed, and the largest run on commodities
and real estate in the later half of the 20th Century. Something had to be
done to restore faith in the dollar and return the US to a stable currency.
Jamaica Accord
Little is know about a secretive meeting of the IMF in 1976.....
... The result of the Accord was to ultimately start a 20-year bear market
in gold prices and to allow the price of oil to actually get.....
... To rephrase, the reason gold became cheaper and cheaper over the past
twenty years wasn't because it didn't have significant monetary value,
rather ...
... This is called "oil bidding for gold" and is the very reason why.....
... the designers of this plan must have known or expected that gold would
rise in value. It would seem, therefore, a stopgap measure to keep the dollar
in place until an alternative be created that would not be in a position of
defaulting on its debt. Since the dollar had now defaulted twice.....
... many nations doubted that the dollar would last forever.
That was 1976, it is now 2000.
Oil for Gold
Chart 3.
... It is the complex paper-gold arrangement as depicted in chart 3
that shows how gold was.....
... The majority of these contracts are cut on the LBMA, a secretive,
non-public gold market based in London. Every day.....
Chart 3 depicts a contract relationship commonly called 'paper gold'
or 'gold leases.' Paper gold is the process of a Central Bank acting
as a guarantor of a gold loan by a bullion bank to a mining company.
The bullion bank sells the contract to a.....
... now receives payments in gold from the mining company. The paper gold
contracts can be paid in gold borrowed from private holders of gold or
bought from the open market too. Hedge funds including Long Term Capitol
Management (LTCM) have recently allegedly become involved in paper gold
contracts. Since Hedge Funds are not gold mines, they must obtain their
gold from alternative sources as they can not produce it. It is hedge
fund involvement and other gold players other than mining companies that
have created the systemic risk to the dollar that may have accelerated a
potential move to the Euro. Bullion Banks and hedge funds have now
written paper gold contracts totaling upwards of.....
... In some case, mining companies have sold forward their annual production
up to 10-years.....
THE REASON GOLD HAS FALLEN IN PRICE SINCE 1980
IS NOT BECAUSE OF A LACK OF POPULARITY.
IT WAS BECAUSE OF THE 10,000 to 14,000 metric ton
FORWARD SALES OF PAPER GOLD CONTRACTS.
In other words, what seemed to be a simple solution to extend the dollar
payment system as a reserve currency in 1976 (without bidding up the
price of gold through the use of paper gold contracts) has now become
seriously close to a third default of the dollar on its gold obligations.
From recent events and news reports, this does not appear to.....
... they may consider the paper gold arena at risk from failure and this is
what ultimately may cause the ... to default a third default.
Finally, one could construe it is this very same risk of a.....
... that is moving the FOI's to the Euro and permanently.....
Birth of the Euro
Jelle Zijlstra said, while with the Bank of the Netherlands in regard
to the 1971 severing of Gold from the dollar, "When we left the pound,
we could go to the dollar. But where could we go from the dollar?
To the moon?"
This would suggest that the Euro was created not as competition to the
dollar, rather as a replacement for it. As hard as this might be to
swallow, one must consider the possibility. Foreign nations having seen
the dollar twice defaulted, once internally and once externally, may
have simply concluded that "once burned, never again." When the Euro.....
... viewed in this light it becomes clear that the Euro is potentially
being staged as the place to go from the dollar and not the moon as
Mr. Zijlstra suggested.
Is the dollar really in threat of default? Evidence of that can be seen
in the above paper gold chart. If total gold holdings of.....
... In other word, the music is playing and the Central Banks are
looking for their seats and who will be left standing when the first one
runs to gold when the music stops. The dollar is subjected to risk as
the bullion banks involved in these contracts are some of the largest in
the world (J.P Morgan, Goldman Sachs, Credit Suisse/First Boston,
Republic). LTCM was bailed out on advice of the Federal Reserve by 12
creditor banks. This was a few years ago when LTCM was on the wrong side
of currency hedging. What would be the risk of one or more or all of
these banks finding that they can not pay their gold loans because the
gold to repay them will remain in the ground for 10 more years? LTCM
almost brought the entire US financial system down. It was but one hedge
fund. The gold lease shortage of 10K to 14K tons threatens the entire
dollar-based economy as these contracts are all in dollars.....
The Euro may offer the only alternative ..... that won't cause a.....
Current Events
Is there proof of the above in terms of a grand plan or written scheme that
could be produced? No. In terms of indicators that in the intelligence field
would be called OPSEC indicators? Absolutely. The below list in order of
importance the indicators that strongly suggest that the Euro (with 15% gold
backing) is being positioned as a potential replacement of the dollar as a
reserve currency. The implications for the US are immense.
List:
... implications of this are immense.
The Future
"The ECB can now.....
... this buying will most likely be through the BIS and member CBs,
not the over leveraged LBMA [London Bullion Market Association] or
world gold paper [market]. In addition, because the.....
... eventually establishing a "true physical" marketplace offers every
enticement to get the dollar (and Euro) price of gold higher. Because
this process creates a unique reserve benefit, not used in the old gold
standard, they will never officially back the Euro with gold. Rather,
allow a new "free market" in physical gold (not paper) to supplement
their currency operations. The efficiency of modern trade requires a
digital currency. That need alone will always support the use of a
currency. If gold can trade beside paper money, neither will drive
the other out of circulation (as old money gold coins did to paper
gold money) as long as they can each seek their own values."
Conclusion
This paper's goal was to inform the reader of the potential of the Euro
becoming the world reserve currency. The author believes it represents
a high enough possibility to make the US Government aware. The Euro and
its relation to gold is on very few of our radar screens. Because the
dollar has defaulted twice in the last century on its debt, first.....
The time would appear to be drawing near in which the dollar may default
a third time against the very paper-gold scheme that saved it after the
second default. The implications to the US are.....
If even a remote chance exists for the Euro to replace the dollar
in world commerce, which appears to be well along that path already,
then plans should be made now accordingly.
Certainly, the following are factors to consider.
Strategic precious metals should be hoarded not sold, perhaps increased.
Oil stockpiles need to be topped off.
Foreign strategic parts, commodities, or goods considered essential
should be stockpiled.
Finally, the Achilles' heal of the US dollar would appear to be the
international gold market practice of paper gold excessive forward
hedges (estimated at 14K metric tons) and the record supply-demand
deficit of 1,500 tons per year. That physical gold was the largest
US export in dollars in December 1999 (103 metric tons) reminds one
of the large exports of gold before the 1971 external gold default.
Everyone's eyes are on the stock market.
No one is watching the gold markets.
The Euro is down from its initial offering and so people believe it is week.
All may appear not what it seems.
Steve Hickel, smhickel@iserv.net
Steve Hickel has served commentary at The Toulouse-Lautrec Table entitled,
"An Open Letter to Congress on the Euro, the Gold Market, and the Dollar."
All the best, Bill Murphy
Chairman, Gold Anti Trust Action (GATA) gata.org
Le Patron, Le Metropole Cafe lemetropolecafe.com
The above mention of GATA is as follows.
Bill Murphy, Chairman, Gold Anti Trust Action (GATA) gata.org
Also, GATA related articles can be obtained at the pay for view site.
Bill Murphy, Le Patron, Le Metropole Cafe lemetropolecafe.com
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