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To: John Pitera who wrote (42348)	5/24/1999 9:06:00 AM
From: Terry Whitman	Read Replies (2) \| Respond to of 86076

Excellent article on BOE and Gold reserves here- users.dircon.co.uk If this is correct, Shorting the Pound should be a real good play. excerpt- >> In the 17th century, the general public took to leaving their gold at the goldsmiths. These goldsmiths issued paper certificates to the gold on deposit. People then found it convenient to trade using the paper instead of real gold, which of course meant that a 100% gold backed currency was created. Then, the goldsmiths discovered that they could issue more certificates than they had gold to back them... thus started the practice of fractional reserve banking, which is really a kind of fraud, since if every customer turned up to demand their gold, only a few would get it. The remainder have been robbed of their gold. Eventually, the goldsmith bankers became banks and ultimately the biggest one of all, the Bank of England. Reducing the gold reserve is therefore logically another step in the fraudulent separation of most of the depositors of monetary value from an asset of intrinsic worth. What might be the consequences of reducing gold reserves? Let me quote Alan Greenspan: "Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit... To be sure, if a central bank produces too many, inflation will inexorably rise as will interest rates, and economic activity will inevitably be constrained by the misallocation of resources induced by inflation. If it produces too few, the economy's expansion also will presumably be constrained by a shortage of the necessary lubricant for transactions. Authorities must struggle continuously to find the proper balance..." "For most of the period prior to the early 1930s, obligations of governments in major countries were payable in gold. This meant the whole outstanding debt of government was subject to redemption in a medium, the quantity of which could not be altered at the will of government. Hence, debt issuance and budget deficits were constrained by the potential market response to an inflated economy." Remarks by Chairman Alan Greenspan at the Catholic University Leuven, Leuven, Belgium, January 14, 1997 Greenspan notes that without redemption in gold, central banks can issue too much many or too little paper currency. Of course, today gold reserves are held as assets without obligation to redeem, and since the bias today is towards maintaining liquidity, as that is seen as the means of preventing recessionary forces, the outcome is much more likely to be inflation. Kamin's fourth law of economics states: "Government inflation is always worse than statistics indicate: central bankers are biased toward inflation when the money unit is non-convertible, and without gold or silver backing" Baxter's Second Law of economics states: "The adoption of fractional gold reserves in a currency system always leads to depreciation, devaluation, demonetization and, ultimately, to complete destruction of that currency." The study at the following link presents empirical evidence that when central banks sell gold reserves, their country's currency will devalue a little more than 1/2% for every one percent of gold reserve reduction. As the Bank of England proposes to sell 415 tons of gold out of 717, i.e. 58%, the British pound stands to devalue by 29%. (thanks CMH) WHEN CENTRAL BANKS SELL GOLD, THEIR CURRENCIES DEVALUE [Vronksy] So, when all the pieces come together, doesn't it look as though the UK is selling gold as a currency exchange rate adjustment? And, to kill two birds with one stone, the prevention of a runaway gold price as gold shorts are forced to cover above $290/oz. << EOM