Feb 29, 2008

Ron Paul questions Bernanke on FED's policies

U.S. Rep. Ron Paul, R-Texas, got the better of Federal Reserve Chairman Ben Bernanke in an exchange yesterday during a hearing of the House Financial Services Committee.

Paul observed that inflation is an increase in the money supply, and he quoted estimates that the U.S. money supply has been exploding lately -- estimates Bernanke did not attempt to contradict. This explosion in the money supply, Paul said, is currency debasement that expropriates savers. He asked Bernanke how it could be justified.

Bernanke replied that the Fed's statutory mandate is price stability rather than money supply.

Whereupon Paul cited the sharply rising Producer Price Index.

Bernanke answered that he prefers to go by the Consumer Price Index. (Maybe because it is more aggressively manipulated by the government?)

Paul countered that even the CPI has turned up sharply lately.

The best Bernanke could do was to acknowledge that the Fed is concerned about that -- concern that seems likely to manifest itself shortly in a strange way, with more reductions by the Fed in official interest rates, pushing them even farther below official inflation and expropriating savers even more to rescue the banks and financial houses that lately defrauded the world with the Fed's connivance.

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Feb 26, 2008

Rick Ackerman: Gold bugs could call IMF's bluff

Rick Ackerman has joined the growing chorus of market analysts snickering at the possibility of gold sales by the International Monetary Fund. The gold contemplated for sale by the IMF, Ackerman observes, is a tiny fraction of the gold needed by nations seeking to hedge their huge dollar surpluses. Ackerman predicts that the dollar-surplus holders will gobble up any amount of gold the IMF wants to throw at them and that it will turn out to be "the day the hard-money advocates called the bankers' bluff."

Ackerman's commentary is headlined "Gold Bugs Could Call IMF's Bluff" and you can find it at GoldSeek HERE

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Dan Norcini: As commodities soar, suppressing gold loses its point

By Dan Norcini,
Monday, February 25, 2008

Today the Continuous Commodity Index made yet another all-time high as Minneapolis wheat prices surged almost $4 to an unfathomable price of $23 per bushel. Palladium prices are up to $520; soybeans hit another all-time high of $14.55; corn roared to nearly $5.40 a bushel; and cocoa notched a 24-year record. The list could go on and on and on.

This report from Reuters -- http://uk.reuters.com/article/consumerproducts-SP/idUKL2552499120080225 -- details what is taking place in France as a result of these record-setting moves across the entire commodity complex. But France is just an example of what is taking place globally.

That is why the noise about gold sales by the International Monetary Fund is just that for those who understand the game that is being played with the yellow metal by the Western monetary authorities. Wrap your mind around what is happening on the inflation front and then ask yourself: How much longer do they think that by attempting to drive the price of gold lower they can convince the public that inflation is under control?

The simple truth is that gold has either broken into all-time highs when measured in terms of every major currency or is threatening to do so. To reverse this inexorable trend, these haters of gold will have to work their alchemy on wheat, soybeans, rice, corn, sugar, cocoa, coffee, etc. In other words, they will have to wave their magic wands and reduce food prices. And from what hidden stockpiles of agricultural goods do they intend to do so? Good luck, fellas. You are going to need it.

Meanwhile, those rising economic powerhouse Eastern nations with burgeoning reserves consisting predominantly of less-than-desirable U.S. dollars will be more than happy to take all the gold that the hapless dolts at the IMF are willing to part with. With the staggering sums contained in their sovereign wealth funds, these countries can gobble up any and all gold the IMF wants to get rid of, and they will welcome the opportunity to buy gold in size at a set price.

Once again, the West is shown to think in terms of a checker game while the East is playing chess.

* * *

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Feb 25, 2008

IMF Gold Sales: a great opportunity to buy the dips!!

Gold Falls as U.S. Pledges Support for Some IMF Bullion Sales

By Pham-Duy Nguyen

Feb. 25 (Bloomberg) -- Gold fell the most in almost two weeks after the U.S. said it would back ``limited'' sales of bullion reserves by the International Monetary Fund, the third- largest holder of the precious metal.

Some of the IMF's $98 billion in reserves should be sold to cover a revenue shortfall, said David McCormick, the Treasury's undersecretary for international affairs. Gold has more than tripled in the past seven years, gaining 12 percent this year and touching an all-time high of $958.40 an ounce on Feb. 21.

``Anytime there's more supply coming into the market, the price goes lower,'' said Ron Goodis, the futures trading director at Equidex Brokerage Group Inc. ``There's a fear that the large speculators who've been pushing this market higher might step back and wait to buy.''

Gold futures for April delivery fell $7.60, or 0.8 percent, to $940.20 an ounce at 11:37 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would be the biggest drop for a most-active contract since Feb. 12.

The IMF holds approximately 3,217.3 metric tons of gold, following the central banks of the U.S. and Germany, according to data from the producer-funded World Gold Council. The U.S. has 8,133.5 tons and Germany holds 3,417.4 tons.

Official sales by central banks rose 33 percent in 2007 to 488 metric tons, according to estimates by London-based research firm GFMS Ltd.

Limiting Sales

Under the Central Bank Gold Agreement, countries that adopted the euro, along with Switzerland and Sweden, agreed to limit sales to 2,500 metric tons from Sept. 27, 2004, to Sept. 6, 2009, or 500 tons a year.

Any sale from the IMF would be similar to the central bank accord, said George Milling-Stanley, the World Gold Council's manager of investment and market analysis.

Second and third-tier central banks, including China's and India's, may buy the IMF's gold, limiting the pressure on prices by keeping the bullion out of the hands of investors, said Dennis Gartman, economist and editor of the Suffolk, Virginia- based Gartman Letter.

``If you're China, you're holding all those U.S. dollars in reserves, it wouldn't be a bad idea to swap some of that for gold,'' Gartman said.

China is the 10th-largest holder of gold amongst central banks, with just 1 percent, or 600 metric tons of gold, in its reserves, according to World Gold Council data.

World gold-mine production fell 1.4 percent last year to 2,444 metric tons, an 11-year low, according to GFMS.


And this from the perennial Jim Sinclair:


Dear CIGAs,

The following is the history of the IMF and their gold shares.

It is important to note that their sales all have taken place at times when major bull markets were either just beginning or, as in 1976-1980, at the start of the major parabolic move to then all time highs.

Now you know why I said our friends from 2002 Chung Phat and Dr, No are high-fiving at the news that the biggest dopes in gold are about to prove their status beyond any doubt once again.

How and when the IMF used gold:

"Outflows of gold from the IMF's holdings occurred under the original Articles of Agreement through sales of gold for currency, and via payments of remuneration and interest. Since the Second Amendment of the Articles of Agreement, outflows of gold can only occur through outright sales. Key gold transactions included:

* Sales for replenishment (1957–70). The IMF sold gold on several occasions during this period to replenish its holdings of currencies.

* South African gold (1970–71). The IMF sold gold to members in amounts roughly corresponding to those purchased in these years from South Africa.

* Investment in U.S. government securities (1956–72). In order to generate income to offset operational deficits, some IMF gold was sold to the United States and the proceeds invested in U.S. government securities. Subsequently, a significant buildup of IMF reserves prompted the IMF to reacquire this gold from the U.S. government.

* Auctions and " restitution" sales (1976–80). The IMF sold approximately one third (50 million ounces) of its then-existing gold holdings following an agreement by its members to reduce the role of gold in the international monetary system. Half of this amount was sold in restitution to members at the then-official price of SDR 35 per ounce; the other half was auctioned to the market to finance the Trust Fund, which supported concessional lending by the IMF to low-income countries.

* Off-market transactions in gold (1999–2000). In December 1999, the Executive Board authorized off-market transactions in gold of up to 14 million ounces to help finance IMF participation in the Heavily Indebted Poor Countries (HIPC) Initiative. Between December 1999 and April 2000, separate but closely linked transactions involving a total of 12.9 million ounces of gold were carried out between the IMF and two members (Brazil and Mexico) that had financial obligations falling due to the IMF. In the first step, the IMF sold gold to the member at the prevailing market price and the profits were placed in a special account invested for the benefit of the HIPC Initiative. In the second step, the IMF immediately accepted back, at the same market price, the same amount of gold from the member in settlement of that member's financial obligations. The net effect of these transactions was to leave the balance of the IMF's holdings of physical gold unchanged..."

Should they sell in April of 2008 then gold is going to the next Angel above $1650.

That is the only implication IMF sales have to the price of gold. It has been the most powerfully bullish event every time they have done it, and will be again.

If any newcomer to gold sees the IMF news as a reason to sell gold these newcomers are as DOPEY as the IMF has proved to be every time, time and time again.


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Gold : A precious metal that's not just an investment but a worldview too..

By Rob Baedeker, San Francisco Chronicle
Monday, February 25, 2008

Last week, gold hit a record high of $958.40 an ounce. In 1959, the average price of gold was around $35 an ounce. That's the year Burton Blumert opened his Camino Coin Company in Burlingame.

To the outside observer, it would appear that the rise of gold is a success story for long-time dealers and investors like Blumert and his clients. And in many respects it is. As Blumert told me on the phone from his home in El Granada, "I retired at the top of my game." (After giving the Camino Coin Company to a long-time employee last year, Blumert, 79, stays peripherally involved, helping out occasionally when needed).

But there is, so to speak, another side to the coin. "If you want a dismal view of the future, talk to a gold dealer," Blumert adds. The high price of gold may represent a handsome return on investment, but it's hardly been a steady ascent, and for Blumert and other "goldbugs" it's also an ominous sign.

Goldbug is a term used, sometimes pejoratively, to refer to investors who are bullish about gold. Blumert describes himself as a "philosophical goldbug" to emphasize the theoretical underpinnings of his interest in the malleable yellow metal (and to distinguish himself from the more capricious "newsletter crowd" of investors, who might jump on the gold bandwagon following trends rather than principles).

The story of how Blumert became a philosophical goldbug is the story of a worldview shaped by coins and bullion.

It starts with a whirlwind verbal tour of watershed dates in "the significant monetary history that coincided" with his life and crystallized his philosophy of money. He jumps from decade to decade, adducing examples with a zeal that somehow sounds both beleaguered and self-assured: There was 1933, when President Roosevelt passed an executive order making it "illegal for Americans to hold gold coins"; 1964, when the United States stopped producing real silver coins; and 1971, when Nixon ended the gold standard for good. ("From that point we were dealing with fiat money," says Blumert, "money that is not claimable in precious metals.")

The history of American currency's relationship to the gold standard is long and tortuous (you can read an overview here) but what I come away with after listening to Blumert's history lesson is more a sense of how the government's interventions in monetary policy became almost personally offensive to him. He talks about 40-year-old moments in the history of currency in the same way that some people talk about a bad breakup they're still trying to work through. ("August 16, 1968. That was when it was all over. If you had a silver certificate, you had to redeem it prior to August 16.")

All of the dates Blumert brings up are occasions when the federal government took actions to divorce currency from its precious-metal backing. And for the philosophical goldbug, a currency with nothing behind it is a recipe for disaster — when the government can print money and the Fed can adjust credit rates, the system, in the goldbug's view, is headed for collapse.

Blumert says his experiences with money led him to a natural political stance. "I became a libertarian," he says, "an advocate of freedom." Blumert is publisher of the libertarian Web site Lew Rockwell.com, whose motto is "anti-state, anti-war, pro-market." He is also a longtime friend and supporter of Ron Paul, and managed the Ron Paul Coin Company for several years. Paul, not coincidentally, is an advocate of returning to the gold standard and abolishing the Fed.

"There are those who would criticize followers of Ron Paul as people out of the mainstream," says Blumert. But Blumert is used to being regarded as part of the fringe. "Those who own gold are regarded as wackos," he says. "If you buy an ounce of gold, you're saying no (to the system). If you buy a share of Microsoft, you're a patriot — you're participating, you're part of it."

"That was the prevailing view" for most of his tenure in the gold and coin business, Blumert says. "And it still is, although to a lesser extent."

The reputation of the goldbug as an outsider — and as a stubborn fanatic — prevails in a 2000 New Yorker magazine article in which author James Collins wrote that nearly any investment purchased in 1980 "would have increased in value by the year 2000 ... There was, however, one investment that would have lost you money, causing not only financial distress but also shame and humiliation. That investment was gold."

In 1980, Collins went on to explain, the price of gold peaked at $825.50 an ounce; in 2000, the price was about $280 an ounce. "So," the author continued, "while the popular crowd has rocked on at the bull-market beach party, gold investors have been holed up in somebody's basement, with two beers among them, and no girls."

Blumert recalls, "It was a horrible time in our industry from 1980 through 2000. We were in a depression." When Collins' article came out, Blumert wrote a response on LewRockwell.com, calling the piece "scurrilous" and another example of the establishment marginalizing the gold investor. "I was very sensitive to these people who attacked our industry," Blumert says in retrospect.

But something funny happened after that New Yorker article appeared: In 2001, gold prices went up. And they haven't declined since. According to Platts, a provider of energy and metals information, "The gold market is now enjoying its longest rally since the metal began trading openly on an exchange in 1974."

Which brings us to the goldbug's paradox. Precious-metal prices tend to increase in times of economic uncertainty and a weakened U.S. dollar. And this inverse relationship is key to understanding Blumert's reference to gold dealers' dismal view of the future. To a philosophical goldbug, when the price of their commodity increases, it's a sign that the global economy is tanking. Inflation is proof that the fiat money system is an illusion — and an affirmation that, in the portentous, Arthurian terms of a recent book by Nathan Lewis, gold is The Once and Future Money.

But — and here's the paradox — for the goldbug's worldview to be finally vindicated, the fiat money system has to collapse. "Many of my clients would like to be standing in the rubble of our society saying, 'I told you so,'" Blumert says. "And there was a time when I did want collapse — when I was young and excited about my view. But the older I get, personally I can't deal with rubble anymore. I don't want to see a collapse, to be vindicated and say, 'See, I was right.'"

Instead, Blumert is enjoying his semi-retirement ("I'm looking out at the Pacific," he said when I phoned him on a weekday afternoon) and remembering the pleasures of his long career in the gold business. He says he's proud that the Camino Coin Company developed a reputation for professionalism and integrity: "How could we not deal in integrity, when that's what the commodity was founded on?"

As he watches gold prices climb, Blumert sees further evidence of the weakness of a paper money system that, in his view, lacks the integrity of a precious metal. And as he expounds on his philosophy in an emphatic and excited baritone, the goldbug's paradox is contained in his genial voice — it expresses apprehension but also confidence at the same time. More baseless paper dollars may be required to buy an ounce of gold today compared with 50 years ago, says Blumert, but "the gold doesn't change. The gold is constant."

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Jason Hommel documents Barrick's continuing huge gold short

Silver Stock Report editor Jason Hommel has dug through the financial reports of Barrick Gold to verify the huge continuing short position in gold the company seems to be trying hard to conceal. Hommel's analysis is headlined "Sell Barrick, A Sneaky Hedger" and you can find it at the Silver Stock Report site HERE

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Feb 18, 2008

Antal E. Fekete: Uncle Sam Crying "Uncle"

by Antal E. Fekete

Gold Standard University Live
February 11, 2008

Tertium datur

People tend to think in terms of black-and-white. Many of my correspondents think that either hyperinflation or deflation is in store for the dollar; tertium non datur (no third possibility given). I would say tertium datur. The third possibility is a hybrid of hyperinflation and deflation. I described this scenario in my previous article “Opening the Mint to Gold and Silver”. It is possible, even probable, that we shall witness collapsing world trade and collapsing world employment together with competitive currency devaluations, as the three superpowers compete in trying to corner gold. The lure of gold is very strong. “There is no fever like gold fever” and, contrary to conventional wisdom, governments are especially susceptible.

A large part of the problem is that the Central Bank is helpless in the face of bond speculation. The Fed is no Sorcerer. It is the Sorcerer’s Apprentice. It can pump unlimited amounts of “liquidity” into the system, but cannot make it flow uphill. As we shall see, new dollars flow to the bond market causing a lot of mischief there, instead of flowing to the commodity market as hoped by the Fed.

Up to now leading commodities have outperformed gold. That could change. A select few commodities might continue in the bull-mode for a time, although gold could easily beat them. Most other commodities might go into a bear-mode similar to that of the commodity markets of the 1930’s. If that’s what was in store, then most investors would be totally lost. They would be navigating without a compass. There would be endless debates whether the country is experiencing deflation of hyperinflation. Your motto in this hybrid scenario should be: “expect the unexpected”.

Of course, the Fed will keep printing dollars like crazy. Few of them, if any, will go into commodities. Indeed, most of the newly created dollars will go into bond speculation. Why? Because commodity bulls are running into headwind and face grave risks. By contrast, bond bulls enjoy a pleasant tailwind. Bond speculation is virtually risk-free. Under our irredeemable dollar bond bulls have a built-in advantage. The Fed has to make periodic trips to the bond market in order to make its regular open-market purchases of bonds to augment the money supply. In order to win, all the bond speculator has to do is to stalk the Fed and forestall its bond purchases. This is the Achillean heel of Keynesianism: it makes bond speculation inherently asymmetric favoring the bulls, and that will ultimately derail the economy on the deflation-side of the track

Uncle Sam in agony

Russia is not as enigmatic as China. The Russians’ game is gold. China is the big unknown. It looks as if China prepares to corner silver. Will the Chinese force a silver standard on their trading partners? It is quite possible that their pile of paper profits in silver is already so huge that they can well afford to gamble. They find trading T-bonds most profitable. Indeed, theirs is the greatest U.S. T-bond portfolio ever, anywhere. They can overwhelm any opponent bidding against them. Just think about it. The financial destiny of the U.S. is in China’s hand. The good news is that the Chinese have vested interest in keeping the bond bull charging. They also have a vested interest in keeping the dollar on the life-support system. The bad news is that the Chinese insist that it is their finger that must be on the switch. Here is an incredible sight, the U.S. being under the thumb of China. Not because the Red Army is a match for the U.S. military, but because Uncle Sam has voluntarily put his head into the noose. The Chinese ask: why fight shooting wars when you know that your antagonist is painting himself into a corner anyhow? They know that Uncle Sam will sooner or later start crying: “Uncle!” in agony. They have all the marbles. The marbles of saving. The marbles of producing. The marbles of silver. Maybe, one day, they will also have the marbles of gold.

The Logarithmic Law of Deflation

Most economists are ignorant of the mathematics of depressions. They have certainly never heard of what I call the Logarithmic Law of Deflation. It states that halving interest rates brings about the same proportional increases in bond prices, regardless at what level the halving takes place. It makes no difference whether you go from 16% to 8% or from 2% to 1%, the value of long-term bonds will increase by about the same factor. It can be seen that a much smaller drop in interest rates could bring about the same proportional increase in bond prices, provided that the rates are low enough.

Why is this important? Because it gives away the secret of the deadly deflationary spiral. It is wrong to describe Fed action as cutting interest rates. We should think in terms of the Fed halving them. The bull market in bonds can go on indefinitely under the regime of the fiat currency. People assume, wrongly, that the Fed will run out of ammunition when the rate of interest is approaching zero. The bond-bull will run out of breath. Not so. The Fed will never run out of ammunition. The lower the rate, the smaller cut will do. The Fed can halve interest rates any number of times without ever reducing them to zero. The bond-bull will never run out of breath.

“Gigolo of science”

The trouble is that the bond-bull is the root cause of depressions. Falling interest rates create capital gains for bondholders, yes, but these gains do not come out of nowhere. They come right out of the capital losses of producers. They are the very stuff out of which depressions are made. The serial cutting of interest rates by the Fed is the grave-digger of the economy: it causes wholesale bankruptcies in the producing sector. The large-scale dismantling of the producing sector in America during the past twenty-five years is a direct consequence of the regime of falling interest rates. Production stopped as a result of the financial sector siphoning off capital from the producing sector. Industrial jobs were exported as there was no capital left to support them at home. This shocking truth was never investigated by mainstream economists, sycophants of Keynes. They did not want to expose the gravest error of their idol in confusing a low interest-rate structure with a falling one. Keynesianism is the gigolo of science (Ayn Rand).

“Moral cannibalism”

As the example of Japan shows, we are not looking at a ditch into which the Japanese economy has stumbled. We are staring a black hole in the face, the black hole of zero interest. It can suck in the Japanese economy. It can suck in the economy of the United States. It can even suck in the entire world economy. It is powered by the regime of the irredeemable dollar, and the Fed’s policy of serial interest-rate cuts.

Ayn Rand called the confiscation of gold in 1933 by F.D. Roosevelt “moral cannibalism”. As I have shown elsewhere, the epithet is apt. The removal of gold as the chief competitor of government bonds was one of the main causes of the Great Depression in triggering, as it did, a protracted fall in interest rates. (The other cause was the deliberate manipulation of interest rates lower by the Fed.) The latter-day equivalent of moral cannibalism is risk-free bond speculation by the banks, perpetuating the bull market in bonds. It is made possible by the open-market operations of the Fed that have been clandestinely and illegally introduced and, by now, have become the mainstay of the management of fiat currencies. The result is another protracted fall in interest rates. Could they herald another Great Depression?

What American Century?

There is an historical lesson to learn here. The twentieth century was not the “American Century” as advertised. The sun started setting on America as early as 1913 when, in imitation of the Europeans, Americans embraced the idea of a central bank. An earlier attempt to establish a central bank in the United States was found contrary to the Constitution, and the Bank’s charter was not renewed. But by 1913 the visionary admonition of Thomas Jefferson was totally forgotten.

“If the American people ever allow the banks to control the issuance of their currency, first by inflation, and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property, until their children wake up homeless on the continent their fathers conquered. The issuing power of money should be taken from banks and restored to Congress and the people to whom it belongs. I sincerely believe that the banking institutions having the issuing power of money are more dangerous to liberty than standing armies.”

In less than a generation after 1913 adventurers invaded America’s institutes of higher learning and exiled monetary science, replacing it with a hodge-podge of dubious nostrums. America’s economy and finance started to be run on a completely false theory. Gold, and the power to create and to extinguish money was taken away from the people. It was given to the banks.

Operating on the basis of this false theory Americans scrapped the foundations of the international monetary system: they threw out positive values (such as that of gold and silver) and replaced them with negative values (such as debts and deficits). As a consequence, outstanding debt can no longer be reduced through the normal course of retirement. Total debt can only grow. In no time at all America has turned itself from the largest creditor into the largest debtor nation of all times. Not only did the U.S. government allow its debt to grow exponentially; it also allowed it to accumulate in the hands of America’s adversaries. At the same time America’s industrial heartland was dismantled. Well-paid industrial jobs were exported and replaced by low-paying service jobs.

Hedging versus gambling

The United States is like a train running downhill without brakes. The derivatives monster is the proof of that. It has its own dynamics, but it cannot be grasped without a solid understanding of gold. Under the gold standard interest rates, and hence bond values, were stable. In fact, that is the main excellence of a metallic monetary standard: it makes interest and foreign exchange rates stable. There are no derivatives markets on interest and foreign exchange rates, because the lack of volatility makes trading unprofitable. Under a metallic standard “bond trading” is an oxymoron, as is “bond insurance”. Private issuers of debt must set up a sinking fund that will buy up all bonds offered in the market below par. People buy bonds as a vehicle of saving. Today, you would have to be insane if you wanted to buy bonds as a vehicle of saving.

Why then are bonds still in demand? They are in demand because they are by far the best vehicle of gambling. As I shall now show, under the regime of irredeemable currency, speculation in bonds is risk-free.

When the gold standard was thrown to the winds, interest rates started gyrating and bond values were totally destabilized. After all, bonds promised to pay principal and interest in terms of a currency of uncertain value.

Mainstream economists betrayed their sacred duty of searching for and disseminating truth. They started preaching the false gospel that it is possible to take out insurance against losses in the bond portfolio. However, the thesis that bond futures can be used for purpose of hedging the bond price (in exactly the same way as wheat futures can be used for the purpose of hedging the wheat price) is an outright lie. Only those price risks can be hedged where the price variation is nature given, as in the case of agricultural commodities. If the price variation is artificial, that is, subject to government and central bank manipulation as are foreign exchange and bonds under the regime of irredeemable currency, then it is preposterous to talk about hedging. One should talk about gambling instead of hedging. As in the casino, the so-called hedger is placing a bet against the house, in this case the central bank, whose job it is to manipulate the price.

The Derivatives Monster

The derivatives tower is just a layered pyramid of “bond insurance”, so-called. Nobody asks the question whether insuring bond values is possible in principle. As I have stated, it is not. Insurance means spreading the risks over a larger population than that needing compensation. Insurance is the very opposite of gambling where the player wants to increase his risks in the hope of a large payoff, not to decrease it.

Now think of an inverted pyramid delicately balanced on its apex. The apex represents the bond market (layer 1). The next layer is bond insurance (layer 2). But since the value of bond insurance is inherently even more unstable than that of the bond, it is in need to be insured as well (layer 3). And so on it goes. The pyramid is growing at an exponential rate as the need for reinsurance keeps increasing.

There are several problems. First of all the whole idea is hare-brained, much the same as the idea of “operation boot-strap”. A soldier, no matter how strong he is, cannot lift himself by his own boot-straps. Similarly, you can’t insure bond values without an anchor. The second problem is that the slightest hitch at any layer will bring down the house of cards. The principle of insurance assumes that no tornado will destroy all the insured homes simultaneously. The same assumption cannot be made about bond insurance. The volume of outstanding bond insurance is much higher than the existing supply of bonds. It is even larger than the existing money supply (and goodness only knows that it is very large.) Therefore it is a physical impossibility to compensate insurance-holders in case of global trouble. If any doubt arises at any level about the validity of the insurance policy, the whole Ponzi-scheme collapses. The Derivatives Monster is meant for simpletons.

The Presidential election year of 2008

I find it frightening that none of the Establishment candidates for the presidency even vaguely refer to the on-going self-destruction of the nation’s monetary and banking system. Like an ostrich they ignore the problem. A presidential election year should be a great opportunity for the nation to discuss its most urgent problems and take remedial action wherever necessary. In this election year the country is blessed with the running of a competent and upright candidate who sees and understands the problems involved, and is willing to engage in a public discussion of the gold standard as a way to avert national and world economic disaster. This candidate is Dr. Ron Paul, a physician who did not go into politics with the idea of making money or accumulating power. He went into politics as Cincinnatus*, patriot and hero of the old Roman republic. When Cincinnatus was drafted to become consul, the messengers who came to tell him about his new dignity found him ploughing on his small farm. He answered the call, but after solving the problems of the nation he declined the offer to become dictator for life. He returned home to pick up the plough again.

Already in 1985 Ron Paul called for the opening of the U.S. Mint to gold and silver as a way to stop the threatening monetary and banking crisis in his address The Political and Economic Agenda for a Real Gold Standard. If the country had listened to him then, people would have been spared of the economic pain of 2007, and the possibly much greater pains that may be in store.

Ignorance or lust for power?

Not one among the Establishment candidates is willing to take up the challenge of Ron Paul, thus depriving the electorate of a singular opportunity to learn about the dangers threatening the Republic. We are left wondering whether their ostrich-like behavior is due to ignorance, or to lust for power.

The electorate cannot make an informed decision in November without understanding the current monetary and banking crisis and its connection to gold. It is not too late to have a great debate on the gold standard and on the consequences of maintaining the irredeemable dollar standard in the face of an escalating monetary and banking crisis. Labor leaders and captains of industry should demand an answer to all those questions that the representatives of the financial press refuse to ask of the candidates.

* Lucius Quinctius Cincinnatus (c.519-433 B.C.) Cincinnati was named in honor of Cincinnatus.

Ron Paul, The Political and Economic Agenda for a Real Gold Standard, www.lewRockwell.com January 19, 2008
A.E. Fekete, The Double Whammy of Geopolitical Global Gold Games, www.321gold.com , January 31, 2008
A.E. Fekete, Fiat Currency: Destroyer of Labor, www.professorfekete.com
A.E. Fekete, Fiat Currency: Destroyer of Capital, www.professorfekete.com
A.E. Fekete, Opening the Mint to Gold and Silver, www.321gold.com, February 6, 2008

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Feb 15, 2008

U.S. Govt. closes Internet site consolidating economic indicator reports

Following the demise of the "whistle blowing" M3 aggregate next comes the very popular and highly regarded website Economic Indicators.gov: "Due to budgetary constraints, the Economic Indicators service (http://www.economicindicators.gov) will be discontinued effective March 1, 2008."
So there goes one more set of economic gauges, swept under the carpet and hidden from the tax-payers view ...
Is the King naked yet?

Bush Administration Hides More Data
Shuts Down Website Tracking Economic Indicators

From The Center for American Progress
(Washington, D.C.)
Wednesday, February 13, 2008

The U.S. economy is faltering. Family debt is on the rise, benefits are disappearing, the deficit is skyrocketing, and the mortgage crisis has worsened. Conservatives have attempted to deflect attention from the crisis by blaming the media's negative coverage and insisting that the United States is not headed toward a recession, despite what economists are predicting.

The Bush administration's latest move is to simply hide the data.

Forbes has awarded EconomicIndicators.gov one of its "Best of the Web" awards. As Forbes explains, the government site provides an invaluable service to the public for accessing U.S. economic data:

"This site is maintained by the Economics and Statistics Administration and combines data collected by the Bureau of Economic Analysis, like GDP and net imports and exports, and the Census Bureau, like retail sales and durable goods shipments. The site simply links to the relevant department's Web site. This might not seem like a big deal, but doing it yourself -- say, trying to find retail sales data on the Census Bureau's site -- is such an exercise in futility that it will convince you why this portal is necessary."

Yet the Bush administration has decided to shut down this site because of "budgetary constraints," effective March 1.

Economic Indicators is particularly useful because people can sign up to receive e-mails as soon as new economic data across government agencies becomes available. While the data will still be available online at various federal Websites, it will be less readily accessible to members of the public.

In its e-mail announcement on the closing of Economic Indicators, the Department of Commerce acknowledged the "inconvenience" and offered "a free quarterly subscription to STAT-USA/Internet" instead. Once this temporary subscription runs out, however, the public will be forced to pay a fee. So not only will economic data be more hidden, it will also cost money.

It's ironic that the Economic and Statistics Administration is facing "budgetary contraints," considering President Bush recently submitted a record $3.1 trillion budget to Congress for Fiscal Year '09.

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Feb 12, 2008

Mineweb: Newmont predicts all major gold miners will see production decline

Newmont predicts all major gold miners will see production decline

As gold prices continually break records, Newmont Mining President and CEO Richard O’Brien warned analysts that the number of major gold prospects are declining globally.

Author: Dorothy Kosich
Posted: Monday , 11 Feb 2008


With only 800 known gold deposits globally that actually contain 100,000 or more ounces of gold--and as the number of new discoveries declines -- Newmont Mining President and CEO Richard O' Brien warned analysts and fund managers that every gold miner will experience production falls unless a technological breakthrough occurs.

During a presentation Friday to analysts, O'Brien and a number of Newmont executives discussed the dire predicament which is bound to be faced by any major gold company in the future. The number of new discoveries is trending down, fewer and fewer deposits are out there, and it takes much more money to find them.

And, O'Brien declared, it is "more and more unlikely that we are going to find big deposits near the surface that are going to be economical."

"Even if you find something, it's tough to get it over the line and it takes longer."

During the period from 1985 to 2003, 190 deposits were discovered by the international mining industry that ranged from 895 million to 1 million ounces of gold. Approximately five out of 10 deposits may contain about 3 million ounces of gold, while only 14 of the entire 190 deposits contained gold deposits equal to 10 million ounces.

The average cost for the greenfields and advanced projects was $32/oz, for a total cost of $28.6 billion.

One Newmont exploration manager estimated that the average cost of drilling alone will increase an average of 11% this year, while some contractor drilling costs have gone up 30%. The manager-identified only as Ian on the conference call-told analysts that Newmont has found 15 million ounces of gold from greenfields discoveries at an average cost of $15/oz. From those discoveries, a total of 49 millions ounces was realized, he said.

During the past five years, Newmont has added another 52 million ounces of gold to its portfolio, he noted.

This year Newmont will give its highest priority to the Hope Bay exploration project in Nunavut ($29.4 million in exploration dollars), the extension of drilling at the Boddington project near Perth, and the Nassau JV ($17.4 million in exploration) in the Guiana Shield of Suriname. O'Brien likened the geology of Nassau to the Rosebel mine.

O'Brien told the analysts that a number of Newmont mines "are getting older. We are dealing with some of the lowest grades in the industry." Nevertheless, he remains confident that "when we have a problem, we have the best people to focus on those problems." However, O'Brien admitted that Newmont missed on the timing, dollar amount, grade and throughput for mines including Leeville and Phoenix in Nevada.

"Nevada appears to be a bit of a black hole," he noted, due to complex ores at Phoenix and other issues.


Feb 10, 2008

J Sinclair: Proposed Gold Sales by IMF Not Harmful to Market

Dear CIGAs,

China has a trillion dollars in foreign exchange reserves, wishes to offload dollars, and this is a perfect fit. The year of the Rat is a year of opportunity for some, especially the Chinese. Any sales of gold have nothing to do with the market for gold as not one ounce will ever see the free market. The buyers will be gold-poor central banks.

All the IMF sales did in the 70s was allow huge buyers to enter the market at one price. That attracts the major buyers.

The OTC derivative market is $516 trillion, dwarfing the $92 billion worth that the IMF holds. In today's financial world the $92 billion is chump change.
One large banking entity could easily lose $92 billion on failed derivatives in the final analysis.

The article below is designed to make a mountain out of a mole hill. I do not think it means a damn thing to the gold price trend. The only important fact is that the IMF just demonstrated its total lack of financial sense as it might only hold depreciating paper promises to pay nothing at all backed by nothing whatsoever.

Selling gold like this only occurs in bull markets and has historically been useless in stopping the price from increasing. In fact, these sales helped the price of gold move higher by facilitating demand from huge interests in the 70s and it will even more so now.

There are those who would try to make this look serious but it is not. This indicates the price of gold is not even half way to its upside resting point. This was true in the 70s and is today as well.

Finally, those that control black gold also control real gold. Those that you feel have caused the problem and are anti-gold are really NOT. To know this, you need only the eyes to see and the ability to connect the dots.

This will be looked on as something great for the price of gold as was the case in the 70s when the same entity, the IMF, proposed and did the same thing, only to stop before the buyers took all their gold. The same will happen if they even start. Note that the proposed sales come when the US Economic rescue plan is about to occur. The reason is clear.


This from GATA:

Dear Friend of GATA and Gold:

Before panicking about the Reuters story appended here, reporting that the G7 conference in Tokyo likes the idea that the International Monetary Fund should raise money for itself by selling some of its gold reserves, consider a few things.

1) The prospect of gold sales by the IMF has been hanging over the gold market for years.

2) For almost a decade now central bank gold sales have been accompanied by higher gold prices, not lower prices. Gold demand has been exceeding gold production by about a thousand tonnes per year, the gap being covered only by central bank dishoarding. Even with the rising price gold production is declining, the price still not being high enough to make greater production generally profitable.

3) Mobilization of IMF gold suggests that individual central bank gold reserves are nearing exhaustion or that individual central banks are no longer willing to dishoard what they have left.

4) There's no assurance that the IMF has the gold attributed to it and no report as to where the gold its kept. Further, as the Reuters story here acknowledges, any gold sales by the IMF would require approval by the U.S. Congress, which has opposed the idea in the past. This opposition has been offered in the name of supporting developing countries whose economies rely to a great extent on gold mining, but given the secrecy and unaccountability around the gold reserves of various nations, including the United States itself, it is fair to wonder whether the opposition is not also a matter of concealing some impairment of the IMF gold.

5) Though it is never questioned by the financial press, the rationale that continues to be offered for selling the IMF's gold is plainly ridiculous. That rationale is, as the Reuters story here reports, that the IMF gold should be liquidated and the proceeds invested "in financial securities with positive yields." But what "yields" could be more positive than the "yield" acknowledged for the IMF gold, an increase in value of 400 percent in five years? Is the IMF supposed to be happier with government bonds paying 4 percent per year against inflation rates several times that?

6) Those who want gold restored as the independent arbiter of the international financial system should be thrilled if all central banks and the IMF dishoarded all their gold at once and got out of the gold market for good. Until then, there really won't be a market price for gold, just a desperately manipulated one, a price well below the cost of production -- still a bargain.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.



G7 Approves IMF Gold Sales

By Gavin Jones
Saturday, February 9, 2008

TOKYO -- The Group of Seven rich nations on Saturday approved the sale of gold by the International Monetary Fund from April as part of a broad reform of its budget, Italian Economy Minister Tommaso Padoa-Schioppa said.

"There was an acceptance among the G7 that resources should be raised by selling gold," Padoa-Schioppa, who is also the head of the IMF's steering committee (IMFC), told reporters after a meeting of G7 finance ministers in Tokyo.

He said the agreement would be finalised in April and would complement spending cuts being drawn up by the IMF under its new managing director, Dominique Strauss-Kahn.

"The current gold price means a flow of income can be ensured," Padoa-Schioppa said.

Morgan Stanley analyst Stephen Jen said the fund held 103.4 million ounces of gold worth some $92 billion at current market prices. That was up from $23 billion just five years ago.

"The IMF is rich, if it wants to be," he wrote in a recent note to clients, issued before the G7's approval of the gold sales. "This is arguably a good time to consider selling some of these gold holdings and investing the proceeds in financial securities with positive yields."

A surge in oil prices has boosted gold's appeal as a hedge against inflation.

The precious metal gained more than 30 percent in 2007 as safe-haven buying increased due to the credit market turmoil and worries about the health of the dollar as it fell to record lows against the euro.

Gold continued its upward march this year. Cash gold hit a record high of $936.50 an ounce on Feb. 1, up about 12 percent since the start of the year, and was quoted at $918.00/918.70 an ounce in late New York on Friday.

Padoa-Schioppa noted that in the case of the United States, approval for gold sales would be required by Congress, meaning "the administration must present a proposal and support it."

Padoa-Schioppa said he would step down as president of the IMFC because of the recent fall of the Italian government, which meant he would soon lose his job as economy minister.

Asked if he would continue as IMFC head, he said: "I don't believe so. It has to be a minister in office, and soon I will no longer be a minister in office."

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Feb 7, 2008

Antal Fekete: Opening the Mint to Gold and Silver

Opening the Mint to Gold and Silver

Antal E. Fekete
Gold Standard University Live
Feb 6, 2008

In my last article I suggested that the superpowers China, Russia, and the United States may be, without they knowing it, racing towards reopening their Mints to the monetary metals. The governments of these countries are like the heroes of Greek tragedies: they are drawn to their fate by destiny. There is no way for them to avoid Kismet, regardless of what they do. Many readers have asked me to explain what the term "opening the Mint to the unlimited coinage of gold and silver free of seigniorage charges" means.

I should start by stating that the Mint is a monetary institution far more important than the Central Bank. It is an ancient and venerable institution. The Central Bank is a relatively new invention, hardly venerable. It was conceived to make ordinary people absorb the unpaid and unpayable debt of kings. The importance of the Mint is not to be found in its altogether negligible role of coining small change, the so-called subsidiary coinage which people use to make small purchases. The Mint is all-important because it is designed to produce real money. The origin of the Mint is intertwined with religion. From the point of view of political economy, the Mint is a reminder of the fact that, ultimately, real money is created (and extinguished) by the people and not by the government, or banks approved by the government. For example, the U.S. Constitution reserves the power to create money directly to the people themselves who convert gold and silver at the Mint into the coin of the realm (and extinguish money by melting it down). This is a power like habeas corpus that cannot be delegated, still less usurped. If the government grabs it, then, in the admirable phrase of Malcolm Muggeridge, it becomes the power of habeas cadaver. The Mint is the symbol of Constitutional Money, the only kind not subject to manipulation.

So much so, in fact, that the Mint had to be closed to gold forcibly in order to deny people access to constitutional money, and in the hope that the government could usurp their power to create money. History had to be falsified to conceal the fact of power-grab. According to the official version the Mint was never closed down as it continued to produce subsidiary coins. There were some housekeeping changes, yes. But nothing major.

This lie was exposed by William Jennings Bryan, the Democratic presidential candidate in 1896 when he denounced the power-grab in describing it as "the Crime of 1873". He was referring to the closing of the U.S. Mint to silver in 1873, the first major violation of the Constitution's monetary provisions.

People fell for the obfuscation. They were not interested in checking out the charges of Bryan. What crime? What closing? What Mint? Lots of silver coins are in circulation, can't you see? People didn't understand the difference between the full-bodied silver coin, the constitutional standard dollar, and subsidiary silver coins that were not full-bodied. The nominal value of the full-bodied coin, produced on account of anybody tendering the right quantity and quality of metal, coincides with the market value of its metal content. By contrast, subsidiary coins are produced on account of the Treasury and their nominal value is always higher than the market value of their metal content. The difference between the two is called seigniorage, the profit going to the Treasury. There is no seigniorage on coining the standard dollar, the coinage of which is unlimited, in contrast with that of subsidiary coins with limited coinage, which explains why people accept them in circulation for the higher nominal value. (The cost of producing the standard coin, like that of constructing and maintaining public roads, is covered by taxes.)

The banks are supposed to be a handmaiden to the Mint. After the closing of the Mint to gold and silver the banks became the boss and the Mint was reduced to the status of a handmaiden. This was a violent revolution, the full meaning of which has never been explained by our institutes of higher learning. Slavery works best if people don't think of themselves as slaves. The Mint is the symbol of freedom. It is the very antithesis of slavery. Yet imposing slavery on the people is as simple as closing the Mint to gold and silver. People are no longer free. They have lost their God-given right to create and extinguish money. They have become slaves since the government has extorted the right of first refusal on their produce and savings. As Keynesians famously boast: "taxes for revenue are obsolete". Once closed to gold and silver, the Mint makes taxation for revenue superfluous. It is freed up for devious purposes. Now, for the first time, taxation can be used to manipulate the economy and to manipulate the people. The government can stamp an entire industry out of existence by taxing it to death. Less conspicuously, it can boost the income of one branch of industry, or one group of citizens, at the expense of another. The Mint, if people can keep it open to gold and silver in defiance of the machinations of the government and banks, is both the symbol and instrument of freedom. Once it is forcibly closed, freedom is lost and the way to the pauperization of people is thrown wide open.

I often come across the objection that the government does make gold and silver coins available to the people who care to have them. There are officially produced eagle coins in the United States, maple leaf coins in Canada, panda coins in China, and koala coins in Australia. This does not look like the Mint being closed to gold and silver, does it? People who use this argument only betray their ignorance and prove how easy it is for the government to fool public opinion. Gold and silver coins that governments currently produce are meant to confuse the issue. They are an eyewash. These are souvenir coins struck on Treasury account, sold at premium prices including seigniorage charges. People may feel good about having them, especially when gold and silver prices are buoyant. But their right to constitutional money has not been restored. The Mint is still closed to gold and silver. The people's right to unlimited free coinage is still being usurped by the banks. Rather than celebrating, people ought to be upset that their government stoops so low as attempting to lead them by the nose.

As I said, the Mint is one of the most ancient political institutions brought about by our civilization. In the early history of Rome over twenty-five hundred years ago the Mint where gold and silver pieces were struck was a sacred and inviolable place. In fact, the Mint was housed in the Temple of Juno (wife of the chief god Jupiter). Our linguistic heritage shows this most clearly: the English word 'money' is derived from the Latin word 'Moneta', the surname of Juno. Juno Moneta, literally Juno the Vigilant, refers to the legend that Juno's sacred geese on Capitolium saved the city from being sacked. With their loud cackling they alerted the sleeping town that enemy soldiers have scaled the walls under the cover of night and are ready to slaughter the inhabitants. Thus the English word money has connotation of vigilance. Vigilance, that is, to preserve freedom which is inseparable from constitutional money facing, as it is, constant threat from adventurers such as John Law, Keynes, Friedman, to name only a few. Sad to say, this connotation has worn off completely by now. People no longer have any idea that their freedom is being destroyed little-by-little, as their money has been corrupted.

Oh Juno Moneta, where art thou? And where are thy sacred geese?

Oh sacred geese of Juno, whither migrated thee? Why are thee not cackling now as a new attempt is being prepared to murder innocent people in their sleep?

Compare the Mint of Juno to the Central Bank of the United States, the Fed, which is less than one hundred years old. During its brief existence it has done more monetary mischief than all the monetary mischief perpetrated by governments during the twenty-five hundred year history of the Mint, including the endless debasement of coinage through the dilution of metal content. The most recent follies of the Fed raise the question whether it will live to celebrate its centenary, or whether pig-headed and ham-handed central bankers will destroy the dollar that was entrusted to their care in 1913. Already, the dollar has lost 99 percent of its purchasing power, and is manifestly in danger of losing the remainder during the next five years or so. Quite obviously this could have never happened if the U.S. Mint had been kept open to gold and silver, which is the reason why the Constitution demands it.

The oldest central bank in Europe is the Riksbank of Sweden. It opened more than thirty years before the Bank of England. The early central banks in Europe were all established in order to fund the unpaid and unpayable royal debt. The newly chartered banks were in turn given privileges such as the monopoly of issuing bank notes, as well as immunity from being sued in case of non-performance on contracts.

Milton Friedman and his monetarist cohorts completely misrepresent the relationship between the Mint and Central Bank. They allege, falsely, that a price-fixing scheme is involved. In their topsy-turvy world the gold standard, and the Mint, are institutions negating the free market. In fact, however, the truth is that bank notes are not money; they are merely promissory notes whereby the Central Bank promises to pay bearer money on demand. Only the full-bodied coins into which the Mint converts gold and silver on account of anybody tendering the right quantity and quality of metal constitute money. You cannot find price-fixing in this process with a magnifying glass. The charge of price fixing was planted maliciously by Milton Friedman in order to denigrate and discredit the gold standard. His suggestion that the Central Bank is the creator of money, and the Mint is merely an embellishment, wholly unnecessary to boot, is a shameless lie. Friedman is celebrated as the father of the floating dollar by the monetarists, who consider it as a triumph in having set the gold price "free". In fact, Friedman is the assassin of the dollar and will be remembered as such.

The fact of the matter is that the Central Bank is anxious to keep its notes competitive with full-bodied gold coins. Therefore it promises to redeem its notes by paying out gold at the statutory rate. So it is not the gold price that is fixed. Just the opposite: it is the value of the bank note that is fixed in terms of gold. The central bank that does the fixing has no other way of maintaining the value of its credit without coercion. The central bank, of course, wants to get rid of this restraint. It can, through coercion. The floating dollar implies coercion through legal tender laws. Full-bodied gold and silver coins never need legal tender protection. There is not one instance recorded in the monetary annals of a creditor ever refusing to accept the full-bodied coin in repayment of debt.

No doubt, for the Central Bank to live up to its promise to pay gold to the bearer on demand takes knowledge, expertise, and discipline. When adventurers take over management backed by other adventurers at the Treasury, they engineer a default on the promise to pay out gold and promote the dishonored note as "money". How do they get away with this highway robbery? They do because of the coercion of legal tender.

The term "legal tender" did not always indicate coercion. Originally it was a limited obligation to ensure smooth circulation of the subsidiary coinage. For example, the copper could be legal tender up to a dollar and, the nickel, up to five dollars. When adventurers took over the Treasury, the first thing they did was to torture the meaning of the term. They made it an unlimited obligation to accept irredeemable paper currency in discharge of debt.

After the default adventurers at the Central Bank and the Treasury initiated an elaborate check-kiting scheme whereby the latter issued irredeemable promises which were accepted by the former, and vice versa. According to Milton Friedman the depreciation of irredeemable currency can be avoided by restricting the issue through a quantity rule, e.g., the note circulation must be increased at a steady annual rate of, say, three percent. However, his thesis amounts to saying that fraudulently issued promises can be given permanent and enduring value, as though people were too dumb to understand fraud when they see it. In other words, Friedman confuses delayed exposure of fraud with inability to expose it. But what kind of a monetary system is it that so vitally depends on assuming that people are inherently stupid? Historically, no monetary fraud has ever succeeded. Every attempt to make the currency permanently irredeemable has been exposed as fraudulent and consequently collapsed. All irredeemable currencies, without exception, have ended up in the garbage heap of history. The irredeemable dollar is different only in so far as the unprecedented magnitude of the fraud necessarily takes longer to expose. But longer is not forever. After all, for the first time in history an attempt is made to fool all the people all of the time. And we have it on the authority of Abe Lincoln that this is not possible.

It is another matter if the irredeemable currency is stabilized before the final collapse, by opening the Mint to gold (or silver, or both). There are historical precedents such as the greenback of Civil War vintage. In that instance common sense and monetary science prevailed and came to the rescue of the moribund dollar. Today, both common sense and monetary science appear to be badly lacking. This would make the outlook rather gloomy.

However, there is a ray of hope: international competition in the monetary arena. Neither the Chinese nor the Russian central bankers do at heart believe in constitutional money any more than their American colleagues. They certainly enjoy their unlimited power to issue the currency in unlimited quantities. Nevertheless, they are not stupid. Both the Russians and the Chinese want to put an end to American monetary hegemony whereby the U.S. government can obtain real goods and real services from all countries of the world in exchange for irredeemable (read: fictitious) promises to pay. They realize that the only road to defeating the American monopoly is the Yellow Brick Road. They have quietly embarked upon an ambitious program of remonetizing gold through the back door. They keep a low profile about it as it is in their interest to acquire as much gold as possible on the best terms possible.

No matter how you look at it, there is a Gold War going on in the world. The alignment of the antagonists is the same as it was in the Cold War. The name of the game is: who will end up with the largest pile of the precious yellow? Remember the adage: "He who has the gold makes the rules."

The competition of the superpowers to acquire gold will ultimately lead to an infinite escalation of its price. As unlimited amounts of rubles and yuans are printed to buy up the limited amount of gold that is available, the competitive devaluation of currencies will reach a frenzied stage in destroying the value of all currencies. Competitive devaluation is a destructive process. American, Russian, and Chinese central bankers will find that their hands are forced by events. After all the false fits and starts they will hit upon the winning strategy: the constructive process of opening their Mint to the unlimited coinage of gold. This is the only logical thing they can do, whether they like it or not, after the stage is reached whereby cartloads of paper currencies fail to fetch even one grain of gold.* Opening the Mint will be the only way to attract all the available gold and silver in the world to their shores, benefiting their prostrate banking system that will be quick to issue gold instruments acceptable in global trade.

The U.S. will be forced to do the same, but it is questionable that being a follower rather than the leader will save the American economy from further disintegration.

There is no reason why the U.S. government could not retain monetary leadership in the face of the Russian and Chinese challenge. All it has to do is to open the U.S. Mint to both gold and silver before they open theirs. To do this would take fine statesmanship such as presidential candidate Ron Paul is offering to the American people.

Unfortunately, a great deal of damage has been done mainly because the educational system has been corrupted in exiling monetary science and sound economics from the curriculum. Keynesian and Friedmanite economics rule supreme in academia. Adventurers at the Treasury and the Federal Reserve take full advantage of the prevailing ignorance. Bad-mouthing of gold in the financial press continues unabated.

If the U.S. government fails to act and misses this last opportunity to stabilize the dollar, then the American people will be exposed to excruciating economic pain. People of other lands will not fare much better. When their dollar-denominated assets go up in smoke, they will blame America. Anti-American feeling in the world will hit an all-time high. America will lose all her allies in the face of an increasing number of enemies. And, as famously stated by Alan Greenspan, America will be unable to procure war matériel for its military.

The only way to avoid catastrophe is to open the U.S. Mint to gold and silver while it is not too late, as advocated by presidential candidate Dr. Ron Paul.

* Note that I am not prophesying that cartloads of paper currencies will fail to fetch a loaf of bread. In fact it is perfectly feasible that the price of bread, along with other prices of consumer goods, will fall in the wake of deflation. The process herein described is not one of hyperinflation. It is one of competitive devaluation by the superpowers in order to corner gold.


Session Three, will be held in Dallas, Texas, February 11-17, 2008. For details, go to my website.

Feb 5, 2008
Professor Emeritus
Memorial University of Newfoundland
email: aefekete@hotmail.com

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Feb 3, 2008

K.J. Gerbino: "Gold Mining Stocks - What's Wrong With The Juniors"

Gold Mining Stocks - What's Wrong With The Juniors

Kenneth J. Gerbino

The reasons Junior mining stocks are underperforming are as follows:
  • The larger companies are getting all the action from newly converted gold enthusiasts and interested investors.
  • The junior market is still being weakened by insiders and promoters who are always sellers.
  • There are hundreds if not thousands of new promotional mining stocks being foisted on the readers of gold pages in the last three years and there is just so much money to invest in this sector. Therefore premium prices are diluted.
  • The invasion into the Hard Money camp by the Uranium companies. Every investor I know who owns gold and precious metal stocks but never owned a uranium stock now owns some. This diversion of capital to uranium diluted some funds that would have entered the Junior market.
  • Gold ETFs. Investor money can now go into an easy way to invest in bullion. This also could be argued that it helps the miners as it creates demand for gold.
  • Delays in drilling, engineering reports, permits.

A Big Rally Soon?

We are very near a major turning point in the mid tier and junior mining sector. The chart below shows the lowest junior mining valuation ratios in the last six years. We are using the TSX S&P Venture Index which is mostly mining stocks. The current ratios are at levels that in the past have signaled a major and substantial rise in the smaller gold and silver mining stocks.

As a reality check we can look at the ratio of the XAU to the Gold Price to see if this ratio is at a speculative level that may be signaling a major top in the making for all the gold stocks, which would of course include the juniors. During the above mentioned time period (September-November 2002) the Gold/XAU ratio was 4.8 (not shown). Today it is 4.8. This means the XAU gold stocks are tracking the gold rise at the same ratio when gold was $320, signifying a stable relationship. It confirms that the juniors on a relative basis are extremely undervalued and that a substantial rally should be starting soon.

New money into the gold arena is going into the big names. These managers and investors have not started to look at Canada and the junior sector yet. But as they eventually get more familiar and comfortable with the industry they start looking for smaller growth and value situations and that leads them into the junior sector. Quality juniors will eventually have a substantial move up from these levels but most others with speculative exploration programs will be left behind because of the stark reality that only one exploration stock out of a few thousand ever produces an ounce of minerals. This old ratio should change for the better as high metal prices, technology, more sophisticated exploration groups and increasing demand for resources increase their chances but it is still long shot investing.

The Three Amigos

Gold has many developments impacting it's price and we have mentioned them many times. But currently we see three drivers at work that spell out a higher gold price: 1) The dollar has no where to go but down since interest rates are being sent lower and lower by the Fed to bail out the banks and our friends on Wall Street. 2) The credit/mortgage/real estate bubble dictates inflating the money supply or face possible immense institutional disasters. 3) Global money supply increases are continuing at a torrid rate especially in India and China.

Mining Analysis

The mining sector despite the volatility allows one to have a very clear idea of value. This intrinsic value is an inventory of basically rocks. These rocks contain a certain known percent of minerals. When companies spend $20-50 million with hundreds of drill holes and thousands of man hours on an area the size of 3-4 city blocks (maybe 400 feet thick, and underground) you have a pretty good idea what is in that mass of rock and what it is worth at various metal prices. When they do sophisticated testing on sometimes 5-10 miles of drill core, one can evaluate how easy or hard and costly it might be to extract the minerals.

Basic mining costs are known from hundreds of other mining projects: the cost to build the roads, buy crushers, build small towns for the workers, power and food costs etc. These are known factors and estimates can be made. Then it's a matter of math and know how. That's how you find winners. That is how you know if you have a good project. That is all we care about at my company on hundreds of projects and mining companies. You should try and do the same if you want to get serious about investing in this sector.

The key to making an above average return is competent evaluations and patience. This sometimes takes many years. Patience will outweigh the volatility of the gold and silver mining sector as intrinsic value eventually gets recognized. The laws of supply and demand let you sleep comfortably.

Inflationary Future

With all the money, people, and industrial progress globally we are confident that minerals (especially the precious ones) will be well above average investments for the next decade.

We are at a time when the central banks should be at least attempting to control inflation but instead most are printing more money. As the future unfolds and inflation accelerates, tangible assets especially mining companies with known resources of valuable minerals should be a top priority for investors.

For more articles on Gold, the Economy and the Stock Market visit our website: www.kengerbino.com

Kenneth J. Gerbino
1 February 2008

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Feb 2, 2008

The Double Whammy of Geopolitical Gold Games

The Double Whammy of Geopolitical Gold Games

Antal E. Fekete
Gold Standard University

Even the most rabid silver bugs admit the possibility that the Chinese are the Big Silver Shorts. This suggests that the Big Gold Shorts are also governments. Neither are naked by any stretch of the imagination. The double whammy of gold and silver accumulation by unnamed governments is the big puzzle of the present financial crisis in the world as it holds the key to the resolution.

For a better understanding of the Chinese silver picture you have to know a little background of the role of silver in China. The facts are as follows. China has been on a silver standard since time immemorial. China stayed on the silver standard after other trading nations of the world demonetized silver and embraced the gold standard at the end of the 19th century. China's external trade was insignificant, but the volume of silver currency for domestic use must have been enormous. In addition, there was an avalanche of silver from abroad raining on China. As the silver price fell over 75 percent from $1.29 in 1873 to $0.25 by 1932 (with a brief spike back to $1.29 at the end of World War I), other governments were dumping silver on China mercilessly. China was the only country on the silver standard and the Chinese central bank had to take all the silver offered to it at a fixed price. This situation lasted right up to 1949 when the Communists took over the government. In fact, several Western historians blame the Communist victory on the unprecedented silver inflation that Western governments inflicted on the Chinese economy by their insane silver dumping policy before World War II.

Nobody knows how much silver the Chinese Communists found in bank vaults and in the safe deposit boxes of Chinese merchants who fled the country, when they took over the mainland. Nobody knows how much silver is still hidden in the mattresses of Chinese peasants. The amounts must be enormous. The best estimate is that most of that silver has never been consumed and still exists in monetary form. China's primitive economy under Mao was in no position to put that silver to industrial use. All that silver is now at the disposal of the Chinese government that could easily buy up silver coins scattered around the cities and in the countryside, at the present rising price of silver.

China is the only country in the world that has consistently run trade surpluses since 1950. As far as it is known, silver never figured in China's exports (except re-exporting foreign-owned refined silver.) Why should the Chinese export silver, when they could export almost anything else? Silver to the Chinese mind is money. You don't export money unless you are forced to cover your trade deficit, of which China has none. China has always paid for its imports with exports, a smart thing to do, too.

The Chinese are alive to the fact that escaped the silver bugs in the West, that you can derive a silver income from your pile of silver by covered short selling, even while retaining physical control of your silver hoard. THIS IS AN UNPRECEDENTED BONANZA IN THE HISTORY OF MONEY. It has never before happened that you earn interest while retaining physical control of your money. Typically you have to release control of money in order to earn interest income, that is, you have to assume risk. Lending money necessarily involves risks: the borrower may default. But if you don't give up physical control, then you will escape the monetary debacle unscathed. Because of the imbecility of the managers of the paper dollar standard there exist durable risk-free profit opportunities in holding monetary metals in the balance sheet. The trick is: covered selling. That's possible because the price of monetary metals has been allowed to fluctuate. The price fluctuation of a monetary metal, like the flow-and-ebb of the oceans, represents energy. Energy that can be harnessed. Energy that can be harnessed only by those who understand monetary economics.

The Chinese are not stupid. They looked askance at the silver and gold demonetization farce perpetrated on a gullible world by Western governments. (Gold was demonetized 100 years after silver had been, in 1973.) They are not falling for the cheap trick. They hang on to their silver. They make most of the stupidity of their adversaries. Nor are they in a hurry to push the silver price to three or four digits in order to sell their silver for a quick profit in irredeemable dollars (which is what the get-rich-quick crowd plans to do). Rather, it is in their interest to derive constant and consistent income in silver from covered writing, or using other dynamic hedging strategies. Why should they trade their silver for dollars, when they have far more dollars already than they want?

From the point of view of the Chinese, a slow rise in the silver price (and a gradual rather than an abrupt depreciation of the irredeemable paper dollar) appears more desirable than an overnight jump in the silver price to three digits that would put an end to their lucrative silver income from covered writing. They certainly have the clout to dictate the pace of silver price appreciation, and probably also of paper dollar depreciation.

The Chinese are inscrutable. They don't show you their blueprint for the new international monetary system which they plan to impose on the world after the inglorious end of the paper dollar era. It may be a born-again silver standard. The Chinese are using their cash silver and the silver income derived from covered writing as a hedge for their exposure to irredeemable paper dollars to the tune of $1.3 trillion, by far the largest accumulation of dollars the world has ever seen. What they will lose on their paper portfolio they will gain on their cash silver position. They will probably gain much more. While the finance-capital of the world denominated as it is in paper dollars is programmed to self-destruct, the Chinese will control much of the liquid capital in the world after the dollar-debacle. They will be a great source of capital exports, if you can pay their price, that is.

The Chinese can earn their way in the world. They can work when work is necessary, and they can save when saving is called for. They are doing fine, thank you very much. You need not worry about the Chinese losing their kitty of $1.3 trillion invested in U.S. T-bills and T-bonds.

However, you had better start worrying about America which is no longer in control of its economic and financial destiny. It has let world monetary leadership slip out of its hands. America's industrial capital is in shambles. From the largest creditor it turned itself into the largest debtor. The light has gone out at the great American universities as far as monetary science is concerned. Through bribe, blackmail, and attrition all upright and serious monetary economists were bumped from their academic chairs. The Great Chinese Cultural Revolution was a picnic in comparison to the Great American Cultural Revolution eliminating monetary economics from the curriculum. Courses on money presently taught consist of pure Keynesian and Friedmanite bunk.

It is a farce to blame the present financial crisis on lax lending standards and rogue traders. What we see is the return of the chickens to roost. This crisis has been in the making for over a century, involving the so-called demonetization of both monetary metals. The move was inspired and led by the United States. In particular, the so-called demonetization of gold was designed to camouflage the default of the U.S. Treasury on its gold-obligations. The industrial nations of the West did not even say 'ouch' when America's default caused them losses measured in hundreds of billions on their holdings of dollars in 1971. They became accomplices eager to start milking their own savers and producers by joining the paper-money farce. The day of reckoning dawns.

America's plight is self-inflicted. Yet America could still turn the train of monetary events to its advantage, reclaiming monetary leadership, if it opened the U.S. Mint to gold and silver. It should do it before China or Russia opened theirs. Unfortunately, there does not seem to exist one grain of wisdom in Washington to see this, let alone to do this. It would take the election victory of the maverick candidate, Dr. Ron Paul, Minority of One in the House of Representatives, to pull it off. It is certainly a proof of the American genius that great crises produce great men who are capable of dealing with them. If the Chinese beat America to the finish line by opening their Mint to silver, then the silky metal would be the international currency of the future.

Next to the Chinese the Russians are the most inscrutable players, ganging up against America's monetary hegemony. Their turf is gold. Perhaps it will be the Russians who will beat America to the finish line by opening the Russian Mint to gold, even before the Chinese open theirs to silver. Either way, America would be left in the lurch, denuded of its industrial capital, its savings, but left with a pile of worthless paper, and paper-worshippers in charge of the Treasury, and in charge of teaching monetary economics at all levels.

America can then embark on the arduous path to accumulate capital from scratch, while Russian and Chinese capitalists will be producing goods in spanking new plants, aided by spanking new equipment, complemented by shiny gold and silver pieces to trade their products world wide.

It is past wake-up call. To save itself, America had better listen to the message of Ron Paul who, in a counter double whammy, would open the U.S. Mint to both gold and silver if elected President.


Session Three, will be held in Dallas, Texas, February 11-17, 2008. For details, go to www.professorfekete.com.

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