John D. Meyer GATA Vice Chairman, Treasurer September 28, 1999

THREE CHEERS TO MIDAS MURPHY !!!

THE WORLD DECLARES MONETARY INDEPENDENCE FROM THE U. S. DOLLAR AND HANNIBAL'S WORST NIGHTMARE BEGINS

Pinch me quick and tell me I'm not dreaming. How can this be? Fourteen European central banks plus even the English "Poodle", announce that they will restrict gold sales and lending for the next five years. In one dramatic sweeping step the "reign of terror" besieging the gold bullion market has been broken. But the question remains why would the European central banks wish to reassure the gold markets?

For the past many years the gold world has been throttled by perceptions and short selling. Central banks gold sales were in fact never the problem, but the gold lending and the well orchestrated propaganda directed by the United States was. Since early 1996, the threat of central bank gold sales and a raising volume of gold lending strategically timed and presented by the mainstream financial press attacked gold whenever an uptrend threatened. This has now ended.

THE TWILIGHT OF THE DOLLAR

With the monetary system facing the greatest defaults since the 1930's, the manipulation of gold, the ultimate preserver of wealth serves precisely to conceal the bankruptcy of our current monetary system.

Single events often appear distant and unrelated, yet with a more critical eye they can be seen to be part of a pattern. It is my position that the European central bank announcement is a defining moment in monetary history. The propaganda windmills, mostly English speaking, would have you believe that "money" is a creation of government. As Martin Armstrong liked to say gold has been demonetized. We hold a different view. Namely, that money is determined by a market process. The European central bank decision is a major part of this market process, which has two consequences. First, it partially restores gold's monetary role. Second, and more importantly, it is a determined attempt to turn away from the dollar as a reserve currency.

The reality is that the greatest crisis in credit since the 1930's is underway. While the problem may appear to have begun in Asia, in fact its origin is a monetary system which allows the United States "Deficits without Tears". Every nation in the world has suffered as they have been forced to import our inflation (i.e. buy dollars and U.S. debt) because it is the reserve currency of the world's financial system. The dollar as the reserve currency forces other countries to accept our paper as payment for their goods and services. Jacques Rueff named this dirty little secret - "The Monetary Sin of the West."

Our present global monetary system is dysfunctional. The Asian currency epidemic was the first act in a play ultimately destined to take down the U.S. dollar. Starting with Mexico in 1995, Asia in 1997, Russia and Brazil in 1998 we have experienced an escalation in each crisis as larger and larger countries are ravaged. The monetary mischief of competitive currency devaluations claimed its first victim in North America with the collapse last fall of Long Term Capital Management.

As 1998 was ending the Japanese authorities (December 22nd) blind-sided the financial markets, saying that they would cut back their purchases of Japanese government bonds. Japanese long term bond prices were pummeled and the U. S. dollar crumbled. Then on January 1, 1999 Prime Minister Obuchi proposed the establishment of a monetary system composed of three key currencies - the yen, the U.S. dollar and the euro. Japan signaled its intention to internationalize the yen turning it into the key currency of Asia.

On Monday (September 20, 1999 ), despite warnings, the Bank of Japan refused to ease monetary policy to curb a rapid rise in the yen against the dollar. Now a week later the European central banks befriends gold.

The Russian default in 1998 launched us into a new phase of this meltdown, which directly impacted the derivative arena. Default has been staved off for decades through credit expansion (i.e. bailouts). New debt piled on the old. Finally, when the excesses are too great and the economies too anemic, default becomes the final solution. Default immediately exposes systemic weaknesses. Since derivatives are leveraged contracts dependent upon an underlying "asset", default of the underlying asset immediately wipes out that derivative. The Wizards' computer model programs are not programmed for events that might cause a non-standard deviation movement.

For the Federal Reserve to admit that a single hedge fund, with a mere $4 billion in equity, jeopardized the entire financial system is an admission of a profound failure in the Federal Reserve policy. What can be the justification for bailing out a den of gamblers? Frankly, it proves the mutual dependency and just how cozy the alliance is between Wall St. and Washington. LTCM was bailed out because officials realized other hedge funds and Wall Street trading desks had similar leveraged positions. This crisis is still largely unknown to the public. It is the story of the "carry trade" . The naked borrowing of yen and gold to finance these extraordinarily leveraged positions of the financial community. Between August and October of 1998 the yen fell from 147 to 112. Then on October 15th, facing a breakdown in the interbank payment system, the Fed initiated the first of three rate cuts. As 1999 commenced the U.S. financial system had been brought back from the brink by another massive ballooning of credit.

These fixes have merely exacerbated the underlying systemic risks. After decades of "too big to fail" the Fed's unwillingness to address underlying structural problems of debt has led to putting the entire system at risk. The Bank of Japan and the European central banks are declaring an end to the present state of affairs. The United States financial markets have become a fools paradise and the affairs of LTCM down to the current scandals involving Martin Armstrong and others has not been lost on the global banking community. As a younger man Alan Greenspan wrote an essay entitled "Gold and Economic Freedom", which correctly detailed and identified the cause of the 1929 crash. It appears to this writer as though he repeats the same mistakes that he accused The Fed of committing in 1927-28. Greenspan has created a bubble (i.e. hyperinflation) in our financial markets. Wall Street has become a casino. The greatest fear for the central bankers of the world is the U.S. dollar which comprises the bulk of their monetary reserves.

For years now the mainstream gold analysis has been fixated on the supply side of gold. This is not the issue. The critical determinant in the price of gold ultimately is the supply side of dollars. As the worlds largest debtor, with endlessly mounting trade deficits, negative savings and inflated security markets it is not hard to image the fear motivating recent developments by the Japanese and the Europeans. Enough is enough. Gold reserves are not the problem for central banks of the world but rather their bloated and excessive position of dollars, which has entered a major secular down trend.

THE COMING DOLLAR BACKLASH

The European central banks gold policy must be viewed as an aggressive escalation in their policy to establish monetary independence. There is no doubt that the monetary world has crossed the threshold into a monetary system which will be comprised of three reserve currencies. Gold is no longer to be held hostage to American monetary policy. On this point it is quite interesting to see that the English "Poodle", in an obvious break with their American friends, has turned her leash over to the Europeans.

It will be interesting to see what response the Bank of Japan will make to the European central banks. An Asian yen backed currency has a long way to go in order to equal the gold reserves backing the dollar and the euro. Up until now the currency world has been engaged in a competitive race to the cellar. It could be that the race for competitive legitimacy has begun. Central banks bid for gold is likely to far exceed the sale limits just established by the Europeans. The historic actions by the European central banks and Japan over this past week are extremely bearish for the dollar and U.S. financial markets. So far the markets have failed to understand this threat.

WHERE DOES GATA GO FROM HERE?

As Treasurer of GATA I wish express our sincere appreciation for the support from hundreds of individuals who have rallied to our cause. Your letters and notes have been a source of strength to The Committee. We salute and thank you. We are likewise indebted to a select and courageous few within the gold mining community. Unfortunately, the majority of the mining companies have yet to come on board.

Clearly the surge of events is vindicating and confirming the task set out by GATA. No matter how sweet this first victory may be a long battle still lies ahead. We need to capitalize on this moment by moving on to the next level of our investigation. It would be gratifying to see some of the senior gold mining companies step forward to publicly support GATA. Bill has detailed one of our failed attempts (The Vancouver Affair) to find corporate support. Hannibal seems to have a long reach. We have made numerous other attempts to enlist the larger mining houses. One senior North American producer approached us last spring and actually explored for nearly a month a relationship. We cooperated in every possible way opening all of our work for their review. Then suddenly they disappeared without explanation. Phone calls were not returned. We were just plain dumped. Someday we may tell the world about this episode. The story rivals "The Vancouver Affair". For now we continue patiently with restraint, but hope that the larger members of the mining industry will awake and throw aside their fears.

One way or another GATA is here for the duration. Keep up the support We will prevail.

A FINAL WORD

The heroic effort and foresight of Bill Murphy is only now beginning to be understood. Bill and his Le Metropole Cafe have absolutely nailed the events that are now unfolding. If the Bank of England sale didn't convince the world that the gold market was being manipulated, maybe a $60 explosion in the gold price might. The extreme price action in gold should clearly indicate that the market has been artificially suppressed. One wonders how much it will take to generate an acknowledgment of Bill's incredible performance.$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$"The fate of the world economy is now totally dependent on the growth of the U.S. economy, which is dependent on the stock market, whose growth is dependent on about 50 stocks, half of which have never reported any earnings..." Former Fed Chairman Paul Volcker, Friday, May 21, 1999.$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ PARTY'S OVER.

-- dax (dax@here.com), September 30, 1999

Answers

Thanks for the interesting article dax.

There are a couple of questions I have for dax or anyone who holds the answers.

(1) Why did the mining companies ever participate in a conspiracy to hold the price of gold down? If they were not doing the manipulating they at least have participated passively by not blowing the whistle loudly. Haven't they had a big interest in keeping the price of gold high as possible?

The author seems to feel that the European central banks have declared war on the dollar. This seems to be based on the idea that the British and --tentatively -- others were selling gold at the demand of the United States; that is, that the United States was behind the gold price manipulation all along. If so, wouldn't nations like Australia and South Africa have spoken up already?

Second, if the hedge funds have indeed borrowed gold for investment or shorted gold, wouldn't they do it as a one-shot deal? To keep the price of gold low for two to three years or longer is to realize diminishing returns to say the least: once the price of gold hits bottom, they should go on to another scam. I can see how someone may benefit from lowering the price of gold, but it is harder for me to see how someone benefits from KEEPING IT LOW FOR A LONG TIME. How does one make lots of money off gold that stagnates between $260 and $290? Wouldn't a truly greedy manipulator either move on to another commodity or pump the price up and down-- alternating between puts and calls?

Yours Truly

-- Rick (rick7@postmark.net), September 30, 1999.

Rick

The price of gold came under pressure in 1971 when Nixon repudiated our agreements to settle international debts with gold. Nixon was forced to do this because our gold reserves were being rapidly drained as foreign suppliers (principally at that time,the Saudis) requested payment in gold. The US was unwilling to reduce spending on our wars, welfare and other things, so the scheme to keep the price of gold low was conceived, and devious means were used to pay (or promise to pay) the Saudis in gold.

It is long and difficult story, but you can read it by going through most of the USA Gold forum posts since about September of last year, reading the posts by Another, Friend of Another, Oro,Aristotle, Aragorn, and others. A summary of the main points has been prepared by Steve Hickel and posted in the editorials section of the Gold-Eagle forum.

While Bill Murphy has certainly brought to light some of "conspiratorial" doings, and perhaps forced a change, in reality the end game of the "gold for oil" was already in play. The price of gold has been held down by selling borrowed gold, but about the time that Murphy got started, most of the available above the ground gold has already been sold, as had much of the gold yet to be mined through "forward sales", which is really short selling. The total gold that is now sold short amounts to some 15000 tonnes, or several years production. Additionally, the supply of gold from mines has been reduced through mine closings as the price of gold has been driven steadily lower over the years. Only the mines that chose to do "forward sales" remained profitable, but as the price of gold skyrockets, these forward selling mines may become bankrupt.

But now, there is not much gold left to sell short, (this thing about high lease rates is one sign), and the result will be a huge squeeze on the shorts to come up with the gold that they borrowed, accompanied by a huge rise in the price of gold.

But there are some far more serious implications. For nearly thirty years now, the US has forced the world to accept worthless dollars for everything that they sell to us. The EURO currency was developed and brought out as an alternate. Because of the devious ways in which the Arabs heve been paid, they now efectively control/own a huge part of the world's gold supply, and this gold will now be directed into backing for the Euro. This gold supply, coupled with the large increase in price as the shorts are driven out will result in a fully gold backed EURO. It is likely that this EURO will replace the dollar as the principal world's reserve currency which will have some serious implications for Americans.

We hear regular statements on the forum like "gas is going to $5 per gallon". Well, gas won't be 5$ per gallon. It will be 5 EUROS per gallon, and the US can't print EUROS like we print dollars. Instead we will have to work and earn our EUROS before we can buy any oil. The US will eventually have to return to hard working manufacturing country as we once were, but that is some years away, with much toil and hard work coming first. There is a large advantage in issuing thj world reserve currency, and the loss of this advantage will make most of us poorer.

Alternatively we can refuse to accept our demotion from the world's top dog position and choose instead to fight, and there will be some considerable support for this approach. But I am not convinced that we can defeat the whole world, althought I would not bet a nickel that our government would not elect this course of action. So either way, things are not pretty, not even counting Y2K.

dave

-- dave (wootendave@hotmail.com), September 30, 1999.

dave,

Thanks for the information you have provided; however, I have to say I don't see where you have answered my questions, specifically, "Why did the mining companies ever participate in a conspiracy to hold the price of gold down?" "Haven't they had a big interest in keeping the price of gold high as possible?" "the United States was behind the gold price manipulation all along. If so, wouldn't nations like Australia and South Africa have spoken up already?" "Wouldn't a truly greedy manipulator either move on to another commodity or pump the price up and down-- alternating between puts and calls?"

Also, I have a question for Dave Wooten,

You said that the Arabs will use their gold to back the euro. Why? Isn't the euro another fiat currency, like the dollar. They won't give their gold away, of course, so you must be saying they will sell the gold for euros, then perhaps invest the euros in Europe. Is their investing fiat euros in Europe (the Europe that printed the fiat euros) really that big a deal? Since the euro is fiat currency, won't the euro be likely to crash when the Dollar crashes? When the Dollar crashes won't the rest of the world devalue their currencies so that they won't lose the trade advantage they have come to depend on?

I agree that we are headed for tremendous financial problems, only I think that the ascendant euro scenario seems rather improbable. It seems to me that when the Dollar crashes all currencies collapse, then gold is king, not the euro. Would you like to invest your money in the fiat euro when the Dollar crashes?

-- Rick (rick7@postmark.net), September 30, 1999.

"(1) Why did the mining companies ever participate in a conspiracy to hold the price of gold down? If they were not doing the manipulating they at least have participated passively by not blowing the whistle loudly. Haven't they had a big interest in keeping the price of gold high as possible? " Rick, Have news for u in the gold industry there are few big gold miners who almost have a monopoly,and would like nothing more than a low gold price(especially since they have sold forward at a higher price)to get rid of the small miners who cannot survive long at such low prices.And pick them up for close to nothing.Just a theory.

-- dax (dax@here.com), October 01, 1999.

Rick

The motives for the gold miners are explained pretty well in this piece by Hathaway. It can be seen at:

http://www.gold-eagle.com/editorials_99/hathaway082899.html

I hope you have read the material that has been summarized by Steve Hickel. It can be seen at:

http://www.gold-eagle.com/research/hickelndx.html

A more complete of the gold story can be seen at:

http://www.jasonhommel.com/aristotle.htm

This rather long piece is a historical summary as provided by Aristotle, who posts regularly on the USA Gold forum at:

http://www.usagold.com/cpmforum/

It is my understanding (which may not be perfect) that the Euro will ultimately be fully backed by gold, but I am doubtful that it will be fully convertible. As such it will not be a fiat currency as you describe.

If the scenario for Y2K results in total government (US and European) failure, then nothing as described will occur. But if governments hold together, the I believe that the dollar will give way to the Euro.

I also should point out that on the three major gold forums, none of the heavy hitters (not me) are nearly concerned about Y2K as me, and perhaps you. Clearly, the inclusion of Y2K effects will change the outcome.

But on a personal note, I have just despatched a sizable sum of money to the Isle of Man where I have an account. From there it will be invested in a combination of Irish and Dutch securities, not yet determined. It could well be a bad investment, but it is not possible to tell until after the event.

You might note that at this time, the success of any investment is absolutely dependent upon the outcome of Y2K. What is good for a 5 is hopeless for a 10, and vice versa.

I hope this answers you questions. If not, its all that I know.

dave

-- dave (wootendave@hotmail.com), October 01, 1999.