Warsh
wrote: "In connection with your appeal, I have confirmed that the
information withheld under Exemption 4" -- that's Exemption 4 of the
Freedom of Information Act -- "consists of confidential commercial or
financial information relating to the operations of the Federal Reserve Banks
that was obtained within the meaning of Exemption 4. This includes information
relating to swap arrangements with foreign banks on behalf of the Federal
Reserve System and is not the type of information that is customarily disclosed
to the public. This information was properly withheld from you."
So there it is: The Federal Reserve today -- right now -- has gold swap
arrangements with "foreign banks."
Eight years ago Fed Chairman Alan Greenspan and the general counsel of the
Federal Open Market Committee, Virgil Mattingly, vigorously denied to GATA,
through two U.S. senators who had inquired of the Fed on our behalf, that the
Fed had gold swap arrangements, even though FOMC minutes from 1995 quote
Mattingly as saying the U.S. has engaged in gold swaps:
http://www.gata.org/node/1181But now the Fed admits such arrangements.
Of course Fed Governor Warsh did not say that the Fed has actually swapped any
gold lately, only that it has arrangements to do so -- and, just as important,
that the Fed does not want the public and the markets to know about those
arrangements, does not want the public and the markets to know about the
disposition of United States gold reserves.
GATA is preparing to sue the Fed in federal court to compel disclosure of these
gold swap arrangements.
There is a reason for the Fed's insistence that the public and the markets must
not know what the Fed is doing in the gold market.
It is because, as the documents compiled and publicized by GATA suggest,
suppressing the gold price is part of the general surreptitious rigging of the
currency, bond, and commodity markets by the U.S. and allied governments,
because this market rigging is the foremost objective of U.S. foreign and
economic policy, and because this rigging cannot work if it is exposed and the
markets realize that they are not really markets at all.
And the rigging increasingly is being exposed and understood.
In complaining about the manipulation of the gold market, GATA has not been
called "conspiracy nuts" by everyone. We have gained a good deal of
institutional support over the years.
First came Sprott Asset Management in Toronto, which in 2004 issued a
comprehensive report supporting GATA. The report was written by Sprott's chief
investment strategist, John Embry, and his assistant, Andrew Hepburn, and was
titled "Not Free, Not Fair -- the Long-Term Manipulation of the Gold Price."
It remains available at the Sprott Internet site:
http://www.sprott.com/docs/PressReleases/20_not_free_not_fair.pdf Then in 2006 the Cheuvreux brokerage house of Credit Agricole, the major French
bank, issued its own report confirming GATA's findings of manipulation in the
gold market. The Cheuvreux report was titled "Remonetization of Gold:
Start Hoarding," and you can find it at GATA's Internet site:
http://www.gata.org/files/CheuvreuxGoldReport.pdf And in 2007 Citigroup -- yes, Citigroup, a pillar of the American financial
establishment -- joined the supposed conspiracy nuts. It published a report titled
"Gold: Riding the Reflationary Rescue," written by its analysts John
H. Hill and Graham Wark, declaring: "Gold undoubtedly faced headwinds this
year from resurgent central bank selling, which was clearly timed to cap the
gold price." You can find the Citigroup report at GATA's Internet site:
http://www.gata.org/files/CitigroupGoldReport092107.pdfEven those authorities who do not want to run afoul of government institutions
that with a few computer keystrokes can create virtually infinite amounts of
money may have to admit the opportunity for central banks to manipulate the
gold market. For it is widely acknowledged that annual world gold production is
about 2,400 tonnes, that annual net world gold demand is about 3,400 tonnes,
that gold production has been falling as demand has been rising, and that the
thousand-tonne gap between production and net demand has been filled mainly by
central bank dishoarding and leasing.
What do you suppose the gold price would be if central banks were not supplying
more than a quarter of annual demand?
That dishoarding was not all innocent management of a foreign exchange reserve
portfolio. Much of it was meant as market intervention -- and after all, market
intervention is exactly why central banking was invented.
Intervening in markets is what central banks do. They have no other purpose.
Central banks admit intervening often in the currency markets, buying and
selling their own currencies and those of other governments to maintain
exchange rates at what they consider politically desirable levels. Central
banks admit doing the same in the government bond markets. There is even
evidence that the Federal Reserve and Treasury Department have been intervening
frequently in the U.S. stock markets since the crash of 1987.
You do not have to settle for rumors about the "Plunge Protection
Team," also known as the President's Working Group on Financial Markets. Again
you can just look at the public record.
The Federal Reserve injects billions of dollars into the stock and bond markets
every week, on the public record, through the major New York financial houses,
its so-called primary dealers in federal government bonds, using what are
called repurchase agreements and the Fed's Primary Dealer Credit Facility. The
financial houses thus have become the Fed's agents in directing that money into
the markets. The recent rise in the U.S. stock market matches almost exactly
the money funneled by the Fed to the New York financial houses through
repurchase agreements and the Primary Dealer Credit Facility.
Meanwhile, for years the International Monetary Fund, the central bank of the
central banks, has been openly intervening in the gold market by threatening to
sell gold. The IMF said its intent in selling gold was to raise money to lend
to poor nations. This explanation was ridiculous on its face, though the IMF
has never been challenged about it in the financial press. No, the financial
press has been happy to tell the world that central banks that lately have
effortlessly conjured into existence fantastic amounts of money in many
currencies could find a little money to help poor countries only by selling
gold.
Of course the intent of the IMF and its member central banks was not to help
poor countries but to intimidate the gold market and control the gold price.
That the IMF intimidated the gold market so long with this threat of gold sales
was all the more remarkable because the IMF probably has never had any gold to
sell in the first place.
In April 2008 I wrote to the managing director of the IMF, Dominque
Strauss-Kahn, with five questions about the IMF's gold. I copied the letter to
the IMF's press office by e-mail, and quickly began to get some answers from
one of its press officers, Conny Lotze.
My first question to the IMF was: "Your Internet site says the IMF holds
3,217 metric tons of gold 'at designated depositories.' Which depositories are
these?"
Conny Lotze of the IMF replied, but not specifically. She wrote: "The
fund's gold is distributed across a number of official depositories." She
noted that the IMF's rules designate the United States, Britain, France, and
India as IMF depositories.
My second question was: "If you would prefer not to identify the
depositories for security reasons, could you at least identify the national and
private custodians of the IMF's gold and the amounts of IMF gold held by
each?"
Conny Lotze replied, again not very specifically: "All of the designated
depositories are official."
My third question was: "Is the IMF's gold at these depositories allocated
-- that is, specifically identified as belonging to the IMF -- or is it merged
with other gold in storage at these depositories?"
Conny Lotze replied, still not very specifically: "The fund's gold is
properly accounted for at all its depositories."
My fourth question was: "Do the IMF's member countries count the IMF's
gold as part of their own national reserves, or do they count and identify the
IMF's gold separately?"
Conny Lotze replied a bit ambiguously: "Members do not include IMF gold
within their reserves because it is an asset of the IMF. Members include their
reserve position in the fund in their international reserves."
This sounded to me as if the IMF members were still counting as their own the
gold that supposedly belongs to the IMF -- that the IMF members were just
listing the gold assets in another column on their own books.
My fifth question to the IMF was: "Does the IMF have assurances from the
depositories that its gold is not leased or swapped or otherwise encumbered? If
so, what are these assurances?"
Conny Lotze replied: "Under the fund's Articles of Agreement it is not
authorized to engage in these transactions in gold."
But I had not asked if the IMF itself was swapping or leasing gold. I had asked
whether the custodians of the IMF's gold were swapping or leasing it.
This prompted me to raise one more question for Conny Lotze. I wrote her:
"Is there any audit of the IMF's gold that is available to the public? I
ask because, if the amount of IMF gold held by each depository nation is not
public information, there does not seem to be much documentation for the IMF's
gold, nor any documentation for the assurance that its custody is just fine. Without
any details or documentation, the IMF's answer seems to be simply that it
should be trusted -- that it has the gold it says it has, somewhere."
And that was the last I heard from Conny Lotze. She didn't answer me again. I
had spoken a word that is increasingly unspeakable in the gold section of
central banking: audit.
This week the IMF at last announced the disposal of some of the 400 tonnes of
gold it long had been threatening to sell. Two hundred tonnes have been
purchased by the Reserve Bank of India. This may or may not be a real
transaction, a real transfer of gold from an IMF vault to a vault of the
Reserve Bank of India. More likely this transaction is only a bookkeeping entry
among IMF member central banks. But in any case it seems likely that the gold
with which the IMF has been threatening the market for years is never going to
hit the market, if it even exists. Rather, this gold will remain in the
mysterious possession of central banks.
Lately central bankers often have complained about what they call
"imbalances" in the world financial system. That is, certain
countries, particularly in Asia, run big trade surpluses, while other
countries, especially the United States, run big trade deficits and consume far
more than they produce, living off the rest of the world. These complaints by
the central bankers about "imbalances" are brazenly hypocritical,
since these imbalances have been caused by the central banks themselves, caused
by their constant interventions in the currency, bond, and commodity markets to
prevent those markets from coming into balance through ordinary market action
lest certain political interests be disturbed.
Yes, when markets balance themselves they often do it brutally, causing great
damage to many of their participants. The United States enacted a central
banking system in 1913 because for the almost 150 years before then the country
went through a catastrophic deflation every decade or so. Central banking was
created in the name of preventing those catastrophic deflations.
The problem with central banking has been mainly the old problem of power ---
it corrupts.
Central bankers are supposed to be more capable of restraint than ordinary
politicians, and maybe some are, but they are not always or even often capable
of the necessary restraint. One market intervention encourages another and
another and increases the political pressure to keep intervening to benefit
special interests rather than the general interest -- to benefit especially the
financial interests, the banking and investment banking industries. These
interventions, subsidies to special interests, increasingly are needed to
prevent the previous imbalances from imploding.
And so we have come to an era of daily market interventions by central banks --
so much so that the main purpose of central banking now is to prevent ordinary
markets from happening at all.
By manipulating the value of money, central banking controls the value of all
labor, services, and real goods, and yet it is conducted almost entirely in
secret -- because, in choosing winners and losers in the economy, advancing
infinite amounts of money to some participants in the markets but not to
others, administering the ultimate patronage, central banking cannot survive
scrutiny.
Yet the secrecy of central banking now is taken for granted even in nominally
democratic countries.
Maybe the Federal Reserve's intervention to rescue Bear Stearns through the
Fed's de-facto subsidiary, JPMorganChase, will cause some devastating public
inquiries by Congress and the news media. But what a hundred years ago in the
United States was called the Money Power is so ascendant today that it
sometimes even boasts of its privilege. What other agency of a democratic
government could get away with the principle that was articulated on national
television in the United States in 1994 by the vice chairman of the Federal
Reserve, Alan Blinder? Blinder declared: "The last duty of a central
banker is to tell the public the truth."
The truth as GATA sees it is this:
First, gold is the secret knowledge of the financial universe, but it is
becoming an open secret. That is GATA's work -- to break the secret open, to
show how the gold price has been suppressed by central bank creation of
imaginary gold in amounts to match and thus help conceal the vast inflation of
the world's money supply. We will continue to use freedom-of-information law
against the Fed and the Treasury Department about their policies toward gold
and the disposition of the U.S. gold reserve. Of course central banks can no
more afford to account fully for their gold reserves than the Fed and
JPMorganChase can afford to disclose details of their negotiations for the
rescue of Bear Stearns. Indeed, as my correspondence with the IMF suggests, the
disposition of Western central bank gold reserves is a secret more closely
guarded than the blueprints for the manufacture of nuclear weapons.
Why can't the public and the markets be permitted to know exactly where central
bank gold reserves are? Because in the hands of governments gold is a deadly
weapon -- as the Reserve Bank of Australia acknowledges, the main weapon of
currency market intervention.
Second, all technical analysis of markets now is faulty if it fails to account
for pervasive government intervention.
And third, the intervention against gold is failing because of overuse,
exposure, exhaustion of Western central bank gold reserves -- we estimate that
the Western central banks have in their vaults only about half the 32,000
tonnes they claim to have -- and the resentment of the developing world, which
is starting to figure out how it has been expropriated by the dollar system, a
system in which people do real work and create real goods and send them to the
United States in exchange for mere colored paper and electrons.
For years now the Western central banks have been attempting a controlled
retreat with gold, bleeding out their reserves with sales, leases, and
derivatives so that gold's ascent and the dollar's inevitable decline may be
less shocking. Central bankers often convey part of this strategy in code; they
warn against what they call a "disorderly decline" in the dollar, as
if an "orderly" decline is all right.
The rise in the gold price over the last decade is just the other side of that
coin -- an "orderly" rise, 15 percent or so per year, a rise
carefully modulated by surreptitious central bank intervention.
But GATA believes that the central banks may have to retreat farther with gold
than anyone dreams, and far more abruptly than they have retreated so far. We
believe that when the central banks are overrun in the gold market, as they
were overrun in 1968, and the market begins to reflect the ratio between, on
one hand, the supply of real gold, actual metal, not the voluminous paper
promises of metal, and, on the other hand, the explosion of the world money
supply of the last few decades -- as the market begins to perceive the
difference between the real and the unreal -- there may not be enough zeroes to
put behind the gold price.
A century ago Rudyard Kipling wrote a poem that foresaw the decline of the
empire of his country, Great Britain. Kipling's poem attributed this decline to
the loss of the old virtues, the virtues that were listed at the top of the
pages in the special notebooks, called "copybooks," that were given
to British schoolchildren at that time -- virtues like honesty, fair dealing,
Ten Commandments stuff. The title of Kipling's poem is "The Gods of the
Copybook Headings," and its conclusion is a warning to the empire that
succeeded the one he was living in:
Then the Gods of the Market tumbled,
And their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled
And began to believe it was true
That All is not Gold that Glitters,
And Two and Two make Four,
And the Gods of the Copybook Headings
Limped up to explain it once more.
As it will be in the future,
It was at the birth of Man.
There are only four things certain
Since Social Progress began:
That the Dog returns to his Vomit
And the Sow returns to her Mire,
And the burnt Fool's bandaged finger
Goes wabbling back to the Fire;
And that after this is accomplished,
And the brave new world begins,
When all men are paid for existing
And no man must pay for his sins,
As surely as Water will wet us,
As surely as Fire will burn,
The Gods of the Copybook Headings
With terror and slaughter return.
The gold price suppression story is important despite this week's dramatic rise
in the gold price. For even as the price of gold has been rising, we really
don't yet know what a fair price, a free-market price, for gold is, since gold
has not traded in a free market for many years and is not trading in a free
market now.
Indeed, since central bank intervention in the currency, bond, equities, and
commodity markets has exploded over the last year, we don't really know what
the market price of anything is anymore. Thus the gold price suppression story
is a story about the valuation of all capital and labor in the world -- and
whether those values will be set openly in free markets, the democratic way, or
secretly by governments, the totalitarian way.
The specifics of the gold price suppression operation are complicated, but you
don't have to remember them all if you know what they mean.
They mean that there is a currency war going on between countries and their
central banks. There has been such a war for many years, only the victims were
not really fighting back. Now some of them are. Signs of this war are now
everywhere -- like the story published a month ago by the British newspaper The
Independent that described an international plan to replace the dollar in oil
trading:
http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar...
Gold and silver have been and remain currencies and will be remonetized by
markets eventually if not by central banks as well, because gold and silver are
the only neutral currencies, the only currencies that are not the liabilities
of any particular country.
But when you invest in currencies like gold and silver, you risk getting caught
in the crossfire of the currency war. As in any war, truth is the first
casualty in the currency war, even as secrecy is always the first principle of
central banking.
Meanwhile, not asking the right questions of the right people seems to be the
first principle of most mainstream financial journalists and even the first
principle of some gold and silver market analysts. These journalists and
analysts take government secrecy in central banking for granted, even as the
evidence of market intervention and manipulation explodes all around them. This
acceptance of secrecy reminds me of the bumbling police detective played by
Leslie Nielsen in the "Naked Gun" movies, particularly his
performance in this scene:
https://www.youtube.com/watch?v=rSjK2Oqrgic Well, there is something to see here.
The precious metals promise great rewards to investors, but to get the necessary
information you have to do a lot more work than other investors.
And you have to remember the remarkable properties of gold and silver. It's not
just that gold is the most malleable and lustrous of metals, or that silver is
the most conductive and reflective, but also that, once they get into the hands
of central banks, bullion banks, and exchange-traded funds, gold and silver can
become invisible.
* * *
Join GATA here:
Vancouver Resource Investment Conference
Sunday and Monday, January 17 and 18, 2010
Hyatt and Fairmont Conference Hotels
Vancouver, British Columbia, Canada
http://www.cambridgeconferences.com/index.php/vancouver-resource-investm...
* * *
Support GATA by purchasing a colorful GATA T-shirt:
http://gata.org/tshirts Or a colorful poster of GATA's full-page ad in The Wall Street Journal on
January 31, 2009:
http://www.cartserver.com/sc/cart.cgi Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon:
http://www.goldrush21.com/ * * *
Help keep GATA going
GATA is a civil rights and educational organization based in the United States
and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are
free, and you can subscribe at:
http://www.gata.org To contribute to GATA, please visit:
http://www.gata.org/node/16Contact GATA
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06043-7541 USA
Hardinvestor
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