Former MEP Ashley Mote explains what happened to British physical gold assets...

Why did Gordon Brown sell our gold?
April 9th, 2010

http://www.ashleymote.co.uk/?p=2893

In recent days The Daily Telegraph has been making enquiries about the sale of our gold reserves ten years ago. Despite using the Freedom of Information Act they are having trouble getting to the truth.

 

Bill Murphy, whom I interviewed on Tuesday, has a piece in the HufPost that's very helpful in explaining GATA's thesis on the manipulation of the gold price, and what might turn out to be a financial scandal that drawfs the Madoff affair.

Initially we [the Gold Anti-Trust Action committe] thought that the manipulation of the gold market was undertaken as a coordinated profit scheme by certain bullion banks, like JPMorgan, Chase Bank, and Goldman Sachs, and that it violated federal and state anti-trust laws. But we soon discerned that the bullion banks were working closely with the U.S. Treasury Department and Federal Reserve in a gold cartel, part of a broad scheme of manipulation of the currency, precious metals, and bond markets.

As an executive at Goldman Sachs in London, Robert Rubin developed an idea to borrow gold from central banks at minimal interest rates (around 1 percent), sell the bullion for cash, and use the cash to fund Goldman Sachs' operations. Rubin was confident that central banks would control the gold price with ever-more leasing or outright sales of their gold reserves and that consequently the borrowed gold could be bought back without difficulty. This was the beginning of the gold carry trade.

When Rubin became U.S. treasury secretary, he made it government policy to surreptitiously operate an identical gold carry trade but on a much larger scale. This became the principal mechanism of what was called the "strong-dollar policy." Subsequent treasury secretaries have repeated a commitment to a "strong dollar," suggesting that they were continuing to feed official gold into the market more or less clandestinely to support the dollar and suppress interest rates and precious metals prices.

Lawrence Summers, who followed Rubin as treasury secretary and now a key economic advisor to President Obama, was an expert in gold's influence on financial markets. Previously, as a professor at Harvard University, Summers co-authored an academic study titled "Gibson's Paradox and the Gold Standard," which concluded that in a free market gold prices move inversely to real interest rates, and, conversely, if gold prices are "fixed," then interest rates can be maintained at lower levels than would be the case in a free market. Lawrence Summers knows very well what has been going on in the gold market and why.

These secretive gold operations were a significant reason for the real estate bubble and market collapse in the US as interest rates were left too low for too long. GATA understood that the manipulation of the price of gold was profoundly important to all markets and the American public. On January 31, 2008, we placed a $264,000 full-page color advertisement in The Wall Street Journal. GATA's ad warned, "This manipulation has been a primary cause of the catastrophic excesses in the markets that now threaten the whole world." What GATA warned against has come to pass.

From The Daily Reckoning

Front page headline on Friday’s Wall Street Journal proclaimed a big up-tick worldwide in the manufacturing sector.

According to the paper, everybody is making more and more stuff.  This helps assure that the recovery “has legs.”

Auto sales, too, came in stronger than expected in March.  So it sounds like the recovery has wheels too.

What we want to know: does it have a brain?  Who’s buying this stuff and where are they getting the money?

At least the economic model of the bubble era made sense.   The producers produced.  The consumers consumed.  That worked great until the consumers ran out of money.  Then, they had to borrow from the producers.  And eventually, the whole thing blew up when it became clear that the spenders had borrowed and spent too much, while the producers had expanded and produced too much.

So far, so good.  But now, the world economy needs a new model, right?

 

"Tyler Durden" of Zero Hedge says we already got 'em!

It couldn't have happened to a nicer country. On March 18, with very little pomp and circumstance, president Obama passed the most recent stimulus act, the $17.5 billion Hiring Incentives to Restore Employment Act (H.R. 2487), brilliantly goalseeked by the administration's millionaire cronies to abbreviate as HIRE. As it was merely the latest in an endless stream of acts destined to expand the government payroll to infinity, nobody cared about it, or actually read it. Because if anyone had read it, the act would have been known as the Capital Controls Act, as one of the lesser, but infinitely more important provisions on page 27, known as Offset Provisions - Subtitle A—Foreign Account Tax Compliance, institutes just that. In brief, the Provision requires that foreign banks not only withhold 30% of all outgoing capital flows (likely remitting the collection promptly back to the US Treasury) but also disclose the full details of non-exempt account-holders to the US and the IRS. And should this provision be deemed illegal by a given foreign nation's domestic laws (think Switzerland), well the foreign financial institution is required to close the account. It's the law. If you thought you could move your capital to the non-sequestration safety of non-US financial institutions, sorry you lose - the law now says so. Capital Controls are now here and are now fully enforced by the law.

In the remainder of the blog, Tyler breaks down what was actually inside that "jobs" bill  (though this section is only recommended for those who speak legalese.) He also gets it right in terms of where all this is heading -- towards shifting Americans' wealth into long-term treasuries in order to fund the goverment, maybe even in the form of transforming 401ks into annuities.  

So far the markets have not seemed to notice, but there are not one…but two bulls in this china shop.

First, the US government is going broke.

Second, we’re at the beginning of a Great Correction.

As to the second item, here’s this update from Bloomberg:

Sales of new homes in the US unexpectedly fell in February to a record low as blizzards, unemployment and foreclosures depressed the market.Purchases decreased 2.2% to an annual pace of 308,000, figures from the Commerce Department showed today in Washington. The median sales price climbed by the most in more than two years.

The new-home market is vying with foreclosure-induced declines in prices for existing homes in an economy where unemployment is forecast to average 9.6% this year, close to a 26-year high. Treasury Secretary Timothy F. Geithner yesterday said it would take a “long time” to repair the housing market as the administration takes steps to overhaul real-estate financing and regulation.

“It’s going to be a long, slow slog and the lagging sector will be new home sales because they have to compete with existing sales and foreclosures,” Bill Hampel, chief economist at the Credit Union National Association in Washington, said before the report. “New home sales probably have until the fourth quarter until they start recovering.”

What happens in the 4th quarter that makes the housing market recover? A sudden influx of immigrants? A sudden increase in employment?

 

Scott Richert has a good article up at Chronicles in which he argues that the healthcare bill isn't quite the "socialism" that its supporters and detractors imagine it to be.  Depending on your preference, Obamacare will either result in an Atlas Shrugged-like nightmare in which bureaucrats will immiserate entrepreneurs and the public alike or become an efficiently-run public service that will finally cleanse greed and selfishness from the system. Both sides are wrong, says Richert: the fat cats who enriched themselves through the old system will enrich themselves through the new one. 

Pakistan has appointed a new acting minister of finance- Abdul Hafeez Shaikh. His title will be "chief of the Finance Ministry". He wasn't appointed "minister" because he isn't yet a member of parliament, so presumably the "chief" title is a way of getting around the law until a willing constituency can be found.

Past finance ministers have also had a knack for law-avoidance. Shaukat Aziz, the finance minister from 1999-2007 left a sparkling career at Citibank's New York office to take up the drudgery of public service. The only odd thing about his departure was its timing: he left when Citi NYC was being investigated for laundering Mexican drug money.

Yeah, that bad. An unusually large surplus (US$ 3 billion) at the Dallas Federal Reserve helped law enforcement uncover a laundering ring. During the investigation, Citibank's alleged money-laundering on behalf of the (then) Mexican first family, Raul and Carlos Salinas, were of particular interest to the congressional committee.

Shaukat went on to become Pakistan's prime minister- and the first one to complete a full term in office.

Since Shaukat's advancement, the position of "finance minister" has been a hot potato. His successor, Ishaq Dar, lasted less than two months. The following minister, Naveed Qamar, did better with five months' tenure.

Shaukat Turin was the next man to hold office more than half a year. Turin, who is also a veteran of Citibank, seems to have had less finesse than his predecessor Aziz. He wasn't a member of parliament when he was appointed as an adviser to the government, but that was fixed by July 2009. Seven months later he resigned.

So, Dr. Abdul Hafeez Shaikh- who is described as a non-controversial World Bank technocrat- has big oven-mits to fill. I'm sure Mr. Geithner feels his pain.

-- Evie

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Max Keiser on the manipulation of the prediction market for Obamacare: 



And Max again on the manipulation of the precious metals and treasuries markets.  



Peter Schiff on Paul Krugman's delusions.



And if you're up for a good read, check out this piece by Jon Matonis on the famous "silver spike" of 1980, when the metal climbed to over $40 an ounce (it's now under $20.)

Growing up in Dallas, I remember people mentioning the Hunt brothers and their attempt to "corner the silver market" in dark, hushed tones...  it was always implied that the brothers were these greedy and evil tycoons who wanted to hold the public hostage with a precious metals monopoly. Thankfully the government stepped in before it was too late.

The reality is much different. The Hunt brothers quite rationally expected inflation and feared gold confiscation and were trying to protect their fortune by hoarding silver.

And what a hoard it was:  

Meanwhile, back at the ranch, (the Circle K Ranch in Texas) brother in law Randy Kreiling and his brother Tilmon held a shooting contest amongst the cowboys to find the best marksmen. The dozen best marksmen were hired for a special assignment to ride shotgun on one of the largest private silver transfers in history. The Circle K cowboys flew on 3 specially chartered 707 jets to Chicago and New York where they were met by a convoy of armored trucks during the middle of the night. Forty million oz of silver was loaded onto the planes and they immediately flew to Zurich where they were met by another convoy of armored trucks. The cowboys loaded the trucks and silver was dispersed to six different storage locations in Switzerland. The transfer cost Bunker and Herbert $200,000. The storage costs for the 40 million oz in Switzerland and the 15 million oz still in the US amounted to $3 million/year." (from "H.L. Hunt's Boys and the Circle K Cowboys", January 26, 2004)

The "government" -- or rather the COMEX and CBOT markets -- weren't White Knights, but fearing that the brothers might demand delivery of all those metals they legally owned on paper, arbitrarily changed the rules in mid-game, forcing the brothers to liquidate and the price to plummet.  

It's a great read and probably gives a good preview of the kinds of strange, colorful, and frightening things that might happen in the coming inflation.

It wouldn't be out of place in Vaudeville: China's premier slaps the U.S. Treasury over weak debt performance, then the Treasury tweaks China's nose by allowing the "currency manipulator" letter to gain traction.

Both accusations are right, but it's these sort of economic shenanigans that have allowed a favored few on both ends of the Pacific to profit from China's trade surplus. Ironically, the Treasury and China are money-making partners.

China's Yuan peg has helped it maintain favorable exchange rates with developed countries. Manufacturers build in China and export their products abroad. The profits from this can only be realized as long as Chinese production plus transport costs are less than U.S. production costs.

So it's in China's interests to have the value of the dollar stay high and the value of the Yuan stay low.

U.S. production costs are measured in dollars. In the United States, we control the value of the dollar by buying and selling government debt. The Treasury and the Federal Reserve have been running a very inflationary monetary policy for almost a decade. It's so bad that the Fed stopped reporting our total money supply in 2006.

Our massive government debt issuance has lead to a problem: how do we maintain the value of our currency? The profits from lending to Washington can only be realized as long as somebody is willing to buy the debt.

So it's in the Treasury's interest to have an inexhaustible buyer of U.S. currency -- er, debt. China has been the latest "trading partner" to step up to the plate. China makes, America buys; America prints, China buys.

This elegant quid pro quo is made possible through cooperation between U.S. and Chinese government officials and the banks that extend them credit.

These are the same banks which control U.S. monetary policy via their influence at the Federal Reserve; and which are also voraciously expanding into China. We shouldn't assume Henry Paulson's business interests have left the White House with him. Little has changed in Beijing either.

The squabbling between Wen Jiabao and Tim Geithner should be seen for exactly what it is: squabbling amongst gangsters. Perhaps China fears that the Obama administration will not be sophisticated enough to keep up their end of the business deal? The most likely result is that both parties will stop rocking the boat and get back to leaching off their respective constituents.

 

 

When I'm trying to get away from the Internet and the telephone to get some work done, I often end up in the University library. When in need of distraction, I often look at the old journals. One of my favorites is the London Times Imperial Trade and Engineering Supplement. Considering recent events, the era between 1929 and 1941 are of particular interest.

Between the advertisements for valves, the new wonder metal of aluminum, Vickers airplanes, coal mine ventilators and diesel motors there is a great deal of history and food for thought. In olden times, one could write a report in a general interest economic publication on the health of the local plywood industry, or the national fruit canneries. While this sort of thing sounds like total rot today, it's somehow a lot more satisfying than reading about the latest facebook swindle in Business Week. Personally, I would like to know how the local plywood industry is doing. The gouty old fussbudgets who could write a detailed (and interesting) report on the state of the British paraffin wax industry were actually far more perceptive and less susceptible to "deferring to the expert syndrome" than modern financial writer nincompoops.