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<DIV><FONT color=#000000 size=2>Last time we had declaration like the CB's
declaration on Gold last weekend, which came out of the blue, as far as I
remember, was the G7 declaration in 1985, that the Dollar was overvalued, too
high or something like that.</FONT></DIV>
<DIV><FONT color=#000000 size=2></FONT><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>I am including a chart showing what happend after
that.</FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>I am also including an explanation of "why" the CB's
did it. If it's the "right" one I don't know. But I do agree on the
consequences.</FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT color=#000000 size=2>Enjoy,</FONT></DIV>
<DIV><FONT color=#000000 size=2></FONT><FONT size=2>stig</FONT></DIV>
<DIV> </DIV>
<DIV> </DIV>
<DIV>>Better than anything else I've seen, John's essay <BR>>explains the
meaning of the decision by the European <BR>>central banks to stop
facilitating the gold carry <BR>>trade.<BR>><BR>>Please post this as
seems useful.<BR>> <BR>>CHRIS POWELL, Secretary<BR>>Gold Anti-Trust
Action Committee Inc.<BR>><BR>>* * * <BR>><BR>>THE WORLD DECLARES
MONETARY INDEPENDENCE <BR>>FROM THE U.S. DOLLAR <BR>>AND HANNIBAL'S WORST
NIGHTMARE BEGINS <BR>>><BR>>By JOHN D. MEYER <BR>>Vice Chairman and
Treasurer<BR>>Gold Anti-Trust Action Committee
Inc.<BR>><BR>><BR>>September 28, 1999 <BR></DIV>
<DIV> </DIV>
<DIV>>. But the <BR>>question remains: Why would the European central
banks <BR>>wish to reassure the gold markets? <BR>><BR>>For many years
the gold world has been throttled by <BR>>perceptions and short selling.
Central banks gold sales <BR>>were in fact never the problem, but the gold
lending <BR>>and the well-orchestrated propaganda directed by the
<BR>>United States was. Since early 1996 the threat of <BR>>central bank
gold sales and a raising volume of gold <BR>>lending strategically timed and
presented by the <BR>>mainstream financial press attacked gold whenever an
<BR>>uptrend threatened. This has now ended. <BR>><BR>>THE TWILIGHT OF
THE DOLLAR <BR>><BR>>With the monetary system facing the greatest defaults
<BR>>since the 1930s, the manipulation of gold, the ultimate
<BR>>preserver of wealth, serves precisely to conceal the <BR>>bankruptcy
of our current monetary system. <BR>><BR>>Single events often appear
distant and unrelated, yet <BR>>with a more critical eye they can be seen to
be part of <BR>>a pattern. It is my position that the European central
<BR>>bank announcement is a defining moment in monetary <BR>>history. The
propaganda windmills, mostly English <BR>>speaking, would have you believe
that money is a <BR>>creation of government. As Martin Armstrong liked to
<BR>>say, gold has been demonetized. <BR>><BR>>We hold a different
view. Namely, that money is <BR>>determined by a market process. The European
central <BR>>bank decision is a major part of this market process,
<BR>>which has two consequences. <BR>><BR>>First, it partially restores
gold's monetary role. <BR>>Second, and more importantly, it is a determined
<BR>>attempt to turn away from the dollar as a reserve <BR>>currency.
<BR>><BR>>The reality is that the greatest crisis in credit since
<BR>>the 1930s is under way. While the problem may appear to <BR>>have
begun in Asia, in fact its origin is a monetary <BR>>system that allows the
United States to have "deficits <BR>>without tears." Every nation
in the world has suffered <BR>>as they have been forced to import our
inflation (that <BR>>is, to buy dollars and U.S. debt) because it is the
<BR>>reserve currency of the world's financial system. The <BR>>dollar as
the reserve currency forces other countries <BR>>to accept our paper as
payment for their goods and <BR>>services. Jacques Rueff named this dirty
little secret <BR>>"The Monetary Sin of the West."
<BR>><BR>>Our global monetary system is dysfunctional. The Asian
<BR>>currency epidemic was the first act in a play destined <BR>>to take
down the U.S. dollar. Starting with Mexico in <BR>>1995, Asia in 1997, and
Russia and Brazil in 1998, we <BR>>have experienced an escalation in each
crisis as larger <BR>>and larger countries are ravaged. The monetary mischief
<BR>>of competitive currency devaluations claimed its first <BR>>victim in
North America with the collapse last fall of <BR>>Long-Term Capital
Management. <BR>><BR>>As 1998 was ending the Japanese authorities
(December <BR>>22) blind-sided the financial markets, saying that they
<BR>>would cut back their purchases of Japanese government <BR>>bonds.
Japanese long term bond prices were pummeled and <BR>>the U. S. dollar
crumbled. Then on Jan. 1, 1999, Prime <BR>>Minister Obuchi proposed the
establishment of a <BR>>monetary system composed of three key currencies --
the <BR>>yen, the dollar, and the euro. Japan signaled its <BR>>intention
to internationalize the yen turning it into <BR>>the key currency of Asia.
<BR>><BR>>On Sept. 20 this year, despite warnings, the Bank of
<BR>>Japan refused to ease monetary policy to curb a rapid <BR>>rise in
the yen against the dollar. A week later the <BR>>European central banks
befriended gold. <BR>><BR>>The Russian default in 1998 launched us into a
new <BR>>phase of this meltdown, which directly affected the
<BR>>derivative arena. Default has been staved off for <BR>>decades
through credit expansion (i.e., bailouts). New <BR>>debt piled on the old.
Finally, when the excesses are <BR>>too great and the economies too anemic,
default becomes <BR>>the final solution. Default immediately exposes
<BR>>systemic weaknesses. Since derivatives are leveraged <BR>>contracts
dependent upon an underlying "asset," default <BR>>of the
underlying asset immediately wipes out that <BR>>derivative. The wizards'
computer model programs are <BR>>not programmed for events that might cause a
non-<BR>>standard deviation movement. <BR>><BR>>For the Federal Reserve
to admit that a single hedge <BR>>fund, with a mere $4 billion in equity,
jeopardized the <BR>>entire financial system is an admission of a profound
<BR>>failure in the Federal Reserve policy. What can be the
<BR>>justification for bailing out a den of gamblers? <BR>><BR>>It
proves the mutual dependency and just how cozy the <BR>>alliance is between
Wall Street and Washington. LTCM <BR>>was bailed out because government
officials realized <BR>>other hedge funds and Wall Street trading desks had
<BR>>similar leveraged positions. This crisis is still <BR>>largely
unknown to the public. It is the story of the <BR>>"carry trade,"
the naked borrowing of yen and gold to <BR>>finance these extraordinarily
leveraged positions of <BR>>the financial community. <BR>><BR>>Between
August and October 1998 the yen fell from 147 <BR>>to 112. Then, on Oct. 15,
facing a breakdown in the <BR>>interbank payment system, the Fed initiated
the first <BR>>of three rate cuts. As 1999 commenced the U.S.
<BR>>financial system had been brought back from the brink <BR>>by another
massive ballooning of credit. <BR>><BR>>These fixes have merely
exacerbated the underlying <BR>>systemic risks. After decades of a policy of
"too big <BR>>to fail," the Fed's unwillingness to address
underlying <BR>>structural problems of debt has led to putting the
<BR>>entire system at risk. <BR>><BR>>The Bank of Japan and the
European central banks are <BR>>declaring an end to this state of
affairs. The U.S. <BR>>financial markets have become a fool's paradise, and
<BR>>the affairs of LTCM down to the current scandals <BR>>involving
Martin Armstrong and others have not been <BR>>lost on the global banking
community. <BR>><BR>>As a young man Alan Greenspan wrote an essay titled
<BR>>"Gold and Economic Freedom," detailed the cause of the
<BR>>1929 crash. It appears to me as though he repeats the <BR>>mistakes
he accused the Fed of committing in 1927-28. <BR>><BR>>That is, Greenspan
has created a bubble <BR>>(hyperinflation) in our financial markets. Wall
Street <BR>>has become a casino. The greatest fear for the central
<BR>>bankers of the world is the U.S. dollar, which <BR>>comprises the
bulk of their monetary reserves. <BR>><BR>>For years now the mainstream
gold analysis has been <BR>>fixated on the supply of gold. This is not the
issue. <BR>>The critical determinant in the price of gold <BR>>ultimately
is the supply of DOLLARS. As the United <BR>>States is the world's largest
debtor nation, with <BR>>endlessly mounting trade deficits, negative savings,
<BR>>and inflated security markets, it is not hard to image <BR>>the fear
motivating recent developments by the Japanese <BR>>and the Europeans. Enough
is enough. Gold reserves are <BR>>not the problem for central banks but
rather their <BR>>excessive position of dollars, which has entered a
<BR>>major secular downtrend. <BR>><BR>>THE COMING DOLLAR BACKLASH
<BR>><BR>>The European central banks' new gold policy must be
<BR>>viewed as an aggressive escalation in their policy to <BR>>establish
monetary independence. The world has crossed <BR>>the threshold into a
monetary system that will be <BR>>comprised of three reserve currencies. Gold
is no <BR>>longer to be held hostage to American monetary policy.
<BR>><BR>>On this point it is quite interesting to see that the
<BR>>English Poodle, in an obvious break with its American <BR>>friends,
has turned its leash over to the Europeans. <BR>><BR>>It will be
interesting to see what response the Bank of <BR>>Japan will make to the
European central banks. An Asian <BR>>yen-backed currency has a long way to
go to equal the <BR>>gold reserves backing the dollar and the euro. Until
<BR>>now the currency world has been engaged in a <BR>>competitive race to
the cellar. It could be that the <BR>>race for competitive legitimacy has
begun. Central <BR>>banks' bids for gold are likely to far exceed the sale
<BR>>limits just established by the Europeans. The historic <BR>>actions
by the European central banks and Japan over <BR>>recent days are extremely
bearish for the dollar and <BR>>U.S. financial markets. So far the markets
have failed <BR>>to understand this. <BR>><BR></DIV></BODY></HTML>
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