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The demise of the US dollar.


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#161 SmallMind

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Posted 12 April 2003 - 10:49 AM

Hmmm reven said he expected parity between the US$ and the swiss franc, seems that is possible..




SPIEGEL>THE "MOTHER OF ALL THREATS" IS A DOLLAR CRASH Spiegel 15/03]

WIESBADEN, April 7 -- THE "MOTHER OF ALL THREATS" IS A DOLLAR CRASH, STATES THE GERMAN WEEKLY SPIEGEL, in its headline.

Spiegel notes that the U.S. dollar, "once a symbol of American strength" is rapidly losing value as there is the "growing fear in financial markets of a sudden downturn of the U.S. economy."

Bankers, including Goldman Sachs chief economist Jim O'Neill, are quoted, saying that a dollar ratio of 1.40 to the euro is quite possible in mid-term. Mideast oil exporters are debating about selling oil against euros, instead of dollars.

And central banks, including Russia, China, Taiwan, and Canada have already announced plans to replace some of their dollar holdings with other currencies or gold.

The biggest threat for the dollar, states Spiegel, lies in Asia. Much of the huge U.S. current account deficit is being financed by capital flows from Japan, China and other Asian countries. The Bank of Japan alone holds $363 billion U.S. Treasuries, the Chinese central banks another $102 billion.

Sooner or later, investors from Tokyo, Beijing, and Hongkong will no longer be willing to take the risk. At this point, says economic historian Harold James of Princeton University, there will be "the great crash."

The dollar, as well as the U.S. economy, will go under. It could turn into a global currency crisis, adds O'Neill.

He says, "President Bush is right now trying to refute economic theory and economic history. He will fail." Concerning the threat of a dollar crash, Newsweek warns, "Forget the Iraq war. Forget the transatlantic conflict. The mother of all threats is lurking at a different front."

Spiegel compares the coming upheavals centered around the fall of the U.S. dollar to the collapse of the Bretton Woods system in 1971-73, a system created in 1944, which "secured stability at global foreign exchange markets for more than 20 years."

[source: April 7 {WSJ} article, "Labor Market May be Softer than Reported;" Dept of Labor Bureau of Labor Statistics]

THE WALL STREET JOURNAL HAS DISCOVERED THAT OFFICIAL U.S. UNEMPLOYMENT DATA HIDE REAL UNEMPLOYMENT. Hundreds of thousands of Americans have lost their payroll jobs during the last few months, but the official U.S. unemployment barely rose from 5.7% to 5.8% between January and March. Even the Wall Street Journal recognizes that this is impossible, and is becoming a scandal.

Today's issue states that, "with all that is going wrong in the U.S. economy, economists are starting to suspect that the current unemployment rate of 5.8% ... could be underestimating the true level of distress in the labor market."

The Journal reports some ways by which the Labor Department Bureau of Labor Statistics "misses" the real number of unemployed. "Many laid-off workers ... are simply setting themselves up as independent consultants operating from their home offices." They are self-employed.

Many of these "self-employed" consultants may work only one-third as many hours as they did when they had a job--or have no clients and thus have no work at all--but they are still counted by the BLS as employed.

The Journal states that others, after months of futilely searching for jobs may have become "too discouraged to look for work"--indeed, this category has risen by 360,000 workers during the past year.

But the BLS has made "too discouraged to look for work" as a category within "Not In the Labor Force"; however, in order to be counted as unemployed, a worker must be classified as "In the Labor Force."

Thus, the "too discouraged" are not considered as unemployed.

Further, the Journal states, "some are simply opting to take what they can get, working part-time at low-wage jobs that provide some health benefits."

These workers are "Part-Time for Economic Reasons."

The number of such workers has increased by 500,000 during the past year.

{EIR} has determined a real unemployment level:

- Table 1 -

EIR's Level of Real Unemployment, March 2003

Official Unemployment 8.45 million

"Want a Job Now" 4.76 million

"Part-Time for Economic Reasons 4.70 million

Total Unemployment 17.91 million

Unemployment Rate 11.9%

Of the 8.45 million whom the BLS reports as being officially unemployed, 1.90 million, or 22%, have been unemployed for more than six months.

The strains on their family income are greatly increasing.
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#162 SmallMind

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Posted 14 April 2003 - 05:31 PM

FED CANNONBALL HITS THE WALL & PATRIOT'S GOLD

Posted By: economica <Send E-Mail>
Date: Monday, 14 April 2003, 5:53 a.m.

ECONOMICA:... more read ink in sight as this week will bring more bad earnings, as major contrarian analysts claim... wait and see.

PATRIOT'S GOLD
The BigFishermanTM (aka Rodney C. Cook, Ph.D.)
Events continue to follow the lines of probability. The battle for Iraq playing out as expected, buoying the debt based financial markets. The Neo-Keynesians are in ascendancy and the Retro-Socialists are in full retreat. Since my last writing gold and its shares have been hammered. They are challenging the bottom of the channel, but cling stubbornly to the primary trend. Upward. Aside from the pressure on the precious metals and shares in support of the dollar, general reflation efforts have been significant but muted. Not sufficient to trigger a false dawn. At least quite yet.

Is that all there is?
The markets seem to be following the old adage of buy the rumor, sell the fact. Mr. Market discounted a swift coalition victory in Iraq, and now appears poised to sell off on the news. Despite the largely sideway action, the primary trend remains down for the financial markets. The Fed is stating explicitly its intent to purchase long-term debt, and thus drive rates down at the long end of the yield curve. No surprise here, as this has always been telegraphed as their next step to fight deflation. They have many more tools of monetization in their treasury chest. But the winds of deflation are beginning to howl. And a few sheets of plywood on the windows of the house of Keynes may not be sufficient.......
http://www.gold-eagl...cook041503.html

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Sunday, 13 April, 2003, 21:48 GMT 22:48 UK
World Bank warns on poverty By Steve Schifferes
BBC News Online at the IMF/World Bank meeting in Washington
The World Bank says the millennium development goals will not be met without additional aid and warns that absolute poverty will increase in Africa.
http://news.bbc.co.u...cas/2944885.stm
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Friday, 11 April, 2003, 05:56 GMT 06:56 UK
Lenders fall out over Korean scandal
Son heads the third biggest business group in South Korea
Creditors of stricken South Korean trading firm SK Global are squaring up in court as each tries to make sure they get the lion's share of any payout.
Hana Bank, to whom SK owes more money than to anyone else, has asked a US bankruptcy court to force its non-Korean rivals to hang back.
http://news.bbc.co.u...ess/2938327.stm
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Monday, 14 April, 2003, 09:55 GMT 10:55 UK
German electronics legend goes bust
Grundig, one of the firms that led Germany's post-war boom, files for bankruptcy after many years of mounting losses.
http://news.bbc.co.u...ess/2945815.stm
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Contrarian Chronicles
After the war, can we win peace and prosperity?
Peace and a prosperous economy may be much more difficult to achieve because there's still too much capacity in many industries. And the only battle plan that will fix the problem is time. By Bill Fleckenstein
....... Fed cannonball hits the wall

Now for a look at a Journal story titled "Fed Weighs Alternative Stimulus Plans," which ran in the April 9 edition. Reporter Greg Ip discusses the Fed's plan to make sure that the inflation rate is at a level it deems acceptable. The potential ramifications may be far-reaching, and so I recommend that everyone track this story down.

I find it more than just a little ironic that the Fed, the great engine of inflation in this country, is preparing to "fight deflation." Now I do know that in the aftermath of a bubble, it is conceivable we could see some deflation. But I continue to think that is less likely than the prospect of seeing more inflation. After all, just look at what has happened to the purchasing power of the dollar in the 90 or so years since the Fed has been around. Depending on how you want to measure it, the dollar has lost between 90% and 95% of its purchasing power, and for better than half of that time, we were at least on some variation of the gold standard. Otherwise, I'm sure the results would have been even worse.
The Fed helped to create the biggest bubble in the history of the world. It has been trying to print money to stave off the bubble's aftermath. It has encouraged a housing bubble, a debt bubble and has financed an over-consumption boom. Now the Fed is getting the drift that since 12 rate cuts haven't worked, perhaps it had better do something else, because it may not be able to take rates too much lower. It's a case of the law of unintended consequences rearing its interesting head, which Ip describes as follows: "Another reason to keep rates above zero: Money-market mutual-fund returns, after expenses, would otherwise go negative, so investors would pull their money out. That would hurt the ability of industrial companies to sell short-term debt securities, such as commercial paper, to such funds."
http://moneycentral....tent/p45244.asp
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HEDGE FUND HIJINKS By CHRISTOPHER BYRON

VISITORS to this space know there have been few topics we've nagged about more incessantly in the last year than the need to crack down on abuses in the hedge fund industry. This is the biggest and most rapidly growing pool of unregulated capital on earth. And though the biggest and most visible of these operations seem generally to be on the up and up, a scrim of secrecy hides the activities of the smaller and more obscure funds, and evidence is mounting that many are drenched in out-and-out fraud.......
http://www.nypost.co...iness/73344.htm

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The Pension Chasm
Disparity Between CEOs, Workers Under Scrutiny
By Kirstin Downey
Washington Post Staff Writer
Sunday, April 13, 2003; Page H01
As workers' pensions are eroding, employees, shareholders, unions and legislators are focusing new attention on the many ways top executives' retirement packages outshine those of their employees.
http://www.washingto...-2003Apr12.html

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EU's Solbes: U.S. Twin Deficits a Concern
By REUTERS
Filed at 7:14 p.m. ET
WASHINGTON (Reuters) - The European Union's top finance official said on Saturday that EU budget rules must apply and the twin deficits of the United States were a growing worry.
``Large and growing deficits in the current account and in the federal budget give rise to concern,'' European Commissioner for Monetary Affairs Pedro Solbes told the International Monetary and Finance Committee, which sets policy for the IMF.
http://www.nytimes.c...ysts-novel.html

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N.Y. Fed chief search said near end
By Reuters, 4/13/2003
WASHINGTON -- The process to select a new president for the powerful New York Federal Reserve Bank appears to have entered its final stages and may have narrowed to a single lead candidate, sources close to the Fed said
One source said former IMF official Stanley Fischer has emerged as the likely successor to William McDonough when the latter steps down in July. Another source confirmed a single contender had emerged, although he did not provide a name.
Other top names that have been mentioned in connection with the key post by sources both inside and outside the Fed are Treasury Undersecretary Peter Fisher and Roger Ferguson, vice chairman of the Fed's Washington-based Board of Governors.
http://www.boston.co...near_end .shtml

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IN BRIEF Economy, Corporate Earnings Worry Investors
Reuters Monday, April 14, 2003; 5:05 AM
By Jeremy Gaunt, European Investment Correspondent
LONDON (Reuters) - Financial markets worried on Monday about the state of the U.S. economy and the upcoming corporate earnings season, deflating stocks and keeping the dollar steady..... "This is a very big earnings week in the U.S. The market is unwilling to commit itself one way or the other until it gets a bigger picture of what is happening," said William Kostoff, analyst at broker Burdett, Buckeridge & Young (BBY) in Australia.
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WPOST: IMF, World Bank Draw Smaller Protest
By H JOSEF HEBERT
The Associated Press
Monday, April 14, 2003; 4:50 AM
WASHINGTON - Hundreds of activists peacefully demonstrated Sunday against alleged abuses of large American corporations and international lending agencies, saying their policies are harmful to poor people in Latin America and elsewhere.
The protest, aimed especially against the World Bank and the 184-nation International Monetary Fund, was much smaller than similar ones in recent years and were without the violent clashes with police that have marked other such protests.
No incidents or arrests were reported.
The marchers carried signs denouncing the IMF and World Bank. Others carried banners protesting the war in Iraq and what some characterized as U.S. imperialism.
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#163 SmallMind

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Posted 17 April 2003 - 06:42 PM

Dow Jones Business News
Gold-Backed Shares Considered for U.S., South Africa
Wednesday April 16, 3:57 pm ET
By Tom Locke

DENVER -- The World Gold Council, which helped launch trading in shares backed by gold bullion in Australia last month, is now exploring the possibility of trading in similar gold-backed shares in the U.S. and possibly in South Africa.
Chris Thompson, chairman of the council and of South African gold producer Gold Fields Ltd. , wouldn't discuss the proposal or what entity is involved, but he said that the idea is "under review" by the Securities and Exchange Commission (News - Websites).

Trading of gold-backed shares in additional countries could broaden the group of investors interested in gold, raise demand and help the gold price, observers said. The bullion-based shares are designed to make it easier to invest in gold, which may be especially appealing to those who see gold as a portfolio risk- stabilizer...... I'm absolutely certain that there will be at least a billion dollars in this thing within 12 months of the listing," Mr. Tuckwell said. That compares with $3 million to $4 million in the trust today, he said.

MORE:
http://biz.yahoo.com...57001272_1.html



GETTING CLOSER & 100TOP US FIRM PENSION PLANS INTO RED
Because the Dow lost a triple digit yesterday, I wonder if they will rig the market today again...

April 16, 2003
Heads Up To The Gold Community
We are getting very close!
In my opinion, the low point of the reaction cycle in gold occurred on April 4th. It is amazing how weak the US dollar became as the Iraq situation slowed down. Each time the Blue Coats at the Exchange Stabilization Fund (ESF) come to the rescue they seem to bump into offerings of such significance that they are forced to turn back. I hear there are huge offerings out of Asia in the market. We may well be in for a rough ride in the dollar well into May.
I have been informed that the author of the Malaysian Gold Dinar, now Malaysian Premier and Finance Minister, Dato Seri Dr. Mahathir Mohamad, will serve as the Chairman of the Organization of Islamic States for the next three years. From a most reliable source, it is said that gold remonetization out of Malaysia is still on line to occur this year in the form of the Malaysian Gold Dinar. ...... MORE
http://www.jsmineset.com/s/Home.asp
ON FRONT PAGE FOR NOW

LOST CREDIT?
RICHEST NATION FALTERING
The Bush administration is not only facing the loss of creditability in the world of foreign affairs, it's facing a disaster in its line of credit. How quickly can things fall apart if the nation can no longer borrow?
The United States of America hit the national debt ceiling 56 days ago as of Tuesday, April 15, 2003, and there hasn't been a peep about it. The dogs of war are one thing, but conducting an expensive invasion at a time when the credit card has expired and, for some reason, has not been automatically renewed can be disastrous. The implications are enormous.
Worst case scenario.
Investor creditors lose faith in U.S. Treasury securities. Not only do they stop buying Treasury securities, stop loaning the government money, but they cash-in what they're now holding. A run on the U.S. Treasury for up to $3.7 trillion in immediate repayment could collapse the United States of America overnight.
http://www.uncle-sca...il-03/br-4.html
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Out of buyers. . .
Richard Russell, Dow Theory Letters
April 17, 2003
Housing- - The plot is easy to read. The Fed has read it all along. The plot is as follows -- American consumer MUST AT ALL COSTS CONTINUE TO CONSUME.
What keeps America's consumers spending? The phenomenon that keeps them spending is the rise in home prices, along with the money they pull out of their home equity through refinancing.
It all boils down to this. The Fed must keep interest rates low and lower so that consumers continue to buy homes and so that home prices continue to rise and so that consumers can continue to pull equity out of their rising home prices.......
http://www.321gold.c...sell041703.html
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How to Return to the Gold Standard
by Bettina Bien Greaves
There is no reason, technically or economically, why the world today, even with its countless wide-ranging and complex commercial transactions, could not return to the gold standard and operate with gold money. The major obstacle is ideological.
Many people believe that it would be impossible to return to the gold standard--ever! There are just too many people in the world, they say, and the economy is too complex. Many others look on a return to the gold standard as an almost magical solution to today's major problems--big government, the welfare state, and inflation. What is the truth of the matter?
Certainly if the United States went on a gold standard, it would have to carry out many reforms. The federal government would really have to stop inflating, balance its budget, and abandon welfare state programs. Most voters are not ready for such reforms. And politicians, pressured by voters and special interest groups for favors, hesitate to pass them. Thus the major stumbling block to monetary reform is ideological. If this basic obstacle could be overcome, however, a return to gold money would become a realistic possibility......
http://209.217.49.16...191&printable=Y
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Indonesia May Dump Dollar; Rest of Asia Too?: William Pesek Jr.
By William Pesek Jr. Tokyo, April 17 (Bloomberg) -- Pertamina, Indonesia's state oil company, dropped a bombshell recently. It's considering dropping the U.S. dollar for the euro in its oil and gas trades. With war unfolding in Iraq and a mysterious pneumonia spreading around Asia, few noticed. News that Indonesian government officials favor the euro also fell through the cracks. Yet it could have major implications for the world's biggest economy. Other Asian countries may not be far behind any move in Indonesia to dump the dollar. The reasons for this are economic and political, and they could trigger a realignment that undermines U.S. bond and stock markets over time.
Indonesia's rationale: The dollar may be the world's reserve currency but it has become too volatile. ``One thing is for sure, the adoption of the euro as an alternative means of payments could be an effective solution to speculative dollar-oriented dealings,'' Indonesia's Vice President Hamzah Haz said last month. ......
Euro Volatile, Too: Since 12 countries use Europe's single currency, it may be less susceptible to unpredictable political agendas. Also, the European Central Bank, not politicians, manages it. In a perfect world, the Japanese yen would be Asia's preferred currency........
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Thursday, 17 April, 2003, 04:58 GMT 05:58 UK
Chinese growth hits six-year high
Many expect Chinese growth to slacken this year
The runaway Chinese economy is showing no signs of slowing down, expanding at an annual 9.9% during the first three months of this year, according to official figures...... Ups and downs
Many analysts expect Chinese economic growth to slow, as a weak global economy saps demand for China's exports. The government, too, is expected to rein in the stimulus spending that has underpinned much recent growth......
http://news.bbc.co.u...ess/2955067.stm
ECONIMICA: POP THE BUBBLE... ??
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Wednesday, 16 April, 2003, 23:06 GMT 00:06 UK
Alarm as UK recovery stalls
Manufacturers are continuing to suffer
The fragile recovery experienced by British businesses at the end of 2002 appears to have evaporated.
Figures from the British Chambers of Commerce's (BCC) quarterly economic survey showed significant decline across most areas of the British economy. Property sales, export deliveries and employment all worsened for both the manufacturing and service sectors. BCC director general David Frost said: "The sharp deterioration in business conditions, particularly the export market, is alarming." .......
http://news.bbc.co.u...ess/2954309.stm
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Wednesday, 16 April, 2003, 20:21 GMT 21:21 UK
Drug giants in $350m fraud rap
Cipro was among the drugs at the centre of the probe
Two European pharmaceutical firms have been ordered to pay record fines for allegedly defrauding the US health care system Medicaid. Germany's Bayer, maker of Cipro, the popular antibiotic used during the US anthrax scare last year, has been fined $258m (?163m). While Anglo-American conglomerate, GlaxoSmithKline, has agreed to a civil court settlement of just under $90m.
The companies were accused of repackaging cheap drugs and selling them on at a higher price, an offence under federal law.
http://news.bbc.co.u...ess/2954657.stm
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#164 SmallMind

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Posted 17 April 2003 - 07:34 PM

I am missing something... Manufacturing sector remains weak, Jobless claims jump and the market is going up up up....
Its like some is getting a snow job and dont know it, or maybe the market is rigged after all and profits and such have no bearing on things.


4/17/03 Jobless claims jump All the war in the world cannot hide the fact that the US economy is shutting down. Want to know WHY the jobless claims jumped this last week? It was TAX week, and small businesses, faced with higher taxes (again) and lower sales, had to cut costs by laying people off. No economy can survive over-taxation, and ours is over-taxed. Think of an economy as an engine, in a truck. That engine powers itself and has a surplus left over to allow the truck to tow a trailer. That trailer is taxation. The engine pulls a small trailer with ease, and a larger trailer with difficulty. But if too large a trailer is hitched to that truck, the engine will stall, and no longer run itself or pull any taxes at all. And that is what is happening now. The US Government, broke and deeply in debt, is trying to hitch larger and larger trailers to that engine of the US economy, dragging it closer to the stalling point..




NEW YORK (CNN/Money) - New jobless claims in the United States jumped last week, the government said Thursday, far more than economists expected, staying well above a benchmark reading that points to a weak labor market.

The Labor Department said the number of Americans filing new claims for unemployment benefits rose to 442,000 in the week ended April 12 from a revised 412,000 the prior week. Economists, on average, expected 411,000 new claims, according to a Reuters poll.

U.S. stock market futures had little reaction to the report, trading higher and pointing to a positive opening on Wall Street. Treasury bond prices also rose.

Private non-farm payrolls are 2.5 million jobs lower than they were in March 2001, when economists at the National Bureau of Economic Research say a recession began. After a brief recovery in mid-2002, the labor market has worsened in recent months.




http://money.cnn.com...bless/index.htm



Saddam Hussein Is Laughing At Bush
Iraqi Occupation May Bankrupt US

4/17/03 10:23:48 AM
Discuss this story in the forum
James Roger Brown

Commentary -- http://www.fpp.co.uk...rown140403.html
President George W Bush

by James Roger Brown

WHETHER Saddam Hussein is dead or alive, where ever he is he is probably rolling on the floor laughing his posterior off at President George W. Bush, the epitome of the perfect idiot left holding the bag and unaware of being duped. President Bush and Secretary of Defense Donald Rumsfeld still do not perceive that they are the butt of a cruel joke played upon them by Saddam Hussein, even in defeat at the end, still the master political craftsman superior to the entire Bush Clan.

Bush and Rumsfeld are joined in this state of ignorance by the numerous conservative talk show hosts scoffing at and ridiculing critics of the "War on Iraq" while shouting to the world about the "great victory" of the United States. Their collective ignorance is showing.

In the business world there is a term "poison pill." When a corporation is faced with a hostile takeover, one tactic used is to create a financial situation that would increase the takeover cost and leave the hostile corporation in an untenable situation if they succeed in the acquisition.

Saddam Hussein has successfully used the "poison pill" strategy against Bush, Rumsfeld and Tony Blair. Though his calculated defiance, Saddam manipulated Bush into moving 300,000 plus soldiers half way around the World to seize control of a nation in worse financial condition than Argentina, at a cost to future taxpayers of $300 Billion. As the conquering hero, President Bush, Inc. is now responsible for managing Iraq's national debt that is probably in excess of $200 billion, possibly as much as $387 billion. No on knows exactly, because the International Monetary Fund auditors have not been in Iraq for almost 20 years.

Talk about your basic pig-in-a-poke, Iraq is it.
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#165 SmallMind

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Posted 19 April 2003 - 06:05 PM

Commodity hedge funds change from bulls to bears
By Kevin Morrison
Published: April 16 2003 5:00
Hedge funds have sold many of the large positions they accumulated in recent months in oil, gold, platinum and natural gas, and they are now betting that prices in these commodities will fall further.
Hedge fund positions in oil and precious and base metals had contributed to the sharp price gains made in the run-up to the conflict in Iraq. Now, with the end of the conflict in sight, these positions have been unwound and prices have fallen back to their levels at the start of the year.........

http://news.ft.com/s...p=1012571727085

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U.S. pension-fund forecasts are under scrutiny

Mary Williams Walsh The New York Times Friday, April 18, 2003

The first comprehensive examination of the pension funds of the biggest U.S. corporations shows that nearly half made assumptions about their investment returns for 2002 that would be deemed too aggressive by federal regulators starting this year.
.
Of the 100 companies examined, 44 assumed an annual rate of return of more than 9 percent, the proposed standard for this year. Eight of the companies assumed that their pension funds had returns of 10 percent or more. In fact, though, all of the pension funds lost money last year.
...........
"I don't think this is a benefits-security issue yet," he said.
.
Rather, Ehrhardt said, the study offered strong evidence that growing numbers of companies will have to make substantial cash contributions to their pension funds in the coming months.
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He said these looming contributions should not cause consternation among investors, except for companies that are not generating enough cash to cover the mandatory payments...... ECONOMICA: THANKS, THATS ALL WE HAD TO KONW SINCE 100 TOP US FIRMS ARE NOW IN DEFICIT ALREADY
http://www.iht.com/articles/93662.html



ECONOMICA: THAT VERY STORY IS SOOOOO ENLIGHTENING. A MUST READ!
THE MONEY MYTH EXPLODED
Written in the 1930's by Louis Even
1. Shipwreck survivors
An explosion had blown their ship apart. Each one grasped the first bit of wreckage that came to hand, And when it was over there were five left, five huddled on a raft which the waves carried along at their will, As for the other victims of the disaster, there was no sign of them. Hour after long hour their eyes searched the horizon. Would some passing ship sight them? Would their makeshift raft find its way to some friendly shore? Suddenly a cry rang out: "Land! Look! Over there in the direction the waves are carrying us!" And as the vague silhouette proved itself to be, in fact, the outline of a shore, the figures on the raft danced with joy. They were five, five Canadians. There was Frank, the carpenter, big and energetic, It was he who had first cried, "Land!" Then Paul, a farmer. You can see him on his knees, one hand against the floor, the other gripping the mast of the raft. Next Jim, an animal breeder; he's the one in the striped pants, kneeling and gazing in the direction of land. Then there is Harry, an agriculturist, a little on the stout side, seated on a trunk salvaged from the wreck. And finally Tom, a prospector and a mineralogist; he is the merry fellow standing in the rear with his hand on the carpenter's shoulder........
http://www.micro-man.../MoneyMyth.html
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Does a Falling Money Stock Cause Economic Depression?
By Frank Shostak
[Posted April1 18, 2003]

Despite the aggressive lowering of the federal funds rate target from 6.5% in December, 2000 to the current level of 1.25%, U.S. economic activity remains subdued. Faced with a lackluster response to this aggressive monetary stance, it is tempting to draw parallels with the 1930's economic depression.

Most economists hold that such comparisons are not warranted. Following the writings of Milton Friedman, they are of the view that the policy makers of the Fed have learned the lesson of the Great Depression and know how to avoid a major economic slump.

In his writings Milton Friedman blamed central bank policies for causing the Great Depression. According to Friedman the Federal Reserve failed to pump enough reserves into the banking system to prevent a collapse in the money stock (Milton and Rose Friedman's Free To Choose). In response to this failure, Friedman argues, money stock, M1, fell by 33% between late 1930 and early 1933 (see chart).........
http://www.mises.org...S=&title=

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Huge deficit undermines Bush's tax cut plans
David Teather in New York
Saturday April 19, 2003
The Guardian

The ballooning US budget deficit is expected to have reached between $55bn (?35bn) and $61bn during March, further undermining the Bush administration's push for huge tax cuts.
The White House is facing the prospect of a record budget gap of $300bn this year - an estimate that does not include the $79bn that has been earmarked for fighting the war in Iraq. Economists at Goldman Sachs suggest the deficit could go far higher, and reach $425bn for the full year.
http://www.guardian....,939629,00.html
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SEC to look at NYSE policies
Securities officials will look at surveillance, controls at exchange amid front running allegations.
April 18, 2003: 11:37 AM EDT
NEW YORK (Reuters) - The U.S. Securities and Exchange Commission is investigating alleged abuses by New York Stock Exchange specialists and probing whether the exchange has adequate surveillance and controls in place, according to a person familiar with the matter Friday.

The person added it remains "too early" in the investigation to know for certain if any allegations of so-called "front-running" are true, but said the SEC will monitor how the NYSE will deal with people or firms involved in any misdeeds.
http://money.cnn.com....reut/index.htm
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QUOTE: 'In Washington these days, tax cuts are the solution to every conceivable circumstance -- war or peace, surpluses or deficits, recession or boom.'
http://www.newyorker...talk_surowiecki
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#166 SmallMind

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Posted 19 April 2003 - 06:06 PM

http://www.realityzo...denagenda2.html

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' . . . the man who tells this story is none other than Mr. Norman Dodd, who in 1954 was the staff director of the Congressional Special Committee to Investigate Tax-exempt Foundations, sometimes referred to as the Reece Committee, in recognition of its chairman, Congressman Carol Reece. The interview we are about to hear was conducted by me in 1982. I had no immediate use for the material at that time, but I realized that Mr. Dodd's story was of great importance, and since he was advanced in age and not in good health, I wanted to capture his recollections on videotape while he was still with us. It was a wise decision, because Mr. Dodd did pass away just a short time afterwards. In later years there was a resurgence of interest in Mr. Dodd's story, and we released the videotape to the public in 1991. And so what now follows is the [transcript] taken from the full, unedited interview, . . . '

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There are lots of good places to learn more about banks, usury, etc. Try some of the links here:

http://members.dataf...ruth/money.html
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#167 SmallMind

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Posted 20 April 2003 - 07:48 PM

MOVING TOWARD A FULL CRASH ALERT STATUS?
Posted By: economica <Send E-Mail>

Folks, I believe that we're approaching the final phase as I speak... if you cannot buy any commodities, please consider THE LIBERTY DOLLAR, deflation/inflation proof currency. Go to http://www.norfed.org for more details... and possibly a legal debt elimination: details will be given upon request, feel free to email me...

FULL PICTURE OF THE WORLD ECONOMIC DECAY
http://www.moneyfiles.org

==============================================

Gold: It Ain't Over Till It's Over
John Ing
............ Tide Of Red Ink
Greenspan's concerns come when the Americans are deeply in debt. The Americans have become the world's largest debtor. Consumer, government and corporate debt as a percentage of gross domestic product are at higher levels today than in 1929. So now, the US requires a continuous inflow of $2 billion a day just to fund its current account deficit which will easily surpass a half trillion dollars this year - or 5.5 percent of GDP. The twin deficits have become unmanageable, a duo that has not been a worry since the late 1980s. If the inflow slows a bit, returns on US investments will decline further, so attracting sustained foreign capital will become even harder. With savings at minimal levels, financing America's twin deficits becomes problematic. The dollar must fall.

........ Today's budgetary problems have their roots in Bush's tax cuts and the War on Terrorism. Like President Johnson who fought the Vietnam War and financed the Great Society at the same time, the government deficit could only get larger. In the first weeks of the war, Bush asked Congress for $75 billion and no one knows whether this is a down payment or installment. While there is no doubt that the $10 trillion economy can absorb much, the whopping big deficits and spending programs limit both the Fed and policymaker's options. After all, every dollar the government has to borrow to pay is a dollar less for manufacturers, new business, education or new technology. The twin deficits will force the Fed to generate more credit and liquidity, which in turn will further weaken the dollar and strengthen gold.

............. The big risk today is whether the higher gold price will cause central banks, the world's largest holders of gold to review their stance regarding gold. In the past thirty years, despite much publicity, the central banks have only reduced their holdings by less than 10 percent. Because gold doesn't pay any interest, central banks have been selling gold from their huge stockpiles to earn modest income in a "portfolio management approach" to their reserves. That the return has been miniscule is lost on these central bankers who are supposed to be stewards of our money.

............ Central banks may have let the genie out of the bottle but are now scrambling to recork the bottle. The creation of these exotic derivatives or Warren Buffett's "financial weapons of mass destruction" served to undermine the fragile nature of the gold business and almost killed the gold market. The lack of contango and investor desire for 100 percent of the upside forced the gold industry to dehedge. To date, the industry has bought back only 10 percent of the estimated hedges outstanding. Importantly, no one has replaced those hedges. We expect continued buying back of the hedges, which ironically will be a powerful demand influence to an already tight market, with or without Victory in Baghdad.
FULL ARTICLE:
http://www.gold-eagl.../ing041803.html

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The real estate bubble and the coming consumer slowdown

Cliff Droke
The towering behemoth known as the U.S. economy continues to stay afloat thanks largely to the nationwide trend of home borrowing, refinancing, and auto lending, among other factors. But it is the real estate boom, more than any single factor, that has helped keep the economy out of a dangerous recession. Borrowing creates new money, and coupled with the generational low in interest rates the borrowing binge continues as the principal factor behind the overall economic strength......

http://www.gold-eagl...roke042103.html

-----------------------------------------------------------------

SARS: Sell All Remaining Stocks!
STOCKS ON FULL CRASH ALERT

"Grizzly"

"By now, the experts thought, the stock market would be soaring."

So read the opening sentence of the headline story in yesterday's (04/13) Wall Street Journal Sunday edition. Don't you just love all those media-appointed "experts"? As contrarians, we do love 'em. Whenever they reach an overwhelming consensus, the odds are very high that they're very wrong.

Peter Eliades (www.stockmarketcycles.com) is one of the few true market experts out there, and he is unequivocally bearish. Forbes magazine interviewed Peter in their April 10th edition. Here's an excerpt from the article:

"This war rally was just a release of emotional pressure," he says. "People remembered 1991 and think the war is going to turn everything bright and rosy again. Well, this is the complete polar opposite of 1991.........

As of today we are reinstating our FULL CRASH ALERT status. This is our financial equivalent of the Homeland Security Department's terrorism threat level of Orange, one step below Red, a FULL CRASH WARNING. We believe all the conditions and prerequisites are in place for a crash of historic proportion to happen at any time.

To be clear, the purpose of our Crash Alert is not to frighten or intimidate. We feel obligated to bring to the table this potentially very serious situation that you'll never hear discussed on CNBC. We want everyone to be aware of the extreme risk at this juncture so you may take whatever steps you may feel necessary. We believe the preponderance of technical and historical evidence strongly suggests that a crash of historic proportion is in the making, now. We'll keep you posted as the waves unfold over the coming weeks.

http://www.gold-eagl...zzly041903.html
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#168 SmallMind

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Posted 20 April 2003 - 08:40 PM

April 20, 2003 The True Cost of Hegemony: Huge Debt By NIALL FERGUSON

Can a global hyperpower also be a global hyperdebtor?

Debates about the cost of occupying Iraq and reconstructing its burnt-out economy tend to duck this question. It is as if such costs were simply an item on the federal government's military budget. In reality, direct government spending on aid and reconstruction is unlikely to amount to much. Having won the war on a shoestring ($79 billion is less than 1 percent of the annual output of the American economy), the Bush administration apparently hopes that the reconstruction of Iraq will soon be paying for itself. A trifling $2.4 billion has been allocated to the postwar Office for Reconstruction and Humanitarian Assistance.

Yet history strongly suggests that Iraq's reconstruction will require a kick-start of substantial foreign capital, particularly to modernize the antiquated oil industry.

Can the United States provide the necessary cash, even in the form of private-sector money? The answer is yes - so long as foreign countries are willing to lend it to the United States. For the fact is that America is not only the world's biggest economy. It is also the world's biggest borrower. Its muscular military power is underwritten by foreign capital.

This is an unusual circumstance. In the prime of the European empires, when the British ran much of the Middle East, the dominant power was supposed to be a creditor, not a debtor, investing large chunks of its own savings in the economic development of its colonies. Hegemony also meant hegemoney. Britain, the world's banker before 1914, never had to worry about a run on the pound during its imperial heyday.

But today, as America overthrows "rogue regimes," first in Afghanistan and now in Iraq, it is the world's biggest debtor. This could make for a fragile Pax Americana if foreign investors decide to reduce their stakes in the American economy, possibly trading their dollars for the increasingly vigorous euro.

Foreign investors now have claims on the United States amounting to about $8 trillion of its financial assets. That's the result of the ever-larger American balance-of-payments deficits - totaling nearly $3 trillion - since 1982. Last year, the balance-of-payments deficit, the gap between the amount of money that flows into the country and the amount that flows out, was about 5 percent of gross national product. This year it may be larger still.

The Wall Street Journal recently asked: "Is the U.S. Hooked on Foreign Capital?" The answer is yes, and this applies to the government even more than the private sector. Foreign investors now hold about two-fifths of the federal debt in private hands - double the proportion they held 10 years ago, according to the Treasury Department.

At a recent press conference, Kenneth S. Rogoff, the chief economist of the International Monetary Fund, referred to American financial dependence on foreign investors, saying he would be "pretty concerned" about "a developing country that had gaping current account deficits year after year, as far as the eye can see, of 5 percent or more, with budget ink spinning from black into red." Of course, he hastily added, the United States is "not an emerging market." But, he concluded, "at least a little bit of that calculus still applies."

Serving as an engine of global growth, aspiring to be a liberal empire and yet acting like an emerging market: it's quite a combination. Is it sustainable?

It is useful to contrast the present and the past. When the United States sought to exercise power by financial means with its dollar diplomacy of the 1920's, substantial American capital was exported to the rest of the world.

People tend to think that after World War I the United States retreated into isolationism. In reality, American investors lent billions of dollars to foreign economies, particularly in Latin America and Central Europe. By 1938 the gross value of American assets abroad amounted to $11.5 billion. Having bankrolled the victors of both world wars, the United States bankrolled the reconstruction of the losers in peacetime, too.

The most famous example of America's capital export was the Marshall Plan, which did not lend but gave $11.8 billion to revive the dilapidated postwar economies of Europe. American lending continued to fuel the world's economic recovery for two decades. From 1960 to 1976, the United States ran balance of payment surpluses totaling nearly $60 billion.

Then things began to change, most noticeably in the Reagan years, though the "current account deficits" - a comprehensive measure of the net flow of goods and services between the United States and the rest of the world - that he ran up look piddling today.

Some economists argue that this transformation from creditor to debtor is nothing to worry about. Capital flows into the United States, they say, simply because it is a great place to invest and foreigners want a piece of the action. In any case, the foreign investors seem ready to settle for markedly lower returns when they invest in the United States than the returns Americans get when they invest overseas. That is the only way to explain why the United States consistently receives higher investment income from its investments abroad than it pays out to foreigners who have put their money into American assets.

This might lead to the conclusion that Mr. Rogoff of the I.M.F. has little to worry about. But while being a hyperdebtor may not matter in economics, it can matter in the realm of strategy.

When the last great English-speaking empire bestrode the globe a hundred years ago, capital export was a foundation of its power. From 1870 to 1914, net capital flows out of London averaged from 4 to 5 percent of gross domestic product. On the eve of World War I, the capital flows reached an astonishing 9 percent. This was not only an extraordinary diversion of British savings overseas. It was also a remarkable attempt to transform the global economy by investing in commercial infrastructure - docks, railways and telegraph lines - in what we now call less developed countries.

From 1865 to 1914, nearly as large a proportion of total British savings went to Africa, Asia and Latin America as remained in Britain. Critics of colonialism may carp about the wickedness of empire, but the one undeniable benefit of British hegemony was that it encouraged investors to risk their money in poor countries.

It also gave the British real leverage over the rest of the world. British rule in Egypt did not begin with military occupation in 1882. For years before, British investors had been building up their holdings of Egyptian assets (most famously the Suez Canal).

This could prove a crucial difference between the days when Britain wielded power in the Middle East and today, when the United States aspires to recast the region. First, little in the current geographical distribution of American overseas investment suggests a natural predisposition to sink dollars into the desert. More than half of all American foreign direct investment is in Europe, compared with a paltry 1 percent in the Middle East.

SECOND, there can be no guarantee that foreign investors will be willing indefinitely to put such a large chunk of their savings in American government bonds and other low-risk securities. Right now they seem to be content with the prospect of a third year of disappointing returns on Wall Street and the lowest yields in Treasury bonds since 1962. But will they stay content?

Not so long ago, from 1984 to 1987, dollars were being dumped on the currency markets. Another crisis of confidence is not impossible to imagine, especially if all those foreign holders of bonds worry about the Bush administration's combination of increased military spending and decreased taxation.

Since the creation of the euro, investors have a whole new range of securities in which to invest. European bonds might look attractive if foreigners, and not just Americanophobic French millionaires, start to think of the euro as safer than the dollar. Al Jazeera recently ran a cartoon of Uncle Sam weeping as the euro was run up a flagpole in place of the once-mighty dollar.

There is, however, a glimmer of comfort. The good news is that in the past one great empire did rely on foreign loans. The bad news is that it was czarist Russia, which depended on a succession of huge foreign loans - largely from French investors - to modernize its military.

The only catch was that Russian dependence on French capital led the czarist government to heed advice from Paris - for example, about how many rail lines to build from Moscow to the Prussian border. Look where that ended: Russia was the first European empire to collapse - first militarily, then politically - as a result of the costs of World War I. You might call being a debtor empire the Nicholas II method.

Thus President Bush's vision of a world recast by military force to suit American tastes has a piquant corollary: the military effort involved will be (unwittingly) financed by the Europeans - including the much reviled French - and the Japanese. Does that not give them just a little leverage over American policy, on the principle that he who pays the piper calls the tune?

Balzac once said that if a debtor was big enough then he had power over his creditors; the fatal thing was to be a small debtor. It seems that Mr. Bush and his men have taken this lesson to heart.

Niall Ferguson, the author of "Empire: The Rise and Demise of the British World Order and the Lessons for Global Power" (Basic Books), is a professor of history at the Stern School of Business, New York University, and a senior research fellow at Oxford.












http://www.nytimes.c...print&position=
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#169 SmallMind

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Posted 20 April 2003 - 09:00 PM

>>To gold it means at least $529.<<



The weapons of mass destruction held by China, Russia, Saudi Arabia, Kuwait, Syria, Jordan, Turkey and Iran are GREEN. They are US dollars in the form of US short to medium term treasury instruments that the US, via its marketing arm the World Bank and the IMF, sold these nations to hold as reserve assets.

Already they are being fired slowly into the dollar market. When the USDX closes in the US trading hours under .9920, the US financial system will be in DEFCON 1 (maximum force readiness).

This present administration is unlikely to concede to any pressure, even dollar bombing. This administration did not concede to its traditional euro neighbor's efforts to prevent it from acting in Iraq. This administration has stared down China and Russia. This administration will go into Syria if it resists US attempts to have Iraqi exiles returned for punishment or fails to destroy its weapons of massive destruction which were developed jointly with Iraq.

This administration is most unlikely to succumb to high altitude Islamic and Asian dollar bombing. Nonetheless, it hasn't the financial counter measures in place to defend against the dollar bombing that is intended to support the Islamic/Asian financial war to regain control in Islamic hands of Iraq's oil assets. This administration will not turn over the rebuilding of Iraq or its oil assets to the UN.

It is such a mixed bag. I cannot help but admire the strength inherent in this administration's acts yet I believe that I know what it means to the dollar which will be.92 - .82 - .72 and maybe .62 as measured by the USDX.

To gold it means at least $529.

The following excerpt from an Associated Press article of Saturday, April 19th provides some meaningful context to the scenario discussed above.

http://www.jsmineset...Iraq-oil-assets
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#170 SmallMind

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Posted 20 April 2003 - 09:01 PM

With the markets closed on Friday, gold ended this short week on an interesting note. As the Exchange Stabilization Fund knows all too well, a close of US dollar trading below USDX .9920 closes the jaws of the bear firmly back on the USD$.

The market dollar firefight today was actually magnificent to be involved in. The US dollar fell from the opening to a low of .9902 before the Blue Coats rode over the hill to their daily rescue (be it at lower prices each time) with charge blaring on the trumpeter's horn, horses wet with perspiration, shirt tails flapping in the breeze and guns ablaze with US dollar buy orders.

The actions of the Exchange Stabilization Fund belay the fears of their managers. Those professional traders in the secret employ of our sovereign masters in Washington entered at .9902 & 9:53 AM buying it up until .9948 at 11:14AM and then stepped out.

Well guess what happened? Down went the dollar and back came the Calvary at .9930 & 12:08 PM. Again those unsung, clandestine, CIA (Culinary Institute of America) like masked unaudited traders at the Exchange Stabilization Fund entered the arena using their Gold Cartel of Common Interest buddies to buy the buck one more time at .9965 at 12:35 PM.

Signing off 35 minutes later than planned, they left Washington for their vacation retreats at Camp David. What did the dollar do? It declined to .9952 closing at .9957 by 1:13. Who was it that printed and wrote an article saying that there is no such thing as the Plunge Protection Team? Was that fellow watching US markets or the Baghdad Bourse?

What was telling is that gold for the first time in a very long time parted company with the dollar early in the session and rose along with the dollar trading up to $328.80 while the dollar was firming. That is clearly more professional covering by just those same commodity departments as the Exchange Stabilization Fund uses to prop the weak US dollar. Now we don't think for a moment that seeing a false support in the dollar working harder than ever (full day) to keep the dollar from selling less than .9920 influenced their thinking, do we?

Gold delivered to us a clean break out of the falling wedge, opening up a price objective of $358. That break will not satisfy those that conservatively demand a 3% clear of the downtrend to declare it a breakout. However, my feeling is that we have a breakout and the bullish falling wedge in gold is now history as it predicts a nice rise, which could easily be the platform for another try at the $400 level.

So today has given gold a fresh, positive outlook. Today has set in concrete the concept that a US trading close of the US dollar as measured by the USDX below .9920 will negate any chance of a rally. The dollar will then have walked into an open elevator door only to find that no elevator car is waiting. Look out below!


SEE CHART................
http://www.jsmineset...-Market-Summary
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#171 Guest_gerhard123_*

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Posted 20 April 2003 - 09:13 PM

Good point..this is all signs that the US is starting to loose its shine, and therefore desperately trying to cling on it superpower
status. The EU is rising, china is following suit with it own economic zone, even Africa is rising. While the Euro is getting
stronger, US is shiffering, because this means less Dollar demand,
and this is only the starting point off lesser economic cloud.
I see a long awaited ballance of financial power, and maybe a
rival in military spending budgets( EU, China ). The world is sick
off the so called superpowers, and is making progress to ractify
this unfair ballance of power.

The only way for the US to cling to its superpower status is to
force it influence on key regions in the world before the the
rising powers has fully awaked.
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#172 SmallMind

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Posted 21 April 2003 - 12:24 PM

WAR IN IRAQ DIVIDED POWERS ALONG TWO LINES-GOLD&NOGOLD
The author of this is unknown. If anyone knows please send the information to rumormillnews@yahoogroups.com

April 19-20, 2003. Burning Bush: Pouring Oil on the Gold Wars

And the angel of the Lord appeared unto him in a flame of fire out of the midst of a bush: and he looked, and, behold, the bush burned with fire, and the bush was not consumed. (Exodus III:2)

Military intervention in Iraq divided the great powers along lines that should bring a sense d?j? vu to veterans of the modern gold wars. Gold's archenemies, the United States and Britain, led the charge to disarm Saddam Hussein by force and overthrow his regime. Gold's traditional friend, France, spearheaded the opposition, which included the Continent's two other major powers, Germany and Russia, plus China. At a 2-to-3 disadvantage among the five permanent, veto-wielding members of the U.N. Security Council, the Anglo-American alliance was unable to secure express U.N. authorization for the war on Iraq that began March 20.

The stated Anglo-American rationale for war gave varying emphasis to several factors: regime change, weapons of mass destruction, links to terrorists, violations of human rights, and a brutal dictatorship. But without persuasive evidence of direct Iraqi involvement in the September 11, 2001, attacks in New York and Washington, the strongest justification for a preemptive strike failed to materialize. Accordingly, the U.S.-led invasion is viewed by much of the world as manifesting a new imperialism based on overwhelming American military power in a unipolar world, a perception that neoconservative studies like "Rebuilding America's Defenses: Strategies, Forces and Resources For a New Century," The Project for the New American Century (September 2000), do nothing to dispel. See, e.g., Jay Bookman, "The president's real goal in Iraq," The Atlanta Journal-Constitution (September 29, 2002); "Behind the Invasion of Iraq," Aspects of India's Economy (Nos. 33 & 34, December 2002).

On the other side, in opposing the use of military force, France and Russia were widely perceived as protecting economic interests secured in part by their support for Iraq's efforts to reduce or eliminate the U.N. sanctions imposed on that country following the 1991 Gulf War. See, e.g., David M. Shribman, "Russia, France Offer Gauge for Iraq Policy," Boston Globe (March 12, 2002); John Tagliabue, "Europeans Strive to Tighten Trade Ties with Iraq," New York Times (September 19, 2002); Edith M. Lederer, "Chipping Away at Sanctions," AP (November 14, 2000).

In The Right Man: The Surprise Presidency of George W. Bush (Random House, 2003), p. 224, former White House speechwriter David Frum claims credit for the "axis of evil" phrase used by President Bush to describe Iraq, Iran and North Korea in his 2002 State of the Union address. Mr. Frum recounts that he was asked "to provide a justification for war" and came up with the "axis of hatred" idea (later edited) as an excuse for "going after Iraq." But while the events of September 11 may have strengthened the hand of the "neocons" within the Bush administration, its aggressive policy in the Middle East involves too many risks, draws too much support from other quarters, and touches too many important and politically powerful interests to be attributed to any single event or small clique of advisors.

Oil Squeeze. Call it what you will -- the War of American Secession, the War Between the States, or the Civil War -- slavery was at its heart. So too, despite all official disclaimers, oil is at the heart of the military intervention in Iraq. See, e.g., "Oil War," BBCi (April 6, 2003); James A. Paul, "Oil in Iraq: the heart of the Crisis," (Global Policy Forum, December 2002). Put another way, if oil were not under the ground, Iraq would not have U.S. and British soldiers on the ground. According to reliable reports (see, e.g., "In Iraq Drama, Cheney Emerges As President's War Counselor," The Wall Street Journal (March 17, 2003), p. 1), Vice President Dick Cheney played a pivotal a role in the Bush administration's decision to disarm Saddam by force, just as he did -- perhaps not coincidentally -- in developing its energy policy.
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#173 SmallMind

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Posted 21 April 2003 - 12:25 PM

Since the closing days of World War I, Britain has regarded control of Mesopotamia's oil as "a first-class war aim." See Daniel Yergin, The Prize: the Epic Quest for Oil, Money and Power (Simon & Schuster, 1991), p. 188; James A. Paul, "Great Power Conflict over Iraqi Oil: the World War I Era," (Global Policy Forum, October 2002). Indeed, even before the first drop was discovered, Britain and France were involved in secret struggles for its control. Ironically, the British even came up with an aborted 1920 plan to control the newly created but recalcitrant Iraq with mustard gas dropped from airplanes. Ultimately, following American demands for a share in the spoils and spectacular drilling results near Kirkuk in 1927, formal agreement was reached to give British companies an approximate half interest in Iraqi oil with quarter interests each for the French and an American consortium.

For the next thirty years, the so-called "Red Line Agreement" provided the basis for Western domination of Iraq's oil industry. In 1958, the first in a series of military coups overthrew British-installed Hashemite rule, resulted in Iraq's withdrawal from the sterling bloc and the anti-Soviet Baghdad Pact, and brought major change to its oil industry culminating in complete nationalization by 1975.

Not counting Canada's oil sands, Iraq's proven oil reserves are second only to Saudi Arabia's. What is more, they are especially attractive due to their high quality and low production costs, characteristics that would enable a rejuvenated post-Saddam Iraq to play an important role as a swing producer. In any event, with world oil demand threatening to outrun deliverable supplies, development of Iraq's known reserves and upgrading of its oil infrastructure stand as increasingly urgent tasks. See Matthew R. Simmons, "Are oil & Murphy's Law about to meet?" World Oil Magazine (February 2003); Marshall Auerback, "Venezuela and Iraq Enhance the Prospects of an Oil Shock (Gulf War II is Unlikely to be a repeat of Gulf War I)," PrudentBear.com (February 11, 2003).

Sanctions imposed after the first Gulf War curtailed Iraq's oil production and largely limited its legal oil exports to what could be sold through the oil-for-food program administered by the United Nations. Prior to the September 11 attacks, the United States faced a dilemma. By preventing any significant rebuilding or expansion of Iraqi oil production, sanctions were restricting Saddam's ability to fund new weapons programs but also depriving the world of much-needed oil and taking a heavy toll on Iraq's civilian population. With support for sanctions eroding under Iraqi complaints and increasing criticism from France, Russia and China, Saddam's government started awarding major contracts to French and Russian but not to American or British oil companies, thereby excluding them from future participation in Iraq's oil wealth and threatening to put them at a significant disadvantage versus other big international oil companies.

The ultimate effect of the Iraq war on oil prices is subject to debate. Oil analyst Tom Petrie, who expects prices to settle in the $25 to $30 per barrel range, says: "It will be clear within a year that Iraqi oil won't be a panacea for the world." Vito J. Racanelli, "The Next Gusher," Barron's (March 24, 2003), p. 16. But see Nelson D. Schwartz, "Oil: Why Prices Will Fall," Fortune (March 31, 2003), p. 68. Lower prices would be a plus for the world economy in general and of special benefit to the United States, which currently consumes a quarter of total world oil production.

Lower prices would of course be generally negative for producing countries, particularly Russia, which currently is the largest but a relatively high-cost producer. According to David G. Victor et al., "Axis of Oil?" Foreign Affairs (March/April 2003) (at p. 50): "Every $1 shift in worl d oil prices translates into about $1 billion for the Russian state budget." In their view at least, the principal driver of Russian opposition to the war was neither old debts nor future contracts, but a vital national interest in strong oil prices -- an interest that could be severely undercut by a U.S. vassal state in the role of swing producer with a mandate to keep a lid on oil prices.

Middle East oil is also of vital concern to China, the third largest oil consumer after the United States and Japan. Almost completely reliant on domestic production until 1993, China today depends on imported oil, mostly from the Persian Gulf area, to fill a third of its rapidly growing needs. See Pepe Escobar, "China, Russia and the Iraqi oil game," Asia Times Online (November 1, 2002). A recent study by The Brookings Institute (Sergei Troush, "China's Changing Oil Strategy and its Foreign Policy Implications," CNAPS Working Paper, Fall 1999) concluded:

Henceforth, with such a heavy dependence on the Middle East for oil, U.S. strategic domination over the entire region, including the whole lane of sea communications from the strait of Hormuz, will be perceived as the primary vulnerability of China's energy supply. It would not be an exaggeration to say that the key objective of China's oil strategy will be to avoid this strategic vulnerability.

Dollar Bubble. Oil and gold intersect at the dollar. Both are generally priced and traded internationally in U.S. dollars, simultaneously reflecting and reinforcing the dollar's current position as the world's principal reserve currency. Any serious threat to the dollar's hegemony -- described more accurately by General de Gaulle as "an exorbitant privilege" -- strikes at a crucial U.S. interest: the ability effectively to meet its international financial obligations by means of the printing press rather than with gold or net exports of real goods or services.

The dollar's position is particularly vulnerable today. Washington's long-continued "strong dollar" policy, backed by the official capping of gold prices, has left the greenback intrinsically overvalued. Technically, it appears to have topped out and started into a long, multiyear decline amidst a host of negative fundamental factors, including: a growing fiscal deficit made worse by costs for the war on terrorism, homeland security, and now the Iraq war; a trade deficit running at roughly 5% of gross national product, a level generally regarded by economists as unsupportable; and heavy reliance by U.S. stock and bond markets on foreign capital. In this environment, the United States, already portrayed in some quarters as a declining empire (see, e.g., Mark Tran, "Bush fiddles with economy while Baghdad burns," Guardian Unlimited (March 26, 2003)), cannot safely ignore challenges to the dollar that might have passed unnoticed in earlier years.

In November 2000, after threatening to withhold oil from the market, Iraq obtained U.N. approval to require payment for oil exports in euros rather than dollars -- the currency of an "enemy state." See "U.N.to let Iraq sell oil for euros, not dollars," CNN.com (October 30, 2000). In "The Federal Reserve's Worst Nightmare," Freemarket Gold & Money Report (Number 272, October 16, 2000), James Turk described this development as "pointing a dagger at the heart of the Dollar bubble," particularly should other oil-producing countries move in the same direction. Although regime change may bring Iraq back into the dollar camp, reaction to the Iraq war threatens the opposite result in other Muslim nations. See William Pesek Jr., "Indonesia May Dump Dollar; Rest of Asia Too?," Bloomberg.com (April 17, 2003); Robert Block, "Some Muslims Advocate Dumping the Dollar for the Euro," The Wall Street Journal (April 15, 2003), p. C1; Kazi Mahmood, "Economic Shift Could Hurt U.S.-British Interests In Asia," IslamOnline.net (March 30, 2003).

Until the collapse of the Ottoman empire in 1924, the gold dinar (4.22 grams equal to 0.135 ounce pure gold) was the currency of the Islamic world. With bitter memories of the 1997 Asian financial crisis, Malaysia is planning to use the gold dinar (weight as yet unspecified) to settle trade balances with certain Muslim nations starting later this year, most likely with Iran. See Sonia Kolesnikovar, "Gold dinar could soon be reality," UPI (November 15, 2002); Khaled Hanafi, "Islamic Gold Dinar Will Minimize Dependency on U.S. Dollar," IslamOnline.net (January 8, 2003); and articles collected on the gold dinar at www.321gold.com. On the retail side, in November 2001 the Islamic Mint (www.islamicmint.com) launched an Islamic gold dinar coin (4.25 grams of 22 carat gold), which also circulates in electronic form (www.e-dinar.com). Use of the gold dinar, it is hoped, will encourage growth of Islamic financial systems and promote the unity of the ummah (i.e., Islamic community).

Argentina, which is suffering through severe economic distress resulting in part from the failure of a once much admired currency board linked to the dollar, has presidential elections scheduled for April 27. A leading candidate, Nestor Kirchner, has proposed to restore gold-backing to the peso. See David DeRosa, "Currency Missteps Haunt Argentina," Bloomberg.com (March 14, 2003).

China, at the same time that it is reportedly diversifying its international reserves into euros and gold, is also in the midst of liberalizing its domestic gold market. See Wong Chia-Peck, "No Gold Bars: Looser rules in China could bring more demand," Barron's (March 24, 2003), p. MW13. Veteran market commentator Richard Russell recently observed ("China Accumulating Gold," Dow Theory Letters (Online ed., April 2, 2003):
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#174 SmallMind

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Posted 21 April 2003 - 12:27 PM

The men who are running China's economy are not stupid, and China knows well the power of gold. I've said this before, and I'll repeat it -- it would not surprise me to read some day that China has decided to back its currency, the renminbi, with gold. I believe that China, quietly, has adopted a long-term policy of competing with the US for super-power status, if not in the world, at the very least in Asia. It's also clear that the battle, as China sees it and wants it, will be in terms of economic, not expensive military power.

The US depends heavily on the reserve status of the dollar. How best to compete with the US? My answer -- compete on the basis of having the stronger currency. Right now the Chinese have pegged the renminbi to the dollar. They'll keep it that way until they are ready to float the renminbi against all the world's currencies. The float will come at a time of China's choosing, despite the pressure from the rest of the world to float the renminbi now (since it's conceded by everyone that the renminbi is now drastically undervalued).

Shortly before the first bombs fell on Baghdad, the BBC reported that Fed chairman Alan Greenspan and a former Japanese finance minister had struck a deal ("US and Japan to protect markets," BBC News (March 19, 2003): "'There was an agreement between Japan and the US to take action co-operatively in foreign exchange, stocks and other markets if the markets face a crisis,'" Chief Cabinet Secretary Yasuo ***uda said." This report did not surprise most close followers of the gold market, who assumed that it was among the "other markets" targeted. See, e.g., Nelson Hultberg, "Is the PPT an 'Urban Myth?'," 321gold.com (April 8, 2003).

More noteworthy, however, was the absence of denials from U.S. authorities and lack of coverage in major U.S. media. Again, veterans of the gold wars were not surprised. No one has yet denied the admission (see Complaint, paragraph 55) by its governor, Eddie George, that the Bank of England and the Fed actively cooperated to halt the rally in gold prices triggered by announcement of the Washington Agreement on Gold (WAG, see below) in the fall of 1999. Nor has GATA's work to expose the manipulation of gold prices received significant coverage in these same media. Like banks that must be saved because they are "too big to fail," financial market problems that require intervention but are "too big to talk about" are sure signs of severe economic distress.

New Old Europe: London's Bridge Falling. British foreign policy, later adopted by the United States, traditionally sought to maintain a balance of power in Europe such that no single power, either alone or in concert with others, had sufficient economic, political and military strength to threaten vital Anglo-American interests. Thus Britain and the United States supported France and Russia against a more powerful Germany in two world wars, and France and Germany against the old Soviet Union in the Cold War.

The Iraq war threatens to produce what two centuries of British diplomacy assiduously sought to avoid: a Franco-German-Russian alliance dominating the Continent. Indeed, the Russians had glimpsed the possibility before the war began. In "Russia - France: Old Friends are Best," International Affairs (Vol. 49, Number 1, 2003) (www.eastview.com), Aleksandr Bregadze, a senior official in the Russian Ministry of Foreign Affairs, concludes (at p. 64, emphasis in original): "The more pronounced that Gaullist traditions in French policy toward Russia are, the more active and fruitful Russian-French relations will be."

The demise of the Soviet Union and the movement toward European integration have presented Washington and particularly London with a new challenge: how to prevent an economically strong and successful European Union from metamorphosing into a unified political and military power that would all but eclipse a sovereign Britain and could well challenge the American superpower. Accordingly, Anglo-American policy prefers a larger, loosely confederated EU -- one in which smaller states can more easily counter France and Germany -- to a smaller, more tightly organized EU effectively under Franco-German control.

In the "new Europe" of U.S. defense secretary Donald Rumsfeld, military strength resides primarily in a rejuvenated and enlarged North Atlantic Treaty Organization still led by the United States while political power is diffused by adding new members, especially the smaller states of eastern Europe, to the EU. Foot-dragging on adopting the euro reflects Britain's deep reluctance to give up monetary sovereignty, not to mention the power and prestige that comes from a long tradition of close Anglo-American cooperation on international monetary affairs. Both the survival of the pound and the continuation of the City of London as a major world financial center depend importantly on maintaining the dollar's role as the world's principal reserve currency.

Only this fundamental U.K. interest can explain or justify the series of 17 bimonthly British gold auctions, announced in May 1999 and concluded in March 2002 (www.bankofengland.co.uk/pressreleases/2002/027.htm), under which the Bank of England sold some 400 tonnes at an average price of approximately $275/oz. At great expense to British taxpayers, these auctions facilitated continuation of the U.S. strong dollar policy by slamming gold prices. Their early success in this regard, however, triggered a European response, especially since the new European Central Bank had adopted the practice of marking the euro area's gold reserves to market. Without informing either the British or the Americans, France and Germany, the two largest gold holders among the ECB's member banks, took the lead in putting together the WAG. See Pierre-Antoine Delhommais et al., "Les banques centrales europ?ennes provoquent une flamb?e des cours de l'or," Le Monde.fr (Septembre 30, 1999). The British, invited to participate only after all other parties had reached agreement, signed on just before the surprise public announcement.

Until their joint opposition to military intervention in Iraq, the WAG stood as the strongest Franco-German rebuke to an important Anglo-American initiative since World War II. Yet the geopolitical ramifications of the WAG were nearly invisible to all save close followers of the gold market, and even they tended to think of its significance as limited largely to the competition between the euro and the dollar. Concluding what could prove to be an extraordinarily prescient article ("France's 'Non' On Iraq Is The First Of Many In The Future," PrudentBear.com (February 25, 2003)), Marshall Auerback wrote shortly before the war in Iraq began:

America's economic position has seldom appeared more vulnerable, even discounting the heightened risks that emanate from its ongoing war against terrorism.

Seeing this, France may now believe there is relatively little to lose by confirming its anti-war stance. ...

For all of the historical spats between the two great republics, France's current relations with the US are the worst they have been in years and its position in the EU is being challenged by the countries of 'new Europe'. While exclusion from a post-Saddam Iraq may cost it dear, France might be calculating that it can absorb these short term costs. In the case of Eastern Europe, it can single-handedly arrest the eastward expansion of the Union and thereby perpetuate its dominance in a smaller and more political and socially cohesive monetary union. The greater the success of this union, the more likely the euro can match or supplant the US as a legitimate reserve currency alternative, a clear long term French objective since the days that de Gaulle railed against the 'unlimited overdraft facility' available to the Americans under the dollar reserve currency system. Rightly or wrongly, therefore, President Chirac might be calculating that staying out of a war could open other doors in the Middle East. The country may well conclude that its interests are best served by continuing to say, "Non", not just to the United States, but increasingly, to its Eastern European allies and the United Kingdom, all of whom the French public increasingly sees much as de Gaulle used to view 'Perfidious Albion' when he rejected the UK's entry into the EEC in the early 1960s: namely, as American Trojan Horses designed to perpetuate a split in the EU and thereby weaken France's traditional dominance of this organisation. This is something Tony Blair might also wish to consider should he continue to make the case for Britain's own embrace of the euro post the invasion of Iraq, assuming, of course, that he is still Prime Minister in a few months' time.

Some consider France unlikely to adopt this course of action in light of Germany's strong support for EU enlargement, but even they recognize that "the Germans share some French worries about enlargement" and might in the right circumstances succumb to the "French embrace." "Jacques Chirac's Samson option," The Economist (February 20, 2003). Unlike its euro partners, France appears to have fully preserved what in this connection could prove a powerful economic weapon: its gold reserves.
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#175 SmallMind

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Posted 21 April 2003 - 12:28 PM

French Gold Card. Rather astonishingly, the ECB and its member banks have no common gold policy other than the WAG, which for this very reason had to be cobbled together on an ad hoc basis. Under the WAG, the participants (i.e., the ECB, its 11 member banks, Swiss National Bank, Bank of Sweden, and Bank of England for the British Treasury) agreed for the five-year period ending September 26, 2004: (1) to limit their total gold sales to not over 2000 tonnes at a rate of about 400 tonnes/year in a coordinated program to include the British auctions plus all other then planned sales; and (2) not to expand their leasing of gold or their use of gold futures or options. However, compliance with the second provision is impossible to monitor because neither the ECB nor most of its member banks provide any detailed information on their gold lending or gold derivatives activities.

Including both the ECB and its individual member banks, the euro area reports gold reserves of almost 14,500 tonnes. However, so far as can be determined from publicly available information, only France -- the second largest individual holder with with just over 3000 tonnes -- keeps all its gold in physical form. The remainder, including Germany with almost 3450 tonnes and Italy with 2450 tonnes, all appear to participate significantly in gold lending or gold derivatives, and thus they hold a portion of their reserves as gold receivables rather than bullion.

Assuming a total short physical position in the range of 10,000 to 15,000 tonnes as most recently discussed in Gold Derivatives: Moving towards Checkmate, much of this short position must represent gold loaned or swapped by central banks of the euro area. As a practical matter, again for reasons discussed at length in the above-cited and earlier commentaries, this short position cannot be covered -- if at all -- at anything close to current gold prices, meaning that for all practical purposes the gold is gone, much of it to the Far East. What is more, as discussed in the last commentary, Gold: Cover or Cover-up?, the short physical position is continuing to grow.

Research by Mike Bolser indicates that of the euro area countries only Portugal, Austria and Finland disclose gold bullion and gold receivables separately. See Mike Bolser, "Gold Receivables and Gold in the Euro Area," Le Metropole Cafe (February 5, 2003; post ID 2794). Portugal had leased or swapped more than 70% of the 606 tonnes of gold reported on the 2001 balance sheet of its central bank (www.bportugal.pt/publish/relatorio/Chap_IV_01.pdf, p. 9). At the same time, gold receivables accounted for half of Finland's 50 tonnes and almost a fifth of Austria's nearly 320 tonnes. Aggregating these numbers, almost half the total gold reserves of these three nations were gold receivables. Half of total euro area gold reserves less France is nearly 6000 tonnes; 70% is over 8000 tonnes. Italy and Spain, which together hold almost 3000 tonnes, were like Portugal highly visible "coalition" members in the Iraq war, raising the possibility that they also participated quite actively in the U.S.-led gold wars.

Relative to a total short physical position of 10,000 to 15,000 tonnes, 6000 to 8000 tonnes from the euro area does not appear unreasonable. Absent a figure of this size, the upper ranges of the total short position are difficult to reconcile with "available" central bank gold supplies. Of total claimed central bank gold reserves amounting to roughly 32,000 tonnes, more than 14,000 tonnes are reportedly unavailable for lease or swap (U.S., 8150 tonnes; IMF, 3200 tonnes; France, 3000 tonnes), leaving a total available pool of less than 18,000 tonnes, of which the euro area less France accounts for roughly 11,500 tonnes or well over 60%.

Assuming the euro area less France has leased or swapped an aggregate 6000 to 8000 tonnes, France by itself would possess from over a third to nearly half of the total physical gold potentially available to support the euro. Should the international monetary system move in the direction of a greater role for gold, the strength of the euro would rest primarily on French gold and the German aversion to paper money inflation augmented by whatever gold remained in the Bundesbank's vaults. To the extent that its gold reserves had been leased or swapped (an issue of interesting debate but on which there is scant hard evidence), Germany would perforce be more amenable to the "French embrace." At the same time, other members of the euro area, having disposed of much of the gold that previously backed their national currencies, would have little practical choice except to remain wedded monetarily to France and Germany.

What is more, should France have added to its effective gold reserves through holdings not included in official reports, its leverage would be further increased. Indeed, French tolerance for the euro area's lack of a common gold policy might be explained by a Machiavellian policy directed at enabling France to acquire an increasing share of the area's total gold reserves at bargain prices. In this event, France might hold a huge trump card: unreported gold in sufficient amount that, were it transferred to Deutsche Bank, would facilitate physical rather than financial settlement its gold loans from the Bundesbank, and thus spare the German central bank from having to convert these loans to sales and admit to an embarrassing reduction in its officially reported gold reserves. See Deutsche Bank: Sabotaging the Washington Agreement? and The Gold Jungle Book.

Snow Job. U.S. Treasury Secretary Paul O'Neill and White House economic adviser Lawrence Lindsey resigned on November 6, 2002, in an unexpected reshuffling of the administration's economic team widely attributed at the time to the need for more effective top salesmen to push the president's new economic package. Before his departure, Mr. Lindsey had estimated the cost of a war in Iraq at from $100 to $200 billion dollars, possibly a factor in his dismissal given the Bush administration's later reluctance to provide specific cost estimates. See Kathleen Hays, "The cost of war," CNN/Money (February 6, 2003).

In contrast, although usually too outspoken and blunt for Washington's political culture (see Richard S. Dunham et al., "Nice Guys Finish Last: Ask Paul O'Neill," Business Week (December 6, 2002)), Mr. O'Neill had said very little about the potential cost of a war save for a bland comment on September 17: "Whatever it is that's finally decided to be done, we will succeed and we can afford it." The awkward and rushed nature of his departure has never fit well with the conventional explanation for it. What would fit better is an internal decision by the administration to pursue war in Iraq over the treasury secretary's privately stated objections, a scenario consistent with his complaint shortly after leaving Washington (AP story): "It's all about sound bites, deluding the people, pandering to the lowest common denominator. I didn't adjust and I'm not going to start now."

In any event, Mr. O'Neill exited quickly and with obvious hard feelings, leaving the Exchange Stabilization Fund suddenly without a captain. By statute (31 U.S.C. s. 5302), the ESF operates "[s]ubject to approval by the President ... under the exclusive control of the Secretary [of the Treasury]," whose decisions "are final and may not be reviewed by another officer or employee of the Government." Accordingly, until the evening of January 30, 2003, when the Senate confirmed John Snow, former CEO of CSX Corp., as Mr. O'Neill's replacement, the ESF would have faced some significant curtailment in its operating flexibility.

After climbing from around $280/oz. to over $320 during the the first half of 2002, gold prices over the next several months repeatedly tried but failed to push above $330, the same level at which the Bank of England and the Fed had turned back the rally following announcement of the WAG because, as the Bank of England's Eddie George put it (Complaint, paragraph 55):

We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it.

Just two days prior to Mr. O'Neill's abrupt departure from the Treasury, Gold Derivatives: Moving towards Checkmate was posted here. Within days, gold prices punched through $330 and then moved sharply higher over the next two months. By the time the next commentary (Gold: Cover or Cover-up?) was posted one day before Mr. Snow's confirmation, gold prices had reached $370. There were even some, as noted in that commentary, who believed (incorrectly in the proprietor's opinion, as also noted) that the prior commentary was in some measure responsible for the rally. Gold peaked at $385 on February 5, when the COMEX announced an increase in margin requirements on gold contracts.

The following two charts by Mike Bolser depict gold prices for two periods: (1) from Mr. O'Neill's resignation until Mr. Snow's confirmation (post-O'Neill period); and (2) since Mr. Snow's confirmation (Snow period). Strong gold prices during the first period are consistent with absent or muted intervention by the ESF, possibly combined with market knowledge of an internal administration consensus to go to war. The equally sharp decline before and during the war is consistent with the ESF under its new leader returning to the gold market in force to bring prices back below the $330 level, i.e., within the "comfort zone" of bullion banks heavily exposed to gold derivatives, as well as to keep gold "on message" with the administration's plans for regime change in Iraq.
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#176 SmallMind

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Posted 21 April 2003 - 12:29 PM

By filtering out daily moves of less than 0.35% (e.g., $1.08 at $310 gold), Mike has tried to establish a meaningful level of intraday downward pressure from the London AM fix to the COMEX open outcry close. During the post-O'Neill period, the COMEX close was significantly lower than the AM fix on 23.1% of the days not filtered out versus 16% for the prior seven months. During the Snow period until March 25 when $330 was clearly breached to the downside, this percentage rose to 50%, suggesting considerable effort by the ESF under the new secretary to bring gold prices down in much the same manner as noted in previous periods of heavy gold price suppression. See Harry J. Clawar, "NY Strangulation of World Gold Market - 1 Year," Gold-Eagle.com (February 2, 2001); Dimitri Speck, "Tracks in the Trading: When Did the Gold Price Manipulation Begin?," Gold-Eagle.com (February 23, 2001).

From March 26 to April 17, the filtered percentage has reverted to 17.6%, very close to the 16% for the seven months prior to Mr. O'Neill's departure, suggesting that the authorities are content with gold prices at or under the $330 level. For how long they can hold gold here is uncertain, but snow jobs ultimately succumb to the heat of truth.

New Old Dinar: Acid Test for America. Under its former unlamented regime, Iraq had two currencies: the Saddam dinar, which replaced the former currency after the first Gulf War and circulated in most of the country; and (2) the Swiss dinar (the former currency originally printed in Switzerland and associated with that nation's reputation for sound money), which continued to circulate mostly in the northern Kurdish areas. In 1990 the Iraqi dinar was worth US$3.00 at the official rate. The Saddam dinar, bearing the dictator's picture and nearly worthless even before the war began, is no longer viable. The Swiss dinar, on the other hand, has moved in recent months from around 10 to as high as 6.5 to the dollar, reflecting both speculation on the war's outcome and the fixed supply. See "Saddam's currency under threat," BBC News (April 4, 2003).

One of the first orders of business in post-Saddam Iraq is establishing a new currency. See "Helping Iraq and the world to recover," Economist.com (April 7, 2003). The United States apparently favors a plan to use the U.S. dollar as an "interim" currency. See Bob Davis et al., "Dollars Are Sent to Iraq to Replace Dinars," The Wall Street Journal (April 16, 2003), p. A8, and "Once an Economic Dynamo, Iraq Is Now Financial Riddle," The Wall Street Journal (April 9, 2003), p. 1. After the war in Afghanistan, a similar plan was rebuffed by the Afghans, who quickly introduced their own new currency. In Iraq, the oil-pricing issue gives the United States added incentive to push for the dollar. At the same time time, the relative absence of local leadership makes Iraqi resistance to the dollar more problematic. However, any U.S. effort to dollarize the Iraqi economy will smack of old-fashioned colonialism, and will give added credence to arguments that the principal war aim was liberation of Iraq's oil, not its people.

Of course, it is critical that Iraq's economy be put on the road to recovery as quickly as possible, not only for the benefit of Iraqis but also to hold down the costs of reconstruction imposed on outsiders, particularly the United States as the chief occupying power. For war-devastated economies, there is no more certain path to rebuilding and revival than the restoration of a credible gold-based monetary system. See, e.g., Alan Reynolds, "Gold and Economic Boom, Five Case Studies, 1792-1926," in B. Siegel ed., Money in Crisis (Ballinger, 1984). Among the more noteworthy examples are America after the adoption of the Constitution and again after the Civil War and Germany after World War II.

In a radio address on Sunday, June 20, 1948, Ludwig Erhard, then economic director of the American and British occupation zones, announced a comprehensive currency reform to start the next day, including reduction of the money supply, stabilization of the mark (under the Bretton Woods system effectively tying it to gold), and abolition of all price controls. Less well-known but apparently true, the future West German economics minister and chancellor acted without prior approval by General Lucius Clay, the Allied director of economic policy. See Gary North, Government by Emergency (American Bureau of Economic Research, 1983), pp. 44-45, and books cited. Nonetheless, General Clay backed Mr. Erhard, the "Wirtshaftwunder" began forthwith, and the mark commenced its rise to a premier position among the world's currencies.

Nothing could more quickly set Iraq on the right course than adoption of the gold dinar as its national monetary unit. As previously noted, a modern gold dinar of the historic weight is already minted and sold outside Iraq, and plans are in the works soon to start using the gold dinar in settlement of trade balances among Islamic nations. Besides all the normal benefits of a gold-based currency, adoption of the gold dinar by Iraq would promise several additional advantages: (1) negate charges of U.S. colonialism and dollar imperialism; (2) assist the United States to improve its relations with the rest of the Muslim world; (3) encourage the participation of Islamic nations in rebuilding Iraq; and (4) demonstrate genuine U.S. respect for Islamic beliefs and traditions that are not in conflict with basic American principles.

The most substantial obstacle to Iraq's use of the gold dinar is the Second Amendment to the Articles of Agreement of the International Monetary Fund, which prohibits member nations from linking their currencies to gold. While settling trade balances in gold as proposed by Malaysia and other Islamic nations arguably does not run afoul of this prohibition, use of the gold dinar as a national currency clearly would. Under Saddam, Iraq had ceased as a practical matter to participate in the IMF, so formal withdrawal would be relatively uncomplicated.

Far more preferable, however, would be repeal of the prohibition itself, thereby making gold-based currencies an option for all IMF members. Having expressed interest in the past on working towards this goal, the World Gold Council now has a unique opportunity to shake off its image of increasing irrelevance and at long last to do something truly useful both for the world of gold and the wider world beyond. See Ken Gooding, "WGC misses a beat," Mineweb (March 30, 2003). Because repeal of the prohibition would require a change in the IMF's articles, it could not be accomplished without the cooperation, or at least the vote, of the United States.

In short, U.S. policy on the currency issue will be a good early test of U.S. intentions in Iraq. Forced dollarization can only reinforce the arguments of America's enemies. However, U.S. respect for an Iraqi decision to use the gold dinar would confound them: proof positive that America is in fact the tolerant and principled nation that it claims to be.

New Old Money: Roadmap to Peace. What is most alarming about the Bush administration's aggressive new Middle East policy is the growing danger that whatever the short-run outcome, the long-term consequence may be a lengthy and bloody holy war -- jihad -- pitting almost the entire Muslim world against the United States, Britain, Israel, and any who stand too obviously with them, including certain friendly but repressive governments in the Middle East. See, e.g., Patrick J. Buchanan, "Whose War?" The American Conservative (March 24, 2003); Gary North, "The Mother of all Tar Babies," Remnant Review (February 21, 2003).

On September 16, 2001, President Bush alighted from his helicopter and remarked that his administration would "rid the world of evildoers," adding: "This crusade, this war on terror, is going to take a while." In other circumstances, this statement might have passed as merely an unfortunate faux pas. But coming from an evangelical Christian (see Howard Fineman, "Bush & God," Newsweek (March 10, 2003), pp. 22-30) and in light of subsequent events, it can and has been taken as tantamount to a declaration of war on Islam.

At least on the subject of money, Christians should find common ground with Islam and the gold dinar. The history of paper money demonstrates that it constitutes always and everywhere a violation of the Seventh Commandment (Exodus XX:15): "Thou shalt not steal." As the apostle warned (James V:3): "Your gold and silver is cankered; and the rust of them shall be a witness against you, and shall eat your flesh as it were fire. Ye have heaped treasure together for the last days." Though he spoke just a few years before the fall of Jerusalem, his words could as easily apply to the United States since President Nixon closed the gold window in 1971. See commentary by Bob Landis, The Once and Future Money.

Because honest money makes war prohibitively expensive, monetary inflation is the standard tool of military finance. That the U.S. trade deficit has reached roughly the same order of magnitude as its defense budget is not wholly coincidental. As long as the United States enjoys the "exorbitant privilege" of meeting its international obligations with its own paper, other nations cannot begin to match its military power because they cannot match its defense expenditures. Under these conditions, as the old Soviet Union discovered, an arms race with the United States is a certain route to national bankruptcy.
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#177 SmallMind

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Posted 21 April 2003 - 12:30 PM

Whatever roadmap the president may have in mind to resolve the Israeli-Palestinian conflict, restoring gold to the center of the international monetary system is the surest way to promote general peace. By changing the composition of their international reserves to give a greater a role to gold, the other nations of the world could whittle away at the dollar seigniorage available to fund the U.S. defense budget while at the same time pushing the United States back into compliance with the monetary principles of the Constitution.

Unless his writ truly runs from God, President Bush is playing with fire in the Middle East. Should he burn his political fingers or even his whole political career there, he would be in good company. Misadventures in this volatile region have humbled some famous British and American statesmen, among them David Lloyd George, Winston Churchill, Anthony Eden and Jimmy Carter. See, e.g., David Fromkin, A Peace to End All Peace (Henry Holt, 1989), esp. pp. 556-557; Mark Tran, "Jimmy Carter," Guardian Unlimited (October 11, 2002).

What President Bush has no right to burn is the Constitution, which he has sworn to support and defend. The Constitution was written for a republic, not an empire. The framers did not create a "more perfect Union" so that it could better plunder foreign lands, either by military force or monetary fraud. Nor did they prohibit the federal government from establishing an official religion at home in contemplation that it might take sides in religious wars abroad.

An enduring Pax Americana cannot be built on military power and unlimited paper money. It can be built -- if at all -- only by fulfilling America's purpose and making it worthy of emulation. In his farewell speech from the White House, Ronald Reagan recalled the standard against which he measured his service to the nation:

The past few days when I've been at that window upstairs, I've thought a bit of the "shining city upon a hill." The phrase comes from John Winthrop, who wrote it to describe the America he imagined. What he imagined was important because he was an early Pilgrim, an early freedom man. He journeyed here on what today we'd call a little wooden boat; and like the other Pilgrims, he was looking for a home that would be free.

In proclaiming the covenant of the early Puritans with God, John Winthrop, the first elected governor of the Bay Colony north of the Pilgrims at Plymouth, sounded both a caution and a vision (Richard D. Brown et al., Massachusetts: A Concise History (Univ. of Mass. Press, 2000), p. 22):

... that men shall say of succeeding plantacions: the lord make it like that of New England; for wee must Consider that wee shall be as a Citty upon a Hill, the eies of all people are uppon us; so that if wee shall deale falsely with our god in this worke ... we shall be made a story and a byword through the world, wee shall open the mouthes of enemies to speake evill of the wayes of god ... we shall shame the faces of many of god's worthy servants, and cause theire prayers to be turned into Curses upon us till wee be consumed out of the good land.
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#178 uglybastard

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Posted 21 April 2003 - 12:42 PM

smallmind, you are having your own private conversation here?

A nation's economy depends on the average joe who gets out of bed and goes to work. The average Joes in the US are very good at working.

If you want to ruin the US economy, you'll have to convince them not to work.
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#179 SmallMind

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Posted 21 April 2003 - 01:57 PM

The idea is to make money or at least not loose what ever little you have left. If the dollar is over valued compared to gold then putting it in gold makes sense. If gold goes to $500 then you loose almost 50% of the value of your money. Putting it in Euros is not that safe either. At least during human history gold has always maintained value. Cash is only as good as what someone is willing ot buy it from you for.
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#180 SmallMind

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Posted 22 April 2003 - 10:42 AM

FORGET ABOUT A QUICK RECOVERY OF THE WORLD ECONOMY [Source: Bundesbank 15.04.03]

WIESBADEN, April 16 -- FORGET ABOUT A QUICK RECOVERY OF THE WORLD ECONOMY just because the war in Iraq might soon come to an end, warned Ernst Welteke, President of the German Bundesbank, member of the ruling SPD. He was speaking on Wednesday at the Levy Economics Institute of Bard College in New York City on the theme "A European perspective on the world economy".

The present state of the world economy, Welteke said, "is characterized by unusually high uncertainty": "The ongoing war in Iraq is weighing on the world economy. Financial markets are fickle; confidence among businesses and consumers remains subdued."

"We must, however, not be fooled into regarding the war in Iraq as the sole source of uncertainty or the predominant issue for the world economy. Uncertainty was around before that war was on the horizon, and uncertainty will stay on for a while even after a -- hopefully fast -- end to the war. What is more, uncertainty stemming from geopolitical strife seems to be deflecting our focus from some fundamental imbalances."

The "fragile" world economy is "depending far too heavily" on US demand at a time when there are alarming "weaknesses" in the US economy itself: "The balance sheets of businesses and consumers are debt-laden, while the public sector also has returned to dissaving. In the environment of weak capital spending, the current account deficit of 5% of GDP is no longer investment-driven. Therefore, it is more of a concern for me now than it was during the last couple of years. More recently, the equity markets' boom-bust scenario has left pension liabilities underfunded on a grand scale."

After attacking the recent "fashion" of "German-bashing", Welteke admitted that the Bundesbank views the current domestic and international "confidence crisis" concerning the German economy as "highly serious". Due to record-high insolvencies, he said, the German banking sector is indeed in a "difficult position." [Source: Federal Reserve 15.04.03]

WIESBADEN, April 16 -- CAPACITY UTILIZATION OF U.S. MANUFACTURING SECTOR PLUNGES TO LOWEST LEVEL IN 20 YEARS. As the Federal Reserve reported on Tuesday, the proportion of industrial activity in use fell to 74.8% in March from 75.3% in February, the lowest in 15 months and only 0.2% away from the lowest since June 1983.

Capacity utilization in the manufacturing sector -- that is industry excluding mines and utilities -- fell to 72.9% in March, the lowest since May 1983.

Even much worse is the situation in the high-tech and aerospace sectors, where capacity utilization is down to levels of about 60%: Semiconductors and related electronic components 65.4%, computer and electronic products 61.8%, aircraft and other miscellaneous transportation equipment 59.4%, communications equipment 50.6%.

[source: wires, April 15-16, 2003]

"MISFORTUNE 500" COMPANIES ANNOUNCE JOB CUTS AND PLANT CLOSURES, REFLECTING MANUFACTURING AND AIRLINES BREAKDOWN:

* GENERAL ELECTRIC's jet engine division will eliminate up to 800 jobs by the end of June, due to the disintegration of the airline sector; the jet engine division's global employment has fallen by 15% (4,500 jobs) since October 2001;

* MAYTAG, the third-biggest U.S. home appliance maker, will cut 500 jobs, or 8% of its workforce, as it reported that first-quarter earnings plunged by 39%;

* Fiber-optics maker CORNING, is slashing 1,000 jobs and shutting a Pennsylvania plant that makes cathode ray tube glass used in television sets;

* MOTOROLA, the world's second-largest mobile phone company, will cut 3,000 additional jobs, as part of a drive to slash $3 billion more in costs in 2003 and 2004.

[source: FNS transcript, April 16, 2003]

REP. STEVEN ROTHMAN (D-NJ) WARNS, "WE CANNOT LIVE IN A MODERN NATION WITHOUT RAILROADS"; CALLS ON ADMINISTRATION TO REBUILD RAIL CAPACITY.

During a hearing of the Transportation Subcommittee of the House Appropriations Committee, on Amtrak's passenger rail program, chaired by Conservative Revolutionary Rep. Ernest Istook (R-OK), Rep. Rothman interjected some reality.

"[T]he fundamental question for the people of this country and the people of this committee is, do we want a railroad in the United States?" "I would suggest, we cannot live in a modern, a 21st-Century nation without railroads." "If we don't have a national railroad system that works," he warned, "then we are going to be in trouble as a nation."

Rothman blasted as a "disgrace," the failure to subsidize passenger rail service. "I think the whole view of Amtrak is skewed. It's wrong to say that it needs to be self-sustaining when the airlines aren't."

He characterized as "a bread and water diet," the funding level provided by the Bush Administration and previous ones. "It's absolutely obscene, and it is without justification in terms of how we need to function as a country."

In particular, the Administration's proposed $900-million Amtrak FY2004 budget, [Amtrak has requested $1.8 billion] "is a joke," he said, "considering the capital money that's been withheld from Amtrak for all these years."

"What will make America stronger, what will improve our economy, will be an investment in our infrastructure: roads, rails, bridges, schools." "I hope that this Administration improves its view of the necessity of rail ... and to rebuild our nation's rail capacity."

[Source: UN News 4/16/03.]

WORLD HEALTH ORGANIZATION CONFIRMS CAUSE OF SARS IS A CORONAVIRUS PATHOGEN. The WHO annouced today that, due to the collaborative work of scientists at 13 laboratories from 10 countries, they have determined the cause of the deadly SARS virus. They have isolated a new pathogen which is a member of the coronavirus family, never before seen in humans. WHO Executive Director of Communicable Diseases, Dr. David Heymann, also said that this successful collaboration must now be turned to "design the next steps ... for transforming these basic research discoveries into diagnostic tools ... to help us successfully control this disease."
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