Tocqueville''s Hathaway realizes that GATA has been right all along

quot;MIDASquot; COMMENTARY FOR AUGUST 21, 2001

By Bill Murphy
www.LeMetropoleCafe.com
August 21, 2001

Gold $274.70 down $1.30
Silver $4.18 up 3 cents

quot;Washington, Aug. 21 (Bloomberg) -- Federal Reserve
policy makers lowered the benchmark U.S. interest rate
a quarter percentage point, the seventh cut this year,
and signaled another reduction is possible in coming
months.

quot;Fed Chairman Alan Greenspan and his nine voting
colleagues on the Open Market Committee reduced the
target rate for overnight loans between banks to 3.5
percent, the lowest since April 1994.

quot;'Household demand has been sustained, but business
profits and capital spending continue to weaken and
growth abroad is slowing, weighing on the U.S.
economy,' the Fed said in a four-paragraph statement
accompanying its decision. Central bankers warned the
economy faces a risk of continued weakness.quot;

Just as predictable as that news story was the stock
market selloff in the United States. The Dow was
mangled to the tune of 145 points as it closed at
10,174, with the Nasdaq dropping to 1,831, down 50.
Seven rate cuts and still business conditions are
worsening, not improving as the Wall Streeters
proclaimed would be the case all this year. Forget the
Wall Street bull. What now, brown cow?

The stock market debacle still to come is a result of a
financial market bubble bursting, the selling of that
bubble by Wall Street and the rigging of the gold
market, which led to a false sense of security by
analysts and the public investor at large.

Just as expected and in line with that comment: Gold
continued to sell off. With the Fed lowering rates,
which is most gold-friendly, the cabal had to do its
thing once again and sit on gold. However, one can't
help but think that they must be terrified behind the
scenes.

Who is going to supply the physical gold to hold down
the price month after month in the future? There is a
big time scramble for physical all over the world at
the moment. You can take that one to the bank. Big
hedger Normandy Mining of Australia isn't helping the
cabal either, as it announced today that it its forward
sales were reduced by 2.1 million ounces this past
quarter, with 100 percent delivery into production.

Supplies at the Comex are even dropping fast too. Today
they shrank a sharp 45,791 ounces and now stand at only
793,647 ounces. Most market participants believe that
500,000 of those ounces are long-term holdings that
will not come out under any near-term circumstances.

In this environment the Gold Cartel soon should be
running out of bullets soon to facilitate their scheme
to hold down the price of gold. But they are still at
it. Goldman Sachs was all over gold today on the sell
side as it has been for many days. The funds continue
to buy as the open interest has risen to around 132,000
contracts. After recent GATA revelations, one has to
wonder whether this is Goldman Sachs selling for itself
and clients, or is really selling executed by Goldman
Sachs for the U.S. Exchange Stabilization Fund.

Meanwhile back at the ranch, you would think that
everyone in the gold world would have caught on to the
repetitive maneuvering by the Gold Cartel and be
screaming bloody murder about the obvious manipulation
that has gone on for so many years.

Yet, still nary a peep from almost all of them. Not
only is this price capping routine nauseatingly boring,
it is enraging criminal activity that continues to go
unpunished. The evidence that the GATA camp has
collected that the gold market has been manipulated by
a faction of the U.S. government and certain bullion
banks is more than overwhelming. It is a certitude.

Those out in gold land that don't quot;get itquot; by now never
will -- until there is some sort of official
announcement by the U.S. government.

The good news is that our team is closing in on the
crooks. Sooner or later, Treasury Secretary Paul
O'Neill is going to have to answer to Congress about
such issues as the disappearing Special Drawing Rights
certificates. And that is the point of this commentary.
That should be the objective of everyone in Gold Land:
to take some sort of action to make sure that so much
pressure is put on Congress that O'Neill is compelled
to answer the questions GATA supporters have asked of
him via members of Congress and other influential
people.

That is doable, is being done, and is action that could
easily end the gold nightmare in the near future.

By the way, the article by the Harvard Crimson is still
up. Why not send it to the mainstream press and ask
them why they have not reported on this major story?

a href=http://www.thecrimson.com/news/article.asp?ref=13565http://www.thecrimso...

I can't stress enough how thrilling it is to see so
many GATA supporters taking the time to DO that
SOMETHING and not just sit on their duffs yapping away
about their sad-sack gold investments. quot;Thrillingquot;
because it is that kind of effort that is going to win
the day.

Like Peter S:

* * *

Dear Bill:

Earlier today I sent you notice of my correspondence to
several congresswomen. Enclosed please find the text of
both letters sent to both Boxer and Feinstein to DC and
local San Francisco offices together with four reprints
of various articles from www.LeMetropoleCafe.com.

Thanks for your continued great work on this issue!

Peter S

Dear Ms. Boxer,

I pass along to you, the majority my friend Bud C's
letter to his congressman, the Honorable Mike Thompson.
Bud's concerns mimic my own, especially since I've been
reading about the gold industry for the last two years.

We are printing dollars to the tune of about 14% this
past year. For some improper reason the current
administration is not telling where our current $80
billion in honest gold bullion resides, nor are they
telling us the reason for their silence! Having taken a
quot;bathquot; in gold investments myself this past year, I've
endeavored to understand how this could have happened,
given gold's ever increasing demand exceeds it's
physical availability by many times! What is becoming
apparent is that our government is not forthcoming
about its role in the gold market.

The following is Bud's letter:

quot;Printing scandalous quantities of funny money, Federal
Reserve notes should realistically precipitate serious
inflation. Its reportedly reaching toward $1 trillion
for the last year. It will typically multiply through
our banking system six times. Rather than simply lend
it to businesses to stimulate expansion, our banks will
probably collect, risk free, Treasury Bill to Fed Funds
interest rate differentials. Some deliberate
manipulation is producing 2-3% consumer inflation
numbers month after month for these last 12 months.

The dollar is indeed still differentially increasing in
value against European and Asian currencies and making
our annual trade imbalance $300 billion plus year after
year for some clandestine reason. Whats going on?
Whos conning John Q. Public and getting away with it?
For how long? Then what? The longer it goes on the
rougher things will get for poor old John Q. Public.

Your colleagues from both sides are getting
stonewalled. Can you help them in our mutual and
community best interests?

Can you get answers to these three scary questions:

1. Why has the gold at the U.S. Mint at West Point,
N.Y. been reclassified this year from quot;gold bullion
reservequot; to quot;custodial goldquot; and then to quot;deep Storagequot;
gold? Is this gold still owned by the U.S. Government?
Did its ownership change at all by virtue of its
reclassifications? If so, what is the authority for its
having left the possession of the U.S. Government? Who
else has owned the gold by virtue of its
reclassification? What has the United States received
for any change in its ownership? Exactly where is this
gold now? Is any of it yet to be mined? It is supposed
to have been in really safe storage for years.

2. If, as Chairman Greenspan suggested in his letter of
January 19, 2000, to Sen. Joseph I. Lieberman, the
Federal Reserve System does not interfere in the free
trade of gold, why were quot;gold swapsquot; discussed at the
FOMCs meeting on January 31, 1995?

3. The people of the United States have entrusted some
261.5 million ounces of their national gold to be held
in trust by the Treasury Department, and its
disposition is to be determined by Congress. The status
of these assets is reported monthly at the Internet
site of the Treasury Departments Financial Management
Service: a href=http://www.fms.treas.gov/gold/index.html.http://www.fms.treas.gov/gold/i... In
August 2000, 3400 tons of this gold at the U.S. Mint at
West Point, N.Y., was classified as Gold Bullion
Reserve. In September 2000, 1700 tons of this gold was
reclassified without explanation as Custodial Gold
Bullion. In May 2001, all 3400 tons were mysteriously
reclassified, this time as Deep Storage Gold, again
without explanation. Is this gold still owned by the
U.S. Government or has its ownership passed on to other
parties without congressional authorization?

This apparently unconstitutional conduct makes me rage.
I would hope this makes you feel queasy, too. Can you
help stop this spurious risk to our future? Please let
us know what further some of us might do to expose such
apparent chicanery and apparent self-serving rulers.
Your help will be very, very much appreciated.quot;

Please review the enclosed documents discussing Reg
Howe's lawsuit against Alan Greenspan, The Banc of
International Settlements (BIS), Goldman Sachs, et al.
This issue has been called the largest financial
scandal in U.S. history. I respectfully look forward to
your response.

Very Truly Yours,

Peter S

P.S. Having done much of the printing (at extremely low
cost) for the No On Recall campaign for Paula Kamena,
Marin District Attorney, I had the honor of hearing
your colleague, Dianne Feinstein, speak at the fund
raiser on her behalf. I know you both to be women of
conscience and I hope that your sense of fairness
dictates that you get involved in this inquiry. As
well, I am a native San Franciscan, U.C. Berkeley grad
(Class of 1978) and a Marin County resident for 15
years. My dad Harold S (now deceased) stuffed envelopes
for you many times in your Marin election campaign
headquarters. I'm glad he did, and I'm proud to have
you as a California senator!

Enclosure: supporting documentation

Dear Ms. Feinstein,

Recently I sent you some literature generated by Bill
Murphy and GATA (Gold Antitrust Action Committee)
implicating the U.S. Government, The Treasury
Department in collusion with certain investment banks
to suppress the price of gold. Please accept these
documents as further evidence of this claim. I hope you
deem this issue important enough for you to support the
pending lawsuit against the federal government. I look
forward to your response.

Sincerely,

Peter S

Enclosure: supporting documentation

* * *

Then, there is Stephen D:

Many of us, I suppose, are simply doing what you ask
and not reporting back to you on the results. If this
gives you a feeling of non-support, be of good cheer.
Most of us have joined with GATA in an aggressive
effort to quot;do something about it.'

I sent the GATA suggested letter to Senators Breaux and
Landrieux. Breaux responded that he'd asked the
questions of the Treasury secretary and requested a
report, and that he would send the results to me.

Landrieux has not replied.

I live in New Orleans and have a summer place on the
north shore of Lake Ponchartrain, and wrote to both
Congressman Williams (where I vote) and Congressman
Vitter because I have an address in his district.

Vitter responded pro forma. Williams is silent.

I saved the Turk article you sent and reprinted it.
I've sent all four MOCs a copy attached to another
letter indicating that this investigation will not go
away and that we are seriously seeking answers, not
silence.

I am meeting with the Financial Editor of the Times-
Picayune over lunch, I hope to be able to put a bee in
his bonnet.

Freeport-MacMoRan has an office building next to mine
here on Poydras St. I regularly eat in their dinning
room and I'm trying to meet with some of their exec.s
to ask a question or five.

I'm preparing an OpEd piece for submission to the
financial paper here in town, I'd like you to read it
before I do.

Stephen D

* * *

There is more:

* * *

Attached is a copy of our letter to Senator John
Warner. Duplicates went to Senator George Allen and our
Representative, Jo Ann Davis.

Best regards, Bob and Pat K

* * *

Then, there are the Peter Spinas and Elwood Teagues who
have focused on Colorado Sens. Wayne Allard and Ben
quot;Nighthorsequot; Campbell.

Allard has responded to both with the party line
response from the Treasury. Spina notes: quot;I as well
received a letter back from my state Senator, Wayne
Allard of Colorado. The response I received was
disappointing, to say the least.quot;

* * *

Pain as it is, this sort of letter needs to be followed
up with requests that Allard and Campbell receive
responses directly from Treasury Secretary O'Neill.

Then there are the Mark Lundeens, who have contributed
to GATA, written letters, and are running around all
over the place to win the day:

quot;Package delivered. Let's hope for the best! -- Markquot;

Soon GATA will have been at this for three years. What
is most amazing is that the evidence that our camp has
collected over the years all supports our first and
most basic contention that the gold market was being
manipulated. Even more satisfying is that most of the
evidence tends to be all-supportive. It has been like a
funnel with a bulls-eye at the end of that funnel.

We don't expect to have every detail right -- what we
are uncovering is just too complicated for that to be
the case, but what we have clearly adds up -- the
jigsaw puzzle is almost complete. We have them nailed.

GATA contributor Stuart Shoemaker sends us his take on
what the gold mess is all about. It is most
entertaining:

* * *

To Bill Murphy and Adam Hamilton,

Since everyone is coming up with conspiracy theories, I
would like to try one of mine out on you folks.

The European Union forms and sets up its own central
bank, the ECB. The BIS was the banker's bank for Europe
and was a quot;goldquot; bank. Now it is out of a job and since
the US has refused to join a quot;gold-bankingquot; bank, it
has no alternative but to shift policies. BIS says to
Greenspan (or vice versa ) that they no longer want to
be a gold-banking bank, but they will have to dump
their private shareholders, who are all gold bugs.

Greenspan sees his chance and takes the two American
seats. A deal is struck so that the BIS will replace
the discredited IMF in a world financial system based
only on a fiat currency (read, quot;dollarquot;). The Swiss are
to retain their neutrality, but are allowed to
participate in the European Common Market. Using that
neutrality, the BIS can become the banker's bank for
all the world's central banks: the UN of central banks.
This would help to defuse the Asian Monetary Fund
building in Japan, which is developing in reaction to
the bad aftertaste left by the IMF's actions there in
the past.

In order to accomplish this scheme, Greenspan decides
to use the US gold reserves to force the world off any
form of monetary-gold reserve. He can do this because
the US is the 10,000 SDR gorilla in gold reserves. So
the plan becomes to mark the US gold to market ($255
per ounce). At this market valuation, the Fed's 11,046
Gold Certificates are completely backed by about 1650
metric tonnes of gold (West Point, custodial, melt
gold), assuming their valuation at $35.00 per ounce
when fixed by Roosevelt in 1933 (Note that SDRs are
also 1/35th of an ounce). This means that all the
Federal Reserve Notes ever issued have claim on only
those 1650 tonnes of gold.

Also, the Federal Reserve makes a nice tidy profit
selling its non-interest-paying, expensive-to-maintain
bullion that is left over. (For example, Wayne Angell
and the FOMC minutes).

With the remaining gold SDRs (minus the 2200 SDR
Certificates (or 1650 tonnes at 1 Gold Certificate = 1
SDR Certificate)), the ESF leases or sells them all via
the IMF SDR Certificates to stabilize the price for a
protracted period of time. This accomplishes Clinton's
goals with the bubble market and impeachment, and a
Greenspan/BIS goal of a stable price to legitimize the
mark-to-market valuation of the 2200 SDR
Certificates.Nicely, India's passion for gold and laws
limiting the price their dealer's can pay for gold make
a good floor price blocking any overshoot in the Fed's
dumping of SDR gold. (Re: Greenspan's 'central banks
can precisely set the market price by leasing gold').

However, there was just one fly in the ointment. The
more traditional European, ECB countries were not part
of the deal. They needed to coordinate their national
gold reserves so that each county's holdings had about
the same relative contribution to a total Euro 15% gold
backing. This meant some counties had to sell off
portions of their gold reserves to reach the lowest
common denominator. This unknowingly aided the
Greenspan/BIS plan for a while; but when the ECB
countries realized the price of their 15% gold reserve
allocation would be decimated, and its own gold sell-
offs would occur at a depressed price, they balked. The
US was specifically not invited to the Washington
agreement, and the ECB banks tried thereby to fight
further price declines in gold. They did this by
raising their lease rates for gold, whether their own
gold, or US swapped gold. However, when they saw the
consequences of the resulting short squeeze on their
own bullion banks, they were trapped, and had to
restore the old lease rates and continue leasing gold
to re-stabilize the price. They had to continue to
reluctantly support the US strong dollar policy, which
was weakening the oncoming Euro's prospects as a viable
currency.

Meanwhile, to support their long-term goal of a world
financial system based on no monetary gold,
Greenspan/BIS cronies were appointed to the World Gold
Council, who would support the jewelry use of gold and
downplay its monetary use. Clinton already had the
establishment controlled press in his pocket, so they
could spin any unanswered questions their way.

So what is the evidence that backs this theory? If you
will examine James Turk's table you will see that the
ongoing number of SDRs closely matches the fixed number
of Gold Certificates. This is what you would expect
since they refer to the same gold and both were once
fixed at 1/35th of an ounce of pure gold. You will also
see that the SDR Certificates appear to have stabilized
at 2200, just the amount needed to back all the Gold
Certificates at or about the current market price, as
per Mr. David Walker's calculations. If we examine
David Walker's graphs from Sharelynx, we can see that
the rise in lease rates occurs 4 months before the gold
price spike caused by the Washington Agreement. The
rise in lease rates would seem to be anticipatory by
the European central banks in order to limit further
decreases in price prior to signing the Agreement: the
US not being privy to the deal. If you also examine the
price rise after the GATA Durban conference, you will
see that the gold price rise occurs simultaneously with
the period of increasing lease rates, and was thus,
reactive to the event.

The very same graph challenges the notion that the
falling price was linked to the rising lease rates, but
to something else. As for his comment that high lease
rates mean rising gold prices and tight supplies, that
only applies in a free, unmanipulated market.
Considering Mr. Walker's discovery that Norway is
consigning its entire marked-to-market gold reserves to
the BOE for sale; it suggests some in Europe are
beginning to throw in the towel, and to sell off their
gold while they can still get something for it
monetarily. Norway has always been a non-cooperating
participant in the Euro scheme anyway. That would
explain Kuwait and other small countries 'donating'
their gold reserves for sale by the BOE too. Since
Norway's laws require its gold to be valued at market,
those laws could well conflict with the requirements
for the Euro. Norway, like Ireland, is sounding like
they don't want to join the Euro either.

So what does this theory propose for the fate of the
dollar. It suggests that the world's dollar-based
economy may continue to be propped up by gold sales
until the world's unencumbered gold reserves are all
sold off. At that time the world would have little
choice but to accept an unreserved, paper-dollar, world
standard: there simply wouldn't be anything else
available. The Euro competitor will then have failed as
a possible reserve currency. It must be remembered,
that it is Greenspan's responsibility to defend the
dollar and to keep the banks solvent. By such a scheme,
he has done that. How so? If the mark-to-market theory
is right, the bullion banks are not accountable to the
Fed or BOE for their sold gold.

Why is that?

Because the Gold Certificates are fully backed by the
1650 tonnes and the surplus gold sold was not needed,
nor was it expected to be returned. The banks made huge
profits, and the gold fractional reserve system is
essentially gone. Greenspan can now retire having
accomplished his mission.

However, since two thirds of the world's population
values gold and not paper, what if they decline to
participate in a dollar-ruled world?

The likely outcome would seem to be a collapse in the
value of the dollar, and repatriation of the hundreds
of billions of dollars outstanding.

However, all of these Federal Reserve Notes have a
claim against only 1650 tonnes of gold. The Federal
Reserve, a private association of private companies,
will be in massive default. All outstanding dollar
claims will be against their Gold Certificates, which
equal only the 1650 tonnes in liquidation. The
government and the other banks will be saved though, as
they have no accountability for either the leased gold
or the dollars. The vastly underfunded FDIC is on the
hook for the domestic dollar deposits,which they can
always repay in quot;New Dollarsquot;: which is likely what the
US will have to use for money afterwards. Enter the New
Dollar issued by the US Treasury directly.

And in this eventuality, what will be the private joke
of that discredited, former gold-bug, Greenspan? The
US' credibility will be so poor that the New Dollar
will likely have to be made of gold --- and the Federal
Reserve System will be gone. Who knows? It might even
be worth it.

Stuart Shoemaker

P.S. Another day, another conspiracy theory, but this
time, no charts. This one is intended only as food for
thought, I am no expert in these matters.

* * *

Just think about what has surfaced in just the past few
weeks alone:

* Reg Howe discovers a paper written in 1988 by former
Treasury Secretary Lawrence Summers entitled, quot;Gibson's
Paradox and the Gold Standard,quot; published in the
Journal of Political Economy.

Reg writes: quot;In other words, the bottom line of their
analysis is that gold prices in a free market should
move inversely to real interest rates. Under the gold
standard, higher prices meant that an ounce of gold
purchased fewer goods, i.e., the relative price of gold
fell. Since under the Gibson paradox long-term interest
rates moved with the general price level, the relative
price of gold moved inversely to long-term rates.
Assuming, as Barsky and Summers assert, that the Gibson
paradox operates in a truly free gold market as it did
under the gold standard, gold prices will move
inversely to real long-term rates, falling when rates
rise and rising when they fall.quot;

It appears that Treasury Secretaries Rubin and Summers
used this paper as a financial market manifesto to
influence interest rates, the gold price and the
quot;strong dollarquot; policy.

* From Bill McDonough, president of the New York Fed,
last week to a GATA supporter at a Fed workshop: quot;There
is no chance of going back to the gold standard. The
decision was made in the second year of the Clinton
presidency.quot;

How curious when pondering the Summers paper.

* Spotted by another GATA supporter in the Washington
Times National Weekly, Page 18, edition of Aug. 13 to
19, 2001:

quot;Noticed in the latest report that the president has
put his support behind a new round of US Military Base
closures to be started soon. Among the list of bases
the Pentagon brass wishes to close are the usual
suspects for the Air Force, Marines, Navy and Army.
However -- one particular base the Army has under high
consideration for closure (with moving of its
operations to Texas), is: Fort Knox in KY.quot;

How could closing Fort Knox even be considered if it is
loaded with gold bullion as we have constantly been
reassured by the Treasury?

* Finally, we have quot;The Mystery of the Disappearing SDR
Certificatesquot; by James Turk. Things called Special
Drawing Rights certificates, a liability of the
Exchange Stabilization Fund and an asset of the Federal
Reserve, have dropped from 9,200 millions to 2,000
millions from December 1998 to March 2001. These
certificates came into being as a result of the
International Monetary Fund. Turk writes:

quot;So what I think has happened is that the SDR
Certificates are themselves being used by the ESF.
Here's what the IMF says about the use of SDRs in
swaps: 'In accordance with Article XIX, Section 2(c),
the Fund prescribes that...a participant, by agreement
with another participant, may engage in an operation by
which (a) one of the parties transfers [i.e., swaps] to
the other party SDRs in exchange for an equivalent
amount of currency or another monetary asset, other
than gold.'

quot;Thus, SDRs cannot be swapped for gold, but there is no
IMF regulation that prohibits the swapping of SDR
Certificates for gold. So let's take this observation
to its logical conclusion, namely, that the ESF and/or
the Federal Reserve has been swapping SDR Certificates
issued by the ESF for gold owned by the Bundesbank, and
presumably other central banks as well because we noted
above that the Second Amendment states that quot;members
undertook to collaborate with the IMF and other
membersquot; for the sake of international liquidity. So
presumably, all IMF members are committed to undertake
any scheme that the US government may hatch.quot;

The bottom line is the dwindling of the SDR
certificates suggests that a significant amount of U.S.
gold is at risk, if most of it is even there in the
first place.

This is the topping for the evidence cake GATA has
collected over the years.

It is time for Secretary O'Neill to speak out on this
issue to Congress and the American people.
___________________________________________________

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