As GM goes so does America

Interessante Diskussion zwischen GATA's Chris Powell und USAGOLD's Michael Kosares (MK):

(5/10/05; 20:26:06MT - usagold.com msg#: 132066)
Chris Powell. . . .
http://www.usagold.com/amk/usagoldmarketupdate.html
Thanks for the article you sent my way on the developing derivatives crisis vis a vis General Motors, Ford, United et al. . . .There will be more.

What 'civilians' in the war on gold do not understand and will not be told is that the crisis at hand is the result of an interlocking web of counter-party agreements. This matrix, if I might employ a grisly metaphor, is like a web of directly connected nuclear power plants. In this web, if one goes it touches off a reaction in the next, and the next, and the next. . . .and so on. That is why you are seeing this extraordinary and bewildering onslaught of rumors. It's because the rolling crisis is in motion. People, including some of our most illustrious pundits, think they understand what is going on, but, in my view most don't . . .not really.

In my last newsletter I tried to point out that I think Alan Greenspan understands this and he's trying to beg off saying that the 'invisible hand', 'chaos,' 'creative destruction' are all part of the market process. What he's really saying is that there's not much he can do about it, so don't drop this disaster at my door. What I've alluded to before in my various writings -- and emphasize now -- is that this may be something beyond the control of the central banks and the government.

I started warning about this process (now engaged) years ago. Alan Greenspan knew the potentialities better than anyone and he refused to recommend the regulation of derivatives. Now the dark angel is at his and the financial markets' door. And this is just the beginning. . . . . . . . . .Let me say it again. If you do not own gold you better get some. If you don't own enough, buy more now. If you own enough, thank the good Lord that you do.

My remarks and Alan Greenspan's statement is linked above.

CP's Antwort im nächsten Post...

Chris Powell (5/10/05; 23:24:47MT - usagold.com msg#: 132069)
Reply to MK regarding derivatives and the Fed
http://www.federalreserve.gov/…stimony/1998/19980724.htm
MK, I agree with you that the "rolling crisis" seems to be in motion but I'm not sure that Greenspan really thinks there's nothing he can do about it. His recent remarks suggesting as much may be meant just to exonerate himself in case of disaster.

Meanwhile, I get the sense that all the major markets are now being very closely manipulated by the central banks -- equities, bonds, gold, and commodities, at least oil.

When Greenspan first articulated the Fed's opposition to regulation of derivatives -- his remarks to the House Banking Committee in July 1998 --

http://www.federalreserve.gov/…stimony/1998/19980724.htm

-- he was saying, explicitly about gold and implicitly about everything else, that the derivatives markets didn't need regulation because the Federal Reserve and/or the Treasury Department and other central banks themselves were ALREADY the big players in the derivatives markets. That is exactly what the Greenspan quote famous among gold bugs is about:

"Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise."

That is: "Don't worry, congressmen. We central bankers have the gold market under control."

Further, this was Greenspan's proclamation, still hardly understood today even among gold bugs, that the very purpose of gold leasing is not what the central banks maintain -- to earn a tiny bit of revenue on a supposedly dead asset -- but to control the gold price and, with it, the rest of the currency market.

Why would the Fed, if it was concerned about systemic risk to the financial markets, NOT want ordinary regulation of derivatives? Perhaps because such regulation would disclose that the bigger derivatives positions on the books of financial houses like MorganChase and Citibank and Goldman Sachs were actually U.S. government positions. Upon such disclosure the free markets being preached to the world by the United States would be exposed as not merely phony but a vast imperialistic scheme, surreptitious economic war against the rest of the world.

What was the Counterparty Risk Management Group, formed by the New York Fed after it desperately arranged the orderly liquidation of the Long-Term Capital Management hedge fund, if not another instrument of market rigging, another evasion of anti-trust law, the rescue of the whole derivatives class?

No, far from being powerless to intervene as the fiat money colossus superinflates and begins to topple over, the Fed and the Treasury may be weakening precisely because they are intervening surreptitiously in TOO MANY markets TOO OFTEN. We seem to be at the point where the government of any country with a substantial economy can pull the plug on the rigging at any moment -- Saudi Arabia by not pumping enough oil; China, Japan, even (yikes!) Taiwan and South Korea by not buying enough U.S. government bonds; Russia by buying gold; Europe by not leasing enough gold or by letting the euro get too strong; or even Cuba, by sending the Havana police department to raid Grand Cayman and copy and publish the records of the banks that lately have been buying the U.S. government bonds that the usual buyers have started to decline.

The great scheme seems to have been to flood the world with mandatory dollars while controlling and channeling the inevitable inflation -- capping gold with leasing and commodity prices and interest rates with derivatives. But now too much money is out there and it is sloshing around crazily in pursuit of advantage through leverage that was unimaginable just a few years ago. It's getting to be too much for its creator to control -- it's Frankenstein or "Sorcerer's Apprentice" time. Something is going to give.

Gold and silver have had their shortcomings as money but their virtue has been that they never could get the world into the current danger, never could become infinite money projected into infinity. I don't know what is going to happen but it is impossible for me to imagine a world in which gold and silver will be worth less than they are now -- which will not necessarily be such a great world for a while. But all we can do is the best we can do by our own lights.