Thai Guru's Gold und Silber ... (Informationen und Vermutungen)

March 4 – Gold $433.60 up $4 – Silver $7.34 up 15 cents

CRB Continues To Soar / "Memories of the Souk al Manakh" Revisited

Life is either a daring adventure or nothing. To keep our faces toward change and behave like free spirits in the presence of fate is strength undefeatable...Helen Keller

GO GATA!!!

It’s hard for me to imagine a more tedious and infuriating line of work than watching gold trade, or not trade as it were. I would like to single out today as unusual by using adjectives like blatant, obvious, outrageous, etc., however, what would be the point? Today is like almost every other gold up day. The farce just goes on and on and on.

Let me go get my recording that I have used 75 times over the recent years: Gold popped up sharply during the first hour of trading and then went sideways for the rest of the trading session.

The fact that the dollar was slammed and commodity markets kept going up and up an up meant nothing. The only thing that matters in this market is what The Gold Cartel does. The only thing that matters to them is how much money they can steal from you and how they can hold down the world’s number one inflation barometer (gold) in order to con the public. To add insult to injury the cabal trots out their obsequious bozo, Wall Street propagandist Larry Kudlow, on CNBC to point to the flat gold price as proof there is no real inflation in the US. Never again will I pan a bad B-movie for being too absurd as far as the plot is concerned. Compared to this gold farce, they could all pass for non-fiction.

The CRB, adding 1.66 to 309.18, shot up again like it does every day in this non-inflationary American economy:

April CRB
http://futures.tradingcharts.com/chart/RB/45

Now compare the CRB with gold – makes me want to throw up:

April gold
http://futures.tradingcharts.com/chart/GD/45

I am too ticked off to write any more at the moment. Time to go for a run so I will hand off my commentary to a veteran Café member and staunch GATA supporter, the very savvy James McShirley:

Bill,
As we watch another ($6) limit up day early, followed by dead in the water trade the rest of the day, with mainstream reporting of "dollar decline supporting gold" I thought you would enjoy reporting from a different planet- lumber. Here is an excerpt from a broker at the CME on Tuesday after 4 out of the last 5 trading sessions being limit up:

The Lumber Comment
Leonard Commodities, Inc.

The Market Recap:
The upside pressure is relentless down here. Most traders are frozen in thought process as the market goes up. It seems as if most want to argue the fact that the mills are in the mid 420's and futures are rallying to par. The only real selling is roll by the funds. The roll has been large, but has had no effect on the market. I like to summarize these rallies as the future market that lacks selling. But this market has 1 seller for each buyer. What I am saying is the market has upside momentum. The spread was active today trading from $6 out to $11 later. The cash market was seeing activity at the 426 area. New home sales came out down 9.2%. This was lower than expected but did little to the market down here.

No limit tomorrow in March

Quick Summary: shorts bailing

***

When has gold ever had relentless upside pressure described?
When has gold ever had futures rallying to physical described?
When has there ever been an absence of gold sellers?
When has gold ever been allowed to have upside momentum?
When have the gold contracts spread trade widen dramatically in a session?
When has gold been given a VERY bearish number- e.g., housing down 9.2%- and blow it off?
When have the gold shorts ever bailed on a signal failure?

Lumber like the rest of the CRB is reflecting escalating operating costs while still seeing decent demand. Note I said decent, not even like the deficit demand of gold or silver. If housing were running out of trees to make lumber (like silver) it would already be on allocation at double the price. Anybody that denies gold price management could look no further than a 3-year lumber chart to see unfettered price discovery. Keeping gold and lumber side by side on my screen is truly a tale of 2 markets.
James McShirley

Long live The Matrix and Stepford Wives. Hail to the Orwellians.

To give another look at just how rigged the gold market is, compare the weekly gold price (which went down this week even though the spot CRB went up every single day) to the CRB weekly. The divergence is noticeable over longer periods of time; however, that divergence went bonkers the past few months as the CRB has roared into new high ground, while gold is more than $20 away from making new highs:

CRB weekly
http://futures.tradingcharts.com/chart/RB/W

Gold weekly
http://futures.tradingcharts.com/chart/GD/W

Goldman "Hannibal Lecter" Sachs was a seller during the day and SMOTHERED the close.

Gold in euros went DOWN, closing at 327. 65, down .16. The market was so managed today they wouldn’t even let gold up to its upper limits of the $6 Rule. At its high it was up $5.50.

The financial markets as a group made NO sense unless you understand they are all about manipulation (price management) and liquidity. The Working Group on Financial Markets (PPT) and The Gold Cartel had a field day.

The stock market took off because investors supposedly loved the jobs number. OK, so why did the bond market take off too, especially with the commodity markets on such a tear? It rose a full point to 112 30/32. If the jobs number was so great, why did the dollar get battered? It fell .78 to 82.53. The euro rose 1.36 to 132.48. There can only be one conclusion in my book. This will all end very badly.

March euro
http://futures.tradingcharts.com/chart/EC/35

March dollar
http://futures.tradingcharts.com/chart/US/35

Technically, gold is in OK shape. It went back to fill the gap it left a week ago Tuesday and couldn’t quite do it. It also held critical support again a few times during the week at $430. Yet, what does this all mean in a rigged market? Until spot gold takes out The Gold Cartel forces at $437, we are nowhere. Gold will NEVER go sharply higher until the physical market buying overpowers the crooks holding down the price, which is one of the reasons the desperados want IMF gold to enter the market. They want a way to divert surging gold demand.

The good news is The Gold Cartel is in trouble. They don’t have enough supply to meet the surging demand. Thus, I remain an angry frustrated super bull. Both gold and silver could, and should, explode at any time.

The John Brimelow Report

Gartman intimidated out

Friday, March 04, 2005

The Indian Bullion markets were closed today, in solidarity with a three day strike of jewelry manufacturers protesting the imposition in the recent Union (e.g. Federal) Budget of a 2% tax on branded jewelry products. This was unfortunate from the point of view of the nerves of gold’s friends World gold being $3.50 - $4.00 below yesterday’s levels would no doubt have produced heartening premiums. In itself, the tax change appears to be of limited interest to overseas bullion market observers. No doubt it effectively favours pure investment products over jewelry, and old-fashioned informal bullion jewelry over more modern forms, but it does not seem likely to influence overall Indian gold consumption much.

Latest reports are that the dispute has been resolved. It is possible that closing the fabricating shops slowed Indian demand a little, which presumably will be recovered next week.

TOCOM displayed a modest appetite. On volume up 23% to a still low 11,903 Comex equivalent, open interest edged up 669 Comex lots to the equivalent of 100,797 NY. The active contract was down 4 yen and world gold stood 20c below the NY close. (NY yesterday traded 43,578 lots; open interest slipped 940 contracts.)

On Thursday, the manifest capping of the gold market broke the nerves of some participants. Standard-London summarises

"Gold opened in TOCOM at 432.50 and good 2 way business flowed in the market…It was only with much effort that physical demand coupled with a slightly firmer dollar boosted gold to the day’s high of 433.25 bid. After the high had been achieved, things started looking downhill…COMEX opened at the high…Then …gold slipped gradually lower with good Fund sales seen. Good physical demand cushioned the fall all the way to 429 where it bottomed out and closed, straddling 430…"

In other words, once again, buyers found the way up blocked by a serious seller. But the physical market still underpinned the current price.

One of those whose nerve broke was The Gartman Letter, which sold its gold positions on the open, ostensibly for lack of momentum. So the heavy seller of the past week was successful in damaging sentiment in one influential quarter.

Another successful damager of sentiment was the SA Finance Minister Trevor Manuel. His declaration of support for IMF gold sales was a gratuitous blow to gold confidence which brought back to mind the South African announcement of Reserve Bank lending of gold in the turbulent days following the first Washington Accord in ’99. As the ridiculous rand-carry trade- distended exchange rate also indicates, the ANC government in SA caters to Northern Hemisphere "rentier" (or Central Bank) community at the expense of domestic economic activity to a richly ironic degree. The former Apartheid regime would have found this laughable.

JB

CARTEL CAPITULATION WATCH

What a day for the Wall Streeters. The DOW leaped 107 to 10,940. The DOG is lagging. It went up 12 to 2070.

The Dow Theorists will be crowing with both the Dow and Transports making new highs. I’ll bet dollars to doughnuts we are very close to a top which will last for many years.

Crude oil closed higher AGAIN – to $53.78, up 21 cents per barrel.

US economic numbers:

08:30 Feb. avg. hourly earnings reported 0.0% vs. consensus 0.2%; avg. weekly hours 33.7vs. 33.8
Jan. avg. hourly earnings revised to 0.3% from 0.2%.
* * * * *

08:30 January non-farm payrolls revised to 132K from 146K
* * * * *

08:30 Feb. unemployment rate reported 5.4% vs. consensus 5.2%; non-farm payrolls reported 262K vs. consensus 225K
* * * * *

March 4 (Bloomberg) -- The dollar fell for the first time in a week after a government report showed the U.S. unemployment rate rose last month and fewer people were hired in January than initially reported.

Speculation the economy would add as many as 300,000 jobs overshadowed the Labor Department report that employers hired 262,000 new workers, the most since October and above the median forecast of economists polled by Bloomberg.

``The numbers were not strong enough to support dollar bulls' wildest desires,'' said Jason Bonanca, a currency strategist at Credit Suisse First Boston in New York. ``We are still improving and 262,000 is a good number, but details in the report were not so supportive.''

09:47 Feb. final Univ. of Michigan Confidence reported 94.1 (Reuters) vs. consensus 94.5
Prior reading 94.2.
* * * * *

10:00 Jan. Factory Orders reported 0.2% vs. consensus (0.1%)
Prior reading revised to 0.5% from 0.3%.
* * * * *

This one is a hoot:

Hi Bill,
I just listened to George Millings Stanley on Marketwatch for the world gold council.
He said , I wouldn’t like to give a future price of gold because I d be in big trouble with GATA if I did.
You have them cornered Bill.
Look ! !,over there, is that a stretcher bearer running to the stretcher rack ????
GO GATA
Steve

George Millings Stanley is a nice fellow actually. Just working for a corrupt outfit.

This is how we win the day:

But I have been feeding stuff to JR for a while. I sent him this yesterday.
http://www.rense.com/general63/rig.htm

-END-

You might like to know Dow Jones carried our Business wire release on Dr Woertz’s GCC gold report.

CNBC and inflation:

Bill,
Listening right now to Larry Kudlow on CNBC talking about how the CRB at near record highs is not inflationary because gold is muted and gold indices aren't reflecting inflation, is repulsive. What a shameless shill. Why no one has called him on official central bank gold sales is beyond me.

Mark Haines talks about the market being manipulated. He doesn't know how right he is, but ... he thinks it's the speculators.

Another talking head another monkey.
I hope this isn't a ruse, but if it is, more later.
All the best,
Raymond

Good grief. What fun to see what just came in from Houston’s Dan Norcini. I swear this came in after I had written my commentary above:

Houston's Dan Norcini:

Hey Bill:
Call me dense or something but the CRB just blew through the recent top of two days ago like it did not even exist and is threatening levels last seen back in December of 1980. The dollar gets mauled and goes caput and bond traders just yawn and take long term rates lower??? Watching a two point rally from off the intraday lows on account of some "benign" jobs and wages number is simply mind boggling.

This has gotten beyond weird in watching this - it is EERIE. It's like watching some sort of horror movie moving at slow motion. Scares the hell out of me buddy and I do not mind telling you. I cannot get over the utter complacency that we are witnessing taking place as these systemic pressures just build and build and build.

We both know what the COT data is going to show this afternoon before we even get the thing.
Dan

Comments like these are much appreciated on frustrating days like this one:

Bill: It is my belief that the release of the GCC Study is the reason for the gold market taking off today...not the weak dollar!! This is just another confirmation of your hard work...all of this is, slowly but surely, proving you right!! Please don't stop!! I am standing beside you...quietly...without any kind of notoriety...just carrying on with you.
I can't tell you how many friends and family I have lost over this thing. But I know that I will be proven right in the end. We will certainly prevail.
Earl

The senior golds fared OK today and closed near their highs for a change. The XAU gained 2.71 to 99.80 and the HUI rose 6.35 to 216.54. The HUI needs to clear 220 and off to the races we go.

HUI
http://bigcharts.marketwatch.c…&o_symb=hui&freq=1&time=8

The smaller golds were comatose. No interest. That will change. Just not yet. Not with other natural resource stocks flying and the general market making highs. Who wants to play in a rigged Casino when so much is going on elsewhere?

Dr. Woertz’s gold report out of Dubai and the United Arab Emirates took me back to my favorite posting ever at the Café. My friend Frank Veneroso wrote the piece and I never tire of reading it. It surely will be right up Dan Norcini’s alley:

Recollections of the Greatest Market Bubble Ever…

Memories of the Souk al Manakh

How large can a bubble grow before it bursts? Farther than you think. And there need not be a fatal pinprick that makes it burst. And when it bursts, the crash that ensues can be deeper and more discontinuous than you could ever imagine.

In May of 1982, while the bear market in US stocks was in its deepest throes, and the epic bear market in US bonds was still completing its base, I was called to advise on the greatest stock market bubble of all time---the Souk al Manakh in the Persian Gulf. Kuwait had had an organized stock market for some time. The great wealth created in Kuwait by the rise in the oil price in the 1970's led to seemingly endless appreciation in Kuwaiti stocks. In the Arab states in those days, only sheiks could grant corporate charters, and only corporations could become publicly traded companies. The royal family of Kuwait did not freely grant corporate charters for companies that might become vehicles for stock speculation, so there was a shortage of stocks to trade. This shortage and the new unparalleled wealth that was looking for vehicles of speculation gave rise to an over the counter market in Kuwait city where shares in companies domiciled elsewhere in the Gulf---principally Bahrain and the United Arab Emirates---were traded. Housed in a converted air-conditioned parking garage, this market was known as the Souk al Manakh---the camel market.

I was asked at the time by the government of the United Arab Emirates to advise on the creation of a stock exchange in the Emirates. Great fortunes were being made in shares of companies domiciled in the Emirates at the time. Why not bring all this wonderful new stock market activity home?

For six weeks I worked out of an office in the UAE central bank in Abu Dhabi. The city was modern, laid out along a crescent beach at the end of a promontory into the Gulf. The central bank was a modern glass building behind severe cement columns that met in graceful Moorish arches. From a great glass window of this modern building, I could see along a turquoise backwater old tanned fisherman working on brightly painted ancient fishing dhows that were beached on the blinding sands. The Sheik of Abu Dhabi was the richest man in the world then. Only a few decades earlier his brother, the former ruler, was afraid to walk the streets of what was then a small sandy seaside fishing village for fear of his creditors.

Being a macro oriented, top-down man, I set about to see how great a supply of stocks had been made available for trading on a formal market in the UAE. The results were simply unbelievable. The market capitalization of the Kuwait exchange and the Souk al Manakh combined ranked third in the world, behind the US and Japan. It was greater than that of the UK with all its foreign listed companies. How could this be? I asked, for both geographically and economically speaking, these few countries---Kuwait, Bahrain, and the Emirates (the former Trucial States under British domination)---were only postage stamps of sand on the globe. Oil had brought wealth to these small countries but their combined economies were still very small compared to those of the US or Japan or the UK. More striking was the fact that most of the visible wealth was not reflected in these companies. The rulers of these sheikdoms owned the oil wealth. The hugely expensive real estate was privately held, as were the extremely lucrative import franchises. What assets and income underpinned these multi-billion dollar market caps?

We did a bottoms up study to find out. In Bahrain, a financial center, there were banks, seemingly of substance. There was a raft of companies that made cement and clinker. These companies were domiciled in five former Trucial states whose names you never heard of that, alas, had no oil. There was a company or two that imported sheep and goats for slaughter. And then there was a handful of other companies whose principal activities were not at all obvious.

The Sheik of Abu Dubai was the richest man in the world at the time and the Ruler of Dubai was also quite well to do. The five other sheiks who had no oil were poor cousins. For founders shares these oil poor sheiks granted charters for corporations that could be traded on the Souk al Manakh. I can remember driving one day to a small derelict town that was the capital of one of these oil poor sheikdoms to analyze a company with a high flying stock on Kuwait's OTC market. For the life of me, on the balance sheet of this company I could find no assets of any kind. It dawned on me that, behind most of this third ranking stock market cap in the world, there were only a few cement and clinker plants, a slaughter house or two, and quite a few shell games.

How do you tell your host government that the stock market they want to bring home is a shell game? I pondered this diplomatic quandary for weeks as I looked out my office window at those ancient painted dhows in the desert sun. In the end I mustered the courage to tell the truth. "It is all a bubble," I told my client-. "And it will burst." To my relief and amazement, I was greeted, not with displeasure, but with laughter. "You Westerners have been coming here for five years", they told me, "and to a man you all have predicted a crash. Don't you understand, there has never been a place on earth like the Gulf with such unprecedented wealth? You will never understand that the Gulf market cannot crash."

I had a long time friend in London. His name was Ali. He was one of several Anglo Arab investment bankers that flourished in London in those years. When I passed through London on my way back to the US I stopped to tell him about my trip. Speculation on the Souk al Manakh was financed with a curious type of informal margin financing by way of post dated checks. So rapid was the rise in the Gulf market that post dated checks paid an interest rate of 100% per annum. Ali was financing speculators in this market. He listened and he smiled.

At the beginning of August I had completed my report for the government of the UAE. I told them that the market they wanted to organize was a bubble and that it would crash. Some weeks later I heard from Ali. He called to thank me for my advice on my recent visit. He had called in all his post dated checks. "Did you hear what happened to the Souk?", he asked. "No", I replied. "Well, it topped quietly at mid summer after you left, with no provocation. One can't quite say it declined or it crashed; it has just stopped trading."

The Souk al Manakh was the greatest speculative mania of all time. One could not even speak of valuation. Margin financing reached unimaginable extremes; one speculator, who had been a customs clerk two years earlier, had at the peak $14 billion in stocks financed with $14 billion of margin debt. The people involved believed that the oil rich Gulf was truly a "New Era". It did not take a trigger to burst this bubble; it simply crested sometime in the dreadful heat of the Middle East's summer. Its decline was so discontinuous it cannot be called a crash. There were simply no bids. ¨

Frank Veneroso
Veneroso Associates
November 19, 1999

Speaking of the Arabs, time for some of my old war stories to surface again. When my brother Tim and I were commodity brokers, we had a few Arabs for clients. Remember the disgraced BCCI. That was one of them.

Then, there was Ahmed Sarakbi, an Egyptian who built the roads in Saudi Arabia way back when they needed them. Was he one rich guy and a HUGE account! However, a real pain. Called so much and was on the phone so much, I used to have to run to the men’s room and back. My elbow used to get sores from me leaning on it with the phone in my hand. He was always on the phone. Until one day.

He was long something like 1260 gold (remember that one), 750 silver and like 400 to 500 yen and swiss franc contracts (each). The markets were fading badly and Ahmed had a margin call. Then they began to tank. Gold was down about $20. Everything was going wrong. All of a sudden I couldn’t find him … anywhere. No phone calls either.

I smelled trouble. My manager was in an office meeting in Chicago and I couldn’t find him either as I wanted to liquidate the account and needed permission to do so. I knew Ahmed would go berserk, so I wanted approval. That is some position to sell without an OK from somebody. I knew if it went badly, I would be fired AND sued.

I also knew if the floor smelled a problem, they would make life a nightmare for me by taking the markets down even further. Once they smell blood down there, you are finished. When the day started there was $6 million left in the account. I went into action, selling the biggest problem, silver (due to liquidity), first. My first 100 lot took the silver price from $11.50 down to $10.75, limit down. Uh-oh! This was not good. Fortunately, you could trade the spot contract (no limits) and arb out. I used every trick I knew, including using other brokers. Was I sweating and praying there would not be a deficit. Didn’t even have time to work that out as we were concentrating on selling, going back and forth between the Merc in Chicago and the Comex. Nothing we could do about it anyway.

By the end of this harrowing day, the account was emptied. Ahmed called two minutes after gold and silver closed like nothing was going on. Said his daughter had a toothache and he was at the dentist’s office with her. Yep, he went bananas when I told him what I did. The swearing was in Arabic so that didn’t bother me. His lawyer called a half hour later saying he would sue. Right on cue.

Around 6 at night, we figured out there was still $60,000 in equity left. Phew. A close call. On Monday the markets opened up sharply lower across the board. The deficit would have been $4 million and I would have taken down the small firm I was with at the time. The manager sent Tim and I a case of champagne that afternoon.

As for Ahmed, did he thank me? Nope. Just swore some more on Monday and still said he would sue. One thing about the Arabs, at least the ones I came across. They NEVER would admit they were wrong.

Then there was Talib Al-Nakib, a very wealthy Kuwaiti who also had homes in London and Geneva. Visited him once in Switzerland. My girlfriend was not allowed to walk with us. She had to stay behind with his wife. When he rode in the car with his animals, they had higher seating priority than his wife, or other women. Those were the dark days for Arab women.

Anyway, he liked his cocktails here and there. One early evening after a few toots in Geneva, he decided to put on a limit position in cocoa. The problem was it was the Friday before Labor Day weekend in the US and the market was thin. We drove it limit up. By next Tuesday the London traders had taken the market back to around limit down. A sobered up Talib chucked his position.

Another funny one was the time he had on a huge pork belly position, I think another limit position. This one a nice winner. The problem was his wife found one of his statements. He was not supposed to be trading bellies because it was pork. He felt obliged to blow out of that one also.

What a time those days were.

Have a great weekend and remember:

GATA BE IN IT TO WIN IT!

MIDAS

Appendix

March 4, 2005
New York Times
Deficits and Deceit
By PAUL KRUGMAN

Four years ago, Alan Greenspan urged Congress to cut taxes, asserting that the federal government was in imminent danger of paying off too much debt.

On Wednesday the Fed chairman warned Congress of the opposite fiscal danger: he asserted that there would be large budget deficits for the foreseeable future, leading to an unsustainable rise in federal debt. But he counseled against reversing the tax cuts, calling instead for cuts in Social Security, Medicare and Medicaid.

Does anyone still take Mr. Greenspan's pose as a nonpartisan font of wisdom seriously?

When Mr. Greenspan made his contorted argument for tax cuts back in 2001, his reputation made it hard for many observers to admit the obvious: he was mainly looking for some way to do the Bush administration a political favor. But there's no reason to be taken in by his equally weak, contorted argument against reversing those cuts today.

To put Mr. Greenspan's game of fiscal three-card monte in perspective, remember that the push for Social Security privatization is only part of the right's strategy for dismantling the New Deal and the Great Society. The other big piece of that strategy is the use of tax cuts to "starve the beast."

Until the 1970's conservatives tended to be open about their disdain for Social Security and Medicare. But honesty was bad politics, because voters value those programs.

So conservative intellectuals proposed a bait-and-switch strategy: First, advocate tax cuts, using whatever tactics you think may work - supply-side economics, inflated budget projections, whatever. Then use the resulting deficits to argue for slashing government spending.

And that's the story of the last four years. In 2001, President Bush and Mr. Greenspan justified tax cuts with sunny predictions that the budget would remain comfortably in surplus. But Mr. Bush's advisers knew that the tax cuts would probably cause budget problems, and welcomed the prospect.

In fact, Mr. Bush celebrated the budget's initial slide into deficit. In the summer of 2001 he called plunging federal revenue "incredibly positive news" because it would "put a straitjacket" on federal spending.

To keep that straitjacket on, however, those who sold tax cuts with the assurance that they were easily affordable must convince the public that the cuts can't be reversed now that those assurances have proved false. And Mr. Greenspan has once again tried to come to the president's aid, insisting this week that we should deal with deficits "primarily, if not wholly," by slashing Social Security and Medicare because tax increases would "pose significant risks to economic growth."

Really? America prospered for half a century under a level of federal taxes higher than the one we face today. According to the administration's own estimates, Mr. Bush's second term will see the lowest tax take as a percentage of G.D.P. since the Truman administration. And don't forget that President Clinton's 1993 tax increase ushered in an economic boom. Why, exactly, are tax increases out of the question?

O.K., enough about Mr. Greenspan. The real news is the growing evidence that the political theory behind the Bush tax cuts was as wrong as the economic theory.

According to starve-the-beast doctrine, right-wing politicians can use the big deficits generated by tax cuts as an excuse to slash social insurance programs. Mr. Bush's advisers thought that it would prove especially easy to sell benefit cuts in the context of Social Security privatization because the president could pretend that a plan that sharply cut benefits would actually be good for workers.

But the theory isn't working. As soon as voters heard that privatization would involve benefit cuts, support for Social Security "reform" plunged. Another sign of the theory's falsity: across the nation, Republican governors, finding that voters really want adequate public services, are talking about tax increases.

The best bet now is that Mr. Bush will manage to make the poor suffer, but fail to make a dent in the great middle-class entitlement programs.

And the consequence of the failure of the starve-the-beast theory is a looming fiscal crisis - Mr. Greenspan isn't wrong about that. The middle class won't give up programs that are essential to its financial security; the right won't give up tax cuts that it sold on false pretenses. The only question now is when foreign investors, who have financed our deficits so far, will decide to pull the plug.
E-mail: krugman@nytimes.com

Senate Democratic Leader Blasts Greenspan

By Dan Balz
Washington Post Staff Writer

Friday, March 4, 2005; Page A06 Federal Reserve Chairman Alan Greenspan generally gets accolades for his public pronouncements. Yesterday he got a brickbat from Senate Minority Leader Harry M. Reid (D-Nev.), who blasted Greenspan as "one of the biggest political hacks we have here in Washington."

Reid ripped Greenspan during an interview on CNN's "Inside Politics." He said the Fed chairman has given President Bush a pass on deficits that have built up in the past four years and should be challenging Republicans on their fiscal policies, rather than promoting Bush's plan to introduce personal accounts into Social Security.

"I'm not a big Greenspan fan -- Alan Greenspan fan," Reid said when asked about the Fed chairman's testimony this week urging Congress to deal quickly with the financial problems facing Social Security and Medicare. "I voted against him the last two times. I think he's one of the biggest political hacks we have in Washington."

Reid said that when Bill Clinton was president, Democrats had confronted the deficit problem by enacting a tax increase in 1993, which helped bring about a balanced budget and strong economic growth later in the decade.

"Why doesn't he respond to the Republicans and tell them the big problem here is the debt that this administration [has] created?" he said. "We had a $7 trillion-dollar surplus when Bush took office. Now we have a $3 or $4 trillion-dollar deficit. That's, in fact, what Greenspan should be telling people."

A spokeswoman said the Federal Reserve would have no comment. Brian Jones, spokesman for the Republican National Committee, which a few weeks ago sharply attacked Reid, called the minority leader's comments regrettable.

"It's unfortunate that at a time when the president is looking to engage Congress in a substantive and meaningful discussion on Social Security that Harry Reid is spending his time attacking the Federal Reserve chairman," he said.

Reid's personal attack reflected Democrats' frustration over Greenspan's support for the key element of Bush's Social Security plan -- voluntary personal saving accounts for younger workers funded by diverting a portion of payroll taxes. Reid has led the Democrats in their united opposition to Bush's plan, and Reid spokesman Jim Manley said Greenspan's congressional testimony on Wednesday amounted to "shilling for the president with proposals that would put us deeper in debt."

Greenspan has occupied an unusual position in Washington during his long tenure at the Fed: above partisan criticism, a figure celebrated by many as a wise and evenhanded guardian of the economy whose public pronouncements not only move markets but also greatly influence policy debates. But in recent years, he has opened himself to more criticism. Having supported tax cuts when Bush was pushing them in 2001 and now backing personal accounts for Social Security, he has become a target for Democrats.

As Reid made clear in his interview with CNN's Judy Woodruff, he has been a longtime critic of Greenspan. In 1996, Reid opposed a third four-year term for Greenspan and ordered a General Accounting Office report critical of the Fed's management. He described Greenspan and the Federal Reserve Board as "arrogant."

Reid also differed with Greenspan on monetary policy, arguing that he was keeping interest rates too high. "We should put the brakes on Mr. Greenspan's nomination before we once again empower him with the ability to put the brakes on the economy," he said then.

In his first months as successor to former senator Thomas A. Daschle (D-S.D.), Reid has proven to be a pugnacious and sometimes unpredictable leader. He has given the administration no quarter, and his comments sometimes have caused an uproar among fellow Democrats.

Shortly after winning the leadership post, Reid suggested to NBC's Tim Russert that he might vote for conservative Supreme Court Justice Antonin Scalia if Bush were to nominate him to be chief justice. Other Democrats and abortion rights advocates jumped on Reid, who opposes abortion rights.

March 6 – Gold $433.60 – Silver $7.34

Think Volcano

In 1932 apparently the memory of government fiat from the Civil War was still fresh enough in the public consciousness to consider its reintroduction, even to resolve the problems they were seeing in the trough of the Great Depression, as insanity.

"To an suggestion that the government shall set its printing presses free and flood the country with fiat money, all our economic intelligence reacts with NO. Only those will say yes who are mentally or politically unsound. And if a government is obliged by vote of the unsound to do it, then everybody, including the unsound, will begin to hoard gold because gold is the one kind of money no government can make or dilute." Garet Garrett, A Bubble That Broke the World, June, 1932

A quick MIDAS to bring a few important points to your attention on this late winter US weekend. The reason for doing so is the pressures continue to build for a coming gold and silver price explosion – AND they are becoming more apparent.

I tend to think about, and mention, the term explosion more than most. Perhaps it is because I spend so much time on doing what I can to stay on top of the gold fundamentals and also watch the extent to which The Gold Cartel is going to suppress the price on a daily basis, especially recently.

Based on the work of the GATA camp over the years, The Gold Cartel should be close to hitting the wall, meaning that they are running out of available central bank supply to meet surging demand around the world for gold. It is always important to keep in mind that without the surreptitious lending/swapping of central bank gold, the price would be hundreds of dollars higher. When The Gold Cartel hits the wall, that is exactly what will happen.

How I see it:

*First, we know from John Brimelow’s reports and others that gold demand is surging around the world. Reports surfaced again this weekend the Swiss gold refineries are going all out and can’t keep pace with that demand. As commodity prices advance through the year and the dollar comes under further pressure, this demand is likely to accelerate.

*When it comes to the supply side, the scenario is bullish on all counts:

. 8:27p ET Friday, March 4, 2005

Dear Friend of GATA and Gold:

Julian D.W. Phillips, editor of Gold-Authentic Money, reports that French gold sales have stopped. You can find his analysis at GoldSeek here:

http://news.goldseek.com/AuthenticMoney/1110121200.php

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

2. The Swiss decision to sell 1300 tonnes of its gold has about run its course. As I recall, this will be their last month of sales. The Gold Cartel counted on Germany to take over from the Swiss. However, as we know forces behind the scenes in Germany put the kibosh to those best laid plans. "Nada," said Germany when push came to shove.

3. The news for The Gold Cartel in securing above ground supply is disappointing for their scheme. What is coming out of the ground could be just as bad for the heinous ones:

Gold output sinks to nine year low in 04

March 6, 2005 - 1:14PM

Australia's gold output sank to a nine year low in 2004 following exceptional wet weather in Western Australia early in the year and a large number of plant closures.

Gold production for the year was down to 261 tonnes, 6.5 per cent less than 2003, Melbourne consulting group Surbiton Associates said.

Output for the December quarter was 66.6 tonnes, up slightly on the previous three months but 9.5 per cent less than the same period in 2003.

The industry suffered production losses early in the year due to exceptionally wet weather in Western Australia, which produces around three-quarters of Australia's total gold output.

"The amount of gold produced in 2004 was the lowest since 1995," Surbiton managing director Sandra Close said.

"The mining industry is the best hope of redressing Australia's appalling balance of trade.

"If the federal government is really serious, it should take steps to make all mineral exploration more attractive."

A number of Western Australian operations closed during 2004 including Sons of Gwalia, Hannans South, Kundana, New Celebration and Bronzewing.

Sons of Gwalia Ltd went into receivership last year and its namesake operation near Leonora has exhausted ore supplies.

Hannans South, Kundana and New Celebration were also older plants which ran out of ore.

Meanwhile Bronzewing owner View Resources has shelved the reopening of the mine because of high contractor rates and skilled labour shortages.

The downward trend in Australian gold output is a consequence of lower exploration spending and fewer new discoveries, Dr Close said.

Australia is now producing about 50 tonnes of gold a year below its peak production year of 1997.

This represents a reduction of around $900 million a year in gold exports at current prices.

"To put it simply, and say it yet again, Australia is just not spending enough on exploration," Dr Close said.

"It's five years since the last significant greenfields gold discovery was made in Australia."

New gold capacity commissioned late in the year at St Ives and Telfer in Western Australia and Cracow in Queensland, did not contribute significantly to 2004 production.

Despite the lower output, Australia appeared to have held its position as the world's second largest gold producer, although final 2004 production figures were not yet available elsewhere.

It follows South Africa which produces about 345 tonnes, and leads the United States which produces around 259 tonnes and China with 212 tonnes.

Australia should retain its ranking in 2005 as Newcrest's Telfer mine and Cracow ramp up production along with St Ives - owned by Gold Fields Ltd - and several other operations come into production.

The top three mines for 2004 were the Super Pit, owned by Newmont Mining Corp and Barrick Gold Corp which produced 888,484 ounces; Granites owned by Newmont which produced 640,000 ounces and St Ives which produced 505,218 ounces.

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Which brings us up to the Adolf Hitler/Neville Chamberlain routine when it comes to the IMF selling gold to help the poor (proposal to be formally presented in April). England’s finance minister Gordon Brown knows the cabal is in deep trouble with the Swiss ending their gold sales and other central banks wanting to hold on to what they have. The suggestion is so dire Brown talked (paid off) South Africa’s finance minister Trevor Manuel to pacify the elitist cabal banking crowd by declaring South Africa would agree to IMF gold sales, even as the SA’s major gold companies are laying off miners because the price is too low re their costs. This treasonous act by Manuel is an outrage. The timing of this latest IMF gold sale proposal is no accident.

Most European central bankers must realize they have been conned long enough by the devious bankers in The Gold Cartel. Either that or they realize how untenable their position on gold sales will look in the years ahead as the price soars past $1,000 per ounce. Can you imagine how Gordon Brown is going to be vilified by his countrymen in the future for selling more than half of England's gold at $280 per ounce? Better keep his passport handy.

Back to the big picture scenario. We know the gold mine supply picture is a shrinking one around the world due to high costs, lack of exploration finds, and the gold price suppression scheme. Until gold rises to the $500 level, this is unlikely to change and will accelerate the cabal’s problems.

Just the coming supply/demand picture alone is enough to send the price of gold sharply higher in the months and years ahead. Pile the likelihood of a falling dollar on top of that and you have the makings of a move which few in the general investing world can comprehend.

Buffett deepens dollar worries

By Dan Roberts in New York
Published: March 5 2005 18:22 | Last updated: March 5 2005 18:22

Warren Buffett has warned that the US trade deficit risks creating a "sharecropper’s society" as his letter to shareholders sounded an increasingly bearish tone about the value of the dollar.

The billionaire fund manager said his own performance as chairman of Berkshire Hathaway was "lacklustre" because he struck out in his quest for new investments. Annual results showed the book value of Berkshire shares underperformed the stock market for the second year in a row while full-year profits fell 10 per cent.

But his sceptical view of current market valuations continued as Berkshire’s holdings of cash rose from $36bn in 2003 to $43bn by the end of December – equivalent to nearly all the "float", or excess cash, generated by its insurance businesses.

Mr Buffett’s bet against the dollar also grew. Foreign exchange contracts – mostly short positions against the US dollar – nearly doubled over the year to $21.4bn, generating $1.8bn in gains as the greenback fell against other major currencies.

These currency profits were partly responsible for a sharper than expected rise in fourth quarter earnings from $2.39bn to $3.34bn, although Berkshire earnings are notoriously volatile due to the timing of investment gains.

Mr Buffett stepped up his warning about the US trade deficit and the need to finance it with foreign investment, devoting more than two full pages of the annual report to the topic.

"This force-feeding of American wealth to the rest of the world is now proceeding at the rate of $1.8bn daily, an increase of 20 per cent since I wrote you last year," he said. "Consequently, other countries and their citizens now own a net of about $3,000bn of the US"

In particular, he warned that this meant a sizeable portion of what US citizens earned in future would have to be paid to foreign landlords.

"A country that is now aspiring to an "Ownership Society" will not find happiness in – and I’ll use hyperbole here for emphasis – a "Sharecropper’s Society," added Mr Buffett. "But that’s precisely where our trade policies, supported by Republicans and Democrats alike, are taking us."….

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So much for betting against Buffet and Soros.