The Economy Guy

In the news today…..

Tonight’s Dinner Conversation……

I would like to quote an article by Peter Warburton that was written in 2001 about the manipulation of gold/silver by the central banks, especially the Federal Reserve.  It is very telling, and it is totally relelvent today.  Here is why.

1. The CFTC which oversees commodity future sales is having a hearing in Washington on this subject today, and many are trying to highlight the manipulation by the government and big investment banks in the gold and silver markets.  They want the CFTC to make the government stop its actions.  My opinion – “good luck.”
2. The world fell apart last year, and the FED acted just as predicted by this article.  It shored up the big banks, and it kept the bond market open and it allowed stocks to come back.

Here is the article:

Central banks are engaged in a desperate battle on two fronts

“What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies. Equally, their actions seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets.

It is important to recognize that the central banks have found the battle on the second front much easier to fight than the first. Last November, I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil and commodity markets? Probably, no more than $200bn, using derivatives. Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world’s large investment banks have over-traded their capital so flagrantly that if the central banks were to lose the fight on the first front, then their stock would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil and commodity prices.

Central banks, and particularly the US Federal Reserve, are deploying their heavy artillery in the battle against a systemic collapse. This has been their primary concern for at least seven years. Their immediate objectives are to prevent the private sector bond market from closing its doors to new or refinancing borrowers and to forestall a technical break in the Dow Jones Industrials. Keeping the bond markets open is absolutely vital at a time when corporate profitability is on the ropes. Keeping the equity index on an even keel is essential to protect the wealth of the household sector and to maintain the expectation of future gains. For as long as these objectives can be achieved, the value of the US dollar can also be stabilized in relation to other currencies, despite the extraordinary imbalances in external trade.”

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,836 (down 53)
10 Year Treasury Bond – 3.68% (up 0.02%)
Euro – $1.3499
Gold – $1104 (up $4)
Oil – $81.91 (up $0.31)
Gasoline – $2.26  (no change)