Citing Bank of England records, Zero Hedge reveals
tonight that as the London Gold Pool was collapsing in 1968 the Federal
Reserve and the Bank of England conspired to conceal from the German Bundesbank the deficient gold content of U.S. gold bars,
apparently made from coin melt, that were being transferred to the Bundesbank to conclude gold swaps.
This is, Zero Hedge says, another reason why the Bundesbank
might want to cut off inquiry into the security of its foreign-vaulted gold.
Zero Hedge's report is headlined "Bank of England to the Fed: 'No
Indication Should, of Course, Be Given to the Bundesbank"
and it's posted here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
OF DISCUSSION, December 12, 1967
The observation to be realized from the Fed
minutes below is not so much condemning evidence of a crime (altho there may be further on in the additional pages),
but that the discussions conveyed the camaraderie, scheming, and secret ops
that still prevail today despite denials. Indeed, GOLD was certainly money 45
years ago, and still holds today. The bankers know this full well, but hope
you don't. Reading, you'll get a glimpse into the common thread of greed, and
protecting their banker sponsors is paramount, capital controls, swaps,
manipulations, not withstanding.
Pages 1-11 of 107 pgs of pdf
Andrew Brimmer, second
from right, is
sworn in as a governor of the U.S. Federal
Reserve by Fed Chairman William
McChesney Martin Jr., left,
as his wife Doris Brimmer, daughter
Esther and President Lyndon B. Johnson
MEMORANDUM OF DISCUSSION, December
A meeting of the Federal Open Market Committee was held in the offices of the
Board of Governors of the Federal Reserve System in Washington, D. C., on
Tuesday, December 12, 1967, at 9:30 a.m.
PRESENT: Mr. Martin, Chairman
Mr. Hayes, Vice Chairman Mr. Brimmer Mr. Francis
Mr. Maisel Mr. Mitchell Mr. Robertson Mr. Scanlon
Mr. Sherrill 1/ Mr. Swan
Messrs. Ellis, Hickman, Patterson, and Galusha,
Alternate Members of the Federal Open Market Committee
Messrs. Bopp, Clay, and Irons, Presidents of the Federal Reserve Banks of
Philadelphia, Kansas City, and Dallas, respectively
Mr. Holland, Secretary Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant
Secretary Mr. Broida, Assistant Secretary Mr. Molony, Assistant Secretary Mr. Hackley,
General Counsel Mr. Brill, Economist Messrs. Baughman, Hersey, Koch, Partee, Parthemos, and Solomon,
Mr. Holmes, Manager, System Open Market Account
Mr. Cardon, Legislative Counsel, Board of Governors
Mr. Fauver, Assistant to the Board of Governors
1/ Entered the meeting at the point indicated.
Mr. Williams, Adviser, Division of Research
and Statistics, Board of Governors
Mr. Reynolds, Adviser, Division of
International Finance, Board of Governors
Mr. Axilrod, Associate Adviser, Division
of Research and Statistics, Board of Governors
Miss Eaton, General Assistant, Office of the
Secretary, Board of Governors
Miss McWhirter, Analyst, Office of the
Secretary, Board of Governors
Messrs. Eisenmenger, Link, Eastburn,
Taylor, Andersen, Tow, and Green, Vice Presidents of the Federal Reserve
Banks of Boston, New York, Philadelphia, Cleveland, Atlanta, St. Louis,
Kansas City, and Dallas, respectively
Mr. Lynn, Director of Research, Federal
Reserve Bank of San Francisco
Messrs. MacLaury and Meek, Assistant Vice
Presidents of the Federal Reserve Bank of New York
Mr. Kareken, Consultant, Federal Reserve
Bank of Minneapolis
In supplementation of the written reports, Mr. MacLaury
said that the announcement on Thursday, December 7, of a $475 million drop in
the Treasury's gold stock seemed to have been accepted by the markets as
about in line with prior expectations of the costs of the gold rush following
sterling's devaluation. What the market did not know, of course, was that
only a $250 million purchase of gold from the United Kingdom saved the United
States from a still larger loss in the face of some foreign central bank
buying, notably the $150 million purchase by Algeria. The actual pool
settlement for November took place last Thursday and Friday, December 7 and
8; the U.S. share of the $836 million total was $495 million. The logistical
acrobatics of providing sufficient gold in London were performed with a
minimum of mishaps, although the accounting niceties were still being ironed
Of greater concern, however, was the fact that the drain on the pool was
accelerating again, Mr. MacLaury observed. Last
week there was a small net surplus, but yesterday the loss was $56 million
and today $95 million; for December to date, the pool was in deficit by $183
million. Some of the demand shortly after devaluation apparently represented
large individual purchases by Eastern European countries, Communist China,
and possibly Middle Eastern countries, although demand was more general in
the last two days.
On the whole, it was Mr. MacLaury's impression that
the measures taken by the Swiss commercial banks and by some other
continental banks to impede private demand for gold worked quite well,
although it was clear from the start that such measures could serve only as a
stop-gap until some fundamental change was agreed upon. Persistent newspaper
leaks--mainly from Paris--about current discussions on this subject and their
reflection in gold market activity Monday and today pointed up the need for
speed in reaching a decision. Mr. Hayes was in Basle this past weekend and
might want to say a few words about recent developments. So far as the prospect for further declines in the gold stock were
concerned, the Stabilization Fund now had on hand about $100 million. He knew
of no firm purchase orders at the moment, although there was a distinct
possibility that Italy might want to buy $100 million before the end of the
year to recoup its losses through the pool. No one could say, of course, how
orders might be received from other quarters, but it would be surprising if
there were not some.
In the exchange markets, Mr. MacLaury continued,
sterling unfortunately was again in the spotlight. As he had reported at the
previous meeting, covering of short positions in sterling had tapered off
considerably by the second week following devaluation, and last week saw the
rate bounce around erratically with absolutely no dollar intake by the Bank
In fact, by Friday the authorities had to provide substantial support, as they
did again yesterday, at a total cost of nearly $200 million. That renewed
pressure probably reflected in part the general nervousness that persisted in
the markets despite a surface appearance of calm. But he personally found it
difficult to explain except in terms of liquidations by sterling holders,
i.e., either British residents-despite exchange restrictions--or members of
the sterling area. It certainly seemed that previously taken short positions
in sterling were not being closed out, but rather were being extended--with
the result that the forward discount, in the absence of official support, was
widening. That in turn meant that even with shortterm
interest rates in the United Kingdom at crisis levels, there was no incentive
to move funds in for investment. In fact, despite an easing in the
Euro-dollar market, the incentive on a comparison with local authority rates
favored the Euro-dollar market.
Obviously, the situation was highly disturbing and quite unpredictable,
adding an unanticipated element of uncertainty to an already unsettled
post-devaluation world. In the meantime, the Bank of England had used $600
million of its immediate post-devaluation dollar gains to reduce drawings
under its swap arrangement with the System--$300 million in November prior to
announcement of November reserve losses of $364 million (not counting the
$490 million taken into reserves as a result of the sale of Britain's
remaining dollar portfolio), and $300 million on December 4.
On the continent, Mr. MacLaury said, the picture
had been mixed but on the whole not too unsatisfactory for the dollar. Since
he had last reported to the Committee, only the Swiss had taken in any
sizable amount of dollars ($113 million). Although they had not asked for
exchange cover on those dollars, the New York Bank was in the process of
working out means for dealing with those recent inflows as well as for paying
off previous Swiss franc drawings which had just recently passed the
six-month mark. One matter of some concern was the fact that although the
Swiss authorities had indicated to the market their willingness to take in
dollars on a swap basis to provide year-end liquidity, as they had in
previous years, so far the market had been reluctant to repurchase dollars
for January delivery, preferring to sell the dollars outright. On the other
hand, there had not been any
demand for forward Swiss francs, although the Swiss National Bank had offered
that facility as agent for the United States.
In contrast, Mr. MacLaury remarked, the German
Federal Bank had provided forward cover back into marks at sufficiently
attractive rates to induce an outflow of nearly $600 million during the last
week of November, reversing previous inflows and providing sizable redeposits in the Euro-dollar market with noticeable
effect on rates in that market. The Federal Reserve Bank of New York would
draw $300 million on the arrangement with the German Federal Bank, in effect
sharing responsibility for the forward cover provided to the market. In
addition to the shift of funds from Germany to the Euro-dollar market, the
Bank for International Settlements from time to time had drawn on its swap
with the Federal Reserve to place Euro-dollar deposits when rates seemed to
be firming. The total of such drawings as of yesterday was $245 million.
Mr. MacLaury observed that although the German case
was the most striking example of central bank operations following the
meeting in Frankfurt, the availability of forward cover into guilders and
Belgian francs at reasonable rates had also helped to reassure the market.
Federal Reserve forward commitments in guilders and Belgian francs as a
result of those operations amounted to $18.8 million and $4.9 million
equivalent, respectively, matched by equal commitments by the Treasury.
France seemed to have lost a substantial amount of dollars-approaching $100
million--in the last two weeks, Mr. MacLaury noted,
presumably reflecting the conversion of French franc holdings by Algeria, and
possibly Iraq, to finance gold purchases from the United States. There were
still no firm indications on the prospects for a purchase of gold by France
itself, although some rumors implied that a purchase was not a foregone
conclusion. Sweden and Canada also had continued to lose reserves, although
for reasons quite different from France. In both of those cases the total
reserve drain since devaluation amounted to more than $100 million.
Altogether, Mr. MacLaury concluded, the situation
remained very fluid. The statements and actions of central banks during the
brief period since sterling's devaluation had helped immeasurably to keep the
markets under control. In that connection he would note
particularly the increases in the System's swap lines announced on November 30.
Nevertheless, the weeks ahead might well bring a number of surprises, and on
balance they were likely to be unpleasant. Certainly, the last of the fallout
from the devaluation of sterling had not been seen.
Mr. Maisel asked why the British had stopped
providing forward cover for sterling.
Mr. MacLaury replied that he had no direct
information on the Bank of England's reasons for not resuming forward
in the period since devaluation. Certainly, he thought, they had anticipated
a situation far different from that they had in fact faced. It was clear from
their actions that until the last few days, when pressures became very heavy,
they had not been prepared to provide support to the spot market so long as
the spot rate was above par. It was not inconceivable that they would again
undertake forward operations, but a decision to do so evidently had not been
made as yet.
In response to another question by Mr. Maisel, Mr. MacLaury said that for the last few months South Africa
had been adding to its gold reserves at the rate of about $10 million a week.
Accordingly, while some of their newly produced gold had been reaching the
London market in that period, the amount was below normal.
Mr. Sherrill entered the meeting at this point.
Mr. Brimmer referred to an article in today's press
quoting a French newspaper to the effect that Algeria had bought from France
the dollars it had used to acquire gold from the United States, and that
France might be encouraging other countries in the French franc zone to do
the same. He asked Mr. MacLaury to comment on that
report, and also on the likelihood that other franc-zone countries would
follow the same route.
Mr. MacLaury replied that he certainly would not
rule out the possibility that the French authorities were using the tactic
described, but he had no firm knowledge that they were. He doubted that the
Algerians had bought dollars directly from the Bank of France. More likely,
they had sold francs for dollars in the market, thereby weakening the franc
and leading to market sales of dollars by the Bank of France in support of
the rate. The effect of such market operations was, of course, little
different from that of a direct transaction. With respect to the second
question, while he would not count Iraq among countries in the French franc
zone there might have been some French influence in that country's recent
purchase of $21 million of gold. There had been a $20 million order for gold
from the former Belgian Congo which had now been postponed until January. He
had no information concerning possible gold purchases by other countries.
Mr. Hayes said it was his understanding that under the arrangements in effect
within the franc zone the French had an obligation to pay out dollars for
francs if requested by, say, the Algerians.
In reply to a question by Mr. Robertson, Mr. MacLaury
said he would estimate that the Bank of France now held about $800 million in
dollars, after allowing for their November accruals and their more recent
Mr. Galusha noted that recent favorable
developments in Britain, such as the settlement of the railway strike, had
seemed to allay the market's fears about sterling. He asked what kind of news
might reassure the market.
Mr. MacLaury said he doubted that any further
statements would have much effect at this point; the proper statements had
already been made. There had also been some statements which, while not
necessarily improper, had not been helpful, such as that by Aubrey Jones of
the British Prices and Incomes Board to the effect that if Britain's
restrictive measures were inadequate he could foresee a second devaluation of
sterling together with a devaluation of the dollar within 18 to 24 months. If
the distrust of sterling, much of which seemed to have an irrational basis,
was to be overcome it would not be by words, but by actions following through
on the measures announced simultaneously with the devaluation. Some question
had been raised in connection with the discussions of the International
Monetary Fund standby credit for the British as to whether the planned
cutback of government spending was sufficient.
By unanimous vote, the System
open market transactions in foreign currencies during the period November 27
through December 11, 1967, were approved, ratified, and confirmed.