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Dear Angela,
Nick, Silvio, Jose, Jan, Yves and the rest of you too,
I was just sitting here thinking about some of your statements this weekend
like, "We will defend the euro, whatever it takes," and "When
the markets re-open Monday, we will have in place a mechanism to defend the
euro. If you don’t think that’s significant, you haven’t
been to many EU summits," and that you will "confront speculators
mercilessly." Sounds exciting, I thought.
And then I started to wonder, Could they really be ready to use "The
Nuclear Option" on Monday? (And by the way, the nuclear option I was
thinking about was NOT printing up another 500 bn euros.)
But then it hit me. "Holy Cannoli!", I thought, "they don't
even know!"
All of a sudden it hit me that I know something you guys don't! Please bear
with me as I try to explain this.
What hit me like 400 tonnes of BOE gold pitched by Gordon Brown was that none
of you politicians know what the Central Bankers know. That there is
actually another option for saving the euro. You see, unlike Central Bankers,
you slick politicians come and go with some regularity (I noticed a couple
elections just the other day). And also unlike Central Bankers, you guys have
notoriously loose lips and wild-ass socialist political agendas. So chances
are they don't fill you in on all the minutiae of everyday central banking.
So it would be easy to also leave out a whopper of a secret along with the
minutiae.
Now what I'm about to tell you might sound a little
"tinfoil-esque", but I'll back it up with a logical proof and some
whistleblower testimony. I'm going to tell you about a secret market that
maybe only 100 people in the whole world know exists, because they transact
in it. And I will also present what I see as a logical proof that this market
MUST exist, or else other markets would not be the way they are today.
Every scientist knows that there are invisible objects that can only be
observed because of the affect they have on other visible objects. Black
holes are a good example. And this secret market is the same kind of thing.
It is like a black hole around which all other markets rotate like a giant
gravitational galaxy. It exists because it MUST exist for things to be the
way they are. And in addition to this logical proof, I'll also point you to a
Central Bank insider that leaked this information to a few of us 12 years ago
when he predicted something like today's Global Financial Crisis was
eventually, inevitably going to happen. More on that in a moment.
The point is, these Central Bankers do have a secret "Nuclear
Option" at their disposal (other than printing more euros). And they
WILL use it if and when they are backed into a corner. They know it's
going to blow up on its own soon anyway, so they have no guilt about it. But
in their back pocket they have a secret trigger, just in case. But the
question for you, Angela, Nick, Silvi, Jose, Jan and Yves is, Will they use
it in time to save your political careers, or will they only use it if
it is needed to save their own butts?
Now you might be thinking, "How can this secret help us now if it is so
secret and under the control of the Central Bankers?" Well here's the
beauty of it: All it will take to deploy this
"Nuclear Option" and reset the monetary and financial world back to
a sustainable basis is one simple announcement, the revelation of the
existence of this market, or even a credible leak will do the trick. (You
guys are good at leaking stuff, right?) So here we go.
In case you haven't guessed it yet, this secret market I'm talking about is a
gold market. But it is a separate gold market from the LBMA and the
COMEX that we all know about. It has a different market-maker and a different
price! It is the other half of a two-tiered gold market that has been
operating in secret for at least 15 to 20 years.
But this is nothing new, of course. The Central Banks ran a two-tier gold
market openly prior to 1971. They traded their CB gold with each other for
$35/ounce while the plebes traded gold in the ordinary market at around
$44/ounce. But even that $44/ounce price wasn't a totally free market price
because the market had to price in the probability that the two-tier system
would eventually end and the 'membrane' separating the Central Banks' 30,000
tonnes and the private ~100,000 tonnes would be broken. And apparently the
market was right, it was broken!
Alexandre Lamfalussy wrote
about this two-tier gold market in 1969 in his paper presented at the IMF
titled The Role Of Monetary Gold Over The Next
Ten Years:
"Even in the absence of effective purchases or sales on this market by
the central banks, this price would only become the “true” price
if all the buyers and sellers of the metal acquired the conviction that no
central bank will ever connect the two markets in any way. As long as this
conviction does not exist--and it does not appear to exist today--the price on
the ordinary market will take into account potential purchases and sales by
the official institutions. Quite clearly, the market is at the moment
discounting possible purchases (rather than sales) by the central
banks."
(Incidentally, I should point out that Lamfalussy made the news just this
weekend saying, "The euro zone is stable despite the financial woes of
Greece.")
What Lamfalussy said the markets were facing in 1969, the rejoining of CB
gold and private gold in one market, is exactly what we are facing today. It
did happen back then and it will happen again. The only question is the
timing. And that's where you come in! More on this in a moment.
So anyway, the two-tier market ended in the early 70's as we all know. But
what we don't all know is that it started back up some time later. My best
guess is that the BIS started it back up sometime between 1985 and 1995. But
why would the BIS do this? The answer in one word... size!
What the gold market evolved into after 1980 was a market based mostly on
legal contracts instead of physical gold. Futures contracts, forward
contracts, mining contracts, custodial contracts etc, etc... And while this
contract gold market worked well for the plebes, it did not have the physical
liquidity to supply really big orders, like the ones that come from sovereign
entities and central banks. So the choice faced by the BIS was to either let
these large entities bid for their gold in the contract market (and bring
down the system like almost happened in 1979/80), or to restart the two-tier
system where very large orders of physical gold could be transacted without
affecting the contract market price. And restart it they did!
Now, since you guys are politicians and probably love the fiat money system,
I need to give you a little background on the importance of gold. This is
simply factual economic stuff. Trust me, I won't bore you with goldbug
gobbledygook.
The first thing you must understand is that gold is the monetary metal
precisely because it is NOT scarce. There is misinformation out there about
rarity and scarcity giving something a monetary value. Rubbish! The fact of
the matter is that gold is valuable as a monetary commodity because its price
is STABLE! At least it is supposed to be. All the gold ever mined is mostly
still with us. That's about 160,000 tonnes. Most of that is in private hands
now, not with the central banks.
The FLOW of gold on the markets is tiny compared to the stocks of gold
in the world. Gold is not used up in industry like other commodities. It is
just moved around like poker chips on the table. It is this extremely large
stock (all the gold ever mined) that makes the price of gold relatively
immune to supply and demand shocks unlike other commodities. So if there is
EVER a severe supply shortage of physical gold it means only one thing: There
is something wrong with the price discovery mechanism!
Now, the effect of the contract gold market on the ordinary price of gold has
been to keep it at manageable levels for 30 years now. But physical gold and
contracts for gold are different things entirely. New contracts can be
produced much faster than new physical gold can be mined. But when demand
shifts from contracts to physical (which is happening) this puts great strain
on the market that tries to price them as equals. And what must ultimately
happen when this strain breaks the parity between physical gold and contract
gold is that the membrane separating the BIS' physical gold price from the
ordinary market will break.
When this happens, all your debt problems will be reset to manageable and
sustainable levels again. In fact, the entire monetary and financial order
will be reset. This is going to happen. And the Central Bankers can make
it happen whenever they want, when they finally feel the heat of the fire on
their own butts.
Jim Rickards, Senior Managing Director for Market Intelligence at Omnis,
Inc., made this comment recently:
"One point that does not get enough attention is the impact of size in the
physical market. It’s one thing to say that COMEX is $1,100 per ounce
and physical might be $1,200 per ounce for one metric tonne if you can find
it. But what about 100 tonnes? 500 tonnes? Physical orders of that size are
impossible to execute outside of official channels. Size of order is
relevant in any market but I have never seen a market (short of a full blown
manipulation or short squeeze) with as much price inelasticity as
physical gold which is why the buy side overhang keep their intentions to
themselves."
Interesting statements, eh? And believe it or not, they actually let this guy
on CNBC! "Keep their intentions to themselves." Do they? That would
be mighty benevolent of them. Or do they have another place to go for their
big transactions?
So here's what's going on: The regular gold market suffices for the general
public, some of the "big money" like the ETFs and hedge funds, and
the hedging needs of the commercial banks. The majority of this demand for
gold is for hedging against a currency crisis like... uh... this one! And the
banks are perfectly happy with their contracts to show on paper that they are
hedged. Fine. Whatever. But what the regular market CANNOT handle is the
really big physical gold transactions. That's where the BIS comes in.
So this is what the BIS is doing, and has been doing for probably 20 years.
It is making the market for a second-tier, physical only, sovereign and
central bank gold market. This market is totally separate from the LBMA and
the COMEX because it has a separate market-maker and... a separate price!
More on this in a moment, because we do have a clue as to what that secret
price might be!
Now, before you run to your respective national central bankers to verify my
story, let me just say that this is a very small secret market. That is,
there are only a small number of people in positions of authority that know
about it. And I don't know if all the EU member states' national central
banks ever participated in the "bid and offer" portion of this
second-tier market. It probably started during the run-up to the euro launch
and the BIS might have been dealing with EU members differently.
You see, before 1971 central bank gold transfers were part of the monetary
adjustment mechanism. And during the run-up to the euro launch it is
reasonable to assume that eurosystem gold was returned to this function. So
inter-central bank gold transfers within the EMU during the 1990's were
likely "managed" by the BIS to smooth the monetary transition,
rather than being a free market system of bids and offers. So go ahead and
ask them, but if they don't know what I'm talking about that doesn't mean it
doesn't exist.
I'll tell you who probably does know... The ECB knows. Trichet. The
BIS. The SNB. The PBOC. The Saudis. Probably Russia and maybe even the BOE. I
also suspect the IMF knows about it because they refused to sell any of their
announced "gold for sale" to the private sector at the COMEX
price...
See: Eric Sprott: "That
left 191.3 metric tonnes left available for purchase to qualified buyers,
which include central banks and sovereign nations. According to Kitco, Eric
Sprott bid to buy the remaining 191.3 tonnes and the IMF refused to sell
it"
...and...
GATA: "Coincidentally,
GATA learned this week on the best authority that a financial house far
bigger than Sprott also recently tried to purchase gold from the IMF, also
was refused, and wasn't very happy about the refusal."
Hmm... strange.
What this tells me is that unlike pre-1971, the second-tier gold price is now
actually HIGHER than the regular market price. The opposite situation!
And of course this makes perfect sense. Why wouldn't it be higher? How could
extremely large orders, so big they would send the price on the ordinary
market to the moon, be handled in physical only at a lower price like, say,
$42.22/ounce (that's the US Treasury price, in case you didn't know!)?
Precisely... they couldn't.
Just because we're talking about central banks and sovereign entities here
doesn't mean regular market forces don't apply. They do! And as such,
consider the BIS' role as the market-maker in this extraordinary market. From
Wikipedia:
A market maker is a company, or an individual, that quotes both a buy and a
sell price in a financial instrument or commodity held in inventory, hoping
to make a profit on the bid-offer spread... the market maker sells to and buys
from its clients and is compensated by means of price differentials and for
the service of providing liquidity, reducing transaction costs and
facilitating trade.
So here's a big point in the logical proof: This market does exist. If
it didn't we would have to accept some very unlikely assumptions about large
interests like the Saudis, the Chinese and the Russians. For one thing, that
they are benevolent to the outside world when it comes to protecting their
wealth. What I'm saying is that a market for very large transactions (buy and
sell) of physical gold does exist separate from the LBMA and the COMEX,
because they cannot handle the size. The BIS is the market-maker in
this market and in that role, it must be discovering a price that would rock
the financial world if published!
Now, before I move on to the current price on this second-tier gold market,
which I've already shown must be higher than the LBMA paper fix, let's look
at how exposing this market would help the EMU and the euro. I'm sure you are
aware that, unlike the US Treasury that keeps its gold booked at $42.22/ounce
in perpetuity, the ECB marks all eurosystem gold reserves on its financial
statements to the market price each and every quarter. What this does to the
balance sheet is quite amazing to watch, even at LBMA/COMEX prices! Just
imagine what it would look like at BIS prices!!
This is the elephant in the euro chamber that no one wants to talk about. But
not so for the dollar. Back in December of 2008, right after the market
collapse, none other than former Federal Reserve Governor Lyle Gramley hinted
that a big upward revaluation of gold could figure heavily in the Fed's
attempt to rescue the U.S. economy and its own balance sheet during an
interview with Niall Ferguson on the Business News Network in Canada.
In the interview, Ferguson asked: "I've heard it said that the Fed has
turned into a government-owned hedge fund, leveraged at 50 to 1. Do you feel
nervous about what this might actually do to the Fed's reputation?"
Governor Gramley replied: "I think you have to reckon with the fact that
one of the Fed's assets is gold certificates, which are priced, as I
remember, at $42 an ounce, and if we were to price them at market prices, the Fed's leverage would look a
lot less than it is now."
The video: BNN interview with Gramley
Here's a thought, what do you think would happen to Greece's reputation (and
balance sheet) if its gold were revalued to the physical price at the
BIS? I have some trivia (or not-so-trivia) for you:
Did you know that Greece alone has 14 times as much gold per capita as China?
Do you realize that your "PIGS" actually have the same amount of
gold per capita as the US claims to still have? (PIGS=25 tonnes/million
people; US=26 tonnes/million people) And did you know the PIGS combined have
34 times as much gold per citizen as China? Astonishing really. A big gold
revaluation should do quite a job on their reputation as swiney muddlers,
especially compared to, say, California? I forget. How much gold does
California have left?
So, what could I possibly know about this super-secret price on the
super-secret central bank and sovereign-entity physical gold market? Well, I
have a whistleblower! ANOTHER, we'll call him, since he could get in trouble
if we knew his real name...
"...Then, in October of 1997 at the internet's only gold discussion
forum of the day, a series of remarkable postings began appearing under the
pseudonym "ANOTHER", offering plausible answers to those questions.
What followed in a seemingly incongruous stream of thought over many months
was, in the fullness of time, seen to blend into a logical whole by many
astute readers following the complete text...
"In the final analysis, ANOTHER offers one of the more plausible
hypotheses for why the financial markets have acted as they have in the past
few years, and therein lies his immense value to the reader, no matter who he
is. Again, knowledge as is conveyed in his series of "THOUGHTS!" is
rarely to be found outside the highest levels of international finance...
"As explained by ANOTHER, an opportunistic arrangement for massive
physical gold acquisition among important petroleum producing and exporting
nations could be comfortably facilitated..."
That's part of the introduction to the archives found here and here. Here's the real
stuff...
Date: Sat Apr 18 1998 19:18
ANOTHER (THOUGHTS!)
ID#60253:
"What Is The Real Price Of Gold IN The Central Bank World?"
The one that posts using SDRer, has shown many times how "Gold
Value" is used in international trade. What cannot be seen is the value
of gold in the "INTERBANK" world. Here is the realm of "true
valuations" in paper currency terms. It is a real shocker for lesser
eyes.
In this modern world, the current value of every asset is formed by a
relationship of gold/currencies/oil. This cross relationship is the
"very basis of our modern world banking system"!
Through this basis, all currencies are given value as the local government
treasuries hold US$ as reserves. The US$ is given backing as its government
is guaranteed that all crude oil, worldwide, will be settled in dollars. An
oil reserve backing, if you will. And the "value" that the
"future supply of" currency traded "oil" imparts to the
world economy, is guaranteed by an "INTERBANK paper gold MARKET"
that values "physical bullion" in the Thousands!...
But, how can this be, you ask? It is done, "right before your eyes"
and we see it not! I ask you, if you have one ounce of gold, and sell it on
the market for $300, it is worth $300, yes? Now, what if a CB holds one ounce
of gold, and sells it twenty times, that one ounce is now worth $6,000, no?
The difference between you and CB? The persons that hold
"interbank" IOUs for gold, value them at the multiple of
leases/sales made against reserves. This leverage, it is held for performance
on bank part. The BIS, it forces performance, on any economy! You ask Korea
about gold, yes?
This is why oil can take a small amount of physical gold out of world supply,
at current "freely traded", "managed prices", and hold it
at a many times valuation. That is what gives this "new world gold
market" much value in trade at high levels. Look even at your
"Comex", and divide the daily volume by the "eligible stocks
for delivery". That number (perhaps three million ounces divided by
150,000 stocks), deliverable, times the spot close gives close, real world
price of physical, $6,000. It follows close to paper trade on LBMA.
You see, "physical gold is of much greater value than public traders can
move it for"! In your world, this cannot be, but it is, and will show
for all to see in your time.
Date: Sat Apr 25 1998 22:55
ANOTHER (THOUGHTS!)
ID#60253:
It is true, that in times past when a currency is inflated (over printed) to
a point of only 10% real gold backing, the government could revalue gold
upward and the currency was 100% backed again! A terrible blow to the holders
of this paper, but at least the money system survived! Today, the world's
currency, the US$, by default, would require a gold price of many, many
thousands to back it without using its citizens as collateral! The only
problem with this is the US gold stock is so small, that even at $10,000/oz,
a large deflation would be necessary to decrease the outstanding US currency
to this gold backing level!
Now, consider the Euro. It will have much real gold backing from the
beginning. Even at 10% to 30%, the Euro will be the equivalent of a 100% gold
backed dollar, when the world comes off the dollar standard! The selling of
old dollar reserves alone will reprice gold in US$ terms of at least
$6,000/oz! Its present interbank reserve value.
5/5/98 ANOTHER
(THOUGHTS!)
The BIS is the gold broker for all interbank sales/purchases. Bullion
Banks are for sales to other entities. I think, at first, China was leverage
against the oil producers. Then Arabia was allowed into BIS for Euro.
6/14/98 ANOTHER
(THOUGHTS!)
Sir, The history of "Hot" paper money does show it to "burn
easily" from " much heat"! If you read my Thoughts in today's
replies, we see much "fuel" in dollar derivatives trading in
foreign markets. Much of this trading represents a "claim" on
physical gold that may become "a transaction for physical gold" as
dollar reserves are displaced. The $6,000 valuation of gold can only be true
if currency deflation destroys enough dollars to bring it down to that range.
Without deflation, the dollar will be devalued much lower than this (higher
gold price)! Once the Euro is created and begins to effect world trade (late
1999 perhaps), the gold market will begin a transition as never before! I
think it will be interesting to follow the politics of this change, yes?
Your question of Euro gold backing? The Euro will not be backed or fixed in
gold. It will be the first "modern currency" to hold true
"exchange reserves" in gold. It is important to understand that
"exchange reserves" of gold are much more powerful a tool for
currency defense than gold backing! In this system, gold must be traded
in a "public physical market", in that currency, Euros! As such,
the Euro can "devalue gold" (Euro price of gold falls) thereby
making it strong in gold! In today's world, this will happen as a
"strong Euro physical market" displaces and defaults "the old
dollar settlement paper gold market"! The dollar will become"weak
in gold"!
I assure you, there is much more where that came from. But the point of these
quotes I selected is ANOTHER's implication that $6,000 was the
"interbank" --meaning interCENTRALbank-- valuation of gold back in
1998, while the ordinary market price was only $300. What do you think the
extraordinary price is today? The market price has gone up 4x. Has the
interCENTRALbank value gone up to $24,000/ounce?
Not much has changed since then on the central bank money printing front. At
least nothing in the direction that would imply a lower multiplier.
Perhaps the BIS price is actually up 5x. Is that possible? $30,000/ounce if
you want 200 tonnes of physical gold? Sounds like a lot of money, but it's
really not that much if you can print your own money!
The other thing to consider here is the presently thin customer base of the
BIS. If this market were to reconnect with the public like it did in the
1970's, meaning if the public were able to buy and sell physical to and from
the central banks, where would the price go? Would it plummet? Or would it
skyrocket? I think the answer is clear. Even the higher BIS
"interbank" price is a false market construct.
So what does this mean for the euro? Well let me ask you this: Why was the
euro conceived in the first place? The ECB's own website lists "the road
to the euro" as beginning in 1962:
1962 - The European Commission makes its first proposal (Marjolin-Memorandum)
for economic and monetary union.
May 1964 - A Committee of Governors of central banks of the Member States of
the European Economic Community (EEC) is formed to institutionalise
cooperation among EEC central banks.
Link - See pg. 52
I believe Alexandre Lamfalussy, who I mentioned earlier, may have been
"on this road" 5 years later in 1969 when he wrote...
"On the one hand, I would like to see gold lose its monetary function;
on the other, however, I would not like a national currency to assume the
role of a reserve and international currency, that is to say, that the
unsteady gold-exchange standard be replaced by the dollar standard.
Consequently, I would like that the demonetization of gold takes place
alongside with the creation of an international reserve currency. At the risk
of repeating myself, I would emphasize that these are my wishes and not my
forecasts.
"...It is this same mistrust, which made it impossible for the
gold-exchange standard to function properly and which therefore led to the
“negotiated” creation of reserves. Seen from this point of view, the
establishment of the two-tier system is an act of despair, the survival of
which is more than doubtful. Instead of a decline of the monetary
function of gold, we are on the road to more frequent monetary crises, to
exchange restrictions of all kinds and finally to a collapse of the
economy--which could be avoided only by the reestablishment of the gold
standard."
Again, from: The Role Of Monetary Gold Over The Next
Ten Years
Lamfalussy went on to join the BIS seven years later in 1976 where he
remained until 1993. From there he became the founding president of the
European Monetary Institute in Frankfurt, forerunner to the ECB. And from
2000 to 2001 he chaired the "Committee of Wise Men on the Regulation of
European Securities Markets".
I read a great comment the other day that said, "The only true hope at
this stage of the game is some kind of miracle that would produce sufficient
real wealth in excess of our compounding debt loads." The revaluation of
all the gold reserves in the world at the true price discovered on a
physical-only global gold market would be just such a miracle. And with the ECB
"Mark to Market" policy and the eurosystem gold in place, the euro
is built to receive just such a miracle.
Now I might be completely wrong. I suppose it is possible that all the
wealthy sovereigns and overflowing central banks of the world are so benevolent
as to withhold their bids for actual physical gold from the LBMA and the
COMEX and patiently wait in line for a few scraps from the IMF. It is
possible, but is it probable?
It is also possible that ANOTHER was just an Internet crackpot looking for
attention. I suppose such a person could persist in capturing people's
attention for over four straight years of writing and then have his words
carry on for another eight years without being debunked as a complete crank.
It is possible, but is it probable?
All I'm suggesting, dear leaders, is that you might want to look into this.
Do a little digging, so to speak, while you still have political careers that
allow you to dig into extraordinary things. You might be surprised what
miracle you will find.
Sincerely,
FOFOA
FOFOA is A Tribute to the Thoughts of
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