What is the U.S. Government Hiding? By
Patrick A. Heller, Market Update
July 13, 2009
The
legislative effort to audit the Federal Reserve took an interesting,
though ugly, turn last week. On Wednesday, the entire Senate
was considering an appropriations bill. Sen. DeMint, R-S.C.,
saw that several amendments had been added to the bill for
various authorizations of audits to be performed by the Government
Accounting Office. So he introduced an amendment to the appropriations
bill to add the bill calling for the GAO to audit the Fed
(DeMint is a co-sponsor of the original "audit the Fed"
bill asking for an audit).
When this happened, Sen. Ben Nelson, D-Neb.,
objected that this violated Senate Rule 16, which prohibits
legislative amendments to appropriations bills. The Senate
president immediately agreed and struck this particular amendment
from the appropriations bill.
When this occurred, DeMint kept fighting.
He mentioned that the "audit the Fed" bill had widespread
bipartisan legislative support. He pointed out that Senate
rules were frequently violated, which they are. He then specifically
named each other GAO audit legislation amended onto this appropriations
bill. The Senate president acknowledged each time that these
amendments violated Senate rules, but he let them remain as
part of the appropriations bill.
The implication of this development is that
the Democratic leadership in Congress and in the White House
does not want the public to know what an audit of the Federal
Reserve would reveal. One likely revelation would be just
how much gold the U.S. government really owns versus what
it tries to claim it owns.
Last Thursday, in testimony to Congress, Federal
Reserve Vice Chair Donald Kohn stated that if the public became
more aware of the Fed's actions, should this bill became law,
that it could result in higher consumer prices, higher interest
rates and a decline in the credit rating of the United States
government. The question not asked of him is why is the Fed
taking actions that could cause such a result - but only if
the public found out what the Fed did.
Also last week, Goldman Sachs reported a theft
of one of the company's proprietary trading programs, allegedly
taken by one of the employees who helped create it. In reporting
the theft, Goldman Sachs said that usage of this program could
make it possible for the user to manipulate markets unfairly.
Let me be clear about this. Goldman Sachs
admits that they have trading software that could be used
to unfairly manipulate markets, but they don't admit to using
it for such activities. The unasked question is - why else
would they bother creating such software?
Already, there are theories of what Goldman
Sachs has been able to do with such software and why they
have made a public stink about the alleged theft rather than
kept quiet. Last Wednesday, one publication stated that the
software enables Goldman Sachs to assist the President's Working
Group on Financial Markets (popularly called the Plunge Protection
Team). Supposedly, this software reviews trading orders on
the exchanges before they were committed. In the split-second
before the orders are committed, Goldman Sachs' program can
enter trades to take advantage of the change in the market
before other traders learn of these developments.
Other theories speculate that the derivatives
markets may soon expose major losses with Goldman Sachs wanting
to pre-emptively deflect future blame that they might receive
when this occurs.
Last Thursday, Rep. Carolyn Maloney, D-NY,
who is the chair of the Joint Economic Committee, revealed
to this committee that the $3.5 trillion of commercial real
estate debt is a ticking "time bomb" and a "looming
crisis" as $700 billion of this debt must be refinanced
by the end of 2009. She said that there could be a second
wave of huge losses at large U.S. banks.
There are significant stories flying around
London and Washington that extremely bad news is going to
be forced into the public eye at the end of August or in September.
Among the kinds of news expected to be revealed are further
major losses in the residential real estate mortgages, credit
card debt and the commercial real estate market. Multiple
sources are indicating that if you want to be able to purchase
physical gold and silver, you probably should plan to take
delivery by Aug. 20 or so at the latest (actually there is
apparently some specific significant financial news that will
be publicly disclosed on July 22 that would have an impact
on precious metals markets, but I have no details what this
involves).
Adrian Douglas, a professional commodity analyst
and member of the Board of Directors of the Gold Anti-Trust
Action Committee (GATA), published an analysis Saturday revealing
his discovery why the COMEX gold market reports on trading
activity and the movement of metals were not making sense.
In addition to being able to settle COMEX contracts by either
delivering physical metal or paying cash, a gold contract
can be settled by "substantially the economic equivalent"
of gold. What has happened is that many COMEX gold contracts
are being settled with shares of gold exchange-traded funds
(ETFs). In theory, these ETFs own physical gold covering all
of the outstanding shares, typically 1/10th ounce of gold
per share. However, there are so many loopholes in the ETF
contracts that allow the managers of the fund to effectively
hold paper contracts rather than physical metal that there
is significant doubt that the ETF could deliver gold to redeem
outstanding shares. The rules of the COMEX silver market do
not (yet) allow contracts to be settled with ETF shares.
This strategy of delivering "potentially
paper gold" to satisfy contracts requiring delivery of
physical gold has now been adopted by the Tokyo Commodity
Exchange and Tokyo Stock Exchange. Prices of precious metals
took a major hit last week. The G-8 Group of the world's largest
economies plus Russia met in Rome last Wednesday through Friday.
One of the subjects certain to be under discussion was the
deteriorating position of the U.S. dollar as the de facto
world reserve currency. The U.S. government has a strong interest
in preventing any discussion of alternatives to the U.S. dollar.
One way to "show" that the dollar is still strong
and doesn't need any replacement is to knock down gold and
silver prices significantly just before the meeting started.
Funny - that is exactly what happened.
It is difficult to see developments such as
these and still have any justification for the U.S. government's
claim that there is no manipulation of the gold and silver
markets.