By James Turk The Freemarket Gold & Money Report This past December in my essay "The Smoking Gun" I provided proof that the U.S. Treasury Department's Exchange Stabilization Fund was intervening in the gold market. From publicly available reports prepared by the Federal Reserve, I established that the weight of gold held as a component of the U.S. Reserve Assets has been changing, and that these changes -- some of which are of significant size -- result from activity by the ESF. These Federal Reserve reports conclusively demonstrate that the ESF has been intervening in the gold market since at least 1996. Though these Federal Reserve reports make clear that the ESF is involved in the gold market up to its "earmarks," a lot of people remain skeptical. I don't know why that is. It is worth noting that many of the most obstinate skeptics who deny U.S. government involvement in the gold market live overseas and have little if any experience or understanding of the way the U.S. government really works. Even Americans find it difficult to accept that the U.S. government intervenes in the gold market. Ironically, though, they readily admit that the government intervenes in the debt markets, foreign currency markets, and, according to a growing number of people, even in the U.S. stock market. It is therefore most baffling that they do not concede the ESF's involvement in the gold market. Maybe people are skeptical because they haven't bothered to take the time to read the Federal Reserve reports for themselves. Maybe it's because it's easier to accept the word of some government bureaucrat who denies ESF involvement in the gold market than it is to seek out and look for the truth. Maybe they don't want to believe that the U.S. government is lying to them when Treasury Department official after Treasury Department official denies any involvement by the ESF in the gold market. I don't know. Or maybe it's because they think that government officials work for the American people -- and not for vested interests -- in their deliberative sessions behind closed doors. Wouldn't it be refreshing if we could peek behind those closed doors to see what really is being said? Very little emerges from behind closed doors, and the minutes and transcripts of closed-door sessions that do make it into the public domain contain redactions that blank out the "good parts" -- the revealing statements. But what if someone forgot to redact one of those "good parts? Too fantastic to be true? Well, sit down, take a deep breath, and carefully read what follows. * * * A few weeks ago Reg Howe contacted me and asked my view on something he had discovered. He wanted a second opinion on this discovery, just as I contacted him for a second opinion after I came across the Federal Reserve reports showing the ESF's gold-related activity. When I read what Reg showed me, I was stunned. But at the same time it was clear to me what I was reading and what had happened. A transcript of a meeting of the Federal Reserve Open Market Committee has been released for which somebody forgot to get his red pen out. Someone forgot to redact some very revealing words about the ESF and its activity with gold. Here's what was said. * * * http://www.federalreserve.gov/fomc/Transcripts/transcripts_1995.htm [See the transcript from the January 31, 1995, meeting.] MR. MATTINGLY. It's pretty clear that these ESF operations are authorized. I don't think there is a legal problem in terms of the authority. The [ESF] statute is very broadly worded in terms of words like "credit" -- it has covered things like the gold swaps -- and it confers broad authority. * * * Please read the above statement again, and maybe even a third and fourth time. This statement, which I can only assume was inadvertently not redacted by the FOMC Secretariat, confirms what we already know but what the U.S. government has all along refused to admit -- that the ESF is involved in the gold market. In fact, the authority of the ESF is so broad that "it has covered things like the gold swaps." In other words, the authority of the ESF is so broad it has even been used to authorize "gold swaps." Before exploring the above quote, some background information is necessary. The proceedings of each FOMC meeting are taped. These tapes are transcribed, and the Federal Reserve releases these transcripts after five years. Thus, the transcripts from the 1995 meetings were released this year, and, having now read through them, I can say they contain a treasure trove of material, even though there are many redactions. The important point is that these transcripts are not only informative but are an accurate record of what is going on behind closed doors. Here is what the Federal Reserve itself says about the FOMC transcripts: * * * http://www.federalreserve.gov/fomc/Transcripts/ Beginning with the 1994 meetings, the FOMC Secretariat produced the transcripts shortly after each meeting from an audio recording of the proceedings, lightly editing the peakers' original words, where necessary, to facilitate the reader's understanding. Meeting participants were then given an opportunity within the next several weeks to review the transcript for accuracy. For the meetings preceding 1994, the transcripts were produced from the original, raw transcripts in the FOMC Secretariat's files. These records have also been lightly edited by the Secretariat to facilitate the reader's understanding. In addition, where one or more words were missed or garbled in the transcription, the notation "unintelligible" has been inserted. In some instances, words have been added in brackets to complete a speaker's apparent thought or to correct an obvious transcription error or misstatement. Nonetheless, for the pre-1994 transcripts, errors undoubtedly remain. The raw transcripts were not fully edited for accuracy at the time they were prepared because they were intended only as an aid to the Secretariat in preparing meeting minutes. The edited pre-1994 transcripts have not been reviewed by present or past members of the committee. * * * In other words, the 1995 transcripts are accurate. There are no disclaimers for them, like those made for the pre-1994 transcripts. Therefore, the above quote by Mr. Mattingly about the ESF and gold is accurate. And who is Mr. Mattingly? Virgil Mattingly is general counsel of the Federal Reserve, its chief legal adviser. That Mattingly's remark passed without comment by anyone in the FOMC meeting implies that everyone knew exactly what he was referring to. In other words, to explain ESF authority, his example was purposefully chosen. It was one to which the Federal Reserve governors could all relate because it was something they saw happen during their watch. In my imagination I can see them sitting around the big FOMC conference table nodding their heads in agreement when Mattingly used this example of the gold swaps to explain how broad the ESF's authority is. Recognize too that though he is talking in the past tense, it doesn't necessarily mean that the swaps had already happened. They may still be happening because he may be referring to the authority that approved the gold swaps and presumably the swap lines, but not necessarily the date of the actual swaps themselves. So that this quote of Mattingly is not taken out of context, let me provide background information. Also, I invite you to read the full 145-page transcript of this Jan. 31, 1995, FOMC meeting if you would like to confirm both the accuracy of the above quote and the background information I am about to provide. By reading the entire transcript you will also see how frequently material was redacted. Mattingly's comments were made in a discussion by the FOMC on the rapidly deteriorating financial situation in Mexico. Crisis conditions had been prevailing since the peso began tumbling the month before -- that is, December 1994. You will recall that the Clinton administration back then had proposed that Congress provide a $40 billion package of government guarantees to bail out those who had loaned money to Mexico, and that Congress had rejected this proposal. So the administration was scrambling to come up with a way to get the money thought necessary to "fix" the problem. Unable to tap the Treasury directly because of the rebuff by Congress, the administration turned to the ESF. Because the Federal Reserve was to be part of the proposed bailout, the Federal Open Market Committee was reviewing what role the Federal Reserve would play in conjunction with the ESF. A proposal was on the table for the FOMC's consideration. A Mr. Fix-it who seems to be the go-between for the Treasury and the Fed was presenting the proposal. His name is Ted Truman. And he was responding to various FOMC members who were questioning whether the ESF had the legal authority to do what was being proposed. Hence, the Federal Reserve's legal counsel, Virgil Mattingly, responded, using the "gold swaps" as an example of just how broad the ESFªs authority actually is. To give you a flavor of the full discussion underway in the FOMC meeting, here is an excerpt from the transcript. * * * MR. MELZER. What ability do the Treasury or the ESF have to take us out of an obligation [i.e., repay the Federal Reserve] if funds are not appropriated by Congress? Do they have the ability just to say, we committed to this and we are going to pay the Fed off? MR. TRUMAN. Yes, they could. MR. MELZER. But if they can do that, why can't they just advance it themselves? MR. TRUMAN. They could, but I think they feel that it would be useful to their objectives to have a lot of people .... [Apparently the rest of his comments are redacted.] * * * The discussion continues on this point, but touches upon the relationship between the ESF and the Treasury. These comments also establish that the ESF does not use "appropriated funds," meaning that the ESF is answerable only to the secretary of the treasury and the president. All actions of the ESF are beyond congressional authority. * * * CHAIRMAN GREENSPAN. Could I just formally respond to Governor Lindsey? There is a question here of whether or not the amount the United States Treasury gives us has to be appropriated funds, which I think is really where our examination of the issue has to be. In examining the takeout, we ought to make certain that we talk to them with respect to the question of what happens if they do not get the appropriated funds. MR. TRUMAN. Mr. Chairman, the Exchange Stabilization Fund does not have appropriated funds. CHAIRMAN GREENSPAN. Are we going to be getting a takeout from the Exchange Stabilization Fund? MR. TRUMAN. I think that is what is in the program. CHAIRMAN GREENSPAN. OK. SPEAKER (?). That is not the same as the Treasury. MR. TRUMAN. Even if we didn't, the precedent in the 1960s -- I think there was a question then about whether the Treasury could engage in foreign exchange operations outside of the ESF -- was the use of Roosa bonds in the 1960s. The Treasury floated Roosa bonds to obtain foreign currencies and used some of those currencies to take us out. That did not involve appropriated funds. That was treated as a debt- management operation. * * * The above passage confirms what we already know, but many people refuse to admit. The ESF is a slush fund beyond congressional oversight. It can be used to "get around" most anything (that is, it can skirt normal governmental procedures). No wonder so many people want to do away with the ESF. There is no room for it in our democratic process. It is not subject to the normal checks and balances carefully crafted by the Founding Fathers that have proven over time to be so essential for limiting the power of the federal government. The ESF is the antithesis of the American foundation of representative government because it subjects a free people to an unconstitutional governmental force. Still not convinced? Here are some more excerpts: * * * MR. LINDSEY. My second question has to do with our credibility. I don't know what questions to ask, and I hope you will help me out in that regard. I have this document in front of me, which includes a page entitled "What is the Exchange Stabilization Fund?" The document came from Treasury International Affairs. I gather it was written by them. I have written enough of these to know what you do, and that is to tell your point of view. Paragraph 3, not to mention the dots indicating an omission in Paragraph 2, got me a little nervous. Paragraph 3 says these holdings in the ESF are used to enter into swap arrangements with foreign governments, to finance exchange market intervention, to provide short-term bridge finance, etc., and all these things are great. So, basically Paragraph 3 is establishing that this is not unprecedented. My question would be: Do we do all these nice things if it's not in support of the dollar? Is this unprecedented with regard to the fact that we are supporting another currency? MR. TRUMAN. The language before the dots is .... MR. LINDSEY. I am talking about the third paragraph. I will go to the second paragraph in a second. I'm sorry. I am running a little out of order. It is saying the ESF has done all these things. MR. TRUMAN. The legislation governing the objectives of the ESF was changed, I think for the most part in the mid-to-late-1970s. The changes included the language that the government of the United States and the International Monetary Fund have the obligation to promote orderly exchange rate arrangements leading to a stable system of exchange rates. That was interpreted to include making loans to Bolivia in helping it maintain a system of stable exchange rates. MR. LINDSEY. So that has happened before? MR. TRUMAN. Yes. They have made loans to or financial arrangements with at least 31 countries around the world over the last 50 years. MR. LINDSEY. I think we all will be asked questions about this. Can you read this paper and tell me that there is not something missing that I should know about, meaning that this is not only the truth but the whole truth? MR. TRUMAN. I can only say that Treasury lawyers have looked into the question of whether these operations are legal under this broad authorization of what they can do and what the purpose is.... MR. MATTINGLY. If I can help out? MR. LINDSEY. Yes. MR. MATTINGLY. It's pretty clear that these ESF operations are authorized. I don't think there is a legal problem in terms of the authority. The statute is very broadly worded in terms of words like "credit" -- it has covered things like the gold swaps -- and it confers broad authority. Counsel at the White House called the Treasury's General Counsel today and asked "Are you sure?" And the Treasury's General Counsel said, "I am sure." Everyone is satisfied that a legal issue is not involved, if that helps. MR. LINDSEY. Is there anything missing on this page? MR. MATTINGLY. No, there is not. If you look at the last paragraph, for example, that is part of the statute. MR. LINDSEY. About notifying Congress in writing in advance? MR. MATTINGLY. The statute says that with the permission of the president they can make loans. [MORE] ------------------------ Yahoo! Groups Sponsor ---------------------~-~> <FONT COLOR="#000099">ClubMom is the first free organization dedicated to rewarding and celebrating Moms! Join today - it's free - and get your chance to win in our $5,000 Family Vacation Sweepstakes! </FONT><A HREF="http://us.click.yahoo.com/Cb4mCA/TFaCAA/tvCFAA/WyOVlB/TM"><B>Click Here!</B></A> ---------------------------------------------------------------------_-> Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
