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Bubble Bursting? Will Greedy Moneylenders Collapse World Economy? A recent lawsuit is exposing a risky scheme in which the federal government and some of the world’s biggest banks are conspiring to keep the price of gold low in order to boost profits and prop up the United States dollar. Exclusive to American Free Press By Mike Finch A lawsuit has been filed in federal court alleging that the U.S. government, with Wall Street’s biggest banks, has been conspiring in a scheme to keep the price of gold low in order to boost profits for the world’s biggest bankers while artificially keeping the U.S. dollar strong internationally. Reginald H. Howe of the Gold Anti-Trust Action Committee (GATA) has filed a lawsuit (Case No. 00-CV-12485-RCL) in U.S. District Court in Boston against the bigwigs of the Treasury Department, the Federal Reserve and several banks for “damages arising out of manipulative activities in the gold market.” The suit alleges that since 1994 the government has been collaborating with the world’s top banks to keep the price of gold stable. The banks do this for profit, and the government does this to fool the world by making the dollar look much stronger than it is. Alan Greenspan, chairman of the Federal Reserve Board and William McDonough of the Treasury Department, and banks such as Chase Manhattan and J.P. Morgan are among the alleged conspirators. “This manipulative scheme,” plaintiffs said, “appears directed at three objectives: • To prevent rising gold prices from sounding a warning on U.S. inflation; • To prevent rising gold prices from signaling weaknesses in the international value of the dollar; and • To prevent banks and others financial institutions, which have funded themselves by borrowing gold at low interest rates and are thus short of physical gold, from suffering huge losses as a consequence of rising gold prices.” Since Roman times gold has been an international monetary unit. It is a commodity that cannot be grown or reproduced. Because of this, much of the world looks to gold as a yardstick for the value of different currencies—even the U.S. dollar—until recently. In the United States paper money was backed by gold until 1934 when President Roosevelt ended the do mestic coinage of paper money. Until 1934 you could trade your paper money in for gold coins—even at your local bank. Gold backed the U.S. dollar in international monetary dealings until 1971, and was therefore the ultimate measure of the American dollar as well as other world currencies. In 1971 the United States ceased redeeming dollars for gold. Since then, the international payments system has “moved to floating exchange rates with no currency convertible into gold at fixed parities,” said Howe. Paper money, which once was anchored concretely to the value of gold, was now set adrift. Even though paper money was no longer formally mea sured by its gold backing, gold was consistently used as a barometer for inflation here and abroad. There fore, if the government could control the value of gold, it could falsely control the value of the dollar. Right now the International Monetary Fund has shoe-horned the world into using the dollar as the international monetary unit; therefore the world has interest in the dollar’s stability. UNDERWRITING THE BANKERS According to Howe, the Exchange Stabilization Fund and the Federal Reserve System have not been open in their dealings in the gold trading market. He said that the government is underwriting the gold loans of the big banks, and the big banks are trading to keep the price of gold stable. The government is helping the banks manipulate markets to their mutual benefit. But the goods economy is based on manipulation of the gold price, not the true value of the dollar, he said. “At least half of the Senate is aware of this but are doing nothing about it,” said Bill Murphy, researcher and founder of GATA. In dealing with public officials, Murphy said, “I’ve gotten the distinct impression that this is a national security issue.” BANKERS’ IRRESPONSIBLE The complicated scheme, Howe said, goes something like this: The big banks borrow gold on paper at very low interest rates and then sell it on the open market. The bankers then use that money to purchase stocks or even high-risk derivatives which yield higher returns. The banks then make a killing on the deal if their stocks or options appreciate. According to Wall Street analysts, many of the world’s biggest banks hold trillions of dollars in derivatives. For example, J.P. Morgan’s derivatives holdings now stand at $29 trillion—nearly three times the United States’ annual gross domestic product.* The risk for the banks comes in the fact that they can only pay back the original loans so long as the yields on their purchased stocks are greater than the cost of the borrowed gold. If the price of gold were to go up even slightly, analysts note, financial companies like J.P. Morgan, which holds about 30 billion dollars in gold, could go belly up. If gold increased in value from just $300 to $400, big banks like J.P. Morgan would then have to pay a great deal more to buy their gold back to pay off their debts. So, in order to prevent the total collapse of the world’s largest financial institutions, says GATA, big banks and the government have collaborated to artificially fix the price of gold. The group alleges in its court complaint: “Annual new mine production of gold in 1999 was approximately 2,500 metric tons, about the same as in 1998 and as estimated for 2000. At the same time annual gold demand is running at over 4,000 tons. Notwithstanding the annual excess of demand over supply . . . the deficit between new mine supply and demand, which has been growing steadily during the period covered by this complaint, has been met by scrap recovery, by some sales of official gold, and most importantly, by leased gold mostly from central banks.” Under the basic market principle of supply and demand, if the supply is the same as the demand, the price of a commodity will stay the same. What GATA and other people are arguing is that the supply is much smaller than the demand, so the price of gold should skyrocket. They say gold should be worth about $600 an ounce. But because the big banks and government are interfering, the price of gold has not changed. The government and big banks are creating a false gold market for their own profit. If this is true, what happens when the bankers run out of real gold and paper to satisfy the market demand? The price of gold will skyrocket, inflation will be back with a vengeance and big banks will have to pay the piper, says GATA. One byproduct of this scheming has been the devastation of economies of the developing world. Sub-Saharan Africa, dependent on its commodity income, is being cheated out of the true value of its gold and consequently out of other natural resources. Defendants in the GATA suit are the Bank for International Settlements, Alan Greenspan, William J. McDonough, J.P. Morgan & Co. Inc., Chase Manhattan Corp., Citigroup Inc., Goldman Sachs Group, Deutsche Bank AG and Lawrence H. Summers, secretary of the treasury under former President Bill Clinton and the current president of Harvard University. H More information about this risky speculative scheme can be found at GATA’s web site, www.gata.org. |
