ABG's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/267250/comments http://seekingalpha.com/article/112186-enlightening-the-gold-bugs?source=feed#comment-337432 337432
Gold was NEVER $17 per ounce in 1932. Prior to the gold confiscation in 1934 by the Roosevelt administration, the dollar was "good as gold." You could sell your gold to the government, and they would buy as much gold as you offered them, for $20.67 per troy ounce.

From 1929 - 1932, it is a well known historical fact that Americans were contemptuous of the dollar, and stricken with gold fever. They were feverishly turning in dollars for gold, at the rate of $20.67 per troy ounce, and putting the gold into their basements and safe deposit boxes.

The basic problem by 1933 was that the government had printed far more dollars in the 1920s than it had gold. So, the government had lied to the people. The dollar was never "good as gold". There wasn't enough gold in the federal treasury to meet the conversion demands. So, the first thing the government did was declare a moratorium on conversions to gold.

By 1932, the Treasury was begging to buy gold, but no one was selling to them. Everyone, including foreigners, were simply demanding gold for their dollars. To balance the loss of gold against the number of dollars outstanding, the Federal Reserve tried to reduce the dollar money supply from 1929 to 1933 by 1/3rd. That, according to Fed Chairman Ben Bernanke, was what launched a severe recession into a Great Depression.

By 1933, the U.S. Treasury was severely depleted of gold, and by 1934, the government forcibly confiscated the yellow metal from its citizens. People DID NOT voluntarily sell their gold back to the government. In short, there wouldn't have been a run on the U.S. gold reserves, in the early 1930s, if people were happy with the dollar. Yet, deflation was in full swing, and people were still contemptuous, because they no longer trusted the government, or the banks, just like today. They turned to gold, just like now.

There was tremendous demand for gold in 1932, and had the government not fixed the price at $20.67, it probably would have doubled or tripled or more from 1929 to 1934, in spite of the general condition of deflation in all other things. But, one thing is for sure, the revisionist history that is described in this author's commentary, NEVER HAPPENED. Gold never sold for $17.00 per ounce.]]> Wed, 24 Dec 2008 09:31:27 -0500
Gold was NEVER $17 per ounce in 1932. Prior to the gold confiscation in 1934 by the Roosevelt administration, the dollar was "good as gold." You could sell your gold to the government, and they would buy as much gold as you offered them, for $20.67 per troy ounce.

From 1929 - 1932, it is a well known historical fact that Americans were contemptuous of the dollar, and stricken with gold fever. They were feverishly turning in dollars for gold, at the rate of $20.67 per troy ounce, and putting the gold into their basements and safe deposit boxes.

The basic problem by 1933 was that the government had printed far more dollars in the 1920s than it had gold. So, the government had lied to the people. The dollar was never "good as gold". There wasn't enough gold in the federal treasury to meet the conversion demands. So, the first thing the government did was declare a moratorium on conversions to gold.

By 1932, the Treasury was begging to buy gold, but no one was selling to them. Everyone, including foreigners, were simply demanding gold for their dollars. To balance the loss of gold against the number of dollars outstanding, the Federal Reserve tried to reduce the dollar money supply from 1929 to 1933 by 1/3rd. That, according to Fed Chairman Ben Bernanke, was what launched a severe recession into a Great Depression.

By 1933, the U.S. Treasury was severely depleted of gold, and by 1934, the government forcibly confiscated the yellow metal from its citizens. People DID NOT voluntarily sell their gold back to the government. In short, there wouldn't have been a run on the U.S. gold reserves, in the early 1930s, if people were happy with the dollar. Yet, deflation was in full swing, and people were still contemptuous, because they no longer trusted the government, or the banks, just like today. They turned to gold, just like now.

There was tremendous demand for gold in 1932, and had the government not fixed the price at $20.67, it probably would have doubled or tripled or more from 1929 to 1934, in spite of the general condition of deflation in all other things. But, one thing is for sure, the revisionist history that is described in this author's commentary, NEVER HAPPENED. Gold never sold for $17.00 per ounce.]]> http://seekingalpha.com/article/112186-enlightening-the-gold-bugs?source=feed#comment-337377 337377
1) a nuclear armed Iran on is the way,
2) we already have a nuclear armed Pakistan and an angry nuclear India,
3) gold mine production falling in spite of higher prices,
4) gold bullion demand exploding all over the world and smelting operations unable to keep up with demand,
5) the Fed and all other world central banks promising to use all "tools" meaning it will print whatever cash is needed to restart the credit cycle,

In short, either the unprecedented cash printing works, and we get incredible levels of inflation, or it doesn't work, and we get an economy that is falling apart, where so many dollars, euros and pounds have already been printed that they still won't buy much in a depression-era economy. In either scenario, gold will be the best investment.

The author can keep his money in cash. Better that way. It will help keep the price of gold and silver down for now, so that wiser folks can buy for reasonable prices. By the time folks like this author turn away from the rear view mirror, to see what is happening in front of him, he is likely to crash. But, that is his choice, and, apparently, he is very determined to get that result.]]> Wed, 24 Dec 2008 08:33:36 -0500
1) a nuclear armed Iran on is the way,
2) we already have a nuclear armed Pakistan and an angry nuclear India,
3) gold mine production falling in spite of higher prices,
4) gold bullion demand exploding all over the world and smelting operations unable to keep up with demand,
5) the Fed and all other world central banks promising to use all "tools" meaning it will print whatever cash is needed to restart the credit cycle,

In short, either the unprecedented cash printing works, and we get incredible levels of inflation, or it doesn't work, and we get an economy that is falling apart, where so many dollars, euros and pounds have already been printed that they still won't buy much in a depression-era economy. In either scenario, gold will be the best investment.

The author can keep his money in cash. Better that way. It will help keep the price of gold and silver down for now, so that wiser folks can buy for reasonable prices. By the time folks like this author turn away from the rear view mirror, to see what is happening in front of him, he is likely to crash. But, that is his choice, and, apparently, he is very determined to get that result.]]> http://seekingalpha.com/article/112100-gold-not-an-effective-hedge-against-inflation?source=feed#comment-337360 337360
Arbitrary choice of 1970, at the bottom of the 1970s gold cycle, as a date upon which to base an analysis will give a completely different picture, compared to the choice of 1980. The price for gold on the Swiss market was $42 per ounce. If you had bought gold in 1970, keeping it stored in Switzerland (because Americans were not allowed to own bullion until 1974), you would have had incredible gains to date, exceeding the official measures of inflation.

Of course, there would have been yearly storage charges, but, if you owned the S&P 500 index, you would have needed to pay taxes on the dividends, and on all the sales that you are constantly forced to make when various stocks are removed from the indexes. If you owned a passive mutual fund, you would have been more seriously impacted by taxes.

If the index creators just left all stocks on the index that started on the index, and never got rid of the dogs, your gains in stock investing would be non-existent. So, companies are always added, and removed, and funds that follow the indexes, or you, need to buy/sell in sympathy with these moves to keep your portfolio consistent with the index. This creates taxable events, and taxes reduce return. In comparison, gold is not taxable until it is sold. Most people never sell it, so the capital gain is never taxed.

At any rate, after taxes, you would have had a much bigger gain from a static gold investment, dated from 1970, than from investing the same amount of money in the S&P 500 in 1970.

That is not to say investing in the stock market is a bad idea. It is simply a bad idea at this moment in time. There will come a time for stock investing, but not is not that time. Right now, smart people will opt for gold. Even though the stock market will go up a lot in the next few years, from current depressed prices, all of these gains will be for show only. They will likely be merely nominal gains, even though I do think we will be seeing DOW 30,000 by 2011.

Because of the circumstances that surround us, over the next 5-10 years, stocks will arise primarily out of inflationary pressure created by the Fed in its quantitative easing program. In other words, after adjustment for the reduced buying power of the dollar, stock gains will be non-existent, at least for many years. Gold, in contrast, will probably go up in real terms, because of the increased levels of world instability, a continuing decrease in mine production in spite of higher prices, and simply that almost everyone wants at least a little bit of it (whether in bullion or jewelry) and the world population is growing much faster than the world's stockpile of gold.]]> Wed, 24 Dec 2008 08:18:24 -0500
Arbitrary choice of 1970, at the bottom of the 1970s gold cycle, as a date upon which to base an analysis will give a completely different picture, compared to the choice of 1980. The price for gold on the Swiss market was $42 per ounce. If you had bought gold in 1970, keeping it stored in Switzerland (because Americans were not allowed to own bullion until 1974), you would have had incredible gains to date, exceeding the official measures of inflation.

Of course, there would have been yearly storage charges, but, if you owned the S&P 500 index, you would have needed to pay taxes on the dividends, and on all the sales that you are constantly forced to make when various stocks are removed from the indexes. If you owned a passive mutual fund, you would have been more seriously impacted by taxes.

If the index creators just left all stocks on the index that started on the index, and never got rid of the dogs, your gains in stock investing would be non-existent. So, companies are always added, and removed, and funds that follow the indexes, or you, need to buy/sell in sympathy with these moves to keep your portfolio consistent with the index. This creates taxable events, and taxes reduce return. In comparison, gold is not taxable until it is sold. Most people never sell it, so the capital gain is never taxed.

At any rate, after taxes, you would have had a much bigger gain from a static gold investment, dated from 1970, than from investing the same amount of money in the S&P 500 in 1970.

That is not to say investing in the stock market is a bad idea. It is simply a bad idea at this moment in time. There will come a time for stock investing, but not is not that time. Right now, smart people will opt for gold. Even though the stock market will go up a lot in the next few years, from current depressed prices, all of these gains will be for show only. They will likely be merely nominal gains, even though I do think we will be seeing DOW 30,000 by 2011.

Because of the circumstances that surround us, over the next 5-10 years, stocks will arise primarily out of inflationary pressure created by the Fed in its quantitative easing program. In other words, after adjustment for the reduced buying power of the dollar, stock gains will be non-existent, at least for many years. Gold, in contrast, will probably go up in real terms, because of the increased levels of world instability, a continuing decrease in mine production in spite of higher prices, and simply that almost everyone wants at least a little bit of it (whether in bullion or jewelry) and the world population is growing much faster than the world's stockpile of gold.]]> http://seekingalpha.com/article/111852-will-comex-default-on-gold-and-silver?source=feed#comment-336941 336941 Tue, 23 Dec 2008 15:27:51 -0500 http://seekingalpha.com/article/111852-will-comex-default-on-gold-and-silver?source=feed#comment-336913 336913
However, it will be extraordinarily difficult for private actors, like clearing members of COMEX or NYSE-Liffe, all of whom are guaranteeing trades on the futures exchanges, to default, as compared to the U.S. government's gold default back in the 1930s. The government can hide behind eminent domain and related legal theories. The private actors cannot. They face potential criminal liability, and a huge increase in civil liability, upon any default, so, absent a "end of the world" scenario, they aren't going to do it.

Don't ignore the opportunity to buy gold and silver at incredibly cheap prices, without the 20-30% premiums in the real market. The main point is that, even if the conspiracy theorists are correct, and they may be, people should still buy precious metals on the futures markets, as long as they don't get caught by the siren song of speculation, and have the cash to pay, and do pay, for their purchases up front.


On Dec 23 01:40 PM Long John Silver wrote:

> The whole system is based on "TRUST" and "honesty" which are in short supply these days. Even the federal government reneged on the gold
> certificates issued before 1934. Read the Supreme Court "gold cases"
> to see how the highest Court simply sidestepped the "ironclad" promise
> to redeem the certificates in gold coin. As a lawyer, I can tell
> you there's no rule that can't be bent or circumvented once the lawyers
> get into the act. It's a joke. Take physical delivery now so you
> don't have to trust anybody.]]> Tue, 23 Dec 2008 15:02:03 -0500
However, it will be extraordinarily difficult for private actors, like clearing members of COMEX or NYSE-Liffe, all of whom are guaranteeing trades on the futures exchanges, to default, as compared to the U.S. government's gold default back in the 1930s. The government can hide behind eminent domain and related legal theories. The private actors cannot. They face potential criminal liability, and a huge increase in civil liability, upon any default, so, absent a "end of the world" scenario, they aren't going to do it.

Don't ignore the opportunity to buy gold and silver at incredibly cheap prices, without the 20-30% premiums in the real market. The main point is that, even if the conspiracy theorists are correct, and they may be, people should still buy precious metals on the futures markets, as long as they don't get caught by the siren song of speculation, and have the cash to pay, and do pay, for their purchases up front.


On Dec 23 01:40 PM Long John Silver wrote:

> The whole system is based on "TRUST" and "honesty" which are in short supply these days. Even the federal government reneged on the gold
> certificates issued before 1934. Read the Supreme Court "gold cases"
> to see how the highest Court simply sidestepped the "ironclad" promise
> to redeem the certificates in gold coin. As a lawyer, I can tell
> you there's no rule that can't be bent or circumvented once the lawyers
> get into the act. It's a joke. Take physical delivery now so you
> don't have to trust anybody.]]> http://seekingalpha.com/article/112006-as-good-as-gold?source=feed#comment-336452 336452
1980 was an exceptional period of time of fear and high inflation. Gold and silver (the latter helped along by long oriented market manipulation) ran up very high on the fear factor. But, the period from 2000 to 2007 was not filled with economic fear. In fact, it was a period of slow dollar declines, relative calm (except for 9/11), low inflation and steady growth in the general economy and in the financial markets. Yet, gold soared from $270 per ounce to $670 or so, during that period of time.

Now, in spite of the fact that we are clearly on the precipice of heavy dollar devaluation (the Fed, for all intents and purposes, admitted last Tuesday that it intends to inflate America out of its debt problems), gold hasn't yet made much of a move. Given the environment, where the dollar is relatively certain to drop like a stone thanks to the Fed's "quantitative easing" program, a 5% per year reduction in mine production in spite of what should be the stimulus of huge price increases, and with demand increasing exponentially all over the world (except at the futures exchanges!), it seems to me that gold, at least at the price for which it can be purchased on the futures markets, is now very low priced and a screaming "BUY" even for those with a shorter-term investment goal of maybe 1-2 year horizon.

I would note that silver has collapsed even lower, and this collapse is completely irrational. Most rational folks among us were jumping on the $9.00 per ounce silver price last month, for example. They aren't making any more of it, and mine production has come to a standstill now. It is bound to have a price explosion soon.

In short, I think the author is very wrong about value of gold in the current economic environment. In all likelihood, given the circumstances of dollar depreciation, as well as shortages of mining supply as well as the end of central bank willingness to lend out large quantities of gold, and China's desire to purchase 3,600 tons of it as soon as possible, the yellow metal is bound to rise in a fast but sustained way.

Gold prices may eventually exceed the rational price, but it is currently no where near that. Logic and reason tells me that the top is probably several years and thousands of dollars per ounce above where the metal is now selling. So, frankly, I will be continuing to buy, at least until the price is several thousand dollars per ounce higher than now.]]> Tue, 23 Dec 2008 08:49:35 -0500
1980 was an exceptional period of time of fear and high inflation. Gold and silver (the latter helped along by long oriented market manipulation) ran up very high on the fear factor. But, the period from 2000 to 2007 was not filled with economic fear. In fact, it was a period of slow dollar declines, relative calm (except for 9/11), low inflation and steady growth in the general economy and in the financial markets. Yet, gold soared from $270 per ounce to $670 or so, during that period of time.

Now, in spite of the fact that we are clearly on the precipice of heavy dollar devaluation (the Fed, for all intents and purposes, admitted last Tuesday that it intends to inflate America out of its debt problems), gold hasn't yet made much of a move. Given the environment, where the dollar is relatively certain to drop like a stone thanks to the Fed's "quantitative easing" program, a 5% per year reduction in mine production in spite of what should be the stimulus of huge price increases, and with demand increasing exponentially all over the world (except at the futures exchanges!), it seems to me that gold, at least at the price for which it can be purchased on the futures markets, is now very low priced and a screaming "BUY" even for those with a shorter-term investment goal of maybe 1-2 year horizon.

I would note that silver has collapsed even lower, and this collapse is completely irrational. Most rational folks among us were jumping on the $9.00 per ounce silver price last month, for example. They aren't making any more of it, and mine production has come to a standstill now. It is bound to have a price explosion soon.

In short, I think the author is very wrong about value of gold in the current economic environment. In all likelihood, given the circumstances of dollar depreciation, as well as shortages of mining supply as well as the end of central bank willingness to lend out large quantities of gold, and China's desire to purchase 3,600 tons of it as soon as possible, the yellow metal is bound to rise in a fast but sustained way.

Gold prices may eventually exceed the rational price, but it is currently no where near that. Logic and reason tells me that the top is probably several years and thousands of dollars per ounce above where the metal is now selling. So, frankly, I will be continuing to buy, at least until the price is several thousand dollars per ounce higher than now.]]> http://seekingalpha.com/article/111852-will-comex-default-on-gold-and-silver?source=feed#comment-336356 336356 Tue, 23 Dec 2008 03:47:51 -0500 http://seekingalpha.com/article/111852-will-comex-default-on-gold-and-silver?source=feed#comment-336354 336354 Tue, 23 Dec 2008 03:46:44 -0500 http://seekingalpha.com/article/111852-will-comex-default-on-gold-and-silver?source=feed#comment-336307 336307
The accused short-sellers, and their short position, are in the commercial category, NOT the speculative. Therefore, whether or not clearing members have controls on the type of speculators they accept in their prime brokerages, for example, is irrelevant.

I take a practical view. I think that conspiracy theory should certainly be properly investigated, which it has never been. However, conspiracy theories should prevent people from gaining the practical benefit of buying their gold and silver at wholesale on COMEX and NYSE-Liffe. That being said, contrary to what you are implying, CFTC certainly has the responsibility to enforce its own rules.

Other cheap no-premium markets, like the London Bullion Exchange, are closed to small investors. They make it very difficult for people to buy from them, because of incredibly high minimum purchase requirements, and a dearth of consumer-oriented information.

The futures markets, in contrast, corrupt or not, have become excellent places to buy cheap and force delivery upon the short sellers. They are completely open to middle class investors. Right now, there is no better place to buy precious metal, so long as the buyer does not succumb to the siren song of speculation fever.

As a side effect, if the conspiracy theorists are correct, mass demands for physical delivery will end alleged gold and silver pricing fraud more quickly than any CFTC investigation.


On Dec 22 04:39 PM Donatella wrote:

> Having lived through every imaginable commodity scenario in my 30+
> years in the commodity business, I can say that the information listed
> above is confused. Sorry to say. It suggests that the onus of
> preventing defaults on physical deliveries on the commodity exchanges
> is in the hands of the CFTC. It is not. It is controlled by the
> exchanges themselves...]]> Tue, 23 Dec 2008 01:01:02 -0500
The accused short-sellers, and their short position, are in the commercial category, NOT the speculative. Therefore, whether or not clearing members have controls on the type of speculators they accept in their prime brokerages, for example, is irrelevant.

I take a practical view. I think that conspiracy theory should certainly be properly investigated, which it has never been. However, conspiracy theories should prevent people from gaining the practical benefit of buying their gold and silver at wholesale on COMEX and NYSE-Liffe. That being said, contrary to what you are implying, CFTC certainly has the responsibility to enforce its own rules.

Other cheap no-premium markets, like the London Bullion Exchange, are closed to small investors. They make it very difficult for people to buy from them, because of incredibly high minimum purchase requirements, and a dearth of consumer-oriented information.

The futures markets, in contrast, corrupt or not, have become excellent places to buy cheap and force delivery upon the short sellers. They are completely open to middle class investors. Right now, there is no better place to buy precious metal, so long as the buyer does not succumb to the siren song of speculation fever.

As a side effect, if the conspiracy theorists are correct, mass demands for physical delivery will end alleged gold and silver pricing fraud more quickly than any CFTC investigation.


On Dec 22 04:39 PM Donatella wrote:

> Having lived through every imaginable commodity scenario in my 30+
> years in the commodity business, I can say that the information listed
> above is confused. Sorry to say. It suggests that the onus of
> preventing defaults on physical deliveries on the commodity exchanges
> is in the hands of the CFTC. It is not. It is controlled by the
> exchanges themselves...]]> http://seekingalpha.com/article/111852-will-comex-default-on-gold-and-silver?source=feed#comment-336293 336293
There may be certain long term capital gains advantages because, but this is memory only, that they do not allow withdrawals of gold, and, therefore, it is not taxed as a collectible. But, emergency withdrawal and use is one of the essential reasons people own gold. On top of that, under Obama, I believe the lower rung of the capital gains tax will be eliminated. So if this advantage does now exists, it will not exist for long.

Like GLD and IAU, which erect high barriers to withdrawal, an interest in GTU does not function as an emergency store of ready wealth in the event of disaster. In short, because of the disadvantages, especially the high premiums, GTU is not a viable alternative. CEF has many of the same shortfalls, and invests in both gold and silver, so it is not a pure gold play.


On Dec 22 05:58 PM Jason Hamlin wrote:

> Central Gold Trust (GTU) and Central Fund of Canada (CEF) hold physical
> gold and silver in allocated vaults. Unlike GLD and SLV, it is audited
> and they do not lease it out to be shorted. Furthermore, these funds
> outperform GLD and SLV, so I don't understand why anyone would hold
> them (unless they are unaware of GTU/CEF).]]> Tue, 23 Dec 2008 00:21:51 -0500
There may be certain long term capital gains advantages because, but this is memory only, that they do not allow withdrawals of gold, and, therefore, it is not taxed as a collectible. But, emergency withdrawal and use is one of the essential reasons people own gold. On top of that, under Obama, I believe the lower rung of the capital gains tax will be eliminated. So if this advantage does now exists, it will not exist for long.

Like GLD and IAU, which erect high barriers to withdrawal, an interest in GTU does not function as an emergency store of ready wealth in the event of disaster. In short, because of the disadvantages, especially the high premiums, GTU is not a viable alternative. CEF has many of the same shortfalls, and invests in both gold and silver, so it is not a pure gold play.


On Dec 22 05:58 PM Jason Hamlin wrote:

> Central Gold Trust (GTU) and Central Fund of Canada (CEF) hold physical
> gold and silver in allocated vaults. Unlike GLD and SLV, it is audited
> and they do not lease it out to be shorted. Furthermore, these funds
> outperform GLD and SLV, so I don't understand why anyone would hold
> them (unless they are unaware of GTU/CEF).]]> http://seekingalpha.com/article/111852-will-comex-default-on-gold-and-silver?source=feed#comment-336290 336290

On Dec 22 04:39 PM Donatella wrote:

> Having lived through every imaginable commodity scenario in my 30+
> years in the commodity business, I can say that the information listed
> above is confused. Sorry to say. It suggests that the onus of
> preventing defaults on physical deliveries on the commodity exchanges
> is in the hands of the CFTC. It is not. It is controlled by the
> exchanges themselves. It is incumbent upon the exchanges to use
> a series of measures to limit spot month positions when deliverable
> supplies are not available. I would suggest that you read the Delivery
> rules in the Exchange rulebook, posted on the CME website under COMEX.
> The rules are as follows. Sellers must have deliverable stocks in
> exchange liscensed warehouses the day prior to the delivery. If
> these are not available, the seller will be forced by the clearing
> member (financial institution which is a member of a clearing house).
> The exchanges responsibility is to prevent spot month futures positions
> from becoming so large in relation to the physical supply available
> for delivery that they will adjust the margin on positions as they
> get closer to delivery. In the past, the exchange (for platinum)
> has charged significantly over 100% of the value of the physical
> metal on futures positions in the spot month to prevent disruptive
> market conditions from taking place. Also, the clearing members
> (financial institutions which comprise the clearing house) are responsible
> for accepting clients and have stringent requirements for doing business
> with "speculators&q... and trade houses and are the ones which
> will be responsible for any defaults. It would be useful for you
> to read the rules on defaults and how the clearing house structure
> handles potential defaults. What clearing members do NOT want are
> clients which could potentially default on deliveries and will not
> deal with them having positions in the spot month if they do not
> have the material at hand. In the history of COMEX there was one
> default -- in the early 80s, Volume Investors, and the loss was made
> up by the clearing members, leaving all players on the exchange and
> every position whole. The exchange endured the Hunt mess, the 9/11
> attack (which left millions of ounces in the basement of the exchange
> in the Mocotta Metals warehouse facility ultimately intact.) Believe
> me, if you are looking for CDS or Subprime type cloak and dagger
> scenarios at the COMEX, believe me they have lived through everything
> and the checks and balances and transparency in this process is so
> clear that there is no way the precious metals Aramgeddon you describe
> would happen. They would charge 150-200% margin to eliminate large
> spot months positions first if the clearing members were reckless
> enough to take such business in the first place.]]> Tue, 23 Dec 2008 00:06:08 -0500

On Dec 22 04:39 PM Donatella wrote:

> Having lived through every imaginable commodity scenario in my 30+
> years in the commodity business, I can say that the information listed
> above is confused. Sorry to say. It suggests that the onus of
> preventing defaults on physical deliveries on the commodity exchanges
> is in the hands of the CFTC. It is not. It is controlled by the
> exchanges themselves. It is incumbent upon the exchanges to use
> a series of measures to limit spot month positions when deliverable
> supplies are not available. I would suggest that you read the Delivery
> rules in the Exchange rulebook, posted on the CME website under COMEX.
> The rules are as follows. Sellers must have deliverable stocks in
> exchange liscensed warehouses the day prior to the delivery. If
> these are not available, the seller will be forced by the clearing
> member (financial institution which is a member of a clearing house).
> The exchanges responsibility is to prevent spot month futures positions
> from becoming so large in relation to the physical supply available
> for delivery that they will adjust the margin on positions as they
> get closer to delivery. In the past, the exchange (for platinum)
> has charged significantly over 100% of the value of the physical
> metal on futures positions in the spot month to prevent disruptive
> market conditions from taking place. Also, the clearing members
> (financial institutions which comprise the clearing house) are responsible
> for accepting clients and have stringent requirements for doing business
> with "speculators&q... and trade houses and are the ones which
> will be responsible for any defaults. It would be useful for you
> to read the rules on defaults and how the clearing house structure
> handles potential defaults. What clearing members do NOT want are
> clients which could potentially default on deliveries and will not
> deal with them having positions in the spot month if they do not
> have the material at hand. In the history of COMEX there was one
> default -- in the early 80s, Volume Investors, and the loss was made
> up by the clearing members, leaving all players on the exchange and
> every position whole. The exchange endured the Hunt mess, the 9/11
> attack (which left millions of ounces in the basement of the exchange
> in the Mocotta Metals warehouse facility ultimately intact.) Believe
> me, if you are looking for CDS or Subprime type cloak and dagger
> scenarios at the COMEX, believe me they have lived through everything
> and the checks and balances and transparency in this process is so
> clear that there is no way the precious metals Aramgeddon you describe
> would happen. They would charge 150-200% margin to eliminate large
> spot months positions first if the clearing members were reckless
> enough to take such business in the first place.]]> http://seekingalpha.com/article/111852-will-comex-default-on-gold-and-silver?source=feed#comment-335980 335980 IAU), they are allowed to pledge those shares to meet the "cover" requirement. IAU and GLD allow withdrawals by shareholders, provided that the shareholder owns a "basket" worth of bullion. A basket consists of several million dollars worth of gold. To get the exact numbers, you need to get the prospectus for IAU. At any rate, assuming that some of the banks millions of dollars worth of IAU shares, or buy them in anticipation of a delivery problem, they can cash the shares into bullion, and deliver that bullion. Hence, the amount of gold available to short sellers at COMEX is probably larger than appears on the surface, though probably not nearly enough to meet all delivery obligations if, let's say, 20% of the holders of the February contract demanded delivery.

> Do you know if the SPDR Gold Shares ETF (GLD) is permitted to lease
> gold holdings to the bullion banks who then us it as margin for shorting
> or is it all being held long and unencumbered in a depository?

>
>
> Jack
>
> ]]> Mon, 22 Dec 2008 14:27:24 -0500 IAU), they are allowed to pledge those shares to meet the "cover" requirement. IAU and GLD allow withdrawals by shareholders, provided that the shareholder owns a "basket" worth of bullion. A basket consists of several million dollars worth of gold. To get the exact numbers, you need to get the prospectus for IAU. At any rate, assuming that some of the banks millions of dollars worth of IAU shares, or buy them in anticipation of a delivery problem, they can cash the shares into bullion, and deliver that bullion. Hence, the amount of gold available to short sellers at COMEX is probably larger than appears on the surface, though probably not nearly enough to meet all delivery obligations if, let's say, 20% of the holders of the February contract demanded delivery.

> Do you know if the SPDR Gold Shares ETF (GLD) is permitted to lease
> gold holdings to the bullion banks who then us it as margin for shorting
> or is it all being held long and unencumbered in a depository?

>
>
> Jack
>
> ]]> http://seekingalpha.com/article/111852-will-comex-default-on-gold-and-silver?source=feed#comment-335974 335974
There is always some temporary counterparty risk with the clearing broker, because they store your cash during the transaction. Notable is the fact that commodity brokers (and stock brokers who are acting as futures brokers) are not covered under the SIPC insurance scheme.

But no major futures clearing broker ever has gone bankrupt, to the best of my knowledge. It is a very profitable business.

There is no law on this, because the event has never happened, but, theoretically, best execution regulations would require the broker to buy the gold promptly, on the spot market for you, to carry through the trade to its natural conclusion of delivery. The exchange would be under an obligation to reimburse you (and, therefore, the broker) on all costs. The broker should have no problem in taking whatever short term loans it needs to carry through the transactions.

Keep in mind that your short selling counterparty is probably one of the biggest banks in the world, like JP Morgan, HSBC, Goldman Sachs, etc. They are obligated to carry through the transaction, so the likelihood that your broker will actually need to go to the London spot market to buy is VERY small. It will almost assuredly be done by the short sellers to save face.

Remember, these banks all have complete access to the federal trough, and feed at it regularly, so money won't be a problem for them. Contrary to the visions of some metals aficionados, gold is very available, provided that the price paid is high enough. In short, I think the counterparty risk is minimal, especially if you buy a contract for the next available expiration date, and take delivery that month.]]> Mon, 22 Dec 2008 14:21:26 -0500
There is always some temporary counterparty risk with the clearing broker, because they store your cash during the transaction. Notable is the fact that commodity brokers (and stock brokers who are acting as futures brokers) are not covered under the SIPC insurance scheme.

But no major futures clearing broker ever has gone bankrupt, to the best of my knowledge. It is a very profitable business.

There is no law on this, because the event has never happened, but, theoretically, best execution regulations would require the broker to buy the gold promptly, on the spot market for you, to carry through the trade to its natural conclusion of delivery. The exchange would be under an obligation to reimburse you (and, therefore, the broker) on all costs. The broker should have no problem in taking whatever short term loans it needs to carry through the transactions.

Keep in mind that your short selling counterparty is probably one of the biggest banks in the world, like JP Morgan, HSBC, Goldman Sachs, etc. They are obligated to carry through the transaction, so the likelihood that your broker will actually need to go to the London spot market to buy is VERY small. It will almost assuredly be done by the short sellers to save face.

Remember, these banks all have complete access to the federal trough, and feed at it regularly, so money won't be a problem for them. Contrary to the visions of some metals aficionados, gold is very available, provided that the price paid is high enough. In short, I think the counterparty risk is minimal, especially if you buy a contract for the next available expiration date, and take delivery that month.]]> http://seekingalpha.com/article/111852-will-comex-default-on-gold-and-silver?source=feed#comment-335657 335657
When CFTC declared "liquidation only", in the silver markets, back in 1980, it simply meant that traders were unable to buy new positions in silver. This allowed short sellers to buy back the contracts and liquidate their short positions. The declaration of "liquidation only" trading does not affect old positions, and if the Hunts wanted to, they could still have stood for delivery.

Taking delivery is a contractual right, and in the absence of a real force majeure, it is protected by the Commerce clause of the U.S. Constitution. The CFTC can regulate trading, but cannot make rules that retroactively impair the right of contract.

As unlikely as the CFTC is to make an attempt to blatantly support silver and/or gold fraud, if such an "emergency order" (to stop deliveries) were made, it would be quickly invalidated by the courts. The end result would be that defaulting short sellers would owe a larger sum of damages (because the price will have risen) and the CFTC would owe huge sums of money for the attorney's fees of the victims who act to invalidate the regulations.

CFTC is not actively enforcing its own regulations, right now, but that does not mean it is actively supporting the alleged fraudsters, except by failing to act affirmatively against them. In any event, the agency cannot alter the right of contract, nor would it dare to try. It is not very likely that CFTC would enact trading rules to support of fraudsters.

You must remember that the short sellers were the victims back in 1980.
The Hunts were attempting to "corner" the silver market on the long side. That is market manipulation of the opposite sort that short-selling banks are now being accused of. Collusion by longs, who wish to create a falsely higher price, by constricting normal supply is just as wrong as attempting to periodically crash the market using the weaknesses of leveraged longs.

On top of this, the gold market is far deeper than the silver market, and is traded all over the world. COMEX prices currently have a heavy influence on spot prices because they are assumed to be legitimate. The fact that the COMEX standard contracts are deliverable, leads people to use the futures markets for price discovery. But, the end of trading on COMEX will end the moral authority of the futures exchanges to influence the spot price, and will not collapse the price, in the current market. If, in fact, there is downward manipulation, and end to it will result in a huge increase in price. Back in 1980, the Hunts were engaged in upward manipulation, using the futures exchanges as a key part of their plans. An end to trading there, caused the end of the upward manipulation, and, therefore, a crash in the price.

In short, once again, a delay in fulfillment of COMEX delivery will not stop contract holders from getting their gold and silver. Instead, it will simply cause a huge price rise because, if there really is a conspiracy to reduce prices, it will be ended, then and there. The futures markets are a great place to buy physical gold and silver.

Dec 22 08:39 AM ComexCow wrote:

> The futures exchanges could declare an emergency action in the spot
> contract and force trading for liquidation only, not delivery...]]> Mon, 22 Dec 2008 10:19:42 -0500
When CFTC declared "liquidation only", in the silver markets, back in 1980, it simply meant that traders were unable to buy new positions in silver. This allowed short sellers to buy back the contracts and liquidate their short positions. The declaration of "liquidation only" trading does not affect old positions, and if the Hunts wanted to, they could still have stood for delivery.

Taking delivery is a contractual right, and in the absence of a real force majeure, it is protected by the Commerce clause of the U.S. Constitution. The CFTC can regulate trading, but cannot make rules that retroactively impair the right of contract.

As unlikely as the CFTC is to make an attempt to blatantly support silver and/or gold fraud, if such an "emergency order" (to stop deliveries) were made, it would be quickly invalidated by the courts. The end result would be that defaulting short sellers would owe a larger sum of damages (because the price will have risen) and the CFTC would owe huge sums of money for the attorney's fees of the victims who act to invalidate the regulations.

CFTC is not actively enforcing its own regulations, right now, but that does not mean it is actively supporting the alleged fraudsters, except by failing to act affirmatively against them. In any event, the agency cannot alter the right of contract, nor would it dare to try. It is not very likely that CFTC would enact trading rules to support of fraudsters.

You must remember that the short sellers were the victims back in 1980.
The Hunts were attempting to "corner" the silver market on the long side. That is market manipulation of the opposite sort that short-selling banks are now being accused of. Collusion by longs, who wish to create a falsely higher price, by constricting normal supply is just as wrong as attempting to periodically crash the market using the weaknesses of leveraged longs.

On top of this, the gold market is far deeper than the silver market, and is traded all over the world. COMEX prices currently have a heavy influence on spot prices because they are assumed to be legitimate. The fact that the COMEX standard contracts are deliverable, leads people to use the futures markets for price discovery. But, the end of trading on COMEX will end the moral authority of the futures exchanges to influence the spot price, and will not collapse the price, in the current market. If, in fact, there is downward manipulation, and end to it will result in a huge increase in price. Back in 1980, the Hunts were engaged in upward manipulation, using the futures exchanges as a key part of their plans. An end to trading there, caused the end of the upward manipulation, and, therefore, a crash in the price.

In short, once again, a delay in fulfillment of COMEX delivery will not stop contract holders from getting their gold and silver. Instead, it will simply cause a huge price rise because, if there really is a conspiracy to reduce prices, it will be ended, then and there. The futures markets are a great place to buy physical gold and silver.

Dec 22 08:39 AM ComexCow wrote:

> The futures exchanges could declare an emergency action in the spot
> contract and force trading for liquidation only, not delivery...]]> http://seekingalpha.com/article/106993-let-the-detroit-automakers-fail?source=feed#comment-311438 311438 Fri, 21 Nov 2008 02:58:03 -0500 http://seekingalpha.com/article/106993-let-the-detroit-automakers-fail?source=feed#comment-311390 311390 Fri, 21 Nov 2008 00:26:10 -0500 http://seekingalpha.com/article/106993-let-the-detroit-automakers-fail?source=feed#comment-311384 311384
I do believe in real capitalism, however, which is something that has not been practiced under the Bush administration. What we have seen is crony capitalism in the past, and, more recently, we have seen privatization of profits and socialization of losses in the financial industry. Now, the same folks who brought us bailouts for billionaires, want to bailout the dysfunctional Detroit auto industry. Detroit shares many characteristics with the banking industry, not the least of which is overpaid and incompetent management.

It is not the financial downturn that is causing the automakers to fail. It is a lack of desirable products that people want to buy. The Asian automakers are feeling some pain, too, but they are not collapsing. This is because, for years, as Toyota, Nissan, Honda etc. accepted lower profits, in pursuit of long term market share, GM, Chrysler and Ford were trying to maximize profit in the short term. Instead of capitalizing on the Japanese automakers' voluntary restriction of imports, that had been negotiated, back in the 1980s, to increase market share, instead, Detroit merely took the opportunity to increase prices. More recently, they were extensively lobbying Congress to prevent passage of critical CAFE fuel economy standards that would have saved them from the current situation. They succeeded, and promptly embarked on a short-sighted program of maximizing profits and bonuses for top executives.

Managerial incompetence and short-sighted thinking is so in-grained in Detroit that it cannot be removed with anything less than extraordinary measures. With the exception of the recent attempt by Cerberus to turn Chrysler around (which was timed terribly, unfortunately), the auto industry managers are an in-bred lot, with no new ideas. They have presided, for 30 years, over the destruction of what was once an iconic American industry. The latest financial crisis precipitated their demise, but, for many years, it has been a matter of "when" not "if".

The argument that Japanese currency manipulation is responsible for torpedoing Detroit's changes is not a good one. First, right now, the yen is valued higher in relation to the dollar than at most times in history. Against most currencies, the dollar is still selling at historically low values, even though over the last few months it has had an amazing upward momentum.

Indeed, the Asian car makers don't seem to find it impossible to build profitable cars in America. A large number of Toyotas, Hondas, and Hyundai's (S. Korean), sold in America, are made in America. These American production facilities are highly profitable. The inescapable conclusion is that there is no reason why Detroit cannot build good quality, reasonably priced cars except for managerial incompetence.

Contrary to the opinions of some, Chapter 11 reorganization will not destroy the American auto industry. It will only rationalize their operations, remove their management, and restructure them so that they can compete in the world economy.]]> Fri, 21 Nov 2008 00:13:38 -0500
I do believe in real capitalism, however, which is something that has not been practiced under the Bush administration. What we have seen is crony capitalism in the past, and, more recently, we have seen privatization of profits and socialization of losses in the financial industry. Now, the same folks who brought us bailouts for billionaires, want to bailout the dysfunctional Detroit auto industry. Detroit shares many characteristics with the banking industry, not the least of which is overpaid and incompetent management.

It is not the financial downturn that is causing the automakers to fail. It is a lack of desirable products that people want to buy. The Asian automakers are feeling some pain, too, but they are not collapsing. This is because, for years, as Toyota, Nissan, Honda etc. accepted lower profits, in pursuit of long term market share, GM, Chrysler and Ford were trying to maximize profit in the short term. Instead of capitalizing on the Japanese automakers' voluntary restriction of imports, that had been negotiated, back in the 1980s, to increase market share, instead, Detroit merely took the opportunity to increase prices. More recently, they were extensively lobbying Congress to prevent passage of critical CAFE fuel economy standards that would have saved them from the current situation. They succeeded, and promptly embarked on a short-sighted program of maximizing profits and bonuses for top executives.

Managerial incompetence and short-sighted thinking is so in-grained in Detroit that it cannot be removed with anything less than extraordinary measures. With the exception of the recent attempt by Cerberus to turn Chrysler around (which was timed terribly, unfortunately), the auto industry managers are an in-bred lot, with no new ideas. They have presided, for 30 years, over the destruction of what was once an iconic American industry. The latest financial crisis precipitated their demise, but, for many years, it has been a matter of "when" not "if".

The argument that Japanese currency manipulation is responsible for torpedoing Detroit's changes is not a good one. First, right now, the yen is valued higher in relation to the dollar than at most times in history. Against most currencies, the dollar is still selling at historically low values, even though over the last few months it has had an amazing upward momentum.

Indeed, the Asian car makers don't seem to find it impossible to build profitable cars in America. A large number of Toyotas, Hondas, and Hyundai's (S. Korean), sold in America, are made in America. These American production facilities are highly profitable. The inescapable conclusion is that there is no reason why Detroit cannot build good quality, reasonably priced cars except for managerial incompetence.

Contrary to the opinions of some, Chapter 11 reorganization will not destroy the American auto industry. It will only rationalize their operations, remove their management, and restructure them so that they can compete in the world economy.]]> http://seekingalpha.com/article/103947-coming-inflation-to-boost-stocks-gold?source=feed#comment-299141 299141
The reason I have used nominal numbers is not to tell you that the stock market is going to be the absolute best place for your money. It won't be. Rather, it merely illustrates that money in the stock market will do a lot better than money stashed in a bank account, under your mattress, or in bonds. The worst possible long term investment, right now, in spite of the current cash mania that has temporarily engulfed the world, is cash.]]> Thu, 06 Nov 2008 02:30:06 -0500
The reason I have used nominal numbers is not to tell you that the stock market is going to be the absolute best place for your money. It won't be. Rather, it merely illustrates that money in the stock market will do a lot better than money stashed in a bank account, under your mattress, or in bonds. The worst possible long term investment, right now, in spite of the current cash mania that has temporarily engulfed the world, is cash.]]> http://seekingalpha.com/article/103947-coming-inflation-to-boost-stocks-gold?source=feed#comment-299129 299129

On Nov 05 08:47 AM Beabaggage wrote:

> Ridiculous to believe that inflation, especially the 70's -80's type
> inflation we are in for due to the massive monetary stimulus going
> on that has no end in sight, will be good for stocks. Gold/Oil/Commodities?
> yes. Stocks? heck no, we are looking at Dow 4500. People are still
> far too bullish, thinking it's over it's over. it is not. The massive
> stimulus will just make another bubble and you can bet it will be
> spent on hard assets. This actually may be good for realestate.
> Would you rather own a hotel or Kellogg Stock trying to raise prices
> to keep up with soaring costs? The monetary base is growing exponentially.
> This plus federal stimulus world-wide, low interest rates and shrinking
> sources of commodities and food will make the next decade the most
> inflationary of all time. Loss of faith in company financials and
> management will push people into cash, with rates low, they will
> start to chase yield, great for oil, gas, other commodity stocks
> with good yields.]]> Thu, 06 Nov 2008 01:58:40 -0500

On Nov 05 08:47 AM Beabaggage wrote:

> Ridiculous to believe that inflation, especially the 70's -80's type
> inflation we are in for due to the massive monetary stimulus going
> on that has no end in sight, will be good for stocks. Gold/Oil/Commodities?
> yes. Stocks? heck no, we are looking at Dow 4500. People are still
> far too bullish, thinking it's over it's over. it is not. The massive
> stimulus will just make another bubble and you can bet it will be
> spent on hard assets. This actually may be good for realestate.
> Would you rather own a hotel or Kellogg Stock trying to raise prices
> to keep up with soaring costs? The monetary base is growing exponentially.
> This plus federal stimulus world-wide, low interest rates and shrinking
> sources of commodities and food will make the next decade the most
> inflationary of all time. Loss of faith in company financials and
> management will push people into cash, with rates low, they will
> start to chase yield, great for oil, gas, other commodity stocks
> with good yields.]]> http://seekingalpha.com/article/103947-coming-inflation-to-boost-stocks-gold?source=feed#comment-299128 299128 Thu, 06 Nov 2008 01:56:18 -0500 http://seekingalpha.com/article/103947-coming-inflation-to-boost-stocks-gold?source=feed#comment-299126 299126
Since it is almost certain that current money supply trends will continue, or become more pronounced in an Obama Presidency, it is rather simple to predict the minimum gold price in three years. The unpredictable events are where the + symbol comes into play...


On Nov 05 09:47 AM Rhett wrote:

> Nobody but nobody can come close to projecting the price of anything
> in 2012. But for now, gold is about to jump. You heard it here first.]]> Thu, 06 Nov 2008 01:54:29 -0500
Since it is almost certain that current money supply trends will continue, or become more pronounced in an Obama Presidency, it is rather simple to predict the minimum gold price in three years. The unpredictable events are where the + symbol comes into play...


On Nov 05 09:47 AM Rhett wrote:

> Nobody but nobody can come close to projecting the price of anything
> in 2012. But for now, gold is about to jump. You heard it here first.]]> http://seekingalpha.com/article/103947-coming-inflation-to-boost-stocks-gold?source=feed#comment-299122 299122 Thu, 06 Nov 2008 01:46:08 -0500 http://seekingalpha.com/article/99998-is-jpmorgan-hiding-losses?source=feed#comment-283536 283536 Thu, 16 Oct 2008 08:06:19 -0400 http://seekingalpha.com/article/99998-is-jpmorgan-hiding-losses?source=feed#comment-283534 283534 Thu, 16 Oct 2008 08:04:47 -0400 http://seekingalpha.com/article/99805-1929-all-over-again?source=feed#comment-282641 282641 Wed, 15 Oct 2008 01:31:40 -0400 http://seekingalpha.com/article/98948-when-hedgies-attack-morgan-stanley-drops-40-on-rumors?source=feed#comment-276239 276239 Tue, 07 Oct 2008 18:07:45 -0400 http://seekingalpha.com/article/98769-our-coming-depression?source=feed#comment-276048 276048
In comparison to what was done in the wake of the Great Depression, policy makers are now reacting in an opposite, but equally excessive fashion. The current problem is a crisis of trust (lack thereof) and NOT of liquidity.

Central bankers do not seem to understand this, and are flooding more and more liquidity into the market. Attempting to micro-manage the economy is a huge mistake, and the Federal Reserve will, hopefully, be closed down because of what they are now creating. But, before that happens, they will trigger inflation levels that we have not seen in the developed world, since 1923.

The current decline in the stock market is temporary. Soon, it will go up, again, in nominal terms. Paper money, however, including especially the U.S. dollar will become worth less and less. The world is awash with money that cannot be productively put to use. Instead of sending out an army of auditors to close all shaky banks in order to raise levels of trust, central bankers are sending out paper money.

Accordingly, we do not face a deflationary depression of the type that you've described, at least not yet. Rather, we face the very real prospect of Wiemar Germany style hyperinflation. Both forms of economic excess are terrible, but the latter is worse. Depending on policy maker's reaction to hyperinflation, however, we may yet get into the worst Great Depression in history.]]> Tue, 07 Oct 2008 14:56:45 -0400
In comparison to what was done in the wake of the Great Depression, policy makers are now reacting in an opposite, but equally excessive fashion. The current problem is a crisis of trust (lack thereof) and NOT of liquidity.

Central bankers do not seem to understand this, and are flooding more and more liquidity into the market. Attempting to micro-manage the economy is a huge mistake, and the Federal Reserve will, hopefully, be closed down because of what they are now creating. But, before that happens, they will trigger inflation levels that we have not seen in the developed world, since 1923.

The current decline in the stock market is temporary. Soon, it will go up, again, in nominal terms. Paper money, however, including especially the U.S. dollar will become worth less and less. The world is awash with money that cannot be productively put to use. Instead of sending out an army of auditors to close all shaky banks in order to raise levels of trust, central bankers are sending out paper money.

Accordingly, we do not face a deflationary depression of the type that you've described, at least not yet. Rather, we face the very real prospect of Wiemar Germany style hyperinflation. Both forms of economic excess are terrible, but the latter is worse. Depending on policy maker's reaction to hyperinflation, however, we may yet get into the worst Great Depression in history.]]> http://seekingalpha.com/article/97412-is-the-700-billion-really-for-bailing-out-the-fed?source=feed#comment-266364 266364 Fri, 26 Sep 2008 16:51:18 -0400 http://seekingalpha.com/article/97412-is-the-700-billion-really-for-bailing-out-the-fed?source=feed#comment-266281 266281
The Federal Reserve balance sheet is established by the U.S. Treasury. The Board of Governors has permanent representation on the FOMC, which is the committee that sets Fed policy. They outnumber the regional bank presidents. The Board members are appointed by the President with the "advice and consent" of Congress, just like cabinet members.
For all practical purposes, it is a federal agency.

The "doves", who tend to want to lower interest rates, are more often the political appointees on the Board of Governors. Historically, the "inflation hawks" have always been, and still are, the regional bank Presidents. One would think that the commercial banks regionally would want lower rates so that their banks can earn the "spread" between that rate and the money they loan out. But, it isn't so. The most likely reason for the anomaly is that a handful of the biggest banks have an big voice in choosing the political appointees. A lot of smaller, non-Wall Street based, regional banks have more say on choosing the regional Presidents, other than the President of the New York Fed.]]> Fri, 26 Sep 2008 15:31:04 -0400
The Federal Reserve balance sheet is established by the U.S. Treasury. The Board of Governors has permanent representation on the FOMC, which is the committee that sets Fed policy. They outnumber the regional bank presidents. The Board members are appointed by the President with the "advice and consent" of Congress, just like cabinet members.
For all practical purposes, it is a federal agency.

The "doves", who tend to want to lower interest rates, are more often the political appointees on the Board of Governors. Historically, the "inflation hawks" have always been, and still are, the regional bank Presidents. One would think that the commercial banks regionally would want lower rates so that their banks can earn the "spread" between that rate and the money they loan out. But, it isn't so. The most likely reason for the anomaly is that a handful of the biggest banks have an big voice in choosing the political appointees. A lot of smaller, non-Wall Street based, regional banks have more say on choosing the regional Presidents, other than the President of the New York Fed.]]> http://seekingalpha.com/article/97412-is-the-700-billion-really-for-bailing-out-the-fed?source=feed#comment-265447 265447
The Fed will never go to a courtroom, nor will it ever beg a judge for forgiveness, as individuals do. It won't ever receive a little slip of paper called a "bankruptcy discharge." It won't ever do any of these things, because a Federal agency cannot go legally bankrupt, and, if it becomes insolvent, as we are seeing, the higher authorities, in the form of the U.S. Treasury and Congress will act, in one way or another, to print money to keep it functioning.

I used the word "insolvent", not bankrupt, when speaking of the Federal Reserve. I use the word bankrupt, only when speaking about private banks, like Lehman Brothers, not about the Fed, itself.

The Fed will be insolvent when its obligations exceed its assets. That has not happened yet, but it is not far away. It is so close to insolvency that it does not have enough cash, at the moment, perhaps, to feed cash to their favorite Wall Street players, the way PPT theorists claim money has been feed to them in the past.

The Fed has a balance sheet which, until last week, totalled $939 billion. Because the U.S. Treasury has now sold $100 billion in additional T-bills to recapitalize the Fed, that balance sheet now has about $1.039 trillion, after the recapitalization. You folks who are so quick to call names, should take the trouble to click on the link that I have given so you can see the balance sheet's condition for yourselves.

Part of your problem is that you have no legal education. Contrary to what laymen believe, the Fed DOES NOT have legal authority to issue Treasury bills. They can only buy and sell existing T-bills. Only the U.S. Treasury can expand their balance sheet, and that is what it did, last week, when it issued $100 billion T-bills to recapitalize the Fed, last week.

The U.S. Treasury, however, only has standing authority to issue the number of T-bills already authorized by Congress. The $100 billion was within existing standing authority, previously issued by Congress. The money it is now seeking, for the $700 billion bailout, will require issuance of more Treasury bills than can legally be issued, right now. If that were not the case, there would be no ongoing debate in Congress. Hank Paulson would just issue however many Treasury bills are needed to bail out the banks, and the Federal Reserve.

Finally, I have not asserted anywhere, in this article, that the PPT is my personal theory, nor that it has been proven true. I merely note that a lot of sensible people believe in it, and that its makes certain events, that would otherwise appear irrational, make common sense again.

For example, back in October, 2007, stocks like Merrill Lynch, Citigroup and others were soaring each time they announced bad earnings. The worse their earnings, the high their stock seemed to soar. Such things are unlikely to happen in real markets that are governed by rational people buying and selling based on fundamentals. Whether or not this proves the existence of PPT is up to the reader. I make no comment except that it does make these events understandable.

The extreme defensiveness of certain commentors, and the failure on the part of the name-callers, to disclose their true identity, is quite interesting. Why be so offended? Why be so offensive? Who are you?

Are rational educated men prohibited, now, from considering or writing about the possibility that PPT exists? Do we live in a society in which discussion of controversial issues must be crushed? Is there something you are afraid of?]]> Thu, 25 Sep 2008 23:24:57 -0400
The Fed will never go to a courtroom, nor will it ever beg a judge for forgiveness, as individuals do. It won't ever receive a little slip of paper called a "bankruptcy discharge." It won't ever do any of these things, because a Federal agency cannot go legally bankrupt, and, if it becomes insolvent, as we are seeing, the higher authorities, in the form of the U.S. Treasury and Congress will act, in one way or another, to print money to keep it functioning.

I used the word "insolvent", not bankrupt, when speaking of the Federal Reserve. I use the word bankrupt, only when speaking about private banks, like Lehman Brothers, not about the Fed, itself.

The Fed will be insolvent when its obligations exceed its assets. That has not happened yet, but it is not far away. It is so close to insolvency that it does not have enough cash, at the moment, perhaps, to feed cash to their favorite Wall Street players, the way PPT theorists claim money has been feed to them in the past.

The Fed has a balance sheet which, until last week, totalled $939 billion. Because the U.S. Treasury has now sold $100 billion in additional T-bills to recapitalize the Fed, that balance sheet now has about $1.039 trillion, after the recapitalization. You folks who are so quick to call names, should take the trouble to click on the link that I have given so you can see the balance sheet's condition for yourselves.

Part of your problem is that you have no legal education. Contrary to what laymen believe, the Fed DOES NOT have legal authority to issue Treasury bills. They can only buy and sell existing T-bills. Only the U.S. Treasury can expand their balance sheet, and that is what it did, last week, when it issued $100 billion T-bills to recapitalize the Fed, last week.

The U.S. Treasury, however, only has standing authority to issue the number of T-bills already authorized by Congress. The $100 billion was within existing standing authority, previously issued by Congress. The money it is now seeking, for the $700 billion bailout, will require issuance of more Treasury bills than can legally be issued, right now. If that were not the case, there would be no ongoing debate in Congress. Hank Paulson would just issue however many Treasury bills are needed to bail out the banks, and the Federal Reserve.

Finally, I have not asserted anywhere, in this article, that the PPT is my personal theory, nor that it has been proven true. I merely note that a lot of sensible people believe in it, and that its makes certain events, that would otherwise appear irrational, make common sense again.

For example, back in October, 2007, stocks like Merrill Lynch, Citigroup and others were soaring each time they announced bad earnings. The worse their earnings, the high their stock seemed to soar. Such things are unlikely to happen in real markets that are governed by rational people buying and selling based on fundamentals. Whether or not this proves the existence of PPT is up to the reader. I make no comment except that it does make these events understandable.

The extreme defensiveness of certain commentors, and the failure on the part of the name-callers, to disclose their true identity, is quite interesting. Why be so offended? Why be so offensive? Who are you?

Are rational educated men prohibited, now, from considering or writing about the possibility that PPT exists? Do we live in a society in which discussion of controversial issues must be crushed? Is there something you are afraid of?]]>