Newmont won''t hedge at the bottom


9:45p EDT Friday, May 21, 1999

Dear Friend of GATA and Gold:

This column by John Crudele in today's New York Post,
"Greenspan's Scam," may be of interest. It argues that
the Federal Reserve's talk of raising interest rates is
belied by the "bubble insurance" the Fed is secretly
providing the stock market.

Secretary, Gold Anti-Trust Action Committee Inc.

* * *


New York Post, May 21, 1999

The Federal Reserve is perpetrating a fraud. And while
the press and public may not be wise to what is going
on, the financial markets are.

Here's how this scam goes. Alan Greenspan and his pals
at the Federal Reserve now admit that they are
concerned with inflation. And they said after their
latest policy meeting this week that they might push
interest rates higher. The stock market behaved
predictably. It fell in anticipation of this new
revelation and even declined a bit after the
communique, as the Fed likes to call its high-falutin'
pronouncements, was actually made public.

But within an hour or so of the Central Bank's
decision, the stock market started to recover -- the
bubble, it turns out, was safe for another day. Wall
Street should have shrugged off Mr. Greenspan's scare
tactics. The Fed chairman has meowed before -- it
started as a roar -- that he was going to raise
interest rates and hasn't.

The financial community knows the truth. Unless
Greenspan is willing to risk popping the financial
bubble that he helped create and take the subsequent
grief now and throughout history, all he can do is
threaten. In fact, Greenspan and the Fed are so afraid
of precipitating a crash that they won't even threaten
to raise interest rates without taking actions that
tell the pros in the financial markets that they aren't
really serious.

For instance, last Monday -- the day before the Fed's
Open Market Committee met to discuss tightening rates
-- the Federal Reserve conducted two "coupon passes."
This may be meaningless to ordinary interest-rate
watchers, but this is a very significant action. It
means that the Fed went to banks and re-purchased
billions of dollars in government bonds. Which, in
turn, means the banks suddenly had billions more in
liquidity to, say, lend to customers. And giving banks
the ability to lend more money is the direct opposite
of raising interest rates, which would make money less
available, not more.

But the Fed didn't do just one coupon pass on Monday;
it did two. And it did another two on Wednesday, the
day after the Fed indicated that it was leaning toward
tightening interest rates.

So why is the Fed saying one thing and doing the
opposite? That's the scam -- the Fed won't say anything
about raising interest rates without issuing an
insurance policy just in case the markets react. I
wasn't a fly on the wall at the Fed meeting last
Tuesday, but it's easy to guess what transpired. We
already know that several presidents of regional
Federal Reserve Banks are nervous about inflation -- as
we all should be.

But there is also the little matter of the bond market.
As this column has been saying -- in a very lonely
voice -- the U.S. bond market has already raised
interest rates more than a full percentage point since
the last time the Fed decided to "cut" rates. So
whatever the Fed ultimately decides is really
meaningless. The free market has already done the Fed's
job for it.

Back to the FOMC meeting. There are those at Tuesday's
meeting who have a healthy fear of inflation. And there
are those -- Greenspan included -- who have a realistic
understanding of what could happen if the Fed is deemed
market-unfriendly. Telling the world, as the Fed did
this week, that it is "concerned about the potential
for a buildup in inflationary imbalances" and might
raise interest rates isn't good for the market -- the
bubble protectors understand. So the Fed needed to wink
a "just kidding" to the financial markets even as the
words "interest-rate hike" were coming out of its
nervous mouth.

The coupon passes were the winks.

But there's a problem with saying one thing for public
consumption and negating the words with private,
esoteric actions. The difficulty is that things like a
multibillion-dollar reliquidation of the banking system
can't really be done in private.


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