Midas commentary for March 7, 2000

Section:

9:45p EST Sunday, March 5, 2000

Dear Friend of GATA and Gold:

Let's see if I understand the following BBC story. It
goes like this: We folks who have argued for more than
a year now that the gold market is being manipulated
were nuts at the beginning and are nuts still, but the
gold market really MAY be manipulated after all, and
the United States is opposing the European candidate
for director of the International Monetary Fund because
of suspicions that, when the next economic disaster
occurs, he might not be as eager to bail out U.S.
financial institutions as the Federal Reserve has been.

Oh, well, we at GATA will take the acknowledgement of
our case any way we can get it. And breaking into the
BBC is pretty good.

Please post this as seems useful.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

WHY THE U.S. BLOCKS GERMANY'S IMF PLANS

By Rodney Smith
British Broadcasting Co.
Friday, March 3, 2000, 16:01 GMT

http://news2.thls.bbc.co.uk/hi/english/business/newsid%5F665000/665315.stm

Whether he stays or he goes, there is one very good
reason why the United States is rejecting Caio Koch-
Weser to head the International Monetary Fund.

There is some personal animosity. U.S. Treasury
Secretary Larry Summers and World Bank boss James
Wolfenson are said to have been less than overwhelmed
by his intellectual and management abilities, and are
apparently positively discouraged by his ability to
sway with argument.

Caio Koch-Weser still insists that he is the right man
for the job

However, after 26 years at the World Bank, Mr. Koch-
Weser did achieve managing director level, and it takes
more than languages and his allegedly suave manner to
achieve that.

His World Bank experience may count both for him and
against him: For, sensitivity to the developing world;
against, it also means he's unlikely to make the
changes many now feel are needed at the Fund.

Many of the IMF's critics believe this change of
leadership offers an excellent opportunity to modify
the Fund, get rid of the opaque practices and
dictatorial habits that brought such opprobrium down
upon it after the Asian crisis.

But that may not be the main thing in the minds of
America's economic planners.

They may be looking farther ahead than their European
counterparts -- and seeing very unpleasant storm clouds
on the horizon.

Federal Reserve Chairman Alan Greenspan has made no
secret of his considerable anxiety about the overheated
high-tech stock market. This has to an extent deflected
general attention away from that other nightmare-in-
waiting, the mountainous derivatives market.

Mr. Greenspan indicates that the New Economic Paradigm
is a fragile flower, and may be much more unstable than
Europe's planners may be aware.

Conspiracy theories are flying

An example of the underlying tensions is the
shenanigans in the bullion market. American congressmen
are deluged daily with conspiracy-speak from gold
lobbyists convinced that the Fed -- sorry, they changed
their minds recently, now they think it's the U.S.
Treasury -- has been depressing the gold price in
collusion with other central banks.

The trouble with conspiracy theorists and paranoids is
that their behaviour sometimes masks a real problem.
The ridicule they invite often obscures the message.

So it may be with the bullion market. Rational gold
miners who do not subscribe to conspiracy theories say
they do see evidence that unseen forces are depressing
the gold price every time it pops.

There may be good reason why this should be the case.

Many of the so-called bullion banks, the banks which
bought gold miners' hedge positions in the days before
last October's rude awakening, are sitting, like some
of the miners, on huge, even destructive potential
losses if the gold price rises strongly.

Some experts estimate they may be short 10,000 tonnes
or more. You know the rule: If you owe the bank a
dollar it will sue to get it back; if you owe a million
it will lend you more because default would be too
expensive.

The abyss

The Fed and other central banks are bound in the same
way. When Long-Term Capital Management collapsed 18
months ago, the Fed organised a rescue. The
consequences of not doing so could have been huge and
widespread financial damage as the derivatives house of
cards imploded.

The Fed looked into the abyss back in September 1998,
and saw horrors other central bankers have been spared
-- so far.

It's a theme never far from Alan Greenspan's musings
these days.

He takes hefty criticism from Americans who believe he
should be much tougher with monetary policy -- his only
real tool -- to rein in the excesses which are the
overhanging cloud of potential fallout from the huge
derivatives market.

The end of Goldilocks

Maybe he should. By allowing America's so-called
Goldilocks scenario of high growth, low inflation, and
low unemployment to develop unchecked, he is allowing
the tensions many see in the U.S. markets to reach
critical proportions.

But he is well aware where the real danger lies. He and
Larry Summers both know that if the storm does break in
the United States, the tsunami, the tidal wave, will
soon reach other shores.

That is when the world will need the help and guidance
of the only international institution that may still be
able to help -- the International Monetary Fund.

So it is hardly surprising that Washington is eager to
have someone in the top job with experience of crisis.
Someone with the outstanding qualities of leadership
the future may require.