Finally, A Reply

October 28, 2002 – It has been several months (see Letter No. 301, March 18th, 2002, Asking for Help from My Congressman), but my Congressman has at last received a reply from the Federal Reserve. Unfortunately, the reply did not come from Alan Greenspan, but rather, from an apparently low-level bureaucrat, Winthrop Hambley, Deputy Congressional Liason.

Consequently, it is not surprising that the Fed’s letter falls far short of what is required. However, I am not going to let this matter rest. To understand why I am relentless on this point, please read the following letter I have today mailed to the Federal Reserve’s chairman.

Dear Mr. Greenspan:

This is in reference to Mr. Winthrop P. Hambley’s September 19, 2002 letter to my Congressman, The Honorable John Sununu, which I have just received.

Mr. Hambley’s letter addresses the “discrepancies between the published figures for the U.S. official gold reserves as published in the Federal Reserve Bulletin and the Treasury Bulletin”. He accurately states my conclusion that “the discrepancies in the two published series are attributable to ESF activities“. He also identifies my basic motivation in pursuing this matter: “One of Mr. Turk’s complaints is that the Federal Reserve Bulletin no longer mentions the ESF in its description of the gold stock line item, which he views as an attempt to keep the public un-informed about ESF gold transactions.“

In fact, that is my ONLY complaint. Given the need and the desire for open and honest disclosure, particularly in this post-Enron environment, I am sure you share my view that the important matter I have identified is one that needs immediate resolution. I am therefore writing to you to offer a simple suggestion that will accomplish this objective.

Mr. Hambley makes the oft stated claim that the “Treasury’s Exchange Stabilization Fund holds no gold and has not held any gold since 1974“. He goes on to say that the “change in the line description [i.e., eliminating any mention of the ESF in the report of the gold stock in the Federal Reserve Bulletin] was intended to reflect this fact. Mr. Turk refuses to believe this, but it is not clear what we can do other than to repeat ourselves.“

First, I would like to clarify that ‘belief’ is not an issue here. We are dealing with a clear, factual matter. This matter arose solely because of actions taken by the Federal Reserve. Specifically, you restated historical data, and at the same time you also changed your reporting format by eliminating any mention of the ESF. Taken together these two steps arouse one’s suspicion.

I can accept the fact that errors sometimes occur, which require restatements to data. However, when you restate data and at the same time change your well-established reporting convention by deleting any mention of the ESF, then – to be quite frank – alarm bells ring. It appears that the restatement was made not to correct errors, but rather, to eliminate the ESF’s gold data, and this conclusion is only reinforced by your decision to change at the same time your historical reporting convention to eliminate all reference to the ESF.

If as Mr. Hambley claims that the ESF holds no gold, what’s the harm in continuing to mention the ESF in the gold stock report in the Federal Reserve Bulletin? There of course is no harm, and in fact, the outcome is quite beneficial. By restoring your historical reporting convention, it will produce two immediate benefits. Not only will it eliminate the suspicions of those observers – of which I am one – who question the motivation of the Federal Reserve in making its restatement of the gold stock, but it will also confirm the accuracy of Mr. Hambley’s statement that the ESF holds no gold.

Second, despite Mr. Hambley’s uncertainty about how to resolve this matter, it is very clear what the Federal Reserve needs to do. Here is my suggestion, but it should not come as a surprise because it has been included in my letters to you from the very beginning when I first brought this matter to your attention. For example, here is what I said in my last letter to you, which was sent on December 28, 2001: “Specifically, I have requested that Table 3.12 of the Federal Reserve Bulletin be prepared to again include the month-end gold stock of the ESF, and further, that this information be back-dated from February to the present. As I previously noted, there is no reason to withhold this information from the American public.“

If as Mr. Hambley states that there is no gold in the ESF, then a comparison of the Federal Reserve’s report, which includes the ESF, to that of the Treasury’s, which does not include the ESF, will reflect this fact because the gold stock in each report will be identical. It seems clear that by returning to the time-tested reporting convention the Federal Reserve has used for decades is the only possible way to resolve this matter.

More to the point, until the Federal Reserve again includes the ESF in its reports, there is no other conclusion than the obvious one. Namely, the Federal Reserve has changed its reporting on Table 3.12 for reasons other than “routine data revisions/corrections” that you have claimed. One possible reason – which is the most obvious one – would be that Mr. Hambley’s contention is in fact not correct and that contrary to his assertion, the ESF is indeed involved in the gold market.

I look forward to your response, and your confirmation that the Federal Reserve will again begin including the ESF’s gold stock on Table 3.12 of the Federal Reserve Bulletin, including back-data to February 2001.

I am copying my Congressman on this letter, so that he may stay informed on how the Federal Reserve intends to resolve this important matter of disclosure.

Yours truly,
James Turk