We Inch Closer to the Truth

January 24, 2000 – In Letter #233 (“Grist for Conspiracy Theorists“, October 26, 1998), I laid out my view – now well known to the readers of these letters – that the price of Gold is being manipulated, and that governments are the manipulators. The reason for this biased government stance against Gold is the message that a rising Gold price carries. As I stated back then:

“The Gold price is in essence a report card that measures the success or failure of government action, through the policies of its captive central bank, in the area of money and banking.“

I then proceeded to justify this statement by providing evidence, including what I called a ‘smoking-gun’. It was a statement by none other than Alan Greenspan himself before the House Banking Committee on July 24th of that year. He told those Congressmen that day:

“…central banks stand ready to lease [i.e., lend] gold in increasing quantities should the price rise“.

Since then there has been a lot of interpretation as to what Mr. Greenspan was actually saying. Also, a lot of people have downplayed the significance of Mr. Greenspan’s remarks. To be honest, I myself had some doubts about the motive behind his statement, and I only decided to quote Mr. Greenspan after a lengthy and thorough analysis of his entire testimony that day.

My concern was that some might try arguing that he was only discussing the lending of Gold in a theoretical sense, and as a consequence, hewas therefore not making a statement of any significance or impact to the actual depressed state of the Gold price. However, the conclusion of my analysis was that he was making an important statement, so I published my article. Nevertheless, some nagging doubt remained whether Mr. Greenspan was talking theory or reality…until now.

I have written before about GATA, the Gold Anti-Trust Action committee, and the tremendous work they are doing under the courageous leadership of Bill Murphy, proprietor of www.lemetropolecafe.com. Like a number of us, GATA is trying to get to the truth about what is really happening to the Gold price.

Crude oil is at 9-year highs and flirting with $30 per barrel. The CRB Index is breaking out to the upside. Inflation even by the government’s own statistics (whose reliability is questionable because their data appear to understate the true inflation rate) is rising. But the price of Gold remains lackluster, and Gold’s one good rally in years was stopped dead in its tracks last October.

Is it price manipulation? Is the Gold price being controlled by governments? And even more sensational, is the US government among the price manipulators? Let’s see how Alan Greenspan might answer these questions.

Because of sheer determination and perseverance, GATA prevailed on Senator Joseph Lieberman of Connecticut to write to US Treasury Secretary Lawrence Summers and Alan Greenspan in order to pose a number of questions that GATA would like answered. Mr. Summers has not yet responded, but GATA has graciously shared with me Mr. Greenspan’s reply, which I believe will soon be posted in its entirety on the GATA website, www.gata.org.

Let me preface my remarks with an observation. Given the importance that is attached to every remark by Mr. Greenspan, it is not unreasonable to assume that his letter was carefully reviewed within the Federal Reserve with a fine-tooth comb. There is no doubt in my mind that it was reviewed by the Fed’s lawyers, and may have even been written by them. We therefore also have to go through the letter with a fine-tooth comb in order to decipher what Mr. Greenspan is really telling us.

Having said that, there are two points of particular interest to me. First, Mr. Greenspan in his letter quotes his testimony before the House Banking Committee. It now seems clear that I had nothing to worry about when quoting him back in 1998.

Rather than saying that he was talking about central bank activity in a theoretical sense, Mr. Greenspan explains to Mr. Lieberman that the Federal Reserve does not participate in the Gold market (i.e., the Federal Reserve was not one of the central banks referred to in his testimony). And then to make the point crystal clear, Mr. Greenspan goes on to say that his testimony “simply describes the limited capacity of private parties to influence the gold market by restricting the supply of gold, given the observed willingness of some foreign central banks – not the Federal Reserve – to lease gold in response to price increases” (my underline for emphasis).

Mr. Greenspan is clearly talking reality here, not theory. When he says “observed willingness”, it is clear that he is talking about real-life events. Some central banks, but not the Federal Reserve, are lending Gold when the price increases.

Admittedly, he does not mention motive. But consider the act itself. Central banks obviously know that their lending of Gold acts to depress the price. Note also the telling relationship drawn by Mr. Greenspan. Central banks are not lending Gold when Gold interest rates go up, which one would think should have been the reasonable way in which to express the lending of Gold. But Mr. Greenspan clearly states that central banks lend when the Gold price rises. He doesn’t even mention interest rates, so it is reasonable to conclude that central banks are acting not to maximize their return, but for some other unstated motive. I contend that motive is to manipulate the price of Gold.

The second point of particular interest in Mr. Greenspan’s letter is the following statement:

“The Federal Reserve does not, either on its own behalf or on behalf of others, including other government agencies, lend gold or silver, facilitate the lending of gold and silver, or trade in any securities, such as futures contracts and call and put options“.

When you first read this statement, it looks pretty clear that the Federal Reserve has no involvement with Gold. And that is probably what the lawyers at the Federal Reserve who reviewed, if not completed crafted, Mr. Greenspan’s letter no doubt intended. But don’t let appearances deceive you as to what Mr. Greenspan is saying here.

What is the purpose of the phrase, “including other government agencies”? If it were deleted, the sentence would be even more clear. So if we assume that clarity was not the objective, then what does this phrase add? In a word, plenty.

My copy of Black’s Law Dictionary defines the word include as “to confine within”. However, my Webster’s Seventh NewCollegiate Dictionary defines include as “to take in or comprise part of a larger aggregate”. Thus, the word include in a legal sense means something entirely different from include when spoken colloquially.

When the word include is used in legal agreements and it is intended to have its colloquial meaning, the correct phrase is: “including but not limited to”. If Mr. Greenspan intended to make clear his statement to both a legal and colloquial interpretation, he should have used the proper phraseology. In other words, he should have said “including but not limited to other government agencies.” But he didn’t say this. He (or probably more correctly, the Fed’s lawyers) let the casual and untrained reader draw the obvious but incorrect conclusion from Mr. Greenspan’s statement.

Thus, what Mr. Greenspan is actually saying is that the Federal Reserve does not act for its account or the account of other government agencies in the Gold market. He is not commenting upon what the Federal Reserve may or may not be doing for any other potential player. Does it act for the account of Goldman Sachs or Chase Manhattan? Does it act for the Bank of England? Does it act for the US Treasury? We don’t know. All we know is that the Federal Reserve does not act for its own account or that of other government agencies.

Some may assume that Mr. Greenspan means that the Federal Reserve is not acting for the Treasury, but again, in reality he is not saying that. Quoting again from my Black’s Law Dictionary, an agent is “a person authorized by another to act for him”. Thus, the Treasury is not an agent of the government, but is the government itself. So Mr. Greenspan’s response clearly does not answer whether or not the Federal Reserve is acting in the Gold market on behalf of the US Treasury. Therefore, until Mr. Greenspan says something definitive about the US Treasury, it is prudent to assume that the Federal Reserve could be acting for the account of the Treasury.

Had enough word trickery? Well, there is another example of it worth noting before we move on.

Note that Mr. Greenspan says the “Federal Reserve does not” engage in these activities. Why doesn’t he say the “Federal Reserve System” doesn’t engage in these activities. Or to be even more clear and precise, why didn’t he say the “Federal Reserve System and each of its twelve regional banks” do not engage in these activities. Is it because the Federal Reserve as he defines it in this letter means only the Board of Governors in Washington, and not the Federal Reserve Bank of New York, whose trading desk it is where most of the alleged government participation in the Gold market is taking place?

Now before you think I am nit-picking and being generally unreasonable, let me make one very important point. I never thought I would ever praise Bill Clinton about anything, but there is in fact one thing for which we can thank him. Mr. Clinton told the world how important the definition of the word is is. He wasn’t lying about “that woman”. He didn’t have a “sexual relationship” with her because in his definition, being on the receiving end of oral sex was not part of his definition of a sexual relationship. He could therefore say he was not lying.

Now, I surely do not intend to draw any parallel whatsoever between the despicable Mr. Clinton and the admirable Mr. Greenspan. But there is an important point here. Never presume that anyone from the government is being forthright.

In Mr. Greenspan’s case, it is only prudent and logical to assume that he purposefully excluded the Federal Reserve Bank of New York from his answer, letting the reader draw his own conclusions about what was meant by using the term Federal Reserve. Moreover, we must also assume that he added the phrase “including other government agencies” purposefully.

And as a consequence, we really do not yet have a letter from the Federal Reserve System and each of the twelve regional banks confirming or denying whether it is helping the US Treasury to manipulate the price of Gold.

Let me conclude with a few words in defense of Mr. Greenspan, because I think there are really two sides to this very brilliant individual whom the whole world clearly respects. First, there is Mr. Greenspan the technocrat.

In his capacity as head of the Federal Reserve, Mr. Greenspan is very capably doing what he has been hired to do. He is using all of the power available to the Federal Reserve to keep the fractional reserve banking system from imploding, which would undermine and destroy the Dollar and the profits of the banking system that employs him. The Federal Reserve does not operate for our benefit, but for the benefit of the banks. They own it (the Federal Reserve is a private corporation), and they control it (we have seen time and again how the Federal Reserve bails out the banks when they get into trouble).

Thus, like a good soldier following orders, Mr. Greenspan testifies before Congress and takes the pro-banking point of view. For example, when Mr. Greenspan makes his oft repeated testimony that he is against full disclosure of bank derivative exposure, do you think he is speaking his own personally held view or is he answering how the banks want him to answer?

The strict control of derivative disclosure is clearly something the banks want. Admittedly, we don’t really know Mr. Greenspan’s personal view, but this brings me to what I called the second Alan Greenspan. Let’s call this side of him the ‘sound money man’.

At first blush you may think my second characterization of Mr. Greenspan to be nonsensical. After all, he sits at the head of an organization under whose watch since 1913 the Dollar has lost 94% of its purchasing power. How could he possibly be a ‘sound money man’? I think the answer is simple.

Mr. Greenspan in the 1960’s capably wrote about Gold, and demonstrated his pro-sound money views. Moreover, on numerous occasions in testimony before Congress he repeated his pro-Gold view, stating further that this personal view is in a minority among his colleagues at the Federal Reserve. Thus, it seems clear to me that Mr. Greenspan the technocrat is very different from Mr. Greenspan the ‘sound money man’, and this observation leads to a very important question.

When Mr. Greenspan was testifying before the House Banking Committee in 1998, was he wearing his technocrat’s hat, or was it the hat of a sound money man? Was he communicating to the world that Gold’s infallible signal (i.e., the Gold price) could not at present be relied upon because “central banks stand ready to lease gold in increasing quantities should the price rise”?

I don’t have the answer to these questions; no one but Mr. Greenspan does. And in any case, because of his technocrat position as head of the Federal Reserve, he couldn’t tell us anyway unless his bosses (i.e., the banks) allowed him to. Don’t wait for that to happen. But I think that we should give Mr. Greenspan the benefit of the doubt here.

Personally, I couldn’t work for a company that was diametrically opposed to my personally held views, but every individual is different. And as far as I am aware, Mr. Greenspan has never commented on the motivations why he assumed the Fed’s chairmanship and why he continues to serve that role.

Clearly, it was Mr. Greenspan the technocrat who wrote the letter to Mr. Lieberman, but Mr. Greenspan the sound money man is not hiding. If he were, the letter would not have recorded “the observed willingness of some foreign central banks…to lease gold in response to price increases”. Importantly we have stepped – no, we have inched nearer to the truth about whether the Gold price is being manipulated.