Reposted from Common Dreams.

Out of Sight

Michael Parenti

The super rich, the less than 1 percent of the population who own the lion’s share of the nation’s wealth, go uncounted in most income distribution reports. Even those who purport to study the question regularly overlook the very wealthiest among us. For instance, the Center on Budget and Policy Priorities, relying on the latest U.S. Census Bureau data, released a report in December 1997 showing that in the last two decades “incomes of the richest fifth increased by 30 percent or nearly $27,000 after adjusting for inflation.” The average income of the top 20 percent was $117,500, or almost 13 times larger than the $9,250 average income of the poorest 20 percent.

But where are the super rich? An average of $117,500 is an upper-middle income, not at all representative of a rich cohort, let alone a super rich one. All such reports about income distribution are based on U.S. Census Bureau surveys that regularly leave Big Money out of the picture. A few phone calls to the Census Bureau in Washington D.C. revealed that for years the bureau never interviewed anyone who had an income higher than $300,000. Or if interviewed, they were never recorded as above the “reportable upper limit” of $300,000, the top figure allowed by the bureau’s computer program. In 1994, the bureau lifted the upper limit to $1 million. This still excludes the very richest who own the lion’s share of the wealth, the hundreds of billionaires and thousands of multimillionaires who make many times more than $1 million a year. The super rich simply have been computerized out of the picture.

When asked why this procedure was used, an official said that the Census Bureau’s computers could not handle higher amounts. A most improbable excuse, since once the bureau decided to raise the upper limit from $300,000 to $1 million it did so without any difficulty, and it could do so again. Another reason the official gave was “confidentiality.” Given place coordinates, someone with a very high income might be identified. Furthermore, he said, high-income respondents usually understate their investment returns by about 40 to 50 percent. Finally, the official argued that since the super rich are so few, they are not likely to show up in a national sample.

But by designating the (decapitated) top 20 percent of the entire nation as the “richest” quintile, the Census Bureau is including millions of people who make as little as $70,000. If you make over $100,000, you are in the top 4 percent. Now $100,000 is a tidy sum indeed, but it’s not super rich–as in Mellon, Morgan, or Murdock. The difference between Michael Eisner, Disney CEO who pocketed $565 million in 1996, and the individuals who average $9,250 is not 13 to 1–the reported spread between highest and lowest quintiles–but over 61,000 to 1.

Speaking of CEOs, much attention has been given to the top corporate managers who rake in tens of millions of dollars annually in salaries and perks. But little is said about the tens of billions that these same corporations distribute to the top investor class each year, again that invisible fraction of 1 percent of the population. Media publicity that focuses exclusively on a handful of greedy top executives conveniently avoids any exposure of the super rich as a class. In fact, reining in the CEOs who cut into the corporate take would well serve the big shareholder’s interests.

Two studies that do their best to muddy our understanding of wealth, conducted respectively by the Rand Corporation and the Brookings Institution and widely reported in the major media, found that individuals typically become rich not from inheritance but by maintaining their health and working hard. Most of their savings comes from their earnings and has nothing to do with inherited family wealth, the researchers would have us believe. In typical social-science fashion, they prefigured their findings by limiting the scope of their data. Both studies failed to note that achieving a high income is itself in large part due to inherited advantages. Those coming from upper-strata households have a far better opportunity to maintain their health and develop their performance, attend superior schools, and achieve the advanced professional training, contacts, and influence needed to land the higher paying positions.

More importantly, both the Rand and Brookings studies fail to include the super rich, those who sit on immense and largely inherited fortunes. Instead, the investigators concentrate on upper-middle-class professionals and managers, most of whom earn in the $100,000 to $300,000 range–which indicates that the researchers have no idea how rich the very rich really are.

When pressed on this point, they explain that there is a shortage of data on the very rich. Being such a tiny percentage, “they’re an extremely difficult part of the population to survey,” pleads Rand economist James P. Smith, offering the same excuse given by the Census Bureau officials. That Smith finds the super rich difficult to survey should not cause us to overlook the fact that their existence refutes his findings about self-earned wealth. He seems to admit as much when he says, “This [study] shouldn’t be taken as a statement that the Rockefellers didn’t give to their kids and the Kennedys didn’t give to their kids.” (New York Times, July 7, 1995) Indeed, most of the really big money is inherited–and by a portion of the population that is so minuscule as to be judged statistically inaccessible.

The higher one goes up the income scale, the greater the rate of capital accumulation. Economist Paul Krugman notes that not only have the top 20 percent grown more affluent compared with everyone below, the top 5 percent have grown richer compared with the next 15 percent. The top one percent have become richer compared with the next 4 percent. And the top 0.25 percent have grown richer than the next 0.75 percent. That top 0.25 owns more wealth than the other 99æ percent combined. It has been estimated that if children’s play blocks represented $1000 each, over 98 percent of us would have incomes represented by piles of blocks that went not more than a few yards off the ground, while the top one percent would stack many times higher than the Eiffel Tower.

Marx’s prediction about the growing gap between rich and poor still haunts the land–and the entire planet. The growing concentration of wealth creates still more poverty. As some few get ever richer, more people fall deeper into destitution, finding it increasingly difficult to emerge from it. The same pattern holds throughout much of the world. For years now, as the wealth of the few has been growing, the number of poor has been increasing at a faster rate than the earth’s population. A rising tide sinks many boats.

To grasp the true extent of wealth and income inequality in the United States, we should stop treating the “top quintile”–the upper-middle class–as the “richest” cohort in the country. But to do that, we need to look beyond the Census Bureau’s cooked statistics. We need to catch sight of that tiny, stratospheric apex that owns most of the world.

Visit Common Dreams.

Why We Must Make Peace

Timothy Wilken, MD

Capitalism and the Great Market are features of Neutrality. Neutrality requires unlimited resources. Humanity has had unlimited resources in our endless supply of fossil fuels.

Our present economic crash, which is now being compared to the Great Depression, is the result of approaching end of fossil fuels. As of August 2001, 23 out of 44 nations [representing 99% of world oil production in 2000] have passed their production peaks.

Most of humanity is unaware of this approaching crisis, but the governments of the world are aware and are now acting to control the last of the fossil fuel on the planet. This of course is the real purpose of America’s coming war with Iraq. Our leaders are trying to secure control of the Iraqi oil.

Saddam Hussein has threatened to set the Iraqi oil fields on fire if pressed too hard in the coming war. During the Persian Gulf War from the fall of late 1990 to early 1991, Iraq embarked on a systematic destruction of Kuwait’s oil industry, and Iraqi forces set fire to 789 individual Kuwaiti oil wells. It took Red Adair, hundreds of millions of dollars, and over 11 months to put out the fires. How many million barrels of oil were burned is unknown. The attendant results of the fires were catastrophic both from an economic and ecological standpoint.

Recently the workers of Venezuelan oil industry have gone on strike. Prior to the strike Venezuela was exporting 3 million barrels of oil a day to the United States. Now they are exporting none. They have even started to import gasoline because the autos and trucks of their nation are running dry.

This past friday oil closed at $32.72 a barrel. If things don’t go well in the new Gulf war, and Hussein does successfully torch the oil fields, the price of oil could triple.

This would mean gasoline at the pump could rise to over $5 a gallon and the cost of energy four powering our homes and businesses could triple.What would the effect of such a tripling have on the economy and our personal lives?

As I said at the top of this essay. Neutrality is obsolete. We humans need to move on the next stage of our evolution. We need to reorganize synergically.  We all need air, water, food, shelter, security, love and meaning. We humans are all the same. We are the same species.

We need to make peace. If we humans won’t work together to solve our mutual problems, then we will perish separately fighting like animals.

Another somewhat more technical article in our series on Gold.

A Gold Bull

Daan Joubert

Now that the gold price has shown its willingness to break loose above the glass ceiling around $325-330 that existed for 6 months, one can realistically begin to speculate what are the likely targets during the bull run.

Readers with good memories might remember some charting analyses of the gold price that appeared at Gold Eagle quite some time ago (still available in the G-E archive). The method that used was Chart Symmetry (CS) – based on two observations about the way prices behave:

• That there are preferred gradients along which prices tend to make more reversals than usual
  
• That different preferred gradients are related through the Fibonacci ratio

Preferred gradients can be made visible through the proper placement on the chart of trend lines with that gradient. The most simple example of preferred gradients is the trading channel, between two parallel lines.

It was found that preferred gradients generally form the boundaries of the traditional chart patterns, such as triangles, wedges and megaphones; also, the two sides of these patterns as a rule are related; they are members of the same ‘family´ of gradients, or trend lines, in that the gradient of the one boundary of, say, a triangle, can be derived from the gradient of a trend line that defines the other boundary.

In this essay the principles of Chart Symmetry are applied to the monthly gold close in order to explore possible long term targets for the gold bull. As a rule. in these analyses one line is generated between two prominent points on the chart; this line defines the master gradient for the analysis. All other lines used in the analysis are then derived from that gradient; this is done by means of

Displacement; keeping the gradient constant, but moving the line to result in a parallel gradient

Inversion; keeping the gradient constant, but changing the sign, to result in an inverted line

Fibonacci transformation; changing the gradient, steeper or shallower, by multiplying or dividing the known preferred gradient by the Fibonacci ratio (0.618034. . ). This process can be repeated on the newly derived line, to result in a fan of lines of which the gradients vary from each other by the Fibonacci ratio

While the master line is defined between two points on the chart, all derived lines are generated from just a single point of origin. The software used for the analysis generates these lines using very accurate internal data.

Monthly charts

On this first chart, the master line is defined between the cusp of the large bifurcated top and the December 1987 peak, as indicated by the ‘x´s. While this may at first seems strange to traditional analysts, experience in the use of Chart Symmetry has shown that the centre point or cusp of a bifurcated top – such as developed in the gold price during the early 1980´s – generally lies on a significant trend line.

The relevance of this master line is borne out by the additional analysis.

Line I is the direct inverse of line M, so that I-M is a symmetrical triangle. If the bifurcated break above M is disregarded for the count – standard practice in CS – it is evident that the bull market that had started in February 1993 was the fifth leg of the triangle and should have broken higher above M, into a new bull market with some 80% confidence. That is the fraction of triangles that complete normally, resuming the original trend at the end of leg 5.

View Chart 1

In this case, gold broke above $400 early in 1996, suddenly and inexplicably reversed its trend, and eventually broke below the triangle. Such premature breaks (either on leg 4 or in the wrong direction when on leg 5) tend to be quite steep and sustained, exactly as we see here.

[It was this low probability event that set me off on the search to discover what was wrong with the gold market and which led me to Gold-eagle where I started to learn the truth]

The break lower found support at line F, which is a steeper derivative of line M, with its origin early in the 1970´s bull market.

Lines B and A are the fourth steeper derivatives of line M; the break above line A in July 2001 was the first indication that a gold bull might develop. Now that bull is well under way and has lines I and M as targets. The values of these two lines for the end of this month (December 2002) are $367 and $430 respectively.

View Chart 2

The second chart is generated much the same way as the first, using the same master line, M. The difference is that lines A and b are now the third steeper derivatives of M, not the fourth. We again find that channel A-B is a bear channel for gold, with line A offering outright, very long term resistance at $324 on the monthly close.

At the moment it seems that this resistance will be well broken by the end of December, letting the bull loose on its way to $367 and $430 next.

The question now is what may lie ahead after a break above line M.

The long term outlook

Here we have much the same structure as before, with lines A and B now generated parallel to line F.

View Chart 3

Lets assume that the gold price is due to reach line M, in order to complete leg 3 of the large triangle M-F. It might hesitate and correct at M, to begin leg 4 of this triangle. This gives two scenario´s

Scenario 1: The gold price returns to line F in order to complete leg 4 and then reverses higher into leg 5, in due course breaking above M to extend the bull market.

Scenario 2: The gold price reaches line M and then starts a correction, thus beginning leg 4 of the triangle. However, it soon resumes the bull trend and breaks prematurely above the triangle, i.e. without completing leg 4. In that case, the resulting move is likely to be steep and sustained – something like the late 1970´s.

If we select Scenario 2 on the fundamentals in the gold market, such a steep break can be expected to have either line B or line A as the target, thereby completing a move across either of channels B-F or A-F.

This kind of construction, where lines parallel to the base line of the triangle are generated as targets for the new trend – typically only from the top of the triangle, but here we have two alternatives, because of the bifurcated top – explain the well known rule of thumb that says the extent of a break from a flag, triangle or pennant is equal to the length of the ‘flag pole´ on which the flag or triangle is suspended.

We have the first move, from line F to line B (or line A) in the late 70´s early 80´s as the ‘flag pole´ in this analysis. A new move from line F that rises to the top of the channel (either B or A) should be much the same length as the flag pole, depending on how fast the new move takes place,.

It follows therefore that the longer term outlook for gold has a target at $650 and possibly also at $812.

For observers of the yellow metal who believe gold may well trade above $1000/oz, the good news is that channels are not inviolate. A break higher is always possible, if the market is strong enough to overcome resistance at the top of the channel.

Should that happen, and since channels tend to be evenly spaced, a break to above the channel would have a good chance of a further increase equal to the width of the channel. With line F currently at $271/oz, the width of minor channel B-F is equal to ($649 – 271 =) $378; similarly, the width of A-F is equal to $541. These values can be added to the tops of the two channels to find the likely targets, should the gold price really get going!

© 2002 Daan Joubert All rights reserved

Write me at: daanj@kingsley.co.za

As our human crisis grows every deeper and our economy continues to worsen, many investors are turning to Gold as the refuge of last resort. Recent articles from gold investment experts shine some light on this option.

Today, SynEARTH presents two articles on the subject of Gold and a new phenomenon called the Gold Hedge.

Martin Murenbeeld
National Post

The practice of hedging gold price risk by selling gold “forward,” as done by Barrick and other mining firms, generates an extreme amount of controversy. Barrick’s hedging contracts have been called “fraudulent … an invitation to bankruptcy” by no less than a professor emeritus at the Memorial University of Newfoundland, and Barrick’s officers “blockheads wrapped up in their own glory who do not understand the very nature of the product they help bring up from the bowels of the earth.”

In a legal action brought forward by Reginald Howe on Dec. 7, 2000, an action supported by the Gold Anti-Trust Action group (GATA), Barrick, along with the Federal Reserve and major banks, was charged with suppressing the price of gold. It was claimed “Barrick has material non-public knowledge of [a] gold price-fixing scheme which they have used to their advantage.”

The Howe case was thrown out of court, but that hasn’t stopped the attacks. On Wednesday, Dec. 18, 2002, Blanchard and Company, a supporter of GATA, filed in a Louisiana court the charge that Barrick and JP Morgan Chase Co. had “unlawfully combined to actively manipulate the price of gold.” Indeed, Barrick’s hedging program “involves a unique step whereby Barrick, and the bullion banks with which it operates in combination, can flood the market with central bank gold.” That Blanchard did not also name all gold-lending central banks as co-defendants is a curious oversight!

What is one to make of all this?

For my part, not only is the practice of gold hedging perfectly defensible, but having had a close look at Barrick’s hedging program I can say that there is nothing to suggest that the aforementioned attacks are even remotely on the mark.

Hedging is defined as the process of reducing exposure to an event that could be costly to a firm. It is the opposite of speculation, which is generally defined as the process of increasing exposure to an event that could be profitable to a firm. Its origins go back to agricultural economies where farmers would commit to sell their output to a middleman in order to avoid the volatility of future produce prices. (Commodity exchanges — for grain, hogs, etc. — are among the oldest exchanges.) These farmers would transfer the risk of a price decline, to which they were “exposed” and which could be ruinous to them, to a middleman — a “risk-taker” (who could very well be a speculator who hoped to benefit from a future price rise). In the event the price of the farmer’s output turned out to be higher than what had been contracted, the farmer would suffer an opportunity loss — but he would experience no direct cash loss.

Producers who hedge the gold price are transferring the risk of a future price decline to a counter party — typically a bullion bank. When gold is sold forward, a price on future output is secured today; regardless of what happens to the gold price, the producer will receive the contracted price.

It is not strictly necessary for management to have a view of the future price of gold, furthermore. Management needs to know the degree to which the company (i.e. the board and shareholders) will accept adverse price outcomes. With the help of different gold-price scenarios, management can construct a financial profile for the company and act to mitigate the worst outcomes. Management cannot control the gold price, but management can control the impact of an adverse price outcome on the company. That is the essence of “hedging.”

Hedging isn’t “costless.” If Barrick contracted to deliver gold at $340 per ounce, but the eventual price on delivery day is $375, Barrick will incur an opportunity loss — the “opportunity” to receive the extra $35 per ounce. An opportunity loss is not a cash loss, however. The company remains in business; it just wasn’t as profitable as it might have been.

Of course, were the gold price to fall to $300 by delivery day, Barrick would receive $40 per ounce more than the market would have given it. Indeed, over the last 58 quarters, Barrick has made an extra $2-billion in this fashion. Some of this $2-billion was used to find more gold reserves and purchase gold assets (ergo, Blanchard’s claim that by “manipulating” the gold price Barrick was able to make an “[unprecedented] leap from obscurity to dominant global enterprise”).

Barrick’s hedges are spot-deferred hedges, as are the hedges of some other producers. This means they can be deferred into the future. In the example above, Barrick may choose to postpone delivery for another year(s) when gold rises to $375, and simply sell the gold it was prepared to deliver under the $340 contract directly into the market for $375. No opportunity loss will then be booked.

Will continual deferment lead to problems? Provided that Barrick will always be able to deliver against its contracts, it can only ever incur an opportunity loss. And it may not incur any opportunity loss if the gold price on final delivery day is below the contract price. If Barrick runs out of gold reserves, however, and it had continually postponed delivery, and the gold price skyrockets, there will be a nasty day of reckoning. But shareholders, seeing Barrick’s depleting reserves, will have long abandoned the company to its deserved fate.

Over the last year, the market has “punished” gold hedgers; their share price has not risen to the extent the share price of non-hedgers has. Investors tend to prefer unhedged producers when the price of gold is expected to rise, because of the lower risk of opportunity losses. Barrick’s share price outperformed when the gold price was falling, on the other hand. With gold price scenarios more bullish than bearish currently, Barrick and other “hedgers” are scaling back their hedging activities. The perceived risk of a bad gold price outcome has lessened.

Has hedging depressed the gold price? Yes, according to our models of the gold price. We have calculated that all hedging — of which Barrick hedges are only a small part — has depressed the average yearly price of gold by US$9.40 per ounce since 1983, when the practice first commenced. This estimate follows from the fact that when a producer hedges the gold price risk, its counter party borrows gold from a central bank and sells the gold in the spot market. (The gold is returned to the central bank when the producer delivers against the contract.) It is this selling in the spot market that lies at the root of the animosity towards “hedgers.” Gold companies that do not hedge receive a lower price for their output than otherwise.

However, now that “hedgers” are delivering against past hedge contracts, and not initiating new contracts, the price of gold will be higher on average than otherwise. The knife cuts both ways.

The practice of hedging cannot be stopped. Hedging occurs in all markets where the financial technology has made it feasible to do so. Currency exposure is hedged with great regularity, for example. Should Ford Motor Company of Canada Ltd. file suit against Barrick when Barrick hedges its Canadian dollar exposure, because it raises the price of the Canadian dollar and therefore may hurt Ford’s exports to the United States? This line of logic can lead to ridiculous outcomes in a hurry!

Hedging price risk is a normal business practice. In the gold market, it has allowed some “hedgers” to realize greater profit than otherwise in the heretofore-declining gold market. Our economic system would abort quickly if we barred companies from using all legal means to gain profit and potential advantage over their competitors. My guess is that Blanchard and Company has not profited to the degree it might have hoped these last years in the gold market. Too bad, but that is what a market is all about!

Copyright 2002 by National Post

The Storm Over the Blanchard Lawsuit

Daan Joubert

Hoo, boy. All this dust being raised by Tim Wood´s article on the Blanchard-Barrick-JPM lawsuit! One would think that the dispute of whether gold is being manipulated by a nest of conspirators has been settled a long time ago, with the pro and con camps withdrawing into their own circles so that each of them can tell their converted that they have WON!

And then Blanchard comes along to light the fuse again!

One can imagine much the same kind of abuse being thrown at each other in the days long ago when the people were divided over the relative positions and motions of the sun and the earth and later also whether the earth was flat or a ball. Then, as now with this conspiracy thing, the opposing camps were violently casting all kinds of philosophical arguments at each other, with little effect to convince, when all they had to do was to wait until improved knowledge and more detailed understanding of reality solved the dispute in an objective manner, to find that a round earth was orbiting around the sun.

Interestingly, though, that when I searched Miningweb today so that I could examine the original article by Tim Wood and the long list of responses to it, from a wide range of luminaries in the world of gold (including the fringes, as some might say), I could not find it. Perhaps a case of ignorance and finger problems on my part??

Nevertheless, seeing that it appears to be a season for asking questions, I would like to ask some of my own; hopefully, to stimulate less subjective and parochial thoughts on the matter of gold, rather than to receive a host of responses covering the full gamut from vilification to full throated cheering – or perhaps Tim Wood may want to run a poll.

To begin with, I state a few assumptions that, of course, are open to challenge:

1. The gold price, like those of (other?) commodities, responds to supply and demand as per basic economic theory.

2. Central Banks take seriously their mandate to manage the reserves of the country in a prudent and diligent manner. In support of this assumption we have the stated reason for Central Banks leasing gold – to earn an income (estimated to be about $3 – $4/oz p.a. in terms of lease rates and the price of gold) on a ‘dead´ asset, thereby to increase reserves by some small amount, depending on how much of the gold is leased.

3. Central Banks have economists who understand the ramifications of the law of supply and demand, as this applies to the gold market, even if central bankers do not

4. It is a fact that after the bull market of 1993, the gold price spent all of 1994 and 1995 in a horizontal band, mostly between $380 and $390. In terms of supply and demand we can assume that the market was effectively in balance during this period. Then, in early 1996, gold rose to $415, but suddenly reversed trend and started the steady slide that finally took the price to $250 almost 30 months later. This too is fact. Therefore we can assume that during this latter period – from early 1996 to mid 1999 – supply of bullion consistently exceeded demand by quite some margin.

5. Most sources for supply and demand data for gold agree, in principle, if not in detail, that at least from the latter half of the 90´s and through to today overall demand for gold exceeded natural supply from producers and from scrap. It seems to be generally accepted that at least some if not the majority of the excess supply that is directly or indirectly responsible for the decline in the gold price, originated from the vaults of one or perhaps a number of the Central Banks. After all, their vaults are, or perhaps were, the main repositories for most of the free bullion in the world.

   Interlude:

   It would appear that by the mid-90´s demand for gold had outgrown supply and the gold price had reacted as expected, by rising to above the $400 psychological resistance. At that time, supply suddenly increased and remained at elevated levels, well above demand, to result in a consistent decline in the price of gold over some 30 months.

   Now picture the situation in February of 1996 when the price of gold rose above $400. If the above assumptions are not too far off the mark, it must have been at about this time that one or more Central Banks decided that they have had enough of holding a ‘dead´ asset with no return on it, to begin leasing it in quantity. One may argue whether this was a pro-active measure by the Banks in order to earn an income on the gold, or whether it was in response to demand for leased gold, presumably from bullion banks, who saw profit in obtaining cheap funds at a cost of around 1% on which they then could earn 6% or more. In the final analysis, though, this is of no consequence, as the key decision to lease always was that of the Banks.

   Of course, one may ask whether the central bankers did not consider the effect of a fresh supply on the price of gold before they started to lease in quantity. Perhaps whether they did not listen to their economists, if the latter had anything of significance to contribute as to what will happen to the price when supply started to exceed demand. But that question becomes irrelevant by July 1996 when the price had collapsed from $415 to $380.

   Let us return to our assumptions:

6. One can assume that within 4 months or so from starting to lease in quantity, it must have been evident even to central bankers that their attempt to earn an income (of say $4/oz p.a.) on a relatively small portion of their gold, was not having a good effect on the value of the bullion that remained in their vaults, the latter having lost $35/oz in just 4 months. In other words, that mainly due to their action, the value of the reserves for which they had responsibility was taking a real beating.

7. A further assumption – perhaps with less confidence than most of the preceding – is that the central bankers were sufficiently concerned about the damage that was being done to the reserves to sit down and discuss the matter. If they did, the decision quite clearly was that they could see no reason to curtail their practice of leasing gold in quantity, as the gold price continued to decline under the excess supply from central bank vaults, to fall by another $128; losing all of $163/oz over a period of 28 months.

8. In this post Enron world, we are seeing a spate of law suits in the US where brokers and others are being sued by people who have lost money due to the actions or lack of action of these parties. Let us then assume that there is a universal ruling that owners of assets can seek reparation from parties who have had a mandate to manage these assets on behalf of the owners and who failed to act prudently and diligently, judged in terms of the then available facts, so that significant value was irredeemably lost.

There can be little doubt, if the bulk of these assumptions are not too far off the mark, that the decision of the central bankers to lease their gold in quantity for less than $4/oz p.a. and to continue to do so for at least 28 months during which the value of the bullion reserves fell by $163/oz from $415 to $252 (while earning, at best, $10/oz on just a portion of the reserves during this time), can only be due to two reasons:

• Massive, sustained stupidity by central bankers in the face of day to day evidence, to reveal a near criminal negligence of their mandated responsibilities

• A hidden agenda that was more important to them than the effect of their decisions and actions on the value of the bullion reserves in their care

Observe that except in so far as there is reference to a possible “hidden agenda” for the decisions of the central bankers, there is no mention of conspiracy or manipulation in this essay. So please do not impute support for a ‘conspiracy´ theory to what is written here. The whole essay hinges purely on the wisdom (some might say ‘sanity´) of these central bankers in respect of their decision to sell and lease gold in quantity (a decision generally accepted as fact). Also on the fact they kept on doing so, even when they were clearly shooting themselves in both feet at the same time, at least in terms of their mandate to The People, the proper owners of the national reserves.

This brings us to the final assumption:

1. Assume that you, the reader, is the Judge in a matter where ‘The People´ sue their central bankers for the latter´s negligent management of the country´s gold reserves during the period February 1996 to July 1999; when the value of the bullion declined by $163/oz and the gold leases at best earned 10$/oz on a (small?) portion of these reserves. The People now seek either reparation or punishment, or both.

In the light of the above assumptions, all you have to decide, really, is whether the central bankers, in a climate of excess natural demand, did in fact lease gold in such quantity as to depress the price. Nothing more and nothing less. That is the crux of the matter.

On the basis of how you find the facts in the case, you have to rule:

1. In favour of the Plaintiffs: Central Bank activities did depress the price

2. In favour of the Defendants: Central Banks did nothing to depress the price

Irrespective whether it was crass stupidity or having a hidden agenda.

The above is written a little tongue in cheek, and in a manner to fit the format of recent communications on the matter of the Blanchard law suit.

Finally, though, this essay boils down to just one question – would you, as a judge, rule the central bankers Guilty or Not Guilty on the charge of acting in a manner that had the effect of reducing the value of the national reserves, contrary to what is expected of them in terms of their mandate to be prudent and diligent. No if´s and no but´s – a simple question: did the central bankers act in a manner contrary to fulfilling their mandate.

A simple question, but a Guilty verdict would lead to a mare´s nest of other questions and suppositions that are not touched upon here, including, perhaps, mitigating circumstances in that these central bankers were pursuing other objectives critical to their function. But that would be supplementary to their guilt on the main charge.

Yet the ramifications do not end with a guilty verdict, if you do so find. For example, if, subsequent to early 2001 after the gold price had started off on the current bull trend, the central bankers and other parties also short of gold discovered (belatedly?):

1. that their short positions could not be covered and

2. that the rising gold price presented most severe complications for them all

Would you, now acting the role of a central banker, be willing to do all that is necessary to deal with the problem and attempt to avert what threatens to be a financial disaster of such magnitude as to cause major havoc in all the global financial markets?

In other words, would you use all possible measures, including disinformation and active manipulation of the gold market, including entering into active conspiracy with the other vulnerable parties, if that is what is required, with the objective of keeping the gold price in check? Or would you sit back passively and wait for the inevitable?

A simple choice is all that is needed to this question:

1. Yes, I would try all possible avenues to avert the disaster

2. No, I would simply let happen what must happen

Of course, you may still rule the Defendants ´Not Guilty´ – that they had nothing to with the decline in the gold price, despite the economic law of supply and demand.

Then, do not feel alone: when Copernicus and others presented overwhelming evidence of a heliocentric solar system and Magellan circumnavigated the globe, there were still many people who lived and died convinced that the sun orbited around a flat earth.

However, in this matter, as in many other things, history will still have the last word.

Compliments of the season.

May peace and goodwill permeate the world.

PS You ask what is the relevance of all this to Blanchard? Simple; if you had found that the central bankers had behaved in a manner contrary to their mandate, it is unlikely this was due to crass stupidity. So, if they had acted in pursuit of a hidden agenda, they would welcome all allies in their effort – which might just include JPM and Barrick.

The following is the introduction to the book Problems of Humanity. The first edition of this book, published in 1947, contained essays on the basic problems of humanity. These had originally been issued in pamphlet form between October 1944 and December 1946, and dealt essentially with conditions during and immediately after the war years of 1939-45.

In 1953 a second edition was published which omitted outdated material. A further revision was made for the third edition in 1964.  While some of the book is now out of date, most of the problems described continue to haunt us.

Problems of Humanity

Alice Bailey & Djwhal Khul

It is essential that all thinking people should give time and thought to the consideration of the major world problems with which we are now faced. Some of them can be solved with relative rapidity – given common sense and a correctly appreciated self-interest; others will require foresighted planning and a long patience as, one by one, the necessary steps are taken, leading to the readjustment of human values and the inauguration of new attitudes of mind regarding right human relations. In the recognition of the growth in human consciousness and in a realization of the distinction obviously existing between primitive men and our modern intelligent humanity lie the grounds for an unshaken optimism as to human destiny.

Events in the immediate foreground do not blot out the long history of human development and obliterate recognition of the long range changes which have taken place within the human consciousness; these basically condition human objectives, all human contacts and underline with understanding and perspective the reactions of the race of men.

The slow and restricted movements of the primitive races of mankind have given place to the speed and the rapid movement (the almost unbelievably rapid movement) and transportation facilities of the airplane. The uncouth sounds and the limited vocabulary of the savage races have developed into the intricate language systems of the present nations; the various modes of primitive communication by means of drums or bonfires have been replaced by the telegraph, the telephone and the radio; the wooden dug-out of the uncultured islanders has developed into the greyhound of the sea, racing from port to port under mechanical power and in the space of a few short days; the early slow modes of travel by foot, on horseback or by chariot have given way to the trains, speeding across entire continents at the rate of seventy miles an hour or more. The early and simple civilizations have been succeeded by the intricate and highly organized social, economic and political civilization of modern times. The culture of the ages, the arts, literature, the music and the philosophy of all time is today at the disposal of the average citizen.

The above contrasts provide a perspective and a background which will inspire hope for the future and confidence in the ultimate destiny of man. The past is in reality more like the prenatal stage than an ordinary living process; it is a preface to a richer and a more enlightened life; it is a preliminary period to a culture and a civilization which will redound to the glory of God and constitute a vital testimony to the divinity of man.

When the birthing process is over, a new humanity will be seen active upon the earth, a new race of men – new because differently oriented.

There are necessarily many lesser problems but those dealt with in this book cover the major ones with which humanity is at this time confronted, and which must find some solution during the next twenty-five years. This will have to be done by the simple method (simple to write but difficult to implement) of establishing right human relations between men and between nations.

The immediate spiritual problem with which all are faced is the problem of gradually offsetting hate and initiating the new technique of trained, imaginative, creative and practical goodwill.

Goodwill is man’s first attempt to express the love of God. Its results on earth will be peace. It is so simple and practical that people fail to appreciate its potency or its scientific and dynamic effect. One person sincerely practicing goodwill in a family can completely change its attitudes. Goodwill really practiced among groups in any nation, by political and religious parties in any nation and among the nations of the world can revolutionize the world.

The key to humanity’s trouble (focusing as it has in the economic difficulties of the past two hundred years and in the theological impasse of the orthodox churches) has been to take and not give, to accept and not share, to grasp and not to distribute. This has involved the breaking of a law which has placed humanity in a position of positive guilt. War is the dire penalty which mankind has had to pay for this great sin of separateness. Impressions from the Hierarchy have been received, distorted, misapplied and misinterpreted and the task of the New Group of World Servers is to offset this evil.

Humanity has never really lived up to the teaching given it. Spiritual impression, whether conveyed by the Christ, by Krishna or by Buddha (and passed on to the masses by Their disciples) has not yet been expressed as it was hoped. Men do not live up to what they already know; they fail to make practical their information; they short circuit the light; they do not discipline themselves; greedy desire and unlawful ambition control and not the inner knowledge. To put it scientifically and from the esoteric angle: Spiritual impression has been interrupted and there has been interference with the divine circulatory flow. It is the task of the disciples of the world to restore this flow and to stop this interference. This is the major problem facing spiritual people at this time.