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Exclusive Smoking Gun: The Fed On Gold Manipulation

Tyler Durden's picture





 

Zero Hedge has recently presented several declassified documents from the pre-1971 "Nixon Shock" days, that endorse the case for gold as a major historical factor in US monetary and foreign policy, as demonstrated by State Department and CIA disclosure. Gold's special status in policy and administrative decision-making was a direct factor in Nixon's choice to abolish the gold reserve at a time of an exploding budget deficit.

Yet what about the days after 1971, and specifically, how did that critical "behind the scenes" organization, the Federal Reserve, perceive and manipulate gold in the post Bretton-Woods world? Was gold, freed from its shackles to the dollar, once again merely a symbolic representation for money?

Zero Hedge presents the smoking gun that may provide responses to all the various open questions, courtesy of a declassified memorandum, written by none other than the then Fed Chairman, addressed to the president of the United States.

On June 3, 1975, Fed Chairman Arthur Burns, sent a "Memorandum For The President" to Gerald Ford, which among others CC:ed Secretary of State Henry Kissinger and future Fed Chairman Alan Greenspan, discussing gold, and specifically its fair value, a topic whose prominence, despite former president Nixon's actions, had only managed to grow in the four short years since the abandonment of the gold standard in 1971. In a nutshell Burns' entire argument revolves around the equivalency of gold and money, and furthermore points out that if the Fed does not control this core relationship, it would "easily frustrate our efforts to control world liquidity" but also "dangerously prejudge the shape of the future monetary system." Furthermore, the memo goes on to highlight the extensive level of gold price manipulation by central banks even after the gold standard has been formally abolished. The problem with accounting for gold at fair market value: the risk of massive liquidity creation, which in those long-gone days of 1975 "could result in the addition of up to $150 billion to the nominal value of countries' reserves." One only wonders what would happen today if gold was allowed to attain its fair price status. And the threat, according to Burns: "liquidity creation of such extraordinary magnitude would seriously endanger, perhaps even frustrate, out efforts and those of other prudent nations to get inflation under reasonable control." Aside from the gratuitous observation that even 34 years ago it was painfully obvious how "massive" liquidity could and would result in runaway inflation and the Fed actually cared about this potential danger, what highlights the hypocrisy of the Fed is that when it comes to drowning the world in excess pieces of paper, only the United States should have the right to do so. 

Another notable observation is that despite a muted antagonism between the Fed and the US Treasury persisting for decades, the fuse is and always has been short, and the conflict can promptly hit a crescendo, with the Fed ultimately always getting the upper hand. In the case of the Burns memo, the Fed's position was diametrically opposed to what the Treasury proposed was the proper approach. The result: full on assault by the Federal Reserve over the Treasury's credibility and even then, more than three decades ago, a veiled threat by the Fed involving escalating problems if the recommendation of the Treasury was picked over that of the Fed. "Severe criticism on the part of prominent and influential financiers would inevitably follow if the Treasury's present position prevailed." It is not surprising that the Fed's modus operandi has not changed one bit since 1975: it is our way or virtually assured destruction/embarrassment way.

Additionally, a curious tangent of the Burns memo is the fact that gold was explicitly used as an engine to enact political doctrine: "If the United States took a stand on the gold question that failed to satisfy the French in current international negotiations, would there be adverse economic or political consequences? I doubt it... If we do ever accede to French views on gold, we should at least use our bargaining leverage to achieve some major political advantage." And while gold as a policy mechanism was unable to satisfy its role this time, one wonders on how many subsequent occasions was global democracy trampled over in order to placate the US Federal Reserve:

"I have consulted Henry Kissinger as to whether there is some political quid pro quo we might want to extract from the French in exchange for acceding to some part or all of their desired position on gold. But Henry tells me there is none at this time."

At some point governments of advanced nations will say "enough" to the covert domination of their controlling bodies by the Federal Reserve, which through manipulation of its gold and money interests, effectively has control over not just the French, but every government which has a monetary basis to its respective economy and a relationship to the US "reserve" currency... Which means virtually every country in the world. The backlash, if and when it occurs, will be memorable.

Lastly, the memo presents a useful snapshot into the cloak-and-dagger, and highly nebulous world of CB negotiations and gold price manipulation:

"I have a secret understanding in writing with the Bundesbank that Germany will not buy gold, either from the market or from another government, at a price above the official price."

So to all conspiracy theorists claiming that gold is being manipulated on a daily basis by the Federal Reserve: when it occurs over and over, and is so well documented, it is no longer a theory, it is merely sad. And the fact that the US government goes to great lengths to hide the illicit dealings of the Federal Reserve, which through its monetary tentacles, has prima facie control over not just US policy but also over sovereign governments, is an unprecedented failure in the checks and balances system that the founding fathers had planned when they created the United States of America. Yet saddest is that the United States no longer pursues strategic goals that are in the best interest of the majority of its citizens, but merely manipulates other, less powerful nations into a servile existence that only provides gain to a very limited subset of the American financial oligarchy. It is time for the Fed's unprecedented control over affairs, both global and domestic, to end.

Full memo from Arthur Burns presented, compliments of Geoffrey Batt who collaborated in the creation of this post.

 

 


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Mon, 09/28/2009 - 13:58 | Link to Comment lsbumblebee
lsbumblebee's picture

An empty pop bottle? Some gum wrappers?

Mon, 09/28/2009 - 17:07 | Link to Comment MsCreant
Mon, 09/28/2009 - 12:44 | Link to Comment Anonymous
Mon, 09/28/2009 - 12:48 | Link to Comment Anonymous
Mon, 09/28/2009 - 15:24 | Link to Comment SWRichmond
SWRichmond's picture

lolz!

Mon, 09/28/2009 - 12:53 | Link to Comment AN0NYM0US
AN0NYM0US's picture

The head of the World Bank on Monday sounded a cautionary note about granting greater regulatory power to the U.S. Federal Reserve and said the dollar's future will "depend heavily on U.S. choices."

My questions is why would he say that - i.e. what's the angle here, we know they're on the same side.

please excuse the CNBS link

http://www.cnbc.com/id/33053662

Mon, 09/28/2009 - 13:08 | Link to Comment AN0NYM0US
AN0NYM0US's picture

President has decided to go to Copenhagen to pitch Chitown vis a vis the Olympics = it's a done deal (otherwise he wouldn't be going). 

 

Is it possible to short Chicago?

Mon, 09/28/2009 - 13:09 | Link to Comment Anonymous
Mon, 09/28/2009 - 17:56 | Link to Comment TumblingDice
TumblingDice's picture

The memorandum is seven pages long, written in very large font, with healthy margins. Read it and think for yourself.

Mon, 09/28/2009 - 19:18 | Link to Comment Hephasteus
Hephasteus's picture

I find your insistance on free thought disturbing. You will never be allowed in the global elite brotherhood with that attitude mister. Shape up or ship out. :)

Mon, 09/28/2009 - 20:52 | Link to Comment Miles Kendig
Miles Kendig's picture

I am sure that is why the dice tumble.  hehe

Mon, 09/28/2009 - 21:40 | Link to Comment TumblingDice
TumblingDice's picture

Yup. They tried rehabilitating me, but it turned out my problem was rooted too deeply: my gambling addiction. Try as they might to tell me that 2+2=5 it didn't faze me. Deuces are wild, after all.

Mon, 09/28/2009 - 22:19 | Link to Comment Miles Kendig
Miles Kendig's picture

Twenty years of diesel therapy has helped to shape the person I am today...

Mon, 09/28/2009 - 22:29 | Link to Comment TumblingDice
TumblingDice's picture

Sorry to hear that. Can't even imagine being forced to see the world from that awful perspective for so long.

Mon, 09/28/2009 - 23:11 | Link to Comment Miles Kendig
Miles Kendig's picture

 

From either side of the fence.   After all, I am an All American volunteer.

I am Miles Kendig and I will never go back, for any amount of money.

Tue, 09/29/2009 - 01:44 | Link to Comment MsCreant
MsCreant's picture
Hopscotch?

Working on mysteries without any clues...

Tue, 09/29/2009 - 03:06 | Link to Comment Miles Kendig
Miles Kendig's picture

 

 

What to leave in.  What to leave out.

Tue, 09/29/2009 - 03:29 | Link to Comment Hephasteus
Hephasteus's picture

It's all in the brain. Gotta keep processing the signals.

http://en.wikipedia.org/wiki/Fourier_transform

Wehn it cmoes to the eeys tohgue its mroe ipomratnt taht you see the wohle tihng.

Stretch your mind to ecompasse the whole and you can derive the signals better.

The problem is the little eye floating above the pyramid. It thinks it can be divorced from the pyramid and simply hover above it seeing the whole and confusing the rest of the pyramid. Till the wittle people on the pyramid climb up it and grab it by the nuts and drag it down into the masses.

Tue, 09/29/2009 - 03:51 | Link to Comment Renfield
Renfield's picture

"Stretch your mind to ecompasse the whole and you can derive the signals better...Till the wittle people on the pyramid climb up it and grab it by the nuts and drag it down into the masses."

Existentialism mixed with salacious populism and a soupcon of bitter revolucion.

This is why HerosEdge is the Best Blog on the Web. More than just math, trends, charts and loose ladeez pix. (aka, The Quant Hos.) You get the occasional $$ philosopher too.

Sometimes I can't decide whether David Lynch or Mickey&Mallory is writing some of the comments here...

 

Mon, 09/28/2009 - 19:40 | Link to Comment Sancho Panza
Sancho Panza's picture

The Fed's job is to manage monetary policy.  This memo proves that to manage monetary policy, the Fed has formed agreements, behind closed doors, with other central banks to suppress the alternative to their fiat: gold.  To my knowledge, this information is new to the public.  Whether the agreements were lawful might be called into question.

Mon, 09/28/2009 - 13:16 | Link to Comment Careless Whisper
Careless Whisper's picture

Props.

Did Hu Jintao get the memo?

Mon, 09/28/2009 - 13:32 | Link to Comment Anonymous
Mon, 09/28/2009 - 14:02 | Link to Comment Michael
Michael's picture

OT

Paul Krugman joins Al Gore in the annels of stupidity. We want both your Nobel prizes returned.

Cassandras of Climate

http://www.nytimes.com/2009/09/28/opinion/28krugman.html?adxnnl=1&adxnnlx=1254160804-BFSKEIXK2SBIy9GwrFKMww

 

Mon, 09/28/2009 - 14:12 | Link to Comment Apocalypse Now
Apocalypse Now's picture

This may mean that gold is the only asset class that is not liquidity inflated and over valued.  Enjoy a discount on the price of physical gold, by courtesy of the powers that be.

Mon, 09/28/2009 - 15:25 | Link to Comment SWRichmond
SWRichmond's picture

This is IMO the correct way to view our current situation.  Take possession of physical now, while you can.

Mon, 09/28/2009 - 15:51 | Link to Comment MyKillK
MyKillK's picture

One of the most common arguments I see against the use of gold as a currency is that there isn't enough gold relative to economy and GDP. However, that's only true in nominal currency terms and proves how utterly out of control the masters of the printing presses have been over the last century. If we want to return to a system where gold is actually backing the value of the currency, without crippling deflation, gold has to be revalued massively. Maybe $100,000 per ounce would be sufficient, but even that probably wouldn't be enough.

Mon, 09/28/2009 - 16:04 | Link to Comment Anonymous
Mon, 09/28/2009 - 18:07 | Link to Comment Anonymous
Mon, 09/28/2009 - 16:42 | Link to Comment Anonymous
Mon, 09/28/2009 - 17:17 | Link to Comment Renfield
Renfield's picture

You and me both, Apo.

AND certain pigsters who are no doubt stocking up right along with us in private vaults, so they can stay rich after most of the world's population is left with a big honkin pile of paper with lovely long meaningless numbers printed all over it.

Mon, 09/28/2009 - 14:24 | Link to Comment blackebitda
blackebitda's picture

does the fed manipulate the stock or futures market? 

http://www.youtube.com/watch?v=mXmNpdYpfnk&feature=channel_page

 

Mon, 09/28/2009 - 15:06 | Link to Comment Anonymous
Mon, 09/28/2009 - 19:06 | Link to Comment Anonymous
Mon, 09/28/2009 - 19:44 | Link to Comment Anonymous
Mon, 09/28/2009 - 15:10 | Link to Comment blackebitda
blackebitda's picture

mad as hell and the question of citizens for the US

http://www.youtube.com/watch?v=UYqCm_D7pRE

Mon, 09/28/2009 - 15:51 | Link to Comment Joe Sixpack
Joe Sixpack's picture

I created a searchable/copy-pastable PDF from the one above.

www.Gold-Silver.US/Fed_Burns_Nixon_1975.pdf

Tue, 09/29/2009 - 07:59 | Link to Comment Anonymous Hand
Anonymous Hand's picture

Thank you, Joe Sixpack: very helpful. Aside from the kooky watermarks at the top and bottom of each page...

 

This is a remarkable document because it is OURS, it is publicly released, and it states in no uncertain terms that we have been governmentally involved in manipulating international markets.  Further, it states explicitly that this market manipulation (price fixing) is occuring as part of "secret understanding in writing" with other nations. In judicial terms, this is known as "Conspiracy".

http://en.wikipedia.org/wiki/Conspiracy_(crime)

Price fixing and market manipulation is actionable. I'd like to see Cuomo try to sink claws into this one. I'm suddlenly reminded of a barn cat attacking a draft horse.

Mon, 09/28/2009 - 15:52 | Link to Comment Anonymous
Mon, 09/28/2009 - 15:53 | Link to Comment Anonymous
Mon, 09/28/2009 - 15:59 | Link to Comment Anonymous
Mon, 09/28/2009 - 16:06 | Link to Comment Pilatus
Pilatus's picture

Free markets??? In 30 years, if we're still alive, we might get archived documents about the plunge protection team, both in stock and bonds, and the keep-a-lid on commodities team surfacing

Mon, 09/28/2009 - 16:07 | Link to Comment HankPaulson
HankPaulson's picture

Excellent work. Again. God I love this site.

 

[Incidentally, gotta love how Mr Arthur F. Burns denotes his first point "First", his second point "Second", his third point "Third", and so on.]

Mon, 09/28/2009 - 17:55 | Link to Comment Ich bin ein whatever
Ich bin ein whatever's picture

I want my TARP money back Hank Paulson.  I need it to buy CNBC for Zero Hedge.  Then I can rid te world of Steve LIESman forever!

 

ref to post. 81725

Mon, 09/28/2009 - 21:26 | Link to Comment HankPaulson
HankPaulson's picture

lol! money back? you don't seem to "get it". still, i like your pluck! :)

Mon, 09/28/2009 - 16:18 | Link to Comment Anonymous
Mon, 09/28/2009 - 16:23 | Link to Comment MyKillK
MyKillK's picture

On an unrelated subject....does anyone know if the constitutionality of FDR's gold seizure was ever challenged? I fail to see anything that gives the government even remotely the power to do such a thing.

Mon, 09/28/2009 - 16:56 | Link to Comment George the baby...
George the baby crusher's picture

Nobody seems to have taken up on the real big issue here.  Yeah sure gold is manipulated, but what about the fact that the US FED is manipulating other countries and the world's monetary system? We've all seen the FEDs track record, and then to find out that they are the master of all....Now there is your gob smack.

Mon, 09/28/2009 - 17:11 | Link to Comment Renfield
Renfield's picture

This isn't really about gold. This is about the Fed and how goddamn stupid it is to allow your (our) countries to be governed by unrepresentative bankers. (Who inevitably turn evil once they're given unfettered political power through control of the nation's purse-strings.)

I don't think floating fiat will ever work. But fiat or not, asset-backed or not, give your political power to a central bank and watch your country fall.

Props to Karl Denninger (who hates gold) for posting this UTube vid:

http://market-ticker.denninger.net/archives/1470-ROFL!-4-Minutes-With-An-Elephant.html

Watch the second one. Well, both show that the sheeple are waking up slowly to what's been done to them in the two major 'empire' countries, but the American one is funnier.

Hey hey hey hey. Fk th Fd.

Mon, 09/28/2009 - 20:04 | Link to Comment Joe Sixpack
Joe Sixpack's picture

"This is about the Fed and how ... stupid it is to allow your (our) countries to be governed by unrepresentative bankers. "

 

It is Congress that allows it.

 

www.RevokeTheFed.com

Mon, 09/28/2009 - 17:38 | Link to Comment Anonymous
Mon, 09/28/2009 - 18:00 | Link to Comment AN0NYM0US
AN0NYM0US's picture

what's interesting is that documents from the Ford Library typically have a seal   and the layout that indicates photocopy is also different.  (not suggesting anything but it is curious, perhaps it has to do with the timing of the declassification)

 

here are some examples:

 

http://www.fordlibrarymuseum.gov/library/document/memcons/1553143.pdf

 

http://www.fordlibrarymuseum.gov/library/document/memcons/1552905.pdf

Mon, 09/28/2009 - 20:50 | Link to Comment Miles Kendig
Miles Kendig's picture

Noteworthy.  You must be an archives sort of person....

Mon, 09/28/2009 - 17:58 | Link to Comment Chumly
Chumly's picture

"They will throw their silver into the streets and their gold will be like refuse."  I believe this pertains to Satan's minions, not all.

Mon, 09/28/2009 - 18:16 | Link to Comment Anonymous
Mon, 09/28/2009 - 18:23 | Link to Comment Anonymous
Mon, 09/28/2009 - 19:58 | Link to Comment Jacks Complete ...
Jacks Complete Lack of Surprise's picture

Sup Tyler.

The old money is giggling at you in Europe. What next, you gonna realize that the Fed is backing the US dollar on corporate paper instead of government debt obligations, as per their charter they got to write?

I am loving everyone commenting here acting as if the veil has finally been removed when this has been known for quite some time. Shocked, shocked I say, to find out the Fed used gold to further the hegemony of the US Dollar.

There's that complete lack of surprise again.

Btw, what are the whistle rules around here?

Mon, 09/28/2009 - 20:23 | Link to Comment Anonymous
Mon, 09/28/2009 - 21:08 | Link to Comment Jacks Complete ...
Jacks Complete Lack of Surprise's picture

I'll go put on a pot of coffee then. Nothing like a bout of shadow boxing.

Mon, 09/28/2009 - 21:26 | Link to Comment Renfield
Renfield's picture

Or better yet, you could go back to watching 'American Idol'...

Mon, 09/28/2009 - 22:35 | Link to Comment Jacks Complete ...
Jacks Complete Lack of Surprise's picture

Ah, I expect better taunting from the users here, this is subpar. Quite a pugna stipes you have here Tyler.

And by the way my good man, who seems quite culturally ignorant, American Idol is idle at the second, so good day to you, sir.

Mon, 09/28/2009 - 22:41 | Link to Comment MsCreant
MsCreant's picture

"American Idol is idle at the second"

So you knew? Eeeeeeew!  Seems to me he read you correctly.

Cultural ignorance (of that sort) is bliss.

Mon, 09/28/2009 - 23:05 | Link to Comment Renfield
Renfield's picture

Pugnandi ratio as my old granpappy used to say... ;-) Alas my rusty latin but as you noticed, what he said came out sort of a compliment. Credit where due, he's quite right at that - I forgot to check the online TV Guide before I posted! Now don't I feel silly.

Tue, 09/29/2009 - 00:07 | Link to Comment Miles Kendig
Miles Kendig's picture

Aww.  The best jokes need to be on ourselves once in a while for humor to really work.

Tue, 09/29/2009 - 19:39 | Link to Comment Anonymous
Mon, 09/28/2009 - 22:53 | Link to Comment TumblingDice
TumblingDice's picture

Theyre backing it with shit.

Tue, 09/29/2009 - 10:40 | Link to Comment Anonymous
Mon, 09/28/2009 - 20:14 | Link to Comment Econophile
Econophile's picture

Brilliant! Another chapter in the Fed's war against real money.

Mon, 09/28/2009 - 20:29 | Link to Comment AN0NYM0US
AN0NYM0US's picture

I posted above  some inconsistencies with the markup of the document cited in the lead article - It would be great if ZH could provide a link to a primary source as opposed to a Scribd rendition.

Mon, 09/28/2009 - 20:35 | Link to Comment mkkby
mkkby's picture

I respectfully disagree. My interpretation of this "news" is that gold is manipulated for the APPEARANCE of low inflation. So, really, who cares? We have other inflation measures. We have market-driven currency exchange rates.

Why does gold even matter? Answer -- it doesn't. Only in the minds of central bankers who are old enough to remember when it was convertible. Are we ever going to be able to buy anything with it? No. Is it ever going to be the basis for any currency? No. Imagine going back to the gold standard. The price would have to be upwards of $1 million per oz.

Tue, 09/29/2009 - 11:34 | Link to Comment Anonymous
Wed, 09/30/2009 - 08:47 | Link to Comment Anonymous
Mon, 09/28/2009 - 20:43 | Link to Comment Anonymous
Mon, 09/28/2009 - 21:40 | Link to Comment waterdog
waterdog's picture

Global Oligarchy Liability Diversion

Mon, 09/28/2009 - 22:46 | Link to Comment Anonymous
Mon, 09/28/2009 - 23:20 | Link to Comment lsbumblebee
lsbumblebee's picture

Out of the mouths of babes...

"Gold falls despite dollar bashing...gold prices fell despite criticism of the dollar by the World Bank president."

http://www.forbes.com/2009/09/28/dollar-oil-treasuries-markets-equities-...

I doubt if this Forbes reporter realizes that in a parallel universe he would be up for a pulitzer.

Tue, 09/29/2009 - 10:08 | Link to Comment Stuart
Stuart's picture

Mish's comments are shockingly dismissive.  

'Ya, so what? So the same gang is in the same hangout as they were 30 years ago with the same motive, same tools. All this says is that this gang willfully conspired to murder someone 30 years ago. Doesn't say that they've murdered anybody lately or proof they're now capable of it again. "  

Unbelievably willfully dismissive.   If he took a position we never landed anyone on the moon, good luck in proving it to him. 

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Tue, 09/29/2009 - 11:28 | Link to Comment Anonymous
Tue, 09/29/2009 - 14:53 | Link to Comment Anonymous
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