[Congressional Record Volume 148, Number 14 (Thursday, February 14, 2002)]
[Extensions of Remarks]
[Pages E162-E164]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


      INTRODUCTION OF THE MONETARY FREEDOM AND ACCOUNTABILITY ACT

                                 ______
                                 

                             HON. RON PAUL

                                of texas

                    in the house of representatives

                      Wednesday, February 13, 2002

  Mr. PAUL. Mr. Speaker, I rise to introduce the Monetary Freedom and 
Accountability Act. This simple bill takes a step toward restoring

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Congress' constitutional authority over the monetary policy of the 
United States by requiring Congressional approval before the President 
or the Treasury Secretary buys or sells gold.
  Federal dealings in the gold market have the potential to seriously 
disrupt the free market by either artificially inflating or deflating 
the price of gold. Given gold's importance to America's (and the 
world's) monetary system, any federal interference in the gold market 
will have ripple effects through the entire economy. For example, if 
the government were to intervene to artificially lower the price of 
gold, the result would be to hide the true effects of an inflationary 
policy until the damage was too severe to remain out of the public eye.
  By artificially deflating the price of gold, federal actions in the 
gold market can reduce the values of private gold holdings, adversely 
effecting millions of investors. These investors rely on their gold 
holdings to protect them from the effects of our misguided fiat 
currency system. Federal dealings in gold can also adversely affect 
those countries with large gold mines, many of which are currently 
ravished by extreme poverty. Mr. Speaker, restoring a vibrant gold 
market could do more than any foreign aid program to restore economic 
growth to these areas.
  While the Treasury denies it is dealing in gold, the Gold Anti-Trust 
Action Committee (GATA) has uncovered evidence suggesting that the 
Federal Reserve and the Treasury, operating through the Exchange-
Stabilization Fund and in cooperation with major banks and the 
International Monetary Fund, have been interfering in the gold market 
with the goal of lowering the price of gold. The purpose of this policy 
has been to disguise the true effects of the monetary bubble 
responsible for the artificial prosperity of the 1990s and to protect 
the politically-powerful banks who are heavily invested in gold 
derivatives. GATA believes federal actions to drive down the price of 
gold help protect the profits of these banks at the expense of 
investors, consumers, and taxpayers around the world.
  GATA has also produced evidence that American officials are involved 
in gold transactions. Alan Greenspan himself referred to the federal 
government's power to manipulate the price of gold at a hearing before 
the House Banking Committee and the Senate Agricultural Committee in 
July, 1998: ``Nor can private counterparties restrict supplies of gold, 
another commodity whose derivatives are often traded over-the-counter, 
where central banks stand ready to lease gold in increasing quantities 
should the price rise.'' [Emphasis added].
  Mr. Speaker, in order to allow my colleagues to learn more about this 
issue, I am enclosing ``All that Glitters is Not Gold'' by Kelly 
Patricia O'Meara, an investigative reporter from Insight magazine. This 
article explains in detail GATA's allegations of Federal involvement in 
the gold market.
  Mr. Speaker, while I certainly share GATA's concerns over the effects 
of federal dealings in the gold market, my bill in no way interferes 
with the ability of the federal government to buy or sell gold. It 
simply requires that before the executive branch engages in such 
transactions, Congress has the chance to review it, debate it, and 
approve it.
  Given the tremendous effects on the American economy from the federal 
dealings in the gold market, it certainty is reasonable that the 
people's representatives have a role in approving these transactions, 
especially since Congress has an all-too-neglected Constitutional role 
in overseeing monetary policy. Therefore, I urge all my colleagues to 
stand up for sound economics, open government and Congress' 
constitutional role in monetary policy by cosponsoring the Monetary 
Freedom and Accountability Act.

                   [Insight Magazine, March 4, 2002]

                     All That Glitters Is Not Gold

                      (By Kelly Patricia O'Meara)

       Even though Enron employees and the company's accounting 
     firm, Arthur Andersen, have destroyed mountains of documents, 
     enough information remains in the ruins of the nation's 
     largest corporate bankruptcy to provide a clear picture of 
     what happened to wreck what once was the seventh-largest U.S. 
     corporation.
       Obfuscation, secrecy, and accounting tricks appear to have 
     catapulted the Houston-based trader of oil and gas to the top 
     of the Fortune 100, only to be brought down by the same 
     corporate chicanery. Meanwhile, Wall Street analysts and the 
     federal government's top bean counters struggle to convince 
     the nation that the Enron crash is an isolated case, not in 
     the least reflective of how business is done in corporate 
     America.
       But there are many in the world of high finance who aren't 
     buying the official line and warn that Enron is just the 
     first to fall from a shaky house of cards.
       Many analysts believe that this problem is nowhere more 
     evident than at the nation's bullion banks, and particularly 
     at the House of Morgan (J.P. Morgan Chase). One of the 
     world's leading banking institutions and a major 
     international bullion bank, Morgan Chase has received heavy 
     media attention in recent weeks both for its financial 
     relationships with bankrupts Enron and Global Crossing Ltd. 
     as well as the financial collapse of Argentina.
       It is no secret that Morgan Chase was one of Enron's 
     biggest lenders, reportedly losing at least $600 million and, 
     perhaps, billions. The banking giant's stock has gone south, 
     and management has been called before its shareholders to 
     explain substantial investments in highly speculative 
     derivatives--hidden speculation of the sort that overheated 
     and blew up on Enron.
       In recent years Morgan Chase has invested much of its 
     capital in derivatives, including gold and interest-rate 
     derivatives, about which very little information is provided 
     to shareholders. Among the information that has been made 
     available, however, is that as of June 2000, J.P. Morgan 
     reported nearly $30 billion of gold derivatives and Chase 
     Manhattan Corp., although merged with J.P. Morgan, still 
     reported separately in 2000 that it had $35 billion in gold 
     derivatives. Analysts agree that the derivatives have 
     exploded at this bank and that both positions are enormous 
     relative to the capital of the bank and the size of the gold 
     market.
       It gets worse. J,P. Morgan's total derivatives position 
     reportedly now stands at nearly $29 trillion, or three times 
     the U.S. annual gross domestic product. Wall Street insiders 
     speculate that if the gold market were to rise, Morgan Chase 
     could be in serious financial difficulty because of its 
     ``short positions'' in gold. In other words, if the price of 
     gold were to increase substantially, Morgan Chase and other 
     bullion banks that are highly leveraged in gold would have 
     trouble covering their liabilities. One financial analyst, 
     who asked not to be identified, explained the situation this 
     way: ``Gold is borrowed by Morgan Chase from the Bank of 
     England at 1 percent interest and then Morgan Chase sells the 
     gold on the open market, then reinvests the proceeds into 
     interest-bearing vehicles at maybe 6 percent.
       At some point, though, Morgan Chase must return the 
     borrowed gold to the Bank of England, and if the price of 
     gold were significantly to increase during any point in this 
     process, it would make it prohibitive and potentially ruinous 
     to repay the gold.''
       Bill Murphy, chairman of the Gold Anti-Trust Action 
     Committee, a nonprofit organization that researches and 
     studies what he calls the ``gold cartel'' (J.P. Morgan Chase, 
     Deutsche Bank, Citigroup, Goldman Sachs, Bank for 
     International Settlements (BIS), the U.S. Treasury, and the 
     Federal Reserve), and owner of www.LeMetropoleCafe.com, tells 
     Insight that ``Morgan Chase and other bullion banks are 
     another Enron waiting to happen.'' Murphy says, ``Enron 
     occurred because the nature of their business was obscured, 
     there was no oversight and someone was cooking the books. 
     Enron was deceiving everyone about their business 
     operations--and the same thing is happening with the gold and 
     bullion banks.''
       According to Murphy, ``The price of gold always has been a 
     barometer used by many to determine the financial health of 
     the United States. A steady gold price usually is associated 
     by the public and economic analysts as an indication or a 
     reflection of the stability of the financial system. Steady 
     gold; steady dollar. Enron structured a financial system that 
     put the company at risk and eventually took it down. The same 
     structure now exists at Morgan Chase with their own interest-
     rate/gold-derivatives position. There is very little 
     information available about its position in the gold market 
     and, as with the case of Enron, it could easily bring them 
     down.''
       In December 2000, attorney Reginald H. Howe, a private 
     investor and proprietor of the Website www.goldensextant.com, 
     which reports on gold, filed a lawsuit in the U.S. District 
     Court in Boston. Named as defendants were J.P. Morgan & Co., 
     Chase Manhattan Corp., Citigroup Inc., Goldman Sachs Group 
     Inc., Deutsche Bank, Lawrence Summers (former secretary of 
     the Treasury), William McDonough (president of the Federal 
     Reserve Bank of New York), Alan Greenspan (chairman of the 
     Board of Governors of the Federal Reserve System), and the 
     BIS.
       Howe's claim contends that the price of gold has been 
     manipulated since 1994 ``by conspiracy of public officials 
     and major bullion banks, with three objectives: 1) to prevent 
     rising gold prices from sounding a warning on U.S. inflation; 
     2) to prevent rising gold prices from signaling weakness in 
     the international value of the dollar; and 3) to prevent 
     banks and others who have funded themselves through borrowing 
     gold at low interest rates and are thus short physical gold 
     from suffering huge losses as a consequence of rising gold 
     prices.''
       While all the defendants flatly deny participation in such 
     a scheme, Howe's case is being heard. Howe tells Insight he 
     has provided the court with very compelling evidence to 
     support his claim, including sworn testimony by Greenspan 
     before the House Banking Committee in July 1998. Greenspan 
     assured the committee, ``Nor can private counterparties 
     restrict supply of gold, another commodity whose derivatives 
     are often traded over the counter, where central banks stand 
     ready to lease gold in increasing quantities should the price 
     rise.'' Howe and other ``gold bugs'' cite this as a virtual 
     public announcement ``that the price of gold had been and 
     would continue to be controlled if necessary.''
       According to Howe, ``There is a great deal of evidence, but 
     this is a very complicated

[[Page E164]]

     issue. The key, though, is the short position of the banks 
     and their gold derivatives. The central banks have `leased' 
     gold for low returns to the bullion banks for the purpose of 
     keeping the price of gold low. Greenspan's remarks in 1998 
     explain how the price of gold has been suppressed at times 
     when it looked like the price of gold was increasing.''
       Furthermore, Howe's complaint also cites remarks made 
     privately by Edward George, governor of the Bank of England 
     and a director of the BIS, to Nicholas J. Morrell, chief 
     executive of Lonmin Plc: ``We looked into the abyss if the 
     gold price rose further. A further rise would have taken down 
     one or several trading houses, which might have taken down 
     all the rest in their wake. Therefore, at any price, at any 
     cost, the central banks had to quell the gold price, manage 
     it. It was very difficult to get the gold price under 
     control, but we have now succeeded. The U.S. Fed was very 
     active in getting the gold price down. So was the U.K. 
     [United Kingdom].''
       Whether the Fed and others in the alleged ``gold cartel'' 
     have conspired to suppress the price of gold may, in the end, 
     be secondary to the growing need for financial transparency. 
     Wall Street insiders agree that as long as regulators, 
     analysts, accountants, and politicians can be lobbied and 
     ``corrupted'' to permit special privileges, there will be 
     more Enron-size failures.
       Securities and Exchange Commission Chairman Harvey L. Pitt, 
     well aware of the seriousness of these problems, recently 
     testified before the House Financial Services Committee that 
     ``it is my hope there are not other Enrons out there, but I'm 
     not willing to rely on hope.''
       Robert Maltbie, chief executive officer of 
     www.stockjock.com and an independent analyst, long has 
     followed Morgan Chase. He tells Insight that ``there are a 
     lot of things going on in these companies, but we don't know 
     for sure because much of what they're doing is off the 
     balance sheet. The market is scared and crying out to see 
     what's under the hood. Like Enron, much of what the banks are 
     doing is off the balance sheet, and it's a time bomb ticking 
     as we speak.''
       Just what would happen if a bank the size of Morgan Chase 
     were unable to meet its financial obligations? ``It's tough 
     to go there,'' Maltbie says, ``because it could shake the 
     financial markets to the core.''

     

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