[Congressional Record Volume 149, Number 107 (Friday, July 18, 2003)]
[Extensions of Remarks]
[Pages E1511-E1512]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




              THE MONETARY FREEDOM AND ACCOUNTABILITY ACT

                                 ______
                                 

                             HON. RON PAUL

                                of texas

                    in the house of representatives

                        Thursday, July 17, 2003

  Mr. PAUL. Mr. Speaker, I rise to introduce the Monetary Freedom and 
Accountability Act. This simple bill takes a step toward restoring 
Congress' constitutional authority over U.S. monetary policy by 
requiring congressional approval before the President or the Treasury 
secretary buys or sells gold. I also ask for unanimous consent to 
insert into the Record articles by Kelly Patricia O Meara of Insight 
magazine detailing the evidence supporting allegations that the United 
States Government has manipulated the price of gold over the past 
decade and the harm such manipulation caused American investors, 
taxpayers, consumers, and workers.
  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 intervention in 
the gold market can reduce the values of private gold holdings, 
adversely affecting 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 those 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, as detailed in the attached article. 
GATA alleges that the Treasury, operating through the Exchange-
Stabilization Fund and in cooperation with major banks and the 
International Monetary Fund, has 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 that are heavy 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 hearings before 
the House Banking Committee and the Senate Agricultural Committee in 
July, 1998: ``Nor can private counterparts 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.''.
  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 federal 
dealings in the gold market, it certainly is reasonable that the 
people's representatives have a role in approving these transactions, 
especially since Congress has a neglected but vital constitutional role 
V 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.

                 [From Insight Magazine, July 8, 2003]

                 Panic Is Near if ``The Gold Is Gone''

                      (By Kelly Patricia O Meara)

       Gold. It's been called a barbarous relic, and those who 
     focus on its historic role as a standard of value frequently 
     are labeled ``lunatic fringe.'' Given the recent highs in the 
     gold market, it looks like the crazies have been having a 
     hell of a year. With the stock market taking its third yearly 
     loss, gold returned nearly 30 percent to investors, moving 
     from $255 an ounce to six-year highs of $380.
       Just about every analyst and ``expert'' on Wall Street 
     willing to mention any of this has been quick to explain that 
     the increase in the price of gold is due to impending war 
     with Iraq. But hard-money analysts are arguing that should 
     the United States go to war it will be of very little 
     consequence to the price of gold--a momentary blip--because 
     gold is a commodity and its price a matter of supply and 
     demand.
       The ``lunatic fringe'' long has argued that the price of 
     gold was being manipulated by a ``gold cartel'' involving 
     J.P. Morgan Chase, Citigroup, Deutsche Bank, Goldman Sachs, 
     the Bank for International Settlements (BIS), the U.S. 
     Treasury and the Federal Reserve, but that the manipulation 
     had been sufficiently exposed to require that it be 
     abandoned, producing the steady upward increase in the price 
     of the shiny, yellow metal.
       In fact the ``gold bugs,'' as they're known, are so sure of 
     their research that not only do they believe the price of 
     gold will continue to climb, but many are expecting to see 
     prices of $800 to $1,000 an ounce. Until recently, most in 
     the gold and financial worlds scoffed at such a prediction, 
     but last month the Bank of Portugal made an announcement that 
     shocked those who credit official gold-reserve data and added 
     fuel to the contention of the gold bugs that the ``gold-
     cartel'' manipulation is in meltdown.
       What the Bank of Portugal revealed in its 2001 annual 
     report is that 433 tonnes [metric tons] of gold--some 70 
     percent of its gold reserve--either have been lent or swapped 
     into the market. According to Bill Murphy, chairman of the 
     Gold Anti-Trust Action Committee (GATA), a nonprofit 
     organization that researches and studies the gold market and 
     reports its findings at www.LeMetropoleCafe.com: ``This gold 
     is gone--and it lends support to our years of research that 
     the central banks do not have the 32,000 tonnes of gold in 
     reserve that they claim. The big question is: How many other 
     central banks are in the same predicament as the 
     Portuguese?''

[[Page E1512]]

       Murphy explains: ``The essence of the rigging of the gold 
     market is that the bullion banks borrowed central-bank gold 
     from various vaults and flooded the market with supply, 
     keeping the price down. The GATA camp has uncovered 
     information that shows that around 15,000 to 16,000 tonnes of 
     gold have left the central banks, leaving the central-bank 
     reserves with about half of what is officially reported.''
       This is why those who follow such arcana are predicting an 
     explosion in the price of gold. According to Murphy, ``The 
     gold establishment says that the gold loans from the central 
     banks are only 4,600 to 5,000 tonnes,'' but his information 
     is that these loans are more than three times that number, 
     which means ``they're running out of physical gold to 
     continue the scheme.''
       According to Murphy, ``The cartel has been able to get away 
     with lying about the amount of gold in reserve because the 
     International Monetary Fund [IMF] is the Arthur Andersen of 
     the gold world.'' He has provided to Insight documents from 
     central banks confirming that the IMF instructed them to 
     count both lent and swapped gold as a reserve. ``In other 
     words, the IMF told the central banks to deceive the 
     investment and gold world[s]. Once this gold is lent [or] 
     swapped, it's gone until such time as it can be repurchased. 
     And with the skyrocketing price of gold we're now seeing, 
     it would be incredibly expensive, let alone nearly 
     physically impossible, to get it back.''
       What is important to understand, says Murphy, ``is that 
     there is a mine and scrap supply deficit of 1,500 tonnes, 
     which is an enormous deficit when yearly mine supply is only 
     2,500 tonnes and going down. On top of that, there are these 
     under-reported gold loans and other derivatives that are on 
     the short side. There is no way to pay this gold back to the 
     central banks without the price of gold going up hundreds of 
     dollars per ounce. So the peasants and women of the world 
     will have to sell their jewelry at say $800 an ounce to bail 
     out these short positions or someone is going to have to tell 
     the world that they don't have the gold that they have 
     reported,'' shaking the world's financial system to its core.
       The gold bugs appear to be basing their identification of a 
     world gold shortage on industry data, much of which has been 
     summarized in two papers prepared by four different gold 
     analysts at different times using separate methods. The first 
     paper was written by governmental investment adviser Frank 
     Veneroso and his associate, mining analyst Declan Costelloe. 
     Titled Gold Derivatives, Gold Lending: Official Management of 
     the Gold Price and the Current State of the Gold Market, it 
     was presented at the 2002 International Gold Symposium in 
     Lima, Peru, and estimates the gold deficit of the central 
     banks at between 10,000 and 15,000 tonnes. The second paper, 
     Gold Derivatives: Moving Towards Checkmate, by Mike Bolser, a 
     retired businessman, and Reginald H. Howe, a private investor 
     and proprietor of the Website www.goldensextant.com, 
     estimates the alleged shortage of central-bank gold at 
     between 15,000 and 16,000 tonnes--nearly a decade's worth of 
     mine production.
       George Milling-Stanley, manager of gold-market analysis for 
     the World Gold Council (WGC), a private organization made up 
     of leading gold-mining companies that promotes the 
     acquisition and retention of gold, is aware of these papers 
     and shortage numbers but tells Insight that ``there are no 
     official [gold-reserve] reports.'' That is, ``The central 
     banks are under no obligation to report what they lend into 
     the market, what they place on deposit and what they do with 
     their swaps, so there's a conventional-wisdom view, and a 
     couple of different bodies have done some fairly serious 
     research in[to] this and have come up with a figure [of] 
     around 4,500 to 5,000 tonnes.''
       Stanley's estimate is based on data provided by so-called 
     ``serious'' researchers, including Londonbased Gold Fields 
     Mineral Services (GFMS), one of the world's foremost 
     precious-metals consultants, and a report titled Gold 
     Derivatives: The Market View, commissioned by the WGC to 
     London-based Virtual Metals Consultancy. While these two 
     groups appear to be the research choice of the official gold 
     world, there are in fact no ``official'' figures, and both 
     studies, like the Veneroso/Costelloe and Bolser/Howe reports, 
     are based on interviews, data analysis and other research 
     generally available to the industry.
       Those who believe the central banks to have misrepresented 
     their actual gold holdings place much of the blame for the 
     lack of transparency on the shoulders of the IMF, which 
     presents itself as being responsible for ensuring the 
     stability of the international financial system. Although the 
     IMF would not respond to questions about its gold-loan/swap 
     requirements, what information has been made public appears 
     to support GATA's understanding of how central-bank reserves 
     are reported.
       For example, in October 2001 the IMF responded to questions 
     posed by GATA by saying it is not correct that the IMF 
     insists members record swapped gold as an asset when a legal 
     change in ownership has occurred. According to this response, 
     ``The IMF in fact recommends that swapped gold be excluded 
     from reserve assets.'' Nonetheless, says GATA, there is 
     abundant evidence that this is not the case, citing as an 
     example the Central Bank of the Philippines (BSP).
       A footnote on the Website of the Central Bank of the 
     Philippines (www.bsp.gov.ph) in fact directly contradicts the 
     IMF's claim: ``Beginning January 2000, in compliance with the 
     requirements of the IMF's reserves and foreign-currency-
     liquidity template under the Special Data Dissemination 
     Standard (SDDS), gold swaps undertaken by the BSP with 
     noncentral banks shall be treated as collateralized loans. 
     Thus gold under the swap arrangement remains to be part of 
     reserves, and a liability is deemed incurred corresponding 
     to the proceeds of the swap.''
       The European Central Bank (ECB) also made it clear that the 
     IMF policy is to include swaps and loans as reserves. The ECB 
     responded to GATA: ``Following the recommendations set out in 
     the IMF operational guidelines of the 'Data Template on 
     International Reserve and Foreign Currency Liquidity,' which 
     were developed in 1999, all reversible gold transactions, 
     including gold swaps, are recorded as collateralized loans in 
     balance of payments and international investment-position 
     statistics. This treatment implies that the gold account 
     would remain unchanged on the balance sheet.'' The Bank of 
     Finland and the Bank of Portugal also confirmed in writing 
     that the swapped gold remains a reserve asset under IMF 
     regulations.
       Although the WGC's Stanley stands by the data provided by 
     the industry's ``serious'' researchers, he insists he cannot 
     say for certain that the numbers are accurate. ``There is no 
     requirement on any country to tell the IMF how much gold it 
     owns,'' says Stanley. ``The requirement is to tell the IMF 
     how much gold it has decided to place in its official 
     reserves. Nobody knows whether that is the total of what they 
     own or not. Obviously they can't report more than what they 
     own, but they can certainly report less if they chose to. 
     That gold may have been lent out, but is nevertheless still 
     owed to them. It's a bit like any company reporting a cash 
     position. It will report cash on hand and cash due--money 
     owed by other people. I'm not saying this is ideal, but this 
     is how it works.''
       John Embry, the manager of last year's best-performing 
     North American gold fund and manager of the Royal Precious 
     Metals Fund for the Royal Bank of Canada, says he is putting 
     his and his clients' money on the ``lunatic fringe'' in this 
     dispute: ``I've examined all the evidence gathered by GATA 
     and everyone else, and I think these guys are anything but 
     lunatics. They've done their homework and have unearthed a 
     lot of interesting stuff. The problem, though, is that the 
     market is sufficiently opaque that there is really no way to 
     know who is right and who is wrong.''
       ``The fact is,'' continues Embry, ``a lot of this stuff is 
     based on estimations. I do however believe that, based on the 
     evidence dug up by Veneroso and Howe, they are presenting 
     equally if not more credible numbers than the other side. I 
     find the campaign to undermine their credence simply bizarre. 
     I think these guys [GATA] are right and that the number put 
     out by Gold Fields Mineral Services as the amount of gold 
     loaned out by the central banks is definitely wrong. Now, 
     whether it's as much as 15,000 is up for interpretation. The 
     recent release by the Bank of Portugal is important. When a 
     central bank has 70 percent of its gold loaned or swapped, I 
     don't think it is operating independently, and I suspect 
     there are an awful lot of them that have loaned out much more 
     than has been reported.''
       Embry says, ``I've made a fortune for my clients investing 
     in gold and gold stocks because I have operated on the 
     premise that the Veneroso/Howe reports are right--that gold 
     was significantly undervalued in the daily quote and that it 
     was going a lot higher. The circumstantial evidence, and I 
     bet my clients' money on it, was very much in favor of the 
     guys who said a great deal more central-bank gold had entered 
     the market and driven the price down far too low. GATA has 
     had this story from day one. I think that they're right and 
     that officialdom doesn't want this exposed. GATA is willing 
     to have a public debate but the gold world won't debate. I 
     think there is a tacit admission of anyone who has an IQ 
     above that of a grapefruit that Veneroso and Howe have a 
     pretty good point. I'm an analyst who has looked at both 
     sides of the issue and I bet my money on GATA. So far they've 
     been right.''
       Whether the gold bugs are right about the reasons for the 
     meteoric rise in the price of gold is uncertain, but, 
     according to GATA's Murphy: ``It's all the more reason to 
     have the central banks come clean about the actual amount of 
     gold that physically exists in their reserves. Either way, 
     the price of gold will continue to rise because, as we 
     already know and others are discovering, the gold is gone.''

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