Yesterday I have published some answers that I received from Edwin M. Truman related to international gold politics. Here’s a reply from the Canadian financial analyst Rob Kirby.
By Rob Kirby
Rob Kirby, who is the publisher of the “Kirby Analytics Newsletter“ and a consultant to the Gold Anti-Trust Action Committee (http://www.gata.org/), was born 1960 in Halifax, Nova Scotia, Canada. He studied Economics at York University in Toronto. Upon completion, he went to work in the Bay Street, the financial district in Toronto. He served on an institutional trading desk for most of the 1980s and right up until 1996. For 11 years he worked at Prebon Yamane, an international inter-dealer broker, and one year at Freedom Bond Brokers (now part of Cantor Fitzgerald). Afterwards he spent two years at Garban Inc., another inter dealer bond brokerage in Toronto. In 2002, he went to work for Investor’s Group, the largest Mutual Fund Company in Canada, and stayed there up until 2004, when he resigned to write about the markets. His website is: http://www.kirbyanalytics.com/. Mr. Kirby lives in Toronto, Canada.
Ted Truman Talks Turkey
by Rob Kirby
According to Wikipedia;
Edwin (Ted) M. Truman (born 1941, Albany, NY) is an American economist specializing in international financial institutions, especially the International Monetary Fund and sovereign wealth funds. He has been a Senior Fellow with the Peterson Institute for International Economics since 2001. Truman has worked quietly over the years on international financial crises issues. Nobel laureate Paul Krugman described Truman as the “George Smiley of international economics”.
So why should we, or anyone else, care what Ted Truman thinks or has to say?
On May 10, 2000 a GATA delegation consisting of Reg Howe, Frank Veneroso, Chris Powell and Bill Murphy met with Denny Hastert, The Speaker of the House in the United States Congress; Spencer Bachus, the Chairman of the House Subcommittee on Domestic and International Monetary Policy; and Dr. John Silvia, the Chief Economist of the Senate Banking Committee. [They] presented each of them a 100 page “Gold Derivative Banking Crisis” document and personally delivered it to the staff of every House and Senate Banking Committee member. It actually made the news on ABC television in Australia.
The gist of the information/documentation presented was that the “allegedly free” gold market was actually nefariously rigged.
Government’s response to the individuals cited above [GATA delegation] at the time was from none other than Ted Truman on behalf of [then] Treasury Secretary, Lawrence Summers.
Truman’s 2000 response to GATA was dismissive of their claims.
So a man who is known to “speak” for the U.S. Treasury would certainly be thought of as being “plugged in” and credible, no?
As background, the U.S. Government [Treasury] and Federal Reserve have long maintained that they are not active in the gold market and have repeatedly denied accusations that they have been active participants in suppression of the price of gold.
Last year, in 2012, German freelance financial journalist Lars Schall questioned former Federal Reserve Chairman Paul A. Volcker about direct quotes – re: gold – in his memoirs. In responding, Paul Volcker stated publicly last year in 2012 that,
“The U.S. has not, to the best of my knowledge, intervened in the gold market for more than 40 years.”
In response to this statement last year, Mr. Volcker was questioned further when documents surfaced CONTRADICTING THIS STATEMENT citing the Federal Reserve Bank of N.Y. being named in official U.N. documents as the “fiscal agent” for the U.S. Treasury in matters relating to gold swaps with the Bank of England executed in 1981.
Mr. Volcker refused to respond to this follow-up.
In 2010, Ted Truman penned an op-ed in the Financial Times:
October 12, 2010 2:01 pm
America should open its vaults and sell gold
By Edwin Truman
Gold is back in the news. Its price is soaring in what some analysts say is a reflection of a weak economy and a lack of confidence in government policies. Naturally, investors are looking at a new sure thing in the expectation that prices will continue upward. My advice to the US government, however, is that this may be the best time – to sell. Doing so would help President Barack Obama and Congress reduce indebtedness, at little cost…
In this 2010 op-ed – Truman infers that the utility to be gained by selling gold is primarily [or exclusively] to reduce indebtedness.
Fast forward to late 2012, Ted Truman appeared at an investment conference sponsored by the Bank for International Settlements and the World Bank in Washington, D.C. In his presentation at this conference, Truman is reported to have said,
“Coordination of European central bank gold sales under the Washington Agreement on Gold, an agreement made in 1999 and updated in 2004 and 2009, is “the modern counterpart” of the London Gold Pool of the 1960s, which controlled gold prices until it collapsed in March 1968.”
Truman, went on to describe an enduring system of daily communication among Western central banks in which they,
“share ‘confidential information’ that includes “the size, currency, and nature of their foreign exchange market operations.”
Here, Truman has seemingly ‘come-full-circle’ [or contradicted his earlier position, perhaps?] – now indicating that indeed, the gold market is manipulated by officialdom.
Having noticed “the three seasons” of Ted Truman, German freelance journalist Lars Schall took it upon himself to track him down and ask him a few questions, appended below:
Dear Mr. Truman,
Recently I came accross your remarks at the Fourth Joint BIS–World Bank Public Investors Conference in Washington DC, 3–4 December 2012. During your speech you were talking about the Washington Agreement on Gold. Related to this topic, I would have five questions for you.
a) You seem to say that the Washington Agreement is a tool of intervention in the foreign exchange and gold markets. Is this indeed what you want to say?
b) The Gold Anti-Trust Action Committee (GATA) goes a step further by saying that indeed the Washington Agreement on Gold was put in place in order to rig the gold market. What’s your comment on that?
c) Are you absolutely certain that the U.S. Government via the U.S. Federal Reserve / U.S. Treasury Department / Exchange Stabilization Fund hasn’t intervened in the gold market for more than 40 years, as Mr. Paul A. Volcker told me?
d) You have called for more transparency in your speech. Does this call for transparency also apply to the gold reserves that central banks are holding — for example, related to swap and lease arrangements?
e) Do you think that the gold market is an entirely free market?
Thank you for your attention, Sir!
Here is Truman’s response:
Dear Mr. Schall,
Please find answers to your questions, to the best of my ability, below.
a) IT WAS A FORM OF COOPERATIVE INTERVENTION IN THAT MARKET DESIGNED TO LIMIT OFFICIAL SALES.
b) I WOULD NOT AGREE WITH THAT VIEW. IN ORDER TO “RIG” THE MARKET A LOT MORE THAN LIMITING SALES WOULD HAVE TO HAVE BEEN INVOLVED.
c) FIRST, THE FEDERAL RESERVE DOES NOT HAVE THE POWER TO OPERATE IN THE GOLD MARKET. SECOND, MR VOLCKER IS NOT QUITE RIGHT: THERE WERE US SALES OF GOLD INTO THE PRIVATE MARKET IN THE MID-1970S AND LATE 1970S. I KNOW OF NO OTHER SALES OF CONSEQUENCE SINCE THAT DATE. I SAY “OF CONSEQUENCE” BECAUSE THE US TREASURY DOES MAKE SMALL PURCHASES AND SALES IN CONNECTION WITH MINTING COINS.
e) AS LONG AS THERE IS A SUBSTANTIAL OVERHANG OF OFFICIAL HOLDINGS OF GOLD, THE GOLD MARKET CANNOT BE ENTIRELY FREE.
Analysis of Truman`s responses:
Mr. Truman’s response to question A – re: The Washington Agreements [WAG’s] as a tool of intervention – he states that the agreement serves as a form of cooperative to limit sales. Let’s examine this:
Signatories to the WAG’s included the 11 national central banks of nations then participating in the new European currency, plus those of Sweden, Switzerland and the United Kingdom. Truman would have us believe that this cooperative intervention was created to “limit sales”. By banding together Europe’s reportedly largest holders of gold bullion – and then having them PRE ANNOUNCE when upcoming bullion sales [they were actually auctions] would occur – this served to HAMMER THE GOLD PRICE DOWN – with market participants anticipating new supply. If the intention of the cooperative was to maintain orderly markets or Limit Sales [keep the price from collapsing] – it was an ABJECT FAILURE but YET – the agreement was renewed 2 times.
Additionally, if the selling cooperative truly had the intention to “limit official sales” – one could argue that Italy`s inclusion in such a group was a deception. Reason: Italy had already been engaged in covert sovereign leasing agreements – pre 1998 blow-up of Long Term Capital Management – in deals brokered by none other than Goldman Sachs – in an attempt to manipulate their sovereign gold reserves, in hopes of earning superior returns – to help them qualify for the Euro under Maastricht Treaty guidelines. This exercise ended in FAILURE when LTCM “blew-up“ in an ill-fated leveraged bet on Russian bonds that caused their demise. If the true details of Italy’s involvement in this scheme had been made public – it can be argued the Euro might not have EVER happened. As such, Italy`s inclusion in a “selling group“ was for optics. They had already disgorged a significant chunk of their reserves. Ted Truman knows all of this
Italy had only lent its name to the WAG to make the group appear like a more potent seller. Why: because Italy’s reported stocks of sovereign bullion are the 3rd largest in the world behind the U.S. and Germany at 2,451 metric tonnes. Truman’s claims about the purpose of the WAG being gold friendly or supportive is disingenuous. The fact that Italy NEVER sold one ounce of gold bullion under the WAG is precisely and ONLY because they had already “given at the office”. Reality: Italy leased 400 [or so] metric tonnes of gold in 1998 and invested the proceeds with Long Term Capital Management [LTCM]. When LTCM went “bust” – Italy lost their money and their gold. Italy’s inclusion in the “selling cooperative“ only made the group`s selling potential look more menacing in a “small market“ due to the size of their reported reserves.
Mr. Truman knows VERY WELL that the Washington Agreement was forged to suppress the rise in the gold price in the face of reckless fiat money creation on the part of all Western Governments/Central Banks.
On the issue of transparency – Mr. Truman knows that while the WAG was being set up / implemented – America was also raising concern about the true picture of their own sovereign gold stocks by reclassifying their holdings from “official reserves” to “custodial gold stocks” and finally to “deep storage gold”. Logic dictates that if American gold stocks were truly stagnant at this period of time – as the U.S. Treasury claims – they would not have been “reclassified” twice with an increasingly more “fuzzy” definition in such a short period of time. Truman also understands that if the Central Banking community had ANY INTEREST – what-so-ever – in conveying “transparency“ to the market place re: gold bullion – they would have or could have simply STOPPED counting leased gold – for accounting purposes – on the same line as physical gold present in the vault.
Mr. Truman`s lack of commentary or silence – as an EXPERT – on these relevant issues speaks LOUDER than his commentary on other aspects of the gold trade.
Mr. Truman’s response to question B – That the Washington Agreement on Gold was put in place in order to rig the gold market? is on its face disengenuous. Truman states that, “IN ORDER TO “RIG” THE MARKET A LOT MORE THAN LIMITING SALES WOULD HAVE TO HAVE BEEN INVOLVED“. The material covered above points out EXPLICITLY that A LOT MORE WAS INVOLVED; namely, the preannouncement of sales to make the market appear over supplied and the inclusion of one of the world`s largest alleged sovereign gold holders to make the selling group look more fearsome.
Question C deals with “who“ or “what“ in America deals in the bullion market. Here, Truman seems to suffer from the same foot-in-mouth disease that afflicts Mr. Volcker. Truman states – like Alan Greenspan years ago – that, “ THE FEDERAL RESERVE DOES NOT HAVE THE POWER TO OPERATE IN THE GOLD MARKET“. Perhaps Mr. Truman should spend a little bit of time poking around of the web site of the United Nations where they list the New York Federal Reserve as the fiscal agent for the U.S. Treasury re: gold swaps with the Bank of England. We would suggest that gold swaps with the Bank of England in 1981 – documented by the United Nations – are of consequence and have NOTHING to do with the minting of coins. Mr. Truman, your slip is showing.
Question D speaks to the issue of transparency – where Mr. Truman states that there should be more of it. We only wish Mr. Truman`s answers to this point did not appear so conflicted, contradictory or outright FALSE.
In response to question E – Truman states, “ AS LONG AS THERE IS A SUBSTANTIAL OVERHANG OF OFFICIAL HOLDINGS OF GOLD, THE GOLD MARKET CANNOT BE ENTIRELY FREE“. Our response to this revelation by Truman, Finally – a kernel of truth!
We find it interesting and notable that Nobel laureate Paul Krugman refers to Ted Truman as the George Smiley of international economics. George Smiley is a fictional spook engaged in high-stakes espionage and subterfuge. Grudgingly, we admit for once, we agree with Mr. Krugman.