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Jeffrey M. Christian


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CPM Group Jeffrey Christian's Final Response to GATA

By Jeffrey M. Christian      Printer Friendly Version Bookmark and Share
May 27 2010 12:04PM

www.cpmgroup.com

On 12 May 2010 I debated Bill Murphy of GATA, with Jim Puplava as the moderator. The audio debate was posted at Jim Puplava’s Financial Sense website, and on Kitco’s website.

Subsequent to the debate, GATA representatives and their supporters made numerous comments and further allegations about me on the Internet. While I realize it is their habit to spend their lives posting ill-informed drivel, to some extent I feel compelled to set the record straight on a few points. I have no interest in continuing this beyond this reply. I have seen nothing of substance raised against any of my comments that require substantive rebuttal. Only drivel. I live in the real bullion market. My clients deserve my full attention. I shall therefore offer one final statement of clarification (below). Beyond that, I ask readers to understand that I can’t spend the rest of my life correcting GATA’s misrepresentations, and to remember that I never asked to be involved in GATA’s nonsense in the first place. After GATA publicly attacked my personal and professional integrity and challenged me to a debate, I obliged them for the purpose of setting the record straight.

One commenter criticized the bluntness of my words, and my willingness to question the motives of GATA in its continually distortion of the market by repeatedly making false statements. When an organization repeatedly distorts the truth, one has to question its motives.

I have now been accused of “name calling?. The only “name? I have called GATA was when I referred to its leadership as liars. I have proven that GATA has lied and distorted the truth repeatedly, and so I stand by that characterization. GATA and its supporters have used far nastier words against me.

1. GATA Asked For The Debate

Some of GATA’s supporters have questioned why GATA accepted CPM Group’s challenge to debate, and why it used Bill Murphy as its representative in the debate. One person even questioned why GATA would agree to participate in a debate with me! These comments amaze me.

For the record, I had no desire to interact with GATA. It was GATA that first publicly attacked my character and it was GATA that proposed to debate me by issuing a challenge to me on its website. I did not propose the debate to GATA. GATA challenged me to a debate, so I accepted to allow those thinking listeners to hear the truth beyond GATA’s lies, and to prevent them from saying I was avoiding a debate.

It was GATA’s prerogative to choose its representative for the debate. GATA chose Bill Murphy.

2. GATA Chose Those Six Topics.

Some of GATA’s supporters have criticized the debate’s moderator and me for the choice of the six initial topics.

However, GATA chose the six topics that were the focus of the first part of the debate, saying those six subjects were its best evidence it had of a conspiracy to suppress gold prices. GATA picked the topics and challenged me to refute them. There was no “set up? of GATA by CPM Group or anyone else. GATA chose to challenge me to a debate, and GATA chose the topics. The topics GATA chose happened to provide an excellent outline for me to address the overwhelming dishonesty of GATA’s representations about the gold market, but that was their choice, not mine.

GATA has persisted in using my name to promote its lies and misrepresentations about the gold market. The origins of this were in March 2009. In response to a question about gold conspiracy theories at a speech I was making, I said that these comments were an unfortunate distraction for the real gold market. These conspiracy theories only serve to distract investors from making prudent investment decisions, and they also distract regulators from real reforms that would make markets more effective. It is pretty obvious that these conspiracy theories distract the markets overall from more critical issues. Even today, as Athens and Bangkok burn with global economic and financial consequences, some people are focusing on the hogwash that GATA paints the markets with, missing the important issues more worthy of their attention.

I refuted GATA’s six allegations with alacrity. In each instance I showed how GATA lied to its followers about what people said. In most cases GATA lied outright. In other cases, it dredged up government actions from the 1960s, when the international currency regime was centered on a fixed exchange rate between the U.S. dollar and gold, implying that the actions central banks had to take to maintain that fixed exchange rate in the 1960s persist to the present day. In fact and in contrast to the lies that GATA asserts repeatedly, the world abandoned the fixed dollar-gold exchange rate system in 1971. It moved to a ‘managed float’ for much of the 1970s, but abandoned that around 1979 in favor of freely floating markets for currencies.

In the debate, in documents posted on CPM Group’s website, and in interviews around the world, I have showed beyond any reasonable doubt that all of the ‘evidence’ GATA has amassed are lies and distortions of what other people said and wrote. In other words, GATA has no real indications of any efforts to suppress gold prices.

The only thing revealed by GATA’s decade of phony “evidence? is that GATA is wholly untrustworthy.

GATA lies, and does so repeatedly. In my opinion, no one should believe anything GATA says, but that choice is up to each individual to make. I engaged in a debate with GATA because they publicly attacked my credibility and challenged me to that debate. At this point, it’s time for investors to decide whether they want educate themselves about the real facts, or continue following GATA like some sort of cult.

3. GATA’s choice of Murphy

Some Internet commentators have suggested that GATA has other representatives who would have been more effective debaters than Bill Murphy, and some have even implied that I or the debate moderator “chose the weakest in the pack.? That is utter nonsense. GATA chose the person who would represent it.

The fact remains that GATA has nothing of substance to say in support of its market manipulation theories that is real or honest. The reality is that I would have debated any of the mediocre minds that populate GATA, and would have done so with the same thorough knowledge of the facts that illustrate the extent of GATA’s total dishonesty.

I took valuable time to entertain this debate on GATA’s terms and using GATA’s questions.At this point, investors have ample data to see that GATA’s claims are not supported by the facts. Whether those facts are misrepresented and distorted by Bill Murphy or someone else from GATA, the facts remain the facts and are easily verifiable by those who choose to do so.

4. Gold as a fractional reserve asset.

As I tore holes in GATA’s arguments, GATA tried to distract its audience by trying to change the subject, raising other issues. In so doing, it made a bigger fool of itself, demonstrating a lack of basic knowledge about the gold market, markets in general, the availability of information on market volumes, and other topics. One example of this was when GATA seized on part of my explanation of basic gold trading and banking practices and, once more misrepresenting and distorting both reality and my comments, implied that I had exposed gold as a fractional reserve asset, as if yet another conspiracy had been revealed.

The fact that gold trades on a leveraged basis, as well as on an ounce-for-ounce basis, should not be a surprise to anyone in the markets, and certainly should not come as any surprise to the self-described “experts? at GATA. However, because I have become aware that this is an area of confusion for many retail investors, I’ll take a moment to set the record straight.

Fractional reserve banking is not a new concept. It has existed for thousands of years. There is nothing shocking nor revelatory about this. The fractional reserve nature of bullion banking is analogous to the widely understood concepts of fractional reserve banking in currencies such as U.S. dollars. If one wants to own U.S. dollars outright, it is possible to keep a pile of bank notes (dollar bills) in one’s mattress or in a safe or vault. Alternatively, one may choose to deposit the money in a bank. The bank doesn’t really have enough cash on hand to allow all the depositors to withdraw all their cash at the same time. However, a system of checks and balances exists to ensure that a “run on the bank? can eventually be met, even if not immediately. Prior to the creation of the Federal Reserve System in the United States no such checks and balances existed, and people who put money in private banks often found that there was no money there when they came for it. FDIC insurance was implemented to give depositors more confidence in their bank deposits after bank runs in the wake of the 1929 stock market crash.

Similarly, if one wants to own physical gold outright, one may do that. In the bullion banking industry, this is called an allocated account, meaning that the investor has specific gold bullion bars allocated to them. The investor is the legal owner of that gold bullion, and the bank, if one is involved at all, is merely providing vault storage for a fee. This is exactly analogous to a bank offering safe deposit boxes which customers can use to store cash if for some reason they are skeptical of the bank’s ability to make good on money deposited in a regular account. Instead of being paid interest for depositing cash in a bank account, one would have to pay a fee for the safe deposit box. Similarly, allocated bullion accounts always involve the client paying storage fees to the bullion bank for the use of its vault to store their bullion.

However, gold also is a financial asset that is banked. In bullion banking jargon, this is called an unallocated account. Just like cash deposited in a checking account, the bank represents that it has enough assets to service the expected volume of withdrawals, but it doesn’t necessarily have enough bullion to allow all the depositors to withdraw all their gold all at once. many gold “certificate programs? are unallocated bullion accounts.This is well understood by professionals in the industry and by most investors involved in these assets. Again, it should come as no surprise to anyone with bona fide credentials as an expert of any kind in the gold bullion marketplace. Yet GATA has tried to portray the fact that banks are required to hold only a portion of their gold assets, as they do money, as somehow being scandalous. Again, GATA is only demonstrating ignorance of the gold market and its desperation to try to distract its readers from the reality that GATA is without any substantive arguments to make in support of its conspiracy allegations.

The fact that many retail investors incorrectly assume that unallocated accounts are backed by allocated gold bullion is certainly a legitimate concern. In fact I was an expert witness in a recent class action case against a bank brought by investor clients that felt they had been misinformed by the bank related to whether the metal they held at that bank was allocated or unallocated. However,  the solution to that problem is level-headed education, not baseless allegations of fraud and scandal. For example, Jim Puplava’s FinancialSense Internet radio show recently ran a segment on this very topic. But GATA seems to prefer sensationalism and specious allegations of fraud and conspiracy over level-headed investor education.

5. The origins of ongoing obstinacy

GATA and its supporters continue to pretend that the fact that central banks bought and sold gold and currencies under the dollar-gold standard up until 1971 – as the core of their stated job at that time – somehow indicates that they continue to do it 40 years later when there is no reason for them to do so. Prior to 1971, maintaining a dollar-gold exchange rate was one of the prime tasks of central banks. They did that primarily by buying and selling gold and dollars. There was nothing covert about this.

As recently as 19 May Chris Powell had a headline accusing me of duplicity: “Christian rationalizes what he simultaneously denies.? Mr. Powell’s contention is that if I have explained how central banks worked under the pre-1971 dollar gold standard, I cannot simultaneously claim that when they changed the rules in 1971 they also changed the rules. Does that sound silly? It should. It is nonsense for him to claim that my explanation of how central banks worked to maintain a fixed dollar gold price under a system of fixed dollar gold prices from 1945 into 1971 somehow indicates that they continue to do it nearly 40 years after they gave up the pretense of being able to maintain gold prices at a fixed dollar exchange rate.

Let me be frank. The only two ways one can reach such a conclusion is by being incredibly stupid, or by being disingenuous. Those are the only two possible explanations I can fathom for such assertions by Powell and his apostles. I am not calling them names. I am simply saying that it appears to me that either they are stupid or they are lying to make such a contention, and make it over and over again in the face of efforts by many people to set them straight on how the market really works.

6. Re Barrick’s Hedges, Part I

GATA has insisted that Barrick Gold had stated in its legal motions in the suit brought against it by Blanchard that it was immune from prosecution because it had been acting as an agent of central banks. GATA dared me to refute that contention.

I did refute it. In the debate I pointed out that on the day GATA alleges that Barrick made this claim, Barrick filed three motions in Federal Court in New Orleans. In none of them does Barrick made this claim. Nor does it make them anywhere else. GATA simply isn’t telling the truth. To allow people to see for themselves, CPM Group has posted the three filings on CPM Group’s website, www.cpmgroup.com. Anyone can download these and read them, to see for themselves that GATA lied to them.

7. Re Barrick’s Hedges, Part II

In the debate, GATA’s response to my revealing itslies f about Barrick’s court filings was classic GATA: Change the subject.

When I pointed out that Barrick had not said what GATA claimed Barrick had said, and asked Murphy to explain why GATA had lied about this, his response was to go on and on about how Barrick had lost billions of dollars in its hedges. That has nothing to do with GATA’s allegations.

Furthermore, I would point out to readers here that if they review Barrick’s financial statements over the past 24 years or so, the financial performance of Barrick shows that for every billion dollars it lost on its hedges it gained several billion dollars in real value, in part due to higher revenues on unhedged gold sales and in part due to the rise in the value of its remaining enormous reserves. The hedges were designed to protect the company from adverse price moves – declines in prices and lower prices. The hedges worked. Meanwhile the company thrived. That is why the company is so valuable today and has such a high credit rating.

There are two conclusions to note here. First, this is yet another is a fine example of how GATA tries to change the subject after it has been caught misrepresenting the truth. Second, it suggests that the collective wisdom of GATA’s leadership apparently cannot understand a corporate balance sheet, or chooses to distort financial reality intentionally. It shouldn’t matter to readers which is the case. The point is simply that GATA is not a credible information source.

8. Conclusion

I am tired of GATA and its supporters’ lies and distortions, and I am particularly offended to have had my personal and professional integrity directly attacked. If these people cannot say anything honest or important, they should leave us all alone.

I will end with one final comment. One blogger criticized me by saying that I am a banker. I guess I am on some level. That is hardly a criticism, however. Clearly, GATA and its followers should get to know someone who can explain basic banking concepts to them. GATA’s leaders have expressed surprise, wonder, shock, and horror over some of the simplest facts and realities about the bullion markets. GATA represents itself to its followers as experts when they clearly are not. They prey on the lack of knowledge and fear of investors who have not studied the markets as well as they should have. The solution to that problem is investor education, not lies. All that the reckless pursuit of conspiracy theories do is distract investors from the much more important agenda of understanding the gold bullion marketplace and the fundamentals that drive the price of gold.

 

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