Re: [A-List] JP Morgan's *$23tn* derivative bust?

[Rob Schaap <bantam@xxxxxxxxxxxxxxxx>]

G'day Anne,

So are we to conclude that (a) to protect JPMC's position (and hence that of
the world economy, if I may make so bold) it shall be necessary to persist in
keeping gold at 'artificially' low levels and the greenback thua at
'artificially' high levels; and (b) to protect the world economy it shall be
necessary to keep US producers uncompetitive, US investment opportunities
down, and US profit levels down?

Would this mean that (a) deregulated speculation has allowed the JPMC
executives to gamble (anticipating policy settings they're big enough to
affect rather than the 'fundamentals' an efficient market should be reflecting
- er, which they're also big enough to affect) for private windfalls at public
and global risk?  (b) that there is a massive structural moral hazard problem
at the heart of Big Finance (ie can JPMC be allowed to fail?)?  And (c) That
the world economy looks to be well buggered, whatever whoever does?

Is the essential problem, as you see it, that gold was not 'free market'
enough or that financial speculation have been too 'free'?

Waddyareckon?

Cheers,
Rob.

> Well, yes, the price of gold is the critical element in the overall
> game -- as the gold market is the "alarm bell" that rings when
> irresponsible money pumping becomes imprudent; today the
> game is criminally imprudent.  Keynes's "Gibson's Paradox"
> addresses the historic relationship between the price of gold
> and interest rates (they are inverse of one another).  Larry Summers,
> who wrote about this paradox with a co-author when he was still
> just a humble man of Harvard (!) in the late 80s.  Summers concluded
> the only way to beat it was for the govt to "fix" (rig) the price of
> gold,
> which is just what has happened.  Of course, the dollar as the reserve
> currency is greatly affected by this game, thus Rubin's "strong
> dollar,"
> which is crushing US manufacturers and producers (esp. agriculture,
> a California farmer can not sell an avacado as cheaply as one imported
> into his own local markets!), and enabling the swift and relatively
> easy
> looting of foreign nations (Argentina, sacrified to the gold game due
> to
> their
> peso/dollar peg is a real time demonstration of what the rigging can
> do.)
> But Morgan has taken it a step further, exploiting the
> artificially-obtained
> low gold price as the "underlying asset" which has allowed them to
> place
> interest rate derivative bets of $23 trillion - simply unbelievable. A
> rising price of gold and/or volatility due to the action of the bond
> vigilantes
> in the market would ruin them.  So they are threatened by a free gold
> market and/or current market action involving the constant threat to
> those employing "shorts," i.e. a "short squeeze."  If gold is allowed
> to find its natural level in the market, however, all hell truly
> breaks
> free for Morgan.  -A.