Dear CIGAs,

As you know, it was Chairman Volcker who predicated the Hunt loan on my presence to advise on liquidation of the Hunt metal position.

I know him to be a brilliant realist.

In 1979 he had a totally different situation and the full backing of the Administration.

This time his job is the absolute opposite of what it was in 1979–1980.

This time I know his advice will be friendly to gold and most certainly on the subject of FRGCR. This I know!

Gold was a major items used in the 30s for many reasons, one of which was an attempt to take the deflationary perspective out of the public mind.

1. His assignment is to fight DEFLATION.

2. Obama spoke profusely of differences of opinion in his economic communication today.

3. There is no chance Obama will listen to Volcker other than when it supports administration goals and policies

4. After 7.1 trillion dumped into the economy there is no chance anyone can avoid the consequences.

5. Don’t be a fool and worry.

6. Worry only if you are not protected and insured against what is to come.

Volcker issues dire warning on slump
Paul Volcker, the former chairman of the US Federal Reserve, has warned that the economic slump has begun to metastasise after a shocking collapse in output over the past two months, threatening to overwhelm the incoming Obama administration as it struggles to restore confidence.
By Ambrose Evans-Pritchard
Last Updated: 10:39PM GMT 17 Nov 2008

"What this crisis reveals is a broken financial system like no other in my lifetime," he told a conference at Lombard Street Research in London.

"Normal monetary policy is not able to get money flowing. The trouble is that, even with all this [government] protection, the market is not moving again. The only other time we have seen the US economy drop as suddenly as this was when the Carter administration imposed credit controls, which was artificial."

His comments come as the blizzard of dire data in the US continues to crush spirits. The Empire State index of manufacturing dropped to minus 24.6 in October, the lowest ever recorded. Paul Ashworth, US economist at Capital Economics, said business spending was now going into "meltdown", compounding the collapse in consumer spending that is already under way.

Mr Volcker, an adviser to President-Elect Barack Obama and a short-list candidate for Treasury Secretary, warned that it is already too late to avoid a severe downturn even if the credit markets stabilise over coming months. "I don’t think anybody thinks we’re going to get through this recession in a hurry," he said.

He advised Mr Obama to tread a fine line, embarking on bold action with a "compelling economic logic" rather than scattering fiscal stimulus or resorting to a wholesale bail-out of Detroit. "He can’t just throw money at the auto industry."

Mr Volcker is a towering figure in the US, praised for taming the great inflation of the late 1970s with unpopular monetary rigour. He is no friend of Alan Greenspan, who replaced him at the Fed and presided over credit excess that pushed private debt to 300pc of GDP.

"There has been leveraging in the economy beyond imagination, and nobody was saying we need to do something," he said. "There are cycles in human nature and it is up to regulators to moderate these excesses. Alan was not a big regulator."

Even so, he said the arch-culprit was the bonus system that allowed bankers to draw forward "tremendous rewards" before the disastrous consequences of their actions became clear, as well as the new means of credit alchemy that let them slice and dice mortgage debt into packages that disguised risk.

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