What many who are living through this age of jobless recovery know all too well is that these markets are hopelessly manipulated, and that the trading taking place in these markets is subject to the same parlor tricks that define the GDP numbers...
Economists, analysts and assorted talking heads are falling all over themselves to scry the tealeaves from the latest “important economic indicator” from the US economy: the “final” estimate of 2014 Q4 GDP. At 2.2%, the estimate remains unchanged from its previous revision, but don't worry; the number will almost certainly be revised again a few more times in the coming years when no one is looking, like all “final” GDP estimates are.
Given that even this grossly inaccurate and inherently faulty 2.2% figure is only half of GDP growth in Q2 and Q3, you would think it would be hard to spin this as a sign of increasing economic strength. But then, you might not be familiar with the Bloomberg boosters, who managed to come up with the laughable headline: “Here's More Proof the U.S. Economy Is Beating the Rest of the World.” Really, Bloomberg?
Zero Hedge had a much more realistic assessment, noting that the economy is in fact slowing down once again and things are not nearly so rosy as most Americans have been led to believe. But what else is new? Here we are 8 years after the housing meltdown and 7 years after Lehman Bros. and the S&P and the Dow remain near all-time record high valuations. Overhyped internet startups continue to set records for IPOs despite having never generated a profit, subprime loans are making a comeback, major institutions release reports noting how central governments have skewed the markets with QE and direct investment in equities...and yet, the markets coast along as usual, as if nothing ever happened, even as oil prices plunge and gold remains in the doldrums. What gives?
What many who are living through this age of “jobless recovery” know all too well is that these markets are hopelessly manipulated, and that the trading taking place in these markets is subject to the same parlor tricks that define the GDP numbers, the unemployment stats, the gold price and all of the other phoney baloney data that passes for our economic reality.
What many may be surprised to learn, however, is that government manipulation of these markets is on the record and openly admitted.
On October 19, 1987, stock markets around the world crashed, from Hong Kong to Europe to the US. The Dow Jones plummeted over 22% in a matter of hours.
Ostensibly in response to this crisis, President Reagan signed into law Executive Order 12631 establishing a body formally known as the “President’s Working Group on Financial Markets.” This body, famously dubbed the “Plunge Protection Team” by the Washington Post in 1997, is explicitly mandated to “maintain investor confidence” in US markets through whatever actions it deems necessary. The group and its actions are shrouded in official secrecy, but its actions have long been identified by independent market analysts.
But just as in all other areas of life, it is a truism that those things which are suppressed in one place tend to rise to the surface unexpectedly elsewhere. Such is the case with market manipulation. Although it is relatively easy for the federal government and institutional investors to send prices up or down through relatively straightforward manipulation, it is more difficult to prevent those interventions from becoming visible in other parts of the economy.
One of the first places one would look for signs of tampering in equity markets would be commodities, goods which are physical and quantifiable and thus harder to fudge or play around with. And amongst commodities, precious metals like gold and silver have long held a special place in showing signs of currency manipulation or market intervention by spiking in value during periods of currency debasement and falling during periods of true economic growth.
Given that gold has been unable to break through the $2000 an ounce level and has recently fallen back under $1200, we are left with two options: either the economy is truly growing and thriving as the government says it is, or these markets, too, are being manipulated. Sadly, if not surprisingly, the latter turns out to be the case.
Gold market analysts have long pointed to the increasing amount of gold stocks, ETFs, and other forms of so-called “paper gold” in the market. In 2010, Adrian Douglas estimated that there were about 45 paper claims for every ounce of physical gold in existence, meaning that the true price of gold was closer to $54,000 an ounce.
Beyond this simple price suppression technique, however, are the ways that large traders use the gold carry trade, futures markets, and other methods to keep precious metals markets trading below their real values.
In startling testimony before the Commodity Futures Trading Commission in 2010, Bill Murphy of the Gold Anti-Trust Action Committee laid out a blistering expose of the systemic manipulation of the precious metals markets with the participation of some of the highest ranking economic officials in the US government:
“As an executive at Goldman Sachs in London, Robert Rubin developed an idea to borrow gold from central banks at minimal interest rates (around 1 percent), sell the bullion for cash, and use the cash to fund Goldman Sachs’ operations. Rubin was confident that central banks would control the gold price with ever-more leasing or outright sales of their gold reserves and that consequently the borrowed gold could be bought back without difficulty. This was the beginning of the gold carry trade.
“When Rubin became U.S. treasury secretary, he made it government policy to surreptitiously operate an identical gold carry trade but on a much larger scale. This became the principal mechanism of what was called the “strong-dollar policy.” Subsequent treasury secretaries have repeated a commitment to a “strong dollar,” suggesting that they were continuing to feed official gold into the market more or less clandestinely to support the dollar and suppress interest rates and precious metals prices.”
The picture that is being painted here is one of a thoroughgoing fraud. In fact, even in this relatively short and necessarily incomplete expose, we have the sense of a fraud so large and ensconced in the marketplace that it would be impossible to perpetrate without the active collusion of the government regulators themselves. Sadly, as the existence of bodies like the Plunge Protection Team and the failure of the CFTC to prosecute demonstrable market manipulation shows, this type of thoroughgoing collusion is precisely the case.
This leaves the average working man or woman in a seemingly intractable problem. They have been told all their lives to entrust their savings to the financial experts, believing that a healthy portfolio of stocks and bonds will protect and even grow their wealth so that there will be a nice nest egg left over for their retirement. As this economic house of cards begins to topple, however, people will find themselves in the same position as the Romans under Diocletian or the French of the Revolution or the Germans in the Weimar Republic or the Argentinians under the collapsing peso: having their entire life savings wiped out seemingly overnight.
The only real protection from this, of course, is to withdraw our investments from the system that is perpetrating this fraud, from the stocks and bonds and traditional reserves of the fraudulent market. Instead, people around the world are beginning to learn the importance of investing in land and other physical assets, but perhaps more importantly the need to invest in their local communities, in alternative currencies, in co-operatives and other institutions that have nothing to do with the actions of the fat cats on Wall Street or the political puppets in Washington. And until that realization happens on a mass level, people will continue to operate in good faith in the reality of this economic wonderland, never understanding the systemic collapse that is awaiting them.
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