The Federal Reserve Has No Integrity Paul Craig Roberts and Dave Kranzler Infowars.com April 1, 2014
As we documented in previous articles, the gold price is driven down in the paper futures market by naked short selling by the Fed’s dependent bullion banks. Some people have a hard time accepting this fact even though it is known that the big banks have manipulated the LIBOR (London Interbank Overnight Rate – London’s equivalent of the Fed Funds rate) interest rate and the twice-daily London gold price fix. Almost every week it is possible to illustrate the appearance of a large number of contracts shorting gold at times of day when trading is thin. The short-selling triggers stop-loss orders and margin calls and hammers down the gold price. The Fed has resorted to this practice in order to protect the value of the US dollar from Quantitative Easing. In order for the Fed to effectively support the reserve status of the U.S. dollar by pushing it higher when it starts to drop, the Fed has also to prevent the price of gold from rising. Intervention in the gold market has been occurring for a long time. However, in the last several years the intervention has become blatant and desperate, as rising concerns about the dollar are causing countries such as China and Russia to accumulate fewer dollars and more gold. During the month of March the Fed and the big banks implemented aggressive intervention against the rising price of gold and the plunging value of the U.S. dollar. Events in Ukraine may have stimulated demand for physical gold and selling of the U.S. dollar, but it was mainly further erosion of the U.S. economy, as reflected in more deterioration of economic data released during March, that pushed gold up and the dollar down. The dollar index is a “basket” of currencies used to measure the relative value of the U.S. dollar. The largest components of this basket are the euro and the yen (it also includes the British pound, Canadian dollar, Swedish krona and Swiss franc). During February and March, the dollar started to decline in response to increasingly negative U.S. economic reports, continued Fed money printing (QE) and the Ukraine crisis.
On the last day of February, the dollar index dropped below 80. The 80 level is a key technical trading level and if the dollar were to stay below this benchmark for an extended period of time, large holders of dollars would start selling their dollar holdings out of fear that the dollar would be headed even lower. The Fed and the U.S. Treasury needed to do something in order to force the dollar index back over 80. As part of its intervention in the currency market to get the dollar back over 80, the Fed also needed to stop gold from rising back over $1400, which it was on the verge of doing by the middle of March. Just
like 80 is key level, below which technical selling of the dollar kicks in, $1425 is another key level for gold for which large buy and short-covering orders would be triggered. In other words, to support any manipulated move higher in the dollar, the Fed needed to intervene in the gold market to force the price of gold lower. The graphs below illustrate the key points of dollar/gold intervention during March. As we reported previously, the Fed, using its agent banks like JP Morgan and Goldman Sachs, intervenes in the gold market by “bombing” the market with a large quantity of Comex gold future contracts. This typically occurs at periods of time when the market is very quiet and trading is at a lull. These engineered market interventions are now commonly referred to as “mini-flash crashes.” As the dollar was consolidating its trading range below 80 and the price of gold was headed toward $1400, flash crashes started occurring more frequently and with more intensity. During the first week of March, gold was getting ready to shoot through the $1350 level and the Fed used two distinct flash crashes to contain gold below $1350 (first two red circles on the graph). During the week of March 10th, the price of gold started moving quickly higher toward the $1400 level, as the Ukraine crisis was front and center in the news and investors moved money into the safehaven of gold. The Fed used several mini-flash crashes in an attempt to contain the move. The red circles on the gold graph show the points in time in which the Comex gold futures market was “bombed” with contracts in order to slow down the upward momentum that the price of gold was gaining in the first half of March. Then early in the morning on March 17th, with the tension subsiding somewhat between the U.S. and
Russia after Crimea voted to join Russia and war didn’t break out, the Fed and its agent banks went to work on manipulating the price of gold lower and forcing the U.S. dollar higher . The red arrows on the gold graph show where the Fed dropped gold future “bombs” on the gold market in order to force the price of gold lower. The huge bursts of sell-volume almost always occurred during periods of low trading activity. On March 18th, the Federal Reserve Open Market Committee (FOMC) convened for a two-day meeting, with its policy statement to be released March 19th at 2 p.m. EST. A study of how gold performs during the week in which there is an FOMC meeting showed that, on average, gold drops $37 for that week. This compares to almost no change during the same week during months in which no meeting is held. As you can see, the mini-flash crashes were used to force the price of gold down $72 from top to bottom during the March FOMC meeting week. The dollar graph shows the big spike in the dollar, which took the dollar back over the 80 level right after the FOMC meeting was concluded. The Fed’s aggressive engineering of the mini-flash crashes continued during the last week of March. The group of red arrows on the right side of the gold graph show points in time Monday (March 24) – Friday (March 28) when there were sudden bursts of high volume selling in the April gold contract. Monday’s flash crash to start the week involved 6,437 contracts dumped onto the Comex right as the Comex gold trading floor opened at 8:20 a.m. For comparison purposes, 855 contracts had traded the minute before the Comex opened. Recall from one of our previous articles that gold gets hit right at the open of the Comex flooor trading session at least 85% of the time. This serves to set a downward momentum for the day’s trading. Remember, the purpose of Quantitative Easing is to support the balance sheets of a few over-sized banks and to finance the federal budget deficit at an artificially low rate of interest. In other words, QE supports failed banks and federal fiscal irresponsibility. In order to successfully carry off this blatant misuse of public policy, the price of gold, a measure of the dollar’s value, must be suppressed. The Federal Reserve’s lack of integrity speaks volumes about the corruption of the US government. Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. His latest book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is now available.
What to Expect From Janet Yellen Patrick Barron mises.org April 1, 2014
No change. Oh, you want more? Groucho Marx used to tell a joke on himself that “I wouldn’t want to belong to any club that would admit me as a member.” That pretty much sums up why we shouldn’t expect much from the new chairman of the Federal Reserve System. This administration and this Congress will never admit anyone that is not of the Keynesian-School-of-economics persuasion. As long as this mentality resides in the political halls of power, our nation will not get another Paul Volcker. That means that we should anticipate a continuation of policies that assume that monetary expansion can spur economic growth. It cannot. Monetary expansion can spur phony economic growth; i.e., fooling entrepreneurs to invest capital in projects that will not return a profit. GDP may go up — temporarily. Employment may go up — temporarily. Janet Yellen and her fellow Keynesians believe that the Fed, through money creation, can create software engineers, doctors, nurses, and steel mills. In other words, they think they’re creating real resources. It’s nonsense, yet they seem to be true believers. They may couch this error in highfalutin terms, but that is what they mean on a fundamental level. In the end capital will be destroyed, resulting in an economic bust, and the nation will have wasted years and resources that it can never recover. Now, Yellen may preside over a gradual “tapering” of the unprecedented “quantitative easing” program begun under Bernanke. But this does not mean that she is different. Remember, that program was unprecedented; everyone knew at its beginning that it could not continue forever. Whoever occupies the Fed chairmanship would have to end that program at some point — we hope. There is no guarantee, however. If rates start to rise, unemployment rises, and businesses start to go bust, the Fed could jump right back into the program, because that is all it knows how to do — print money. The real question is
whether Yellen and her fellow travelers will accept a recession that most likely will occur as QE ends. The Fed likes to think of QE as a jump start, a one-time boost, a helping hand, etc. But these are false analogies. QE funds projects that cannot exist in its absence; therefore, when QE ends or even slows down, these projects will be revealed to be unprofitable. No amount of cost cutting will make them profitable. They were born of QE and they will die when QE ends. The only question is whether the Fed will accept the necessary recession or will jump right back into money printing. If it does the latter, we can expect an even greater bust in the future. The Fed has painted itself into a corner. There is no way that the nation can avoid either a recession or the collapse of the value of the dollar. We should prefer the recession, then insist on an end to monetary expansion, regardless of the howls from the politicians that the government cannot continue its many programs otherwise. At the core this is a political problem. Only a radical change in the mindset of government can end the monetary madness.
Where Does the Real Problem Reside? Two Charts Showing the 0.01% vs. the 1% Liberty Blitzkrieg April 1, 2014 While I always supported the overall message and energy that encompassed the Occupy Wall Street movement, I never backed the slogan of the 1% vs. the 99%. From my own personal experience, it is entirely clear that the actual problem is a far smaller group within the 1%, the 0.1% or the 0.01% (although I recognize “We Are the 99.9%” isn’t catchy). This is why you’ll never hear me demonize “the 1%”, rather I always try to use the term oligarch, which
refers a small handful of people who benefit most disproportionately from Federal Reserve handouts, D.C. corruption, tax code loopholes and the destructive trend of financialization generally. This is is also why I became so disgusted by Sam Zell’s ignorant and destructive comments on Bloomberg television earlier this year that decided to pen an open letter to him. Thanks to The Atlantic, we now have two charts that show what I have been writing about for many years now. It is not the 1% that is the problem, it’s actually a much smaller slice within that group that is thieving and pillaging at will from the rest of American society. From The Atlantic: I’ve written, over and over, that the most important divide in our wealth disparity was between the 1 percent and the 99 percent. For example, when I compared the evolution in investment income since the late 1970s, I often imagined a graph like this from the Economic Policy Institute, showing the 1 percent flying away from the rest of the country. It turns out that that graph is somewhat misleading. It makes it look like the 1 percent is a group of similar households accelerating from the rest of the economy, holding hands, in unison. Nothing could be further from the truth. A few weeks ago, I shared this graph (from the World Top Incomes Database) showing how the top 0.01 percent—that’s the one percent of the 1 percent—was leaving the rest of the top percentile behind.
It’s even more egregious than that. An amazing chart from economist Amir Sufi, based on the work of Emmanuel Saez and Gabriel Zucman, shows that when you look inside the 1 percent, you see clearly that most of them aren’t growing their share of wealth at all. In fact, the gain in wealth share is all about the top 0.1 percent of the country. While nine-tenths of the top percentile hasn’t seen much change at all since 1960, the 0.01 percent has essentially quadrupled its share of the country’s wealth in half a century.
It turns out that wealth inequality isn’t about the 1 percent v. the 99 percent at all. It’s about the 0.1 percent v. the 99.9 percent (or, really, the 0.01 percent vs. the 99.99 percent, if you like). Long-storyshort is that this group, comprised mostly of bankers and CEOs, is riding the stock market to pick up extraordinary investment income. And it’s this investment income, rather than ordinary earned income, that’s creating this extraordinary wealth gap. The mainstream is finally starting to figure it out. From crony capitalistic corporate welfare (even the New York Times covered oligarch welfare last week) to the 0.01% problem. Now if the nine tenths of the 1% would stop complacently continue to tread water and challenge the oligarchs we might actually be able to change things. Full article here. What Is a Gold Standard? VIDEO BELOW http://www.youtube.com/watch?feature=player_embedded&v=LdyHso5iSZI Why Not Print More Money? VIDEO BELOW http://www.youtube.com/watch?v=ZkyBnaYCUhw A History of Economic Booms and Busts VIDEO BELOW http://www.youtube.com/watch?v=83sX8Ent4vo
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