King Daddy and the so-called Free Markets
Posted by slowsmile July 3, 2009
It is certainly true that everyone from the Keynesians, Monetarists and the Austrian Schools of economics all seem to promote the wonders of Free Markets. These ancient and revered tenets are also widely amplified in the media by the likes of Paul Krugman, Milton Friedman, Larry Summers, Ben Bernanke et al. But, strangely, and from the economic opposition, this very same esteemed principle is urgently and heavily shouted by the likes of Peter Schiff, Jim Rogers, Marc Faber, Joseph Stiglitz, Doug Casey and Congressman Ron Paul. So, I guess something smells fishy in Kansas, something is a bit awry, evidently these free market principles are perhaps being played with and twisted or bluffed for some particular advantage. And when economic principles become thus bastardized, abused and two faced, the common-sense simplicity of economic Free Market principles.becomes lost and wayward to simple understanding, wherein government planners and schemers are able to shamelessly steer the markets, and all trusting citizens are misled and fooled. So, perhaps a proper definition is in order for those of us who are utterly flummoxed. Here are several simple definitions of Free Market:
Definition 1
Business governed by the laws of supply and demand, not restrained by government interference, regulation or subsidy.
Definition 2
A foreign exchange market that is not controlled by the government.
Definition 3
A security with sufficient liquidity that its price is not significantly affected by availability.
When you read these definitions, is it any wonder that ordinary people are so confused with the complex economic activities of the US government? And although the likes of Geithner, Summers and that know-all President Obama resolutely preach Free Market principles out of the left-hand side of their faces — all you have to do is dig down a little into the current stinking US economic septic pit to expose all the dirty, gross market manipulations that have been perpetuated by these paragons of free markets. If you want to read about this then this link is a good starter. But don’t mistake what I’m saying here, the governments of most other developed countries in Europe and elsewhere also manipulate the Free Markets to some much smaller extent. After all, they’ve had a good teacher haven’t they? But, in my opinion, the US government throughout the last century has been The King Daddy of Market Manipulators.
Perhaps, as an American, you might feel that this economic interference and malpractice is OK, – Hey, what’s all the fuss about ? — that’s simply the way the economic game is now played, since it ’s all part of the capitalist principle to win economic advantage by any clever and innovative means possible. Perhaps the US government is only trying to help America to lead economically from the front, so all can be forgiven with these manipulations. And maybe this is all true. But there is also a great danger here. America’s economic lead is undoubtedly waning and the likes of Russia, China and the other emerging market countries are all playing catch-up with a vengeance now. Soon the global economic baton and lead may well pass to the likes of China and what then? China has been watching America’s economic activities and is now very aware of the American Governments blatant hands-on manipulation of the dollar. So, when China eventually moves to the front of the Global economic pack — as she must through sheer un-leveraged manufacturing productivity and savings — how will America cope? China has been a patient, fast learner. On his last visit to China, Geithner was laughed at, hooted and booed when, during a speech, he assured the Chinese government that US Treasuries were a safe bet. Well he tried the bluff, but crashed and burned mightily. Fairly clear that the Chinese now fully realize what America is up to, that China must pay heavily and sacrifice all her savings for America’s re-emergence without any other choice. The point here is that political sway and influence relies heavily on the economic performance and riches of any country — this is certainly one form of power — and so if America has been playing The King Daddy of Market Manipulators then what’s to stop China or Russia or India or The Middle East — as they eventually overtake America’s falling, failing economy — playing by the same dirty manipulative market rules? Will Americans then cry “Foul !!” when China or Russia start to manipulate the markets heavily in their own favor. And maybe Russia and China will then laughingly respond with “Hypocrite!! Hypocrite !!”. Who could blame them? The current “rules” of modern economics seem more likely derived from Sun Tzu than they are from the essays and works of Maynard Keynes, Milton Friedman or Ludwig von Mises. Anything goes, it seems.
In the first definition of free markets — defined as markets which are not interfered with, manipulated or subsidized by governments — it is quite evident that the US government(as well as governments in Europe and other developed countries) clearly have not abided by this rule. This simple rule defines that the markets are an economic jungle, and when left alone as they should be, if any business or stock doesn’t perform, then that business is inefficient, uncompetitive, non-productive, over-leveraged or corrupt and rightly deserves to die. So, according to the Darwinian free market principles, only the strongest and best performing businesses should survive. But what have we got instead? In a word — Bailout after bailout. The US Government is not only rescuing Wall Street and huge corporations, the Fed is also buying up all their dirty toxic assets as well !! In effect, the US government now clearly supports all the corrupt, fraudulent, insolvent and too-big-to-fall business institutions of America which is quite the opposite of Free Market principles.
As further evidence of US Government market manipulations — all you have to do is take a peek at the recent performance of commodities like oil, gold, soyabeans and wheat. I won’t spend time on more evidence, there’s too much evidence really. But I will describe how it is done.
From my readings the US FED is supposedly responsible for the maintenance and regulation of US banks, price stability, inflation and the US money supply. Little known is how the FED maintains the strength of the US Dollar. The FED maintains the US dollar, not only by suppressing interest rates, but by entering into large currency swap arrangements via the Federal Open Market Committee. This Committee is allowed to interfere and play the currency exchange markets as much as they like to maintain the strength of the dollar. And, according to the second definition of Free Markets — A foreign exchange market that is not controlled by the government — again, this FOMC activity directly offends and contradicts the definition of “Free Markets” doesn’t it ?
There is also a very little known arm of the US Treasury called the Exchange Stabilization Fund(ESF), which discreetly though massively manipulates the US stock markets by their very secretive and hard-working Plunge Protection Team(PPT). Recent activities of the ESF seem to be concerned with dollar price stabilization via direct gold manipulation in the commodities market. From the Market Skeptics site:
Originally funded out of the profits from the 1934 gold confiscation, the little known ESF is available for intervention in the foreign exchange markets. In the absence of a Congressional appropriation, the Clinton administration used funds from the ESF to finance the 1995 U.S. bailout of Mexico. However, accepting the Greenspan dictum that it “would be wholly inappropriate” for the Fed ever to intervene in the gold market to manipulate the price, it is hard to imagine any situation in which such intervention would be appropriate by the ESF, never mind one involving large profits for the former investment bank of the Secretary himself.
Last week, in response to an inquiry from Bridge News, Secretary Summers “categorically denied” that the Treasury was selling gold. With all due respect to the Secretary, this is not the allegation that knowledgeable gold market participants and observers are making. Their allegation is that the ESF — by writing gold call options or otherwise — is making sufficient gold cover available to certain bullion banks to allow them safely to take large short positions in gold, thereby putting downward pressure on the price and in the process making huge profits for themselves.
So, how does the ESF manipulate the free markets, what is its modus operandi ?
From an interview in the Americans for a Free Republic website:
The PPT [Plunge Protection Team] operation has access to unlimited funds because it was formed by the Treasury which can create money out of thin air. My guess is that the organization is structured through an offshore hedge fund established by the ESF as a front group. They do their buying and selling from perhaps the Bahamas or the Cayman Islands. One thing we know is that they place their orders through several of the big brokerages in New York such as Goldman Sachs, JP Morgan, or Merrill Lynch. This way no one at the brokerage houses or on the exchange floors actually sees any massive buy orders from Washington bureaucracies.
The way they work the scheme is whenever the market is going too low and threatening to crash, the PPT initiates buy programs on margin for S&P futures contracts in large enough volume to check the market fall and panic short sellers into covering their short positions. This creates a “short squeeze” and explodes prices upward. Hedge funds and institutional buyers then rush into the market to buy in order to catch the rally. This extends the rally and effectively ends the potential market crash as investor mood shifts from bearish to bullish. The rally is created in the way that lighting a match to kindling ignites a roaring fire. The S&P futures contracts are so highly leveraged that a $200 million buy can be initiated for $10 million in the PPT account with JP Morgan. A $500 million buy can be initiated for $25 million. These margins are chump change for the Treasury-ESF-PPT operatives. As the rally proceeds, the PPT then sells their contracts back to the hedge funds and institutional buyers that follow after them. The PPT then goes to the sidelines to await the next crisis when they will need to stem a potential crash.
Is this not also outright market interference and manipulation? This makes me laugh very sarcastically concerning one of President Obama’s past stated policy dictums. Early on in his reign, when Obama first came to power — he made much rhetorical sound and thunder concerning sterner rules, regs and transparency regarding offshore bank accounts and businesses in places such as the Cayman Islands. Can anyone now see that this was all BS — because without these non-transparent offshore accounts and businesses the ESF simply could not function or do its covert job. So, folks, anyone with an offshore account will be safe enough in the future. This empty and hollow promise by Obama seems to be just one more ineffective and deliberate distraction for his people.
So, please, let’s not have anymore babble about how we have Free Markets. We haven’t had Free Markets in over a century and they will never return. But I will give you a new economic rule:
The Free Market principles are dead. But whichever country is at the top of the global economic pyramid will always endeavour to control and manipulate the global markets without fail — in any dark, selfish and illicit manner they choose. Sadly, this rule seems already to be the accepted economic norm. And, like it or not, global leadership always changes according to economic circumstance because the Global Markets will forever remain a black, complex and unpredictable jungle and one that is still very capable of teaching harsh lessons against the greater follies of both stupidity and greed versus risk.
And so it goes on, through all this continual massive government market interference, with all the usual stupidity, folly or greed, such that with this greater risk and leverage comes a much deeper decent into the economic abyss. In truth, The Markets can certainly be manipulated but their final timing and outcome can never be accurately predicted. This is how lessons are learned, from the simple failed investor to the massive slide into Hell of a complete economy.
Such is the timeless nature and behaviour of The Markets which, even though economically bound and manipulated like a great tiger, are still able to behave remarkably freely and so unpredictably. Somehow, even with all this manipulation, the US government still manages to screw up the markets regularly. After all, that most illusive of all predictables — Market Confidence — is surely derived from nothing more than human action and human behaviour.
And there is no accurate economic or mathematical model for that one. Right ?
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