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E-mailGovernment manipulating markets
John Browne, a financial analyst and former member of Britain's Parliament, is a financial and political columnist for the Trib. He is a frequent contributor to CNBC, Fox Business News and CBS. E-mail him.
The government says its $787 billion stimulus package has directly created or saved 640,329 jobs. Statisticians wrestle to hone employment figures to the nearest ten thousand. Thus the figure of 640,329 carries a precision that suggests it is likely merely a "wish" number. Even if true, depending on the assumed percentage of stimulus spent, each job saved cost taxpayers about $200,000.
Additionally, the official unemployment figures of 9.8 percent exclude important categories of unemployed, such as involuntary part-time and long-term unemployed. By including them, unemployment would be almost 20 percent, or double the "official" figures.
Few dispute that the government cooks the inflation figures to the downside to lessen debt service and Social Security costs. Indeed, the government actually publishes its recipe. In mid-2007, anyone who ate food, heated his house and incurred medical bills experienced inflation of more than 20 percent. However, the official inflation rate was 3 percent.
The United States is said to be the "land of the free." But could it be that the government is manipulating information and markets while attempting to minimize criticism?
For decades, the Fed openly has manipulated interest rates and Treasury bond markets to influence the market appetite for its massive fiat money supply.
The result is that the historically low price of money is subsidized. Conversely, the historically high prices of bonds also are subsidized. They represent a gigantic bear trap for unwary investors, if and when interest rates rise to curb the latent hyperinflation threatened by massive government spending.
For almost 10 years, under the covert Central Bank Gold Agreements, governments have manipulated the gold market, via the International Monetary Fund, to create price volatility and demonetize the metal that embarrasses modern, high-deficit-spending governments. This policy cost the United Kingdom about $12.6 billion.
However, central banks now are showing growing reluctance to sell their gold. Indeed, some, like India, are now active buyers, while China is hoarding its own large production. Despite the downward pressure of economic deflation, gold has held firm and even risen by almost 30 percent in the first ten months of 2009.
In the past year, the government has made no secret of its massive interventions in the mortgage and housing markets. The result is that neither mortgage rates nor house prices represent free market reality.
Earlier this summer, the government intervened temporarily in the auto markets with "cash for clunkers." It provided a short-term spike in car sales but at a cost of $24,000 per unit.
Perhaps the most covert manipulation of a supposedly free market by government is in equities.
Former Fed Chairman Alan Greenspan recognized the vital international flagship nature of the Dow Jones industrial index. He realized the index was merely a mathematical average based on market capitalization and that it could be influenced relatively easily by buying or selling large numbers of shares of the largest companies.
Greenspan assembled a team of major banks and brokerage houses to execute the market transactions, which were further camouflaged by use of nominee names. They are known as the Plunge Protection Team.
A refinement was to issue orders in the highly leveraged futures markets. This leverage greatly increased influence on spot prices.
Knowing this, the bottoming of the Dow in March 2009, its "hovering," despite selling pressure around the key 8,000 level and, more recently, its seemingly being "nudged" through the 10,000 level appeared to indicate a powerful hidden hand.
The government makes no secret of manipulating interest rates, Treasury securities prices, mortgages and housing. Coy about gold price manipulation, it is decidedly covert about any manipulation of equities. Little wonder that the Fed resists strongly the congressional audit proposed by Ron Paul.
Some might argue that it is the job of government to raise national morale, even by market manipulation. However, investors should be aware of reality.
Over time, playing games with market transactions in an attempt to influence, if not exploit, free markets is a bad thing.
Healthy financial markets demand trust in a level playing field in order to function properly and contribute to the economy. While government manipulation might yield short-term political gains, it will eventually destroy trust and damage the national interest.
