Todd Stein & Steven McIntyre
Six years ago, the Council on Foreign Relations conducted a policy simulation in which a small number of experienced policymakers worked through the options and constraints facing the U.S. government in the aftermath of a sudden and significant stock market decline. A few years beforehand, the Washington Post published an article about the President's Working Group on Financial Markets which was established via executive order 12631 in response to the crash of 1987. Known on some trading floors as "the plunge protection team", very little since has been reported about the prospect of government intervention in the stock and other securities markets. As someone who constantly fights government intervention in the economy, what are your thoughts about the degree (if any) to which the Federal government intervenes in the stock market?
Well, it's secretive and everything the Fed does is very secretive unless they feel like it's necessary to announce it. Like on Long Term Capital Management, they had to come clean on that, but I think they're into it. But I don't think very often. On the big events like on the crisis with Russia and the Southeast Asian crisis, I'm sure they're in there and they're capable of doing it. But it's sort of like this idea about how much did our central bank and other central banks fix the price of gold for so long. I think they probably did because it's the nature of government to try to prop up paper and badmouth gold. We certainly did it in the 1960s. We kept gold at $35/oz for years and years by dumping gold. Today it's more sophisticated. So whether it's propping up the stock market or keeping the price of gold down, they're very capable and it is in their interest to do it. But I think in many ways it's irrelevant except in the short run. I think it breaks loose just as it broke loose with gold in 1971 and again in 2001 when gold bottomed at $250/oz. These things exist but ultimately the market is more powerful than all the central banks and the governments put together.
As far as having somebody on the hill testifying, would you ever consider confronting or asking them about the Working Group on Financial Markets and direct intervention in the stock market in addition to maybe a new audit of the gold in Fort Knox?
Yeah - I headed toward that but have never been real precise. I tried to get into the GATA contentions but the total five minutes that I get, you know, sometimes it takes five minutes to even try to explain. Then it's almost impossible to get a response but those are the kind of questions I shouldn't forget about. Sometimes we get the opportunity to send questions in [writing] as we cannot expect too much in that very short time that I get in the committee.
A large pillar of support for the U.S. Dollar has been the recycling of so-called "petrodollars" from OPEC nations into our securities markets. Since oil is priced and traded in Dollars, many producing nations will take their proceeds from petroleum sales and invest them in US Treasuries. In 2000, Iraq switched to pricing their oil in Euros and came out ahead as the Dollar depreciated significantly in 2001 & 2002. Any time now, Iran is slated to open its Iranian Oil Bourse and will price transactions in Euros - a move that seems logical for Iran as almost half of its trade is with countries in the euro zone. Now we hear talk of Venezuela, Russia and several other nations moving out of the Dollar-denominated energy transactions while, at the same time, these countries have been on the receiving end of critical State Department rhetoric. Just how much of our foreign policy is designed to keep the Dollar as the undisputed reserve currency of the world?
I do not believe it is a coincidence. I believe it is very deliberate and they are related. I think the intertwining of international finance and foreign policy is closely linked. I have talked about this and believe that the Iraq invasion had something to do with it, although I don't think that was the only thing. There were enough other reasons as well. I think this too will come to an end and the market will just overwhelm. If you look at the weekly reports on how many dollars [in the form] of Treasury Bills as well as Fannie Mae and Freddie Mac [bonds] bought by foreign governments are huge.
The international agreements are absolutely and totally secret. It is my suspicion without any proof whatsoever that our agreements, whether they are gentleman's agreements or in writing, that it is in the interest in many of these countries to help prop up the dollar for their benefit. But our foreign policy can become so aggravating to some of these countries that it might be in the interest of Russia or Venezuela or China all of the sudden to turn on us. So that is why I think we live in very dangerous times for the dollar.
Anecdotal evidence and common sense dictate that government CPI statistics are habitually grossly understated - so much that it would be funny except that savers are being robbed. Meanwhile, our new Fed chairman says that the CPI overstates inflation! What is going on here? Is Bernanke, who evidently must not eat, drive or pay electric bills just incompetent? Or do you think there is an Orwellian agenda here where statistics are manipulated for political purposes?
The latter. They are manipulated for political purposes and they've been so for many decades. This came up on numerous occasions with Greenspan when he was before the committee - I would point this out and I've already done this with Bernanke and they just refuse to answer and they will not acknowledge it. But I tell them and I repeat it because it's true that there is nobody in my district that believes that the inflation rate is 2% and most of them know darn well that their money is losing value a lot faster.
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