The Manipulation of Markets

Despite the appearance of a marketplace unencumbered by government controls, it has become in recent years widely apparent that the U.S. "free market" is a misnomer, and is instead a product of active behind-the-scenes manipulation and federal control. This is true of every aspect of the American economy, with bank and federal control spanning the gamut of commodities, equities, currencies and all other tradable monetary assets.

This conspicuous feature of behind-the-scenes control is nowhere more apparent than the in the U.S. stock market, but in recent months has been even more evident in the energy markets. The reference we are making, of course, is the current high price of crude oil, which presently stands at over $32/barrel. This level is high by historical measures and becomes more disconcerting by the week as this rising trend persists. Oil economists have long noted that whenever oil manages to maintain a price above $26/barrel for longer than six months, it almost always forecasts recession. This level has long-since been attained.

A couple of years ago, financial analysts (ourselves included) were voicing concern over what they viewed as an impending deflationary collapse. This belief was based on the frightening erosion in several key commodities prices-gold and oil among them. Gold, for instance, fell below $260/oz. while crude oil was trading near $10/barrel. Accompanying this alarming slide in hard asset prices was a collapse in overseas equities prices, most notably the Asian financial crisis. The U.S. stock market was not completely exempt from this financial contagion, either, as the Dow Jones Industrial Average sold off by over a thousand points during the summer of '98. Government bond yields were hitting multi-decade lows. Making matters worse, retail prices of select consumer goods were rapidly dropping-such as prices for personal computers and other electronic items-as well as prices of foreign imports. This deflationary phenomenon was feeding on itself (or so it seemed) and threatened to bury the economies of the world in a maelstrom of collapsing prices. As it turned out, however, these fears were completely unfounded.

Had economists and financial analysts looked deeper beneath the surface of the financial system, the true state of affairs could have easily been ascertained. For while asset prices were dropping in deflationary fashion, the money supply-the defining factor behind either inflation or deflation-itself was actually increasing. Thus, we had nothing to fear in the way of financial collapse since the Federal Reserve was ensuring the monetary system was receiving steady and adequate injections of liquidity. This false deflation was not a product of the "free market;" rather, it was the result of this behind-the-scenes manipulation we are referring to.

The reality of 1998-1999 is that the Alan Greenspan and his Federal Reserve in tandem with Bill Clinton and his administrative regime, were artificially lowering prices in order to ultimately stimulate the U.S. economy. Admittedly, the game was carried too far for a time and almost came up in the summer of '98 (before the Fed's fortuitous intervention in October of that year by successively lowering interest rates and making credit more plentifully available). Still, it had the desired effect: it produced a booming economy and a soaring stock market.

By lowering interest rates to artificial level and simultaneously pumping levels of bank credit to exorbitant levels, the Fed was engineering a bull market of monumental proportions. Furthermore, by erecting controls to knock commodity prices down to multi-year lows and by operating in foreign currencies and equities markets in such a way as to guarantee a hot flow of flight capital away from those markets and toward the U.S. (employing international financiers like George Soros to perform the task) the central bankers-along with the federal government itself-had all but assured an artificial economic book in the U.S. Aside from the obvious financial benefits that accrue to the manipulators from such booms, there is the ancillary benefit of being able to exert socio-political control over the masses of U.S., who have always been great suckers for bull markets and will gladly turn a blind eye to their government whenever money is to be made on Wall Street.

But as we all learned in Economics 101, there is no such thing as a free lunch-everything must be paid for sooner or later, including artificial bull markets. The cheap oil and gas prices that consumers and producers enjoyed in the late '90s has already given away to persistently rising energy prices, a trend which is beginning to suck more and more money from the pocketbooks of the average American. As Bob Chapman said in a recent edition of his International Forecaster, "We are now paying for $10 a barrel prices in 1998."

Along these lines it must also be pointed out the probably reason for this engineering of oil prices: socio-political control. In his Last Trumpet Newsletter, editor David J. Myer writes concerning oil price manipulation: "Wealth has shifted and is shifting as part of the plot of globalism. The [manipulators] are now attacking something that is essential for any nation to be powerful and successful, the transportation system. The reason why China and Russia were unable to excel for so many years is that they had a poor transportation system. In many cases, all they had were a one-track railroad and a very few trucks. The United States has a massive and efficient transportation system with extensive railroads, many thousands of semi trucks, airplanes, and barge systems on waterways, and all of this ability to move goods efficiently has made this nation great. By nearly doubling the price of fuel, a choke-hold has been put on this system and the prices of everything that has to be transported will rise tremendously very soon. Inflation and other economic cancers will soon follow."

It might also be added that we are paying for 5 percent interest rates in 1998, as the Fed Funds rate is creeping persistently higher. Moreover, we will soon pay for an artificially inflated stock market, probably by suffering through several years of artificially low equities prices. As we have emphasized in recent Gold Eagle commentaries, the Fed has already shut off the valves of credit and the above-ground money supply is rapidly diminishing. This eye-opening trend began in January of this year and has persisted ever since. Typically, about eight months are required of restrictive credit policies before a full-fledged financial panic gets underway. Such was the pattern in 1929, 1968-69, and 1987.

On the bright side of this developing crisis (at least for gold investors) is the fact that the artificially low price of precious metals that has persisted for the better part of the past decade is coming to an end. As we have pointed out in recent months, an incipient bull market in gold is underway with gold futures on the Comex having bottomed in September of last year. Accumulation has been in evidence ever since. Last week alone, another high-volume upside accumulation day was witnessed in the gold futures contract on the Comex-yet another sign that the bulls are still in control.

It is quite the paradox that gold-the ultimate inflationary barometer-fell in dollar terms throughout the money supply inflation of the late 1990s. Yet now, with the money supply rapidly contracting, gold is climbing in price. Perhaps this isn't so unusual after all since the aforesaid phenomenon has been demonstrated to be the product of manipulation and therefore artificial. Gold is merely correcting for past excesses and, to use a technical term, "overbalancing" its previous underbalance.

In light of the tight control of global markets exercised by international financial manipulators, perhaps Adam Smith's "invisible hand" concept is antiquated and should therefore be modified to account for the rise of the International Managed Economy. In truth, there really is no longer a "free market;" at best, what commonly passes under that name is nothing more than a quasi-socialist financial system with immense federal oversight and control. The Bible itself prophecies the very establishment of this worldwide, government-controlled economy in Revelation 6:6. Commenting on this startling development, Philip Mauro in his book, "Things Which Soon Must Come to Pass," wrote: "It is clear enough to anyone who puts his mind to it that an invisible autocracy, which is able thus to place an invisible price upon the food of men, is really the master of their lives.