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[Riaz K Tayob]

BIZNETDAILY Economist: Expect Fed to lower Dow to 8,000 Critic claims 
agreements involving billions used to shift market Posted: February 05, 
2008

10:11 pm Eastern

By Jerome R. Corsi © 2008 WorldNetDaily

Consumers should expect a deep recession, triggered by the "stealth 
methodology" of the Federal Reserve to "depress" the market even while 
lowering interest rates in an ostensible effort to stimulate economic 
growth, an economic analyst is charging.

"The Federal Reserve is directly involved in manipulating the stock 
market," said economic analyst Mike Bolser in a telephone interview with 
WND yesterday.

The New York Stock Exchange finished the day down 108.03 points, closing 
at 12,635.16, much as Bolser predicted, despite recent emergency Fed 
rate cuts of 1.25 percentage points aimed at stimulating the economy.

"Fed wants the Dow Jones Industrial Average and other financial 
indicators to descend in a managed way," Bolser said. "The Fed wants to 
drive the DJIA toward the 8,000 level, or below, in order to help create 
a deep recession which will have the effect of slowing consumption 
across the board, and dampening the otherwise harmful effects of inflation.

"A falling DOW is only one element of the recession effects of the 
excessive Fed-created housing and credit creation, whose bubbles are now 
bursting," he added.

"Without this recession, we would be on quick trip to hyper-inflation," 
Bolser, the author of an internationally followed newsletter published 
in conjunction with his InterventionalAnalysis.com website, said, "and 
the Fed wants to prevent this."

In his twice-daily subscription newsletter, Bolser has devised a 
quantitative methodology for utilizing Federal Reserve repurchase 
agreements to predict upward and downward movements of the DJIA, 
measured on a 30-day moving average.

Yesterday, Bolser noted the Fed added $18 billion to repurchase 
agreements, edging the pool up to a total of $153.158 billion in 
unexpired temporary repurchase agreements.

Repurchase agreements involve a sophisticated use of government 
securities issued every day by the Fed, but little understood or 
followed, even by sophisticated investors.

A repurchase agreement, as defined by the Fed, is a government security 
offered by the federal government to a small list of specified primary 
government securities dealers, for a limited period of time, usually 28 
days or less, with overnight return being the most common.

The government securities are "rented" by the primary dealers and they 
can be added to the primary dealer's portfolio or collateralized and 
then used in the open market to implement the Fed's open market policy.

At the end of the repurchase agreement, the Fed obligates itself to take 
back the government securities from the primary dealers, effectively 
canceling the contract.

Meanwhile, while holding the government securities let out by the Fed in 
the repo agreement, primary dealers are free to utilize the liquidity 
provided by the repurchase agreement to manipulate the economy in 
accordance with the Fed's true monetary policy, whether publicly 
declared or not.

Primary dealers use the funds provided by the government securities they 
hold under the repurchase agreements to buy dollar exchange futures 
contracts, stock market futures, or to buy commodities contracts, 
including gold mining shares, all in accord with implementing Federal 
Reserve monetary policy to manipulate currency, commodity and stock 
markets up or down, depending what goals the Fed wants to accomplish at 
any particular time, the economist alleges.

Over the past several months, however, the Fed has implemented a policy 
to issue smaller amounts of daily repurchase agreements, with the goal 
of reducing the total pool of repurchase agreements available to the 
Fed's short list of 20 banks that are qualified by the Fed to serve as 
primary government securities dealers participating in the Fed's Open 
Market Operations.

Only the 20 banks specified in the Federal Reserve Bank of New York's 
list of primary government securities dealers are allowed to participate 
in Fed repurchase agreements.

"The primary government security dealer banks are like a private club," 
Bolser told WND. "You get to stay in the club as long as you take the 
repurchase agreements and enter the markets to implement Fed monetary 
policy the way the Fed wants it implemented. Violate the unspoken rules, 
and you risk being thrown out of the club."

Yesterday's $18 billion addition to the repurchase agreement pool caused 
the total amount of the outstanding repurchase agreement pool to remain 
below the DJIA 30-day moving average in a clear trend.

Bolser used this data to predict the Fed was manipulating the stock 
market lower, a controversial prediction when most economists see the 
Fed's emergency actions to reduce the target Fed Funds rate 1.25 
percentage points lower over an eight-day period that ended with last 
Wednesday's meeting of the Federal Open Market Committee.

"Ultimately, the government is in the business of inflating the dollar," 
Bolser said, "so the Fed is trying to engineer a recession, in order to 
cushion the pernicious effects of its own inflation."

"In my view, the government intentionally desires a deep recession not 
unlike that of the 1930s," he continued. "The Fed, however, dissembles, 
attempting to display the opposite impression with its rate cuts."

"Cutting rates will not boost the economy in an environment where the 
credit bubble has burst and banks are afraid to lend," he explained. 
"But decreasing the repurchase pool will push the economy down, 
especially when the primary banks execute monetary policy in accordance 
with the wishes of the Fed to short the market with future contracts 
that push the indices down."

Bolser argued the Fed's ability to manipulate the market by increasing 
or decreasing the pool of available repurchase agreements amounts to a 
"stealth methodology" where the Fed can now depress the market, while 
implementing a policy of lowering interest rates, which most economists 
would see as trying to stimulate economic growth and the stock market.

"You have to remember the primary goal of the Fed is to support the bond 
market, which the Fed has done for quarter century," Bolser stressed. 
"The Fed needs a strong bond market so the Treasury can sell the 
enormous amount of Treasury securities, especially to China, that we 
need to sell to finance what this year may be as large as a $400 billion 
dollar budget deficit calculated on a cash basis."

"As a result, the friend of the Fed is the bond speculator," he added.

Among the U.S. banks and securities firms currently on the list are Bank 
of America Securities, Cantor Fitzgerald, Countrywide Securities, Bear 
Stearns, Daiwa Securities America, Goldman Sachs, Greenwich Capital 
Markets, HSBC Securities (USA), J.P. Morgan Securities, Lehman Brothers, 
Merrill Lynch Government Securities, and Morgan Stanley.

Also on the list are France's BNP Paribas Securities, Great Britain's 
Barclays Capital, Switzerland's Credit Suisse Securities, Japan's Mizuho 
Securities, and Germany's Dresden Kleinwort Wasserstein Securities.

"These dealers are the foot soldiers of the Fed, as it implements 
monetary policy," Bolser said.

Studying Bolser’s "Repos/DOW" chart from Dec. 7, 2007, through 
yesterday, a broad correlation between the downward movement in the Fed 
repurchase agreements pool totals and the DJIA as seen by tracking the 
30-day moving average is clear.

"With this strategy, the Fed hopes we won't experience the extreme 
'stag-flation' we had in the late-1970s," he argues. "The Fed hopes to 
induce a recession to manage downward stock prices and commodity prices, 
including oil, gold, copper, and lumber, as well as the overall consumer 
demand for retail goods."

"Stag-flation" is an unusual economic situation combined when economic 
stagnation is combined with inflation, much as the economy is currently 
experiencing, such that economists fear we are entering a recession 
while food and energy prices continue to rise sharply.

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