[DEBATE] : the other us monetary mechanism...
Riaz K Tayob
riazt at iafrica.com
Fri Feb 8 14:27:15 GMT 2008
BIZNETDAILY Economist: Expect Fed to lower Dow to 8,000 Critic claims
agreements involving billions used to shift market Posted: February 05,
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
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
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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