Systemic Economic Collapse: A Brief History of Market Manipulation

by James Corbett
March 6, 2013

In the age of quantitative easing and overt government intervention in the economy, it’s impossible to trust any of the economic statistics that we are being shown as indicators of the supposed health of our economy. Whether it is GDP numbers, manufacturing data, inflation statistics or housing figures, all of the macroeconomic data that drives the financial news agenda are manipulated to suit the propagandistic purposes of the government and the central bankers.

A striking case in point presented itself late last year when Ben Bernanke and the Federal Reserve announced they were tying the latest round of quantitative easing not to a set period of time or set amount of funds, but to an unemployment rate target. The move puzzled many analysts at the time, as the unemployment rate has never been within the mandate of the Federal Reserve. In fact, the privately owned central bank doesn’t even possess a direct mechanism for influencing the number.

The move was perfectly understandable, however, to those analysts who understand that unemployment figures are one of the most flagrantly manipulable government-issued statistic, subject to all sorts of arbitrary definitions in the meaning of the term “unemployment” itself.

One of the premier statisticians keeping track of the real unemployment rate in the US is John Williams of In 2009 he appeared on The Corbett Report to discuss how this figure is manipulated.

As flagrant as the manipulation in unemployment statistics has been, perhaps even more brazen in recent years has been manipulation of stocks and equity markets. Economic commentators are again pointing to all-time record highs on the Dow and other major stock indices as sure signs of economic recovery, and the mainstream talking heads are reporting the moves in these markets with all the breathless hyperbole of excited children.

What many who are living through this age of “jobless recovery” know all too well, however, is that these markets, too are hopelessly manipulated, and that the trading taking place in these markets is subject to the same parlor tricks that define the unemployment statistics.

What many may be surprised to learn, however, is that government manipulation of these markets is on the record and openly admitted.

On October 19, 1987, stock markets around the world crashed, from Hong Kong to Europe to the US. The Dow Jones plummeted over 22% in a matter of hours.

Ostensibly in response to this crisis, President Reagan signed into law Executive Order 12631establishing a body formally known as the “President’s Working Group on Financial Markets.” This body, famously dubbed the “Plunge Protection Team” by the Washington Post in 1997, is explicitly mandated to “maintain investor confidence” in US markets through whatever actions it deems necessary.

The group and its actions are shrouded in official secrecy, but its actions have long been identified by independent market analysts.

In 2011 I had the opportunity to talk to the late Bob Chapman, the economic analyst behind The International Forecaster, about the manipulations of this plunge protection team and the active collusion between government and the big traders in these market interventions.

Just as in all other areas of life, it is a truism that those things which are suppressed in one place tend to rise to the surface unexpectedly elsewhere. Such is the case with market manipulation. Although it is relatively easy for the federal government and institutional investors to send prices up or down through relatively straightforward manipulation, it is more difficult to prevent those interventions from becoming visible in other parts of the economy.

One of the first places one would look for signs of tampering in equity markets would be commodities, goods which are physical and quantifiable and thus harder to fudge or play around with. And amongst commodities, precious metals like gold and silver have long held a special place in showing signs of currency manipulation or market intervention by spiking in value during periods of currency debasement and falling during periods of true economic growth.

Given that gold has been unable to break through the $2000 an ounce level and has recently fallen back under $1600, we are left with two options: either the economy is truly growing and thriving as the government says it is, or these markets, too, are being manipulated. Sadly, if not surprisingly, the latter turns out to be the case.

Gold market analysts have long pointed to the increasing amount of gold stocks, ETFs, and other forms of so-called “paper gold” in the market. In 2010, Adrian Douglas estimated that there were about 45 paper claims for every ounce of physical gold in existence, meaning that the true price of gold was closer to $54,000 an ounce.

Beyond this simple price suppression technique, however, are the ways that large traders use the gold carry trade, futures markets, and other methods to keep precious metals markets trading below their real values.

In startling testimony before the Commodity Futures Trading Commission in 2010, Bill Murphy of the Gold Anti-Trust Action Committee laid out a blistering expose of the systemic manipulation of the precious metals markets with the participation of some of the highest ranking economic officials in the US government:

“As an executive at Goldman Sachs in London, Robert Rubin developed an idea to borrow gold from central banks at minimal interest rates (around 1 percent), sell the bullion for cash, and use the cash to fund Goldman Sachs’ operations. Rubin was confident that central banks would control the gold price with ever-more leasing or outright sales of their gold reserves and that consequently the borrowed gold could be bought back without difficulty. This was the beginning of the gold carry trade.

“When Rubin became U.S. treasury secretary, he made it government policy to surreptitiously operate an identical gold carry trade but on a much larger scale. This became the principal mechanism of what was called the “strong-dollar policy.” Subsequent treasury secretaries have repeated a commitment to a “strong dollar,” suggesting that they were continuing to feed official gold into the market more or less clandestinely to support the dollar and suppress interest rates and precious metals prices.”

Forced to deliver the rest of his testimony at breakneck speed to read the full remarks in to the record in the 5 minutes allotted to him, Murphy continued.

In 2010 I had the opportunity to interview Bill Murphy about the Gold Anti-Trust Action Committee and the gold market manipulations they have uncovered.

The picture that is being painted here is one of a thoroughgoing fraud. In fact, even in this relatively short and necessarily incomplete expose, we have the sense of a fraud so large and ensconced in the marketplace that it would be impossible to perpetrate without the active collusion of the government regulators themselves. Sadly, as the existence of bodies like the Plunge Protection Team and the failure of the CFTC to prosecute demonstrable market manipulation shows, this type of thoroughgoing collusion is precisely the case.

This leaves the average working man or woman in a seemingly intractable problem. They have been told all their lives to entrust their savings to the financial experts, believing that a healthy portfolio of stocks and bonds will protect and even grow their wealth so that there will be a nice nest egg left over for their retirement. As this economic house of cards begins to topple, however, people will find themselves in the same position as the Romans under Diocletian or the French of the Revolution or the Germans in the Weimar Republic or the Argentinians under the collapsing peso: having their entire life savings wiped out seemingly overnight.

The only real protection from this, of course, is to withdraw our investments from the system that is perpetrating this fraud, from the stocks and bonds and traditional reserves of the fraudulent market. Instead, people around the world are beginning to learn the importance of investing in land and other physical assets, but perhaps more importantly the need to invest in their local communities, in alternative currencies, in co-operatives and other institutions that have nothing to do with the actions of the fat cats on Wall Street or the political puppets in Washington. And until that realization happens on a mass level, people will continue to operate in good faith in the reality of this economic wonderland, never understanding the systemic collapse that is awaiting them.


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