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Central Banks Propping up the Dollar

Aug 16, 2008

Economic analysis often makes no sense, because the true "fundamentals" of the economy so often run contrary to what actually occurs on Wall Street. Such phenomena can be explained generally by government intervention and/or manipulation (which is the same thing).

Though we see banks failing one after another, for some unexplained reason, Wall Street seems to react positively to bad news and good news alike. If interest rates go up, the Dow rises because "it looks like that's the last time they'll raise interest rates." If interest rates go down, the Dow rises because "the rise is over."

When a company posts record losses, the Dow rises because "it wasn't as bad as we thought it would be." When it posts gains, the Dow rises for more obvious reasons.

I read years ago that the Fed itself buys and sells trillions of dollars worth of stocks each day. If that is so, it is easy to see how the Fed could manipulate markets all by itself. To make the Dow rise, all it would have to do would be to go on a buying streak. Everyone else would follow suit, knowing that the prices would be on the rise. And so, the markets are not governed particularly by the genuine fundamentals of corporate strength or weakness, but by artificial manipulation.

Some time ago the government created the "Plunge Protection Team," to manipulate the markets whenever it looked like a serious drop in the stock market was about to occur. Their handiwork appears to be visible in the past couple of weeks, as the markets have gone up, the dollar has strengthened, and gold and silver have plunged in price. The question is whether such artificial measures can withstand the actual truth of the bad state of the economy in the long run.


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Category: Financial

Dr. Stephen Jones

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