December 24, 2013 Former US Treasury Official – We No Longer Have Free Markets
Today a former US Treasury Official warned King World News that the Federal Reserve is going to dramatically increase its manipulation, control, and influence over capital markets which are longer free trading. He also warned the Fed will not want face risk with their increased manipulations, so expect the ‘fix’ to be in. Below is what Dr. Paul Craig Roberts had to say in this powerful interview.
Dr. Roberts: “There was a very strange article in the Wall Street Journal that said that the New York Fed, which now has a very elaborate trading floor, had been experimenting with using reverse repos as a way of draining liquidity from the system….
“In other words, the story was saying that looking ahead to the future, when the massive bank reserves that the banks have accumulated from the Fed’s quantitative easing — roughly $3 trillion — come into play, as the economy strengthens, and the banks start lending again to people, inflation could be a problem.
How is the Fed to deal with that? If they simply started selling bonds, or selling their portfolio, this could destabilize the system in some way because too much of a rise in interest rates would choke off the recovery. So they (the Fed) were experimenting with a plan to use their portfolio of mortgage-backed financial instruments to do reverse repos in which they would pay the banks interest. And in that way, stop them from lending their excess reserves and causing the money supply in circulation to grow.
Well, what that says is that the Fed is now going to be trading the market. It (the Fed) is no longer a central bank. In other words, the manipulations are becoming part of the system. The New York Fed is going to be a big market player, dealing with a massive portfolio to affect the supply of credit and the prices of financial instruments.
This is another departure from the tradition of monetary policy in the United States. And the article that was explaining this policy didn’t really have anything to say about this extraordinary development. It seems to me to be a very extraordinary development because it means the Federal Reserve is now going to be trading the markets.”
Eric King: “What are the implications of that, Dr. Roberts?”
Dr. Roberts: “Well, I don’t know that we can predict them, but what it shows is the notion that we’ve got free financial markets is absurd. Here we are going to have a central bank trading the market. It’s not going to want to face a risk in that.
It’s almost like a central planning system (laughter ensues), and this is supposed to be free-market capitalism — that’s what we tell the world. And we have all this propaganda about how globalism is bringing free capital markets to the world. Well, there’s not one here (in the US).
If I’m correct in my conclusion about last Wednesday being an experiment in market manipulation, and then we add to that this policy of the Federal Reserve using its portfolio that it’s bought from quantitative easing for reverse repos, in order to further manipulate the market, then what does the market decide? Nothing.
The prices of stocks today are due to the liquidity, and obviously also the bonds. So the notion that there is a capital market that is pricing things is absurd. These manipulations are pricing them. How does this differ from central planning? How is this free-market capitalism? I don’t see this (the difference) at all. And people aren’t really getting upset about it. I think it’s because the Fed has found a way to continue the punchbowl a while longer.”
IMPORTANT – KWN will be releasing interviews all day today and Sunday with Andrew Maguire, former US Treasury Official Dr. Paul Craig Roberts and others. Also, Dr. Roberts’s remarkable audio interview is available now and you can listen to it by CLICKING HERE.
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The audio interviews with Dr. Paul Craig Roberts, Andrew Maguire, Michael Pento, Rick Rule, Gerald Celente, Dr. Marc Faber, Bill Fleckenstein, Eric Sprott, Grant Williams, Egon von Greyerz and David Stockman are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf — to listen CLICK HERE.