In a recent interview on February 27, 2016, Dr. Paul Craig Roberts, former US Treasury Assistant Secretary, co-founder of Reaganomics, economist and author, said that the Federal Reserve’s ability to manipulate markets has continued for far longer than he ever thought possible. Even so, he doesn’t think we will make it through the year without a major collapse.
With the American economy hollowed out, Roberts said, “Monetary stimulation today puts the Chinese to work, and the Indians to work.” Today, he said, the Federal Reserve’s policy is “focused on saving a handful of very large” American, British and European banks. Financial deregulation allowed huge banking conglomerates to form with an “extraordinary concentration” of wealth and power. Given their size, he said, “It is believed that if one of them were to fail, the consequences would be the entire financial system would fail.”
“I don’t think the house of cards will make it through the year,” Roberts said, “but I have been surprised so far.” The Federal Reserve, he said, doesn’t seem to be limited by what had been seen as proper, ethical or prudent fiscal policy. Furthermore, he said, “The Fed can create whatever money they need to create” to prop up any market.
Roberts said the economy now runs on impressions. “As long as they have the impression of a good stock market and a good bond market,” he said, the Fed “can keep the impression going that we have a good economy, even when we have 23% unemployment.” There is a “sort of psychological impression that the economy must be going good.” People who are unemployed have the impression that it’s somehow their own fault, not the economy, since government unemployment figures are so low. Inflation, which the public sees as rising every time they go to the supermarket, also must be low, since the government says inflation is zero.
Roberts explained that “The only real limit in my opinion on the Fed to support financial markets through money creation is the value of the dollar.” The key question is when will people lose all confidence in the dollar?
The US Fed has the European Central Bank and the Bank of Japan also doing quantitative easing. If the three major currencies are all printing currency, the dollar won’t lose value against the other currencies. That policy then forces all the little countries to do the same thing, Roberts argued. If they don’t, their currency becomes worth so much, they can’t sell anything. Roberts gave the example of the Swiss Franc, which was rising so much, the Swiss had to state that all efforts of currencies to seek refuge in the Swiss Franc would result in printing more Francs, so it would not rise anymore.
Speaking about the gold and silver markets, Roberts said that the US allows the bullion authorities “to use uncovered shorts in the bullion futures market to drive down the price of gold and silver, and to prevent its rise. If they can prevent gold from rising in price against the dollar, they are protecting the dollar against their policy.”
Roberts wondered what could cause the Fed to lose control of the ability to manage the value of the dollar. “If nothing can cause that,” he said, “then the house of cards can keep going forever.” You could have “50% unemployment and the stock market at 20,000.” The Fed, Roberts said, “manipulates policy for the benefit of the markets, not of the general population.” The current hollowed-out economy “can be presented as a success because stock and bond prices are high, and inflation is low.”
Roberts sees the TransPacific Partnership and other trade agreements as Washington’s attempt to organize the world against the dissident BRIC countries, which are withdrawing from the Western payment system. Washington is trying to make sure that BRIC policies don’t have any adverse effect on the US dollar. The great fear is that if there is a run on the dollar and no one wants dollar-denominated assets, US power would collapse. Roberts predicted that “If there is a dollar collapse, the Fed will let the banks go and raise interest rates to try to convince people to hold the dollar.”
“People are buying gold continuously,” Roberts said, “but the price of gold isn’t determined in the market where they’re buying it; it’s being determined in the paper market,” where the price is manipulated by the selling of options. Demand for bullion is very high and has been growing, he said. The Canadian and US mints have had to either suspend or ration the sale of one-ounce coins because they can’t get enough bullion to produce enough coins. Roberts asked, with such demand, “How can the price be falling? Because they manipulate the price.” And, if the market is rigged, “no one knows what the outcome of this is going to be.”
