>the plunge protection team<

By Robert Bell, Chairman of the Economics Department, Brooklyn College - anuther conspiracy loony !!


Summary: The U.S. government is manipulating all major U.S. financial
markets—stocks, treasuries, currencies. This article shows how it is
possible and how it is done, why it is done, who specifically is
doing it, when they do it, and where they get the money to do it.

Most people probably believe that the major capital markets in the
U.S. are basically true markets with, occasionally, maybe very
occasionally, a little bit of rigging here and there. But evidence
shows that the opposite is the case—the rigging is fundamental with a
little bit of true markets here and there. I have discussed how this
works concerning U.S. and some other stock markets in an earlier
article.[1] Here I will primarily discuss the rigging of currency and
U.S. Treasury markets.

Perhaps the main reason for the urban legend that major markets are
not generally rigged is that they are assumed to be too big; the
millions of independent buyers and sellers, worldwide because of
globalization, make effective and sustained coordination impossible.
The implicit assumption is that any market could be systematically
rigged if it were small enough, or at least small enough at some
critical choke point.

Little Markets

In the case of the market for U.S. Treasuries, the Financial Times
summed up exactly how small it really is in two major stories, one
just under the masthead on page one, on 24 January 2005. One story
began, "During the past few years the US has become dependent, not so
much on millions of investors around the globe but on a few
individuals in a few of the world's central banks."[2] In 2003 these
central bankers bought enough treasuries to cover 83% of the U.S.
current account deficit, and 86% of those purchases came from Asian
central banks.

The two main sources of money for U.S. Treasuries are the central
banks of Japan and China. Japan held about $715 billion in U.S.
Treasuries, as of November 2004, and China held about $191 billion.
[3] All the other nations' central banks hold altogether, about the
same amount again, roughly another trillion.

As the total of all obligations is about $4 trillion, two central
banks obviously hold about one quarter of the total. They are in the
position to pump or dump the Treasury market all by themselves. They
can sell what they have or simply stop buying when the Treasury sells.

Since the money comes from a handful of foreign central banks, the
possible rigging of the Treasury market equals the possible rigging
of the foreign exchange markets. These central banks have to buy
dollars before they buy Treasuries. Even Alan Greenspan has
acknowledged that the two go together, admitting that Asian central
banks "may be supporting the dollar and U.S. Treasury prices
somewhat."[4]

U.S. stock markets are also capable of being systematically rigged,
and for the same reason—a handful of players can dominate if they
coordinate their actions. The key choke point is in the number of
mutual funds, which themselves hold about 20% of all the stock in the
major markets. Of the over 8000 all-stock mutual funds, a mere 497
hold roughly three-fourths of the stock. This is easily a small
enough number to pump the market, whether through coordinated buying
disguised as programmed trading, or simply a follow-the-leader
mechanism. All the other thousands of funds and the millions of
individuals around the globe putting their money into these markets
can do little more than follow the momentum. No major U.S. stock
market writer, advisor or player seems to publicly acknowledge this,
as far as I know. But the CEO (PDG) of the French insurance giant AXA
has acknowledged it: Claude Bebear wrote in his 2003 book Ils vont
tuer le capitalisme (They are going to kill capitalism):

"… today, shareholders are relegated to the role of quasi-spectators.
The small shareholders that are now called `individual investors'
know that they have little weight. All together, they only represent
a small percent of capital because the investments of households are
more and more in the form of mutual funds, pension funds (fonds
communs de placement) or life insurance funds. The shareholders today
are thus the institutional investors."[i] [5]

Bebear, in charge of one of the world's biggest stock portfolios,
adds:

"We are no more, in effect, in a world that one reads in the economic
text books, with innumerable investors of various characterizations,
choosing each in his own way the stocks that he'll put in his
portfolio; the results of their millions of decisions generating a
sort of changing market equilibrium, but a stable one. The truth is
that for several years, the reasoned investment on a stock has almost
disappeared in favor of more and more mechanical behavior."[ii] [6]

Plunge Protection
Programmed trading in an utterly concentrated stock market pretty
much guarantees the possibility of systematic and continual market
rigging. But to accomplish this, and coordinate it with the currency
and Treasury markets, some sort of orchestrating mechanism would need
to exist. It does; it is known as the President's Working Group on
Financial Markets, occasionally referred to in the business press as
the Plunge Protection Team. Then President Ronald Reagan signed it
into existence on 18 March 1988, with the specific intension to avoid
another stock market crash such as that of 19 October 1987. The
Working Group's existence is no mystery. See for yourself. Go to
Google and type in Executive Order 12631. You will find the Executive
Order, and even a 14 November 2003 statement from Secretary of the
Treasury John Snow giving a brief history of the Working Group,
describing its policy advisory activities, and concluding with these
words: "It also is a forum used to exchange information during market
turmoil through ad hoc conference calls and meetings."

Presumably Plunge Protection doesn't hold these ad hoc conference
calls and meetings just to be passive bystanders. Executive Order
12631 specifically authorizes them to coordinate buying: "The Working
Group shall consult, as appropriate, with representatives of the
various exchanges, clearinghouses, self-regulatory bodies, and with
major market participants to determine private sector solutions
wherever possible."

So not only is the fix in, it is legal.

In a 1989 Wall Street Journal article, then Federal Reserve board
member Robert Heller even suggested a market intervention
strategy: "Instead of flooding the entire economy with liquidity, and
thereby increasing the danger of inflation, the Fed could support the
stock market directly by buying market averages in the futures
market, thus stabilizing the market as a whole."

Guess Whose Money is Used to Buy Stock Market Insurance?

There is even a potentially unlimited source of money to do this
pumping. Federal government contractors operate under a special law,
CAS, in their defined benefits pension plans. This gives them stock
portfolio insurance, something which small fry players would
obviously like to get, but can't find anyone willing to issue. Should
the pension funds of the federal government contractors lose money in
their investments to the degree that they fall below minimum reserve
requirements imposed by other federal laws, they can simply make up
the difference by adding it on pro-rata to subsequent items sold to
the federal government. The vast sums of federal tax money devoted to
plugging the holes in the pension fund for the largest Pentagon
contractor, Lockheed Martin, were discovered by Ken Pedeleose, an
analyst at the Defense Contract Management Agency. He was concerned
about staggering cost increases for the C-130J transport but a chart
he made public showed the mind boggling per plane cost increases for
a number of Lockheed Martin airplanes. The chart amounted to a
Rosetta Stone for the military-industrial complex. It showed,
essentially, how the military-industrial complex linked to the stock
market through the Lockheed Martin pension fund, and by extension
through all the others covered by the same law.

Is there a corresponding source of tax money to pump the currency and
Treasury markets? There is an official one for currency, the
Exchange Stabilization Fund. It was established in 1934 to prop up
the dollar in foreign exchange markets. But it can be used for any
purpose determined by the Secretary of the Treasury. In mid-1995, the
fund contained $42 billion.[iii] The actual amount varies depending
on how well the Treasury does on its currency transactions. The money
originally came from the sale of U.S. government gold, but the
Treasury kept the money as a private fund, not under Congressional
control. Since it is a finite amount of money, not appropriated by
Congress, it probably is not often used to pump the stock market or
even the market for Treasuries.

The markets for Treasuries, and also currency, are being pumped using
the tax code and pension fund laws. But to understand this we have to
first look at why pumping might be necessary.

Treasuries Exchanged for Jobs

The U.S. Treasury holdings of Japan and China are essentially a
consequence of a trade imbalance between the U.S. and these two
countries, with the balance heavily tilted to the latter. To maintain
the imbalance, which they both clearly want to do, both countries
must keep their currency pegged against the dollar at a lower rate
than it might otherwise be. If they did not do that, the Toshiba
computers, Toyota cars and other quality items made in Japan would be
more expensive, and so Japan wouldn't sell as many of them in the
U.S. A similar case holds for vast numbers of Chinese manufactured
items sold pretty much everywhere, but notoriously at Wal-Mart. To
keep the items relatively cheap, the central banks of those countries
keep their currencies cheap by buying a corresponding amount of
dollars, thus supporting the dollar against their currencies. The
dollar may essentially collapse against the euro, but not against the
yen and the yuan.

With the dollars the Japanese and Chinese central banks have bought,
they can buy something denominated in U.S. dollars; the item of
choice is U.S. Treasuries since it is like holding dollars that pay
interest. So this has the effect of pumping the price of Treasuries
too. Because the items made in China and Japan are cheaper than those
of corresponding quality made in the U.S. (in the case of many
Japanese items, there may not be U.S. items of similar quality), the
effect is to create manufacturing jobs in those countries while
simultaneously losing them in the U.S. In effect the jobs are
exported and foreign currency is imported to buy dollars and then
Treasuries.

This has an advantage for the Bush administration, which has the
ruinously ridiculous policies of simultaneously cutting taxes and
waging wars or building up for them. In effect, the basic racket is:
the Bush administration exports jobs to these countries, and in turn
they finance Bush's fiscal deficit so he can continue his wars and
cut taxes for his friends. The deficit for 2005 will be at least $400
billion, according to the Congressional Budget Office.[7] The
Pentagon budget for 2005 was about $400 billion. Add in two
supplemental requests for the costs of his Iraq war and the Pentagon
figure is roughly $500 billion. "It is interesting to note that the
military budget is about the same order of magnitude as the fiscal
deficit," said veteran Pentagon waste fighter Ernest Fitzgerald.

The tax cuts were at least in part intended to stimulate spending—the
purchase of all those Toshibas, Toyotas and Chinese whatnots. So the
fiscal deficit is intimately linked to the current account deficit.
If the money had been taxed away to pay for Bush's current war and
arms build-up for future ones, it would not be in people's pockets to
pay even for the down payments on the Toyotas.

But won't the Japanese and Chinese central banks ultimately get
burned by holding vast quantities of dollar denominated assets? Sure,
if the dollar ever collapses against their currencies too. The dollar
having fallen roughly 30% against the euro since the beginning of the
war in Iraq, the same fate or worse could await these Asian
currencies. With currently issued Treasuries paying a coupon rate of
no more than 4%, they would be materially shafted on their
investments in U.S. Treasuries. Then why don't they bail out?

The Emperors' Revenge
For the Chinese, the basic racket is too delicious and too ironical.
They industrialize their country at the expense of the de-
industrialization of the U.S. Not only is it sweet revenge for more
than a hundred years of humiliation at the hands of Europeans and
Americans, but also at the end they are relatively strong and the
U.S. is relatively not. What do they care if the deal isn't quite as
good as it would be in a perfect world and they lose a third, half,
two-thirds of their savings in U.S. Treasuries? Besides, in an even
mildly less imperfect world, the U.S. President would not make such a
blatantly corrupt bargain against the people of the U.S. Billionaire
investor Warren Buffett calls this system of indebting U.S. citizens
to foreign governments "a sharecropper's society," to distinguish it
from Bush's supposed "ownership society."

No wonder Chinese central bank governor Zhou Xiaochuan told a press
interviewer at the time of the G-7 session in London in early
February, "now is not the time" to revalue his currency, the yuan.[8]
Of course it is not. He is clearly not stupid. The time to revalue is
after China has sucked all the remaining jobs out of the U.S. that it
can or just before the U.S. gets a less dishonest government. For
the Japanese, the basic sweetness of the deal plus geopolitical
strategic reasons may keep them tied to the U.S. There is also the
spirit of J. Paul Getty's famous line: "If you owe the bank $100
that's your problem. If you owe the bank $100 million, that's the
bank's problem." Some Japanese clearly think they have a problem.
Prime Minister Junichiro Koizumi said on 11 March 2005 concerning his
government's U.S. dollar holdings, "I believe diversification is
necessary." This instantly shook the currency markets, causing the
director of the Japanese finance ministry's foreign exchange
division, Mastatsugu Asakawa, to blurt out, "We have never thought
about currency diversification."[9]

Mr. Asakawa has been kept busy making this point. On 23 February 2005
he had already stated, "We have no plans to change the composition of
currency holdings in the foreign reserves and we are not thinking
about expanding our euro holdings."[10] He added, "Valuation loss is
not our primary concern. My opinion is that I don't have to care
seriously about that."[11]

There are, of course, other major single party buyers of dollars and
Treasuries besides the central banks of Japan and China. In fact Mr.
Asakawa's earlier remark was precipitated by a market panicking
statement on 22 February from the Bank of Korea. They indicated they
were considering diversifying some of their $200 billion in currency
reserves, 70% of which were in dollars. The dollar plunged 1.2%
against both the yen and the euro. Part of this was due to programmed
trading which kicked in with sell orders after the dollar hit a
threshold of $1.3210 to the euro.[12] After the dollar suddenly
fell, South Korean officials quickly announced they wouldn't sell any
of their existing dollar reserves, leaving open the possibility of
putting new reserves into other currencies.

South Korea, presumably, can be muscled. Other central banks are
less susceptible to pressure. On 5 February 2005 Russia announced
that it would no longer peg the ruble to the dollar, but instead to a
shifting weighting of dollars and euros. Russia had been selling
dollars and buying euros since October 2004, during which time the
U.S. dollar had tumbled significantly against the euro.[13] This of
course corresponded to the period when Bush was seen to be back in
power for another four years.

The overwhelming consensus of financial writers was that both the
dollar and Treasuries would really hit the skids in the new year,
2005. The consensus was global. For example, the French financial
paper, Les Echos wrote in its edition of 21-22 January: "Until now,
it was a question of the great bet adopted nearly unanimously by
foreign exchange traders—the dollar will fall in 2005."[14]

Of course, as implied by the quote, the dollar did not fall. Nor, of
course, did its fat twin, U.S. Treasuries, which are little more than
interest paying dollars. Is this because the trade deficit improved?
Not really, although it showed a slight gain in early February, long
after the dollar and Treasuries had materially improved. The dollar
had gone up 3.6% from 1 January 2005 until 22 February 2005. Why? Did
Bush raise taxes, thereby erasing some of the fiscal deficit? Not at
all. On the contrary, he cut taxes—as usual for a select group—and
that's why the dollar rebounded.

Plunge Protection's New Cash
In late October 2004, the U.S. public was looking the other way when
the tax cut was passed. Most people were obsessing over who would win
the presidential election. Few were paying much attention to what
the Republicans in Congress were doing, which was giving billions in
tax cuts to U.S. corporations which had profits parked in tax havens
around the world, such as in Ireland or Singapore. Bush signed the
law enabling this tax giveaway on 22 October 2004. The tax changes
were noted by a few at the time, even before the law changed. But the
general level of financial journalism is so bad that they got no real
echo in the press. Most people speculating against the dollar had no
idea they were about to get stung. Obviously a few knew what the
implications of the tax law were. They made out, more or less
literally, like bandits. But one cannot legitimately claim insider
trading since the tax law changes were publicly available knowledge,
and even made it to the internet on various accountant websites in
October. But they don't seem to have gone much beyond these
specialists. On 15 January 2005, I had a long talk in Paris with a
top European stock market guru. Well connected and with a devoted
following which he obviously did not want to burn, he had in all
sincerity advocated buying gold to a gathering of thousands of his
devotees a couple of months earlier, in November, after the passage
of the U.S. tax law.

Most speculators were caught unaware on this source of currency
pumping money, so it is unreasonable to assume that there will not be
other surprises, which will be announced in due course.

The law Bush signed in late October 2004 goes by the obscenely false
name, the American Jobs Creation Act. If there is one thing it will
not do is to create jobs. It will instead create takeovers, which
nearly always produce losses in jobs—in the name of synergy.
Takeovers are on the limited menu of activities companies are
permitted to do with the money they can "repatriate" under this law.
Not that the limited menu makes much difference, since the money
brought in does not have to be fenced off in any way. So if $10
billion were spent by a company on takeovers, that frees up another
$10 billion to do whatever was prohibited under the law, such as
paying dividends, buying back stock, or filling the pockets of
executives with extra bonuses. Normally such profits earned in
foreign subsidiaries of U.S. companies would be subject to a tax rate
of 35% if they were brought home, which is why the money had stayed
parked in the tax havens. But the law gives companies a one-year
window for the "repatriation" of this cash at a tax rate of only
5.25%. Nobody knows how much will be brought in. When the law was
passed in October, the general expectation reportedly was that the
figure would be about $135 billion.[15] But one player has estimated
it at $319 billion. "This has some investment bankers salivating,"
wrote David Wells in the Financial Times.[16] But how much would be
converted into dollars from other currencies? According to two
different investment banks, the figure is somewhere around $100
billion.[17] That would be the minimum available from this source to
pump the dollar for one year. Recall that the Exchange Stabilization
Fund has less than half that for eternity.

The Bush administration's use of repatriated foreign profits to pump
domestic markets shows that they are not going to let "thin ice"
signs stifle their version of the economy, at least not without a
fight. However, the underlying weakness of the economy because of the
twin deficits remains, so basically all that Bush and his Plunge
Protection team are doing is moving the "thin ice" sign out onto
thinner and thinner ice. The weight of the Bush team will eventually
crash through that ice into exceedingly cold water.

But what about those drooling investment bankers? They will claim
that this harvested money used in takeovers will eventually produce
U.S. jobs, despite initial job losses due to the takeovers
themselves. Investment bankers, who engineer many if not most
takeovers, nearly always argue that the takeovers ultimately create
jobs in the long term. The investment banks themselves, however,
nearly always insist on being paid substantially in the short term
through the transaction fees. Their employees, the investment
bankers, are also substantially paid short term through annual
salaries and bonuses. They get paid now; others can wait for the long
term.

Panic Buying

One short-term thing the money has already done is to pump the
dollar. The mechanism by which this is accomplished is quite simple
and is signature Plunge Protection. It is the device of the short
covering rally. This is what happens when speculators sell an asset—
stocks, Treasuries or dollars—short. With stocks, this means that
they sell the asset without actually owning it. They borrow the
shares they sell, betting the stock will fall. They then buy it at
the reduced price and return those shares. Another way to accomplish
essentially the same thing is through options. The risk in a short
sale is that the stock will not go down but instead go up. The short
seller literally is exposed to unlimited losses in this case. This is
the basis for a short covering rally. Non-shorters buy in sufficient
volume to force up the price. The price rise scares the shorters into
buying right away before the price goes too high and they lose too
much. This results in panic buying as large numbers of short sellers
feel compelled to buy to limit their losses. Often when the stock
market suddenly blasts up out of a long slide for little or no
reason, we are watching a short covering rally. There have been
several such rallies in the currency and Treasuries markets so far
this year, and there will probably be quite a few more.

According to a J.P. Morgan survey, the year 2005 began with most U.S.
and international speculators holding short positions on U.S. bond
markets.[18] Obviously this is because they had foolishly looked at
the underlying economic reality, and failed to understand the
profound import of the American Jobs Creation Act. Most people were
utterly unaware of it until at least January 13, when the U.S.
Treasury, under whose direction the Plunge Protection team works,
announced the specifics of what the grand skim could and could not be
spent on. As noted, the list included stock market pumpers—takeovers.

The $100 billion (minimum) that will be brought in is not petty cash.
One currency strategist at ABN Amro, Greg Anderson, has been quoted
as saying, "The U.S. trade deficit is probably $600 billion in 2005,
so this flow will be financing a sixth of the deficit all by
itself."[19] Thus this amount is clearly enough to have some impact
on currency markets, especially if used to trigger short covering
rallies.

Whatever is the actual amount that is brought in, it is exceedingly
unlikely to be all brought in at about the same time. The companies
have full discretion as to when to bring it in, and Plunge Protection
is there to make sure they don't do it at the wrong time. Various of
the "ad hoc conference calls" referred to above by Secretary Snow
could include fund managers and Chief Financial Officers of companies
with chunks of cash lined up to bring in. Would this incestuous
network of essentially insider traders be legal? It would be very
difficult to prosecute without impeaching the President himself. As
cited above, Section 2b of Executive Order 12631 states: "The Working
Group shall consult, as appropriate, … with major market
participants to determine private sector solutions wherever possible.
(emphasis added)" Obviously a major currency plunge is exactly what
Plunge Protection is charged with avoiding.

The major market participants involved in these money pumping rackets
would not only be making money, but would view each other as true
patriots. They would simultaneously serve themselves and serve the
national interest. And, if the story ever got out, they would be
unlikely to serve any time. They would also get the reputation for
being currency-timing geniuses. Each time they brought in cash from
euros or pounds, the foreign currency subsequently fell. Their timing
would appear impeccable. Never mind that they and some government
officials are creating the timing.

How big are these chunks of cash? Johnson & Johnson announced in
February that they would bring in $11 billion.[20] Pfizer put its
planned figure at $37.6 billion.[21] But are these figures big enough
to pump the dollar? You bet. An ABN Amro currency strategist, Aziz
McMahon, has been quoted as saying, "The sums are so large that if
even a small proportion is transferred from other currencies, the
positive impact on the dollar could be substantial." According to
that bank's calculations, each $20 billion pumped in from other
currencies pumps the dollar against a broad index of currencies about
1%.[22] So the announced amounts would be sufficient to trigger both
momentum trading in the dollar and trigger short covering rallies
which themselves would trigger further momentum trading.

Even the announcements of the currency repatriations can trigger
short covering rallies. ABN's McMahon added, "The psychological
impact a wave of announcements could have on structural short-dollar
positions should also not be underestimated."[23]

Just Printing Money to Pump Markets

Short covering rallies certainly played a role in the prolonged stock
market run up which followed an initial Iraqi War bombing rally in
March 2003. But there is more. A respected gold market analyst,
Michael Bolser, has shown how the Fed quite simply pumped money into
the markets during this period, with massive cash injections often
timed at local stock market bottoms. His article, "Repurchase
agreements and the Dow," should be required reading for anyone who
wants to understand rigged markets.[24] According to Bolser's
analysis, the Fed was simply flooding the economy with liquidity just
before and during that rally. Using data available on the Fed
website, Bolser plotted the injections of cash from the Fed when it
bought Treasuries on the open market, which means buying them from
the 22 banks that deal directly with the Fed. The simple buying of
existing Treasuries by the Fed is called a "Permanent Open Market
Operation" (POMO). By contrast, buying back a certificate with a
specific repurchase (buy-back) date is called a "Temporary Open
Market Operation" (TOMO). Bolser observes, "There were four closely
spaced Permanent Open Market Operations just prior to the 1,000-point
mid-March DOW launch. In addition, there was another POMO on March
13th of $710 Million coupled with a net TOMO injection of $3.25
Billion which resulted in a 303 point DOW gain on that day."

Bolser also clarifies the relative market impacts of these cash
injections: "Permanent Open Market Operations [POMOs] are usually
much smaller in magnitude than Temporary operations but have a far
greater effect on the market. Experts have suggested that there is a
nine times market multiplier effect inherent in permanent open market
operations."

Stuffing Wads of Treasuries into Pension Fund Holes
But what about all those billions that are already parked in dollar
denominated tax havens, such as Puerto Rico? Among the Treasury
Department permitted uses of the repatriated cash, is benefit plans,
including pension benefits. Most of these plans are nowhere near
recovery from losses suffered during the late 1990's bubble.
Normally, the repatriated money would go straight into the stock
market, thus pumping it--except for one thing. A number of companies
do not have sufficient money in the reserves of their defined
benefits pension funds to meet their contractual obligations to their
retirees. If a pension fund goes broke, a federal agency, the Pension
Benefit Guaranty Corporation (PBGC) takes on some of the obligations—
typically pensioners collect 25 cents on the dollar. But the PBGC is
itself broke, with companies defaulting or threatening to do so. For
example, the PBGC has moved to take over the defined benefits pension
funds of United Airlines.[25] And this is probably just the start of
many such takeovers. By November 2004, the plans PBGC insured were
under-funded $450 billion, an increase of $100 billion in just one
year. Companies whose debt was evaluated at less than investment
grade (a group that could soon include General Motors) were under-
funded by $96 billion, an increase of $12 billion from the previous
year.

So the PBGC could require another gigantic federal bailout, "Some
have compared this to the savings and loan crisis of the early
nineties," said James Moore, who is in charge of pension products at
a major bond fund, Pimco.[26]

But the U.S. government is also broke—because of Bush's pro-war, anti-
tax policy combination. Are there solutions? Sort of. One is just to
fake the numbers, reducing the required reserves in these pension
funds. Bush also plans to change the rules for investing for defined
benefits pension plans in a way to reduce their likelihood of
defaulting. Stocks can be down when pension payout demands are up.
The right kind of bond could deliver the money at the right time. The
new rules have not yet been announced, but seem certain to encourage
the buying of Treasury Inflation Protected Securities (TIPS) by the
depleted pension funds. Some funds are already jumping in to avoid
even higher prices later. With the long dated TIPS pumped, the dollar
looks less unattractive to Chinese and Japanese central banks and
others. Masayuki Yoshihara, who manages, with others, over $9 billion
at Japan's fourth biggest life insurance company, Sumitomo Life
Insurance Company, said "Pension funds will continue to be overweight
the long-end of the curve. We expect the yield curve to flatten even
more," [27] What? Translating from finance-ese, he says that pension
funds will keep buying long dated Treasuries, which will pump up
their price and thus reduce their effective interest yield. (The
interest is fixed, literally printed on the bond. So if buyers pay
more to get the same printed interest rate, their effective yield
goes down.) With long term interest rates falling and short term ones
rising, the graph which represents these rates is becoming more and
more of a flat straight line.

So there are a lot of relatively new sources of money for official
manipulation of markets: federal contractor pension fund money,
nicely insured under CAS; POMO and TOMO money, freshly printed by the
Fed; the American Jobs Creation Act money, conveniently parked off
shore; trading "partner" money, sometimes willingly given, sometimes
extorted.

One nice thing about rigged markets is that they permit updating
trite stock market axioms, such as "Buy on the rumor, sell on the
news." For Treasuries, this has now become, "Buy on the rumor, buy
again on the news, and then sell it to the Chinese or Japanese
central banks."

All who imagine that the mythical market forces will prevail seem to
deliberately avoid actually looking at what the so called markets
really are, including their concentrations, Plunge Protection
mechanisms, and Plunge Protection's extensive access to a variety of
pools of other people's money. The mechanisms and the market
concentrations permit the Bush administration to systematically sell
off U.S. assets to pay for its more wars/less taxes policies. The
Bush administration is comparable to a group of corrupt trustees for
the family fortune of a lazy and incompetent heir. They siphon the
money out by selling off the inheritance while the heir is too stupid
or drunk to notice. He still has his mansion, his fleet of big cars
and his monthly check, and he doesn't notice that the assets are
shrinking. He may not for a while. This family's fortune is big and
there are a lot of assets still to sell off.

© 2005 Robert Bell

Robert Bell, Chairman of the Economics Department, Brooklyn College,
N.Y., is the author of seven books, including: Beursbedrog (The Stock
Market Sting), De Arbeiderspers, Amsterdam, 2003; Les peches capitaux
de la haute technologie (The Capital Sins of High Technology), Seuil,
Paris, 1998; Impure Science, Wiley, N.Y., 1992

REFERENCES

[1] See "The U.S. Government's Bubble Blowing Machine."
[2] "U.S. Dollar Becomes Dependent on Handful of Central Banks,"
Financial Times, 24 January 2005, p. 2
[3] "Treasuries Drop Before U.S. Begins Auctioning $51 Billion of
Debt," Bloomberg.com, 8 February 2005
[4] "U.S. 10-Year Treasury Note Rises on Optimism For Tame
Inflation," Bloomberg.com, 7 February 2005
[5] "…aujourd'hui, les actionnaires sont cantonnes das un role de
quasi-spectateur. Les petits actionnaires – que l'on appelle
aujourd'hui << actionnaires individuals >> savent qu'ils ont peu de
poids. Tous ensemble, ils ne representent que quelques pour cent du
capital car l'investissement des ménages est de plus en plus sous
forme de Sicav, de fonds communs de placement ou d'assurance vie. Les
acctionnaires, aujourd'hui, ce swont donc les investisseurs
institutionnels." (p. 187)
[6] "Nous ne sommes plus, en effet, dans le monde que l'on decrit
dans les manuels d'economie, avec des investisseurs innombrables aux
determinismes varies, choisissant chacun a sa maniere les titres
qu'il va mettre en portefeuille – la resultante de leurs millions de
decisions generant une sorte d'equilibre de marche changeant, mais
stable ! La verite, c'est que, depuis quelques annees,
l'investissement raisonne sur une valeur a presque disparue au profit
de comportements de plus en plus mecaniques." (p. 122)
[7] "$1.3 trillion deficits forecast over decade," latimes.com 25
January 2005
[8] "Dollar Rises Versus Yen; Chin's Zhou Says Yuan Not Undervalued,"
Bloomberg.com 7 February 2005.
[9] "Koizumi puts markets in spin," Financial Times, 11 March 2005,
p. 1
[10] "Feisty Greenback Inches Ahead," Financial times, 24 February
2005, p. 30
[11] "Central Banks Seek to Calm Dollar Fears," Financial Times 24
February 2005, p.7
[12] "Dollar Has Weekly Decline on Concern Banks May Slow
Purchases," Bloomberg.com 26 Feb 2005
[13] "Russia Ends De Facto Dollar Peg and Moves to Align Ruble With
Euro," Financial Times, 6 Feb 2005
[14] "Jusqu'a present, il s'agisait du grand pari adopte par la quasi
unanimite des cambistes: le dollar baissera en 2005."
[15] "U.S. Tax Amnesty Could Rake in $100 Billion," Financial Times,
31 January 2005, p. 17
[16] "Repatriated Cash Raises M&A Hopes," Financial Times, 31 January
2005
[17] "U.S. Tax Amnesty Could Rake in $100 Billion," Financial Times
31 January 2005, p. 17
[18] Andrew Coggan, "The Short View," Financial Times 12 February
2005, p. 15
[19] "U.S. Tax Amnesty Could Rake in $100 Billion," Financial Times
31 January 2005, p. 17
[20] "Repatriated Cash Raises M&A Hopes," Financial Times 2005
[21] "U.S. Tax Amnesty Could Rake in $100 Billion," Financial Times,
31 January 2005, p. 17
[22] "Positive Signs For Dollar Emerge," Financial Times, 21
January 2005, p. 28
[23] "Positive Signs For Dollar Emerge," Financial Times, 21
January 2005, p. 28
[24] http://financialsense.com/editorials/bolser/2003/0602.htm
[25] "Battle over United pension plans heats up," Financial Times,
12-13 March 2005, p. 8
[26] "A Case of Pension Deficit Disorder," Financial Times, 24
February 2005, p. 31
[27] "Treasuries May Fall Amid Concern Demand Will Fall At Auctions,"
Bloomberg.com, 9 February 2005
[i] Claude Bebear, Ils vont tuer le capitalism, Plon, Paris 2003, p.
186
[ii] Claude Bebear, Ils vont tuer le capitalism, Plon, Paris 2003,
p. 122 (translated from the French by R. Bell)
[iii] "The Exchange Stabilization Fund: How It Works," Economic
Commentary, Federal Reserve Bank of Cleveland, December 1999