...Starting with first principles...
America First Trust financial services
...Investment advice and management for uncertain times...


Published on page 10 of the October 20, 2003 American Free Press:


Insight into the Actions of the Federal Reserve


Fed's Intervention 'Wizardry'

Signals Desperation


Exclusive to the American Free Press

By Bill Fox


The United States faces "a nation-breaking event that the Federal Reserve is trying desperately to stop."

The United States is breaking down economically, says a financial watchdog group, and is suffering terribly under prolonged financial remedies, initiated by the country's top banker Alan Greenspan, that have enriched the country's elites while the middle and lower classes have been forced to bear the brunt of the hardships.

Michael Bolser of the Gold Anti Trust Action Committee (GATA) ominously warns: "We are looking at a situation now that Bank of England President Sir Eddie George referred to as an abyss… He wasn't talking about a temporary abyss, he was talking about the permanent destruction of the value of the United States dollar.”

Bolser added, “This is a nation-breaking event that the Federal Reserve is trying desperately to stop. And of course they have created the conditions to get us into this jam. And it has taken them since 1987 when Alan Greenspan was first appointed to do it. [Greenspan] has been on the wrong path for that long. And he has refused to get off this path. His answer to every single problem was to print more money. And here we are at the end game of a one way box canyon, at the end of which is a financial disaster."

To many pro-gold activists and libertarian economists, this is a predictable consequence of the way America turned its back on laissez-faire economic policies of the 1800’s and embraced central bank financial manipulation and Big Government interventionism in the 20th century. In the libertarian view, “top down” Keynesian economics is “junk food” economics.

Fed Chairman Alan Greenspan is concerned that stimulus measures have been increasingly pushing on a string to revive the overall economy. Although the Fed dropped its Funds rate to 1% on June 25th, a 45 year low, America still has 25% overcapacity and record trade deficits.

More and more debt is required to produce GDP growth, now requiring five dollars of debt for each dollar of growth. Ballooning government, personal, and corporate debt now total about $34 trillion, or $119,000 per individual American. Increasing carrying costs reduce consumer spending.

Fedspeak about deflation really pertains to bubble valuations in the stock, bond, and real estate markets. Fed Governor Ben. S. Bernanke declared last November that the Fed is prepared to inflate without limit if necessary to prevent such deflation.

Home equity refinancings have helped sustain consumer spending, which constitutes about 75% of GDP. If stock and real estate values fall too far, a “negative wealth effect” on spending might feed a recessionary downward spiral.

The Fed apparently forms an axis with banks and Wall Street firms to stage periodic bond and stock market rallies to prevent a rout and also to suppress gold as an inflation barometer.

On May 21, 2003, Greenspan testified before Congress that the Fed is prepared to use its “Open Market Operations” to buy bonds and suppress interest rates. These operations create money, whose supply is growing by about 10% a year.

According Bill Murphy, Chairman of GATA, total global gold short positions stand at about six times annual mine and scrap supply, running about 2,500 tonnes a year. An annual 1,400 tonne demand deficit has to be filled to prevent price spikes. Bill Murphy thinks the Fed may be arranging payments to foreign banks at above market prices to disgorge more gold. As major gold mining companies have unwound their hedges, big banks and Wall Street firms have apparently stepped in to replace and augment short derivatives positions.

The article Plunge Protection Team by Brett Fromson, that appeared in the Feb 23, 1997 issue of The Washington Post, described a Working Group on Financial Markets (WGFM), created by the Reagan administration in early 1988 in reaction to the 1987 crash.

Murphy and other experts believe that Wall Street firms now use "PPTs" on a continuing basis to stage strategic rallies in the stock market. The Fed provides liquidity through a $40 billion repurchase agreement pool that can be augmented by a $30 to $40 billion Exchange Stabilization Fund created in the 1930s. The Fed lends these funds for 28 days and can roll them over.

Despite bond, gold, and stock market interventions, many wild cards threaten soft landings.

Foreigners own about 45% of US Treasuries. The Fed may be forced to eventually hike rates to attract more capital. Currently Japanese and Chinese central banks are buying US dollars to arrest the dollar slide and maintain export competitiveness. They may not accumulate depreciating dollars forever.

The rapidly growing unregulated derivatives market now totals an estimated $127 trillion, 13 times the U.S. economy. Billionaire investor Warren Buffet publicly denounced unregulated derivatives as "Weapons of Mass Financial Destruction" after his difficulties in unwinding the positions of an acquired company. .Almost every year derivatives are involved in a major blow up, such as Enron in 2001 or the 98% wipe out of the $200 million Japanese Eifuku hedge fund in seven trading days in Jan 2003.

Wall Street firms promote derivatives because they remain extremely profitable. America's largest banks hold perhaps a third of all derivatives. They can use unregulated credit derivatives to circumvent conventional reserve and margin requirements and expand lending activities. JP Morgan Chase is exposed to over $25 trillion and is leveraged at over six times its equity. Greenspan himself has lobbied to keep the derivatives market unregulated and beyond the scrutiny of the Financial Accounting Standards Board (FASB).

If the above is not alarming enough, surely the amazing fact that the privately-controlled Federal Reserve has never been audited should set off the alarm bells, particularly in this era of monetary corruption. The reader may interpret this any way he or she wishes but who was it who said that anything that can happen will happen?

The Federal Reserve has been highly questionable* from its founding in 1913, put over on the gullible, trusting American people by willful bankers and politicians, all of whom profited beyond the riches of Croesus. One who believes that the controllers are conducting the business of the Fed honestly and are not improperly -and illegally- enriching themselves is suffering from naivete.

All of this raises troubling, paradoxical questions, not to mention the possibility that another terrorist strike could be used to not only destabilize America’s financial system, but also as a scapegoat for a financial breakdown that might happen anyway.

Bill Fox is VP/Investment Strategist, America First Trust Financial Services. Bill welcomes phone calls and responses to this article. His address is VP, America First Trust Financial Services, Registered Rep, Sammons Securities Co., LLC P.O. Box 820669, Vancouver, WA 98682, telephone: 360-882-5369, toll free: 866-945-5369 (866-WILL FOX), email: wfox@sammonsrep.com. Securities offered through Sammons Securities Co LLC, member NASD and SIPC.

* Although I did not use the word "conspiracy" in the original long version of this article, it was suggested for the short version by an AFP editor. The word "conspiracy" is accurate when broadly constructed relative to the concept of government espoused by Thomas Jefferson (profiled in my "Inspiration" article). Congressman Ron Paul's article "Paper Money and Tyranny," explains how the creation of a central bank in peacetime was vigorously opposed by many of America's Founding Fathers. The original Constitution did not authorize a national bank that could create money. The decentralized banking system of the 1800s was arguably more stable than the centralized system of the 20th century under the Fed. Our central bank was a logical outgrowth of the radical centrism promoted by the Abraham Lincoln administration discussed towards the end of my "Other Experts: Learning the Score" article and brilliantly summarized in the Donald Livingston article "The Litmus Test For American Conservatism." An unaudited, privately owned central banking cartel with an unlimited capacity to create money out of nothing is a necessary prerequisite for privileged elites to have the financial leverage to create and control a global interventionist, deficit-spending, pork barrel, welfare-warfare state. Such states tend to ultimately overextend and corrupt themselves much like the Roman Empire. This is one reason why many central banks may be viewed as incompatible with self-constrained, principled republicanism. Even Fed Chairman Alan Greenspan once admitted to the "shabby secrets" of the "welfare statists" who require a central bank in his famous essay "Gold and Economic Freedom." Also, I provide background on the men who engaged in subterfuge to create the Federal Reserve Act in 1913 towards the end of the long version of my "Amidst Bullish Hoopla" article in the "Morphogenesis of the Fed Axis" section. I think that the general tendency of Americans to disbelieve in financial "conspiracies" may change if the U.S. ever goes the way of Argentina and half the population slips below the poverty line.

(total article length, excluding title, bio, and footnote: 1,069 words)



Flag carried by the 3rd Maryland Regiment at the Battle of Cowpens, S. Carolina, 1781

© William Fox. Sometimes William Fox offers viewpoints that are not necessarily his own to provide additional perspectives.