Another
Arrested Equity Correction?
By Paul
Craig Roberts
February 07, 2018 "Information
Clearing House"
-
After the extraordinary sudden loss in equity
values, today (2-6-18) brought gains back to the
stock indices.
What
happened? Did the market sneeze, cough, or was
something misread and today perceived in a
different light?
In my
opinion this is what happened:
The
Plunge Protection Team, as they have done on
previous equity market drops, or the Federal
Reserve operating for the Working Group on
Financial Markets, sent a purchase order for S&P
futures to the trading floor. The hedge funds,
seeing the incoming bid, front-ran the bid by
stepping in and buying S&P futures. This pushed
the market back up, ended the correction, and
prevented financial panic.
The
Plunge Protection Team was created in 1987,
approaching the end of the Reagan
administration, in order to prevent a market
correction from costing George H. W. Bush the
presidential election as Reagan’s successor. The
Republican Establishment was desperate to
reestablish its control over the party. The
Republican Establishment, convinced by Wall
Street that the Reagan tax cut would result in
high inflation, found themselves instead
confronted with a long economic expansion. In
those days that meant that the expansion could
be nearing its end, and a stock market
correction could deny the presidency to George
H.W. Bush.
To
prevent any such correction, the US Treasury and
Federal Reserve created a “working group” to
intervene in the stock market in order to
support values. Whenever the market starts to
drop, the team purchases S&P futures which halts
the market decline.
We have
witnessed this on several occasions. And, most
likely, again today.
Pundits
who speak about “market forces” are speaking
about something that doesn’t exist. “Market
forces” are the interventions that support
existing values with money infusions.
How
long can the fraudulent valuation of
equities continue? My sometimes coauthor
Dave Kranzler and I think it can continue
until the dollar as reserve currency comes
under attack. Neither of us believed that
the fraud could be perpetrated this long.
The two other world powers, Russia and
China, are moving away from use of the US
dollar, but the consequence for the dollar
could still be in the future. In the
meantime, liquidity supplied by central
banks and the interventions of the Plunge
Protection Team could send equity prices
higher.
Dr.
Paul Craig Roberts was Assistant Secretary of
the Treasury for Economic Policy and associate
editor of the Wall Street Journal. He was
columnist for Business Week, Scripps Howard News
Service, and Creators Syndicate. He has had many
university appointments. His internet columns
have attracted a worldwide following. Roberts'
latest books are
The Failure of Laissez Faire
Capitalism and Economic Dissolution of the West,
How America Was Lost,
and
The Neoconservative Threat to
World Order.
The
views expressed in this article are solely those
of the author and do not necessarily reflect the
opinions of Information Clearing House.
