Submitted by Steve Brown…
The alarming decline in world share markets may be unprecedented but is not unexpected. In a series of articles over many months we’ve covered the weakness in globalist structures present for a long time, leading to a unique set of circumstances.
Since the United States treacherously reneged on its agreement with Iran and reimposed arduous sanctions versus that country, the US Treasury has imposed economic sanctions versus Russia and China too. In 2019 US-State’s belligerence extended to seizure of the Grace-1 oil tanker, perhaps in response to mysterious attacks on four tankers in the Gulf of Oman. Things got hot with a mystery attack on Abqaiq and Khurais oil installations in Saudi Arabia with no satisfactory explanation ever given about the true origin of the attacks. A few weeks prior, Iran shot down one US RQ-4 spy drone and the US decided against a retaliatory strike only moments before retaliation was scheduled to begin.
With Syria, Afghanistan, Libya, and Yemen burning in the background, US-State then chose to assassinate Iran’s top military leader in a blatant show of aggression versus Iran, assassinating General Suleimani in Iraq. Then Washington stood down from its brinkmanship typical of the cowardly manner in which a cowardly Beltway leverages its foreign policy.
In trade, ironically Washington imposed $50Bn US dollars in punishing trade tariffs versus China’s manufacturing sector just one month prior to the US embassy opening in ‘unified Jerusalem’. According to US leader Donald Trump evidently that “Jerusalem unity” represents consent to the unbridled brutality of the Israeli regime against Palestinians.
Agree with the above rendition or not, in past years any one of the above events as realized would pose a threat to share markets at the time they happened. But what did we see? Nothing of the kind. Whenever China threatened retaliation for Trump’s trade war US share markets simply shrugged and marched higher. None of the geopolitical events above signaled any sort of challenge or bound to the raging bull on Wall Street.
Even though US stocks and shares went higher day after day there were signs of trouble. Significantly even if unremarkable to the public, a major gold data site quit publishing its COMEX registered gold reserves chart on July 10, 2019. This chart shows actual gold reserves (not paper gold) as used by sovereigns and central banks as collateral for their most important international trade operations. Like the end of gold forward rates (GOFO) in 2014, someone somewhere – probably inside the Federal Reserve – believed that this information (underlying the importance of physical gold in world trade) must be obfuscated from public view.
In November/ December we saw strange accounting in the LBMA gold market with billions apparently ‘sold’ or exported (in fact the physical bars never left their vault) boosting physical registered reserves from an all-time low. There is evidence that certain buyers were standing for delivery perhaps in an effort to show that control-manipulation of the market may be subject to some future threat… a threat we may face this very moment? The big boost in physical reserves seems analogous a bank preparing to cover a run.
Then in September the Federal Reserve began a massive injection of funds into the banking system called repos. These short-term loans trade dollars from the Fed against a bank’s debt instrument holding (collateral being Treasury notes, bills, or bonds) at rates favorable to the primary dealer bank. It’s an injection of cash to keep a dealer bank afloat overnight protecting it from defacto overnight default. The Fed began these cash injections in September 2019 to protect one or more primary banks. Because these trades are opaque and require no accountability we can only guess which primary dealer banks are involved, and we are talking from $50Bn to $150Bn injected into the banks every night. *
The Fed began its injection of cash into US equity markets in conjunction with a great reduction in China’s exports to the US due to the damaging trade war. Mr Trump’s trade war with China has largely been ignored by US share markets until now but supply shortages have been experienced and they are accelerating. In other words, disease contagion in China appears to be just one single factor of many in the deflation of yet another massive US share market bubble.
Disaster has apparently and unexpectedly struck. So what’s next? The Emperors of the Money Empire have a number of tools at their disposal and on Friday the 28th we likely saw a manifestation of the Exchange Stabilization Fund (ESF) at the end of the trading session. The ESF is a powerful and secretive mechanism to intervene in markets headed by the US Secretary of the Treasury. All operations of the ESF are secret and the ESF reports to no one even if its operations are ‘approved’ by the president. The ESF has its own secret trading desk and all trades are opaque. No operations of the ESF may be made public. It is also believed that the ESF works closely with the largely opaque Bank of International Settlements, which is the central bank above all central banks, based in Basel, Switzerland. (Eric de Carbonnel** has an excellent video here on ESF operation.)
Essentially Comptroller of the world’s reserve currency, the Federal Reserve may also trade in any financial product via its ‘Desk’ and can intervene in any market. The difference with the ESF is that the Fed must divulge some elements of its activities but not all. For example any foreign gold trade that the ‘Desk’ executes on behalf of a foreign sovereign is not reported to Congress or reported publicly — all such trades are secret.
The Fed ‘Desk’ and Exchange Stabilization Fund will likely play a big role in global markets in coming days should the market meltdown continue. When the DJIA gained six hundred points in just a few closing minutes on Feb 28th that was likely an initial intervention by the Fed or ESF. (Yes the Fed does trade stocks regardless of what CNBC talking heads say and write). Which leads to a logical question: In times of panic when trillions disappear from US share markets where do those dollars go? There are only three markets capable of handling trillions in monetary volume:
- US debt instruments (Bonds/T Bills/T-Notes/MBS/TIPS etc )
- Market shares not always US
- Cash accounts
First consider the above is by design. Federal Reserve notes are like a drug and enough people on one drug means they’re loathe to get on another. A less ethereal point is that right now trillions in US dollar paper is out of the stock market so where will the dollars go? Commodity markets cannot support that volume and traders tend to stay out of commodities in a downturn. Since the virus scare took hold we have seen a huge inversion in the US bond market not experienced since the 1950’s and yields are at a record low. In other words, metric tonnes of digitized Federal Reserve notes have been ‘flying to safety’ into the US bond market.
The issue is that money in the bond market has a ponderous road back to the stock market depending on the performance of both. Such a return from hundreds of billions in US bonds back to billions in US stocks is not assured. However if the situation improves it is very likely that US dollars presently in cash will flow back to the stock market rather rapidly.
The next observation is that Mr Trump was apparently wrong-footed by this crisis. For once he has little to say, and the White House’s appeal for billions in new virtually-minted USD to provide health care and provisions to fight the virus plays to the kind of ‘socialist’ action that Bernie Sanders has so passionately invoked. Remember too that Trump chose a singular Bad Actor as Treasury Secretary – a truly horrific appointment. Mnuchin was involved in the IndyMAC and One West scandals at the heart of Wall Street’s “great recession” thievery, so it will be interesting to see how the Treasury reacts to something as novel as the novel corona virus where real solutions must be found rather than scams to line trillionaire pockets.
Even so there is no doubt that panic and scare-mongering are at work here with few level heads around to assuage the public’s fears. The media has been so debased and compromised there is no real trustworthy source of information and likewise leadership is lacking all around. Indeed it is quite alarming the rapid decay and eclipse of the United States as a former world leader, seeing such decline in just twenty years. Perhaps the irony is that it took bat soup to prick the bubble.
One hope is that a voice of reason may appear to perhaps mitigate the immediate endemic scare-mongering that even health agencies seem to be promoting. For those that believe in a true free market perhaps a safe vaccine will appear. Meanwhile Trump’s apparent inability to act in this growing panic is quite striking. Let’s hope he can show some leadership going forward because it is sorely needed. As for the markets, will we see the turn to a bear market? Of course only time will tell, but the damage already inflicted seems to indicate that some lasting pain has yet this way to come.
*General consensus is that the primary dealer in trouble is either HSBC or Deutsche Bank.
** Eric de Carbonnel is a real live person despite vicious rumors to the contrary!
Steve Brown is the author of “Iraq: the Road to War” (Sourcewatch) editor of “Bush Administration War Crimes in Iraq” (Sourcewatch) “Trump’s Limited Hangout” and “Federal Reserve: Out-sourcing the Monetary System to the Money Trust Oligarchs Since 1913”; Steve is an antiwar activist, a published scholar on the US monetary system, and has appeared as guest contributor to The Duran, Fort Russ News, Herland Report, Lew Rockwell Report, The Ron Paul Institute, and Strategika51. Twitter: @newsypaperz
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of The Duran.