Paul Craig Roberts
May 19, 2013
Over the past month there has been a statistically improbable concurrence of
events that can only be explained as a conspiracy to protect the dollar from the
Federal Reserve’s policy of Quantitative Easing (QE).
Quantitative Easing is the term given to the Federal Reserve’s policy of
printing 1,000 billion new dollars annually in order to finance the US budget
deficit by purchasing US Treasury bonds and to keep the prices high of
debt-related derivatives on the “banks too big to fail” (BTBF) balance sheets by
purchasing mortgage-backed derivatives. Without QE, interest rates would be much
higher, and values on the banks’ balance sheets would be much lower.
Quantitative Easing has been underway since December 2008. During these 54
months, the Federal Reserve has created several trillion new dollars with which
the Fed has monetized the same amount of debt.
One result of this policy is that most real US interest rates are negative.
Another result is that the supply of dollars has outstripped the world’s demand
These two results are the reason that the Federal Reserve’s policy of
printing money with which to purchase Treasury bonds and mortgage backed
derivatives threatens the dollar’s exchange value and, thus, the dollar’s role
as world reserve currency.
To be the world reserve currency means that the dollar can be used to pay any
and every country’s oil bills and trade deficit. The dollar is the medium of
This is very helpful to the US and is the main source of US power. Because
the dollar is the reserve currency, the US can cover its import costs and pay
for its cost of operation simply by creating its own paper money.
If the dollar were not the reserve currency, Washington would not be able to
finance its wars or continue to run large trade and budget deficits. Therefore,
protecting the exchange value of the dollar is Washington’s prime concern if it
is to remain a superpower.
The threats to the dollar are alternative monies–currencies that are not
being created in enormous quantities, gold and silver, and Bitcoins, a digital
The Bitcoin threat was eliminated on May 17 when the Gestapo Department of
Homeland Security seized Bitcoin’s accounts. The excuse was that Bitcoin had
failed to register in keeping with the US Treasury’s anti-money laundering
Washington has stifled the threat from other currencies by convincing other
large currencies to out-print the dollar. Japan has complied, and the European
Central Bank, though somewhat constrained by Germany, has entered the printing
mode in order to bail out the private banks endangered by the “sovereign debt
That leaves gold and silver. The enormous increase in the prices of gold and
silver over the last decade convinced Washington that there are a number of
miscreants who do not trust the dollar and whose numbers must not be permitted
The price of gold rose from $272 an ounce in December 2000 to $1,917.50 on
August 23, 2011. The financial gangsters who own and run America panicked. With
the price of the dollar collapsing in relation to historical real money, how
could the dollar’s exchange rate to other currencies be valid? If the dollar’s
exchange value came under attack, the Federal Reserve would have to stop
printing and would lose control over interest rates.
The bond and stock market bubbles would pop, and the interest payments on the
federal debt would explode, leaving Washington even more indebted and unable to
finance its wars, police state, and bankster bailouts.
Something had to be done about the rising price of gold and silver.
There are two bullion markets. One is a paper market in New York, Comex,
where paper claims to gold are traded. The other is the physical market where
personal possession is taken of the metal–coin shops, bullion dealers, jewelry
The way the banksters have it set up, the price of bullion is not set in the
markets in which people actually take possession of the metals. The price is set
in the paper market where speculators gamble.
This bifurcated market gave the Federal Reserve the ability to protect the
dollar from its printing press.
On Friday, April 12, 2013, short sales of gold hit the New York market in an
amount estimated to have been somewhere between 124 and 400 tons of gold. This
enormous and unprecedented sale implies an illegal conspiracy of sellers intent
on rigging the market or action by the Federal Reserve through its agents, the
BTBF that are the bullion banks.
The enormous sales of naked shorts drove down the gold price, triggering
stop-loss orders and margin calls. The attack continued on Monday, April 15, and
has continued since.
Before going further, note that there are position limits imposed on the
number of contracts that traders can sell at one time. The 124 tons figure would
have required 14 traders with no open interest on the exchange to sell all
together in the same few minutes 40,000 futures contracts. The likelihood of so
many traders deciding to short at the same moment at the maximum permitted is
not believable. This was an attack ordered by the Federal Reserve, which is why
there is no investigation of the illegality.
Note also that no seller that wanted out of a position would give himself a
low price by dumping an enormous amount all at once unless the goal was not
profit but to smash the bullion price.
Since the April 12-15 attack on the gold price, subsequent attacks have
occurred at 2pm Hong Kong time and 2 am New York time. At this time activity is
light, waiting on London to begin operating. As William S.Kaye has observed, no
entity concerned about profits would choose this time to sell 20,000 to 30,000
futures contracts, but this is what has been happening.
Who can be unconcerned with losing money in this way? Only a central bank
that can print it.
Now we come to the physical market where people take possession of bullion
instead of betting on paper instruments. Look at this chart from ZeroHedge.
The demand for physical possession is high, despite the assault on gold that
began in 2011, but as the price is set in the non-real paper market,
orchestrated short sales, as in the current quarter of 2013, can drive down the
price regardless of the fact that the actual demand for gold and silver cannot
While the corrupt Western financial press urges people to abandon bullion,
everyone is trying to purchase more, and the premiums above the spot price have
risen. Around the world there is a shortage of gold and silver in the forms,
such as one-ounce coins and ten-ounce bars, that individuals demand.
That the decline in gold and silver prices is an orchestration is apparent
from the fact that the demand for bullion in the physical market has increased
while naked short sales in the paper market imply a flight from bullion.
What does this illegal manipulation of markets by the Federal Reserve tell
us? It tells us that the Federal Reserve sees no way out of printing money in
order to support the federal deficit and the insolvent banks. If the dollar came
under attack and the Federal Reserve had to stop printing dollars, interest
rates would rise. The bond and stock markets would collapse. The dollar would be
abandoned as reserve currency. Washington would no longer be able to pay its
bills and would lose its hegemony. The world of hubristic Washington would
It remains to be seen whether Washington can prevail over the world demand
for gold and silver. Can the dollar remain supreme when offshoring has deprived
the US of the ability to cover its imports with exports? Can the dollar remain
supreme when the Federal reserve is creating 1,000 billion new ones each year,
while the BRICS, China and Japan, China and Australia, and China and Russia are
making deals to settle their trade balances without the use of the dollar?
If the consumption-based US economy deprived of consumer income by jobs
offshoring takes a further dip down in the third or fourth quarter–a downturn
that cannot be masked by phony statistical releases–the federal deficit will
rise. What will be the effect on the dollar if the Federal Reserve has to
increase its Quantitative Easing?
A perfect storm has been prepared for America. Real interest rates are
negative, but debt and money are being created hand over foot. The dollar’s
demise awaits the world’s decision how to get out of it. The Federal Reserve can
print dollars with which to keep the bond and stock markets high, but the
Federal Reserve cannot print foreign currencies with which to keep the dollar
When the dollar goes, Washington’s power goes, which is why the bullion
market is rigged. Protect the power. That is the agenda. Is it another