4 July 2009

The evolution of intervention ~ US Fed and Treasury

Interventions and gold sales have historically been led by the Treasury

1) The Fed has a long tradition in supporting the lead of the Treasury in intervening on the exchange value of the dollar.

2) By law, the Secretary of the Treasury is the chief international monetary policy official of the United States.

3) In January 1978, the Treasury stated that the ESF would henceforth be used as an active partner in the financing of intervention. To further support the dollar, the Treasury announced in May that it would resume auctioning gold to the public. Under these circumstances, US authorities intervened substantially during the summer of 1979 to resist the dollar's decline.

4) The US Treasury actually made a $500 million profit on the $50 billion loan to Mexico, but the global economy lost trillions down the road.

Greenspan as the wizard of bubble-land

1) Greenspan handed President Clinton a "pro-incumbent-type economy", showing that Crony capitalism was and is not exclusive to Asia.

2) The institutional bias of the Fed over past decades has been drifting toward more allegiance to the speculative effects on the financial markets than to the health of the real economy

4) Financial markets are not the real economy but its early dawn shadow. Bending this shadow to make it look tall does not alter the height of the subject.

5) It is a hard sell to paint a debt-infested economy as sound.

6) In Greenspan’s bubble land, some sectors of the economy and segments of the population, through no fault of their own, did not survive the down cycles to enjoy the long-term benefits.

7) The Fed has failed to distinguish a healthy growth in the economy from a speculative debt bubble in the financial markets.

8) This failure has been institutionalized at the Fed on Greenspan's watch.

Plaza Accord of 1985

1) By Reagan's second term, it became undeniable that US policy of a strong dollar was doing much damage to the manufacturing sector of the US economy

2) Treasury secretary James Baker and his deputy Richard Darman, with the support of manufacturing corporate interest before the age of cross-border wage arbitrage, then adopted an interventionist exchange-rate policy to push the overvalued dollar down.

3) US Treasury officials arranged a meeting of G-5 officials at the Plaza Hotel in New York on September 22, 1985 with the purpose of ratifying an initiative to bring about an orderly decline in the dollar

4) The sustained fall of the dollar after the Plaza Accord of 1985 caused a sell-off which contributed to the 1987 crash.

5) Today, a sustained further fall of the dollar runs the danger of creating another such a sell-off.

Rubin figures out how the US could have its cake and eat it too

1) It was not until Robert Rubin became Special Assistant for Economic Policy to the President Clinton (1993-95) that the US would figure out its strategy of dollar hegemony through the promotion of unregulated globalization of financial markets

2) The US economy grew at an unprecedented rate with the wholesale and permanent export of US manufacturing jobs from the rust belt

Conclusion: Thanks to Rubin and Greenspan, the US is now a debt-infested economy on the verge of collapse.


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