Fed Laundering Treasury Purchases to Disguise What’s Happening-Paul Craig Roberts

Wednesday, May 14, 2014
By Paul Martin

By Greg Hunter
USAWatchdog.com
May 14, 2014

In his latest article, former Assistant Treasury Secretary Dr. Paul Craig Roberts says, “The Fed is the great deceiver.” Why is he making this shocking accusation? The reason is tiny Belgium’s whopping purchase of $141 billion in Treasury bonds earlier this year. Dr. Roberts explains, “We know that Belgium didn’t have any money to buy $141 billion worth of bonds over a three month period. That sum comes to 29% of the Belgium GDP. So, they don’t have a surplus in their budget that is 29% of their GDP, and they don’t have trade or current account surplus in that amount. In fact, everything is in the red. Their budget deficit is in the red, and their trade and current accounts are in the red. So, Belgium didn’t have the money, and yet, they managed to pick up $141.2 billion in U.S. Treasuries over a three month period. So, where did they get the money?” Dr. Roberts, who holds a PhD in economics, goes on to say, “We know their central bank couldn’t have printed euros to buy the bonds with because the Belgium central bank can’t print euros. Belgium is part of the euro system and has lost the ability to create its own money. So, the only source for that kind of money would have been the Federal Reserve. The Federal Reserve thought it needed to hide the fact it was buying $141 billion in bonds over a three month period when it was officially reducing or tapering the quantitative easing down to $65 billion. It didn’t want to have to admit it was really purchasing $112 billion a month, almost double the announced purchases.”

Dr. Roberts also says, “I think also the Fed did not want it to get out that some large country is unloading Treasuries. Somebody dropped over $100 billion in Treasuries in one week. If that was a large holder and that became known, it could panic smaller holders and you could see a stampede, and the Fed could lose control of interest rates. So, I think the Fed thought the best thing to do is launder its purchase through a different country; and, thereby, disguise what is actually happening.”

Why is the Fed worrying about the shell game of Treasury purchases? Dr. Roberts says, “I think there wasn’t any buyer for the $104 billion in one week. So, if that kind of bond sale sat unattended, interest rates would rise; and so, the Fed had to buy the bonds in order to protect its interest rate policy. But, if it outright bought them and this was known, then it starts to interfere with the ‘tapering’ that it promised to do because all of a sudden it’s not ‘tapering,’ at least not for those three months. It signals somebody is unloading Treasuries, and that could stampede others. What it indicates is they are not feeling all that confident that the dollar is on such a sound footing, or the U.S. financial system is on all that much sound footing that they can openly step in and take up that type of purchase.”

On the steep drop in GDP growth of a paltry .1% in the first quarter, Dr. Roberts says, “What I find most amusing about this is they had to claim some real growth in the first quarter; so, they eked out .1%. Now we know they got that by rigging the inflation number they used to deflate the gross domestic product (GDP). The real GDP in the first quarter, properly deflated, was negative and probably also in the fourth quarter. Most likely, this coming quarter, they are not going to be able to hide the fact that it is negative. . . . I am convinced the first quarter was negative, and I don’t see how it could possibly go positive in the second quarter.”

On Fed Head Janet Yellen’s rosy outlook on the economy, Dr. Roberts debates, “I don’t see how she can see that the economy is going to start growing. What is going to make it grow? Why should investors invest money when consumers don’t have any money? There are not retail sales. I think it is just part of the rah, rah talk. Everywhere else in the world is going down the tube. So, what’s going to push the American economy up?–Nothing that I know of.”

On the Ukraine crisis, Dr. Roberts says, “I think Washington badly miscalculated this whole Ukraine business. It was an act of hubris, arrogance and stupidity. They are mad at Russia for blocking their attack on Syria and blocking their attack on Iran. They said ‘we’ll teach them.’ We’ll give them trouble in their own backyard and not to get in our way anymore.” The threat of sanctions has made the Russians realize the dollar system is not in their interest, and they are going to leave it. . . . If any significant part of the world stops using the dollar, the price of the dollar falls because demand for dollars falls, and the import cost for America would rise. When you see how import dependent we are, it would mean a substantial rise in the real cost of living for most Americans.”

Join Greg Hunter as he goes One-on-One with Dr. Paul Craig Roberts.

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