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Thread: Fed Intervention

  1. #1

    Fed Intervention

    For those who think the idea of central banks manipulating the markets is some kind of conspiracy theory, here's something straight from the NY Fed's site (http://www.newyorkfed.org/education/fx/role.html):

    If the Treasury feels that there is a need to weaken or strengthen the dollar, it instructs the Federal Reserve Bank of New York to intervene in the FX market as Treasury’s agent. The Federal Reserve uses the Exchange Stabilization Fund (ESF) to finance these interventions. Learn more about the ESF offsite.

    The Federal Reserve Bank of New York buys dollars and sells foreign currency to support the value of the dollar. The Fed also sells dollars and buys foreign currency to try and exert downward pressure on the price of the dollar.

    The transactions in the intervention are small compared to the total volume of trading in the FX market and these actions do not shift the balance of supply and demand immediately. Instead, intervention is used as a device to signal a desired exchange rate movement and affect the behavior of investors in the FX market.
    And from the the Treasury site about the Exchange Stabilization Fund:

    The legal basis of the ESF is the Gold Reserve Act of 1934. As amended in the late 1970s, the Act provides in part that "the Department of the Treasury has a stabilization fund …Consistent with the obligations of the Government in the International Monetary Fund (IMF) on orderly exchange arrangements and an orderly system of exchange rates, the Secretary …, with the approval of the President, may deal in gold, foreign exchange, and other instruments of credit and securities."
    So, they aren't able to affect any real change in the markets directly , but essentially fool investors into thinking there has been a turn in the tide.

    So, assuming the Fed, or whoever is manipulating the PM market right now, I wonder if they want people to buy or sell. If they're trying to get people sell, it doesn't appear to be working.

    Anyway, I guess this isn't really big news to most of you, but I found it interesting that they're so blatant about it. I always thought it was something they did on the sneak.
    “Eternal vigilance is the price of liberty; power is ever stealing from the many to the few.” --Wendell Phillips



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  3. #2
    Quote Originally Posted by Fight-n-Mad View Post
    ....but I found it interesting that they're so blatant about it. I always thought it was something they did on the sneak.
    FWIW, I don't think it's perceived as "blatant" but rather normal. I mean, until I learned about the whole idea of gold standard and evils of fiat money, I had took it as normal for Federal Reserve's actions to protect the economy. I imagine an average person would look at the paragraph and perceive this as a good thing as we don't want market to crash based on speculations or whatnots.

    Not that it makes it any more palatable, but wanted to throw this POV out.
    Which is easier to keep down, a salad, a slab of steak, or a pint of beer if you are moving at approximately 29,658 meters per second and rotating at a maximum of tangential velocity of 463 meters per seconds?

  4. #3
    Quote Originally Posted by Banana View Post
    FWIW, I don't think it's perceived as "blatant" but rather normal. I mean, until I learned about the whole idea of gold standard and evils of fiat money, I had took it as normal for Federal Reserve's actions to protect the economy. I imagine an average person would look at the paragraph and perceive this as a good thing as we don't want market to crash based on speculations or whatnots.

    Not that it makes it any more palatable, but wanted to throw this POV out.
    Yeah, kinda reminds me of the people who appreciate getting strip searched at the airport. After all, they have to keep us safe.
    “Eternal vigilance is the price of liberty; power is ever stealing from the many to the few.” --Wendell Phillips



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