Exclusive: The Bank Of England Engaged In Flagrant Gold Manipulation In The Interwar Period Via The New York Fed; Does History Repeat Itself?

Tyler Durden's picture

An article written by University of Tennessee professor John R Garrett, "Monetary Policy and Expectations: Market-Control Techniques and the Bank of England, 1925-1931", which describes in exquisite detail the gold falsification measures undertaken by the Bank of England in the interwar period in order to impact interest rates in a favorable direction, performed with the full criminal complicity of the Federal Reserve Bank of New York, may mean paranoid "gold bugs" could soon be forever absolved of their "tin hat" wearing status as outright gold, and other data, manipulation by a major central bank is now proven beyond doubt. The implications regarding the possibility of comparable deceitful and treasonous acts by modern central bankers are staggering.

The Bank of England depleted its open-market portfolio by secretly sterilizing large gold inflows. Thereafter interest rates were influenced by manipulating reported gold flows.... A gold flow falsification was over two-thirds as effective as an open-market operation.

Falsifying critical gold data worked for Britain 70 years ago. Is it working now too? And is the BOE alone, or is Bernanke taking advantage of the Bank of England's experience? To be sure, the world was different with the Gold Standard the bedrock of monetary policy. Yet are the similarities between then and now not greater than the differences? With the shadow economy exposed as hinging on the investing community's desire to go with the prevailing "valuation" lie (a reason why the shadow economy in broad terms will take many years to return, if ever) the core asset is and always will be gold.

And yet the main question remains: why did the Bank of England openly and flagrantly manipulate critical data? Why did it mislead the citizens of the country it was supposed to serve? And if this happened in the past is it happening now? Is this the reason why the Federal Reserve is so opposed to exposing itself to public scrutiny and audits? If the BOE was engaging in outright fraud in the 1925-1931 period, why would today be any different?

Garett's mesmerizing report, published in the September 1995 issue of Monetary Policy and Expectations, has oddly not received much if any public notice, with not a single mention of the article or its implication in either the blogosphere or the mainstream arena. This is very unusual as Garret's disclosures would lend vast credence to not just gold bugs' claims that there is blatant (ongoing) gold data manipulation, but that Central Banks regularly engage in outright deception when it comes to achieving desired monetary policy results. To wit:

Montagu Norman, the Governor of the Bank of England... engaged in a large-scale deception that greatly over-stated the size of the effective open-market portfolio, understated the size of the gold stock, and misstated the size and even the direction of gold flows.

Not only that, but Garrett provides a direct link between secret gold market operations by the BOE and accumulation of US Treasuries: a critical concept not just in interwar Britain but more so currently, when faced with the need to finance trillions in budget deficits, the market is poised to decline by 25%+ should the US government experience a failed auction. Oh, and guess who was complicit in the BOE deception, and was used by the British central bank as a trading conduit? Why, the Federal Reserve Bank of New York, of which Tim Geithner was president from 2003 to 2009.

Norman sold pound-denominated securities to sterilize the additional bank reserves created by the gold inflow. He simultaneously sold gold for dollars, lowering the Bank's reported gold stock, and bought U.S. Treasury bills with the proceeds. He also had all transactions carried out on the New York market by the New York Federal Reserve Bank so that they could not be traced to the Bank of England. (see Figure 1) The U.S. Treasury bills were comingled with pound-denominated "other securities" in the Bank's published open-market portfolio and were assumed by the markets to have been pound-denominated securities. In one stroke the gold inflow and the decline in the open-market portfolio were hidden. Bank Rate was kept at a very high level given the abysmal state of the economy, well over the level that would have prevailed under the Bank of England's prewar reaction function.

The motive: the traditional misrepresentation of inflationary/deflationary forces to the general public.

Had it become public knowledge in the spring of 1928 that deflationary policy was three times as severe as reported and concurrently that gold inflows and the gold stock were at record levels, Norman would have been through.

And if anyone thinks the Fed's penchant for secret is a novel thing, just look at what was happening in the dark corridors of the Bank of England in those dark days after World War I:

Sayers documents that the Committee of Treasury, the Bank of England's day-to-day governing body, was left in the dark, as was the Court, the Bank's de jure and, before Norman, defacto policy body. Sayers expresses surprise at the secrecy with which open-market operations were surrounded even within the Bank's inner corridors. This extended to the point of declining to keep in the Bank's confidential archives any written records of policy decisions motivating transactions. However, for Norman's policy model the utmost secrecy was essential.

But it doesn't end there: what Montagu Norman did was virtually equivalent to treason. One, thus, can not help but wonder what Ben Bernanke does behind closed doors.

Norman's deception was audacious, as it involved the abrogation of Parliamentary authority over the coin of the realm and the subversion of the ancient charter of the Bank of England. These major questions of state, however, became bureaucratic trivialities compared to Norman's daily task of convincing the financial markets that he was in control when in fact he was not. An effective open-market portfolio of well over 50 million pounds was required to maintain control through standard open- market operations. From late 1926 until the end of the gold standard Norman never held the minimum portfolio, and normally could muster only one-fourth or less of the requisite strength.

And while we can be sure that the Federal Reserve is certainly not performing the same kind of illegal and treasonable activities, as otherwise Federal Reserve General Counsel Scott Alvarez would be in prison for gross perjury, courtesy of Alan Grayson, looking back at history may provide some other ideas of how the Fed could engage in other just as illicit monetary activities:

Montagu Norman maintained his tenuous grip on the market by fully exploiting all traditional policy instruments and through the creation of a wholly new expectations channel for monetary policy. Four methods were employed: open-market operations; special deposits; coordinating public finances; and false reporting of gold flows. The quantitatively least important method of market control was using confidential special time deposits from individual financial institutions to take reserves off the market. Special deposits had to be substantial and secret, as the Bank was claiming in its published figures that it had no reason to resort to special deposits to drain reserves. Thus special deposits were difficult to use as a regular policy tool (see Table 1). Although special deposits were used only three times, each instance came during a period of market-control difficulties (see Figure 2).

Yet monetary policy response were vastly limited:

As the open-market portfolio was completely exhausted by 1928: 2 (see Table 2), contractionary monetary policy could not have been maintained otherwise. However, there were limits to such help, as padding the Treasury's balance at the bank required issuing more Treasury bills than necessary, which cost the taxpayer, and was therefore certain to draw inconvenient questions from the Chancellor of the Exchequer.

And here is where we enter the twilight zone:

Norman published misleading Bank of England balance sheets that falsely reported gold flows. Up until late 1926 the gold inflow was consistently understated, but the direction of change in reported gold holdings faithfully followed actual gold holdings. Sayers states that Norman's intention in hiding gold was merely to accumulate a reserve cushion for a rainy day, and does not view the hidden gold as a market- control tool, though he admits that the secret reserves supported tighter monetary policy. Sayers's position, which is consistent with the pattern from July 1925 until October 1926, may reflect Norman's original intention. However, from late 1926, just as his open-market portfolio declined below the market-control threshold, Norman did not just underreport gold inflows, but began to under-, over-, and misreport gold flows as appropriate for his market-control needs. Every possible type of false reporting was committed.

If after reading this historical evidence of Central Banking treason, senators are unable to pass Ron Paul's Fed Transparency Act then there has to be open social action to clean out the Senate of all those who claim that the Fed's actions are pure and true, as they are merely corrupt cronies, bought entirely by interests of the Federal Reserve, and thus Wall Street. Furthermore, we urge readers to follow through on footnote 34 of the Garrett report "For example, Woolley, Monetary Politics; and Neumann, "Precomitment." Note that Woolley also finds evidence for the U.S. of a channel of influence running "backwards" from the central bank to the administration." We are very curious just what "evidence", besides the circumstantial, exists that the administration is nothing but the Fed Chairman's puppet.

The BOE's actions, which were open and flagrant fraud and deceit, went far beyond just gold manipulation. One can easily find parallels between the Mutual Assured Destruction wild card used by Norman and such "end of the world" exhortation by Paulson, Bernanke, Geithner, Blankfein and everyone else who stands to see their accumulated wealth disappear should there be a full audit of the Federal Reserve.

Norman's proffered scenario called for a rise in Bank Rate supported by open-market operations. To restore reserves the London clearing banks would call in their overnight money, the chief source of finance for the discount market's bill portfolio. To pay off their call-loan borrowing, the discount houses would be forced "into the Bank," forced to discount their portfolios at Bank Rate, a full 2 percent above the call-money rate. Thus Norman was threatening to force the discount houses to liquidate their highly leveraged portfolios at rates 3 percent above those contemplated when the portfolios were purchased (the 2 percent differential between call money and Bank Rate plus a 1 percent increase in Bank Rate). Given the thin margins and low capital levels in the discount business, this would have produced severe losses.

Despite Norman's weekly meetings with the discount houses' governing body, he waited to deliver his ultimatum until the pound's seasonal autumn weakness, when the market was already nervous about an increase in Bank Rate, five months after the market-control incident began. Why Norman had simply not drained sufficient liquidity out of the market at the time of the incident was probably puzzling to the discount houses, but the dire consequences of Norman's threat made it unlikely that anyone would call his bluff, if anyone could have even conceived that he was bluffing. In fact, he was. His portfolio was empty.

Garrett's findings ultimately provide a critical basis to reevaluate the entire foundation of modern fiat-system based economics.

The results may be summarized as follows. Markets can not tell when a central bank is lying. They then have the option to accept all or reject all forecast information emanating from the central bank. Under such circumstances the credibility model asserts that private financial markets reject all central bank information. This is possible because the financial markets' private information is assumed to be almost complete. However, the results presented here contradict this assumption and lend support to the opposite case: the markets' private information is so incomplete that they can not dispense with central-bank sources. The implication for the credibility model is devastating because pervasive ignorance and uncertainty allow the central bank to maintain its position as a disseminator of forecast information even if the central bank is guilty of extreme dishonesty, as under Norman. Under these circumstances monetary policy will be an effective instrument to stabilize the economy against both money demand and real shocks, which contradicts the core result found in the large and influential credibility-model literature.

And, sure enough, with these findings, the death of Monetarism and Keynesianism is one step closer:

Recently support has increased for Kindleberger's "internationalness" hypothesis and in particular the role played by the internationally shared characteristics of the macroeconomic policy system. The three most important features of the macroeconomic policy system were fiscal policy constraints through balanced budget policy rules or laws; the independent central bank as the uncontested policy authority; and the gold standard as the system's enforcer. The postwar international financial order was managed by central bankers who were not stabilizers, whether of a Monetarist (stabilizing the money supply) or Keynesian (stabilizing the level of output) variety. Montagu Norman's policy model and his policy choices lend clear support to the new interpretation. Much of the earlier literature explicitly or implicitly assumes interwar central bankers were stabilizers. Conclusions dependent upon this premise must be reevaluated.

Garrett's conclusion is stunning. Should comparable deception be found at the epicenter of monetarism, i.e., the Federal Reserve, the refutation of the entire "goal seek" science of economics as we know it may soon be at hand.

[T]he behavior of British financial markets is shown to be inconsistent with the microfoundations of the new classical model- expectations not only moved in a policy reinforcing rather than a policy negating direction, but expectations became a reliable, systematic policy instrument. One of Thomas Sargent's hopes is fulfilled-economic history proves to be fertile ground for testing the accuracy of complex macroeconomic theory-though the outcome is probably not what he had expected.

We urge readers to read the Garrett paper and to send it to their representatives and senators, with the hope that once it becomes fully clear that formerly reputable Central Bankers openly, repeatedly and in flagrant violation of their charters, engaged in outright market manipulation and data fraud, that the Federal Reserve will finally be audited or abolished, which for all intents and purposes, will end up being the same thing.

We are confident that somewhere Mark Pittman is smirking, all too knowingly.

Full must read Garrett research paper.


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Anonymous's picture

Well, there's your smoking gun. Time for another Grayson grilling of Geithner? Unbelievable work TD.

Anonymous's picture

Ditto ... my thoughts exactly

Ron Paul, Grayson and GATA

Grayson should be able to hammer them with this evidence.... hopefully !

Well done ZeroHedge !

Stuart's picture

These guys are not going to admit to a damn thing no matter what evidence there is.   They're "all in" and they know it.   Still, amazing report.  Well done.  

Dirtt's picture



I threw Zero Hedge some dough this weekend.  With this kind of reporting we may have to start providing security too.


Donate.  Time to end the treason before it ends us.

Anonymous's picture

You have convinced me to do the right thing
and muster a small tithe' from my moderate store.


jeff montanye's picture

i don't think a grilling would do it.  montagu could have handled one too, if he could remember the lies he was telling.  the audit of the fed is the ticket.

Anonymous's picture

I would strongly suggest that anyone interested in this topic listen to the two recent interviews with Jim Rickards on the site www.kingworldnews.com . I have no affiliation with this site and while I find the moderator's tone somewhat annoying, the interviews are often spectacular. On this topic, he basically points out that Fed intervention in the markets is not a topic of debate and is acknowledged to occur, it is just not publicized in full detail. He give lots of other great context as well. My two cents is that the people behind this do not view themselves as doing anything too devious, but are just conducting policy...however just as with any other vice which is fairly harmless and occasionally helpful on a small scale, it can easily (and clearly has) gotten completely out of control with disasterous results now and in the future.

defender's picture

Jeff, I just replied to your question about treasuries, I have been a little behind this week so it took a little longer to get back to it.

linky: http://www.zerohedge.com/article/pitiful-16-billion-30-year-auction-clos...

DaveyJones's picture

let's see interwar period, war period... so as long as we're neither at peace or in conflict, I think they'll leave us alone 

Hephasteus's picture

Ya korean war, vietnam, Iraq war, etc etc etc. There seems to be such a lasting peace between the eastern hemisphere and the western hemisphere.

Anonymous's picture

Weren't we just treated to an Eliot Spitzer who lavishly praised our lead central banker for his "integrity, complete honesty" and general wholesomeness?

All are a nest of vipers to be routed out. Obviously a central banker who accesses illegally the saved substances of the people, without their consent, and directs it to purposes which rewards predatory banks in contravention of their interests is CONNIVINGLY EVIL!

Bernanke is the captain master of a system built upon lies, subterfuge, criminal expropriation, counterfeiting, dilution of monetary strength, market manipulation, and misinformation leading to trades which cause further expropriation.

Sophisticated and state-sanctioned robbery is even worse than two-bit bandit holdups or muggings. The violence is barely restrained by a host of officers whose only purpose is to harrass, intimidate, or strong arm the populace into submission.

Bernanke is the head of the most criminally successful organized crime syndicate in the world. As such, whether he touches the weapons that draw the lifeblood, or not--he is culpable for both the sins and the crime.


Molon Labe's picture

They think of themselves as heroes, who are doing this for our own good.  You see, we would not understand if the truth were publicly known.  We should just watch our reality-television bed-time stories and let the "smart people" take care of us.  The end justifies the means, in their opinions.

It's disgusting, really.

When they lie awake at night, with only their consciences to keep them company, I bet they question and realize that they are really just acting in their own short-term self-interest.

How else to explain the long-term failures of their policies?

Anonymous's picture

don't stress over it, they are doing Gods work.

Anonymous's picture

"How else to explain the long-term failures of their policies?"

premeditated malevolence by a self chosen cabal that's been expelled from over 100 countries?


artcash's picture
artcash (not verified) Molon Labe Feb 14, 2010 8:25 PM

his guy is an idiot: http://economixx.100webspace.net/

obviously,  we're in deep trouble!

WaterWings's picture

Your website address looks like an STD.

Cistercian's picture

 No surprise.I rather suspect bernanke is far worse.A balance sheet of raw sewage combined with every other kind of malfeasance imaginable=currency crisis imminent.

Anonymous's picture

Greetings. Very curious who Cistercian is, esp since I am the Cistercian in the photo. frbernard@monksonline.org

MarketTruth's picture

Perhaps it is time for every patriotic American to stop paying the taxes imposed upon them due to the government's Odious Debt.

Seriously, time for action.


Anonymous's picture

what a gem of an article - i give this one a pulitzer....i am sure gata will be pleased....

well of course the fed is doing precisely what norman was doing and he ended up driving england off the gold standard - perhaps because all of the gold was safely in his back yard....

the fed - especially under benjamin strong - was enabling england's looney policies by inflating in the usa to rescue the pound which was over valued at pre-war exchange rates....another fine mess which economics by politburo created....

the london gold pool is another example - from the 1960s - of concerted central bank manipulation of the gold price....

as our founding fathers so prudently bequeathed to us a dollar based upon gold, the evidence here vindicates their brilliance. they saw what the boe had done to currency and wanted none of that crap here....

murray rothbard has some important observations about this episode and how it resulted in a overheated usa economy about which the fed over-reacted and caused the crash of 1929.....the ginormous boob herbet hoover assured a permanent depression which roosevelt was only too happy to extend for another 12 years....

who owns the gold makes the rules....without gold there is no civilization....all other solutions are frauds and hoaxes on the people who must now arise in anger to purge these central banks creeps, banksters, and hoodlums from power along with the fake economists, journalists, and charlatans promoting such fraud.....

glenlloyd's picture

Rothbard mentions in one of his books the Fed devaluing the dollar repeatedly in concert with the BOE during the period where England was attempting to go back on the gold standard. I wonder if the above is in any way related to this period or the collusion between the two on this matter.

Anonymous's picture

it is part and parcel of the same scheming
fraud....the fed lowered interest rates and
pumped up the money supply especially in 1927
to support the pound - which as i mentioned
was brought back onto the gold standard at
way too high a price....the brits had inflated
their way to a pyrrhic victory over germany
and the pound was simply not worth as much
as they pretended it to be....

all of this money pumping misallocated investment
and caused a terrific inflationary run-up on the
stock market....fed pulled back in 1928 after
strong died and about a year later the market
crashed.....margin money was no longer available
and margin calls went out like call girls at a gi

pretending seems to be an advanced art for
central bankers...

acrneer's picture
acrneer (not verified) glenlloyd Feb 14, 2010 9:25 AM

The Big One is coming soon, bigger than the 2000 dot-com crash and the 2008 subprime credit meltdown combined. A huge market blowout.The Big Crash is Coming...."debt bomb" Explosion

mojine's picture

SPAMMER!!! Begone!



aurum's picture

as our founding fathers so prudently bequeathed to us a dollar based upon gold, the evidence here vindicates their brilliance. they saw what the boe had done to currency and wanted none of that crap here....


it wasnt only the boe....fiat currency conversion has always failed throughout history...my favorite US parallel is the roman empire........fiat is just a sheeple CONfidence game where bankers and the like skim the house till its dead....gold has always been and will always be true money and no amount of "tin foil" will disprove that fact..gold is freedom

KevinB's picture

G*d d*mn it.. I was just getting used to my tin foil hat. It was bit snug at first, but now I don't need it at all?

Cartman.. I blame Cartman.

Anonymous's picture

Thats nice, next...

Anonymous's picture

no it was not nice what the boe and fed did....

Oracle of Kypseli's picture

I will be buying some gold next week. you never know when the emperor is exposed and gold will reach its true level.

It seems to be the safest bet at the moment.

Anonymous's picture

I've been toying with a vintage shortwave radio this weekend and stumbled on a voice of china radio station.. they were pushing the story of how folks are snapping up 1 kilo bars of gold at apprx $42,000 u.s. to celebrate the year of the tiger. These "voice of *country* radio stations are pure propaganda mechanisms. I'm sure China knows the precarious spot our fed have put themselves in and they are blasting stories about folks rushing to buy gold.. I'm sure they just want to make the fed squirm and feel the heat with their massive short gold positions.

Gold...Bitches's picture

Chinas been promoting the purchase of gold and silver by its citizens through state tv for quite some time now.  nothing new.

Anonymous's picture

yes they have. Just thought it was interesting to hear while tuning the vintage shortwave. They are taunting the fed. They know the fed will fail at suppressing the price of gold. Radio China is broadcast in English and beamed towards the USA. Can imagine BB biting his finger nails listening to this lol

DosZap's picture

Ever thought this one thru?.China has nore Gld/Rare Earth Metals than anyone on the planet (known reserves)also, their cost to bring to street, is the lowest on the planet.This is THE main reason they did not buy the rest of the IMF tonnage, after India sucked up 50% of it.

Also, by their subjects owning REAL  money,they can be a self sustaining market, largest on the planet, with the  Yuan, backed by  PM's, without buying one ounce in the World market.

Heck of a deal, what one can achieve with slave labor, and humongous reserves.

Who's fiat currency, would then not be fiat, and the strongest on the planet, and cost the Government nearly nothing?.

Reserve Currency Kings of the world, for next to nada.And, backed by PM's...........

Anonymous's picture

China owns copious loads of PMs AND has all the productive/manufacturing capacity of the world in its hands?

Crap, I'm getting a rickshaw, this place is bereft of real economic inputs. Or maybe I should get the sweet spot of a fireman?

Anonymous's picture

Why publish at midnight on Saturday? ... better during the day no?

Anonymous's picture

it's a gift to us geeks who have nothing better to do on a Sat night

Miles Kendig's picture

Beauty and worth of time are the pleasure of the beholder.

umop episdn's picture

Maybe...but this article has been published for nearly five hours without a single bankster troll jumping in and trying to derail this thread. Just watch and wait!

Noah Vail's picture

Its a conspiracy, of course :-)

Anonymous's picture


Norman's exact role and responsibility as director of the BIS during the time when ?6,000,000 of Czechoslovak gold held in the Bank of England was transferred to the German Reichsbank in 1939, is yet to be determined.[4]


seadragonconquerer's picture

No. It has been determined. Again, read G. Preparata, Conjuring Hitler.

SilverIsKing's picture

Must keep an eye on the weekly gold/silver/dollar COT reports.  Commercials seriously reducing their gold & silver short positions the past few weeks.  A very bullish sign.


Anonymous's picture

Ben Bernanke, we’re told, is a great admirer of Liaquat Ahamed’s Lords of Finance; so am I. All the more irony, then, that Ben has, without realizing it, turned into Montagu Norman.


Gold...Bitches's picture

its a good thing history never repeats itself, right???

Anonymous's picture

Another was that of Winston Churchill. A few days before Norman left for Canada on his enforced holiday, Churchill, who had lost most of his savings in the Wall Street crash two years earlier, wrote from Biarritz to his friend and former secretary Eddie Marsh, “Everyone I meet seems vaguely alarmed that something terrible is going to happen financially. . . . I hope we shall hang Montagu Norman if it does. I will certainly turn King’s evidence against him.”


seadragonconquerer's picture

Churchill? You are talking about the 20th century's original neo-con: worst warmonger, worst bloody imperialist, worst genocide artist, worst Zionist stooge. And for a fact, the same ethnic plutocracy that ran Montagu Norman then went on to bail WC out of his financial difficulties. He paid them back, with interest: WW II.  

Molon Labe's picture

Oh yeah, I remember when the Tommies invaded Austria, Hungary, Czechoslovakia, Poland, France, the Netherlands, etc., to kick off WWII.  Amazing that Churchill was able to pull all that off while he was politically ostracized.  </sarcasm>

I am interested in how you think Churchill caused WWII, if you'd care to share.

KevinB's picture


From 1939 to 1941, Britain and the Commonwealth held the line while the US dithered. Churchill's "blood, toil, tears, and sweat" may only be second to

we shall fight on the seas and oceans,
we shall fight with growing confidence and growing strength in the air, we shall defend our Island, whatever the cost may be,
we shall fight on the beaches,
we shall fight on the landing grounds,
we shall fight in the fields and in the streets,
we shall fight in the hills;
we shall never surrender, and even if, which I do not for a moment believe, this Island or a large part of it were subjugated and starving, then our Empire beyond the seas, armed and guarded by the British Fleet, would carry on the struggle, until, in God's good time, the New World, with all its power and might, steps forth to the rescue and the liberation of the old."