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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dumpster's picture

where are the zit faced kids with there gold experience now.. they blovate about gold ,, disregard it and blow smoke in to the room.

any one folllowing gold for a length of time have known all these things .. gata has been at it for years ,

the suppression of gold ,, the rubin summers strong dollar policy, short selling.. yadda yadda ,  

it is all over for those who care to look..


yet the popular pavlovian teaching ranks up there as supreme ...a relic... the keynesian support of the government ,, supplying fiat .. teaching  in every university ,, virtually non stop on F-TV...

endorsed by the top layers of addled brains

sound bites for the masses,, dilusional spuing little homo"lies"  not enough gold , where to sell it... cant eat it .. have sex with it ( a dennenger spit ball) or any other ... lets buy solar energy... pensions would be dumb doing it. lemmings driven by misinformation and not a whit of understanding of austrian economics and wealth preservation.    

jeff montanye's picture

"little homo'lies'"?  elucidate please.

A Nanny Moose's picture

I'm going with the benefit of the doubt, and read it to be the Sapiens kind of homos

dumpster's picture

little homilies ... sort of like quick comebacks on gold based on lies .. standard know nothing quips .. that make the gold basher look stupid .. except to himself  .. but exposes his addled brain lol


like you cant eat gold  ,, have sex with it,, and the constant quips homo"lies"  ,, poetic license

Number 156's picture

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.

Serously now, you really think they don't already know?

Those guys are as crooked as coat hangers.

dumpster's picture

just follow some of the blogs on zero hedge .. readers and comments that show ignorence in all these matters ,

but like the keynesian pundents even these new revelations will not change their minds .. as they are floating all of them in little purple bubbles ,,

they see problems but do not realize they are the problem

Noah Vail's picture

The only thing the criminal mind thinks about is getting what he wants. Congress does not care what we think and makes a daily habit of giving the people a dose of bullshit along with the middle finger salute.

The only thing power understands and respects is a greater power.

WaterWings's picture

Know Fabian Society: know shit

No Fabian Society: no shit


faustian bargain's picture

There are probably less than 1/2% of congressmen who know anything of substance about monetary policy.

dumpster's picture

congress men monetary policy  .. brown bag... make it 20s unmarked  ,, a lesson learned from local state political leap-a- head policy  

dumpster's picture

as crooked as a dogs hind leg,, as crooked as an 11 dollar bill, as crooked as the tower of pizza,  as crooked as a cow path, as crooked as 

Marley's picture

So crooked that when they die, they're screwed into the ground.

MsCreant's picture

So crooked, they screw themselves.

WaterWings's picture

You might not believe this, but they're at McMurdo, chasing featherless birds for a new thrill.

MrPalladium's picture

I wonder how long the Government can withstand this kind of criticism?

How long before the jackals return home to defend domestic interests?

Number 156's picture

Maybe Sheila Bair will make another idiotic rebuttal video. Who knows.


Anonymous's picture

Anyone who believes anything that comes out of the mouthes of monetary "grand poobahs" is a fool and are the real problem.

Like children meekly submitting to authority, believing in every lie rammed down their gullible, suckling little throats until they grow up to demand more, and more, and bigger, greater lies.

Those who believe in lies deserve their state of servitude. They enjoy ass-rapes and deserve ass-rapes and shall miserably live and die by ass-rapes while we chuckle at their dismay, humiliation, and the grotesqueness of their little, horrid, lie-believing lives.

How can you ever help the multitude who feel their ass on fire, and yet continue, on command, to hold their cheeks WIDE OPEN, and can't ever put 2 + 2 together and figure out that there's a rapist about? Why not continie to punish their cavities until they're all used up?

Absinthe Minded's picture

Now I know why you post anonymously.

dark pools of soros's picture

as they did before. they will outlaw gold as long as they are in power since to not do that will throw themselves out of power..


the math, the logic, everything says to stock up on gold but I doubt you would be able to use much of it unless it all goes totally to hell and then other immediate items for survival will be needed well before gold.

between the two - i think silver would be way more usefull but i guess there are those that have a whole lot of wealth to protect.  You might want to diversify into lots of things besides gold.  Expensive, valuable machinery perhaps...  art?  a fully functional laboratory?


just sitting on gold just makes you a sitting duck

Anonymous's picture

"they will outlaw gold as long as they are in power since to do not that will throw themselves out of power"

You hit the nail on the head.

Crime of the Century's picture

Hah - good luck with that. You guys are obviously not thinking that one through. Even if they tried - a silly notion in the fiat era - it wouldn't last long, and they know it.

dark pools of soros's picture

the greeks just outlawed cash deals over $1,500 which also includes gold/silver since I do not know of any credit/debit cards using PM's yet... you want to try to start one?

WilliamShatner's picture

You realize you're talking about Greece, right?

I mean, Greece..., a country so rife with corruption that nobody pays taxes.



Crime of the Century's picture

Yah - go into South Chicago and tell them the Government has made narcotics illegal. They will be shocked I tell ya. Likewise, the black market has ended by decree... All Hail.

tpberg7's picture


In Chicago it is illegal to own handguns but this city has more pistols per capita than any in the world.  When they make things illegal in Chicago the money begins to flow!  Al Capone knew this basic concept.

perchprism's picture


I knew an old man in the deepest mountains of East Tennessee (Limestone Cove), who said the day running a still became a capitol offense he'd be setting one up in his back yard. Big bux.

Neo of Zion's picture

these guys are close (I have no affiliation)


No plastic yet, but potential for online transactions immediately if there is faith and confidence in their system (oops, that sounds too familiar)

dumpster's picture

outlaw gold  lol


its world wide .. all governments will be buying gold for international trade , 


dark pools of soros's picture

and what country do YOU run..  everyone here acts like a white 10th grade wannabe gangsta just because you listen to N.W.A. in your Mom's car

Sure THEY will be using gold all they want..  how much of an outlaw are you right now?? since i doubt you'll grow a pair overnight


Rusty Shorts's picture

dark, I do not run any countries, and not sure what N.W.A. is, and I'm not an outlaw.

I am a Au Mandate for Nexe Consultoria S.L., Andorra. I am currently exporting Au from Ghana, West Africa, to be specific, the AngloGold Ashanti mine in Obuasi, Ghana. I am keenly aware of the demand for Au, especially recently.

Tell you what, here's a couple of my youtube uploads of my travels to Ghana. I will leave you  special message.




Crime of the Century's picture

I am going to assume that the above post was a result of fatigue, because that was far below your usual offering. Again, think it through. If the US outlaws private Au ownership because of their own mismanagement, you expect the rest of the world, who OUR Gummint and hedge funds have repeatedly punk'd, to play ball? Au goes through the roof, and our citizens instantly join the world's poorest, as we can only save Monopoly money. Yeah - good plan. We can mow the lawns of (former) Mexican laborers.

Stuart's picture

Anyone outside their jurisdiction would love it.   The value of their holdings would go through the roof.   Delusional to think an Asian dealer would abide by a US centric law.   Arrogant as hell too.  

A Nanny Moose's picture

Given the memories of the last time that happened, they will first have to outlaw guns

perchprism's picture


I don't think gold ownership will ever be outlawed in our lifetimes.  The reason is that it's merely another commodity, not "officially" seen as a money alternative.  By the time folks are conducting trades in gold and silver, it will be too late for the government to be issuing any decrees. 

jeff montanye's picture

i realize the survivalist perspective is very strong here and may even be appropriate. however possibly the thing to fear is not literal blood in the streets and gunfire but inappropriate asset allocation.  looking at the '30's as a historical parallel, even if gold is seized prior to allowing a major revaluation in its price, the shares of gold miners captured the revaluation and more. 

Molon Labe's picture

"Inappropriate asset allocation," as you put it, Jeff, or malinvestment, is the defining effect of our government's economic policies.  That is why any correction will be so painful the powers that be are not willing to give it a go.  They are afraid it will cost them everything.  The survival instinct is strong.

Anonymous's picture

i think they will ignore gold as they currently do (publicly) now. Anyway Americans own almost none of it so it would be a drop in the bucket. I think an outright deval is more likely, after they "scare" everybody into cash or treasuries of course. Or a direct confiscation of retirement funds or investment funds. The poor people won't complain and their will be many poor people.

Anonymous's picture

Have been vaguely following gold and silver since the 70s, since I had a paper route and sometimes would get interesting coins as payment, and about the same time Grandpa gave me a small wooden box of various foreign coins he picked up in France or wherever.

Interesting that a story of GB staggering back on gold is "news" in that context. The thing learned as a paper boy, it was probably a good thing everyone didn't have to pay gold coins for everything needed in life, or things would get a little campy. ANYWAY, silver is best used as ballast it would seem!

If one has a lot of wealth to protect he will quickly find that silver is fairly bulky (nice problem to have) but is probably why gold has been considered more portable. A single $1000 face-value bag of silver coins weighs about 56 pounds avd.

trav7777's picture

Gold has no materially different function than pieces of art.

In the 1930s, gold was LEGAL tender.  Consequently, the government *could* call in that currency and reissue paper against it.  Gold nowadays is not legal tender except for Eagles and Buffaloes, and perhaps some of the foreign mint coins bearing a face value from the respective sovereigns.

Buy a smelter if you fear this and melt it into jewelry.

The government would not expend effort to seize gold when they can with the click of a mouse grab all the 401ks or pensions.  So if they were to come after gold, what about people who are hoarding platinum or silver or diamonds?  Or artwork?  Or land?

The seizure risk for gold is minimal, whereas for paper accounts it is considerably higher just because of the ease of access to them by the government.

MrPalladium's picture

"The seizure risk for gold is minimal, whereas for paper accounts it is considerably higher just because of the ease of access to them by the government."


The real threat is a personal property tax at state level - as the Feds eliminate all support for State programs. For many years Florida had an "intangibles" tax that was roundly hated. My guess is that it will return with a vengeance, at least on the state level. Physical gold purchased prior to the establishment of an enforcement mechanism is likely to be invisible, but brokerage accounts, 401(k)s and IRAs will be in the crosshairs.


Absinthe Minded's picture

       " The government would not expend effort to seize gold when they can with the click of a mouse grab all the 401ks or pensions."

This is what scares me, haven't they effectively done that once already by raiding Soc. Sec.? The fact that they were able to do this with nary a peep from the sheeple makes you realize it's a very plausible scenario. Especially when they throw in the,"It's for your own good." argument. The minute this looks even remotely possible I'm cashing out and buying more PM's. Hopefully everybody benefitted from the little dip we had last week, got a little more silver, gold wasn't in the budget. Another valuable possession that may be worth hoarding is reloading equipment, you can have all the lead and brass you want but it ain't worth shit without a reloader. 

WaterWings's picture

just sitting on gold just makes you a sitting duck

That's why you don't sit on it - you put in an 8" waterproofed PVC pipe with a handgun, copies of personal documents, "other" necessities, and put it at the bottom of a 4' hole that only you know about.

merehuman's picture

Water wings, whats your address? LOL

i got a shovel, show me where it is!!

WaterWings's picture

Find the exact center of town - ask a local if you can't find it. They'll laugh at you and offer you a drink, but don't be discouraged. Walk due east 7.5 km - biggest tree at the top of the hill. SW side near the rooty side of the base. Big white rock: move it and dig:


merehuman's picture

thank you water wings. I have always enjoyed your posts. I used a posthole digger, wrapped my small fortune in plastic, dropped it in the hole inserted fence post as well and added the cement. Its now part of a fence. Now i can forget about and go back to being happy. I hate money in all its forms!

WaterWings's picture


There sure is something to be said about having a peace of mind in the form of a stash that will stay safe under 99.9% of all circumstances.  

Absinthe Minded's picture

Awesome post, whoever goes after it, make sure you've got plenty of sunscreen...and an AK47.