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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Rusty_Shackleford's picture

As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool's bandaged finger goes wabbling back to the Fire;

And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return!

Crime of the Century's picture

If we should chance into a solar minimum at the same time, history surely will rhyme - good and hard

Anonymous's picture

Birth of the FED? 1913

During 2008-2009 NASA scientists noted that the Sun is undergoing a "deep solar minimum," stating: "There were no sunspots observed on 266 of [2008's] 366 days (73%). To find a year with more blank suns, you have to go all the way back to 1913, which had 311 spotless days:

Anonymous's picture

Can we assume an implied bitchslap to every dumb yank who refers to the U.K. as 'England'.

Thanks ever so.

Rainman's picture

Some unfair junking going on here. As a Yank, I happen to know there is lots of confusion on this side of the pond regarding the composition of UK and Great Britain.

I have always assumed Great Britain is composed of England, Ireland and Scotland. The United Kingdom is composed of England, Ireland, Scotland and the principality of Wales ( homeland of my ancestors )....and perhaps other parts of the world holding allegiance to the monarchy ?? 

Crime of the Century's picture

Don't go around any Irish pubs saying that. Good way to get your "i" dotted. Great Britain is the physically connected mass, which puts your assumption backwards as Wales is considered a part, and including N. Ireland creates the "United Kingdom" of Great Britain.

dark pools of soros's picture

Ireland & Scotland are a pair of unemployed shits in their basement..surely you can forgive us for ignoring them

Anonymous's picture

Having traveled to both countries extensively over the last several years it is my opinion that England's glory days are in the past, while Ireland's are still ahead. I know a couple who teaches both Irish and English children and they agree with my assessment. Will see how that English Entitlement Syndrome works out for you and your countrymen.

bokapita's picture

Actually, old boy, some of us prefer it, on account of how the English actually pay for everything that goes on around and in these sceptered isles.

Zippyin Annapolis's picture

Look a lot of nasty crap happened during this gold standard period. One needs to study the period where the US currency was on the gold standard in detail in order to get a sweep of the concerns and actual problems that arose in terms of capital flows and gold demand.


For example in 1914 the NYSE was SHUT for 4 1/2 months to prevent the Europeans from selling the common shares they had invested in US companies (we were an emerging economy back then!) to raise dollars to redeem for gold ($ were convertible to gold) and then buy the armaments they needed to kill each other.


If the NYSE was not closed it would have crashed--at least that is the cover story.There was also a question of whether the US had the gold to cover the demand, and if the Treasury needed more, where it would come from?




Rusty Shorts's picture

I always liked the period when Andrew Jackson was the President, you know, the period when Andrew had his foot stuck up the Banksters ass.

Anonymous's picture

the problem with the original gold standard
and even the gold bullion and gold exchange
standards is that they all had a large fiduciary
component which left the system exposed to
panic and runs....

the problem is not with gold but with the
foxes guarding the chicken coop....

a 100% gold system significantly reduces or eliminates
the risks you describe....

ShankyS's picture

The BOE has never been as good as we are at covering up the corruption and never will be. It is such a travesty that we Americans (and the rest of the world) just sit and watch as blatant corruption and multiple lawless actions are commited all in the name of wealth and progress and do nothing about it. Payback is coming and we only have ourselfs to blame for doing nothing about it. What were the Israelites banished for, something like 40 years? We should get worse.

Anonymous's picture

Great article. Thank you. How that can go unnoticed for 15 years seems silly. Surely had the internet been what it is now, more people would beaware of it.

The churchill comment someone made earlier was a bit alarming.

Anonymous's picture

So this happened 80 years ago and all the people that perpetrated this are dead. How is this any more relevant than someone that posts an article about the Nazis and points alarmingly at Germany. Or is this just this week's "cry wolf".

Crime of the Century's picture

Just stop, you give anonymity a bad name.

dumpster's picture

keep current mr ano

Of course the ends of this deception and manipulation of gold data are the same that GATA long has been asserting for the contemporary gold price suppression scheme. The falsification of gold holdings data by the Bank of England as reported by Professor Garrett is


mirrored perfectly by the data-falsification and market-manipulation scheme described in the April 1961 memorandum kept in the archive of former Fed Chairman William McChesney Martin, about which GATA consultant James Turk wrote at length in January 2009:


seadragonconquerer's picture

Oh, it matters alright. Montagu Norman and his Rothschild handlers were involved in deep political, not "just" economic conspiracy. For a partial elucidation see: Guido Preparata, Conjuring Hitler - How Britain and America Made the Third  Reich (London, 2005).  

Anonymous's picture

they practiced first in bringing about communist
ussr - a revolution stolen from the bolsheviks....

after the hitler experiment they moved on to
communist china, cambodia and a whole slew
of somethings in between....

usa industrial leaders were feeding both sides
of world war 2.....prescott bush, grand-daddy
of the bush crime syndicate, was a chief ring
leader of brown harriman and was in fact caught
by the government then...fdr let them off scot
free because he needed their money and materiel...

faustian bargain's picture

Nice. I think this is the level of awareness we're dealing with in the public at large. Comforting.

Anonymous's picture

This site and many of the people posting here have called impending doom at least 20 times in the last 6 months. Articulate sophistry is still sophistry.

bugs_'s picture

Good read.  They WILL lose control of this

thing - whatever they are doing will be


SWRichmond's picture

Of course central bankers are liars and thieves.  Of course they engage in backroom dealings while stabbing each other in the back.  Of course they despise the external discipline enforced by a gold standard.  Of course people come to ZH and deride hard money advocates.  Of course there is no man or group of men who are wise enough to manage an economy made of 300+ million souls; those who support the notion are either fools or are complicit in the scheme.

Look around you, pick up your newspaper, take a drive around your town and see the misallocated capital, see the destroyed businesses, and think for a moment about the destroyed hopes and lives.  The power to control the value of money is the power of life and death.

Central banking is a scourge upon the planet and must be eliminated.  It's a disease that must be eradicated, and the only vaccine is education.

feeb's picture

SWR - just had to say it: I love what you put out there. Always some badass, poetic comments. ;)

Crime of the Century's picture

The last job of a Central Banker is to tell the public the truth...

~ Alan Blinder

El Hosel's picture

"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?"

     ...... cooking the books, what a suprise. Just like the credit crisis today "nobody saw it coming" because the whole "machine" was in on the deal.

Anonymous's picture

I think we the people should file a petition to stop paying taxes until these problems are remedied, and all politicians take an immediate pay cut of 50% with all benefits withheld until further notice.

caconhma's picture

Two things are coming from the paper:

1. At least prior to the Great Depression, the major Western economies & financial market were purposely manipulated. Consequently, the presumable "free-market" economic processes were a charade under  "central banks controls".

2. These secret financial manipulations followed by the Great Depression. Although, we do not know how much these "central banks controlled" operations contributed to the Great Depression  but, at some point, this "control" was broken greatly exacerbating the Great Depression.

Importantly, we do not know the real and accurate history of the Great Depression. Consequently, by applying remedies to cure the present "Great Recession" based on wrong past & present diagnoses are doomed to fail.

foxmuldar's picture

Jim Rogers remains bullish on Gold. Says it will hit $2000 within a few years. Marc Faber doesn't trust Bernanke, Geithner or any of Obama's financial cronies. Faber says he will never sell his gold in his lifetime.


Anonymous's picture

Great article, thanks for posting. I have to partially disagree that this vindicates what most "gold bugs" want. Most I have seen want the US to be on a gold standard. And yet we see here conclusively how powerful international central banks manipulate the gold/money supply for their benefit, at the direct expense of the common man. Bill Still advocates government owned and operated, debt free fiat money for this very reason. Similar to the English tally stick system successfully used for nearly 700 years during the ascension of the British Empire. Tally sticks were nothing more than notched planks of wood; pure fiat. You can learn about it on Still's "The Money Masters" and "The Secret of Oz."

Crime of the Century's picture

A gold standard is wrong and unworkable. It has the equation exactly backwards. Gold is assigned a worth of X dollars, redeemable? No. A Government issuing its own currency debt free, with gold as a wealth reserve, free-to-float value market dictated by the soundness of the monetary policy, that is a sustainable system. As long as crooks are prosecuted, that is. Term limits in ALL political offices, and reining in lobbyist $$ would also go a long way toward keeping the system working.

dumpster's picture

gold is not assigned a value under a free gold standard

its value represent the total floating currencies divided by the oz of gold avaliable .

the value seems to go up as nations print.. goes down as nation live withing their means

WaterWings's picture

And less war with the latter of all you mentioned.

faustian bargain's picture

think you need to read up a little more on gold standards.

Crime of the Century's picture

Help me out, then. Was not the dollar devalued by arbitrarily raising the price of gold from $35 to $42? Isn't that the only way under a gold peg? Somebody junked me, so I'm here to hear what I'm misunderstanding.

Anonymous's picture

a gold standard is right and most workable...

and no, gold is not assigned a worth of X dollars...

this is your 3d error and you go rapidly downhill
from there not having a clue...

faustian bargain's picture

gold limits central banking power. paper (and sticks with notches) increases it.

Rick64's picture

I propose that we start a petition to stop paying taxes until the FED is audited in the interest of national security, and congress take a 50% pay cut with all benefits withheld until further notice.

dumpster's picture

that will do it lol start a petition lol

Rick64's picture

It would make me feel better.

Anonymous's picture

Over the last two years, government mortgage and mortgage-backed holdings have grown on net by nearly $1 trillion. Private investors and institutions have shed more than $1.5 trillion -- through foreclosure losses, pay downs, and by selling to government.

The effective result is a government-run housing market. Barofsky reports that right now, the government is responsible for about 100 percent of all new mortgage activity. You read that correctly. To put it in his own words:

"According to Federal Reserve net borrowings data, the federal government and the organizations it backs now guarantee or issue almost all net new borrowings for mortgages and MBS."

Read more at the Washington Examiner: http://www.washingtonexaminer.com/opinion/columns/Barofsky_s-warning_-We...

Absinthe Minded's picture

You don't think the TBTF's will loan any money do you? They borrow at 1/4% and buy treasuries and sit back and let the taxpayers get their balance sheet looking all pretty. After all it's not like we have a choice to pay our taxes. Bring back mark to market and expose the real health of these banks. Sooner or later somethings gotta give.

Anonymous's picture

What was the consequence when this deception was discovered and unwound?

MsCreant's picture

These things obviously never happened. How could this academic get a pub out of it if it was "discovered?" We could argue the crap is still going on because the crap is still going on. Talk about extend and pretend, kicking the can into the next century...

Great question.

Lndmvr's picture

"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.' Should read " and evryone else who stands to see there accumulated days on earth disappear........"

Going Down's picture


"[T]he administration is nothing but [a] puppet."


As revelations about the bailout continue, this American kabuki is becoming more obvious to the general electorate as demonstrated by the Republican upset in Kennedy's Massachusetts and recent single-digit approval levels of Congress. Obama remains clueless but the clear voices of some elected officials (Issa, Grayson and Saunders, among others) are being heard. Unfortunately, letters to your representative or critical comments on blogs remain insufficient to cause any change to the system. It will only be too late when a financial collapse strips the emperor and his eminences grise of their clothes.


Torches and pitchforks are all that we will be able to afford.


Anonymous's picture

Does US Congress has balls to audit the FEDs? I seriously doubt so. Dimension of corruption is sickening.

zhandax's picture

What do you expect?  If mortgage bankers can't sell mortgages extended to borrowers who don't have a pot to piss in to some thief on wall street, how else will we insure 'everyone in america can own a home'?  You have to declare income to take advantage of a tax credit.


Johnny Dangereaux's picture

Tip of the frikkin' iceberg.....but the tide is slowly retreating with your help

Here are 200 pages of criminal conspiracy episodes....even the one you have "discovered" !


Absolutely Required reading for all Patriots

 (IDEA: Between Olympic events, read a few pages during the commercials)


CHAPTER 11 is about that which you speak.

"Lord Montagu Norman is the only man in history who had both his maternal grandfather and his paternal grandfather serve as Governors of the Bank of England. His father was with Brown, Shipley Company, the London Branch of Brown Brothers (now Brown Brothers Harriman). Montagu Norman (1871-1950) came to New York to work for Brown Brothers in 1894, where he was befriended by the Delano family, and by James Markoe, of Brown Brothers. He returned to England, and in 1907 was named to the Court of the Bank of England. In 1912, he had a nervous breakdown, and went to Switzerland to be treated by Jung, as was fashionable among the powerful group which he represented.*"