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Guess What… Markets are Rigged

It’s doubtful that this statement is news to anyone, as many journalists, authors, and industry insiders have been saying the same since the financial crisis of 2007–08, but in case you were not aware, the capital markets in many first-world countries do not play fair and are far from free.

The irony of all this is that our capitalist economies and markets are “managed,” a hallmark of communism. And while I am only all too aware that this probably comes across like an “attack” or talking point from some Right-wing fanatic bellowing that we’re all on a downward spiral towards communism… in actuality, it is only half of the truth.

Rigged

The other side of this story is that the economy and markets are not managed for society as a whole (as in communism), but are managed solely for the political class, the financial industry, the corporatists, the wealthy, and for the institutions created to serve them. In other words, the rich and powerful are receiving the meat and potatoes, and the general public (if lucky) gets the crumbs.

Fun fact: More U.S. families own cats than they do stocks.

Seriously, according to the U.S. Federal Reserve Bank only 13.8% of U.S. families held any individual stocks, compared to 30% who own a cat, according to the American Veterinary Medical Association.

Many U.S. markets are at all-time highs, and have shot straight up since similar but lesser peaks pre-2008. And yet more and more individual Americans have shied away from stock markets, or have been eaten alive by high-frequency traders (computer program trading).

John Crudele, writer for the New York Post, points out that it is clearly not just the United States rigging their own markets either. The Bank of Japan (BOJ) is encouraging Japanese institutions and private individuals to help them rig the market for the greater good. And even more interesting, it appears that the BOJ is being encouraged to help lift U.S. markets and granted price discounts to do so.

Apparently, last fall the Chicago Mercantile Exchange (CME Group), or “the Merc” as it’s affectionately referred to by Chicago traders, created an incentive program for foreign central banks where they could buy stock market derivatives like the Standard & Poor’s futures contract at a discount.

Now this is significant for many reasons. First of all, S&Ps are already cheap. Secondly, they are extremely powerful investment tools because many traders use their price action to gauge the market, especially international traders. And finally, they are a futures contract based on an entire market index which could be easily manipulated on either side by pouring large amounts of money into them (or conversely, out of them).

In general, if the BOJ or any another institution—foreign or domestic—felt a need to push markets in a desired direction, they could easily wipe out a lot of investors (think U.S. pensioners) or make them filthy rich (think investment banks), all with a couple clicks of a mouse.

It sounds extreme, yes. But that does not make it improbable.

Of course no one in government or central banks around the world would admit to this, but now they don’t have to. It is completely out in the open and, as has even been discussed in major houses of power within Washington, D.C., and Tokyo.

So now you know. But does anyone care? If only 13.8% of average people own individual stocks, does it even matter?

That is more difficult to answer. But one thing is for certain, if the wealth gap in first-world countries keeps widening and wages continue their stagnate trend, sooner or later something will implode and central banks and governments around the world will be powerless.