The older I get the less I believe into conspiracy theories. You know what is the “Plunge Protection Team“? It’s a group of top US financial officials reporting directly to Prez that is responsible to prevent catastrophic stock market crashes like in 1987 or after 9/11/01. Yes, it’s probably a right thing to do, as public sometimes overreacts in the short term, like the crashes listed above were, certainly, an overreaction.
While there are many forces inside the Beltway that monitor and control each other I think the PPT was mostly restricted in its actions to just prevent market overreaction. But sometimes, when too many Republican stars are lining up on the Milky Way, I suspect that PPT is doing a little bit more than that. Now the economy just became a little bit too much political. The Lame Duck Prez took too much of Republican credibility for stake this time. His ridiculous tax cuts and enormous budget and current account deficits will backfire badly for the whole GOP gang if the economy turns badly before 2008 elections.
The PPT, or the gang of four, is definitely a team of extremely competent economists. They do understand that you cannot prevent the recession when the economy’s pendulum is swinging back from growth to contraction. The recession is totally normal economic event, it has to happen in any healthy economy on the regular basis. There is absolutely nothing wrong in the recession. Except when it happens during the last year of the Lame Duck Prez, before the critical elections. What they need is that recession happens after 2008, not before. The PPT does understand that it is possible to delay the recession, but the cost will be that the recession, when it finally happens, will be much worse.
Looking in retrospect at the stock market of the last 1-2 years I frankly don’t see any smoking gun, except just two cases. First, the March plunge recovered a little bit too fast. Second, the action of July 12 looks completely disconnected from the reality, especially in the face of declining consumer and panic on the credit markets.
I do smell some manipulations in the last three days. Why this is bad? In short, they spend taxpayers money to help the Pigmen unload their stocks, because you can’t really engineer a big multi-month rally. If fundamentals point down, down it will go, few months and tens of billion dollars later.