What do governments and central banks do when they don't like what is happening in the financial markets? They directly intervene and they manipulate the financial markets of course. On Friday, the central banks of the G-7 acted in concert to drive down the value of the surging yen. So why did they do this? Well, the fear was that a rising yen would hurt Japanese exports at a time when the economy of Japan needs all of the help that it can get. So, as central banks have been doing with increasing frequency, they directly intervened in the Forex market in order to bring about the result that they desired. Unfortunately, this is not an isolated incident. The truth is that foreign governments, central banks and large financial institutions are constantly manipulating the Forex, precious metals and stock markets all over the globe. You see, in today's global economy the "stakes are so high" that the free market cannot be trusted.
The reality of the matter is that none of the financial markets are really "free markets" anymore. Not that they are completely rigged, but to say that they are very highly manipulated would not be a stretch.
At least this time the manipulation was made public. Of course it would have been really hard to hide the fact that all G-7 central banks intervened in the Forex on the same day.
The last time there was such a coordinated intervention in the global currency market was back in 2000 when central banks intervened to boost the struggling euro.
But the truth is that individual central banks attempt to manipulate the Forex all the time.
Some of these interventions become public. In September 2010, a bold 12 billion dollar move by the Bank of Japan to push down the value of the yen made headlines around the globe but had only limited success.
Another example of this from last year was when the Swiss National Bank experienced losses equivalent to about 15 billion dollars trying to stop the rapid rise of the Swiss franc.
Many nations around the world have become extremely sensitive to currency movements.
In particular, there are several Asian nations that are known to be constant currency manipulators. For example, Singapore is very well known for intervening in the foreign exchange market in order to benefit exporters.
And that is what this most recent intervention on behalf of the yen was all about. It was about making Japanese exports cheaper.
But who is going to say no to Japan right now? It is believed that Japan asked the G-7 to do this, and so they did.
Japanese Finance Minister Yoshihiko Noda told the media the following about this massive intervention in the marketplace by the G-7....
"Given yen moves after the tragic events that hit Japan, the United States, Britain, Canada and the European Central Bank have agreed with Japan to jointly intervene in the currency market."
So isn't the Forex supposed to be a free market?
If you still believe that, I have a bridge to sell you.
According to Kathleen Brooks, the research director at a major Forex trading firm, it looks like there is a certain level that global authorities simply will not allow the yen to rise to....
"It looks as though global authorities are willing to pull out all of the stops to defend the 80.00 level in dollar/yen."
The following is the full statement released by the G-7 defending their currency intervention....
Statement of G-7 Finance Ministers and Central Bank Governors
March 18, 2011
We, the G-7 Finance Ministers and Central Bank Governors, discussed the recent dramatic events in Japan and were briefed by our Japanese colleagues on the current situation and the economic and financial response put in place by the authorities.
We express our solidarity with the Japanese people in these difficult times, our readiness to provide any needed cooperation and our confidence in the resilience of the Japanese economy and financial sector.
In response to recent movements in the exchange rate of the yen associated with the tragic events in Japan, and at the request of the Japanese authorities, the authorities of the United States, the United Kingdom, Canada, and the European Central Bank will join with Japan, on March 18, 2011, in concerted intervention in exchange markets. As we have long stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We will monitor exchange markets closely and will cooperate as appropriate.
But it is not just foreign governments and central banks that manipulate financial markets.
If you want to try to make money on the Forex, you had really better know what you are doing, because most "little fish" get swallowed up and spit out.
A number of years ago I actually invested in the Forex and I rapidly learned that it is not a "clean game". I discovered that there are industry insiders that openly confess that several of the "big fish" in the industry brazenly "stop hunt" and regularly trade against the positions of their clients.
Not that stock markets around the globe are much better. It would take thousands of pages just to document the well known cases of stock manipulation and insider trading.
And don't get me started on the precious metals markets. As I have written about previously, very compelling evidence of manipulation in those markets has been handed to the U.S. government and they have essentially done next to nothing with that evidence.
Not that people don't make money in the financial markets. Some people make a ton of money. But those people are experts and they know how to survive in a "dirty game".
If you are an amateur, you really need to think twice before diving too deeply into the financial markets. If you think that you can jump into the Forex or the U.S. stock market and "get rich quick" you are in for a rude awakening.
The financial markets have become a game that is designed to funnel money to the "sharks" and to the "big boys". Once you put your money into the game, the odds are that "the house" is going to win.
For those that still do believe that the financial markets are a good way to build wealth, at least be prudent enough to get some sound financial advice. There is no shame in having a financial professional invest your money for you.
But it is no guarantee of success either. The truth is that millions of Americans have experienced a lot of pain in the financial markets over the last few years.
As the global economy becomes even more unstable, the manipulation of the financial markets by governments and by central banks is going to become even more dramatic.
As financial markets around the world crash and rise and crash again a whole lot of people are going to be wiped out financially.
You don't have to be one of them.