Bubbling higher.
Try not to get in front of it even if you are a skeptical. Benny has a printing press and he is not afraid to use it.
"'I beg you, father, send Lazarus to my family, for I have five brothers. Let him warn them, so that they will not also come to this place of torment.’ Abraham replied, ‘They have Moses and the Prophets; let them listen to them.’ No, father Abraham,’ the rich man said, ‘but if someone from the dead appears to them, they will repent.’ And Abraham said, ‘If they do not listen to Moses and the Prophets, they will not change and repent, even if someone were to rise from the dead.’” Luke 16:27-31
Imagine you are China.
At some point, probably shortly after the year 2000, a large US bank comes to you via the US Treasury discreetly and asks to borrow 300 million ounces of silver. The deal is that the Treasury/Fed will provide you with US Treasury bills as collateral. The US sweetens the deal by granting the unrelated negotiating point of most favored nation trading status, and explicitly but verbally guarantees the deal with its full faith and credit. The Bank, with explicit US backing, promises to return your silver on demand after four years.
Some six years later you come back and ask the Bank for your $300 million ounces of silver. They say that the silver is gone, having been sold into the physical bullion market.
So you ask, well, what did you do with it?
And the Treasury answers, we lent it to the bullion banks and JPM, who sold it in the markets as a part of our plan to keep the prices of gold and silver from rising, in order to sound a warning about our monetization of the reserve currency using Treasuries.
So you approach the US Treasury and complain, asking them to honor the agreement. The Administration says, "we are sorry, but we no longer have the silver and we do not have any in our reserves. So you can keep our paper IOUs we offered as collateral instead."
You are very angry as you do not wish to own more paper, but instead the bullion which is a legacy asset. You, as China, consider the situation, and start selling silver short on the Comex, using HSBC and JPM as your agents. They sell the entire 300 million ounces of silver short. On the side and through other sources, you are using other agents to buy this same silver in the form of physical bullion for your own reserves. You consider this an equitable return of your bullion at a relatively neutral price compared to that at which you lent it.
When JPM and HSBC need the silver to cover the pledges on the short sale as more people demand delivery and existing supplies become tighter, you as China offer the pledge of the US for your 300 million ounces of silver as collateral and says "collect it from your colleagues at the US government."
Technically the short sale is 'hedged' because the US offers little counter-party risk, and it is their IOU that is the basis of the short sale. The problem is that the collateral is in dispute between two sovereign nations.
But in point of fact the US does not have and cannot obtain this quantity of silver without severely disrupting the silver market, or demanding the output of its own silver mines which is unconstitutional. They do have the power to force a 'cash settlement' for the short positions, but this would be viewed as precipitating a major default on the Comex and with the Fed's "house bank" JPM. Not exactly a trust builder in already shaky markets tainted by scandals of fraudulently valued paper.
And so the market remains at an impasse with a tremendous undeliverable short in silver with the US and JPM in a very embarrassing position of being entrapped in what China considers their own scheme by one of the few entities capable of standing up to them - their major creditor China.
I am China. My friend is JPM/Treasury. Let's call him Jamie.
His wife Joan is the American public.
Jamie calls and borrows $1000 dollars from me. He promises to pay it back in four years and gives me an IOU.
Four years later I call Jamie back and ask for the return of my loan. Jamies says sorry he doesn't have it. Too bad. So sad.
I then in turn borrow $1000 from his wife Joan. When she asks for return of her money I hand her Jamie's $1000 IOU and tell her to get her money back from her husband Jamie.
I now have my money back, and perhaps a little personal satisfaction to boot, depending on how Jamie had spent my $1000 in the first place, and what if anything he had told his wife about it.