Why Silver?

Here is a 'thought experiment.'

In order to conduct it you have to accept a few postulates, or more properly, hypotheses, as being true without proof.

1. J. P. Morgan is the 'house bank' for the Fed and the Treasury since their forced merger with Chase Manhattan. Goldman may garner most of the high profile publicity, but when it comes to banking, financial engineering, and US economic policy, Blankfein is playing Dutch Schulz to Jamie Dimon's Lucky Luciano, metaphorically speaking.

2. J. P. Morgan, and some of the other Too Big To Fail institutions, sometimes act as an instruments of US policy. This may be an informal arrangement, a phone call. But it happens, and it involves more than just banks. It has been shown to occur with the big media, big corporations, and so why not big money? There is always a quid pro quo involved. Its simple political reality.

3. The US government has become increasingly involved in the management of the economy, from way in which it reports statistics, to the regulation of the financial sector, to the tax policy, and to what amounts to an industrial policy and of course a labor policy. While every government does this as part of their role of being a government, even if by omission, the US began to take a more planned and organized role with the creation of the President's Working Group on Markets in the aftermath of the Crash of 1987. The Exchange Stabilization Fund, established in 1934, was transformed into an opaque 'slush fund' to hand financial crises, most famously in Robert Rubin's extra-congressional actions during the Clinton Administration. What had been informal started to have a core, centralized discussion that exists without oversight. And two key money elements of this group, the Fed and the ESF, resist all attempts at outside audits.

4. From the SP futures to the outsized positions in some of the commodity markets, regulators have been consciously turning a blind eye to some very obvious market manipulation, apparent to anyone involved in the business. While this can be attributed to simple regulatory corruption and capture, in fact these things are often used for other purposes by powerful insiders and politicians. The role of the ratings agencies in support the banks and hedge funds in their various market frauda is interesting. And there is no better way to oblige yourself to the will of the authorities than to be discovered in some breach of the rules.

5. Robert Rubin introduced the policy rule that it is cheaper to head off a market dislocation by buying the futures to head off declines than it is to clean it up in the aftermath. Although this principle is now commonly attributed to a journalist and often dismissed as 'tinfoil hat' speculation I remember vividly when it was first articulated and it was by Robert Rubin. This rule or market intervention has been integrated and expanded, and is now a routine part of US economic policy decisions, again centered around the President's Working Group on Markets. It is a not always used, but it is considered a policy instrument, which is a change. Things like this are intitially proposed to be used in extremis, but like many stimulative drugs, they develop an addictive profile over time. This selective intervention had been performed by private banking pools in the past, most notably J. P. Morgan himself. But it is now firmly embedded in the hands of government.

6. Since at least 1970 the US dollar and financial system have become instruments of its foreign policy in the same way that the US military is an instrument of official policy. There are military conflicts as a means of supporting foreign and domestic policy, and there are also 'currency wars' and what can be loosely described as financial conflicts, for remarkably similar purposes. Sometimes these are overt in the form of sanctions, tariffs, and subsidies, but more often they are subtle, a means of extending political control and influence through debt and currencies, banks and ratings agencies, and supporting one's own corporations and industries.

Now that we have accepted the above for the purpose of this exercise, there comes the question, why silver? Is the United States interested in manipulating the price of silver, and therein the supply of silver in the world, and its uses?

J. P. Morgan has a strategically huge short position in silver, and is using it to 'manage' the price of the market at will. I did not bother to put that into the six postulates because it is a well documented fact, although rendered a bit hazy by official secrecy, bordering on an IQ test. If you fail to see it, try not to use too many sharp or pointed objects.

It is easier to do this with smaller markets like silver when one is using derivatives, as opposed to currencies or something as strategic as oil. I understand the gold market, because gold is a rival currency to fiat money and to the US dollar as the reserve currency. Gold is also the 'canary in the coal mine' and if you were of mindset to control things, you must control gold. Gold has a relationship with interest rates as Larry Summers attempt to prove in his paper, Gibson's Paradox.

But why silver? What strategic or monetary importance does silver have that would warrant so much attention and effort from the US government? Is there some as yet less known application for silver that makes it important? Or is silver just a convenient market to turn over to your cronies as their private sandbox, because it does not matter to you.

The most likely scenario I can imagine is that although silver lives in the shadow of gold from a monetary perspective, it has long been thought of as the 'poor man's gold,' and as monetary instrument for developing regions.

Silver has a long history as a form of currency in Latin America and in China. And although most Americans do not realize it, the US Constitution defines lawful money as both silver and gold.

The US maintains an enormous store of gold, although priced somewhat quixotically at a mythical price of around $42 per ounce, one of the largest in the world. But it has long since depleted its stores of silver bullion, and remains vulnerable to any move to include silver as a nascent currency promoted by the developing nations.

Just as a point of information, I have all of the six premises above as active 'strawmen' in my thinking. I believe there is enough evidence, quite a bit of it circumstantial and unconfirmed, that they are more probable than just possible. So I am content to keep them as data points while new information and data is processed, for and against.

I don't particularly care if anyone believes the premises or not. But they are interesting to consider for the purposes of this experiment in thought. Because the key word here is 'belief.' One cannot disprove any of it, just as one cannot prove it, yet. It takes an enormous leap of faith to believe that the government just lets things happen, and the markets are all happy hunting grounds of pristine humanitarian honesty, and the powerful and the rich do not use their influence to bend the markets to their will. And if the US is not watching out for its own interests in the world, and those of its people, well, it is just not doing its job, and it is incredibly naive to think otherwise. The efficient markets hypothesis is a load of romantically wishful delusion, and more likely propaganda for the masses.

One of the advantages of being your own person and adhering to what hard analysis has led to you conclude is that you can say what you think as long as you state why, and not care overmuch whether people wish to accept it or not, or condemn it as a conspiracy or not. The truth will out.

So, given the above premises, and assuming that few things really happen incidentally and by accident on a large scale when the government is involved, the question has to be asked.

Gold and Oil have an obvious strategic importance. But why Silver?

Early comments:

Mostly the obvious and therefore most highly probable. Its a small market and amenable to manipulation. Since the metal is necessary to industry it has its attractions even if the price rises. It is relatively neutral to government.

Quite a few think that it is a trade gone out of hand, where the shorts are effectively trapped, and cannot manage their way out of it gracefully.

One thing that has not occurred to anyone yet, which is a little bit disappointing, but perhaps too far off the subject, is this. Is it the government at the apex of the policy, the power, or is the government itself just one of the support mechanisms, a powerful member of the demimonde, for the real heart of darkness? Something to think about, but admittedly out of the purview of the thought experiment.

"The real truth of the matter is, as you and I know, that a financial element in the large centers has owned the government of the U.S. since the days of Andrew Jackson. History depicts Andrew Jackson as the last truly honorable and incorruptible American president."

Franklin Delano Roosevelt

GDP Deflator at a Five Decades Low While Income Inequality Is at Record Highs

From this chart sent out this morning by David Rosenberg, we can see that the GDP deflator is at a five decades low.

I tend to believe that the modifications to the inflation measures, including the deflator, that have accumulated by the federal bureaucracy over the past ten years are greatly understating the actual inflation in the economy.

There are very positive benefits for the government to do this. The lower the deflator, the better and higher the real GDP figures will appear. And a low measure of official inflation reduces increases in payments in Social Security and other programs with Cost of Living Adjustments (COLA), including official debt payments on the bonds and the TIPS.



Gold gives the lie to this, which is why it is so hated by financial engineers and statists.

On the other hand, the inequality of income distribution in the US is at level not seen since the 1920's.



There is some good reason to think that government tax and fiscal policies, as well as the monopolistic makeup and subsidized growth of the Banking sector facilitates this wealth transfer and concentration, which has a highly negative impact on real economic growth.

There will be a change, and the trends will be reversed. How they are reversed and what changes will accompany those reversals are very much open to debate, and divergent historical examples. But these changes almost invariably involve a shift from individualism to statism.

"Those who make peaceful revolution impossible make violent revolution inevitable."

John F. Kennedy

Change will come if the system remains as unsustainable as it is now. And what gives me a somewhat pessimistic view is that people never seem to learn the lessons of history.

A Summary of the Goldman Sachs Fraud Case, and the Downfall of Icons

"Le secret des grandes fortunes sans cause apparente est un crime oublié, parce qu' il a été proprement fait."

(The secret of great returns which are difficult to explain is a crime that has not yet been discovered because it has been carefully executed."

Honoré de Balzac, Pere Goriot

There is quite a bit of spin surrounding the Goldman Sachs deal. The best debunking of the spin around the nature and quality of the SEC's case was written by Barry Ritholz.

One of the best summaries of what the deal actually encompassed is excerpted below by Rolling Stone journalist Matt Taibbi.

"Here's the Cliffs Notes version of the scandal: Back in 2007, Harvard-educated hedge-fund whiz John Paulson (no relation to then-Treasury secretary and former Goldman chief Hank Paulson) smartly decided the housing boom was a mirage. So he asked Goldman to put together a multibillion-dollar basket of crappy subprime investments that he could bet against. The bank gladly complied, taking a $15 million fee to do the deal and letting Paulson choose some of the toxic mortgages in the portfolio, which would come to be called Abacus.

What Paulson jammed into Abacus was mortgages lent to borrowers with low credit ratings, and mortgages from states like Florida, Arizona, Nevada and California that had recently seen wild home-price spikes. In metaphorical terms, Paulson was choosing, as sexual partners for future visitors to the Goldman bordello, a gang of IV drug users, Haitians and hemophiliacs, then buying life-insurance policies on the whole orgy. Goldman then turned around and sold this poisonous stuff to its customers as good, healthy investments.

Where Goldman broke the rules, according to the SEC, was in failing to disclose to its customers – in particular a German bank called IKB and a Dutch bank called ABN-AMRO – the full nature of Paulson's involvement with the deal. Neither investor knew that the portfolio they were buying into had essentially been put together by a financial arsonist who was rooting for it all to blow up.

Goldman even kept its own collateral manager – a well-known and respectable company called ACA – in the dark. The bank hired the firm to approve the bad mortgages being selected by Paulson, but never bothered to tell ACA that Paulson was actually betting against the deal. ACA thought Paulson was long, when actually he was short. That led to the awful comedy of ACA staffers holding meeting after meeting with Goldman and Paulson, and continually coming away confused as to why their supposedly canny financial partners kept kicking any decent mortgage out of the deal. In one ACA internal e-mail, the company wonders aloud why Paulson excluded mortgages issued by Wells Fargo – a bank that traditionally created high-quality mortgages. "Did [they] give a reason why they kicked out all the Wells deals?" the quizzical e-mail reads."

Matt Taibbi, The Feds Vs. Goldman

This is fraud, pure and simple. Goldman did not stand by and allow ACA to make its picks. Goldman and Paulson aggressively influenced the selection process, vetoing the good mortgages, and manipulating ACA, setting them up to be the fall guy in what is clearly a premeditated fraud.

The final defense being offered, after the smokescreens and misstatements of what happened have been pulled away, is that there can be no fraud when you are selling to a 'qualified investor' and making a market.

Goldman was not making a market. They were actively creating inherently dangerous products, and then recommending and selling them to their customers, qualified investors or not. It was fraud, and Goldman is a disreputable firm, that has been shown to engage in fraud across many markets and countries and venues. This particular scam with ACA is small change compared to the setting up of AIG, and the foul bailout ripped from the public with the collusion of the NY Fed.

Anyone who looked at their trading results, many standard deviations out of the norm, would have to know that there was some sort of fraud and market manipulation involved. It is the Bernie Madoff syndrome; the professionals all knew he was cheating somehow, but were more than willing to go along with it and turn a blind eye while it was to their advantage. And Goldman had the politicians in their pocket, and so they were powerful, not to be crossed. Almost as powerfully connected as the Fed's house bank, J. P. Morgan.

Warren Buffet and Charlie Munger have come out recently in defense of Goldman, attempting to paint this fraud as the work of a single rogue trader. That of course is a part of the spin, the carefully thought out and premeditated fraud which had ACA and then Fabrice Tourree as the designated scapegoats.

Warren holds quite a bit of Goldman Sachs stock. And all he and Charlie have shown is that once you strip away the trappings and the masks, the ornamentation and the legend, what you are left with is someone who is willing to lie down with pigs when the money is right. So the question is not what kind of man Warren Buffet is, but rather, what is his price.

When the tide goes out, we indeed see who is naked, and who is not. And it is not a pretty picture.

Times Square NYC Evacuated as Failed Car Bomb Discovered

American News sources are reporting that an abandoned automobile left in Times Square at 7th Ave. and West 44th St. has been discovered to have false license plates, and to contain propane tanks, gasoline, burned wiring, and black powder.

Witnesses report a flash from the back of a Nissan SUV, and smoke coming from the back of the vehicle. Police originally responded to reports of a car fire.

Car Bomb Scares Times Square - Washington Post

Breaking News - Times Square Evacuated- NY Times Online....