Monday, April 19, 2010

Has America Reached The Tipping Point?

Despite the usual CRIMEX hyjinx, Gold opened the week basically where it finished last week: undervalued and foolishly sold into the Goldman Fraud Excuse. Goldman Sachs and criminal associates do not hold enough Gold between them to give the "fear" that they "may have to sell gold positions to raise funds to buy a get out of jail card" any credibility. The notion is absurd. In two more days the "revelation" that Goldman Sachs was involved in Wall Street fraud will be what it has always been, an open secret.

Gold investors have been handed a gift of sale prices on the Precious Metals. Silver investors will be greatly rewarded for buying this forced dip in the metals markets. Oil prices will resume their march higher as the realization that gasoline supply is being pressured. All as the US Dollar, once again, resumes it's tumble from it's spindly perch atop a crippled Euro.

The Comex and The Fractional Bullion System
Dave Kranzler, The Golden Truth
As of the most recent COT report, which shows open interest, long and short positions for speculators and commercials (primarily bullion banks), the total net short position for the bullion banks in gold was 244,900 contracts and in silver 51,700 contracts. This translates into 24.9 million ounces of gold and 258.5 million ounces of silver. Here's the problem, as of today, April 15, the total amount of gold reported by the Comex that is available to be delivered, the "registered" inventory, was 2.4 million ounces. In other words, the total paper short position of the bullion banks in gold was more than 10 times the amount of gold available to be delivered. Similarly in silver, the amount of registered silver was 48.9 million ounces. The bullion banks are short 5.3 times the amount of silver available. No other futures-traded commodity, in the history of the earth, has ever had this kind of imbalance between the paper-traded open interest and the amount of the underlying amount of the physical commodity that could be delivered.The key to this scheme is that for each delivery month, a small percentage of the long position, relative to open interest and relative to the short positions, actually stands for delivery. That being the case, the CFTC and the powers that be at the Comex look the other way with regard to the absurd amount of paper gold and silver sold short in relation to the amount of underlying physical gold and silver that can be delivered. It's a complete "fractional" bullion banking system. But what will happen if some large investors - or sovereign funds or foreign Central Banks - decide to take long positions in gold in silver with the intent to take delivery? I expect that eventually this will happen and we'll see the Comex-equivalent of a catastrophic bank run.

Another interesting event has been occuring with SLV. Since February 26 thru today, 16.7 million ounces of silver has been removed from the SLV trust. At first glance, this might not seem unusual. However, a quick perusal of the data over the last two years (data history is available on the SLV website), reveals that this is an unusually large amount of silver to be withdrawn over a 6 week period. What makes it even more unusual is that since Feb 26, the price of silver has risen from $16.46 to $18.41 - nearly 12%. Typically, drops in the gold and silver held in GLD and SLV correlate with price declines and market sell-offs.

We can only speculate about what is going on. However, I would like to point out that JP Morgan is by far the predominant holder of the massive silver short position on the Comex. They are also the custodian (i.e. the keeper of the silver) for SLV. And to add one more layer of intrigue, over the past couple weeks, there has been an unusually large amount of silver which has moved in and out of the Comex warehouses. That data can be tracked here: LINK.

Now, if the financial news media is serious about chasing a fraud story, perhaps some real "investigative reporting" of the CRIMEX, JPMorgan and the SLF Silver ETF would be appropriate. I won't hold my breath.

Is The Cartel Failing? What Next?
Yes, The Fed-led Cartel is under increasing pressure.

Not only is The private for-profit Fed still furiously battling behind the scenes (for a result favorable to them – e.g. No ‘Audit the Fed’ Bill) on the Financial “Reform” Bill still in process in Congress. (See Deepcaster’s “Surmounting The Armageddon Scenario & Cartel ‘End Game’” (02/26/2010) in the ‘Articles by Deepcaster’ Cache at But also Mainstream Financial Media reports are increasingly both damning and revealing. For example:

- A Metals Trader in London claimed his colleague at JP Morgan bragged of their ability to knock down the Silver price at will (Motley Fool/Barker) and his testimony was submitted to the CFTC
- and there was a “liberal” Media report that Gold and Silver Prices are being suppressed (Huffington Post / Lewis)

- and a report that a “Silver Short Squeeze could be imminent” (National Inflation Association / Paul)

- And now the New York Post article

Will The Cartel be unwilling or unable to effect any more significant sustained Takedowns due to the increasing “Sunlight” and increasing Buying of Physical Precious Metals?

Consider that in spite of all the aforementioned, The Cartel still remains Potent. Today’s (April 16, 2010) $25 Takedown shows they can still create a “One Day Takedown Story”.

And we should not fail to recall the fact that The Cartel generated $50 down days for Gold in early December, 2009 and early February, 2010 -- still strong evidence that The Cartel can still affect the Precious Metal prices (albeit with increasing difficulty).

But can they sustain a Takedown for a month, or even a week? We are increasingly skeptical.

And, given their Increasing Media Exposure, do they Dare even attempt to implement another Major Sustained Takedown, say to the $800 to $850/oz level as we earlier forecast?

Last week we wrote, “For us the price performance in the next few days or very few weeks will provide the Answer. A convincing Breakout over the previous nominal high – that is a breakout into at least the upper $1200s/oz for Gold would suffice.

But subsequent events have caused us to conclude that other recent events (e.g. Media Exposure) also support being less concerned about sustained takedowns.

Most Salient, exposure of The Cartel has continued to widen from the New York Post story to quite wide and negative Mainstream Media Coverage. And Goldman Sachs, widely regarded as a leading member of The Cartel has just been accused of Civil Fraud by the SEC for failing to disclose a Conflict of Interest in mortgage securities.

Even the normally Devoutly Mainstream has posted a story: “Gold Trader: Fed Keeping Gold Prices Low” (April 12, 2010).

And well-connected Newsletter writer Dennis Gartman – no friend of “Gold Bugs” -- has recently recommended going long Gold.

But most telling regarding the issue of Cartel Potency are two New Developments:

1. Open interest totals on all Gold contracts shot up from 467,000 on March 30 to 521,000 on April 8. This means the Cartel has met paper Demand with paper Supply. But one wonders how many delivery demands will be made and how many deliveries will actually be made. Reportedly, a major Wall Street Firm recently defaulted on delivery of January mini-Silver Contracts!

2. The Allegation that the London Bullion Market Association has only 1/100 the Physical Gold that they claim they do, is being circulated among the World’s largest Purchasers (or at least they believed they were the world’s largest purchasers of Physical). If the allegations are true they may own only paper promises. This should lead to greatly intensified demands for actual physical.

We conclude that the aforementioned developments, considered together, will tend to put a higher floor under Precious Metals prices, notwithstanding any Cartel Takedown attempts. And of course the Precious Metals’ Upside Potential is enormous.

Consequently, we change our long-standing view that The Cartel would/could take down the price of paper Gold to the $800-850/oz level.

Given recent Media exposure (of e.g. the Allegation that mere paper promises were being sold via the LBMA, not physical Gold), approach to the $800s level would attract too much attention, consequent buying, and especially, consequent demands for delivery of Physical. Therefore, a

Takedown into the low $800s is now highly unlikely.

The Price of Gold Backed FX Reserves
Currently, the IMF figures that Central Banks have 970M oz. of gold and $8,463B worth of FX reserves. 100% cover equates to a price of $8,720.

Gold and Silver Bull Market Phase 2, The Tipping Point is Upon Us!
This tipping point corresponds to the beginning of the second phase of the current bull market in gold and silver. In almost any bull market throughout history, the second phase of the cycle, when the public really becomes aware a bull market is occurring, is the longest phase in duration and also the phase when the greatest gains are made.

Never before in history have all the world's currencies been fiat currencies at the same time. Remember fiat currencies are established by government decree and have no intrinsic value.

Because every currency in the world is a fiat currency, there is no place to run to protect your wealth against government confiscation by continuing to print more and more currency—nowhere to run, except to gold and silver.

The 21st Century Bank Run[exceptional reading]
Now I am aware of some relatively new and modern monetary theories that claim our system is no longer a fractional reserve system at all. Fine, but let's at least agree on some truths. Ever since gold was removed from the modern banking system and "bank credit money" system, the system has operated such that "private bank credit money" is a derivative of fractionally reserved "central bank credit money". CB credit money being the monetary base, physical cash plus reserves held at the Fed.

Whether or not the actual fraction is controlled or regulated is irrelevant to the fact that a fraction exists. It may not be 10%. It may not even be 1%. It may not even have the least bit of constraining function anymore. But there does exist, at any given time, a fraction at which "commercial bank liabilities" circulating in the economy relate to base money or Central Bank liabilities. And it is these Central Bank liabilities that settle imbalances between private banks when clearing their circulating liabilities, the role previously held by gold.

Some of you know exactly what I'm talking about and others, I'm sure, are a little bit lost at this point. But don't pause if you are lost. It will make sense in a moment.

Physical gold, like physical dollars within the "private bank credit money" system, is also fractionally reserved within the gold banking system... what we like to call "paper gold". This in and of itself is not necessarily bad or dangerous. But there is still disagreement as to whether this "paper gold" system is fractional at 100:1... or at 10:1.

You see, when a Bullion Bank issues new paper gold, what we like to call a "naked short", it is constraining itself by making sure it has at least 10% reserves, according to Mr. Christian, in case someone decides to take delivery. Now in the case of a commercial bank, 10% reserves of physical cash may not be such a problem during a modern bank run because new cash can be printed relatively quickly. But with gold this is not the case. So even at 10% reserves, any bank run on the Bullion Banks would be a disaster.

But the real problem comes from what these Bullion Banks consider reserves. You and I obviously realize that the only reserves that will suffice in a bank run are actual physical pieces of gold. But these banks are presently relying on certain "paper gold" items as their "physical reserves".

During the CFTC hearing Mr. Christian admitted that the CPM group uses the term "physical" in a very loose way. That "physical" actually means paper claims and physical combined. So these Bullion Banks are holding paper liabilities from other Bullion Banks and mining operations and calling them "physical reserves". Very circular, don't you think?

So under this loose definition of "physical gold", perhaps Mr. Christian was not lying. Perhaps the banks do constrain their naked shorting with at least 10% paper longs from "credible sources". And if so, I would guess that those credible sources also have 10% "reserves" behind their paper. And so on, and so forth.

Well, I hope you can clearly see the problem here. When the bank run finally begins people and entities will want real physical gold, not paper longs, or liabilities from credible sources.

It all comes down to gold, the actual physical stuff. That's what the people wanted during the bank runs of the 1930's. It is what brought down the London Gold Pool. It is what forced the closing of the Nixon gold window. And it will be what people want this time too. That's the real bank run... to actual physical gold in your own possession.

Bernanke Scolds Congress/Keeps Bailouts Details Secret
By Greg Hunter,
Earlier this [last] week , Fed Chief Ben Bernanke told Congress to basically raise taxes and cut the federal budget. The inference was, if Congress doesn’t get its financial house in order, it will be their fault if the economy tanks. Here is how Bernanke actually said it, “. . . Maintaining the confidence of the public and the financial markets requires policy makers more decisively to put the budget on a sustainable fiscal balance.”

Bernanke also said the federal debt “. . .is already expected to be greater than 70%” of Gross Domestic Product, “. . . at the end of 2012.” And if that is not bad enough, Bernanke said that by 2020, “. . .federal debt would balloon to more than 100% of GDP,” provided taxes are not raised and budgets are not cut. The mainstream media gave this story a great big yawn; but don’t kid yourself, what Bernanke said was a powerful, ominous warning.

All I can say is Ben Bernanke has a huge set of cojones. He is scolding Congress to keep taxes up and spending down to help pay for the gigantic bailout of Wall Street Banks. Meanwhile, the Federal Reserve is fighting tooth and nail to keep from revealing its secret bailout of the same banks during the financial meltdown in 2008!

The Fed was sued by financial news network Bloomberg two years ago. Bloomberg wants the Fed to reveal which banks received $2 trillion in bailout money and why. Bloomberg won the case and the Fed appealed. Bloomberg, also, won the appeal in March 2010! The precedent setting case would force the Fed to reveal the details of secret bank bailouts–including $500 billion given to foreign financial firms!!

In a Bloomberg story earlier this week, lawyers representing the Federal Reserve (which is made up in part by big U.S. banks) said, “U.S. commercial banks will take their fight against disclosure of Federal Reserve (documents) in 2008 to the Supreme Court if necessary . . .” Lawyers representing the Fed say they are worried that if details of trillions of dollars in bailouts are revealed, it could cause another financial meltdown. General Council for the Fed, Paul Saltzman, says, “Our member banks are very concerned about real-time disclosure of information that could cause a run on the banks.” This is another story, with dire implications, the mainstream media is ignoring. (Click here for the complete Bloomberg story)

So, if the secret slimy deals of the Fed are revealed, people will lose confidence in the banks and want their money? If that is the case, and I think it is, we Americans need to know why the Fed printed up at least $2 trillion and handed it out to their banking syndicate.

I think what Bernanke is really saying is, “America get your finances in order and pay for this Wall Street bailout while we (the Fed) continue to bailout our banking buddies in secret.” (My quote) This will all be paid for eventually, one way or another, by U.S. taxpayers. We should at least find out if we got our money’s worth.

Fed Shouldn’t Reveal Crisis Loans, Banks Vow to Tell High Court
April 14 (Bloomberg) -- The biggest U.S. commercial banks will take their fight against disclosure of Federal Reserve lending in 2008 to the Supreme Court if necessary, the top lawyer for an industry-owned group said.

Continued legal appeals will delay or block the first public look at details of the central bank’s $2 trillion in emergency lending during the 2008 financial crisis. The Clearing House Association LLC, a group that includes Bank of America Corp. and JPMorgan Chase & Co., joined the Fed in defense of a lawsuit brought by Bloomberg LP, the parent company of Bloomberg News, seeking release of records related to four Fed lending programs.

The U.S. Court of Appeals in Manhattan ruled March 19 that the central bank must release the documents. A three-judge panel of the appellate court rejected the Fed’s argument that disclosure would stigmatize borrowers and discourage banks from seeking emergency help.

“Our member banks are very concerned about real-time disclosure of information that could cause a run on the banks,” said Paul Saltzman, the group’s general counsel, in an interview yesterday. “We’re not going to let the Second Circuit opinion stand without seeking a review.”

Just to give you an idea of the power and arrogance of the Fed, this past week saw a gain of $421.8 billion of outstanding loans and leases. The Fed is secret so they do not have to tell us what is going on. Who received the loans and leases and what was the collateral received for such loans? Our suspicion is that Greece is being bailed out by the Fed or institutions in Europe holding Greek debt are being bailed out. This is the sort of thing that has to be stopped. We know the Fed posts their financials, but many things the Fed is involved in are not posted. We still await an execution of an appeal judgment by the Federal District Court regarding who received $112.4 billion in loans directed secretly through AIG and what collateral was received against such loans. The Fed still refuses to respond. -The International Forcaster

Where is $421.8 bn that went out of Fed Reserve?
By Dr Jeffrey Lewis
The St. Louis Federal Reserve Bank, which documents the inner workings and balance sheets at the nation's central bank, just released new research and data suggesting that the Federal Reserve lent $421.8 billion – with no one knowing exactly where it went.

Where’s the Money?
Each week, the St. Louis Fed releases data regarding the Federal Reserve's activity and public balance sheets. In ordinary times, this data is usually largely ignored, as the mainstream media has little interest in probing into the “small” $5-10 billion changes in the Total Loans and Leases of Commercial Banks. The week of March 24-31 was different, however, as the Federal Reserve made $421.8 billion in new loans, more than it made in the week following the Fed's big moves to combat the financial crisis in 2008!

Is the Fed Bailing out Greece?
Economists are all but left in the dark on the actual operations behind the scenes, and they have minimal data to investigate other than what the Federal Reserve is willing to release to the public. However, the timeliness of this most recent surge in lending activity suggests that the Federal Reserve may be taking a hand in bailing out foreign nations, or Greece in particular, by shoveling funds through commercial banks.

This wouldn't be the first time a bank was used to bail out foreign debtors. AIG, the leading recipient of TARP funds, was used as a gateway to transfer US taxpayer funds to foreign banks owed money. Of course, the ailing insurance company virtually collapsed nonetheless, but long after the funds were delivered from the US Treasury to foreign institutions.

Pull the Alarms!
Rarely are large monetary policy decisions made without an explanation from the Federal Reserve, and even more rarely are they conducted in just one week. To put the recent lending in perspective, $421.8 billion is more than the total increases in lending throughout 2005. There has never in the history of the Federal Reserve been such a massive increase in total lending. And never should anyone expect that lending of this magnitude would be done without any explanation. To put it simply, there is big money moving, and no one knows where it's going, for better or for worse.

Timing is Everything
The huge jump in lending comes just days after the Federal Reserve ends its operations to buy agency and other US debt, and just a few weeks after the looming European debt crisis emerges. Clearly, the timing couldn't be any more interesting, as the Federal Reserve is either indirectly financing international bailouts or continuing to expand the money supply without any prior knowledge.

Gold and Silver Set to Soar
Either explanation for the gross increase in the money supply is a boon for precious metals, which have experienced an even more impressive month as manipulation comes to light. If the Federal Reserve is acting to bail out foreign nations, or to buy up Treasuries or other Agency debt, it should be clear that inflation is sure to run rampant. Head for the hills – unprecedented monetary policy is taking place without any authorization, explanation, or (from what we can tell) causation.$421-8-bn-that-went-out-of-Fed-Reserve-27410-3-1.html

Did The Fed Just (Surreptitiously) Bail Out Europe?[chart]
Posted by Karl Denninger
No, not just Greece - all of Europe. Without Congressional authorization or notice, of course.


Poll: 78 percent don't trust big government
WASHINGTON - Can you trust Washington?

Nearly 80 percent of Americans say they can't and they have little faith that the massive federal bureaucracy can solve the nation's ills, according to a survey from the Pew Research Center that shows public confidence in the federal government at one of the lowest points in a half-century.

The poll released Sunday illustrates the ominous situation facing President Barack Obama and the Democratic Party as they struggle to maintain their comfortable congressional majorities in this fall's elections. Midterm prospects are typically tough for the party in power. Add a toxic environment like this and lots of incumbent Democrats could be out of work.

The survey found that just 22 percent of those questioned say they can trust Washington almost always or most of the time and just 19 percent say they are basically content with it. Nearly half say the government negatively effects their daily lives, a sentiment that's grown over the past dozen years.

"Trust in government rarely gets this low," said Andrew Kohut, director of the nonpartisan center that conducted the survey. "Some of it's backlash against Obama. But there are a lot of other things going on."

And, he added: "Politics has poisoned the well."

The survey found that Obama's policies were partly to blame for a rise in distrustful, anti-government views. In his first year in office, the president orchestrated a government takeover of Detroit automakers, secured a $787 billion stimulus package and pushed to overhaul the health care system.

But the poll also identified a combination of factors that contributed to the electorate's hostility: the recession that Obama inherited from President George W. Bush; a dispirited public; and anger with Congress and politicians of all political leanings.

"I want an honest government. This isn't an honest government. It hasn't been for some time," said self-described independent David Willms, 54, of Sarasota, Fla. He faulted the White House and Congress under both parties.

In the short term, the deepening distrust is politically troubling for Obama and Democrats. Analysts say out-of-power Republicans could well benefit from the bitterness toward Washington come November, even though voters blame them, too, for partisan gridlock that hinders progress.

In a democracy built on the notion that citizens have a voice and a right to exercise it, the long-term consequences could prove to be simply unhealthy — or truly debilitating. Distrust could lead people to refuse to vote or get involved in their own communities. Apathy could set in, or worse — violence.

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