Investor Sues the Silver Bullion Banks for Benchmark Manipulation

An investor has filed suit against the three firms that set the price of silver, accusing them of manipulation. The lawsuit, filed in the US District Court in the Southern District of New York, is noteworthy because similar accusations have been levied in the gold market and the process by which commodities prices are set has increasingly come under scrutiny.

The lawsuit was filed by J. Scott Nicholson, a Washington State resident, who is seeking class-action status for the suit. Bank of Nova Scotia "vigorously" denied the charges, according to an article from Bloomberg Businessweek, and the other two rate setters, Deutsche Bank and HSBC, declined comment. The three banks conduct the fix, or price-setting, once a day by conference call, according to an article from Reuters.

It is unclear if Nicholson has evidence to back his charges, but the complaint states that the defendants "have a strong financial incentive to establish positions in both physical silver and silver derivatives prior to the release of silver fixing results, allowing them to reap large, illegitimate profits."

Deutsche Bank said in January that it would withdraw from participating in setting the gold and silver benchmarks in London as it plans to cut 200 jobs in commodities trading. London Silver Market Fixing Ltd. said in May that it would stop administering the benchmark after Deutsche withdraws its participation in August.

The suit comes on the heels of similar suits in the gold market and a lengthy silver market investigation. The five banks accused in the gold fixing case deny the accusations. The five-year silver market investigation, conducted by the Commodities Futures Trading Commission, ended last September when it found no evidence of wrongdoing.

For more:
- read the Bloomberg Businessweek article
- read the Reuters article
- read the BBC article

Bullion Banks “Selling Gold They Don’t Possess”

Huge paper gold sales are driving the gold price down every time it looks like stabilising, but as new physical gold supply moves East, this will surely lead to a massive short squeeze.

The statement in the title relates to a frustrated comment in a recent King World News interview with John Hathaway, a renowned gold stocks analyst who manages the well-respected Tocqueville Gold Fund in the USA.  Now, this factoid will not be news to regular readers of Mineweb,  or to any avid follower of the gold market, and is perhaps indicative of the way virtually all markets are manipulated by the world’s financial elite. 

In context, Hathaway’s statement in commenting on yet another gold price take-down was as follows: “These guys don’t even have to borrow the gold to sell it.  It’s probably a couple of bullion banks, and they use their balance sheets to justify the leverage of selling gold they don’t possess.  In some ways this is just a travesty.  We have entities moving this major market and making leveraged bets, but they do it without having to take physical possession and short the way you would do it on a normal exchange.

So they just wreak havoc in the gold market and damage investor psychology, but it will come to an end.  This is a continuing story that has to be watched.  Aside from the macro issues that surround gold, I think the chain of custody, the paper trail between derivative paper instruments and the real metal, is of great interest to me”  The full interview may be accessed by clicking here.

Now what is perhaps unspecified is why?  GATA will tell you it’s all part of a global effort, orchestrated by Central Banks, to control (suppress) the gold price.  They probably have a point.  The same argument could be put as that it is more a universal effort to shore up the U.S. dollar as the collapse of the greenback would throw global trade into disarray.  Gold is seen as the bellwether of dollar strength or otherwise.  But this is effectively the same argument as that of gold price suppression from a slightly different perspective.

But, in terms of gold, the dollar has been deteriorating dramatically over the years anyway.  The dollar’s only saving grace is that virtually every other currency against which it is measured has been deteriorating in purchasing power at an equal, or even greater, rate, giving a hugely misleading impression of the dollar’s own intrinsic strength.

Or it could just be that some the biggest investment banks and financial institutions have come to realise that gold is nowadays such a small part of the global investment scene that it can be manipulated for their own benefit with total impunity, regardless of the effect it can have on the individual gold investor or fund which looks on gold as a portfolio diversifier.

Or it could well be (probably is) a combination of both.  The financial elite can thus make obscene amounts of money, while the governments and central banks tacitly collude in turning a blind eye to what might be considered criminal activity in other markets, as it suits their own overall agendas for gold to be kept under control.  Consequently the regulators set up to control this kind of activity take little or no interest in investigating the very strange paper precious metals sales, which have been bearing no relation at all to the physical metal supply and demand situation.

We see and hear major investment banks’ analytical departments talking down gold in the most vehement terms, which because of their status in financial circles leads to massive sales of physical metal from weak holders, aggravated by computer stop loss selling, thus driving the price down dramatically, and then of the same banks climbing back into the market to buy up bullion at far lower prices ahead of a short term recovery.  Then rest for a few days, weeks or months and repeat the whole procedure all over again just as the metals seem to be starting to stabilise.  This seems to be happening with increasing frequency.  What a perfect way to make ridiculous amounts of money for those who have the financial strength to take advantage.

Meanwhile, there are the gold believers on the sidelines who may also have virtually unlimited pockets – the Chinese in particular – who must be feeling  every day is Christmas as they rake in physical gold at depressed prices, convinced that at some day in the future, by when they will have completely cornered the physical new gold market, the yellow metal’s price will soar, while Western paper gold will become worthless with no physical metal to back it.  As far as gold, and almost any other trade goes, the East looks to the long term, the West tends to look to tomorrow!

And as for the East cornering the market in physical gold, they are getting awfully close to doing this already.  Growing Chinese gold consumption is likely to account for close on 60% of new global gold production this year – and that is on the basis of already pretty well known figures – net Chinese gold imports through Hong Kong plus the country’s own domestic production, are together likely to reach well over 1,500 tonnes in calendar 2013.  If, as many surmise, China imports gold also through other ports of entry, which it does not disclose, then this percentage could be higher still.

Add into this India’s gold imports which, despite government attempts to control them, some estimate to also be close on reaching 1,000 tonnes this year (particularly if smuggled gold is included), then these two countries alone will together  account for nearly all the world’s 2013 newly mined gold supply.  And Chinese buying has been growing year on year. Meanwhile a number of other nations, mostly in Asia and the former Soviet union have also been consuming more gold so far in 2013, although none on quite the scale of China and India.

This suggests a run on physical gold may well be upon us soon.  So far this has been prevented by sales out of the big gold ETFs, and the rundown in COMEX inventories, diminishing scrap sales, plus the supply of any newly mined gold which is not already going directly into Eastern, Middle Eastern and FSU hands. 

Some think Central Bank gold may also be entering the market.  This is most likely to be leased gold and thus due to be returned, so it stays in their books.  But as physical gold goes into shorter and shorter supply, this may become increasingly difficult for those who have leased it to repay in kind.  Yet another indicator of a likely short squeeze ahead.  

Bullion Trader Maguire Describes Run on the London Gold Banks (on Max Keiser TV)

Interviewed yesterday by Max Keiser on the "Keiser Report" on the Russia TV television network, London bullion trader and silver market rigging whistleblower Andrew Maguire said there is a run on the London bullion banks.

The Federal Reserve's big dumping of paper gold in April bought a little time for the banks but only increased the offtake of real metal from the grossly overleveraged fractional-reserve gold banking system, that the Bank of England is advancing metal into the London market every day to avert defaults.

The United Kingdom's gold sales begun in 1999 were undertaken to rescue gold short Goldman Sachs, and that the Western gold banking system is now in the same short squeeze that threatened it 14 years ago. Yesterday's "Keiser Report" is posted at YouTube and the interview with Maguire is about 13 minutes long and begins at the 13-minute mark here:




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Peter Schiff on Bullion Banks, The Hidden Trove of QE Money

Would you trust the New York Fed with 7,000 tons of the yellow metal?  Perianne talks to Peter Schiff about what central banks are doing with gold.

Then, Prime Interest Producer Justine Underhill explains what exactly the Fed has been doing vis-a-vis QE.

The Commodities Futures Trading Commission (CFTC) Silver Investigation

There has been an explosion of interest and commentary these past few days as a result of a front page story in Monday’s edition of the influential Financial Times (of London). The story stated that the CFTC was set to drop its four year investigation into alleged silver price manipulation due to insufficient evidence to bring charges, according to three unnamed sources. 

I went to sleep Sunday evening when the story first appeared prepared to wake up to similar and confirming stories in other publications. Instead, there were no other stories confirming the case was set to be dropped; only strong statements that the FT was story was “premature” and “inaccurate in many respects” by a named source, Commissioner Bart Chilton of the agency.

 

The CFTC’s silver investigation is a hot button issue and the FT story, as well as Commissioner Chilton’s response to it, set off an outpouring of emotion and conjecture in the precious metals world. And for good reason, as this is an extremely important issue. There can be no greater concern than whether a market is manipulated in price. 

The issue of a silver manipulation is also a divisive matter, even within the CFTC itself; otherwise there likely wouldn’t have been leaks that the investigation was over and the immediate response of not so fast. As is usually the case with extremely divisive issues (like politics and elections), emotions take hold and the real issues can get distorted. 

Let me try to frame the picture in an unemotional manner. Admittedly, that’s no easy task since I was the prime initiator behind this silver investigation and the two prior CFTC silver investigations in 2004 and 2008. (Too bad there’s no Olympic event for initiating government investigations).

However, the truth is that four years ago I was not trying to get the Commission to investigate, as they had just completed a few months earlier, in May 2008, their second silver investigation in four years. By then, I knew where the Commission stood on whether silver was manipulated and it was pointless to ask them to investigate again. I had a different motive in mind when I urged readers to write to the CFTC about the now-infamous Bank Participation Report of August 2008.

That was the report that showed that one or two US banks held an obscenely large and concentrated short position in COMEX silver futures that amounted to 20% of world production and 30% of the entire COMEX silver market. No major market had ever been that concentrated. I knew that this short position was so concentrated that, in and of itself, it proved silver was manipulated because the price would be radically higher in its absence. That is always the litmus test for manipulation, namely, what would the price most likely be if a concentrated position did not exist? 

As a result of the August 2008 Bank Participation Report and subsequent CFTC correspondence to US lawmakers, I also learned at that time that JPMorgan was the big silver short, as I speculated on in this article. http://www.investmentrarities.com/ted_butler_comentary/09-02-08.html This is when and where the precious metals world came to learn that the big silver short was JPMorgan.

I asked readers to write to the CFTC not to investigate silver anew, but for the agency to simply explain how a big bank holding such a large percentage of the market would not be manipulation. This is a question that the Commission should have answered immediately since it was so basic to commodity law. The last thing I intended was for the agency to embark on a multi-year phony investigation as a delaying tactic for not being able to answer a basic regulatory question. 

Because the Commission could not explain the legitimacy of JPMorgan’s concentrated short position, they continued to drag out resolution by pretending to investigate. But four years is an extraordinarily long time for any government investigation, phony or otherwise, and it appears that the CFTC has to confront the issue soon; hence the FT article.

While the FT article was disappointing (at least it mentioned my name in a non-derogatory manner) and Chilton’s response was encouraging, the reality is that it is unlikely that the investigation will be resolved much differently than the version leaked to the paper. For one thing, nobody likes admitting they had royally screwed up and if the Commission were to bring manipulation charges now in silver, it would be admitting that it missed the wrongdoing for the previous two decades, despite continuous and documented warnings from 1986. How likely is that?

More importantly, were the agency to charge JPMorgan with manipulation of the silver price (as it should) that could set off a series of events that could easily grow out of control. One thing that makes the silver manipulation so potentially profound is that the core allegation is of a crime in progress. The CFTC has never busted up a manipulation that was in force; like most government agencies, it only reacts after the fact. Don’t take that solely as a complaint, but more as an observation that governments are more reactive than proactive. 

Because the silver manipulation is very much in force, were it to be terminated by CFTC actions against JPMorgan and/or others, it would be a “live” event for the first time. History shows that all manipulations end violently. In the case of silver, since it has been depressed in price by a downward manipulation, its termination would necessarily cause prices to explode higher. Any charge brought by the CFTC would send a clear signal to the world that silver had been depressed in price and was undervalued and, therefore, should be purchased. This would cause a flood of buying and discourage new selling, causing the price to truly explode, most likely in disorderly market conditions. Do you find it likely that the CFTC would wish to cause that disorderly pricing that could lead to further unsettled conditions in other markets?

If JPMorgan (and perhaps the CME Group) were found to be the main culprits in the silver manipulation and the CFTC brought charges against them, the repercussions to JPM and the CME could be a threat to them as going concerns. It was never a case that JPMorgan couldn’t financially afford to buy back its concentrated silver short position; it was always a case that should JPM ever move to buy back aggressively to the upside that would prove conclusively that it had been manipulating the price of silver all along. 

That would set JPMorgan (and the CME) up for a legal holocaust, both civil and criminal. There has been talk of a civil litigation nightmare for those banks deemed guilty in the developing Libor manipulation; but determining damages will be difficult because the Libor rates were allegedly manipulated both up and down, making the damages unclear and hard to prove. Were there to be findings of a downward manipulation in silver, those damaged, from investors to producing companies and countries could easily demonstrate the damage. Back in the Hunt Bros silver manipulation of 1980, one of the successful litigants was Minpeco, the government producer organization from Peru, who I remember collected more than $100 million. That would be chicken feed compared to the consequences of the much longer downward silver manipulation of today by JPMorgan. And this says nothing of potential criminal liability. 

JPMorgan is perhaps the most important and influential US bank and for the CFTC to move against them in a matter as important as basic market manipulation could lead to unintended consequences that could threaten the world’s financial system. Do you think the CFTC would dare challenge the supremacy of JPMorgan considering that potential financial fall-out? Besides, as I have written previously, JPMorgan is too big to sue, at least matched up against the CFTC. The matter of the bank manipulating any market is something that JPMorgan would defend against to the death, as for it to be found guilty could possibly end the bank in its current form.

JPMorgan would certainly spend $5 billion (only one quarter’s net profits) to fight any charges in connection with a silver manipulation and, at a minimum, delay a legal resolution for decades. On the other hand, the CFTC is struggling to fund the whole agency on $200 to $300 million annually. This is most likely the reason behind the leak to the FT about the silver investigation being dropped, namely, the CFTC is no match for JPMorgan and the agency knows it. This has nothing to do with law, or justice, or doing what is right; it is simply a case that the crooks at JPMorgan (and the CME) can bully anyone they chose, including the US Government. The most plausible alternative explanation, of course, is that the Treasury Dept ordered the CFTC to keep its hands off JPMorgan. Either way, it stinks.

The truth is that the silver investigation was a ruse from the start in that the CFTC could never have moved against JPMorgan or the CME in any circumstance. The proof of that is evident in the many other specific instances of price manipulation in silver that have occurred after the soon to be dropped investigation began. The most obvious instances were the two separate 30% and 35% price smashes in a matter of days that occurred in silver in 2011. There never were such blatant price declines in such a short time in any world commodity in history, to say nothing about there being no obvious supply/demand changes to account for the declines. 

In other words, the CFTC started their third silver investigation four years ago as a way of avoiding having to explain how JPMorgan could be allowed to hold a clearly manipulative concentrated short position and then ignored the two greatest manipulative price events in commodity market history while the phony silver investigation was under way. Think of how devious and dishonest the CFTC has been; it announces a formal silver investigation to avoid having to answer bedrock regulatory questions, then ignores the two most manipulative prices events in history claiming it can’t comment on them because there is an active investigation under way. If government officials could ever be horse-whipped for malfeasance and for failing to protect the public interest, surely the CFTC’s performance in silver would permit it. 

I realize that what I have written to this point paints a picture that is not optimistic for the resolution of the silver investigation that most would favor. I am sorry about that, but I try to be an analyst and not an entertainer. That said I’d like to spend some time explaining why the outcome of a dropped case may not matter much and that the net result is good for silver. 

More than anything, this FT leak was likely a trial balloon for the CFTC to gauge public reaction to it dropping the case. If so, the reaction couldn’t be clearer; even I was taken aback by the near universal condemnation of the agency for proposing to drop the case. I think what got to people the most was the suggestion that the agency would walk away without bothering to explain the concentration and the two historic price drops of 2011, to say nothing of the almost daily beatings in silver as a result of crooked High Frequency Trading. If anything, the FT article may have given legs to the silver manipulation allegations.

While it was a mainstream media publication that leaked the story, the silver manipulation is surely not a mainstream media issue. The silver story is an Internet and private publication issue that grew despite being ignored in the mainstream media. As such, any declaration that the matter is now closed will not close it anywhere outside the MSM, where it was never accepted to begin with. It’s not just that the silver manipulation was never accepted by the MSM, it was more a case of it never being allowed to be openly discussed. But legitimate questions of undue market concentration and historic and unjustified silver price movements are matters worthy of transparent examination that MSM censorship has been unable to stifle. 

Not only is the matter not going away, the leak to drop the case may bring greater attention to it. Such attention could prove to be the death knell for the silver manipulation, as the last thing the silver manipulators want or need is a fully transparent examination of the facts. One of my longest held beliefs has been that as time rolls on more would become aware of the real silver story and once they did, more investment demand in silver would result. That has occurred and any new attention brought to silver as a result of a dropped investigation will likely accelerate the process. The truly amazing thing is in how slowly the real silver story has spread in the ranks of super big investors. Aside from Eric Sprott, very large investors have overlooked the silver story completely. I am as certain as I can be that these very large investors just haven’t taken the time to look objectively at silver. I think it’s a case of silver being such a universally known item that most people assume they already know all the facts because they know what silver is. 

This includes very large investors who, in addition, may actually be turned off that so many smaller investors have invested in silver. It’s a common human failing to dismiss something because others thought to be less knowledgeable got there first. In the long run, however, very large investors are more concerned with superior returns, so the key is getting them to look at silver objectively. The dropping of the silver manipulation may be that key.

Perhaps the most amazing thing of all, at least to me, is the glaring fact that even after four years of non-stop public allegations about involvement in the silver manipulation, JPMorgan still remains the big short. It is hard for me to comprehend how such a large and powerful financial organization (as well as the CME) could silently tolerate the obvious reputational damage which is accruing. While JPMorgan’s short COMEX silver position is in the lower range of what it has been since the Bear Stearns takeover of March 2008, it remains shockingly large and concentrated. After last week’s big increase of 3000 contracts, JPM’s short position, at 18,000 contracts (90 million oz), is still more than three and a half times the proposed position limit in silver.

The most plausible explanation for why JPMorgan has not rid itself completely of this manipulative short position is because it can’t do so easily. This is particularly true if JPMorgan tried to buy back its silver short position on rising prices. It would be a shock to the silver market system if the biggest short seller of last resort suddenly turned buyer. In essence, this is the root problem with concentrated positions in general – they cannot be unwound without market upheaval. 

For JPMorgan to turn to the silver buy side would beg the question – who would sell to them and at what price? The problem with the sharply higher silver prices that JPMorgan would cause if it turned silver buyer is that it would confirm that the bank was, in fact, manipulating the price of silver all along. To my mind, this means JPMorgan is trapped. They can’t run and they can’t hide. This is precisely the conclusion that any large investor would reach if that investor took the time to study silver closely. I can’t see how that won’t happen in time and a more bullish set up is hard to imagine.

Of course, I would be the happiest guy in the world to be proven wrong about what the CFTC will do with the ongoing silver investigation. But the potential of the likely greater exposure of the real issues in silver that a dropped investigation would bring is plenty good. With silver, it’s always been about getting people to learn the real facts.

Ted Butler

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Greece Financial Crisis On the Edge with Max Keiser 05-24-2012

Greece Financial Crisis On the Edge with Max Keiser 05-24-2012


In this edition of the show Max interviews Karl Denninger from market-ticker.org.

He talks about the finical crisis in Greece and how it will unfold in near future.
Karl Denninger was the CEO of MCSNet in Chicago, one of the area's first Internet providers. He is a founding contributor to conservative blog market-ticker.org and was one of the early members of the Tea Party movement.

Gold & Whirlwind Crisis

What an incredible whirlwind of crisis from seven foul winds around the globe. Most emanate from Europe, which is far from its climax in crisis. Three steps will lead to full blown eruption, the first Italy with rising bond yields and a bank run, the second Spain with rising bond yields and admission that banks are far more insolvent than recognized, and third the failure of all three largest French banks as the principal swine creditor.

In fact, a great split has occurred, as France has been cut off from the future world by Germany, which looks East to Russia and China. The Berlin leaders will not be needing French squires to carry their bags, but instead will watch as Paris becomes the appointed leader of the PIIGS. As the most exposed banks to Southern European sovereign debt, pig slop of immeasurable weight is tied around the laced Parisian necks. The common link across the Atlantic pond is derivative corruption. The Europeans are doing their best to force feed a convenient but cockeyed definition of a debt default event. The Americans resort to old fashioned theft, calling it missing funds, blaming the crisis, while breaching the sacred segregated client fund directive. The crisis struck the US shores with the hidden JPMorgan chamber implosion and urgently needed theft, whose visible face is the MF Global heist and failure. My belief is that JPMorgan used its MFG patsy to anchor derivative trades, that just happened to be long sovereign debt in Europe. Nobody in his right mind, even a Corzine of GSax pedigree would place such large wrong trades unless obligated as a syndicate cog in the machinery. The big US banks will sit on the bankruptcy boards and decide the fate of victim accounts without client representation in a full scale insider exercise that makes a mockery of justice. That has been the American norm.

Witness the middle stage of the collapse of the COMEX, which has lost all trust as segregated client cash accounts vanished in a vast ongoing commingling campaign. One must conclude that JPMorgan must have really needed the money. The thought of a Madoff Redux comes to mind to the alert but weary. The MF Global vanished funds will eventually be measured over $3 billion. The actual Madoff pilfered funds totaled $150 billion, triple the more palatable figure often quoted. The locations of the missing funds have commonality, the ruling untouchable syndicate. Gold smells the destruction of the monetary and banking systems, aggravated by Western recession. Gold smells new application of debt to repair old failed debt structures, where central bankers chase their tails. Gold smells the vast reconstruction project for the giant Western banks, not too big to die of internal rot, only too big to let fail by a gavel. The twisted bizarre attempt to control commodity prices by presiding over a series of negligent policies is coming to an end. The Western recession is too much for the insolvent banks to bear. The US banks have real estate debt rot, but the European banks have both real estate debt rot and PIIGS debt rot. In truth, the US banks share great risk from across the pond. The thrust of the French-based central bank over the pen of swine cannot be far from a formal announcement. Not quite what the highbrow French had in mind for leadership. Better to rule in clubmed pig slop than serve as lackey in the teutonic core.

GREAT CREDIT SWINDLE

The death of the monetary system has its main motive in the refusal of governments either to manage finances responsibly or to repay debt in the usual manner. They accumulate larger debts and plan the swindle of inflation in return. Their only viable approach, hardly a solution, is to inflate debt and thus to reduce its burden.Creditors feel betrayed, seek defensive measures, like to cut off credit and loan up quietly on gold, while lying about reserves. The creditors are not involved in the important decisions to debase the currency. Those decisions are made unilaterally by the debtors. A run on the US Treasury Bonds is occurring by angry foreign creditors. The USDollar is kept afloat by some secret corners. The pages of history are littered with examples of government debt default, but more often with the public paying for debt reduction in basic price inflation. The debts accumulated by many governments large and small cannot be repaid. History shows that tangible assets like Gold & Silver protect from the worst economic consequences. For the current financial crisis, only one pathway seems likely, although painful. The system cannot be remedied, only patched over. Vast inflation is the only politically viable method of repudiating these unmanageable obligations. Of key importance is the velocity of money in determining whether or not inflation turns into hyper-inflation, which requires final demand not to falter badly. Hyper-inflation requires sustained activity like an engine, which cannot stall. Higher price inflation is coming like night follows day, but probably not an extreme case. It will be painful though, since the cost structure will be the primary damage center. The US Consumer Price Inflation runs at 11.1% in the honest broker Shadow Govt Statistics calculation, which is painful enough.

The retreat is well along, the isolation to the hyper inflation machinery well along, the sovereign bond ruin well along. The Fed was hit with withdrawals of $83.3 billion on November 2nd, the largest withdrawals coming from its deposit accounts. This single day removal was the largest since February 2009, and not associated with quarterly tax payments. The withdrawals are being demanded by countries angered by USGovt policies, like China, Russia, Latin American, and other Asian players. It is only the beginning of a bloodletting. A run on USTBonds is in progress, covered up by Quantitative Easing and Operation Twist, programs given innocuous names but integral to the grand debasement process underway. The bond exodus is complemented nicely to significant removal of depository funds from the major banks in the 'Move Your Money' movement. Despite pleading by the big US banks for customers not to extract their money, impressively 650 thousand customers moved a total $4.5 billion dollars out of the big banks. The damage done is 10x to 20x, due to fractional banking practices. The funds went into smaller banks and credit unions in October.

TOO BIG TO FAIL: ASSURED FAILURE

The entire concept of Too Big to Fail is a hangman's noose around the US banks and the banking system. The debate over cause or effect is curious. The related propaganda is obscene, if not comical. The smear campaign against gold will turn absurd, before the USDollar breaks permanently on the world stage, in the form of rejection in international commerce. It is called the Dollar Kill Switch, and it will be applied to the crude oil market. Conformity with the Too Big To Fail doctrine is synonymous with the path to systemic failure. Charles Hugh Smith sees the destructive force clearly. The absent liquidity of the biggest Western banks assures the systemic failure itself. Smith wrote, "The irony is that the propping up of a deeply intrinsically pathological and destructive financial system is not saving the economy, rather it is the reason the economy is imploding. The Big Lie technique of propaganda is to reverse the polarity of reality: we are told up is down until we believe it. We are told that liquidating the overhang of bad debt, leverage, and hedges would destroy the world as we know it. The truth is that keeping the zombie system from expiring and covering up the corruption with propaganda is actually destroying the world as we know it. Thus the collapse of the current financial system of central banks, pathological Wall Street, and insolvent banks would be the greatest possible good and the greatest possible positive for the global economy and its participants."

G-20 SUGGESTION LEGITIMIZES GOLD

The G-20 group actually suggested that Germany donate a block of gold reserves for European banking system stability, as in to fortify the stability fund. Obviously the Germans told them to get lost and mind their own business. The German nation has been the ox & yoke to pull the Southern European cart for a decade. They have had their fill of seeing savings drained! The emerging nations showed a mix of chuptzpah and ignorance. Look for the PIIGS nations instead to forfeit their central bank gold in the next several months, part of the Chinese discounted purchase of sovereign bonds. The Chinese are not stupid, careful to put hooks in the deal. In a bold stroke, the G-20 finance ministers actually demanded that German Gold reserves be used to backstop the EFSFund for bank bailouts. The backward irony of the story is that Germany will in no way whatsoever hand over Gold bullion to stabilize a system it finds revolting on a beneficial one-way street. In doing so, the G-20 Ministers actually legitimized Gold as the premier asset. The fund seeks EUR 1 trillion but in reality needs EUR 3 trillion, possibly supplied via leverage. Much confusion has circulated around the story, not fully confirmed. But Reuters cited that, "The Frankfurter Allgemeine Sonntagszeitung reported that Bundesbank reserves, including foreign currency and Gold, would be used to increase Germany's contribution to the crisis fund, the European Financial Stability Facility (EFSF) by more than 15 billion Euros ($20 bn)."

The recipient of the alleged transfer would be the most insolvent of global hedge funds, the European Central Bank. One must suspect that no pledge was made, and a trial balloon was floated. It was promptly shot down. Germany has lost its appetite to make huge annual donations to support an unjustified standard of living for Southern Europe, which grossly lacks industry, a strong work ethic, and ability to collect taxes. Those nations abused the low Germanic interest rate, built housing bubbles, perpetuated young pension benefits, permit tax evasion, and face ruin. Germany will no longer sacrifice Euros at the foot of any PIIGS altar, plainly stated.Conclude that the EuroZone, the Euro Central Bank, and the European Financial Stability Facility are all dead broke and insolvent, and worse, have zero credibility in the capital markets. The real ugly controversy comes soon when collateral placed in return for grandiose aid will be lost, including some central bank gold bullion. The European Commission has no voice either, having pandered to the bankers.

GOLD PROPAGANDA & REALITY

The CME has advised that 1.42 million ounces of registered COMEX silver inventory is unavailable for delivery due to MF Global bankruptcy, as well as 16,645 registered ounces of gold also unavailable for delivery. That is a lot of bullion in breach of contract. The lawyers will be lined up very quickly to carve the metals exchanges into pieces. The COMEX is totally broken, unable to honor basic contracts, unable to deliver from committed legal contracts, unable to even protect client funds from commingling grabs. But during a period when investors cannot protect themselves, an ambush could easily come in the next week to push down the Gold price in the usual manner, via naked shorting. As the grandiose destinations become clear for vast new monetary creation, the Gold & Silver prices will run higher. The big immediate questions center on how much dithering the banker elite that run our governments will permit with malignant motive before the decisions are made, and how much economic deterioration will be permitted to contain commodity prices before the decisions are made. The destinations are bank bailouts for toxic sovereign bonds, recapitalization of the big Western banks, coverage of new USGovt debt, and economic stimulus. A few $trillion will be needed, as estimates by well-informed veterans mount like a stack of white papers. The economic damage is being done, even though the crude oil price has finally zipped above the $100 mark.

Ironically, as the orchestrated Libyan liberation war finished, the crude oil price has moved from $77 in early October to $102 today. Demand is not coming from economic growth, but from hedging against the ruined major currencies, all of them. Global QE is alive! With the gold market in turmoil from grand Asian raids, from absent COMEX inventory, from snatches of GLD inventory, from pilfered COMEX fringe accounts, from continued naked shorting, the safer bet with quicker payoff has been crude oil hedges. But Gold will have its day, and Silver will scoot through the opened phalanx as usual. The delay in reckoning is laden with frustration, but the day of $2000 is coming. It is something the bankers cannot stop. They are so busy kicking cans down the road, they do not see the Rotweillers and Dobermans sniffing their trails.

ITALY IS KAPUT, CONTAGION WILD

The biggest and most important danger signal for complete eruption of the Eropean financial crisis is the Italian sovereign bond. Their yield surpassed the 7% mark to sound great alarms, completing a Jackass forecast over the last several months. This level is the recognized crisis signal, the call to arms, the call to remove deposits, the call to demand collateralized loans. Their sovereign bond yield has zoomed upward in response to higher margin requirements. Italy is the next Greece, which was a crisis prelude. Italy scares the American and European central bankers witless. The Italian Govt Bond yield remained for 40 days above the 5% mark before it hit 6% two weeks ago. Its rise has accelerated, as the panic widens. The Italian yield suddenly surged past 7% with haste last week, reaching 7.5%, setting off shrill alarms.The Italian leadership is in question, its Prime Minister to be a victim. The 10-year yield went below 7% only because of heavy emergency buying by the Euro Central Bank, against their stated wishes. The Italian banks are far weaker than they reveal. The next PIIGS domino is soon to fall, for certain to take down Spanish Govt Bonds also. The new head of the EuroCB, the resplendent GSax pedigreed Mario Draghi, must cover the debt or watch the European Monetary Union crumble in a sea of fire. The central bank must make overt commitments of magnitude. If the crumble happens upon inaction, expect 20 Lehman events with numerous bank failures, starting with France. The conflagration would extend to London and New York.

The market is stating that Italian Govt repayment of rollover debt is in crisis mode, highly unlikely. Italy must roll over more than EUR 360 billion (=US$490 bn) of debt before end 2012. The borrowing costs for Italy have become highly burdensome, if not crippling and destructive. The debt rollover in upcoming auctions stands as the immediate event to watch. Lenders do not wish to hand money to Italy for servicing past debt interest, good money after bad. Even if budget reforms succeed, the austerity measures will constitute more poison pills that assure a faster economic recession from cut projects, more unemployment, and hostile response by the public, like worker strikes. Recall Jackass comments made a year ago. The prevailing opinion was that Italy had favorable debt ratios, like cumulative debt to GDP, like annual deficit to total budget. My objection was that ratios mattered little, when the required debt volume to finance was too large in a crisis filled bond market. My forecast was for Italy to erupt along with Spain eventually. That viewpoint has turned out to be correct.

Barclays has declared that Italy is finished kaput. The next Greek ruin on the plaza square is happening in Rome. The bond market is rejecting Italy loudly. Italy has dragged its feet for two months, rejecting warnings, refusing budget cuts, while its prime minister has given defiant messages loaded with denial. He even accused financial journalists of causing a run on their bonds. Time has run out on Italy. Watch for France to catch the viral contagion, being a major creditor. The Euro Central Bank is the only buyer of Italian Govt Bonds. They are the focus for action. When Italy erupts, it will spread to Spain first, and then quickly to France as its primary creditor. The nation of Spain is not in the news much at all, but it will be next year, just like Italy with the same type of problems, but compounded by a bigger housing bust. The research staff at Barclays in London has declared that Italy is formally finished and cooked, as they put it "Italy is now mathematically beyond the point of no return." The Greek tragedy has finally struck Italy. Expect violence on the streets of Rome and other cities, an Italian tradition where innocuous brands of communism have splintered roots.

BANK RUN NEXT FOR ITALY

An invisible bank run is occurring in Italy. Their banks are trapped, attempting to de-leverage on a perilous tightrope forced by tightened bank reserve requirements. They have developed a big dependence on Euro Central Bank funds. The Credit Default Swap market indicates an expected Italian default. Next the bank deposits will exit. Italian banks have grown overly dependent on the European Central Bank. They borrowed EUR 111.3 billion (=US$152 bn) from the central bank at the end of October, up from EUR 104.7 billion in September and a smaller EUR 41.3 billion in June, as per Bank of Italy data. The five biggest lenders accounted for 61% of the country's draw on ECB funds in September, double that of January. The banks include UniCredit, Intesa Sanpaolo, Banca Monte dei Paschi di Siena, Banco Popolare, and UBI Banca. These distressed banks must reduce their debt load in a highly dangerous bond environment marred by distrust and volatility. The decline in Italian Govt Bonds has rendered great damage to the private banks, reducing their reserve ratios and eroding loan collateral devoted to support regular business credit.

The Italian banks are trapped in the Italian sovereign debt securities. The austerity plans being forced will ensure a recession, thus even more losses for the banks. The run on Italian banks is just beginning, to become more visible in a couple months. The bond market expects some calamities. The debt insurance for individual banks demonstrates the extreme level of distress. European private banks are dumping sovereign bonds, hampering the already strained market. They are forced to comply with tougher newly enforced BIS reserves requirements. They are fighting to survive, but exposing the sovereign bonds as junk, and worse, dragged down by old real estate debts just like in the United States. The entire system is collapsing without potential remedy unless all major banks are liquidated, and that will never happen. They house the political power center, and the bond fraud laboratories. At the heart of the vulnerability is the fractional banking system itself. Insolvency arrives quickly and only worsens until a run occurs. Then comes rampant bank failures.

THE EUROPEAN BANKING SYSTEM IS TOPPLING. IT CANNOT BE STOPPED. GREAT CONTROVERSY WILL RESULT. MOST LARGE BANKS ARE POSTING HUGE LOSSES FROM GREEK EXPOSURE. THE NEXT ROUND OF LOSSES FROM THE OTHER P.I.I.G.S. NATIONS WILL BE AN ORDER OF MAGNITUDE LARGER. THE EXTREME BREAKDOWN WILL OCCUR WHEN THE BIG FRENCH BANKS GO BUST.

Even Citigroup chief economist Willem Buiter recognizes the extreme risk and dire nature of the situation in Europe. He said, "I think we have maybe a few months, it could be weeks, it could be days, before there is a material risk of a fundamentally unnecessary default by a country like Spain or Italy, which would be a financial catastrophe dragging the European banking system and North America with it. So [the central banks] they have to act now." Look for enormous Dollar Swap Facility usage for covering PIIGS bonds, in particular from Italy and Spain. The French Govt Bonds will be next under attack, like in January. Their yields remain low, but they are rising, and the Bund spread is widening. My guess is that the swap facility is already being tapped in heavy volume, on days the Euro currency rises especially.

COUP DE GRACE IN FRANCE

France introduced budget austerity, a surefire time bomb for the big banks that teeter in Paris. Nothing was learned from Greece, where recession is accelerating from the poison pills. The French banks bear the largest load for Italian Govt debt, more than double the German load and almost half the entire European load. France is tied with the lethal umbilical cord from Italy. The Dexia exposure to Greece and Italy has been detailed. German banks are not immune from big losses, nor immune from the financial crisis. Commerzbank suffered a big loss, typical of the German banking sector. With all the attention last month given to the big French banks, the weak links inside the German banking system are only recently coming to light. They are less but still sizeable. US banks are deeply exposed to European Govt debt default insurance. The risk is not offloaded, but rather shared and joined. The risks are rising astronomically for American banks, while large commitments are made, and partnerships are formed. The US press blithely reports a condition of near immunity of US banks from the financial crisis separated by an ocean. Great controversy lurks on insured debt.

If the regional recession does not pull France down, its banks will. They will succumb to horrendous Italian exposure. Notice the French banks have three times as much debt with Italian companies, versus Italian Govt debt. As the Italian Economy slides rapidly into recession, a considerable portion of the nearly $400 billion in total debt exposure will go rotten. One can see that Italy is Greece times seven. German banks are also on the hook for Italian sour grapes, but less than half the total.

The Spanish Govt Bond is the fuse that lights the Semex behind the French bank failures. Their bond yields surged past 6% as the contagion spreads. The bonds of Spain will endure similar pressures as Italy, deep scrutiny, and relegation to the Euro Central Bank outhouse, the major bagholder. The banking system in Spain operates on fairy tale reserves. The Spanish Economy is weighed down by 23% jobless rate. All PIIGS nations will be crushed by the crisis, no nation spared. Spain has officially entered the red zone as their sovereign bonds have been targeted. They have solved nothing, dealt with nothing, and downgraded no bank assets, preferring to live in a make believe world. While the Italian Govt Bond yield has relaxed toward levels below 7%, the Spanish Govt Bond yield has risen steadily since August from 5% to above 6% in an unrelenting march. It took five weeks to breach the 6% level, once the 5% level was breached. The Euro Central Bank is reported to be actively purchasing sovereign bond from both countries, to stem the crisis. Their efforts are futile, since private bank sales rise to supply the central bank at the window. After the official purchases, the private banks are highly reluctant to purchase anew, since that bond market has been badly tainted.

THE CARDIAC MEASURES

The Italian & Spanish Bovt Bonds are in big trouble, but the sleepy story is how France will soon join the PIIGS as the leader in the toxic sloppy pen where monetary paper feces spews openly. Some heavy damage is being quietly done on French bonds, where the banks hold much of their own national debt and the toxic Italian debt. Some claim it is game over with Italy on the ropes. My view is that the game is almost over, as the Italian debacle has spread quickly to Spain. But the main event in the recognized implosion is the sudden failure of all three of France's big banks. When Societe Generale, BNP Paribas, and Credit Agricole all go bust in a sudden burst wave of insolvency, illiquidity, and recorded losses to their artificially lifted balance sheets, the game is truly over. Then and only then, the great reconstruction of the European banking system will begin, complete with $3 trillion in freshly printed money. The Gold market comprehends this fact, and anticipates it fully, with patience. The MF Global corrupted chaos has put a new log in the golden road.

REDEFINED DEBT DEFAULT

The bank leaders have attempted to redefine debt default, as part of the bailout fund negotiations. This is the latest deeply corrupt practice, with some objection showed by the major debt rating agencies. Any loss of original debt security terms is a default, whether voluntary or blessed by the elite cartel. Expect court action and lawsuits in response. Another angle is being covered, whereby redenomination of debt in another currency is also declared not a default event. Great lengths are being taken, for a simple reason. A string of Credit Default Swap claims on debt default would expose the entire market as corrupted and under-funded by a wide margin to honor claims. With defaults, all the big banks would die in a flash. This is huge issue not addressed that invalidates an entire shadow-filled market. If sovereign bonds cannot be hedged effectively and predictably, the bond yields will rise fast from lack of demand. Watch out below for Italy. European banks will suffer losses without buffers that were expected to serve as hedges.

FRAUD OR JPMORGAN RUPTURE ???

Coverage to the MF Global fraud, theft, and violation of the financial markets is full of intrigue and bold strokes. A sacred pledge has been broken against segregated accounts and their partitioned sanctity. Witness the second stage of the grand American fraud exposure. The first stage was the subprime mortgage fraud, with Lehman Brothers kill, JPMorgan assert grab and reload, followed by the TARP Fund dispersal, and the mortgage contract forgeries. The MF Global theft exposes the lack of integrity in the financial futures markets, and one step closer for the death of JPMorgan, which is plugging holes rather than permitting a COMEX default. Over a thousand gold contracts will not be delivered, a breach. Over ten thousand silver contracts will not be delivered, a breach. The final stage could feature a bank holiday and background heist of personal accounts. Some thought such forecasted warnings to be wild and reckless, but look at the pilfered futures cash accounts. Precedent has been set, warning given. Nothing is safe in the American system. Veteran traders should have known better, like Gerald Celente, whose accounts are locked up, cash and all. What a travesty and blight on the US system! Time is slim to remove money from the US system, whose banner is fraud.

MF Global is a more visible and flagrant breach and desecration than the Madoff Fund fraud and theft. The total missing Madoff funds was reported to be $50 billion, when the actual total was closer to $150 billion. The MF Global missing funds are reported to be $650 million, when in reality the total is closer to $2 to $3 billion. MF Global has located $658.8 million in customer funds in a custodial account at JPMorgan Chase, which contained a total of $2.2 billion as of October 31st, including both the MFG money and customer funds, pure commingling of funds. This is a smoking gun certain to go unpunished. My belief is that JPMorgan stole the easily accessible funds placed too close to the action. Harbor doubts that CEO John Corzine will be indicted or serve prison time. The FBI is on the case. Their investigation will most likely be as effective as with Madoff, and recall they protected Goldman Sachs three years ago when a Russian man snatched the Unix software used by GSax for insider trading. It viewed incoming orders on the NYSE microseconds before the orders were executed. The FBI arrested the man, the illegal trading trail went cold, and the venerable firm continued doing God's work. In my view, the MF Global case will render irreparable harm to the US financial system on the commodity side. Countless professional traders and their firms recognize the threat to segregated accounts and their sanctity. Trust is gone, and so is their money. No new money will enter those tables.

Safeguards did not merely fail, they were abused once more in a long list of fraud events. The Commodity Futures Trading Commission has failed on the job for the public, while doing an excellent job for the syndicate in power led by JPM and GSax. The next sham charade will be the big US banks serving on the creditor committees to oversee dispersal of funds that they were not able to steal already. JPMorgan is the agent for a $1.2 billion syndicated line of credit to MFG. It was named to the committee despite also having a $300 million secured loan against the MFG brokerage unit, a position pitted against other unsecured creditors in an obvious conflict of interest. JPMorgan slapped a lien on MF Global assets in an audacious maneuver. A formal dance is in progress, where the public is amateur. Lack of cooperation has been given by MF Global so far. Witness a possible hidden derivatives meltdown, as the European implosion has a conduit to the United States. With inter-bank lending so scarce, many Wall Street banks extended heavy loans to the distressed European banks in the last couple months. The story is not told that way, only as a large financial firm failure run by an ex-Senator and ex-Governor, a fallen pillar in the financial crisis. What has happened could be a critical step toward the ruin of the COMEX itself, and its transition into a Cash & Carry operation for precious metals. The reins holding back Gold are slowly vanishing or being discarded.

Silver Price: India to Break COMEX

Never mind how much silver Sprott Asset Management's Eric Sprott will sell next year, India's 1.1 billion strong makes Sprott's $10 billion enterprise look like a mom-and-pop coin dealer in comparison.

Consider the dynamics of the soaring price of gold on a poor country and its tradition as the largest precious metals buyer, by far, of the world.


As the price per ounce of gold as a percent of per capita PPP of India moved up sharply from 15.3 percent in 2001 (gold price low of $255 to India's $1,669 per capita PPP) to a whopping 39 percent (gold price $1,720 to $4,381 per capita PPP) estimated for the year 2011, Indian consumers have increasingly looked to silver as an alternative to gold.
Though the demand for gold remains strong in India, as the country's gold imports reached 540 tons in the first half of 2011, up 21 percent year-over-year, according to the World Gold Council (WGC), silver imports are expected to rise faster.

“India's fluctuating silver imports are likely to rise 50 percent year on year in October-December quarter as investors shy away from the expensive yellow metal,” according to India-based Economic Times.

As an ounce of gold reaches nearly five months of a typical Indian's income, consumers have moved to silver as a metal to gift or store wealth. Silver, on the other hand, is coveted, though not nearly as much as gold, can be purchased at a 50 to 1 rate for the same amount of money.

Because of India's strong religious and social customs that reach back thousands of years, precious metals will always be an integral component of Indian life. Precious metals are to India as stocks are to Americans, though one can easily argue that India's lust for gold and silver is much stronger than American's propensity for stocks.

So how do Indians cope with the high price of gold? Substitution. Silver.

"Both metals were in demand , but since silver is cheaper, people preferred buying it," Rajiv Gupta of Nagal Jewellers in Sadar Bazaar told Economic Times.

Jewelers also report Indian consumers buying more coins, more silver and less jewelry this year. Inflation in India reached double-digits rates in 2011, and the people can feel it in the cost of food, energy and housing, turning to precious metals as a store of wealth—in addition to the gifting tradition.

"Coins, especially of silver, are much in demand as people are buying precious metals not only as gifts but also as an investment," said Sandeep Gupta of PP Jewellers.

The number of tons of silver reaching the shores of India is soaring—a grossly under-reported story in the precious metals community. Sure, the typical gold bug can cite WGC statistics for India, but what about silver's stealth advances in market share there?

“India, the world's largest importer of silver, could import 250-300 tonnes (8.8 to 10.6 million ounces) of silver during the quarter, Prithviraj Kothari, president of the Bombay Bullion Association told Economic Times.

Taking 250 tons of imports—just for the fourth quarter!—into better prospective, that rate of consumption—alone, without additional supplies coming on stream through mining activity or scrap, the COMEX would be wiped clean of its paltry supply of 31.1 million ounces (as of 9/28/2011) within 12 months. (One metric ton equals 35,274 ounces.)

And it gets worse for the COMEX. The latest steep drop in the silver price from nearly $50 to $34 per ounce has generated more demand for the white metal among Western investors. But in India, the demand for silver could accelerate more, as the consumer there doesn't need a silver guru to tell them it's time to buy.

Harshad Ajmera, proprietor with Kolkata-based wholesaler, JJ Gold House, told Economic Times, "Silver prices are in a comfortable range and people are considering it as a buying opportunity."

Those watching CPI and PPI data releases from the US Commerce Department as well as the drama in Europe's slow-motion financial collapse should affix at the top of the list of silver investor knowledge the silver imports and monthly CPI data in India. There's where the action truly is.