Chicago Gold and Silver Investing Fan Blog

The COMEX Silver Cartel by Tedd Butler

The COMEX Silver Cartel by Tedd Butler

Butler feels that 4 major players control the world silver market. They have an incentive to keep silver prices manipulatively low. Becuase they make money shorting silver. COMEX makes money on short paper positions. However, one day silver will not be available. Butler has been warning about that day for a long time. That is why he recommends holding the physical stuff.

New currency has to be created every time interest is owed on debt

The above chart shows the monetary base in the United States. As you can see as early as 1995, we had  money base of about $200 billion dollars. Since then it has risen to about 2.6 trillion dollars. Our money supply has increased about 350% in 26 years.

Why is our money supply increasing at such a fast rate?

It is because "new currency has to be created every time interest is owed on debt."

To help understand this statement, I am going to do a little thought experiment.

 

1) Pretend a world where there was only one bank. Then, all the currency disappeared except for one US dollar above.

2) Then the bank lends out that one dollar to you.

3) You are happy because you now have one dollar in your possession.

4) Then you find out that the one dollar in your hand is the only dollar in the world and that you owe the bank one dollar plus interest.

5) So you think of an idea. I don't have any currency to pay the interest. So I will borrow currency into existence.

 

 

Imagine if the one dollar that I started out in this thought experiment represented all the dollars in world in 1995. Whenever new debt was created, interest was owed on that debt. In order to pay the interest new currency has to magically be created from new debt.

That is how the United States monetary system was designed. Everytime debt is created, new currency has to be created interest is owed on debt.

I know...crazy and unsustainable. That is why all this new currency has to be created all the time.

Video: Eric Sprott from Casey Research

The latest new expert on all of this financial armageddon:

 

Video: Debt Collapse by Michael Maloney

Rising Inflation in India spurs more silver sales in India

Indians are one of the top gold purchasers in the world. However, with high gold prices (about $1650/ounce) and with rising inflation in India, some Indians are considering the next best alternative- silver.

An IBN article quotes a couple people before the upcoming Indian Dhanteras, a 5 day Diwali festival, where Indians buys lots of precious metals.

"We are interested in silver coins for mahurat (auspicious) trading. We can buy more silver for a lesser amount. For gold we will have to pay a high amount," said 50-year-old PS Singhvi, a businessman, in Hindi.

He was one of the prospective customers in a queue of more than 100 people outside the 223-year-old Narrondass Manordass establishment at Sheikh Memon street in Mumbai's Zaveri Bazaar, one of the busiest bullion markets in India."

The price of gold and silver is affeted by demand. India is one of the biggest purchasers of precious metals especially gold, so it is important to keep a close eye on India.

According to a Mineweb article:

"Demand for gold bars, coins and other pure investments in India, Asia's third-largest economy, soared 83 percent in 2010 from the year earlier to 349 tonnes, according to GFMS, a precious metals consultancy that is part of Thomson Reuters."

Black Swan Investments Getting Popular

A Black Swan investment is an investing things are going to get very wrong. In a black swan investment, you use leverage to bet that a market or a security will lower. The more it crashes the more money you will make. For example, some investors made billions on their investments from Credit Default swaps after the sub-prime mortgage crises.

A Bloomerg article reports that Black Swan investments are increasing in popularity:

"Assets in black swan and tail-risk funds, which hedge against low-probability events and are named for the tapered lines at either end of a bell curve, are ballooning. They jumped to $38 billion in April from $500 million prior to the collapse of Lehman Brothers Holdings Inc. (LEHMQ) in 2008, according to a JPMorgan Chase & Co. (JPM) report."

 

Although they are getting popular, be very careful of Black Swan Investments. They involve a high risk if you do not know what you are doing. If you are in that category, it may be wise to stick with gold. Gold is a form of Black Swan investment. When inflation rises and people lose faith in central banks fiat currency, demand for gold and hence the price for gold will sky rocket.

If you study the fundamental properly and have some money to investment Black Swan Investments could be the way to go. But you really have to know what you are doing.

Keep an eye out on China gold purchases

While the United States is a large purchaser of gold, it is nowhere near the largest. The largest purchaser of gold has been traditionally India. However, for the first quarter of 2011 it was China. The Chinese central bank- called the People's Bank of China - has increased itsgold purchases. Also, the Chinese government has encouraged the purchase of gold by its citizens. Gold jewelry purchases has increased 21 percent the first quarter of 2011.  Also, China will be soon start having gold dispensing ATM machines.

All of this gold buying activity has Albert Cheng, managing director of the Far East at the World Gold Council predicting that Chinese gold demand will double by 2020. 

When the demand for an item outpaces the supply of the same item, the price of the item will increase. Gold is already in high demand in India and it is increasing in China. China and India are the two largest purchasers of gold. Thus, gold prices will surely raise.

We have seen the future and it is bankrupt Vallejo, CA

Vallejo, CA was hit hard when a combination of a crash of tax revenue due to real estate prices crashing and increased costs due to a large part public sector union unfunded liabilities. The result was Vallejo declared bankruptcy in 2008. A couple years later it is still in a mess. The city has over 1,000 claimants asking for about a half billion dollars in claims yet has only about $6 million dollars to spread out to them.

Currently, the city is going through the bankruptcy courts to settle the claims.

Michael Lewis spells out the plight of Vallejo in his great article California and Bust.

Raising taxes are no longer an options. It's residents will not accept it. Cutting government employees and services are almost no longer becoming an option, they are almost to the bone in that. The article states that you can get ot a day, where you cut everybody except for one employee. That employees sole job is then to dole out money to all the previous goverment workers.

At the rate the United States is going, there will be municipal bankruptcies happening soon all over the United States.

This may be a good thing. It will allow governments to escape the union contracts that have been strangling local budgets.

See Vallejo, California is an example of a classic bubble.

A bubble according to David Wiedmer is:

"An asset value that temporarily booms and eventually busts, based on changing investor psychology, rather than on underlying fundamental economic drivers that are sustainable over time."

In the case of Vallejo, the bubble was the pension and benefits owed to the public sector unions. The unions and Vallejo agreed to a contract that pays them their compensations. In a balanced situation revenues combined with pension contributions cover costs. However, over time the costs outweighed the revenue coming in. In other words, Vallejo created a system that is unsustainable and will eventually pop. That is where they are now. Vallejo cannot meet its obligations. So everyone is angry and everyone loses. The taxpayers and residents of Vallejo pay high taxes, see their real estate values plummet, and their government services lower. The government worked of Vallejo facel layoffs, reduced hours, reduced pay and benefits, and if they are lucky even get to see their pension and other retirement benefits.

Why is all of this happening. To get an idea of why, I recommend that you read the book Aftershock by David Wiedemer.

 

Must Read Michael Lewis Article

Author Michael Lewis is going on a finanicial disaster are tour. In his lastest book he visited bankrupt Iceland, Greece, and more. In this latest article I just discovered he visits California. It is a must read for anyone that is looking to see the future financial disaster that is coming to American states.

Governments do not like anything that takes away their control

Government like control. That is why they raise taxes and have regulations abound. They also want control of currency, banks, and the financial system. See, countries want a financial system that they can control and finance all of their activity. When they have a monopoly on the currency people use, they know they can create the system of tax collection and meet their needs. That is why they hate gold. Gold is the ultimate rebel to the government controlled monetary system.

Gold is a way of conducting business and making transactions that does not utilized government issued currency. Thus government cannnot track transactions and most importantly collect taxes.