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The Perfect Storm : Will Silver and Gold Short Squeeze Collapse the Bond Market?


 -- Published: Sunday, 22 June 2014 | Print  | Disqus 

In October of 2013 I wrote an article titled “Gold Market Sunk to Keep Bond Market Afloat” [1], in this article I made the argument gold and especially silver prices are being violently manipulated and held below free market dollar prices in order to sustain and prolong the collapse of the US Bond market.   

 

The United States Bond market, in my estimation, is the largest bubble, in terms of nominal dollar value, and the most defended Ponzi scheme, in terms of wealth squandered to sustain prices, in recorded history. 

 

In recent days there has been much excitement in the gold and silver markets regarding a possible short squeeze in progress dramatically raising paper market silver and gold prices.  [2]

 

The price of silver has increased by $2.00 since the June 1 representing more than a 10% increase in the price of silver in 20 days. The same situation in gold with gold rising   roughly $70 per ounce since June 1 translating into nearly a 6% increase in price. 

 

The price of silver is the most defended asset price on the earth, with as much as $5 Trillion dollars of silver related derivatives being created to defend and maintain an unnatural and absurdly low price for the silver metal. [2]

 

Bond Bubble the Last Support for American Financial System

 

The price of silver must be defended and maintained at the lowest possible price so that the US Bond bubble can remain inflated.  

 

The nearly $37 trillion dollar US Bond market is 29% Treasury bonds of which 60% are 10 year or less notes.  The Treasury market is the life blood of the US financial Ponzi scheme, the primary source of cash used to make payments on debts and continue to fund ever increasing government spending. 

 

The remaining bulk of the $37 trillion is in Mortgage and Corporate Bonds representing the financial wealth of the entire United States GDP.  

 

Rising interest rates in short term bonds will instantly cripple the Federal Government’s ability to make interest payments on debt that has risen from $2.54 Trillion in 1980 to $37.46 Trillion in 2014, a 1400% increase in 34 years (not inflation adjusted). 

 

Even a small increase in 10 year treasury yields would set into motion a crippling credit crunch as the federal government scrambled to find and create dollars to make interest payments.  Increasing Treasury rates cause rising rates in adjustable rate mortgages and signal increasing in corporate debt borrowing costs, all of which would exacerbate and accelerate an evolving catastrophic credit crunch. 

 

Silver and Gold and Oil Oh My

 

As can be seen in the chart below the 10 year yield has risen 24 bases points since June 1 with yields now at 2.64% up from just under 2.4% on June 1, 2014, representing a 10% increase in yield.  

 

During the same period Silver has increased 10% and gold just under 5%. 

 

Chart courtesy of StockCharts.com

The critical issue for debt based currency is not the total amount of debt in the system, but the size of interest payments. Debt based currency scams become unstable “when total debt ‘crosses the Rubicon’ where interest payments on debt already created, significantly affect future interest payments as previous payments are borrowed into existence.” [1]

The current situation for the those managing interest rates in an attempt to forestall reality and maintain the bond market Ponzi scheme is: rising asset prices, particularly monetary metals and the price of oil, axiomatically affect face values of bond products through the mechanism of dollar purchasing power.

The price of silver is the weakest link in a chain of deceit holding the financial system fraud in place. The silver market is exceptionally tiny compared to the size of other pillars in the house of cards currently supporting the bond market. The annual silver investment demand is a paltry, tiny, infinitesimal $2 Billion dollars (100 million ounces @$20/oz)

Comparing gold with silver, gold’s annual demand is between $80 and $100 billion dollars. With about 1 billion of ounces of silver available for transaction, only 100 million ounces are actually in the system for investment demand. The point being if demand changed even slightly, the price of silver would skyrocket as the small supply tried to accommodate rising demand.

Rising prices in silver quickly undermine the value of the dollar as more dollars are required to purchase the same quantity of silver. Historically silver has been the currency of the United States with the dollar being defined by the coinage act of 1792 as 371.25 grains (troy) of silver.

The trick of the Federal Reserve Act of 1913 was to force people to use a private banking script called the Federal Reserve Note (FRN) as currency and then price silver and gold in terms of the FRN. However, the Federal Reserve Note is a fictitious, valueless contrivance which must be borrowed into existence creating interest payments for every FRN in circulation and is therefore not money or in no way a store of value and, in fact, devalues with each new dollar borrowed into existence.

The currency market, being a construct of reality and subject to the laws of nature, continues to value Federal Reserve Notes in terms of natural debt free money, in the case of the United States, in terms of silver (and by derivative gold).

Therefore rising silver prices signal collapsing purchasing power of the Federal Reserve script while signaling silver is a store of wealth as silver’s purchasing power remains stable as commodity prices rise in Federal Reserve script.

A Perfect Storm Collapsing The Bond Market

If silver (and gold) are experiencing a short squeeze with bankers, hedge funds and financial entities representing governments opposed to honest money attempting to replace silver sold short with real silver to cover, the ability of the silver price manipulators may be compromised as supplies of real silver available to make good short sales are decreased, perhaps dramatically.

Next the war in Iraq and escalating chaos in the middle East is putting pressure on oil prices and oil has begun to rise at the same time as rising silver and gold prices. True enough, silver and gold will rise in price as oil rises in price, since oil can also be priced in silver and gold and historically monetary metals have maintain purchasing power while paper fiat money purchasing power declines with rising oil prices.

Therefore this may be the perfect storm finally bringing the corrupt, foreign occupation forces controlled American financial system to a collapsing point.

Rising prices in gold and silver and oil signal a loss of purchasing power of the dollar, leading to increasing interest rates to compensate for declining bond face values in terms of purchasing power. Small changes in interest rates can quickly destabilize the financial system as a credit crunch is created - leading to a spiraling collapse of the bond market as bond sellers purchase silver and gold and oil (a run to safety), increasing these prices and crushing the value of the dollar and while rising interest rates destroy the bond market.

Something Has to Give

The caveat in this analysis is the financial manipulators can also manipulate the price of the stock market, causing a crash which would increase the value of dollar and produce a so-called deflationary collapse of the financial system which could mitigate some of the effects of rising silver and gold and prices as monetary units flee the falling stock market and bolster the bond market Ponzi scheme.

The bottom line is rising silver, gold and oil prices will put pressure on bond yields requiring desperate action by the criminals manipulating the financial markets. If these monetary metals continue to rise in price expect a concerted effort to take down the price of silver or gold OR expect the system to collapse the stock market either directly or via some false flag event that “scares” the financial markets into fleeing the stock market into the Treasury market.

For those fearing the worst, I believe safety is still available by converting your Federal Reserve script into physical silver and by doing so you will also be helping to put an end to one hundred years of darkness created by the infiltration of a global banking parasite into the monetary system of the United States of America.




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 -- Published: Sunday, 22 June 2014 | E-Mail  | Print  | Source: GoldSeek.com

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