-- Published: Wednesday, 27 August 2014 | Print | Disqus
By Bill Holter
I have had many people tell me they agree with my thought process on events but don't understand "why" or "how" the financial system has held together. Why of course is the easy part, no one wants to see the system come apart at the seams, especially the ones running the casino and benefitting the most from it. I think the better question is "when". I am constantly asked when I think we will see a systemic cascade and my standard answer is "it should have been two (or more) years ago as the question has not been "if" but when for at least that long. Actually, it was pretty clear in 2012 that QE was not working and not the answer, we should have collapsed then. Were they to have allowed this thing to go over the cliff in 2009, we would be in a real recovery already but no, bailing wire and chewing gum has been used to keep the charade going.
As for how the can has been kicked this far down the road, it is obvious there are two (actually 3) feet that have and are kicking the can furiously. These are all obvious but I will repeat them here. 1. the ability to freely and in unlimited quantities print money (and thus borrow). 2. the availability of derivatives contracts to "make" the price of anything ... any price desired and 3. "leverage". These 3 techniques combined have hidden the reality of bankruptcy ...by, and, making us even more bankrupt!
As for "when", I will point to several events which all point toward the decline of American status into chaos. One huge and obvious clue is our lesser status in international circles. This has been a process over many years and has been speeding up rapidly in recent years. All you need to do is look at the various conferences where the U.S. is no longer put out front and center for photo ops. Another telltale sign is how John Kerry has been received (or not) at several diplomatic meetings. In fact, "disrespect" is the word I would choose to describe his treatment. Please understand that when it comes to diplomacy, nothing, ever, is done by mistake or oversight. The Chinese in particular are extremely careful in what they do and the messages which they might send. The most recent "Top Gun" like aerial events and then following statement by China speaks volumes. Can you imagine even 5 years ago the U.S. being called a "disgusting thief spying over his neighbors fence"? It appears our relationship with China (and the rest of the world) has taken a very bad turn for the worse. Recently there have been airstrikes into Libya by the UAE and Egypt where the U.S. says they had no foreknowledge of them. Really? If this is true then what in the world are our so called "allies" thinking? Were these strikes carried out because we would not? I find it hard to believe we had no knowledge but if this is truly the case, our "coalition" is folding. And what of the aid being withheld to Israel? What does or could this mean in the longer run? What of the Saudis? Will they continue taking dollars and only dollars for oil? And our now "new" relations with Russia? My point is this, no matter where you look internationally, the power and "iron fist" of the U.S. is weakening.
That said, I believe we have been "allowed" to continue on and even expand the façade of solvency. You have read my theory that the Chinese are the proxies behind the huge open interest in COMEX silver, this may or may not be so. What is "so" is China has become the largest creditor of the U.S. and also holds the largest dollar reserve position. In my opinion, China could have pulled the plug at any time since the fall of 2008 but they have not. In fact, I believe they have carried us along and even "enabled" us to dig our fiscal hole even deeper, this seems like it may be changing. I believe we have been "milked" for many things over the years from our consumer market purchases to technology and of course our gold. What does the U.S. have left to offer our creditor(s)?
Another thing that's changing is the Fed. They have boxed themselves into a corner with zero percent interest rates and QE supposedly ending (or not). They cannot ever raise interest to any significant degree without blowing up the derivatives complex. As for QE, they can no longer continue because they have taken too much "collateral" out of the system already. But, they MUST continue pumping free money into the system to keep the bubbles from collapsing, quite a dilemma. I am sure the Fed will in some way or manner figure out how to replace the $85 billion per month that was QE in "public". Whatever the form, the Fed will now out of necessity need to do it under the table and out of sight. You may recall a year ago, China began last fall calling attention to us becoming "responsible" with our fiscal and monetary policies, have we?
One other area to look at is the fact that the Shanghai metals exchange will be fully live by October. Quite interesting however is the status of their silver inventory. This has now dropped to a tiny103 tons, down from 1,143 in Jan. 2013, just 19 months ago. How will this exchange settle without inventory? Will the Chinese replenish the inventory from the supposed COMEX stocks? Will the COMEX stocks even make through the September delivery period as more contracts are still outstanding than there is silver for delivery? I assure you, if any exchange anywhere in the world is found not able to deliver, a scramble for metal will ensue where not even the strongest "leg" in the world will be able to kick the can further!
So back to "when", when do the wheels fall off? If I knew this I would have told you five years ago and not written again until 30 days before the "date". All I can say is that the U.S. has obviously lost power and prestige internationally and recent displays of a "lack of respect" may very well be a sign. A "sign" that the plug will be pulled soon. The U.S. I believe fully understands this which is why the desire to get a war, any war started as soon as possible.
I have thought over the last 5 years that a complete financial crash could have taken place at any time. In hindsight with 20/20 vision I still believe the same thing. At any time for any variety of reasons our markets and banking systems could have seized up. The Fed (and Treasury) have done anything and everything they could to forestall it ...and I believe we had foreign "help". You must wonder where this "help" will come from going forward as our ability to purchase goods and deliver gold ends? My answer to the question remains the same, our markets and banks can close for an extended and unscheduled holiday on any given day and for any number of possible causes. No one knows when nor what the trigger event will be. I have looked at this from every angle of the Devil's advocate. I have not seen one single scenario suggesting the system is sustainable for any length of time that is logical. ALL of the math, logic and common sense points towards a train wreck which grows in size for each day that it doesn't arrive. "It cannot happen because it hasn't ever happened" does not apply.
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-- Published: Wednesday, 27 August 2014 | E-Mail | Print | Source: GoldSeek.com