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     Aug 22, 2008
The new silver - made with paper
By The Mogambo Guru

Things are so weird lately that I nervously put a new layer of aluminum foil on the ceiling and walls of the Fabulous Mogambo Bunker (FMB) in another pathetic attempt to keep what I assume are Government Stupid Rays (GSR) from being beamed into my brain, too, as things are getting Really, Really Weird (RRW) out there.

The weirdest thing of the whole week was that gold and silver suddenly collapsed in price when they should have been zooming to the freaking moon in response to the inflationary and deflationary horrors that are appearing everywhere. And you

 

should have seen the gold lease rates jerking around on Monday! Weird!

Many other people are likewise perplexed at this bizarre event, so it ISN'T just a change for me, given that many people have noticed that there is almost no silver for sale, and there are plenty of people who want to buy some, and when they do find some for sale, they find that the asking price is way, way, WAY above the spot price of silver! So that's something else weird!

So perhaps it is not just coincidental that Chris Powell of GATA.org posted the headline "US Mint Suspends Gold Coin Sales", by which he means the news that "The US Mint has suspended sales of American Eagle gold coins."

Mr Powell figures that "the suspension is overwhelming evidence that the futures contract price of gold on the commodities exchanges is substantially below the physical market price and that, indeed, the commodities exchanges are being used as GATA long has maintained - as part of a massive scheme of manipulation of the precious metals, currency, and bond markets," which is not really all that much news, as the International Monetary Fund, Bank for International Settlements, US Treasury, European Central Bank and US Federal Reserve officials have all long ago acknowledged that they do, and will do, these kinds of things any time they want.

The result is that "the Western central banks, desperate to prop up a corrupt and tottering financial system, have put gold so much on sale that even the US Mint can't find any now", as nobody is stupid enough to sell their gold, or silver, at these low prices! Wow!

But the question on my trembling lips remains, "Regardless of why silver went down by so much so fast, why did it go down at all?"

Jason Hommel of silverstockreport.com explains, "Many people agree there is a shortage of retail investor silver, but they get confused by the lower price. They think a lower price means more silver must have come into the market."

I naturally leap to my feet and exclaim, "Well, if one looks at the classical supply/demand dynamic, where the supply curve meeting the demand curve determines the price, then, yes; silver supply MUST have come onto the market to swamp demand, making the price go down! That's the way things work! Everybody knows that! Do I look like I am stupid or something? Is that what you are saying? You're saying I'm stupid, like I don't understand supply and demand or something? Is that what you are saying, punk?"

Well, I could see Mr Hommel struggling to contain himself, as bitter experience has shown that everyone is always happy to tell me that, yes, I look stupid, and not only that, but I sound stupid, I act stupid, I am stupid, and I smell funny, which must be the fabled "smell of stupid", which must be (also learned by bitter experience) also something of a babe-repellent, looking back on it all after all these years.

Instead, perhaps taking pity on me and my many, many personal problems in the areas of looking, sounding, being, acting and smelling, he says through gritted teeth, "That is not how our markets work."

Of course, I figure that he is arguing with me! Happily argumentative, I retort, "Wrong-o! That's how ALL markets work; price equilibrates demand and supply so that they equal each other!"

I was feeling pretty smug about this time, because if there is one thing I know for sure, it is that the prices going up and down make demand equal supply. So, thinking that I had finally, at last, bested Mr Hommel in an argument, I sat down with a cruel, sadistic grin on my face, crossed my arms in self-satisfaction, and thought, "Touche!"

My comeuppance was, as usual, not long in coming, and almost instantly I see where he had cleverly maneuvered me into revealing that everybody is right; I really AM stupid! He wasn't taking about silver bullion at all! He was talking about paper promises to deliver silver!

With my face burning in embarrassment at how easily I was duped, I could feel Mr Hommel's eyes burning into me as he said, "Our markets are affected by paper silver futures contracts, and very few people ever attempt to take delivery of that silver; they buy it on leverage, for the investment returns, not for real silver. So, some people can sell 'silver promises' to excess, and never deliver, and if they sell more 'paper silver' than exists, that can manipulate the price."

This is entirely congruent with SeekingAlpha.com blaring the headline "The Disconnect Between Supply and Demand in Gold & Silver Markets". They explain that "western markets are, with the exception of some fabrication and industrial demand, almost 90% paper based", which is making it very easy for the world's bullion banks to affect the price of silver by "managing deliveries of physical gold and silver to artificially reduce the quantities delivered", which they do by restricting credit to buy gold.

Then, out of nowhere, in one of those flashes that sometimes determines the course of history, I instantly decide that Mr Hommel, explaining the business plan of "sell 'silver promises' to excess, and never deliver", was too good a deal to pass up! I immediately went into the silver business!

Within a matter of mere seconds, with a fanfare of trumpets I proudly introduced the new Mogambo Silver Service (MSS) - a trusted, old-line firm, founded by God-fearing Pilgrims when they stepped off the Mayflower onto Plymouth Rock and said, "This looks like a good rock to step on to get off of this damned boat!"

So, from now on, if you ever want to buy some silver, MSS will sell it to you at the lowest price possible; the spot price! All you have to do is just send the money to me, in cash, in a plain brown envelope addressed to "Occupant", and I will gladly send you a piece of paper that says I sold you some silver.

And this is real paper silver, too, made with real paper! With a stamp and everything, but without any fingerprints or DNA anywhere on the paper, the envelope or the stamp, so don't bother looking, as I am waaaAAAAaaay ahead of you and your ill-tempered prosecuting attorneys!

And the ugly lesson is; you thought that the fraud of naked short selling was only for stocks? Hahaha! Wrong! It's every-freaking-where! Hahaha!

And when you have that kind of pandemic, systemic corruption, created by greedy people exploiting inattentive regulators and complicit government, and financed by the damnable Federal Reserve creating all the money and credit to pay for it all, then you are 100% right to be buying silver and gold to protect yourself against the inflation in prices and economic calamity that are sure to follow.

Your only mistake was to not take delivery of the actual silver, but instead taking a flimsy piece of paper.

And even if the "paper promise" to deliver silver is not from Mogambo Silver Service (MSS), then it is almost certainly something of equal value when one considers that more silver has been "sold" in paper promises than the amount of silver that actually exists in the world! Hahahaha!

Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.

(Republished with permission from The Daily Reckoning. Copyright 2008, The Daily Reckoning.)


THE COMPLETE MOGAMBO GURU


1. Americans play Monopoly, Russians play chess

2. Goodbye Musharraf, hello Taliban

3. US falters on NATO's failure

4. Kosovo comes back to bite the US

5. Bush buried Musharraf's al-Qaeda links

6. Hostage Europe blind to Iran energy

7. The profit potential of pork products

8. US faces up to life without Musharraf

9. Georgian planning flaws led to failure

10. The new cold war era

11. Singapore hangs out jobs-vacant sign

(24 hours to 11:59pm ET, Aug 20, 2008)

 
 


 

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