US Federal Reserve credit dropped US$58.5 billion last week, taking the total
amount of Federal Reserve credit that they created to a hefty $1.997 trillion.
Now, one does not have to be a paranoid, gold-bug, gun-nut, Austrian-school
economist lunatic moron like me to see that if you take this weekly decrease in
Fed credit and multiply it by 52 to get the yearly total, it comes to a
staggering $3.042 trillion a year, which be a whopping 40% decrease in the M2
money supply, which would be plenty bad enough if that were the end of it, but
this is Fed credit, which is the stuff of legend where it appears as if by
magic - poof! - in the books of the banks (although it is not magic that put it
there, but the mere whim of Fed chairman Ben Bernanke), which the banks use to
lend out gigantic multiples of that increase in credit! Gaaahhh!
If you are a new Junior Mogambo Ranger (JMR), then you may be
unaware that the "Gaaahhh!" appended to the foregoing paragraph is a secret
coded signal, and according to the highly secret Mogambo Highly Secret Code
System (MHSCS), the three "a's" followed by three "b's" after the original "g"
is a secret code, a "highly secret" secret code, that means "Some moron is
jerking monetary policy around willy-nilly, and that kind of stupidity is so
highly dangerous that not even professionals should try this at home, which
means that you should be buying gold, gold, gold!"
And if you look at the bottom of the MHSCS entry, you will see the Three Best
Mogambo Action Recommendations (TBMAR) to respond to this situation are "Buy
gold and silver. Hole up in a bunker. Trust no one."
Now you know why I spend such an inordinate amount of time locked inside the
Mogambo Hopefully Impregnable Bunker (MHIB), although it does not explain why
the price of silver is so low as to be absolutely ludicrous, what in the hell
any of this has to do with silver in the first place, or why I spend so much of
my time telling other people to buy silver to take advantage of these low, low,
insanely low prices when I should take the advice given to me so, so many times
by so, so many people throughout my life, which is to "Shut your Stupid Mogambo
Mouth (SMM)", especially since I recall that the alternative was usually a
veiled threat in the form of a "knuckle sandwich" to stick in my SMM.
I think that the reason that I cannot keep the secret of silver being so
under-priced to myself is because it does not matter! Nobody is going to listen
to me anyway, and that means that I can keep buying silver at these low, low
prices until finally reality catches up with the silver market, and when it
does, I will be Sitting Mighty Pretty (SMP) with more money than I ever
imagined, and people will say, "Why didn't you tell us to buy silver, too, so
that we, would have a lot of money, too? Or at least have enough to buy dinner
instead of having to stand here, broke and hungry, watching you stuffing your
Stupid Mogambo Face (SMF) with succulent appetizers, entrees and desserts, and
watching pieces of food are falling out of your mouth, down your chin, bouncing
off of your shirt, and into your lap; you are a disgusting, filthy pig!"
Ted Butler, independent silver market observer, has never commented on my
seeming lack of table manners or has actually told me "Shut your Stupid Mogambo
Mouth (SMM)," and if you call him up to verify it, he will immediately reply
"What? Who is this? What's a Mogambo?" before hanging up, which ought to prove
it to everyone's satisfaction as it does mine!
Anyway, Mr Butler has been a long time looking at the obvious manipulation in
the silver market with just a few "players" actually controlling the price so
as to, I figure, run a scam, and up to now it has been up to Mr Butler to
identify the blatant criminality in the Comex futures market, while it has been
up to me (as the other member of the team) to call all the people involved in
the scam a bunch of "lowlife scumbag thieving cheating lying pieces of crap"
and demand that they all be taken out and shot or given prison terms of 150
years each, a la Bernie Madoff, who was also a "lowlife scumbag thieving
cheating lying piece of crap".
But while I am doing this, see, I am buying more and more silver more and more
cheaply and Mr Butler is, I assume, buying more and more silver more and more
cheaply, and everyone who has looked at the insane imbalances in silver are
buying more and more silver more and more cheaply since the price of silver
does not rise even though the purchasing power of the dollar is in a downward
trend, thanks to the seemingly-impossible amounts of federal government
borrowing and deficit-spending that will be financed by the Federal Reserve
creating the seemingly-impossible amounts of money and credit to loan to the
government.
But those halcyon days may be over, as things may be changing, as Mr Butler
notes that "On June 24, the US Senate Permanent Subcommittee on Investigations
issued a 247-page report entitled, 'Excessive Speculation in the Wheat Market'
where they found that 'the CFTC failed to uphold commodity law, by allowing
large index traders to hold long positions in wheat well above the proscribed
speculative position limits of 6,500 contracts'." The senate found that the
CFTC "failed to uphold commodity law"!
The problem, beyond mere criminality and fraud, is that traders with large
positions can cause prices to be distorted, which Mr Butler phrases, "If a
futures market position grows too large it will affect the underlying cash
market."
He goes on that this is serious business, in that "The report indicated that
the large long positions of index traders caused the price spike in wheat and
other markets last year" by which they intend to remedy the situation by
recommending "that the CFTC scale back their permission to hold positions above
the limits, and lower those limits if necessary."
In wheat, Mr Butler says that there are "roughly 25 to 30 long index traders
operating in the Chicago wheat market at any time," which is plenty enough to
prevent collusion, and even so, "the Senate report concludes that in wheat the
limit should be no more than (the existing) 6,500 contracts and perhaps 5,000
contracts."
And if you are thinking, "How did the report determine this number of
contracts?" he explains that while it seems kind of arbitrary, "the 6,500
contract position limit in wheat is equal to 32.5 million bushels (5,000
bushels per contract). The total US annual wheat crop is 2 billion bushels.
World annual wheat production is 10 times that, at over 20 billion bushels.
Therefore, the position limit of 6,500 futures contracts represents 1.6% of the
total US wheat crop (32.5 million bushels vs 2 billion bushels)."
And to the effect that US speculative markets influence world markets,
"Relative to the total world wheat crop, the 6,500 position limit represents
0.16% of the total 20 billion bushel crop", which pretty much rules out any
global plots, schemes or scams to corner the wheat markets.
On the other hand, things are ripe for plucking, because "In silver, there are
no hard position limits in force. There used to be, but the CFTC allowed the
COMEX to replace hard position limits many years ago. Instead, now there is an
'accountability limit' of 6,000 contracts."
The trouble is that "Since there are 5,000 ounces in a COMEX futures contract,
the accountability limit is equal to 30 million ounces", which means that
"Whereas the position limit in wheat was 1.6% of the US crop, the
accountability limit in COMEX silver is almost 52 times larger, at more that
83% of total US mine production (estimated at 36 million oz by the USGS)."
As for the chance to stick it to the whole world, "While the position limit in
wheat was 0.16% of the world wheat crop, the COMEX accountability limit is 28
times larger, at 4.5% of the world silver mine production (660 million oz per
the US Geological Survey)."
The point of all of this is that the Happy Days for the slimy insiders in the
silver futures and options market, and those glorious days when you and I could
buy ounce after ounce silver at these low, low, unheard-of low prices, are
almost certainly all gone, now that the senate has found willful corruption,
and so the day will soon come when silver, free from the slimy manipulations of
insiders that one could even argue violate the 14th Amendment, will rise,
perhaps a dozen-fold, in price, re-establishing the 16:1 ratio of silver to
gold, which will also be, almost certainly, up.
At that point, which you will know from the newspaper headlines proclaiming,
"The Mogambo was right! We're freaking doomed!" the population of the world
will be divided into people who either say, "Oh, of course I am so smart that I
always saw the inexplicable and unsustainable 70:1 ratio of silver to gold,
which is far outside the historical ratio of 16:1, but I was just waiting for
the perfect moment to make my move into silver and I, like all the other
experts, missed the boat because of some excuse, and people who followed our
advice missed the whole thing and did not make a dime", or they will be the
other people, the ones who were buying silver the whole time and who were now
saying, "Whee! This investing stuff is easy!
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 2009, The Daily Reckoning.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
