George writes:
Perhaps the "Doc" could give everyone a simple (and I mean simple without jargon) explanation of how Blythe can take down the price of Silver with just plain bits of paper.
There are so many sites that constantly talk about trading Silver and Gold but for the average person they are all written in gobbledegook.
It seems to be a badge of honor to talk in jargon as though they don't want anyone else in their little world.
George:
Excellent question, and I will do my best to answer it satisfactorily.
Blythe refers to Blythe Masters, head of global commodities at JP Morgan Chase. When using the name Blythe, we really mean the cartel as a whole, because the cartel is larger than just JP Morgan Chase, although it is believed that said bank holds the largest naked short silver position. "Blythe" is basically the name or face that the gold and silver community has put on the gold cartel.
A review of the origins, history, and purpose of the cartel is in order to understand the ultimate purpose behind the suppression of gold and silver.
As to how Blythe (the cartel) can take down the price of silver with just bits of paper- this is mainly accomplished by naked shorting silver futures on the LBMA and the COMEX.
A naked short is when the seller shorts the commodity, yet does not actually hold any physical silver to be delivered to the long. Rather than borrowing silver and selling it back on the market at hopefully a reduced price in the future (a conventional short sale), a naked short is made when the short seller enters a futures contract (with a long) without first borrowing the silver.
For example, 4 US banks currently hold 113.14 Million ounces of silver short on the COMEX.
The entire deliverable (registered) COMEX silver supply today is a mere 28 million ounces of silver.
Thus, were the longs on the other side of those 113.14 million ounce short positions all to decide to stand for delivery, the 4 US banks (and also the COMEX exchange which guarantees the contracts) would default- fail to deliver the silver they promised to sell to the longs. Since they do not own the 113.14 million ounces of silver they have sold short, they would not be able to deliver enough physical silver to meet the delivery demands.
These naked shorts are in essence "artificial" silver supply. Jeffery Christian of the CPM group gave testimony at the CFTC hearing on precious metals price suppression in March 2010 that paper forms of gold and silver trade at over 100 times the quantity of underlying physical metal they represent.
This enormous artificial supply (concentrated in only 4 large US banks) suppresses the price of the underlying commodity.
Now, as to the goal or PURPOSE of the price suppression, its time for a short history lesson.
I have done my best previously to explain the history of the strong dollar policy/ gold and silver suppression here:
Gold/silver price suppression began in the mid 1990's. During the Clinton administration, former US Treasury Secretary, Robert Rubin announced a strong dollar policy. Basically Rubin's strong dollar policy consisted of a gold carry trade- leasing US treasury gold out to the primary dealers at 1% interest. The primary dealers turned around and dumped the gold onto the market, raising cash, and they then turned around and invested the proceeds in high yielding debt and stocks. This created enormous artificial supply of gold, suppressing its price, and thus, supported a strong dollar, which was basically the inverse of gold. The policy was also used as a major tool to control interest rates, and keep them at levels much lower than those of a free-trading market.
The bear market in gold induced largely by this gold leasing carry-trade ended in 2001, when the US gov't ran out of gold to lease to the primary dealers.
These dealers abruptly found themselves short massive amounts of gold, in a suddenly bull market.
They have been attempting to add paper shorts to the market ever since, in an effort to prevent from having to realize these massive losses - which are increasing exponentially as silver and gold continue to rise.
A portion of GATA's report to the CFTC detailing these gold swaps should help clarify your understanding.
"The Gold Anti-Trust Action Committee (GATA) was formed in January 1999 to expose and oppose the manipulation and suppression of the price of gold. What we have learned over the past 11 years is of great importance in regard to the CFTC's forthcoming hearings regarding position limits in the precious metals futures markets. Our efforts to expose manipulation in the gold market parallel those of Harry Markopolos to expose the Madoff Ponzi scheme to the Securities and Exchange Commission.
Initially we thought that the manipulation of the gold market was undertaken as a coordinated profit scheme by certain bullion banks, like JPMorgan, Chase Bank, and Goldman Sachs, and that it violated federal and state anti-trust laws. But we soon discerned that the bullion banks were working closely with the U.S. Treasury Department and Federal Reserve in a gold cartel, part of a broad scheme of manipulation of the currency, precious metals, and bond markets.
As an executive at Goldman Sachs in London, Robert Rubin developed an idea to borrow gold from central banks at minimal interest rates (around 1 percent), sell the bullion for cash, and use the cash to fund Goldman Sachs' operations. Rubin was confident that central banks would control the gold price with ever-more leasing or outright sales of their gold reserves and that consequently the borrowed gold could be bought back without difficulty. This was the beginning of the gold carry trade.
When Rubin became U.S. treasury secretary, he made it government policy to surreptitiously operate an identical gold carry trade but on a much larger scale. This became the principal mechanism of what was called the "strong-dollar policy." Subsequent treasury secretaries have repeated a commitment to a "strong dollar," suggesting that they were continuing to feed official gold into the market more or less clandestinely to support the dollar and suppress interest rates and precious metals prices.
Lawrence Summers, who followed Rubin as treasury secretary, was an expert in gold's influence on financial markets. Previously, as a professor at Harvard University, Summers co-authored an academic study titled "Gibson's Paradox and the Gold Standard," (see Footnote 1 below) which concluded that in a free market gold prices move inversely to real interest rates, and, conversely, if gold prices are "fixed," then interest rates can be maintained at lower levels than would be the case in a free market. This was the economic theory behind the "strong dollar policy."
Federal Reserve Chairman Alan Greenspan understood Summers' research when he remarked at a 1993 meeting of the Federal Open Market Committee:
"I was raising the question on the side with Governor Mullins of what would happen if the Treasury sold a little gold in this market. There's an interesting question here because if the gold price broke in that context, the thermometer would not be just a measuring tool. It would basically affect the underlying psychology." (See Footnote 2 below.)
GATA has collected reams of evidence that Western central bank gold has long been mobilized and surreptitiously dishoarded to rig the gold market and influence related markets and that this rigging has drawn upon the U.S. gold reserves."
Hope this explanation is satisfactory George- obviously the topic is somewhat complex and can only be simplified so much.
-The Doc
