Guest Post by Paul Craig Roberts and Dave Kranzler
In a series of articles posted on www.paulcraigroberts.org, we have proven to our satisfaction that the prices of gold and silver are manipulated by the bullion banks acting as agents for the Federal Reserve.
The bullion prices are manipulated down in order to protect the value of the US dollar from the extraordinary increase in supply resulting from the Federal Reserve’s quantitative easing (QE) and low interest rate policies.
The Federal Reserve is able to protect the dollar’s exchange value vis-a-via the other reserve currencies—yen, euro, and UK pound—by having those central banks also create money in profusion with QE policies of their own.
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The impact of fiat money creation on bullion, however, must be controlled by price suppression. It is possible to suppress the prices of gold and silver, because bullion prices are established not in physical markets but in futures markets in which short-selling does not have to be covered and in which contracts are settled in cash, not in bullion.
Since gold and silver shorts can be naked, future contracts in gold and silver can be printed in profusion, just as the Federal Reserve prints fiat currency in profusion, and dumped into the futures market. In other words, as the bullion futures market is a paper market, it is possible to create enormous quantities of paper gold that can suddenly be dumped in order to drive down prices. Everytime gold starts to move up, enormous quantities of future contracts are suddenly dumped, and the gold price is driven down. The same for silver.
Rigging the bullion price prevents gold and silver from transmitting to the currency market the devaluation of the dollar that the Federal Reserve’s money creation is causing. It is the ability to rig the bullion price that protects the dollar’s value from being destroyed by the Federal Reserve’s printing press.
Recently, the price of a Bitcoin has skyrocketed, rising in a few weeks from $1,000 to $2,200. Two explanations suggest themselves. One is that the Federal Reserve has decided to rid itself of a competing currency and is driving up the price with purchases while accumulating a large position, which then will be suddenly dumped in order to crash the market and scare away potential users from Bitcoins. Remember, the Fed can create all the money it wishes and, thereby, doesn’t have to worry about losses.
Another explanation is that people concerned about the fiat currencies but frustrated in their attempts to take refuge in bullion have recognized that the supply of Bitcoin is fixed and Bitcoin futures must be covered. It is strictly impossible for any central bank to increase the supply of Bitcoins. Thus Bitcoin is standing in for the suppressed function of gold and silver.
The problem with cryptocurrencies is that whereas Bitcoin cannot increase in supply, other cryptocurrencies can be created. In order to be trusted, each cryptocurrency would have to have a limited supply. However, an endless number of cryptocurrencies could be created that would greatly increase the supply of cryptocurrencies. If entrepreneurs don’t bring about this result, the Federal Reserve itself could organize it.
Therefore, cryptocurrency might be only a temporary refuge from fiat money creation. This would leave gold and silver, whose supply can only gradually be increased via mining, as the only refuge from wealth-destroying fiat money creation.
For as long as the Federal Reserve can protect the dollar by bullion price suppression and money creation by other reserve currency central banks, and as long as the Federal Reserve can keep the influx of new dollars out of the general economy, the Federal Reserve’s policy adds to the wealth of those who are already rich. This is because instead of driving up consumer prices, thus threatening the US dollar’s exchange value with a rising rate of inflation, the Fed’s largess has flowed into the prices of financial assets, such as stocks and bonds. Bond prices are high, because the Fed forced up the price by purchasing bonds. Stock prices are high, because the abundance of money bid prices higher than profits justify. As the US government measures inflation in ways designed to understate it, the consumer price index and producer price index do not send alarm systems into the markets.
Thus, we have a situation in which the Fed’s policy has done nothing for the American population, but has driven up the values of the financial portofilios of the rich. This is the explanation why the rich are becoming more rich while the rest of America becomes poorer.
The Fed has rigged the system for the rich, and the whores in the financial media and among the neoliberal economists have covered it up.
I’ve come to the conclusion the FED is there to create inflation. It is their job to slowly debase the Government debt, just not fast enough though to make people lose confidence. (cook a frog scenario)
With ever present innovation, goods services will always get cheaper. Because of innovation and productivity improvements there is a natural deflation. If you think about it, GDP growth must be much less or even zero as things get cheaper. New goods come on the market to fill in where the price-decreased products free up income.
A debtor’s real debt increases in a deflation environment. The Government is measured on how much debt to the GDP of the nation. It must force up GDP, even if it is just nominal since the debt is always rising.
Von Mesis wrote about the futility of attempting to create an index (basket of goods).
Can anybody explain why the can’t sell naked Bitcoin futures? (Bitcoin futures must be covered??) There are derivatives for everything.
https://www.bitmex.com/
My take on the essay is that the authors fail to answer their title’s question. Instead they get bogged down in another failed conspiracy theory explanation of reality. The above essay is purportedly co-authored so it is difficult for one to determine what Mr. Roberts contributed and what Mr. Kranzler contributed. My guess is that Roberts provided the editorial acumen and Kranzler supplied him with the precious metals and bitcoin “market-related” input.
Unfortunately, as we have seen from his earlier posts at paulcraigroberts.org, Roberts is a neophyte about understanding the operations of the precious metals markets and Kranzler, who elsewhere has been billed as a precious metals “fund manager”, is either just plain ignorant in regard to those markets or he is being deliberately misleading us to further his own agenda.
Sometime after the turn of the century the term “naked short” seller (or sale) came into popular usage with reference to commodities futures markets. I’m not sure who the perpetrator of the term was but it may have been a gold propagandist organization known by the acronym GATA or it may have been any one of several so-called precious metals (markets) experts. Neither GATA nor any unrelated commenter have demonstrated any level of understanding about commodities futures law as it is written in the Commodities Exchange Act of 1936 and its updated versions and, in that regard, Mr. Kranzler may be grouped with them.
Most people who use the term “naked short” fail to adequately define its meaning. Investopedia.com provides a definition that adequately reflects common usage: Naked shorting is the illegal practice of short selling shares that have not been affirmatively determined to exist. Note that the definition references shares or securities. There is no mention of commodities futures.
Understand that there is no such thing as a naked short (having sold more futures contract ounces than can either be produced in a year or than exist in estimated global above-ground stocks) in the futures market. All U.S. futures markets are structured to accommodate (legally) an infinite number of buyers and sellers regardless of known physical supplies. Whether the short interest is concentrated in the hands of a single seller, a handful of commercial banks or is spread across the entire speculative universe, it makes no difference. In the normal course of discussion with regards to a preponderance of a futures position one refers to the holder as being “net” short or “net” long but nobody’s “naked”.
The authors also commit the fallacy that futures contracts – that are by their very nature paper – are equivalent to Federal Reserve Bank fiat – unbacked and therefore “paper” – money. The authors treat the “creation” of a futures contract, a process that requires both a buyer and a seller, with the “printing” of a fiat dollar, a process that requires neither buyer nor seller. Kranzler, as a precious metals “fund manager” or even a person only casually acquainted with the futures markets, surely knows the distinction. Yet he promotes via Roberts the idea that contracts are dumped onto an exchange in the manner that dollar bills are dumped into the banking system. Notice in that perspective that the futures contracts dumping only affects prices to the downside, never to the upside. This is an example either of a failed understanding about futures markets or it is a deliberate misinformation attempt.
Further along in the essay this statement is made, “…the supply of Bitcoin is fixed and Bitcoin futures must be covered.” That is nonsensical: Whereas it is true that the supply of Bitcoin has a fixed but not yet reached ultimate quantity, no such thing as a Bitcoin futures exists. Either Roberts doesn’t understand Kranzler or the latter failed to adequately describe the status of Bitcoin.
If you think paper money is suspect accept Bitcoin. Money made of electronic vapor has to be more secure. What could possibly go wrong.
I think I agree with his once premise, that although bitcoin supply is limited (for now). The amount of cryptocurrencies is not. If you couple that, with the mind boggling advance of technology, how long before some else comes along and something else, so on and so forth.
Not exactly a “store of value”. Now people are saying etherium will surpass the market cap of bitcoin by 2018. It seems all the people who run the current scam, are jumping on board with the “ether”. Chase, JP Morgan, Microsoft. The gang’s all on board. Oh, did I mention etherium has a “unlimited supply”.
You have got to be fucking kidding me. I would normally say people are far too intelligent to fall for this, but I know the limit of human stupidity is infinite,.