As pressure mounts on hold-out states in the U.S. to ratify a shameful deal on Wall Street mortgage-fraud, the mainstream propaganda machine continues to circulate a Big Lie as justification for this despicable sham: that a deal would help to “fix” the U.S. housing market. Not only is this wrong, but it is entirely opposite to the truth.

What the media continues to deliberately obscure is what is actually being negotiated here. You can’t ‘negotiate away’ 10’s of millions of fraud-infected mortgage documents. All that is currently being done with this “deal” is to absolve the Wall Street fraud-factories of responsibility for the this massive, deliberate, systemic fraud – which will permanently cripple the U.S. housing market.

Once a deal is done, all of the fraud will still be sitting in those mortgage documents: 10’s of millions of infected land titles, which can only be purged of their fraud through being litigated one at a time, through a U.S. court system which is already hopelessly clogged with Wall Street fraud.

By simply “sweeping under the carpet” these countless millions of acts of systemic fraud, rather than helping to fix the U.S. housing market, it guarantees decades of massive uncertainty and insecurity regarding land titles in U.S. residential real estate. Put another way, it makes title security in the U.S. grossly inferior to any/every other reputable land title system on the planet.

Until these 10’s of millions of acts of fraud are (eventually) purged from the U.S. land title registry – one by one – U.S. real estate will trade at a permanent discount in relation to all of those other real estate markets. What person in their right mind would pay full price for a piece of real estate where there is always a lingering doubt about actual, legal ownership of that piece of land?

In fact, there has always been only one rational approach to the made-in-Wall Street mortgage fraud nightmare. First of all, all time/effort/expense that has been wasted (solely for the financial benefit of the Wall Street fraud-factories) in these negotiations should have been invested into a national audit of the entire U.S. land title system – to systematically (and efficiently) purge all of this fraud from the U.S. real estate market once and for all. Only after that had been done, and the actual damages were finally visible/apparent should there be any talk of “making a deal” with Wall Street.

Indeed, there is no more damning indictment of the illegitimacy of these current negotiations than the fact that the parties seeking to sign-away their rights to sue the Wall Street fraud-factories can only guess at the total amount of fraud involved. Understand that in the real world where an individual was in negotiations to “settle” some fraud which had been committed against them that no competent lawyer would ever allow his/her client to sign-away their right to compensation before the scope of the damages was clearly apparent.

Yet what do we see here? According to Bloomberg “more than 40 states” have already agreed to a deal. Are we to believe that more than 40 U.S. state governments were unable to find a competent lawyer to represent them? Or, are we to believe this is yet another corrupt betrayal of the American people, solely for the benefit of the Wall Street crime syndicate?

Not only does this deal permanently entrench 10’s of millions of acts of (systemic) Wall Street fraud in the U.S. land title registry (causing permanent damage to the U.S. housing market); not only does this sign away the legal rights of U.S. states for compensation at pennies on the dollar; but it doesn’t even rescue the Wall Street fraud-factories themselves. It is entirely an exercise in futility.

It does not address the endless/infinite lawsuits involving the banksters’ principal mechanism of mortgage fraud: MERS, and the fraud-filled database it concocted. Even the propagandists expect those lawsuits to total in the $billions. Much more importantly, it does nothing to negate the still-looming mountain of liability which these fraud-factories face from the swindled chumps who purchased their “mortgage-backed securities”. Liability there will almost certainly end up in the $trillions – particularly given the penchant in the U.S. civil system for large “punitive damage” awards.

More generally, the private, bankster casino known as “the derivatives market” continues to lurk in the shadows: a $1+ quadrillion collection of insanely leveraged bets. The only reason that this financial abomination has not already imploded (and vaporized most of the Western financial system) is because the corrupt operators of this rigged casino are now openly refusing to honour some of those bets – i.e. the binding, legal contracts known as credit default swaps.

The government of Greece has defaulted on its massive debts. All that remains to be decided is the degree of the default: whether it will result in 50%, 70%, or 100% write-offs. Credit default swaps are (supposedly) “insurance” which protects the holders of Greek debt (and that of other nations) from the risk of default. Yet here Greece has clearly defaulted, but the corrupt administrators of the credit default swap market have refused to honour those contracts.

Understand that the credit default swap Ponzi-scheme is so inherently unstable that even an implosion of a tiny debt market like that of Greece could cause the domino-like collapse of not only the entire credit default swap market, but the instant implosion of the entire derivatives market – along with the Wall Street fraud-factories who operate it.

Let me briefly reiterate how flawed this process is, to illustrate the magnitude of this folly. A deal does not fix the housing market; it only makes things worse by permanently entrenching all this systemic fraud into the U.S. legal system. It throws away the states’ right to compensation at a time when they still don’t have the slightest idea of the total extent of Wall Street fraud, and the total extent of the resultant damages. It doesn’t even save the fraud-factories themselves, since their reckless gambling and previous acts of fraud already guarantee their ultimate financial oblivion.

This entire exercise has been a colossal waste of time, in addition to being yet another complete betrayal of the American people by their so-called leaders. As usual, the media propaganda machine is especially worthy of condemnation for hiding the issues, coddling the criminals, and presenting the absurd overall fantasy that a deal here would somehow put an end to the nightmare of Wall Street mortgage fraud.

A few weeks ago I wrote a piece noting that Western regimes had mismanaged their economies to the point of structural insolvency, and were thus now only able to forestall their own debt-defaults by resorting to “cheque-kiting”. That is, it has been many decades since most of these nations have actually been paying their bills.

Instead, Western economies have been financed by these Western governments simply writing new cheques (with nothing backing them) to cover the old cheques they wrote (which also had nothing backing them). This is cheque-kiting, pure and simple. And the only reason that these sovereign deadbeats haven’t (yet) suffered the inevitable fate of all deadbeats – having their credit refused and thus being forced into bankruptcy – is because somehow their propaganda machine has been able to prevent that realization from sinking in with the masses.

This apathy and/or lack of comprehension by the citizenry is disturbing (but no longer surprising). However, where we move past “disturbing” and into the realm of the totally absurd is when the media propagandists write about these economies being “bailed out”.

Once again, to truly illustrate this insanity we need to define our terms. A “bail out” (in the financial context) implies some entity which possesses financial assets bestowing those assets (either via gift or loan) on some entity lacking financial assets. Immediately upon engaging in this simple exercise we can state a definitive conclusion: none of these deadbeat-debtors have been “bailed out”. Indeed we can go farther than that: it is not even theoretically possible to bail out any of these deadbeats.

Why? Surely the answer speaks for itself: all Western entities are net-debtors – their “national account balance” is less than zero. Surely even the media drones and market “experts” can understand the concept that one deadbeat with no money cannot (financially) bail out another deadbeat with no money?

Apparently not. This begs the question: how is it possible that people whose profession it is to understand such concepts are totally incapable of comprehending the simplest possible proposition of logic and arithmetic: you can’t “bail out” someone else with nothing?

In this case, the answer is crystal-clear. These people, these “experts”, are incapable of grasping such elementary premises because they are brainwashing victims. Specifically, they (like virtually our entire populations) have been deluded into thinking that the banker-paper being conjured-up on the bankers’ printing presses (at zero cost, and in near-infinite quantities) has value.

The truth, of course, is entirely opposite. Even from a purely monetary standpoint we can see this has to be the case. Once the last vestige of our gold standard was assassinated by Richard Nixon in 1971, our money became mere “fiat currency”. It became mere paper, with no intrinsic value (unlike actual “money”), and doomed to suffer the fate of all fiat-currencies which came before it: collapsing into worthlessness.

However, that element of “worthlessness” on a fundamental level has been replaced by a much more immediate and concrete demonstration of the worthlessness of all this banker-paper: it is being created in (near-)infinite quantities, and at (essentially) zero cost. Any item which is produced in infinite quantities and at zero cost is by definition worthless. If this were not the case, the possessor of this infinite quantity/zero cost good could simply conjure-up as much of that good as was necessary – and then exchange it for all items of (real) value which exist in the entire world.

Indeed, this describes our modern monetary system perfectly: a cabal of crooked bankers trying to hide the fact that they are conjuring-up infinite quantities of their worthless paper (at zero cost), and using that worthless paper to buy-up any/all assets of value which they come across. There is only one difference between an ordinary person seeking to use a massive stack of “Monopoly money” he had accumulated to buy assets or retire debts versus what our bankers are doing with their mountains of fiat currency: our governments have decreed that the banker-paper must be accepted as payment. There is absolutely no difference between the two stacks of paper themselves: neither has the tiniest element of intrinsic value.

This concept is absolutely crucial in understanding how close we are to Financial Armageddon, for once we understand that our currencies only retain a slight vestige of value by virtue of decree, then we understand that as soon as that “decree” loses its status, the paper instantly becomes worthless. In turn, this is a concept which few readers can (yet) grasp: how could the decree of a sovereign entity lose its status?

In the specific case of a decree which turns (worthless) paper into currency, the decree loses its power the moment the sovereign entity is perceived as being insolvent by the majority. Thus if (insolvent) Greece were forced out of the Euro zone and began issuing its own currency, it faces a significant obstacle: having anyone inside or outside of Greece accept this new currency as payment for goods. Without broad acceptance, the new currency would quickly plummet into worthlessness (because of lack of confidence in its value). Clearly, any new Greek currency would/could only be stable if it were “backed” – i.e. by reintroducing a gold standard (of some sort) for Greece’s currency.

The situation is no different for all the rest of the Western deadbeat-debtors. All that separates our monetary systems from total and immediate collapse (i.e. hyperinflation) is the (erroneous) belief of the masses that the worthless paper in our wallets has paper. The moment that this increasingly fragile myth is shattered, no more “bail-outs” will be possible – and all of these cheque-kiting economies will go under. Because when that day occurs I will no longer be the only one laughing the next time a headline appears about some deadbeat-debtor being “bailed out” via printing (another) stack of worthless paper.

It must also be explicitly noted what is implied when the masses finally open their eyes and realize the massive sham of the bankers’ fiat currencies. The day that the paper confetti in our wallets loses its status is also the day that the $10’s of trillions of “value” in all these Ponzi-scheme “bonds” also instantly vanishes. Anything denominated in a worthless currency is by definition worthless. Indeed, it is an open secret that the U.S. government has been deliberately undermining the value of the U.S. dollar – because in doing so it reduces the real value of its mountain of (unrepayable) debts.

The reason why it’s so important for readers/investors to identify these bond-bubbles today (and flee any/all of these unstable Ponzi-schemes) is because when the bond-holders (suddenly) all attempt to unload their $trillions in worthless paper this raises yet another question: where will all those investors take their dwindling wealth?

Note that currencies plunging to zero also implies (at least) temporary chaos in equity markets, meaning that in any crisis scenario that investors will only be willing to park some of their capital in those markets. As has been the case for thousands of years, there is only one asset class which provides a true “safe haven” for ordinary people in times of financial calamity: precious metals.

Apart from all the fundamentals-based arguments made by myself and others explaining how and why gold and silver are grossly undervalued today, there is an equally formidable argument to be made on the basis of supply and demand: that soon a tidal wave of frightened investors will all seek to gain entry into this safe haven – and only those near the front of the line stand any real chance at gaining protection. Those near the back of the line will find that their paper has already lost too much value: that the “price” for gold and silver is now prohibitive.

Like many other communal animals, our species exhibits a distinct “herd complex”: the illusory belief that there is always “safety” implied by being part of the herd. Sadly, as is all too well illustrated within the animal kingdom, the safety of the herd is non-existent once a pack of predators is turned loose within their midst.

The complete unshackling of the West’s banker-predators has brought this horrible “law of the jungle” principle to our own species. Any/all investors foolish enough to be part of any “financial herd” today are destined to be slaughtered (like cattle) tomorrow.

In yet more absurdity, the propagandists attempt to portray the precious metals sector as representing some herd-induced “bubble”. The facts demonstrate the exact opposite. Historically, precious metals have been an asset class which represented between 5% – 10% of the average portfolio (if not more). Today, with most of the herd having shunned precious metals that average is little more than 1% – making gold and silver (and the miners of those metals) the most under-owned assets on the planet.

The financial storm is raging. The good-ship “Deadbeat” is about to crash on the rocks. The sanctuary of gold and silver still beckon. It is not yet too late for financial salvation – for any/all willing to flee these Western paper Ponzi-schemes.

In Part I, I laid out for readers the extraordinary scenario which exists in the silver market today. The individuals/entities operating the silver market; compiling data on it; and reporting on it (at least from the mainstream) display no understanding of either the general principles of markets, nor of the specific fundamentals of their own sector.

In the first part of this series I focused on analysis provided by GFMS, one of two quasi-official consultants for the silver (and gold) sector who provide the data most widely relied upon for this market. Specifically I looked at GFMS’ reporting on the silver market for the year 2002. I noted that despite the price of silver hovering near its 600-year low; despite the fact inventories had plummeted by more than 75% in little more than a decade; and despite the fact that production was currently falling; GFMS saw neither any need nor any indication of higher prices for silver. Indeed, these “experts” even mused that the price might fall further.

How utterly flawed was what GFMS passed off as “analysis”? Even after the roughly ten-fold increase in the price of silver which immediately followed this, inventories have continued to decline. Meanwhile the silver sector itself remains so depressed that even after this massive surge in the price, silver miners have been unable to increase production by more than a percent or two each year. In short, GFMS has displayed zero comprehension of this market, and the fundamentals which comprise it.

This brings us to the official regulator of the ‘rigged casino’ known as the Comex silver futures market: the CFTC. As with GFMS, the CFTC claims unrivaled expertise but displays nothing but ignorance and ineptitude. In 2004, the CFTC dared a rare response to the ongoing accusations of “manipulation” in this market. To the CFTC’s credit, it almost managed to competently frame the issues:

The allegations that the CFTC has received can generally be summarized as follows. With silver consumption exceeding new production for many years, it is generally acknowledged that the production deficit has been primarily filled by a drawdown of stocks. Some argue that this decline in silver stocks cannot persist and, since stocks have fallen to low levels, silver prices should have been rising sharply. There is further conjecture that, over the past 20 years, a group of commercial traders (commercials) have held short positions that are so large they cannot serve legitimate hedging purposes because they cannot be backed by real silver.

Now let’s “translate” what the CFTC said back to the real world. The CFTC states:

…it is generally acknowledged that the production deficit has been filled primarily filled by a drawdown of stocks.

“Generally acknowledged…”? “Primarily filled…”? The only possible way to meet this supply deficit is for every ounce of this deficit to be taken directly out of current inventories. Yet here we have the CFTC treating the most elementary piece of arithmetic like some unproven theory.

Some argue that this decline in silver stocks cannot persist…

Inventories are finite. Inventories are declining every year. When inventories hit zero, the market goes ‘kaboom!’ “Some argue…this cannot persist”? Yes, and “some would argue” that if I drive my car long enough/far enough that it will run out of gas. Again we see the CFTC apparently completely oblivious to basic arithmetic functions – let alone demonstrating not a glimmer of comprehension with respect to the principles of supply and demand.

There is further conjecture that, over the past 20 years, a group of commercial traders (commercials) have held short positions that are so large that they cannot serve legitimate hedging purposes because they cannot be backed by real silver.

Let us first take a minute to place these “large” short positions into context. How large are they? The largest single position, belonging to JP Morgan, is always larger (in proportional terms) than the long position of the Hunt Brothers back in 1980 – and often close to double that size. Meanwhile, a small group of these “commercials” hold a massive, continuous short position more than four times as large as the Hunt Brothers.

Most silver investors are familiar with the Hunt Brothers. They were the silver “longs” who back in 1980 were formally accused and prosecuted for manipulating the silver market due to the level of concentration of their holdings. Here we see what can only be charitably referred to as a “double standard”. Long investors are closely watched, with market rules rigidly and vigilantly enforced against them.

Meanwhile institutional short investors (i.e. the banking cabal) can do whatever they want. Not only are they apparently immune from any scrutiny with respect to the size (i.e. concentration) of their holdings, but the CFTC cannot even be bothered to determine whether those holdings are legal and/or legitimate.

Why has there merely been “conjecture…over the past 20 years” that these short positions “cannot serve legitimate hedging purposes” and “cannot be backed by real silver”? Because the same findings of fact that were made versus the Hunt Brothers in a matter of weeks it has (apparently) been unable to make with respect to the commercial shorts over a period of (greater than) 20 years.

Incompetence? Bias? Deliberate attempt to deceive?

Now we get to the real comedy: the CFTC’s response to its own (severely flawed) framing of the issues.

While there has been a production deficit, there has been no supply deficit.

Let me again translate this statement back to the real world so that readers can comprehend the extraordinary implications of this statement. First of all, as I explained clearly in Part I, a “production deficit” is a “supply deficit”.

Here is what the CFTC is really saying. Because the annual supply deficit had been able to be filled (up until its 2004 letter) out of ever-declining inventories that there is no need for them even to pay attention to the supply/demand fundamentals in the silver market. This is despite the fact that no reliable data exists today on the current size of either global inventories or global stockpiles. The implication here is that the CFTC sees no need to actively “regulate” the silver market until silver inventories hit zero – and the entire market implodes. At best this can be described as “willful blindness”, and calls into question the presumption that this official regulator of the silver market has been acting in good faith.

Indeed, subsequent to this letter the CFTC did announce it had commenced a “formal investigation” into the conduct of the silver shorts. That “investigation” is now in its fifth year – the same investigation which only took weeks to conclude when it involved long investors (i.e. the Hunt Brothers). Again, this extraordinary dichotomy between how “longs” are dealt with versus how the “shorts” are dealt with calls into question the presumption of good faith.

Shortly afterward we get yet another example of the shoddy, cavalier attitude which the CFTC takes toward the commercial shorts:

…our review indicates that the so-called “naked” shorts are not naked at all, but are for the most part hedging.

Again we see nothing but obfuscation. The shorts are “…for the most part hedging.” Having a legal education, I recognize weasel-words when I see them. Mostly? Would that be “mostly” as in 99% or “mostly” as in 51%? It gets more laughable still.

The CFTC then goes on to define what it means by “hedging”, and we see it torture the definition of that word until it represents almost anything – including traders with purely paper positions “hedging” those positions with more paper. How can these purely paper traders not be considered “naked shorts”? What is apparently implied is that traders can “back” metals contracts in our futures market with paper. In other words the CFTC’s definition of “naked” is even more dubious than its (expansive) definition of “hedging”.

Keep in mind that this entire “review” by the CFTC took place prior to it commencing its current, official investigation of the same market parameters. In 2004, we have the CFTC asserting that its (unofficial) examination of this market showed no indications of improper conduct.

Despite the CFTC claiming it was in possession of enough evidence to state definitive conclusions in 2004 on all of the same issues it is “investigating” today, and despite there being no material changes to the dynamics in the silver market in the years since then, in 2012 we have the CFTC telling us that even armed with all of its previous data and conclusions that it cannot manage to merely update those findings – despite more than four years of investigation.

It takes weeks to investigate longs, while we are supposed to believe that despite having done all of the ‘leg-work’ once already, the CFTC cannot “investigate” the shorts in more than four years.

Incompetence? Bias? Deception?

Note that the CFTC boasts of a stable of “24 trained economists” it has on staff who (it claims) “look for any sign of large traders trying to muscle the market”. Here we descend from the dubious to the absurd. Putting aside whether the positions of these commercial shorts are naked or backed, what is unequivocal is that they are “muscling” the market.

For more than 20 years this continuous, massive, and growing short concentration has been maintained by this cabal of shorts. The only way this obvious pattern could be any less equivocal would be for this cabal to increase its concentration from the already-insane 70%-80% level it has been allowed to hold for decades all the way up to 100%.

Just as the CFTC sees no particular need to “regulate” the silver market as a whole unless/until silver inventories reach zero, apparently the CFTC’s cadre of economists are unable to see any signs of “muscling” in this market unless/until the manipulation of those shorts is absolute (i.e. 100% of the market).

Then the CFTC pretends to address the issue of silver inventories. As a reminder, the CFTC published this letter near the end of a 90% collapse in silver inventories over a mere 15-year period (as shown in the chart in Part I). Yet here is the CFTC’s response to the question of whether silver inventories were “unusually low”: it refused to address the question. Instead, the CFTC invented a different question, and chose to answer that:

Have silver stocks fallen to unusually low levels compared to other commodity markets?

This is an entirely irrelevant question, as the CFTC is engaging in nothing more than the proverbial comparison of “apples to oranges”. Silver is both a monetary metal and an ornamental metal – in addition to its industrial usages. This means that our species had been accumulating silver for well over 4,000 years, until the banking cabal’s relentless shorting began (literally) consuming global silver inventories and stockpiles. Yet here we have the CFTC’s “economists” comparing inventory levels of silver with purely industrial commodities which are consumed as fast as they are produced. Then it concludes that because humanity’s 4000+ years’ accumulation of silver has not yet diminished to the same level as all of the use-as-you-go commodities that this means there is nothing “unusual” about silver inventories.

Incompetence? Bias? Deception?

Surprisingly, the CFTC still manages to display an even greater degree of ineptitude with respect to even the simplest of market concepts. As I laid out in Part I, the multi-decade pattern of extremely low prices (in historical terms) combined with plummeting inventories is unequivocal. It is impossible to devise even an hypothetical scenario where such a pattern could persist decade after decade in “free and open markets”.

Yet we see the CFTC again attempting to pass off an utterly ludicrous assertion that despite the near-complete destruction of 4,000+ year’s accumulation of silver that prices have not been “artificially low”. Even more absurd than that assertion is how the CFTC pretends to “prove” it.

It compares silver prices between the different market/exchanges selling silver, and then concludes that because those prices (roughly) coincide with each other that this “proves” silver prices are legitimate. In other words, the U.S. Commodity Futures Trading Commission expects us to believe that it has never heard of the word (or the concept) known as “arbitrage”.

Having thoroughly distorted/perverted every facet of the silver market with its pseudo-analysis, the CFTC then goes on to claim to address the issue of a “manipulation” directly. It is not even worth commenting on. Simply, whenever the CFTC chooses to use the phrase “sees no evidence of” (or something synonymous) it has demonstrated in unequivocal terms that it possesses no credibility.

It is (apparently) incapable of performing simple arithmetic.

It (apparently) has not the slightest understanding of the basic principles of supply and demand.

It (apparently) is oblivious of even such an elementary concept in markets as arbitrage.

Incompetence? Bias? Deliberate deception?

In the conclusion, we will look at what the “experts” are saying about the silver market – based upon the findings and numbers of entities such as the CFTC and GFMS.

Advanced economic analysis involves high-level mathematics at least as complex as the realms of physics or engineering, accompanied by equally convoluted jargon. As a result, it is virtually incomprehensible to the ordinary person.

Conversely, the basic principles of economics are very straightforward. Indeed they could be summarized as little more than a combination of common sense and simple arithmetic. As a result, fundamental economic analysis is highly accessible to the ordinary person – because of its relative simplicity.

What then are we to make of the fact that the self-described (mainstream) “experts” on the silver market; the quasi-official sources for data on the silver market; and the primary regulator of the silver market all regularly and consistently demonstrate complete ignorance of even the most elementary of economic principles? Are we to attribute this to gross incompetence, inherent bias, or an intentional attempt to deceive?

I will leave it up to readers to reach their own conclusions. This piece will simply lay out the positions of these individuals and entities (past and present), lay out what little reliable data is available to us; and then apply the simple, common sense principles of economics to this data. It will focus on the three most basic aspects of any market: supply, demand, and inventories.

First, however, I will refer readers to some previous, elementary economic analysis. As I established with simple numbers (and logic), in any market shorting always “consumes” while investing always “conserves”. In other words, in any market which is dominated by shorting we will see a substantial increase in consumption, and (over time) a radical decline in inventories/stockpiles. On the other hand, in any market dominated by investors (who are invariably mis-labeled as “speculators”), we will see consumption decline and inventories swell – due to the rising prices generated by increased investor-buying.

Meanwhile, the entities/individuals mentioned previously do not merely regularly engage in analysis which is wildly erroneous, but in many cases is totally perverse. It is with respect to this last point where it becomes more difficult to ascribe this behavior to mere incompetence and rather more likely that there is some degree of malice involved.

In order to show how the inaccuracy of this analysis is not only extreme but consistent, I will refer primarily to the most up-to-date opinions on the silver market today; along with an “open letter” from the CFTC from 2004, and the GFMS “World Silver Survey 2003” – which primarily covers developments in the silver market during 2002, one decade ago.

Readers must first understand that there are two ways of characterizing “supply and demand”. It can be described as current orders versus total stocks, or it can be described in terms of production versus consumption. It is the latter definition which is exclusively taught in our educational institutions, and for a very good reason: it is only by examining supply and demand in terms of production versus consumption where we can obtain any useful information about the future direction of any market.

Conversely, the mainstream “experts”, the CFTC, and the quasi-official record-keepers for the silver market never use the latter definition. Instead, they always use the much less useful former characterization – and then reach one absurd conclusion after another through relying upon this inherently flawed data.

Why is production versus consumption the only valid basis for analyzing supply and demand? Obviously the entire purpose of analyzing any market is to determine whether it is in balance, or whether it is out of balance – either through over-supply or excess demand (in order to correctly price the market). Examining production versus consumption data instantly provides us with the answer to that question.

Noted silver researcher Ted Butler has concluded that the silver market has been out of balance (in the form of excess demand) for more than fifty years, with total global stockpiles of silver declining by well in excess of 80% over that period. More recently, data supplied by the other quasi-official source of data for the silver market (the CME Group) shows that silver inventories plummeted by approximately 90% just from 1990 through 2005 – during which time the price of silver fell to a 600-year low (in real dollars).

Simply, every year (for as far back as reliable data exists) production (i.e. mine supply) has been exceeded by demand, and generally by a huge margin. It is the most elementary principle of markets (and arithmetic) that no market can remain out of balance forever, and in particular any market experiencing excess demand must reverse itself (at the very latest) when inventories reach zero.

Irrespective of whether we are referring to excess supply or excess demand, there is only one market mechanism which can ever correct imbalances: price. Where there is excess demand, prices must rise long enough and high enough to cool demand and stimulate supply until (at the very least) balance is restored. Where there is excess supply, the reverse must take place.

By definition, every year, decade after decade, silver prices have been “too low” because every year excess demand (and a supply-deficit) remains in this market. This utterly unequivocal pattern means that silver prices have been artificially too low year-after-year, decade-after-decade since such extreme and relentless destruction of inventories and stockpiles, over a very, very long time horizon cannot plausibly be considered a “natural occurrence”.

Yet this is what GFMS had to say about the silver market of 2002, with silver prices hovering near their 600-year low:

…this mix of supply/demand factors means silver is unlikely to move substantially outside of its 2002 trading range.

GFMS reaches this conclusion despite immediately noting afterward that:

…this annual average [price], however, remains low historically; excluding 2002, the last time the average price was lower than 2002’s was in 1993. [at the 600-year low]

We have a market which has perennially been seriously out of balance, and where that balance can only be restored by substantially higher prices. And yet with prices near the 600-year low, we have the quasi-official record-keeper for the sector saying that prices are just fine.

Incompetence? Bias? Deliberate deception?

Further discrediting GFMS, in that same report it notes that:

…it appears silver output will fall again in 2003 as base metals producers are forecast to further scale back their operations and little new additional capacity is scheduled to come on stream.

With silver mining already extremely depressed by the 600-year low in price, with inventories already having plummeted by more than 75% over the preceding 12 years, and with GFMS itself predicting that production will fall (again) in the upcoming year, it still concludes that prices are just fine. This is not “economic analysis”, it’s “creative writing” (i.e. fiction).

There is only one source of “new silver” in the entire world: mine production. Any/every other ounce of silver which comes onto the market represents a draw-down of inventories/stockpiles. By definition, this is absolutely unsustainable as inventories are finite and (obviously) can never go below zero.

As we see in the chart above, every year production (i.e. mine supply) has been exceeded by consumption, with the supply-deficit exceeding mine production by greater than 35% every year, and generally by well over 40%. This can never be more than partially offset by “recycling”, as unlike the gold market, every year hundreds of millions of ounces of silver are literally “consumed” – used in industrial applications, but not recycled. In other words, this is not a market which is merely “slightly” out of balance, but rather one which has been in extreme imbalance every year – with that supply-deficit made up out of plummeting inventories.

Yet here we have the other quasi-official record-keeper for the sector (the CPM Group) claiming that since 2005 silver inventories have not only reversed themselves, but have roughly quadrupled over that period of time. How does the CPM Group reach a conclusion which is 100% contradicted by the data of its bookend, GFMS? The chart below provides the answer, when it notes that “inventories include silver backed exchange traded funds.”

These funds represent out-flows of silver. When I go to a silver dealer to buy an ounce of silver, every ounce I purchase decreases inventories by one ounce. Yet in the fantasy-world in which the CPM Group dwells, when someone purchases an ounce of SLV (a privately-owned fund) inventories somehow increase.

This is utterly perverse. There are only two scenarios in which the data presented in the chart above could be transformed into something rational:

1) SLV unit-holders are digging their own silver out of the ground (and refining it).

2) Each ounce of silver which SLV unit-holders purchase, and which is purportedly being held for them by that kind and benevolent Oligarch, JP Morgan, is in fact sitting in JP Morgan’s vault with a “for sale” sign attached – available to anyone willing to ante-up the current spot-price of $30/oz.

We know that SLV-holders are not digging/refining their own silver. So unless we conclude that JP Morgan is simply pretending to hold silver for those unit-holders (and is actually, secretly selling it off), we have the CPM Group portraying out-flows as in-flows.

Incompetence? Bias? Deliberate deception?

Amazingly, the apparent inability to correctly understand and apply even the simplest principles of economics (and markets) extends to the regulatory body which presumes to possess the expertise to adjudicate in these market: the CFTC.

In Part II, readers will get a large dose of déjà vu: a detailed examination of how the CFTC viewed the silver market back in 2004, and the extraordinary conclusions which it reached at that time.

I agree with the spirit of this article (more local control), but the argument that the Constitution was in effect a “rights-free coup of the 1%” is nonsense. There is an important lesson in recognizing this (bear with me a minute as I illustrate).

For example, the commerce clause has not even remotely been used in the original intended form, but has been abused and distorted from its original meaning in the extreme. The original meaning of “interstate commerce” was business between the STATE ENTITIES themselves. Nowhere is it indicated in the debates and discussions accompanying the Constitution that any economic activity between individuals (or corporations) residing in different states would fall under the purview of federal regulation (indeed, “commerce” used in this manner had a meaning more like “interaction” or “discourse” in the bureaucratic sense, not “trade”). That would be sheer nonsense, held up against all the other clauses in the Constitution, and more importantly, the principles embodied therein.

That brings me to the broader point: it is quite clear the Constitution put in place a strict hierarchy that went (in order of MOST power/rights to LEAST): the individual, the states, the federal government. How do we know this (and that it’s not “up to interpretation”)? Because the Constitution set out a SPECIFIC, ENUMERATED set of powers (more like responsibilities) of the “general government” FOR THE FIRST TIME IN HISTORY, then said “everything else (except a few no-no’s like printing money) is up to the states”. To emphasize that, even with this proviso, the individual was still the MOST sovereign, the Bill of Rights was added to underscore specific INDIVIDUAL rights that NEITHER the several states nor the federal government could usurp. In addition, and very underappreciated, is the fact that “privileges and immunities” are referred to TWICE in the Constitution and the Amendments, and intentionally NOT DEFINED. That’s because this is a specific reference to what we would now call “unenumerated individual rights” (nowhere is something similar mentioned for the states).

Now, since we’re so far from following the Constitution, why even bother pointing this out?Because we need to disabuse ourselves of the notion that we can just write “the rules” on a piece of paper, and expect the most powerful institutions in society (not only government, but any corporate entity, for profit or so-called “nonprofit”) to BE NICE and obey the limitations placed on them, with virtually NO ongoing work or oversight on our part.

I know there is a neo-Articles of Confederation movement out there that argues “the Constitution went too far,” i.e., “it was a coup of the rich land-owners,” blah blah blah — but when you understand what I just said, you see this argument is irrelevant. The Constitution only created a more formal LIMITED role for a central/general government; it didn’t author 95% of what that entity has ARROGATED onto itself today, so it is therefore the VIGILANCE OF THE PEOPLE that is the problem, not the piece of paper they are failing to ENFORCE.

If the people truly believe a central government does not have unlimited, god-like power (which it can then bestow onto corporations and other institutional neer-do-wells), they might want to start acting like it, and move outside their “comfort zones” — like some “Occupy” AND “Tea Party” people have started to do.

Among my own list of “pet peeves”, near the very top are systemic flaws in analysis. Put another way, I am infuriated by seeing analytical mistakes which “everyone” makes, because when the supposed “experts” in our society insist on repeating flawed analysis again and again they teach flawed thinking to those exposed to this defective logic.

At the top of the list of “mistakes made by everyone” is the complete incapacity of commentators (in virtually all fields) to properly analyze the analytical principle known as “causation”. One could write an entire book on this one subject, because there are so many different variations of this flawed analysis.

I will focus on a single example – the inability to distinguish between “causation” and “correlation” – for two reasons. First of all this is (by far) the single largest category of flawed analysis on the subject of causation and because it is essential to understand this distinction/principle in order to debunk one of the central myths which has been perpetuated about a “gold standard”.

Let’s begin with the general principle.  The reason why virtually no one in our society engages in competent causation analysis is because this term is so poorly understood. To illustrate this defect in thinking (as always) we must start with definition of terms. Sadly few analysts have more than a vague understanding of the word “correlation”. Once one understands this term/principle correctly it becomes much harder to continue to make the same mistakes in causation analysis.

A correlation is nothing more than the simultaneous occurrence of two events. In short, correlation suggests nothing more than “coincidence”, and (most particularly) correlation implies nothing about causation. To comprehend this, I must repeat one of the earliest lessons I learned while studying economics.

To illustrate the complete absence of any connection between correlation and causation, economists provide the example of the “high correlation” between economic booms and sunspot activity. The “joke” among economists (who aren’t exactly the wittiest group) is that economists are still trying to determine whether economic booms “cause” sunspots; or whether sunspots “cause” economic booms.

Hopefully the general principle here is now evident to readers: by itself, a correlation is an entirely meaningless piece of data – and most importantly correlation never implies causation. “Coincidences” do occur in our universe, with economic booms and sunspots being only one of an infinite list of examples.

This brings us to defining causation. Here the general understanding of this term is almost invariably simplistic. When we say that “A caused B”, what we are directly implying with that statement is that nothing else (in the entire universe) could have “caused B”. When we (properly) understand the magnitude of what causation implies, we realize that in the vast majority of cases when any individual in our society asserts that “A caused B” that they are most likely engaging in a hyperbolic statement – which they are not capable of supporting conclusively with facts.

Sadly, the conceptual understanding of the absolute nature of causation in our society now only exists in the realm of science, and even there we see practitioners regularly “bending the rules” when engaging in such analysis. Because of this failure to observe the rules of causation, we are continually being bombarded with erroneous assertions/conclusions – even from otherwise astute commentators.

A perfect illustration of this comes at the 45-minute mark of a lengthy interview of Professor Webster Tarpley, an academic for whom I have considerable respect. However Tarpley too is guilty of the aforementioned defect in logic when he briefly passes judgment on the wisdom of returning to a gold standard. What makes this such a perfect example is precisely because it is so simplistic.

Tarpley attempts to “prove” that a gold standard is an inherently flawed monetary model in the following manner. He looks at the last three examples of Western governments which implemented a true gold standard – and then notes that in all three examples a severe depression ensued shortly afterward. On the basis of that correlation, Tarpley blames the gold standard as the “cause” of those depressions, and based on that reasoning dismisses a gold standard as an impractical anachronism, as many other commentators have done before him.

As with most simplistic analysis, this is flawed on several bases. First of all, throughout history we have observed long episodes of time where a gold standard was firmly in place and there was not economic depression. On that basis alone we can conclude that a gold standard does not necessarily lead to depression. Furthermore, we can list numerous examples of nations which have experienced severe economic depressions in the absence of a gold standard, with Greece being but the latest example.

Tarpley’s analysis fails. A gold standard does not inevitably lead to depression, and depressions can be caused by other factors which have nothing to do with a gold standard. Where did Tarpley go wrong? First of all he failed to distinguish between causation and a simple correlation, and secondly he refused to explore how/why such a correlation might exist.

In particular, the obvious point of inquiry is whether there are some economic traits/realities which tend to be present when a gold standard exists – and (in fact) one or more of those other factors were the actual cause of the depressions to which Tarpley referred. In this respect, we can boil down a gold standard to having only two effects on any/every economy:

1) It provides an economy with “good money” which cannot be debased/diluted over time (as always occurs with fiat banker-paper).

2) It forces governments to pay their bills.

We can immediately dismiss (1) as a potential cause of depressions. Not only is it impossible to construct any economic argument where having good money causes a depression, but we have centuries of empirical evidence where a gold standard (and good money) was commensurate with prosperity.

This brings us to (2). Can anyone construct an argument as to how forcing governments to pay their bills leads to a depression? We don’t even need to go that trouble. Again we can merely point at Greece. Greece’s (insolvent) economy was suffering from a number of problems before severe “austerity” (i.e. trying to pay its bills) was imposed on it – but a depression wasn’t one of them.

What happened when Greece’s government inflicted austerity on its population? A near instantaneous economic depression resulted, which has already reached such an extreme level of economic suffering that the suicide rate in Greece has doubled in less than three years – and all without any gold standard. Immediately we can address the issue of gold standards and economic depressions with certainty: the only way in which a gold standard could ever “cause” a depression was if simply paying one’s bills inevitably led to economic depression.

Again we can point to a recent empirical example to totally refute such absurd thinking: Canada in the 1990’s. When our Liberal government inherited a nearly bankrupt economy from the corrupt and fiscally incompetent Conservative regime before it, that government was not only able to move from the largest deficits in history to a fiscal surplus in only two years – but it did so without triggering an economic depression, and its superb fiscal management led to a full decade of surpluses (until the succeeding Conservative government again destroyed Canada’s solvency).

Armed with this additional data, we can now engage in constructive analysis on the relationship (if any) between gold standards and depressions. Why do governments attempting to impose fiscal discipline frequently cause economic depressions? Political cowardice and/or corruption.

Just as the over-spending which characterizes most modern Western governments is a direct symptom of cowardly politicians who unfailingly “take the easy way out”; so too the same can be said about how most of these governments attempt to be “fiscally responsible” – by doing what is easy rather than what is hard.

What is “easy” for politicians (politically speaking)? Stomping on the poor. When we cast our gaze at the collection of incompetent/cowardly/corrupt Western governments arrayed before us, we see their thinking dominated by a single “equation”: re-election. Given the only consideration relevant to these politicians, we immediately see a cause-and-effect relationship take shape.

Fiscal tightening inevitably implies penalizing one or more groups in society, since the only possible way in which a government can improve its fiscal balance (all other factors remaining constant) is through reducing spending or increasing revenues (i.e. taxation). Now we add “political cowardice” (or corruption) to this equation and we are presented with the following political reality.

In political campaigns which are ever more dominated by top-down political spending (i.e. campaign bribes from the wealthy), it is much, much more politically expedient to stomp on the poor (who have virtually zero political power) than it is to slice into the wealth-hoards of the wealthy (who have unlimited political power).

We can provide conclusive proof of this political principle through empirical evidence and one of the most-basic of all principles of economics: the marginal propensity to consume. The “marginal propensity to consume” is just fancy economic jargon for a simple and indisputable principle of arithmetic/logic: the poorer that someone is, the more of each dollar in their possession that they spend.

We can illustrate this at both ends of the wealth spectrum. The poorest people always spend 100% of every dollar that comes into their possession. Indeed, by definition these people never have enough dollars to even live a “normal” standard of living. The opposite is true at the other end of the scale. Millionaires hoard a greater percentage of their wealth than the middle-class, billionaires hoard a much greater percentage than millionaires, and the (few) trillionaires hoard the most of all (by far).

Consequently we have a simple economic fact which is true in any/every capitalist economy: a dollar in the hands of someone near the bottom of the wealth pyramid always generates more economic activity than a dollar in the hands of someone near the top. Adding this additional principle of arithmetic/economics we now see the relationship between “austerity” and depressions.

Those governments who seek to “balance the budget” on the backs of the poor (and/or middle class) cause depressions, because the dollars they subtract out of the economy do so much more harm. Greece epitomizes this point perfectly. Conversely, governments which engage in humane austerity (like Canada’s Liberal government of the 1990’s) can impose fiscal discipline, balance the budget, and not cause any devastating depressions.

We can now correctly formulate the relationship between a gold standard and economic depressions. A gold standard does not “cause” depressions (governments do). However, at the same time, a gold standard is also not a magical, economic panacea. Specifically, imposing the fiscal discipline inherent in a gold standard will not lead to a good economic outcome in the hands of a corrupt government (i.e. one which governs for the benefit of the privileged few as opposed to the majority).

At this juncture in history, however, such a point is almost completely moot. Corruption in Western governments has reached an all-time extreme in the modern era. Proof can be found in the numbers: the “privileged few” have benefited (across the West) to an obscene degree which hasn’t been witnessed in our nations since the era of Kings and Queens (i.e. the corrupt despots of whom we previously rid ourselves).

Clearly, before we can “fix” our economies we must fix our governments (and in some cases) our entire political system. Only when we have banished the corrupt kleptocracies masquerading as “democracies” can we hope to return to fair economies, general prosperity, and (eventually) the monetary integrity of a gold standard.

Following the Crash of ’08, when the mainstream propaganda machine was desperately trying to “put a happy face” on the collapse of the U.S. economy, a ridiculous two-part economic myth was first spawned, and then regurgitated millions of times by media talking-heads: ordinary Americans were “saving money” and “de-leveraging” (or voluntarily paying down debt). Neither half of this myth has the slightest foundation in reality.

I’ve already dealt with the first half of this myth in greater detail previously – especially in a recent commentary. Simply, the only “saving” that is being done by Americans in any significant amount is by the fat-cats at the top, who have been handing themselves the fattest pay-raises in the history of humanity over the past decade – faster than the fat-cats can possibly spend it.

This is extremely unfortunate. Given that millions of Americans had/have permanently lost their jobs, while everyone else in the bottom-80% have seen their wages plummeting lower; the massive pay-raises the fat-cats have been handing themselves represent the only new (potential) consumer dollars being generated in this economy. Thus news that the fat-cats were hoarding their money at an increased rate was 100% negative for the U.S. economy.

The other half of this mainstream myth is equally absurd fiction. From the early 1990’s until the onset of the Crash of ’08, U.S. consumer credit more than tripled – from a mere $800 billion to a peak of $2.6 trillion. Note that all of this increased debt has been piled on by Americans during a period of time when their wages has been steadily declining in real dollars, meaning that none of this increased debt is sustainable over the long-term.

As the Crash of ’08 was revealed to be (in reality) a U.S. Greater Depression, the propaganda machine was desperate to propagate the lie that individual Americans had engaged in “significant de-leveraging” while the U.S. economy was spiraling downward. As the chart below reveals, after piling on nearly $2 trillion of consumer debt, the supposed “de-leveraging” amounted to a paltry $0.2 trillion – less than 10% of the entire debt-mountain they had accumulated.

More importantly there was virtually zero “de-leveraging” – i.e. voluntarily paying down debt – in the U.S. economy. Rather, what actually took place was a spike in various categories of debt-defaults, including auto loans, credit cards, and personal bankruptcies. Debt-defaults are the involuntary destruction of debts. And while true de-leveraging (voluntarily paying down debt) is virtuous, healthy behavior in an economy, there is nothing “healthy” about a spike in debt-defaults, bankruptcies, and (of course) foreclosures.

While there was virtually zero de-leveraging during the “official recession”, Americans have shown how fast they can pile debt back on – now that U.S. financial institutions once again foolishly loosen their credit standards. Witness for the prosecution is Bloomberg, who trumpeted with glee the news that Americans had just piled on more new consumer debt in November than in any month since immediately after 9/11 – a decade earlier.

Those familiar with the hysteria of the time will recall George Bush Jr. exhorting Americans to max-out their credit cards because “spending is Patriotic”. Back then, the U.S. economy had not yet been completely destroyed, millions more Americans were working, wages were much higher, and total consumer debt was nearly $1 trillion lower. In short, back in 2001 it was at least arguable that Americans might be able to repay all that new debt.

A decade later the picture is much simpler. All that the $20 billion in new debt which Americans piled on in November 2011 represents is $20 billion more in debt-defaults (and bankruptcies) over the next months/years, given that it is a unequivocal arithmetic that the U.S.’s debt-default spiral can only intensify in the years ahead.

The supposed “de-leveraging” which the mainstream media boasted of was nothing but propaganda mythology. However, the $100 billion in new consumer debt (alone) which Americans have piled on since the beginning of 2010 is very, very real. And all the new U.S. auto-loan defaults, credit-card defaults, student-loan defaults, personal bankruptcies, and foreclosures in the months ahead will be very, very real as well.

[Right: the Fed "jawbones" Main Street (dramatization)]

The Fed announced on the New Year’s Holiday that it is going to start releasing its internal forecasts of short-term interest rates.

Advocates of Fed transparency (I am one) might reflexively welcome this prospect.

However, even the New York Times article (sourced above) is not so naive. At least, this was apparent when it was originally published, as it said in this version of the article (apparently the copy at that location didn’t get changed — try again, guys!):

In January 2012 the Fed board adopted a plan to publish a forecast of its own actions, inaugurating a policy that is intended to magnify the power of those actions by shaping market expectations.

The article even opens with a comment about the Fed asserting its power to influence the economy through manipulating interest rates and engaging in quantitative easing (asset purchases). Oddly enough, the replacement version of the same article only uses the word “power” to suggest the Fed is powerless… “to address the most important issues weighing on growth, including a lack of demand from gloomy consumers, high levels of debt throughout the economy and the depressed condition of the housing market”.

Poor, poor Federal Reserve.  They do try so hard, but they are as helpless as the rest of us!  Uh huh.

What the original wording does is accurately reveal the Fed’s immense power of intervention on the bond market and everything connected to it, and accurately point out that increasing its advance reports of interest rates is likely to only magnify that power.

In fact, the phraseology “publishing a forecast of its own actions” (also absent from the updated, propagandized article) really puts it best.  It stands to reason that since the Fed is now setting short-term interest rates by fiat, completely controlling the market, all they are “forecasting” is their own eventual actions, not some “free” evolution of market conditions.

Adam Estes at The Atlantic caught on to the original article, and directed me to the NYTimes’ “suspicious” change.

He was also quite critical, but I don’t think even he took the point as far as it needs to go.

The Fed isn’t openly “asking for more power” (like it did when it requested — and received — the new Consumer Financial Protection Bureau); it is asserting even more, under the subterfuge of “transparency”.

What we are talking about here is jawboning — attempting to influence the market by shaping future expectations (especially those of market insiders) with rhetoric and “data.”

This has been a Fed pet peeve of mine for a long time: any time the Fed volunteers more “transparency”, you can be sure that it isn’t doing it to be more accountable, it is attempting to amplify its jawboning facilities to get more effect out of its various manipulations.

This in itself might not seem so bad — after all, isn’t it good for the Fed to achieve more of a result out of bluster rather than through actually intervening (i.e. printing more)?

I think it is evident that this is not the case.

Conceptually, any market influence that is based simply on perceptions is unlikely to be “durable”.  Markets always correct to real-world conditions.

But that’s not the main problem with the Fed’s dissembling.

The real problem is that the Fed has, through its vast statutory influence combined with this new policy of jawboning, transformed the market from a “normal” state of bond income-seeking to a speculative state of bond asset trading.  And as is painfully evident today, the last thing we need is more speculative trading.

I noticed this transition years ago, when investigating the launch of a credit bubble around 1995, which ultimately became known as the dot-com bubble.   But that was only its stock market manifestation — bonds (especially Treasuries) also have rallied more or less continuously since around that time.

Furthermore, it was clear that in 1994/1995, the trading action of Treasuries changed completely.  Rather than rallying when the Fed Funds Rate (the Fed’s main policy interest rate) was increased, they started to decrease when rates were rising.  Conversely, when the Fed was lowering interest rates, Treasuries would rally, instead of falling, as they used to:

(The chart is a few years old, so only goes up to 2006, but the point is made)

The distinction between investing for income versus for trading profits stands out here: rising interest rates increase the attractiveness of bonds to long-term investors (i.e. Main Street) — especially “risk-free” bonds like Treasuries.   But it’s falling rates that interests Wall Street (and other traders around the world), because a falling rate means the bonds you currently hold are worth more if you sell them.

Main Street investors don’t run around selling bonds before maturity very often, so this behavior is of little concern to them.  But for Wall Street, it’s a trading bonanza.

Sure enough, around 1995, when Greenspan increased the so-called “transparency” of the Fed by releasing minutes of the Fed’s governing board’s regular meetings, this change took place.  And that’s when the traders took over the bond market — attached to a leash that led straight back to the Fed.

Now we can understand why the Fed doesn’t give a hoot about the fact that, thanks to its own policies, short-term bonds are close to zero, and long-term Treasuries yield less than inflation, strangling Main Street.  Simply put, the Fed isn’t there to bail out Main Street: priority #1 is bailing out Wall Street, which means traders.

The effects of the Fed’s pro-Wall Street jawboning are even more pronounced when you consider that it conducts its interest rate-setting policy through purchases and sales not to the general market, but to a closed cartel of “primary dealers”.  These primary dealers are ensured a profit on these operations (in effect, a subsidy – see here for a specific example), and almost certainly receive other very valuable forms of back-scratching from the Fed (e.g., Goldman Sachs getting bailed out 100% on the dollar through AIG in 2008, worth $13 billion, courtesy of Tim Geithner’s New York Fed).

These cartel banks are best-positioned to profit off the Fed’s fake “transparency.”  They know that the Fed’s so-called “predictions” are actually advance policy statements, and dutifully “front-run” the Treasury market.   With recent revelations of back-channel communications between Treasury officials and Wall Street players in advance of major bailout decisions, as well as the existence of the totally closed-door Working Group on Capital Markets and the Exchange Stabilization Fund, it is almost certain that they have advance information of these “predictions” even before the Fed has released them.  Basically, it just gives them another thing to front-run.

Further proving that this is all a sham, it is an open secret that the Fed’s prognostication track record is abysmal (here’s an entire book on it).   If I were the Fed, I certainly would not want to make my internal predictions MORE public in light of this — unless the purpose is not actually to allow the public to “check up on my work,” but to better manipulate the market and do favors for my insider friends.

Finally, we can observe that if the Fed did truly want more transparency, it wouldn’t have resisted genuine efforts by the public to demand it, such as in -

(1) Bloomberg News’ request for information on the bailouts;

(2) Fox News’ request for information on the bailouts;

(3) Ron Paul’s request for general authority for Congress to do full audits of the Fed (along with Bernie Sanders and other Fed critics in Congress — which resulted instead in a more limited, one-time audit; yet even that was quite illuminating).

Remember all this the next time the Fed volunteers that it is going to be “more transparent.”  It’s for your own good, of course.

Now that 2011 is behind us, it’s worth reflecting on the eleventh consecutive year of the gold bull market.

For those not following closely, gold just put in its 11th consecutive yearly price increase, with an approximately 14% rise on the calendar year. And that wasn’t even nearly a remarkable year — the average price increase over that time span works out to about 16%!

It’s true, there have been some sizeable declines over the last decade plus (such as during the global market collapse of September 2008), but as is obvious from the long-term performance, these declines haven’t broken the back of “the bull” in gold. Plus, calendar-year performance is accorded special significance for various financial reasons, so gold should be granted the kudos it legitimately reserves for this virtually unheard-of feat.

But you (randomly-selected member of the general public) probably haven’t heard of it.  In fact, you probably think that “gold is going down”, based on what you’ve heard in the media recently (if not prevailing for the past 5 years or so).

An interesting question then remains: why has this oddity occurred?

I think there are a few reasons, with one primary and a few secondary.

Secondary are the reactions to sharp pullbacks such as the one in 2006 (from a high of about $700/oz), the one in 2008 (from about $1000/oz), and the one in 2011 (from $1900/oz). There have also been numerous “bearish” signals of interest to technically-driven market traders and analysts (such as a number of downside violations of the “200-day moving average” in the gold price).

The reactions to these events seem to have erected quite the “wall of worry” in gold, and along with the recovery from these pullbacks, have increased volatility in the gold market enough to scare people away from gold as a “safe haven” investment (Jeff Nielson has more on this phenomenon).

But all that still leaves the glaring question of why that particular pattern is happening — i.e., significant (if not “parabolic”) price spikes every few years, which rapidly correct sharply, but always result in a continuation of the bull market (rather than conversion to a “flat” market or “secular” bear market).

Because such a “strange” pattern has persisted so long, I think any honest impartial observer would have to admit at this point that sustained, downward manipulation — by interests powerful enough to do so — very likely plays a major, if not dominating role.

Some argue that manipulation is “immaterial”, if not impossible, because the market has gone up consistently for 11 years now.  True, but that ignores the very question we raised about the particular shape of the bull market (and lackluster media reaction).  Assuming the move is driven by underlying fundamentals, which have clearly not changed (indeed, the global financial problems and the central bank monetary easing response to them have only worsened), then it is odd indeed that an exponentially increasing number of market participants haven’t “caught on”, jumped in, and drawn gold into a major parabolic “blowoff” reminiscent of 1980. This is, after all, the norm, rather than the exception, when the market is presented with a long-term, “one-way bet”.

But that point gets to the core of the issue, doesn’t it? Glaring in our face is the not-so-implicit desire of Western governments and prevailing financial powers to avoid such a macro-parabolic spike for what it would reveal about their bizarre fiat money and banking system. Namely, that it is totally insolvent, with no way out — except by taking advantage of the key “feature” of fiat money; that enough of it can be arbitrarily printed/created to get the-powers-that-be out of trouble.

And were the gold market to really start to run away (and I mean in a way that would cause the media, and hence the general public, to take notice for more than a few weeks), it would not only signal distress for the status quo monetary system, it would illuminate the obvious “escape hatch” that concerned holders of paper assets could take to protect their wealth while they still can: getting the hell out of paper and into gold.  And this especially  includes government debt — with US Treasury debt the most critical of them all. Indeed, after four years of rolling bailouts, Western governments (especially the US) have now stuffed the public balance sheet such that they are more deeply insolvent than they have ever been in history.

And the numbers still show a laughable, less-than-1% global asset allocation into gold, despite a 10% allocation to gold being the “prevailing advice” from the even mainstream financial establishment (a recommendation provided mechanically, but never heeded — almost like a disclaimer — “If the economy collapses and you lose everything you’ve invested with us, remember we told you to put 10% into gold!”).  So it’s clear that there has been little, if any increased movement of investors into gold (visible to Western market statisticians, at least), despite 11 years of relentless gains. This suggests that the “raw feedstock” for a major stampede into gold remains (or “dry tinder for a major explosion”, to use another apt simile). But something first must set it off.

So there’s the motivation. And if we were part of those powers-that-be, we would make suppressing a gold price mega-spike — not a gradual gold price increase — priority #1.

Such a “dampening” of the market is all that is needed to keep the gold bull under wraps as far as the general public is concerned — totally preventing a long-term price increase is apparently unnecessary (certainly this lesson was learned with the 2006 price smash, if it hadn’t been earlier). And semi-regular “beat-downs”, from each of which a major media circus is made, fit the bill beautifully.

An added benefit to these powers-that-be with this kind of manipulation is that they, of necessity, need use far less “financial firepower” to pull it off. Were they to instead go for the goal of causing overt price declines (as they apparently did in the latter half of the 90s, barely concealed), they would probably need to resume selling off (or leasing) even more of their puny official gold hoards.

And who would want to sell gold heading into what they certainly know is coming — the ultimate denoument of their decades of monetary expansion and recent bailouts?

The upshot is, we reckon that because of this “wind resistence” style of market manipulation, they will end up either doubling the length of the gold bull from the typical run of a decade, or will have simply delayed (but not prevented) a final “blow off” phase.  Such a blow-off always dwarfs the “base”; i.e., everything up till now would still be simply the “base” — which isn’t so strange considering that the 4x plus increase in gold so far, by most measures, does not even keep up with broad central bank monetary expansion.   And after such a blow off, gold will likely remain permanently higher, to factor in all the money printing that has taken place.

So to answer the titular question, no, this gold bull is not for real — the reality is, and will likely be in the fullness of time, much more bullish.

We suggest you allocate your wealth accordingly.

NOTE: We have made repeated references to manipulation in this article without really citing specific “evidence.” That was on purpose, since the main argument is that the overall pattern of the gold bull market, when taken with the background macro-economic fundamentals, screams bloody murder. But if you’d like an inventory of specific skullduggery towards gold manipulation, we direct you to the work of the fine folks at GATA. Here’s a direct link to a summary report on the first decade of their work.

We would also suggest waking up to the obvious facts which are in full public view, such as how the IMF and individual Western central banks handle their gold sales in a way that no sane, high price-seeking private seller, would ever replicate. Or, perhaps even more glaringly, how the US overtly nationalized gold in the 1930s, kept it illegal for US citizens until the 1970s, and then publicly fixed the price (repeatedly) until the gold-backed dollar standard was totally abandoned. When you consider all this, the real question is not whether governments manipulate the gold price, but rather, did they ever really “free” the gold price?

And so we leave you with an insight from Goethe: “No man is ever so fully enslaved as the one who has been convinced he is free”.