should not we then blame the fiat money system (ie: Federal Reserve and central banks worldwide) for the damage they cause and not the speculators themselves, then? Sure, they directly caused it, but who indirectly caused it and made it possible/indirectly sponsored it?
It’s like a big criminal gang: you have the boss, the fellow driving the getaway car, the one printing fake IDs, the boss’ woman… sure some are more culpable than others but it’s still no excuse. Let’s just say that if the boss deserves to be hung in gibbets the accomplices should at least transported to the colonies. [;)]
Every trade is voluntary in any market.
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If the best offer for X on the market is too high for you, then don’t buy it. If the best bid is too low, then don’t sell it.
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If someone has pushed the price of X lower than where you think it should be compared to Y, then take that opportunity to buy X and sell Y (i.e. bet that this - “unnatural” for you - discrepancy will soon disappear).
Yes, depending on the liquidity available in a given market X, it is possible for party A to temporarily “push” the price of X. However, that “pushing” can not be done without party A taking enormous risk on its books. The more “unnatural” and “weird” that push is perceived by the rest of the agents in the market, the more it will be faced by the opposing force of the remaining agents (speculators included) entering opposing bets, making it ever more costly (in terms of risk taken) for party A to continue the “push”.
My point: If you think that (for whatever reason) price of X is too low or too high (absolutely, or relative to Y) then thank the “pusher” for giving you the opportunity to enter the opposing bet. Without him, such opportunity would not be there. Speculators, in all their greedy glory, by seeking and entering such opposing bets are an essential deterrent to any potential “pusher”.
Z.
Z,
From what I understand about the situation, what had happened is people were selling silver but only offering certificates but saying it was still silver when they didn’t have the silver. That’s fraud to sell a product when the buyer isn’t actually getting the product. How the exchange took place: indirectly or directly doesn’t matter. It was the selling of a product that didn’t exist so the buyer wasn’t getting what was agreed upon in the exchange.
A couple of points:
The charge has been that JPM is trading 100 times more silver than they own. Whether we call that fiat silver, counterfeiting or just another form of fractional reserve banking it is really not much different from the Federal Reserve System. In other words it is fraudulent.
The interesting thing is that the regulators don’t see a problem with this. When asked what would be the result if one demanded delivery of the metal, they just shrugged and said that there is precident for substituting cash.
Soon or late this scheme may crash and the dollar will plunge metal will soar. If you think that will happen you should buy physical metal and short the dollar.
If you are going to do that I would advise that you do not leverage. If you will allow me a quote from an otherwise discredited economist.
“The market can stay irrational longer than you can stay solvent.” J.M. Keynes
I think you might agree with me that Keynes knew a thing or two about irrational markets.
beta
alternatively you could buy physical gold/silver and short paper gold/silver.
beta, excellent points. One minor detail to an overall great post of yours. The difference between what happened here with (1) silver, and (2) fractional reserve banking are two different points as twistedbydsign99 had noted.
Fiat money isn’t promised as being redeemable by anything other than the same fiat money. [But I understand there is debate as to whether it is fraudulent or not and I’m not knowledgeable enough to fully answer this question pertaining to fractional reserve banking]
Silver in the buying-selling exchange involved silver whether in the buying or selling, but during the exchange when silver was received or given sometimes no silver was actually involved in the exchange, meaning, fraud.
Two different operations.
Many in this thread may need to educate themselves about the basics of futures and forward contracts. This has nothing whatsoever to do with fractional reserve banking. When party A sells a futures contract to party B, it actually promises to deliver a predetermined quantity of the commodity (contract size) at a predetermined future date (contract expiration date) in exchange for B’s promise to pay A the price at which the contract just traded. If party A does not own any of the commodity, it can either (1) buy the commodity on the spot market before delivery and deliver it to party B or (2) BUY back the contract at the exchange from party C thus transferring its delivery obligation to C. Either way, at the predetermined expiration date (usually once a month for most commodities) all contracts expire, all commodity has exchanged hands and there are no such “certificates” left outstanding.
Once a future contract is traded at price X, parties A and B exchange cash at the end of EACH DAY reflecting the price movement away from the previous day’s close. This way, the day’s losers pay the day’s winners and everyone goes home even and without fear of any obligations not being met.
For every LONG bet (“buy”) there is a corresponding SHORT bet (“sell”). The number of ALL long (or short) bets (contracts) is called OPEN INTEREST (OI), and OI is usually MUCH LARGER than the amount of commodity that actually exchanges hands at expiration.
From the above it is obvious that any party with any devious plans to “push” the market down MUST eventually – and most definitely BEFORE contract expiration – either (1) BUY whatever amount of actual commodity it sold in the contracts, or (2) BUY BACK whatever amount of futures contracts it sold during it’s “pushing” bonanza. Overall, over the life of each contract, the amount of any pushing down MUST be matched with a corresponding pushing up, and every potential “pusher” must keep this in mind.
Z.
Though not as articulate as you on this matter, I didn’t realize if your post in general addressed the silver that wasn’t exchanged when it was bought/sold.
True enough, wilderness. But I did like twistedbydsign99’s allusion and wanted to give it a nod of affirmation.
Seems that wherever you look in the banking system you find fraud and deceit. I am weary of parsing the various crimes to find the exact infraction. When there are indictments they seem to be of the Martha Stewart sort.
I’m not sure but I think that the metal manipulations might be more important to the current economic mess than the housing bubble. For example the Bear Stearns failure might have had more to do with their huge short metal position than toxic loan assets. Look at the timing. On Friday, 3/14/2008 Gold closed over $1000, a new high, and BS closed at $30 having fallen $32 since the previous Monday. That same day the Fed gave BS an emergency loan. By Sunday the Fed brokered, and financed, a deal for JPM to buy BS for $2 a share with a guarantee to cover any losses.
There is evidence that all this was the result of a squeeze on BS’s massive short Gold/Silver position. I believe that BS was acting as a surrogate for the Fed to keep metal prices down and got caught out. Gold had moved 25 percent in the previous 3 months. If you are leveraged 100 to 1 it’s the mother of all short squeezes.
It is that huge inherited position that JPM is trying to manage now, with the backing of the Fed.
I am betting that foreign sources are going to bring down this house of cards. Just wish I had a better handle on the timing.
The damage to the $ will wipe out the purchasing power of everyone’s savings. The damage to average people will be unimaginable.
beta
What was bought/sold was not silver but silver futures contracts (bets). There can easily be (and there usually are) more futures contracts (bets) in existence then the actual amount of physical silver exchanging hands at expiration. But there’s no problem there, and this has nothing to do with fractional reserve banking (or fractional reserve anything). There is also no fraud, as each party entering these contracts (bets) is doing so voluntarily and the losers are making the winners whole at the end of each day by cash payments after each trading session’s close.
I can enter into a derivative contract (bet) with you related to (1) total rainfall in Wyoming in 2012, (2) price of IBM shares, (3) price of mulch in 2011, (4) the winner of the Soccer World Cup 2010, (5) price of silver a month from now, etc. without ANY exchange occurring between us other than the cash the loser owes the winner of the bet. There’s nothing fractional or fraudulent about it. Hope this clarifies things a bit.
Z.
The certificates are interest on silver, meaning, there will be more silver in time, at least, that’s what’s bought into? risks therefore
yes, yes, you don’t need to tell me, I already know that.
yes it does. thanks.
How hard do you have to try to not see the similarity there? No one was saying it is in actual fact fractional reserve banking. Its the same argument used for that system. Hey the banker never said that ever dollar would ACTUALLY be redeemable in what you deposited, its just bets, some win some lose.
I hope you read my posts in their entirety as the differences are clearly explained there. How hard do you have to try to equate speculation with fractional reserve banking? The fraud in FRB is in the fact that upon my deposit of $100, the bank lends out $90 while telling me that I still have my $100 to withdraw any time I want – two agents (the borrower and the depositor) have access to $90 worth of liquidity at the same time, which would be impossible without a central bank’s ability to create $90 out of thin air.
We can bet on the future price of silver without exchanging any silver, the same way an insurance company can bet on the number of storms next years without “exchanging” any storms(?) with its counter-parties. There’s nothing fractional nor reserve about this.
Z.
So if I had a futures contract for my silver than exists in the earths crust, it would be dumb, and it would be fractional. But you have a point that they aren’t treating these contracts like a store of wealth.