clarityBy Ted Butler

Every once in a while, someone utters a statement that suddenly galvanizes the issue at hand.  That’s the first thing that came to my mind when I read of the US Attorney General’s words before a Senate hearing this week.

In a blinding moment of clarity, the answer to the whole “why isn’t the CFTC doing anything about the silver manipulation and JPMorgan’s stranglehold on the price” question flashed for all to see. Mr. Holder’s words couldn’t be any clearer and fit perfectly with the now-consensus view held by those who know that JPMorgan is manipulating the price of silver. The reason the CFTC is allowing JPMorgan to continue with their illegal behavior in silver is because the bank is too dam* big and powerful to rein in for fear of the unintended consequences.

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Every once in a while, someone utters a statement that suddenly galvanizes the issue at hand. In the fable “The Emperor’s New Clothes,” Hans Christian Andersen tells of two weavers who convince the emperor that their special clothing for him is invisible only to those unworthy. When the emperor parades in front of his subjects wearing the special clothing, a child cries out the obvious, “he isn’t wearing any clothes at all.” That’s the first thing that came to my mind when I read of the US Attorney General’s words before a Senate hearing this week.

Asked why the government hadn’t pursued criminal charges in a case where a large bank admitted to money laundering for drug interests, Attorney General Eric Holder said: “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.” A senator admitted to being stunned by the frankness of the response. While Mr. Holder’s no-nonsense answer got the widespread attention it deserved, it should have resonated most loudly with silver investors, or at least with readers of this service.

In a blinding moment of clarity, the answer to the whole “why isn’t the CFTC doing anything about the silver manipulation and JPMorgan’s stranglehold on the price” question flashed for all to see. Mr. Holder’s words couldn’t be any clearer and fit perfectly with the now-consensus view held by those who know that JPMorgan is manipulating the price of silver. The reason the CFTC is allowing JPMorgan to continue with their illegal behavior in silver is because the bank is too damn big and powerful to rein in for fear of the unintended consequences. Not only is this the most plausible explanation for the hands off treatment for JPM, countless specific facts unique to silver also reinforce this view.

There is no reason for a US federal agency that spends four and a half years investigating a simple question about market concentration not to find the answer, other than intent not to find it. Clearly, the CFTC won’t conclude the silver investigation because of the fear that charging JPMorgan with criminal charges for manipulating the price of silver could have extremely negative consequences for the bank that could radiate throughout the financial system. Throw in that certain guarantees and assurances were most likely given to JPMorgan by the US Government at the time of their assumption of Bear Stearns’ concentrated short position and the most plausible explanation becomes more obvious. I never represented that this manipulation business was anything but a very serious circumstance being played out at the very top of the financial and regulatory food chain. It’s hard to imagine the Attorney General’s words being more applicable than to the silver price manipulation by JPMorgan.

I had this discussion with a friend the other day when the story first broke and he raised the obvious point that this would seem to extend the life of the silver manipulation indefinitely. After all, if the regulators were reluctant or afraid to force JPMorgan to cease manipulating silver, then that gives the green light for JPM to do so forever. I can understand that sentiment. Understand, yes. Accept? No. While I think that the growing general awareness that some banks are too big to fail or even be sued and, specifically, that JPMorgan is manipulating the price of silver would argue for a quicker end to the manipulation than otherwise, but that’s different than the main point I would make.

Many conclude that the termination of the silver manipulation will arrive only in some long from now timeframe, given the power of JPMorgan and the regulators’ temerity in confronting the biggest of the too big to sue banks. Often, this sentiment is aligned with thoughts that so as the government’s ability to create money and debt appears unlimited; so can JPMorgan sell unlimited amounts of paper silver contracts short to control the price. This is an easy analogy to make and brings me to my main point, namely, there is a world of difference between the creation of new money and the creation of new short silver contracts. The key is in knowing why they are different.

I agree and stipulate that JPMorgan has always sold as many new short contracts as it found necessary to cap and contain the price of silver. We’ve seen stark proof of this on two recent prior occasions, on the two-month $10 silver rally from the end of 2011 and in the $8 silver rally from last summer into early winter. On both occasions, JPMorgan, as the sole new short seller, single-handedly stopped each silver rally from progressing further. And truth be told, I can’t rule out JPMorgan not being the sole new silver short seller on the next price rally. That’s precisely the most important consideration for the future price of silver. So, what I’m saying is that yes, the dirty rotten crooks at JPMorgan have single-handedly stopped silver in its tracks in the past and may do so again. But I am also saying JPMorgan can’t do it forever and maybe not even once again, because of something else.

The something else concerns the specific nature of the instrument through which JPMorgan is controlling and manipulating the price of silver. By selling short heretofore unlimited quantities of COMEX silver contracts to control the price is, at the same time, also obligating the bank to the actual delivery of physical metal, under very easy to imagine circumstances. The Federal Reserve can buy $45 billion a month in securities or $450 billion worth, the consequences of which are impossible to determine with accuracy. On the other hand, the short sale of a regulated commodity futures contract that calls for physical delivery at the option of the buyer has an easy to determine outcome if that commodity moves into a physical shortage. COMEX silver is such a physical delivery futures contract.

What this means is if silver does move into a pronounced physical shortage, something I see increasing signs of, then it will only be a matter of time before cash physical silver buyers begin to demand actual physical delivery on COMEX futures contracts. That’s because the COMEX has ascended to the pinnacle of the silver pricing world. Along with that silver pricing ascendency has evolved unintended consequences (why are there always unintended consequences for things that shouldn’t have occurred in the first place?). For COMEX silver contracts, one unintended consequence is that most silver market participants, including industrial users and large investors, know that in a pinch, they can get physical delivery by accepting and paying in full for actual metal on a futures contract.

Yes, I know that only a very small percentage (1% to 3% or less) of all futures contracts on physical commodities ever end in actual delivery. Left unsaid is that’s because only in a very small percentage of the time is a physical commodity ever in an actual shortage. In an actual physical commodity shortage it must be expected that, depending on price, there will be a great demand for delivery for the item in a shortage and an equally great reluctance by futures contract sellers to make delivery; otherwise there would be no shortage to begin with. This is the problem in silver, namely, that the biggest short seller, JPMorgan, has driven the price so low that, if a physical silver shortage develops, you can be sure many more buyers of silver futures contracts will demand physical delivery and expose JPM’s inability to deliver. Of course, we’ll only learn this after the fact when JPMorgan proves incapable of delivering physical silver. That’s when the federal regulators and the crooked self-regulators at the CME will pronounce that a special problem has suddenly emerged that necessitates a contract default. The truth is that the problem already exists today in JPMorgan’s crooked concentrated short position and the only thing that must emerge is recognition of a physical shortage. In a play on the expression “it’s all over but the shouting,” in silver, it’s all over but the shortage.

That we have come to the point in this country where the leading federal law enforcement official acknowledges that the Department of Justice is reluctant to file criminal charges for fear of the fallout explains why the CFTC has not cracked down on JPMorgan in silver. But that explanation has nothing to do with what will occur when the silver shortage hits with full force. Nothing that the Attorney General, the CFTC, JPMorgan or any other entity in the world says or does will deter the worldwide buying force that will rush into silver when the shortage is exposed.

One final note – there has been increasing talk of a silver and gold shortage leading to a COMEX contract default of some type. I don’t know where this talk of a gold shortage comes from. Gold is not industrially consumed and that makes it virtually impossible for it to develop into an actual physical shortage. I understand that silver and gold are manipulated in price by virtue of COMEX game playing, but I think it’s important to distinguish between the two based upon the facts. Yes, gold can go higher, even much higher than I anticipate, but a physical shortage is a completely different animal. It is the prospect of a silver shortage that lies behind my switch from gold to silver mantra.

Ted Butler

March 11, 2013

To subscribe to Ted Butler’s excellent subscription silver newsletter, visit www.butlerresearch.com

 

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  1. My opinion is that the governments are the ones who benefit the most from low PM prices, therefore JPM and the other legal mafia members are just doing the bidding of their bosses and making shitloads of money while doing it.
    The too big to jail thing I had always considered an open secret. I think you have to be nuts to think that JPM would ever have been brought to any type of justice,
     

    • JPM – one of the largest owners of the Fed. At the same time, JPM – one of the main operators of the Fed.

      The Fed and the U.S. – one of them a horse and one of them rider.
      Who of them horse?
      Fed – this rider. U.S. – it’s a horse.
      U.S. in this pair it is the horse, with all the people, the government, the army, police, courts and the president.
      Fed owns and uses his horse to take benefit and profit. Because it is main legal right, for the any owner of the horse.
      But the horse has no right to accuse the owner is that he uses it on your own.
      All the more so, horse can not blame the person, who is the master to the owner horse.

      Same way like any the U.S. prosecutor and any man of U.S. judiciary, (which is only part of the horse), can not fault the Fed and all the more so JP Morgan.

    • “The Fed and the U.S. – one of them a horse and one of them rider.”
       
      Or, one is the front end of a horse and the other is the back end.  ;-)

  2. Holder said what? They don’t care about damage to the economy, they have spent four years doing as much damage as possible.  It’s the power of the USG, its Empire and their personal fortunes they are protecting.  The real economy is coasting to a stop.  They’re having trouble moving junk through walmart, for instance.

    • I needed AAA batteries today, local walmart super center had ZERO, went to get produce and the shelves were almost bare too. Lots of other stuff out of stock all over the store

  3. All the people moaning and groaning about $30 silver I suspect are relatively new to the silver market.   I started getting into silver in 2006-2008 at $10-15.   Even after the equity crash, they managed to keep silver pressed in the $15-20 range for several years before the cap blew off and it ran to $49.   This $26-35 range over the last year or so is just a repeat of that mid teens base.  This is allowing hundreds of millions of ounces to move to strong hands that otherwise would not have if silver was $60 now and gold $2000-3000 which would probably be the case in a free market.  It may chug along sideways for a good while, but all they are accomplishing by pressing silver to the downside is helping people continue to accumulate the real money.   It’s a GOVERNMENT/BANKING SUBSIDY being offered to the whole world.   Subsidies create shortages when the price is too low because the low price stimulates demand and hoarding.   It will happen.   I’m not in my 80s or 90s so I don’t need to worry about the timing too much!  
    In 3 more years time people who didn’t start buying silver until it hit the $100 mark (think of all the people who don’t even own ANY PMs yet and probably thinking that $3000+ gold is too expensive) will be complaining vociferously that they’re down a third and saying they should have been buying the Dow at 8000.    And gold will be near JS’s numbers.   

    • I’m not sure why it is hard to fathom why people dollar cost averaged to 30 bucks are pissed off to see silver at 28. If I was dollar cost averaged under 20 I’d be laughing too. But I’m not.

    • “In 3 more years time people who didn’t start buying silver until it hit the $100 mark (think of all the people who don’t even own ANY PMs yet and probably thinking that $3000+ gold is too expensive) will be complaining vociferously that they’re down a third and saying they should have been buying the Dow at 8000.    And gold will be near JS’s numbers.”
       
      Agreed, Slvrizgold.  Those who think that $100 an oz. silver is impossible should consider that no one who bought gold at $500 an oz. or lower would have believed that it would triple or quadruple, yet it did.  People would have thought anyone nuts who said that, yet it happened.  Such as the various legs of a long-term bull market.  Heck, gold was once less than $21 an oz. ans silver about $1.30 an oz.  While that was a long time ago, PMs do offer us timeless value and this kind of pricing is just another example of that. Personally, I am looking at the current prices of silver and gold as a gift; a time to acquire more at a reasonable cost.

  4. Well of course. Ted Butler must be one of the last people on Earth to understand this. All these idiots are in lockstep – the regulators, the courts, the cops, Congress…they have to let the banks do whatever so the “recovery” can happen. The corruption, fraud, and outright theft doesn’t matter. It’s their own version of “greater good” because the “recovery” will wipe away all their sins. 

    Except there will never be a recovery until it all crashes and burns. 

  5. ‘Too big to jail’…that’s our official gov’t policy per our attorney general.  Goodness.  Bankers have been a problem for a long time. 

    Ironic to see “The Wizard of Oz” is number one at the box office this weekend.  The original book by L. Frank Baum was a monetary allegory about the politics of 1873 and the story of William Jennings Bryan.  Oz is short for ounce.  The Yellow Brick Road is gold.  Dorothy wore silver slippers in the book.  The Tin Man is the working man.  The Scarecrow is the western farmer.  The Cowardly Lion is Wm Jennings Bryan.  The Emerald City is Washington D.C.  The Wicked Witch of the East is the east coast banking and industrial interests.  And Dorothy is the naive American people.

  6. Good allegory UglyDog.
    ————————–
    Anybody else see the APMEX emblem on the right sidebar?  You can’t help but notice the similarity between that, and the label on a can of Spam….
     
     

  7. Off topic, but when a low grade intellect hack government attorney like Holder,  so far above his peter principal that to assume he knows jack about the COMEX and TBTF banks assumes I know something about quantum physics, makes a statement that is the  real truth tells me he either forgot how to lie, or like Junker said, When things Get serious, start lying or he’s actually starting down the road to roto bleep these TBTF banks, it remains that he said some truth. 
    Like his boss, This guy is nothing more than another slick talking mother from the south side who’s agenda is to forward fascism in the country.  His chops as an attorney are piss poor to boot.  He’s another product from the collectivist a***** famr system who screws up, moves up and gets to be the top cop of the US. 

    • This needs to make th enews, push it to as many people as possible via twitter, facebook etc. get the word out to the sheep and see if you can start a stampede.

    • OK, let’s cut to the chase here, AG.  Are you saying that Holder’s only real qualification for the job he has is that the curve of his lips fit Obama’s backside exactly?  ;-)
       

  8. By the way guys and gals, off the subject just for a moment. Not being a Catholic mind you, but having a religious crystal ball, I can assure you that Cardinal Secola will be the next Pope come April 14th! The World will come to know him as Pope Secola! Put it in the bank! Now going to the Big Picture. I spend most of my day watching live Forex futures from the London fixes on commodities. If you pay attention to the 25 commodities listed, you will come to the conclusion that some days at least 18 of the 25 commodities are in the red. If you wish to do so here is the link:  

    http://www.investing.com/commodities/real-time-futures

    My reason for doing this is assimilating the data on the movement of Gold and Silver, rather than paying little attention to what Sinclair, Willie, Turk and other Guru’s postings as what is really going on in the aforementioned markets. Watching the slight and sometimes strong down and up moves will tell you that over the last days of trading that Gold and Silver are fairly well holding a static pricing structure. The bottoms I believe are fairly well set in as the banksters are on a hold the price down, but on really loose footing but other commodities as well. Not saying that Gold and Silver are not manipulated, but in total can all of the majority of commodities be manipulated at the same time? They could be. Seems to me that all is waiting for a market collapse in stocks, bonds and including worthless derivatives. Just some thoughts, by that’s my current take on the ascent and descent of Gold and Silver, What’s yours?
     
     

    • I believe that without regard to what political party is in office, someday, sometime, the government will default. The other option is hyperinflation. Neither are desirable. Too many promises have been made. Too much mismanagment.  The COMEX, WALL STREET, ETC. are small time games compared to the comming government debt reset.
      I predict that someday, a future President will adress the nation, and try to explain the debt reset, It will be uniformly missunderstood, and barring a Red Sea miracle, chaos insues.
      This I believe is the biggest threat we face.

    • My take is that anything that can be manipulated for a profit, WILL be.  Hells, bells, people… the US Gov is being manipulated, so why would anything else not be?

  9. Eric Holder let out a “slip of the tongue” , but he told the truth in that…..they wont prosecute because they are afraid.
     
    Knew it all along.

    He should have added ” the law doesn’t apply to the big banks”.

    • The logic of the kind of wuss argument that Holder put forth totally escapes me.  A US Attorney General either enforces all US law impartially or he does not.  If he does, we have a nation of laws.  If not, we have a nation of men… and some men are apparently more equal than others!  Of course, such things are not done for nothing.  People in positions of great power expect and receive GREAT rewards for exercising that power in ways that please the VERY wealthy.  Everyone in the current government is likely raking it in big-time, or soon will.  Just as they said “Let no crisis go to waste”, so too can they say, “Let no opportunity for profit escape”.  These south-side boys DO know how graft and corruption work.  Both have been developed to a fine art in Chicago.
       

  10. “…if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.”
     
    This is pure BS.  The issue is not the economy, but letting the banks and those behind them stay in power.  The issue is avoiding a revolutionary overthrow of those presently in power.  Of course, in a revolution, the economy will take a hit as well, but they should have thought of that before embarking on the debt-based fiat monetary system designed to cheat people out of their time and freedom.
     
    “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
    –Henry Ford, American industrialist, founder of Ford Motor Company

    • Fed – is the master for the U.S.
      U.S. – is a slave for the Fed.
      A slave can not initiate criminal proceedings against the owner.
      (JPM here – it is the coowner of Fed).

    • I agree, Plebian.  If Jamie Dimon were arrested tomorrow, JPM would continue to operate.  If Jamie Dimon were charged, indicted, and convicted, JPM would continue to operate.  If Jamie Dimon went to jail for 30 years, JPM would continue to operate.  So, where is the damage done to JPM?  It operated before Dimon came along, it operates while he is there, and it will continue to operate long after he is gone, whatever the reason for his leaving might be.  JPM as a company is NOT the people who temporarily work there!
       

  11.  
    Please note 1.15 seconds into the clip of Max Keiser and Stacey Hubert report. Notice the the CTFC found manipulations against Sugimoto Company for manipulating Copper. However, as we all know Silver & Gold have been manipulated by Jp Morgan and Family and nothing is happening.. Eric Holder do your job…

    • None of the cretins who staff the CFTC have worked for Sugimoto or expect to in the future.  The same cannot be said for the BIG NY banks.

  12. Holder is nothing more than a place mat in the US legal system, a pettfogging little pecksniff doung Obama’s dirty work.
    Ranger, your viewing of the Forex makes me think my OCD nature with the blog rolls is lightweight stuff.  Doug Casey said only rigged markets move in straight lines. I can’t comment on the FOREX movements but if 72% of the commodities are in the red, do you think that means a harsh recessionary environment for the world wide economies? Usually when there’s so much red that does not bode well for the producers or end user demand.
    Ann Barnhartd would like to see Cardinal Bagnosco voted in as  Pope Leo XIV   Any idea why Secola would be the next Pope and what would that mean. Just curious.  Since the Vatican has been in the news so much lately, and not good news overall, the next Pope could be a very important person in the Papacy
    Ed B  I think I understand what you were getting at with rate increases in UST. If the Fed ends up owning a significant portionof the long term UST debt as well as junky Euro debt, even if that debt drops in value due to rate increases or defaults of Euro bonds, it might be regarded as little more than the housing prices and garbage tranches of subprime debt. It only goes to zero when someone says it’s worth zero.  And until that happens, the value os copecetic.  Nothing to see here. All is well. Until someone tries to sell it.  then Boom

    • That IS one possible scenario, AG, but the main thrust of my comments was that the long term rates CAN’T rise unless the Fed allows them to rise… and for the foreseeable future, they can’t allow that or the US Gov would be immediately and obviously bankrupt.  Since the US Gov / dollar / Treasury paper ARE ALL major components of the current paper paradigm, the appearance of solvency MUST be maintained and at any cost.
       
      In days gone by, the Fed had no control of the long-term interest rates.  The system was a balance between the Fed set short-term rates and a free market competitive bid long-term rate.  That system worked wonderfully well for many years, acting as a financial check and balance for over-all interest rates.  This gave us some flexibility on the short end with some stability on the long end.  It was a good compromise and it worked.  

      Not satisfied with letting the free market set the long-term rates, however, the Fed plotted to seize control of the long-term rates so that they would be the ultimate US power in the cost of borrowing money.  While this gives the Fed great (and terrible) power, it also ends the check and balance effect because the Fed can buy any amount of UST bonds at any interest rates they choose.  There is no competitive bond bidding any more.  Yes, they still go through the motions (why?) but in the end, it is the Fed that sets ALL US interest rates now.  This is a system that is ripe for abuse, so, of course, it will be abused.  

      Economics being what it is, it is susceptible to Ayn Rand’s observation of:  “It is possible to ignore reality but it is not possible to ignore the consequences of ignoring reality”.  At some point, all these manipulations will end in a rather spectacular economic implosion.  This is what happens when capitalism is perverted in the ways that it has been, especially for the past 20 or so years.  The system is now so manipulated that it cannot cleanse itself of the excesses which have been induced in it.  

      There are many examples throughout history wherein people attempt to manipulate free markets only to have their effects on the market spiral out of control.  This usually destroys the market or the government doing it for a time.  Those now living in Russia can probably tell us all about it.  We should listen to them, as they have seen the results of government meddling in economics up close and personal… and it is virtually always a complete disaster.  Ours will be too.  No one is smarter than the market, although many believe in their own minds that they are.  Like all others who came before them with the same idea, they too will be proved wrong but many people will suffer from their hubris.
       

  13. BTW  Ed
     your notion is very likely right on the mark and is going to be tried to the Nth degree. Doc Willie noted that Janet Yellen supports QE to Infinity and Fed Governor David Kemper is suggesting $33 Trillion (With a T) expansion of fed Balance sheet.  That’ll give them a lot of room to lie. With a $900 billion income from this $33 trillion, he suggests that would close our budget deficit.  His math skills are also used as the CEO of  Commerce Bancshares.  Short that stock
    If the Fed expands their balance sheet to the size of the US GDP, they would essentially own the US thus containing any rate blowback, or so it seems to me, no matter how hollow is it’s asset base and insolvent it might become

  14. One more thing.  Butler comments on the potential for breaking the COMEX and this could happen as a result of shortages in silver and gold. On Willie’s site he says gold is a monetary metal, not a commodity.  Its supply does not dictate price.  The listed price is completely corrupted, and that jibes with Butler’s comments. But Willie says that gold has different dynamics and with its up and coming  role in the backing of currencies, most likely the Yuan, demand will increase dramatically. 
    It’s demand is inelastic (read insatiable) and supply is also inelastic (4,000 tons a year max) This means the demand rises with higher prices and supply falls with higher prices as every hand reaches for gold.  This is called a Giffin Good rule. dictating a spike in demand as prices rises.  Prices are being supressed but demand continues unabated and is even increasing. This increasein price  over the last 10 years makes bankers and central governments fearful, hence the smack down we see now and in 2011. The higher the price the more gold gets noticed.  Even the homies are getting gold fever.
    But this price  supression is a coiled spring and in short order nothing will be able to stop the price explosion.  The cap will break. What happens to COMEX and LBMA etc is unknown but gold and silver will break free as the public, central banks and central governments (other than ours) will rush even faster to gold and silver to preserve wealth
    The old gold hoarders will sit tight. The new gold buyers will end up paying almost anything for gold when paper modifications end and the real price is revealed.  That will probably happen before hyperinflation and collapse as the buying public, whoever they may be, race from currencies, repudiate the dollar and try to get a seat aboard a golden life raft. Velocity of money will rise as banks try to get gold (or anything with hard value) Currency confidence start to drop in conjunction with precious metals price increases.  These commodities will be the real bell wethers of the inflationary spirals and tell us what is on the horizon.  China is also hoarding rice, wheat and soy beans for the coming commodity price inreases and scarcity. But that’s another story.
    Anyways, that what I take from Willie and Butler but most of this is way above my pay grade so take it with a grain of salt. Like Mark Grant said, you can have all the right facts and assumptions and some dingle berry at the Fed or ECB will throw you for a loop with some idiotic action.
    North Korea, the Sedaku islands, reactor 4 at Fukushima or Iran could change things well before the banks end up screwing the pooch.

  15. Ugly Dog  I know.  Our prez likes single guy weekends with Reggie but using Air Force One for these get aways hacks me off. At least Kennedy…..   Oh Well.    It’s been 50 years since my last French class.  Another Oh well.  Maybe I should stick with English language humor.  That is if I had a sense of humor.

  16. First of all, we need to know what is the thing that makes the banks too big and powerful. It’s the fact that you are keeping your purchasing powers with them. Withdraw as much dollars as you can from your bank account to slowly destroy the commercial banks and then use them to buy physical precious metals to slowly destroy the central banks, the elites and the corrupt politicians.
    The CFTC is part of these banksters evil corporations!

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