suppose you need 50,000 oz silver for your business
that is equivalent of 10 silver futures contract
you dont purchase the silver
no, that is passe', old world, silly
you lease 500k oz of silver from bullion banker
e.g. JPMorgan or somebody with large vault supplies
you dont lease from the Federal Reserve, all gone
most of the owners of that vaulted silver believe it is safe
they believe what they own is theirs, easily retrieved
but who wants to go pick up about 1.6 tons of silver in a truck?
hard on the back, and who can find good help these days?
so rightful owners just leave it with JPM in vaulted form
they can go visit the bank and look at stacks of silver bullion bars
it is very impressive
"there you are MrSmith, your silver is among that roomful of bars"
"very impressive, young man"
so you lease the silver at 1.5% per year
that is $225,000 worth of silver leased
at that rate, you pay $33,750 per year in lease fees
which translates into $2812 per month
but you run a business that requires silver consumption
bullion bankers set this insane system up to handle bullion holding requirements as escrow or earnest deposits as pertaining to larger contractual obligations
so you secure your large amount of silver in physical form
you pay $2800 per month to keep dogs away
you dont mind the monthly added cost, because the $4.50 underlying cost is historically shitcheap
silver is at a century low in price now, CPI-adjusted
meanwhile, the business keeps its books clean and hedged by buying long 10 silver contracts in order to offset the 50,000 oz to be consumed
if silver rises over that year, the business is not affected
it CAN BUY back the silver in 12 months at a higher price
but use the profits from the 10 long contracts to offset the price increase
but the bullion banker is another story
they realize that a sudden huge silver price rise will increase the likelihood of not getting back their leased silver
so they hedge on their books with essentially 10 naked short silver contracts
they figure they can deliver sold contracts in such an event as necessary
how many people would default on them anyway?
(a weak foundation underpinning the fractional deposit scheme)
fast forward 11 months
the business doesnt want to buy back the silver and replace it
so they lease twice as much for the next year
50,000 oz is carried over
50,000 oz is newly leased
the game doubles in size
FAST FORWARD 8-18 MONTHS
the bank is close to empty on physical gold
but it has perhaps 500 short silver futures contracts
THEY ARE NAKED AND VULNERABLE
their depositors dont even know their silver is gone
the bullion bankers and Federal Reserve have engaged in this game for almost a decade now
they control the flow of leased silver via lease rates
when Buffet bought 130 million oz in 1997, he affected the lease rates
word got out, and bankers suspected a run would be possible
so the lease rate rose 50-fold to 75%
but it came back down as soon as the flow reduced
all is well again, back to normal
the banks figure the leased silver CAN BE returned anytime
since the precious metals all controlled in price
and we have an endless supply of both gold and silver
OR DO WE ???
it continues until the silver is gone, above ground
the day is nigh for such a reality
Buffet saw the insanity of the system, and bought physical silver
he vaulted it in a European bullion bank with no leasing
the system thumbs its nose at supply & demand dynamics
the arrogance of the Federal Reserve and Bullion Bankers is huge
they will be humbled when defaults spread like wildfire
Butler believes it might happen by December 2002
but it really doesnt matter guessing when
the system ensures it will happen
and suckers like the Chinese deliver 1260 tons silver
I wonder what they got in return.....
e.g. F16 blueprints, fiberoptic deliveries, relaxation of Intellectual Property enforcement after WTO trade
as long as no suspicion of a faulty system, deliveries of scarce supplies continue
how else could a depleting commodity have a decreasing and now flat price?
Enron is knocking at the Federal Reserve door
nobody seems to hear it
/ jim |
