Chapter 106 A game of 1 cap and 100 bottles

The fractional reserve system was originally a system used by the banking industry to "magnify" money. When every dollar created by the central bank is deposited into the banking system, it can be magnified by the banking system by 10 times under this system. Make credit output.To put it figuratively, the core of the fractional reserve system is to play the game of 10 bottles with only one lid. The depositor’s money is like a lid, and the bank’s 10-fold credit based on the lid is like a bottle. When you only look at one bottle at a time, the cap is always on top, and the game will not be broken, otherwise there will be a bank run, and in severe cases, it will cause a financial crisis. The more bottles corresponding to 1 cap, the more difficult it is to play this game, and the higher the possibility of smashing it. The large financial institutions that were dumped in the 2008 financial tsunami all played too crazy and had accidents.When these institutions are at their craziest, they play the game of covering 50 bottles for one cap, and if they are not careful, they will lose everything.

If the 1:50 game of lids ended up causing a serious financial crisis, the silver vs. gold market game was even more insanely played at 1:100! In the current world silver market, behind every ounce of physical silver, there are 100 ounces of various paper contracts claiming to own it!After magnification of 100 times, the supply and demand of "physical silver" seem to be booming, with frequent transactions and a prosperous market. In such a super-bubbled "physical silver" market, the price has finally been reasonably "discovered". This is The price of silver is extremely low, and there seems to be an infinite supply of silver.It is a genius idea to use the imagined 99% of the "paper silver" trading volume to completely control 1% of the physical silver trading price.As long as 99% of the people who hold "paper silver" do not come to demand cash in real silver, this game can rest easy.In the end, it is the dollars that international bankers are never short of that determine the price of silver, not the real supply and demand of silver.

The ridiculous thing is that even in the London gold and silver market, which is known as "physical silver" transactions, most of its transactions are not "physical" delivery, but through "paper silver" transfers "so-called physical".This kind of account has a scientific name called "non-physical account".According to the definition of the London Bullion Market Association: "This is an account that does not have a specific metal block corresponding to it. What the customer has is a commitment to the metal block... The transaction is settled on the account by both the borrower and the lender according to the loan balance. The account is owned The customer does not directly own the specific gold or silver metal bullion, but is collateralized by the metal inventory of the dealer where the account is opened. The customer is the (gold and silver) owner without physical confirmation.” Among them, the last sentence is the most practical , the person who owns "paper silver" is actually "the (gold and silver) owner without physical confirmation".

On March 25, 2010, the U.S. Commodity Futures Trading Commission held a hearing in Washington to investigate possible price manipulation in the silver market, and the magnitude of the problem was highlighted in the minutes of the meeting. (All parties are debating whether a large number of short-selling contracts in the US silver futures market constitutes price manipulation) Omari (Commissioner of the US Futures Trading Commission): Do you think that when silver futures expire, if buyers demand delivery of physical silver, that will be a problem for short sellers? Klinschen (former director of commodity research at Goldman Sachs): No, I'm not worried at all.Because it has been that way for decades.Another reason is that (when the silver physical claim is honored) some other mechanism can use cash delivery; third, many people know that in the silver and gold markets surveyed today, almost all short positions are hedging risk , The futures short contract hedges the risk of buying (physical gold and silver) in the (London physical) OTC market.So I really don't think there's any risk there.

There is a ridiculous problem here. When the buyer asks for silver spot, but the seller does not have the real thing, so he asks whether he can lose money and settle the matter, which in itself is a breach of contract!Because the futures contract has clearly stipulated the delivery time, place, and the quality and quantity of the goods, any behavior that cannot be carried out according to the contract is a breach of contract, but Klin Siqin does not think it is a risk!What's even more ridiculous is his first logic, the previous Ponzi scheme didn't happen, so don't worry about it now.

Then Douglas of the Gold Antitrust Association came on stage. Douglas: We're talking about hedging the spot market with futures, but if we look at the spot market, the LBMA, they trade a net 20 million ounces of gold a day, which equates to $22 billion, or about $5.4 trillion a year... ...as you can see from the LBMA website, there is no physical object behind these so-called 'non-physical account' transactions.They are traded in fractional preparation, you can't trade that size because there aren't that many (gold and silver) on earth.So those who are short (in the US futures market), in the (London gold and silver) market, they are actually hedging their paper risk with a piece of paper.

(8 seconds of silence) Here, Douglas pointed out the crux of the problem, that is why those who shorted silver futures on Wall Street went to the London over-the-counter (OTC) physical market to "hedge" the so-called risks.The reason is that the U.S. futures market has clear regulations on futures contracts. Anyone who shorts silver must have 90% confirmed spot sources, otherwise he is suspected of manipulating the market.The gold and silver OTC market in London, known as the "physical market", trades in "non-physical" accounts, but the London Bullion Market Association is a "self-regulatory" organization, and fully believes that everyone is "conscious", so it does not It is rigidly stipulated that transaction participants must come up with real money to inspect the goods, and the OTC market is an opaque market. No one knows exactly what is being traded and what the transaction price is.Therefore, the silver manipulators on Wall Street can flex their muscles in London. They use the so-called "physical transactions" in the London market to get the U.S. regulatory authorities to explain why it is reasonable to hedge on Wall Street, so as to avoid U.S. regulation. A game of "reasonable" hedging against paper risk.

London is known as the "physical silver" market, with about 125 million ounces of silver traded every day, but the real silver that can be delivered in its vaults is only 75 million ounces.There are about 800 million ounces of silver contracts open in the New York futures market, but the actual spot silver available for delivery is only 50 million ounces.The total amount of physical silver that can be delivered in the London and New York silver markets is about 120 million ounces.According to the statistics of the Bank for International Settlements in June 2009, the balance of derivative products of "other precious metals" (mostly silver) is as high as 203 billion US dollars, equivalent to 12 billion ounces of silver (about 20 years of total silver mines)!

What unfolds before our eyes is a super-virtualized silver market, a market manipulated by prices, a highly leveraged market, and a market that is already on the verge of a run on spot!