In a series of articles posted on
www.paulcraigroberts.org, we have proven to our satisfaction that the prices
of gold and silver are manipulated by the bullion banks acting as agents for
the Federal Reserve.
The bullion prices are manipulated down in order to
protect the value of the US dollar from the extraordinary increase in supply
resulting from the Federal Reserve’s quantitative easing (QE) and low
interest rate policies.
The Federal Reserve is able to protect the dollar’s
exchange value vis-a-vis the other reserve currencies—yen, euro, and UK
pound—by having those central banks also create money in profusion with QE
policies of their own.
The impact of fiat money creation on bullion, however,
must be controlled by price suppression. It is possible to suppress the
prices of gold and silver, because bullion prices are established not in
physical markets but in futures markets in which short-selling does not have
to be covered and in which contracts are settled in cash, not in bullion.
Since gold and silver shorts can be naked, future
contracts in gold and silver can be printed in profusion, just as the Federal
Reserve prints fiat currency in profusion, and dumped into the futures
market. In other words, as the bullion futures market is a paper market, it
is possible to create enormous quantities of paper gold that can suddenly be
dumped in order to drive down prices. Every time gold starts to move
up, enormous quantities of future contracts are suddenly dumped, and the gold
price is driven down. The same for silver.
Rigging the bullion price prevents gold and silver from transmitting to
the currency market the devaluation of the dollar that the Federal Reserve’s
money creation is causing. It is the ability to rig the bullion price that
protects the dollar’s value from being destroyed by the Federal Reserve’s
printing press.
Recently, the price of a Bitcoin has skyrocketed, rising in a few weeks
from $1,000 to $2,200. Two explanations suggest themselves. One is that the
Federal Reserve has decided to rid itself of a competing currency and is
driving up the price with purchases while accumulating a large position,
which then will be suddenly dumped in order to crash the market and scare
away potential users from Bitcoins. Remember, the Fed can create all the
money it wishes and, thereby, doesn’t have to worry about losses.
Another explanation is that people concerned about the fiat currencies but
frustrated in their attempts to take refuge in bullion have recognized that
the supply of Bitcoin is fixed and Bitcoin futures must be covered. It is
strictly impossible for any central bank to increase the supply of Bitcoins.
Thus Bitcoin is standing in for the suppressed function of gold and silver.
The problem with cryptocurrencies is that whereas Bitcoin cannot increase
in supply, other cryptocurrencies can be created. In order to be trusted,
each cryptocurrency would have to have a limited supply. However, an endless
number of cryptocurrencies could be created that would greatly increase the
supply of cryptocurrencies. If entrepreneurs don’t bring about this result,
the Federal Reserve itself could organize it.
Therefore, cryptocurrency might be only a temporary refuge from fiat money
creation. This would leave gold and silver, whose supply can only gradually
be increased via mining, as the only refuge from wealth-destroying fiat money
creation.
For as long as the Federal Reserve can protect the dollar by bullion price
suppression and money creation by other reserve currency central banks, and
as long as the Federal Reserve can keep the influx of new dollars out of the
general economy, the Federal Reserve’s policy adds to the wealth of those who
are already rich. This is because instead of driving up consumer prices, thus
threatening the US dollar’s exchange value with a rising rate of inflation,
the Fed’s largess has flowed into the prices of financial assets, such as
stocks and bonds. Bond prices are high, because the Fed forced up the price
by purchasing bonds. Stock prices are high, because the abundance of money
bid prices higher than profits justify. As the US government measures
inflation in ways designed to understate it, the consumer price index and
producer price index do not send alarm systems into the markets.
Thus, we have a situation in which the Fed’s policy has done nothing for
the American population, but has driven up the values of the financial
portfolios of the rich. This is the explanation why the rich are becoming
more rich while the rest of America becomes poorer.
The Fed has rigged the system for the rich, and the whores in the
financial media and among the neoliberal economists have covered it up.
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Dave Kranzler spent many years working in various Wall Street jobs.
After business school, he traded junk bonds for a large bank. He has an MBA
from the University of Chicago, with a concentration in accounting and
finance, and graduated Oberlin College with majors in Economics and
English. Dave has nearly thirty years of experience in studying,
researching, analyzing and investing in the financial markets. Currently he
co-manages a precious metals and mining stock investment fund in Denver and
publishes the Mining Stock and Short Seller Journals. Contact Dave at
dkranzler62@gmail.com.
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