@blitzdude said:
Don't expect $49 gutter in this lifetime. Every commodity on planet earth has made big runs these past several years. Gutter is still in the gutter and headed deeper. RGDS!
Many commodities have hit the skids because of speculative buying ending. That's what happened to silver and gold back in 2011-12....they've been base-building ever since, and are now on much stronger fundamentals than before.
I'm not one of these "silver is going to $100/oz." jokers but I do believe silver can make sustained, multi-year gains going forward as the headwinds from reduced sources of demand (i.e., photography) subside and new sources (batteries, EVs, etc.) come to the forefront, plus burgeoning middle-class demand in China and the new, most populous country on Earth...India.
==============
Who was speculative buying oil futures and options in the 2007-2008 mania? The big banks of course. And you can bet those same banks held huge amounts of puts/calls and derivative bets against oil by the $149 peak in summer 2008. They did the same thing to gold and silver in 2008....and to a lesser extent in the 2010-2012 run up. Houses too. Bear Sterns (BSC) in 2007/early 2008 held a huge position in silver shorts and went under. JPMorgan assumed BSC and continued to pile on the silver derivatives to the tune of approx $300 BILL total by summer 2008. At the time that was 13-14 yrs of world silver production. In gold, JPM and the others held $600 BILL in gold otc derivatives .....or 3-4 yrs of annual world production. Clearly these were not industrial bets or hedging by producers. A lot of the fallout in the 2011-2015 decline was the result of banking accelerating the drops.....both by regular futures and by OTC Derivatives. The "speculative buying" in many commodities into the peaks of 2006-2011 were led by the biggest banks' trading desks. A small role via little consumers.
Silver is headed back to $49 this decade (ie by 2025-2028) or possibly to $100+. The worst of the coming decade is going to be the cleansing of the financial and RE systems abuses of the past 80-120 years (2023-2033).
To look at "propelled" or "owned" markets one only has to look at the nutty advance (and now decline) in Palladium. The rise from $1000 to $3400/oz made no sense with gold and platinum only going up 50-60%. The same could be said of the front end WTIC oil futures falling to UNDER $0 to a crazy -$38/barrel in March 2020. You can bet the TBTF banks made out on the 12 year crash from $150 to $0.....and then reversed bets on the rebound to nearly $130. Consumers or actual producers aren't doing any of this.
As far as silver, similarly to oil, it completed a massive 9 yr downturn in 2020. Oil regained nearly all of that drop from 2008. I suspect silver was so crushed from 2011 to 2020 that a similar rebound into the $40's seems pretty realistic in the next 1-4 yrs....and probably a lot sooner than most think. Silver has a "nice" chart with potential to $43-$60. And it's lagging what gold and oil have already done. With a GSR of 86, silver has a lot of pent up energy where the ratio tends to always return to the normal range of 38 to 83 which has held for most of the past 25 yrs. After the GSR crash of 126 to 64 it rebounded to a neat 96....a 50% retrace. So at the current 86 it's still way above the norms. I've just waiting for that next leg down in GSR which returns it to 55 or lower. $3000 gold with $55 silver can do that.....so could $2500 gold with $45 silver.
I like to see what GSR is doing as it's like an alternate VIX of the PM's market. Ultimately, I see GSR heading into the lower 30's by 2025-2026 to finish the 2nd half of this correction (ie correct that huge 2011-2020 rise). Sharp down moves in GSR only seem to take 2-3 yrs to exhaust. Another way of saying all that is that the 14 yr - 5 wave rise in the USDX (2008-2022) is due for a sharp multi-year correction too. GSR and USDX tend to rise and fall together. USDX currently at 103 and I'd expect a return to the 79 or lower level. The dollar has moved in 7 to 9 yr swings the past 40 yrs. This recent 14 yr rise broke that "norm." Still, a counter-move is now due even if shortened to a more severe 3-4 yr drop to even up the time spacing. Silver and gold will benefit.
One thing I don't like about PMs is that the next 8.6 yr cycle high is not due until 2028....a pretty long ways away. The last 2 were almost dead on at 2011.6 (June)..... 2020.05 (Jan) with next one still 5 yrs out at 2028.65 (June). Next major gold low in the 8.6 yr cycle 2024.35 (April). Which suggests on its own that PMs don't get any traction for another 12 months. Last major gold bottom was 2015.75 (Sept) which was dead on. The 2024-2028 cycle 'should' behave similar to 2016-2020. Gold is 31 months into the current corrective cycle from the 2020 peak. It's been very consistent since 1999 putting in a combination of 55 month and 20-22 month cycles. The cycles suggest still 24 months go in the current 55 month cycle which is plenty of time to go "far" in either direction. On cycles alone, maybe a secondary low 12 months from now (similar to late 2015 low). Then a strong push into Spring 2025. More meandering with a final 2 yr push higher 2026-2028 (22-26 months). So to merge this with the silver analysis above.....if there are record highs coming in silver it should be here by 2028. $100 silver? Why not? No one expects it. More ESG and Govt take-overs applied to silver and gold miners and maybe mine production can go to 0?
And as far as silver playing the industrial metal role and following car battery supply/demand, etc.....that's not the case when the markets get "hot." Silver is a metal of emotion just like gold. When the emotions really being to shift (like 1977-1980, or 2003-2008, 2009-2011, 2018-2020) the metals aren't in emotion mode. You can't predict their prices at those times with annual silver production, market open interest, ounces due for delivery, and other hum drum "stats.".....no different than when the stock market, or oil, or palladium....go into emotional modes. What silver supply and demand issues changed from late 2008 to early 2011 when silver went from $8.41 to $49.78? Precisely nothing really. It was all emotion and heat from absurdly over sold to massively over bought.
@roadrunner said:
Why not hear from some historical figures who knew a thing or two about banking.
===============
“The gold standard is not possible in a welfare state.” Alan Greenspan
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. Gold still represents the ultimate form of payment in the world. Fiat money in extremis is accepted by nobody. Gold is always accepted.”
-- Alan Greenspan
If all currencies are moving up or down together, the question is: relative to what? Gold is the canary in the coal mine. It signals problems with respect to currency markets. Central banks should pay attention to it.”
-- Alan Greenspan
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
Inflation is taxation without legislation. Milton Friedman
Derivatives are financial weapons of mass destruction. Warren Buffett
All money is a matter of belief. Adam Smith
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. Friedrich August von Hayek
What overturned the section of the Banking Act of 1933?
It became more controversial over the years and in 1999 the Gramm-Leach-Bliley Act repealed the provisions of the Banking Act of 1933 that restricted affiliations between banks and securities firms.
The Glass-Steagall Act was repealed in 1999 amid long-standing concern that the limitations it imposed on the banking sector "were unhealthy and that allowing banks to diversify would reduce risk."
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” – Thomas Jefferson in the debate over the Re-charter of the Bank Bill (1809)
Let me issue and control a nation’s money and I care not who writes the laws.” Mayer Amschel Rothschild (1744-1812), founder of the House of Rothschild.
The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.” The Rothschild brothers of London writing to associates in New York, 1863.
“I believe that banking institutions are more dangerous to our liberties than standing armies.” –Thomas Jefferson
“History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance.” -James Madison
“Issue of currency should be lodged with the government and be protected from domination by Wall Street. We are opposed to…provisions [which] would place our currency and credit system in private hands.” – Theodore Roosevelt
“The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity.” -Abraham Lincoln
Despite warnings, Woodrow Wilson signed the 1913 Federal Reserve Act. A few years later he wrote: “I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.” -Woodrow Wilson
Years later, reflecting on the major banks’ control in Washington, President Franklin Roosevelt paid this indirect praise to his distant predecessor President Andrew Jackson, who had “killed” the 2nd Bank of the US (an earlier type of the Federal Reserve System). After Jackson’s administration the bankers’ influence was gradually restored and increased, culminating in the passage of the Federal Reserve Act of 1913. Roosevelt knew this history.
The real truth of the matter is,as you and I know, that a financial
element in the large centers has owned the government ever since
the days of Andrew Jackson… -Franklin D. Roosevelt
(in a letter to Colonel House, dated November 21, 1933)
The banks do create money. They have been doing it for a long time, but they didn’t realise it, and they did not admit it. Very few did. You will find it in all sorts of documents, financial textbooks, etc. But in the intervening years, and we must be perfectly frank about these things, there has been a development of thought, until today I doubt very much whether you would get many prominent bankers to attempt to deny that banks create it.” H W White, Chairman of the Associated Banks of New Zealand, to the New Zealand Monetary Commission, 1955.
“… our whole monetary system is dishonest, as it is debt-based… We did not vote for it. It grew upon us gradually but markedly since 1971 when the commodity-based system was abandoned.” The Earl of Caithness, in a speech to the House of Lords, 1997.
The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled. With something so important, a deeper mystery seems only decent.” John Kenneth Galbraith (1908- ), former professor of economics at Harvard, writing in ‘Money: Whence it came, where it went’ (1975).
===================
The above banking is what most people are familiar with. There's another side though. The bankers created an opaque, over-the-counter derivatives "debt-money-gambling" system essentially divorced from Govt oversight and control. They grew their off-balance sheet value from $1 TRILL in 1989 to over $1.14 Quadrillion by fall of 2008....a 1000x increase in under 20 yrs. In this casino TBTF banks leverage bets by 15x to 50x. In 2007-2008 $Trillions in otc MBS wagers were betting that little guys would fail on their mortgages. And fail they did. 2008 winners were paid off by the FED....losers either closed their doors or were "assumed" by larger entities. The next set of "winners" will be paid off by both bank depositors and the FED. Banking laws were changed in the past 10 yrs to allow banks to put depositors behind otc derivative's pay outs if and when another crisis occurs. The bank's otc bets get settled first.
Another tidbit, from Jefferson's remarks regarding banking institutions being more dangerous than standing armies:
"... the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale". - Thomas Jefferson
@jmski52 said: I'm not one of these "silver is going to $100/oz." jokers
Yeah, me neither. I'm just one of those "dollar is going to 0.0000001" tin foil hatters.
Gutter metal will be 0 before the USD ever goes to 0.0000001. I can assure you though that we nor the next 5 generations after us will see either. THKS!
@jmski52 said: I'm not one of these "silver is going to $100/oz." jokers
Yeah, me neither. I'm just one of those "dollar is going to 0.0000001" tin foil hatters.
Gutter metal will be 0 before the USD ever goes to 0.0000001. I can assure you though that we nor the next 5 generations after us will see either. THKS!
dollar will be replaced or have Zimbabwe zeros added well before it goes to zero. CBDC digital dollars will be a replacement.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
That said...things change. Bretton Woods no longer controls, we're not on a gold standard, currencies float, our underststanding of economics and monetary policy is light-years deeper than 90 years ago.
The statements on derivatives contain many misstatements of fact. I will just say that overall leverage today is less than HALF what it was 15 years ago.
The bailouts continue to be for politically-connected voting blocs in one particular party and not banks. The Teamsters Union just got $36,000,000,000 with no changes promised...nobody losing their jobs....no talk of paying back the monies.
Meanwhile, idiots on TV wail about "bank bailouts."
@GoldFinger1969 said:
Lot of interesting quotes there, good stuff RR !!
That said...things change. Bretton Woods no longer controls, we're not on a gold standard, currencies float, our underststanding of economics and monetary policy is light-years deeper than 90 years ago.
The statements on derivatives contain many misstatements of fact. I will just say that overall leverage today is less than HALF what it was 15 years ago.
Bretton Woods still controls since that was when the US Dollar became the primary central bank currency. From 1944 to 1971 backed by gold....until Nixon closed the gold window in 1971. The dollar is still backed by the faith, credit, economy and military of the USA. It's not about "understanding of economics or monetary policy"....as that stuff as currently practiced by the West is still basically all smoke and mirrors. Economics and Monetary Policy is just bunch of models, many of them not so good.
I'd say that total notional otc derivatives' value today is nearly at the same $683 TRILL as it was at the end of 2008....when the "big revision" came into play. The BIS' latest quarterly report from mid-2022 shows $632 TRILL. It's probably considerably higher today. I'm sure you know that in the fall of 2008 the BIS/OCC/FASB all got together and downward adjusted the total value of otc deriviatives from $1.14 QUAD to $683 TRILL. That's a matter of fact and recorded history. They actually went back and updated the first report that showed the $1.14 QUAD. We talked about it on the forum right here in 2009. You can go look it up. No way that govt's were comfortable reporting over $1 QUAD in otc derivatives as the financial crisis was coming to a bottom in late 2008/early 2009. So they did a simple accounting trick of changing from marked to market to marked to model. In other words, value them anyway you like with any model or assumptions you care to make. I don't see any change in leverage since the last financial crisis....just changes in accounting methodologies.
Logically, if marked to market (or marked to reality) were re-instituted the derivatives would return to the same 60% higher, mid 2008 number. Of course the currently reported $632 TRILLION "valuation" assumes good models, good assumptions, and good faith all around. What are the odds that's true in a completely opaque market under minimal to no regulation? As much as we think "things change"....they stay the same. Really nothing new under the sun since Dec 2013 other than creating otc derivatives backed by nothing....even the gold standard was basically tossed out the window in 1914 as WW1 started. FDR's move in 1933/34 and Nixon in 1971 were more like final window dressing. And the 800 lb gorilla in the room is the $500 TRILL or so in otc interest rate derivatives ($1 Quad under the original standards). Those were never under heavy stress in the 2008/2009 crisis. Int Rate D's are front and center now though. Nothing has been fixed or solved since 2008.....just circumvented, swept under the rug and papered over by another $22 TRILL in national debt (almost 4X the 2008 value). Is this the "better understanding" of economics and monetary policy to today you were defending?
@GoldFinger1969 said:
Lot of interesting quotes there, good stuff RR !!
That said...things change. Bretton Woods no longer controls, we're not on a gold standard, currencies float, our underststanding of economics and monetary policy is light-years deeper than 90 years ago.
The statements on derivatives contain many misstatements of fact. I will just say that overall leverage today is less than HALF what it was 15 years ago.
....even the gold standard was basically tossed out the window in 2014 as WW1 started. FDR's move in 1933/34 and Nixon in 1971 were more like final window dressing.
I think you meant "1914", not "2014".
But, yes, the "gold standard" was massively cheated upon during the time frame of about 1914 to 1933.
@jmski52 said: I'm not one of these "silver is going to $100/oz." jokers
Yeah, me neither. I'm just one of those "dollar is going to 0.0000001" tin foil hatters.
Gutter metal will be 0 before the USD ever goes to 0.0000001. I can assure you though that we nor the next 5 generations after us will see either. THKS!
If you really think silver is going to zero, then why haven't you sold it all already ?
How much silver do you have right now (paper and physical) ?
@jmski52 said: I'm not one of these "silver is going to $100/oz." jokers
Yeah, me neither. I'm just one of those "dollar is going to 0.0000001" tin foil hatters.
Gutter metal will be 0 before the USD ever goes to 0.0000001. I can assure you though that we nor the next 5 generations after us will see either. THKS!
If you really think silver is going to zero, then why haven't you sold it all already ?
How much silver do you have right now (paper and physical) ?
He said & I quote: "Gutter metal will be 0 before the USD ever goes to 0.0000001." In my book that means, NOT IN OUR LIFETIME.
"Bongo drive 1984 Lincoln that looks like old coin dug from ground."
@jmski52 said: I'm not one of these "silver is going to $100/oz." jokers
Yeah, me neither. I'm just one of those "dollar is going to 0.0000001" tin foil hatters.
Gutter metal will be 0 before the USD ever goes to 0.0000001. I can assure you though that we nor the next 5 generations after us will see either. THKS!
If you really think silver is going to zero, then why haven't you sold it all already ?
How much silver do you have right now (paper and physical) ?
I said gutter metal will not go to zero in the next 5 generations just like the tin foil crew will not get their wish of the USD going to 0.0000001 in the next 5 generations either.
I've been selling physical gutter fairly consistently for the last 3 years, buying and selling the SLV over the same timeframe. The endgame is always the metal of kings, dump the gutter and add REAL precious metal. THKS!
Before bashing The Fed, please remember this: the Fed didn't even have operational control of monetary policy until 1951. The Treasury pretty much controlled the Fed.
@dcarr said:
I think you meant "1914", not "2014".
But, yes, the "gold standard" was massively cheated upon during the time frame of about 1914 to 1933.
The price level was pretty constant from 1913 to 1926.
@roadrunner said:
Who was speculative buying oil futures and options in the 2007-2008 mania? The big banks of course.
No they weren't. The regulators would have crucified them. You are confusing clearinghouse operations and custodial management with direct ownership.
And you can bet those same banks held huge amounts of puts/calls and derivative bets against oil by the $149 peak in summer 2008. They did the same thing to gold and silver in 2008....and to a lesser extent in the 2010-2012 run up. Houses too. Bear Sterns (BSC) in 2007/early 2008 held a huge position in silver shorts and went under. JPMorgan assumed BSC and continued to pile on the silver derivatives to the tune of approx $300 BILL total by summer 2008. At the time that was 13-14 yrs of world silver production. In gold, JPM and the others held $600 BILL in gold otc derivatives .....or 3-4 yrs of annual world production. Clearly these were not industrial bets or hedging by producers. A lot of the fallout in the 2011-2015 decline was the result of banking accelerating the drops.....both by regular futures and by OTC Derivatives. The "speculative buying" in many commodities into the peaks of 2006-2011 were led by the biggest banks' trading desks. A small role via little consumers.
This is simply not true, RR. Banks don't make big bets on commodities -- the regulators don't allow it. JPM's total capital in the time period you cite was about $350 billion -- you think they bet it all on silver and/or gold ? Where did you read this POV ?
I don't know where these statements originate, but they are as true as those spoken by The Flat Earth Society. People don't go to original sources of data...they regurgitate half-truths with no basis in fact and then it circulates and people ASSUME it's correct because the person was right on coins, numismatics, or silver moves a few years ago. I think you read this somewhere and assumed it was likely or partly true....it's grossly UNTRUE and is easily disproved by SEC filings and the company's annual report. Plus, nobody reputable has ever mentioned it on TV or in print.
Not even Senator Warren.
Silver is headed back to $49 this decade (ie by 2025-2028) or possibly to $100+. The worst of the coming decade is going to be the cleansing of the financial and RE systems abuses of the past 80-120 years (2023-2033). To look at "propelled" or "owned" markets one only has to look at the nutty advance (and now decline) in Palladium. The rise from $1000 to $3400/oz made no sense with gold and platinum only going up 50-60%. The same could be said of the front end WTIC oil futures falling to UNDER $0 to a crazy -$38/barrel in March 2020. You can bet the TBTF banks made out on the 12 year crash from $150 to $0.....and then reversed bets on the rebound to nearly $130. Consumers or actual producers aren't doing any of this.
Palladium's move was strong autos + Russia. The WTI Futures contract falling to a negative number was predicted WEEKS (months ?) in advance as a result of the Cushing inventory situation -- those who follow this were NOT suprised. I am a former energy analyst and read about this in late-2019 and early-2020.
No, the banks didn't bet on oil. It's not allowed. It's a red flag. You may as well just announce you're looking to lend $500,000 for home purchases to folks with FICO scores under 600 during the next recession.
The GSR is useless for short- and intermediate term predictions, IMO. I do agree with the general thrust of your silver and gold price predictions.
Cycles are tough to predict -- their heyday was the 1980's with guys like Elliot Wave Theorist Robert Prechter using them successfully for a decade or so.
@roadrunner said:
I'd say that total notional otc derivatives' value today is nearly at the same $683 TRILL as it was at the end of 2008....when the "big revision" came into play. The BIS' latest quarterly report from mid-2022 shows $632 TRILL. It's probably considerably higher today. I'm sure you know that in the fall of 2008 the BIS/OCC/FASB all got together and downward adjusted the total value of otc deriviatives from $1.14 QUAD to $683 TRILL. That's a matter of fact and recorded history. They actually went back and updated the first report that showed the $1.14 QUAD. We talked about it on the forum right here in 2009. You can go look it up. No way that govt's were comfortable reporting over $1 QUAD in otc derivatives as the financial crisis was coming to a bottom in late 2008/early 2009. So they did a simple accounting trick of changing from marked to market to marked to model. In other words, value them anyway you like with any model or assumptions you care to make.
Here's the report. You have to read the ENTIRE report, not just cherry-pick stuff:
The market value is about 1% of the notional value. The notional value has NOTHING to do with VAR (Value At Risk). If there was a systemic issue, I think a 57% decline in the S&P 500 and a 1-month 35% decline in stocks accompanied by a quadrupling of the U.S. unemployment rate and a 30% drop in Real GDP.... would have exposed the flaws.
I don't see any change in leverage since the last financial crisis....just changes in accounting methodologies.
@GoldFinger1969 said:
Before bashing The Fed, please remember this: the Fed didn't even have operational control of monetary policy until 1951. The Treasury pretty much controlled the Fed.
If that were true, then why were "Federal Reserve Notes" issued during the 1914-1951 time frame ?
Red-seal, "United States Notes", yellow-seal "Gold certificates", blue-seal "Silver Certificates", and and brown-seal "National Bank Notes" were all issued at the same time and could have easily been sufficient without having to issue green-seal "Federal Reserve Notes".
In 1933, the US Treasury held about 6.000 metric tons of gold. The US Treasury issued 16,000 tons worth of Gold Certificates.
The Federal Reserve had very little gold. And yet, 56,000 metric tons of gold worth of Federal Reserve Notes were issued prior to March 1933. Why ?
@dcarr said:
If that were true, then why were "Federal Reserve Notes" issued during the 1914-1951 time frame ?
It was true, the Fed was the New Kid On The Block and the Treasury kept control. In 1951 the Fed-Treasury Accord was implemented with Treasury official William McChesney Martin...who then moved from the Treasury to the Fed. This was when the Fed truly became independent.
BTW, Harry Truman met Martin on the streets of NY or Washington years later and cursed him out for betraying him and his Treasury dept !!
Red-seal, "United States Notes", yellow-seal "Gold certificates", blue-seal "Silver Certificates", and and brown-seal "National Bank Notes" were all issued at the same time and could have easily been sufficient without having to issue green-seal "Federal Reserve Notes".
Maybe, maybe not. I don't know what you mean by "sufficient" but it's independent of having the Fed freed from Treasury control.
In 1933, the US Treasury held about 6.000 metric tons of gold. The US Treasury issued 16,000 tons worth of Gold Certificates. The Federal Reserve had very little gold. And yet, 56,000 metric tons of gold worth of Federal Reserve Notes were issued prior to March 1933. Why ?
I would have to check the numbers, but I do recall that only about 1-3% of the Certificates had actual gold behind them. Again, just like a bank doesn't have cash on hand to meet EVERY depositors needs, gold was more of a measurement standard than an actual backing item.
Just because you cite some anomalies -- and they ARE interesting, I grant you that -- doesn't mean there wasn't a good reason for that situation arising OR for it being the preminent focus for the Fed or Treasury. Money supply and exchange rates were paramount not actual gold behind each Gold Certificate.
Money supply and exchange rates were paramount not actual gold behind each Gold Certificate.
Fractional gold banking?
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
What would be the equivalent price today of $49 silver in 1980?
I think it's likely in the next 10 years when the boom goes bust, just like in 2011 in the aftermath of 2007-2008.
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@dcarr said:
If that were true, then why were "Federal Reserve Notes" issued during the 1914-1951 time frame ?
It was true, the Fed was the New Kid On The Block and the Treasury kept control. In 1951 the Fed-Treasury Accord was implemented with Treasury official William McChesney Martin...who then moved from the Treasury to the Fed. This was when the Fed truly became independent.
BTW, Harry Truman met Martin on the streets of NY or Washington years later and cursed him out for betraying him and his Treasury dept !!
Red-seal, "United States Notes", yellow-seal "Gold certificates", blue-seal "Silver Certificates", and and brown-seal "National Bank Notes" were all issued at the same time and could have easily been sufficient without having to issue green-seal "Federal Reserve Notes".
Maybe, maybe not. I don't know what you mean by "sufficient" but it's independent of having the Fed freed from Treasury control.
In 1933, the US Treasury held about 6.000 metric tons of gold. The US Treasury issued 16,000 tons worth of Gold Certificates. The Federal Reserve had very little gold. And yet, 56,000 metric tons of gold worth of Federal Reserve Notes were issued prior to March 1933. Why ?
I would have to check the numbers, but I do recall that only about 1-3% of the Certificates had actual gold behind them. Again, just like a bank doesn't have cash on hand to meet EVERY depositors needs, gold was more of a measurement standard than an actual backing item.
Just because you cite some anomalies -- and they ARE interesting, I grant you that -- doesn't mean there wasn't a good reason for that situation arising OR for it being the preminent focus for the Fed or Treasury. Money supply and exchange rates were paramount not actual gold behind each Gold Certificate.
During the time that the Federal Reserve was issuing the 56,000 metric tons worth of gold-clause notes, they were allowed to keep 100% of their profits (later that was reduced to 6%). Whose idea was it for this to be done ? Did the US Treasury tell the Federal Reserve to issue that currency, or did the Federal Reserve decide to do it ? If 100% of the FRB profits were retained by them, why would the US Treasury essentially give away all that money instead of issuing it directly from the US Treasury instead ?
@guitarwes said:
What would be the equivalent price today of $49 silver in 1980?
I think it's likely in the next 10 years when the boom goes bust, just like in 2011 in the aftermath of 2007-2008.
$49 in 1980 is about $179/ounce today. But the 1980 high is not a good reference point. The Hunt Brothers ran the price up and even the average for 1980 was about $22. Silver was around $5 for much of the early 1980's.
@guitarwes said:
What would be the equivalent price today of $49 silver in 1980?
I think it's likely in the next 10 years when the boom goes bust, just like in 2011 in the aftermath of 2007-2008.
The problem is that the silver price was a bubble spike. It really was about $20-$25 before it doubled in a few weeks/months.
FWIW, $49 in 1980 would be just under a quadrupling of the price. Call it $186.
@dcarr said:
During the time that the Federal Reserve was issuing the 56,000 metric tons worth of gold-clause notes, they were allowed to keep 100% of their profits (later that was reduced to 6%). Whose idea was it for this to be done ? Did the US Treasury tell the Federal Reserve to issue that currency, or did the Federal Reserve decide to do it ? If 100% of the FRB profits were retained by them, why would the US Treasury essentially give away all that money instead of issuing it directly from the US Treasury instead ? Something certainly doesn't smell right here.
Do you have a source for that 56,000 metric tons ? That is just under $1.8 BB in gold notes, seems high. The U.S. did have over $1 BB in gold, though, about 35-40% of the world's supply.
All profits from the Fed are swept to the Treasury. The Fed isn't autonomous on issues like that, the Treasury and Congress can decide where any "profits" go.
Monetary policy was not as fluid then as it is today, Dcarr. Treasury is not "giving away" anything -- it's basically just turf battles.
@GoldFinger1969 said:
Treasury is not "giving away" anything -- it's basically just turf battles.
They're giving away my purchasing power.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
@dcarr said:
During the time that the Federal Reserve was issuing the 56,000 metric tons worth of gold-clause notes, they were allowed to keep 100% of their profits (later that was reduced to 6%). Whose idea was it for this to be done ? Did the US Treasury tell the Federal Reserve to issue that currency, or did the Federal Reserve decide to do it ? If 100% of the FRB profits were retained by them, why would the US Treasury essentially give away all that money instead of issuing it directly from the US Treasury instead ? Something certainly doesn't smell right here.
Do you have a source for that 56,000 metric tons ? That is just under $1.8 BB in gold notes, seems high. The U.S. did have over $1 BB in gold, though, about 35-40% of the world's supply.
All profits from the Fed are swept to the Treasury. The Fed isn't autonomous on issues like that, the Treasury and Congress can decide where any "profits" go.
Monetary policy was not as fluid then as it is today, Dcarr. Treasury is not "giving away" anything -- it's basically just turf battles.
It is absolutely untrue that all FRB profits are swept into the US Treasury.
The FRB retains 6% of their profits and distributes most of those profits to the "shareholders" of the FRB. Those shareholders do NOT include the US Treasury or US Government. They are big banks such as JP Morgan Chase, Citibank, Goldman Sachs, Bank of America, Wells Fargo, etc. And those dividends are exempt from corporate income taxes. It says so on the FRB's own website: https://federalreserve.gov/aboutthefed/section7.htm
Also note that there was a time when the FRB retained 100% of the profits.
The source for the 54,000 metric tons worth of gold-clause Federal Reserve Notes comes from the Bureau of Printing and Engraving in their records on the quantities issued for each type of note. I document those numbers in the appendix to my article here: moonlightmint.com/bailout.htm
@GoldFinger1969 said:
Lot of interesting quotes there, good stuff RR !!
That said...things change. Bretton Woods no longer controls, we're not on a gold standard, currencies float, our underststanding of economics and monetary policy is light-years deeper than 90 years ago.
The statements on derivatives contain many misstatements of fact. I will just say that overall leverage today is less than HALF what it was 15 years ago.
The bailouts continue to be for politically-connected voting blocs in one particular party and not banks. The Teamsters Union just got $36,000,000,000 with no changes promised...nobody losing their jobs....no talk of paying back the monies.
Meanwhile, idiots on TV wail about "bank bailouts."
@dcarr said:
I think you meant "1914", not "2014".
But, yes, the "gold standard" was massively cheated upon during the time frame of about 1914 to 1933.
The price level was pretty constant from 1913 to 1926.
You missed the point entirely. The price of gold was basically "fixed" at $20.34 in the USA through 1933. Which is sort of irrelevant. According to current US Treasury valuations the price of gold held by the USA is "valued' at $42/oz. In any event, the cheating on the gold standard from 1914 to 1929 was done by printing money w/o backing, and specifically not backed by gold. Gold Real Bills essentially disappeared following WW1 which effectively killed the "gold standard." The amount of fiat money printed just during WW1 was on the order of 50-100%....I forgot the exact figures. The US doubled its money supply during the WW2 years....then contracted it causing the mini-depression of 1921-1922. Money printing took off again through the roaring 20's and we know how that lending and spending euphoria ended.
On the subject of otc derivatives and notional values, you and many others have it wrong. The fact that you believe only in derivatives "market" value and modeling shows you don't understand the risks....and how they already played out once before in 2008/2009. The models along with "beneficial risk netting" are accounting tricks....which hide the real risks. When the contracts fail as a better goes bankrupt (ie Bear Sterns or Lehman Bros. in 2008) the loser is on the hook for the full notional value. There is no netting or golden parachute for those failures. That's where the FED and other Central Banks come into to help pay off the winners. Which is why the TBTF banks, FED, and others have tried so hard to not let these opaque contracts blow up. The failed miserably during the 2008 crisis when Credit Default Swaps failed to the tune of $30-$38 TRILL and otc MBS failed by around $4-$7 TRILL. Those bets were paid off by the FOMC/FED....and at FAR higher amounts than your 1% market value. The CDS notional value in mid-2008 (from your BIS link) was an insane $57 TRILL.....and it was $62 MILL the report before this. And clearly 1% of that ($570 BILL) was not going to blow up the financial system. But the notional value of a large % of that $57 TRILL could certainly do that. It looks like they paid out or papered over around HALF of the notional value. I read several forensic accounting reports from that period indicating a $15 to $40 TRILL in CDS losses to be paid out (see my Nov 27, 2009 post). At that time the CDS carried 18X leverage to "market value." By April 2009 after the Blow Up CDS notional risk was reduced by 90% from 2008 levels. Interesting that you linked the 2008 BIS report and apparently didn't even read it.
Go back and re-check the 2008 BIS report you linked earlier. In that same report you can find the exact $683 TRILL number I quoted from memory. That was the all world reporting banks, not just USA. That's the real risk since all these banks are connected. In that same charting you will find the Gold Derivatives listed at $649 BILL. Oops, I was right again, and strictly from memory. Back then I read EVERY BIS and OCC semi-annual and quarterly derivatives report as they came out from around 2006 to 2012....probably the only one of this forum who did so. Note also that total commodities derivatives were at $13.2 TRILL....and a market value of around $2.5 TRILL. That's still an insane bet in commodities if only the market value had to be paid off. They do bet heavy on commodities. That's a LOT of commodity betting despite any regulation you think might or should have occurred back then. When's the last time regulators really looked at otc derivatives except following a blow up? I can't dig out the silver derivatives as it appears something was changed or modified to these reports. It used to be visible....at it was in the $200 BILL or so range per my recollection.....13-14 yrs of world silver production. With silver back then around $20/oz, at 21 metric tonnes mined in 2008 is approx $13.5 BILL. 13-14 yrs nets around $175-190 BILL.....a ridiculous bet that was larger than gold's. In 2008, 2500 tonnes of gold were mined, at an average yearly value around $800/oz.....or approx $65 BILL. So the gold derivative's notional bet in 2008 was $650 BILL or 10X that amount. Again, that's a LOT of betting....and lot of leverage applied to push the gold market where the TBTF banks would like it to go.
If you go back through this Forum's main economic thread from that period, or even at 321gold.com articles from 2008-2009 you will find numerous sources on the otc derivatives post-mortems.
And speaking of numbers. You claim derivatives' have been netted by about half since the 2008 Financial Crisis. Clearly, you didn't check the references. Linked below is the 4th quarter of 2002 OCC report. Figure 7 clearly shows almost the same total USA notional derivs risk in 2008 and 2022. No more than a 10% difference ($211 vs $191 TRILL). So where's the halving of leverage? And this is just the reporting of USA member banks. Also check out Figure 18 on the gold derivatives. They did some accounting tricks prior to 2022 which went back and massaged total gold derivatives to almost nothing. But then brought it back in 2022 with a new methodology that spiked the reported numbers to $350-$463 TRILL notional in gold derivatives. Not quite up to the peak in 2008 of $649 TRILL. But, still quite hefty. Bottom line is that they've never stopped making the large derivative gold bets completely outside the normal means of LBMA, Comex, etc. This is all done off normal balance sheets.
I still stand by my prior statement that the $683 TRILL in total world derivs reported to the BIS in June 2008 was actually $1.14 Quadrillion BEFORE they did the March 2009 FASB acct rule changes (marked to market became marked to model).
So the previous reports such is in 2008 were scrubbed back to reflect these changes. $1.14 Quad became $683 TRILL....a 40% overnight change. Bankers and Politicians had enough problems with hundreds of $TRILLs, they sure as heck didn't want to see a bank risk report at over $1 QUAD. 67% of those $683 TRILL derivs were interest rate contracts, mostly swaps. That's real risk of high interest rates.
Going to the current BIS 2022 report shows $632 TRILL in world notional derivs. Not that much of a change from their 2008 number of $683 TRILL. Again, multiply both of these by 1.67 to get true numbers adjusted back to mid-2008 BEFORE the March 2009 FASB accounting changes. Nothing has changed excepting smoke and mirrors.
Above link shows that gold derivatives over the past 2 yrs are even higher than the 2008 numbers... in the $680-980 BILL range the past 2 yrs. With gold about doubling in price since 2008 then these make some sense. The "other" precious metals entry at approx $100 BILL the past 2 yrs is probably mostly from silver derivatives.....approx worth 7 yrs of world annual silver production....nothing that producer/hedgers would ever do.
Just dug into the old gold and silver - economic and predictions thread. This was report from April 6th 2009 12:21 pm (page 210). This gives the relative values of the most recent BIS report AFTER the FASB changes were applied. It does give the silver derivatives' value I was looking for....$190 BILL. Now I have to see if I can dig out the $1.14 QUAD report from 2008 before it was changed............
_Bank for International Settlement - June 2008 otc derivatives report
Link to BIS semi-annual report. This is the currency page. What is of interest are the gold, non-gold PM's, and commodities information. We already know that the total size of the otc derivatives is $683 TRILLION of which the large majority are interest rate contracts. But the size of the commodity sector is pretty impressive, actually dwarfing what is seen on the Comex.
These are the notional values. Note that they also list the gross value (net) at approx 3% of the notional. It remains to be seen if such a number means anything when the counter party can't pay up.
The gold derivatives are roughly equivalent to 19,000 tons of gold or about 60% of what the CB's claim to still own. This would also be equivalent to about 1/8th of the world's historical total mined gold and about 6X the average annual world demand. This is also about 6X the size of the max Comex shorts that the top couple of banks carry. So obviously they can do more damage under the totally unregulated otc derivatives. And at 35 to 1 leverage, why not, no one is watching.
The size of the silver derivatives are simply amazing considering the current gold to silver ratio is 71 to 1. Yet their difference is only 3.4X. Why in the heck would there be such a need for a net position so huge? This would be equivalent to a current price of silver at $255/oz or gold at $41/oz depending on which way you look at it. Considering that the annual usage of silver is around $1-$2 BILL per year, the derivatives give over a 100 yr annual supply! Note also that the amount of silver derivatives more than doubled over the past 2 years ($84 Bill to $190 Bill). Does anyone think these were placed by the miners for hedging? (lol). The net Palladium and Platinum markets are far smaller than silver so it is a safe bet to assume that most of the "non-gold" derivative contracts are for silver. Plat and Pall are industrial metals and most of the hedging is done by the manufacturers and miners. The analysis above was taken from Jason Hommel. I've read other sources who have made the same estimate with silver undoubtedly being the lion's share of the non-gold number. The base derivative's numbers are all from Uncle Sam - 100% accurate.
If I was forced to bet on either massive manipulation of PM's or minimal to no manipulation, I'd have to go with massive. I don't see how the numbers at Comex and BIS say anything different. It still comes down to what is more beneficial to the bankers and currency management? You have to have a strong leash on anything that can alter the perceived value of the currency._
This place was hopping back in March/April 2009 as SHTF. Just reading back now it's amazing much insanity was occurring and we had front row seats to it....discussing it every day for months. Some economic, banking and monetary good history and lessons learned....most of which I've probably forgotten in the intervening 14 yrs. If you don't read and write about this stuff every day it just fades away from memory. Analyst Rob Kirby was one of the main writers of the derivatives fiasco from 2006 to 2010. Digging out his old articles would show screen shots of the original documents.
Fun Fact from Oct 17, 2008: "LEHMAN bankruptcy attorneys sorting thru 1.5 million derivatives trades involving 8,000 counter-parties." And when it was all over, Lehman's "assets" netted 9% of their previous "market" value. That's an 11 to 1 loss ratio. During the 2008 crisis the average $ leverage of all types of derivs was 34X. Interest Rate derivs were 48X. Credit Default Swaps 18X. And Commodity derivs 6X.
==========================
____From my March 6, 2009 post here. Link below to page 207 in the Economic Thread....it discusses the FASB change from $1.14 QUADRILLION to $683 TRILL. :
__This taken off the JSMineset site today. JS notes that the BIS changed the derivatives total from $1,144 TRILLION (1.144 QUADRILLION) to about $700 TRILLION not more than a few months ago claiming that a new "value to maturity" model was more accurate. In any case whether we blow up the world 10X or 20X doesn't make that much difference. I think the real reason for the change was that if people saw a number like $1.1 QUADRILLION, they'd flip. So out it went and in went a new black box model.
SANTA MONICA, Calif. (Marke$ Watch) -- There's a $700 trillion elephant in the room and it's time we found out how much it really weighs on the economy.
Derivative contracts total about three-quarters of a quadrillion dollars in "notional" amounts, according to the Bank for International Settlements. These contracts are tallied in notional values because no one really can say how much they are worth. But valuing them correctly is exactly what we should be doing because these comprise the viral disease that has infected the financial markets and the economies of the world.
Try as we might to salvage the residential real estate market, it's at best worth $23 trillion in the U.S. We're struggling to save the stock market, but that's valued at less than $15 trillion. And we hope to keep the entire U.S. economy from collapsing, yet gross domestic product stands at $14.2 trillion.
Compare any of these to the derivatives market and you can easily see that we are just closing the windows as a tsunami crashes to shore. The total value of all the stock markets in the world amounts to less than $50 trillion, according to the World Federation of Exchanges.
To be sure, the derivatives market is international. But much of the trouble we're in began with contracts "derived" from the values associated with U.S. residential real estate market. These contracts were engineered based on the various assumptions tied to those values.
Few know what derivatives are worth. I spoke with one derivatives trader who manages billions of dollars and she said she couldn't even value her portfolio because "no one knows anymore who is on the other side of the trade." Derivatives pricing, simply put, is determined by what someone else is willing to pay for the contract. The value is based on an artificial scenario that "X" will be worth "Y" if "Z" happens. Strip away the fantasy, however, and the reality of the situation is akin to a game of musical chairs -- without any chairs. So now the music has finally stopped. That's why stabilizing the housing market will do little to take the sting out of the snapback we are going through on Wall Street. Once people's mortgages were sold off to secondary buyers, and then all sorts of crazy types of derivative securities were devised based on those, and those securities were in turn traded on down the line, there is now little if any relevance to the real estate values on which they were pegged.
We need to identify and determine the real value of derivatives before we give banks and institutions a pass-go with more tax dollars. Otherwise, homeowners will suffer as banks patch up the holes left in their balance sheets by the derivatives gone poof; new credit won't be extended until the raff of the old credit is put behind.
It isn't the housing market devaluation, or the sub-prime mortgage market defaults that have us in real trouble. Those are nice fakes to sway attention away from the place where greed truly flourished -- trading phony instruments to the tune of $700 trillion. Let's figure how to get out from under that. Then maybe the capital will begin to flow again through the markets. Right now, this elephant isn't just in the room, it's sitting on us.
Thomas M. Kostigen_
The problems with real estate and sub-prime, global warming and cap and trade, etc. as big as they are.....are diversions to keep us all from looking at the $700 TRILL elephant. With the $10 TRILL already dumped down the corporate banking hole, we could have paid off all the bad mortgages and started clean. Obviously the problem runs far deeper than just real estate._
================
Another of my posts from 9/30/2008 (page 175) again referencing the $1 QUAD. number:
"That number comes from the International Bank of Settlements which is the reporting bank for all the Central Banks of the world. The odd thing was that up to sometime in early 2008 they were reporting the figure at around $650 TRILL. Then on the next update they jacked it up to $1.1 QUAD. Did they find another $450 TRILL sitting under a rock or something? I don't know. It's not all bad though. Only about half of that value is Over-The-Counter stuff (ie illiquid, unsubstantiated, un-backed, unregulated, non-transparent derivatives). But either amount can wipe out the financial system 10X over."
rr your responses, as always, are to voluminous., and for the most part, over the last 15 years, have not come to fruition. I suppose, that's why you are still posting here, inlieu of enjoying your financial freedom on the Riviera. I do enjoy your posts and knowledge pertaining to coins.
"Bongo drive 1984 Lincoln that looks like old coin dug from ground."
RR, while derivatives do have dangers -- I don't doubt that -- you overestimate their impact in 2008. The BIGGEST contributor to the 2008 Credit Crisis was the bankruptcy of Lehman Brothers, which never should have happened (it should have been mopped up like Bear Stearns).
Had that happened, then the Reserve Fund MMF never "breaks the buck" from $1.00 to $0.97 and the "run" never happens.
AIG and Citibank, 2 of the biggest problem companies, had CEOs both picked by Elliot Spitzer. Sure hope he doesn't start an employment agency !
You overestimate the impact of CDS and MBS. Only subprime MBS incurred losses, investment grade MBS were money-good.
You keep throwing out huge numbers for non-relevant derivative values. If they were material, they would have impacted by now through a Credit Crisis, a 57% drop in the stock market, 150 banks going under, oil prices soaring to $150/bbl. and negative $35 a barrel, a pandemic that reduced real GDP by 30%, and a 35% crash in the market in 6 weeks.
At some time you just have to realize your flaw isn't as bad as you believe OR it's a non-investable event (like a nuclear war).
@roadrunner said:
The price of gold was basically "fixed" at $20.34 in the USA through 1933.
Just to make sure others don't misquote it, the price was $20.67. But that obviously wouldn't affect your analysis, I just wanted to make sure others joining didn't miscopy.
RR, assume all of what you say is true (it isn't ):
What's your gameplan ? How do you make money off what you posted ? When does it happen ? If you were running an investment fund, what would you be in ?
@GoldFinger1969 said:
RR, while derivatives do have dangers -- I don't doubt that -- you overestimate their impact in 2008. The BIGGEST contributor to the 2008 Credit Crisis was the bankruptcy of Lehman Brothers, which never should have happened (it should have been mopped up like Bear Stearns).
The real cause of the 2008 financial crisis was the billions (it was probably trillions) of dollars of crappy, fraudulent debt instruments that Wall Street was peddling and, in the case of Lehman, ended up holding on their own books. There were instances of houses being appraised for $600,000 and sold to Mexican strawberry pickers who had stated incomes of over $100,000. They purchased the houses using option ARMs (adjustable rate mortgages where borrowers could choose to pay only interest (no principal) on the monthly mortgages) and these ARMs also had rate resets after five or so years. All of these crappy mortgages were issued with zero income or asset verification and, in some instances, the mortgage brokers altered the applications to fraudulently state the borrower's income or assets.
These mortgages were then bundled up into CDOs (collateralized debt obligations) that the corrupt credit rating agencies rated AAA even though the underlying debt was all sub-prime borrowers. The collateral (the house) was also not worth anything close to the appraised prices.
There were even more funny financial instruments called CDO^2 (CDO squared) which were CDOs of CDOs.
As the deadbeats stopped paying their mortgages (some didn't even make the first payment) and interests rates reset higher, all of the CDOs and other housing-related paper collapsed in price.
Lehman Brothers only could have avoided bankruptcy if they did not hold any of the crappy paper that they issued. However, I seem to recall that they held quite a bit of that crappy paper and they also had to eat the paper if it defaulted before a certain time frame.
My point is that Lehman Brothers' collapse was only a symptom of the real cause of the 2008 financial crisis. It was massive fraud committed by the Wall Street banks, massive fraud committed by the credit rating agencies, ignorance and corruption on the part of the regulators, and a massive pollution of the global financial system with crappy paper that, when the housing bubble finally popped, made practically all debt instruments' prices suspect.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
@MWK said:
The real cause of the 2008 financial crisis was the billions (it was probably trillions) of dollars of crappy, fraudulent debt instruments that Wall Street was peddling and, in the case of Lehman, ended up holding on their own books. There were instances of houses being appraised for $600,000 and sold to Mexican strawberry pickers who had stated incomes of over $100,000. They purchased the houses using option ARMs (adjustable rate mortgages where borrowers could choose to pay only interest (no principal) on the monthly mortgages) and these ARMs also had rate resets after five or so years. All of these crappy mortgages were issued with zero income or asset verification and, in some instances, the mortgage brokers altered the applications to fraudulently state the borrower's income or assets.
It was LEVERAGE, not the underlying assets. Leverage magnifies losses.
Wall Street securitized the mortgages, but they were underwritten by mortgage brokers and encouraged by politicians at the state, local, and federal level. Do NOT blame "Wall Street banks."
These mortgages were then bundled up into CDOs (collateralized debt obligations) that the corrupt credit rating agencies rated AAA even though the underlying debt was all sub-prime borrowers. The collateral (the house) was also not worth anything close to the appraised prices.
While there were were inflated appraisals, CDOs and CLOs and CMOs do turn AAS tranches out of subprime or lower-rated debt. It's been successfully done for decades.
What was different here was the 1st-ever decline in average home prices since 1967 when records started being kept.
There were even more funny financial instruments called CDO^2 (CDO squared) which were CDOs of CDOs.
Not as funny as inverse floaters, and interest-only floaters. You just have to know what you are buying.
As the deadbeats stopped paying their mortgages (some didn't even make the first payment) and interests rates reset higher, all of the CDOs and other housing-related paper collapsed in price.
Actual defaults were manageable. It was the LEVERAGE that killed. The decline in the underlying asset was the killer, not the default itself.
Lehman Brothers only could have avoided bankruptcy if they did not hold any of the crappy paper that they issued. However, I seem to recall that they held quite a bit of that crappy paper and they also had to eat the paper if it defaulted before a certain time frame.
Not true, an urban myth. Lehman was leveraged 30-to-1. Even owning AAA-rated Treasuries would have been risky.
My point is that Lehman Brothers' collapse was only a symptom of the real cause of the 2008 financial crisis. It was massive fraud committed by the Wall Street banks, massive fraud committed by the credit rating agencies, ignorance and corruption on the part of the regulators, and a massive pollution of the global financial system with crappy paper that, when the housing bubble finally popped, made practically all debt instruments' prices suspect.
It wasn't "fraud" -- it was leverage. That's why there were no prosecutions. You can't charge someone with "stupidity." The leverage was known for YEARS and encouraged by the regulators and the politicans (but NOT the Fed.)
I dealt in this paper. Alan Greenspan and others from The Fed spoke before our trade group and wanted it tightened up as did the Bush Administration. Congress did not -- especially those using Fannie Mae and Freddie Mac as a political slush fund.
What you READ in the papers is one thing -- what is a FACT and REALITY is another. Trust me, the evidence is correct which is why no Wall Street executive was ever charged criminally for the excesses of the decade.
We see the same stuff now with everyone talking about bank "bailouts" -- which will cost next to nothing -- and nobody talking about S&L and union pension plans -- which will cost trillions ($100 BB and counting so far in bailouts and nothing in the media).
@GoldFinger1969 said: It was LEVERAGE, not the underlying assets. Leverage magnifies losses.
We're going to disagree on this so I'm going to end my arguments with this.
It was fraud, plain and simple. I know this because I'm one of thousands of people who fully knew of the fraud being perpetrated around 2003 or 2004 (I was actually slow to see it unlike the smartest people) and I knew, years in advance, that the entire banking system would be destroyed by the massive fraud which enabled the bubble. I also successfully shorted one of the absolute worst frauds, New Century Financial, from $25 to zero.
If anyone ever saw the Congressional testimony of former regulator William Black (he was one of the key regulators in the Savings and Loan crisis), he did a pretty good job of briefly explaining what the fraud was. I'm pretty sure that he wrote articles or papers that describe in greater detail how the fraud was perpetrated. An entire book he wrote on this subject is The Best Way To Rob a Bank Is To Own One. Here's a TED presentation he gave on elite accounting control frauds for those interested:
And, no, Lehman Brothers would not have gone bust if they had leveraged themselves with U.S. Treasuries. Interest rates were not at zero and by the time the crisis hit, U.S. Treasury prices actually increased, meaning that Lehman Brothers in this hypothetical situation would have made a huge profit not a loss.
Yup my paper SLV is on da move. Hopefully all the physical bunker hoarders can cash out before the impending smack down. RGDS!
smackdown? as in price manipulation? lol
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I have owned JPM stock since 2011....I have met personally Jamie Dimon 3 times in my career....the guy is exceptinally talented all things finance, I wish he would run for President
I think Netflix has a show on him.....
Simply the SMARTEST banker in the world.
Oh, and I bought the stock in 2011 in the low 30's ....still have it too.
I manage money. I earn money. I save money . I give away money. I collect money. I don’t love money . I do love the Lord God.
@MWK said:
The real cause of the 2008 financial crisis was the billions (it was probably trillions) of dollars of crappy, fraudulent debt instruments that Wall Street was peddling and, in the case of Lehman, ended up holding on their own books. There were instances of houses being appraised for $600,000 and sold to Mexican strawberry pickers who had stated incomes of over $100,000. They purchased the houses using option ARMs (adjustable rate mortgages where borrowers could choose to pay only interest (no principal) on the monthly mortgages) and these ARMs also had rate resets after five or so years. All of these crappy mortgages were issued with zero income or asset verification and, in some instances, the mortgage brokers altered the applications to fraudulently state the borrower's income or assets.
It was LEVERAGE, not the underlying assets. Leverage magnifies losses.
Wall Street securitized the mortgages, but they were underwritten by mortgage brokers and encouraged by politicians at the state, local, and federal level. Do NOT blame "Wall Street banks."
These mortgages were then bundled up into CDOs (collateralized debt obligations) that the corrupt credit rating agencies rated AAA even though the underlying debt was all sub-prime borrowers. The collateral (the house) was also not worth anything close to the appraised prices.
While there were were inflated appraisals, CDOs and CLOs and CMOs do turn AAS tranches out of subprime or lower-rated debt. It's been successfully done for decades.
What was different here was the 1st-ever decline in average home prices since 1967 when records started being kept.
There were even more funny financial instruments called CDO^2 (CDO squared) which were CDOs of CDOs.
Not as funny as inverse floaters, and interest-only floaters. You just have to know what you are buying.
As the deadbeats stopped paying their mortgages (some didn't even make the first payment) and interests rates reset higher, all of the CDOs and other housing-related paper collapsed in price.
Actual defaults were manageable. It was the LEVERAGE that killed. The decline in the underlying asset was the killer, not the default itself.
Lehman Brothers only could have avoided bankruptcy if they did not hold any of the crappy paper that they issued. However, I seem to recall that they held quite a bit of that crappy paper and they also had to eat the paper if it defaulted before a certain time frame.
Not true, an urban myth. Lehman was leveraged 30-to-1. Even owning AAA-rated Treasuries would have been risky.
My point is that Lehman Brothers' collapse was only a symptom of the real cause of the 2008 financial crisis. It was massive fraud committed by the Wall Street banks, massive fraud committed by the credit rating agencies, ignorance and corruption on the part of the regulators, and a massive pollution of the global financial system with crappy paper that, when the housing bubble finally popped, made practically all debt instruments' prices suspect.
It wasn't "fraud" -- it was leverage. That's why there were no prosecutions. You can't charge someone with "stupidity." The leverage was known for YEARS and encouraged by the regulators and the politicans (but NOT the Fed.)
I dealt in this paper. Alan Greenspan and others from The Fed spoke before our trade group and wanted it tightened up as did the Bush Administration. Congress did not -- especially those using Fannie Mae and Freddie Mac as a political slush fund.
What you READ in the papers is one thing -- what is a FACT and REALITY is another. Trust me, the evidence is correct which is why no Wall Street executive was ever charged criminally for the excesses of the decade.
We see the same stuff now with everyone talking about bank "bailouts" -- which will cost next to nothing -- and nobody talking about S&L and union pension plans -- which will cost trillions ($100 BB and counting so far in bailouts and nothing in the media).
Who's idea was it to offer 125% equity home loans ?
We can ABSOLUTELY blame "Wall Street banks".
The whole financial debacle of 2008 had to do with the collapse in the value of mortgage-backed securities (MBS). Those securities were of obviously dubious value when 125% equity loans were part of the mix.
Once it came time for bailouts, who got all the bailout money ? The banks. Trillions of dollars went their way. That money could have instead been directed towards taxpayers. Knocking off the principal amount owed on mortgages would have shored up the value of MBS, stabilizing the system. But no, the "puppet masters" can't allow any of the strings to be cut.
Comments
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Who was speculative buying oil futures and options in the 2007-2008 mania? The big banks of course. And you can bet those same banks held huge amounts of puts/calls and derivative bets against oil by the $149 peak in summer 2008. They did the same thing to gold and silver in 2008....and to a lesser extent in the 2010-2012 run up. Houses too. Bear Sterns (BSC) in 2007/early 2008 held a huge position in silver shorts and went under. JPMorgan assumed BSC and continued to pile on the silver derivatives to the tune of approx $300 BILL total by summer 2008. At the time that was 13-14 yrs of world silver production. In gold, JPM and the others held $600 BILL in gold otc derivatives .....or 3-4 yrs of annual world production. Clearly these were not industrial bets or hedging by producers. A lot of the fallout in the 2011-2015 decline was the result of banking accelerating the drops.....both by regular futures and by OTC Derivatives. The "speculative buying" in many commodities into the peaks of 2006-2011 were led by the biggest banks' trading desks. A small role via little consumers.
Silver is headed back to $49 this decade (ie by 2025-2028) or possibly to $100+. The worst of the coming decade is going to be the cleansing of the financial and RE systems abuses of the past 80-120 years (2023-2033).
To look at "propelled" or "owned" markets one only has to look at the nutty advance (and now decline) in Palladium. The rise from $1000 to $3400/oz made no sense with gold and platinum only going up 50-60%. The same could be said of the front end WTIC oil futures falling to UNDER $0 to a crazy -$38/barrel in March 2020. You can bet the TBTF banks made out on the 12 year crash from $150 to $0.....and then reversed bets on the rebound to nearly $130. Consumers or actual producers aren't doing any of this.
https://finviz.com/futures_charts.ashx?t=METALS&p=m1
https://finviz.com/futures_charts.ashx?t=CL&p=m1
As far as silver, similarly to oil, it completed a massive 9 yr downturn in 2020. Oil regained nearly all of that drop from 2008. I suspect silver was so crushed from 2011 to 2020 that a similar rebound into the $40's seems pretty realistic in the next 1-4 yrs....and probably a lot sooner than most think. Silver has a "nice" chart with potential to $43-$60. And it's lagging what gold and oil have already done. With a GSR of 86, silver has a lot of pent up energy where the ratio tends to always return to the normal range of 38 to 83 which has held for most of the past 25 yrs. After the GSR crash of 126 to 64 it rebounded to a neat 96....a 50% retrace. So at the current 86 it's still way above the norms. I've just waiting for that next leg down in GSR which returns it to 55 or lower. $3000 gold with $55 silver can do that.....so could $2500 gold with $45 silver.
I like to see what GSR is doing as it's like an alternate VIX of the PM's market. Ultimately, I see GSR heading into the lower 30's by 2025-2026 to finish the 2nd half of this correction (ie correct that huge 2011-2020 rise). Sharp down moves in GSR only seem to take 2-3 yrs to exhaust. Another way of saying all that is that the 14 yr - 5 wave rise in the USDX (2008-2022) is due for a sharp multi-year correction too. GSR and USDX tend to rise and fall together. USDX currently at 103 and I'd expect a return to the 79 or lower level. The dollar has moved in 7 to 9 yr swings the past 40 yrs. This recent 14 yr rise broke that "norm." Still, a counter-move is now due even if shortened to a more severe 3-4 yr drop to even up the time spacing. Silver and gold will benefit.
https://finviz.com/futures_charts.ashx?t=SI&p=m1
One thing I don't like about PMs is that the next 8.6 yr cycle high is not due until 2028....a pretty long ways away. The last 2 were almost dead on at 2011.6 (June)..... 2020.05 (Jan) with next one still 5 yrs out at 2028.65 (June). Next major gold low in the 8.6 yr cycle 2024.35 (April). Which suggests on its own that PMs don't get any traction for another 12 months. Last major gold bottom was 2015.75 (Sept) which was dead on. The 2024-2028 cycle 'should' behave similar to 2016-2020. Gold is 31 months into the current corrective cycle from the 2020 peak. It's been very consistent since 1999 putting in a combination of 55 month and 20-22 month cycles. The cycles suggest still 24 months go in the current 55 month cycle which is plenty of time to go "far" in either direction. On cycles alone, maybe a secondary low 12 months from now (similar to late 2015 low). Then a strong push into Spring 2025. More meandering with a final 2 yr push higher 2026-2028 (22-26 months). So to merge this with the silver analysis above.....if there are record highs coming in silver it should be here by 2028. $100 silver? Why not? No one expects it. More ESG and Govt take-overs applied to silver and gold miners and maybe mine production can go to 0?
And as far as silver playing the industrial metal role and following car battery supply/demand, etc.....that's not the case when the markets get "hot." Silver is a metal of emotion just like gold. When the emotions really being to shift (like 1977-1980, or 2003-2008, 2009-2011, 2018-2020) the metals aren't in emotion mode. You can't predict their prices at those times with annual silver production, market open interest, ounces due for delivery, and other hum drum "stats.".....no different than when the stock market, or oil, or palladium....go into emotional modes. What silver supply and demand issues changed from late 2008 to early 2011 when silver went from $8.41 to $49.78? Precisely nothing really. It was all emotion and heat from absurdly over sold to massively over bought.
Another tidbit, from Jefferson's remarks regarding banking institutions being more dangerous than standing armies:
"... the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale". - Thomas Jefferson
I'm not one of these "silver is going to $100/oz." jokers
Yeah, me neither. I'm just one of those "dollar is going to 0.0000001" tin foil hatters.
I knew it would happen.
Gutter metal will be 0 before the USD ever goes to 0.0000001. I can assure you though that we nor the next 5 generations after us will see either. THKS!
The whole worlds off its rocker, buy Gold™.
dollar will be replaced or have Zimbabwe zeros added well before it goes to zero. CBDC digital dollars will be a replacement.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
When silver moves, it won't even take a quick glance at $49. The environment is 5X worse than in 1978-1980.
I knew it would happen.
Forgive us our debt as we forgive our debtors.
Now, if I could only convert my banker
Lot of interesting quotes there, good stuff RR !!
That said...things change. Bretton Woods no longer controls, we're not on a gold standard, currencies float, our underststanding of economics and monetary policy is light-years deeper than 90 years ago.
The statements on derivatives contain many misstatements of fact. I will just say that overall leverage today is less than HALF what it was 15 years ago.
The bailouts continue to be for politically-connected voting blocs in one particular party and not banks. The Teamsters Union just got $36,000,000,000 with no changes promised...nobody losing their jobs....no talk of paying back the monies.
Meanwhile, idiots on TV wail about "bank bailouts."
There's an interesting interview with Ed Dowd, formerly with Blackrock - today on Kitco.
I knew it would happen.
30$ will be the Max.
NEVER ARGUE WITH AN IDIOT.
FIRST THEY WILL DRAG YOU DOWN TO THEIR LEVEL.
THEN, THEY WILL BEAT YOU WITH EXPERIENCE.
MARK TWAIN
I paid more for my last two one ounce silver pieces.
1@$40
1@$60
Bretton Woods still controls since that was when the US Dollar became the primary central bank currency. From 1944 to 1971 backed by gold....until Nixon closed the gold window in 1971. The dollar is still backed by the faith, credit, economy and military of the USA. It's not about "understanding of economics or monetary policy"....as that stuff as currently practiced by the West is still basically all smoke and mirrors. Economics and Monetary Policy is just bunch of models, many of them not so good.
I'd say that total notional otc derivatives' value today is nearly at the same $683 TRILL as it was at the end of 2008....when the "big revision" came into play. The BIS' latest quarterly report from mid-2022 shows $632 TRILL. It's probably considerably higher today. I'm sure you know that in the fall of 2008 the BIS/OCC/FASB all got together and downward adjusted the total value of otc deriviatives from $1.14 QUAD to $683 TRILL. That's a matter of fact and recorded history. They actually went back and updated the first report that showed the $1.14 QUAD. We talked about it on the forum right here in 2009. You can go look it up. No way that govt's were comfortable reporting over $1 QUAD in otc derivatives as the financial crisis was coming to a bottom in late 2008/early 2009. So they did a simple accounting trick of changing from marked to market to marked to model. In other words, value them anyway you like with any model or assumptions you care to make. I don't see any change in leverage since the last financial crisis....just changes in accounting methodologies.
Logically, if marked to market (or marked to reality) were re-instituted the derivatives would return to the same 60% higher, mid 2008 number. Of course the currently reported $632 TRILLION "valuation" assumes good models, good assumptions, and good faith all around. What are the odds that's true in a completely opaque market under minimal to no regulation? As much as we think "things change"....they stay the same. Really nothing new under the sun since Dec 2013 other than creating otc derivatives backed by nothing....even the gold standard was basically tossed out the window in 1914 as WW1 started. FDR's move in 1933/34 and Nixon in 1971 were more like final window dressing. And the 800 lb gorilla in the room is the $500 TRILL or so in otc interest rate derivatives ($1 Quad under the original standards). Those were never under heavy stress in the 2008/2009 crisis. Int Rate D's are front and center now though. Nothing has been fixed or solved since 2008.....just circumvented, swept under the rug and papered over by another $22 TRILL in national debt (almost 4X the 2008 value). Is this the "better understanding" of economics and monetary policy to today you were defending?
https://bis.org/publ/otc_hy2211.pdf
I think you meant "1914", not "2014".
But, yes, the "gold standard" was massively cheated upon during the time frame of about 1914 to 1933.
If you really think silver is going to zero, then why haven't you sold it all already ?
How much silver do you have right now (paper and physical) ?
He said & I quote: "Gutter metal will be 0 before the USD ever goes to 0.0000001." In my book that means, NOT IN OUR LIFETIME.
I said gutter metal will not go to zero in the next 5 generations just like the tin foil crew will not get their wish of the USD going to 0.0000001 in the next 5 generations either.
I've been selling physical gutter fairly consistently for the last 3 years, buying and selling the SLV over the same timeframe. The endgame is always the metal of kings, dump the gutter and add REAL precious metal. THKS!
The whole worlds off its rocker, buy Gold™.
Before bashing The Fed, please remember this: the Fed didn't even have operational control of monetary policy until 1951. The Treasury pretty much controlled the Fed.
The price level was pretty constant from 1913 to 1926.
No they weren't. The regulators would have crucified them. You are confusing clearinghouse operations and custodial management with direct ownership.
This is simply not true, RR. Banks don't make big bets on commodities -- the regulators don't allow it. JPM's total capital in the time period you cite was about $350 billion -- you think they bet it all on silver and/or gold ? Where did you read this POV ?
I don't know where these statements originate, but they are as true as those spoken by The Flat Earth Society.
People don't go to original sources of data...they regurgitate half-truths with no basis in fact and then it circulates and people ASSUME it's correct because the person was right on coins, numismatics, or silver moves a few years ago. I think you read this somewhere and assumed it was likely or partly true....it's grossly UNTRUE and is easily disproved by SEC filings and the company's annual report. Plus, nobody reputable has ever mentioned it on TV or in print.
Not even Senator Warren.
Palladium's move was strong autos + Russia. The WTI Futures contract falling to a negative number was predicted WEEKS (months ?) in advance as a result of the Cushing inventory situation -- those who follow this were NOT suprised. I am a former energy analyst and read about this in late-2019 and early-2020.
No, the banks didn't bet on oil. It's not allowed. It's a red flag. You may as well just announce you're looking to lend $500,000 for home purchases to folks with FICO scores under 600 during the next recession.
The GSR is useless for short- and intermediate term predictions, IMO. I do agree with the general thrust of your silver and gold price predictions.
Cycles are tough to predict -- their heyday was the 1980's with guys like Elliot Wave Theorist Robert Prechter using them successfully for a decade or so.
Here's the report. You have to read the ENTIRE report, not just cherry-pick stuff:
https://www.bis.org/publ/otc_hy0811.pdf
The market value is about 1% of the notional value. The notional value has NOTHING to do with VAR (Value At Risk). If there was a systemic issue, I think a 57% decline in the S&P 500 and a 1-month 35% decline in stocks accompanied by a quadrupling of the U.S. unemployment rate and a 30% drop in Real GDP.... would have exposed the flaws.
Leverage is less than half the 2008 level.
If that were true, then why were "Federal Reserve Notes" issued during the 1914-1951 time frame ?
Red-seal, "United States Notes", yellow-seal "Gold certificates", blue-seal "Silver Certificates", and and brown-seal "National Bank Notes" were all issued at the same time and could have easily been sufficient without having to issue green-seal "Federal Reserve Notes".
In 1933, the US Treasury held about 6.000 metric tons of gold. The US Treasury issued 16,000 tons worth of Gold Certificates.
The Federal Reserve had very little gold. And yet, 56,000 metric tons of gold worth of Federal Reserve Notes were issued prior to March 1933. Why ?
It was true, the Fed was the New Kid On The Block and the Treasury kept control. In 1951 the Fed-Treasury Accord was implemented with Treasury official William McChesney Martin...who then moved from the Treasury to the Fed. This was when the Fed truly became independent.
BTW, Harry Truman met Martin on the streets of NY or Washington years later and cursed him out for betraying him and his Treasury dept !!
Maybe, maybe not. I don't know what you mean by "sufficient" but it's independent of having the Fed freed from Treasury control.
I would have to check the numbers, but I do recall that only about 1-3% of the Certificates had actual gold behind them. Again, just like a bank doesn't have cash on hand to meet EVERY depositors needs, gold was more of a measurement standard than an actual backing item.
Just because you cite some anomalies -- and they ARE interesting, I grant you that -- doesn't mean there wasn't a good reason for that situation arising OR for it being the preminent focus for the Fed or Treasury. Money supply and exchange rates were paramount not actual gold behind each Gold Certificate.
Fractional gold banking?
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Yup.
What would be the equivalent price today of $49 silver in 1980?
I think it's likely in the next 10 years when the boom goes bust, just like in 2011 in the aftermath of 2007-2008.
Too many positive BST transactions with too many members to list.
During the time that the Federal Reserve was issuing the 56,000 metric tons worth of gold-clause notes, they were allowed to keep 100% of their profits (later that was reduced to 6%). Whose idea was it for this to be done ? Did the US Treasury tell the Federal Reserve to issue that currency, or did the Federal Reserve decide to do it ? If 100% of the FRB profits were retained by them, why would the US Treasury essentially give away all that money instead of issuing it directly from the US Treasury instead ?
Something certainly doesn't smell right here.
$49 in 1980 is about $179/ounce today. But the 1980 high is not a good reference point. The Hunt Brothers ran the price up and even the average for 1980 was about $22. Silver was around $5 for much of the early 1980's.
The problem is that the silver price was a bubble spike. It really was about $20-$25 before it doubled in a few weeks/months.
FWIW, $49 in 1980 would be just under a quadrupling of the price. Call it $186.
Do you have a source for that 56,000 metric tons ? That is just under $1.8 BB in gold notes, seems high. The U.S. did have over $1 BB in gold, though, about 35-40% of the world's supply.
All profits from the Fed are swept to the Treasury. The Fed isn't autonomous on issues like that, the Treasury and Congress can decide where any "profits" go.
Monetary policy was not as fluid then as it is today, Dcarr. Treasury is not "giving away" anything -- it's basically just turf battles.
They're giving away my purchasing power.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
It is absolutely untrue that all FRB profits are swept into the US Treasury.
The FRB retains 6% of their profits and distributes most of those profits to the "shareholders" of the FRB. Those shareholders do NOT include the US Treasury or US Government. They are big banks such as JP Morgan Chase, Citibank, Goldman Sachs, Bank of America, Wells Fargo, etc. And those dividends are exempt from corporate income taxes. It says so on the FRB's own website: https://federalreserve.gov/aboutthefed/section7.htm
Also note that there was a time when the FRB retained 100% of the profits.
The source for the 54,000 metric tons worth of gold-clause Federal Reserve Notes comes from the Bureau of Printing and Engraving in their records on the quantities issued for each type of note. I document those numbers in the appendix to my article here: moonlightmint.com/bailout.htm
You missed the point entirely. The price of gold was basically "fixed" at $20.34 in the USA through 1933. Which is sort of irrelevant. According to current US Treasury valuations the price of gold held by the USA is "valued' at $42/oz. In any event, the cheating on the gold standard from 1914 to 1929 was done by printing money w/o backing, and specifically not backed by gold. Gold Real Bills essentially disappeared following WW1 which effectively killed the "gold standard." The amount of fiat money printed just during WW1 was on the order of 50-100%....I forgot the exact figures. The US doubled its money supply during the WW2 years....then contracted it causing the mini-depression of 1921-1922. Money printing took off again through the roaring 20's and we know how that lending and spending euphoria ended.
On the subject of otc derivatives and notional values, you and many others have it wrong. The fact that you believe only in derivatives "market" value and modeling shows you don't understand the risks....and how they already played out once before in 2008/2009. The models along with "beneficial risk netting" are accounting tricks....which hide the real risks. When the contracts fail as a better goes bankrupt (ie Bear Sterns or Lehman Bros. in 2008) the loser is on the hook for the full notional value. There is no netting or golden parachute for those failures. That's where the FED and other Central Banks come into to help pay off the winners. Which is why the TBTF banks, FED, and others have tried so hard to not let these opaque contracts blow up. The failed miserably during the 2008 crisis when Credit Default Swaps failed to the tune of $30-$38 TRILL and otc MBS failed by around $4-$7 TRILL. Those bets were paid off by the FOMC/FED....and at FAR higher amounts than your 1% market value. The CDS notional value in mid-2008 (from your BIS link) was an insane $57 TRILL.....and it was $62 MILL the report before this. And clearly 1% of that ($570 BILL) was not going to blow up the financial system. But the notional value of a large % of that $57 TRILL could certainly do that. It looks like they paid out or papered over around HALF of the notional value. I read several forensic accounting reports from that period indicating a $15 to $40 TRILL in CDS losses to be paid out (see my Nov 27, 2009 post). At that time the CDS carried 18X leverage to "market value." By April 2009 after the Blow Up CDS notional risk was reduced by 90% from 2008 levels. Interesting that you linked the 2008 BIS report and apparently didn't even read it.
Go back and re-check the 2008 BIS report you linked earlier. In that same report you can find the exact $683 TRILL number I quoted from memory. That was the all world reporting banks, not just USA. That's the real risk since all these banks are connected. In that same charting you will find the Gold Derivatives listed at $649 BILL. Oops, I was right again, and strictly from memory. Back then I read EVERY BIS and OCC semi-annual and quarterly derivatives report as they came out from around 2006 to 2012....probably the only one of this forum who did so. Note also that total commodities derivatives were at $13.2 TRILL....and a market value of around $2.5 TRILL. That's still an insane bet in commodities if only the market value had to be paid off. They do bet heavy on commodities. That's a LOT of commodity betting despite any regulation you think might or should have occurred back then. When's the last time regulators really looked at otc derivatives except following a blow up? I can't dig out the silver derivatives as it appears something was changed or modified to these reports. It used to be visible....at it was in the $200 BILL or so range per my recollection.....13-14 yrs of world silver production. With silver back then around $20/oz, at 21 metric tonnes mined in 2008 is approx $13.5 BILL. 13-14 yrs nets around $175-190 BILL.....a ridiculous bet that was larger than gold's. In 2008, 2500 tonnes of gold were mined, at an average yearly value around $800/oz.....or approx $65 BILL. So the gold derivative's notional bet in 2008 was $650 BILL or 10X that amount. Again, that's a LOT of betting....and lot of leverage applied to push the gold market where the TBTF banks would like it to go.
If you go back through this Forum's main economic thread from that period, or even at 321gold.com articles from 2008-2009 you will find numerous sources on the otc derivatives post-mortems.
And speaking of numbers. You claim derivatives' have been netted by about half since the 2008 Financial Crisis. Clearly, you didn't check the references. Linked below is the 4th quarter of 2002 OCC report. Figure 7 clearly shows almost the same total USA notional derivs risk in 2008 and 2022. No more than a 10% difference ($211 vs $191 TRILL). So where's the halving of leverage? And this is just the reporting of USA member banks. Also check out Figure 18 on the gold derivatives. They did some accounting tricks prior to 2022 which went back and massaged total gold derivatives to almost nothing. But then brought it back in 2022 with a new methodology that spiked the reported numbers to $350-$463 TRILL notional in gold derivatives. Not quite up to the peak in 2008 of $649 TRILL. But, still quite hefty. Bottom line is that they've never stopped making the large derivative gold bets completely outside the normal means of LBMA, Comex, etc. This is all done off normal balance sheets.
https://occ.gov/publications-and-resources/publications/quarterly-report-on-bank-trading-and-derivatives-activities/files/pub-derivatives-quarterly-qtr4-2022.pdf
I still stand by my prior statement that the $683 TRILL in total world derivs reported to the BIS in June 2008 was actually $1.14 Quadrillion BEFORE they did the March 2009 FASB acct rule changes (marked to market became marked to model).
So the previous reports such is in 2008 were scrubbed back to reflect these changes. $1.14 Quad became $683 TRILL....a 40% overnight change. Bankers and Politicians had enough problems with hundreds of $TRILLs, they sure as heck didn't want to see a bank risk report at over $1 QUAD. 67% of those $683 TRILL derivs were interest rate contracts, mostly swaps. That's real risk of high interest rates.
Going to the current BIS 2022 report shows $632 TRILL in world notional derivs. Not that much of a change from their 2008 number of $683 TRILL. Again, multiply both of these by 1.67 to get true numbers adjusted back to mid-2008 BEFORE the March 2009 FASB accounting changes. Nothing has changed excepting smoke and mirrors.
https://stats.bis.org/statx/srs/table/d5.2?f=pdf
Above link shows that gold derivatives over the past 2 yrs are even higher than the 2008 numbers... in the $680-980 BILL range the past 2 yrs. With gold about doubling in price since 2008 then these make some sense. The "other" precious metals entry at approx $100 BILL the past 2 yrs is probably mostly from silver derivatives.....approx worth 7 yrs of world annual silver production....nothing that producer/hedgers would ever do.
Just dug into the old gold and silver - economic and predictions thread. This was report from April 6th 2009 12:21 pm (page 210). This gives the relative values of the most recent BIS report AFTER the FASB changes were applied. It does give the silver derivatives' value I was looking for....$190 BILL. Now I have to see if I can dig out the $1.14 QUAD report from 2008 before it was changed............
https://forums.collectors.com/discussion/344922/gold-and-silver-world-news-economic-predictions/p210
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_Bank for International Settlement - June 2008 otc derivatives report
Link to BIS semi-annual report. This is the currency page. What is of interest are the gold, non-gold PM's, and commodities information. We already know that the total size of the otc derivatives is $683 TRILLION of which the large majority are interest rate contracts. But the size of the commodity sector is pretty impressive, actually dwarfing what is seen on the Comex.
These are the notional values. Note that they also list the gross value (net) at approx 3% of the notional. It remains to be seen if such a number means anything when the counter party can't pay up.
Commodities (non PM's) - $12.5 TRILLION
Gold - $649 BILLION
Non-gold PM's - $190 BILLION (mostly silver, some Plat, Pall, Rhod.).
The gold derivatives are roughly equivalent to 19,000 tons of gold or about 60% of what the CB's claim to still own. This would also be equivalent to about 1/8th of the world's historical total mined gold and about 6X the average annual world demand. This is also about 6X the size of the max Comex shorts that the top couple of banks carry. So obviously they can do more damage under the totally unregulated otc derivatives. And at 35 to 1 leverage, why not, no one is watching.
The size of the silver derivatives are simply amazing considering the current gold to silver ratio is 71 to 1. Yet their difference is only 3.4X. Why in the heck would there be such a need for a net position so huge? This would be equivalent to a current price of silver at $255/oz or gold at $41/oz depending on which way you look at it. Considering that the annual usage of silver is around $1-$2 BILL per year, the derivatives give over a 100 yr annual supply! Note also that the amount of silver derivatives more than doubled over the past 2 years ($84 Bill to $190 Bill). Does anyone think these were placed by the miners for hedging? (lol). The net Palladium and Platinum markets are far smaller than silver so it is a safe bet to assume that most of the "non-gold" derivative contracts are for silver. Plat and Pall are industrial metals and most of the hedging is done by the manufacturers and miners. The analysis above was taken from Jason Hommel. I've read other sources who have made the same estimate with silver undoubtedly being the lion's share of the non-gold number. The base derivative's numbers are all from Uncle Sam - 100% accurate.
If I was forced to bet on either massive manipulation of PM's or minimal to no manipulation, I'd have to go with massive. I don't see how the numbers at Comex and BIS say anything different. It still comes down to what is more beneficial to the bankers and currency management? You have to have a strong leash on anything that can alter the perceived value of the currency._
This place was hopping back in March/April 2009 as SHTF. Just reading back now it's amazing much insanity was occurring and we had front row seats to it....discussing it every day for months. Some economic, banking and monetary good history and lessons learned....most of which I've probably forgotten in the intervening 14 yrs. If you don't read and write about this stuff every day it just fades away from memory. Analyst Rob Kirby was one of the main writers of the derivatives fiasco from 2006 to 2010. Digging out his old articles would show screen shots of the original documents.
https://forums.collectors.com/discussion/344922/gold-and-silver-world-news-economic-predictions/p207
Fun Fact from Oct 17, 2008: "LEHMAN bankruptcy attorneys sorting thru 1.5 million derivatives trades involving 8,000 counter-parties." And when it was all over, Lehman's "assets" netted 9% of their previous "market" value. That's an 11 to 1 loss ratio. During the 2008 crisis the average $ leverage of all types of derivs was 34X. Interest Rate derivs were 48X. Credit Default Swaps 18X. And Commodity derivs 6X.
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____From my March 6, 2009 post here. Link below to page 207 in the Economic Thread....it discusses the FASB change from $1.14 QUADRILLION to $683 TRILL. :
__This taken off the JSMineset site today. JS notes that the BIS changed the derivatives total from $1,144 TRILLION (1.144 QUADRILLION) to about $700 TRILLION not more than a few months ago claiming that a new "value to maturity" model was more accurate. In any case whether we blow up the world 10X or 20X doesn't make that much difference. I think the real reason for the change was that if people saw a number like $1.1 QUADRILLION, they'd flip. So out it went and in went a new black box model.
SANTA MONICA, Calif. (Marke$ Watch) -- There's a $700 trillion elephant in the room and it's time we found out how much it really weighs on the economy.
Derivative contracts total about three-quarters of a quadrillion dollars in "notional" amounts, according to the Bank for International Settlements. These contracts are tallied in notional values because no one really can say how much they are worth. But valuing them correctly is exactly what we should be doing because these comprise the viral disease that has infected the financial markets and the economies of the world.
Try as we might to salvage the residential real estate market, it's at best worth $23 trillion in the U.S. We're struggling to save the stock market, but that's valued at less than $15 trillion. And we hope to keep the entire U.S. economy from collapsing, yet gross domestic product stands at $14.2 trillion.
Compare any of these to the derivatives market and you can easily see that we are just closing the windows as a tsunami crashes to shore. The total value of all the stock markets in the world amounts to less than $50 trillion, according to the World Federation of Exchanges.
To be sure, the derivatives market is international. But much of the trouble we're in began with contracts "derived" from the values associated with U.S. residential real estate market. These contracts were engineered based on the various assumptions tied to those values.
Few know what derivatives are worth. I spoke with one derivatives trader who manages billions of dollars and she said she couldn't even value her portfolio because "no one knows anymore who is on the other side of the trade." Derivatives pricing, simply put, is determined by what someone else is willing to pay for the contract. The value is based on an artificial scenario that "X" will be worth "Y" if "Z" happens. Strip away the fantasy, however, and the reality of the situation is akin to a game of musical chairs -- without any chairs. So now the music has finally stopped. That's why stabilizing the housing market will do little to take the sting out of the snapback we are going through on Wall Street. Once people's mortgages were sold off to secondary buyers, and then all sorts of crazy types of derivative securities were devised based on those, and those securities were in turn traded on down the line, there is now little if any relevance to the real estate values on which they were pegged.
We need to identify and determine the real value of derivatives before we give banks and institutions a pass-go with more tax dollars. Otherwise, homeowners will suffer as banks patch up the holes left in their balance sheets by the derivatives gone poof; new credit won't be extended until the raff of the old credit is put behind.
It isn't the housing market devaluation, or the sub-prime mortgage market defaults that have us in real trouble. Those are nice fakes to sway attention away from the place where greed truly flourished -- trading phony instruments to the tune of $700 trillion. Let's figure how to get out from under that. Then maybe the capital will begin to flow again through the markets. Right now, this elephant isn't just in the room, it's sitting on us.
Thomas M. Kostigen_
The problems with real estate and sub-prime, global warming and cap and trade, etc. as big as they are.....are diversions to keep us all from looking at the $700 TRILL elephant. With the $10 TRILL already dumped down the corporate banking hole, we could have paid off all the bad mortgages and started clean. Obviously the problem runs far deeper than just real estate._
================
Another of my posts from 9/30/2008 (page 175) again referencing the $1 QUAD. number:
"That number comes from the International Bank of Settlements which is the reporting bank for all the Central Banks of the world. The odd thing was that up to sometime in early 2008 they were reporting the figure at around $650 TRILL. Then on the next update they jacked it up to $1.1 QUAD. Did they find another $450 TRILL sitting under a rock or something? I don't know. It's not all bad though. Only about half of that value is Over-The-Counter stuff (ie illiquid, unsubstantiated, un-backed, unregulated, non-transparent derivatives). But either amount can wipe out the financial system 10X over."
rr your responses, as always, are to voluminous., and for the most part, over the last 15 years, have not come to fruition. I suppose, that's why you are still posting here, inlieu of enjoying your financial freedom on the Riviera. I do enjoy your posts and knowledge pertaining to coins.
RR, while derivatives do have dangers -- I don't doubt that -- you overestimate their impact in 2008. The BIGGEST contributor to the 2008 Credit Crisis was the bankruptcy of Lehman Brothers, which never should have happened (it should have been mopped up like Bear Stearns).
Had that happened, then the Reserve Fund MMF never "breaks the buck" from $1.00 to $0.97 and the "run" never happens.
AIG and Citibank, 2 of the biggest problem companies, had CEOs both picked by Elliot Spitzer. Sure hope he doesn't start an employment agency !
You overestimate the impact of CDS and MBS. Only subprime MBS incurred losses, investment grade MBS were money-good.
You keep throwing out huge numbers for non-relevant derivative values. If they were material, they would have impacted by now through a Credit Crisis, a 57% drop in the stock market, 150 banks going under, oil prices soaring to $150/bbl. and negative $35 a barrel, a pandemic that reduced real GDP by 30%, and a 35% crash in the market in 6 weeks.
At some time you just have to realize your flaw isn't as bad as you believe OR it's a non-investable event (like a nuclear war).
Just to make sure others don't misquote it, the price was $20.67. But that obviously wouldn't affect your analysis, I just wanted to make sure others joining didn't miscopy.
RR, assume all of what you say is true (it isn't
):
What's your gameplan ? How do you make money off what you posted ? When does it happen ? If you were running an investment fund, what would you be in ?
All ears.....
The real cause of the 2008 financial crisis was the billions (it was probably trillions) of dollars of crappy, fraudulent debt instruments that Wall Street was peddling and, in the case of Lehman, ended up holding on their own books. There were instances of houses being appraised for $600,000 and sold to Mexican strawberry pickers who had stated incomes of over $100,000. They purchased the houses using option ARMs (adjustable rate mortgages where borrowers could choose to pay only interest (no principal) on the monthly mortgages) and these ARMs also had rate resets after five or so years. All of these crappy mortgages were issued with zero income or asset verification and, in some instances, the mortgage brokers altered the applications to fraudulently state the borrower's income or assets.
These mortgages were then bundled up into CDOs (collateralized debt obligations) that the corrupt credit rating agencies rated AAA even though the underlying debt was all sub-prime borrowers. The collateral (the house) was also not worth anything close to the appraised prices.
There were even more funny financial instruments called CDO^2 (CDO squared) which were CDOs of CDOs.
As the deadbeats stopped paying their mortgages (some didn't even make the first payment) and interests rates reset higher, all of the CDOs and other housing-related paper collapsed in price.
Lehman Brothers only could have avoided bankruptcy if they did not hold any of the crappy paper that they issued. However, I seem to recall that they held quite a bit of that crappy paper and they also had to eat the paper if it defaulted before a certain time frame.
My point is that Lehman Brothers' collapse was only a symptom of the real cause of the 2008 financial crisis. It was massive fraud committed by the Wall Street banks, massive fraud committed by the credit rating agencies, ignorance and corruption on the part of the regulators, and a massive pollution of the global financial system with crappy paper that, when the housing bubble finally popped, made practically all debt instruments' prices suspect.
100%
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
It was LEVERAGE, not the underlying assets. Leverage magnifies losses.
Wall Street securitized the mortgages, but they were underwritten by mortgage brokers and encouraged by politicians at the state, local, and federal level. Do NOT blame "Wall Street banks."
While there were were inflated appraisals, CDOs and CLOs and CMOs do turn AAS tranches out of subprime or lower-rated debt. It's been successfully done for decades.
What was different here was the 1st-ever decline in average home prices since 1967 when records started being kept.
Not as funny as inverse floaters, and interest-only floaters.
You just have to know what you are buying.
Actual defaults were manageable. It was the LEVERAGE that killed. The decline in the underlying asset was the killer, not the default itself.
Not true, an urban myth. Lehman was leveraged 30-to-1. Even owning AAA-rated Treasuries would have been risky.
It wasn't "fraud" -- it was leverage. That's why there were no prosecutions. You can't charge someone with "stupidity." The leverage was known for YEARS and encouraged by the regulators and the politicans (but NOT the Fed.)
I dealt in this paper. Alan Greenspan and others from The Fed spoke before our trade group and wanted it tightened up as did the Bush Administration. Congress did not -- especially those using Fannie Mae and Freddie Mac as a political slush fund.
What you READ in the papers is one thing -- what is a FACT and REALITY is another. Trust me, the evidence is correct which is why no Wall Street executive was ever charged criminally for the excesses of the decade.
We see the same stuff now with everyone talking about bank "bailouts" -- which will cost next to nothing -- and nobody talking about S&L and union pension plans -- which will cost trillions ($100 BB and counting so far in bailouts and nothing in the media).
Gutter doing pretty good.
My US Mint Commemorative Medal Set
I wonder if blitzie has cashed in his paper silver yet? He's not going to get a good deal on physical now, too late.
I knew it would happen.
We're going to disagree on this so I'm going to end my arguments with this.
It was fraud, plain and simple. I know this because I'm one of thousands of people who fully knew of the fraud being perpetrated around 2003 or 2004 (I was actually slow to see it unlike the smartest people) and I knew, years in advance, that the entire banking system would be destroyed by the massive fraud which enabled the bubble. I also successfully shorted one of the absolute worst frauds, New Century Financial, from $25 to zero.
If anyone ever saw the Congressional testimony of former regulator William Black (he was one of the key regulators in the Savings and Loan crisis), he did a pretty good job of briefly explaining what the fraud was. I'm pretty sure that he wrote articles or papers that describe in greater detail how the fraud was perpetrated. An entire book he wrote on this subject is The Best Way To Rob a Bank Is To Own One. Here's a TED presentation he gave on elite accounting control frauds for those interested:
https://www.ted.com/talks/william_black_how_to_rob_a_bank_from_the_inside_that_is
And, no, Lehman Brothers would not have gone bust if they had leveraged themselves with U.S. Treasuries. Interest rates were not at zero and by the time the crisis hit, U.S. Treasury prices actually increased, meaning that Lehman Brothers in this hypothetical situation would have made a huge profit not a loss.
Yup my paper SLV is on da move.
Hopefully all the physical bunker hoarders can cash out before the impending smack down. RGDS!
The whole worlds off its rocker, buy Gold™.
smackdown? as in price manipulation? lol
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
No, as in Economics 101. RGDS!
The whole worlds off its rocker, buy Gold™.
It's not my fault guys , I cashed in some scrap metal and was looking to roll the weight into PM's...and bam, YUP Economics 101.
I have owned JPM stock since 2011....I have met personally Jamie Dimon 3 times in my career....the guy is exceptinally talented all things finance, I wish he would run for President
I think Netflix has a show on him.....
Simply the SMARTEST banker in the world.
Oh, and I bought the stock in 2011 in the low 30's ....still have it too.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
Who's idea was it to offer 125% equity home loans ?
We can ABSOLUTELY blame "Wall Street banks".
The whole financial debacle of 2008 had to do with the collapse in the value of mortgage-backed securities (MBS). Those securities were of obviously dubious value when 125% equity loans were part of the mix.
Once it came time for bailouts, who got all the bailout money ? The banks. Trillions of dollars went their way. That money could have instead been directed towards taxpayers. Knocking off the principal amount owed on mortgages would have shored up the value of MBS, stabilizing the system. But no, the "puppet masters" can't allow any of the strings to be cut.