• Gold: 1,252.87 -1.42
  • Silver: 16.45 -0.03
  • Euro: 1.166 -0.001
  • USDX: 93.995 0.137
  • Oil: 45.8 -0.05

Don't be surprised if silver is the target.

Bill Holter
|
Monday, August 11th

Russia took some very stern retaliatory steps this past week in response to being sanctioned, sanctioned again, and sanctioned further for good measure. Up until this point, Mr. Putin had remained somewhat restrained and I would say almost stoic in his responses by never trying to "one up" the sanctions, only matching them so far. This may have now changed and unfortunately for the West, Russia's retaliation is coming at a poor time.

Russia has retaliated by banning all food imports from the U.S. and Europe for 1 year. Previously, they had put a moratorium on doing business with U.S. consulting firms which included high tech and energy.

http://abcnews.go.com/International/wireStory/russia-extends-import-ban-ukraine-sanctions-24875076

In dollar terms, the food import ban is not huge and will only "nick" U.S. and European farmers and producers. It could be argued that the import ban will only hurt Russia as they import much of their foodstuffs, I tend to disagree. If nothing else, this is symbolic. I think Russia is saying "we can survive without the West" and past history agrees. Their people have withstood hard and lean times before, I don't think this will be any different. Russia announced two oil deals this past week, a $20 billion oil deal with Iran and also a $40 billion deal with India so they have not gone on the defensive. Interesting also that ExxonMobil is beginning an arctic drilling plan with Russian partner Rosneft in direct defiance of U.S. sanctions, will business win out or politics? And if it is business, one must wonder what sort of face saving measure Washington might have with ExxonMobil?

The key here is that Vladimir Putin is putting a wedge between the U.S. and Europe and "time" is on his side. You see, November is only three months away and cold weather will come with it. Russia will without a doubt use the natural gas trump card to force Europe away from the U.S. and leave us standing alone. Even the mainstream press is beginning to understand this as Bloomberg wrote about the danger of sanctions to the dominance of the U.S. Dollar. Also last week, Russia and China finalized their currency swap lines which will allow them to trade directly in rubles and yuan. The newly formed BRICS bank is also not to be forgotten as an alternative trade facilitator that excludes dollars.

I bring this all to your attention because the U.S. is not in any financial shape to withstand more headwinds. Our economy is faltering at the same time "unencumbered" collateral is becoming very hard to find. In fact, the U.S. Treasury has actually had policy discussions that asked the question "what if we lost access to the capital markets?". Why do you suppose they had this discussion? I can only say, if "loss of access" was an impossibility then the discussion would never have taken place. I don't want to beat a dead horse with geopolitics but you must understand, these trade issues and sanctions are "war". No, widespread shots are not being fired yet but financial war is war all the same.

I have mentioned several times before, in my opinion the "final financial shot' which leads to live financial fire (collapse) will be in either the gold or silver pits of the COMEX... or ultimately both. For example, total COMEX inventories of silver are 175 million ounces, the registered category is only 60 million. At $20 per silver ounce it would take only $1.2 billion to crack that market open like a watermelon. Some will say "big deal" or "who cares?", it is a big deal and YOU should care! Why? Because for a pittance of money in today's world, "trust" in the entire financial system of the West can be shattered. I have written on this before but it is so important (and I believe likely) that I'll go over it again.

The entire financial and banking systems of the West are based on "trust" alone. There is "trust" required in everything because the money itself is fiat which means it is not real or "backed" by anything. This is where the phrase "backed by the full faith and credit" comes from. Now, let's look at the silver market and forget about just the "registered" category, let's look at the entire inventory of 175 million ounces. This is $3.5 billion. $3.5 billion is roughly equal to the amount of QE that we were printing EACH DAY at the beginning of the year. It is also roughly equal to the amount of fiscal deficit we run EACH DAY, it is only about 2 days worth of U.S. trade deficit and only 2+ days worth of interest that we pay on our debt. $3.5 billion is a figure that maybe 1,000 individuals worldwide could come up with, China has this "$3.5 billion" ONE THOUSAND times over in U.S. debt and dollars held. My point is this, in today's world, "$3.5 billion" is almost nothing.

Before getting into the nuts and bolts I want to explain why such a small market like silver is the Achilles heel of the entire financial system. If silver futures suddenly and collectively stood for delivery in one month, the inventory does not exist to deliver. This is simple math as for example, Sept. has 84,000 contracts outstanding which represents 421 million ounces of silver which could not be settled upon with a total inventory of 175 million ounces (of which 115 million are NOT registered as deliverable). What would happen if enough contracts stood for delivery and then refused to accept settlement in cash? This would result in a "default" but that is not the real problem. The real problem is the fact that it would then also spread into the gold market. Word would spread quickly and the "rush" would be on everywhere in "contracts" to get metal delivered, people would also rush to have metal delivered from unallocated accounts. In short, the lie would be exposed and actual holders of real metal would withhold their product and not accept fiat for their physical holdings. In essence, we would live in real time with a worldwide "run on the bank".

As for the "nuts and bolts" part, this is easy. We know that China is none too happy with the U.S. and are now allied financially, economically and militarily partnered with Russia. Could it be that the near record open interest in COMEX silver is of Chinese origin through proxies? Has the BRICS bank been created because they know the Western banking system is on life support and THEY will be the ones pulling the plug? Personally, I think this is the case. The Chinese/Russian co op has the motive, the ability and the means to do this. I also believe they have the "desire" which we have given them reason for so many years by abusing our "privilege" of issuing the reserve currency. In case you haven't noticed, the BRICS have been preparing for "something" now for several years. Don't be surprised if it turns out that silver is the "target" because it is the easiest target. The silver market is the smallest and probably the "most abused" market in the world. I believe it to be the most likely scenario in a financial attack which is now obviously (to me) just a matter of time. You can argue an "attack" is not imminent but this would be wishful thinking. All you need to do is look at what comes from Washington each day to know we are reacting and trying to put out fires rather than leading as we once did. Watching Washington was once upon a time an adventure in comedy, the upcoming tragedy scares the heck out of me.

Regards, Bill Holter

http://blog.milesfranklin.com/


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