When Silver Sneezes, Derivatives Will Catch a Cold

Silver

What would a silver market default look like? Look no further, because a silent default is happening now. The cash settlement mechanism for the default has been well-established and put in place for that purpose.

Cash settlement for now, nevertheless, without physical delivery for industrial users, would send shock waves throughout the industry. The drama is enough to trigger a panic, despite any ability of some users to switch or find substitutes.

Like all financial defaults, the break in confidence is what leads to the inflection point. Once the infection point is reached and people realize how much they have been taken for, a serious catalyst could trigger major defaults.

CDSs and the Derivative Bubble

Why would it trigger Credit Default Swaps? Basically, with derivatives amounting to trillions of dollars in paper assets, once the first domino falls, the entire world financial system will be in jeopardy. 

What would it trigger? A financial and economic disaster the likes of which would make the experienced of 1920s Germany, Argentina and Zimbabwe to name only a few, seem like a walk in the park. Once the real value of fiat currency (ink and paper) is reflected in a loss of public confidence, all hell will break loose.

Of course, as most of you know, market manipulation can be effective at maintaining the disconnect— as long as it is profitable for those who control or enable it. Their plan, which we see unfolding before us, seems to be to shake out as many holders of real wealth as possible, with the intention of hoarding metals at lower prices.

What we are seeing now in silver, based solely on trading structure in what remains the most important price determining exchange, is a major shift perceived by most as a preparation for higher prices. Big shorts make a killing on buying back short positions at a profit, allowing the managed shorts to maintain an even larger position after covering and shorting again.

The monetary masters (authority) who care not about inflation— in fact, they benefit from it — because not only do they get first dibs on cheap credit, they control sentiment about its distribution (playing both from the buy side and sell side) - they also get to grow their balance sheets larger and larger.

This makes them the perfect partners of government who also benefit from the cheap money (low interest rates) and the protection of their legal tender. Which is why criminals like Corzine and Rich walk away scott-free.

Why Silver is not Allowed to Rise

If silver were "lost" to fundamentals, inflation fears would increase, putting (natural) pressure on interest rates. Higher rates would decimate economic activity and further compromise the already weakened economy.

Higher rates could also trigger interest rate derivative bets placed when the Fed demonstrated control by telegraphing low rates well into the future. Truthfully, they never had absolute control.

Always tenuous and dependent on how well they could capture their own member banks, convincing them to buy bonds, along with institutional investors, pension funds, etc. Ultimately, a derivative implosion would very likely distract most from the resulting return of fundamentals driving price.

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