“Those who wish to seek out the cause of miracles and to understand the things of nature as philosophers, and not to stare at them in astonishment like fools, are soon considered heretical and impious, and proclaimed as such by those whom the mob adores as the interpreters of nature and the gods. For these men know that, once ignorance is put aside, that wonderment would be taken away, which is the only means by which their authority is preserved.”
― Baruch Spinoza, Ethics
In a recent review I quoted part of a social media piece written by James Anderson - our friend at JM Bullion.
“I repeat that is $25 trillion per year traded in these 2 money metals, the high 90% of which are never ever delivered in real physical bullion.
Just electronic paper trading back and forth, to and fro.
When you analyze the annual physical gold and silver bullion mining outputs per year, the leverage in the system is roughly 150 parts silver / gold derivatives vs. 1 oz of real bullion coming to market physically.”
A number of readers pointed out that the leverage is actually much greater.
Here’s is one example, from a member of our private forum:
The leverage of 150 parts silver AND gold derivatives per one ounce of real metal seemed low to me.
I think the leverage is much higher. (I know 150 is absolutely insane, as well.) I did a quick calculation that suggests it is closer to 300 instead of 150, but even 300 seems low.
Maybe the Bloomberg $25 trillion traded in these monetary metals is way low as well.
Here’s the math:
780,000,000 annual global production of silver troy ounces @ $25 per ounce is $19,500,000,000 annual revenue of silver production.
2,500 metric tonnes annual global production. 32,150 troy ounces per metric tonne is 80,375,000 annual global production (troy ounces). At $1,200 per ounce, it’s $96,450,000,000 annual revenue of gold production.
Combined annual revenue of silver and gold production is $115,950,000,000.
Paper to physical, the price leverage ratio of 216.
However, the effective price leverage utilizing adjustments becomes 322 to 1 if we make the following adjustments:
Say all Russian and Chinese production, plus some other countries, never come to market. Let’s say this is 1/3 of global production.
Leverage would be increased by 1/3 or 216/.67; 0.67, which equals the effect of reduction in global revenues that do not go to market. $77,686,500,000 adjusted combined annual revenues of gold and silver go to market...
There are probably other adjustments as well…
That kind of leverage is a disaster waiting to happen.
I would submit that an even greater leverage exists the macro-financial realm.
The ratio of debt, credit, and derivatives long detached from a the tiny pool of final payment collateral.
In fact, the slightest breath of panic will suddenly evaporate (or freeze) that pool of hard collateral before anyone knows what happened.
Getting back to the precious metals…
As Kyle Bass stated in this video:
“As a fiduciary, to the extent that you own it and it isn’t a trade…
COMEX (at the time of the recording) has 80 billion outstanding against 2.7 billion in deliverables. It’s an easy decision.”
Bass spoke with the head of delivery for COMEX/NYMEX and asked, “What if only 4% stood for delivery? What happens then?”
“That never happens. Rarely do we get a one percent delivery. If it does, price will solve everything”.
This is inevitable.
Will it happen in isolation? No one knows.
But the signs are all around us.
Do leaders or regulators have any clue at all about this? It is doubtful. And that’s why it could happen in isolation.
The only free market price resolution would be an instant reversion to equilibrium.
The equilibrium price is ‘somewhere’ between inflation adjusted highs and the resolution of the paper to physical ratio.
Bass characterized his reasoning not in price terms – but in terms of fiduciary responsibility.
We may not be able to break the backs of the bankers by stacking.
But we can inform from the inside out. In some ways we all share the same duty.
After all, the default is measure in terms of forced legal tender fiat currency.
A comprehensive financial earthquake kit must anticipate the response from the greater society and culture around you. And the collapse of currency.
It’s one thing to ‘organize’ a neighborhood emergency response team.
But bring up matters of money and finance - and we suddenly gone way off the radar from the majority.
While those who know better, vehemently deny that collapse could ever come.
Ultimately, change comes from the grassroots and trickles up, out of necessity.
So be a trustee for yourself and for others. Before it’s too late.
2. Or to view all of our products and services, click here.
3. Or...support the cause, and buy me a cold one!