Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20
AMD is KILLING Intel as Ryzen Zen 3 Takes Gaming Crown, AMD Set to Achieve CPU Market Dominance - 13th Oct 20
Amazon Prime Day Real or Fake Sales to Get Rid of Dead Stock? - 13th Oct 20
Stock Market Short-term Top Expected - 13th Oct 20
Fun Stuff to Do with a Budgie or Parakeet, a Child's Best Pet Bird Friend - 13th Oct 20
Who Will Win the Race to Open a Casino in Japan? - 13th Oct 20
Fear Grips Stock Market Short-Sellers -- What to Make of It - 12th Oct 20
For Some Remote Workers, It Pays to Stay Home… If Home Stays Local - 12th Oct 20
A Big Move In Silver: Watch The Currency Markets - 12th Oct 20
Precious Metals and Commodities Comprehensive - 11th Oct 20
The Election Does Not Matter, Stick With Stock Winners Like Clean Energy - 11th Oct 20
Gold Stocks Are Cheap, But Not for Long - 11th Oct 20
Gold Miners Ready to Fall Further - 10th Oct 29
What Happens When the Stumble-Through Economy Stalls - 10th Oct 29
This Is What The Stock Market Is Saying About Trump’s Re-Election - 10th Oct 29
Here Is Everything You Must Know About Insolvency - 10th Oct 29
Sheffield Coronavirus Warning - UK Heading for Higher Covid-19 Infections than April Peak! - 10th Oct 29
Q2 Was Disastrous. But What’s Next for the US Economy – and Gold? - 9th Oct 20
Q4 Market Forecast: How to Invest in a World Awash in Debt - 9th Oct 20
A complete paradigm shift will make gold the generational trade - 9th Oct 20
Why You Should Look for Stocks Climbing Out of a “Big Base” - 9th Oct 20
UK Coronavirus Pandemic Wave 2 - Daily Covid-19 Positive Test Cases Forecast - 9th Oct 20
Ryzen ZEN 3: The Final Nail in Intel's Coffin! Cinebench Scores 5300x, 5600x, 5800x, 5900x 5950x - 9th Oct 20
How Soon Will We See Stock Market SPX 4000? - 8th Oct 20
Stock Market Spy ETF Testing March Price Peak – What Do the Charts Say? - 8th Oct 20
5 Consequences of US Debt at $50 Trillion - 8th Oct 20
Long Term Cycles Suggest Stock Price Reversion Pending & Gold Price About To Explode High - 8th Oct 20
AMD Zen 3 Ryzen 5000 Launch - Performance, Prices Skews, Cinebench r20 Scores, 5800x, 5900x, 5950x - 8th Oct 20
Gold vs. Silver – Absolutely No Comparison - 8th Oct 20
Gold: Why You Should Be Wary of the "Consensus" - 8th Oct 20
UK Covid-19 Hospital Admissions and Deaths Since Testing Positive in 28 days Analysis - 7th Oct 20
Amazon Prime Day 2020 Sales Top Tips of How To Get Big Savings! - 7th Oct 20
Want To Win Big In Forex Trading? Leverage Is Your Friend - 7th Oct 20
Why I am Voting for Donald J. Hitler - 6th Oct 20
Markets Chop & Grind: Gold, Stocks & Commodities - 6th Oct 20
Silver Price Great Buy Spot Ahead of Second Big Upleg - 6th Oct 20
Forget RTX 3080 Get Zen 3 Ryzen 5900x / 5950x - GPU vs CPU - PC Bottlenecking - 6th Oct 20
How to Get Budgies / Parakeets to Eat Vegetables for the First Time - 6th Oct 20
How to Pick a Reputable Double Glazing Window Company - 6th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

China Earn's Interest by Shorting Silver

Commodities / Gold & Silver Jan 31, 2008 - 01:35 AM GMT

By: Professor_Emeritus

Commodities

Best Financial Markets Analysis ArticleEven the most rabid silver bugs admit the possibility that the Chinese are the Big Silver Shorts. This suggests that the Big Gold Shorts are also governments. Neither are naked by any stretch of the imagination. The double whammy of gold and silver accumulation by unnamed governments is the big puzzle of the present financial crisis in the world as it holds the key to the resolution.

For a better understanding of the Chinese silver picture you have to know a little background of the role of silver in China. The facts are as follows. China has been on a silver standard since time immemorial. China stayed on the silver standard after other trading nations of the world demonetized silver and embraced the gold standard at the end of the 19th century.


China's external trade was insignificant, but the volume of silver currency for domestic use must have been enormous. In addition, there was an avalanche of silver from abroad raining on China. As the silver price fell over 75 percent from $1.29 in 1873 to $0.25 by 1932 (with a brief spike back to $1.29 at the end of World War I), other governments were dumping silver on China mercilessly. China was the only country on the silver standard and the Chinese central bank had to take all the silver offered to it at a fixed price. This situation lasted right up to 1949 when the Communists took over the government. In fact, several Western historians blame the Communist victory on the unprecedented silver inflation that Western governments inflicted on the Chinese economy by their insane silver dumping policy before World War II.

Nobody knows how much silver the Chinese Communists found in bank vaults and in the safe deposit boxes of Chinese merchants who fled the country, when they took over the mainland. Nobody knows how much silver is still hidden in the mattresses of Chinese peasants. The amounts must be enormous. The best estimate is that most of that silver has never been consumed and still exists in monetary form. China's primitive economy under Mao was in no position to put that silver to industrial use. All that silver is now at the disposal of the Chinese government that could easily buy up silver coins scattered around the cities and in the countryside, at the present rising price of silver.

China is the only country in the world that has consistently run trade surpluses since 1950. As far as it is known, silver never figured in China's exports (except re-exporting foreign-owned refined silver.) Why should the Chinese export silver, when they could export almost anything else? Silver to the Chinese mind is money. You don't export money unless you are forced to cover your trade deficit, of which China has none. China has always paid for its imports with exports, a smart thing to do, too.

The Chinese are alive to the fact that escaped the silver bugs in the West, that you can derive a silver income from your pile of silver by covered short selling, even while retaining physical control of your silver hoard. THIS IS AN UNPRECEDENTED BONANZA IN THE HISTORY OF MONEY. It has never before happened that you earn interest while retaining physical control of your money. Typically you have to release control of money in order to earn interest income, that is, you have to assume risk. Lending money necessarily involves risks: the borrower may default. But if you don't give up physical control, then you will escape the monetary debacle unscathed. Because of the imbecility of the managers of the paper dollar standard there exist durable risk-free profit opportunities in holding monetary metals in the balance sheet. The trick is: covered selling. That's possible because the price of monetary metals has been allowed to fluctuate. The price fluctuation of a monetary metal, like the flow-and-ebb of the oceans, represents energy. Energy that can be harnessed. Energy that can be harnessed only by those who understand monetary economics.

The Chinese are not stupid. They looked askance at the silver and gold demonetization farce perpetrated on a gullible world by Western governments. (Gold was demonetized 100 years after silver had been, in 1973.) They are not falling for the cheap trick. They hang on to their silver. They make most of the stupidity of their adversaries. Nor are they in a hurry to push the silver price to three or four digits in order to sell their silver for a quick profit in irredeemable dollars (which is what the get-rich-quick crowd plans to do). Rather, it is in their interest to derive constant and consistent income in silver from covered writing, or using other dynamic hedging strategies. Why should they trade their silver for dollars, when they have far more dollars already than they want?

From the point of view of the Chinese, a slow rise in the silver price (and a gradual rather than an abrupt depreciation of the irredeemable paper dollar) appears more desirable than an overnight jump in the silver price to three digits that would put an end to their lucrative silver income from covered writing. They certainly have the clout to dictate the pace of silver price appreciation, and probably also of paper dollar depreciation.

The Chinese are inscrutable. They don't show you their blueprint for the new international monetary system which they plan to impose on the world after the inglorious end of the paper dollar era. It may be a born-again silver standard. The Chinese are using their cash silver and the silver income derived from covered writing as a hedge for their exposure to irredeemable paper dollars to the tune of $1.3 trillion, by far the largest accumulation of dollars the world has ever seen. What they will lose on their paper portfolio they will gain on their cash silver position. They will probably gain much more. While the finance-capital of the world denominated as it is in paper dollars is programmed to self-destruct, the Chinese will control much of the liquid capital in the world after the dollar-debacle. They will be a great source of capital exports, if you can pay their price, that is.

The Chinese can earn their way in the world. They can work when work is necessary, and they can save when saving is called for. They are doing fine, thank you very much. You need not worry about the Chinese losing their kitty of $1.3 trillion invested in U.S. T-bills and T-bonds.

However, you had better start worrying about America which is no longer in control of its economic and financial destiny. It has let world monetary leadership slip out of its hands. America's industrial capital is in shambles. From the largest creditor it turned itself into the largest debtor. The light has gone out at the great American universities as far as monetary science is concerned. Through bribe, blackmail, and attrition all upright and serious monetary economists were bumped from their academic chairs. The Great Chinese Cultural Revolution was a picnic in comparison to the Great American Cultural Revolution eliminating monetary economics from the curriculum. Courses on money presently taught consist of pure Keynesian and Friedmanite bunk.

It is a farce to blame the present financial crisis on lax lending standards and rogue traders. What we see is the return of the chickens to roost. This crisis has been in the making for over a century, involving the so-called demonetization of both monetary metals. The move was inspired and led by the United States. In particular, the so-called demonetization of gold was designed to camouflage the default of the U.S. Treasury on its gold-obligations. The industrial nations of the West did not even say 'ouch' when America's default caused them losses measured in hundreds of billions on their holdings of dollars in 1971. They became accomplices eager to start milking their own savers and producers by joining the paper-money farce. The day of reckoning dawns.

America's plight is self-inflicted. Yet America could still turn the train of monetary events to its advantage, reclaiming monetary leadership, if it opened the U.S. Mint to gold and silver. It should do it before China or Russia opened theirs. Unfortunately, there does not seem to exist one grain of wisdom in Washington to see this, let alone to do this. It would take the election victory of the maverick candidate, Dr. Ron Paul, Minority of One in the House of Representatives, to pull it off. It is certainly a proof of the American genius that great crises produce great men who are capable of dealing with them. If the Chinese beat America to the finish line by opening their Mint to silver, then the silky metal would be the international currency of the future.

Next to the Chinese the Russians are the most inscrutable players, ganging up against America's monetary hegemony. Their turf is gold. Perhaps it will be the Russians who will beat America to the finish line by opening the Russian Mint to gold, even before the Chinese open theirs to silver. Either way, America would be left in the lurch, denuded of its industrial capital, its savings, but left with a pile of worthless paper, and paper-worshippers in charge of the Treasury, and in charge of teaching monetary economics at all levels.

America can then embark on the arduous path to accumulate capital from scratch, while Russian and Chinese capitalists will be producing goods in spanking new plants, aided by spanking new equipment, complemented by shiny gold and silver pieces to trade their products world wide.

It is past wake-up call. To save itself, America had better listen to the message of Ron Paul who, in a counter double whammy, would open the U.S. Mint to both gold and silver if elected President.

GOLD STANDARD UNIVERSITY LIVE

Session Three, will be held in Dallas, Texas, February 11-17, 2008. For details, go to www.professorfekete.com .

By Professor Antal E. Fekete,
Intermountain Institute for Science and Applied Mathematics

"GOLD STANDARD UNIVERSITY" - Antal E. Fekete aefekete@iisam.com

For further information please check www.professorfekete.com or inquire at GSUL@t-online.hu .

We are pleased to announce that a new website www.professorfekete.com is now available. It contains e-books, archives, news about GSUL, and material of current interest

Copyright © 2008 Professor Antal E. Fekete
Professor Antal E. Fekete was born and educated in Hungary. He immigrated to Canada in 1956. In addition to teaching in Canada, he worked in the Washington DC office of Congressman W. E. Dannemeyer for five years on monetary and fiscal reform till 1990. He taught as visiting professor of economics at the Francisco Marroquin University in Guatemala City in 1996. Since 2001 he has been consulting professor at Sapientia University, Cluj-Napoca, Romania. In 1996 Professor Fekete won the first prize in the International Currency Essay contest sponsored by Bank Lips Ltd. of Switzerland. He also runs the Gold Standard University on this website.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules