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Jeff Nielson explains another way that banks can sell bullion shorts when they own no bullion. Nielson says that JP Morgan is the custodian for the largest long silver fund while being the largest short-seller of silver. Whenever the silver fund adds to its bullion holdings, JP Morgan shorts an equal amount. The short selling offsets the rise in price that would result from the increase in demand for physical silver. Nielson also reports that bullion prices can be suppressed by raising margin requirements on those who purchase bullion with leverage. The conclusion is that bullion markets can be manipulated just as can the Treasury bond market and interest rates.

How long can the manipulations continue? When will the proverbial hit the fan?

If we knew precisely the date, we would be the next mega-billionaires.

Here are some of the catalysts waiting to ignite the conflagration that burns up the Treasury bond market and the US dollar:

A war demanded by the Israeli government with Iran -- beginning with Syria -- that disrupts the oil flow and thereby the stability of the Western economies or brings the US and its weak NATO puppets into armed conflict with Russia and China. The oil spikes would degrade further the US and EU economies, but Wall Street would make money on the trades.

An unfavorable economic statistic that wakes up investors as to the true state of the US economy, a statistic that the presstitute media cannot deflect.

An affront to China, whose government decides that knocking the US down a few pegs into third world status is worth a trillion dollars.

More derivate mistakes, such as JPMorgan Chase's recent one, that send the US financial system again reeling and reminds us that nothing has changed.

The list is long. There is a limit to how many stupid mistakes and corrupt financial policies the rest of the world is willing to accept from the US. When that limit is reached, it is all over for "the world's sole superpower" and for holders of dollar-denominated instruments.

Financial deregulation converted the financial system, which formerly served businesses and consumers, into a gambling casino where bets are not covered. These uncovered bets, together with the Fed's zero interest rate policy, have exposed Americans' living standard and wealth to large declines. Retired people living on their savings and investments, IRAs and 401(k)s can earn nothing on their money and are forced to consume their capital, thereby depriving heirs of inheritance. Accumulated wealth is consumed.

As a result of jobs offshoring, the US has become an import-dependent country, dependent on foreign made manufactured goods, clothing, and shoes. When the dollar exchange rate falls, domestic US prices will rise, and US real consumption will take a big hit. Americans will consume less, and their standard of living will fall dramatically.

The serious consequences of the enormous mistakes made in Washington, on Wall Street, and in corporate offices are being held at bay by an untenable policy of low interest rates and a corrupt financial press, while debt rapidly builds. The Fed has been through this experience once before. During WW II the Federal Reserve kept interest rates low in order to aid the Treasury's war finance by minimizing the interest burden of the war debt. The Fed kept the interest rates low by buying the debt issues. The post-war inflation that resulted led to the Federal Reserve-Treasury Accord in 1951, in which agreement was reached that the Federal Reserve would cease monetizing the debt and permit interest rates to rise.

Fed chairman Bernanke has spoken of an "exit strategy" and said that when inflation threatens, he can prevent the inflation by taking the money back out of the banking system. However, he can do that only by selling Treasury bonds, which means interest rates would rise. A rise in interest rates would threaten the derivative structure, cause bond losses, and raise the cost of both private and public debt service. In other words, to prevent inflation from debt monetization would bring on more immediate problems than inflation. Rather than collapse the system, wouldn't the Fed be more likely to inflate away the massive debts?

Eventually, inflation would erode the dollar's purchasing power and use as the reserve currency, and the US government's credit worthiness would waste away. However, the Fed, the politicians, and the financial gangsters would prefer a crisis later rather than sooner. Passing the sinking ship on to the next watch is preferable to going down with the ship oneself. As long as interest-rate swaps can be used to boost Treasury bond prices, and as long as naked shorts of bullion can be used to keep silver and gold from rising in price, the false image of the US as a safe haven for investors can be perpetuated.

However, the $230,000,000,000,000 in derivative bets by US banks might bring its own surprises. JPMorgan Chase has had to admit that its recently announced derivative loss of $2 billion is more than that. How much more remains to be seen. According to the Comptroller of the Currency, the five largest banks hold 95.7% of all derivatives. The five banks holding $226 trillion in derivative bets are highly leveraged gamblers. For example, JPMorgan Chase has total assets of $1.8 trillion but holds $70 trillion in derivative bets, a ratio of $39 in derivative bets for every dollar of assets. Such a bank doesn't have to lose very many bets before it is busted.

Assets, of course, are not risk-based capital. According to the Comptroller of the Currency report, as of December 31, 2011, JPMorgan Chase held $70.2 trillion in derivatives and only $136 billion in risk-based capital. In other words, the bank's derivative bets are 516 times larger than the capital that covers the bets.

It is difficult to imagine a more reckless and unstable position for a bank to place itself in, but Goldman Sachs takes the cake. That bank's $44 trillion in derivative bets is covered by only $19 billion in risk-based capital, resulting in bets 2,295 times larger than the capital that covers them.

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http://www.paulcraigroberts.org/

Dr. Roberts was Assistant Secretary of the US Treasury for Economic Policy in the Reagan Administration. He was associate editor and columnist with the Wall Street Journal, columnist for Business Week and the Scripps Howard News Service. He is a contributing editor to Gerald Celente's Trends Journal. He has had numerous university appointments. His book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is available here. His latest book,  How America Was Lost, has just been released and can be ordered here.

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China has been trying to dump the worthless dollar... by Ginger McClemons on Tuesday, Jun 5, 2012 at 12:00:03 PM
Correction:  Sheared then eaten.   ... by Tom Madison on Tuesday, Jun 5, 2012 at 3:34:07 PM
Ginger, I don't blame you for thinking that a dras... by E. J. N. on Wednesday, Jun 6, 2012 at 6:27:49 PM
The ruling elite of this DGE (Disguised Global Emp... by Alan MacDonald on Wednesday, Jun 6, 2012 at 7:46:24 PM
"The US government should simply cancel the $230 t... by Jack Heart on Tuesday, Jun 5, 2012 at 1:21:17 PM
Allrighty now!! Thank someone today for making thi... by Lester Shepherd on Tuesday, Jun 5, 2012 at 1:28:58 PM
Just cancelling the $230T in derivatives won't do ... by Ernie Messerschmidt on Tuesday, Jun 5, 2012 at 2:39:10 PM
I have always been against the death penalty. ... by Tom Madison on Tuesday, Jun 5, 2012 at 3:43:28 PM
find crueler and more unusual punishments than tha... by zon moy on Wednesday, Jun 6, 2012 at 10:20:29 AM
I just shudder when I hear people call for "Breaki... by Paul Repstock on Thursday, Jun 7, 2012 at 1:31:47 AM
a good time to watch it: click here... by Daniel Geery on Tuesday, Jun 5, 2012 at 5:20:48 PM
"Goldman Sachs takes the cake. That bank's $44 tri... by Theresa Paulfranz on Tuesday, Jun 5, 2012 at 7:01:10 PM
Theresa, you might want to read Karl Polanyi's "Th... by Alan MacDonald on Wednesday, Jun 6, 2012 at 7:58:02 PM
  I love books that give me quotes I can... by Theresa Paulfranz on Wednesday, Jun 6, 2012 at 11:07:21 PM
"Back in 1801, President Thomas Jefferson warned a... by E. J. N. on Tuesday, Jun 5, 2012 at 8:31:33 PM
http://en.wikipedia.org/wiki/John_F._Kennedy... by Mike Preston on Thursday, Jun 7, 2012 at 8:08:26 PM
Keiser Report: Paper Money Collapse (E297) ht... by Mike Preston on Wednesday, Jun 6, 2012 at 12:11:40 AM
who are betting on a finacial meltdown also have t... by Paul Repstock on Wednesday, Jun 6, 2012 at 3:42:22 AM
PCR hits it on the head, again. This is one of the... by Scott Baker on Wednesday, Jun 6, 2012 at 3:58:16 AM
Generally, I like your ideas and thoughts. You adm... by BFalcon on Wednesday, Jun 6, 2012 at 9:06:50 PM
This was put together by the Economic Policy Insti... by E. J. N. on Wednesday, Jun 6, 2012 at 6:12:29 PM
Paul correctly states, "High-frequency trades now ... by Alan MacDonald on Wednesday, Jun 6, 2012 at 7:35:11 PM
But, have we not done this to ourselves? A view f... by Paul Repstock on Wednesday, Jun 6, 2012 at 9:17:27 PM
Though I admit to my culpability, I do not exonner... by Paul Repstock on Wednesday, Jun 6, 2012 at 9:40:24 PM
A bright side to all this?  Not really, but t... by Jim Miles on Wednesday, Jun 6, 2012 at 7:46:44 PM
An Alternative to Capitalism (if the people kne... by John Steinsvold on Thursday, Jun 7, 2012 at 8:00:56 PM
First and formost you need to convince human being... by Paul Repstock on Thursday, Jun 7, 2012 at 10:11:58 PM