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Financial Weapons Of Mass Destruction: The Top 25 U.S. Banks Have 222 Trillion Dollars Of Exposure To Derivatives

The recklessness of the “too big to fail” banks almost doomed them the last time around, but apparently they still haven’t learned from their past mistakes.  Today, the top 25 U.S. banks have 222 trillion dollars of exposure to derivatives.  In other words, the exposure that these banks have to derivatives contracts is approximately equivalent to the gross domestic product of the United States times twelve.  As long as stock prices continue to rise and the U.S. economy stays fairly stable, these extremely risky financial weapons of mass destruction will probably not take down our entire financial system.  But someday another major crisis will inevitably happen, and when that day arrives the devastation that these financial instruments will cause will be absolutely unprecedented.

During the great financial crisis of 2008, derivatives played a starring role, and U.S. taxpayers were forced to step in and bail out companies such as AIG that were on the verge of collapse because the risks that they took were just too great.

But now it is happening again, and nobody is really talking very much about it.  In a desperate search for higher profits, all of the “too big to fail” banks are gambling like crazy, and at some point a lot of these bets are going to go really bad.  The following numbers regarding exposure to derivatives contracts come directly from the OCC’s most recent quarterly report (see Table 2), and as you can see the level of recklessness that we are currently witnessing is more than just a little bit alarming…


Total Assets: $1,792,077,000,000 (slightly less than 1.8 trillion dollars)

Total Exposure To Derivatives: $47,092,584,000,000 (more than 47 trillion dollars)

JPMorgan Chase

Total Assets: $2,490,972,000,000 (just under 2.5 trillion dollars)

Total Exposure To Derivatives: $46,992,293,000,000 (nearly 47 trillion dollars)

Goldman Sachs

Total Assets: $860,185,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $41,227,878,000,000 (more than 41 trillion dollars)

Bank Of America

Total Assets: $2,189,266,000,000 (a little bit more than 2.1 trillion dollars)

Total Exposure To Derivatives: $33,132,582,000,000 (more than 33 trillion dollars)

Morgan Stanley

Total Assets: $814,949,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $28,569,553,000,000 (more than 28 trillion dollars)

Wells Fargo

Total Assets: $1,930,115,000,000 (more than 1.9 trillion dollars)

Total Exposure To Derivatives: $7,098,952,000,000 (more than 7 trillion dollars)

Collectively, the top 25 banks have a total of 222 trillion dollars of exposure to derivatives.

If you are new to all of this, you might be wondering what a “derivative” actually is.

When you buy a stock you are purchasing an ownership interest in a company, and when you buy a bond you are purchasing the debt of a company.  But when you buy a derivative, you are not actually getting anything tangible.  Instead, you are simply making a side bet about whether something will or will not happen in the future.  These side bets can be extraordinarily complex, but at their core they are basically just wagers.  The following is a pretty good definition of derivatives that comes from Investopedia

A derivative is a security with a price that is dependent upon or derived from one or more underlying assets. The derivative itself is a contract between two or more parties based upon the asset or assets. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.

Those that trade derivatives are essentially engaged in a form of legalized gambling, and some of the brightest names in the financial world have been warning about the potentially destructive nature of these financial instruments for a very long time.

In a letter that he wrote to shareholders of Berkshire Hathaway in 2003, Warren Buffett actually referred to derivatives as “financial weapons of mass destruction”…

The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

Warren Buffett was right on the money when he made that statement, and of course the derivatives bubble is far larger today than it was back then.

In fact, the total notional value of derivatives contracts globally is in excess of 500 trillion dollars.

This is a disaster that is just waiting to happen, and investors such as Buffett are quietly positioning themselves to take advantage of the giant crash that is inevitably coming.

According to financial expert Jim Rickards, Buffett’s Berkshire Hathaway Inc. is hoarding 86 billion dollars in cash because he is likely anticipating a major stock market downturn…

Far from a bullish sign, Buffett’s cash hoard could mean he’s preparing for a market crash. When the crash comes, Buffett can walk through the wreckage with his checkbook open and buy great companies for a fraction of their current value.

That’s the real Buffett style, but you won’t hear that from your broker or wealth manager. If Buffett has a huge cash allocation, shouldn’t you?

He knows what’s coming. Now you do too.

Warren Buffett didn’t become one of the wealthiest men in the entire world by being stupid.  He knows that stocks are ridiculously overvalued at this point, and he is poised to make his move after the pendulum swings in the other direction.

And he might not have too long to wait.  In recent weeks I have been writing about many of the signs that the U.S. economy is slowing down substantially, and today we received even more bad news

Despite high levels of economic confidence expressed by business owners and consumers, one key indicator shows that it has not translated into much action yet.

Loan issuance declined in the first quarter from the previous three-month period, the first time that has happened in four years, according to an SNL Financial analysis of bank earnings reports filed for the period. The total of recorded loans and leases fell to $9.297 trillion from $9.305 trillion in the fourth quarter of 2016.

This is precisely what we would expect to see if a new economic downturn was beginning.  Our economy is very highly dependent on the flow of credit, and when that flow begins to diminish that is a very bad sign.

For the moment, financial markets continue to remain completely disconnected from the hard economic data, but as we saw in 2008 the markets can plunge very rapidly once they start catching up with the real economy.

Warren Buffett is clearly getting prepared for the crisis that is ahead.

Are you?

Helicopter Money: Global Central Banks Consider Distributing Money Directly To The People

Helicopters 2 - Public DomainShould central banks create money out of thin air and give it directly to governments and average citizens?  If you can believe it, this is now under serious consideration.  Since 2008, global central banks have cut interest rates 637 times, they have injected 12.3 trillion dollars into the global financial system through various quantitative easing programs, and we have seen an explosion of government debt unlike anything we have ever witnessed before.  But despite these unprecedented measures, the global economy is still deeply struggling.  This is particularly true in Japan, in South America, and in Europe.  In fact, there are 16 countries in Europe that are experiencing deflation right now.  In a desperate attempt to spur economic activity, central banks in Europe and in Japan are playing around with negative interest rates, and so far they seem to only have had a limited effect.

So as they rapidly run out of ammunition, global central bankers are now openly discussing something that might sound kind of crazy.  According to the Telegraph, central banks are becoming increasingly open to employing a tactic known as “helicopter money”…

Faced with political intransigence, central bankers are openly talking about the previously unthinkable: “helicopter money”.

A catch-all term, helicopter drops describe the process by which central banks can create money to transfer to the public or private sector to stimulate economic activity and spending.

Long considered one of the last policymaking taboos, debate around the merits of helicopter money has gained traction in recent weeks.

Do you understand what is being said there?

The idea is basically this – central banks would create money out of thin air and would just give it to national governments or ordinary citizens.

So who would decide who gets the money?

Well, they would.

If you are anything like me, this sounds very much like Pandora’s Box being opened.

But this just shows how much of a panic there is among central bankers right now.  They know that we are plunging into a new global economic crisis, and they are desperate to find something that will stop it.  And if that means printing giant gobs of money and dropping it from helicopters over the countryside, well then that is precisely what they are going to do.

In fact, the chief economist at the European Central Bank is quite adamant about the fact that the ECB can print money out of thin air and “distribute it to people” when the situation calls for it…

ECB chief Mario Draghi has refused to rule out the prospect, saying only that the bank had not yet “discussed” such matters due to their legal and accounting complexity. This week, his chief economist Peter Praet went further in hinting that helicopter drops were part of the ECB’s toolbox.

All central banks can do it“, said Praet. “You can issue currency and you distribute it to people. The question is, if and when is it opportune to make recourse to that sort of instrument“.

Apparently memories of the Weimar Republic must have faded over in Europe, because this sounds very much like what they tried to do.  I don’t know why anyone would ever want to risk going down that road again.

Here in the United States, the Federal Reserve is not openly talking about “helicopter money” just yet, but that is only because the stock market is doing okay for the moment.

Most Americans don’t realize this, but the primary reason why stocks are doing better in the U.S. than in the rest of the world is because of stock buybacks.  According to Wolf Richter, corporations spent more than half a trillion dollars buying back their own stocks over the past 12 months…

During the November-January period, 378 of the S&P 500 companies bought back their own shares, according to FactSet. Total buybacks in the quarter rose 5.2% from a year ago, to $136.6 billion. Over the trailing 12 months (TTM), buybacks totaled $568.9 billion.

When corporations buy back their own stocks, that means that they are slowly liquidating themselves.  Instead of pouring money into new good ideas, they are just returning money to investors.  This is not how a healthy economy should work.

But corporate executives love stock buybacks, because it increases the value of their stock options.  And big investors love them too, because they love to see the value of their stock holdings rise.

So we will continue to see big corporations cannibalize themselves, but there are a couple of reasons why this is starting to slow down.

Number one, corporate profits are starting to fall steadily as the economy slows down, so there will be less income to plow into these stock buybacks.

Number two, many corporations have used debt to fund buybacks, but now it is getting tougher for corporations to get new funding as corporate defaults rise.

As stock buybacks slow, this is going to put downward pressure on the market, and we will eventually catch up with the rest of the planet.  At this point, many experts are still calling for stocks to fall by another 40, 50 or 60 percent from current levels.  For example, the following comes from John Hussman

From a long-term investment standpoint, the stock market remains obscenely overvalued, with the most historically-reliable measures we identify presently consistent with zero 10-12 year S&P 500 nominal total returns, and negative expected real returns on both horizons.

From a cyclical standpoint, I continue to expect that the completion of the current market cycle will likely take the S&P 500 down by about 40-55% from present levels; an outcome that would not be an outlier or worst-case scenario, but instead a rather run-of-the-mill cycle completion from present valuations. If you are a historically-informed investor who is optimistic enough to reject the idea that the financial markets are forever doomed to extreme valuations and dismal long-term returns, you should be rooting for this cycle to be completed. If you are a passive investor, you should at least align your current exposure with your investment horizon and your tolerance for cyclical risk, which we expect to be similar to what we anticipated in 2000-2002 and 2007-2009.

When the S&P 500 does fall that much eventually, the Federal Reserve will respond with emergency measures.

So yes, we may see “helicopter money” employed in Japan and in Europe first, but we will see it here someday too.

I know that a lot of people out there are feeling pretty good about things for the moment because U.S. stocks have rebounded quite a bit lately.  But remember, the fundamental economic numbers just continue to get even worse.  Just today we learned that existing home sales in the United States had fallen by the most in six years.  That is definitely not a sign that things are “getting better”, and I keep trying to warn people that tumultuous times are dead ahead.

And if global central bankers did not agree with me, they would not be talking about the need for “helicopter money” and other emergency measures.

Financial Armageddon Approaches: U.S. Banks Have 247 Trillion Dollars Of Exposure To Derivatives

Nuclear War - Public DomainDid you know that there are 5 “too big to fail” banks in the United States that each have exposure to derivatives contracts that is in excess of 30 trillion dollars?  Overall, the biggest U.S. banks collectively have more than 247 trillion dollars of exposure to derivatives contracts.  That is an amount of money that is more than 13 times the size of the U.S. national debt, and it is a ticking time bomb that could set off financial Armageddon at any moment.  Globally, the notional value of all outstanding derivatives contracts is a staggering 552.9 trillion dollars according to the Bank for International Settlements.  The bankers assure us that these financial instruments are far less risky than they sound, and that they have spread the risk around enough so that there is no way they could bring the entire system down.  But that is the thing about risk – you can try to spread it around as many ways as you can, but you can never eliminate it.  And when this derivatives bubble finally implodes, there won’t be enough money on the entire planet to fix it.

A lot of readers may be tempted to quit reading right now, because “derivatives” is a term that sounds quite complicated.  And yes, the details of these arrangements can be immensely complicated, but the concept is quite simple.  Here is a good definition of “derivatives” that comes from Investopedia

A derivative is a security with a price that is dependent upon or derived from one or more underlying assets. The derivative itself is a contract between two or more parties based upon the asset or assets. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.

I like to refer to the derivatives marketplace as a form of “legalized gambling”.  Those that are engaged in derivatives trading are simply betting that something either will or will not happen in the future.  Derivatives played a critical role in the financial crisis of 2008, and I am fully convinced that they will take on a starring role in this new financial crisis.

And I am certainly not the only one that is concerned about the potentially destructive nature of these financial instruments.  In a letter that he once wrote to shareholders of Berkshire Hathaway, Warren Buffett referred to derivatives as “financial weapons of mass destruction”…

The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

Since the last financial crisis, the big banks in this country have become even more reckless.  And that is a huge problem, because our economy is even more dependent on them than we were the last time around.  At this point, the four largest banks in the U.S. are approximately 40 percent larger than they were back in 2008.  The five largest banks account for approximately 42 percent of all loans in this country, and the six largest banks account for approximately 67 percent of all assets in our financial system.

So the problem of “too big to fail” is now bigger than ever.

If those banks go under, we are all in for a world of hurt.

Yesterday, I wrote about how the Federal Reserve has implemented new rules that would limit the ability of the Fed to loan money to these big banks during the next crisis.  So if the survival of these big banks is threatened by a derivatives crisis, the money to bail them out would probably have to come from somewhere else.

In such a scenario, could we see European-style “bail-ins” in this country?

Ellen Brown, one of the most fierce critics of our current financial system and the author of Web of Debt, seems to think so…

Dodd-Frank states in its preamble that it will “protect the American taxpayer by ending bailouts.” But it does this under Title II by imposing the losses of insolvent financial companies on their common and preferred stockholders, debtholders, and other unsecured creditors. That includes depositors, the largest class of unsecured creditor of any bank.

Title II is aimed at “ensuring that payout to claimants is at least as much as the claimants would have received under bankruptcy liquidation.” But here’s the catch: under both the Dodd Frank Act and the 2005 Bankruptcy Act, derivative claims have super-priority over all other claimssecured and unsecured, insured and uninsured.

The over-the-counter (OTC) derivative market (the largest market for derivatives) is made up of banks and other highly sophisticated players such as hedge funds. OTC derivatives are the bets of these financial players against each other. Derivative claims are considered “secured” because collateral is posted by the parties.

For some inexplicable reason, the hard-earned money you deposit in the bank is not considered “security” or “collateral.” It is just a loan to the bank, and you must stand in line along with the other creditors in hopes of getting it back.

As I mentioned yesterday, the FDIC guarantees the safety of deposits in member banks up to a certain amount.  But as Brown has pointed out, the FDIC only has somewhere around 70 billion dollars sitting around to cover bank failures.

If hundreds of billions or even trillions of dollars are ultimately needed to bail out the banking system, where is that money going to come from?

It would be difficult to overstate the threat that derivatives pose to our “too big to fail” banks.  The following numbers come directly from the OCC’s most recent quarterly report (see Table 2), and they reveal a recklessness that is on a level that is difficult to put into words…


Total Assets: $1,808,356,000,000 (more than 1.8 trillion dollars)

Total Exposure To Derivatives: $53,042,993,000,000 (more than 53 trillion dollars)

JPMorgan Chase

Total Assets: $2,417,121,000,000 (about 2.4 trillion dollars)

Total Exposure To Derivatives: $51,352,846,000,000 (more than 51 trillion dollars)

Goldman Sachs

Total Assets: $880,607,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $51,148,095,000,000 (more than 51 trillion dollars)

Bank Of America

Total Assets: $2,154,342,000,000 (a little bit more than 2.1 trillion dollars)

Total Exposure To Derivatives: $45,243,755,000,000 (more than 45 trillion dollars)

Morgan Stanley

Total Assets: $834,113,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $31,054,323,000,000 (more than 31 trillion dollars)

Wells Fargo

Total Assets: $1,751,265,000,000 (more than 1.7 trillion dollars)

Total Exposure To Derivatives: $6,074,262,000,000 (more than 6 trillion dollars)

As the “real economy” crumbles, major hedge funds continue to drop like flies, and we head into a new recession, there seems to very little alarm among the general population about what is happening.

The mainstream media is assuring us that everything is under control, and they are running front page headlines such as this one during the holiday season: “Kylie Jenner shows off her red-hot, new tattoo“.

But underneath the surface, trouble is brewing.

A new financial crisis has already begun, and it is going to intensify as we head into 2016.

And as this new crisis unfolds, one word that you are going to want to listen for is “derivatives”, because they are going to play a major role in the “financial Armageddon” that is rapidly approaching.

Guess How Many Nations In The World Do Not Have A Central Bank?

OctopusCentral banking has truly taken over the entire planet.  At this point, the only major nation on the globe that does not have a central bank is North Korea.  Yes, there are some small island countries such as the Federated States of Micronesia that do not have a central bank, but even if you count them, more than 99.9% of the population of the world still lives in a country that has a central bank.  So how has this happened?  How have we gotten the entire planet to agree that central banking is the best system?  Did the people of the world willingly choose this?  Of course not.  To my knowledge, there has never been a single vote where the people of a nation have willingly chosen to establish a central bank.  Instead, what has happened is that central banks have been imposed on all of us.  All over the world, people have been told that monetary issues are “too important” to be subject to politics, and that the only solution is to have a group of unelected, unaccountable bankers control those things for us.

So precisely what does a central bank do?

You would be surprised at how few people can actually answer that question accurately.  The following is how Wikipedia describes what a central bank does…

A central bank, reserve bank, or monetary authority is an institution that manages a state’s currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base in the state, and usually also prints the national currency, which usually serves as the state’s legal tender. Examples include the European Central Bank (ECB), the Bank of England, the Federal Reserve of the United States and the People’s Bank of China.

In the United States, we are told that we have a free market system.  But in a true free market system, market forces would determine what interest rates are.  We wouldn’t need anyone to “set interest rates” for us.

And why have we given a private banking cartel (the Federal Reserve) the authority to create and manage our money supply?  The U.S. Constitution specifically delegates that authority to Congress.

It is not as if we actually need the Federal Reserve.  In fact, the greatest period of economic growth in U.S. history happened during the decades before the Federal Reserve was created.

Unfortunately, a little over 100 years ago our leaders decided that it would be best to turn over our financial future to a newly created private banking cartel that was designed by very powerful Wall Street interests.  Since that time, the value of our currency has diminished by more than 96 percent and our national debt has gotten more than 5000 times larger.

But despite all of the problems, the vast majority of Democrats and the vast majority of Republicans are not even willing to consider slightly curtailing the immense power of the Federal Reserve.  And the idea of getting rid of the Fed altogether is tantamount to blasphemy to most of our politicians.

Of course the same thing is true all over the planet.  Central banks are truly “the untouchables” of the modern world.  Even though everybody can see what they are doing, there has not been a single successful political movement anywhere on the globe (that I know about) to shut a central bank down.

Instead, in recent years we have just seen the reach of central banking just continue to expand.

For example, just look at what has happened to some of the countries that were not considered to be “integrated” into the “global community”…

-In 2001, the United States invaded Afghanistan.  In 2003, Da Afghanistan Bank (who picked that name?) was established by presidential decree.  You can find the official website of the bank right here.  Now Afghanistan has a modern central bank just like the rest of us.

-In 2003, the United States invaded Iraq.  In early 2004, the Central Bank of Iraq was established to manage the Iraqi currency and integrate Iraq into the global financial system.  The following comes from the official website of the Central Bank of Iraq

Following the deposition of Saddam Hussein in the 2003 invasion of Iraq, the Iraqi Governing Council and the Office for Reconstruction and Humanitarian Assistance began printing more Saddam dinar notes as a stopgap measure to maintain the money supply until new currency could be introduced.

The Banking Law was issued September 19, 2003. The law brings Iraq’s legal framework for banking in line with international standards, and seeks to promote confidence in the banking system by establishing a safe, sound, competitive and accessible banking system.

Between October 15, 2003 and January 15, 2004, the Coalition Provisional Authority issued new Iraqi dinar coins and notes, with the notes printed using modern anti-forgery techniques, to “create a single unified currency that is used throughout all of Iraq and will also make money more convenient to use in people’s everyday lives. Old banknotes were exchanged for new at a one-to-one rate, except for the Swiss dinars, which were exchanged at a rate of 150 new dinars for one Swiss dinar.

The Central Bank of Iraq (Arabic: البنك المركزي العراقي) was established as Iraq’s independent central bank by the Central Bank of Iraq Law of March 6, 2004

-In 2011, the United States bombed the living daylights out of Libya.  Before Muammar Gaddafi was even overthrown, the U.S. helped the rebels establish a new Central Bank of Libya and form a new national oil company.

Central banks are specifically designed to trap nations in debt spirals from which they can never possibly escape.  Today, the debt to GDP ratio for the entire planet is up to an all-time high record of 286 percent.  Humanity is being enslaved by a perpetual debt machine, but most people are not even aware that it is happening.

It is time for an awakening.  We need to educate as many people as possible about why we need to get rid of the central banks.  For those living in the United States, my previous article entitled “On The 100th Anniversary Of The Federal Reserve Here Are 100 Reasons To Shut It Down Forever” is a good place to start.  In other countries, we need people to write similar articles about their own central banks in their own languages.

The global elite dominate us because we allow them to dominate us.  Their debt-based system greatly enriches them while it enslaves the remainder of the planet.  We need to expose their evil system and the dark agenda behind it while we still have time.

If You Listen Carefully, The Bankers Are Actually Telling Us What Is Going To Happen Next

World From Space - Public DomainAre we on the verge of a major worldwide economic downturn?  Well, if recent warnings from prominent bankers all over the world are to be believed, that may be precisely what we are facing in the months ahead.  As you will read about below, the big banks are warning that the price of oil could soon drop as low as 20 dollars a barrel, that a Greek exit from the eurozone could push the EUR/USD down to 0.90, and that the global economy could shrink by more than 2 trillion dollars in 2015.  Most of the time, very few people ever actually read the things that the big banks write for their clients.  But in recent months, a lot of these bankers are issuing such ominous warnings that you would think that they have started to write for The Economic Collapse Blog.  Of course we have seen this happen before.  Just before the financial crisis of 2008, a lot of people at the big banks started to get spooked, and now we are beginning to see an atmosphere of fear spread on Wall Street once again.  Nobody is quite sure what is going to happen next, but an increasing number of experts are starting to agree that it won’t be good.

Let’s start with oil.  Over the past couple of weeks, we have seen a nice rally for the price of oil.  It has bounced back into the low 50s, which is still a catastrophically low level, but it has many hoping for a rebound to a range that will be healthy for the global economy.

Unfortunately, many of the experts at the big banks are now anticipating that the exact opposite will happen instead.  For example, Citibank says that we could see the price of oil go as low as 20 dollars this year…

The recent rally in crude prices looks more like a head-fake than a sustainable turning point — The drop in US rig count, continuing cuts in upstream capex, the reading of technical charts, and investor short position-covering sustained the end-January 8.1% jump in Brent and 5.8% jump in WTI into the first week of February.

Short-term market factors are more bearish, pointing to more price pressure for the next couple of months and beyond — Not only is the market oversupplied, but the consequent inventory build looks likely to continue toward storage tank tops. As on-land storage fills and covers the carry of the monthly spreads at ~$0.75/bbl, the forward curve has to steepen to accommodate a monthly carry closer to $1.20, putting downward pressure on prompt prices. As floating storage reaches its limits, there should be downward price pressure to shut in production.

The oil market should bottom sometime between the end of Q1 and beginning of Q2 at a significantly lower price level in the $40 range — after which markets should start to balance, first with an end to inventory builds and later on with a period of sustained inventory draws. It’s impossible to call a bottom point, which could, as a result of oversupply and the economics of storage, fall well below $40 a barrel for WTI, perhaps as low as the $20 range for a while.

Even though rigs are shutting down at a pace that we have not seen since the last recession, overall global supply still significantly exceeds overall global demand.  Barclays analyst Michael Cohen recently told CNBC that at this point the total amount of excess supply is still in the neighborhood of a million barrels per day…

“What we saw in the last couple weeks is rig count falling pretty precipitously by about 80 or 90 rigs per week, but we think there are more important things to be focused on and that rig count doesn’t tell the whole story.”

He expects to see some weakness going into the shoulder season for demand. In addition, there is an excess supply of about a million barrels of oil a day, he said.

And the truth is that many firms simply cannot afford to shut down their rigs.  Many are leveraged to the hilt and are really struggling just to service their debt payments.  They have to keep pumping so that they can have revenue to meet their financial obligations.  The following comes directly from the Bank for International Settlements

“Against this background of high debt, a fall in the price of oil weakens the balance sheets of producers and tightens credit conditions, potentially exacerbating the price drop as a result of sales of oil assets, for example, more production is sold forward,” BIS said.

“Second, in flow terms, a lower price of oil reduces cash flows and increases the risk of liquidity shortfalls in which firms are unable to meet interest payments. Debt service requirements may induce continued physical production of oil to maintain cash flows, delaying the reduction in supply in the market.”

In the end, a lot of these energy companies are going to go belly up if the price of oil does not rise significantly this year.  And any financial institutions that are exposed to the debt of these companies or to energy derivatives will likely be in a great deal of distress as well.

Meanwhile, the overall global economy continues to slow down.

On Monday, we learned that the Baltic Dry Index has dropped to the lowest level ever.  Not even during the darkest depths of the last recession did it drop this low.

And there are some at the big banks that are warning that this might just be the beginning.  For instance, David Kostin of Goldman Sachs is projecting that sales growth for S&P 500 companies will be zero percent for all of 2015…

“Consensus now forecasts 0% S&P 500 sales growth in 2015 following a 5% cut in revenue forecasts since October. Low oil prices along with FX headwinds and pension charges have weighed on 4Q EPS results and expectations for 2015.”

Others are even more pessimistic than that.  According to Bank of America, the global economy will actually shrink by 2.3 trillion dollars in 2015.

One thing that could greatly accelerate our economic problems is the crisis in Greece.  If there is no compromise and a new Greek debt deal is not reached, there is a very real possibility that Greece could leave the eurozone.

If Greece does leave the eurozone, the continued existence of the monetary union will be thrown into doubt and the euro will utterly collapse.

Of course I am not the only one saying these things.  Analysts at Morgan Stanley are even projecting that the EUR/USD could plummet to 0.90 if there is a “Grexit”…

The Greek Prime Minister has reaffirmed his government’s rejection of the country’s international bailout programme two days before an emergency meeting with the euro area’s finance ministers on Wednesday. His declaration suggested increasing minimum wages, restoring the income tax-free threshold and halting infrastructure privatisations. Should Greece stay firm on its current anti-bailout course and with the ECB not accepting Greek T-bills as collateral, the position of ex-Fed Chairman Greenspan will gain increasing credibility. He forecast the eurozone to break as private investors will withdraw from providing short-term funding to Greece. Greece leaving the currency union would convert the union into a club of fixed exchange rates, a type of ERM III, leading to further fragmentation. Greek Fin Min Varoufakis said the euro will collapse if Greece exits, calling Italian debt unsustainable. Markets may gain the impression that Greece may not opt for a compromise, instead opting for an all or nothing approach when negotiating on Wednesday. It seems the risk premium of Greece leaving EMU is rising. Our scenario analysis suggests a Greek exit taking EURUSD down to 0.90.

If that happens, we could see a massive implosion of the 26 trillion dollars in derivatives that are directly tied to the value of the euro.

We are moving into a time of great peril for global financial markets, and there are a whole host of signs that we are slowly heading into another major global economic crisis.

So don’t be fooled by all of the happy talk in the mainstream media.  They did not see the last crisis coming either.


New Law Would Make Taxpayers Potentially Liable For TRILLIONS In Derivatives Losses

Derivatives - Banksters - Public DomainIf the quadrillion dollar derivatives bubble implodes, who should be stuck with the bill?  Well, if the “too big to fail” banks have their way it will be you and I.  Right now, lobbyists for the big Wall Street banks are pushing really hard to include an extremely insidious provision in a bill that would keep the federal government funded past the upcoming December 11th deadline.  This provision would allow these big banks to trade derivatives through subsidiaries that are federally insured by the FDIC.  What this would mean is that the big banks would be able to continue their incredibly reckless derivatives trading without having to worry about the downside.  If they win on their bets, the big banks would keep all of the profits.  If they lose on their bets, the federal government would come in and bail them out using taxpayer money.  In other words, it would essentially be a “heads I win, tails you lose” proposition.

Just imagine the following scenario.  I go to Las Vegas and I place a million dollar bet on who will win the Super Bowl this year.  If I am correct, I keep all of the winnings.  If I lose, federal law requires you to bail me out and give me the million dollars that I just lost.

Does that sound fair?

Of course not!  In fact, it is utter insanity.  But through their influence in Congress, this is exactly what the big Wall Street banks are attempting to pull off.  And according to the Huffington Post, there is a very good chance that this provision will be in the final bill that will soon be voted on…

According to multiple Democratic sources, banks are pushing hard to include the controversial provision in funding legislation that would keep the government operating after Dec. 11. Top negotiators in the House are taking the derivatives provision seriously, and may include it in the final bill, the sources said.

Sadly, most Americans don’t understand how derivatives work and so there is very little public outrage.

But the truth is that people should be marching in the streets over this.  If this provision becomes law, the American people could potentially be on the hook for absolutely massive losses

The bank perks are not a traditional budget item. They would allow financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp. — potentially putting taxpayers on the hook for losses caused by the risky contracts.

This is not the first time these banks have tried to pull off such a coup.  As Michael Krieger of Liberty Blitzkrieg has detailed, bank lobbyists tried to do a similar thing last year…

Five years after the Wall Street coup of 2008, it appears the U.S. House of Representatives is as bought and paid for as ever. We heard about the Citigroup crafted legislation currently being pushed through Congress back in May when Mother Jones reported on it. Fortunately, they included the following image in their article:

Derivatives Bill From Liberty Blitzkrieg

Unsurprisingly, the main backer of the bill is notorious Wall Street lackey Jim Himes (D-Conn.), a former Goldman Sachs employee who has discovered lobbyist payoffs can be just as lucrative as a career in financial services. The last time Mr. Himes made an appearance on these pages was in March 2013 in my piece: Congress Moves to DEREGULATE Wall Street.

Fortunately, it was stopped in the Senate at that time.

But that is the thing with bank lobbyists.  They are like Terminators – they never, ever, ever give up.

And they now have more of a sense of urgency then ever, because we are moving into a period of time when the big banks may begin losing tremendous amounts of money on derivatives contracts.

For example, the rapidly plunging price of oil could potentially mean gigantic losses for the big banks.  Many large shale oil producers locked in their profits for 2015 and 2016 through derivatives contracts when the price of oil was above $100 a barrel.  As I write this, the price of oil is down to $65 a barrel, and many analysts expect it to go much lower.

So guess who is on the other end of many of those trades?

The big banks.

Their computer models never anticipated that the price of oil would fall by more than 40 dollars in less than six months.  A loss of 40, 50 or even 60 dollars per barrel would be catastrophic.

No wonder they want legislation that will protect them.

And commodity derivatives are just part of the story.  Over the past couple of decades, Wall Street has been transformed into the largest casino in the history of the world.  At this point, the amounts of money that these “too big to fail” banks are potentially on the hook for are absolutely mind blowing.

As you read this, there are five Wall Street banks that each have more than 40 trillion dollars in exposure to derivatives.  The following numbers come from the OCC’s most recent quarterly report (see Table 2)

JPMorgan Chase

Total Assets: $2,520,336,000,000 (about 2.5 trillion dollars)

Total Exposure To Derivatives: $68,326,075,000,000 (more than 68 trillion dollars)


Total Assets: $1,909,715,000,000 (slightly more than 1.9 trillion dollars)

Total Exposure To Derivatives: $61,753,462,000,000 (more than 61 trillion dollars)

Goldman Sachs

Total Assets: $860,008,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $57,695,156,000,000 (more than 57 trillion dollars)

Bank Of America

Total Assets: $2,172,001,000,000 (a bit more than 2.1 trillion dollars)

Total Exposure To Derivatives: $55,472,434,000,000 (more than 55 trillion dollars)

Morgan Stanley

Total Assets: $826,568,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $44,134,518,000,000 (more than 44 trillion dollars)

Those that follow my website regularly will note that the derivatives exposure for the top four banks has gone up significantly since I last wrote about this just a few months ago.

Do you want to be on the hook for all of that?

Keep in mind that the U.S. national debt is only about 18 trillion dollars at this point.

So why in the world would we want to guarantee losses that could potentially be far greater than our entire national debt?

Only a complete and utter fool would financially guarantee these incredibly reckless bets.

Please contact your representatives in Congress and tell them that you do not want to be on the hook for the derivatives losses of the big Wall Street banks.

When this derivatives bubble finally implodes and these big banks go down (and they inevitably will), we do not want them to take down the rest of us with them.

Wall Street Admits That A Cyberattack Could Crash Our Banking System At Any Time

Cyberattack - Public DomainWall Street banks are getting hit by cyber attacks every single minute of every single day.  It is a massive onslaught that is not highly publicized because the bankers do not want to alarm the public.  But as you will see below, one big Wall Street bank is spending 250 million dollars a year just by themselves to combat this growing problem.  The truth is that our financial system is not nearly as stable as most Americans think that it is.  We have become more dependent on technology than ever before, and that comes with a potentially huge downside.  An electromagnetic pulse weapon or an incredibly massive cyberattack could conceivably take down part or all of our banking system at any time.

This week, the mainstream news is reporting on an attack on our major banks that was so massive that the FBI and the Secret Service have decided to get involved.  The following is how Forbes described what is going on…

The FBI and the Secret Service are investigating a huge wave of cyber attacks on Wall Street banks, reportedly including JP Morgan Chase, that took place in recent weeks.

The attacks may have involved the theft of multiple gigabytes of sensitive data, according to reports. Joshua Campbell, supervisory special agent at the FBI, tells Forbes: “We are working with the United States Secret Service to determine the scope of recently reported cyber attacks against several American financial institutions.”

When most people think of “cyber attacks”, they think of a handful of hackers working out of lonely apartments or the basements of their parents.  But that is not primarily what we are dealing with anymore.  Today, big banks are dealing with cyberattackers that are extremely organized and that are incredibly sophisticated.

The threat grows with each passing day, and that is why JPMorgan Chase says that “not every battle will be won” even though it is spending 250 million dollars a year in a relentless fight against cyberattacks…

JPMorgan Chase this year will spend $250 million and dedicate 1,000 people to protecting itself from cybercrime — and it still might not be completely successful, CEO Jamie Dimon warned in April.

Cyberattacks are growing every day in strength and velocity across the globe. It is going to be continual and likely never-ending battle to stay ahead of it — and, unfortunately, not every battle will be won,” Dimon said in his annual letter to shareholders.

Other big Wall Street banks have a similar perspective.  Just consider the following two quotes from a recent USA Today article

Bank of America: “Although to date we have not experienced any material losses relating to cyber attacks or other information security breaches, there can be no assurance that we will not suffer such losses in the future.”

Citigroup: “Citi has been subject to intentional cyber incidents from external sources, including (i) denial of service attacks, which attempted to interrupt service to clients and customers; (ii) data breaches, which aimed to obtain unauthorized access to customer account data; and (iii) malicious software attacks on client systems, which attempted to allow unauthorized entrance to Citi’s systems under the guise of a client and the extraction of client data. For example, in 2013 Citi and other U.S. financial institutions experienced distributed denial of service attacks which were intended to disrupt consumer online banking services. …

“… because the methods used to cause cyber attacks change frequently or, in some cases, are not recognized until launched, Citi may be unable to implement effective preventive measures or proactively address these methods.”

I don’t know about you, but those quotes do not exactly fill me with confidence.

Another potential threat that banking executives lose sleep over is the threat of electromagnetic pulse weapons.  The technology of these weapons has advanced so much that they can fit inside a briefcase now.  Just consider the following excerpt from an article that was posted on an engineering website entitled “Electromagnetic Warfare Is Here“…

The problem is growing because the technology available to attackers has improved even as the technology being attacked has become more vulnerable. Our infrastructure increasingly depends on closely integrated, high-speed electronic systems operating at low internal voltages. That means they can be laid low by short, sharp pulses high in voltage but low in energy—output that can now be generated by a machine the size of a suitcase, batteries included.

Electromagnetic (EM) attacks are not only possible—they are happening. One may be under way as you read this. Even so, you would probably never hear of it: These stories are typically hushed up, for the sake of security or the victims’ reputation.

That same article described how an attack might possibly happen…

An attack might be staged as follows. A larger electromagnetic weapon could be hidden in a small van with side panels made of fiberglass, which is transparent to EM radiation. If the van is parked about 5 to 10 meters away from the target, the EM fields propagating to the wall of the building can be very high. If, as is usually the case, the walls are mere masonry, without metal shielding, the fields will attenuate only slightly. You can tell just how well shielded a building is by a simple test: If your cellphone works well when you’re inside, then you are probably wide open to attack.

And with electromagnetic pulse weapons, terrorists or cyberattackers can try again and again until they finally get it right

And, unlike other means of attack, EM weapons can be used without much risk. A terrorist gang can be caught at the gates, and a hacker may raise alarms while attempting to slip through the firewalls, but an EM attacker can try and try again, and no one will notice until computer systems begin to fail (and even then the victims may still not know why).

Never before have our financial institutions faced potential threats on this scale.

According to the Telegraph, our banks are under assault from cyberattacks “every minute of every day”, and these attacks are continually growing in size and scope…

Every minute, of every hour, of every day, a major financial institution is under attack.

Threats range from teenagers in their bedrooms engaging in adolescent “hacktivism”, to sophisticated criminal gangs and state-sponsored terrorists attempting everything from extortion to industrial espionage. Though the details of these crimes remain scant, cyber security experts are clear that behind-the-scenes online attacks have already had far reaching consequences for banks and the financial markets.

In the end, it is probably only a matter of time until we experience a technological 9/11.

When that day arrives, will your money be safe?

25 Fast Facts About The Federal Reserve – Please Share With Everyone You Know

Great Seal - Photo by IpankoninAs we approach the 100 year anniversary of the creation of the Federal Reserve, it is absolutely imperative that we get the American people to understand that the Fed is at the very heart of our economic problems.  It is a system of money that was created by the bankers and that operates for the benefit of the bankers.  The American people like to think that we have a “democratic system”, but there is nothing “democratic” about the Federal Reserve.  Unelected, unaccountable central planners from a private central bank run our financial system and manage our economy.  There is a reason why financial markets respond with a yawn when Barack Obama says something about the economy, but they swing wildly whenever Federal Reserve Chairman Ben Bernanke opens his mouth.  The Federal Reserve has far more power over the U.S. economy than anyone else does by a huge margin.  The Fed is the biggest Ponzi scheme in the history of the world, and if the American people truly understood how it really works, they would be screaming for it to be abolished immediately.  The following are 25 fast facts about the Federal Reserve that everyone should know…

#1 The greatest period of economic growth in U.S. history was when there was no central bank.

#2 The United States never had a persistent, ongoing problem with inflation until the Federal Reserve was created.  In the century before the Federal Reserve was created, the average annual rate of inflation was about half a percent.  In the century since the Federal Reserve was created, the average annual rate of inflation has been about 3.5 percent, and it would be even higher than that if the inflation numbers were not being so grossly manipulated.

#3 Even using the official numbers, the value of the U.S. dollar has declined by more than 95 percent since the Federal Reserve was created nearly 100 years ago.

#4 The secret November 1910 gathering at Jekyll Island, Georgia during which the plan for the Federal Reserve was hatched was attended by U.S. Senator Nelson W. Aldrich, Assistant Secretary of the Treasury Department A.P. Andrews and a whole host of representatives from the upper crust of the Wall Street banking establishment.

#5 In 1913, Congress was promised that if the Federal Reserve Act was passed that it would eliminate the business cycle.

#6 The following comes directly from the Fed’s official mission statement: “To provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.”

#7 It was not an accident that a permanent income tax was also introduced the same year when the Federal Reserve system was established.  The whole idea was to transfer wealth from our pockets to the federal government and from the federal government to the bankers.

#8 Within 20 years of the creation of the Federal Reserve, the U.S. economy was plunged into the Great Depression.

#9 If you can believe it, there have been 10 different economic recessions since 1950.  The Federal Reserve created the “dotcom bubble”, the Federal Reserve created the “housing bubble” and now it has created the largest bond bubble in the history of the planet.

#10 According to an official government report, the Federal Reserve made 16.1 trillion dollars in secret loans to the big banks during the last financial crisis.  The following is a list of loan recipients that was taken directly from page 131 of the report…

Citigroup – $2.513 trillion
Morgan Stanley – $2.041 trillion
Merrill Lynch – $1.949 trillion
Bank of America – $1.344 trillion
Barclays PLC – $868 billion
Bear Sterns – $853 billion
Goldman Sachs – $814 billion
Royal Bank of Scotland – $541 billion
JP Morgan Chase – $391 billion
Deutsche Bank – $354 billion
UBS – $287 billion
Credit Suisse – $262 billion
Lehman Brothers – $183 billion
Bank of Scotland – $181 billion
BNP Paribas – $175 billion
Wells Fargo – $159 billion
Dexia – $159 billion
Wachovia – $142 billion
Dresdner Bank – $135 billion
Societe Generale – $124 billion
“All Other Borrowers” – $2.639 trillion

#11 The Federal Reserve also paid those big banks $659.4 million in fees to help “administer” those secret loans.

#12 The Federal Reserve has created approximately 2.75 trillion dollars out of thin air and injected it into the financial system over the past five years.  This has allowed the stock market to soar to unprecedented heights, but it has also caused our financial system to become extremely unstable.

#13 We were told that the purpose of quantitative easing is to help “stimulate the economy”, but today the Federal Reserve is actually paying the big banks not to lend out 1.8 trillion dollars in “excess reserves” that they have parked at the Fed.

#14 Quantitative easing overwhelming benefits those that own stocks and other financial investments.  In other words, quantitative easing overwhelmingly favors the very wealthy.  Even Barack Obama has admitted that 95 percent of the income gains since he has been president have gone to the top one percent of income earners.

#15 The gap between the top one percent and the rest of the country is now the greatest that it has been since the 1920s.

#16 The Federal Reserve has argued vehemently in federal court that it is “not an agency” of the federal government and therefore not subject to the Freedom of Information Act.

#17 The Federal Reserve openly admits that the 12 regional Federal Reserve banks are organized “much like private corporations“.

#18 The regional Federal Reserve banks issue shares of stock to the “member banks” that own them.

#19 The Federal Reserve system greatly favors the biggest banks.  Back in 1970, the five largest U.S. banks held 17 percent of all U.S. banking industry assets.  Today, the five largest U.S. banks hold 52 percent of all U.S. banking industry assets.

#20 The Federal Reserve is supposed to “regulate” the big banks, but it has done nothing to stop a 441 trillion dollar interest rate derivatives bubble from inflating which could absolutely devastate our entire financial system.

#21 The Federal Reserve was designed to be a perpetual debt machine.  The bankers that designed it intended to trap the U.S. government in a perpetual debt spiral from which it could never possibly escape.  Since the Federal Reserve was established nearly 100 years ago, the U.S. national debt has gotten more than 5000 times larger.

#22 The U.S. government will spend more than 400 billion dollars just on interest on the national debt this year.

#23 If the average rate of interest on U.S. government debt rises to just 6 percent (and it has been much higher than that in the past), we will be paying out more than a trillion dollars a year just in interest on the national debt.

#24 According to Article I, Section 8 of the U.S. Constitution, the U.S. Congress is the one that is supposed to have the authority to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.  So exactly why is the Federal Reserve doing it?

#25 There are plenty of possible alternative financial systems, but at this point all 187 nations that belong to the IMF have a central bank.  Are we supposed to believe that this is just some sort of a bizarre coincidence?

Are We On The Verge Of Witnessing The Death Of The Paper Gold Scam?

Gold BarsThe legal claims on physical gold far exceed the amount of physical gold that the banks actually have by a very, very wide margin.  And right now the bankers are scared out of their wits because their warehouses are being drained of physical gold at a frightening rate.  So what happens when their physical gold is gone but they still have lots and lots of people with legal claims to gold?  When that moment arrives, it will represent the end of the paper gold scam.  Many believe that the recent takedown of the price of paper gold was a desperate attempt by the bankers to put off that day of reckoning, but it appears to have greatly backfired on them.  Instead of cooling off demand for precious metals, it has unleashed a massive “gold rush” all over the globe.  Meanwhile, word has been spreading among wealthy families in both North America and Europe that they had better grab their physical gold out of the banks while they still can.  This is creating havoc in the financial community, and at least one major international bank has already declared that it will only be settling those accounts in cash from now on.  The paper gold scam is starting to unravel, and by the time this is all over it is going to be a complete and total nightmare for global financial markets.

For years it has been widely known that the promises that banks have made regarding their gold far exceed their actual ability to deliver, but we have never reached a moment of such crisis before.

Posted below are quotes from people that know precious metals far better than I do.  What these experts are saying is more than a little bit disturbing…

CME President Terry Duffy: What’s interesting about gold, when we had that big break two weeks ago we saw all the gold stocks trade down significantly, we saw all the gold products trade down significantly, but one thing that did not trade down, was gold coins, tangible real gold. That’s going to show you, people don’t want certificates, they don’t want anything else. They want the real product.

Billionaire Eric Sprott: So we see all of these paper (trading) volumes going through that bear absolutely no relationship to what’s going on in the physical markets. As you know I have always been a proponent of the fact that supply in the gold market was way less than demand, and by a very large factor. I think demand exceeds supply by at least 60%. The central banks are surreptitiously supplying that gold, and ultimately they will be running on fumes.

When we hear about the LBMA not willing to deliver gold, and JP Morgan’s inventories at the COMEX have gone from 2.4 million (ounces) down to 160,000 ounces, it just makes you realize that all of this paper trading means nothing. It’s the real physical market that you have to rely on.

JS Kim: FACT #1: COMEX gold vaults were recently drained of 2 million ounces of physical gold in one quarter, the largest withdrawal of physical gold bullion from COMEX vaults in one quarter during this entire 12-year gold and silver bull. There has been speculation about the reasons that spurred these massive withdrawals of gold from COMEX vaults, but the most reasonable speculation is that no one trusts the bankers to hold on to their physical gold anymore, especially in light of Fact #2. Note below, that both registered AND eligible stocks of gold had heavily declined in recent months. Such an event signals a general distrust of the banking system from everyone holding gold in registered COMEX vaults.

FACT #2: One of the largest European banks, ABN Amro, defaulted on their gold contracts and informed their clients that they would only settle their gold bullion contracts in cash and not in physical. So much for the supposed legality of financial contracts as a “binding” contract. So whether Fact #1 caused Fact #2 or vice versa is irrelevant. What IS apparent is that the level of trust in bankers to safekeep physical gold and physical silver is disappearing, as it should be, and as it should have already been for years now. But truth always takes some time to catch up to banker spread lies and that is what is happening now. I have been warning people never to trust bankers in deals involving gold and silver for years now, as in this article I wrote nearly four years ago informing the public that the SLV and GLD are likely a banker invented scam as well.

FACT #3: Silver fraud whistleblower and London trader Andrew Maguire stated that the LBMA was having trouble settling gold contracts in bullion as well and stated that institutions that asked for physical settlement “were told they would be cash settled instead by a bullion bank.” In plain English, this is a default. So Andrew Maguire reported that the LBMA had already gone into default. In light of Fact #1 and Fact #2, the dominoes were starting to tumble and the house of cards that the bankers had built in gold and silver paper derivatives to deceive and hide the true fundamentals of the physical gold and physical markets from the entire world was rapidly starting to crumble. A financial earthquake of magnitude 2.5 was quickly threatening to evolve into one of the biggest financial earthquakes of all time in which the world’s confidence in all global fiat currencies would effectively have a well-deserved funeral.

Jim Sinclair: I think the reality is the supply situation is extremely volatile at this point, and even discussing it is like rubbing a raw nerve to the people who are in charge. The amount of discussion on the subject of warehouse supply, supply that is represented by the gold leases, indicated to the central planners that the demand for physical was going to continue to effect the exchanges.

Although they did not expect any grandstand delivery, the mere continued draining of physical inventories was threatening the very functioning of the paper exchange. That threatening of the paper exchange and its ability to continue functioning is really taking off the blinders and revealing the truth behind the critical question, ‘Where is the gold?’

The question now is, ‘Where has the gold gone?’ Who has all of this gold? Because of the nature of gold leasing, all of this gold has been purchased and it has gone somewhere. The reality of the empty vaults reveal that the gold has gone missing.

Ronald Stoeferle: We’re seeing this rush to physical gold not only in the retail market, but also for the institutional players…[it’s] just overwhelming…I [estimate] a 130-to-1 [ratio of paper to physical gold]…and I think in the last week we were really close to [triggering] a default of the paper market.

Gerhard Schubert, head of Precious Metals at Emirates NBD: I have not seen in my 35 years in precious metals such a determined and strong global physical demand for gold. The UAE physical markets have been cleared out by buyers from all walks of life. The premiums, which have been asked for and which have been paid have been the cornerstone of the gold price recovery. It is very rare that physical markets can have a serious impact on market prices, which are normally driven solely by derivatives and futures contracts…

I did speak during the week with several refineries in the world, of course including the UAE refineries, and the waiting period for 995 kilo bars is easily 2-3 weeks and goes into June in some cases. A large portion of the 995 kilo bars in the UAE goes normally into the Indian market, but a lot of the available 995 kilo bars are destined for Turkey, at this time. We heard that premiums paid in Turkey have reached anything between US $ 20 and US $ 35 per ounce.

James Turk: Another indication of the demand for large bars is the huge drawdown in the gold stock in COMEX warehouses. It is noteworthy that COMEX reports show the drawdown is largely the result of dealers removing their inventory, their working stock. When that happens, you know the availability of supply is constrained.

What all of this means, Eric, is one thing. If the central planners want to keep the precious metals at these low prices, to meet the demand for physical metal they will need to empty more metal from central bank vaults, or borrow metal from the ETFs as some have suggested is happening. Otherwise, the central planners will have to step back and stop their intervention, thereby letting the price of gold and silver rise so that demand tapers off, bringing demand and supply of physical metal back toward some kind of balance.

We’ve seen this same situation several times over the last twelve years. It is what I have been calling a “managed retreat.” Despite the current weakness, I firmly believe we have again entered a critical period where the central planners will need to retreat once again in order to let the gold and silver prices climb higher.

The Golden Truth: And then I get a call from a close friend in NYC last Friday.   His career has been in private wealth management in the private bank department of the Too Big To Fail banks.  He’s been looking for work and chats with old colleagues all the time.  He called my Friday and told me he just got off the phone with a very high level private banker from a big Euro-based TBTF bullion bank, but who was at JP Morgan until about six months ago.

This guy told my friend that there is a scramble by many very wealthy European families/entities to get their 400 oz bars out of the big bank vaults. He knows this personally, for a fact.  He said the private banker community is small over there and the big wealthy families all talk to each other and act on the same rumors/sentiment.  The Bundesbank/Fed and the ABN/Amro situations triggered this move.  He knows for a fact JPM tried to calm fears about 3 months ago by sending a letter to it’s very wealthy clients assuring them their bars were safe, in allocated accounts.  He said right now those same families are walking into the big banks like JPM and demanding delivery of their bars or threatening to take their $100’s of millions in investment portfolios to competitors.  His wording was “these people are putting a gun to the heads of private banks and demanding their gold.”

I know this information is good because I know my friend’s background and when he tells me his source is plugged in, the guy is plugged in. Not only that, my friend’s source said that there’s no doubt that someone like a John Paulson, not necessarily specifically him, but entities like him or it may include him, have held a gun to GLD and demanded delivery of physical in exchange for their shares.

Regarding the Bundesbank/Fed situation, recall that the Bundesbank asked to have some portion of its gold sitting – supposedly – in the NY Fed vault in NYC sent back Germany. The total amount is 1800 tonnes.  After behind the scenes negotiations, the Fed agreed to ship 300 tonnes back over seven years.  To this day, the time required for that shipment has never been explained.  Venezuela demanded the return of its 200 tonnes held in London, NYC and Switzerland and received it all within about four months.

And regarding the ABN/Amro situation.  ABN/Amro offered a gold investment account product that offered physical delivery of the gold in the investment account when the investor cashes out.  About a week before the gold price smash, ABN sent a letter to its clients informing that the physical delivery of the bullion was no longer available and that all accounts would be settled with cash at redemption.

I believe it was these two events that triggered the big scramble for physical gold by wealthy families/entities who were suspicious of the integrity of their bank vault custodial arrangement anyway.


So what does all of this mean?

It means that we are entering a period when there will be unprecedented volatility for precious metals.  There will be tremendous ups and downs as this crisis plays out and the bankers try to keep the paper gold scam from completely unraveling.

Meanwhile, nations such as China continue to stockpile gold as if the end of the world was coming.

According to Zero Hedge, Chinese gold imports set a brand new all-time record high in March…

Quite the contrary: as export data released by the Hong Kong Census and Statistics Department overnight showed, Chinese gold imports in March exploded to an all time record high of 223.5 tons.

And the number for April is expected to be even higher.

Does China know something that the rest of us do not?

We are also seeing a rapid decoupling between spot prices and physical prices.  In fact, it is quickly getting to the point where the spot price of gold and the spot price of silver are becoming irrelevant.

For example, demand for silver coins has become so intense that some dealers are charging premiums of up to 30 percent over spot price for silver eagles.

That would have been regarded as insane a few years ago, but people are now willing to pay these kinds of premiums.  People are recognizing the importance of actually having physical gold and silver in their possession and they are willing to pay a significant premium in order to get it.

We are moving into uncharted territory.  The paper gold scam is rapidly coming to an end.  In the long-term, this will greatly benefit those that are holding significant amounts of physical gold and silver.

The Beginning Of The End by Michael Snyder

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