What would really happen were COMEX silver to default? Actually, a better question would be what will happen if ANYTHING physical were to default. For example, what will happen if a corn delivery is not made, or actual hogs or cattle, orange juice or anything else? Broadening this thought process a little bit and making it a global question, what happens if it turns out iron ore, copper, zinc or anything else turns out to not be in the warehouse?
Going even further down the rabbit hole, what will happen if two different people show up at a custodian somewhere and claim the same ounce of gold? What if instead of just two people it turns out to be 10? Or 100? First, in my opinion there will be no difference between 2 people presenting a receipt and one being told “sorry” and 99 being told “sorry.”
How can I say there will be no difference? Because the true “number” whatever it turns out to be will over time be exposed. All it will take is just two guys (or gals) arguing over the same ounce and word will spread. If the true number of “over issuance” turns out to be 10, 50 or even Jeff Christian’s 100-1 it doesn’t matter. It doesn’t matter because every single “owner” believes they “own” the ounce. Even if there are only 10 ounces but 11 people …some type of little white lie fraud has occurred. Please understand that nothing today is done in terms of “little” anything, the current fraud is massive, widespread and will bring question to all markets and contracts.
I want to look at this from several angles. First from the ownership side and then from the “what does it mean” side. From an ownership standpoint, you must wonder whenever you “buy” metal as to whether you will get it or not. There have already been a couple of “belly up” dealers this year where customers paid for, yet never got their metal. You also must wonder about pooled accounts, ETF’s and even COMEX itself. COMEX for example is publicly reporting contracts where 650 million ounces of silver are liable in December for delivery yet they only have 60 million ounces registered for delivery.
Eric Sprott has asked many times regarding the various silver ETF’s “where” the metal came from as the total adds up to more than was known to exist for delivery while current production was already spoken for. Two or three years back, Mr. Sprott did an offering where he added 10 million ounces of silver to his trust, that took several months to fill the order …and it was “only” 10 million ounces.
As for “pooled” accounts, how do you know or have any proof there are not 10 owners for each ounce …or even 100? Because “no one would ever do that” or because you have a piece of paper “saying” you own the metal? Or because the salesman was a nice guy, gave you his word and “pinky swore?” These questions and the amount of trust given truly amazes me because if the currency itself is a Ponzi scheme then why wouldn’t there be others? Lots and lots of others …in many walks of life?
The above leads me to the key word for any Ponzi scheme, pyramid scheme or even something legal like fractional reserve banking … “confidence.” Think about it, in today’s world could anything financial survive if it weren’t for confidence? We had bank runs in yesteryear because people would get spooked if they thought their bank had issued more “notes” than they had gold to back them. We have seen more recently bank runs when it was feared their bank was “running out of money.” The current day has seen “electronic” runs when it was feared the bank either overextended credit to poor borrowers, lost money on their investment portfolio or some other reason for “digital” credits to dry up.
I am convinced that because of the supply/demand and low price (below the average cost of production) causing less production, we will see a “bank run” in the silver market. Yes, yes, tell me silver is plentiful blah blah blah but where is it? Please don’t show me some piece of paper like Karen Hudes has with gold stating “trillions of $” are held and waiting to save the world. Where is it? Where is the gold for that matter? Venezuela just pulled a good one on the west and actually opened their vault for the public view (this gold by the way will probably end up being pilfered by our banks), when was the last time anyone actually saw what was inside of Ft. Knox? Including Congressmen and Senators! 60+ years? This is a long, VERY long time to go based on “confidence” alone.
My point for writing this piece is because everything financial is based on confidence and there is much anecdotal evidence that this confidence is sorely misplaced. Whether it be copper, zinc or iron ore in Chinese ports, silver or gold in ETF’s or exchanges themselves or even central bank holdings including and especially Ft. Knox, they are ALL based on confidence. “Confidence” that the metal is there and not “owned” by more than one entity per ounce.
It won’t matter what it is that gets exposed (my opinion is the silver market), once it becomes known “the bank is in trouble,” the following bank runs will be no different than they were in the past. I will say this, since everything is based on confidence and the foundation for this confidence is not even real to begin with …the “runs” will be bigger and badder than ever before in history. There is more credit, leverage, leverage on top of leverage in the form of every and any type of derivative imaginable, more “money supply” of money that’s not real, faster information and execution of trades than ever before. All of this put together will make the size and speed of the moves caused by broken confidence greater than anything we’ve ever witnessed.
It will also make the “recovery” (you know, the “thing” we’ve supposedly been in for the last 6 years?) that much longer, painful and drawn out. I say this because the financial wipeout will have been bigger and more widespread than anything before AND because of the word “confidence.” It is so easy for confidence to break yet so difficult to regain once broken. Think of confidence as a “client” so to speak. It may take months or even years to gain their trust in order to do business but the relationship severs in a New York minute once a lie fraud or malintention is discovered. By the time this whole thing is done, we will find out and know for sure …our “rule of law” was trashed and governments themselves committed massive fraud. I guess what I’m trying to say is ”If the trust in various governments is broken …will their currencies issued be trusted?”
To wrap this up, ask yourself a question. Were the financial system to come down, what would you trust or accept for your labor, knowledge or goods immediately afterwards? The answer to this question is why you must arrive into the aftermath of a break in confidence with something you have confidence in and would accept yourself!