Not Your Fathers Inflation

Profound ignorance masquerading as wisdom - all the worse from the mouths of the
prestigious, the PhD, the Nobel Prize winner. - Unknown
Its time to revisit British economist Peter Warburtons April 2001 classic tome The
debasement of world currency: Its inflation but not as we know it.
Our friend from GATA, Ed Steer brought it to attention once again.
Three important paragraphs describe the situation as it was, and how it is now by all
means necessarywith one minor adjustment
Not much has changed.
What we see at present is a battle between the central banks and the collapse of the
financial system fought on two fronts. On one front, the central banks preside over the
creation of additional liquidity for the financial system in order to hold back the tide of
debt defaults that would otherwise occur.
If they stop printing, interest rates will begin rising. This will lead to the classic positive
feedback loop whereby the tap root of confidence triggers
The dollars begin to return home.
The cost of servicing debt outstrips the ability to keep up the stealth attempts.
Yet all attempts will be futile, as a lasting credit freeze will cause too much damage to
repair.
Literally, things grind to a halt. Building projects left standing, unfinished, stalled into
perpetual stillness as the true nature of reality.
Credit was artificial. It created some reality. But held by the promise of perpetual flow.
The Ponzi destroys everything.
The tide of debt defaults
On the other, they incite investment banks and other willing parties to bet against a rise
in the prices of gold, oil, base metals, soft commodities or anything else that might be
deemed an indicator of inherent value. Their objective is to deprive the independent
observer of any reliable benchmark against which to measure the eroding value, not only
of the U.S. dollar, but of all fiat currencies. Equally, they seek to deny the investor the
opportunity to hedge against the fragility of the financial system by switching into a
freely traded market for non-financial assets.
The objective is masked by the profit motive. These bets are sure things. Investment

banks have become nodal points in a massive interconnected, transnational hedge fund
gambling parlor backed by the infinite pockets of self-imposed monetary authorities with
the (seemingly) unlimited expansion capability.
Not only do they always profit, but they maneuver to control the flow or directly
accumulate the physical commodity. They own the warehouses. They finance and
infiltrate the minors. They book the speculative trades, and thereby read and milk their
positions at will.
From aluminum warehousing to JPMs directly shifting its short bet on silver to a long
bet on physical.
Doctrine achieves a political win because the otherwise scarce material resources seem to
be ubiquitous and everlasting, while the true scarcity of materials is hidden by just in time
practices and fragile complexity that directs its flow.
It is important to recognize that the central banks have found the battle on the second
front much easier to fight than the first.
Last November I estimated the size of the gross stock of global debt instruments at $90
trillion for mid-2000.
Update 2015

Over-the-Counter derivatives, notional amounts: $692 trillion at year-end 2014,

per the BIS. For comparison, this figure was $72 trillion in 1998.

Global real estate: $180 trillion, according to global real-estate services provider
Savills.

Global debt market, both securities and other forms of debt: $161 trillion at yearend 2014, per the Institute for International Finances Capital Markets Monitor.
According to the Bank of International Settlements (BIS), debt securities make up
$95 trillion of this total.

Global equities: $64 trillion, per the World Federation of Exchanges.

Global M1 money supply: $24 trillion at year-end 2013, per the World Bank.

Gold: $6.8 trillion at year-end 2013, according to the Thompson Reuters GFMS
Gold Survey.

Silver no more than $20 billion total above-ground 1000 oz investment grade
bars plus primary miners (approx $5 billion)

Warburton continues

How much capital would it take to control the combined gold, oil, and commodity
markets? Probably, no more than $200 billion, using derivatives.
Moreover, it is not necessary for the central banks to fight the battle themselves, although
central bank gold sales and gold leasing have certainly contributed to the cause. Most of
the worlds large investment banks have over-traded their capital [bases] so flagrantly
that if the central banks were to lose the fight on the first front, then the stock of the
investment banks would be worthless. Because their fate is intertwined with that of the
central banks, investment banks are willing participants in the battle against rising gold,
oil, and commodity prices.
More incentive to collude on price levels, which given the disintegration of their capital
base is obviously, unsustainable, thus requiring a perpetual motion type of finance.
Central banks, and particularly the U.S. Federal Reserve, are deploying their heavy
artillery in the battle against a systemic collapse. This has been their primary concern for
at least seven years. Their immediate objectives are to prevent the private sector bond
market from closing its doors to new or refinancing borrowers and to forestall a
technical break in the Dow Jones Industrials. Keeping the bond markets open is
absolutely vital at a time when corporate profitability is on the ropes. Keeping the equity
index on an even keel is essential to protect the wealth of the household sector and to
maintain the expectation of future gains. For as long as these objectives can be achieved,
the value of the US dollar can also be stabilized in relation to other currencies, despite
the extraordinary imbalances in external trade.
And here we find ourselves, ensconced in this grand illusion. A hollowed out economy
held together my a thin and evermore fragile veneer, predicated on hope and motivated
by fear.
Signs of stress are visible everywhere we look. From shrinking bond market liquidity, the
re-inflation of the home equity bubble, the $1 trillion student loan debacle, overextended
equity absurdity, to the blatant, overt, and direct manipulation of nearly all commodities.

For more articles and commentary like this - to explore and find some piece
of mind in the space between actual price discovery and the reality of the
macro-financial state of things - visit us at http://www.Silver-CoinInvestor.com.