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Bank of England Paper shattering common misconcpetions

JP Hochbaum

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There is no money multiplier as banks do not lend out savings:

"Money creation in practice differs from some popular misconceptions — banks do not act simply
as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’
central bank money to create new loans and deposits."

And 97% of the money supply is done through bank lending, while 3% is done with government spending. Which indicates that government spending would make it near impossible to cause inflation or devaluation.

And Lending creates deposits.

"Lending creates deposits — broad money
determination at the aggregate level
As explained in ‘Money in the modern economy: an
introduction’, broad money is a measure of the total amount
of money held by households and companies in the economy.
Broad money is made up of bank deposits — which are
essentially IOUs from commercial banks to households and
companies — and currency — mostly IOUs from the central
bank.(4)(5) Of the two types of broad money, bank deposits
make up the vast majority — 97% of the amount currently in
circulation.(6) And in the modern economy, those bank
deposits are mostly created by commercial banks
themselves."

THis is not coming from ideological hacks but rather from a central bank. Although this is from the bank of England, other similar systems operate the same way. (United States, Japan, Canada, Australia).

http://www.bankofengland.co.uk/publ...lletin/2014/qb14q1prereleasemoneycreation.pdf
 

DaveFagan

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Central Banks are not necessarily a part of Government.

Federal Reserve CORPORATION.
BIS Bank of International Settlements.
UBS
and exactly how do the agencies designed to manipulate exchanges and markets i.e. Plunge Protection Team, Exchange Stabilization Fund, affect these paper issuers?
 

JP Hochbaum

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"The Federal Reserve System fulfills its public mission as an independent entity within government. It is not "owned" by anyone and is not a private, profit-making institution.

As the nation's central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms."

https://www.federalreserve.gov/faqs/about_14986.htm

Let's move on from the conspiratorial nonsense please. Our central bank is a part of the federal government, no more entertaining debates suggesting otherwise. Start your own thread for that please.
 

DA60

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"The Federal Reserve System fulfills its public mission as an independent entity within government. It is not "owned" by anyone and is not a private, profit-making institution.

As the nation's central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms."

https://www.federalreserve.gov/faqs/about_14986.htm

Let's move on from the conspiratorial nonsense please. Our central bank is a part of the federal government, no more entertaining debates suggesting otherwise. Start your own thread for that please.

The Federal Reserve has shares that are privately owned...apparently by the banks (despite what the Fed says, there is some discussion about this). And they make dividends from these stocks.

It is NOT part of the government. It is given powers by the government, it was created by the government...but it is NOT part of the government.

If Congress and/or the POTUS tell the Fed to lower interest rates. The Fed does not have to lower interest rates. It could raise them...almost as high as they wish (within reason).
 
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ludin

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"The Federal Reserve System fulfills its public mission as an independent entity within government. It is not "owned" by anyone and is not a private, profit-making institution.

As the nation's central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms."

https://www.federalreserve.gov/faqs/about_14986.htm

Let's move on from the conspiratorial nonsense please. Our central bank is a part of the federal government, no more entertaining debates suggesting otherwise. Start your own thread for that please.

The FED is a GSE.
it is run independently from government but it is accountable to congress.
at the end of the year it returns all of the money it made to the treasury.

The fed is responsible for money supply and monetary policy.

Banks are required to hold a reserve rate.
the reserve rate requires the bank to have x% of money on hand.
that percentage is based on the number of loans it gives out.

we have what is called a fractional reserve banking system. meaning that banks loan out fractional portions
of deposits as they can't lend it all out.

the reserve can be made up with deposits CD or other liquid assets in the forms of inter bank loans or loans
from the fed itself.

by the end of the next business day banks must have their reserve rate equal to the percentage.

so we are a bank.

we can generate a 10k loan without any deposits however within 24 hours day we must have
1k dollars in reserve. how that is done doesn't matter it just has to be there.
we can borrow it or we can attract customers to deposit money.
we can issue or sell CD's or bonds.

either way we have to have 1000 dollars in reserve.
 

ludin

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The Federal Reserve has shares that are privately owned...apparently by the banks (the shares ownership are not made public). And they make dividends from these stocks.

It is NOT part of the government. It is given powers by the government...but it is NOT part of the government.

*sigh*.

the FED is accountable to congress and the head of the fed works at the discretion of the president.
however they serve overlapping terms so as to not cause a conflict of interest.
 

DA60

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The FED is a GSE.
it is run independently from government but it is accountable to congress.
at the end of the year it returns all of the money it made to the treasury.


The fed is responsible for money supply and monetary policy.

Banks are required to hold a reserve rate.
the reserve rate requires the bank to have x% of money on hand.
that percentage is based on the number of loans it gives out.

we have what is called a fractional reserve banking system. meaning that banks loan out fractional portions
of deposits as they can't lend it all out.

the reserve can be made up with deposits CD or other liquid assets in the forms of inter bank loans or loans
from the fed itself.

by the end of the next business day banks must have their reserve rate equal to the percentage.

so we are a bank.

we can generate a 10k loan without any deposits however within 24 hours day we must have
1k dollars in reserve. how that is done doesn't matter it just has to be there.
we can borrow it or we can attract customers to deposit money.
we can issue or sell CD's or bonds.

either way we have to have 1000 dollars in reserve.

Not all of it.

The Fed has shares and those shares pay 6% dividends. So part of the profits the Fed makes go to private banks and not to Congress.
 

ludin

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Not all of it.

The Fed has shares and those shares pay 6% dividends. So part of the profits the Fed makes go to private banks and not to Congress.

nothing goes to congress. it goes to the treasury.

since the fed is made up members of banks it only makes sense that
the banks have a stake in the fed to ensure that it runs properly.

it is a check and balance in the system.
 

joG

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There is no money multiplier as banks do not lend out savings:

"Money creation in practice differs from some popular misconceptions — banks do not act simply
as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’
central bank money to create new loans and deposits."

And 97% of the money supply is done through bank lending, while 3% is done with government spending. Which indicates that government spending would make it near impossible to cause inflation or devaluation.

And Lending creates deposits.

"Lending creates deposits — broad money
determination at the aggregate level
As explained in ‘Money in the modern economy: an
introduction’, broad money is a measure of the total amount
of money held by households and companies in the economy.
Broad money is made up of bank deposits — which are
essentially IOUs from commercial banks to households and
companies — and currency — mostly IOUs from the central
bank.(4)(5) Of the two types of broad money, bank deposits
make up the vast majority — 97% of the amount currently in
circulation.(6) And in the modern economy, those bank
deposits are mostly created by commercial banks
themselves."

THis is not coming from ideological hacks but rather from a central bank. Although this is from the bank of England, other similar systems operate the same way. (United States, Japan, Canada, Australia).

http://www.bankofengland.co.uk/publ...lletin/2014/qb14q1prereleasemoneycreation.pdf

But, all that is rather well known. What do you want to communicate by the quite well written article?
 

pdog

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But, all that is rather well known. What do you want to communicate by the quite well written article?

Based on what he bolded, I'm thinking it's one more way to say that deficit spending driven inflation is STILL total b.s.?
 

DaveFagan

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"The Federal Reserve System fulfills its public mission as an independent entity within government. It is not "owned" by anyone and is not a private, profit-making institution.

As the nation's central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms."

https://www.federalreserve.gov/faqs/about_14986.htm

Let's move on from the conspiratorial nonsense please. Our central bank is a part of the federal government, no more entertaining debates suggesting otherwise. Start your own thread for that please.

NO conspiratorial nonsense. If the Plunge Protection Team's job is to conspire to manipulate market plunges and the Exchange Stabilization Fund's job is to conspire to control Forex exchange and both only require one signature, the President's, what other conclusion can be drawn. Price "discovery" and free markets are a historical notation. Commodoties are traded with paper that dwarfs the actual production process and once again "naked short sales" are used to control markets. Those are facts. Deal with them.
 

JP Hochbaum

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NO conspiratorial nonsense. If the Plunge Protection Team's job is to conspire to manipulate market plunges and the Exchange Stabilization Fund's job is to conspire to control Forex exchange and both only require one signature, the President's, what other conclusion can be drawn. Price "discovery" and free markets are a historical notation. Commodoties are traded with paper that dwarfs the actual production process and once again "naked short sales" are used to control markets. Those are facts. Deal with them.

I work at a capital trading firm and I have to say none of that seems like English and I am fairly financially literate, what exactly are you saying? lol
 

DaveFagan

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I work at a capital trading firm and I have to say none of that seems like English and I am fairly financially literate, what exactly are you saying? lol

Let's play twenty questions.
Do you know what the Plunge Protection Team of the US Treasury is?
Do you know whet the Exchange Stabilization Team is?
Do you know what a naked short sale is? Example-gold too high for a power broker who has debts owed in USDollars and when gold goes up Dollars usually go down. He'll get paid back less with cheaper dollars. He shorts the market with 10 million ounces of gold below market early in the a.m. Gold drops like a rock and he shorts another few million shares and it drops below the short and he makes good his paper trade that required no actual commodity. Now his dollars will likely rebound and he'll get paid in dear dollars. Actual case history in the last few years.
 

Absentglare

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But, all that is rather well known. What do you want to communicate by the quite well written article?

This article seems to reject the fractional reserve theory of money creation and embrace MMT by, for example, rejecting the money multiplier.
 

Absentglare

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Let's play twenty questions.
Do you know what the Plunge Protection Team of the US Treasury is?
Do you know whet the Exchange Stabilization Team is?
Do you know what a naked short sale is? Example-gold too high for a power broker who has debts owed in USDollars and when gold goes up Dollars usually go down. He'll get paid back less with cheaper dollars. He shorts the market with 10 million ounces of gold below market early in the a.m. Gold drops like a rock and he shorts another few million shares and it drops below the short and he makes good his paper trade that required no actual commodity. Now his dollars will likely rebound and he'll get paid in dear dollars. Actual case history in the last few years.

Can you please explain what you're trying to say instead of provoking others into making your argument for you ?

I don't understand what selling gold short has to do with theories of money creation.
 

mmi

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The Federal Reserve has shares that are privately owned...apparently by the banks (despite what the Fed says, there is some discussion about this). And they make dividends from these stocks.

The Fed gains income from a variety of sources — mostly interest earned on government securities, foreign currency investments, and loans to banks, S&Ls, and credit unions, and fees collected from those depository institutions.

>>It is NOT part of the government. … If Congress and/or the POTUS tell the Fed to lower interest rates. The Fed does not have to lower interest rates. It could raise them

I don't disagree, but the second point does not follow from the first. The federal courts are part of the gubmint, but they also have a good measure of independence.

The Fed words it this way:

The Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government; therefore, the description of the System as "independent within the government" is more accurate. — "The Federal Reserve System Purposes and Functions," Board of Governors of the Federal Reserve System, Jun 2005​

The FED is a GSE.

No it isn't. You cannot produce a credible source to say that it is.

>>at the end of the year it returns all of the money it made to the treasury.

Sloppily worded at best. It pays its expenses with part of its income and turns over what's left to the Treasury.

The remainder of yer little seminar was of course quite fascinating.
 

DaveFagan

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Can you please explain what you're trying to say instead of provoking others into making your argument for you ?

I don't understand what selling gold short has to do with theories of money creation.

Money Creation. QE, quantitative easing. 2008-the USDollar had a relative value around 76 (higher number is more value, lower number is less). The US did about $8 trillion of QE. The dollar should have dropped like a rock, but it rose to nearly 100. Money creation from thin air debases a currency and that is why it drops. Japan did QE two years ago and the yen lost value about 50%. The EU did QE last year and the Euro lost about 15%. When the value of gold goes up, it reflects a lack of confidence in fiat paper money, ergo if the gold can be driven back down the fiat paper confidence is restored. A good confidence pump is used by the Treasury, Goldman Sachs, etc. when worries about the dollar dropping crop up. The talking heads all get on TV and say "I am confident going forward." "Our policies generate great confidence is stability." "We are confident that the long term is secure." And more blather, all stating CONFIDENCE like an air compressor that pumps confidence and confidence, which is what gives fiat money value, is increased. Gold has value by weight, fiat paper has value by confidence.
 

DaveFagan

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The Fed gains income from a variety of sources — mostly interest earned on government securities, foreign currency investments, and loans to banks, S&Ls, and credit unions, and fees collected from those depository institutions.

>>It is NOT part of the government. … If Congress and/or the POTUS tell the Fed to lower interest rates. The Fed does not have to lower interest rates. It could raise them

I don't disagree, but the second point does not follow from the first. The federal courts are part of the gubmint, but they also have a good measure of independence.

The Fed words it this way:

The Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government; therefore, the description of the System as "independent within the government" is more accurate. — "The Federal Reserve System Purposes and Functions," Board of Governors of the Federal Reserve System, Jun 2005​



No it isn't. You cannot produce a credible source to say that it is.

>>at the end of the year it returns all of the money it made to the treasury.

Sloppily worded at best. It pays its expenses with part of its income and turns over what's left to the Treasury.

The remainder of yer little seminar was of course quite fascinating.

I would like to add that it is the Federal Reserve CORPORATION. That means it is subject to CORPORATE Law.
 

JP Hochbaum

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The US did about $8 trillion of QE. The dollar should have dropped like a rock, but it rose to nearly 100. Money creation from thin air debases a currency and that is why it drops.

Man I couldn't find a more perfect quote for a great example of cognitive dissidence.
 

DaveFagan

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Man I couldn't find a more perfect quote for a great example of cognitive dissidence.

It is "cognitive dissonance."
When you print, from thin air, more paper money without additional collaterol, the money is debased. That means loses value. Is this a new concept for you? The only way that paper money would rise in value is manipulation. Manipulation was necessary because the banks foreign loans would have been paid back with cheap dollars, costing them billions/trillions?
 

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No it isn't. You cannot produce a credible source to say that it is.

it works the same way that FANNI and Freddie did. they were independent organizations
that was subject to oversite by congress.

the same goes for the fed. they are an independent organization but are subject to congressional
oversite and the head of the chair works at the discretion of the president.

Sloppily worded at best. It pays its expenses with part of its income and turns over what's left to the Treasury.

Yes the majority of your posts are sloppy hard to read and frankly 99% of the time make no sense.
why are you stating something that we already know?

The remainder of yer little seminar was of course quite fascinating.

what are you actually contributing again? nothing.
 

ludin

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Let's play twenty questions.
Do you know what the Plunge Protection Team of the US Treasury is?
A colloquial name given to the Working Group on Financial Markets. The Plunge Protection Team was created to make financial and economic recommendations to various sectors of the economy in times of economic turbulence.
It is probably a good idea to have a team ready to make recommendations in order to slow an extreme bull market.
only conspiracy theorist believe the other thing.

Do you know whet the Exchange Stabilization Team is?
The U.S. Exchange Stabilization Fund was established at the Treasury Department by a provision in the Gold Reserve Act of January 31, 1934. 31 U.S.C. § 5117. It was intended as a response to Britain's Exchange Equalisation Account.[2] The fund began operations in April 1934, financed by $2 billion of the $2.8 billion paper profit the government realized from raising the price of gold to $35 an ounce from $20.67. The act authorized the ESF to use its capital to deal in gold and foreign exchange to stabilize the exchange value of the dollar. The ESF as originally designed was part of the executive branch not subject to legislative oversight.

Do you know what a naked short sale is? Example-gold too high for a power broker who has debts owed in USDollars and when gold goes up Dollars usually go down. He'll get paid back less with cheaper dollars. He shorts the market with 10 million ounces of gold below market early in the a.m. Gold drops like a rock and he shorts another few million shares and it drops below the short and he makes good his paper trade that required no actual commodity. Now his dollars will likely rebound and he'll get paid in dear dollars. Actual case history in the last few years.

You have that backwards. the value of gold is relative and is kinda independent of the dollar. there is an minor indirect link but people use gold as a hedge against inflation.
If there is weakness in the dollar then you will see gold rise, and then sometimes it will rise just on demand.

people short sell things all the time. It is a dangerous game but it can happen. Any transaction of that amount would have to be authorized by the SEC.
they kind of frown on those types of transactions.

Naked shorting is the illegal practice of short selling shares that have not been affirmatively determined to exist. Ordinarily, traders must borrow a stock, or determine that it can be borrowed, before they sell it short. But due to various loopholes in the rules and discrepancies between paper and electronic trading systems, naked shorting continues to happen.

Naked short selling is illegal so what you just described can't happen.
 

ludin

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I work at a capital trading firm and I have to say none of that seems like English and I am fairly financially literate, what exactly are you saying? lol

seems like financial conspiracy theorist mumbo jumbo I have seen before.
 

ludin

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It is "cognitive dissonance."
When you print, from thin air, more paper money without additional collaterol, the money is debased. That means loses value. Is this a new concept for you? The only way that paper money would rise in value is manipulation. Manipulation was necessary because the banks foreign loans would have been paid back with cheap dollars, costing them billions/trillions?

This is where you don't know what you are talking about.

Typically this is true. If the Treasury orders 100 trillion dollars printed and the fed releases all that money into the system without the demand for it or the economy doesn't require it
then yes you will see a huge debasing in the system.

QE didn't do that. While Billions of dollars were spent none of the money actually entered into the markets. it was kept within the banking system itself.
the fed simply did an dollar for dollar asset exchange with banks.

none of it was actually used to pay on the debt or anything else.
 

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A colloquial name given to the Working Group on Financial Markets. The Plunge Protection Team was created to make financial and economic recommendations to various sectors of the economy in times of economic turbulence.It is probably a good idea to have a team ready to make recommendations in order to slow an extreme bull market.only conspiracy theorist believe the other thing.The U.S. Exchange Stabilization Fund was established at the Treasury Department by a provision in the Gold Reserve Act of January 31, 1934. 31 U.S.C. § 5117. It was intended as a response to Britain's Exchange Equalisation Account.[2] The fund began operations in April 1934, financed by $2 billion of the $2.8 billion paper profit the government realized from raising the price of gold to $35 an ounce from $20.67. The act authorized the ESF to use its capital to deal in gold and foreign exchange to stabilize the exchange value of the dollar. The ESF as originally designed was part of the executive branch not subject to legislative oversight.You have that backwards. the value of gold is relative and is kinda independent of the dollar. there is an minor indirect link but people use gold as a hedge against inflation.If there is weakness in the dollar then you will see gold rise, and then sometimes it will rise just on demand.people short sell things all the time. It is a dangerous game but it can happen. Any transaction of that amount would have to be authorized by the SEC.they kind of frown on those types of transactions.Naked shorting is the illegal practice of short selling shares that have not been affirmatively determined to exist. Ordinarily, traders must borrow a stock, or determine that it can be borrowed, before they sell it short. But due to various loopholes in the rules and discrepancies between paper and electronic trading systems, naked shorting continues to happen. Naked short selling is illegal so what you just described can't happen.
Please read the entire articlehttp://www.paulcraigroberts.org/2014/01/17/hows-whys-gold-price-manipulation/"The Fed’s gold manipulation operation involves exerting forceful downward pressure on the price of gold by selling a massive amount of Comex gold futures, which are dropped like bombs either on the Comex floor during NY trading hours or via the Globex system. A recent example of this occurred on Monday, January 6, 2014. After rallying over $15 in the Asian and European markets, the price of gold suddenly plunged $35 at 10:14 a.m. In a space of less than 60 seconds, more than 12,000 contracts traded – equal to more than 10% of the day’s entire volume during the 23 hour trading period in which which gold futures trade. There was no apparent news or market event that would have triggered the sudden massive increase in Comex futures selling which caused the sudden steep drop in the price of gold. At the same time, no other securities market (other than silver) experienced any unusual price or volume movement. 12,000 contracts represents 1.2 million ounces of gold, an amount that exceeds by a factor of three the total amount of gold in Comex vaults that could be delivered to the buyers of these contracts.This manipulation by the Fed involves the short-selling of uncovered Comex gold futures. “Uncovered” means that these are contracts that are sold without any underlying physical gold to deliver if the buyer on the other side decides to ask for delivery. This is also known as “naked short selling.” "
 
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