DERIVATIVES: HOW THE TINY SILVER MARKET COULD TAKE DOWN THE SYSTEM

Precious metals naked shorting is just another streamlined way to pick up nickels in front of a steamroller. Do it on a large enough scale and with some form of subsidy, margin, or grantee, and it can be a massive business unto itself.   That is, until it explodes and spills over into the densely connected network of other paper derivative structures.
This is part of why it is never absurd to consider that the tiny silver market can be the Achilles heel that might take down the system. 
Everything is tied and the trigger could come from any place along the tangled web.

By Dr. Jeffrey Lewis, Silver Coin Investor:

Disaster, by over-optimization, is another important way to frame the much-heralded “just in time” inventory practices which are used broadly by industry and grafted to monetary assets like precious metals.

The overgrowth of the financial system and serial bailouts are akin to allowing fuels to build up in the forest, preventing the natural burn off needed to replenish the soil and pave the way for new growth. Superficially, intentions are certainly good. But many suffer despite the well-intended. No one wants to see suffering or be held responsible for it for even a microsecond.

The modern world and the West in particular are extremely over-optimized and, therefore, dependent on a fragile array of artificial systems and networks. The degree of over-optimization can be measured by relative impact of the average developed world household losing power for a few hours or a day.

And we can see this growing process fracturing on many levels. The weakness comes from physical resource and the proximity of key inputs scarcity. Most of you are aware of the brittle reliance on a tiny physical “float” of available silver for industrial processes. We are one rumor away from a shortage that would create panic and wreak havoc across the spectrum.

We observe the phenomenon over a many industries, albeit with different manifestations.

Suburban sprawl has uprooted and disconnected vast segments of modern societies. We have stretched the commute time for what is left of the workforce. We have also added dependency on liquid fuels while selling and subsidizing an asset for a bloated financial system by creating debt.

The causality is certainly not linear, but liquid fuel consumption depends on a vast network of delivery operations that also happen to run on credit, which is in large part supplied by the very same financial institutions.

Similar delivery operations are responsible for the constant delivery of food and water far from the source.

Crisis and bailouts have led to massive consolidation in banking and finance, which has reduced the redundancy necessary to enable the efficient flow of credit and money. It is not difficult to imagine a long list of potential disruptions that could very quickly bring these extended networks and the people who rely on them to their knees.

Health and medicine have also succumbed to the same over-optimization – from pharmaceutical development and production and hospital administration to how care is delivered. Even the philosophy of medicine has fallen victim, where the standard of care evolves inwardly and often fails to identify risk on the front lines.

Over-optimization and Silver Duality

Turning to the poster child for how far we’ve gone down the proverbial rabbit hole in the fragilizing of finance, we can turn to silver.

Precious metals naked shorting is just another streamlined way to pick up nickels in front of a steamroller. Do it on a large enough scale and with some form of subsidy, margin, or grantee, and it can be a massive business unto itself. That is, until it explodes and spills over into the densely connected network of other paper derivative structures. This is part of why it is never absurd to consider that the tiny silver market can be the Achilles heel that might take down the system. Everything is tied and the trigger could come from any place along the tangled web.

Paper trading is a form of borrowing by not having primary exposure to underlying metal or asset. Price management not only serves the profit centers, but it also has the curious and optimizing effect of negating the macro picture – at least temporarily. Obviously, this is occurring to a degree in all markets, especially equities which have been prone to and infested by high frequency trading for the longest.

Financial System will break what’s left of the economy. The problem is that many assume that we can rebuild what we have today overnight. That another bailout will reflate the infrastructure underlying physical and social cohesiveness.

Out over optimization has made this impossible. And complex systems bloated with fragility are as unpredictable as they are in fixable when they break.

If one looks long enough, it almost seems that miraculous systems so complex could have evolved to begin with. Or that it doesn’t break down more often. That is the magic caused by over-optimization.

Of course, it goes much deeper on each of those levels, leaving a potential gulf that most could never imagine – nor want to.

Considering how far wealthy societies could fall from any number of truly random events makes preparation seem a bit more fashionable. Sadly, our dominate information networks will very likely keep that trend “safely” sequestered from the mainstream.

The inverse of the fragile is the robust. The physical metal is most robust. We have the opportunity to prepare accordingly. And physical metal held in possession is a cheap option that can also be stored in a disaster kit.