Asian central banks quietly diversifying out of U.S. dollar holdings

By Ted Butler
February 23, 2004

While I have mixed feelings on the Martha Stewart trial
(should charges have been brought in the first place?),
the government's case is centered on the principle that
lying in an investigation obstructs justice. That's an
important point in the legal process. It's probable that
the government has selected such a celebrity to try to
send a strong signal to those who may be tempted to
lie in future investigations.

It is important that no one obstructs the path to truth
and justice in any investigation. But it should work
both ways and apply to the government as well. In fact,
the government should probably be held to a higher
standard. After all, most senior officials in the
government swear an oath of office to upholding the
Constitution and truth and justice.

I believe that the Commodity Futures Trading
Commission (CFTC) is obstructing justice in its
regulation of the COMEX silver market. I don't know if
the CFTC's obstruction is based upon malfeasance
or incompetence. But that doesn't really matter. The
commission is guilty of obstruction. This is a strong
allegation, and it is one I do not make lightly.

The CFTC is openly shirking its responsibility of
preventing market manipulation in the silver market.
This is the primary reason why the CFTC and U.S.
commodity law exist. Every other responsibility is
secondary. Therefore, it is incumbent upon the CFTC
to be alert should they receive credible allegations of
a market manipulation. That is not happening, and it
is why I say that the CFTC is obstructing justice.

I have no doubt that the silver market is manipulated.
Every day more people agree. Manipulation is the No. 1
crime in any market, and preventing it is the chief
responsibility of our regulatory structure. The silver
manipulation is proved by the law of supply and
demand, which dictates that the price of a commodity
must rise if consumption is greater than production.
Silver quot;leasingquot; and the largest uneconomic naked
short position in history are manifestations of the
manipulation, as is the depressed and controlled
price for two decades.

The CFTC (and the self-regulators at the
NYMEX/COMEX) are obstructing justice by avoiding
an open and public quot;trialquot; of the silver manipulation.
Maybe they have good answers to the simple questions
I have asked them. Maybe they have good reasons for
not adopting the solutions I have offered. But their
refusal even to discuss these substantive issues is not
comforting.

What would happen to Martha Stewart or any defendant
if no defense to government accusations was offered?
What would happen if subpoenas and trial dates were
ignored? Then why should a government, of, by, and for
the people be allowed to simply ignore and evade what
is clearly a public mandate? What happens if the public
presses the government to redress an obvious wrong
and the government refuses? What if great numbers of
concerned citizens demand the government to enforce
the law and the government looks the other way? Where
does the majority turn to seek an open and impartial
setting to judge whether their concerns are legitimate?

There are close to 3,000 names on the silver petition,
in addition to countless letters sent to the regulators
seeking a resolution of the silver manipulation. I have
not seen one comment, from anyone, suggesting that
the regulators should not address the issue. It's as if
the CFTC and the COMEX are trying to undermine
public confidence in the integrity of the silver market.
Refusing to respond quickly to legitimate questions
about obvious problems, accompanied by fair
solutions, asked by thousands of regular investors
will not foster integrity.

I would like to put something into perspective here. I
know hundreds of you have taken the time and effort
recently to write to the regulators about this matter,
and I know thousands of you have put your name and
comments on the petition. For that I thank you. What
you have done is to accelerate the timetable on what
is a certain and inevitable outcome -- the termination
of the silver manipulation. I believe we are reaching
critical mass.

When I initiated my campaign to end the silver
manipulation in 1985, it basically consisted of writing
to the CFTC and COMEX (directly and through elected
officials) concerning the outsized dealer short position.
I'd mail a letter, get an unresponsive reply a month or
two later, write back advising why the answer was
unresponsive, and initiate a new series of complaints
as new evidence arose. This went on for 12 years, as
did the silver manipulation. It was basically between
them and me, and they disregarded me. There was
nothing I could do about it except start all over again.

Around 1996-97, I was introduced to the Internet and
began to record my thoughts there. I still wrote to the
authorities, and the silver manipulation continued, but
others started to see what I was seeing. Others began
to speak out about the manipulation in silver. People
started to become outraged over the manipulation. I
think this makes all the difference in the world.
Regulators and government officials seem to react
only when enough folks get angry. Precisely because
so many regular people seem to be upset by this issue,
I believe the regulators will be forced to act soon. If
they don't, they will be swept up with the real
manipulators when this thing blows.

The key issue here is the excessive short position by
the dealers on the COMEX. It has been instrumental in
the 20-year silver manipulation.

Let me be clear -- without the uneconomic and outsized
naked dealer short position, the silver price would be
many times what it is. Take away that dealer naked
short position and there is no more silver manipulation.
This is a problem for the dealers -- they can't get out of
their short position. Sure, they can engineer selloffs to
cause technical fund and small speculator liquidations
(like what we've been witnessing), but they can't
completely cover their entire short position. That's
because there is no one willing to take their place on
the short side.

The dealers are stuck. They can't just cover or buy back
their shorts because that would cause the price to explode
and expose them to massive losses and a legal quagmire.

Since they can't cover, their short position remains intact,
as does the manipulation.

But time is not on the side of the dealers. The clock is
ticking against them. That's because of the real
supply/demand situation and the deficit. Sooner or later
their uneconomic short position will consume them. That's
guaranteed by the law of supply and demand.

In fact, there are two recent developments that promise to
put serious pressure on the manipulative shorts.

For one, we have recently evolved into pronounced deficits
and shortages for a good number of base metals, like copper,
nickel, lead, and steel, and a host of other commodities. The
deficits and shortages in all these commodities are as a
result of surging world demand, principally caused by strong
demand from East Asia. Prices are up sharply and inventories
are down sharply.

Like all these commodities, silver is demographically and
economically sensitive. As I've written before, if the world
economy is strongly demanding copper, lead, nickel, and
other commodities, it is impossible for silver not to also be
in strong demand. This is not good for the shorts.

The second recent development putting pressure on the
manipulative shorts is what I wrote in the body of this
article -- possible regulator involvement. Thousands of
regular investors are putting pressure on the regulators
to address their legitimate concerns.

This is a bonus particular to silver, and not any other
commodity. It has the potential to blow the market sky-high
by terminating the decades-old manipulation. In fact, I think
the regulators may be forced to give the silver issue a full
and fair trial.

That's all we want. If they can throw the book at Martha
Stewart, the government at least can look at the dealers'
silver books. Those dealers have caused a lot more
economic harm than Stewart ever did. And the CFTC has
obstructed justice a lot more as well.

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