News & Analysis
Showdown at the CFTC
CFTC heads for showdown with industry ... With the U.S. Commodity Futures Trading Commission (CFTC) set to vote on Tuesday on a final rule imposing position limits in commodity markets, the battle between the commission and its critics is set to move across Washington to the federal courthouse on Constitution Avenue. ... The expected challenge to the CFTC will therefore set up a major clash between the Obama administration, regulators and the congressional Democratic Party on the one hand (all of who want to impose tougher restrictions on trading and banking in the wake of the crisis) and Wall Street and congressional Republicans (who oppose attempts to extend regulation as misguided and damaging). – Reuters
Dominant Social Theme: Those regulators are trying to subvert the free market again! We better fight back.
Free-Market Analysis: This is an interesting analysis from John Kemp of Reuters about an upcoming legal confrontation between free markets and regulation. He perceives it as a struggle between over-reaching regulation and market forces. The confrontation has been set up by the imposition of Dodd-Frank legislation passed in reaction to the crash of 2008.
As has been reported throughout the mainstream media, the CFTC and its supporters want to be able to micromanage commodities trading by setting limits on trading activity; many in the commodities industry do not want the CFTC to have these additional powers.
At least that's how the argument is being cast. But at a deeper level, we find a dominant social theme at work. The theme has to do with positioning the argument so that it makes the current state of affairs represent the free market. In fact, the current financial marketplace is nothing like a free market.
The current financial marketplace is the result of a century of central banking stimulation, which has entirely distorted the reason for markets and what they do. The overwhelming surges of money have overwhelmed the essentially transactional and intermediary functions of securities industries around the world. This leads to all sorts of distortions including ones in the fundamental narrative.
Here's a summary of the crux language of the enabling CFTC powers as amended by Dodd-Frank: "For the purpose of diminishing, eliminating or preventing [the burden on interstate commerce], the Commission shall, from time to time ... proclaim and fix such limits on the amounts of trading which may be done or position may be held by any person ... as the Commission finds are necessary to diminish, eliminate or prevent such burden."
In a sense, this is nothing but an invitation to outright market manipulation. Since bills are not passed without the blessings of industry's biggest players and the CFTC is notoriously influenced by the industry it purports to run, it is probably safe to say that at least some of Chicago-land's biggest interests are behind the increased powers.
Alternatively, the added powers represent an attack by the New York securities industry that resents the emergence of the Chicago boys as a power in the industry of securitization of anything with or without a pulse.
Finally, the vote has been cast as a necessary evil that will wring out the corruption and short-selling in the bullion market This is the position that many metals bulls are taking, and we have written about it previously. We agree (instinctively) that the corruption is such that position limits might help with the underlying power-elite manipulations of metals. Yet in another way the argument is a poisoned chalice, manipulating free market thinkers into supporting the CFTC and its regulators who are surely among the most questionable in the world.
The bottom line is always the same: Regulation is nothing but regulatory capture and always benefits SOME business interest – or suits the purposes of the most powerful among us. Here's some more from the article:
In court, the case will be cast in technical terms. Does the commission need to show excessive speculation has caused sudden or unreasonable fluctuations or unwarranted changes in commodity prices and position limits are the only means of "diminishing, eliminating or preventing" the burden on interstate commerce? Or has Congress given the commission an explicit instruction to impose them preemptively? (See Title 7 of the U.S. Code, Section 6(a)).
The underlying question is more emotional and ideological. Should the government be able to intervene in financial markets to limit the sort of positions participants enter into freely among one another? If so, under what circumstances? The dividing line between the two parties, and between industry and regulators, falls in the predictable place: pro-regulation Democrats and government agencies versus anti-regulation Republicans and the industry.
Position limits are shaping up to be an early test of post-crisis attitudes towards regulation. In the 1930s, in the aftermath of the last great crisis, the U.S. Supreme Court invalidated a string of New Deal regulations by 5-4 majorities until the notorious "switch in time that saved nine" by Justice Owen Roberts in 1937 ushered in an era of broader economic regulation. Political conservatives have long sought to reverse that shift and return to the pre-1937 era of small government and less economic regulation.
Kemp has done us a favor by presenting a clear perspective on some of the issues involved. However, the underlying issues remains intractable in the modern era. it is truly a terrible choice. Either one supports additional regulation which may squeeze some of the underlying manipulation or one acquiesces to the continued, bold manipulations.
Thus it is that many in the hard-money community face the faux choice of supporting MORE regulation or submitting to the status quo. Somehow, the CTFC now becomes the standard-bearer of the Invisible Hand! How ironic.
This is how we see it. The larger issues, unfortunately, will not be commented on for the most part within the context of this confrontation, not by free-market gold and silver bulls, not by those who oppose or support the rules for other reasons. And in the mainstream media, meretriciously, it will simply be cast as a battle between regulators and free-marketers.
In fact, this meme has been cleverly positioned to reinforce the status. Artificial monetary stimulation is very bad medicine and it has distorted not just the US economy but Western economies generally. The booms and busts of Western economies affect the world and have caused "capitalism" to come into disrepute. The solution to capitalist problems are said to be regulatory in nature.
The establishment of central banks, run by a small clique of one world elitists, is Machiavellian in its cleverness. It is monetary stimulation that gives rise to the manifold security abuses of today's money business. Everything from derivatives to the industry's "casino mentality" and its ongoing, incredible centralization can be laid at the doorstep of abusive monetary expansion.
Conclusion: Look what free-market thinking has come to. One is compelled to support the CFTC's encroachments or, generally, fight the battle for "free markets" by endorsing more regulation. There is another way, however. If one wants to make a difference for oneself and one's children, promote the end of central banking and the de facto return of sound and honest money within a competitive free-banking environment. Money is not just the root of all evil; it is the solution, too.
Edited on date of publication.
Posted by Alan on 10/29/11 07:53 AM
Yes, it may be extremely harmful to the speculators that trade 4 trillion dollars a day on currencies, purely on the basis that they are betting on currency values tomorrow. I understand that the "gold" sellers have sold 45 times as much gold as they actually hold. Banks, particularly "central banks", finance things with money that they do not have. I guess the cost of the WW 1 to the UK was pretty high. The US made a fortune supplying both sides, so had plenty of money at the time. Mind you,I don't know haw much of it was mythical, as virtually all of it is today.
Posted by RR on 10/19/11 10:23 AM
Thanks and all good points. A link for more evidence.
Click to view link
Posted by rossbcan on 10/19/11 07:40 AM
I think the issue of speculation, market manipulation and excessive risk taking by traders can be solved after the fact (increasing risks for criminals by "crime does not pay") by realizing problematic (failed) trades ultimately resolves to:
One, or both of the "traders" has fraudulently misrepresented their position and ability to "cover their bets". By appearances and spin, they lost, but, not really.
Currently, this issue is "solved" by bailing out the parties with resources derived from further indepting / indenturing the public, innocent bystanders and collateral damage. Private profit, socialized loss, cumulative attrition costs thereof collapsing economies and civilizations. There is profit in being "too big to fail" and then, failing by rewarding insiders, hollowing out the enterprise using "decreed by man" "limited liability" corporate structures.
Of course, this large scale fraud needs to be de-legitimized and, the parties held to account as the criminals they are. Just another from many examples of the very costly collective survival consequences of "rule of corrupt man", rationalizing away the "rule of law":
Click to view link
Posted by rossbcan on 10/19/11 07:02 AM
DB: "Money is not just the root of all evil; it is the solution, too."
The correct quote this is based on is:
Root of all evil may refer to:
* 1 Money
* First Epistle to Timothy in the New Testament (1 Timothy 6:10), which contains the phrase, "The love of money is a root of all kinds of evil" (Often misquoted as 'Money is the root of all evil')
* Greed, one of the Seven Deadly Sins, the excessive love of money and other possessions
* Radix malorum est cupiditas, Latin for "Greed is the root of all evil"
Click to view link
Sloppy phraseology, feeding fundamental memes, harming your position.
You triggered a pet peeve. Things, including money, guns do not have volition (choice) and therefore are incapable of human action and therefore are morally neutral. The choices of individuals regarding how things are used as tools is very amenable to moral evaluation.
EG: Those who fraudulently misrepresent fiat currency (a thing) as "money" to achieve the fraud of printing presses running amok to attain title to real property while those holding the bag of fiat currency and financial derivatives are left holding worthless paper and computer entries. And, computer entries cannot even be uses for firewood, when hyperinflation strikes, as it must because states have destroyed productivity and will have to print for survival at the expense of whatever marks remain.
Posted by NAPpy on 10/19/11 02:52 AM
"When a gold standard or private money is instituted the PE are still the most powerful players, actually the only players. You seem to be ignoring this fact."
Quoted from above:
"If very wealthy gold holders can't print money, then they have to trade value for value like everyone else. That means that if they don't produce more than they consume, their gold stock piles will diminish. If they do produce more than they consume, then they are providing value for value, and I have no problem with them staying rich. Think about the old phrase "rags to riches to rags in 3 generations". What are the odds that extremely wealthy people can stay wealthy, when they've spent several generations living off of manipulation? I don't know what the odds are and I don't care. I personally will not waste the energy trying to "right the scales", as long as I can choose what money to use, and how to bank. If you want to "get justice", do so. Just bare the cost yourself, and don't try to socialize the cost on to me. Maybe you can start a business. I'm sure there are others hurt by the PE that would be willing to pay you, voluntarily, to bring the PE to justice."
So, how did I ignore the fact that the PE were still the most powerful players? People are more powerful than me now and they barely affect my day to day life.
"... actually the only players."
I own gold and silver. I know at least 10 people at my job, and 1 family member, who also own PM's. So, the PE are hardly the only players. I saw the problem in time to take action, and the greatest wealth transfer in the history of the world will partially benefit me, and those smart enough to listen to me. If you've spent more than a week on this site, then you should have bought PM's by now. That means you're also a player.
"Unimaginable wealth concentrated in the hands of a few is the crux of the problem."
Assertion, with no argument or evidence. Source? I'd say that the tool that allowed that unimaginable accumulation of wealth is the crux of the problem, since in argument form it came first.
"Unless this is addressed nothing will change."
Assertion, with no argument or evidence. Source? I just did a google search for multigenerational wealth management. None of the sites I saw recommended starting a central bank. If they don't start a central bank, then they have to trade value for value. If wealthy people trade value for value, then how can you have a problem with that? I made an argument above that you can privately seek justice against these very wealthy people, just don't coerce me into participating. Please respond to that argument.
"Public banking as an interim measure has the potential to break this control by transferring wealth to the middle classes, just like private banking transferred wealth to the PE in the past."
Assertion with no argument or evidence. Source? Have you heard of regulatory capture?
Source: Click to view link
Please explain how public banking will avoid regulatory capture.
"... transferring wealth to the middle classes,"
I'm middle class, yet I would prefer to grow wealthy without transferring wealth (also called stealing) from my rich friends.
Posted by RR on 10/18/11 11:02 PM
When a gold standard or private money is instituted the PE are still the most powerful players, actually the only players. You seem to be ignoring this fact. Unimaginable wealth concentrated in the hands of a few is the crux of the problem. A wealth accumulated by deceit. Unless this is addressed nothing will change. Public banking as an intrim measure has the potential to break this control by transferring wealth to the middle classes, just like private banking transferred wealth to the PE in the past.
Posted by Danny B on 10/18/11 10:27 PM
Oh Great Bell, you started out by talking about the CFTC regulating certain instruments. The metal-bugs ran with the ball. The ball being metal price suppression. Gary Gensler has been less than helpful on that issue. While there is lots of interest in PM prices, the MUCH larger question is the regulation of instruments.
GS managed to create an "index traded fund" for wheat. They drove the price up to 10 times normal. They drove the number of starving people up by 250 million.
Click to view link
The regulation of speculative instruments is far more important that the PM market.
I share the opinions of Warren Buffet and Paul Volker regarding derivatives. "instruments of mass destruction" and "totally worthless innovation"
They are fraudulent by their very nature. They are mountains of incestuous conflict of interest. They don't need to be regulated. They need to be expunged.
Warren Buffet unwound every one that he received.
The PM market will go naked one of these days. Everyone with a brain is pulling their funds out of un-allocated gold and putting it into allocated. That's why all the new storage is being built. The Chinese hold on to every ounce they produce rather than making big purchases. They don't want gold to go up until they have every bit they can scrounge up. It has been very quiet from Venezuela ever since they demanded to repatriate their gold. ????????????????
The questions about regulating instruments is FAR more important than PM. Reportedly, 5 U.S. banks hold 96% of $ 250 trillion in derivatives.
Click to view link
PM is small change.
Posted by Don on 10/18/11 09:49 PM
A shout-out, if you please, to DB's recent unauthorized yet popular thread feedbacker meme of mind control. Click to view link
Dominant Subtext. Leviathan may play the part of the buffoon when it comes to its own Post Office, and it may not be able to move mountains (yet), but, by (DC god) George (Washington) it can and does move markets. Any market, any time, any place.
Posted by NAPpy on 10/18/11 07:51 PM
"But if it has to go then they definitely don't want public banking to replace it."
Source? You have a spy among the PE? If not, then this is a bald assertion. Thinking things through on my own, it seems to me that really rich people have an overwhelmingly strong incentive to buy politicians, if only to protect themselves from other wealthy people gaming the system. Politicians will control public banking. Rich people control politicians. So, how is public banking any kind of solution?
"They will survive in a gold standard and a private money environment. It will be a step back for the PE but only for a short time."
I have no problem with the PE surviving, as long as I can use whatever money I want, and can bank how I want. If you want to ensure that the PE don't survive, do so on your own dime. Do not try to socialize the cost on to me. If you can start a PE bounty hunter business, and can offer good prices, I might subscrive to your service, voluntarily.
Posted by NAPpy on 10/18/11 07:44 PM
Morality is really simple:
1. Criminal law: Don't hit people or take their stuff.
2. Civil law: Keep your promises.
So, given that, please explain to me what problem you have with speculation?
Posted by NAPpy on 10/18/11 07:41 PM
If very wealthy gold holders can't print money, then they have to trade value for value like everyone else. That means that if they don't produce more than they consume, their gold stock piles will diminish. If they do produce more than they consume, then they are providing value for value, and I have no problem with them staying rich. Think about the old phrase "rags to riches to rags in 3 generations". What are the odds that extremely wealthy people can stay wealthy, when they've spent several generations living off of manipulation? I don't know what the odds are and I don't care. I personally will not waste the energy trying to "right the scales", as long as I can choose what money to use, and how to bank. If you want to "get justice", do so. Just bare the cost yourself, and don't try to socialize the cost on to me. Maybe you can start a business. I'm sure there are others hurt by the PE that would be willing to pay you, voluntarily, to bring the PE to justice.
Posted by johnblenkins on 10/18/11 06:53 PM
Silver certainly is the achille's heel of fantasy fiat.
There is no greater sustained manipulation to any other
market. Orchestrator in chief for JPM Blythe Masters.
Two sudden 30% dives in months, Drive by shootings
with the CFTC at the wheel.
Would you sit down at a poker game knowing the game and the ref were
Why play the silver paper markets when the stack is loaded
to use the week hands as succour for JPM et als get out of impossible short positions ?
Only one long term solution, Buy and Hold in Your Hand Silver.
Gratefully gather at these artificial low prices. Thank you JPM.
You are right, there is a diminishing pile of silver.
Coupled by increasing Industrial uses and demand.
A standard solar panel use 1/2oz of silver each, so I read.
Year to year a record 3 million + oz of Silver Eagles sold by the
US mint, all other world mints report records.
Then there are others like myself who buy as much scrap to antique
teapots to coins as my pockets can bare. As long as its scrap price or better. Every kilo taken of the market bites the manipulators.
Growing demand/declining supply. Hold through the storms of the market
melt down ahead.
The Honk Kong Bullion Exchange only this week are selling Gold in Yuan.
The Chinese starting with the thin edge of the wedge, Oil in Yuan next?
Posted by truthbetold on 10/18/11 05:59 PM
a ONE WORLD government has been predicted in the BIBLE, the current events are a prulude to the facism that is at our very door steps ... ... ... ...
the word of GOD say's "if my people will humble themselves an pray and seek my face an turn from there wicked ways I will hear from heaven an will heal there land."
Posted by Dilence Sogwood on 10/18/11 03:28 PM
Where are these massive positions? What incentive does an exchange have to permit positions in excess of capital requirements? Do you all realize these contracts are ZERO SUM contracts?
Reply from The Daily Bell
Huh, you talkin' to us?
Posted by EdwardUlyssesCate on 10/18/11 03:11 PM
It would be interesting to know just how long folks anywhere would buy tickets to watch their favorite sport if rules and regulation were not enforced equally for BOTH sides. The CFTC is like a referee throwing a very late flag, after the game is over. When there's no one left to lie-to and steal-from, the financial sociopaths will extinguish themselves. But what a gawd-awful wait until that time.
Posted by countzero on 10/18/11 01:56 PM
With all due respect DS, if you truly believe that the metals markets cannot be cornered then you have simply not been following the daily "slam-downs" of both gold and silver by the so-called "12 or under not-for-profit entities" with J.P. Morgan leading the pack in a massive shorting of the markets. There has been irrefutable testimony given to the CFTC by a significant number of investors that the metals markets are indeed "gamed" by the banking cartel.
The markets are NOT free at this point, which is the very point that the CFTC is all-too-slowly addressing.
As for China, the main reason that they have not "poured their yuan" into gold is that they have no reason to wish to crash the market of their principle export country. They have continuously added gold to their mix of investments in a judicious manner, and their "early buys" have indeed risen considerably in value ... . certainly more than the return on the U.S. Treasuries they have been purchasing to help keep the U.S. economy afloat.
And finally, to say that currencies trading at spot allow governments to manipulate wealth makes no sense at all. The spot price, if it is allowed to be set properly, is the result of price discovery in the marketplace on an Ask and Bid basis. The problem is when there is outright behind-the-scenes manipulation of that process, such as High Speed Computer Trading and massive positions either long or short by one entity. It is THIS that market participants wish the CFTC to control in order to create a level playing field for all concerned.
Reply from The Daily Bell
With all due respect DS, if you truly believe that the metals markets cannot be cornered then you have simply not been following the daily "slam-downs" of both gold and silver by the so-called "12 or under not-for-profit entities"
We never wrote the market couldn't be cornered, just that the current financial system presents us with a false narrative and an impossible choice - either use the CFTC to "regulate" the elite manipulations or defend the system as it is, with all its ruinous speculation and monetary inflation.
Posted by Bret on 10/18/11 01:25 PM
Speculaters are necessary in free trade. If you are a producer of corn and want to sell to hedge some of your risks you need a liquid market and speculaters provide that. Now if we could end central banking and the piles of cash that it provides to the big banks I don't think we would even need to discuss position limits.
Posted by apberusdisvet on 10/18/11 01:23 PM
The biggest problem with the totally captured and corrupt CFTC is that the fraud is right before their eyes re the naked shorting of the metals without a requirement to hold them. In the month of May alone, the daily positions taken on the short side, when totalled, exceeded many years of silver production; an impossibility that was out there for all to see. Position limits actually mean squat. Silver is the achille's heel of the fiat debt enslavement policies of the banking cartel. The CME is also part of the criminal enterprise in imposing margin requirements. The silver price is manipulated down consistantly in thinly traded AH markets with no volatility, and yet margin limits are raised many times to discourage investment by traders. But the CME does not touch margin limits for corn, coffee, cotton, and others when their volatility goes nuts. Hmmm Hmmm Hmmm. It's all about protecting the illusion of the USD as the world's safest haven; nothing more, nothing less.
With silver, the elites are heading for self destruction. The scarcity cliff is dead ahead. What they don't want you to know is that silver, most probably, may disappear from the planet within 20 years. There are no large stockpiles left; over 90% of silver ever mined has been lost forever.
Posted by RR on 10/18/11 12:51 PM
Where is the unregulated capitalism ??
Posted by Hoss on 10/18/11 12:35 PM
Dominant Social Theme:
Unregulated capitalism is a Bad Thing. Look what it has done to us.