19 February 2015 by Published in: Uncategorized 11 comments

A reader of my blog and FB page asked me the other day why I say the markets are all rigged, and a lie.

I began explaining, and thought some might find interesting how the markets actually work. So here’s a quick summary, which will then lead into a disturbing set of conclusions about the geo-political environment (which is longer due to the ground covered). But first, markets.

Take gold, silver, copper, platinum, wheat, coffee, oil, etc.

Commodities. Real items in the real world. Ostensibly with easily determined values based on supply, and demand.

The idea of commodities exchanges was twofold: to give producers a place to sell their goods in a central location, and to enable them to hedge their future production and lock in a price for it so they eliminated their risk of price fluctuations (and to enable purchasers of raw materials to buy in advance and lock in their supply). Supply and demand in this case is supposed to establish the price of the commodity. All good. The producer issues a contract good for, say, 100 ounces of gold, or 100 bushels of wheat, or whatever, and come time that the contract expires, is expected to deliver the product.

But that’s not how the modern commodities markets work. Instead, you have investment banks, speculators, and market makers, all of whom create a price for the asset based purely on the number of contracts they print up, knowing that 99 out of 100 contracts won’t be asked to deliver anything – speculators play the differences in the prices of the options contracts over time, and never want delivery, choosing instead to close out the contract or let it expire without exercising it.

Anyone see the immediate moral hazard here? Now, JP Morgan can write options contracts for 100 times more gold than is available in the entire world and those contracts will have the effect on the price of the commodity the same as though production increased 100 fold. Because you’ve increased apparent supply by 100. Or 1000. Or a million.

Markets work on a basic principle: that they are honest (that price discovery is a true reflection of supply and demand), and can’t be rigged. That’s not the case with the U.S. commodities markets. Price is purely a function of how many pieces of paper a bank wants to print, knowing it won’t ever deliver anything, which radically distorts the supply/demand outlook, and hence the price. And worse yet, if the bank is called upon to deliver the commodity by a buyer who really actually wanted the commodity and not cash, it can simply say, sorry, don’t have it, here’s the cash equivalent – the price of the contract, which as we just saw, is completely artificially controlled based on pieces of paper, not the actual supply and demand of the asset.

Same thing happens with stocks. In naked short selling, unscrupulous players sell IOUs for stock they then don’t deliver (because they don’t have it, can’t get it, and never intended to deliver it), but those IOUs are treated as legitimate supply by the system, again, badly skewing the supply/demand curve. Say company A issues 10 shares of stock. Theoretically the price of the stock would be whatever someone is willing to pay for 10 shares. If eleven people each want one, then the tenth person has to be offered sufficient money so they are inclined to sell. Supply, demand. But what the system does is sells the eleventh person an IOU it treats exactly like the real thing, and never tells the person they didn’t get a share, they got an IOU. What happens to supply and demand at that point? The price likely stays the same, because a synthetic share has been created out of thin air by the system. Or maybe even goes down, if the seller of the IOU has a reason to offer the price lower than the real shares trade at, thereby bringing all prices down to the new, artificially manipulated price. That, in a nutshell, is how unscrupulous manipulators crater the price of stocks, making fortunes on the price decline – they flood the market with IOUs, which badly distorts supply, causing their bets on a price decline to become big money makers (it’s far easier to get folks in a theater to panic by screaming fire than to get them to buy, so this is how the real money’s made on Wall Street).

Now multiply that by millions of shares and you start to see the problem in the markets. Of course, the regulators and the media claimed that never happened, and then grudgingly agreed it could but didn’t happen often, and then during the financial crisis had to pass laws barring the practice for ONLY the financial stocks (who were the groups doing it in the first place) because it was crashing the financial system. Of course, the baddies simply ignored the law and kept doing it, because they knew the regulators were toothless and they could get away with it. But that’s a whole nother story.

So next time you see all the articles in the media about why oil is X price or gold is that price, citing supply, demand, shortages, gluts, trends, understand that’s pure bullshit that simply ignores the effect of paper oil or paper gold on the price of the physical assets. Until the market gets so out of whack that the producers refuse to sell their commodity for the price listed on the exchanges, that price, which is established by these paper contracts and not physical supply and demand at all, is treated as the legit price – it’s a confidence game, and only falls apart when confidence in the price’s veracity is in doubt.

At those times, the physical disconnects from the paper price. In the gold market, for instance, in China and India and Malaysia, there is often a premium paid over the paper price, because there’s simply nobody willing to sell for the paper price. That’s an example of the market breaking down – the buyers and sellers concede there’s no real basis for the artificial paper price, and so add on cash until someone’s willing to sell. We’ve seen that increasingly of late, and it’s a sign that the legitimacy of the paper exchanges is no longer assumed by actual buyers and sellers of the physical commodity. Of course that’s rarely reported by the media, which is concerned with ensuring that the status quo is maintained, and that the majority of rubes, er, I mean, investors, believe the published prices.

But back to commodities and stocks. The ability to game the supply curve with paper instead of legitimate supply is why the markets are complete BS. The owners of the exchanges are the same big banks that distort the prices with paper prices, and they’ve created rules that allow them to do so with impunity. The game works until enough folks discover they can’t actually get the asset they bought at the price they paid for it, and then the legitimacy of the exchange collapses. In the silver market, there were six to eight week waits for silver coins at a time when the price was especially low. Now, in a working market, increased demand would drive prices up. But in the commodity markets it worked the other way – low prices bought out hordes of buyers, but supply simply didn’t exist, so they had to start handing out IOUs for the metal, delivery to occur at some point in the future. Sound odd?

Now you understand why I say they’re all bent.

Let’s look at oil prices, since those are in the news. I believe that the U.S. government, aided by their allies, the Saudis, are deliberately using low oil to punish the Russians for blocking U.S. attempts to go to war in Syria, predicated on a lie (last year’s sarin gas falsehoods propagated by the western media as truth, and later exposed as false). The U.S. really wants to go to war in Syria, in spite of the claims it doesn’t, because Syria is key to oil flow to Russia, and if the U.S. controls it, they own the Russians. Russia obviously doesn’t want them to do what they did in Libya, or Iraq, or Afghanistan, which is destabilize the region and create complete anarchy. So Russia blocked the U.S. war machine, the sarin gas reports were discovered to be as false as WMDs in Iraq were, and the U.S. looked like a bunch of liars trying to start yet another undeclared war in the Middle East.

I believe that the U.S. decided to retaliate against the Russians by doing two things: Sponsoring and supporting a conflagration in the Ukraine, wherein the democratically elected government was overthrown by a pro-U.S. de facto dictatorship, plunging Russia into a war on its border (note the media doesn’t discuss the hundreds of U.S. mercenaries on the ground in Ukraine hired by the puppet Ukraine government or the fact that most Ukrainians don’t honor the puppet government as being legit), and placing some calls to Goldman and JP Morgan and the Saudis and telling them to turn on the Xerox machine and drive the price of oil to $40. Because at that price, Russia’s currency falls apart.

Which would be the completely illegal and immoral manipulation of commodity markets to achieve political agendas of unbridled aggression.

Lest anyone believe that can’t happen, of course it can. Just as the NY Fed can steal Germany’s gold, sell it into the market to keep the price low, and then when Germany demands 10% of it back, be unable to return it. It supposedly can’t happen, and yet does, all the time. When banks and governments decide they are above the law, and aren’t accountable for fraud, theft, murder, etc. etc. anything goes, and that’s the world we live in.

For another bit of cheer you’ll never hear in the mainstream media, witness a recent DOJ push called Operation Chokepoint, which is where the administration bypasses Congress and the Judicial system, and effectively attempts to shut down a whole host of industries it simply doesn’t like, exactly as it tried to use the IRS to punish enemies of the administration. Coin dealers, gun dealers, fireworks dealers, payday loan places, pawn shops, all are targeted as being of heightened risk for money laundering, and the word went out to their banks that they shouldn’t really be supplying them accounts for that reason. So all of a sudden legitimate, law-abiding enterprises are finding themselves out of business without access to the banking system, and without any hearing or due process, their demise decided by un-elected bureaucrats – illegally, I might add. This is still going on, in spite of a bogus Wiki article saying it’s over. It’s not over. That is disinformation designed to mislead. In other words, a lie to cover up an illegal witch hunt the government knows it has to legitimate authority to conduct. Now, why would the government want to do away with shops where you can buy gold and silver, or guns and ammunition, or get an advance on your paycheck outside of the banking system? Hmm. A couple of troubling notions come to mind. Mainly, it’s an attack on alternatives to the dollar, and the second amendment, and alternatives to the mainstream banking cartel, that it knows would be shot down if attempted legally.

Google it. I have a friend who’s business almost went under because of it. That isn’t supposed to happen. And yet it does, every day. Because the U.S. government is increasingly behaving like a totalitarian state, and not like the constitutional republic it supposedly is. Witness that it is going back into Iraq for the third time, even though it says it wants nothing to do with the place after destabilizing it (when Hussein announced he wanted to get off OPEC and start trading oil for gold) and inserting a pro-west puppet government (sound familiar?) the population refuses to honor as legit, it’s going into Libya for the second time (same thing – doesn’t want anything to do with it after sponsoring an uprising when Qaddafi proposed trading oil in gold instead of the dollar), wants to go into Syria and is asking for war powers to do so.

Which brings me to ISIS – the new boogieman. Isn’t it funny that ISIS, instead of unifying the Muslim world, is basically destabilizing it, with Muslim battling Muslim.  And isn’t it odd that it really came to power (it was basically a zero before then) immediately after the U.S. got bitch slapped by Russia about Syria? Of course, the first place it went to ground was…Syria. Demanding U.S. response. If you look at a map of places it’s now “entrenched,” it’s basically a map of every resource rich area of the Middle East. And of course, the U.S. must root it out wherever it is. Which means endless U.S. wars and presence in the Middle East’s most oil rich or strategically important places.

ISIS, as far as I could tell, was about 100 guys with a camera crew instructed to carry out horrific executions in the most inflammatory manner possible. And which just so happened to align 100% with the U.S.’ desire to invade or destabilize a host of Middle Eastern countries that were either proposing trading using a gold back dinar instead of the U.S. dollar for oil, or are strategically important to China and Russia’s oil flow from Africa.

Believe what you like, I just find it awfully interesting that the new boogieman pops up when the public is no longer buying fake WMDs or spurious sarin gassing of civilians. But now we have a whole new reason to crank up the war machine – because the ISIS threat never sleeps and will get us if we don’t reluctantly invade all the countries that have anything worth taking!

Sorry. I’m just a tad cynical these days. Seen a little too much. Know a little too much. My take is that the military/industrial complex sees that the U.S./anglo alliance is slowly losing most of the world, with the BRICS nations now settling their trades without using the dollar, and with increasing oil producing nations unwilling to trade in dollars, and with China and Russia leading the charge away from the dollar, and has decided to do a series of false flag-based land grabs of strategic locations while it thinks it can still summon support.

Geo-politically, though, it’s backfiring, because Europe is seeing that it’s not in their best interests to support sanctions against one of its largest trading partners (Russia), and because most of the world outside of the sway of the U.S. media doesn’t for a second believe that ISIS is anything but a CIA-funded group designed to stoke the flames of outrage and give the U.S. an excuse to go to endless war in the Middle East, at least per a lot of the folks I talk to around the world.

The problem is that everything is basically a lie, designed to advance the agendas of those who want more power and more money at your expense. The markets reflect that truth – they lie early and often. We know the U.S. manipulates the stock market – it has a “plunge protection team” to do precisely that. Again, Google it. So in a world where nothing is actually the truth, the only sensible response is to be skeptical of everything – but that’s considered treasonous by a certain faction in the U.S., which have mistaken being patriotic for being unquestioning about the actions of its government, or the absurd official explanations it floats.

I don’t get it. I mean, I do, but I fail to understand how thinking people can buy fairy tales as though they’re truth. Usually, as is the case with the markets, by choosing to remain ignorant of how things actually work. Because ignorance is comforting, until a big boot steps on you, at which point I suppose it doesn’t matter.

I’ve found there are two basic types of people: those who want to understand reality as it actually exists in their limited time on the planet, and believe reason trumps all, and those who are anxiously awaiting the release of a new iPhone because it’ll be like totally even more bitchin’ and shit.

As a final bit of fun, today, the Baltic Dry Index, a measurement of supply and demand for container ships (higher and stronger means the better the economy is, due to increased commerce) put in yet another new historical low, lower than at any point in 30 years, signaling a worsening of the world economy even as Yahoo trumpets conditions improving!

Now back to writing. Have to finish up JET – Ops Files, Terror Alert, and then outline my next one!

Fight tyranny. Stand up for truth, puppies, and Grandma’s apple pie.

Buy. My. Crap.



  1. Thu 19th Feb 2015 at 1:51 pm

    After reading this, I think I just got a degree in something economic. Or at least a certificate.

    Thanks, Russell. I learn more from you than I did in school.

  2. Thu 19th Feb 2015 at 3:22 pm

    Terrific stuff here. CNN eat your heart out.

  3. Thu 19th Feb 2015 at 6:03 pm

    Well, I’m so disgusted with the federal government right now I no longer even have words to rant. I let my sister rant for me. And my father. We’re just ranting fools, I guess. Yes, I know all about Operation Chokehold and all the other unconstitutional crap that goes on. I’m moving to Montana to raise chickens. I seriously don’t know where else to go. Of course the EPA will demand control over the water in my rain barrel…
    I did spend a month in Costa Rica. I liked Costa Rica.

    • Russell Blake  –  Thu 19th Feb 2015 at 6:29 pm

      The problem is that if a government behaves unconstitutionally and illegally, and that government is also large enough to be virtually unbeatable, there are very few options left besides just getting out. And even then, depending upon how much overreaching it does, you might not be immune from its negative consequences. My gut says that over the next decade America will be increasingly isolated from a world it can’t bully any longer, that doesn’t use its currency for trade, and that could kind of care less what it likes or dislikes as its importance gradually fades in the scheme of things. The BRICS countries are already off the dollar and won’t be returning. As that collective grows, a larger percentage of the world will abandon the dollar, and the U.S.’ dominance will be relegated to more nuisance than anything. Reality is that once the majority of the planet is settling trades in Yuan or whatever, the U.S. ceases to be that big a factor in most peoples’ lives, except for its military aggression in resource rich areas of the world. But even that will get harder to justify to the world as it becomes obvious to even the dimmest that the boogiemen it claims to be afraid of every decade or so are creatures of the U.S. intelligence apparatus, created to provide false flag pretenses for aggression in the Middle East. At some point, Europe and Russia will say no, as they did with Syria, and the U.S. won’t be in a financial position to rattle its saber with as much authority. When China and its allies decide to stop financing the U.S. via treasury purchases, the country’s basically worse than bankrupt, so a lot of what we perceive as strength is just deficit spending, which only lasts until the creditors pull the plug.

      • Julia Barrett  –  Thu 19th Feb 2015 at 11:33 pm

        So basically, Russell, you’re talking about the rise and fall of the Roman Empire.
        You know (and tell me if you ever felt this) when I was a little kid I always felt like something awful would happen in my lifetime, some major shift. Not a good shift either. Sorta feels that way these days.

        • Russell Blake  –  Thu 19th Feb 2015 at 11:54 pm

          Well, all empires typically fall the same way. Those with the courage and vision to start the nation die off, and are replaced by the Pharisees, for lack of a better word – those without the authority to lead, but who seek power so they might have the authority that power brings, rather than earning authority through deeds and virtue. These people are typically big on rules and laws and anything that gives them the trappings of power – which to them always means control – especially power that emanates from an established structure, because unlike those with true moral authority or leadership, they derive their authority from the power wielded by the state, for which they toil.

          That inevitably results in a dearth of leadership, and you get generations of rulers instead of leaders. As the generations go by, the leadership element of being a ruler is forgotten, until you have a proletariat mass that looks, like a whipped dog, to its rulers for permission to eat or defecate. The citizenry forgets that it has the power, and looks to authority for governance instead of taking on the responsibility itself, looks to authority for guidelines and ethics and moral direction, and ultimately, abrogates its responsibility as self-determining in favor of the false comfort of someone else telling it what to do.

          It takes a while, but it’s inevitable. That society ultimately degrades into one of consumerism and the pursuit of the mindless, of bread and circuses, while the rulers plunder it while buying approval and votes. Ultimately it collapses under its own lack of productivity and vision.

          That’s the history of all empires. Right now we’ve moved from having leaders to rulers – we arguably haven’t had a true leader for a century or more. Our rulers tell us what we can and can’t do. Their Pharisees contrive an ever-growing set of constraints we must abide by, upon pain of punishment. Their authority is hollow – it comes from the whip and the sword, the police state, the fascist ideology, not from leadership. It is a fear-based ideology, where the citizen is a subject ruled over by his superiors, not one where the citizen is superior to everything, and those in government serve him.

          We’re in that end stage, where the citizenry is distracted by iPhones and TV shows and Kardashians and mindless bullshit, has forgotten the dream that made it possible in the first place, while the national treasure is looted around it by its rulers. The rulers pretend danger from X and Y and Z at regular intervals to demand further constraints and more power, and the citizenry, so blind and fat and dumbed down by now it can’t differentiate fact from fiction, nods along and hands over the keys to the kingdom.

          Not that I have an opinion or anything.

          And to be responsive, all generations feel that something really bad’s going to happen during their lifetime. And they’re always right. If you were born in 1900, you got Spanish Flu, WWI, the Great Depression, WWII. If born in 1950, you got the cold war, Korea, Vietnam, the rise of terrorism, and AIDS. And so it goes. The generation I belong to, born 1960 or so, skipped most of Vietnam and bypassed Korea entirely, viewed the cold war as something sort of amorphous that was over by the time we were true adults, and really only had to deal with AIDS and terrorism, which some might argue is far less dangerous and destructive than even one of the U.S.’ smallest “liberation” actions.

          We got off light so far. But it always seems like the end of the world’s around the corner.

          One day we’ll be right. So far, wrong 100% of the time.

  4. Fri 20th Feb 2015 at 1:56 am

    Well don’t that just suck eggs. I think I’ll go have an existential crisis and then try to figure out who spilled sticky stuff on my keyboard.
    I’d rather not be right. I have three kid and a few dogs.

  5. Fri 20th Feb 2015 at 2:54 am

    Russell, here at the southern tip of Africa we are experiencing exactly what you talk about in your second comment – the leaders like Nelson Mandela have gone and we are left with self-serving rulers who have corrupted the legacy they inherited because they are power-hungry control-freaks who do not have the interests of the people at heart. They continue to bleed dry what should by now have been a great country. Roman or US; ancient or modern; third world or first; all empires crash down the same way. Like the strongest of trees, they rot from the inside…

  6. Fri 20th Feb 2015 at 12:33 pm

    There’s more to Operation Chokepoint, porn stars and legitimate marijuana businesses in CO and elsewhere are victims as well. Family members of the marijuana business people have had their bank accounts closed as well.

    I’m a pretty straight X kind of guy, but that’s just wrong and wrongheaded. Not only do those people not have access to banks, but how is the government supposed to tax an all cash business? An all cash business is a money launderers wish come true…but the government doesn’t want marijuana to have bank accounts because of money laundering.

    All banking is suspect and subjext to abuse due to fractional reserve lending. All banks can lend out a specified multiple of the amount money than they have in their accounts, which they charge interest on when they loan out that money. The whole thing works so long as there isn’t a bank run. If too many depositors say “Give me my money!” the bank collapses.

    What it means is that our entire economy is based on trust. So long as we all agree to agree on the system, there’s credit (which is nothing but trust) and when there’s credit economies can grow faster than it takes to create actual goods.

    So we all have to smile and nod with the system or it will all go to crap. It doesn’t seem fair, but it’s better than anarchy.

    I think the next great human society will arise on Mars. Some entrepeneur will open up a BS free colony and every hard working human being that wants to earn their keep and keep what they earn will emmigrate for the opportunity.

    Maybe I should write a sci fi story to that effect, sort of a “The Moon is a Harsh Mistress” without the misogeny.

  7. Wed 18th Mar 2015 at 1:04 pm

    You are indeed cynical 🙂

    ISIS is most easily explained by actually looking at the well-documented religious-political reality on the ground in the Middle East. Not by CIA agents and sociopathic photographers, although that’s a great story.

    ISIS is another monster fostered by the Arabs: the Saudis, Qataris, Kuwaitis. Just like they fostered the Taliban in Afghanistan and parts of Pakistan and Al Qaeda. Some of the support for these groups has come from those governments, and some from private individuals in those countries.

    Why do they support such organizations?

    The Shia-Wahabbist split.

    Until we understand that the folks in the Middle East are serious about their religion, we cannot understand the place. It’s not just about oil interests, although that plays a huge role. It’s also about serious religion.

    Shia Iran is Wahabbist Arabia’s religious foe. And that means political foe as well. Both want dominance in the region.

    Iran supports Shia Hezbolla and the Shia Alawite government in Syria. They also support the large Shia population in Iraq.

    So what do the Wahabbist Arabs do?

    They foster Sunni groups to oppose the Shias. That was the reason for fostering the Taliban–they were as conservative as the Wahabbists and filled a vacuum they didn’t want Iran stepping into. They saw the same opportunity with Syria–take out a Shia power in the region. They see the same threat with the Shia-led government that is in power after the US left Iraq.

    A lot of money from these countries have gone into the funding of ISIS. When you have a fractured opposition like you do in Syria, it doesn’t take much for one group to gain dominance. A couple of victories, and cumulative advantage starts to fuel more success.

    Note that the regions in Iraq that ISIS has been successful in are Sunni regions. Folks who are angry with or fearful of the Shia-led government.

    And when you talk about Muslims killing Muslims it’s like noting that Christians were killing Christians during the Reformation. The issues between Shia and Wahabbist Sunni are as big as those between the Catholics and Protestants at that time. Look up “takfir” as it relates to the Wahabbists and Salafists.

  8. Wed 18th Mar 2015 at 1:48 pm

    BTW, Sunni (Wahabbist and Qutbist) retrenchment logic goes like this.

    1. To be successful economically and politically we must follow Allah’s will. That’s sharia.

    2. We lost our dominance, culminating in the West (the Christians and Jews) taking oversight over our lands in the Middle East after WW1. The end of the caliphate (in Turkey) was a symbolic low, even if it had become just a shell by that time.

    3. To regain Allah’s blessing, we need to get back to the pure form of the religion. That is the practice of Mohammad and his companions (the salafi) and those first few generations.

    4. Secular leaders only lead us away from sharia, and therefore Allah’s blessing. This is why they killed Sadat in Egypt. It’s why the Muslim Brotherhood rose up against Mubarak. It’s part of why the House of Saud is as conservative as it is.

    5. The US only wants to make us more secular. This is why it’s Satan, a tempter, and must be resisted.

    ISIS is not a US puppet. ISIS hates the US.


Add comment

Powered by WordPress

Join Russell Blake's Mailing List

  • Get Latest Releases
  • No Spam
  • Exclusive Offers

The best way to get the latest updates from Russell Blake