Rather than reflecting a “debasement trade,” which spells doom for the dollar, current price action may point to something more profound: a scramble for physical bullion by distressed entities that lack the creditworthiness to finance international trade unless agreements are underpinned with high-quality collateral.
The extraordinary 35 percent silver lease rate that appeared in the market this week may even be indicative of the true cost of borrowing for such players.
In reminiscences of the breakdown of the Libor markets in 2008, anecdotal evidence is circulating online that, for hook or for crook, there doesn’t seem to be a large silver holder in the market willing to lease or sell physical bullion to anyone.
But rather than being a death knell for capitalism, this dynamic will be especially destabilizing — and self-reinforcing — for distressed players who not only need monetary bullion to maintain access to trade finance, but also rely on it to produce the very goods that sustain their export-driven growth.
Yes, yes. We’re talking about China.