June 24, 2014 By Joseph P. Farrell

Now, while we're still on Earth and foregoing, for the moment, our recent concentration on space issues, there was an important article that appeared on Zero Hedge about three weeks ago, and as I'm pre-scheduling blogs this month and on into the first week of July due to the Secret Space Program conference, I'm actually writing this on the day that the article in Zero Hedge appeared. But anyway, this may be - and my intuition says it is - a significant story, for it would appear that Chinese officials have discovered a vast missing store of copper and aluminum. Here's the article:

China Scrambling After "Discovering" Thousands Of Tons Of Rehypothecated Copper, Aluminum Missing

Now for our purposes, note the following things from the article, with Zero Hedge's own comments:

Metal imports have been partly driven in China as a means to raise finance, where traders can pledge metal as collateral to obtain better terms. In some cases the same shipment can be pledged to more than one bank, fuelling hot money inflows and spurring a clampdown by Chinese authorities.

"It appears there is a discrepancy in metal that should be there and metal that is actually there," said another source at a warehouse company with operations at the port.

"We hear the discrepancy is 80,000 tonnes of aluminium and 20,000 tonnes of copper, but we hear that the volumes will actually be higher. It's either missing or it was never there - there have been triple issuing of documentation," he said.

Beijing last year set new rules to curb currency speculation amid signs that hot money inflows helped push the yuan to a series of record highs. The rules required banks to tighten the management of their foreign exchange lending and types of clients that are able to access those loans.

"It's such a massive port I would think virtually everybody has exposure," the trading source said.

"Once the investigation is over, it could be bearish for metals. I think that a lot of Western banks will try to offload material and try not to deal with Chinese merchants," the trading source added.

Critically - this is a major problem for any shadow-banking credit creation process as if the rehypothecated commodity-backed CCFDs are ultimately unwound, 1) someone will not get their collateral (payment problems - bailouts?), 2) less real collateral means less real credit expansion (which banks can;t fill because the firms that use this method of financing are anything but creditworthy), and 3) liquidation of any assets will proceed rapidly...

Goldman concludes that "an unwind of Chinese commodity financing deals would likely result in an increase in availability of physical inventory (physical selling), and an increase in futures buying (buying back the hedge) – thereby resulting in a lower physical price than futures price, as well as resulting in a lower overall price curve (or full carry)." In other words, it would send the price of the underlying commodity lower. (Boldface-italicized and underlined emphasis added)

Then of course, we have Zero Hedge's final comment here:

"So if tens of thousands of tons of copper and aluminum are suddenly "missing", one can assuredly say: "at least the gold is still there." Right?"

Now, the first thing to note here is that the missing metal commodities re-hypothecation game appears to have reached China, and that the Chinese government is investigating. This suggests that there is an element within the Chinese government or corporate bureaucracies that is party to something very big, and something of international scale, but that this group or faction is unknown to the central and highest authorities in Beijing. So, if this be true, watch for China's intelligence apparatus to get involved, and that could begin the process of unravelling the huge story that I have suspected all along lies behind all this missing and re-hypothecated gold..... woops...I forgot. We're talking about copper and aluminum now.

The second point to note is Zero Hedge's statement "Critically - this is a major problem for any shadow-banking credit creation process as if the rehypothecated commodity-backed CCFDs are ultimately unwound..." What this indicates is that Zero Hedge is beginning to entertain the re-hypothecation secret system finance idea a little bit more seriously, though, it should be pointed out, that they are still not mentioning the latter idea - a secret system of finance - at all. But I strongly suspect it is beginning to become a possibility in their thinking... And as they point out, the sudden appearance of re-hypothecated commodities on the markets would drive prices lower, bad news, particularly if, like me, you suspect that the figures of gold in existence are so badly obfuscated that if one were to take an average of those figures, they might be low by as much as an order of magnitude.

But I'll be honest... when I read this article, I had too immediate thoughts, and both of them are in the realm of speculation that is so high it's in geosynchronous orbit. The first thing I thought was, "this is an international system and network, and it extends even into China." Now, this, if you've been following the whole re-hypothecated gold and bearer bonds stories as I've been trying to outline it in my books and blogs, the presence of China in the story began during the pre-war era of Chiang Kai-shek. And it's no surprise that there's an international component to this; after all, secret deals to use Axis loot after World War Two as a secret reserve on which to establish a Top Secret source of finance puts the intelligence community not only directly into banking, but directly into contact with the Axis elites of Europe and Japan. The expansion of this system to include drug trade also puts you into contact with a whole different set of nefarious characters, from Southeast Asia (ahem) to South America("Senor drug lord, meet Herr Nazi.") It wasn't the international aspect of this that struck me when I read the Zero Hedge article, in other words, it was the possibility that those Chinese participants in what may be a vast international scheme of hidden finance were still in existence, and that the Chinese government had pulled on a thread it didn't previously know existed. Rest assured, the Chinese government will continue pulling that thread and investigating, and one cannot blame them.

However, there was a second, more sobering though that occurred to me while reading this story, one that is so "out there" I almost hesitate to mention it, but one that, in the final analysis, I think I must. While elaborating this hypothesis of a "hidden system or tier of finance" with respect to the black budget, I was relieved to find in former Assistant Secretary of HUD Catherine Austin Fitts someone who had come to a similar conclusion, though via a very different route and for very different reasons. Her reasons were financial and institutional, being involved at a high level of the federal government as she was. My reasons were historical and methodological. During the course of mutual discussions, she has observed that the financial system in place appears to be a system designed to "harvest the economy" from the local to the national and international levels, and from the poor, middle class, all the way up to the super-wealthy (those people, in fact, who interest me vis-a-vis the bearer bonds scandals).

As I read the article in Zero Hedge the thought occurred was, what if we are looking at yet a completely different component of that international hidden system of finance: a commodities skimming and harvesting operation? What if this system is literally stealing the raw materials - via collateralization arrangements and agreements - and using them in whatever hidden manufacturing they might be doing, while re-hypothecating what they have stolen?  In other words, to employ Catherine Fitts' apt term, they're not just harvesting economies, they're harvesting  - skimming - commodities as well. Tens of thousands of tons of copper and aluminum simply don't disappear. The amounts suggest manufacturing.

So, for the moment, Beijing has a problem... but I'll bet it is not just Beijing's problem; it's everyone's. If Beijing does confirm even the tiniest portion of this wild scenario, then that will be news.

See you on the flip side....