Mark Mitchell comments on the CFTC hearings and the manipulation of trading of gold and silver derivatives (read IOUs):

“Maguire added: “What’s going to happen, if you’re an Asian trader, or a non-Western trader, who has no loyalty, or doesn’t care about homeland security or anything else, who says, now wait a minute, if I can establish in my mind that there is 100 ounces of paper gold, paper silver for example, for each ounce of real silver, than I have a naked short situation here that I can squeeze and they can go on the spot market which is basically a foreign exchange transaction, short dollar, long silver to any amount they want – billions, trillions — whatever they want, and they can take this market, squeeze this market, and blow it up…”

In other words, the problem isn’t just that criminal naked short sellers manipulate the metals market downwards. It is that they have created a condition where a foreign entity can merely demand delivery of real metal to induce a massive “squeeze” that sends the price of metals skyrocketing, putting huge downward pressure on the dollar. Meanwhile, says Maguire, with prices rising, “for 100 customers who show up there is only one guy who is going to get his gold or silver and there’s 99 who will be disappointed, so without any new money coming into the market, just asking for that gold and silver will create a default.”

This would be a point, except…except..

1. This kind of fraudulent activity in the markets in the West is going to be seen by most foreigners as a direct act of financial aggression against them, not just domestic market participants. You can’t admit that your entire market system is rigged in favor of US and European banks, and then expect that the rest of the world is just going to stand there and not retaliate in some way…with justification.

Turnabout is fair play. Defense is not offense.

2.  I doubt that Chinese, Saudis or any other foreigners are interested in squeezing the dollar, since they are the primary holders of dollars. In international markets, the dollar is still the reserve currency and most people save in it. Nor is the American middle class, loyal or disloyal, going to want a weaker dollar. They earn their money in dollars. The only people likely to attack the dollar are speculators, who will do it because they see a gain to be made from it. And the people most likely to do it successfully are the same people who are involved in manipulating it in the first place...the corrupt bankers and financiers who’ve got the most to gain in this and the least to lose.

Nothing that Paulson, Greenspan, Geithner, Summers, or Bernanke have been doing adds up to anything like a “strong dollar” policy. They’ve done everything but shout “bail” to dollar holders.