Silver Update 07/19/11

Submitted by Francis Soyer:

What the price chart below is showing is that CDS aka Credit Default Swaps in Germany and the U.K. two major members of the European Union have rallied an astonishing %50 in the last two weeks. What is a Credit Default Swap? It is a fake and somewhat useless form of insurance in times of fiscal chaos. It is useless in that if you have ten bondholders each paying one dollar to insure a bond they hold that has a face value of ten dollars the net insured value of those bonds would be one hundred dollars. Each have paid one dollar for the insurance so the seller of those default swaps would be 10 dollars. Now what happens when all of those bonds for all ten holders goes into default. The seller of the default swaps is on the hook for one hundred dollars to make those buyers of the swap whole. The problem is that the seller only has ten dollars of capital to distribute to the buyers. This is what is on the horizon for the EU. The reason being that the EU is in its first stages of being blown apart. The destruction of the EU resulting from the list of members in the process of defaulting such as Greece, Portugal, Italy, Ireland and Spain. The U.K. and Germany will no longer have the will or resources to continue to hold the union together and hence the end of the Euro eminant.