By Jim Willie CB, Golden Jackass
Subscribe: Hat Trick Letter
Begin with a preface of a meaningful event that could change the entire US landscape, a redux of what happened four years ago. Consider the next Wall Street financial firm failure. It is in progress. It is not avoidable. It will have numerous ramifications. It will open the door to account thefts, burial of documents, ransack of undesired leveraged positions, the concealment of wrecked derivatives, and a path toward the merger of surviving (selected core) firms. It will urge an extreme defensive posture. Back in 2008, both Bear Stearns and Lehman Brothers fell. The former because they had too much gold exposure with anti-US$ hedges. The latter because they led in mortgage exposure. Both failures were greatly exploited. My favorite item was the reload given to JPMorgan on a quiet Saturday morning (convened at 6am no less) at the Bankruptcy court of Manhattan. The shadowy syndicate titan was handed $138 billion to handle the private accounts from the fallen banks. Instead, the funds represented a reload for JPMorgan to continue their gold suppression game. Of course, they have been defending American freedom with vigor, preserving the integrity of the US banking system, and assuring the way of life in the nation, while leeching $billions from the public trough. Since their grant, the unassailable JPM has seen fit to gobble private accounts at both MFGlobal and PFG-Best, with regulatory blessing as the courts sprinkled fascist holy water.
In the background across the globe, numerous currency storm centers have arisen under the noses of every major central bank and their elaborate connected paper factories. The sovereign bond foundation is full of cracks and rotten planks, upon which the entire global currency system rests. The only people who could have imagined such a grand mess in 2006 and 2007 were the Sound Money crowd, the advocates of gold-backed money, and the opponents to debt foundational systems. But then again, we are the ones, without a clue, who maintain a myopic view of the world, and see a conspiracy under every rock. Rather, we are the insightful, the alert, the rational clear thinking bunch, the guardians against hidden confiscation through inflation, and the intrepid defenders of life savings. We identify the corruption and thus are discredited. Gold will return to its rightful place as the core of monetary systems and trade systems, all in time. The system is imploding at a more rapid pace with each passing month.
Morgan Stanley Implosion
The insider conversation, often called chatter when it becomes deafening in tone, is that Morgan Stanley faces imminent failure and ruin. Almost two weeks ago, the Jackass provided a tip to Bill Murphy of GATA to post on his popular LeMetropole Cafe that Morgan Stanley fund managers and high ranking employees were preparing for the firm’s implosion. A subscriber to the Hat Trick Letter has a good friend whose father works as a fund manager and provided the story. It was not detailed, and bore no follow-up after my request. The older employees are selling all of their stock, some legacy stock from one or two decades ago. Many workers are making contingency plans for their next positions in another firm. When Lehman Brothers was killed, thousands of employees had to find new jobs, some without success. In the last week, the shock waves are being heard from internal Wall Street sources in an unequivocal manner. The implosion is in progress, like the collapse of several platforms and structural cables. The inside is caving in, and the ranking members recognize it, even talk about it openly. Much discussion swirls about a transition to antiquated software that is greatly disturbing the trading desks, causing tremendous problems at precisely the wrong time. A redux of the Knight disaster could be in progress.
Some like Rick Wiles of TruNews report that MS is heading for the sacrificial altar. Such an event would imply an expected benefit hoped for and beseeched. My view is in parallel but more of a harmful implosion that cannot be prevented, one that the Wall Street titans will face grand challenges to control, and one they will not be able to exploit in the hidden corners where they operate. MS is going to the slaughterhouse, not the altar. Its implosion will result from lost control, and the reversion to antiquated systems will only hasten their demise. Wall Street will wish to exploit the failure, like stealing funds, like destroying documents, like concealing derivative positions, like receiving government slush funds for slimy patch projects, their usual Modus Operandi. In criminal parlance, they will create a black hole into which things vanish. They will attempt to add to the confusion, which might itself backfire and deliver more lethal challenges to the entire USDollar & USTreasury complex. This time, the spotlights will shine more brightly to reveal the activity in the shadows and crevices.
The part that many analysts might miss is that Morgan Stanley has perhaps over 300 thousand private stock brokerage accounts, with over 17,500 brokers. In the past two decades, MS merged with Dean Witter and Smith Barney to become the premier stock house with the most private accounts of any US-based stock brokerage firm. The Morgan Stanley failure might feature the first theft of private stock accounts. The critical jump might occur in account thefts from futures brokerage to stock brokerage, which began in November 2011 with MFGlobal, then appeared in July with Peregrine Financial Group (PFG-Best). All private accounts from MFG and PFG have been pilfered, with a blessing of the theft by the courts, seen in the Sentinel Mgmt Group ruling. The federal Appellate court’s August ruling (click here) sets precedent for future private segregated account thefts, which were once considered sacred and untouchable. No more in the United States, not in the unfolding of criminality that stretches from USGovt offices to top corporate offices, with blessings sprinkled by the courts. The jump would be a major extension of the Fascist Business Model that nobody talks about. The major financial firms can rely upon this appellate court ruling as precedent, so as to protect their legal right to re-hypothecate client funds in their high risk leveraged positions and loans. It sure would be nice to use my neighbor’s house and car to firm up my casino weekends. Stay tuned to the ongoing Morgan Stanley implosion, which could force the vanishing act of 50 to 100 thousand private stock accounts. The firm is the largest stock brokerage firm in the land. The dreadful impact will be nasty and might awaken the US masses. MFGlobal and PFG-Best surely did not.
Imagine the hue and cry from the poorly informed and poorly focused sheeple masses who have been quick to use the conspiracy labels, when their stock accounts vaporize in re-hypothecation made legal. The zillions of IRA and 401k accounts could also become collateral damage. This has been a Jackass warning for several months, largely unheeded. If one is to search for a hidden impact from the Morgan Stanley implosion, look no further than their large gaggle of dangerous and highly deceptive Interest Rate Swap contract book. They appear in the ledger item of interest rate derivatives in the usually ignored Office of Comptroller to the Currency report issued periodically. In early 2011, Morgan Stanley stuck out like a huge iridescent purple thumb with their $8 trillion in new interest rate derivatives, believed to be 90% Interest Rate Swap contracts. You see, that is precisely when the false flight to safe haven was engineered. The USTreasury was in danger of rising, seen in January 2011 as the TNX went from 3.3% to 3.75% on a touch. Enter the powerful IRSwaps run by the dark control room at trusty Morgan Stanley, and poof, the flight to safety was fabricated from artificial demand of USTBonds with no basis in tangible investment flows. The application of $8 trillion in Interest Rate Swap contracts pushed the 10-year UST yield from over 3.5% to 2.0% flat in the space of a mere five months. The sheep followed the Wall Street lead without knowledge of the IRSwap heavy lifting. The USGovt could not afford a bout with bond market reality in a relentless move over 4.0% on the all-important sovereign bond for the nation looking more and more Third World that has corrupted the global reserve currency beyond recognition while the annual $1.3 to $1.5 trillion deficits must be financed, alongside the endless 1984-like war costs.
Hundreds of questions will come, but the big questions to pose regarding the ongoing implosion of Morgan Stanley are:
- How many private stock accounts will go missing?
- Will the interest rate swap game be exposed?
- Will movement of stolen world trade assets surface?
- Which European banks would fold in sympathy?
My European banker source indicates that as Morgan Stanley suffers the spectacle of failure, so will both Deutsche Bank in Germany and Crédit Agricole in France collapse. The three failures will bring about other failures, like in London, as the entire Western banking system will be brought to its knees. In short, this event could serve as a jump in thefts from segregated futures brokerage to stock brokerage accounts, causing more collapses and certain bank runs. Witness the full glory of the Fascist Business Model. Much discussion has come from corners like Steve Quayle, concerning the potential merger of all surviving Wall Street banks into JPMorgan and Goldman Sachs. That would mean Citigroup and Bank of America would fold under the new twin towers of financial tyranny, as the Jackass prefers to call them. So after eleven years since the well planned and highly coordinated collapse of the Twin Towers to conceal the grandest bank heist in US history, the emergence of the new Twin Towers with deep intricate financial root cellars is being hatched. It will fail.
Some very bright contacts have suggested that such a last ditch merger feat could not be pulled off in the current environment. Many reasons can be cited. The insolvency of the big US banks demands some consolidation if not liquidation. However, they are under siege. They are all under scrutiny for LIBOR price collusion and violations. They are all involved in court deals over bond market fraud. They are all involved in court deals over mortgage contract fraud. They might appear to evade the law in blatant manner if they attempted to merge. The LIBOR case effectively isolated the big US banks in a way not visible. In an environment where they do not talk to each other under legal counsel, they will hardly climb the enormous hill of merger talks. A hidden reason might lurk to explain why the big US banks cannot merge under the twin tower JPM/GS roof. They all struggle under the grand de-leverage process to contain the derivative monsters in their basements, which hold together vast systems with high pressure cable lines. Any merger attempt would result in mindboggling pressures, unavoidable failures, and incredible confusion during the transition in merger. No way! No how! Too late!
Central Banks Failure Obvious
A tour around the world leaves a person’s head spinning. The financial system spun out of control long ago. The central banks cannot control the mayhem in the currency market. The confirmation is that for over three full years, the official interest rate in the Untied States, Britain, Europe, and Japan has been near zero. This is unprecedented, and serves as a massive signal flare of systemic failure. The stimulus is nowhere except to speculate, surely not to conduct enduring capital buildout. USFed Chairman Bernanke has announced more open Quantitative Easing, which never stopped. Worse, the Jackass is of the opinion that nobody really knows what QE means anymore, except that it will save the financial markets, save our life savings, save pensions, and save the planet. All hail Prince Benjamin! The Operation Twist is being seen for the sham it is. The ugly fact of life for the USFed balance sheet is that the clumsy Chairman Ben has run out of short-term USTBills with which to offset the long-term USTBond purchases. The self-styled Twister has exhausted its fuel. To keep the game going, the secretly desperate USFed must resort to unsterilized pure hyper monetary inflation of the nasty variety. See the TFMetals Report on how the USFed is out of bullets, with no more USTBills in its arsenal. See the TFMetals Reports (click here).
The other major central banks are in extreme defensive postures. The announced cap on European sovereign bond yields on its face sounds absurd. No free market there, certainly not with any equilibrium basis. Lacking the advantage of a global reserve currency, the Euro bankers wish to impose by force the cancerous benefit of the USTBond safe haven phony bunker. The bond yield cap by Draghi should be seen as a massive signal flare of systemic failure to those with open eyes. The deed was done in the open, and follows suit with the cap on US yields done in hidden manner with the IRSwaps.
Hardly in view for the mainstream minions, the Japanese central bank has been a major buyer of USTBonds, in a new twist. The volume of the Bank of Japan purchases is essentially equal to the sales by China, so net zero Asian effect. That leaves the USFed alone on a net basis, as only buyer of US toxic toilet paper that quickly shows brown stains from bruised banker wounds and red stains from endless war battlefield wounds. The USFed is financing almost the entire USGovt debt, and the dumkopfs in the pits, in front of screens, and from household dens are wondering when the next QE will come. They are more gullible and dumber than any English words can be used to describe them. If the USFed financed 100% of the USGovt deficit via debt monetization, just exactly when might the American professionals and public notice? Probably never! Observe the movement up in the Japanese Yen. Its rise serves as further motive for them to invest in USTBonds, even if increasingly toxic with each passing month, even if supported by a vast derivative machinery that reveals itself slowly, even if the USGovt deficits remain fixed over $1.3 trillion. As footnote, the nation of Japan has more diaper sales for adults than babies. The sun is setting on Japan Inc.
Paper Solution Delusion
A strongly held Jackass belief goes contrary to many simplistic viewpoints by some smart people within the gold camp. My source has taught me well, but my comprehension is surely lacking in spots. Let it be known that many smart people do not comprehend this phenomenon. A few key colleagues have stated that the big Western banks could be fixed overnight by grand cash dispensation on a grand scale from the Printing Pre$$ by the USFed and Euro Central Bank. Not so, emphatically not so! The big broken banks of the US, London, and Europe cannot be fixed by printed money. They have vast and complex broken paper asset structural problems that cannot be repaired. It is like a poorly designed car with badly calibrated cylinder strokes, misaligned transmission drive shaft, an inadequate cooling system, and poorly designed torsion bars going into the shop. The best mechanics could not repair it, as they would suggest scrapping the entire mess. Such are the big banks. They possess wrong sided positions that have started a chain reaction of disasters. Their positions constantly trigger margin calls. Cash cannot fix their predicaments. Their margin credit extension is abnormal, outside the usual channels. They are stuck, unable to comply with arranged contracts from years ago under different rules. Their lattice work is broken and not repairable, not with cash.
The Eastern Coalition is busily applying the screws, confronting the deeply decayed margin inadequacy, and forcing relinquishment of gold bullion. The loss of gold loudly signifies that gold is money, and cash is not. The big banks have broken pieces that invite opponent attacks, like the JPMorgan position with sovereign bonds and their complex USTBond structure defending the artificial 0% rate by the Interest Rate Swaps. The big banks also have major unresolvable problems with allocated gold taken, that the owners want back, including extremely powerful people.
Put the two extreme extraordinary problems together and one can conclude that gold from Allocated Accounts was improperly used as collateral on leveraged trades gone bad! They face margin calls that are satisfied only by relinquishment of gold bullion. The smoking gun will slowly come into view to launch a new banker scandal. The scandal over Allocated Gold accounts will eclipse the MFGlobal case, and lead to the Gold price rising over $5000 per ounce. Over 40 thousand metric tons of gold have been improperly used, much in this manner, laced throughout the banking structures. No hyperbole here.
Printed money cannot and will not fix any of such problems. The big banks are ruined and realize finally they are lined up for a slaughterhouse. Their only remaining option is to cut deals with the new masters and their sheriff. In time they will not be able to locate sufficient volumes of gold bullion to make the margin calls go away. Since February 29th, they have forfeited over 6000 metric tons of gold. Eventually they will run out of gold from Swiss castles and Roman catacombs. Then the game is over and a new dangerous chapter begins.
USDollar Global Shun
The many moving parts of the isolation of the USDollar are in progress still. However, it has taken some dangerous turns, hardly noticed by the intrepid American Idol populace. The USDollar collapse will come from a foundation of trade settlement no longer conducted in US$ terms. The stench of hyper monetary inflation by collusion between governments and their central bank masters, combined with obscene gargantuan banker aid packages serve as the motive to continue the abandonment by global players. Before too many more months, a critical line will be crossed. More global trade will be conducted outside the US$ settlement sphere. The line will be crossed in non-oil transactions first, then in overall transactions. The American Dome dwellers are not prepared for this development. In every conversation done by the Jackass with ordinary US citizens over several years, not one has any concept of the USDollar and its exchange rate. It is an assumed entity without discussion or consideration. Such is a precarious position to conduct life and business under.
The Petro-Dollar is set to be abandoned, as the Saudi Royal family is deposed. Two and three years ago, my firm belief was that the Saudis would choose to switch chariots as the Eastern horses would be favored. The Saudis would see the Anglos are losing their grip on the global helm, suffering from insolvency and rot from corruption. Instead, it seems the Saudis are soon to endure a surprising backlash blow from the Arab Spring uprisings. Not well reported in the controlled panels of the Western press are the high level Syrian deaths. A real battle clearly features the tyrant Assad against his people, striving for freedom. Another battle is between HezBollah and the Saudi security teams. No details will be offered, since not much is known except some of the wretched unfolding of events. By many accounts, their Minister of Security Prince Bandar was just assassinated, perhaps two to three weeks ago. A photograph from mid-August was doctored to show Bandar Bush still alive, according to a source in the Persian Gulf. The apparent kill was revenge for the targeted hits done on the Assad regime. Things are all coming apart in Saudi Land, hardly called collateral damage. What incredible irony if the Petro-Dollar is collateral damage from the Syrian projects. What irony if the Arab Spring begun by the QE1 with blowback from rising food prices, encouraged by the US security agencies, delivers a blowback to knock the USDollar of its oil studded throne.
Many questions persist, beyond the scope of this newsletter. The ultimate cost could eventually be the Fall of the House of Saud after almost 60 years reign, and the deposed USDollar as global reserve currency. My best source of information in the region has for 18 months stressed the importance of Yemen for Saudi stability. Yemen is a furious hotbed, as is Djibouti and Ethiopia, where soldiers clash between the SuperPowers.
Trouble in Mining Camps
Certain events are highly disturbing, not at all connected. South African miners are on strike in scattered locations, such as across Latin America. It is not orchestrated, since a reaction to global economic decline. The miners want a bigger share of the pie, and resist the signs of exploitation even if it is not blatant. In some sites in South America, good fair deals are struck with reasonable royalty paid to governments. In other sites, the violence is in the open, with claims of dangerous worker conditions, water pollution, and worse. But in South Africa, once the global stellar leader in gold production, police and corporate security officials fired upon the crowd and killed dozens of workers during a demonstration. The hostile positions of miners versus the corporate firms are becoming stark and clear. The unfortunate outcome is that gold and silver mine output will surely go into worse decline. The Jackass forecast is that from the global mine output factor alone, the physical precious metal prices will rise, while the mining stock share prices will fall. Output risk joins jurisdiction risk and dilution risk for the mining companies. For every mining stock winner, expect 20 to 30 losers.
The Stun Gun & Sinking Sand
The USEconomy is suffering from three powerful effects, none obvious, but all deadly. They continue to plague the nation, to drag it down, and to assure a systemic failure. Many readers send critical notes about my view of a systemic failure, arguing that remedy is going to succeed, given enough time. They cannot foresee a USGovt debt default, even colleagues in discussion. Some expect a nasty price inflation bout like a rising blister. But the Jackass expectation is of an unwieldy US$/USTBond complex that falls apart from internal stresses that render management absolutely impossible. We have begun to see this effect, like in colossal applications of Interest Rate Swap contracts, like in growing announced JPMorgan losses, like in MFG and PFG account thefts, like in ruined corporate paper, like in draconian money market rules, like in shattered pension funds. These are the blisters and boils from the US$/USTBond complex gone amok. They are not reported as such. They are all reported as isolated treatable ailments. They are not perceived as systemic breakdown symptoms. They are very much effluent from the failure in progress.
1) Like from a stun gun across applied across the land, recognition of a failed system has entered the public consciousness. Three years of 0% stimulus, $trillions in rescue aid, countless federal home loan programs, ongoing bond monetizations, nationalized companies, and more have accomplished nothing. The corporate response has not been to invest and rebuild. The housing market remains in ruins, unaffected by the sub-4% mortgage rates and revived reckless federal home loan offerings (subprime again) with minimal down payments. No more home equity ATM machines to support the national consumerism mantras. Imagine in 2008 to be told that the US housing market would be unable to respond to 3.55% fixed 30-year mortgage rates. The experts might have claimed that such a development would indicate a ruined market. The states and cities are in fiscal ruins. The federal deficit is out of control. The wars will not be brought to an end. The public population finally is standing up and taking notice. They are frightened. Their futures are seen as bleak. College graduates face bankruptcy almost immediately. The smart among the population expect rising prices and growing shortages.
2) From the zero percent interest rate policy (ZIRP) over three full ugly long years, the entire USEconomy corporate landscape is sinking from higher costs and shrinking profits. Capital is failing to produce. Next will be imposed the cost of the national Health Care system, which has its ulterior motives to be sure. Some call it the Insurance TARP. After chip ID implants are enforced, the view might change. Aside from the amplified stress on the business sector, the entire cost structure continues to rise. Notwithstanding the attempts in the last year to smother final demand via economic decline, the costs remain resilient and rising. The most frightening tidbits from the field point to a 50% gasoline demand decline by volume in the last five years, and a 40% decline in California sales tax collected in just the last 12 months. The stubbornly high costs render profit margins as difficult to maintain. The response is to shut down unprofitable business segments, to retire equipment, and to liquidate components of the business. Such is the rancid bitter fruit of the 0% supposed stimulus, more like a two-ton millstone around the nation’s capital neck. US-based businesses are not expanding, except for care for the aged, for bankruptcy counseling, for estate liquidation, for divorce attorneys, and for auctioneers.
3) The attack on money market funds is moving apace, in a stealth capital control concept. Systemic risk is posed by a run on money market funds. Oddly, money market funds are no longer the staid boring type sitting on an inert shelf. They are suddenly not cash, by official declaration. The Powerz cannot afford to see that liquidity removed. An attack on the $2.7 trillion in money market funds has come in response. The money market funds serve as scarce capital, a liquidity source that holds together the insolvent banking system.Given how money market funds are the last pool of liquidity that holds together the entire Western banking system, it is under attack to stay put. New rules could force a maintenance of a minimum amount in each account. The new rule concept is called Minimum Balance at Risk (MBR) and is direct capital control applied domestically within the United States. The MBR would be a small fraction (like 5 percent) of each shareholder’s recent balances that could be redeemed but with a delay.
The item#1 is recoverable but not with any current Administration or USFed in leadership. It is urgently necessary to liquidate the big US banks, to liquidate the home inventory, and to encourage domestic industry to return to US shores. These three tenets are Jackass cornerstones for recovery. None is pursued actively, none! The enduring policy is to attempt to inflate the debts away, to inflate the bank balance sheets, and to re-inflate the collapsed assets that were so recklessly depended upon in past cycles. Even higher inflation will not solve systemic insolvency. Eventually the confidence in the entire bond system which backs the currency will implode, whose signals are being noticed. Nothing poisons a system more than ruin of money itself. It works like a contamination of the entire blood system for the body economic, which rots all organs and institutions.
The item#2 is not fixable, emphatically so, since a rise in interest rate kills the entire system, resulting in game over. The 0% ZIRP regime will remain in place as long as the current power structure remains in place. It is that simple. And while in power, the current 0% policy will assure continuing erosion in profit margins for business. The asset bubble games are over, the wreckage obvious to anyone with open eyes. We have been watching the housing & mortgage conjob, which led to the Lehman Brothers killjob, followed by the Bernanke Fed mess, all the while the USCongress missing on the job. The entire USEconomy is sinking into capital quicksand from rising costs. No return on capital, no cost of capital, no preservation of capital, while capital continues to be retired and die. The insane and utterly desperate response by the USFed is to kill demand. They will succeed. But in doing so, they will assure the systemic failure forecasted by the Jackass, to coincide with the USGovt debt default from chaos and unmanageable high winds.
The item#3 does not pertain to remedy or fixable, but rather stands as a billboard signal of imminent banking system implosion. The impact will hit the most insolvent and most illiquid, such as Morgan Stanley, Deutsche Bank, and Credit Agricole. Expect another bank in London to fall, unsure which is most vulnerable. The domino aftermath will be the stuff that makes history books in unalterable prose. A progression of risk has hit mortgage bonds a few years ago, sovereign bonds in the last year, and finally money market accounts, which hold together the entire banking system as the last element of liquidity. The Exter Pyramid is at work. The end game is to hold gold, the last asset standing, the only survivor. The restricted money market funds are being corralled by the banking leaders, to make sure they do not exit and roam the fields in search of gold in better pasture. Observe the stealth action toward capital controls in a last ditch to avoid a flood into gold. So bank runs will just be slower in pace.
Numerous Currency Twisters
China might be making overt moves toward a convertible Yuan currency. The steady decline in their Current Account surplus could prompt a bold move to introduce a gold-backed currency a lot sooner than even the alert observers expect. The latest shocker story is that the Chinese Govt. is planning to accumulate another 6000 metric tons of gold in the near future, whose veracity is being questioned. Consider the recent acceleration in Chinese gold accumulation, either the basis core for a gold-backed Yuan alternative to the crippled toxic USDollar, or the basis core for a new global trade settlement system to be introduced very soon. The usually patient Beijing leaders are showing signs of no longer possessing patience. The gold imports from Hong Kong are not simply rising; they are exploding in unprecedented fashion. Something big is going on. The Chinese are diversifying away from USTBonds and into Gold. They are locking up African gold supply and other important industrial metals.
The Swiss Franc pegged to the Euro currency is a disaster waiting to happen. The water will overflow the imposed dam wall constructed of paper mache. A tidal wave of European money is seeking safety from the ruptured Euro currency and fast deterioration of the big Euro banks. The Euro will suffer a sudden breakdown just like the USDollar when reality strikes. In order to prevent the Franc from appreciating, the Euro is being bought in droves. In response, the Swiss National Bank (central bank) must buy Euros to prevent their Franc from appreciating from the capital flight. The Swiss central bank sales of the Euro to rebalance its reserves are reinforcing pressure on the broken unified currency. The Swiss central bank is setting itself up to become a bagholder of nightmarish proportions. As the Euro currency becomes a Southern European device to secure PIIGS on a leash, the pressure will build on the more viable currencies like the Swiss Franc. Eventually the peg will break and the Swissy will suddenly be priced 20% to 30% higher, with the Swiss banks the losers. They will be losers at the same time that the big Allocated Gold account class action lawsuits will be ordering awards to the victims. The wreckage and corruption of the Swiss banking system will serve as tomorrow’s headlines.
Ordinary Germans are already using Deutsche Marks again. They do not wish to anger the Euro Royalty in Brussels, so it is keep quiet. The nation’s populace was forced officially to trade in the currency for Euro bills and coins when the 2002 year began. At that time the DMark immediately ceased to be legal tender. However, that did not stop 13.2 billion in DMarks, worth EUR 6.75 billion (=US$8.3bn) from remaining tucked in mattresses, basement strongboxes, old books, coat pockets in closets, wall crevices, or in bank safety boxers. It has begun to re-enter the circulation, according to the Bundesbank. The cash volume is more than the EuroZone’s 16 other former currencies combined. From pharmacies to private shopkeepers, the DMark is honored. The Euro currency is on its last legs in Germany. As the European bond crisis rages on, as the big Euro banks teeter without end, as the bank runs pick up steam, the DMark is making a comeback, just like the Lira is in Italy.
The USDept Treasury is using its Exchange Stabilization Fund as a secretive $2.4 trillion mutual fund guarantee. In contrast, the Chinese are taking their $3.0 trillion in reserves to offer a trade settlement fund. They wish to establish a core fund to facilitate in trade, but in reality the gesture is intended to grease the next move toward non-US$ payments in trade settlement. The US pension funds see the USTBonds as dead money, since earning next to nothing in interest. Details about a secretive USGovt program to bail out money market mutual funds are finally coming to light. Acting without any explicit congressional authority, the USTreasury has extended guarantees in excess of $2.4 trillion for money market funds. In the 12 months following the infamous failure of Lehman Brothers, the huge official Reserve Primary Fund was depleted. The program ended in September 2009, having prevented a previous run by money market fund investors. Usually, the USDept Treasury has kept the identities of the funds secret that are pulled out for use in emergencies, as well as the total tab. Strange developments are holding the US financial structure together.
Be sure to know of three types of USDollars on the global tables and temple cauldrons. A) There are USDollars held inside the United States. They are the most vulnerable to writedowns. Until now, the process has been indirect via price inflation felt the hardest in rising costs. The flat wages tend to aggravate the situation at a time when home equity and pensions are fast doing a vanishing act. Any coordinated movement to write down the USTBonds in the future will result in a direct whack to US wealth, as the impact will be distributed widely within the 50 states. B) There are USDollars held outside the US borders. My best sources tell that this collection of accounted assets will be preserved in value. Interpret that to mean the externally held USDollars will enjoy a fair exchange rate in translation when the time comes for its long dreaded retirement. Despite being unforeseen by large blocks of the masses, the process will occur to their shock and amazement. The shock will be worse felt inside the US Dome since the treatment outside the US will be far more generous than inside. C) There is lastly the USDollars that arrive from trade settlement, from the letters of credit attached to contract satisfaction. Watch the trend grow for non-US$ payments. The new financial structure that will have a clear barter characteristic is waiting in the wings for the more recognized collapse of the current system. At that time, the USDollar credits from trade settlement will go away like water evaporating on a Saudi street.
Gold & Silver are awakening from a deep sleep after a year-long price consolidation. While the physical story leans toward growing demand and declining supply, all bullish for the precious metals prices, the paper story continues to reek of strongarms, naked shorting, propaganda, and other devious devices. Prepare for a grand divergence between the physical and paper Gold price, as described and warned in this newsletter for many months. Rumblings continue about JPMorgan being in far more trouble than simply CFTC position limits. They struggle under the gradual breakdown of their derivative machinery that extends far beyond the USTreasury Bond complex, to the currencies and gold market. Renewed hope from August has come for a resurgent price as seasonal factors join with other conditions whereby the bank cartel has weaker hands. Recall the gold cartel has been forced to relinquish over 6000 metric tons in the last six months. The real battleground is with the Gold price in Euro terms, which is pushing for a breakout. That makes sense, since the obvious breakdown is of the European sovereign bonds, the Euro currency, the European big banks, and the Euro Central Bank monetary policy. Notice how the Crude Oil price reveals significant hedging against the USDollar, stubbornly near the $100 per barrel mark despite a fierce global recession. The high cost structure will be maintained, with little relief from relaxation. Recovery will remain an illusion.
The Eastern Coalition has not gone away. They still pursue Gold. Perhaps their agents in acquisition are on European holiday. Soon it is back to the desks at work. Expect a price move toward $1800 very soon. Expect a Silver price move also, as it more clearly has broken out from the year-long consolidation, back over $30/oz. Moves in the two metals could come fast and furious. The Eastern world has consistently been big buyers, but now the Western world is seeking safe haven from the ruin in banks and bonds.
THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.
subscribe: Hat Trick Letter
Jim Willie CB, editor of the “HAT TRICK LETTER”
From subscribers and readers:
At least 30 recently on correct forecasts regarding the bailout parade, numerous nationalization deals such as for Fannie Mae and the grand Mortgage Rescue.
“As the nation screams down the mountain out of control into the abyss, it is good to have a guide. Jim Willie helps to understand what is happening and more important, why. With that information, you can make the right decisions to protect yourself from the current apocalyptic catastrophe. Forget the MSM propaganda. Here is offered good in-depth actionable reports that are the most insightful and valuable.”
(AlanS in New Mexico)
“Your work is by far the most comprehensive, informative, and accurate of all, no question. I cannot overstate how much I have learned from your work. It must be a conscious effort on your part to teach people. Please don’t give up on that commitment. Your article on the Petro-Dollar standard is a turning point for any investor or geo-political power observer.”
(CurtB in Kansas)
“When I initially read your writings, they provoked a wide range of emotions in me from fear and anger to outright laughter. Initially some of your predictions ranged from the ridiculous to impossible. Yet time and again, over the past five years, I have watched with incredulity as they came true. Your analysis contains cogent analysis that benefits from a solid network of private contacts coupled with your scouring of the internet for information.”
(PaulM in Missouri)
Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com. For personal questions about subscriptions, contact him at JimWillieCB@aol.com
Unless the gold collateral was moved out of the vaults of the sovereign borrowers vault and into the vaults of the lenders, this idea would be just another government scam, especially insofar as the supposed gold of the anticipated borrowers probably already has been sold, swapped, leased, and hypothecated into oblivion anyway.
* * *
Time for Eurozone to Reach for the Gold Reserves?
By Gillian Tett
Financial Times, London
Thursday, August 30, 2012
Is it time for some eurozone governments to start selling that metaphorical family silver? Or, more specifically look at their all-too-real gold reserves, to find a solution to Europe’s crisis?
That is a question which has recently been buzzing around in some policy making and investing circles. For as autumn looms, it is clear that the eurozone remains under profound stress. However, it is also unclear whether the European Central Bank — let alone the eurozone politicians — will really be able to do anything soon to ease market fears and lower those borrowing costs.
Thus, as unease builds, the World Gold Council — or the body that represents the gold industry — has recently lobbed a new idea into the fray: It thinks it is time for eurozone governments to start using gold in a creative manner, particularly in places such as Italy, to cut those interest rates.
The issue at stake revolves around the estimated 10,000 tonnes of gold reserves that are held by eurozone governments. According to the council, “It is well known that some of the countries most affected by the crisis, including Portugal and Italy, are responsible for a significant proportion of these assets.”
Unsurprisingly, this situation has prompted some to suggest that governments should sell some of that gold. The value of gold has soared in the last few years, and if there were ever a time that eurozone countries needed an unexpected windfall — say, to pay interest on bonds — it would be now.
But the gold council, for its part, insists this would be a mistake. For quite apart from the fact that a massive dump of gold would dampen the price, eurozone debt woes are now so large that gold sales would only scratch the surface of the problem. Or as the council notes: “The gold holdings of the crisis-hit eurozone countries (Portugal, Spain, Greece, Ireland, and Italy) represent only 3.3 per cent of the combined outstanding debt of their central governments.”
Thus it favours an alternative idea: Instead eurozone countries should essentially securitise part of that gold, by issuing government bonds that are backed by gold. This could be done in a simple manner; or it could be structured to include tranches of different risks. Either way, the key point is that gold would be used to provide additional security for bonds — and thus reassure investors who do not trust eurozone government balance sheets anymore.
“Using only a portion of those gold reserves as collateral could significantly reduce the rate at which each of these [periphery] countries could issue debt,” the council argues, pointing out that this scheme has been employed on a few occasions in history before. In the 1970s, for example, Italy and Portugal used their gold reserves as collateral to get loans from the Bundesbank, the Bank for International Settlements, and other creditors. More recently, India raised a loan from Japan, which it backed with gold.
So is there any chance this idea could fly?
Don’t hold your breath, or not soon. Personally — and leaving aside the gold council’s self-serving interest in pushing the scheme — I think that the concept of gold-backed bonds certainly is worth debating. While gold-backed bonds would not be a full-blown solution, it could help in some respects.
But there is little sign that the idea has garnered any serious support from policy makers thus far. Even if eurozone leaders embraced the idea, there would be some big legal obstacles; most notably, much of the gold is held by central banks, not treasuries.
Nevertheless, if nothing else, investors should take note of the debate as an interesting straw in the wind. A decade ago it seemed utterly old-fashioned to ever suggest that any investor — or institution — would post gold as a collateral; in the era of cyber finance, securities such as treasury bonds tended to rule. But in recent months groups such as a LCH.Clearnet, Intercontinental Exchange, and the Chicago Mercantile Exchange have increasingly started to accept gold as collateral for margin requirements for derivatives trades. And earlier this summer the Basel Committee on Banking Supervision issued a discussion paper that suggested that gold should be one of six items used as collateral for margin requirements for non-centrally cleared derivatives trades, alongside items such as treasury bonds.
This does not add up to a revolution, let alone the type of step toward gold-backed finance — or a gold standard — that gold bugs (and some American Republican Party members) would love to see. But it does suggest that a slow evolution of attitudes is underway – not so much in terms of the desirability of gold per se, but the increasingly undesirability and riskiness of other supposedly “safe” assets, such as government bonds. That pattern is unlikely to change soon, especially as markets wait to see what the ECB might unveil on September 6.
* * *
Help keep GATA going
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
To contribute to GATA, please visit:
In its latest collection of coins to feature creatures found on the Chinese lunar calendar, the Royal Canadian Mint has released three 2013 Year of the Snake silver coins. One is a standard-shaped $15 coin, another is a lotus-shaped $15 coin and the last is a smaller denominated $10 coin. All three are composed of [...]
- 2013 Year of the Snake Silver Bullion Coins
- 2011-2013 Canadian Wildlife Silver Bullion Coins
- 2013 Pronghorn Antelope Silver Bullion Coin Fifth in Canadian Wildlife Series
Thailand-based PTT has offered $959m to acquire the remaining 54.7% stake in Sakari Resources to take complete ownership of the company and add to its coal assets in Indonesia.
Karmod Prefabricated Building Technologies was established in 1986 in Istanbul/Turkey as a manufacturer of prefabricated buildings, containers, modular cabins and pre-engineered steel buildings.
Jindal Steel & Power will acquire Bahamas-based CIC Energy in a deal approved by shareholders of both organisations.
Steel supply across the US could be severely disrupted by the imminent expiry of contracts between three major mining companies and the United Steelworkers of America.
South Africa’s Energy Intensive User Group (EIUG) has urged the National Energy Regulator of South Africa (Nersa) to be more rigorous in its assessment of some of the cost factors informing Eskom’s application for electricity price increases for the five-year period from April 1, 2013, through to March 31, 2018.
The call came as Eskom requested a month extension from Nersa to give it time “to do additional scenarios”, which government had requested be included in the application. Eskom was due to submit the application on Friday August 31.
Construction group Murray & Roberts has concluded the recovery year of its three-year recovery and growth strategy, says CEO Henry Laas.
With the 2013 and 2014 financial years now labelled as growth years, he warns, however, that there is no “remarkable recovery” envisaged in the construction industry that will benefit Murray & Roberts. The growth the group hopes for will rather have to come from a return to its core focus of construction and engineering.
Two industries the group has targeted specifically for their “strong growth potential” are mining, and oil and gas, with emphasis on markets outside South Africa, says Laas. He notes that the group’s mining business in the rest of the world is already outgrowing its activities in South Africa.
Police Casspirs ran over and crushed fleeing Lonmin mineworkers during the Marikana killings, Sociology Professor Peter Alexander alleged on Thursday.
Alexander, who holds the South African research chair in social change at the University of Johannesburg, told a ‘Behind Marikana’ seminar organised by the Society, Work and Development Institute (SWOP) of the University of the Witwatersrand that the largest number of deaths had not been captured by media television cameras.