Thursday, August 18, 2016

Out With the Old in the With the New Debt

November 22, 2013 by · Leave a Comment 

By The Mogambo Guru

Gearing up for Thanksgiving dinner, I am not going to be caught interpersonally unprepared this year, and am compiling some handy notes that I can use in the inevitable awkward family conversations, such as somebody remarking, “Boy! There are some good smells coming out of the kitchen!”

This year I can keep the conversation ball rolling along by instantly having a clever comment at hand, such as, “Yeah! Much nicer than the foul, stinking stench coming out of a corrupt, brain-dead Washington, which is, of course not coincidentally, where the evil Federal Reserve is located, which has been at the forefront of ‘corrupt and brain-dead’ for most of the last century.”

And if they respond with something dorky, like, saying something about pumpkin pie or trying to watch football on TV, then I can keep things moving along smoothly with another handy conversational tidbit, such as “And if you sniveling Earthling carbon-blobs think that you can escape the terrible, inevitable inflationary and bankrupting price to be paid for such irresponsible over-creation of currency and credit by your central banks, then from the Imperial Star-Chamber of the Inter-Galactic Tribunal I bring you their laughter, their scorn, and their utter disdain!”

“Monetary increases are paid for with misery! Shame! Shame and a pox on the Fed and all their houses!”

At which point I will laugh a cruel and mirthless Mighty Mogambo Guffaw (MMG) in their dumbfounded faces, a laugh unmistakably reeking with the aforementioned scorn and utter disdain, “Hahahahahahaha!”

I began thinking of this clever conversational trick when Junior Mogambo Ranger (JMR) Phil S. sent me an essay by Dr. Ron Paul, who is one of the very few people that know what is really “going on” with fiscal and monetary policy, and is thus (I assume) completely sure that We’re Freaking Doomed (WFD) to suffer the burning inflationary hell and tragic collapse that such insane increases in the money supply/debt always cause.

It was at that precise moment that I realized I needed my new conversation helpers, as instantly I comprehended that nobody of Dr. Paul’s caliber is going to be at the Thanksgiving dinner, and so I’ll have nobody with which to talk about important things, like how the Federal Reserve is the worst thing that happened to this country since the traitorous FDR extorted compliance from the Supreme Court to rule that he had the power to change the Constitution where it says that money had to be gold and silver, put there so as to constrain the growth of the money supply and prevent inflation in prices, and that Roosevelt could make money out of anything he wanted.

In light of this treachery and perfidy, I note that, actually, Dr. Paul’s a little too refined and classy for my tastes, as he has consistently proved completely unwilling to (like me) happily and angrily slop around in the filthy gutter of rude name-calling, slanderous mischaracterizations, backstabbing blowhard blabbering and making loud, bellowing noises of Ultimate Mogambo Outrage (UMO) about the evil Federal Reserve and Keynesian morons everywhere who are absurdly justifying such suicidal increases in the money supply to finance continual government deficit-spending of more than a trillion dollars a year, and how they should all be rounded up, tried in a quickie kangaroo court, found guilty, and then shackled in some stinking, dark and dank dungeon as punishment for their deliberately causing the inflation in prices and higher bankrupting debt that all this new money necessarily causes, and who directly cause the doleful destruction of the buying power of the poor (who had no money to begin with), and the middle class, whose wage increases always lag price increases.

“Thusly,” I thunder, “monetary increases are paid for with misery! Shame! Shame and a pox on the Fed and all their houses!”

By contrast, notice that Ron Paul never mentions anything about Ultimate Mogambo Outrage (UMO), or about throwing Keynesians into prison, where they get what they so richly deserve, for killing our money and the economy with the idiotic, bone-headed conceit and arrogance of Keynesian monetary stimulus.

Instead, the clever Junior Mogambo Rangers (JMRs) among you no doubt noticed — aha! — that he says the exact same thing when he writes that, “It is no wonder that governments fight tooth and nail against sound money, as sound money protects the well-being of the middle class and the poor while preventing the expansion of government.”

And how to expand the government? Easy! Get the Federal Reserve to create the currency and credit necessary to buy more new government debt!

And how to do that? Get the Keynesians to justify it with some of their preposterous, incestuous equations and their century-old, idiotically vague promise of one day “paying down the debt” out of the, supposed, economic growth, which has never actually happened in the last 100 years.

Well, guess what? One of the basic, building-block keystones of the Keynesian school of economics is the Marginal Propensity to Consume, which is the answer to the question “If you give a man a dollar, how much will he save and how much will he spend on consumption?”

It turns out that, according to an article in Bloomberg Businessweek magazine, that somebody realized that “the poor behave differently from the rich” when it comes to Marginal Propensity to Consume! Give a poor man a dollar and give a rich man a dollar, and they do different things with it!

And now, shockingly, a Keynesian constant has been shown to be a variable! In short, the whole mathematical edifice of the travesty known as Keynesian economics is resting squarely on a farce! No wonder it has never worked! Hahahaha!

Sadly, this isn’t the end of it, as one of the more idiotic parts of the current fad of Keynesian/Federal Reserve thinking is that they think that inflation in prices is “good” because it allows a debtor to pay off old debt “cheaply” since that old debt has fallen in value because of the inflation, and thus interest rates are now higher.

This insane proposition is equivalent to replacing old, low interest-rate Treasury debt with new, higher interest-rate Treasury debt! Hahaha! This really cracks me up!

From the investor’s perspective, suppose he originally paid $1,000 for a bond with a 1-percent coupon (meaning that it pays $10 per year), when interest rates were 1 percent.

But when interest rates double to 2 percent, that $1,000 bond, still throwing off that $10 per year, is worth only a measly $500. The owner of the bond has lost half his investment! He invested a thousand to have only five hundred left! Yikes!

This is the point when I expect people to rise as one, indignantly jumping to their feet and shouting their anger to the skies. “The Mogambo was right! We’re being screwed by a fiat currency and a corrupt government! Abolish the Federal Reserve and put the dollar back on a gold standard before we perish in bitter anguish!”, but they never do.

From the perspective of the banks and government, however, it’s a pretty sweet deal: They borrowed $1,000 at 1 percent ($10 per year) from some sucker, and to pay it off would cost them $500. “Thanks, suckers!”

Offsetting this, though, is the fact that the $500 needed to pay off the bond would have to be borrowed from some other sucker at 2 percent, costing the banks the same $10 per year.

So (and this is the important part) at the End Of The Freaking Day (EOTFD), the government still paying the same $10 in interest expense, has half as much debt, some pathetic lender is screwed out of half of his investment, and everything costs more (since all the money involved was originally created from thin air and has long since worked its way into the economy), making life more miserable for the poor, and (of course) for the people who invested in government bonds.

To add to the nightmarish quality of this upcoming Thanksgiving, Janet Yellen, the ridiculous Federal Reserve hotshot destined to be the next chairman of the Federal Reserve, thinks that inflation is good! She’s actually said it, making it a grim certainty! How’s THAT for giving thanks?

Hopefully, someone at the Thanksgiving dinner will pause, perhaps mid-forkful, and ask “Please tell us, Fabulous And Wonderful Mogambo (FAWM), what can we do? Are we doomed to suffer catastrophe because we are so stupid as to allow the Federal Reserve to create so much currency and credit that we must drown under absurd levels of debt and a gargantuan, gorged, gluttonous Gestapo-like government? Is there no hope?”

It is then — then! – that I make my move into Thanksgiving history, where legend will say that I smiled enigmatically, arched one eyebrow, leaned forward conspiratorially, and with a sneering smile of smug certitude, revealed Profound Cosmic Wisdom (PCW) by saying three words.

“Gold. Silver. Oil.”

The legend will say nothing about me saying “Whee! This investing stuff is easy!”, but you can be sure that’s what I will be thinking.

And giving thanks for it at Thanksgiving, too, being such a lazy guy who is too stupid to do anything complicated or make a series of good decisions.

So, thanks indeed, PCW! Thanks indeed, gold, silver and oil!


for The Daily Reckoning

Ed Note: If you’re looking for something outside of gold, silver and oil… we have a special list of investment ideas for you. We gave readers of The Daily Reckoning email edition access to that list in today’s issue. If you didn’t get it, sadly you might’ve missed it. To ensure that doesn’t ever happen again, sign up for the FREE Daily Reckoning email edition, right here.

Spending Money Like a Somali Pirate

November 12, 2013 by · Leave a Comment 


It’s surprising how many people rudely interrupt me to say, “Hey! Shut up for one minute about how the evil Federal Reserve is creating so much currency and credit that we are doomed to a horrible inflationary collapse, and just tell me if you want fries with your burger.”

On the other hand, none of them has ever asked me, “Okay, let’s see how smart you are in solving the economic mess, Mister Know-It-All who thinks he is so smart.”

Perhaps they never ask because they, somehow, know that it is, alas, impossible, although that knowledge seems implausible from a teenage kid who cannot remember that I do NOT want cheese on my burger, and who asks me three freaking times, “Do you want cheese with that?” and each time I tell him, “No, I do NOT want cheese with that.”

And then when I get the damned burger, it has cheese on it!

One doesn’t often hear the phrases “lavish public spending” and “rising value of the currency” spoken at the same time! Ever!

And the truth is that solving the economic problem of bankrupting levels of debt is something I would dearly love to do; gloriously discovering a wonderful, wonderful way to bury oneself under mountains of unpayable debt and then — poof! — the debt is all gone! Whee!

And then — oh, frabjous day! — with no debt, we can all take up borrowing and consuming where we left off, with feckless, reckless abandon springing yet anew, like the flowers in the Spring dripping with dew, which is my phony-baloney poetic way of saying “like fat, gluttonous pigs, usually with something greasy dribbling down our fingers and chins.”

Consumption without end! Ya gotta love it! You have to love it even more than fantasizing about leaping over the counter and grabbing some burger-flipping cook’s geeky little neck, drawing one clenched fist back and screaming at him “Hey, punk! You want some CHEESE with your knuckle sandwich?”

To calm myself down from what is now known as the Mogambo Cheese Incident (MCI), as I pick the damned cheese off my damned burger, I force myself to think about the more pleasant prospect of finding this Holy Grail of economics, and I delightedly imagine the surprise on everyone’s stupid faces when they learn that I, the person they know as Stupid Mogambo Lowlife (SML), figured it out! The smartest guy who ever lived!

And if I am the smartest guy who ever lived, contrary to the expectations of everyone who knows what an idiot I really am, then maybe it is also time to re-examine some other misconceptions about me, like the popular-yet-stinging falsehoods of me being the “World’s Worst Father”, “World’s Worst Husband” and “World’s Worst Employee” just because hateful people keep giving me some stupid coffee mugs that say so, year after year after year.

My sudden interest in achieving the heretofore thought-impossible was kindled by an interesting graph by Andy Smith of LBMA Rome, which shows the decline in the US dollar since Nixon in 1969 compared to the decline in the Roman denarius in 70 A.D, which, as you may have guessed, despite a difference of 1,900 years, ended very badly, with the buying power of the Roman coins going down and down and down in purchasing power until they abruptly disappeared.

However, the thing that really caught my eye in the graph was the sharp rise in the middle of the graph, which showed the value of the denarius, under Titus. It went up! Wow!

Maybe, just maybe, there WAS a way to reverse monetary debasement! Maybe this Titus guy found it, and everyone else had always, somehow, missed it! It sure looks like it!

Excitedly, I quickly did a little research about this Emperor Titus guy, already thinking of how I was going to use this information to solve this vexing bankruptcy problem, and thus be famous and rich for having done so, and happily thinking about all the fabulous cars and beachside mansions I was going to buy, and all the hot-looking women that would always be prancing around and bringing me tasty foods to eat (fried, chocolate or sweet), and maybe how I was going to start my own band, and embed my stream of hit songs (sample song: “Drag the Federal Reserve into the Street and Spit On Them P-tui”) with secret, subliminal messages like, “Rise up and storm the evil Federal Reserve and put the USA back on a gold standard! And buy more copies of this album! Lots more!”

Well, from the initial Titus research, it just seemed to get better and better, as it turns out that he was noted for “lavish public spending,” which made me raise my eyebrows so high that I got a painful cramp in my forehead which hurt so bad that, for a few seconds, I was able to forget my broken heart pounding, pounding, pounding at the constant fear of imminent-yet-dire doom and disaster that befalls any idiot country that tries this stupid Keynesian/deficit-spending/debt crap like we have done.

And the world, too, for that matter!

So, despite my dead-bang certainty that this aforementioned stupid Keynesian/deficit-spending crap cannot possibly work and that anybody who thinks otherwise is an idiot, which doesn’t even address the fact that we are Screwed Big Time (SBT) because of it, I was unexpectedly, surprisingly, reservedly optimistic!

I mean, one doesn’t often hear the phrases “lavish public spending” and “rising value of the currency” spoken at the same time! Ever!

Growing more and more excited and curious, I feverishly read on to find out how Titus managed this heretofore thought-impossible feat! “How could everyone else not have seen this before now?” I thought to myself.

Only later on, in a seemingly unrelated part of the biography, we find that he got started when Emperor Vespasian “gave Titus charge of the Jewish war. His campaign, in which 1,000,000 Jews were reputed to have died, culminated in the capture and destruction of Jerusalem.”

So, the lesson is that old standby of government: Rob your neighbors so you can pay off your bills, prevent pesky lawsuits by killing the people you rob, use the money to pay some debts, which paradoxically makes your currency temporarily strong, and then continue to debase the currency by creating more and more of it.

The other lesson is, unfortunately, that an inflationary price has to be inevitably paid for increasing the money supply so drastically.

Buy gold and silver bullion when your currency is being debased by over-issuance. In fact, it has never failed!

For instance, an article in The Economist magazine notes that a study estimates that around $400 million was paid to the Somali pirates, who hijack freighters and demand ransom for them, between 2005 and 2012. This is an expansion of about 40% of their GDP!

The result of all that new money flooding into the Somali economy was, quoting a local, “With piracy everything became more and more expensive.”

Having debased the old Somali shilling to literal worthlessness by printing up so much of it in the late ’80s and early ’90s, they stopped printing Somali shillings in 1992, and several currencies now compete to be used for transactions.

Oddly enough, and to prove that the buying power of a currency depends on the supply of it, the money supply of those old shillings has obviously remained constant, and they now have regained some buying power because of it! Amazing!

Extrapolating, with the American government still deficit-spending to pump, pump, pump more and more currency and credit (which it got from the horrid Federal Reserve creating the new currency and credit just for that purpose) into the economy, horrible inflation in prices is our dire destiny of doom, as the worthlessness of the dollar similarly destined.

And don’t get me started on screeching about inflationary collapse, or how much burgers cost me these days, which parallels McDonald’s scrapping its Dollar Menu, as their costs are rising so high that they can no longer make a profit selling anything for a dollar.

So my delightful daydreams of solving the Big Economic Problem (BEP) were dashed, I ate a lousy-yet-expensive hamburger, I wasted a whole glob of gooey cheese, and inflation in prices continued because the evil Federal Reserve kept creating currency and credit.

Happily, on the other hand, now that I, again, am completely 100 percent sure that we are doomed to an inflationary collapse, I can just go back to concentrating on the One True Thing (OTT) that 2,500 years of history have proved: Buy gold and silver bullion when your currency is being debased by over-issuance. In fact, it has never failed!

And since that is so easy and quick, one has a lot of extra time on one’s hands with which to have fun (for instance, golf), whereby one achieves the pinnacle of investing: Acquiring a fabulous future fortune on the cheap, while doing no work whatsoever, at a beautiful, peaceful place where somebody else mows the grass, pours the beer, cleans up afterward, and neither your family, boss nor angry creditors can bother you (if you remember to turn off your phone)!

Whee! This investing stuff is easy!


for The Daily Reckoning

Ed. Note: Never one to mince words, the Great And Wise Mogambo (GAWM) has stayed true to form, even during his absence from the pages of The Daily Reckoning. He’s still the angriest guy in economics and he regularly declares how easy investing really is — especially when realize the value of gold. But that is just one small pearl of Fabulous Mogambo Wisdom (FMW) featured in The Daily Reckoning email edition. To ensure you don’t miss any more of his FMW, sign up for the FREE Daily Reckoning email edition, right here.

The Mogambo Guru’s Lifetime Income Equation

November 4, 2013 by · Leave a Comment 


My mood is dark. I see, as usual, enemies everywhere, but have started filling my days, not with installing more defensive armaments in the Super Duper Mogambo Bunker (SDMB), but with making lists of all the people whom I blame for something, starting with the worst offender of them all, the absolutely satanic Alan Greenspan.

It was Greenspan who was the horrid chairman of the Federal Reserve who started the ridiculous Keynesian insanity of creating all the mountains of cash and credit that allowed the bank bubble, the dot-com bubble, the housing bubble, the stock market bubble, the bond market bubble, the size-of-government bubble, the national debt bubble, and the staggering, incalculable derivatives bubble, to probably name but a few.

On and on, the lengthy list of the damnably blameworthy continues, page after page, purple with rage, most recently including Jerry something-or-other, whom I had almost forgotten about. He was the kid who leapt up to catch the booming bomber I hit in a baseball game at recess in the fourth grade, which would have been a nice, long, juicy home run for me.

“Now hear this! You and monetary policy in this country will now be ruled by me! Gold shall be money again, just like the Constitution requires!”

I’d have been a hero to the lovely Suzanne, who was watching my every move and thinking to herself “Oh, wonderful Mogambo! My hero! I will be your devoted girlfriend until high school, when you will get a cool car and drive me around, and kiss me all the time, and we will live happily ever after!”

Instead, thanks to Jerry just wildly throwing his arms up in a panicked lunge of doofus desperation, like some disjointed scarecrow, the ball miraculously landing right in his stupid glove, I am out. Out! Just another loser! Loser! Loser!

And then, in the depths of my despair, to my horror, I saw my darling Suzanne turn up her pretty little nose in disgust, and leave without saying a word, which was (now that I think about it) the pivotal moment in my life that pretty much defined my relationships with women from then on.

Thus Jerry, having ruined my whole love life with his stupid lucky catch, is on the list. Oh, yeah. He’s on the list.

Despite my foul mood, I laughed out loud at the cover of Barron’s magazine. It concedes that over the next 20 years, the economy will slow, although they do not continue, perhaps in smaller print, to reveal the Ugly, Ugly Fact (UUF) that things always slow down before they stop, start rolling back down the hill, and after a short period gathering speed and highly-erratic behavior careening all over the road, soon crash over a cliff in a raging fireball, killing everybody in sight.

You can relax, however, because that’s just the theory. Just a theory!

In practice, however, things never actually stop, because, at this late stage of disintegration, things tend to go from horrifically bad to tragically worse so quickly that things usually plunge randomly over cliffs in raging fireballs, killing everybody in sight, before they ever, you know, actually stop.

Now, you would think that this “Ending in raging fireballs and killing everybody in sight” theory, which is my latest Profound Mogambo Insight (PMI) about the stupidity of Keynesian economic theory, would be worth a Nobel Prize or two, or maybe just a couple of millions of that luscious prize money, which would come in real handy right now.

But nooOOOooo!

In fact, NOJMR satirically posted the headline “Mogambo denied the Nobel Prize again” at his website, which is pretty funny, especially since I have not done anything noteworthy, nor prize-worthy, in my whole worthless life, according to all my teachers, schoolmates, family, so-called friends, neighbors, co-workers, supervisors, bosses and shareholders, and did I mention wife and kids?

Nevertheless, I would like to end that distasteful phase of my life by proposing my Mogambo Lifetime Income Hypothesis (MLIH), which postulates that, in the aggregate, people can never spend more in their lifetimes than their lifetime income.

The proof is made by example: If you earned $10 million over your lifetime, but you spent $11 million, at the settlement of your estate, you would owe $1 million to someone who is now not going to be paid, and thus whose lifetime income will have been reduced by that $1 million.

I even came up with a clever equation, to appeal to the Keynesians (who love this kind of thing):

I = E.

I assume you are impressed with the breathtaking elegance and cosmic simplicity of this profound mathematical identity, and are chanting “More! More Wisdom Of The Mogambo (WOTM)! Give him the damned Nobel Prize and the money, and then get on to more WOTM!”

Okay! Here’s my latest hot-stuff idea. How about tongs as an underdeveloped resource? I mean, tongs are not just for turning burgers on a grill! Imagine you are slouching comfortably on the couch, and some idiot put the remote control on the coffee table. Would you rather huff and puff to heave your ponderous bulk up (oof!) into a sitting position so you can lean over (oof, again!) and get it, or merely whip out a pair of tongs and get it with no muss, no fuss?

Or, imagine if you had a pair of tongs when attacked by a guy with a gun who is robbing you because his little bit of currency is not enough to pay the increasing costs of energy, food and shelter necessary to support his family, which is because the evil Federal Reserve created so much currency and credit that the dollar’s buying power went down and down because of the continual over-creation of currency and credit, which is experienced by people as “things always costing more and more dollars,” but he doesn’t have more dollars. A desperate man, but with tongs, you could use them to reach out and snatch that gun away, and smack him upside the head (bap!) with it!

Or how about a pair of tongs that was big enough that you could reach into a window at the Federal Reserve and pluck that pinhead Bernanke up and out of his seat, and deposit him in the dumpster out back where he and his laughably asinine Keynesian policies belong, whereupon you could run inside, leap in to his recently-vacated seat, and take over!

Grab the phone! Dial everybody up, and say, “Now hear this! You and monetary policy in this country will now be ruled by me! Gold shall be money again, just like the Constitution requires! Gold is not currently money because the horrid Supreme Court has infamously ruled that money does NOT have to be only of silver and gold, like the Constitution clearly says, and money can be anything a government official or a banker says it is, contrary to what the Constitution says.”

And if anybody objects to your bloodless coup to stop the mindless insanity of continuously increasing the money supply which causes inflation in prices, you could use tongs to pluck them out, too!

So, are you probably starting to think to yourself “Hey! This idiot’s right about the importance of tongs! Perhaps I should send him all my money to invest in his new hit comic book, titled ‘Mogambo, Man of Tongs!’, which he will sell to Stan Lee at Marvel comics for a billion dollars, and we’ll all be rich, and have all the tongs we want!”

I know you are, by this time, on your feet with rejoicing, happily chanting with so many others, “More! More! More Wisdom Of The Mogambo (WOTM) to enlighten us and show us how to make a lot of money by betting against the stupidity of Keynesian economic policy!”

Flattered by such adoration, quickly relent, and say, “Okay! Saving the best for last, I offer this final Sublime Pearl Of Mogambo Wisdom (SPOMW), which is to buy gold and silver bullion with every dollar you can get your hands on. Buy gold and silver, I say with a haughty-yet-sneering arrogance born of the certainty of 2,500 years of experience!

Buy gold and silver, no matter how much your ungrateful families whine about how they are sick of subsisting on silage-grade gruel (“Buy it by the ton and save!”), and how they complain about needing expensive vegetables, and expensive fruits, and expensive proteins, and prohibitively expensive medicines, and bandages, and expensive medical and dental care, and all of that other expensive crap that greatly interferes with your Mission From Mogambo (MFM) to acquire as much gold and silver as possible.”

And if you find some tongs made out of gold or silver, so much the better! Whee!


for The Daily Reckoning

Ed. Note: After disappearing for more than two years, the Mogambo Guru has resurfaced, angrier and more vitriolic than ever. No one knows where he’s been, but whatever he witnessed on his trek was terrible enough to prompt his reemergence in The Daily Reckoning email edition. He’ll be making more appearances as the weeks go by. So to make sure you get your fill of Sublime Mogambo Wisdom (SMW), be sure to sign up for The Daily Reckoning, for FREE, right here.

Firestorms & Currency Twisters

August 31, 2012 by · Leave a Comment 

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:

  1. How many private stock accounts will go missing?
  2. Will the interest rate swap game be exposed?
  3. Will movement of stolen world trade assets surface?
  4. 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.


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Jim Willie CB, editor of the “HAT TRICK LETTER”

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Handicapping the Collapse

March 12, 2012 by · 1 Comment 

By Jim Willie CB, Golden Jackass

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Scattered diverse and almost uniformly unfavorable and dangerous events are unfolding, as the global economy and financial structure undergoes the equivalent of endless earthquakes and bombardment of solar emissions. Reporting is difficult, since information is distorted toward the sunny side. Events are moving fast, as quickly as the danger level is rising. As conditions worsen, the hype and spin has risen almost out of control. The political machine, tied at the hip to the banking apparatus, has ramped up the growth story even as the strain on the information spin has become more visible and subject to heavy criticism. A re-election year is always fraught with risk of unmasked falsehoods making headlines. For some reason the Mayans have been lifted in prominence despite their cultural vanishing act. Like calling the dodo bird the epitome of future evolution in the aviary world of ornithology. The Jackass prefers the eagle, hawk, and falcon. Nonetheless, the list of acts on stage is replete with stories of collapse. A review is useful. Keep in mind that whatever happens to Greece will serve as vivid preview of what is to come in Italy, Spain, and perhaps France. Much more ruin comes. Witness the great unraveling. The only winners will be tangibles, like gold, silver, crude oil, and farmland.

Greek Tragedy Turns Into Con Game Farce

Notice the debt solution to the debt problem handed to Greece, shoved down their throats. More specifically, observe the austerity budget requirements that assure economic deterioration. No exception has been offered, yet the same prescription is applied that results in job cuts, project termination, and greater deficits. Observe the bond swaps of new faulty bonds for old impaired ruined bonds. No solution there. Observe the strongarm methods of powerful coercion to enable the bond holders a cooperative role in the process. Observe the asset grabs and seizures tied to collateral in previous debt agreements. Observe the vacuum effect of money fleeing the Greek banking system. Observe the profound economic recession, far worse than reported. Observe the chaos in the streets, as the people are angry that decisions are made without their participation, acknowledgement, or approval. As the Greek debt default continues down the road, with delays and distortions to its view, the only assurance is the end point. The banks resist a liquidation or exit from the Euro currency, since it would spell sudden death failure for many large European banks. The nation must exit the Euro currency in order to write down its debt more effectively (rather than trade it), in order to be in a position to devalue it for a true stimulus, in order for a fresh start out from under the banker thumb. Let’s watch the details of the Credit Default Swap, whether a default event is ordered. Be sure to know that the claimed $3.2 billion in net CDS payouts is a grand lie. If $200 billion is offset by $196.8 billion between Group A versus Group B (guessed hypothetical numbers), then know clearly that Group A is deader than dead, while Group B will never by paid by the dead counter-party. The CDS sham reveals mutually dead financial entities, not offsetting calculus.

Physical Gold Drainage Backfire

Amazing what can be done when 22 million paper gold ounces is dropped on the market on a single day, the Leap Year Day of all days. Witness the leap downward in paper gold price and perceived market integrity. No need for an honest market. The CFTC remains asleep at the wheel, or with eyes firmly fixed on their master clubhouse on Wall Street, the chain tugged hard. The end result, as described by the notorious London Trader on King World News, is that a magnificent amount of physical gold is leaving the COMEX and LBMA.The United States remains transfixed on the paper gold price. The real action lies in the physical London gold market, where Asians are fast draining the London gold supply. Once again, a powerful dichotomy exists. The Boyz can control the paper gold price, but they are therefore gifting the Asian buyers with a hefty discount that results in truckloads of gold bullion rolling out the ramps in delivery. As desperation rises to ambush with naked gold sales devoid of metal, enabled by USGovt and UKGovt watchful eyes, the gold inventory is fast vanishing. The divergence will continue to play out, as the paper gold price might decline but the physical gold price will rise. The COMEX will become an irrelevant arena empty of inventory, even as London rots hollow. The gold price on the real physical honest side must continue upward, since supply is fast doing a vanishing act. It is going from West to East and will not return in our generation, along with true power. The recent episode of vast paper gold sales without benefit of collateral metal cannot keep the gold price down. It is recovering. The rally to $2000 was not permitted. The event has merely marked the road with a support level. Nothing can keep gold down, nothing. It is real money in an era when paper masquerading as money is being revealed for its faulty makeup, subject to acid drips.


$ Trillion USGovt Deficit Locks 0% Rate

Few analyst seem to report a basic factor. The USGovt cannot afford a higher rate on borrowing costs than 0%, not now and not ever. So it will become permanent. This is the New Normal with ugly warts. There can be no Exit Strategy, since the government finances dictate no change. A normal borrowing cost would mean the debt finance cost would rival the defense budget in cost, and overshadow the Medicare cost. The USGovt deficit thus locks the 0% rate and puts the USFed in a monetary straitjacket. They refuse to discuss it, but instead wiggle around with feeble explanations of its continued policy. Notice the extension into 2014 of the accomodative 0% rate. What a farce! What a tragedy! What a pathetic excuse of a central bank! A vicious cycle is underway where the gargantuan federal deficits require continued 0% costs to finance them, but the 0% cost of money has its own heavy effect and damaging toll. The biggest insurance policy to the gold bull market is the USGovt and its runaway deficits.

Destructive Damage of 0% Money

The Jackass message has been steady and relentless. The 0% cost of money makes for a grotesque distortion in asset prices, all of them. Nothing is properly priced. The free money results in rising cost of everything rising. All categories rise inexorably within the cost structure. Wages do not, thanks to the forfeit of industry to Asia, in particular to China. So the squeeze on capital continues unabated and with ferocity. Capital is killed. By that is meant that marginal businesses and segments of business units within larger corporations will gradually respond to higher costs (equipment, materials, fuel, shipping) by closing the businesses. Workers are cut, but more importantly capital is retired, equipment is turned off, and capital is liquidated. A truck or machine or computer or telephone system might be sold off. The rising costs and more rigid final product prices dictate business shutdowns, since the profit margin is squeezed, then goes negative, forcing business decisions. The destructive effect on working capital from 0% money remains the singlemost blind spot of American and Western economists. They call it stimulative, when it is the exact opposite. They are badly educated. They are compromised by their paychecks. They are dead wrong, blind to the death of capital beneath their arrogant noses. Gold will benefit from the free money provisions, and head north of the $2000 price with ease. Gold will serve as capital sanctuary under attack.

Heavy Reliance on Monetary Inflation

As foreign creditors continue to shed USTreasury Bonds, the USGovt is left with a growing and near total dependence upon the US Federal Reserve to purchase its debt. It has no choice but to rely upon the inflation machinery apparatus to buy the USTBonds. Few bond dealers wish to continue, but their hope is not to be stuck with inventory, should the USFed stop buying. The dealers are acting as middlemen and nothing more. China continues to unload USTBonds, the latest month showing more of the same recent pattern. As Valery Giscard d’Estaing called it, the US benefits from the “Exhorbitant Privilege” of abusing the global reserve currency to finance its own debt in an unaccountable manner. Worse, the United States though the powerful forces of the Competing Currency War, has forced all major central banks to participate in the heretical 0% money policy. Nations that opt not to play the game will suffer from a rising currency exchange rate and damaged export industry.The major central banks are collusive in their policy, the effect being a Western world capital destruction slow burn. See the Global QE as it involves the US, Britain, Europe, and Japan not only in setting interest rates absurdly low, but in vast bond purchases wrapped in monetization schemes. Once upon a time 20 to 30 years ago, such schemes were called highly destructive and extremely unwise. Today they are normal tools. Gold will benefit from such powerful monetary inflation and debasement of money itself.

Collapse of Sovereign Debt Foundation

The con game is impressive. They call debt money. The entire foundation of the current monetary system is a complex array of paper currencies backed by sovereign debt. The problem for its managers is that the sovereign debt is crumbling. The degradation process began in late 2009 when Greece showed its first visible wide cracks in the debt facade. The preliminary event was the Dubai debt breakdown; call it the fuse. So the financial press, banking leaders, and political marionettes insist on calling this chapter a global financial crisis. It is more like a global monetary system collapse, if truth be told. But in today’s age the truth is a dangerous commodity, kept down in value by a cooperative subservient press, devoted fully to the syndicate and its dark motives. Holding like pillars the debt-based monetary system are the major banks. Their profound insolvency serves as proof positive of the broken structures of the monetary system itself. This is so plain to see. A mere FASB paper mache glued onto a rotten pillar does not permit it to bear weight. The legitimate matter behind the pillars is surely being siphoned as mass to other locations, while the farce of patch solutions continues with each passing month. The inescapable fact is that the world requires a new monetary system. To put it into place requires the liquidation of the old banks and sovereign bonds, which would mean making paupers and vassals out of the elite masters. So the game goes on.

U.S. Economy Moribund Without Income

The concept of a jobless recovery is a bad joke. Such a concept does not appear in economics textbooks or its legitimate lexicon. The expectation of recovery without vast income machinery is a fantasy. The decision to ship US industry to Asia in the 1980 decade saw a climax in the 2000 decade with the advent of China. In doing so, the USEconomy lost its legitimate income sources and turned to inflating assets to power the national economy. It was the singlemost destructive trend in modern United States history on a financial basis. Income was replaced by debt, and the rest is history, where economists should be forced to inscribe the epitaphs. Stimulus programs at the USGovt level are mere plugs for state deficits. Infrastructure projects turn out to be funnels for Chinese contracts. As Kurt Richebacher told me in August 2003, as best recalled, “A nation that lacks industry is doomed, as it must at least dominate in transportation and steel, but the United States does not anymore.” The financial press and banking leaders curiously serve up endless nonsense in viewpoints, that the US consumer is the engine. It is not. The engine is industry, and the USEconomy sorely lacks it. Unless and until the USEconomy brings back industry, factories, and all the supply chain encoutrements, the nation will remain moribund and without adequate income. The latest data, the December trade gap, shows a record setting $52.5 billion monthly deficit. This is not an economy in recovery. The rising energy prices are yet another crippling factor. A loud echo can be heard in Japan, where the nation is shocked by the reality of steady trade deficits, never seen in recent history. The power structure is to be turned on its head.

Housing Market Ruined

As China took a giant bite out of the US industrial sector, the world gave acclaim. Cheap stuff appears a good thing until the reality of lost income hits. The lower costs forced the US housing & mortgage bubbles toward their heights. The dependence by the USEconomy upon the housing & mortgage sectors became acute. The broken asset bubbles of homes and linked bonds spelled ruin for the USEconomy. A vicious cycle has developed, that even ultra-low mortgage rates cannot solve. The banks are becoming prominent owners of vast home inventory. They cannot dump their inventory. The big Fannie Mae presence is very much in play, a sign of corruption dominating since the agency covers up the mortgage bond fraud that reaches into $trillions. Each year, clownish voices proclaim a turnaround in the important housing sector. Each year the home prices go lower, precisely as the Jackass has forecasted. Imagine a nation so stupid as to depend not on industry and factories for legitimate income in value added enterprise, but instead on rising prices of home and property assets. Incredible! The next shoe soon to drop is the commercial sector finally, which has been protected and carried along for over three years. The dumping process has already begun. More bank balance sheet damage is to come. Neither the housing market can be liquidated, nor the bank sector can be liquidated, tied at the hip. The economy that depends upon both is surely halfway to the morgue. The collapse in progress should result in a different power structure.

Big Bank Liability Deals

The parade of legal deals to limit the vast bank liability is a travesty to watch. Any reasonable analysis puts the liability risk at $2 trillion or more. Yet the cap on managed risk will be set at a mere $25 billion in widespread alleged mortgage fraud abuse. Each deal that comes up has the final figure a mere fraction of the true fraud. That makes for a favorable bank outcome. It reminds one of the Wachovia money laundering deal struck in 2009, no guilt admitted, the case kicked under the rug. The big bank was caught with hundreds of $billions in laundered funds from the Mexican drug cartel. The ultimate fine turned out to be about 0.03 of one penny per dollar laundered. The cost of the mortgage fraud and bond fraud abuse will be similar, much less than 1% of the amount involved. The goal is not only to limit liability, but to move on to new structural arrangements that erase the past bond fraud. A new contract over-writes the old in a merger of contracts, technically speaking. What the big banks cannot shovel into the Fannie Mae outhouse under USGovt aegis, they will protect with ring fences built from court settlements that are vastly out of proportion to the crimes involved. Nothing new here.

Goldman Sachs Revealed

The GSax brand is being tarnished. To be sure, they remain a fixture in the USGovt finance ministry. Its diminutive leader Geithner makes absurd moronic pronouncements from time to time. A couple weeks ago, he claimed the crude oil price was rising from a strong USEconomy and its growth path. Nevermind the war drums over Iran. Nevermind the vast USFed monetary printing project. Nevermind the anti-US$ movement within the oil world. Geithner more recently proclaimed that more commonly seen Chinese Yuan bond issuance and loan grants would have a muted effect on the USDollar. He lives in a fantasy world indeed. In 2008, an important event occurred when a Russian fellow escaped with a proprietary GSax unix box complete with software, which enabled insider trading that peeked at the order flow. The FBI covered it up quickly and dutifully, in true Fascist Business Model fashion. But GSax has taken major blows. They have been caught concealing the Greek Govt debt condition, as it entered the Euro Monetary Union over ten years ago. Widespread investigations are ongoing within Europe, and the venerable firm cannot solicit protective help on the continent. Matt Taibbi would be pleased. The most recent case close to home involved, which was preyed upon by Goldman Sachs and Merrill Lynch, as the Wall Street firms engaged in naked shorting of its stock. But isn’t Wall Street exempt from naked shorting statutes on the legal books? The court decision made the case known to the public, more details to come. A wise veteran once shared that to become a GSax vice president, one major fraud must reside on the professional resume, which was not prosecuted. He was not joking. It is a criminal enterprise. The Greek bond situation might still result in tremendous GSax loss if not censure. Let’s see if the GSax preppy Monti remains in unelected office in Italy.

End of Equilibrium Market Forces

Even USFed members notice that financial markets are being rigged. The phenomenon is obvious to anyone with an above average financial IQ. To point a finger at regular 10am and 3pm stock market recoveries should include a mention of the Working Group for Financial Market. It never does in the media reports. The USEconomy is stuck in the worst and most destructive recession in modern history, yet PE ratios remain robust. The bond market is the toy of the USFed itself, propped by $trillions in purchases. The USFed purchases at least 75% to 80% of all USTreasury offerings. The Operation Twist has been stripped of its fig leafs. The Dollar Swap Facilities are mere QE programs with a beard. The fact that the bond market has few if any buyers should be the main story. Sadly, the USGovt requires a weak economy in order to create more bond demand. Another vicious cycle is at work. The market mavens tend to cheer for interventions, even though the integrity of the markets themselves is fast draining into the sewer pipes. The mavens cheer at USFed bond purchases for its liquidity infusion, without much awareness of the absence of legitimate money. The USFed has become the quasi banking system, ever since the subprime mortgage mess hit, ever since the commercial paper market dried up. Yet it is failing. The indirect consequence of 0% money is distorted asset prices and extreme distortion of financial markets, all of them. The stock market is intervened upon. The bond market is directly controlled. The currency market is managed by the Exchange Stabilization Fund, which never receives press attention. The crude oil market is a vast playground, like when the Strategic Petroleum Reserve is released, or when the Gulf of Mexico is shut down, or the Keystone Pipeline is rejected. The Brent versus West Texas oil price spread has gone to $18 again. The grain market is twisted by wrong US silo inventory data. No end in sight to muddy financial markets. The housing market is one of the most difficult to doctor, but even it has a vast hidden inventory held by banks.

Teetering Petro-Dollar Standard

The Iran sanctions have undercut the USDollar more than any other single item. The Petro-Dollar is at risk. Many times in my articles, a warning has been scribed that the Dollar Kill Switch is ready on the wall, fully constructed, awaiting word to flip the switch. Someday in the not too distant future, the Saudis will announce acceptance of non-US$ payments. They have already made the supporting decisions toward this highly important step, related to Persian Gulf security enforcement. The numerous bilateral oil trade deals with Iran have become an epidemic that infects the USDollar in its unilateral dominance for trade settlement. One big reason Saddam Hussein was removed was his decision to accept Euro payments for crude oil. Another was to steal his gold, just like what happened in Libya. Another was to abrogate oil contracts made between Iraq and Russia as well as between Iraq and China. So as the many bilateral deals are struck with Iran, the USDollar foundation in trade settlement is crumbling, in parallel to the sovereign debt crumbling (see PIGS debt), in parallel to the USTreasury Bonds crumbling (see foreign creditor departures). The bunker busters might drop, but the real damage is to the stable catbird seat for the USDollar itself in trade settlement. Such trade is conducted less and less in US$ terms. Asia and the Middle East are leading the movement away from the USDollar.

Global USDollar Revolt

The developing nations of the world are in revolt against the USDollar. They see no future in holding US$-based bonds in reserve. They see no future in accepting US$ payments for their raw commodities and finished products. The secondary central banks of the world are increasingly stocking up on gold bullion and less on USTBonds. Some are actively converting from paper reserves to gold assets, like China and Russia. Many other nations are following their important lead. A more recent development has the BRIC nations blocking the IMF. They are cooperating less in Brazil, Russia, India, and China. The concept of the Chinese Yuan is being pushed, like in compromise, which includes a greater voice of the East and a smaller voice of the West, in particular the United States. The gold price will continue to benefit as long as the global revolt continues against the USDollar.

Barter System Coming

The current system must be replaced. Watch for signs of a vast comprehensive barter system with wide participation. It will involve deals between nations at the highest levels. It will involve deals between corporations at the middle levels. It will involve deals with individuals at the lower retail levels. It will be more fair. It will relegate banks to utilities, a much more useful function. It will lock up deadbeat nations that attempt to take in valuable products in return for toilet paper that accumulates in a rancid pile subject to acidic decay. The new barter system must have a financial core in order to handle the short-term transactions and payments required. That core will be gold based. The United States will not be at the center of this new system. In fact, the US risks being shut out if it does begin soon to join the movement. Being an outsider nation looking in will result in high price inflation and more rampant shortages. Demand for gold will rise as the new system falls into place. The system has been endorsed and put into the implementation stage by Germany, Russia, China, and the Persian Gulf. The trigger for launching the barter system, so told to the Jackass by one of its participating architects and engineers, is the broad perception that the current system has collapsed. That day is nigh.


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Herding Greek Cats from Bondage

February 23, 2012 by · Leave a Comment 

By Jim Willie CB, Golden Jackass

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Listen to the empty words of the last bailout for Greece. Credibility with the Jackass was lost back on the third bailout, well over a year ago, out of the six bailouts in total. Perhaps it is seven comprehensive final bailouts. The pattern is clear. The politicians, without popular support, forge agreements on debt coverage with the Greek officials. The deals fall through, hit the ground, and expose the lack of support even from the European bankers, led by the Germans. The pattern has been vividly clear for over a year, enough for my dismissal of new accords right away on the basis that the German bankers will not conform and agree to the deals struck. The political leaders in France (Sarkozy) and Germany (Merkel) are due to lose their offices, yet they continue to march around at useless summits attempting to cut last ditch agreements that mean nothing. The people are not willing in Germany to hand over any more than the $3 trillion to date, from the start of the common Euro currency experiment. The bankers, like at the Bundesbank, should attend the summits, but that would be too obvious on where the majority of power is held. What is unfolding is a comprehensive Greek Govt debt default from the inability to contain the situation, the impracticality of the austerity budgets put in place, the wreckage that has come to the Greek Economy, and the intractable solution.

My view is the entire charade for two years has been a grand delay to enable the big banks to sell out of their bonds and dump them on the Euro Central Bank. Almost every bailout has been of bank assets in some sort of redemption, not budget assistance. The biggest question posed and not answered is: HOW ANGRY ARE THE OWNERS OF THE FEDERAL RESERVE AND EURO CENTRAL BANK TO ACCUMULATE AND OWN SUCH A MOUNTAIN OF TOXIC PAPER?? My German banker source says the Germans will make what seem like agreements or permit the politicians to make them, but the bankers will consistently obstruct them. He steadily stresses how Germany has wasted $300 billion in savings each year, is exhausted, and no longer is willing or able to provide national welfare for Southern Europe. They will write no more checks except what will successfully grab collateral prize properties. It has become obvious the Greeks will not hand over much of any property without lighting the city on fire. It is the end of the bailout road. A few months ago my firm position, stated in the newsletter, that the bailouts would end when the riots amplify.They have amplified. Conclusion: GAME OVER.

Next comes a planned or unplanned default. Let’s see how inequitable they will make it. Obviously it will be inequitable, since all accords have greatly favored the bankers. The TARP Fund was the most egregious, but it only disguised the bigger multi-$trillion grants with zero cost to the many banks, both central bank and private bank. The upshot of the Financial Regulatory Bill is that the USFed must open its books, but only after such loans take place, not to be reversed. Back to Greece. For a few months, some clarity and realism has entered the discussions and analysis concerning the burning nation of antiquity. The new theme has been that Greece will default, must default, and cannot avoid a default. Exactly. So the challenge is to avoid the horrendous collateral damage that will come. The central bankers, regional commissars, and technocrats have been working overtime, but Davos was a missed opportunity for forging potential solutions or at least elements.

A great comment came out of the World Economic Forum in Davos. The comment came from one of the few Economics Nobel Winners who makes any sense at all. The recent parade of prize winners seems either clownish in support of the status quo in disaster mode, or abstruce to the point of irrelevance. Joseph Stiglitz uttered perhaps the only wisdom or story worth reporting from the forum, a country club gathering of bankers and their investment fund cohorts whose mission is to defend the failing system. Stiglitz said, “European leaders repeat the same kind of platitudes, [like] we need to get growth going, [like] austerity will not be enough, but no country has policies that will achieve growth. I have not heard a single thing here in Davos that has convinced me that the European leaders have any sense of what they need to do and will do. Nobody knows who owes what to whom, where the risks of a Greek default are.” It reminds me of a premise that the first step in a reconstruction, remedy, and solution is to liquidate the big insolvent banks. But that is precisely where the power lies in controlling the USGovt. If not the banks, the agencies that have evolved into a private sprawling enterprise control much hidden power.

Blueprint for Damage Control

One must be serious and grounded in reality. No solution exists for Greece without liquidation of their debt, its restructure with huge writedowns if not total wipeout loss, a return to the Drachma currency, recapitalization of their banks, and a hands off to carpetbaggers. Almost none of these measures will be done, except blockage of the foreigners intending to exploit.Talk is clear about a 70% bond haircut, which does not seem enough even though it is brutal. The biggest practical impediments to the Greek Economy are the austerity plan and the absent ability to devalue the currency. Every single austerity plan to date has been a failure, in every nation attempted. They result in worse economic slowdowns, greater job loss, broad cancelation of projects, reduced pension security, and much wider deficits. Yet they continue in a grand procession of ruin. One must wonder if ruin is the goal, so that another technocrat can be put in power, unelected and with allegiance only to the syndicate. Who selected Papademous and Monti?

The absent path to a currency devaluation hits as the central flaw of the common Euro region. The weakest cannot compete against the strongest. In time the strong nations refuse to provide the higher standard of living at their own domestic expense. The German standard of living has fallen badly, angering many of its citizens. The normal evolutionary path calls for a troubled nation to do debt restructure, to enact broad reforms, to devalue the currency, and to stimulate the economy. The path taken for two years has been to dance around the debt table. No action at all on devaluation, since removal from the Euro currency umbilical would mean enormous debt writeoffs for the major European banks. This is the same obstructive dynamic at work in the United States. Greece needs to go back to the Drachma, devalue it by 30% or more, and enjoy some stimulus. Their list of export items is not in great volume. The austerity budgets are the exact opposite of stimulus. Lunacy has taken root, like with an entire class of public contract workers must work for no pay. The power center of the big banks prevents solutions. So the next phase will be full of risk and intrigue, if not treachery.

Layers of Risk

Big Bank losses: The big banks in Europe face staggering losses. The attempts to make a mere 35% bond loss haircut in past deals was so unworkable as to be laughable. They fooled nobody. Reality has entered the room, as a 70% writedown figure has been proposed on current bailout deals. The big banks are already reeling from credit portfolios damaged by property like home mortgage and commercial mortgage. They are hurt by sovereign debt generally, not just from Greece. The Italian and Spanish Govt debt losses will be higher in volume, lower in percentage loss. The big bank exposure extends also to private debt within the Greek Economy, like with mortgages and commercial loans. They are all at heavy risk. The Basel II rules have forced de-leveraging as a warmup process that weakened many banks. The big European banks should enter failure from an imposed Greek Govt debt default and restructure. The Greek losses will strain the system to the hilt.

Contagion to Banks outside Europe: The interwoven nature of Western banking does not add to its strength, like in integrated plywood sinews, but rather exposes its weakness. The London banks own a huge amount of Southern Europe sovereign debt. The New York banks own a sizeable portion also. A recent conversation with a sturdy German banker revealed that Citigroup owns an enormous amount of debt in Greece, Italy, and Eastern Europe in the mortgage sector. Most will be written off with big losses. The amount of PIGS sovereign debt owned by banks in France is enormous, well detailed, but under-reported. The cross pollenation will come to the fore as the ripples are felt. The German banks own too much sovereign debt. The big banks outside Europe are at great risk, just like those throughout the Continent. Many non-European banks should enter failure from an imposed Greek Govt debt default and restructure. The Greek losses will strain the system to the hilt.

Euro Central Bank: Like the US Federal Reserve, these two central banks have served as the buyer of last resort for toxic bonds that both nobody wants and have nearly worthless value. Their owner lords (think castles in London and Switzerland) must be pushing back hard. The new EuroCB head Mario Draghi at first stated a firm position of not wishing to buy Southern European sovereign bonds, since badly impaired. When the Italian and Spanish Govt Bond yields rose toward or past the 7% magic mark, he relented. The stability returned in the bond market, but at the high cost of further wrecking the EuroCB balance sheet. It is hard to know which is more ruined, loaded with toxic paper, the EuroCB or the USFed. Both in my view are wrecked entities and control towers. Neither can serve adequately as a central bank when acting like a proxy for the entire banking system. They must remove the bank reserves held as hostage from private banks. The major central banks should face severe insolvency from an imposed Greek Govt debt default and restructure. The Greek losses will strain the system to the hilt.

Credit Default Swaps: The bond insurance market is even more corrupt than the mortgage market. At least the  mortgage arena contained some hint of regulatory oversight. The derivative market has none at all. Some fine analysts like Chris Whalen stated two and three years ago that without the derivative trade, the US banks would have keeled over dead long ago. They took in huge fees on contracts whose legitimacy and effectiveness are unclear. The ISDA has issued rulings on bond debt default that seem corrupt to the core. The next round of Greece Govt Bond writedowns apparently will feature CDSwap insurance responses in the form of awards in exchange for bond ownership, the inherent asset swap. Like the SEC and CFTC, the ISDA is loaded with bankers from the everpresent Wall Street revolving door. They will serve the banks at the expense of the system and economy. The interwoven nature of Western banking does not add to its strength, but rather exposes its weakness. The claimed offset on derivative ownership is nonsense, as Bank A holds derivatives that cover Bank B, and vice versa. They do not cancel out for net neutral. Both banks are killed, neither able to aid the other. The payouts for Credit Default Swap contracts being enforced should cause tremendous additional damage to the entire financial system, from an imposed Greek Govt debt default and restructure. The Greek losses will strain the system to the hilt.

Exposure of Profound Fraud again: The strain from any imposed default skein will expose the derivative market. The cast of counter-parties is too diverse. The obligations are too unclear. The nature of the contracts is too untested. The enforcement by the ISDA rulings are too subservient. Like with the mortgage sector, liquidations reveal the seriously putrid underbelly. With mortgages, no widespread liquidation of mortgage bonds could be done, since the process would reveal bond fraud to the extreme. Its mortgage contract fraud is in the open for full view. So patchwork was done, even nationalization of Fannie Mae and AIG under the USGovt wing. The fraud is contained supposedly, but without the basis of a solution. Hyper monetary inflation goes down a Black Hole. So also is the nature of the derivative market. Liquidations will reveal the seriously corrupted core of the business. After the recent MFGlobal, JPMorgan, and COMEX episode, one more log on the raging fraud bonfire. The system’s foundation of integrity is burning. The CDSwap contract award process should expose profound fraud in the system from an imposed Greek Govt debt default and restructure. The Greek losses will strain the system to the hilt.

Recapitalize domestic banking systems: The banking system has operated in the Western nations amidst deep insolvency for three years or more. When the Greek default is begun, that insolvency will be much worse. Some banks will fail. The dominos will fall. The impact will be understood quickly. The need to rebuild the banking system will be an obvious and very painful realization, but the volume will result in shock. The big banks serve as the core for the domestic credit engines, the machinery to pump credit into the many businesses. That engine is sputtering badly. Some measures will be done to enable new Euro Bonds to take senior position, but expect it to backfire since bond dealers and bond funds will resist the favored treatment and retreat. Several $trillion will be needed to recapitalize the banking systems, not just a few banks. With the dependence upon newly printed unbacked money, the banking systems should lose further integrity from an imposed Greek Govt debt default and restructure. The Greek losses will strain the system to the hilt.

Debt Rating Agencies: Since the autumn months of 2008, the agencies have acted more responsibly. The Standard & Poors downgrade of the USGovt debt was a wakeup call of unprecedented manner. However, the Moodys and Fitch agencies did not follow suit. Worse, the S&P chief executive was forced out of office, probably by a Wall Street phone call, replaced by a Citigroup veteran. In the last several months to perhaps 18 months, the debt rating agencies have been doing their job reponsibly, but their focus is entirely on Europe. They have ignored the United States, even ignored the embattled insolvent US States. They are piling on with European sovereign downgrades, European bank downgrades, even European stability fund downgrades. Instead of putting the debt rating agencies at greater risk from an imposed Greek Govt debt default and restructure, the pressure will be on them as a group to focus more attention on the USGovt and the US States. Their collective financial condition is equally bad as Greece.

Economies suffer from Austerity: The impact of every austerity plan is to put in place what appears to be a more rigid spending process. But the dependence of the domestic economies is so great upon the public sector for jobs and projects and grants and subsidies, that the damage is instant and deep. No austerity budget plan has resulted in improved finances in the first two years of emplacement. None! The economists seem blind to the effect. The politicians seem ignorant. The corporate leaders are frustrated. No solution exists for remedy short of a five year period. Many economies in the West should suffer even worse and more painful recessions from an imposed Greek Govt debt default and restructure. The Greek losses will strain the system to the hilt.

Amplified Inflation Risk: All solutions proposed involve the disposition of new money, either from outright printing without backing or from grander fiscal deficits. The austerity plans result in worse deficits, thus worse pressure on inflation. Any banking system recapitalization would be the crown jewel of monetary inflation. Imagine the effect of $1 trillion or $2 trillion in recapped banks, only to find they require another $1 trillion several months later. The inflation impact could be enough to push the water level over the bunker banker walls. Those walls have prevented the staggering hyper monetary inflation from spilling over into Main Streets across the nation. The bank sector has enjoyed 98% of the bailout benefits. The public has been told to tighten belts and to eat cake. Look for the bank recapitalization project, if it occurs, to finally push the inflation process in such a way that price inflation hits the USEconomy in force. Refer to rising wages and rising prices, not just costs. Tremendous pressure should come on systemic price inflation from an imposed Greek Govt debt default and restructure. The Greek losses will strain the system to the hilt.

Interest Rate Swap Risk: If price inflation rises in unexpected fashion, the pressure put on the USTreasury Bond market will be greater than any time in the last ten years. So far, the abuse of the Interest Rate Swap contract has provided outsized leverage in keeping down the USTBond yields generally, by creating artificial bond demand. The financial press is totally oblivious to this phenomenon. Investors do not flock to USTBond as safe haven. The Wall Street leverage machinery has created bond demand from the basement working overtime for over two years. The smoking gun was the 1Q2011 report on derivative growth by the Office of the Comptroller & Currency. It revealed $8 trillion in notional derivatives put on by Morgan Stanley alone. So much for investor bond demand and contradiction of the S&P downgrade of USGovt debt. What a clever tactic. However, the Greek Govt debt unraveling could place tremendous strain on the IRSwap device, even to expose it during a time of increased foreign creditor isolation. The US sovereign bond market inner circle hidden devices should be brought into the open from an imposed Greek Govt debt default and restructure. The Greek losses will strain the system to the hilt.

Unintended Consequence Risk: The last risk to cite is the risk of the unknown, the unexpected, that which cannot be properly planned. The potential unintended outcomes and pressures emanating from a comprehensive planned Greek Govt debt default defy description. In my view, it is like herding 100 cats freed from bondage on a truck in an open field. The Jackass loves cats, but never have they been captured in a yard when attempted. They jump fences, crawl under fences, disappear in holes under houses, even hide in car engines. They are fast and elusive, changing directions with extreme quickness and agility. So will be the consequences to a planned Greek demolition of their indebted edifices. The Powerz must realize the challenge that lies ahead, and look upon each with some trepidation.

Gold & Silver

The battle has been waged in the 1750 to 1800 price corridor for almost a full month. It is critically important. A smaller battle to overcome the 1650 mark was a success, thus making the Gold price recovery firm and recognized. As a solution is worked out in Greece, or the absence of one with another in a series of grand missteps, watch the Gold price cast a vote. The system’s integrity lies in the balance. The pressure points are across the entire financial and economic systems. The solutions are elusive since the basic initial step of big bank liquidation is refused, too much damage to be doled to the banks that control the power. The zinger is the recapitalization of the banking system, an urgent need and requirement, the understood impact from the imposed Greek comprehensive solution. Expect more favored treatment to the banks. However, as they are put back on solvent feet, a process only possible with vast hyper monetary inflation directed specifically at the banking pillars, the retribution from within the system will possibly be the first serious price inflation leakover. For over three years, the monetary inflation leakover has been contained, to the detriment of the economy.

The anticipation of that systemic price inflation event could be seen in the Gold price. The direct response to the imposed Greek debt solution could be some sort of capitulation, a recognition that the Western financial and monetary system cannot be fixed. Any perception that bank system reconstruction would assure another powerful bout of price inflation as the heavy cost could be a major unintended consequence. The Gold price could explode past $2000 per ounce if that were to occur. If the planned demolition of the Greek Govt bond building does not go according to plan, look to the Gold price for a powerful upward response. The list of unintended consequences and collateral damage is very long indeed. The risk is staggering acute and not easily measured. Gold should serve as the effective pressure valve. Most every attempt to push down the Gold price in the last few weeks with yet more naked shorting has been thwarted and opposed by the Eastern Coalition, their new project.

gold target 1950


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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 For personal questions about subscriptions, contact him at

The High Cost of 0% Rate

February 10, 2012 by · Leave a Comment 

By Jim Willie CB, Golden Jackass

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The interminable extension by the US Federal Reserve on the 0% rate into 2014 represents history in the making, making pure heresy in monetary policy. Worse, it forces foreign central banks to adopt the same destructive policy in the Competing Currency War. Accommodation on interest rates must be temporary, but is made a fixture. The financial system is irreparably broken, the symptom being endless financial crisis. The risk trade is coming back, whose corollary message is to back up the truck to buy GOLD. Many are the messages behind the 0%. Other nations like Japan have been criticized for its adoption. But when the United States is the adoptive parent custodian, it is supposedly all good. Stimulus is a ruse, as destruction of working capital is the constant refrain in a tragic opera. The unintended consequences abound, but mostly not perceived or comprehended well. Few even in the financial community are aware of the powerful leverage mechanisms that enforce the artificially low interest rate. Introduce the Interest Rate Swap contract, upon which heavy reliance is the norm. While Europe is embroiled in austerity, the United States is besieged by central bank apologies for failure disguised less and less with each passing month and each dismissed speech.

The solution is Gold & Silver investments, as all things paper will lose value either from erosion or theft in fraud. The MFGlobal case is far from finished. We have seen this Madoff movie before, but few recognize its sequel starring Jon Corzine and similar supporting cast. The protection is with Gold & Silver, in physical form. The next wave will feature the Gold investors painted as financial terrorists. Refer to the New York Times article with FBI contributors. This is highly disturbing to anyone who holds the Constitution as sacred.


The 0% official Fed Funds rate has been almost three full years in entrenched policy, when originally promised as temporary. No exit strategy here. Greenspan once stated that it should never be held fixed so low for more than six to nine months. He implied the system would be broken otherwise, subjected to pressures that would distort the valuation mechanisms beyond repair. My view is that extending 0% as monetary policy into year 2014, five years of accommodation, is a gross admission of failure. Bernanke constantly apologizes for stimulus having failed, for an economy unable to recover. The main effect of 0% policy is sustenance of the surprising weakness, draining capital from the system, and improperly pricing the debt which is at high risk. The reality is that the USEconomy is stuck in harsh deep recession of minus 3% to minus 5% GDP. The reality is that the USGovt debt burden is stuck in fast escalation at well over $1 trillion annually, while demand for the debt securities is vanishing. The heavy hidden reliance upon monetary inflation devices for USTBond demand has become a fixture in the financial landscape. Its marquee banner reads failure.


The fixture of 0% as monetary policy carries with it an admission that money is worthless. No directive by the flailing discredited US central bank could say it better. Money has no cost because it is not worth anything, being paper in basis and backed by no collateral. The latest travesty is the upcoming dissolution of Fannie Mae itself. What miracle they might conjure up to make its rotten ramparts and acidic paper and corrupt core go away. Fannie will be buried at sea (of liquidity). The cast of economists cannot comprehend the heavy cost of 0% in the widespread systematic destruction of capital. Marginal business units shut down, turn off the equipment, lay off the workers. The costs rise from the rising price of commodities. The material costs rise from basic hyper monetary inflation, due to the unilateral USFed paper factory output. The essence of retired capital and its broad capital destruction is a foreign concept to economists. They still believe the USEconomy will enjoy the benefits of continued 0% stimulus. How wrong, how backwards, how tragic!! The 0% policy destroys capital and furthers the deterioration process.


A repeated message since so important. Focus on suppressed long-term interest rates and their damaging consequences. The US leaders boast of benefits from ultra-low interest rates. Suppressing the 10-year bond yield has dire consequences. Some but not all of them appear unintended. The power centers want unlimited easy money for sure. But in doing so, they permit some horrendous developments like feeding a cancer.

  1. Savers are given nothing in interest yield, slowing the economy with asset erosion
  2. Banks hold home inventory, making housing market clearance impossible
  3. Big banks continue their USTreasury Bond carry trade schemes instead of business capital formation
  4. Investment banks are encouraged to continue speculation, rather than to invest in business formation that create jobs
  5. The USFed further expansion of its balance sheet to buy toxic assets, as rot sets in
  6. The USGovt is not discouraged from deficit reduction, sure to lead to systemic failure
  7. The free money helps to conceal in vast turnover the toxic paper held under the USGovt roof, as in Fannie Mae, and other fraudulent mills such as MFGlobal lookalikes in the sovereign debt securities and their related derivatives.


The Europeans are dealing with austerity measures in government budgets. The sovereign debt securities remain a constant problem, although in recent weeks the bond yields have come down to manageable levels, like below 6% in Italy and Spain. Few economists and bank analysts seems to realize that austerity plans put in place result in lower economic activity, more job cuts, fewer large scale projects, and thus higher deficits down the road. The austerity plans are Poison Pills, one and all, designed perhaps to enable installation of unelected Goldman Sachs technocrats in prime minister posts. The Greek situation is testimony, as budget cuts, asset sales, and massive amputations have resulted in worse fiscal deficits. So bring on more of the same!! The plague in the United States is of an opposite type. The budgets are unrestrained, notwithstanding the charades. The integrity is lost while foreign creditors have jumped ship. Instead, the urgent calls within the hollowed (not hallowed) Untied States are for continued 0% policy in order to make the mammoth gargantuan debts and fraudulent toxic paper coverup more cost-free. What incredible opposites exist in Europe and the North America!! The US controls the global reserve currency, having turned its printing press into a well-oiled national shrine. In no way does the USEconomy have the advantages that Japan boasts, like export trade surpluses, a diverse industrial base, and a nationalist fervor that abhors outsourcing. Japan forced JGBond investment by the unions, and the USGovt will do something similar with private pension funds.


Back in 2003, the gold community made it well-known that the negative real rate of interest was the underlying jet asset kick starter ignition system for the Gold bull market. Take the baseline interest rate, subtract the baseline price inflation rate, and arrive at the real rate of interest. At 2% or 3% for long-term interest rates, at 8% or 10% for accurate honestly measured price inflation, the real rate of interest is calculated in the minus 5% to minus 7% range. Investment in commodity resources, especially Gold & Silver, is the best protection and smartest reaction to the negative real cost of money. The USEconomy is mired in quicksand amidst vast capital destruction. The actual Gross Domestic Product is in a chronic recession of minus 3% to minus 5% for four years running. That explains the absent job growth. Take the payroll tax withholding series to see the steady decline in national income, not easily masked.


Check out the obvious reversal pattern on the Gold chart in full view. It has a 200-point potential rise, which would take the Gold price to 1950. All solutions discussed are bogus and founded in funny money output, new debt, toxic bond redemption, and cost-free recapitalization of banks. No more liberated gold bullion like from Libya via mercenary wars on the horizon. Its 144 metric gold tonnes proved useful to the London and Wall Street Boyz. Syria ain’t got no gold to release. When the 1750 defended flank is overrun, the rise in the Gold price will be rapid. It will capture global attention again. Gold is real money, easily noticed during a time when sovereign debt has turned toxic.

Gold Chart

Check out the obvious reversal pattern on the Silver chart in full view. It has a 7-point potential rise, which would take the Silver price to 42 per ounce. The large gap between 32 and 40 has been filled halfway, the next half to be filled in the following several weeks, possibly very quickly. When the 35 defended flank is overrun, the rise in the Silver price will be rapid, more rapid than Gold since the gap will offer little resistance. The rise will capture global attention again. Silver is not just an industrial metal. It has outperformed Dr Copper easily.

Silver Chart

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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 For personal questions about subscriptions, contact him at

Corruption in Fascist Business Model

February 2, 2012 by · Leave a Comment 

By Jim Willie CB, Golden Jackass

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Few can define fascism. Many cannot recognize it. History provides shocking stories of its past episodes. But its root structural feature is the tight relationship between the state and large corporations of a nation, which permit enormous fraud and lead to grand inefficiency, even while aggression and war accompany its handiwork in an ugly fabric weave. Nowhere is the bond more scummy and corrupt than with the banking industry, not in general but in Wall Street where defense of the USDollar has come. That defense was contracted from the USGovt to Wall Street, whose ties developed into a vast network of corruption. That cozy relationship led to the gutting of Fort Knox and its gold bullion in the 1990 decade of so-called prosperity. The 0% gold leasing resulted in vast speculation schemes, private multi-$trillion profit, and absent collateral for the USDollar itself. The other cozy connection is with the defense contractors, where war generates colossal cash flows, some of which result in kickbacks to Congress. The Fascist Business Model is a cord to strangle the neck of a nation. The rage of nationalism, the eradication of liberties, the pursuit of conjured enemies, the constant sense of alert, the attack on enemies with alienation of allies, all tend to effectively conceal the theft and corruption. The other tell-tale infection is of inefficiency, where the most insolvent lead in policymaking, where the most connected are not the best in class, where the most corrupt are shielded by cronies in watchdog posts. These ordinary teams have dominated, not from capability according to the marketplace forces or Darwinism, but from connection to the power center.

The United States of America had been the beacon of capitalism and freedom. In the last 20 years, it has proven to be the epitome of anti-capitalism, shown mortal wounds from the NeoCon assault on liberty and the more recent collectivism assault typical of Soviet regimes. The global revolt against the USDollar is not just an organized movement to protect against a reserve currency suffering declining value. It is a movement also intended to avoid a climax in corruption, the likes of which modern history has never witnessed. The bright light from the beacon has attracted a deadly swarm of moths, which tragically have enveloped the light completely, masked its wondrous effect, and disguised the vile cobwebs of fascism. The historians all too well are aware that the final chapter of a capitalist nation is embedded in fascism, as its institutions suffer from profound corruption, as inefficiency depletes the wealth structures, as the system breaks down, as the rule of law vanishes.

Corrupt Big Banks

One must begin with the banks, whose leaders have formulated the plan at work. Perhaps their actions began in the removal of Kennedy in 1963, an obstacle in their path. Their plan was revealed more in the open with the abandonment of the Bretton Woods Accord, the basis of the gold standard. The most telling mark has been the Goldman Sachs grip on the USDept Treasury. The Rubin experience at the London gold desk was crucial. Goldman Sachs is a key Wall Street funnel toward the USCongress dole, the Financial Regulatory Bill being the backfire in reform that granted the bankers more powers. See the power to dissolve any financial firm that threatens the power structure, and see the protective cover given to firms deemed financially important. The TARP Fund congame was a clever ruse, a $700 billion segment of the congame. Hidden from view was the $138 billion reload of JPMorgan, given cover to handle Lehman private accounts by the Bankruptcy court that convened at 6am on a Saturday morning in Manhattan. The climax badge of dishonor and fraud was the phony bank accounting rules permitted by the Financial Accounting Standards Board, and blessed into law by the USCongress. The big banks in control of the USGovt were all hopelessly insolvent, but covered. Their quarterly earnings reports read like an Orwell chapter, riddled with Credit Value Adjustments and raids from the Loan Loss Reserves. Once in the news back in 2009, but not forgotten, the failure to deliver on USTreasury Bonds never went away, only the publicity and spotlight. Over $1 trillion remains a regular feature for the practice. Wall Street firms indeed found a source of income to replace their absent stock IPO and corporate bond issuance business. Sell USTBonds, take in income, and no bond delivery. What a business! The Facebook IPO is the exception, not the rule.

Corrupt Central Bank

A debate brews as to which body is the actual corner office at the helm of the central bank in charge, the New York Fed or the Federal Reserve itself. Who cares? They operate in secrecy and with impunity, according to their agenda. The FinReg Bill did shed some light on this control box, as the USFed $16 trillion so-called loans plus the $8 trillion additional loans were revealed in a string of unending grants at 0%. To be sure, the borrowers could purchase global assets in preparation for the next chapter. Two of their most important ongoing projects are the Exchange Stabilization Fund and the Working Group for Financial Markets. The ESFund is charged with defense of the USDollar, but its actual project load extends far and wide in interpreting what defense is essential. Their reach includes the FOREX currency market, the sovereign bond markets, the Gold market, the crude oil market, the S&P500 market, and much more. Entire books can be written about the ESF history, a cross between an adventure novel and a spy novel. The other group is more aptly named the Plunge Protection Team for its regular and frequent rescues at 10am and 3pm when the stock market reacts to the endless string of bad economic news, all deemed better than expected. The mantras focused on confidence and volatility obscure the underlying corporate insolvency, fraudulent accounting, and pursuit of lower valuations. The spy novel aspect is furthered by the global financial bodies. The Intl Monetary Fund and World Bank are commonly filled with non-banker agents operating with agendas to obtain financial information in foreign lands. They are routinely used as weapons to maintain dominance. The resentment overseas is huge.

Corrupt Regulators

The entire financial crisis in its fourth year (never to end until debt defaults) had its roots in the housing bubble and supporting mortgage finance bubble. The debt rating agencies granted AAA ratings to mortgage bonds of empty value, based upon the cockeyed notion that an included derivative in a package could protect like an insurance policy. It masked the worthless value instead, cover given by the regulatory system. The Gold & Silver market is without doubt the most corrupted in the world. The naked shorting by the Big Banks in New York and London is of such magnitude as to cause shock and disbelief. Certainly no action has been taken, or will be taken. The naked precious metals shorting is permitted by the Commodity Futures Trading Commission. The CFTC offers lipservice on position limits, on halting non-economic positions, and more. They simply obscure the process and muddy the waters, offering false hope to the silly observers who expect change, as they ignore the pattern of deceptions. The CFTC is composed of Wall Street henchmen, just like the Securities & Exchange Commission. The compulsory arbitration ploy is their calling card for injustice, like with USGovt contractors on foreign stations to handle crimes at the camps.

The latest regulatory lapse can be seen with the derivatives. As the Greek Govt Bond writedowns began in force, focus was drawn to the debt default event. The lapdog regulators at the Intl Swaps & Derivatives Assn saw fit to obediently order a redefinition of a default event. If voluntary, even coerced, the so-called bond haircut was not declared a default by the body charged with such enforcement, the ISDA itself. Payouts would start a chain reaction that would cause widespread bank failures. The non-payment of Credit Default Swaps was a travesty, one to perpetuate as Italy and Spain, even France, are next in big bond writedowns. The process actually exposes something much bigger, the unregulated shadow banking system of derivatives. Policies were written, huge cash flows were developed, fees were taken, but no payouts will be permitted. In essence, Rome is burning but no home fire insurance awards will be paid. In my opinion, the CDSwaps and ISDA corruption will result in court challenges to force insurance payouts, will result in subterfuge directed against the big banks that underwrote the bad faith insurance contracts, and will result in more motivated revolt against the USDollar itself.

Corrupt Mortgage Business

The housing bust was bad enough, what with the lost equity, the lost home ATM machine for essentials and frivolities alike, the American dream turned nightmare. The mortgage bond bust was bad enough, what with the lost bank reserves, their lost ability to function as credit engine to the USEconomy, the ruined intermediary banking cable lines. The twin damage was the basis of my September 2008 forecast for an economic disintegration and eventual USGovt debt default. The forecast was a direct consequence of the entire USEconomy having grown intentionally dependent upon the housing & mortgage bubbles. That path is still in effect, the grip of the leash on the fascist dog held tighter with each passing month and year. They can kick the can down the road while walking the vicious dog, but the road has become narrow and the can has gone nuclear. The inner workings of the housing & mortgage debacle must bring attention to the MERS title database and the profound fraud bound in the mortgage bonds and Fannie Mae, the clearinghouse. The Mortgage Electronic Registration Systems enabled the same home titles to be used in multiple fashion, since run by Wall Street extensions. The MERS permitted easy fast title transfers as the bonds changed hands rapidly. Since 2009, the database has been denied legal standing in home foreclosure challenges, labeled a corrupt practice by several state courts. No remedy is even pursued. The practice of using home mortgage payment streams in duplicate fashion was common and rife within the system. The crowning blow to corruption exposure has been the continued mortgage contract fraud. The courts have been very occupied with resolutions and punishments.

The reason home loans have never had their balances adjusted for the benefit of the embattled undewater homeowner is simple. Hardly the unwillingness of banks to take losses, but rather the reluctance of the big banks to have exposed the colossal fraud in both duplicate income stream on the mortgage bonds but also counterfeit bonds. So Fannie Mae & Freddy Mac were nationalized, put safely under the roof of the USGovt. The corrupt tagteam firms are the clearinghouse for several $trillion fraud schemes in convenient manner. The Fannie Mae thefts of $1.5 billion from 1988 to 2000 remain well documented, complete with retaliations, the finger of accusation pointed at the White House. When the Hat Trick Letter was started in 2004, certain people were locked in debate, as the Jackass argued that the USGovt harbors the largest criminal syndicate organizations on earth. That perception and accusation has been very clearly confirmed, acknowledge by the informed, toward which some remain oblivious. The newer phenomenon noticed is that too many people prefer to ignore the facts and cling to fantasy, in order to protect their comfort level.

Corrupt Wars

War is never good for an economy. It costs much money. It costs materials. It costs lives. It results in destruction. No trickle down effect of efficiency results, despite the propaganda about jobs. Relations are harmed, as allies are often alienated. The endless undeclared wars since 2003 have cost the USGovt $4 trillion in the last ten years. The creation of enemies and threats, even locations to spread freedom, have been at best highly questionable and at worst a total farce wrapped in fabrication. The chief end product in Iraq is crude oil, whose supply has been guaranteed by the war. Little publicized were the ample array of oil contracts with China and other nations, all torn to shreds after the liberation and annexation. Remember the odd story of yellow painted wooden bars and copper bars found in the Iraqi Central Bank. All false stories, as their central bank was looted of its gold bullion by US forces. The prevalent war service contractors led by Halliburton remain a fixture. Despite numerous court cases proving fraud and over-charges, they continue with a monopoly on the contract service. Recall the missing $5 billion from the Iraqi Reconstruction Fund. It was never found. The USGovt agencies never looked for it. The sitting president called it an acceptable loss given the magnitude of funds flow and importance of the war. Little known was a $2.3 billion transfer from the same fund by former agency head George Tenet. Suspicions swirl that the funds were directed toward groups designed to bring about a global totalitarian government, whose guiding light is a former Secretary of State and New York University political science professor with a funny accent.

Two indelible marks come from the wars. They further the dominant global narcotics role for USGovt agencies, and the deep Wall Street dependence upon money laundering and fees. Some banks have pled guilty to money laundering, like Wachovia, but the fines were less than 1/30-th of a penny per dollar involved. The US press provides regular and frequent devoted cover for the wars. The other indelible mark is the motive for liberating certain nations. The Libyan War was brief, but the bounty was great. The London and New York banks benefited from the 144 tonnes of gold bullion seized. It will likely never be returned to the Libyan people, regardless of any coalition government formed or pledge toward freedom put to parchment. My open question continues to focus on how much gold bullion Syria has. Probably not much at all, since no oil or mineral wealth. Sand has low value. Another more recent question is how widespread the practice will become for oil trade settlement with Iran in gold payments. See India and Iran.

Corrupt Exchange Traded Funds

The Wall Street and London bankers set up the precious metals Exchange Traded Funds. They were clever. They have duped many people, including the hopeless scribe Adam Hamilton. He could not read a prospectus, not a balance sheet, nor an inventory report to save his soul. To be sure, he is a good man, but as a forensic analyst, he is Mr Magoo in human form, almost a poster boy for the gold cartel dupes alongside Dennis Gartman. The backdoor looting of inventory from both the GLD gold fund and the SLV silver fund are well documented. Shares are shorted, probably by their custodians, and metal bars are removed from inventory. Nothing complicated here. Lazy witless investors continue to invest in both GLD & SLV, without awareness of their deep corruption. They can buy gold and silver with a mere click, or so they believe. Instead, they divert demand from physical metal to the syndicate coffers, where the funds are used to short the metal, and to keep the supply lines coming to satisfy the rapidly growing demands for delivery. The other many Exchange Traded Funds do an exemplary job in controlling several important commodities. See the USO fund for managing the crude oil price. It has lost over 60% value relative to crude oil in the last decade. See the GDX fund for controlling the entire precious metal mining sector, managed by Goldman Sachs. The financial press assists the process by advertising and recommending the corrupted ETFunds, a valuable fixture in price controls. Many speculators use the GLD & SLV for their liquidity and ease of usage, ignoring their illegitimacy. The corrupt ETFunds go hand in hand with the flash trading corruption, also known as High Frequency Trading. It is insider trading by any other name, protected by FBI. See the Goldman Sachs unix box case three years ago that peeked at the order flow. The corrupt ETFunds go hand in hand with the naked shorting practice directed against mining stocks, organized by Wall Street firms and executed by associated hedge funds.

Corrupt Comex

The MFGlobal failure and theft of private segregated accounts has indirectly exposed the corruption of the COMEX itself. The bankruptcy trustee has been tarnished, having confiscated futures account receipts, thus making proof of theft and quantity impossible. The MFGlobal case should have been treated as a brokerage firm collapse, thus granting highest priority to private accounts, and making them full. Instead, the case was treated as a financial firm collapse, thus putting the private accounts at the bottom of priorities, and rendering them pilfered. The MFGlobal thefts will eventually lead to the COMEX being vacated of participants, since accounts are no longer secure. Entire Compliance Departments are banning the usage of COMEX accounts in financial firms and risk management outfits, a signal of the end being nigh. In time, the COMEX will become a cash & carry supermarket, but distrusted even for that lowly mart function. They will be devoid of inventory, exposed as a corrupted paper factory attached as a vital appendage to Wall Street.

Corrupt Economic Data

The entire system requires the constant banter of recovery, legitimacy, hope, and integrity. All are sorely lacking, glaringly lacking. The economic numbers have few honest series of data. My favorite honest series remains the income tax payroll withholdings, which screams of chronic recession in basic tones. Focus on three corrupted series. The Gross Domestic Product as calculated by the USGovt prefers the sequential method of comparing one quarter to the next, then multiplying by four. But ingrained are the fabled ample hedonics and imputations. Lifting the numbers from perceived quality improvements and the payments from right pocket to left pocket for individuals is laughable. The true GDP is half the size reported when stripped of nonsense fantasy. Its rate of change has been running at minus 2% to minus 5% growth (powerful recession) for the last four to six years. That explains the poor job growth and inability to make home loan payments. The Consumer Price Index routinely removes home rent when rising, includes home prices when falling, substitutes chicken for pork, sawdust for grains, stone pebbles for beans, and more. It also uses the same hedonics of quality improvements to suppress prices in the calculations. The GDP and CPI methods are interwoven exhibitions of statistical incest.

The Jobs Report is a joke each month perpetrated upon the American people. Inconsistencies abound. The mythical Birth-Death Model is handy for job creations, supposedly to reflect the uncounted small business sector. That sector is under great duress. Every March, a revision downward is made between 300 thousand and 700 thousand jobs, never noted by the financial press. The correction puts the series back into kilter. The USEconomy remains the weakest of all industrialized nations. Its corruption remains the highest in data reporting. See American Airlines for job cuts. See the Manhattan banking sector for job cuts. See state and local governments for job cuts. See college and university construction projects for job cuts.

Gold Coil Ready

The coalition against the gold cartel is making its presence known. They come from the Eastern realm, not necessarily from China, according to word passed. They shun publicity, but their handiwork is clear, as the heavily defended 1650 level was over-run and trampled. The upcoming planned event of the Greek Govt Bond default will be an important chapter in modern history. The collateral damage to Spain, Italy, and France will not be controllable. The exposure from the denied CDSwap debt insurance payouts will mark a turning point in bank corruption. They took in $trillions in contract premium, earned $billions in fees, and have blocked all payouts by redefinitions and ISDA strongarm methods. The required recapitalization of the Western big banks is an unavoidable event. The task will require several $trillions. The backroom coverage of the CDS payouts, if ever done, will require tens of $trillions. What is clear is that Quantitative Easing is the mainstay policy, but also that Global QE will be widely recognized as the device to avoid systemic collapse. The Gold & Silver prices will rise accordingly, as the paper monetary system is ruined further. The dons and castle lords will attempt to replace the failed paper system with another paper system, having given away their plan at the Davos Economic Summit conference. What a great location to conduct 300 arrests, a missed opportunity every year.

gold 31 jan. 2012

A unusual note came from a distant but informed niche, his office in step with gold corners and their many developments. He has commented in the past on the gradual pace of corruption taking its toll on the current system. He wrote, “The system will collapse and files from regulators and law enforcement will be destroyed during the collapse. The 911 event was an orchestrated event within the reaction matrix, a mega trial run to see how people would react and how the system would deal with the destruction. It was also the site one of the biggest gold heists ever. ScotiaMoccatta’s gold in the vaults at the WTC was completely looted, never to be recovered, a well documented but poorly known story. The coming collapse is not a question of if but when. Only hard assets such as precious metal, agricultural assets, and other essentials will survive. Pay little heed to banks, the CDS contracts, the mortgage fraud, and all the other schemes these banksters run. The Roman Empire’s back was broken. This cartel’s back will be broken too. So just sit back and relax if well positioned in gold & silver.”


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Inflation: The Only Tool Left

January 23, 2012 by · Leave a Comment 

By Jim Willie CB, Golden Jackass

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Any perusal around the world these days features Southern Europe crippled, preparing for the inevitable Greek Govt Bond default. It features a crippled US housing market, a mockery of statistical accounting in the US Gross Domestic Product, the plight of the COMEX with established veterans clearing out desks (not trading), the extreme physical demand reported by the London Trader, and the indictment of the SLV iTrust Silver Fund tool used by the cartel. The survey does not look favorable toward stability. The banking, economic, and political leaders have not pursued reform and remedy in any remote sense. Their only tool left is hyper inflation. The central banks of the Western nations have coordinated Global Quantitative Easing, as the USFed concealed its own QE3. Operation Twist was an enormous ruse, to cover the grand disposal sale (dump) by USGovt creditors and maintain a semblance of stability in the USTreasury market. The global financial crisis continues for a simple reason. No financial reform or remedy has been attempted, only bank-owned bond redemption and colossal aid to the financial sector that controls government ministries and law enforcement. Therefore, the crisis hurtles toward a series of climax events. The Chinese are accumulating physical Gold still in a big way. US finance minister, the diminutive Geithner admitted to the Chinese officials that the USGovt has no more tools left with which to stimulate or lift the USEconomy and its fumbling financial sector. An honest admission, except that hyper monetary inflation remains the all-in-one tool.

The Greek default could trigger some grand unintended consequences. Despite all the planning in the controlled event, likening it to the demolition of a 50-story hotel in an urban center, the better image might be to attempt to hold within a corral 500 cats released from a large truck. In no way can the technocrats, central banks, and bank officials contain the animal spirits coming. The only solution in the end will be the most massive hyper inflation project in history. They must recapitalize the broken banks of Europe, where fallout will surely extend in non-trivial manner to London and New York. Two major pressures will work to lift the Gold & Silver prices. The Commitment of Traders report on commercials points to a significant sequence where they covered their Gold shorts and Silver shorts since the summer months. The road is prepared for a big rise in price after some closing notes are played on the Dollar Death Dance. Details are seen in the January Hat Trick Letter. Also, the acute financial crisis in Europe and the West in general demands some important decisions to manage the Greek default. Look for talk of a monetary solution but action perhaps in a vast recapitalization program for the big banks. A footnote, the Citigroup earnings included a $1.5 billion release from their Loan Loss Reserves. The funds will be needed to cover bond impairment and mortgage related lawsuits. They also had a nice bump in the Credit Value Adjustment, a blatant accounting fraud that exploits gradual impairment to their own corporate bond value. Accounting for banks is a farce.

Southern Europe Permanently Crippled

Although the entire southern rim is deeply affected, a look at Italy is telling as a microcosm of continental illness. Italy has imposed capital controls on the banks. Movement of funds is being closely monitored. Money cannot be withdrawn in volume at the bank windows. Borders have cameras and registries at the customs checkpoints. Italy has gone fascist with blazing speed, the most blatant indication is the installation of Monti as prime minister. Its banks are ready to capsize, like the cruise liner. The effects of the Fascist Business Model are being acutely felt in Italy. Nothing goes without monitor. The credit card companies must report to the fiscal authorities all transactions carried out by Italians, in the country and abroad. Limits have been imposed on bank withdrawals of 10,000 Euros, equal to US$13,000. Cameras have been installed by finance police at the border checkpoints with Switzerland to register all license plates. In addition, currency sniffing dogs have been deployed at the border. The Monti regime can be seen imposing Fascism, plain and simple. Their opening salvo was to attack private capital by raising the capital gains tax. The situation is degrading rapidly. The wealthy of Italy have a new game in removing money from Italy and to escape themselves.

The irony is thick, the tragedy stirring. The Italian cruise liner Costa Concordia went aground, a fitting symbol of the nation of Italy succumbing, a toppled elected regime in a sea of liquidity. Individual decks named after nations went underwater, liquidity of a different type. Parallels between the financial structure and ship structure, along with perceptions and reactions, are interesting. People believing such an accident as incredible in the 21st century need to awaken to reality on the mainland. Italians will make the same comments when their banking system collapses, in the wake of their elected political leadership being dismissed from the helm. The cruise liner was badly off course, as the captain changed paths to salute friends on the nearby island (mistress?). So is the Italian banking sector, hardly alone as the Spanish fleet of banks is also off course, taking on water, the banks derelicts at sea.

The ship crew was not trained for such accident, having advised passengers to return to their cabins incredibly. Neither is the Italian system prepared to handle rough waters, given the most egregious nepotism in all of Europe. Half of million gallons of fuel are being retrieved before salvage operations begin, in an effort to avoid an environmental disaster of contaminated beaches. Contrast to the toxic paper running through the Italian banking system. The ship’s insurers may be liable for total costs of about EUR 405 million (=US$500 mn) as a resuilt of standing policies. Unlike the ship liability, the Credit Default Swap contracts, the debt insurance flagships, are forbidden to kick in for awards at docks. The ship’s problem might be more low hull draft and high center of gravity ship design, much like the inefficient stream in Italian business practices and the high bank leverage.

italy cruise ship on side

The Big Event in Greek Default

Any bank or credit analyst worth his or her salt expects a Greek Govt Bond default. The event is inevitable, unavoidable, and a certainty. All solutions to date have been patchwork applications of tourniquets and needlepoint stitching, with full acquiescence to the banker class. The concept of a new Euro Bond to supplant the toxic bond is ludicrous, which exhibits the ignorance of the central bankers on conceptual constructs pertaining to monetary matters. The concept of a leaning upon the Intl Monetary Fund for a grand issuance of Special Drawing Rights is again ludicrous. A basket of water-logged debt-soaked currencies does not make for a viable raft to float any bodies in any seas. The contagion from a forced accord on Greek bonds will have a notable fallout value effect to Italian bonds, even to Spanish bonds. If the accord ignores the effect traveling with light speed to Italy, the plan is doomed from the outset. The default in Greece should trigger a Credit Default Swap event and award payments. But decisions might follow the trend seen to date, where contract law is trampled upon. The supposed redefinitions of debt securities were a travesty, not yet sufficiently challenged by the legal warriors and the court system. Then consider that the biggest creditor to Italy lies within the major French banks. A likely collapse of French banks in the wake seems the path that nature will take.

The contagion would spread to the London and New York bank centers, where insolvent hollow banks have stood for three years. They have long lost their credit engine role, thus the economic stalls in reverse gear. Lastly, any solution, apart from a new monetary system, must address the dire need for recapitalization of the Western banking system. The accord must begin with Europe. The accord must begin with $2 trillion or more to rebuild banks. A figure of $5 trillion is floated. The accord must dispose of the entire sovereign debt and its toxic paper from Southern Europe. Expect the greatest event in modern financial history before too many more weeks or months, the sovereign bond default and bank recapitalization. The impact on the USDollar could be profound and life altering for the planet. Expect unfortunately for half measures that sidestep any new monetary system and proper role for Gold. The half measures in the accord will bring great new attention on Gold, which should be at the core of the solution, both in the currency and banking system.

U.S. Housing Permanently Crippled

The US-based shadow home inventory is vastly larger than estimated. The bank owned inventory is enormous, but so is the variation in those estimates. What is certain is the vast overhang of home inventory held by banks, and the steady flow to replenish the hidden inventory tumor, prevent any bottoming process to prepare for any recovery. Accurate housing data is hard to come by. The housing crisis is arguably a national emergency, which crushed both the banking system and the USEconomy. The USGovt-owned Fannie Mae still prevents the public from gaining access to loan data in detail, probably because multi-$trillion fraud is buried. It is far too difficult to obtain data from Freddie Mac also, and the MERS title database remains a black hole. My Jackass loose estimate has been tossed around frequently of one million bank owned homes in inventory, unsold, hanging over the market, rendering clearance and stability an absolute impossibility, with more home seizures always in the pipeline. The market cannot digest such an overhang, and cannot stop the price decline, especially since new foreclosures keep the flow into REO bank inventory. Banks refuse to clear their inventory, and are encouraged to hold that inventory since 0% financing is offered by the USGovt. If the shadow inventory is much larger than one million homes, then housing prices have much farther to go before they hit bottom, which has dire consequences for communities, homeowners, and the broader economy. It also means the US banking system is deader than dead.

On December 21st, less than one month ago, HousingWire reported that CoreLogic projected shadow inventory to be 1.6 million homes throughout the entire United States. Definition of a shadow inventory property varies widely. For example, the Wall Street Journal published an article last November, in which inventory size varied from the CoreLogichigher estimate to about 3 million by Barclays Capital. Other estimates are approximately 4 million by LPS Applied Analytic, roughly 4.3 million by Capital Economics. But the highest calculation comes from the source of most impressive methodology. Laurie Goodman of Amherst Securities offers the estimate of between 8.2 million and 10.3 million homes. Hers is regarded by many experts as having the most carefully crafted model, despite being the most dire of estimates. Michael Olenick of Naked Capitalism has his own large reliable database. He has been on the job in analyzing liability to taxpayers, investors, and banks. He submits his assumptions in calculations, an honorable practice based in integrity. The Olenick analysis arrives at a total close to the Goodman range.Using a more narrow definition of what constitutes shadow inventory, he estimates 9.8 million homes are in bank inventory, or suspended animation within the system, waiting for liquidation, suppressing price further. Long past critical mass, only radical out-of-the-box solutions will work. Massive loan forgiveness is the only solution, but it will never be done. USGovt ownership of one quarter of American homes is more likely. Conclude as inevitable that the nation will soon face widespread bank failures and even more staggering loss in home values, since the overhang of home inventory will force home prices down another 20%, my ongoing estimate that has been repeated and repeated ad nauseum. The problem is so great that the mortgage bond market can no longer be described as having viable parties and counter-parties. Too much bond counterfeit. Too much duplicate income streams used in mortgage bond securitization. Therefore, the principal parties do not want liquidations or scrutiny. See the Naked Capitalism articles (here & here).

U.S. GDP Calculation a Travesty

Grossly Distorted Procedures on GDP calculations must be explained. Both hedonics and imputations contribute to one third of the entire reported Gross Domestic Product. The Chinese have long complained that half of the US GDP is mythical, due to interchange of debt paper across desks. The USEconomy is a fraction of its stated size, and it is stuck in chronic recession. A big hat tip to Michael Shedlock, whose analysis is excellent in focused economic sector topics. He provides an excellent overview on Hedonics and Imputations, to reveal their corruption of thought, whose concoctions he labels Grossly Distorted Procedures. Shedlock wrote, “Hedonics is a way of accounting for the changing quality of products when calculating price movements. For example, today’s computers are 2 to 3 times faster and have more memory than models produced just a few years ago. If someone can buy a better computer today than last year for the same price, have not prices really fallen? Here is another example. Is it realistic to compare the price of a 1955 Chevy with the price of a 2005 Toyota with air conditioning, DVD player, anti-lock brakes, seat belts, air bags, side air bags, power steering, power brakes, etc? To say that cars have gone from 1955 prices to 2005 prices and calling the ENTIRE rise inflation is obviously wrong although many inflation alarmists do just that. Sorry folks, but that is not a straight up valid comparison. Would you be willing to drive to work a Model T ford today? If not, then comparisons of car prices today versus 1920 or 1950 or whenever are pretty absurd.”

The USGovt makes unilateral decisions on value, in order to offset the rise in production costs from energy and materials, even labor. They justify their methods by pointing to manufacturing efficiency and economies of scale in production. They use the falling technology prices as justification for other abusive methods to reduce prices from inherent value on features which actually are subjected to strong price pressures. Shedlock rightfully points out how the potential greater hedonic abuse has entered into methods applied to the Gross Domestic Product, a mainstay not to be cut out. The accounted size of the USEconomy is subjected to vast distortions in the calculations. As the measured price inflation is kept low by force, the estimated GDP result is lifted higher by the same force. The lie in the CPI has been 6% to 8% for the last few years. That means the GDP has been running consistently negative in the most profound and harmful economic recession in American history. My analysis relies upon the indefatigable work of the Shadow Govt Statistics group. They measure the GDP as one quarter versus the same quarter a year ago to demonstrate a clear downward trend, a chronic recession. Conclude that the US GDP has been in decline by 4% to 6% for consecutive years. Shedlock has reported by means of Bureau of Economic Analysis data, that the US GDP is artificially lifted by a whopping $2.257 trillion in hedonic adjustments, equal to 22% of the entire GDP. That portion of the US GDP is pure myth. The United States is the only major country that hedonically adjusts its GDP, or needs to. The USEconomy is among the weakest in the entire industrialized world from industrial gutting and chronic consumption and pursuit of asset inflation. 

The other major abuse is Imputations, a part of GDP calculation that the USGovt fabricates in estimated value where no cash changes hands. The imputation derives from homeowner self-paid rent and checking account services. These are pure fairy tale absurdities. For example, homeowners are assigned an imputed rent, that they pay to themselves as though renters. The BEA treats homeowners as businesses, which pay rent to themselves for the service of shelter. Be sure to know that mortgage payments and property taxes are also accounted for, a double counting process steeped in corrupt accounting. Self-paid homeowner rent tallies a ripe $153.8 billion in imputed rent as part of the GDP calculations. There is more. Free checking account services from banks are not to go without abuse. Self-paid check account services tallies a ripe $335.2 billion in imputed bank services. The beneficiary is in Personal Income data reported by the clownish USGovt stat labs.

Shedlock has reported by means of Bureau of Economic Analysis data, that the GDP is artificially lifted by a whopping $1.635 trillion in hedonic adjustments, equal to 13% of the entire GDP. Shedlock cites the total fabrication folly was a staggering 35% of the reported US GDP in 2003!! See the Global Economic Analysis article (click here).

Simple Evidence of Recession

US-based railway traffic is down hard, contradicting the vacant claims of an economic recovery in the United States. The slowdown is across North America, the worst brunt felt in Mexico. The Assn of American Railroads reported intermodal volume for the second week of January totaled 193,812 trailers and containers, down 9.3% versus the same week last year. The Eastern half of the nation was notably slower. The slowdown is across all North America. Canadian railroads reported cumulative volume of 40,281 trailers and containers for 2012, down 9.8% from last year. Cumulative volume on Mexican railroads for 2012 into only January is 10,857 carloads, down 15.2% compared to last year. Conclude that North American is in a severe deep recession, with the worst brunt felt in Mexico. Talk of recovery is Orwellian in its deception. My favorite data series to demonstrate recession is the USGovt payroll tax withholdings. They continue in decline. It is a pure series without adjustment. The USEconomic recession is the New Normal, Mr El-Erian.

us intermodel railway traffic 2008-2011

Corrosive COMEX Drying Up

Ann Barnhardt confirmed the COMEX is going into obscurity and irrelevance. Players are exiting. Risk of theft is perceived. Trust has gone. Metal inventory will vanish next from honest players in retreat, seeking more legitimate arenas. The normal methods of risk hedging are going away, turning to private means, or quitting altogether. Ann Barnhardt made a huge splash last month in her decision to shut down BCM Capital brokerage firm, for fear that client funds were at great risk of theft. She outlines many carefully laid points. Here are some of her main points with fortified evidence. Notice the point about high frequency trading, which indirectly indicts the GLD & SLV (gold and silver) funds, whose inventory is likely connected to futures arbitrage schemes, as their bullion metal is drained. Notice the perceived spread of futures hedge exposure at the market peripheries. Barnhardt compared events of MFGlobal and JPMorgan to economic treason and betrayal of the American system. Here are some of her main points.

  • The futures markets are withering and dying on the vine, as business is totally evaporating. Many explicitly state that they are done trading and hedging with futures, both speculators and hedgers.
  • The volume increases in recent months were due to the veritable fungal infection of the market that is the high frequency algorithm trading systems.
  • Nobody in the trading pits believes the statistics that come out of the USGovt or the Federal Reserve. Anyone who believes them must be mentally disabled (her words).
  • Exposure to futures is itself contagious. If producers enter into a private treaty forward delivery contract with a grain elevator or a feedlot, they would still be exposed to the futures market, and to the risk of a futures market collapse, or even just another wealth confiscation. If any contract participant utilizes futures contracts in risk hedge, all parties are exposed. Even private treaty forward contracting is exposed, since someone along the line laid risk off on the futures market.

London Trader

The London Trader is back with more splendid bountiful information, sharing volumes behind the veil of anonymity. The paper thin COMEX must react to gigantic physical demand, he reports in a recent interview. The staggering Gold demand is creating great shortages in the physical market. Here is the shocker, although it should not come as such a surprise.Compliance departments have widely banned participation in the COMEX anymore.It is drying up as a market. The Chinese have exploited the lower Gold price that resulted from the European distress and the American accommodation. They have grabbed huge physical supply. The anonymous London Trader pitched in a full month after the MFGlobal crime scene cordon tape has been overrun. He opened by describing a compressed coiled spring in both the Gold & Silver markets, from huge physical demand. He actually described the COMEX as no longer a credible marketplace. Gold represents power and the Eastern Hemisphere is gathering in that power. The displacement of Western Gold to Eastern vaults is a major symbol of the Western decline. Here are some of his extreme comments that portray a system entering a collapse phase.

  • The Big Banks are trying to defend their massive short positions, like with 25 million SLV shorted shares. To meet the silver delivery demands, the cartel is borrowing heavily from the SLV, which will be gradually drained of metal in inventory.
  • The panic in Europe with a broken system is creating huge Gold demand. The demand for Euro Gold in London is so intense that it brings shock to some veterans. It is creating grand shortages for metal in London. The physical Gold market is being exhausted by European Gold buyers.
  • The COMEX paper discovery price system has become a joke. No serious players interested in taking physical delivery use the COMEX anymore.
  • Since the CME did not backstop the MFGlobal clients, entire Compliance Departments prohibit usage of the COMEX. International funds and hedge funds starting in January will go elsewhere, and thus avoid the COMEX.
  • Expect a powerful move once Gold rises above the $1650 level, as shorts cover in open fear. Above that point look for a very large tranche of unfilled wholesale orders to push the price a lot higher with their bids. The Chinese are Gold buyers at all these prices, $1600, $1700, or $1800. They are buyers, never sellers, and public stories pure nonsense about their retreat.
  • The Chinese have recently taken another roughly 150 tons away from the Western central banks. The Western central banks essentially donated that Gold in an attempt to prop up their paper currencies. They have exploited the recent pushdown in the Gold price. The Chinese are using Gold accumulation as an indirect maneuver to introduce the Yuan (remninbi) to center stage.

Indictment of SLV i-Trust Silver Fund

The SLV exchange traded fund is drained of silver bars from the back door. Numerous blemishes can be identified. The fund cannot stand scrutiny. It is one of the most effective criminal fraud vehicles ever designed. Thousands of investors have been duped, buying what they believed was physical gold & silver, when they have aided the cartel in suppressing their prices. Their inventory is routinely raided from custodial shorting practices that have become glaringly clear in recent months from simple tracking of inventory and short interest. The SLV fund, formally called the iShares Silver Trust, contains much slippery language in its prospectus. The SLV provides funds for itself and custodian costs (managed by JPMorgan) by selling bullion, from the same fund. They actually achieve a benchmark price target for silver based upon their own sales. Their prospectus carefully states that the SLV share price reflects the value of the trust’s silver holdings, NOT the spot silver price. It is a circular practice of self-fulfilling price achievement in suppression efforts.

BrotherJohn gives the excellent analysis in clear understandable terms, with focus on SLV fund shenanigans. A big hat tip goes to him. The SLV fund does not hold sufficient silver bars to correspond to all shares outstanding, but that fraud is carefully permitted under its prospectus and current legal structure. Track the shenanigans in a fine classroom style forensic analysis in YouTube video form by BrotherJohn (click here). He covers a wide range of topics. Here are some of his main points. Adam Hamilton, are you paying attention?

  • The SLV fund has 300 million shares, each worth one ounce of silver, valued at almost $9.0 billion. But it has over 25 million shorted shares, or 8% of the float.
  • The practice of shorting SLV shares keeps the Silver price suppressed, enabling inventory raids from the fund. Around 25 million shares are short on SLV. Any suspicion that JPMorgan is the predominant party holding short shares would probably be correct, the shares provided by Bank of America, which owns a surprising 22 million shares, always a willing player to help push down the silver price.
  • The SLV fund rigs their own market, pushing silver to a desired lower price. In fact, the number of silver ounces per share is falling consistently, just over 0.97 oz in recent weeks. Check out September 30th, when the silver price fell hard from 40 to 30 per oz. The SLV fund had numerous big sellers that day in their listing.
  • A smoking gun is revealed on May 5th, when the silver price was busy falling from 48 to 34 per oz. The SLV fund had a single day volume of 300 million shares on that day in May, equal to its entire float. Conclude that naked shorting was taking place in coordinated fashion with a leveraged arbitrage between the fund and the COMEX using futures contracts. Leverage must be involved. Many fingers point to such arbitrage since the volumes are so great.

The lessons and signals are vividly clear. Purchase and invest in Gold & Silver bars and coins, the mainstay for financial survival and avoidance of debt serfdom. The crisis is working toward a series of climax events stretched over the next year. The outcome will be shocking. The events will awaken the masses finally, who are all too often perplexed and dismayed while many place their heads in the sand. The Gold & Silver prices are heading multiples higher. Efforts to confiscate by government will in all likelihood backfire, raising attention, pointing out value.


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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 For personal questions about subscriptions, contact him at

The U.S. Dollar Paper Tiger

January 12, 2012 by · Leave a Comment 

By Jim Willie CB, Golden Jackass

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Events in the last decade displayed a vigorous effort to defend the U.S. Dollar. The rogue nation of Iraq sold crude oil in Euros for three years, until they were liberated. Its tyrant was a scourge to be sure. Weapons of financial mass destruction seem to have replaced the traditional type, the new variety being derivatives, mortgage bonds, and even sovereign bonds from weak nations. Newer weapons from the United States feature extended hands from clearing house fronts that snatch and grab segregated private accounts, and backdoor raids of exchange traded fund precious metal. Let’s not overlook the more frontal assault weapons deployed like unseating Qaddafi and capturing his gold held in foreign accounts, along with all that cash. Liberation has its benefits. The confrontation with Iran would be comical if not so dangerous. The claims have been silly in my view for years, in the perception of Iran as a serious threat to the West. They have been subjected to cut communication lines on the Persian Gulf seabed. They have been subjected to Stuxnet viruses to obstruct their nuclear refinement process, via the Siemens rear door. They have been subjected to an influx of heroin from the north, where the U.S. Military manages the Afghan situation and locale.

To be sure, Iran’s clergy qualify as a bunch of clownish fools with a tight grip on power and security forces. The shock here is that the relatively educated Tehran crowds have not disposed of their corrupt class of leaders. The clergy has been skimming from oil revenue for years, complete with hidden Swiss accounts. The same goes for the American corrupt class of leaders, with their U.S. Dollar control levers, their failures to deliver U.S. Treasury Bonds (aka naked shorting by Wall Street firms), their hidden mechanisms behind Quantitative Easing to Infinity (QE never stopped), their insider trades to exploit financial markets (flash trades with a peek), their ETF dampers on numerous individual markets (regular inventory raids by Wall Street), their nationalization of Fannie Mae & AIG in order to put the fraud records in a warehouse (bond counterfeit, duplicate income stream usage), and their absurdly positive economic drivel data (more like chronic 10% CPI and chronic minus 3% GDP).

The big events in the last several weeks focus on the inability for U.S. combined forces, both military and financial, to put Iran on a leash. The Tehran mongrel still roams and shares meals with neighbors. The Hat Trick Letter does not delve much into geopolitics and military weapon analysis, but the next generation Sunburn and Onyx missiles that Russia has supplied to Iran stand out as significant in their ability to neutralize great opposite forces. These two missiles are a step ahead of the Cruise, something perhaps not 5% of the U.S. population is aware, but something that 95% of the U.S. Military brass is aware. The U.S. Fleet in the Persian Gulf might be rather easy vulnerable targets. The annual August belligerent war posturing against Iran invited my dismissals from 2004 to 2005 to 2006 to 2007 to 2008 to 2009 to 2010. But in 2011 the posturing and siren calls seemed more serious, yet still worthy of dismissal since waged battle would render massive damage to both sides. See Sunburn & Onyx again. The military maneuvering behind the scenes is not so easily tracked, which lately has extended to Syria with a Russian shadow. The entire reduced theater seems chock full of standoff factors. China might have sounded off threats of retaliation if Iran were attacked, but Russia delivers the same threats in more subtle private tones.

The U.S. Govt has attempted to isolate Iran. To some extent they have succeeded. Price inflation inside Iran has turned acute, with numerous stories seeping through the information curtain. The pain, just like in Cuba, has been handed to the people and hardly to the leaders. One can be very certain that the mullahs continue to enjoy the good life, work little, eat well, enjoy ample time to pray, while skimming $million every week from oil revenues. However, a defiance seems more successful at the higher levels. The trend of bilateral trade deals fashioned by China has been growing, made popular by the same grand holder of over $3.2 trillion in U.S. $-based debt securities of dubious value. Behind the trade deals are agreements to continue in crude oil purchases from oil-rich Iran.

India Caught in Crossfire

India shows up as a secondary victim of Iranian sanctions. The controversy between the two nations has lingered for a couple years. India received 11% of its crude imports from Iran last year. In an end-around maneuver, the nation is exploring the option of making payments for crude oil purchases through the giant Russian Gazprombank. No deal has yet been reached, but it is close to final. Russia has abstained from sanctioning Iran. Some analysts believe this payment route might work for India. Other alternative routes involve Turkey as intermediary on payments, except Turkish leaders appear to reject new proposals. The Bharat Petroleum Corp based in India had begun buying about 20,000 barrels per day of Iranian crude oil through a term contract in September. Now though, BPCL is considering whether to stop taking supplies. Other Indian companies that buy Iranian crude include Essar Oil Ltd and Indian Oil Corp. Contracts for other Indian buyers of Iranian crude oil tend to run from April to March. The refiners reportedly have yet to renew their deals with Tehran for the next financial year.

The cumulative Indian debts to Iran from refiners for purchases rose to as much as $5 billion in July, according to the Indian Central Bank. The outstanding payments threatened to jeopardize about $9.5 billion in annual trade between the nations. Officials in Iran have informed customers they would no longer receive August shipments unless the bills were paid. In a complex network, the refiners started clearing the outstanding payments in August after Halk Bank in Turkey agreed to make transfers. The middleman bank has gained a reputation in the oil market over the past 18 months for handling transactions related to trade deals with Iran. The recently passed legislation by the U.S. Govt imposes sanctions on financial institutions dealing with Iran’s central bank, thus putting Halk Bank squarely in the spotlight. India is worth watching closely as a test of the strength of sanctions. Watch for work-arounds, especially with Russia. The Turks do not have the required muscle. The Russians do. The Kremlin leaders are highly motivated to knock a wheel off the American wagon that seems to trample pedestrians all too often.

SCO Revisited

During the 2002 to 2005 period, the Shanghai Cooperative Organization aroused a considerable amount of publicity. It was originally a cultural exchange group between Russia and China, led by the surviving republics of the Soviet Union. Its agenda grew to include security matters. Then later still, commercial trade and commodity supply entered the picture, as the resource rich nations lacking in economic development banded together. The added twist was the inclusion as guest SCO members such nations as renegade Venezuela, Iran, and others. The SCO defiance began to escalate right about when the organization faded from view. It never faded away, only from view, as it coalesced into a powerful movement behind the scenes. SCO became a hidden movement to build fortifications in opposition to the U.S. Dollar. Its main thrust has been gold accumulation in the shadows.

The key to comprehension on SCO matters is to realize that all countries in the Shanghai Coop are working vigorously to bypass the U.S. Dollar, and all are increasing their gold reserves. They work in much more secrecy, probably at the direction of Kremlin and Beijing leaders. They have learned that avoiding direct confrontation and sanctions is the path to take. The proposal to end usage of the U.S. Dollar in bilateral Russian-Iran tade came from Moscow, not Tehran. One can be absolutely certain that Kremlin leaders are as stiff spined as they are motivated to challenge the U.S. Govt and Wall Street leadership. They remember all too well the Yeltsin years and the Western oil company role. The proposal to switch to the Russian Ruble and the Iranian Rial was raised by Russian President Dmitry Medvedev with his Iranian counterpart, Mahmoud Ahmadinejad, at a meeting in Kazakhstan. It was staged without herald as an continuance of the Shanghai Cooperation Organization. Iran has replaced the U.S. Dollar in its oil trade with India, China, and Japan. At the cusp of developments is a potential deal that could bring an important linkage between crude oil and commodity trade settlement outside the U.S. Dollar, with provision for funding the European bank rescue fund, the European Financial Stability Facility. The concept was raised by the intrepid indefatigable Tyler Durden (bloodied but resilient) of the Zero Hedge crew. The bypass of the U.S. Dollar in trade is likely soon to be engrained in the financial system. The American trumpets continue to promote the notion that all global trade is done in U.S. $ terms, when the reality is far different, and the trend is in the opposite direction, as in global revolt.

Actually, the ZH crew merely took the ball and ran with it, as they do so adroitly and consistently. In my opinion, the Zero Hedge web journal is by far the most valuable and broad single source of relevant information in the global financial crisis, bar none. The German newspaper Bild am Sonntag had said Klaus Regling (CEO of the European Financial Stability Facility) is pushing to increase guarantees to up to 30% for investors external to the EuroZone, the amount confirmed by a fund official. Although the guarantees were non-existent a year ago, EFSF officials have stressed that state guarantees had always been planned to range from 20% to 30% range, and furthermore, such offering should not be interpreted as a deepening of the endless debt crisis. Such denials serve as clear direct confirmation of a deepening crisis. Clearly, the guarantees provide incentive to attract foreign funds. The nations with big foreign reserves like China have turned their noses up at Europeans in recent rounds. The Beijing leaders want more on the table. Think industrial collateral. Think access to central bank gold. Think official bypass of the U.S. Dollar in trade settlement. Think consolidated resistance to unilateral pronouncements. Think indirect action to isolate the U.S. Govt and its corrupt financial fortress.

Iran & Russia Replace the U.S. Dollar

Iran and Russia have replaced the U.S. Dollar with their own native currencies, thus solidifying trade ties. Tehran’s Ambassador to Moscow Seyed Reza Sajjadi claimed that the proposal for replacing U.S. Dollar with Ruble and Rial was raised by Russian President Dmitry Medvedev in in Astana Kazakhstan during a sidelines meeting of the Shanghai Cooperation Organization (SCO) meeting. He added that many Iranian entities are using Ruble currency for their trade deals. The Kremlin leaders stand against unilateral sanctions on Iran conducted outside the UN Security Council, their position in diplomatic circles, which WashingtonDC avoids. The U.S. Govt has a long track record of making unilateral decisions, and attempting to impose sanctions on third party nations, all done without the blessing of global bodies. The Russians have clearly announced that they will not accept broad sanctions. The central bank in Iran is working feverishly to to circumvent and overcome plans to isolate it and cut off income. The sanctions directed by the U.S. Govt cut off from the U.S. financial system foreign firms that do business with the central bank in Tehran. Many even in the West believe that the move would prove futile. Most Iranian oil sales are processed by the central bank. The means to avoid the sanctions is to conduct trade settlement outside the U.S. Dollar, where the U.S. Fed would not act as processor. The peripheral impact is felt with intermediary entities such as Turkey’s Halk Bank, which will likely choose to step aside and not risk being stepped on by American jack boots bearing London brand.

During the last two years, Iran has been replacing the U.S. Dollar with other currencies in its trade with the outside world. Iran has replaced the U.S. Dollar in its oil trade with India, China, and Japan. Late in November, the Reserve Bank of India (RBI) granted the necessary permission to the Central Bank of Iran to open Rupee accounts with two major Indian banks, seen as a solution final to the payment problems. While payments for Indian oil imports would initially be in Rupees, they would be converted into a separate currency, which was yet to be decided by the Apex bank. Conclude that U.S. Govt sanctions provide the fertilizer for a seedbed in non-U.S. $ trade settlement. The American strongarm tactics are meeting with stern resistance, as the backlash gathers momentum and intensity. Iran could become a broken plank in the U.S. hegemony. History is not likely to repeat. The Iraq challenges with Euro-based oil sales led to the invasion and annexation. Iran has too many partners in Russia, China, Japan, and India. Without any dispute, Baghdad was defenseless. With almost ten years to fortify its partnerships, Tehran is not defenseless. The next few months will demonstrate it.

Japan & China Bypass U.S. Dollar

In a gesture loaded with defiance, Japan and China have embarked on a trade deal that directly bypasses the U.S. Dollar in settlement. One more platform of the U.S. Dollar global fortress has been shown to be dismantled. Its hegemony is ending, although slowly. The mercantilist relationship held firm between China and the United States has shifted into reverse during the trade war in its third year, a trade war fully anticipated and forecasted back in 2005 and 2006 and 2007 in the Hat Trick Letter. With the new pact, Japan and China have made the arrangement public. They will promote direct trade in Yen and Yuan currency without U.S. Dollar usage, in order to encourage the development of a market for the exchange, and to cut costs for companies. The real surprise was the announced plan for Japan to buy Chinese bonds in the current 2012 year. Confirmation came from a meeting between Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao in Beijing in late December. Considering the huge trade volume between the two biggest economies in Asia, the pact is significant. Look for continued Yuan appreciation, and all the problems it will cause to their export industry.

Some shock waves are coming to the FOREX markets, where the U.S. Dollar is still seen as king in official circles. The year 2012 will prove to be highly disruptive to such a perception. The primary motive behind the bilateral trade deal is to reduce currency risks and trading costs. Currently, about 60% of trade transactions between the two nations are currently settled in U.S. Dollars, a practice to be reduced. China is largest trade partner to Japan, bigger than the United States, thanks to colossal direct foreign investment by American and European firms for a full decade. China already purchases Japanese debt securities. In turn, Japan holds $1.3 trillion of FX reserves, the world’s second largest war chest. They wish to purchase Chinese debt securities. Nothing will stop this movement. The list of imminent investors in Chinese debt is growing, from Austria to Thailand to Nigeria. The ultra-low U.S.Treasury Bond yields, corrupted by Interest Rate Swap applications, fails to reward investors for risk. The U.S. Govt deficits are chronically over $1.5 trillion annually. The growth in cumulative debt assures continued 0% bond yields and artificially low borrowing costs, a new constant for foreign investors to turn more toward China. The United States is fast losing its dominance, which when abused is called hegemony. The hegemony has been ripe and fierce since 2005. The volume of Chinese Govt Bonds denominated in Yuan has tripled up to 2011, with volume of $18 billion. Funds are moving away from the West, where sovereign debt has turned toxic and government deficits have grown like vast weeds and austerity plans are more like designer suicide pills.

U.S. Dollar Rises Toward the Cemetery

Back in the spring months of 2009, the Jackass penned a public article called “Dollar Death Dance” that was well received. When the system was going through an implosion phase, albeit temporary, the demand for U.S. Dollars rose sharply. What followed for the last three years has been a gradual inexorable powerful pathogenesis toward monetary system collapse, the focus having shifted from the U.S. to Europe. The U.S. $ demand came from banks required to cover their U.S. $-based debts. Recall the U.S. Fed was the first to promote an ultra-low official interest rate several years ago. So its loans were huge to Europe, England, and elsewhere. Also, the ruinous derivative trade suffered a shock wave. The settlement of derivatives, such as a bond insurance contract, tend to be exclusively in U.S. Dollar terms. The second chapter to this trend is well along. Call it the second song to the Dollar Death Dance. The woes in Europe are translating into more U.S. $ demand, as funds flee the fires of European sovereign bonds turned toxic, as funds flee the big European banks that must meet reserves requirements, as funds in money markets return to U.S. shores, as funds cover the derivatives.

By the way, the derivative market must qualify as the most corrupt in human history, totally unregulated, the liferaft tossed to a sinking bank system, the source of huge income, against a backdrop of obstructions on payouts for both financial firm failure and the sovereign bond defaults. A restructure does not a failure make. All the regulators and bank officials did was to declare a bond loss as a non-event in the default world. They called it redefinitions, recalibrations, total nonsense and corruption to the core. The bank leaders continue to make claims that counter-party positions offset and canceled each other, when the reality is more like they assure mutual destruction and simultaneous death. When the first Italian bank goes bust, a French bank, a German bank, and a London bank will all turn to dust immediately. One day later, a New York bank will follow to the glue factory.

u. s. dollar 10 jan 2012

The U.S. Dollar is due for some extreme shocks. Some might not think so, given the Euro depression in sentiment and the rattling of big European banks. Word has come that in late February and late March, some important adjustment events are due to kick in, enough to knock over the tables in the temple. Conjecture is wide open and ripe for imagination. For the U.S. Dollar to continue its catbird post in global trade is inconceivable. The elite controllers will do their best to keep the U.S. Dollar in its dominant post. But the rest of the world, especially on its Eastern locales, is working in the other direction. As a sage contact told me last week, “There is a clear swing in power to the East, not to return Westward in our lifetime.” The primary victim of that pendulum swing, a powerful Paradigm Shift, is the U.S. Dollar. The consequent beneficiary will be Gold, and its squire Silver. A complete list of forecasts will not be given here, since too dangerous and ugly. The world financial system will not survive in its current form. A collapse is due probably by late 2012, or early 2013 after the U.S. presidential elections, another controlled event subject to outsourcing.


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Jim Willie CB, editor of the “HAT TRICK LETTER”

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“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 For personal questions about subscriptions, contact him at

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