09 February 2011
Jim Willie CB,  “the Golden Jackass”


* Lost Credibility
* Lost Control
* Ruined Balance Sheet
* Debt Monetization Meets Capitalism



Special Report #1

USFED AS AGENT OF DESTRUCTION

With the advent, then the continuation of the Quantitative Easing exercise in capital destruction, the US Federal Reserve has perhaps taken its deeply damaged reputation as a central banker and decimated it into shreds. They have lost the respect of the world, more so outside the nation's borders than inside. The financial sector and politicians seem unable to stop showing deep reverence for the post, even licking the Chairman's boots whenever he appears before the USCongress. Recent hints of contempt in WashingtonDC are encouraging. He has not made a single correct forecast on major items. The USFed in short has lost control. See the rising bond yields, which torpedo the housing ship, badly listing as a derelict vessel. The USFed seems thoroughly content to rescue the big US banks, whose wretched condition cannot possibly be rectified, even if such a rescue results in global price inflation and revolts. The decision made after recognition that a recent QE chapter has failed is clearly to repeat it. When QE2 is exhausted or deemed a failure, expect QE3 at the doorstep. This behavior exhibits insanity. The USFed balance sheet reads like a Fannie Mae lookalike, with perhaps $1 trillion in negative value, if priced to market. No wonder they altered their rules for a major dump on the USDept Treasury. A bizarre confrontation has taken form between the United States and China. The US moves farther from established norms, as the fascist tendencies creep from business practices to personal rights reverses. The Chinese have embarked on a capitalism path, building industry, cutting major deals, spending their reserve USTreasurys, as they prepare for the next chapter. They must contend with massive piles of US$-based debt paper and prevent them from suffocating the engine intake valves. The next chapter should see a default in USGovt debt, as it spirals out of control, supported mainly by the monetization engines, otherwise known as hyper-inflation.

LOST CREDIBILITY

◄$$$ A GREAT ASSESSMENT OF THE USFED AND THE UNINTENDED CONSEQUENCES OF QE2. THE EFFECT HAS BEEN FELT GLOBALLY AND WITH EXTREME FORCE. THE MOST EXPLOSIVE CONSEQUENCE HAS BEEN FOOD PRICES. BERNANKE CLINGS MINDLESSLY TO THE VIRTUOUS ASSET INFLATION CYCLE, WHICH CAUSED MUCH OF THE DESTRUCTION IN THE LAST TWO DECADES. WITH RECENT COMMENTS, HIS CREDIBILITY IS NEAR ROCK BOTTOM. $$$

The unintended consequences of the Quantitative Easing #2 initiative took only a few months to be realized and felt. The effect has been powerful, with fast rising food prices. USFed Chairman Bernanke recently said that inflation is low and under control in the United States, arguing that it is seen just in the emerging markets. He claims QE has nothing to do with high food prices !! His credibility is taking serious damage. Meanwhile, beans in Brazil have risen in price by 50% over twelve months, December to December. Onions in India have risen in price by 82% annually through December. Garlic in China has risen by 96% annually. Cooking oil in Thailand has risen by 50% since last summer. One common factor in popular uprisings over the last several centuries has been expensive food prices that the public cannot afford. A man's heart can be won through fine meals at the dinner table. But the people's loyalty can be lost when the cost of survival from excessive cost in food necessities quickly. CIGA Pedro offered an anonymous post on the Jim Sinclair website. It was astute and profound. He said the following.

"All Bernanke wanted was some inflation, a little inflation to get America and the West out of the deflationary spiral caused by the failure of financial instruments (aka OTC Derivatives) and un-payable government debt. But he cannot get it. Everywhere it rages, but the place he wants it, home. So inflation erupts in global food prices and manifests itself in the attempts to bail out stone dead banks on the backs of the marginal economic player, post-destruction of the middle class... Think American monetary policy was a uniquely sovereign, American affair? Think again. You are watching QE II live on television. American monetary policy and the global race to debase is that raging crowd you see on the television from Ireland to Greece and Egypt... In the Arab world, what happens in Egypt does not stay in Egypt. The potential for regime change in Saudi Arabia is growing. Now we find  that the financial necessity for Dollar debasement was not as politically benign as people in Washington thought... Global system breakdown, which made its debut in 2008, is now back for its main act. Money printing did not quite work out the way it was supposed to. This time, a rush to the security of Treasury instruments is unlikely to be the fallback position for global capital that now sees Fed monetary policy as a destructive boomerang cutting inflationary swaths across the planet, en route to its place of origin [the USA]." The big risk is Saudi Arabia, but Egypt is the spark. The USTreasury Bond will find only USFed and Anglo buyers, with risk of default rising acutely. Many are the victims of QE2, without USFed admission.

Bernanke is both a lousy economist and psychotic banker, perhaps a sociopath. He cannot detect the link between the QE2 initiative and the acute commodity price reaction. He chooses to disavow any responsibility for rising global food prices. The rest of the world must pay for the sins of the Anglo bankers. The Wall Street, USFed, and USDept Treasury syndicate of bank fraud kings have caused a global instability not witnessed perhaps in several centuries, high crimes perpetrated with motives of greed without conscience. They have no willingness to accept that they have caused profound problems for poor people struggling to survive. Bernanke called it unfair to blame the monetary policies of the US Federal Reserve for rampant price inflation in emerging markets, in particular food prices. The bread crumbs obviously lead to his marbled office. He again showed ignorance for economic principles, as growth in emerging markets was blamed for rising prices. Are we stupid? Developing nations typically do not engage in monetary expansion exercises!! They import inflation. Then again, he thought the subprime mortgage episode was contained. He still believes that rising energy costs will not produce price inflation, which means he must expect a deep recession to keep final demand in check, as in collapsed. He is a psychotic for his view that USFed policies under his aegis are intended to create stability, when the QE1 & QE2 programs are the most destabilizing actions since the breakdown in the Bretton Woods regime that linked the USDollar with Gold. His psychotic tendency revealed itself also, when he shared his belief that the USGovt must show restraint with spending, while the USFed shows no restraint in monetary expansion. USFed fingerprints are much more prevalent on the housing bubble than the USCongress and White House.

Bernanke said, "The most important development globally is the fact that the world is growing more quickly, particularly in emerging markets. I think it is entirely unfair to attribute excess demand pressures in emerging markets to US monetary policy because emerging markets have all the tools they need to address excess demand in those countries. It really is up to emerging markets to find the appropriate tools to balance their own growth. A wide range of market indicators supports the view that the Federal Reserve's securities purchases have been effective at easing financial conditions. The economy appears to have strengthened in recent months. Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established. Our nation cannot reasonably expect to grow its way out of our fiscal imbalances, but a more productive economy will ease the tradeoffs that we face. One way or the other, fiscal adjustments sufficient to stabilize the federal budget must occur at some point. The question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people adequate time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis."

Never forget that this fool Bernanke claimed publicly and repeatedly that once price inflation arrives, the USFed can quickly and effectively stem the rise by draining liquidity from the system. Neither is that true nor his ability to even notice price inflation. Again, he will call price inflation as growth, and boast of progress whose lack of new jobs calls him a liar. A few quick comments. Emerging market nations might employ a useful tool of discarding the USDollar behind a vast firewall, which would alleviate many price problems. They will increasingly find it urgent to protect themselves from the USFed monetary inflation flame thrower. The QE2 pet project from the USFed has eased pressures, except really just to fill the void of absent USTreasury Bond buyers. The USEconomy is likely to spawn much bigger deficits for a few years, since a painful ongoing recession is in progress, one he cannot recognize through the many distorted lens in his toolkit.

◄$$$ JIM GRANT HARSHLY CRITICIZED THE USFED AGAIN, A REGULAR HABIT. HIS ARGUMENTS ARE SPECIFIC, LIKE OPEN SUPPORT OF THE STOCK MARKET. HE CALLS THE BERNANKE ACTIONS AS SINS COMMITTED GRIEVOUSLY. $$$

Jim Grant has taken another shot at the highly vulnerable USFed. Grant has openly accused the USFed of supporting stock market prices. Grant believes that Bernanke owes the world an apology. We are witnessing a global response to USFed hyper-inflation policies, seen in fast rising food prices. Grant said, "I think what would be very good for the Fed if there would be a confession. The Fed should confess that it has sinned grievously, and is in violation of every single precept of its founders and every single convention of classical central banking. Quantitative Easing is a symptom of the difficulties that the Fed has created for itself. The Fed is running a balance sheet which, if it were the balance sheet attached to a bank in the private sector, would probably move the FDIC to shut it down. The New York Branch of the Fed is leveraged more than 80 to 1. Meaning, that a loss of asset value of less than 1.5% would send it into receivership, if it were a different kind of institution. The Fed is now in the business of manipulating the stock market." Jim made some very sharp criticisms on how the USFed never settles up on the $3.4 trillion in custodial debt on its books. See the Zero Hedge article (CLICK HERE).

LOST CONTROL

◄$$$ THE SYSTEM IS OUT OF CONTROL. OLD BROKEN METHODS CONTINUE DESPITE THEIR CLEAR INEFFECTIVENESS. OLD DOGS HAVE NO NEW TRICKS. THE BANKSTERS REMAIN IN CONTROL, AT THE HELM OF A SINKING SHIP. MONETARY INFLATION HAS COVERED THE FINANCIAL CRISIS LOSSES, WHICH ARE STEEPED IN FRAUD AND BANK THEFTS. THE GOLD STANDARD WHEN MENTIONED RUINS POLITICAL STANDING, YET IT IS THE SOLUTION. $$$

Amazingly, and despite evidence of its legitimacy, Bernanke clings to the notion of the Virtuous Cycle, but with growing desperation that reeks of Keynesian fetid odors. The USFed pumps money into the system by monetizing debt. Asset prices go up, improving people's perception of the USEconomy. Spending and borrowing activity increase. Then all is well on the American front. He overlooks the same force that pushes up asset prices, also pushes up commodity prices. He overlooks that this formula gave the nation a housing & mortgage twin bubble. Asset prices are uniformly boosted by the QE2 splurge, better known as monetary inflation. The exception is housing and mortgage bonds, both trapped in total ruins. It is the unintended consequence, or more aptly described, the necessary consequence that must be denied all along the way to ruin. Bernanke is looking very lost and very out of control and very dumb. He seems unaware that the Virtuous Cycle is a leftover thermite stench from the ruinous Macro Asset Economy thesis that imploded in front of his covered eyes!!

USFed money creation has been dedicated to cover bank theft, which in recent weeks has clearly led to global food inflation. So bank aid gave the world high kitchen prices and empty plates. The USGovt and USFed have covered the 2008 great bank theft events, using the US monetary Printing Pre$$. They do not disguise their actions, but rather exercise their plunder in full view, using weak mantras like Too Big To Fail and broad stimulus and liquidity facilitation. Its policy has perpetuated the problem, and avoided the necessary steps to begin the solution. Refer to big bank asset liquidation. The monetary inflation correlates well but not precisely with rising food prices. The destination of new money is uncertain, typically seen going into stocks & sovereign bonds, commodities, formerly but no longer housing & mortgage bonds. Many reports around the world have come for foodstuff suppliers to delay in delivery, expecting a better price tomorrow.

Never lose sight of the fact that 40% of all lobbyist funds to politicians come from big US banks. The wealthy have kept their advantage, in line to benefit from the money printing, while the poor are left out. They must deal with higher food prices. Most emerging market nations spend over 35% of income on food. In the Arab world, where poverty is more profound, they spend up to 80% of income on food. Thus the first public food uprisings have occurred in the Arab world. The ultimate problem is that fiat money is tainted, leads to imbalances, permits great fraud, and results in systemic failure from debt overload and capital destruction. The US central bank has never faced its great mistakes, and continues the banker welfare, making worse the class rift. Rules are required for money management by nations, which is gradually turning worthless. Bankers cannot be put in check without such rules. The Gold Standard is urgently needed despite all the opposition. It is politically unsavory, yet it is the solution. A new currency, gold backed or partially gold backed, is urgently needed. See the Wall Street 128 video clip with the irrepressible Dylan Ratigan (CLICK HERE).

◄$$$ THE USFED MONETARY INFLATION HAS EXPANDED FOR THREE YEARS TO PRODUCE A MODERN DAY WEIMAR VOLCANO OF MONEY FLOW, BUT THIS TIME GLOBALLY. THE QE2 CHAPTER HAS IGNITED AN ACCELERATION IN THE GLOBAL FINANCIAL CRISIS. THE FIAT PAPER CAPTAINS ARE TRYING TO SAVE THE UNSAVABLE, THE BROKEN GLOBAL MONETARY SYSTEM AND BROKEN BANKING SYSTEM. INSTEAD OF REMEDY, THE WORLD WILL SEE NEW PROBLEMS, LIKE WITH FAST RISING FOOD & ENERGY COSTS. $$$

In July 2007, the financial markets began their most severe crisis in modern history. In my view the current situation is an order of magnitude more severe than the Great Depression. During the broad financial crisis, as the damage unfolded in gory fashion, the US Federal Reserve, the USDept Treasury, and the USGovt managed to prop up the financial system with numerous interventions. They supported the big US banks, nationalized the broken parts loaded with fraud, and avoided remedy as well as legal inspection. The Too Big To Fail mantra is equivalent to endorsement of bond fraud, along with refusal to even begin the restructure process. That process involves liquidations of the biggest insolvent banks, except that they control the USGovt and the US financial structures. Check out the laundry list of largesse and corrupt devotion of funds:

  • The Federal Reserve cut interest rates from 5.25 to 0.25% in rapid fashion, against all promises to do so, symptomatic of the Japanese (Sept 2007 to today)
  • Bear Stearns was killed as a motivated target, USFed took $30 billion in junk Maiden Line mortgages, and the long gold position was liquidated (March 2008)
  • USFed opened up a huge list of lending facilities to investment banks (March 2008)
  • SEC banned short sales on financial stocks, except Goldman Sachs (July 2008)
  • Secy Treasury Hank Paulson received a blank check for Fannie & Freddie but promised not to use it (July 2008)
  • Hank Paulson used the Fannie/ & Freddie blank check to offload $400 billion in bonds (Sept 2008)
  • USFed took over insurance company AIG (Sept 2008) for $85 billion
  • Lehman Brothers was killed as motivated target, and JPMorgan war chest reloaded with $130 billion to accommodate the Lehman private investors (Sept 2008)
  • USFed doled out $25 billion for the auto makers (Sept 2008)
  • Wall Street Feds launched the $700 billion Troubled Assets Relief Program (TARP) with the USGovt taking stakes in certain private banks like Citigroup (Oct 2008)
  • USFed bought significant commercial paper from non-financial firms (Oct 2008)
  • USFed offered $540 billion to guarantee money market funds (Oct 2008)
  • Wall Street Feds supported an added $280 billion of Citigroup liabilities (Oct 2008)
  • AIG received $40 billion more in relief aid (Nov 2008)
  • Wall Street Feds supported $140 billion of Bank of America liabilities (Jan 2009)
  • Obama Admin approved the $787 billion stimulus, but absent stimulus (Jan 2009)
  • QE-Lite launched to cover significant lingering mortgage bonds (August 2010)
  • QE2 announced for $600 billion in USTBonds and $300 in mortgage bonds (November 2010)
  • QE3 being discussed since QE, QE-Lite, and QE2 are failures (now).

The USGovt and its Wall Street handlers are not working to resolve the mammoth debt problem. Liquidation of big US banks is not an option. The USGovt is not interested either in selling off assets, like federal buildings, national parks, off-shore leases, or coastal rights. The remaining avenue is to inflate the debt away, and to cover the debt from monetary inflation sources. The USFed has fully embraced the inflation option, even though it will result in a fast rising cost structure. My forecast from August to November was for rising prices in food & energy, which has come to pass in clear stark terms. The global reaction to food prices is a foretaste of what will arrive on US shores later this year. The next reaction will center upon high energy prices, beginning with summertime gasoline. The USFed claim of an Exit Strategy in 2009 was nonsense, a sign of ignorance and blatant analytic incompetence. Its promise of QE not to be followed by QE2 was based in pure political distraction, since it was obviously going to occur. The USFed will attempt to inflate away the US mammoth debts, but it will have trouble simply keeping pace with new debt. The unit on the debt is in the $trillions, as $billions are so very much in the past. Thanks to an intrepid subscriber for passing along the list of events.

RUINED BALANCE SHEET

◄$$$ THE USFED BALANCE SHEET HAS SWELLED WITH USTREASURY BONDS. THE GAP BETWEEN ITS HOLDINGS AND CHINESE HOLDINGS IS GROWING. THE MONETARY PRESS IS THE MAIN BUYER, MONETIZATION OF DEBT. $$$

Witness monetary hyper-inflation. The USFed assets listed on its balance sheet grow. The USTreasury holdings recently reached the $1.13 trillion level, versus the entire balance sheet of $2.5 trillion. USTBond assets increase on a daily basis with every single open market action, as buyers are vanishing with legitimate funds in hand. The Printing Pre$$ has taken over. The differential between the US and China as USTBond holder is $233 billion and still rising. China is shifting away from official purchases while the USFed must respond to fill the gap accordingly. Also, on another monetization road, the Mortgage Bond Security prepay program has resumed in volume. A recent week saw $16.3 billion in MBS being put back to the USFed, bringing the total to $184 billion since the start of QE-Lite. That was the program added to QE1 as an adjoined thought. The December total MBS & Fannie Mae prepay amounted to $30 billion, which begs the need for QE3. Mortgage bonds and municipal bonds will probably make up the bulk of the next QE initiative. The need is urgent, as the problems within the crisis go unaddressed. See the Zero Hedge article (CLICK HERE).

◄$$$ THE USFED INSTALLED AN ACCOUNTING CHANGE TO MANAGE ITS INSOLVENCY AND HEAVY LOSSES. IT WILL TRANSFER THEM TO THE USDEPT TREASURY, ALL THE CAUSTIC ACID AND TOXIC SWILL. THEY APPEAR TO BE PREPARING FOR THEIR OWN RUIN, AND HAVE SELECTED A BAGHOLDER. $$$

The USFed has hidden a major accounting change. The Financial Accounting Standards Board in April 2009 permitted the big US banks to value their assets any way they pleased. But the USFed has introduced a strategem of deep duplicity and utterly despicable nature. The USFed snuck into a regular weekly report that it has adopted an important new policy. If urgently needed, it will move off its balance sheet any bad horrible asset purchased, any particular bond or whatever asset that has lost huge amounts of money. They will put it back to the USDept Treasury like a bottomless pit, a toxic vat. Their private errors with deep systemic losses will be the taxpayer losses, while their gains of past years are their own to keep. The official terminology involved technical terms that might have eluded the not so watchful eye of the financial press. Analysts have figured out the strategem. The working example is Fannie Mae. Concerns are out in the open for potential $trillion losses at the USFed. They bought toxic assets, and with the endless housing bust cycle, those assets will likely not return to viable value, which has been the Hat Trick Letter forecast all along without equivocation. They adopted a little noticed accounting change with huge implications. The analysts who did notice the change actually made comment that the USFed has been made unlikely to suffer an episode of insolvency. That perspective misses the entire point. The USGovt finances would more closely resemble a Banana Republic. THE MANEUVER RENDERS THE USGOVT DEBT MUCH MORE LIKELY TO DEFAULT. Since the USGovt did not make objection, one can assume that the USGovt is subjugated to the Wall Street syndicate, more open proof for those who think logically and carefully.

Instead of appealing to the USDept Treasury for aid, the USFed will simply use the USGovt finance minister as a garbage can for toxic assets. The move is not so shocking, a logical sequitur since Wall Street banks have shoved many bad assets into Fannie Mae or have been redeemed by the many USGovt sponsored facilities run by either the USFed or Goldman Sachs. It seems the USFed wants its own favored treatment, which it just dictated without discussion. Raymond Stone, managing director at Stone & McCarthy, interpreted as "An accounting methodology change at the central bank will allow the Fed to incur losses, even substantial losses, without eroding its capital." The change allows the USFed to assign losses by the various regional reserve banks within the Federal Reserve system as a liability to the USDept Treasury, preserving the USFed capital. However, the USFed would direct future profits from its operations toward that liability. Brian Smedley is a bond strategist at Bank of America Merrill Lynch and a former New York Fed staffer. He said, "Any future losses the Fed may incur will now show up as a negative liability as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible." The entire reassurance, even if hidden, was timed to offset various scattered open worries by politicians and financial market mavens, who have expressed concerns about USFed insolvency, if not ruin.

The primary threat is rising interest rates. The other threat is a falling USDollar. Another threat is vast additional USGovt deficits to be financed by pure monetization, as in money printing to cover newly issued debt securities. Expect all three to kill the USFed. Watch the negative liabilities pile up like Fannie Mae acid, like AIG credit derivative rot, and like the big USbank toxic assets. A warning came from Robert Wenzel of the Economic Policy Journal, who concluded "I hasten to add this does not appear to resolve the problem of the Fed going cash flow negative as a result of having to raise interest rates on excess reserves to a point where they are higher than most of the income earning debt they hold. Expect future monkey business on this front." Think of it as a parallel to the Social Security Admin gone negative in cash flow. See the Economic Policy Journal article (CLICK HERE). See also a CNBC article (CLICK HERE).

Rick Ackerman called the USFed a feather merchant version of a perpetual motion machine, which the US press networks failed to appreciate. Instead, they regarded the technical move as an advantage, without mention of the worsened Banana Republic look to USGovt finances.

Then again, the same syndicate owns the US press. Reuters actually reported that the move makes USFed insolvency much less likely. Ackerman concluded, "This explanation is darkly funny for two reasons. In the first place, by accepting the Fed's spin at face value, the news media have trained their eagle eye not on the crafty magician's hands, but on the breasts of his assistant, just as the Fed might have hoped. And second, the notion of insolvency as being much less likely is a blatant cop-out that as much as admits the news media do not know what the hell the rule change is going to accomplish. They are telling us the Fed's three card Monte switcheroo is significant because it supposedly will protect the Fed against going belly-up. But is that what is significant here? In fact, when the day comes that the Fed is forced to acknowledges the worthlessness of its vast mortgage holdings (a day that is surely coming), even the village idiot will understand that Treasury is powerless to set things right, other than by ginning up hyper-inflationary quantities of cash. In the meantime, do not expect the working press to delve into the actual significance of the accounting tweak. For if they were to expose it for the brazen fraud it is, the resulting epiphany of a failing economy with no political route to recovery would be too painful and bewildering to bear." See the Ackerman article (CLICK HERE). It is unclear whether Ackerman realizes that usage of the accounting device will likely send the USTreasury Bond into default, like rolling a drunkard.

DEBT MONETIZATION MEETS CAPITALISM

◄$$$ QE3 IS BEING PLANNED. THE EXTREME DAMAGE IS TO BE MULTIPLIED ONCE MORE, SINCE NOTHING IS FIXED OR CAN BE FIXED. LOOK FOR THE DEPTH OF THE QE2 PROGRAM TO GROW AND THE BREADTH OF MONETIZATION TO GROW. THINK STATE AND CITY AID, BUT CONDITIONALLY. $$$

Any QE program in sequence is much easier to sell than the previous. QE6 will be a snap after QE5. Kansas City Fed President Thomas Hoenig has leaked that QE3 might be in the near-term offing. He might have offered the information in disgust, to embarrass the USFed actually. Reuters reported a quote from Hoenig. He said, "The Federal Reserve could debate extending its bond buying program beyond June if US economic data prove weaker than policymakers expect. [Another round] may get discussed [if econoimc data look] disappointing." The comments came during an interview with Market News Intl. Regard this development from the inside as an implied admission that the Quantitative Easing is a failure recognized among the insiders. It is not bringing about a USEconomic revival. Desperation has set in, as well as a sense of failure. My position all along has been that since big USbank liquidation is not an option, the foundation for a recovery is absent, has always been absent, and always will be absent. The wrecked financial foundation cannot support any recovery whatsoever. Therefore, the system will implode gradually and inexorably, a great tragedy. It means also the pressure will be applied from the supposed free usage of the monetary printing machine, to the point that hyper-inflation will arrive eventually and without alternative, even denied when it inflicts great damage. The process has begun to show in price structures. See the Zero Hedge article (CLICK HERE) or the Reuters article (CLICK HERE).

The vague nature of the Hoenig comment should be viewed as an open avenue. He did not specify what another bond buying round would involve. Obviously more mortgage bonds, possibly many of those in court disputes from the Putbacks, improperly securitized and without proper underwriting. Also, expect the state and city municipal bonds to be included eventually, but only if they shed their employee pension obligations. The next round after QE3 will likely focus on corporate bonds that cannot be sold. What the USFed has done is open Pandora's Box. They promised QE1 would be the end. The Jackass expected a long endless string of QE initiatives with disastrous consequences, corrupted political will, culminating in a USTreasury Bond default, all along the way absent solutions. Prepare for it!!

◄$$$ CHINA OBSCURES ITS USTBOND SALES. THE OFFICIAL DATA SHOWS ONLY A SMALL DECLINE IN HOLDINGS. MANY DEALS CUT BY THE CHINESE INVOLVE HUGE TRANCHES OF USTBONDS COMMITTED. OFFICIAL DATA SHOWS PURCHASES BUT NOT SALES, AND SURELY NOT COMMITMENTS AS COLLATERAL IN NUMEROUS FOREIGN DEALS LIKE IN AFRICA AND SOUTH AMERICA. $$$

The word is slowly emerging, that China appears to be concealing its activity in the USTreasury Bond arena. Rumors swirl that China is buying more USTBonds than meets the eye, even using London or Caribbean agents. My reaction is laughter to nonsense. Over the past decade, China accumulated almost 1$trillion in USTreasury debt securities, covering about 20% of the USGovt debt. In 2006 alone, China covered over half the USGovt deficit. At the peak financial crisis, China purchased over $100 billion on Treasurys in just September and October 2008. Heavy volume sovereign debt purchase might have been promised as part of the granted Most Favored Nation deal cut in 1999. The provision of Gold & Silver bullion in lease might have been the other part of the deal. Since the Wall Streets in all likelihood sold the entire leased lot, an important betrayal might have occurred, which has motivated China both to dump USTBonds and to gather Gold & Silver bullion.

The tide has turned in the last year. The official data shows declines in the Chinese USTBond holdings. The USGovt figures report that China reduced its holdings of USTreasurys by $11 billion in November. Over the last twelve months through November, China reduced its holdings of Treasurys by more than $36 billion, a big number but not too significant relative to its $895.6 billion total. The reduction is only 4.0% of total. China has become an important net seller of USTreasury securities. Speculation has been ripe that China has been purchasing USTreasurys through accounts in other nations. Some could be mixed between China and Hong Kong, even though the Treasury Investment Capital (TIC) Report usually maintains separate ledger rows. The degree of foreign ownership for USGovt debt has risen sharply in recent years. From years 2002 through 2009 inclusive, the total amount of USGovt outstanding debt in foreign hands grew from $4.9 trillion to $9.3 trillion, almost double. China covered roughly 20% of the amount while other foreign countries covered roughly 40%. The remaining 40% had been covered by US institutions (pension funds) and individuals (bank CDs). For the first eleven months of available 2010 data, US banks, institutions, and individuals purchased roughly 60% of the $1.5 trillion of additional USTreasury debt. During this time, China turned to net seller. See the New York Times article (CLICK HERE). What the official data does not disclose is the extremely numerous global deals struck by China with foreign entities, using up and spending their USTBonds, offering them as collateral, or even handing over the USTBonds themselves. The official data only shows the activity in official channels, like the financial markets. Think Russia, Nigeria, Angola, Iran, and Brazil, even Australia on large scale deals, for starters.

◄$$$ A CLASH HAS BEGUN. FASCIST SOCIALISM OF THE UNITED STATES MUST DEAL WITH THE NEW CAPITALISM OF CHINA. THE USGOVT & USFED HAS LOST TOTAL RECOGNITION OF LEGITIMATE INCOME. THE CHINESE ARE SPENDING THEIR USTBONDS IN PREPARATION OF THE NEXT CHAPTER. $$$

While China might be establishing wider connections with the West, the claim that it is becoming more westernized seems way off the mark. See the TED Conferences interview (CLICK HERE) where Martin Jacques makes such a claim with a theme of understanding the rise of China. The assumption that China will become more westernized as it develops economically is absurd. More likely the West, including the United States and Europe, will adopt more of the Asian customs, like thrift, meditation, architecture, even dress styles. A deeper point is worth mention with emphasis. China will become more expert at applying principles of capitalism, continuing the pattern seen in the last decade. It is actually diverging from the US in its traits. The US has moved down a dangerous lethal marked by fascism and socialism, both in business and politics, in keeping more with the Soviet Union. Loss of democracy is an obvious casualty on the road to the Third World. The numerous multi-$billion mega-deals by China are evidence of capitalism roots planted. Some might call such moves as westernized, but they are more like capture of the West.

The key difference between the US & China in certain divergence is that the USFed and USDept Treasury promote economic growth through putting money in people's hands regardless of origin like a printing press or govt extension of credit or home equity loan. The Chinese promote economic growth by building factories and expanding industry, thereby generating legitimate income. Of course, they have over-built uniformly and to great excess. They must also contend with massive piles of US$-based debt paper and prevent them from suffocating the engine intake valves. Their asset bubbles threaten on several fronts. The US in the process became an inflation apparatus, while China became a capitalism engine. THIS IS THE MOST PROFOUND FACTOR TOWARD DESTRUCTION OF THE USECONOMY IN A GENERATION. Just last week a comment was heard on how corporate hiring soon expected will raise costs among US businesses, hence expect lower earnings. In the same breath, it was explained that productivity rises during recessions, as businesses cut costs. The implied message is that hiring and growth are bad for profits. Business investment leads hiring, which produces valid income, a principal not well understood. The insane parade persists, with Wall Street leadership like the Pied Piper. Consumption is blessed, while saving is cursed. The casino mentality that creates asset bubbles is revered.

The US has totally lost its way on the capitalism path. In that respect China has adopted Western ways, while the US has entered a dark place filled with sharp knives and sinkholes that typify inflation. Another story was indicative of lost US capitalism. The No-Bid defense contracts enabled Boeing to rake in $18.9 billion in recent projects, United Technologies $12 billion in projects, and Raytheon $6 billion in projects. The rationale is to expedite speed, to exploit the trust built within past work, and to rely upon experience. However, the other objective is often to protect payoffs and skimming of funds, even to reward for private shipments of narcotics in the defense contract corporate jets. A private source assured me that 2000 such narco flights take place each year by defense contractors on medium sized jets, each carrying around one ton of cocaine & heroin, not to be encumbered by customs inspections. They earn credits from the USGovt security agencies, several of which are totally co-opted.