GLOBAL MONEY WAR REPORT
DEBASED CURRENCY COMPETITION
SOVEREIGN BOND BREAKDOWN
CENTRAL BANK DISCREDIT

* Monetary Shrapnel
* Systemic Bust & Fraud
* USGovt Debt Downgrade Impact
* Global QE Emerges
* USTreasury Default Ambiance


HAT TRICK LETTER
Issue #89
Jim Willie CB, 
“the Golden Jackass”
14 August 2011

"I cannot say this in any simpler terms. We are wiping out the future of our children. We have stolen their future, and now the clamors that we cannot default are being heard everywhere to justify the economic implosion on the horizon. How can we grow the economy by reducing spending and raising taxes? This is austerity that shrinks the economy, destroying the opportunity for employment among the youth, feeding a cycle of economic contraction. The entire system is broke and it will implode. Cities are going bankrupt. This whole theory of borrowing money today from the future is wrong. It is the last stage of Marxism that is collapsing, taking the West down the drain." ~ Martin Armstrong

"The US government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone. China, the largest creditor of the world's sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China's dollar assets. International supervision over the issue of US dollars should be introduced and a new, stable, and secured global reserve currency may also be an option to avert a catastrophe caused by any single country." ~ Xinhua (official Chinese statement)

"QE3 started in Japan and Switzerland via FOREX action and/or monetary easing [in currency purchase and/or rate cuts]. The USFed will eventually get to QE3, but it will be too little, too late." ~ Nouriel Roubini (competent economist, total idiot on gold, but he should call it GLOBAL QE)

"Nothing in the budget deal makes a dent on the $1.5 trillion deficit." ~ Bill Gross

"What good does it do to be the best looking horse in the glue factory?" ~ David Walker (former Govt Accountability Office head, when commenting about how the USGovt debt is more favorable than many European nations)

"The dollar is a child holding a photocopier. Gold is a man holding a machine gun."
~ Unknown

MONETARY SHRAPNEL

◄$$$ THE GOLD VS CRUDE OIL RATIO IS SOARING. IT MEANS THE FINANCIAL SAFE HAVEN IN GOLD HAS BEEN DISCOVERED, CONTRASTED AGAINST HEAVY DEMAND DAMAGE ON THE COMMERCIAL SIDE WITH ENERGY GENERALLY. THIS RATIO HAD BEEN RELATIVELY STABLE FOR OVER TWO YEARS. THE GOLD BREAKOUT IS IN ALL MAJOR WESTERN CURRENCIES. WITNESS LETHAL INFLATION ON THE FINANCIAL FRONT, AND DAMAGING DEFLATION ON THE COMMERCIAL FRONT, COMBINING TO FORM A POWERFUL STORM VORTEX. $$$

Three price directions have been vividly clear in the past few weeks.

  • The Gold price has hit record high levels in several major currencies
  • The Crude Oil price on West Texas has plunged to multi-month lows
  • The Silver price has stayed stable at a still elevated level.

Notice the Gold/Oil ratio over the past three years in the above chart. The ratio has returned to near the post-Lehman high level. The extremes are back. The financial sector damage, dislocation, and abuse are evident in the crumbling sovereign bond market, the wrecked big US bank stocks, and the enlistment of Gold as the true safe haven. Do not be fooled by the knee-jerk pied piper response to flee the frying pan and find the fire, as investors moved from stocks to USTBonds. They have been badly deceived. Last month, the gigantic $9.1 trillion additional Morgan Stanley application was given in details of Interest Rate Swaps. These tools exploit the artificially low short-term USTBill yields and create phony demand in long-term USTreasurys like the 10-year and 30-year maturities. It is a carry trade that exploits low-cost funds in arbitrage. The demand is artificial but felt with impact in a TNX approaching the magic 2.0%. When it reaches the milestone, shrill calls will come of an asset bubble.

The investor community incorrectly believes that actual money is flowing into USTBonds as safe haven. That is not accurate in a majority sense, at least at first. The trend is initially created by the powerful Interest Rate Swaps applied by the big US banks. The only massive asset bubble in existence is the USTreasury Bond. It loudly proclaims USEconomic recession in a marquee billboard, joined by Chairman Bernanke's admission following the FOMC meeting this week in a voice accompaniment. More still, the Gold/Oil chart eclipses the myopic focused Deflation concentration that ignores the monetary inflation consistently and errantly. They earn their Knucklehead label every passing day, from being half blind. They seem never to see the financial factor nor its effects. My contention is that their camp is lacking intelligence. They see only half the storm.

The conclusion, evident in the Gold/Oil chart, is that Inflation and Deflation are both running hard & fast, each strong & durable, both evident & ugly. The best description of the current situation is a the weather analogy, in a growing powerful tornado. It features the collision of high pressure zones against low pressure zones, described frequently in past reports. The high pressure is the result of thrust by central banks of monetary expansion that has actually wrecked the USFed balance sheet, and the EuroCB balance sheet. Each is the shameful owner of worthless mortgage bonds and sovereign bonds respectively, that nobody wants, that will never recover in price. The next phase will expand those balance sheets further, and wreck them beyond hope of repair in a recognized manner. The low pressure is the result of a powerful push by falling housing prices and big bank balance sheet insolvency. The consumers are handcuffed with lost discretionary funds in costs led by food & energy. The banks are making a transition from insolvent Zombies to undercapitalized Dead Made Men. They are soon to be recognized as dead. They are agents of the Syndicate, and thus guaranteed for slush fund income from multiple sources.

◄$$$ THE CONFIDENCE METERS REFLECT GROSS DISTRUST AND LOST TRUST IN THE PRESIDENT AND USFED CHAIRMAN, BASED UPON THE US-STOCK MARKET REACTION TO ATTEMPTED REASSURANCES. THE HIGH FREQUENCY TRADING VOLUME IS BACK TO VERY HIGH LEVELS. THE EQUITY MARKETS ARE FALTERING AND COMPROMISED. $$$

Consider an Obama Confidence Meter. At the beginning of his attempted Reassurance Speech at Monday August 8th, the US Stock market indexes were recorded. The indexes at 2pm immediately when President Obama gave the speech were Dow Jones Industrial index at minus 385, and the S&P500 index was at minus 54.5 on the day. By the end of his speech, 20 minutes later, the Dow was at minus 480 and the S&P was at minus 61.8 on the day. Hardly reassuring. By the end of day Monday Aug 8th, the Dow finished at minus 635 points and the S&P finished at minus 80.0 points. The stock market gave a strong loud thumbs down vote to the President for his shallow tripe for the last month. It was a day of infamy to rival Black Monday of 1987. The nation is leaderless.

Consider a Bernanke Confidence Meter. On Tuesday August 9th, the good Chairman explained the USFed monetary position in response to the panic fever that struck the US financial markets. The USGovt debt downgrade had worked together with the recognized USEconomic recession to trigger among stocks vast sell orders and a bid boycott. The US Stock market enjoyed a short cover rally at the time of the Bernanke speech, giving the central bank the benefit of the doubt, expecting some rescue and favorable change in policy. All that was given was the bone of permanent 0% official rate. Although significant in its own right, the financial markets were expecting more, much more, like the launch of QE3, a salvation of an armada of paper lifeboats. The day after his speech that admitted recession and failed to reassure, the stock market plunged again. By the end of day Wednesday Aug 10th, the Dow closed at minus 520 points and the S&P closed at minus 51.7 points. It was a loud slam of disapproval for failed monetary solutions. Confidence in Barry Obama is not there. Confidence in not so Helicopter Big Ben is not there. President Obama has offered almost zero change. Chairman Bernanke does not talk so tough anymore about an electronic printing press that costs nothing. Obama lost me with citing Buffet being a fan of USTreasurys who calls them AAAA with disdain for Standard & Poors, but no mention of Bill Gross of PIMCO who dislikes the USTBond complex. Obama neglected to mention Standard & Poors downgraded Berkshire Hathaway also. The biggest positive impetus to the US Stock market would come if Bernanke resigned the USFed Chairman post. The financial markets would rise. Ditto for the President post. Just like when a horrendous CEO quits an ailing corporation.

Last on the meters, consider the High Frequency Trading (HFT). Large Wall Street firms trade according to programmed algorithms, the buying and selling among each other. This is financial masturbation in a gathered circle by any name. The HFT volume associated with New York Stock Exchange averaged 75% of overall trading activity this past week. In the year 2009, the average HFT volume was 61% of total activity. In year 2006, the average HFT volume was 26%. This is not progress, but rather ruin of the stock market integrity as a determination mechanism for value and a broad channel for capital formation. Regard the HFT data as abandonment by the public, leaving the sandbox to the bullies to fight among each other.

◄$$$ THURSDAY AUGUST 4TH WAS THE OPENING DAY FOR THE G.A.T.A. CONFERENCE IN LONDON, THE BELLY OF THE BEAST. THE DAY WAS PRECISELY WHEN THE US-STOCK MARKET DIVED AND NASTY PERCEPTIONS ON USECONOMY RECESSION TOOK ROOT. THE GOLD & SILVER PRICE FELL HARD, ALONG WITH THE MAJOR STOCK INDEXES. PANIC HAS BEGUN TO SET IN. $$$

The damage to major global stock markets was severe in the last week or more, with an estimated $7900 billion lost in paper value, supported by false fiat platforms. Notice that the whack to Gold came precisely on the first day of the London GATA Conference at the Savoy Hotel, where the electricity was not cut. The conference was a great success in exposing the corrupt currency system and the power of gold to rise above the morass. Covered topics included the extreme manipulation of the precious metals market, the growing big US bank naked short positions, the wreckage of sovereign bonds, the new Pan Asia Gold Exchange, and much more. The entire sovereign bond foundation to the global monetary system is crumbling, with either lost values or lost confidence. The fiat currency system depends directly on confidence. The world is openly wondering what money means, where money is safe, and which vehicles should be ridden. Gold is rising from wider acceptance as legitimate safe haven. The next big event is the the Jackson Hole banker & economist meeting at the end of August, where members will congratulate each other for the global wreckage they caused, giving adulation to the banker princes of darkness.

◄$$$ CHINA WAS INVITED IN 2001 WITH THE MOST FAVORED NATION GRANT THE PRIVILEGE TO SET UP INDUSTRY. THE ULTERIOR MOTIVE BY THE WEST WAS TO DESTROY THE WESTERN ECONOMY. $$$

The pact was with the devils who run the US & UK & European banks. They yielded their industry to China for lower costs. In the process, the departure of legitimate income gave the West five years before its economies would be wrecked. The Chinese are using their gigantic FOREX reserves to purchase mineral and resource booty, to lock in deep water port facilities, to gobble up discounted European sovereign debt, to secure the retail sector, and to build a military. The benefits from the Most Favored Nation granted status in 1999 seems nowhere existent from a cast Western eye. The best explanation for its grant was to enable Wall Street to continue the gold lease game, over which they deployed heavy leverage to prop up the USDollar. In 2009, it became painfully clear that the USGovt betrayed China. My suspicion, not quite a firm belief, is that the Chinese were dealt a hand in helping along the agenda of the ultra-Elite in the castle fortresses. Their plan involves debt slavery, population reduction (aka genocide), concentrated power, and stripped liberties. Ruin of the Western economies was required, and accomplished by the turn to Chinese industry with its cheap labor. In the new globalization model, the West cannot compete. The lost industry and lost wages were a prescription for the elite agenda.

The Chinese are hardly backward militarily, as many nitwit Americans believe. They are well funded by export surplus wealth. They have demonstrated an ability to hack into Sandia Labs and make off with weapons schematics, perhaps even with a door left open. They have demonstrated an ability to knock out important telecomm satellites in orbit, even the strategic military type. They have a strong blue water naval fleet, from the infusion of Japanese technology. When China killed an important USMilitary telecomm satellite in 2008, that gesture might have been a declaration of war. Furthermore, by 2015 they should have some modern aircraft carriers, of catamaran design for greater stability and speed. The USMilitary indeed has full spectrum dominance, but it will be challenged. The Russian Sunburn and Onyx missiles eclipse the capability of the US Cruise missile. Look for a New Policeman in the Persian Gulf. The Saudis have already cut the deal in April. If new cops are on the beat in that key region, the Petro-Dollar will be discarded in the quid pro quo deal. Its removal would enable a grand Paradigm Shift and serve as a death knell for the USDollar itself.

 

SYSTEMIC BUST & FRAUD

◄$$$ REACTION FROM THE POWERZ HAS BEGUN TO REVEAL THEY ARE FAST LOSING CONTROL, WIELDING LESS POWER THAN BELIEVED. THEIR ACTIONS & REACTIONS DISPLAY DESPERATION AND INCREASINGLY PANIC BEHIND THE CURTAINS. THE COMPETING CURRENCY WAR INVOLVES CAREFUL MANEUVERING OF FOREX RESERVES LIKE ARMIES IN A WAR THEATER. IN THIS WAR, NOBODY WINS EXCEPT THOSE WHO INVEST IN GOLD & SILVER. $$$

A well connected contact from the banking world with intimate familiarity with many background events offered an opinion last week in response to the rapid rise in turmoil. He is privy to numerous activities of hidden variety. In recent weeks his tone has changed, to indicate a profound perception of the United States having entered a dark chapter with almost no chance of recuperation. He mentions how executives in foreign lands are bracing to protect themselves from a certain US shock wave, as many regard the US as a rogue nation. Many foreign corporate heads consider the US even a failed state. He has cited several stages of deterioration leading to a certain collapse. Public awareness seems to be growing that the US has no structural mechanisms to treat or remedy its flaws and fractures. The nation is strangled by its large banks. The political apparatus is totally broken. Its imbalances worsen by the month. The fraud persists in many corners without restraint. He wrote, "If I would tell you what is next, then I would take the fun out of it for all of you. The Boyz are not as powerful as you think they are. They have lost control. That does not mean that they will go quietly. I reckon we shall see an extreme event in the Persian Gulf sooner or later. They cannot hide any longer since they set all on fire. The great cleansing is only at its infant stage. There will be order in all the chaos. The system already has broken down. Power does not come with weapons. Real power is shown when people do not want to find out how powerful you are, and your power need not be used. The moment power is used, it is lost. This is poorly understood and this is why nations fall. The Roman and US empires are prime examples. It is about purchasing power, not the price of Gold in US$ terms. The purchasing power of Gold is the same whereas the fiat currency tanks.

The guys trying to escape through the back door are all getting shot. It is incredible to see these arrogant bankers break down in visible ways, as they realize that things are coming apart. The Boyz, who thought they had things well planned and engineered, are getting buried by the avalanche they did not see coming. The real crash will come this autumn. By June next year many extreme pivital events will have occurred. The current USofA is now a failed nation which is not understood by most people. There is enough backbone and will power left in the majority of the American people to pick up the pieces to at least get their lives back. The country is already foreign owned. What a great opportunity if you know where the hard, self re-pricing assets are to be found.

Germany's new Bundesbank leader and minister of finance have slammed the brakes. It is game over. The chancellor is isolated and will be without any power within two to four weeks. Enough is enough. The hammer dropped. They are ready to let things crash and burn in order to rebuild the Day After. Lastly, with respect to the fast moving precious metals prices in reaction to the USGovt dysfunction and US-led global recession. There is a disconnect now. Investment grade Gold is already selling at a 25% premium to spot prices, and Silver is not far behind. The listed paper prices are all bullshit. It is showtime, bigtime." Read that last item clearly. Gold is already at $2000/oz, and Silver near $50/oz in the real world where metal changes hands.

By the way, an American subscriber living in Argentina reports that a coin dealer is charging 32% premium over the spot gold price last week. His sister just sold a 50 peso Mexican gold coin (37.5 grams) for $2800, which translates into about US$2320 per oz. That is a hefty premium. More reports across the land would surely confirm. The COMEX price discovery is increasingly irrelevant, as a grand divergence is in progress between paper gold and physical gold. Soon it will be shut down, or become a Cash & Carry operation without any metal in inventory. To purchase gold under $2000 per ounce might already be a thing of the past.

Putin of Russia not only perceives the United States as a failed nation, but a global parasite. This leader backs down to nobody and faces his accusers directly. A few weeks ago he called Chairman Bernanke a hooligan, and heard no response. Before a Kremlin youth group full of impressionable kids, he spoke from the minds of the silent global majority. He said, "The Americans are living beyond their means and shifting a part of the weight of their problems to the world economy. They are living like parasites off the global economy and their monopoly of the dollar." He gave feint praise to the USGovt leaders for acting in the final hour to raise the debt limit. In the past couple years, Russia has been diversifying away from the USDollar toward other more valid reserve currencies. See the Zero Hedge article (CLICK HERE).

◄$$$ FOCUS HAS PROPERLY COME TO THE USGOVT ON POLARIZATION AND INEPTITUDE IN ITS POLITICAL APPARATUS. THE PERCEPTION WIDENS AND CRYSTALLIZES FOR ITS DYSFUNCTION. THAT THE USFED IS BROKEN, HELPLESS, AND OPERATING A CONSOLE WHERE NONE OF THE BUTTONS WORK AS THEY DID IN PAST DECADES. THE FAILED SYSTEM EXTENDS FROM A FAILED USFED. $$$

The USFed is not pushing on a string. Rather the string has turned into a lit fuse. A global gold war is played out among central banks in reserves and associated sovereign wealth funds. Their management involves careful tactics and long range strategy, much any war setting. Deep losses occur, just like with committed troops. Gambits like with currency intervention can backfire, as in poorly crafted attacks. Lack of policy options has hit the Western central bankers hard. The strong USDollar policy killed US industry, by making the finance sector the engine of wealth instead of industry, removing it from the designed role of capital formation facilitator. The damage is permanent from the arrogant misdirected priority of the 1990 decade. The backswing damage is much like a pendulum axe, used in horror films. It cuts both ways.

The weak USDollar policy introduced a cost squeeze, lifting the entire table and thus inflicting heavy damage to the business sector and household communities, a process which will continue until systemic failure in a reverse pendulum swing. The absence of workable policy options shows a USFed listing and derelict in the sea of liquidity it created. They can no longer encourage a housing & mortgage bubble with low interest rates, the mechanism broken. But they cannot tighten on rates or banks either, limited by debt burden. They should not continue with 0% official rate, but no exit strategy presents itself. They must continue Quantitative Easing with its cancerous debt monetization (aka hyper monetary inflation) even though it will eventually kill the USEconomy. The Competing Currency War has ratcheted up a notch every two to three months. It will ruin all nations until they decide and implement a legitimate gold-backed currency, even one supported by a commodity basket that includes gold. No winners emerge from this war. The great risk is for the war to turn hot, and enlist the militaries, motivated to cancel debt the old fashioned way and to redraw the global map with a torch. See the Zero Hedge article (CLICK HERE).

The US leadership at the Titantic Helm set this most recent ruinous course in motion with the debt & budget debate. It is seen more as incompetent and broken than corrupt. The contagion in Europe of toxic debt to Italy and Spain created an unfavorable and unforgiving environment. The impasse with the USCongress and pact to make a future pact in resolutions reveals a whiff on Greece in the United States, no will to face its problems. The creation of the Super Committee smells of an American Politburo deeply divided by design, which will accomplish little except to present a microcosm more easily observed. The tragic fact is that nothing has been fixed since October 2008, despite all the supposed solutions. Actually, no solutions have been attempted, since the Too Big To Fail mantra is an admission to avoid the groundwork basis of a solution. All the USGovt and USFed did was to print a lot of money, give most of it to the bankers, and watch Main Street wither and burn. Pardon my imagery of burning, given that London is actually burning.

The USFed is trapped, finished, and ruined, but worse, gradually recognized as such globally. The next few months will result in full exposure on the global stage their complete failure. They will be forced to choose between two routes that lead to the same place, systemic failure. They can choose hyper-inflation with the perverse appearance of some growth, or galloping economic collapse with no semblance of anything fruitful. As Charles Hugh Smith said, "The world now knows that running the electronic printing press only saves the big banks, and protects the banksters bonuses. Joe and Jane Six Pac are not on the list." Efforts do not push money into the USEconomy. Therefore, the USFed will push money into the stock market (for access by households) and into the USTBond market (for access by big banks). Thus the lit fuse analogy to replace the popular one of pushing on a string. The natives are very restless in England. The rank & file in the United States will begin to erupt before next year turns on the calendar. The USFed is operating a console where no buttons work as desired, none. Its helplessness is evident in public messages. They should next discuss their insolvency, tied to a wrecked balance sheet unlikely to be resuscitated. See a very realistic assessment on Of Two Minds (CLICK HERE).

◄$$$ ACKNOWLEDGMENT OF FRAUD WITHIN THE SYSTEM IS OCCURRING. THE ECONOMIC ELITE DO NOT WANT TO HEAR THE CHARGE AND ACCUSATION. IT IS ENDEMIC, OBVIOUS, AND A VISIBLE BADGE OF SHAME. MAJOR WESTERN BANK STOCKS ARE BEING CRUCIFIED. UNCONTROLLED WAR, UNCONTROLLED BOND FRAUD, AND UNWILLINGNESS TO CONDUCT MEANINGFUL REFORMS LIE AT THE ROOT OF SYSTEMIC FAILURE. $$$

At a recent Institute for New Economic Thinking conference, economist James Galbraith confronted the bank fraud issue. During a panel discussion on the financial crisis, not one mention was made of fraud. So he pointed a finger with an interruption to the conference. More surprising was the absent response to his sharp but brief diatribe. He stunned the crowd by saying, "This fraud is the diagnosis of an irreversible disease. The corruption and collapse of the rule of law, in the financial sphere, is basically irreparable. It is not just that restoring trust takes a long time. It is that under the new technological order in this field, the restoration of trust cannot be done. The technologies are designed to sow and foster distrust and that is the consequence of using them. The recent experience proves this, it seems to me. And therefore there can be no return to the way things were before. In other words, we are at the end of the illusion of a market place in the financial sphere." Bold words. He should expect to be refused on all federal grants. Without identifying it, he describes a cloud brought by the Fascist Business Model. See the Naked Capitalism article (CLICK HERE) and the Bloomberg article (CLICK HERE) on the same theme.

The Cafe Americain has made an excellent editorial on the root causes of the severe systemic breakdown. Jesse pointed to some long-term issues with Social Security and Medicare, each of which forces a tax strangle. Neither raises the income limit in response to the gradual creep of inflation. The Means Testing plan treats them like entitlements rather than an insurance trust, to be distributed uniformly to all participants. Medicare alone has driven costs to obscene levels. The system stays in place partly due to the powerful lobbying force of Big Pharma. The repeal of Glass-Steagall Law and the growth of unregulated financial products was done with grease from the banking industry. They spent hundreds of $millions. But root systemic ills are traced to the compromise of the regulatory agencies, the growth of corporate influence in WashingtonDC, and two unfunded costly wars of long duration with dubious origins, coupled with huge tax cuts for the wealthy. In the past few years, notice the near total absence of discussion, investigation, indictments, and convictions, during the largest financial frauds in history. The salt on the wounds was record level Wall Street bonuses within twelve months of the crisis peak. My perception is that bonuses were an F.U. to the American people. Rational discussion and factual analysis have been overwhelmed by propaganda and slogans, a subservient press & media.

The result is a very dark US outlook where governance has failed, the system has been corrupted, and no solutions can gain traction. All political parties, the media, and the business leadership are caught in a credibility trap. That includes both financial and other corporations, as seen in off-shore expansion plans. Jesse identifies the angel of economic death as Alan Greenspan, a man without shame or honor, one of the great authors of the misrepresentations and mismanagement that led US into the financial crisis. He will go down in history as the apologist for ruin in the 1990 and 2000 decades. The ultimate issue is reform. The accuser believes the nation has suffered a financial coup d'etat coupled with a campaign of economic war against the common people. He believes the big US banks must be restrained and the financial system reformed, with balance restored to the USEconomy, before any sustained recovery can conceivably take place. See the Cafe Americain article (CLICK HERE).

◄$$$ POSSIBLE DISSENSION AND FRAGMENTATION HAS COME TO THE USFED. AN IMPORTANT RESIGNATION LEAVES CHAIRMAN BERNANKE WITHOUT A KEY GLOBAL ADVISOR. THREE KEY PEOPLE HAVE LEFT IN THE LAST YEAR. ONE MIGHT GUESS THE ISSUE ARGUED OVER IS THE GLOBAL EFFECT OF THEIR DESPERATE HYPER INFLATIONARY POLICY AND ABSENT EXIT STRATEGY. $$$

The USFed is increasingly a derelict vessel with a simple rudder applied, the dispensation of almost free money for an indefinite period. Expect the discredited central bank to continue the debt monetization but in more hidden fashion. Its chief international economic adviser announced his resignation after almost four years, a move that will leave the rusted leaky hull of an institution without a veteran voice at foreign ports. As division director since September 2007, Nathan Sheets led a staff of about 120 people. He has departed, the decision made known on the day before the formal FOMC meeting on August 9th. He served as the former director of the international finance division at the USFed also. Perhaps he left after a rift on the global impact of the USFed debt monetization programs, or over their continuation in secrecy that would perpetuate the damage. Just conjecture. Three of Bernanke's top staff advisers have resigned their positions in the last 13 months. Brian Madigan, former director of the Division of Monetary Affairs, retired last year. David Stockton, director of the Division of Research & Statistics, announced in May his retirement at the end of September. The USFed is in turmoil, without effective policy options, faking its vigor in ability to respond to the deep crisis of insolvency. The USFed never cites the primary national problem and illness, insolvency. Liquidity cannot treat insolvency, only industry can. The condition even plagues the USFed itself, whose balance is worth at least minus $1 trillion, going deeper negative as each month registers another housing market decline. See the Bloomberg article (CLICK HERE).

◄$$$ VIEW OF THE BUST FROM CHINA. THEY OBSERVE HOW AUSTERITY ON THE USGOVT BUDGET WILL WORK TO MAKE THE RECESSION WORSE INSIDE THE USECONOMY. CHINA IS PRESSURED FURTHER TO DIVERSIFY OUT OF US$-BASED ASSETS. RESENTMENT HAS GROWN INSIDE CHINA FOR EMBRACE OF THE UNITED STATES AS TRADE PARTNER, DUE TO THE PAYMENT REMIFICATIONS THAT INFECTED THEIR FINANCIAL SYSTEM. CHINESE MONETARY POLICY HAS BEEN EXTREMELY LIBERAL ALSO, RESULTING IN WIDESPREAD PRICE INFLATION AND VOLATILE ASSET VALUATIONS. $$$

The US credit rating downgrade, the realization of the USEconomy faltering, the contagion to global economy and financial markets, have had an effect on China. The benchmark Shanghai Composite Index saw shipbuilding and textile manufacturing lead the decline with more than 70 stocks falling the daily trading limit of 10% on one ugly day. Ma Jun is chief economist for China with Deutsche Bank. He said, "The US downgrade has added to uncertainties, putting pressure on the capital markets. The first reaction of investors was to dump the risk assets before they could fully digest the impact of it. The sentiment is likely to spread from the stock market to the real economy. The US and Europe have been trapped in a vicious circle. If fiscal spending is tightened, it will lead to a slowdown in the economy. But if they do not tighten, fears of potential default will cause turbulence in the financial markets, which will eventually spread to the real economy." He captured the essence of the dilemma without options. This is the center of the austerity plan conundrum, the Poison Pill mentioned by the Jackass on numerous occasions.

Economists said that the USGovt downgrade has substantially shaken investor belief in the USDollar globally and USTreasury bonds as a risk-free investment option. It has motivated holders of bonds within China to diversify out of US$-based assets. China has nearly $3.2 trillion worth of foreign exchange reserves, with about 70% in US$-denominated assets. Pressures abound for China to re-allocate its huge foreign exchange reserves. China should end its dependency on the USDollar by halting any further accumulation of foreign exchange reserves, urged Yu Yongding, a former adviser to the Peoples Bank of China. He wants to see the Chinese Yuan exchange rate setting to be decided by free market forces as soon as possible. The Chinese economy still faces high risks from inflation, massive local government debt, spiraling property prices, and vulnerable export industries. Their domestic analysts regard as unlikely the launch of another stimulus package like that in 2008, valued at 4 trillion Yuan (=US$621 billion), to address the global financial crisis from their corner of the world. Instead, big broad debt refinance aid mechanisms are likely to be the norm, like the $500 billion plan announced this spring. See the China Daily article (CLICK HERE).

Resentment has come full circle. The deep financial turmoil is seen as originating from US soil by the Chinese. But the population of their nation increasingly sees part of the problem being the Chinese Govt embracing the US partner, sending it finished goods, accepting US$ assets as payment, directing those assets into their banking system, and filling their sovereign wealth funds with risky assets. Many people in China are angry. Internet sites in China have lit up recently with criticism, as the Beijing management of foreign reserves has hit a nerve. Their national ambitions are seen as being stifled by government policy that still continues to embrace the toxic US$ assets. They feel themselves as victim in fallout from the USGovt debt downgrade, but actually the effect is coupled with the realization that the USEconomy has entered a deeper recession. One webblogger wrote on Sina Weibo, "China is always bowing to the United States. When will China really rise up and cast aside its constant fear of the United States reactions?" Many Internet postings ran a nationalist theme, questioning whether the government had acted in China's best interests by investing about half of the country's $3.2 trillion worth of foreign reserves in USTreasury securities. The proportion is regarded as unique among nations. Five years ago, such open criticism would have been censored. Times have changed.

Chinese monetary policy has shown both contrasting differences and common actions. The Peoples Bank of China has expanded the money supply. The broad M2 money measure has soared in China by 64.3% since the start of 2009, much faster than the 10.4% of M2 in the United States during that period. They have reacted to their own turmoil in various sectors, the stocks, the property, and the banks. The expanding money supply has produced rapid inflation in housing prices, volatility in stock market share prices, as well as consumer goods and services prices. In July the Chinese CPI was up 6.5% from a year earlier, according to the National Bureau of Statistics in Beijing. Another central bank policy faces objections. The state controlled commercial banks must lend back much of their deposits to the central bank instead of businesses. Chinese commercial banks must now deposit more than 20% of their assets at the central bank, earning virtually no interest. The effect is to crimp business growth, but the policy might be sound unless such funds could serve within the bank s as loan loss reserves. China seems to duplicate the central bank harness of excess reserves practice. See the New York Times article (CLICK HERE).

◄$$$ A CLIMAX FAILURE TIED TO THE FLOURISHED FASCIST BUSINESS MODEL IS UNDERWAY. THE ESSENTIAL RULES OF TYRANNY AND FASCISM ARE FIRMLY IN PLACE. THEY SHOULD BE FAMILIAR, BUT A DELUSION PERSISTS THAT PAST HORRORS CANNOT BE REPEATED. $$$

Despotic governments and Big Brother societies require a firm foundation of political, financial, and cultural factors. They begin with trust of the authorities, officials, and leaders to protect the liberties and rights of the people. For totalitarianism to persist, the masses must not only neglect their plight but also remain ignorant of threats to their personal safety, and uninformed of national events through propaganda. They must perversely abandon responsibility for their destinies, and lose all respect for their own humanity. In the process, the most vivid descriptions have been made of domesticated herd animals with little regard for anything except their natural instincts & desires, need for entertainment, and basic survival. The prevalent apathy and ignorance sets the stage for the slow and highly deliberate process of centralization. When dishonest governments accomplish an atmosphere of inaction and condition a sense of frailty within the citizenry, coupled by unprosecuted criminal activity, the stage is set for the fascist state to flourish. Its achievement can exceed limits beyond even what the most aware expect. The advance of the Fascist Business Model since year 2000, wherein large corporations took control of the USGovt, worked to establish deep partnerships, and controlled the federal purse strings, has led directly into a fascist government as direct consequence, hardly by chance. The brutal chapter has begun to show itself. Compare to the 1930 Europe, with a common factor the same banking syndicate at work. But this is beyond the scope of this newsletter. See the Alt Market article (CLICK HERE). Blame war, defense contractors, bankers, economists, universities, and press/media as responsible for the embrace of fascism that has wrought the systemic failure in progress. It is not stoppable.

The USTBonds and UKGilts will most assuredly continue their rallies toward 2.0%, proof positive of a broken manipulated controlled market having no bearing on reality. Imagine price inflation near 10% but prevailing long-term rates closer to 0%. That reality extends from an historically unprecedented flood of debt securities supply, rampant price inflation, strained auctions, and heavy reliance upon the USFed for the last resort bid. The Interest Rate Swap is the leveraged device to maintain the grand mismatch and divergence. The entire world has been watching the US central bank print money, buy debt, and avert the disaster of failed auctions that has plagued other major industrialized nations lacking the luxury of counterfeit money operations. A strong ugly rub has hit the UKEconomy and European Economy. Their central banks print money to cover their deficits, to redeem toxic sovereign debt as last resort, and to stimulate their swooning economies. The end result in stronger price inflation in the United Kingdom and European Union. They cannot pawn off their newly hatched debt to China and other export nations that accumulate toxic paper like the United States does in high-pitched volume.

USGOVT DEBT DOWNGRADE IMPACT

◄$$$ THE NEW USGOVT DEBT DEAL ACCOMPLISHED NOTHING EXCEPT TO LIFT THE DEBT LIMIT. THE FAILED NEGOTIATIONS REVEALED A BROKEN POLITICAL PROCESS, ABSENCE OF LEADERSHIP, AND A NATION ADRIFT AT THE HELM. THE HIGHLY VISIBLE USGOVT CLUMSY ACTIONS TRIGGERED A PROFOUND LOSS OF CONFIDENCE IN A SYSTEM WHOSE FABRIC IS CONFIDENCE. WATCH THE SUPER COMMITTEE (US-POLITBURO) SERVE AS A POLARIZATION SITE. $$$

The USGovt debt pact was an embarrassment, a challenge to the outside system to respond. It did, with both the Standard & Poors downgrade and a powerful global financial market selloff. The USCongress rewarded itself with an August vacation. They essentially agreed to make difficult decisions later on, and to create a Super Committee that will make recommendations to the USCongress for passage of legislation. Given the makeup of the Politburo-like council (the word soviet in Russian means council), expect a microcosm in polarized concentration, designed seemingly to be split. The pact lifted the debt limit and nothing else. That was my private forecast, to avert a disaster and accomplish nothing on the deficit, basically to apply a patch that buys some time, which is all they know. In no way was enough time bought to reach past the Nov 2012 election, which means Obama lost his gambit. The new USGovt debt limit is only $400 billion higher, a piddling increase actually, and a strong signal that the great debate and standoff will resume in a couple months. No agreement was made on closing tax loopholes or eliminating the subsidies to the wealthy in the so-called Bush tax cuts. No agreement was made on limiting Social Security and Medicare.

My personal view is to preserve SS since so many younger people, including boomers (me too), contributed for decades into the fund. But my desire for years has been to phase back significantly the Medicare which is bankrupting the nation. It enables questionable medical procedures, some of which merely relieve liability pressures. It enables tremendous doctor fraud which has ramped up to shocking levels. The pact did nothing but to promise to form a commission that must make difficult decisions right smack dab in the middle of the 2012 presidential primaries, which distractions are enormous. That should cause a nightmare disruption, and a big bone to fight over constantly. The conflict will make great theater, but expose the nation as a carnival platform with too many barkers.

◄$$$ THE USGOVT DEBT LIMIT WAS LIFTED BY ONLY $400 BILLION, WHICH WAS 60% USED UP ON THE NEXT DAY AFTER THE PACT WAS REACHED. EXPECT THE NEW DEBT LIMIT TO BE REACHED BY SEPTEMBER, CAUSING A REVISIT TO CONTROVERSY. A VERITABLE STORM OF DEBT USUALLY HITS IN THE LAST THREE MONTHS OF THE CALENDAR YEAR, LIKE A COOL $1 TRILLION. ITS ARRIVAL WILL BLOW APART ALL INTEGRITY FOR USTREASURYS. $$$

To emphasize the futility of the USGovt new debt limit, on the very next day national debt rose enough to consume 60% of additional $400 billion allowed. The Washington Times reported that spending shot up $239 billion on Tuesday August 2nd, the largest single day increase in US history, reflected expenses eager to go onto the books. The national debt will soon eclipse the Gross Domestic Product, especially since the USEconomy is moving into reverse, a recession. After the USCongress and the President agreed to raise the debt ceiling, the USGovt debt rose to reach $14.532 trillion. A tremendous backlog had been created, as spending awaited permission. Also, many funds like the G-Fund of federal pensions had to be replaced after significant borrowing, better described as raids. With a couple more months of standard flow of federal red ink, joined by ample war spending, the sudden increase will put the USGovt alarmingly close to the new debt limit of $14.694 trillion very quickly. The sudden burst of spending, including the backlog satisfaction, received zero press coverage. The New American paints a gloomy picture. They wrote, "Citing the Economic Collapse website, the New American has also reported that the national debt cannot be paid off because it exceeds the value of all assets in the United States. Beyond the $14.5 trillion national debt, American taxpayers face even more trouble as the nation's population ages. According to the debt clock, the United States must reckon a way to pay for nearly $115 trillion in unfunded liabilities. That liability for Social Security is $15.2 trillion, and for the prescription drug benefit $20 trillion. The unfunded liability for Medicare is $79.7 trillion." See the New American article (CLICK HERE).

The USDept Treasury should arrive at the newly defined debt ceiling by the end of September. As the latest DTS statement indicates, the debt ceiling now is $14.694 trillion. The $400 billion additional ceiling is in no way sufficient to cover the catch-up in funding for the Social Security and the raided governmental trust funds. Factor in a bigger concern that tax revenue is set to plunge from the imminent double dip recession. More pathetic theater will come in September, with citizens wondering about the sanity of leadership and futility of decisions. See the Zero Hedge article (CLICK HERE). But the real drama will come this autumn in the last three months.

The debt woes will reach a loud stormy climax by December. The USGovt commits to large spending in the third and fourth fiscal quarters, from April through September. They make large payments in the first fiscal quarter, which falls on the standard calendar as Q4. A raft of expenses are usually pushed into next budget year that begins in October. In fact, expect the USGovt debt to exceed $16 trillion by the end of calendar year 2011, just five months away. That is well over $1 trillion higher than the current limit. Huge controversy will come. The USGovt added $1 trillion in calendar 4Q2010 last year, and they will again in 4Q2011 this year. Expect at least $200 billion in August and September before the mammoth typical Q4 arrives. The amount being pushed forward has grown significantly year by year. They want to avoid like an open wound any admission of how large the deficit really is, as they kick the can down the road. It bears repeating. Expect the USGovt total debt to reach a whopping $16 trillion by yearend, causing great controversy and global objections. The investment community and financial press networks will be taken off guard and shocked, but not Hat Trick Letter subscribers. The USGovt might default from inability to lift limit regularly, due to a crippled polarized political process.

◄$$$ USGOVT BUDGET PUT INTO PERSPECTIVE, MOVED FROM MACROCOSM TO MICROCOSM, LIKE A REGULAR FAMILY HOUSEHOLD. THE ABSURDITY AND BROKENNESS BECOMES MORE EVIDENT. THIS IS UGLY AND AINT FIXABLE. $$$

Catherine Austin Fitts of Solari puts the Jones family in perspective. As baseline recall the wretched fundamental data for the USGovt. Take the 2011 federal budget details. A vast welfare state and war machine has been built, complete with funnels to Wall Street banks, all of which will be extremely difficult to dismantle. The data was compiled right when the new debt limit agreement was made, without loss of the argumentative point made.

  • National total debt: $14.271 trillion
  • USGovt tax income: $2170 billion
  • Federal budget: $3820 billion
  • New incremental debt: $1650 billion
  • Recent budget cut: $38.5 billion (a mere 3/4 of 1% of the budget)

Maintain the same ratios but put the numbers into a Jones family perspective. The process removes several zeros and exposes the absurdity of the situation. The Jones household finances look ridiculous, unmanageable, and assured to break down totally.

  • Outstanding credit card balance: $142,710
  • Total annual family income: $21,700
  • Amount of annual spending: $38,200
  • Additional new debt to credit card each year: $16,500
  • Cuts from the budget for next year: $385 (mere spit in the bucket)

Fitts adds several qualitative slams to the analogy. Although broken and wretched, the Jones family financial data is not reliable, since they refused the legally required audits for 15 years running. Credit continues despite no proper disclosure. The bank accounts have not been shown in balance. A $40 thousand item to bankers is mysteriously not included, without a good banker explantion where it went, nor plan to search for it. The home mortgage has collateral fraud involved in the loan. In fact, the debt against their home might be multiples higher. It seems the Jones pension plan has some toxic mortgage bonds tied to other homes in town. Perversely, the Jones were coerced into making gifts and grants to their banks for $270 thousand to prevent a collapse of their credit altogether, followed by forced liquidation, the source of funds for the payoff unknown. The purchasing power of the Jones savings and income dropped by half from 2003 to 2008, an erosion that has actually accelerated in the last three years. The Jones family must cut back and tighten their spending, but they also need to prosecute their bank for theft and extortion. See the Solari article (CLICK HERE).

A great practical idea was offered by fixed income analyst John Poehling. Cut 15% of the federal USGovt workforce among its armada of bureaucracies and agencies, a move to generate $115 billion in annual savings. That would provide the desired $1.15 trillion in required cuts to break the political stalemate. The idea has come of age. Then cut the USMilitary in half, along with half the US security agencies for even more savings. Both the origin of terrorism would be reduced, and the enforcement of aggression. Not one single plan to reduce spending has been seriously tabled. The entire USCongress should be fired, using a national referendum.

◄$$$ THE USGOVT DEBT WAS CUT BY STANDARD & POORS FROM AAA TO AA+. IT WILL BE DIFFICULT TO FORESEE FALLOUT, AS TOTALLY NEW UNCHARTED WATERS HAVE BEEN ENTERED. GLOBAL REACTION IS UNCERTAIN. DOMESTIC REACTION IS UNCERTAIN. UNDOUBTEDLY THE MOVE MARKS THE BEGINNING OF AN ACCELERATED DOWN PHASE SPIRALING INTO THE ABYSS. THE ACTUAL BORROWING COSTS HAVE REDUCED. HEAVY RELIANCE UPON INTEREST RATE SWAPS STARTED THE PERVERSE USTBOND RALLY. WATCH THE NEXT STAGE OF CONTAGION HIT ITALY, FRANCE, LONDON, AND NEW YORK, AS GERMANY FILES LOUD OBJECTIONS AND FORCES A GRAND RIFT WITH THE EURO CENTRAL BANK. THE SPREAD OF CONTAGION CANNOT BE AVOIDED. A WILD CARD IS ATTENTION GIVEN TO THE FRAUDULENT F.A.S.B. ACCOUNTING RULES THAT CONCEAL THE GROTESQUE US-BANK INSOLVENCY. $$$

The USGovt had its AAA credit rating downgraded for the first time in history (since 1941) by Standard & Poors. The debt rating agency expressed strong concern that the federal budget and debt limit agreement exposed a serious flaw in the entire process. They stressed the process more than the wretched fundamentals curiously. Spending cuts will be inadequate to reduce record deficits. S&P lowered the rating one level to AA+, after giving stern warning on July 14th. The agency put the USGovt on notice on April 18th of risk to lose its sterling debt rating unless lawmakers agreed on a plan by 2013 to reduce budget deficits and to bring the national debt under control. They clearly were looking for a credible plan to lower deficits in a meaningful way, even if the $14.3 trillion debt limit was increased. Within the downgrade, S&P kept the outlook at negative, an important decision since yet more downgrades can follow. The new limit will be reached in under two months. The last three months of the calendar year will feature another $1 trillion in added debt. The entire quagmire will be revisited very soon, resulting in possibly another debt downgrade and more shocks. The S&P statement said, "The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics." Succinct, critical, to the point, as the US has not remotely put its fiscal house in order. Although USTreasury yields did not worsen, the action could still render damage to the USEconomy in time by increasing borrowing costs to the less privileged. The initial reaction was that mortgage rates have fallen though. JPMorgan Chase estimated that a downgrade would raise the borrowing costs nationwide by $100 billion a year. The bank cited how an increase in USTreasury yields of 50 basis points would reduce USEconomic growth by about 0.4%, using USFed data. The United States spent $414 billion on interest expense in fiscal 2010, or 2.7% of gross domestic product, according to USDept Treasury data.

Although Moodys Investors Service and Fitch Ratings affirmed their AAA credit ratings on August 2nd, and repeated them in the S&P aftermath, the other two agencies threatened that downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weakens. A weaker USEconomy assures much worse federal deficits to be financed. The accord struck between the President and USCongress promises to make automatic spending cuts to enforce $2.4 trillion in spending reductions over the next 10 years. The bond market reaction has been full of misplaced confidence, clever deception, bravado, and some mystery. Some regard the falling USTreasury yields, like toward 2.15% on the 10-year maturity, as proof that investors dismiss and reject the S&P decision on risk assessment. Others believe the bond yields remain low in the face of a downgrade because no other alternatives are presented as safe haven assets. Mainly sell-side analysts from the Wall Street houses, from asset management firms, and from hedge funds share such sentiment. In any event, the USDollar and USTreasury Bond are losing its appeal as prestige has eroded. The committee of bond dealers and investors that advises the USDept Treasury reported that the USDollar status as the global reserve currency is clearly slipping. The Treasury Borrowing Advisory Committee provided quarterly feedback data to the USGovt on August 3rd. The portion of US currency in global currency reserve systems dropped to 60.7% in the period ended March 31st, from a peak of 72.7% in 2001, from Intl Monetary Fund data. A comment was given in insult, "The idea of a reserve currency is that it is built on strength, not typically that it is best among poor choices. The fact that there are not currently viable alternatives to the US dollar is a hollow victory and perhaps portends a deteriorating fate." One is reminded of the Reverse Beauty Pageant description of voting for the least ugly damsel on the FOREX stage. See the Bloomberg article (CLICK HERE).

Vested interests abound. Not only does the USEconomy require easy borrowing costs, but the USGovt does as well with equal urgency. A third player is significant, one that wields even more power, the US Federal Reserve. They already are great beneficiary to the falling long-term USTreasury yield. They own a mountain of USTBonds, along with truckloads of toxic mortgage bonds. They are all rising in value, not a huge percentage, but when considering the $2.5 trillion balance sheet, the amount in benefit is not small. Analysts have determined that the USFed mortgage bond benefit can produce well over $25 billion in extra cash flow each month. SO THE MOTIVE IS CLEAR FOR THE WALL STREET MECHANICS, THE TREASURY DEPARTMENT MAESTROS, AND THE USFED WIZARDS TO ORDER HEAVY USAGE OF INTEREST RATE SWAPS IN ORDER TO START A DOWNWARD TREND IN LONG-TERM USTBONDS THAT THE INVESTMENT COMMUNITY WOULD FOLLOW. They did, and the people did follow like sheep running over the cliff in easily predictable fashion. The goal is to create a false environment whereby the danger of a USTBond market breakdown from asset bubble condition can be averted. They mainly accomplish a delay however, since the lower bond yield and higher principal value only create a greater potential for damage when the collapse occurs. Some mild mockery and tendered criticism has come to Bill Gross of PIMCO and Nadeem Taleb (black swan author) for their recent disdain for USTreasurys in rally mode. The call has been that they missed out on extended gains. My firm belief is that both men are keenly aware that Interest Rate Swaps are too heavily relied upon to achieve the gains, more machinations of the dangerous kind. They stepped aside.

The irony is thick, regardless of bond market gaming. Standard and Poors was sharply criticized by the USCongress several times over the past two years for not monitoring Lehman Brothers and Bear Stearns closely enough. The entire investment community, even globally, has been critical of the entire group of debt rating agencies for giving AAA ratings to a raft of toxic bonds, including subprime mortgage bonds, most of which ended up worthless or deeply impaired on value. The USFed is the proud owner of much of the toxic paper swill. The ironic turn is that now the same S&P agency is criticized by the USCongress for doing its job properly. The fact that the other two rating agencies, Moodys and Fitch, did not downgrade the USGovt debt has surely reduced some of the sting. Yet the effect has been powerful, not on the USTreasury Bond complex but on the US Stock market itself, which must contend with recession threats. The continuation of debt downgrades to the Govt Sponsored Enterprises has added salt to the wounds. More downgrades are to come, like to Bank of America for instance, which would open the door to more realistic assessment of the big US bank balance sheets. My hope is that attention returns to the fraudulent accounting rules that are permitted. If S&P, Moodys, and Fitch cite the criminal FASB accounting rules, or if the fraud is highlighted by opponent factions in the midst of a USDollar revolt, then a tsunami will  hit the US bond market. The FASB rules are a highly charged wild card, since the rules lie at the center of the US banking system insolvency. The big US banks are zombies further emaciated in the last six months. Their situation grows worse with the passage of time, the continued US housing bear market, and the parade of bond investor lawsuits.

The next phase of the focused drama will be central bank support for sovereign bonds generally across the Western world. At this moment the USFed does not need to extend a hand to add to USTreasury Bond bids. The panic strewn US Stock market is accomplishing well that task. In the last couple Hat Trick Letters, a warning was given that the vested interest of the USFed and Wall Street tagteam was ripe to engineer a stock rout that would benefit USTreasurys. It happened in spades, worse than the Jackass imagined. Next watch the Euro Central Bank, which has commited EUR 850 billion to support the Italian and Spanish Govt bonds. The action has triggeed a rift between the EuroCB and the Bundesbank of Germany, a episode not yet well publicized. Not much attention has been given the rift, hardly a new one, but it will grow. In my view, induced by a German banker contact, the German bankers and their people are ready to wash their hands and end support for Southern Europe altogether. They want to cast them adrift into the Mediterranean Sea, to fend for themselves, to end the outsized PIGS welfare that has cost over $3 trillion in German savings since 2000.

The world is staring at the next stage of contagion, the next part of the global financial bust. It went from Bear Stearns and Lehman Brothers in the United States, to Royal Bank of Scotland in England, to Dubai World in the Persian Gulf, to Greece and Portugal and Ireland in Europe. The Southern Europe rim is bracing itself for contagion to reach the larger nations of Italy and Spain, which will happen despite any massive aid by the EuroCB. Big European banks and London banks are heavily and dangerously exposed, the big red flag. If anything was learned in the Greek chapter, it is that central bank aid is mere patchwork that buys only a little time. The next powerful stages for the contagion will be the splash onto the United States and London banking centers. Watch the weak links of Bank of America in the US, watch Barclays in London, watch Societe General in France, watch Unicredit in Italy, watch the Cajas of Spain. They will all fall.

◄$$$ STANDARD & POORS CONTINUED THE RATING PRESSURE, ON THE PATH TO CALL TOXIC BONDS JUNK. THEY DOWNGRADED FANNIE MAE & FREDDIE MAC WITH JUSTICE SERVED. THEY ALSO DOWNGRADED THOUSANDS OF MUNICIPAL BONDS. PERHAPS AMERICAN INTL GROUP IS NEXT. ALL NATIONALIZED CESSPOOLS AND BLACK  HOLES MUST BE DOWNGRADED, IN FAIRNESS AND EQUITABLE DISTRIBUTION OF LABELS. CONSIDER THE BUSH FAMILY TWIST FROM MCGRAW HILL. $$$

Standard & Poors carried out a powerful follow through. S&P lowered credit ratings on debt issued by Fannie Mae, Freddie Mac, and other related agency debt. Like the USGovt, the mortgage finance companies were lowered one grade from AAA to AA+ due to direct reliance on the USGovt. In my view, it is more like the USGovt is doubly at risk due to the cesspool that costs huge sums of money tossed into the vat. Since nationalization in September 2008, the two GSEs have sucked in $170 billion of federal cost coverage without audit. They own or guarantee more than half of US mortgage debt. After rising somewhat in bond yield, the GSE yields came down with the powerful wave of USTreasury Bond support, largely generated by Interest Rate Swaps and US Stock market plunges. The S&P credit rating agency took the opportunity to also downgrade the senior debt of 10 of the nation's 12 Federal Home Loan Banks, knocking them from AAA to AA+. The home loan banks sell bonds and provide liquidity like a mortgage industry wholesaler with implied USGovt guarantee to banks and mortgage investors. See the Bloomberg article (CLICK HERE).

Standard & Poors did not stop there. S&P downgraded thousands of municipal bonds in the ensuing days after the historic USGovt downgrade. They assigned AA+ scores to securities in the vast sprawling but crippled $2.9 trillion municipal bond market. The agency will later provide an estimated value of the affected debt, but for now it was not offered. A domino effect has begun. The USTreasurys will be able to shake off the adverse effects of the downgrade, but Muni Bonds will not. They lack the diversion of stock funds as a channel, the derivative leverage devices, the USFed monetization, and the counterfeit features. See the Zero Hedge article (CLICK HERE).

Two curious angles to mention. A mystery investor or hedge fund reportedly made a bet of $850 million at odds of 10/1 in July that the United States would lose its AAA credit rating. Hats off!! But rumors float that it was George Soros, acting on insider syndicate information, being an approved player. The big bet was made on July 21st on trades of 5370 contracts for the 10-year USTreasury futures and 3100 Treasury bond futures contracts, according to ETF Daily News. The payoff earned a 10-fold gain. See the UK Daily Mail article (CLICK HERE).

Move next to McGraw Hill, the publishing conglomerate and parent firm of Standard & Poors itself. The mystery thickens when one considers that the Bush family of Connecticut is rumored to be the controlling stock holder of McGraw Hill. A potential political motive to the downgrade might have taken place, ordered with a phone call. The resulting implicit takedown of Obama occurred, by whatever means. The US Senate investigation against S&P might go nowhere if the family makes more phone calls. The president's popularity is at rock bottom, with neither change nor leadership evident, and alarmingly little insight either. Keep a watchful eye on Jeb Bush, the former Florida governor, to see if he enters the presidential race suddenly. Better yet, watch for a candidate with close ties to the Bushes to leap forward with US press network support. Rick Perry from Texas is on my radar, although at one time he advocated Texas to take the Tenth Amendment independent route. Lastly, for those who wish to play against the gang that could not shoot straight on debt downgrades, but which might be returning to some degree of integrity, check the Moodys stock. These debt rating agencies are the object of some bond investor lawsuits that should score some direct hits. Also, the same agencies might have to contend with attacks from political leaders. My far flung expectation is that some might suffer sudden vandalism attacks, of course from deranged men working alone. The USGovt officials regard the downgrades as damaging to the nation. Expect nasty retalation. The Moodys stock (symbol: MCO) is already down hard, but it could fall more. All debt rating agencies might be destroyed by Wall Street as a malicious gesture and display of power.

◄$$$ THE USTREASURY BONDS HAVE OTHER GRAND RISK IN THE NATIONALIZED FAILED FIRMS AND THE USMILITARY, WITH THE SECURITY AGENCIES INCLUDED. THE MANAGEMENT OF THE USTBOND MARKET IS DONE WITH EXTREME POWER AND LEVERAGE WITH THE INTEREST RATE SWAPS. THE COST OF MONEY IS A MAJOR BROKEN MECHANISM TO THE FAILED SYSTEM. EXPECT IN FUTURE YEARS A SPINOFF OF THE MILITARY COMPLEX. $$$

The USGovt has ancillary risks of gigantic proportions, since it is responsible for the Fannie Mae cesspool and the American Intl Group black hole. The costs pour out of the federal till each quarter, hardly even given importance anymore. Indifference is the reaction, no longer news. But the commitment is huge, and it reflects horribly on USGovt financial fundamentals. Rather than causing debt downgrades of Fannie Mae and AIG, the unending commitment to their red ink assures that USGovt debt will be further downgraded, frequently and often. Carry the theme further. The plight of at least 30 insolvent states, led by California, Illinois, and New Jersey, should aggravate the USGovt credit worthiness. As the states implode, a certain event, the fallout will hit the federal backstop in WashingtonDC where almost no aid can be expected. Some stooges on Wall Street expect the USGovt to recover its AAA rating, but that will not happen. Conditions will degrade much worse, especially since the USEconomy has accelerated its recession. Federal deficits will rise further. The USGovt still has a huge advantage and distinction over other nations like the PIGS in that it prints its own money in intensive abuse, thus enabling very low borrowing costs. However, the United States as a nation puts itself at greater risk in several respects. Its short-term financing tendency places it at great risk for reversals, if and when foreigners overwhelm the USGovt in selling more than can be printed. Also, the image of the USGovt full faith is being eroded, corroded, and polluted by excessive abuse of the Printing Pre$$ to cover its debt obligations. If any other nation did so, it would be pilloried, then crucified. The USGovt also runs a great risk of credit derivative discovery. The Office of the Comptroller to the Currency published adequate information, but the global financial centers seem asleep at the wheel in adding up the data. The Interest Rate Swap device is being used overtime in order to neutralize the negative bond market effect. The $9.1 trillion addition by Morgan Stanley in 1Q2011 is a small example of what the Wall Street players can do to influence USTreasurys. They cause bond rallies, joined by the clueless public.

What remains is follow through by both Moodys and Fitch. The pressure is on, and it is intense to do the right thing. Recall that investor lawsuits are in progress. Furthermore, the USMilitary adds great exposure to the USGovt rancid credit worthiness, which someday might be mentioned by the debt agencies. Here is a reminder of my September 2008 forecast. Eventually the USMilitary will split off with the Defense Contractors and form a private arms producer and dealer. The vast narcotics monopoly would be another large business as subsidiary. A third would be mercenary business, centered upon Halliburton and Blackwater, which would specialize in important violent targets. A fourth business might have to be shut down in due time, when the US$-based system finally collapses. That is counterfeit of US$100 bills (stolen plates from USDept Treasury), USTBond counterfeit (sales in duplicate by JPMorgan), and Fannie Mae bond counterfeit (one reason for nationalization). For those who believe such operations are small, permit me to accuse unspeakable naivete and ignorance. No mention will be made here of the 20 different Fraud Role Programs conducted by the US and Bank of England, of which the Madoff Funds was but a small one. Precedent exists, as the Germany military machine became the infamous Odessa Corp after World War II ended. It still operates today. Only after an independent spinoff will the USMilitary pay for its own costs entirely. Current costs are almost all paid for by the defense budget, considered sacred and above scrutiny, adding to the USGovt deficits. The narcotics element stands as a wild card, which earns between $800 and $1200 billion per year in profit. The US security agencies, with some support from the Pentagon, looks acts and defends itself like a criminal syndicate organization replete with obscene profits. It will continue regardless of the fate of the nation.

 

◄$$$ CHINA HAS SCOLDED THE USGOVT OVER ADDICTION TO DEBT. THEY SUGGEST THE PRINTING OF USDOLLARS TO BE SUPERVISED INTERNATIONALLY. THEIR CONTENTION WAS REPEATED THAT A NEW GLOBAL RESERVE CURRENCY MIGHT BE NEEDED. CREDITOR RIGHTS ARE BEING FLOATED AS TRIAL BALLOONS. THE G-7 GROUP IS AGAIN BEING MOBILIZED. $$$

In the midst of the USGovt debt maelstrom, China has scolded the US over its addiction to debt. The official Xinhua news agency directly placed blame on the gigantic military expenditures and bloated welfare costs. They expect further downgrades unless the spending is curtailed. In rebuttal defense, other countries such as Australia, France, and Japan openly confirmed their faith in USGovt bonds. The leaders overseas have conflict of interest, since much USTBond support is to protect domestic currencies from rising further, which would harm their export trade. The Chinese Govt made a bold statement. Xinhua called for the printing of USDollars to be supervised internationally and repeated China's contention that a new global reserve currency might be needed. Neither suggestion is likely to happen, but it demonstrates the frustration and highlights the open revolt. China is worried about its reserves, the world's largest holder of US debt. The USEconomic slowdown will render damage to the Chinese Economy, still somewhat dependent on exports to the US. They urged the US leaders to stop letting its domestic electoral politics take the global economy hostage, in their words. See the BBC article (CLICK HERE).

In a commentary published by the China News Agency on the evening of August 7th, their Politburo committee dropped a bombshell that contributed to a worldwide meltdown in global stock markets and sent gold soaring above $1700 per ounce. Over the same weekend, the S&P debt downgrade was announced of USGovt debt. Clearly, the Beijing leaders were piling on a wounded Uncle Sam. The communique read, "China, the largest creditor of the world's sole superpower, has every right to demand the US to address its structural debt problems and insure the safety of China's dollar assets. If no substantial cuts were made to the US's gigantic military expenditure and bloated social welfare costs, the latest credit downgrade would prove to be only a prelude to more devastating credit rating cuts, which will further roil the global financial markets all along the way." See the GoldSeek article by Gary Dorsch, an outstanding analyst (CLICK HERE). The call for international supervision of money printing by the USGovt is entirely appropriate, long overdue. The targeted calls will fall on deaf ears, but add to the bilateral tensions. The debt monetization undertaken by the USFed and USGovt has deep undertones of breach of contract. It is a form of unapproved unilateral debt writedown via the inflation route. Watch to see if the next G-20 Meeting makes similar demands, if continued USTBond support is to be expected globally.

◄$$$ SHORT ON WISDOM, THE USCONGRESS APPROVED WEAPON SALES TO TAIWAN. IN DOING SO, THEY ARE SPITTING IN THE FACE OF THE BIGGEST USTREASURY BOND CREDITOR. SOON THE USTBONDS AND TRADE WAR WILL BE INTERWOVEN. $$$

China has reacted by open calls to punish the United States for Taiwan arm sales. They are evaluating usage of a financial weapon. The Peoples Daily ran an editorial calling for use its unique financial weapon to teach the United States a lesson if it moves forward with the arms sale. China has never used its holdings of US debt as a weapon, except indirectly in trade deals to secure commodity supply. By recommending approval of the sale of F-16 C/D fighter jets to Taiwan promptly, certain members of the USCongress members have turned a blind eye to Chinese interests and to USGovt creditor concerns in a very thorny complex situation. The wisdom escapes the common man, given the $1 trillion in USGovt debt held by China, except that the USEconomy needs any new business. The China-US relations will always be strained under such circumstances. The Beijing leaders are on & off with their willingness to purchase USTBonds. Their steadily high trade surplus makes much of the conversion necessary, a sterilization process to avert a rising Yuan currency. Look in the future to linked deals of USTreasury Bond purchases in return for a hands off policy toward Taiwan. Violations would result in adjustments to the Chinese reserves management. That means diversification out of US$-based bonds. Short of such deals, further trade friction, complete with trade sanctions, are guaranteed to follow. See the Peoples Daily article (CLICK HERE).

◄$$$ THE TRUE INSANITY AND UNFIXABLE NATURE OF THE USGOVT DEBT IS BROUGHT INTO PROPER PERSPECTIVE BY JOHN WILLIAMS. THE SITUATION LOOKS TRULY HOPELESS, A VALID REFLECTION OF BROKEN FUNDAMENTALS. NEITHER TOTAL INCOME CONFISCATION, NOR ALMOST FULL GOVERNMENT SHUTDOWN WOULD REMOVE THE DEFICIT. $$$

John Williams from the noble Shadow Government Statistics believes eventual debt default looms as a certainty. He said, "[The USGovt deficit] cannot be covered by taxes. The government could take 100% of everyone's income, corporate profits, and it would still be in deficit. [Conversely] they could also cut every penny in government spending except for Medicare and Social Security, and they would be in deficit." The message is that the national government finances are not even remotely fixable, even with extreme measures taken!! My forecast made in September 2008 stands, that the USGovt debt default will occur in two to three years time. Time is up, and the threat of debt default has arrived at the doorstep. The above quote was mentioned in the June Money War Report, but it is so stark and extreme to be worth repeating.

GLOBAL QE EMERGES

◄$$$ THE NEXT QUANTITATIVE EASING (A.K.A. HYPER MONETARY INFLATION) ANNOUNCED BY THE USFED WILL BE DIFFERENT. IT WILL BE MORE SECRETIVE. IT WILL HAPPEN BY DEED WITH MUCH LESS SPOKEN WORD. THE VICTIMS WILL BE THE USECONOMY BUT ALSO THE NEW TRANSPARENCY. $$$

The August 9th FOMC statement by the USFed confirmed a return to monetary easing, but not an open fire hose with debt monetization. Consider as preface, a summary assessment by Goldman Sachs. They stressed the economic downgrade, the second by the USFed in recent weeks, the extension of the 0% accommodation indefinitely, and let it be known a level of internal dissent not seen before. No central bank with any integrity would ever fix the official interest rate at zero for two years in an open announcement. This is Third World policy akin to Zimbabwe, not a major industrialized nation!! The USFed has openly shown it has no more integrity, having shed its prestige long ago, like during the blossom of the subprime mortgage mess. It talks of still having tools, but they are all used up. GSax wrote the following, using the FOMC wording throughout. They expect a broader more complete QE3 later, like when more panic sets in. It will set in. See the Zero Hedge article (CLICK HERE).

1)      As expected, the statement included a significant downgrade of the economic outlook. The committee views growth as being considerably slower than expected, highlighting deterioration in overall labor market conditions, flattened out household spending, and that the supply chain disruptions can account for only some of the recent weakness in economic activity. The committee furthermore stresses that downside risks to the economic outlook have increased.

2)      The committee adopted an even easier policy stance than expected. First, the committee now anticipates that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013 instead of for an extended period. Although some form of strengthening of the guidance language was expected, and the new guidance remains conditional on the economic outlook, we see this step as a dovish surprise. Three members (Fisher, Kocherlakota, Plosser) dissented from this decision, the largest number of dissents since November 1992.

3)      Moreover, the committee effectively signaled an easing bias. It discussed the range of policy tools necessary to promote a stronger economic recovery, and that it is prepared to employ these tools as appropriate. This leaves open the possibility of further asset purchases (QE3), should the economic outlook deteriorate further from here.

What comes next is Global QE. The Swiss and Japanese central banks have begun a transparent program to weaken their respective currencies. The Japanese initiative so far has failed badly and visibly. The next QE3 from the USFed will openly be designed to stabilize the US stock market and foreign stock markets. It will come in direct response to stock market panic that is setting in viscerally. The FOMC issued a statement with two very large warts on. They gave a huge admission, loudly stated, and often repeated that implies unequivocally the USEconomy is in recession. They never used the word, but they made certain only the braindead would miss their message. Soon they will admit the benefits to the USEconomy are nothing from Quantitative Easing in each program to date, and each program to come. The investment community and analysts as well will soon conclude in a public manner that QE programs have the benefit to prevent USTreasury auction failures that would render the USGovt debt similar to the Greeks and other PIIGS nations. The USGovt needs to order massive stimulus and produce infrastructure jobs, but no such bill will be forged in the current hostile desperate environment. Austerity has hit America. The collapse is accelerating. QE3 is coming, but not before more pain, panic, and pandemonium.

My Jackass forecast is being formulated on the FOREX currency market. A long slow bleed in the USDollar is likely, but more likely to come is all major currencies suffer together. Some analysts in the gold community expect a USDollar crash. No longer is that my forecast. The rest of the world clearly resists such a calamity, since their currencies would rise to fracture entire economies. Instead, the entire set of currencies will crash, and do so simultaneously. The major central banks have a challenge. They will pursue a plan to ensure no significant swings in the major currencies. The Japanese Yen and Swiss Franc will tell whether success can come. If the gaggle of fiat paper currencies can be contained in an allowable range, then the central bankers can claim success and stability. The USDollar, Euro, and Pound Sterling might form a mirage of stable core that fall together versus Gold. The principal damage will be the highly visible cost structure price rise. The outcome will surely be interesting, full of intrigue, and probably ugly. Fires in US cities will occur by 2012, like in London.

◄$$$ THE NEAR FAILURE IN A USTREASURY AUCTION OF 30-YR BONDS LAST THURSDAY IS AN EXAMPLE OF WHAT WILL TRIGGER A QE3. IT WILL LIKELY BE SECRETIVELY INSTALLED AND ENFORCED. THE INDIRECT BIDS FELL TO ALMOST RECORD LOW LEVELS. THE USFED RISKS AUCTION FAILURES UNLESS QE3 IS ANNOUNCED SOON. $$$

Rick Santelli of the Chicago MERC pits called the August 11th USTreasury auction of $16 billion in 30-year bonds an outright failure. With a horrible Bid/Cover ratio, it bordered on outright failure, since 1.0 of the ratio is accounted for by obligated primary dealers. If they gobble the entire sale, then a failure. If not an outright failure, this auction was called without doubt one of the ugliest long maturity auctions ever seen. The bond was priced at 3.75%, with a huge 11 bpt tail. That means, as best as the Jackass understands, that the yield rose by 11 basis points above the 'When Issued' bonds, whose yield had been set at 3.64% up to the auction. The Bid/Cover ratio was only 2.05, the lowest since February 2009. The Indirect Bidders imploded to a very low 12.2%, which reflects foreign central bank participation (seen in olive green bars). One must go back three years to observe such low bids. The central banks are too busy selling. The Chinese boycotted the auction clearly. The event was so bad that the Direct Bids were greater than the Indirect Bids for the first time in USTreasury history. The poor auction had an unsettling effect on the short-term USTBill market immediately. Great turmoil is yet to come to the USTreasury Bond and its asset bubble ponzi scheme replete with leveraged self-dealing and debt monetization. On August 26th, the Bureau of Economic Analysis will reduce its final revision of GDP. Later that day, USFed Chairman Bernanke will feel enormous pressure to announce QE3. If he does not, he risks USTreasury auction failures in a skein. See the Zero Hedge article (CLICK HERE).

◄$$$ THE USFED HAS DECIDED FOR NOW TO LET THE 0% RATE WORK ITS CORROSIVE MAGIC. THE TIPOFF OF ACCOMMODATION UNTIL 2013 WILL ASSURE A GOLD RALLY WITH FREQUENT BREAKOUTS AND ENDURING GUSTO. PERHAPS THEY WISH TO TEST THE QE3 WATERS AT THE NEXT JACKSON HOLE CONFERENCE. THE NEXT QE3 WILL COME MOST ASSUREDLY, BUT IT WILL DAMAGE THE USDOLLAR AND LIFT COSTS FURTHER, WHILE ONLY AIDING THE STOCK MARKET. THE NEXT QUANTITATIVE EASING WILL BE DESIGNED TO CONTROL THE COLLAPSE. ITALY AND SPAIN WILL BE THE TRIGGERS FOR THE NEXT CHAPTER OF COLLAPSE. $$$

Russ Certo of Gleacher calls it in clear terms, no confusion. He said (best parts pieced together), "The Fed just basically announced recession. I have never seen such bearish language used out of the Fed. Today, the curve originally ratcheted steeper as the front end, extrapolated the 2013 language and by contrast the long end was left behind. The market then realized that this is a deflation recession announcement by the Fed and it really is constructive for the long end. Until the equity response. The equity response is positive as the Fed is forcing grandmas and anyone who relies on a fixed income into alternative higher yielding asset classes. Dividend paying stocks look delicious. The 10-year Note finally nearly achieved that 2% metric. New QE programs ironically have not been kind to the bond market. One must wonder what our creditors are thinking as they are spending reserves in an effort of futility to weaken their currencies. The Bank of Japan spent $50 billion dollars recently. The Swiss Franc was up 6.5% on the trading session earlier. How are these central banks feeling about the Fed creating these conditions. Look at Canadian and Aussie Dollars right now. We talked about subsidizing other asset classes. Let's just hope it works." See the Zero Hedge article (CLICK HERE). A great point that avoiding a new QE works well to support the bond market, which suffered damage in previous QE programs.

Expect a program that displays more capitulation by the USFed in the coming few weeks, like after the Jackson Hole conference at the end of August. More panic must occur before the USFed sets into motion a new program that only aids the stock market temporarily while damaging the USEconomy further. All warm thinking bodies are aware that QE3 would cause more cost inflation, courtesy of another USDollar devaluation. It would result in more job cuts, less understood. The USFed feels trapped like a street bum without choices of where to spend the night, with a balance sheet that resembles a street bum pocket contents. The central bankers require the political cover of the banker bunker in Jackson Hole, where they announced their last QE2. It is intriguing that the USFed has a perfect record of no correct forecasts and no kept promises. They consistently have been blindsided by every nasty turn in the global financial crisis that has extended into its fourth year. They consistently go against their publicly stated word, even repeated. They have no integrity, no prestige, no credibility, and no guiding light. They are a symbol of a failed central bank franchise system. They are an agent of destruction. Their only accomplishment might have been to enable some mild replenishment of big US bank balance sheets, done by means of the USTreasury carry trade. Those banks have borrowed at near 0% short-term rates, and invested in long-term USTreasurys. But the mortgage asset damage and lawsuit settlement damage takes away what the USFed giveth. Actually, the big US banks are dying a horrible insolvency death anyway.

When QE3 is announced, it will trigger a massive rally in Gold, to be followed by Silver. It will trigger a USDollar selloff against all major currencies, lifting the cost structure globally. It will lift the global stock markets. However, the QE3 will be launched, in order to control the collapse of the US Stock market, the big US banks, and not permit it to occur too rapidly. The collapse cannot be stopped at this point. The debt default of Greece and the spread of sovereign bailouts to Italy and Spain will be sufficient to accelerate the collapse, and more importantly, make it obvious to half the world. The two large PIGS nations bring something new to the sovereign debt bailout table, SIZE. The degree of currency debasement will send Gold to $2000 quickly, and send Silver past $50 in powerful trajectories. Massive Euro Central Bank bailouts continue the grand debasement process. Perversely, they lift the Euro currency exchange rate, but they lift Gold more. The global attention will be magnificent for precious metals, as the ruin of the monetary system will be obvious to all, even the carnival barkers.

◄$$$ GLOBAL QE HAS BEGUN. ITS FOCUS IS ON STOPPING THE DECLINE OF THE USDOLLAR, DONE THROUGH BUYING USTREASURYS BY FOREIGN AGENTS. WITNESS THE NEXT STAGE OF THE COMPETING CURRENCY WAR. SO FAR THE NATIONS INVOLVED ARE JAPAN AND SWITZERLAND. THE BANK OF JAPAN HAS WORKED TO FLOOD THE SYSTEM WITH CURRENCY ($50B WORTH) TO STEM THE RISE IN THE YEN EXCHANGE RATE. THE JAPANESE FINANCIAL FIRMS TOOK FULL ADVANTAGE OF THE HIGHER USDOLLAR EXCHANGE RATE TO DUMP LARGE VOLUMES. CONSIDER THE YEN INTERVENTION TO BE A GRAND FAILURE. $$$

Callum Henderson is global head of currency research at Standard Chartered in Singapore. He commented on the extraordinary activity out of Tokyo. The Reconstruction of Japan is underway. The fallout in the financial markets to pay for the expense is being felt. He said, "We seem to be entering a new stage of the currency wars where it is not just the emerging markets that are responding to broad dollar weakness. Expect much more intervention in the future and further acrimony in terms of how the US dollar is doing. With markets tanking, and the economy weakening, buzz about the Fed doing QE3 has really heated up. The FOMC meets next week, and the Jackson Hole conference (where QE2 was announced) happens soon thereafter. But arguably, the next round of general easing has begun. Yesterday at 3:00am [Tuesday] the Swiss lowered interest rates to stem the rise of the Franc, and last night Japan intervened to make its currency weaker. And then today, the EuroCB confirmed more bond buying. So however you slice it, the central banks are back into easing mode. On Twitter, Nouriel Roubini declared that the latest currency interventions from Switzerland and Japan represent the start of QE3, ultimately ending in more Fed easing." Notice the global participation with the major central banks of the world. Except for the Europeans, they are all buying USTreasury Bonds. They wish to halt the USDollar decline that has lifted their native currencies to levels that inflict damage. This is the core of the Competing Currency War. The European Central Bank is buying Italian and Spanish Govt bonds. The practical effect is to support the Euro currency ironically, to push the USDollar down, and to accent the rise in Gold in Europe. What the USFed and EuroCB do together is to wreck the major currencies, and ignite the Gold rally further. What a horrible toxic brew for currencies in general!!

The Bank of Japan injected 4 trillion Yen (=US$51 billion) two weeks ago. The Yen dropped the most in about five months against the USDollar after Japan intervened in the FOREX market to weaken its currency. But the beneficial effect was quick and finished within the lifespan of a moth (insect), as in days. The result was powerful on the day of the BOJ action. The Yen dropped 2.3% percent to 78.84 per US$ by noon in Tokyo. Harken back to the largest intraday decline since March 18th, when the hastily gathered G-7 Meeting led to several nations jointly selling their currencies in favor of what Japan was discarding, USTBonds. The effect in March lasted a few weeks. The effect from the most recent intervention here in August lasted a mere two days. The BOJ intervention was a costly resounding failure, heard around the world! Even Citigroup believed the BOJ intervention would not be sufficient, despite appearing large. Either the USDollar looks too toxic, or the Japanese financial firms took advantage in colosssal volume to pay for Reconstruction costs. They must have dumped a mountain of USTreasury Bonds at a more favorable exchange rate during a rally assured by the USFed and USDept Treasury. The Interest Rate Swap device does have a backfire feature. The United States bankers enabled the bond rally to conceal some growing US sovereign bond damage. The Tokyo firms seized the moment and sold USTBonds at favorable rates. Ironically, the low USTBond yields are indicative of toxicity and brokenness. They will continue down until a debt default incident, or forced debt forgiveness situation.

Dan Norcini noticed the same waste of money by the Bank of Japan. He has an interesting perspective on the matter, as with most everything. He believes the central banks are losing in the battles when they attempt currency interventions. Gold reacts favorably. The spring initiative in March by the BOJ to stop the rising tide from the sea had been erased by the powerful currency market. Their latest intervention in the first days of August was suddenly quickly erased also, resulting in a grand embarrassment of wasted funds. At work is the third round of the great Yen Carry Trade unwind in a 15-year era. Norcini wrote, "It was just last week that we witnessed the Bank of Japan intervene into the FOREX markets to derail the Yen's rally back towards the former intervention level. The currency market had completely erased the losses that it suffered after the round of coordinated intervention by the BOJ, the EuroCB, and the Fed back in March of this year. It was evident from their [current August] action that the Ministry of Finance was dealing with political pressures from industry leaders whose exports were suffering as a result of the surging Yen, and were complaining quite vocally about its levels. Out came the intervention gun by the BOJ and down went the Yen. But look out! The Yen has come back once again and it has only taken it four trading sessions to erase all of the losses that the intervention had resulted in. Talk about a gigantic waste of resources by the Central Bank! The problem is the sheer volumes of liquidity that are tied to carry trades using the Yen as the funding currency. Traders continue to unwind those trades and run from risk with the end result being a repurchasing of the Yen. That buying is overwhelming any efforts by the Japanese monetary authorities to rein in the Yen." Norcini does not mention an equally large factor, that of the Japanese financial firms selling USTBonds to raise funds for the Reconstruction. In my view, it is a slightly larger immediate factor than the Yen Carry Trade unwind, but both are big. See the Trader Dan Norcini weblog (CLICK HERE).

◄$$$ THE SWISS NATIONAL BANK HAS TAKEN MEASURES TO STEM THE RISE IN THEIR CURRENCY. THEY CUT THE OFFICIAL INTEREST RATE. THEY HAVE WORKED TO FLOOD THE SYSTEM WITH FRANC CURRENCY, ALMOST TO TRIPLE ITS MONETARY BASE. THEY HOPE TO RESTRUCTURE THE LIABILITIES WITHOUT EXPANDING THE CENTRAL BANK BALANCE SHEET. THE SWISS HAVE MET WITH SOME EARLY SUCCESS. THE FRANC RISE HAS REVERSED. TIME WILL TELL IF THE EFFECT IS ENDURING. $$$

The Swiss National Bank (SNB) is extremely worried. They consider the Swiss Franc to be grossly overvalued. Its strength is doing what any currency war does, causing damage uniformly. The sky high Franc exchange rate threatens the Swiss Economy and has increased the downside risks to price stability in Switzerland. Exporters are at high risk (think pharmaceuticals, precision instruments, cheese). The SNB has begun to reverse the monetary policy. They will stop the continual tightening done to deal with price inflation. They will take measures against the strong Swiss Franc. Effective immediately, the SNB aims for a short-term LIBOR toward 0%. They have reduced the target range for its three month rate from the 0.00-0.75% range to the 0.00- 0.25% range. Simultaneously a significant increase to the supply of Swiss Francs money market came in the ensuing days. Bank sight deposits at the SNB are to grow radically, from around CHF 30 billion to CHF 80 billion, almost a triple in aggregate. Also the SNB will no longer renew repos and SNB Bills that come due. They will execute repurchase of outstanding SNB Bills. The exteme initiative will continue until the desired level of sight deposits has been reached. The increase in the monetary base will not necessarily increase the SNB balance sheet. Instead, the objective is to restructure its liabilities. Bank sight deposits held with the SNB are to increase, while liabilities in the form of SNB Bills are to decline. The next two to three weeks will be critical, to see if the central bank intervention has a lasting enduring effect. Usually the first program fades slowly, but the repeated programs fade very quickly. The Swiss might have only enabled a natural retest of the uptrend line, forcing the technical chart reaction.

A near panic has come to the Swiss bankers. They recognize a global economic slowdown, at a time when the Swiss Franc has risen to the point of inflicting competitive damage. The outlook for the Swiss Economy has deteriorated notably. Regard the change in central bank policy as an example of heavy damage from the Currency War, as the Swiss were forced to participate. See the Global Economic Analysis article (CLICK HERE). The story reminds me of a disagreement with a German banker in 2009. He said the Euro Central Bank would never join the US insanity and cut rates toward 0% like the Americans had been doing. The Jackass countered, saying the EuroCB would cut rates as soon as the Euro currency went too high. They cut in a couple months time, when the Euro hit the 150 level and the German exporters complained. That was evidence of Currency War effect once again, with reluctant participants.

◄$$$ FORMAL MEETINGS AND PANICKY DISCUSSION CONCERNING THE P.I.G.S. DEBT WILL RESULT IN NO SOLUTIONS, ONLY WASTE OF MONEY. THE CONTAGION TO ITALIAN GOVT BONDS CANNOT BE MANAGED. IT WILL SPREAD TO SPANISH GOVT BONDS AND TO FRENCH BANKS NEXT. THEY WILL ATTEMPT TO PATCH IT AS BEST AS POSSIBLE, BUT THE SHEER VOLUME WILL RESULT IN GRAND RIPPLE EFFECTS. WITHIN MONTHS, MAJOR EUROPEAN BANKS WILL FAIL. TWO GREAT FORCES ARE AT WORK THAT ENSURE A CLIMAX BREAKDOWN. $$$

The big European banks do not wish to realize huge sovereign bond losses. They prefer to hide them and hope the asset values rectify themselves, the same human tendency seen in the United States with Extend & Pretend policies. This desire for shoddy fixes results in patchwork solutions that buy time, redeem big assets, only have the crisis revisited a few months or weeks later. The other big force is the desire for all nations involved, both creditor and loser, to retain their own national sovereignty, to control of their system, and to resist outsiders who grab key assets. The European leaders refuse to take the ultimate step that could possibly shore up the European Union, resisting the move toward greater fiscal federalism, an evolution toward a system akin to the United States. No nation wants to forfeit its sovereignty. In the embryonic years, the United States colonies had little sovereignty to lose, but they did resist. Discussions about issuing EuroBonds are met with fierce resistance in Germany, where it is called poison. Ideas for a pan-European financial regulator and continental bank deposit insurance are resisted also.

In recent days, focus was turned to France as a likely debt downgrade candidate to join the USGovt. Then focus changed within French banks, known to have enormous exposure to both Italy and Spain. The French and German banks have been major contributors to the cleanup operation, exposing a great irony. France resembles the PIGS nation debt fundamentals far more than Germany, Austria, Luxembourg, or the Netherlands. Powerful natures are at work, along the lines of tribal forces. The end result will be a European continent torn asunder. The practical solution is to break the union, to send the PIGS nations off to fend for themselves, either alone or together, followed by a big currency devaluation. The markets will dictate the breakup, not the politics. The bank losses would have been 5 to 10 Lehman Brother failures in 2010 with debt and monetary restructure. Instead, the deterioration continues and a financial systemic seizure is likely, certain to result in 20 Lehmans in Europe and London. See the New York Times article (CLICK HERE).

◄$$$ EXPECT THE US-STOCK MARKET SWOON COMBINED WITH AMPLE SLOWDOWN DATA FROM THE USECONOMY TO MEAN QE3 IS ANNOUNCED VERY SOON. IT MIGHT BE REGARDED AS USELESS AND FUTILE, BUT THE USFED AND BANKING LEADERS MUST PRESENT AN IMPRESSION OF TAKING SOME ACTION. GOLDMAN SACHS WAS INCORRECT IN EXPECTING A QE3 DECISION LAST WEEK, AS WERE MANY INCLUDING THE JACKASS. WITNESS DEJA VU FROM AUGUST 2010, EXCEPT ALL STRUCTURAL INTEGRITY IS WORSE. $$$

Ok, big deal!! Maybe the QE3 decision will come in the next two weeks, like at the Jackson Hole conference, where the bankers show mutual admiration for the global financial destruction they have wrought upon the league of nations. The USFed might need to receive direct orders from its superiors, its owners in London and Switzerland. Witness a repeat of events from one year ago, a set of downgrades for the USEconomy, and more debt monetization for USTBonds. In a carbon copy of Goldman Sachs declarations from exactly one year ago, economist Jan Hatzius has stomped on his outlook for the remainder of the year, assessing a 33% chance of a recession. He anticipated some QE3 announcement last week, but only a permanent 0% rate was promised, ZIRP forever. Hatzius wrote, "As foreshadowed in recent publications, we have lowered our US real GDP growth forecast to 2% (annualized) through 2012Q1 and 2.5% thereafter.  We now see the unemployment rate edging up to 9.25% by the end of 2012, and see a one in three risk of renewed recession. On the monetary policy side, we expect no rate hikes or changes in the size of the Fed's balance sheet until 2013 or later. Moreover, we now expect the FOMC to provide more guidance about the future size of its balance sheet at next week's meeting."

Recall that three weeks after a similar economic downgrade made last year in early August, a difficult tonic was announced at Jackson Hole. Witness Deja Vu in August. Failure repeats itself for the simple reason that nothing has been remedied, nothing even attempted in remedy, while deep damage from past QE initiatives has taken place. In one year, the entire spectrum of conditions has turned much worse. The housing market is worse. The business climate is worse. The USEconomic data is worse. The political stalemate is worse. The debt limit will be revisited within several months, a new ugly wrinkle. The vulnerable stock market is new. The European sovereign debt situation has begun to cut all through Southern Europe, even to France. The foreign central bank actions within the context of Competing Currency War have turned more urgent. See the Zero Hedge article (CLICK HERE).

USTREASURY DEFAULT AMBIANCE

◄$$$ DEBT RATING AGENCIES MIGHT BE THE OBJECT OF SCRUTINY IF NOT ATTACK AS THEY ATTEMPT TO DO THEIR JOB. THEY WILL BE RESISTED IN JUDGING USGOVT DEBT AS JUNK. WATCH THE EVENTS IN ITALY FOR A PRIMER. THEIR STOCKS ARE PROMINENT TARGETS TO SHORT, AS THEY MIGHT EVENTUALLY HEAD TO THE DUSTBIN. THE US-SENATE HAS ORDERED A PROBE OF THE S&P DOWNGRADES. RETALIATION MIGHT BE NASTY AND COVERT. $$$

The Italian Govt is very angry at the debt rating agencies for downgrades that have resulted in extreme reactions in their financial markets. In response, the police raided the Milan offices of Moodys and Standard & Poors. At issue in the investigation, the trumped up angle, is whether the two rating agencies abide by regulations. The raids took place on Wednesday August 3rd as Prime Minister Silvio Berlusconi addressed the Parliament. A scapegoat is sought for the recent financial turmoil. Among the factors behind the powerful stock and bond market declines was fast rising risk premium on Italian Govt debt. It is moving along the same path of degeneration as Greece, along with related Credit Default Swap rates. The Italian media typically depicts market selloffs as attacks on the nation. Standard & Poors has been cooperating with the authorities, defending their work. Of course, they did not do their work in the 2008 bust in the United States, but they are diligent in Europe since Greece burst onto the scene in early 2010. The Trani prosecutors began investigating Moodys in May last year after a complaint by two consumer associations, of all groups. Think tourism. The president of a major consumer group that urged the inquiry said, "The three Sisters (Standard & Poors, Moodys, and Fitch) are an erratic danger to state sovereignty in the areas of economics and finance."

Attack dog tactics are not new to Italy, like television program censorship and vanished newspaper reporters in the past. Standard & Poors came under scrutiny after it threatened to downgrade Italy's credit rating because of huge public debt. Its reports have cited the official austerity measures. Italy is the second most highly indebted country in the EuroZone after Greece, and the 8th largest world economy. Its debt ratios do not look horrible, but Italian Govt debt volume requirements are staggering. My belief is the volume is too large to be funded in the current crisis filled environment. The inquiry has since been widened to include a report by S&P last month in which it criticized the government's austerity measures. Within the Trani investigation are visits to Mario Draghi, newly designated Euro Central Bank head, the Italian finance minister Giulio Tremonti, and former prime minister Romano Prodi. See the UK Guardian article (CLICK HERE).

Back home, the US Senate has order a probe of the entire Standard & Poors debt downgrade. Bank analyst Meredith Whitney has been summoned before the USCongress, for comments against the USGovt and municipal bonds. The Senate has S&P in its crosshairs. At least the action in the US did not involve the police with SWAT team breaking into company headquarters, like in Italy. No end to nuisance ploys can come to S&P officials, like from tax audits, worker violations, and airport inspections, if not child pornography charges and covert activities. See the Zero Hedge article (CLICK HERE).

◄$$$ CALL IT THE OSLO EFFECT. PAST PRECEDENT IS REPLETE WITH CASES. CONTROVERSY AND DEVIOUS DEEDS ARE MORE COMMON THAN THE PUBLIC IS AWARE. MANY STRANGE EVENTS ARE LIKELY TO CONTINUE, AS THE US&UK BANKING SYSTEM IS BUSTED, AND NEEDS MONEY. NEXT COMES POSSIBLE ACTIONS TO LUBRICATE ANY POSSIBLE USGOVT DEBT FORGIVENESS. $$$

This is all speculation and controversial, just thoughts out of the box. Preface with the fact that $90 billion in Qaddafi funds have been frozen in US and London banks. Do not expect them to be thawed, since urgently needed. Some people wonder if destabilization of Libya and the ensuing war had ulterior motive. Preface with events in recent years, where USMilitary exercises off the South Korean coast were staged on two occasions shortly after their nation announced plans to diversify out of US$-based bonds. The latest violent incident occurred in Oslo Norway. Their president attempted to seek help, appealing to Putin of Russia, as violence was expected and threats delivered. The grapevine reports that the huge $1500 billion sovereign wealth fund owned by Norway was the target, the product of the vast North Sea oil business. The Anglo bankers are rumored to want its infusion into the US & London banking system, in a move to assist in solvency. One might guess that Norway refused, felt threatened, appealed for help, then suffered the worst violent attack outside of war in its history. The regularly spun story came like clockwork, a crazy disturbed man acted alone, as has been the case in numerous other past important incidents. Security agencies are at the beck & call of the biggest of bankers.

Refer to the past. Lee Harvey Oswald acted alone at the Kennedy assassination. The president was working on removing the power of the US Federal Reserve, and installing new Silver Certificates. He was stopped. So was Oswald, whose life was interrupted by Jack Ruby who acted alone. It seems his nightclub landlord was Papa Bush. Also, Timothy McVeigh acted alone at the Oklahoma City federal building, where countless records were destroyed. The news media reported about damage to the retired USMilitary service records, but Fannie Mae had data stored at the giant facility, the likely target. From 1988 to 2000, over $1500 billion in missing funds from the USDept Housing & Urban Devmt were documented. That OKCity office is the HQ for the region that includes Little Rock Arkansas. So now we hear Anders Breivik acted alone at the Oslo Norway government building. He probably had help, just speculation. The $1500 Norwegian sovereign wealth fund is like a mound of rich manure that has attracted security agency flies. Maybe Breivik was guided by the Tooth Fairy, on where a big stash of money could be redeemed for the fallen teeth. History repeats itself with lame stories that the public gobbles up like gullible bug-eyed idiots.

In past years, Mark Chapman acted alone to murder John Lennon of Beatles fame. The killing came after twelve months of the US security agencies following the song star, fearful of a wave of youthful revolution. John Hinckley acted alone at the Reagan attempted assassination. The Vice President George HW Bush took control and the Cold War multiplied defense spending. The public was told that 12 young Moslems acted alone at World Trade Center. Many people with basic education dispute the story, but so do over 1000 engineers and architects. Bear in mind a peek at history. John Wilkes Booth, as told in the history books, acted alone at the Ford Theater at the Lincoln assassination. The London newspapers had called openly and boldly for the death of Lincoln for months, angry over his refusal to accept London bank loans to fund the Civil War. Instead, the president used the Continental Dollar, the first such floated piece of fiat toilet paper. By the way, Booth was a low level banker, no doubt a hired gun. Just last week, another violent incident occurred. All the special team elite soldiers who supposedly put away Osama Bin Laden a few months ago were killed in an enemy attack of a big Chinook transport helicopter in Afghanistan. In all 30 top soldiers died in the crash. Interviews of the soldiers regarding the OBL capture will not occur, since dead men do not talk. The public is told that Osama buried at sea, a direct violation of Moslem customs. The list of such strange incidents and explanations could continue for several pages. Subterfuge is no stranger to American banking. The topic is beyond the scope of this report.

Consider in future years the extreme growing need to forgive a portion of USGovt debt. As the debt burden grows burdensome, the pressure might come fast & furious to creditor nations. They might be coaxed into some debt forgiveness. If past is prologue, then a certain degree of violence might be involved. Refer to South Korea and more recently Oslo and Libya. The creditors at the table might be far more aware of the pressures exerted than revealed in the press reports. But it will be spotted by the pattern recognition specialists such as watchful analysts. The topic is beyond the scope of this report.

◄$$$ TOXIC USGOVT DEBT CARRIES WITH IT HEIGHTENED RISK OF CLOAK & DAGGER ACTIVITY, BOTH INSIDE THE UNITED STATES AND OUTSIDE. JUST LIKE FOREIGN CREDITORS WILL BE COERCED, DOMESTIC INVESTORS WILL BE COERCED TO SUPPORT BOTH CONFISCATION OF SAVINGS AND BIG DEFENSE BUDGETS. $$$

No doubt in the Jackass mind that foreign creditors will be treated to background events of dubious origin in order to retain them as USTreasury holders. USGovt creditors will be coerced to stay in the US camp, especially when they attempt to organize to create a USDollar alternative. That violent discouragement might have already begun in March in Japan. However, the domestic threat is also highly likely in my opinion. It will come in two parts. Expect some strange poorly explained events to occur if the USDept Defense budget faces a significant cutback. The Joint Chiefs of Staff at the Pentagon have let it be known last week their intolerance to such budget cutbacks. If a string of violent events takes place in US cities, the USCongress and the People will not order any reduced budget to the defense of the nation, even from itself. Violent domestic attacks to sustain defense and security agency funding would be unfortunate, but the new normal was ushered in after 911 and the Patriot Act. They must continue to secure their own heavy grandiose defense budget, which is larger than all other nations of the world combined. Americans still do not regard this fact as unusual.

The other domestic support will come in the form of confiscated or redirected savings. In past reports, the Hat Trick Letter has explained the tactics to be used. With leverage coming from the FDIC insurance of bank deposits, expect protection of savings to continue someday only if the depositor agrees to convert to USTreasury Bonds. They need buyers. With leverage coming from IRS tax deductions to income diverted to pension plans (401k, IRA, Keough), expect protection of pensions to continue only if the investor agrees to convert to USTreasury Bonds. They need buyers. The two devices to drum up USTBond support will cause an outcry, but add the annoyance to the list endured by citizens in a system suffering gradual failure.

Eventually the United States will be the only nation that accepts USDollars. That time is coming, but maybe not too far into the future. A stern analytic point was made by the Jackass two years ago. The nations that survive the acute global financial crisis will be the first ones to reject the USDollar in both banking and commerce. The USGovt debt default will be inspired and led by global rejection of the USDollar. The abuse in ongoing clandestine debt monetization coupled with yawning chronic deficits will motivate the rejection. The US will have to convert to another acceptable currency in order to obtain imported products and commodities. The price of OPEC crude oil and Asian imported products will rise, a form of imported price inflation. The foreigners will dump the USDollars, causing lower exchange rates, and even accept acceptable losses on their reserves as a cost toward survival. At climax, the combination of US import and foreign rejection will lead to a grand US$ devaluation and domestic price inflation. A default will be unusual, a negotiated USDollar death at a conference table of creditors. The wrinkle will be violent incidents in the background on foreign creditor lands as coercion until the system is visible and undeniably broken. This outcome is assured and logical, although denied routinely. Those who deny almost exclusively stand on US soil.

◄$$$ KEY TO SYSTEMIC BREAKDOWN COULD BE BLOWN COVER FOR THE DEEP SECRETS MAINTAINED BY THE US-PRESS UNDER PRESSURE BY THE USGOVT, USBANKS, BIG OIL FIRMS, BIG PHARMA, AND US INTELLIGENCE NETWORK. THE BIGGER THE LIES, THE MORE CRUCIAL THE PARTICIPATION BY THE FULL PRESS NETWORK. $$$

In the last 25 years, two important changes have befallen the US press networks. Their ownership has consolidated into five conglomerates, and their credibility has been cut in half. This is very significant, as distrust has come to the behemoths of often false information. The syndicate in power is sprawling, as it reaches the USDept Treasury, Fannie Mae, the Drug Enforcement Agency, the USCoast Guard, the US Security agencies, parts of the Pentagon, the the Wall Street banks, the FDIC insurer, the SEC & CFTC regulators, many Defense Contractors, big Pharmaceutical firms, and the press networks. They use intimidation, threats, phony arrests, tax audits, press smears, suicides, and sophisticated methods to keep the lid on the most sensitive stories that buttress the system. When the breakdown and crash accelerates for the United States as a nation, the public might be exposed to a big wider open window on harmful information. The stories could center on the grand secrets that have perpetuated for a few decades. The blown cover could quickly destroy the prestige and image of the nation. In my view, the press networks, since so widespread and since so many people are involved, represents the weak link to the syndicate.

For instance, stories might be revealed about the secret harsh Prisoner of War camps run by the USMilitary that resulted in several hundred thousand German soldier deaths after World War II (so-called Eisenhower Detention Camps). The story was confirmed by a Hat Trick Letter subscriber from Germany, whose uncle survived two years in a camp. More recently, stories might be revealed about the 911 coordinated bank heist and demolition of the World Trade Center, the controls by Bank of England of the entire US banking system through the US Federal Reserve for a full century, the broken agreement with the Chinese Govt on 2001 Gold & Silver swaps (in exchange for Most Favored Nation status), the fraudulent US financial markets (front running, flash trading, PPT propping), the bond counterfeit (both USTBonds by JPMorgan and Fannie Mae bonds broadly), the entire Enron fraud game (JPMorgan, Citigroup, and Harvard University), vast narcotics money laundering by Wall Street banks through the Export Trade Bank in Baghdad Iraq (managed by JPMorgan), and heavy usage of Interest Rate Swap controls to maintain control of interest rates (to match the doctored CPI inflation index). My favorite ugly story, hopefully to be revealed, is the real reason why Fannie Mae was nationalized. It serves to this day as the main clearinghouse for several $trillion fraud schemes, massive bond counterfeit, and high level thefts. A strong hint of the US financial system collapse could be the sudden flow of highly controversial and embarrassing stories about the nation. Keep in mind that the Murdoch family is at great risk, if more nasty stories are revealed. One man involved in the crucial information leaks has already been suicided in London. The people continue to gobble up the phony stories like dumb soap opera addicts. Murders and bribes and smears and trumped arrests are standard operating procedure.

◄$$$ THE DIRECTION OF THE NATION IS NOT BEING ADDRESSED BY MOVERS & SHAKERS THAT LEAD OUR NATION. TALK HAS GROWN OF PUTTING THE NATION ON A PROPER HEALTHY COURSE. CORRUPTION OF LEADERS AND IGNORANCE OF THE PEOPLE INTERFERE WITH THE PROCESS. THE CONCEPT OF ECONOMICS IS A TRAVESTY WHOSE FALSE HERETICAL TEACHINGS BEGIN WITH UNIVERSITIES. $$$

Our national leadership is little more than selected henchmen directed by the Elite Powers to continue the power structure. Presidents are selected by the Elite, not elected by the people. Men are often selected to serve as President from breeding within certain families, even if illegitimate by birth, often to include grooming and apprenticeship. The concept of the US putting itself on a right path does not address some staggering unaddressed challenges. Here are some preparatory points for influential parties to address, whether policy makers or bank officials or certain key councils or executive special action teams. The Movers & Shakers should do something (anything) to address some key national problems. They obediently side-step them all, and never mention a single item, except in some pedagogue display. They undermines the nation like a cancer.

My expectation is that the great majority of all supposed guiding movements to do nothing on any item on my list. the Jackass can be constructive, but in this land such is a fool's errand and a gross waste of time. It is more productive to prepare oneself and family for the financial storm, and survive with Gold & Silver lifeboats. The system maestros intend to gut the nation to the hilt, then dispose of its host like any parasite insect. My list is important toward putting the nation back on a respectable sustainable path that would restore strength and earn back its lost prestige. If some tasks were completed, the world would surely notice and be impressed. We as a nation move perilously toward Third World Nation status, satisfying 17 of 20 recognized criteria.

  • like the unfixable US housing market with worsening insolvency for households (suggest massive debt forgiveness before chaos from MERS rejection)
  • like the approved US banking system insolvency that worsens each month (phase out fairy tale FASB rules and force big US bank liquidations)
  • like the grotesque naked shorting of the Gold & Silver markets by approved large banks (see JPMorgan naked 3 billion silver ounces short position, and the Big Four banks)
  • like the return of industry from China, Asia, and the Pacific Rim with incentives like a Reverse NAFTA
  • like the disclosure and transparency of the shadow banking system (it assimilates a massive $1 quadrillion derivatives to control the US banking foundation)
  • like the dismantlement of Fannie Mae as a fraudulent role program central clearing house (several $1 trillion role programs)
  • like the removal of the press & media from its support of syndicate selections for presidency
  • like establishment of a new 911 Commission to seek the truth and stop the cover-ups (the official story has been rejected by 1000 engineers and millions of Americans)
  • like establishment of a meaningful infrastructure rebuilding program with an ongoing annual budget, not an approved budget once per crisis.
  • like limitations placed on defense spending, responsible for one third of total USGovt debt (larger than the military budget for the rest of the world combined)
  • like the usage of drones to eliminate far too many civilians (see Pakistan)
  • like the unleash of the security agencies in highly destructive campaigns (see HAARP weapon usage with signatures)
  • like enlisting the military with NATO to seek support in large asset grabs (see the Qaddafi $90 billion account freeze)

Thanks to the following for charts StockCharts,  Financial Times,  UK Independent,  Wall Street Journal,  Zero Hedge,  Business Insider,  Calculated Risk,  Shadow Govt Statistics,  Market Watch.