GOLD INVESTMENT REPORT
PRECIOUS METAL & ENERGY
CURRENCIES & STOCK INDEXES

* Golden Potpourri
* Bond Contagion in Europe
* QE2 Backfire on USTreasurys
* Eerie Calm Among Currencys
* The Gold Rush Goes Global
* Gold Price Held Back by Europe



HAT TRICK LETTER
Issue #81
Jim Willie CB, 
“the Golden Jackass”
19 December 2010

"The austerity measures are nothing more than taxing the people more, paying them less, giving them less benefits, taking away pensions, so they can bail out the banks. They keep changing the rules so they can keep bailing out the banks." ~ Gerald Celente

"Gold and Silver have swept all obstacles, pushing already steep rallies into hyper-drive. Even a firm dollar failed to check the buying spree." ~ Rick Ackerman

"The printing of money makes gold more valuable. You do not have to be a genius to figure this out. I think gold is the reserve currency today. There is not a currency in the world that it has not appreciated against by at least 300 percent. And it has beaten every stock market. You cannot even rent a safety deposit box in Germany because they are all full of gold and silver." ~ Eric Sprott

"Building gold as the basis of solvency has been used through history. Having a corresponding amount of solvency is a necessary precondition and indispensible safeguard in the long-term strategy for the internationalization of the Yuan." ~ Xia Bin (Peoples Bank of China)

"How can there supposedly not be enough gold to serve as the monetary basis, when it is infinitely divisible? The problem is with the price. Furthermore, a gold cover clause can amplify the usability. The gold market has not cleared properly in over 80 years." ~ Rob Kirby

"Whenever destroyers appear among men, they start by destroying money. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Paper is a check drawn by legal looters upon which an account which is not theirs." ~ Ayn Rand

GOLDEN POTPOURRI

◄$$$ THE PARADIGM SHIFT CONTINUES APACE, WITH MOVING BOUGHT CHESS PIECES. EXPECT SOME SUDDEN EVENTS TO FORCE CHAOS ON A GREATER SCALE, WITH ACCOMPANYING BOUTS OF VIOLENCE. FOLLOWING SEPTEMBER 2008, NATIONS IN REVOLT AGAINST THE USDOLLAR AND ESPECIALLY WALL STREET FRAUD KINGS HAVE SHUT THE BACK DOORS FOR FINANCIAL ESCAPE. BUT ROGUE NATIONS WILL ALWAYS BE AVAILABLE FOR HIDING THE CRIMINAL BANKERS AND NARCO KINGS. $$$

A reliable colleague for almost three years has offered a unique perspective. He has experience as a global consultant operating on more than three continents over three decades time. He has stressed the Paradigm Shift of power migrating East during this time. He sees it every week in his business dealings. He said several months ago that European large corporate executives stopped returning phone calls to US businesses long ago, an indication of growing isolation of the American system based far too much on bond fraud, market manipulation, and unprosecuted thefts. He said, "The Power Boyz bend things as they see fit, not realizing that they are already staring down the barrel of a loaded gun, with a trade war opponent the trigger man. The old formats and methods do not work any longer. It is called Paradigm Shift. There are a great many people on the side of sound honest money and rule of law, who have made progress closing the backdoor for anyone to escape justice. This will all get extremely ugly and violent. It will all unfold quite differently from conventional pathways. All and everything in life comes full circle. No one is above the law. That being the law of the universe. Witness the Ceaucescu (the former Romanian Communist Dictator) tendencies and mannerisms by the American and British bankers sitting in posts with handlers in control."

To the Jackass, a closed back door concept sounds good, but the practicality seems difficult. The back door has been revealed in very brief glimpses often to be Swiss banks, and Swiss branches from Sanhedrin trees. What is to stop 200 banksters from the US and London from migrating to Switzerland or the southern shores of the Mediterranean? If money escapes, huge rafts of money escapes from the US and London, what Eastern Alliance nations would be in position to intercept them? If during a default in the US or UK, and arrest warrants are handed down, what Eastern Alliance nation would extradite them? What nation would wrest their stolen riches using available means and send them packing? Mine are many harbored doubts that the vile killer thief bankers will be brought to justice. There will always be rogue nations for the banksters and narco king villains to hide and pay for sanctuary. The only way to bring their syndicate to justice is to eradicate their wealth in a stroke, and to eliminate their doorways to safe harbor lands with bribery in kind, but for future commerce. The same source has stated his clear expectation that after the USTreasury Bond default, and much wrangling, that Anglo bankers will face a Nuremberg type trial for financial crimes against humanity. We will see. He is far wiser than any single person in my circles.

◄$$$ GERALD CELENTE PROVIDED YET ANOTHER AWAKENING INTERVIEW. THOSE WHO IN THE PAST HAVE LABELED HIM AS A KOOK HAVE COME TO REGRET THE CRITICISM. HE IS A SAGE, A SEER, A VISIONARY OF FIASCO. $$$

Gerald Celente has made a long string of correct forecasts and general outlook perceptions in an impressive fashion. He is the editor of the Trends Journal. See the Goldseek Radio interviews for part 1 (CLICK HERE) and part 2 (CLICK HERE). It is always enlightening and an education experience. He speaks of growing chaos without mincing words and allowing for confusion of his message. Not a lot of specifics, but a good general warning siren.

◄$$$ PEAK OIL IN YOUR FACE. UNLESS VAST AMOUNTS OF OIL FIELDS ARE BEING HELD OFF THE MARKET, A CLEAR TREND OF WORSENING SHORTAGE IS CURRENTLY AT WORK AND ON THE HORIZON. TREMENDOUS SHORTAGES ARE COMING IN THE NEXT DECADE, NOT EASILY OVERCOME BY THE DEFECTIVE RELATIONSHIP BETWEEN ENGINEERING AND GOVERNMENT. $$$

The International Energy Agency (IEA) recently released its World Energy Outlook. The analysts at Chris Martenson provided a solid analysis concerning its important topics. The Peak Oil concept is real, laden with risk, and not addressed by any major industrialized nation that remains deeply committed to crude oil. The Martenson folks focus on two types of oil, the conventional and unconventional sources. The Conventional oil is cheap easy stuff, resulting from a well drilled, a pipe inserted, and oil drawn out of the ground, either sour (sulfur compounds) or sweet. The Unconventional oil comes from different unusual costlier sources like tar sands, shale rock, ultra deepwater deposits, coal liquifecation, and natural gas liquids. Each type involves more difficult processes. They are more expensive to produce. For the first time ever, the IEA openly mentioned the Peak Oil concept, and in the second breath, claimed that conventional oil is a thing of the past. Crude oil output is expected to remain within a plateau range near 68.5 million barrels per day by 2020, never to surpass the peak 70 mbd reached in 2006. However, natural gas liquids (NGL) and unconventional oil will grow quickly in output. WEO 2010 builds into their report an evident contradiction. They expect total oil production to reach almost 100 mbd by 2035, but systematically the IEA has been reducing its estimate of global oil output. The IEA puts far too much faith in the major energy firms and their new discovery potential. Their future outlook starts with a conclusion and uses an easy route to arrive at it.

The future outlook contains the loaded risk. The Currently Producing Fields (dark blue) sets the tone of the graphic. Its sharp retreat is expected to decline from a high of 70 mbd in 2006 to 15 mbd in 2035, a magnificent shortfall to overcome. The Fields Yet to be Developed (gray) are known deposits. They have not begun in production, nor are they expected to fully compensate for the conventional fields currently operated. In other words, the graphic dark blue plus gray still is in decline. Enter the Fields Yet to be Found (light blue), which curiously just happens to have a forecasted output that brings the conventional pair to perfectly flat. It seems like nonsense, a BS forecast kind of like a Second Half Economic Recovery. Its expected sizeable 22 mbd output from new discoveries by year 2035 seems baseless and indefensible. If the world achieves half that amount, it will be a miracle of engineering and politics, which never work efficiently together. See Halliburton and the USGovt, a model of corruption, violence, and inefficiency. For violence, check the BP Deepwater Horizon sabotage in the Gulf of Mexico. The late removed Matt Simmons oil expert might have crossed the line of risk when he stated that the BP publicized explosion covered up the first event, where a tar volcano was breached by the USMilitary. He implied a sabotage, and later drowned in 3 feet of water on his Maine retreat. He had help in my view.

As Martenson concludes, regarding the unlikelihood of such progress, "In other words, the IEA is projecting that in 25 years, more oil will be flowing from fields yet to be found than from all the fields ever found and put into production by the year 2010." Nonsense and wishful thinking  in forecasting! Colin Campbell is a highly respected analyst of peak oil with decades of field experience. He is on record as saying that the Fields Yet to be Developed category, originally called unidentified Unconventional in 1998, is a codename for shortage. He claims that off the record, the IEA confirmed precisely that in private exchanges. So the gray area is the implied shortage volume, and the fields yet to be found are silly optimistic tripe. Tremendous shortages are coming in the next decade. In my view, by late 2011 (or sooner) the $100/barrel crude oil price will be a standard fixture in cost models. See the Zero Hedge article (CLICK HERE).

◄$$$ IOWA FARMLAND IS ZOOMING UPWARD IN PRICE, TYPICAL OF THE FARM BELT. THE TANGIBLE ASSET IS PRODUCING WITH VIGOR AND IS RECOGNIZED AS VALUE FOR FOOD PRODUCTION. FARMLAND IS ALSO A TANGIBLE ASSET DURING THE MONETARY SYSTEM DESTRUCTION. $$$

A late November auction in Nevada Iowa opened for bids on 318 acres of farmland. The property had been family owned for three generations. The auction went shockingly well. More than 100 people, including investors from Nebraska, Minnesota, and California, packed into the auction room. The bids moved quickly and reached the astounding price of nearly $9000 an acre, almost double the average price in Iowa last year. See the Harvest Public Media article (CLICK HERE). Asset prices are never in the Consumer Price Index unless in decline.

Tight corn supplies worldwide and stronger corn export demand have combined with stalwart ethanol development to create a corn dynamo. A 50% rise in the corn price since June has enriched farmers, who have bid up the price of land in turn. Farms have transformed into major cash cows, the current beneficiary being farmland, the bulwark of wealth and credit in Iowa agriculture. It accounts for 25% of the state's economy that includes seed companies. According to Iowa State University figures, farmer profit margins for corn were 40 cents per bushel in June, but have shot up to $2.50 per bushel in the current runup. Soybean margins have more than doubled during the same period to more than $6 per bushel. While Wall Street hedge funds are major players in the commodity markets, they have yet to turn their attention to Iowa farmland. Ownership of Iowa farmland is permitted only to US citizens or Iowa-based corporations. Land ownership in Iowa is a somewhat closed society, as the neighbor farms know what happens. Regarding a speculative crash repeat episode, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, gave warning at an Omaha conference last month that farmers may be tempted to borrow excessively on their rising land. But the agriculture industry is better geared today. In the 1970 and 1980 decades, loans were typically given for up to 85% of land value, a practice pulled back to 55% to 60% today. The equity stake for farmers translates into more stability, a concept Wall Street banks and US homeowners could learn. Once more, the USFed opinion mill offered drivel, lacking comprehension of the market. See the Des Moines Register article (CLICK HERE).

◄$$$ MUNI BONDS WENT NO-BID IN AN AVALANCHE OF BLANK SCREENS FOR BIDS. HUGE SELL SIDE PRESSURE HAS COME TO TAX EXEMPT BONDS. A PLANK IS THREATENED FOR REMOVAL, THE KEY BUILD AMERICA BONDS. A TYPICAL CASE, NEW YORK CITY CUT THEIR MUNI OFFERING BY TWO-THIRDS. THE MUNI BOND DEBACLE COULD EXTEND TO THE USTREASURY COMPLEX. $$$

The Muni Bond arena is seeing a preliminary effect from the anticipated end of the Build America Bonds, as the USCongress has indicated no intention to renew the program. The BAB program was an integral part of the Economic Stimulus Bill in 2009. The special bonds subsidize state and municipal bond offerings. The Muni Market has gone no bid!! A flood of requests has come seeking bids on a formal basis. The pressure with a torrent of offered supply is staggering. Something is going to break, and it will be yields shooting upward. Last week, the yields on the highest rated tax exempt securities with 30-year maturities rose twice as fast as those on USTreasurys, hitting the highest level in almost 16 months. The 30-year tax exempt yields jumped up 20 basis points to 4.84%, the highest since August 2009. Muni bondholders sought buyers for $1.4 billion in debt on a single day last week, the most since June 2006. This niche bond market is in the process of blowing up!!

Tony Shields from Williams Capital Group said, "Nobody is bidding. There is an avalanche of Bid Wanteds, and just not enough liquidity to accommodate this much sell side pressure." He went on to describe the Muni Bond Market condition as No-Bid. He called it a Perfect Storm, as reduced muni bond demand, widespread mutual fund redemptions, and rising USTreasury yields have created a storm vortex for the tax exempt selloff. Municipal Bond based mutual funds had net outflows of $7.6 billion in November, after 22 consecutive months of inflows, according to Morningstar. Investors had added more than $105 billion from January 2009 through October 2010 for munis, which has reversed. Take the New York City muni for example, a typical case. In the face of rising yields, New York City cut their tax exempt offering volume last week by two-thirds to $100 million. They cited volatile market conditions, as word came from their Office of Mgmt & Budget. The $2.8 trillion Muni Bond Market is bracing for a fast rise in required yields. Watch for contagion to the USTreasury Bond complex.

John Hallacy, manager of municipal research at Bank of America Merrill Lynch, forecasts long-term muni bond yields to increase over 50 basis points next year if the Build America Bond program is not renewed. The BAB subsidy was not included in the Obama Tax package, in an unusual agreement struck with the USCongress. The BAB program was offered as an amendment to the tax bill. Average yields on Build Americas rose 15 basis points to 6.5% last week, the highest since the end of 2009. See the Bloomberg article (CLICK HERE). Look for the BAB program to be reincarnated next year. Representative John Mica, who becomes House Transportation & Infrastructure Committee chairman in January, plans to introduce a return of the Build America Bonds program, scheduled to expire on December 31st. He actually guarantees a reiteration of the program. Opposition regards the BABonds as a relic of the failed stimulus package last year, a blank check for states to run up deficits. That never stopped federal program funding like Medicare or the Pentagon wars. See the Yahoo Finance article (CLICK HERE). Some analysts believe the municipal bond market will be the center of the next QE3 program, to aid the states and munipalities with printed money on the path to the Third World. That makes perfect sense, since the need is acute, and the USFed has great destructive momentum well established. They do not want contagion to hit USTreasurys.

◄$$$ INCONSISTENT DEBT RATING FOR EUROPEAN NATION DEBT FAVORS WESTERN NATIONS IN OBVIOUS FASHION. THE BIAS IS NOT HIDDEN. THE S&P IS WOEFULLY BEHIND THE CURVE, SHOWING NEGATIVE BIAS TO RUSSIA AND TURKEY. A BRIEF HISTORY OF THE DEBT RATING CARTEL SHOWS WHERE THEY WENT ASTRAY. $$$

Consider the CDS-implied rating for each sovereign debt issuer, by using the Credit Default Swap in a ranking procedure, easy enough. The credit market is much more fair than a debt rating agency which answers to Wall Street with blatant pressure, hidden collusion, and outright bribery. Then consider the current Standard & Poor long-term domestic credit rating for that issuer. The ranks of the raw debt ratings can be used to derive a difference, a bias index between the CDS and S&P versions in a reality test. Any difference between the CDS-implied rating and the S&P ratings score reveals the number of notches for the bias, either positive or negative. Where the CDS-implied rating is better than that given by S&P, the difference is a positive number. When the CDS-implied rating is worse, a negative number results. The negatives indicate unwarranted undeserved favoritism given to the Western nations and their sovereign debt, widely held by institutions. The positives indicate harsh bias against Russia and Turkey.

One can conclude that Spanish Govt debt and Irish Govt debt are absurdly rated by S&P, a world apart from the reality shown by the market for insurance against their default in the CDSwap contracts. Portugal, Greece, Belgium, and Italy are each given a pass on rosey S&P debt ratings that are not deserved. So just like with the mortgage debacle in the United States, the US-based debt rating agencies are woefully behind, not doing their job, showing bias. The bond defaults will occur despite relatively good ratings, just like with the mortgage bonds, and especially the leveraged mortgages bonds, the Collateralized Debt Obligations (CDO Bonds). Late update, Moodys on Friday just corrected their error, and slashed the Irish Govt bond rating a full five notches to Baa1 from Aa2 (the difference now minus 5, still as biased as Italy). They warned of more future downgrades. The severity was a shock. Last week Fitch removed its A credit rating. Last Thursday, the Intl Monetary Fund approved a three-year loan of 22.5 billion Euros (=US$30.1B) for the Irish Republic.

Standard & Poor was slow to cut the Greek rating to a junk at BB+ on April 27th, one notch below the Euro Central Bank's stated minimum for acceptable collateral. That did not matter, as the EuroCB trumped them by announcing that Greek bonds would be acceptable collateral indefinitely, regardless of the debt rating. Their commitment to revert to a minimum collateral rating of A- by the end of this year was abandoned. The five nations of Italy, Spain, Portugal, Ireland and Greece all failed the minimum ECB threshold of BBB- rating for acceptable collateral, if the credit derivatives market implied ratings were used instead of the klutzy debt ratings. All are junk bond issuers, but the ECB is accumulating the junk bonds just like the USFed is accumulating toxic mortgage bonds. Soon perhaps the USFed will gather in toxic State Bonds. Conversely, several Eastern Europe sovereign bonds are more favorably valued by the credit derivatives market than Standard & Poors. The Czech Republic, Slovakia, Slovenia, Estonia, Poland, Turkey, and Russia all have better CDS-implied ratings than those given by S&P, one of the three Wall Street rating harlots. In the case of Turkey, the difference is enormous. The CDS-implied rating of AA is eight notches higher than the S&P penalty of BB+ laden with bias. Russia has a CDS-implied rating that is four notches higher than the S&P penalty of BBB+ laden with bias. Not only are the S&P ratings way off, but the EuroCB does not really care. Politics prevails in both sides of the value and collateral. Gross bias works in favor of Wall Street firms, which do brisk trades to capture the wrong valuations in arbitrage. See the Index Universe article (CLICK HERE).

Contradictions are glaring in the case of Russia versus Ireland, two extremes in the above chart. Russian Govt bonds (rated Ba2 by Moodys) pays a yield of around 4.75% on its 10-year debt in US$ denomination. Irish Govt bonds, while Aa2-rated (nine credit ratings better than Russia by Moodys) has a current yield of 9.15% on its 10-year Euro bonds. Even with the US$ vs Euro conversion adjustment, the bias is obvious and way off. Moodys, Fitch, and the S&P are ridiculously slow in altering debt ratings. The Moodys action late last week rendered the Irish rating only four notches better than Russia, still a bias inherent. Wall Street firms are tipped off to profit from the downgrades, after they exploit the differntials in value for months!! Moreover, huge discrepancies between Russia and Ireland bond yields reveal political bias by the ratings agencies. Honesty and integrity will be restored only when USTreasurys and UKGilts are rated as junk bonds. That is a long wait. Default comes first.

Many calls have come do break up the credit rating cartel, a club that operates as an adjunct to Wall Street. Originally research firms, the rating agencies were paid by those shopping for bonds or extending loans to a company. A rating company that did poorly lost business and risked going out of business. The Securities & Exchange Commission, a fundamental Wall Street den of whores, entered the picture in 1975. Their reform ruined a perfectly solid business niche by mandating that sold debt securities be rated by a Nationally Recognized Statistical Rating Organization (NRSRO). The result was a select group to do all debt rating, a monopoly under easy control. Its membership was tightly controlled, with entry made difficult. The worst flaw was with payment. Previously, bond investors would go to the ratings companies to know what they were buying. The new model called for debt issuers to pay to have their bonds rated or else they could not sell them on the market. Hence, they shopped around to see who would give the debt the highest rating. This was all done while the USGovt and Wall Street made pronouncements about protecting the integrity of the system they destroyed. Free market competition, not additional regulation is the cure. Just another Fascist Business Model item of evidence.

BOND CONTAGION IN EUROPE
◄$$$ USBANKS HAVE A SIGNIFICANT EXPOSURE TO THE P.I.I.G.S. SOVEREIGN DEBT, ALMOST EQUAL TO THE GREAT BRITAIN EXPOSURE. IF ANY TEETERING SOVEREIGN DEBT DEFAULTS, THE RIPPLE EFFECT WILL DELIVER STAGGERING BLOWS TO ALREADY INSOLVENT USBANKS. THE EUROPEAN DEBT CRISIS HAS RESUMED. IT IS THE MAIN SUPPORTING MECHANISM FOR THE USDOLLAR PERVERSELY. $$$

The Bank For Intl Settlements has declared in a report that the big US banks have a huge exposure to PIIGS sovereign debt, to the tune of over $350 billion. The BIS included for the first time the ledger item of additional exposures. By footnote the item was explained, as "Other Exposures consist of the positive market value of derivative contracts, guarantees extended, and credit commitments." They refer to the slimy subterranean unregulated credit derivatives. The US banks have exposure of $172.8B with Spain, $108.3B with Ireland, $35.6B with Portugal, and $36.2B with Greece. The total foreign claims stand at $2281 billion, which includes a considerable $668 billion in newly disclosed derivative commitments. In their calculations, Italy was excluded. Expect updates to the total exposure in a matter of a few months, as Italy is on the brink also. The big US bank exposure is the key element to the BIS report. It tripled as a result of the new credit derivative inclusions, now estimated to be a huge $353 billion in exposure, of which $233 billion is from derivatives, the newly revealed Other Category. Recall that the propaganda disseminated in the last several months has been that US banks had nothing to lose should Europe circle the toilet, that the US was insulated. Not true, again, more lies since those making the statements surely had access to data. This confirms my basic theory that all major currencies are tied together in the drowning process of ruin, since they share the fiat paper feature and the debt liability backbone.

The common belief is that the next two dominoes to drop will be Portugal and Spain. The USFed has been collaborating with the Euro Central Bank to prevent the Portuguese Govt bond rout from battering Spain. The Spanish banks have a $98.3 billion exposure to Portugal and $17.7 billion exposure to Ireland. So the badly exposed are doubly exposed to the other nations badly exposed in a network of cement shoes and neckwear. The rescues, aid packages, and swap facilities are designed to apply bandaids on deep wounds and chewing gum on major leaks. The central bank cartel is merely delaying the inevitable, without a coordinated clear picture of a plan for the aftermath. Be sure to know that the governments will continue to bail out the major banks, putting taxpayers in the liability path. The pattern is clear in Europe, like the USFed response to fixing bubbles is to create other ugly bubbles in a grand bubble modification scheme. It is reminiscent of putting the residential home loans through revolving doors of patchwork solutions that do not remove the high risk of defaults. Some fine detailed charts are offered, of each sovereign debt within the PIIGS corrall and the exposure of each nation to their debts. See the Zero Hedge article (CLICK HERE). A passing comment. A mere 20% debt writedown in PIIGS bank debt would wipe out the equity of the entire French banking system. Expect at least 30% and probably more in writedowns (called haircuts).

◄$$$ MOODYS THREATENED A DEBT DOWNGRADE LAST WEEK OF SPANISH DEBT. WITNESS THE USAGE OF THE DEBT RATING AGENCIES BY WALL STREET AS A WEAPON TO INFLICT DAMAGE ON THE EURO CURRENCY AND TO DEFLECT ATTENTION AWAY FROM THE USGOVT DEBT MORASS. THE SPANISH GOVT BONDS HAVE SEEN AN 80 BPT RISE IN ONE MONTH, AFTER A SINGLE DAY 200 BPT RISE IN LATE NOVEMBER. ALARM BELLS ARE RINGING. SPANISH BANKS ARE TRAPPED AND SQUEEZED, WITH HIGHER BORROWING COSTS SYSTEMICALLY. ZAPATERO SEEMS A BAD ACTOR IN A COMIC TRAGEDY. $$$

When the USDollar seems on the ropes, a story comes of EU member nation debt crisis, even a potential debt downgrade, as the Jackass forecasted this autumn. Europe has no debt rating agencies of significance. Given the collusion charged widely against the S&P, Moodys, and Fitch, and the pending lawsuits against them, and the firm fixed AAA rating for USGovt and UKGovt debt, one can safely assume that Wall Street continues to use ratings as a USDollar defense weapon. Last week, a rush over $1400 by gold and over $30 by silver was interrupted by a USDollar rally triggered by a threatened Spanish Govt debt downgrade. Perhaps the timing was simply linked to the imminent Spanish Govt bond sale. Either way, a temporary Euro currency selloff with another stride taken in the Competing Currency War race to the bottom of the pit. Gold & Silver sold off, as Spain entered the spotlight, the Big Enchalada as the Jackass prefers to call it, since triple the size of Greece, and double the combined size of Greece, Ireland, and Portugal. The nation of Spain has a due date with the Grim Reaper on its crippled bonds. The reality hit Spain last week when the Madrid government conducted a measly 2.4 billion Euro (=US$3.21B) bond auction. The benchmark bond in Spain saw its yield rise from 4.6% in mid-November to 5.4% last week, a big move indeed. It was disappointing for yield, but strong for demand. Higher yield fulfilled its job. SPAIN IS THE BIG ENCHALADA IN EUROPE, WHICH WILL CAUSE MUCH GREATER SHOCK WAVES THAN ANYTHING WITNESSED TO DATE, FAR BIGGER THAN GREECE OR IRELAND. Spain is a core European nation.

Like other governments, Madrid denies the need for emergency funds to manage the sizeable debt burden, despite a nasty economic recession and zero bank restructure of the massive debt all through their system. US-based ratings agency Moodys warned on December 15th that it is considering a downgrade of Spain's debt due to very heavy borrowing schedule next year. Moodys does not believe their solvency in in question or that it would need a bailout, but Moodys has been wrong 186 times in the last three years, perhaps 196 times. A shift in focus has taken place, from Ireland to Spain, exactly on Hat Trick Letter cue. Contagion was acutely clear in late November, when bond vigilantes in Europe mauled Spanish Govt bonds. On November 23rd, the 10-year bond soared 200 basis points in yield in a mere two hours. It was a bloodbath. Their bond yield are at all-time highs in the last few weeks. See the Yahoo Finance article (CLICK HERE) and the Zero Hedge article (CLICK HERE). The shocks like this, seen in Greece, Ireland, and Spain will someday come to the United States. All in time.

Spanish Prime Minister Zapatero appears clueless and ignorant or a bad liar on stage as a banker tool. He insists Spain is not in trouble and will succeed in cutting its budget to meet austerity goals. But he also has asked the European Union to be more flexible with the use of the big bank bailout fund, according to solid news sources. Zapatero will reportedly request that the superfund be used whenever needed as credit lines to member countries so as to provide liquidity in bond markets where it is lacking from vanished confidence. Spain's banks face rising defaults, declining credit demand, and continued balance sheet finance costs. They still hold a mountain of retail mortgages that require ongoing funding. Their bond market distress has resulted in higher borrowing costs across the Spanish spectrum. Bad loans as a proportion of total loans on Spanish bank books rose to 5.67% in October, the highest level since January 1996. The bad loans made up 5.50% of the overall book in September and 4.99% a year ago. In compensation, the average rate paid on bank deposits at least one year rose to 2.61% in October, versus 1.13% in Germany. Moodys estimated within their debt downgrade report that lenders had recognized only half of the estimated 176 billion Euro loss they must absorb eventually. They are dragging their feet worse than any other EU member nation. Therefore the shock will be greatest for the Big Enchalada.

The profit potential has eroded away, atop their insolvent condition. The entire banking sector has liquidity problems, higher liability costs, reduced lending activity, and thus badly squeezed margins. Take one bank, Bankinter. Their customer spread, the difference between its yield on assets and the cost of its liabilities, shrank to 81 basis points in September from 1.93% a year ago, a cut of more than half in just three months!! Banks will be compelled to continue rate hikes, which will exacerbate the economic problem and worsen the bank profitabilty outlook. This is a death process at work. See the Bloomberg article (CLICK HERE). The national airport crisis doled out damage to the Spanish Economy also, sure to show up soon in the data. The Spanish Military took over the air traffic control duties after a broad worker strike against the budget cuts, a preliminary budget austerity measure. Air space was closed for 17 hours due to massive strikes, affecting over 330 thousand travelers. Controllers, 90% of whom called in sick, met near Barajas to convene and present their position to the government. The cabinet was in temporary crisis, but gave approval for the military to take control. See the British Broadcast Company article (CLICK HERE) and the National Public Radio article (CLICK HERE). Chaos is growing.

◄$$$ BELGIUM STANDS AS UNIQUE IN EUROPE. ABSENT A GOVERNMENT UPPER ECHELON HELM FOR A COUPLE MONTHS, IT STILL RACKS UP DEBT. FINALLY THE BELGIAN GOVT BONDS WERE SMACKED DOWN, AS NO NATION WILL BE SPARED, EVEN THE IMMOBILIZED UNION CAPITAL. WITH ALMOST THE LARGEST DEBT/GDP RATIO, BELGIUM PUTS THE FRENCH BANKS AT RISK. WATCH FOR FORCES TO BREAK UP BELGIUM, LINKED BY WEAK GLUE. $$$

The Belgian Govt was targeted for scrutiny by Standard & Poor, as the bond contagion spread to the venerable marbled hollow EU capital. S&P cut the outlook on its AA+ credit rating, amidst a bizarre political stalemate in Brussels. Marko Mrsnik is the S&P credit analyst at the Madrid office. He wrote, "Belgium's prolonged domestic political uncertainty poses risks to its government's credit standing, especially given the difficult market conditions many EuroZone governments are facing." Funny that S&P did not mention debt details. The bond market reaction was muted. Their yield rose a mere four basis points on the 10-year bond, pushing the yield spread versus German Bunds to 105 basis points, on a steady climb. The Euro currency had more of an adverse reaction. Contagion has hit the EuroZone periphery. The lesson is that no nation will be spared in the 2011 cycles of sovereign debt crisis in Europe. See the Bloomberg article (CLICK HERE). For a true splash of cold water in the face, watch the brief harangue speech that is harshly critical of the hollowed arrogant EU Parliament. The speech was by Nigel Farage, a member, who criticized with "The Euro Game is up! Just who the hell do you think you are?" His words were on target against the utter insanity of the EU movement and its toothless broken Parliament. See the YouTube video (CLICK HERE).

Despite its financial horror, Ireland will continue to exist as a nation, although dented. The story of Belgium contains far more intrigue, since it is a loosely joined nation, an amalgam of provinces. With all the attention paid to PIIGS nations, Belgium has been spared, maybe because it is the EUnion seat of supposed power (see Berlin Germany). The political drama within Brussels, which has not had a formal governing nucleus body in months, has largely sailed under investor radar screens despite a heavy debt burden. The loosely united country of 10.8 million people will soon face a profound political crisis that could force an end to the unified state, and a certain default on its debt. One of Europe's largest debtors, its future steeps with intrigue, especially since Germany has disdain for Belgium and the arrogance on display in Brussels. The Belgian Govt has one of the highest levels of debt to GDP ratio within the European Union at 96.7% of GDP, bigger than France, Portugal, and Spain, but smaller than Italy and Greece. Its neighbor France, with whom it shares a dominant language (Flemish second), bears a sizeable risk with its bank exposure, the biggest of any nation. Given its expected breach of debt to the 100% of GDP level, magnified by a vacant governing body at the helm, the debt for Belgium trades too close to German Bunds for the risk. The bond market is asleep on this Belgium waffle. Its Aa1 and AA+ ratings are totally undeserved, another blemish on the debt rating agencies. Soon, investors will awaken to recognize the gravity of the situation in Brussels, and dump their bonds. Another Greece, Ireland, Spain, Italy is right around the corner. All of Europe except the strong German partners are in tatters and ruins.

◄$$$ A RESCUE OF THE EUROPEAN UNION THREATENS GERMANY, WHICH HAS BEGUN TO FOCUS INTERNALLY ON ITS FUTURE. THE RESISTANCE BY WEBER AND OTHER GERMAN BANK LEADERS AND INTERESTED PARTIES HAS CAUSED A GREAT REACTION IN THE BOND MARKET ITSELF AND THE GERMAN HIGH COURT. $$$

The EU rescue has begun to threaten German creditworthiness. It stands as the continental stalwart engine. But it must cut free or sink. The CDSwap default insurance on German, French, and Dutch Govt bonds has risen dramatically in the last three weeks, to a level above Sweden and Finland. Professor Wilhelm Hankel of Frankfurt University said, "Germany cannot keep paying for bailouts without going bankrupt itself. This is frightening people. You cannot find a bank safe deposit box in Germany because every single one has already been taken and stuffed with gold and silver. It is like an underground Switzerland within our borders. People have terrible memories of 1948 and 1923 when they lost their savings." Even the German finance minister Wolfgang Schauble complained that Germany was drowning in debt. The plans to double the size of EU sovereign debt rescue is having deep impact. The European Financial Stability Facility (EFSF) fund cannot cope with a triple bailout for Ireland, Portugal, and Spain. Then Italy is next, with its 2 trillion Euro debt and its Govt bond yield that was rising 10 basis points per day for a while recently. Then Belgium is next, although small. The original EFSF fund launch last May was a small down payment, which opened to door to vast torrents of new aid but now resistance. The EU proposals in late October for creditor haircuts (shared bondholder losses) have triggered capital flight, removed bond bids, and bond yield increases. Germany shook the table and much fell off.

Axel Weber of the Bundesbank conceded that Portugal and Spain would need bailouts. He believes EMU governments will have to post more money to bolster the fund, like 750 billion Euros. The upshot in the last couple weeks is that Germany has given much greater focus to native German interests, its stability, its neighbor burden, and its future, more than in the past. Such a stance is commensurate with cutting loose and establishing a new Nordic Euro currency. The fate of Europe, the union and the common currency, could be decided by the German constitutional court as it rules on several key cases challenging the legality of the Greek bailout, the stability rescue fund machinery, and EuroCB bond purchases. A co-author of a court complaint, Hankel concluded "There has been a clear violation of the law and no judge can ignore that. I am convinced the court will forbid future payments." The EU debt crisis should take a dramatic new turn in February. See the UK Telegraph article (CLICK HERE). Pay note to the comment about people hoarding gold & silver in bank safety deposit boxes, as they fear a big blowup in the monetary system. Germany has pushed up the gold price in Euro terms.

◄$$$ EUROPE HAS TWO PROBLEMS, THE ABSENT EURO CURRENCY COHESION AND THE IMMINENT UNION BREAKUP. THEY ARE INTERWOVEN. DELUSION BRIMS WITH MERKEL AS ITS HIGH DEMAGOGUE. WHILE AGREEMENTS ARE MADE IN PRINCIPLE, THE REAL DEALS HAVE BEEN DELAYED UNTIL 2013 ADMIST UNUSUAL UGLY BICKERING. CRISIS WILL NOT WAIT UNTIL THEN. THE NEW E-BONDS ARE A CONTRAPTION DEAD ON ARRIVAL, AND THE BONDHOLER LOSS ASSURANCE KEEPS THE CONFLICT ALIVE. $$$

A European Union accord appears to have been forged, although it has no substance. The politics are smoldering much like the riots in major cities. Words were exchanged but decisions on real issues were postponed. Nice sounding speeches regarding solidarity by German Chancellor Angela Merkel will not solve the European debt crisis. A big new bone to fight over is bondholder losses. The systemic EU approach to long-term stability seems to be much like the US solution, kick the can down the road. Like with the US though, the kick is quickly turning nuclear. In a commitment to the union Merkel actually said, "No one in Europe will be left alone, no one in Europe will be abandoned. Europe succeeds when it acts together and, I would add, Europe succeeds only when it acts together." Impressive words were not followed by much action, since solution is impossible. This is demogaguery. The concept of a new omni-EuroBond faces rejection, which Merkel refuses to accept as viable or acceptable. Pooled debt is not in the German plans. Merkel opposes a $1 trillion superfund for bank bailouts also. She opposes all the planks toward unity.

The bond haircut issue is huge. Ireland's finance minister Brian Lenihan stated sharply, "Those who think we can unilaterally renege on senior bondholders against the wishes of the Euro Central Bank are living in fantasy land." He does not believe losses can be dictated against the firm EuroCB support, but then again, his entire government is about to be tossed out like the weekend trash after a festive party. Constant relentless sequential support of the big banks has resulted in fierce public opposition and objections, the focus on urban riots. Their placards contain the word SLAVES and THIEVES often. Bickering has come between Germans and the Luxembourg prime minister Jean Claude Juncker, who calls the Germans thought process as simplistic and dismissal before investigation, a sign of intractability. As time passes, Germany is more isolated, which it might actively desire. It can stand alone with its main allies.

The principal EU parties have come to a vacant accord, an agreement to agree in 2013, which seems like a poorly written television show. European Union divisions have widened over the best pathway to contain the debt contagion that threatens the Euro Monetary Union. The Brussels summit seems a hollow gathering without motive or courage to face big problems that defy solution. Open intense conflict has come among Merkel, the European Central Bank and its chief Trichet, the Luxembourg Prime Minister Juncker, and the German domestic opposition (intellectuals, corporate heads, economic counselors). The summit is deeply committed to empty platitudes that have been already swept away under the sovereign debt bridge. The German delegation is committed toward specific provisions for bondholder losses and against financial aid unless as a last resort. As seen with Greece, the Germans have been politically adept at forging deals that crumble later on, in my view intentionally so as to cut the cord passively with their Southern neighbors.

Merkel is adamant about no more fund infusion. She is pitted against the EuroCB and Trichet, who wants more German contributions to the aid fund. The ECB has bought 72 billion Euros worth of PIIGS toxic debt since May with no broad European member nation support, a practice that angers Germany. The other dead horse is the EU new omnibus bond concept, the E-Bond, precisely what Berlin does NOT want, no way, no how, not now, not ever. Germany wants an end to the mess, and separation, but cannot state this desire in open words. They resent the irresponsible, wasteful, inefficient, corrupted PIIGS nations, whose exports feature songs & dances. Delays and postponement until some magic date in 2013 is a big step into fantasy land, since the crisis will gallop ahead and trample banks much sooner. The only indisputable reality is the firm split in the EU on a solution procedure. The major sticking points, each finding little support, kicked down the road, are bondholder haircuts, debt guarantees, E-Bonds, fiscal policies, and debt rescues. See the Bloomberg article (CLICK HERE).

QE2 BACKFIRE ON USTREASURYS

◄$$$ THE USTREASURY BOND HAS CAUSED SERIOUS STRUCTURAL DAMAGE AND HAS SPAWNED SOME MAJOR CONFUSION. MORTGAGE RATES ARE RISING IN CORRESPONDING TERMS, PAST 5.5% ON THE 30-YEAR HOME LOAN. A BREAKDOWN IS IN PROGRESS. BUT A RESCUE SHORT-TERM BOUNCE IS IN THE WORKS. MULTIPLE RISKS HAVE THE USFED SCARED TO DEATH. $$$

The breakdown in the USTreasury long-dated bond over the last several weeks has been both breath-taking, profound, and confusing. The UST 10-year bond principal has careened over the cliff, struggling to find support from the 50-week moving average. It has found it at the 121.5 support level, for now. In the next couple months, look for the important moving average crossover if the 20-week MA falls below the 50wMA, a huge bearish technical signal. The bond decline has important implications for the USEconomy in many respects. The backfire raises rollover finance costs for the USGovt, and raises the mortgage loan costs. The 30-year home loan rate has climbed from a 3.25% low to 5.56% at last count. Recall that Bernanke proclaimed the QE2 Launch was to bring down and hold down long-term interest rates, thus providing stimulus to the USEconomy. He is a revered clown. The precise opposite is occurring. As a result, the USGovt deficit will rise and the recession will accelerate. Look for the QE2 to ramp up quickly in order to rescue the USTreasury breakdown evident in both the 10-year and 30-year bonds. The entire 0% regime and USGovt borrowing costs are at great risk, with the USEconomy and housing market exposed for deeper problems.

The pundits and harlots on Wall Street and from the White House might boast of a stronger economic situation as being the cause for higher long-term rates. Not true!! Attention to the long end of the USTreasury curve has shifted firmly towards the inflationary effects of the Quantitative Easing, and the unbridled rise of USGovt deficits. In a sense, the market has thumbed its nose at the FOMC and rendered the initiative a failure out of the gate. The motive for the QE2 will quickly shift, perhaps in publicly stated fashion, to the USFed support of the USTBond in a difficult environment. My view from the start was that QE2 was designed to replace vanishing demand from USGovt creditors and to legitimize debt monetization. What most even well informed gold community folks fail to realize is that the USFed has been monetizing in extremely heavy volume for years, in order to prevent failed USTreasury auctions like those in Germany. The QE2 announcement showed the USFed coming out of the closet, seeking public approval with such speeches. They wish to have plausible deniability in small degree of having warned of their destruction that comes. They have been monetizing over half of new USGovt debt for at least two years, and not too effectively hidden. Long-term rates are rising even on the 5-year USTreasury yield, and shockingly. Its yield has gone from 1.1% from the beginning of November to 2.1 last week. Some USGovt borrowing is on the 5-year maturity. The speed at which the bond market is breaking down is amazing.

Give Fed Governor Hoenig some credit for his steady warning about the potential for strong inflationary pressures. But his colleagues will shout him down, pointing to the imaginary economic growth. Instead, the GDP growth will be pure price inflation, not properly adjusted, called growth, precisely as the Jackass described in the last two monthly reports. With the implied desire to produce inflation, the bond market is selling off in predictable form. My wrong forecast was for a 2.0% low on the 10-year yield, but that has been interrupted by basic wisdom. Lastly, the irony of the price inflation denial is this. All observers agree that producer prices are rising, but they deny that end products will rise commensurately in price. Therefore, they SHOULD conclude that profit margins will vanish, and thus the engine for job security will sputter. Job layoffs would ensue if end products do not rise in price. Their contradictions are laced throughout their faulty mental processes. Witness the slow motion death of the USFed itself. They are scared to death.

◄$$$ THE COMMODITY INDEX IS JUMPING LIKE A FIRE LIT UNDERNEATH. THAT FIRE IS THE QE2 INITIATIVE, NOT EVEN FULLY UNDERWAY. THE USECONOMIC COST STRUCTURE IS BEING ELEVATED IN FRONT OF OUR EYES, AND PROFIT MARGINS ARE ERODING TOO. LABOR MARKET PRESSURE IS NEXT. THE UNINTENDED CONSEQUENCE IS FAST RISING COSTS, BUT THE EFFECT WILL BE CALLED ECONOMIC GROWTH, AS THE FINAL PROPAGANDA!! $$$

Consider the Continuous Commodity Index, whose persistent rise reflects the decline not just in the USDollar but all currencies. Money on a global basis is being debased. Price inflation is directly beyond the next curve in the road, seen first in costs. It always arrives after a series of USFed monetary press initiatives. The bond market has reacted far faster than many (including the Jackass) expected. One might suppose that QE1 was 'Burn Me Once' but QE2 would not be 'Burn Me Twice' upon second thought. It is vividly clear to sound money analysts, that QE2 has already backfired badly in the USFed's face. Rising interest rates, rising mortgage rates, sliding USDollar, the direct effects surely to unfold from a uniformly rising cost structure, and worse economic recession. The real motive for QE2 was to provide a buyer of last resort for the USTreasury Bond, but without saying so, since price inflation was imminent. Nobody wants the USGovt debt security anymore. The main global buyers are those foreign creditors and export nations who must grudgingly defend from their own rising native currencies. The rising cost structure is happening in powerful fashion, precisely as the Jackass forecasted, an easy call. THE PLANNED AND CONTINUED QUANTITATIVE EASING IS PURE CANCER, NOTHING BUT HIGH GRADE INFLATION IN PUREST FORM !!

◄$$$ THE USGOVT FINANCES ARE SO WRETCHED THAT MOODYS HAS WARNED OF A POTENTIAL FOR DEBT DOWNGRADE. THEY THREATENED A NEGATIVE OUTLOOK, JUST WORDS. THEY ARE A YEAR LATE IN SUCH A STATEMENT. THE PROPOSED TAX PACKAGE IS DETRIMENTAL FOR THE CREDIT PICTURE, BUT THEY CLAIM POSITIVE FOR ECONOMIC GROWTH. THEY EXAGGERATE THE BENEFITS, FROM SINGING TO THE KINGS COURT. $$$

Moodys has warned of an increased likelihood of negative outlook, such as a markdown from Aaa rating in the next two years. They are extremely late to make such a statement, but at least they are first to do so among the collusion craftsmen of credit ratings agencies. The USGovt credit scores will suffer mightily during the cumuilative debt march from $13 trillion to $16 trillion in the next two years, a shock event to come with raising the debt ceiling by the USCongress. The validation of my claim of eventual USTreasury default is coming, step by step, inexorably. Give some credit to Moodys for kicking sand at the Wall Street controllers of USGovt finance, but give them criticism also for defending credibility with mere threats and no actual debt downgrade. The USGovt is caught in a vise. It cannot afford stimulus anymore, having squandered past opportunities with TARP Funds for big bank redemptions of mortgage bonds, empty Stimulus Bills, lack of corporate incentives to create jobs, a gaggle of pork projects, endless worthless vacant home loan modification ruses, and endless war. The tax package does contain some worthwhile features and provisions. The vulnerability of the USGovt credit exposure renders the tax package as on the mark but very costly and late, while the locomotive has already gone over the cliff. Keep in mind that the USGovt is not even in the same universe as European nations on austerity. The United States is moving in the opposite direction, accumulating even more gargantuan deficits. The $1.5 trillion annual deficit is becoming entrenched, an American fixture of failure and shame.

The Moodys statement contained many details on the effects of the proposed consensus Obama Admin tax package, since approved. Among the many points made were some conclusions. Moodys stated, "If the tax and unemployment benefit package agreed to on December 6th by President Obama and congressional Republican leaders becomes law, it will boost economic growth in the next two years, but adversely affect the federal government budget deficit and debt level. From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth. Unless there are offsetting measures, the package will be credit negative for the US and increase the likelihood of a negative outlook on the US government's Aaa rating during the next two years... The net cost of the proposed package of tax cut extensions, payroll tax reductions, unemployment benefits, and some other measures may be $700 to $900 billion, raising the debt ratio to 72% to 73%, depending on the effects on nominal economic growth. The government's ratio of debt to revenue, instead of declining rather steeply over the two years from about 420% at the end of fiscal year 2010, would decline considerably less to somewhere just under 400%. This is a very high ratio compared with both history and other highly rated sovereigns." Moodys is delusional about growth prospects. They too are fully willing to call price inflation as growth. The majority of supposed benefits from any federal bill to stimulate growth will come from price inflation, while the lack of industrial base makes traction difficult. See the Zero Hedge article (CLICK HERE). Each shock wave from the tax package fallout is negative for the USDollar and positive for Gold price, since new money is turned into greater debt. While the Euro currency administrators are working toward closing their budget gaps, the USDollar administrators work to expand the budget gap with perceived impunity and assumed privilege.

◄$$$ THE T.I.C. REPORT REVEALED A GLOBAL SHIFT AND THE ENTRENCHED CAMPS WITHIN THE CURRENCY WAR. SOME NATIONS ARE IN REVOLT AGAINST THE USDOLLAR. OTHER NATIONS ARE HIDDEN PLAYERS IN THE ILLICIT DEBT MONETIZATION SCHEME, UNDERMINING USGOVT DEBT SECURITIES. AND EXPORT NATIONS DEFEND THEIR EXPORT ECONOMIES. THE ONLY WINNER IS GOLD. $$$

A simple table tells a big story, of USTreasury Bond holdings by major nations from the Treasury Investment Capital (TIC) report. Aid is given to see the major movement with green ovals. Compare the arrow present to the circled data points. Three major points can be made and supported in the data. First, the Eastern Alliance leads the revolt against the USDollar, run essentially on financial policy of state by Wall Street, a fraud center. Notice China had reduced its USTBond holdings from $900.2 billion in April by around $56B in two quick months. But from July to September, they added $22B and then $15B. The original motive was to abandon the USTBond and reduce US$ risk. But they reversed course to stem the rise in the Yuan currency, an unwanted development. This effect is at the heart of the Competing Currency War, as nations cannot setp away from the USDollar without rendering harm to their export trade. Russia has simply reduced without interruption or reaction, as they sold $23B since November 2009. Russia and China are at the core of the nations in revolt.

Second, the US-UK axis of fascism and center of illicit financial controls showed its hand in plain fashion. The United Kingdom, despite being locked in an intractable downward spiral with insolvent banks, wrecked home equity, and horrendous national deficits, has somehow seen fit to increase its USTBond holdings by more than triple, from $126.8B in September 2009 to $459.1B. All hail the queen! as the United Kingdom reveals itself as the owner of the US Federal Reserve, and steps forward to act as principal buyer of USGovt debt in the (not well) hidden monetization scheme that has steadily been denied by USFed Bernanke (liar). The Caribbean Centers have also done a good job of piracy acts, adding $45B in holdings since October 2009. The Caribbean is a common breeding ground for illicit USFed storefront firms to evade USCongress and their lazy watchful eye. Bear in mind that the United States, the United Kingdom, and the clandestine Caribbean are buying printed illicit USTBonds in secrecy, undermining the USGovt debt securities, adding instability to the global reserve asset, and deeply angering USGovt creditors. The triangle pattern is not new, very well established.

Lastly is the direct opposition. Third, several nations openly combat their own rising native currencies by purchasing bubbly high valued USTBonds reluctantly. See Japan, with an added $97B in USTBonds since February. See Canada, with an added $74B in USTBonds since Sept 2009. See Switzerland, acting as safe haven in Europe, with an added $21B in USTBonds since Sept 2009, a triple in volume. The Competing Currency War has participants involved in the debt monetization (euphemistically called Quantitative Easing). The war has participants in revolt, trying to unload part of their vast risk-filled hoard of USTBonds. The war has defensive participants, intent to prevent their rising native currencies as the USDollar descends into the depths. The only winner in this ugly war is Gold & Silver.

◄$$$ THE USFED IS THE LARGEST HOLDER OF USTBONDS. A PRESCRIPTION FOR ENDING THE USFED AND GETTING RID OF IT COULD BE AN END-AROUND MOVEMENT BY THE STATES. THE STRANGEHOLD BY THE BIG USBANKS WILL NOT PERMIT ANY CONGRESSIONAL DECISION TO ABOLISH THE USFED, OR EVEN AUDIT IT THOROUGHLY. $$$

The Federal Reserve is now the largest holder of US debt, soon to turn from bubble to toxic. Not only are China and Japan vulnerable to a US default, so too is the US Federal Reserve. It would indeed be justice if the USFed collapsed under the weight of their own toxic balance sheet. A clever but drastic alternative, however, is a Constitutional amendment that bypasses the US Congress. This is necessary because powerful interests would prevent the US House or Senate from ever repealing the Federal Reserve Act. Only by using state legislatures could the USCongress and powerful banking interests be circumvented. The second method prescribed is for a Constitutional Convention to be called by two-thirds of the legislatures of the States, and for that Convention to propose one or more amendments. These amendments would then be sent to the states to be approved by three-fourths of their legislatures. This route has never been taken, and there is discussion in political science circles about just how such a convention would be convened, and what kind of changes it would bring about. See the US Constitution archive (CLICK HERE). Maybe Homeland Security thugs would mug and assault members during such a convention, or even give them strip searches, or have them arrested for unlawful assembly or trespassing. Let's see if the lapdog US press covers the event.

For a state end-around to happen, conservatives and liberals would first have to join forces in order to overcome the powerful elites that will seek to maintain the status quo. Special interests in both parties have a vested interest in the present monetary system and will do everything possible to save the USFed, no matter how destructive it is to America. The USFed is a grand elite centrifuge and money laundering checkpoint. If Americans want to end the USFed, they must actively cooperate in what would be the greatest political undertaking since the American Revolution, or passively wait for a cataclysmic economic collapse to make that choice for them. In my view, only these two outcomes can occur as continuation is not viable.

EERIE CALM AMONG CURRENCYS

◄$$$ EUROPEAN NETWORKS HAVE REVEALED THE DUAL EURO CURRENCY PLAN. CONTRARY TO SHALLOW US-BASED THOUGHT, A UNITED EUROPE IS NOT WHAT GERMANS DESIRE. A TWO-TIERED CURRENCY IS INEVITABLE, NOT FOR CONVENIENCE, BUT FOR SURVIVAL. THE DIVISION WILL BE OF NATIONS AS DEBTOR AND DEFICIT AND UNSTABLE VERSUS NATIONS AS CREDITOR AND SURPLUS AND STABLE. THE SPLIT MIGHT BE TIMED WITH THE HANDOFF FROM THE RETIRING TRICHET AT THE EURO CENTRAL BANK. $$$

The Euro currency split is assured, just a matter of time. Whether by means of a leak or from careful sharing of plans, the story is coming out. The continent is preparing itself for two Euro currencies, a sick one and strong one, a debt ridden one and another fortified by much more healthy economies laden with surpluses. After two years of ridicule and contempt, the urgent necessity has become apparent, even obvious. My longstanding position has been that unless and until a nation or group of nations can break free of the USDollar, they will suffer a downward spiral of financial breakdown, economic ruin, and systemic failure. The same has turned true of the Euro ties. If Germany does not cut loose from the sinking Southern nations in the PIIGS pen, they will succumb to the same fate. Think of a drowning man loaded with bricks in his pockets, clinging desperately to his friends. They go down together, until the strong swimmer without the brick burden cuts free. The single common Euro currency was faulty from the start. The hope of the original framers was for the entire continent to adopt the German industriousness, their financial prudence, their efficiency, but that has proved a delusion and a view in incongruity with tribal nature. The Southern nations cannot develop export trades, as they lack ingenuity, discipline, and strong work ethic. As each nation emerged with its own interest rate on marked EuroBonds, the heterogenous nature of the Euro became obvious, even the target of arbitrage. Traders snuck in EuroBonds with Spanish markings and traded them for those with German markings, pocketing the difference in bond yields. Fast forward a few years, and the differentials are ripping the Euro currency apart. In fact, the common currency is an utter joke, given the fractious differences. In no way does Germany wish to continue bearing the annual $300 billion cost of keeping the union together. In fact, 90% of the German public want no more common Euro currency.

A fragmentation will take place between a hard healthy core and a soft rotten periphery. The intractable economic divergence and built-in monetary imbalances can no longer be sustained within a union, nations tethered together. Worse, creditors demand immediate change, as the sovereign bond arena has become fractured, broken, and unstable. At the very least, and probably initially, the core Euro will emerge after jettison of the sick Southern partners. The Nordic Euro with German, Benelux, Austrian core will invite special strong allies like perhaps Liechtenstein, Finland, and Denmark. The rest will struggle with a Latin Euro that will be devalued rapidly and significantly. The bad consequence is that the Latin nations will deliver powerful sovereign bond losses to their creditors in the devaluation writedown process. The good consequence is that the  Latin nations will enjoy some constructive stimulus from the enabled currency devaluation, as exports will be marked down in price for external markets. The split will be of debtors versus creditors, of high inflation economies versus stable economies, of trade deficit nations versus surplus nations. It is that simple. Monetary, technical, institutional, and cultural ties will continue between the two groups. Regard the split as a preliminary step to a more stable additional transition, a step in evolution. Eventually, Greece, Spain, Portugal, Ireland, and Italy will choose to revert back to their native currencies, out of nationalism, out of control, out of independence, out of stubbornness. It is inconceivable that Spain and Greece will share any policies whatsoever, except during a transition when cut loose by Germany. The global nationalism movement is ripe.

On the other side, the new Nordic Euro currency will eventually take on a gold component. It is already in the planning stages, a difficult development process. The schedule is for launch in June 2011. My personal belief is that a delay will come, but its launch is a certainty. The global players demand a more stable currency core. They demand a return to a gold standard in some form. The inevitable split represents a grand insult and blotch on the Trichet resume. The word Euro has become joined with the word crisis and breakup. Instead of embracing Eastern Europe and ascending to the global stage, with a Euro Central Bank demi-god like the Greenspan idol, Europe is fracturing, just like it always has for 1000 years. It is an amalgam of pervasive tribal differences and deep nationalistic uniqueness, which should be celebrated, not coerced to unity and conformity. Actually, the future involves resolution of twin problems, forming at least two Euro currencies, and dissolving the meaningless powerless European Union. The mockery from inside the EU Parliament have been memorable. It is doubtful that the handoff from Trichet to the successor as EuroCB chief will even happen. The leading candidates are led by Axel Weber (Bundesbank), Mario Draghi (Banca d'Italia), or Wim Duisenberg (former Netherlands central bank). Do not expect Weber or Draghi to pursue the post, which will go to a caretaker, not a chieftain. Weber is stubborn about opposition to inflation. Draghi is tarnished by past association with Goldman Sachs. See the Yahoo Finance article (CLICK HERE).

◄$$$ THE EURO IS IN CROSSHAIRS OF ATTACK TO SUPPORT THE USDOLLAR. AMIDST THE FRACTURED GLOBAL MONETARY SYSTEM IS THE CHALLENGE TO MAINTAIN AN EERIE CALM AMONG THE MAJOR CURRENCY EXCHANGE RATES. THEY HAVE BEEN UNMASKED AS MERE DEBT COUPONS, A NASTY BYPRODUCT OF THE EUROPEAN SOVEREIGN DEBT CRISIS. $$$

The monetary crisis is obvious from the sovereign debt linkage, still not clear in the United States like it is in Europe. The major currencys are backed by cratering debt under assault, often directed by Wall Street firms using their Credit Default Swap weapons. A tragedy unfolds with the USDollar showing deep flaws, then the Euro doing the same, then repeated. Meanwhile, an eerie calm must be maintained to avert a global panic. FOREX reserves are being swapped from government bonds to Gold. The crisis will spread to the UKGovt with UKGilts and to the USGovt and USTreasurys, when a higher quantum level of instability and turmoil will come, all in time. For now, the Wall Street helmsmen find an easy target in the Euro currency to conjure up weak-knee shallow support for the USDollar. Witness the race to the bottom.

◄$$$ ESCALATING CIVIL UNREST AND RIOTS MIGHT PUSH THE EURO CURRENCY TO A SPLIT, AND PUSH THE UNION TO THE BRINK. THE CONTINENT IS NOT MOVING TOWARD A STABILIZED NEW SETTING, BUT RATHER SOMETHING VIOLENT. FRUSTRATION BUILDS AS A PATCHWORK OF FEEBLE SOLUTIONS ACCOMPLISHES NOTHING. EUROPE LACKS THE INTERNAL FINANCIAL MECHANISMS TO BRING EVEN TEMPORARY STABILITY. $$$

The week of December 17th might go down in European history as a turning point. With the European Union in disarray, its member nations debt going bust, budgets in hot debate, austerity measures considered, the Euro currency in flux (think split), the continent has had six locations for urban riots. In no way, is the path followed toward a normalcy with embedded stability. Nic Lenoir of ICAP believes the continent is heading toward several pockets of civil war. With voter activity way up, in direct response to sky high unemployment and poor economic prospects, the angst under the surface is enormous. The public consensus is of a lack of leadership, a lack of courage to face the problems, and a lack of solutions. The people have taken to the streets, and admist the frustration have decided to burn things, anything. The sovereign debt condition is at the heart of the problem, in the process of being rejected by the bond market. Reaction has been budget cuts, pension cuts, and project cuts.

As Lenoir said, "Looking into what chaos will look like for the financial markets, the elephant in the room is the Euro. The only way it survives in any form is if countries start defaulting. Until then the problem will not go to rest. I strongly believe that defaults are much like treating generalized infection by cutting the worst looking limb. The problem is at the core, in the way it is designed. You cannot manage drastically different economies of countries with dramatically different cultures and laws using the same currency and interest rate curve. Defaulting takes care of the current debt accumulation by poorer countries trying to keep up with the Euro... Defaults are necessary, whether it is via outright haircut on debt repayment or by breaking up the Euro with the debt being re-denominated in original currencies using the Euro conversion, in which case a subsequent and immediate currency bloodbath for the PIIGS would be the defacto default. The problems in the Eurozone will not go away, all the temporary fixes European politicians are trying to throw at the problem are less and less effective, because the market sees that the Euro itself is broken, and so the placebo effect has a shorter and shorter life cycle."

A divergence in the bond market indicates a stress fracture and change in events. Two weeks ago, the sovereign CDSwaps in Europe were almost at their widest levels, but the US swap spreads had tightened back to their lowest levels in over a year. European banks have mountains of unsecuritized loan portfolios that must be funded in US$ terms, which cannot be pledged against Euro deposits or to a central bank. The Euro Central Bank has contributed to the festering problem, as they manage numerous spurious programs that permit almost any toxic assets to be pledged to them for cash. In fact, the EuroCB leverage is about six times greater than the USFed. Lacking the under-carriage of a shadow banking system (i.e. dizzying credit derivatives), the European banking system tends to freeze up quickly and falter with grand momentum. The crux of the debt finance challenge in the EU is that Germany wants no more subsidies of crumbling Southern neighbor, in support of their waste, inefficiency, and corruption. Lenoir points out that the USCongress would object strongly if every annual budget contained $100 billion in Mexican aid. Error! By comparison, with Germany one quarter the size of the United States, and the PIIGS nations so numerous, imagine annual aid for two Mexicos and a cost of at least $800 billion per year for the USCongress in any direct comparison!! See the Zero Hedge article (CLICK HERE).

◄$$$ CHINESE YUAN HAS FOUND TIES TO THE RUSSIAN RUBLE, AS THE MOVEMENT TO ABANDON THE USDOLLAR IN TRADE CONTINUES. GLOBAL TRADE IN YUAN CURRENCY HAS EXPANDED, STILL FLEDGLING THOUGH. THE ULTIMATE DISMISSAL OF THE USDOLLAR WILL COME IN GLOBAL SETTLEMENT OF TRADE CONTRACTS, INCLUDING CRUDE OIL. THE MOVEMENT TOWARD YUAN CONVERTIBILITY IS INEVITABLE, AS IT COULD BECOME THE GLOBAL RESERVE CURRENCY. $$$

Bilateral exchange began in the interbank market in late November, with little fanfare or notice by the Western press. The Chinese Yuan has begun to trade actively against the Russian Ruble. Word came from the China Foreign Exchange Trade System (CFETS), a subsidiary of the Peoples Bank of China. The central bank will calculate the daily reference rate by taking an average of quotes from commercial banks designated to act as market makers. A decision on trading of forwards and swaps between the Yuan and the Ruble will be based on market demand as time passes and usage expands. The introduction to these two major Asian powers will actually facilitate bilateral trade between China and Russia, and further the movement to use the Yuan in regional trade settlements. Zhao Qingming is a senior analyst at China Construction Bank. He said, "The pace of internationalizing the Yuan is accelerating. The direct trading between the Yuan and the Ruble will help expand trade settlements in the two currencies."

China has embarked on a path toward greater use of its currency for cross-border transactions, thus reducing reliance on the USDollar. Regard the move as a response to baseless annoying constant claims of currency manipulation by the USGovt. Chinese leaders are openly worried about their FOREX holdings in US$-based securities, but they are stuck, having made a deal with the devil ten years ago. Purchases of US$-based bonds contributed to a $194 billion increase in Chinese reserve asset holdings in 3Q2010, lifting the total to a record $2.65 trillion. The most recent purchases were designed to contain the rising Yuan. Officials at the Peoples Bank of China in Shanghai branch estimate the value of such containment related transactions should reach 200 billion Yuan by the end of year 2010. Given that the total for the first nine months was 197.1 billion Yuan, expect it to surpass the stated mark easily.

The Yuan will increasingly be used in global trade and finance. The first toe-hold for the Yuan was with Brazil. The second was with Russia. The financial sector is the domain of Western dominance, but the trade arena is the domain of dominance for Western rivals, especially those involved with the USDollar revolt. The value of international trade transactions settled in the Chinese currency totaled 126.5 billion Yuan (=US$19 billion) in 3Q2010, a level 160% greater than in the quarter ending in June, according to the Peoples Bank of China. In my view, the displacement and dismissal of the USDollar from its arrogant lofty perch will come from its abandonment in trade settlement. As bilateral agreements continue to be forged with China, the US and Western Europe will increasingly become isolated. The Chinese Govt first approved Yuan usage for trade settlement in July 2009. Despite the focus on trade settlement, the convertibility of the Yuan has expanded considerably in the finance side in the last two years. China started allowing the Malaysian Ringgit to trade against the Yuan on August 19th. Currency traders can buy and sell the Yuan against the USDollar, the Euro, the Yen, the Hong Kong Dollar, and the British Pound.  See the China Daily articles (CLICK HERE or HERE). Without any concerted effort to create a new global gold-backed currency, the Chinese Yuan will gradually operate side by side with the USDollar in pure evolution toward stability.

THE GOLD RUSH GOES GLOBAL

◄$$$ AN UPDATE CAME ON THE KING WORLD NEWS AND CHINESE BULLION PURSUIT, THE GREAT LEAKED STORY. THE ASIAN BUYERS ARE SHOWING PATIENCE, LETTING THE PHYSICAL MARKET COME TO THEM, MEANING ALLOWING THE PRICE TO FALL INTO THE ZONE OF THEIR MASSIVE STACKED ORDERS. THEY HAVE BUILT A VERITABLE CHINESE WALL OF LONG GOLD ORDERS AGAINST SHORT USDOLLAR ORDERS, IN A VAST ARBITRAGE. AT ANY TIME THEY CAN DEMAND FULFILLMENT OF ORDERS AND BRING DOWN THE COMEX. THEY CHOSE LONDON FOR MANY REASONS. $$$

The London broker has updated King World News on the Asian buyers activity. They are in the process of accumulating massive amounts of gold & silver bullion. Their unstated objective is to wreck the Wall Street and London bankers, whose corruption has overflowed on the global stage. The Asian buyers are Chinese, and their motive is to end the reign of financial terror by the Anglo bankers, to end the corrupt control of financial markets, and the fight the battle on the small precious metals field of deep Anglo vulnerability. The Gold & Silver market serves as linchpin for the USDollar and in sequence the USTreasury Bond and purchase power of foreign goods (like OPEC crude oil and Asian electronics). The Chinese are motivated to respond to endless charges by the USGovt of currency manipulation when the US is the most flagrant nation in such regular large scale violations. The Asians are exercising patience in converting a huge amount of precious metal spot purchases to physical bullion, financed by a bottomless pocket of USTBonds. The Asians are aggressively exchanging USDollars for gold and silver spot transactions. They are lining up a grand Chinese Wall of orders that essentially place long Gold orders and short USDollar orders, executed in London where the US$ is not the base transaction currency. At any time, they can demand delivery and bring down the COMEX house. Regard their scheme as a trap door constructed for the US to enter the Third World. The grand maneuver requires patience and persistence, a scheme well suited for the Chinese culture known for its patience and long-term strategy.

The London Deep Throat source stated, "Last week Asian buyers let the price come in to them. They were buying all day long, hitting all of the offers and they were not sending the price higher. As much as the orchestrators were hitting the bids, there were some smart buyers hitting the offers. The thinking was, I can pick up tonnage here, literally. On the surface [the futures contract situation] does not appear to have anything to do with the physical market. The spot buyers are indexing, and this is what no one is talking about. They are indexing the metal to the real physical even if they cannot get the physical metal at that moment. [China is] putting up a few billion dollars. China was refused IMF gold. So they are going to quietly sell USTreasurys, or swap USTreasurys more likely for a spot financial transaction. What they are doing is buying spot, which is a currency transaction because you cannot get the metal. The physical market has now completely diverged from the paper market. The only way to fight it, and it cannot be done in the United States, but it can over here in England (the Asians can), is to buy the foreign exchange transaction which is gold versus dollar, silver versus dollar. So essentially what they are doing is shorting the dollar versus gold, or shorting the dollar versus silver.

The great thing about that is even if they cannot buy the physical, they are now indexed to the price of the metal. So even if they cannot get the physical at that time, they now have a hedge, in essentially what they want. So if the price of gold and silver goes up, the price of their spot goes up. Even if the COMEX defaults, spot will go up. Even when the market is taken down, it is constructive in terms of filling the physical orders. As they take the price down, they are happy to pay a premium to pick up the physical. The point of all of these purchases is to eventually convert them to physical gold, or physical silver, 100% of them. The Fed has to know this; they are not stupid. If these guys converted all of their spot to physical, there would be a massive default today. No one in the United States understands that. The Asians are laughing at these guys. It is a way to unload billions and billions of dollars into the market. Looking at the futures market gives you a totally false impression of what is going on, as this is going to totally blow up. China's primary goal is to get out of trillions of dollars, that means purchasing hard assets such as gold and silver. It is eventually going to blow because at some point these buyers will say, 'I AM INDEXED, BUT I ACTUALLY WANT TO GET ALL OF THIS PHYSICAL GOLD & SILVER NOW.' When that happens, the game is over."

Some summary thoughts. The Chinese, through their London brokers, call their strategy indexing. The Chinese are laddering of a series of gold & silver contracts at spot scaled in various prices and at various points in time. They are all paper contracts to secure physical metal. In London, contracts are customized, not the standard shelf items like the futures contracts. In London the Chinese found some willing brokers to execute their massive array of scaled trades, in which they took on the role of counter-party on the long side for spot gold and short side for the USDollar. Ditto for spot silver. The London market has the added convenience of having some hours in overlap with China during office workdays, unlike New York. The global markets operate like a daisy chain of open hours with handoffs and wakeup calls. In London, a more fair market is manifested in the execution stage, more of a handshake. No upfront payments are made until metal is on the loading dock ramp.

There is nothing unique to operating in a market environment that is not native USDollar. The Chinese buyers could have used the IMM (Intl Monetary Market) in Chicago, a division of the CME, to put in place matching currency positions to short the USDollar against their gold contracts. But doing so would open up the Chinese to the US Homeland Security and their Gestapo questioning about large amounts of money, about terrorist motives, and even completion of money laundering forms. Perhaps the USGovt threatened to declare $billions in long gold contracts an act of terrorism. The delivery process is cumbersome in New York. One must contend with delivery windows, notice days, proof of payment, contract approval, and more. Worse, the buyer must put money upfront and then wait, sometimes for a month. It is check kiting in basic flagrant form. Therefore, the counter-party risk for the buyer is acute, since the opposite side of the contract being exercised might go bust, go into limbo with legal prosecution, or vanish entirely, during a considerable timespan. That is why very little global gold purchase takes place in New York. Thanks to my friend and colleague Rob Kirby for some explanations here. Kirby has a suspicion that Eric King does not understand many elements of the Chinese grand play because of the index descriptions and short US$ contracts.

◄$$$ THE LONDON DEEP THROAT EXPLAINED A MAJOR THREAT TO JPMORGAN FROM THE USTREASURY SELLOFF AT THE LONG MATURITY (10-YEAR & 30-YEAR). IT THREATENS THE VERY EXISTENCE OF JPMORGAN, SINCE THEY RELY UPON THE USTREASURY CARRY TRADE TO ENFORCE A FIRM 0% SHORT-TERM RATE WITH HEAVY LEVERAGE. IT IS BLOWING UP. SO JPMORGUE MUST DO HARM TO GOLD & SILVER, OR ELSE IT BECOMES A USGOVT BOND ROUT!! $$$

The same London Deep Throat made comments about the actual gold price movement, the strength of support, and short-term price potential. The timing of the comments was around December 8th and 9th, after gold had been knocked down from $1425 to $1375, when the gold price was seeking support. More nasty naked shorts were thrown at gold by the usual Big Four USBank suspects. Notice the comments about the USTreasury carry trade played by JPMorgan for typically work-free no-sweat massive profits. The scheme usually is like taking candy from a baby, the primary mechanism for keeping interest rates low in the midst of gargantuan yawning USGovt deficits. But the USTreasury bull has left town. The easy money carry trade scheme, urgently levered to keep the 0% stable environment, is blowing up in their faces. The London source said, "A bunch of the weak hands are now on the short side of the gold market. We are very close to a floor because of the massive Asian buying. People have to remember these Asian buyers are now controlling the gold and silver markets, not the little guy. It is all about the bond auctions. The USTreasury Bond fell off a cliff. In the derivatives market you have JPMorgan playing the bond market at the behest of the Fed, going long 30-years versus selling short-term paper. They buy 30-year paper and then immediately hedge themselves by selling the 30, 60 and 90-day paper. It is how they keep interest rates down. The only reason interest rates are not in double digits in the US is because of this game. These guys are short front month paper. If this bond market actually fell much longer, JPMorgan could be wiped out. I mean they would be liquidated. The Fed cannot allow them to do that. We are witnessing history here." He refers to long-term USTreasurys falling in value, rising in yield, doing harm to JPMorgue.

The inter-relationship between the USTreasury Bonds and Gold is laid out in loose terms. They are mortal enemies, a paper nemesis at odds with a metal nemesis. The JPMorgue technicians have a new mission to dole out sufficient harm to gold in order to make it less robust than the USTreasury flagship that just took on heavy water in the lower decks. The USTBonds have hit monetary inflation icebergs. JPM must harm gold during its strongest winter season. Last month it was explained the dichotomy between the physical silver and paper silver market. The ambush on the paper side offers up discounts to the metal buyers. Notice the comment to follow about how JPMorgue cannot afford to knock the silver price down too much, or else it will spark a gigantic rush of demand for the discounted silver metal. The London source continued.

"Money is flowing out of USGovt bonds, then going into precious metals. So what they are doing is trying to paint the tape and make it look like a double top in gold, with silver also retreating. Open interest went up into the decline, [making the decline] a gift. Asian buyers are laughing. The US is like a cartoon to them. They cannot believe how orchestrated this is. I think [for silver] to go through $27 is virtually impossible. It would be suicide. I do not think it will even get there. They are getting very cheeky even taking it below $28. They are not going to push it below $27 because they would just lose too much physical. The Fed is freaking out because the bond market is collapsing and they want to indicate that everything is fine, and certainly that precious metals is not your alternative. Meanwhile, the Asians will continue to buy any dip and keep adding to their position. For what it is worth, Jim Rickards is correct, the Asians are doing their buying through secret agents. As far as the gold market is concerned, gold will be $150 higher from here within five weeks." Exciting times!! The USTreasury Bond plunge has ripped the carry trade apart and enhanced the comparative value and attractiveness of Gold & Silver. If not for its infinite credit line and free money line with the USGovt, the JPMorgan enterprise would turn into a true JPMorgue of ruin, toxic paper gone bad, and go belly up, complete with pink slips for workers carrying boxes out the door in plain view.

◄$$$ THE MAX KEISER CAMPAIGN TO PURCHASE SILVER COINS AT RETAIL, SO AS TO DESTROY JPMORGAN, IS GAINING MOMENTUM. BID BULLION HAS JOINED FORCES WITH HIS PERSONAL VENDETTA. OVER 170 THOUSAND OUNCES OF SILVER BULLION IS UP FOR BID, THUS REMOVING IT FROM THE ALREADY STRAINED PHYSICAL MARKET. A POPULAR MOVEMENT IS GAINING GROUND. $$$

Bid Bullion has released 171,500 ounces of Silver Max Keiser bullion coins, in the ongoing campaign to destroy JPMorgan. The movement is gaining momentum. Using a physical crunch as the public designer weapon, Max Keiser, the indefatigable outspoken critic of every Wall Street financial fraud, has embarked with Bid Bullion to launch a limited edition silver bullion named Silver Keiser. The total amount of new silver to be created will be 171,250 ounces. Bid Bullion has created 25,000 units in 1/10 oz, 1/4 oz, 1/2 oz, 1 ounce, and 5 ounce rounds. Each coin has an image of Max Keiser engraved with the quotes "Global Insurrection Against Corporate Occupation" and also "Crash Banksters, Buy Silver" on their obverse sides. They will contain dates and ".999 Fine Silver" for an official look. The rebel Max Keiser has no direct formal relationship with Bid Bullion, nor will he benefit in any way from the sale of the bullion coins that bear his name. He has confirmed that Bid Bullion has been granted free usage of his name and handsome debonair image. Given that numerous silver retailers are out of inventory, this unique campaign will likely sell out very quickly, and add strain to the tight silver market. See the Zero Hedge article (CLICK HERE).

◄$$$ BIX WEIR POINTS OUT HOW THE SILVER COMMERCIAL SHORT POSITION HAS GROWN 15-FOLD SINCE EARLY 2002. THE BIG USBANKS HAVE GREATLY INCREASED THEIR SHORT POSITION ON THE COMEX OVER THE LAST 9 YEARS, SUPPRESSING THE SILVER PRICE FROM RISING MULTIPLES HIGHER. THE TOTAL GOLD DERIVATIVE CONTRACTS ARE ONLY 3X TO 4X BIGGER THAN SILVER, JUSTIFYING AN ARGUMENT FOR A SIMILAR PRICE RATIO. WITHOUT THE SUPPRESSION, THE SILVER PRICE MIGHT BE WELL PAST $100/OZ. $$$

In January 2002, the toal Silver Commercial Short Position was 15,677 contracts, equal to 78.4 million ounces. The silver price at the time was $4.71 per oz. The Jackass had finished buying a bunch of silver coins from 1997 to 1999 at rock bottom prices, a tiny hoard with a Morgan silver dollar backbone, a personal response to a silly low $5 silver price. Fast forward to December 2010. The current Silver Commercial Short Position is 234,699 contracts, equal to 1.2 billion ounces. The silver price is within spitting distance of $30, or at least in its shadow. In nine years, the size of the Commercial Short Position has risen 15-fold, while the silver price has risen 6-fold. Imagine at what level the silver price would be without a gigantic wet blanket holding back the bonfire of the major paper currencies. Demand is rising, price is kept low, resulting in a uniformly global critical shortage. Instead of maintaining a market balance between demand for the metal versus inventory to clear it at the proper price, the Wall Street and London criminals have broken the market and left it vulnerable to defaults. The chronic metal shortages are obscured by constant propaganda. They have destroyed the price discovery system by making the paper contracts lead the price movement. They have at the same time corrupted the market for easy insider profits, using USGovt privilege, national security cover, collusion with major gold mining firms (see Barrick Gold), private funds from stolen sources, control of the press, assaults against opposing hedge funds with USDept Treasury assistance, falsified USGovt accounting, obstruction of independent audit demands, and much more.

Under the Rubin Regime, the gold cartel led by Goldman Sachs leased and sold over 98% of the Fort Knox gold bullion supply, a certainty not in debate. They might have furthermore exchanged that same gold bullion with specially forged gold plated tungsten bars for worldwide distribution, with somwhere between $100 and $500 billion in counterfeit bars scattered to the four winds. That charge has some evidence, although the Eastern Alliance is keeping the evidence close to the vest for later usage. But that is gold, not sil ver. Without the interference, corruption, theft, and counterfeit, the silver price would be clearly north of $100 per oz and probably closer to $300 per oz. My colleague Rob Kirby reasons that based upon the size of silver derivative contracts in existence relative to gold, a 3:1 or 4:1 ratio is justified, not the 45:1 to 50:1 ratio range. He concludes silver is grotesquely under-valued.

◄$$$ THE SWISS BANKS HAVE OBSTRUCED GOLD & SILVER WITHDRAWALS. SO FAR NOT A BAN ON BULLION EXIT. DEEP SUSPICION SHOULD BE DIRECTED AT THE SWISS. WATCH FOR A FORCE MAJEURE HEIST IN THE FUTURE. THE CHINESE HAVE BEEN GIVEN A STRING OF POWERFUL MOTIVES TO ACCUMULATE GOLD, EVEN ON THE SLY. $$$


The stories coming out of Switzerland appear to confirm the warning given in the Hat Trick Letter last summer of a potential Force Majeure bank heist, specifically with games played on inventory receipts. Such a nasty event would not occur immediately, but rather with stages leading into the massive theft. It is clear from the few stories that the Swiss have leased most of their Allocated gold accounts, in my view. Reports are consistent. The first is from a King World News interview with Jim Rickards of Omnis. He reported that a client of a major Swiss bank requested his one metric ton of gold bullion, owned outright out of the bank, but the bank refused to deliver his gold. He openly inferred that the Swiss bank had either leased it or done something improper with it.

Rickards said, "I obviously cannot mention the names of the individuals or the banks involved, nor is there any need to. But just the bare bones which was reported to me was that an individual had a ton of gold, worth about $40 million. He simply wanted the gold. Now this was not paper gold. It was not unallocated gold. It was not a gold future or a gold forward, gold option or COMEX gold. This was just good old fashioned gold where he owned it outright. It was in effect a warehouse receipt that they give you. He had his gold put there and they gave him the receipt. The gold is supposed to be sitting there. Upon request to move the gold, the bank demurred. I could see that taking a day or two. Eventually the individual did get his gold, but this is something that should have taken two days, three days, a week at the most, although I would say even a week is a long time. But it took thirty days, and it took lawyers, it took threats of publicity, it took a lot of pressure to do that, which my inference is that that gold was not there.  The bank had to scramble, go out and find it somewhere before they could make good delivery."

Rickards made some bold statements about how among the major Western nations, the governments control the big banks. Better yet, the big banks control the governments. Rickards expects that in the future at some point, the governments are going to order the banks to freeze the gold. They will forbid removal of gold in ownership, and not make the gold available to bank clients. He expects the banks to apologize but then explain the clients have a claim, but it would be redeemed in cash so as to avoid basic charges of larceny. The banks eventually will forbid the removal of gold. It is best therefore to make sure of being OUTSIDE the system, and not to even deal with banks with such stored wealth. Rickards continued with some additional remarks about the grand USFed loans in the $trillions, even to non-financial firms like General Electric and Harley Davidson. He called the unprecedented gestures an unlimited call on the taxpayers money. He called it a huge crime. He identifies the USFed corporate largesse as a motive for the Chinese to purchase gold bullion.

Rickards said, "It is clearly not going to be prosecuted, but the way the regulators have become captive to the banks and the non-banks, and the way the banks leverage off balance sheets, the way they in effect lie about their financials, the way they hide their liabilities and expect to be able to march up to the Fed and get all the money whenever they want at zero interest whenever they need it, no wonder the Chinese are going to gold. The US has 72.8% of its reserves in gold. China has 1.6% of its reserves in gold. What does that tell you about what the United States thinks is money. For over six years China has operated in the gold market through stealth. They basically have had secret agents working through SAFE (State Administration for Foreign Exchange) and other agencies. This is the complete corruption of the Fed."

Rickards made numerous other remarks about the USFed's contempt for the citizens of the United States. His repeated absurd statements about USGovt gold reserves undermine his credibility, since it is all gone, leased, exploited by Wall Street firms long ago. The most significant comment beyond the Swiss resistance to deliver owned gold held in Allocated accounts is the Chinese motive to invest in gold bullion, even if done surreptitiously. The trade war has turned into a Gold & Currency War. See the King World News article on this subject matter with Jim Rickards (CLICK HERE). Also, see the two King World News interviews (CLICK HERE and HERE). This is a preliminary case of I TOLD YOU SO for my summertime warning of the Swiss banks. They are setting up a Force Majeure heist. Rickards mentions that ownership will continue, but not rights to significant gold price gains.

◄$$$ JAMES TURK CONFIRMED THE SWISS OBSTRUCTION ON BULLION RELEASE. OTHER STORIES HAVE SURFACED IN CONFIRMATION. SILVER IS INVOLVED IN DELIVERY BARRIERS AS WELL. THE STORIES COULD BE A SIGNIFICANT FACTOR IN THE PRECIOUS METALS RISE IN PROGRESS, AS ADDING FUEL TO DEMAND. $$$

Since the King World News interview with Jim Rickards that a Swiss bank client was refused his $40 million of gold, the story has been going viral. In follow-up, KWN interviewed James Turk out of London, who cited yet another example. Turk is the founder of GoldMoney, the high integrity bullion repository for investors. He said, "I found that Jim Rickards comments about the individual who had difficulty getting $40 million of gold out of the Swiss bank where he had it stored very interesting. I could tell you several stories of similar experiences. Let me just cite one example that is ongoing. This individual has been storing with a Swiss bank twenty 1000 ounce bars of silver which has a market value today of just over $550,000. So, it is not only large transactions that are affected, but small ones too. When I last emailed this individual a couple of weeks ago, he was still trying to get his silver from this Swiss bank. This has been going on for over two months, and again we are only talking about 20,000 ounces of silver. This may seem unimaginable to some people, but I had told this individual in September when he contacted me, that I had seen this problem repeatedly with other people. He was quite confident that he would not have a problem getting his silver because he had been paying storage fees on it since buying it in the late 1990s. The Swiss bank is insisting that he take cash, but he is demanding his silver which is supposed to be sitting in the bank vault be delivered to him. As I said before, I know of other examples like this one. Circling back around to the Jim Rickards interview, he ended with some very good advice, with which I wholeheartedly agree. Make sure your gold and silver are stored outside of the banking system. It is important for people to keep their eye on the big picture and not be distracted by short-term volatility in the price of gold and silver. The long-term trend for both precious metals is still pointing higher."

The takeaways are many. The Swiss banks are illegally withholding client gold & silver. They have in all likelihood illegally leased and sold it. They are illegally charging vault storage fees, since not in possession. They are most likely on the verge of bank failure from prolonged insolvency. Lastly, the Swiss banking system implosion seems a possible outcome during the next powerful moves in gold. The direct inference is that the Swiss banks have secretly assumed deep counter-party risk to leasing of gold & silver, with all the heavy risks of being short gold & silver. Their partners in crime are probably the major Western banks in the US and London, the Big Four on Wall Street, and the seamy allies in London.

Truth in Gold has grabbed onto the same story and drawn some conclusions. A comment was made with derision about the US sleepy public on the gold & currency matters of the day. The population probably feels insulated and immune from what comes. He wrote, "Not in this country of course, but globally precious metals investors are looking at these stories and deciding to get their metal out of the banking system. The knowledge that paper claims on gold & silver outnumber the actual amount of physical gold & silver available to be delivered by insane multiples is finally being widely circulated. Those who understand this situation are going to ask for the delivery of their metal. In other words, in my view, there is a scramble going on internationally for investors to take delivery of gold & silver. This is part of why we are seeing the metals trade inexorably higher." The Germans live next door to Switzerland. Thus their practice to stuff bank safety boxes with gold. It is a tough question whether a safety deposit box at a bank is truly secure from confiscation and cash redemption. In the United States, bank safety boxes are subject to confiscation from the Patriot Act.

◄$$$ SUPERSTAR GREG WELDON SHARED HIS VIEWS ON GOLD AND CURRENCIES AND EUROPE. HIS WISDOM IS WORTH GEMSTONES AND SHOULD BE HEARD. HE FINDS ABSURD THE NOTION THAT EUROPE OR THE UNITED STATES CAN BAIL THEMSELVES OUT. HE STRESSES THE EXTREME MONETARY INFLATION IN PROGRESS, WHICH FUELS THE GOLD RUSH. HE HAS A SPECIAL LOVE FOR SILVER, AS DOES THE JACKASS. $$$

Never since learning about Greg Weldon have his words slipped past without capture. He is a superstar without public acclaim or notice. In a recent interview (honestly, dunno with whom, does not matter), he lays out many thoughts. Let them be presented as bullets in summary, close to his precise words:

  • The concept of Europe bailing out Europe is ridiculous. For the United States to commit $1 trillion dollars toward foreign bailouts is even more ludicrous. Since the Euro Central Bank has been sterlizing money put into the system to bail out their big banks, by withdrawing it in the rear operations, their actions cannot compare to the utter extreme monetary inflation being conducted by the US Federal Reserve. Both the EuroCB and the USFed have grotesquely expanded their balance sheets with toxic assets, as has the Bank of Japan. The USFed is in the expansion process of their books to new heights. He said, "So when you have the three major central banks in the world expanding their balance sheets, that does provide some underpinning in terms of liquidity. To think that is a solution to these long term problems is absolutely ludicrous."
  • Never underestimate the creativity of global monetary officials in engineering inflation. This bubble traces back to the USGovt removing the USDollar from the gold standard. The monetary system has entered into an absolute day of reckoning, but still not quite at its end. The moment the rug is pulled ou from under the market in terms of support either fiscally or monetarily, the nightmare will occur in full force. The central bankers have boxed themselves into a corner where pumping by means of inflationary engines is their only available device. The oscillations have grown more extreme of boom and bust. The crisis in 2008 was more powerful than the crisis in 2001, which was more powerful than the crisis in 1998.
  • Gold is a protection against these ruinous events and destructive developments. Gold still has significant upside. Some caution should be warranted since November, when global interest rates started to rise. Downward pressure is abated by the Japanese and Europeans expanding their balance sheet with pure monetizations.
  • In making reference to the mortgage Put-Backs to the big banks, he summarized "As soon as these mortgage roll-offs get out of the way, the Fed's balance sheet should explode. So this certainly is positive for Gold. More importantly in the bigger picture, when you take a look at gold prices in every currency in the world, it is not a dollar move. Gold is gaining against every single currency in the world. The flip side is that every currency in the world is depreciating relative to gold because central banks are debasing money everywhere." The hidden tragedy that the public misses is that whether in a successful hyper-reflation or severe debt deflation, either scenario results in a much lower standard of living for Americans and Europeans. Gold is an effective hedge about debasement of money, but bear in mind that things will cost more after the dust clears. The reliance upon excessive debt has a subtle strong backfire. The gold price is in an intensifying uptrend, one that is broadening, whose tentacles are reaching throughout the world in places that it has not reached before.
  • Weldon loves silver. He said, "Silver is absolutely outperforming gold. It has been a big performer and an upside leader for quite some time in the near term. I have a love for silver, as when I first started the business it was in the silver pit in New York [late in the 1970 decade]. Talking about the bigger picture, silver has a great appeal in that it is a lower denomination metal. It can be held in smaller quantities, exchanged it for less [valuable items relative to gold] in a worst case scenario down the road. From that perspective, I still like silver. It continues to outperform gold, and I expect that to be sustained."

◄$$$ THE WALL STREET JOURNAL WROTE A PROPAGANDA ARTICLE ABOUT THE G.L.D. FUND, LEGITIMIZING IT. IT GAVE A BIZARRE WARNING ABOUT GOLD AS AN INVESTMENT. REGARD THE ARTICLE AS A DESPERATE PAID PIECE. THEY TAKE CREDIT TO THE GOLD BULL MARKET BUT BLAME VOLATILITY AS A WARNING FOR POSSIBLE LOSSES IN GOLD INVESTMENT. $$$

A late November article by the Wall Street Journal served as a sophisticated piece of propaganda. Authors Liam Pleven and Carolyn Cui must have been rewarded in some fashion by the gold cartel, or their editor staff, perhaps freshly printed fiat paper to fill their wallets. They attempted to make an absurd link, the gold bull market of the last decade to the introduction of the GLD exchange traded fund (ETF). Then slyly warned investors away from gold with a combination of faint praise salted with inaccurate innuendo about the ETFund and hysterics about volatility, according to Aaron Krowne of the Mortgage Lender Implode journal. The source of volatility in gold is probably more closely associated with the insolvency death events for the US banking system, the chronic $1.5 trillion USGovt debts, the implosion of the entire periphery of the EU sovereign debt, the Western world housing bust, the magnificent mortgage bond fraud, and perhaps half a dozen other factors that include a global revolt against the USDollar and its fraud king master controllers. Did the Wall Street Journal miss all these powerful relevant factors in a single article?? Obviously, any volatility in gold during a time of great financial chaos is not unusual. Given that the world has endured a powerful transfixed financial crisis for three full years, with much more chaos than ever, the price of gold has been relatively steady. The presence of the corrupt GLD fund has been a minor factor on the positive side (pushing price up) and a major factor on the negative side (keeping price down).

As Krowne concludes, "As we have long maintained around here, the truth is probably the exact opposite and stranger than fiction. We know the [GLD] fund grows by shorting its own shares, selling new shares it does not have metal to back. It in essence bets against its own shareholders and suppresses rises in the underlying metal price. To the extent this counter-trend action holds, it means GLD is actually a price management tool which keeps the fund (and gold) price rises subdued, the exact opposite of what the Wall Street Journal article's innuendo implies." Krowne went on to recommend instead of the corrupt ETF managed by Wall Street, other funds like the Central Exchange Fund (CEF) of Canada or the Sprott Trusts. See the ML Implode article (CLICK HERE) and the original Wall Street Journal article (CLICK HERE). My view has been steady, that the GLD fund for gold and the SLV fund for silver will eventually face lawsuits and criminal charges, after forcing their investors into cash redemption far below market prices after lost claim to fast rising prices. The prelude to this climax should send the GLD and SLV shares to 20% to 30% below precious metal par values.

◄$$$ ARABS WERE URGED TO INCREASE THEIR GOLD RESERVES BY DUBAI FINANCIAL MANAGERS. THE CURRENT 5% LEVEL IS INADEQUATE. USDOLLAR WEAKNESS HAS AFFECTED RESERVE ASSET HOLDING VALUES AT A TIME WHEN THE CRUDE OIL PRICE IS BUSILY MARCHING TOWARD THE $100 MARK IN RESPONSE. THE GULF BRAIN TRUST HAS NOTED THE GLOBAL MONETARY TURBULENCE. $$$

The Gulf Coop Council has been urged to boost its gold reserves in order to shield their reserve assets from the turbulence in global currency markets, according to economists at the Dubai International Financial Centre Authority (DIFCA). The GCC states have historically held under 5% of their reserves in gold. A diversification strategy within their reserves away from USDollars to gold would offer central banks in the region higher investment returns, according to Nasser Saidi and Fabio Scacciavillani at the DIFCA. A blockhead shallow thinker is in every crowd, this no exception. Chief economist Alessandro Magnoli Bocchi of the Kuwait China Investment Company believes gold will be reduced in holdings when the global economy picks up, since gold has no industrial value (his words). It is amazing that economists comprehend gold's value during crisis, but not as a crisis prevention vehicle for bank reserve stability. Bocchi did press that the GCC should develop more monetary independence by proceeding with a single currency project, a stalled project largely sabotaged by the United States. If a unified currency is simply a collection of paper currencies, then the Guld nations would be wasting their time, much like the IMF with its pointless futile basket of currencies. Both movements are subtle attempts to stabilize the paper currency exchange rates, by fixing them inside their managed arenas.

Saidi warned about paper assets generally during extreme economic uncertainty. Declines in the USDollar in recent months have reduced the value of GCC oil revenues, priced in US$ terms. The two DIFCA economists wrote in a report that longer term, gold could play a more important role in the global monetary system as the shift from developed world to emerging markets intensified. THAT IS WISDOM!! They expect the USDollar's position as the leading reserve currency would diminish as US leading dominance of the world economy diminished. They also expect gold as an investment asset would fill the void in the monetary system during an interim, since the Euro or the Chinese Yuan would probably prove ineffective as viable alternative reserve currencies. The USDollar remains as the currency peg for five of the six GCC currencies. The region is a significant holder of USTreasury Bills, which offer near 0% yields but strangely are considered a low risk. GCC states have historically kept under 5% of their total reserves in gold. Expect that to change.

Kuwait keeps 12% of reserves in gold, but Saudi Arabia keeps 2.7% in gold and Qatar 2.3%, even more miniscule. Even the United Arab Emirates, after the Dubai debt debacle, is believed to have negligible gold reserves. Their central bank does not disclose the amount. Recent turmoil in currency markets has hastened the push by other emerging markets including India, China, and Russia to increase their gold reserves. The Persian Gulf will soon follow. Scacciavillani hit the golden nail on the head, concluding "The value of paper money is being debased by injections of Quantitative Easing in Europe, Japan and the United States. Gold is a means of exchange not dependent on any political decisions and has a role as a hedge against inflation and economic risk." Exactly!! See the National Arab Emirates article (CLICK HERE).

GOLD PRICE HELD BACK BY EUROPE

◄$$$ GOLD & SILVER ARE ENJOYING BREAKOUTS IN ALL MAJOR CURRENCYS, IN TERMS OF US$, EURO, YEN, AND POUND. THE GOLD RUSH HAS GONE GLOBAL IN SEARCH OF TRUE MONEY, SEEKING TRUE SAFE HAVEN AMIDST SOVEREIGN DEBT RUIN. THE ENTIRE MONETARY SYSTEM HAS BEEN UNMASKED AS A DEBT-BASED STRUCTURE THAT IS CRUMBLING. BONAFIDE SAFETY IS FOUND IN GOLD & SILVER. JPMORGUE HAS COME INTO FOCUS. $$$

Support for the USDollar (to stem the rise in Gold) is found mainly in the relative toxic nature of the Euro. A round robin is underway from Competing Currency War, driven by the race to debase from historically unprecedented monetary inflation in futile rescues of banks, economies, and export trade. A consolidation period is almost over, which includes the mining stocks led by the HUI index. The gargantuan government debts are exacerbated by the dreadful condition of Western Economies, after the Chinese industrial renaissance induced the West to depend on property bubbles for growth. It turned into a grand bust, with China picking up the pieces, and gradually assuming the mantle of global leader. Their new status was acutely evident in the recent G-20 Meeting in Korea. These debts are made worse by failed rescues, embarrassing banker bailouts, and poorly designed austerity programs, under demonstration that no solution exist within the current framework. The principal problem is that the global monetary system must be scrapped and replace with a gold standard, but central bankers cannot make such a leap, and admit failure. So infinite support comes, as in infinite monetary inflation, Weimar style. Meanwhile, the Chinese through their London brokers have decided to respond to destruction of the USTreasury integrity from QE2 and another QE3 afterwards, by purchasing Gold & Silver until the Anglo bankers are plowed under. The Chinese despise charges of currency manipulation during QE, for its hypocrisy. The horrible publicity drawn by JPMorgue has amplified the public response, as have stories about Swiss delays in Allocated account redemptions of bullion. The Gold & Silver story has gone viral on the global stage!!

◄$$$ THE SIZE OF THE JPMORGAN SILVER SHORT POSITION IS UTTERLY ASTOUNDING, BUT RECEIVES VERY LITTLE ATTENTION. THEIR SPECIALTY IS NAKED SHORTING OF SILVER, WHICH MEANS SELLING METAL THEY DO NOT OWN, FOR WHICH THEY POST ZERO COLLATERAL. THEIR SILVER PAPER SHORTS KEEP THE SILVER PRICE FROM RISING TO ITS TRUE VALUE, WHICH IS BETWEEN $100 AND $200 PER OUNCE, MAYBE OVER $300/OZ. IT WILL FIND ITS TRUE PRICE, ALL IN TIME. IN THE MEANTIME A MAJOR PRICE SQUEEZE IS UNDERWAY THAT IS KILLING THE SHORTS. $$$

Based on some best estimates using various methods, the JPMorgan total short position in silver is a monumental 3.3 billion ounces. If the silver market works toward proper equilibrium, the price of silver must go multiples higher. It must clear out the paper short contracts that contaminate the silver market and accommodate much greater demand, thus achieving balance. In doing so, a huge number of short contracts would be bought to close out the shorts. A major squeeze is underway. Sellers near the $30 price will regret that they jumped ship too early. They might buy back into their positions at a $50 price en route to a $100 price. To put into perspective the JPMorgan position, the 3.3 billion ounces is equal to:

1)      One-third of all the known unmined world silver deposits

2)      Two times the world stockpiles of silver bullion

3)      Four times the annual world mined supply of silver

4)      And 30 times the supposed known inventory of silver at the COMEX.

◄$$$ SPROTT DESCRIBES A SILVER MARKET DEEPLY SHORT OF PHYSICAL METAL IN A GROSSLY IMBALANCED MARKET. THEY DO NOT EXPECT SILVER TO REMAIN UNDER $30/OZ FOR LONG. BEWARE OF HIDDEN SILVER SUPPLY THAT HAS SLIPPED INTO THE MARKET FOR TWO DECADES. MY VIEW IS THAT THE BACKDOOR SUPPLY ROUTE WILL BE CUT OFF, MAKING THE SILVER SQUEEZE ONE FOR THE HISTORY BOOKS. $$$

Sprott warns silver investors to restrain themselves from taking profit at $30 silver. Eric Sprott and David Franklin explain capably their very bullish view of the silver market. They have completed the successful launch of the new Sprott Physical Silver Trust (symbol PSLV), in the process drained almost 42 million ounces of silver from the active market. They described what they call the outrageous short position in the silver COMEX market. With Open Interest in silver COMEX contracts totaling 871 million ounces, and only 684 million ounces of silver available above ground, a major squeeze is in progress. In the paper silver contracts, those betting long are opposed by others betting short in a zero sum game. On a mounting basis, the long parties are insisting on physical delivery demands, which has exposed a grand shortage. Compounding the stress on supply is the heavy rate by which people have been purchasing coins and silver bars since this autumn, when the silver market rig story went viral against a backdrop of diverse government debt explosions atop European sovereign debt approaching defaults. Sprott and Franklin summarized their opinion, stating "Considering all the recent developments in the silver market, it seems unlikely that the silver price will stay under $30/oz for long. The large quantity of money flowing into silver from investors, combined with the potential demand from those who are short silver that they do not own, will likely end up swamping the physical silver market entirely." The viral core is recognition of the naked shorts by JPMorgan, permitted by the USGovt and enforced by Wall Street.

The analysts at Got Gold Report believe that the fundamentals for silver remain excellent, notwithstanding the actual inventory of bullion for silver being larger than the data often published. Since the 1990s, analysts have consistently under-estimated the silver bullion supply and over-estimated its demand. Given the ramp-up in investment demand, the market requires time to allow for hidden global silver like in India to surface and re-enter the system. It seems clear at this point that the momentum of the demand increase is likely to overwhelm the process where silver comes out of the woodwork (Got Gold expression) and back into the market. The demand surge is stronger than the backdoor silver re-entry from private hoards. Many analysts believe that India cut a deal with Wall Street years ago as secret supplier. It could actually be the secretive clan in plush robes that operate out of their sovereign sanctuary in Rome. My belief is that the backdoor supply will soon shut, as the private hoard managers see a magnificent silver price uptrend, the product of a MASSIVE PHYSICAL SQUEEZE. Got Gold concludes, "Investors might want to rethink plans to take profits on silver with a $30 handle in 2011. If trends continue the way they are unfolding now, and if our belief that capital and wealth will continue to flow into silver, not out of it, we could be on the cusp of a once in a lifetime historic rebalancing of a grossly imbalanced relationship between gold and silver.  Most investors, ignorant of the facts and still confident in the purchasing power of fiat currencies, will be reluctant to believe there is a supply & demand imbalance underway, probably. That just makes it all the more sweet to those of us who have been in the silver bull camp for more than a decade." See the Sprott Asset Mgmt article (CLICK HERE).

◄$$$ GOLD AND ESPECIALLY SILVER ARE IN BACKWARDATION. THE SETTING FOR THE 6-MONTH BACKWARD PRICE SITUATION IS EXTREMELY IMPORTANT, SOMETHING NOT SEEN IN DECADES. SILVER HAS AN EVEN WORSE CONDITION IN BACKWARDATION. THE EXTREME SHORTAGE RENDERS THE CURRENT MONTH METAL PRICE GREATER THAN THE FUTURE MONTH PRICES. ITS RARITY INDICATES GREAT SHORTAGES AND MUCH HIGHER PRICES DURING THE MARKET RESOLUTION. $$$

Gold is money, and therefore almost always trades in contango. That means its future price is higher than the current spot price, due to storage, insurance, and other costs like delivery. A parallel exists between gold and commonly used money. A percentage difference between the gold spot price and its future price indicates an interest rate. The Western bankers have ensured that the gold interest rate is lower than those of national currencies, which enables easy lease and sale, thus keeping down its price. Alternatively, a justification is given that since gold's purchasing power cannot be debased by banker actions, the risk holding gold is low. Therefore gold is rewarded by the market with a low interest rate, so the argument goes. It is crapp! They want to enable large scale gold leasing at all times.

When the future gold price is lower than spot, it is called backwardation. Big speculative opportunities are presented when backward. Obviously, current sale proceeds can be used or invested, with comfortable repurchase later. But speculation can be yet more profitable. Imagine selling the physical metal in the spot market, then immediately entering a contract to buy it back at a future date. Doing so involves holding a paper promise instead of physical metal, thus a counter-party risk (ruin of other guy). Speculators jump at such opportunities to profit from such backwardation. The condition is very rare in gold. It aggravates the current spot shortage, naturally, since the speculators gobble up the scarce physical supply. The gold vaults vanish typically under such conditions.

The gold price structure for the 1-month and 3-month forwards have been locked in backwardation for over one year. Even more exceptional, the gold 6-month forward price has been in backwardation since November 5th, a great rarity. Going back to the London LBMA database to 1989, not a single instance can be found of the 6-month forward gold being in backwardation. The scarcity and shortage is reflected in the market price structure. We live in historically unique times for gold. If the current trend in forward pricing continues, the 12-month forward gold will soon be in backwardation, enough to capture global attention. The demand for physical gold metal is gathering great strengh and power. See the gold forward price chart provided by Gold Money. The 1-month (in dark blue) has been backwardized most of the time since early 2009. The 3-month (in green) has been backwardized since early 2010. The 6-month (in brown) just turned backwardized last month, crossing below the 0% line. Notice the downtrend in the 12-month (in light blue). In a few months, it could cross and go backwardized too, soon. Up to the significant autumn 2008 event, when the US & London banks went bust, went insolvent, and suffered quiet ruin, the forwards were all positive in contango. The market priced in a magnificent future crisis (see the peak over 2.5%), in progress now. The new phenomenon is backwardation!! Soon all contracts will be in backwardation, a signal of extreme situation from demand, shortage, and the relentless pursuit of real money. The present day monetary system is simply denominated debt. It is imploding very slowly but without pause, toward a nuclear climax.

For the silver price structure, the backwardation is deeper and louder. The negative condition has persisted for longer timespans on a continuous basis. The increasing demand for physical metal can be slowed only with higher prices, inducing sales in exchange for over-valued fiat paper money. Many skeptics offer shallow wisdom that gold has a backwardized price only because the USDollar interest rates are so low. Well, of course, but with price inflation in the 7% to 8% range, that means the real rate of interest on borrowed money is around minus 5% to minus 6%. Bonuses paid to borrowed money (negative cost) makes a powerful catapult in demand toward the purchase real money, namely Gold & Silver. The negative cost of money argument has been the most reliable force behind the gold bull for a century. One should note that the Greenspan Fed pushed down the official interest rate after the 9/11 attack to near-zero levels, and no backwardation appeared in gold. That was not inflation but rather emergency. Other skeptics argue feebly that COMEX settlement prices have changed in recent weeks to remove the backwardation effect. But this is brute force and market corruption in price controls, simply put.


The COMEX shows March futures in contango, due to this brute force price alteration. Buyers of March silver or April gold futures are overpaying by illegal dictum. The COMEX has imposed a forward tax, an extortion within their monopoly. The illicit premiums added by the market operators are no different from adding $2 per share on IBM stock in NYSE extortion bought at the stock exchange. In due time, the market officials will preside over an exchange loaded with harsh rules and no metal. One could call them Lord of the Flies. The price structure for Gold, and even more so for Silver, indicates a exceptional situation where an upside explosion in the price of both precious metals is almost a guarantee. In the background, the global monetary system with its baseless fake currencies is imploding, from their sandy debt foundation. All the symptoms are present, but recognition is absent. See the Free Gold Money Report article (CLICK HERE).

Thanks to the following for charts StockCharts,  Financial Times,  UK Independent,  Wall

Street Journal,  Northern Trust,  Business Week,  Merrill Lynch,  Shadow Govt Statistics.