GOLD INVESTMENT REPORT
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* Crippled USEconomy
* Banking World Ruin & Chaos
* Crisis Begs Solution
* Gold Ambushed by Criminal System
* Prices Against Divergence
* China Crash & Effect Down Under


HAT TRICK LETTER
Issue #93
Jim Willie CB, 
“the Golden Jackass”
18 December 2011

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final or total catastrophe of the currency system involved." ~ Ludwig von Mises (father of sound money, sage words never more relevant)

"We cannot completely delegate governance to financial markets. The EuroZone is the world's second largest monetary area. It cannot depend solely on the opinions of ratings agencies and markets. It needs economic governance arrangements that are preventive and linear. This underscores my central point that a much more comprehensive approach to economic governance is now the priority for the Euro area. And this means more economic and financial integration for the Euro area, with a significant transfer of sovereignty to the EMU level over fiscal, structural, and financial policies." ~ Jose Manuel González-Paramo (Euro Central Bank executive board, spoken like a true arrogant banker lurching for total power)

"A freezing of inter-bank markets in major funding currencies, as during the recent crisis, may require the ability to supply official liquidity in major currencies in an elastic manner." ~ Bank for Intl Settlements (from regular quarterly report, meaning the positive benefits of hyper inflation are to outweigh the risks, utter heresy)

CRIPPLED USECONOMY

◄$$$ ECONOMIC POLICY HAS BECOME A VACANT FIELD WITH ABSURD STIMULUS AND MINDLESS PROGRAMS. BAD ECONOMIC POLICY PERPETUATES RUIN. NOTHING SEEMS TO WORK BECAUSE NO POLICY MAKES ANY SENSE. THE STARTING POINTS SHOULD BE LIQUIDATION OF THE BIG BANKS AND RETURNING INDUSTRY FROM ASIA. NEITHER WILL EVER HAPPEN. $$$

The Jackass has been harshly critical since 2004 of the ass-backwards economic policy and distorted principles. In the past summer, two doctrines were mentioned in pure derogatory tone. The Parasite Doctrine promotes the banker welfare, based upon sustenance of their bonus rewards for producing ruin, ample channeled funds to alleviate (not cure) their insolvency, and cooperative slush funds to hide the black holes they produce. The Panhandle Doctrine promotes the consumer welfare, based upon putting money in their pockets by whatever means, expecting them to consume the economy into a healthy state, even if it means eating their homes, furniture, and future. What corrupt thought on the former doctrine and empty thought on the latter. These two pillars remain the cornerstones of official American economic policy, which has been perpetuated by clownish economics professors in a revolving door with universities. The centerpiece of USGovt policy on the economy is a travesty. It calls for jobless insurance extension, a mere patch job, rather than job creation. It calls for programs to put money in consumer pockets, in futility to follow up the gems like clunker car incentives, and home buyer incentives. The holiday shopping displayed more futility, even desperation. Ramped up holiday shopping, even if online using webpages, cannot lift the USEconomy. Following Black Friday, retail sales have plummeted without much press attention. Credit card extensions to fund consumer purchases seem celebrated, although destructive.

A payroll tax cut extension makes sense, as any tax cut is a very positive event for the USEconomy. It is seen as a sacrifice rather than a necessity. Few chaired Economics professors have stepped forward to declare that lower tax rates produce more tax revenue, the opposite to the widely accepted backward notion. The falsely named stimulus projects have given more stimulus to foreign exporters. It is hard to stimulate the USEconomy when it lacks a critical industrial mass. Unless and until the USGovt with a powerful initiative set forth by the USCongress works to return a significant portion of its forfeited factory and industrial base, this recovery is forever doomed and a bit of a rancid joke. The lower USDollar is supposed to encourage exports. The chief US exports however are bond fraud, unwanted packaged debt, fast food fat packets, and arrogance. Not permitted in the export trade are the protected computer technology, and protected military weapons. Too many movies, music, and software are stolen. Most stimulus programs merely push sales to the present, and rob the future. The USEconomy depended upon the housing and mortgage bubbles too much several years ago, from reckless design. Their bust has left the US banking industry in ruins. The dumkopf US economists called it the Macro Asset Economy, which sounds better than an accurate description of an inflated asset dependent economy without industry. Unless and until the USGovt with a powerful initiative set forth by the USCongress works to liquidate the big banks, this recovery is forever doomed and a bit of a rancid joke. They gave it blessing, like high priests spouting heresy before genuflecting masses who kiss their rings. The doomed ideology was the handiwork dogma of Sir Alan Greenspan. The Queen knighted him after he finished the job of ruining capitalism in America. The colony is back under the British banker thumb.

◄$$$ A CHRONIC MINUS 5% ECONOMIC RECESSION LINGERS. CLAIMED G.D.P. GROWTH OF 2% BY THE USGOVT IS EXAGGERATED. WITH A CLAIMED C.P.I. INFLATION RATE OF A MERE 3%, THE LIE IS 7% SINCE THE TRUE INFLATION IS 10% IN THE WORLD OF REALITY. THE USECONOMY IS STUCK IN A POWERFUL RECESSION. ALL TALK OF RECOVERY IS PROPAGANDA. ANY SEMBLANCE OF A MAN RISING FROM THE GROUND IS DONE WITH CREDIT CARD ABUSE. $$$

The non-stop propaganda of a slow recovery is pure fiction. Only the enlightened realize no recovery is occurring. Many in the gold community comprehend the chronic economic recession. The Economic Cycle Research Institute maintains a pessimistic economic outlook, where Lakshman Achuthan noted on Bloomberg last week. He said, "Forward looking data since two months ago has remained weak. It is getting weaker. [The USEconomy] is not turning up. So, to my fellow forecasters out there, I would say there are roughly two camps. There are those who say that the economy is firming and will continue to firm into next year. We reject that. There is nothing there that suggests that at all. There is a larger camp that says we are going to muddle through, that we are going to get this kind of slow growth. I am not terribly optimistic. We never muddle through. A market economy does not want to have a static state. It either accelerates or it decelerates, and these forward looking indicators say decelerate." Achuthan also noted that gross domestic income or GDI tends to be the more accurate measure of economic growth. This view is consistent with the Jackass notion that payroll tax withholdings are very accurate, linked directly to income. Its data series cannot be corrupted. The GDI rose only 0.3% in 3Q2011. The Federal Reserve is on record saying when GDP and GDI differ, the GDP figure tends to be revised toward GDI, not the other way around. Achuthan warned that the GDI figure is a big red recession signal in his words. He confirmed that his recession call is happening. See the John Hussman article (CLICK HERE). Another footnote on ancillary income. The number of American households that made money from rent, interest, or dividends fell by one-third year over year. That figure stands at 24.2% in 2010. Plunging income shaves cash in hand. See the Yahoo Finance article (CLICK HERE).

Please excuse my simple napkin math. The valid CPI has been 10% to 11% (from Shadow Govt Stats) and the official CPI is 3% (from USGovt), the lie being 7%. Subtract 7% from the official +2% GDP growth pace based in fiction, and one arrives at the rough cut Minus 5% constant recession. Compare fiction versus reality. The red series is the corrupted USGovt economic growth calculated as sequential from quarter to quarter, multiplied by four to annualize, including gobs of hedonic nonsense drivel claptrap anti-wisdom. It is very wrong high. The blue series is the Shadow Govt series on the same growth calculated year over year without the engrained customary gimmicks. The recession has gone from Minus 6% in 2009 to Minus 3% this year, by John Williams analysis. But that implies the lie is only 5% from improper inflation adjustment. Much of the USEconomy is sustained by threads, like credit cards. A recent CardHub.com repot on the Q3 credit card activity showed this type of debt jumped $16.8 billion, a 154% growth year-on-year. Consumers are piling on new debt in 2011 at an unprecedented pace. The report concluded, "The debt in 2Q2011 is a staggering increase of almost $18.5 billion, which is 66% higher than the increase observed on the same quarter one year ago, and 368% higher than the increase observed two years ago." Clearly the public is feeling the harsh effect of high unemployment and are turning to credit card debt to manage costs and stay afloat. More home mortgage delinquencies lie ahead, and foreclosures. See the Seeking Alpha article (CLICK HERE).

◄$$$ FALSIFIED STATISTICS AND FINANCIAL DECEPTIONS IN REPORTING HAVE KEPT THE USECONOMY AS HOSTAGE AND ITS IMPORTANT POLICIES A TRAVESTY. NO RECOVERY CAN COME WHEN POINTING TO A CORRUPT DATABASE. USECONOMIC DATA HAS LOST INTEGRITY HAND IN HAND WITH USECONOMIC POLICY. THE ERRORS COMMITTED ARE NEVER ON THE DOWNSIDE, ALWAYS FAVORABLE. $$$

The list of corrupted data is staggering, like the Gross Domestic Product, the Consumer Price Inflation, the Producer Price Index, the Non-Farm Jobs Report, the weekly unemployment rolls, the retail sales, the home sales, the durable goods orders, and more. The misguided distorted inflation adjustment permeates and corrupts most statistics. The fluffy nonsensical statistics given too much attention by the USFed include inflation expectations from the long-term USTBond (the object of heavy Interest Rate Swaps), the TIPS rate (the object of heavy monetized purchases), the consumer sentiment indexes, the Conference Board Leading Economic Indicators (dominated by the S&P500 stock index), and the USDollar itself. The more accurate statistics are the ISM manufacturing and service indexes (especially the prices paid component), the many regional Fed indexes (like Philly Fed, Empire State, Richmond Fed), the payroll tax revenues, the durable orders excluding transportation and defense, the unadjusted weekly unemployment data, and the trade gap data.

Policy cannot succeed when such data is relied upon, as garbage in leads to garbage out. The common trick used repeatedly and boldly is to deceive on the positive side, then later revise downward, like typically with the Jobs reports. They are revised down every March by 500 thousand or so every year. Just last week, the National Assn of Realtors admitted errors in counting home sales since 2007, more deception in a long skein. They brought new meaning to the Multi-List mechanism, as in multiple counting of sales. The NAR excused their error as they wrote, "The up-drift in sales projections developed over time between the fixed model for calculating sales rates and the actual marketplace, including growth in multiple listing service coverage areas, geographic population shifts, a decline in for-sale-by-owner transactions, some new home sales trickling into MLS data, and some individual sales being recorded in more than one MLS." They screwed up, but the USGovt must have patted them on the back for the upside error, not a downside error. Never a downside error. See the Business Insider article (CLICK HERE).

◄$$$ THE UNINTENDED CONSEQUENCES OF SUPPRESSED LONG-TERM INTEREST RATES ARE HORRENDOUS. SUPPRESSING THE 10-YEAR INTEREST RATE HAS DIRE CONSEQUENCES THAT RIPPLE THROUGH THE ENTIRE USECONOMY IN EXTREMELY DAMAGING WAYS. THE DAMAGE IS CHRONIC AND EXTREME, ENOUGH TO LEAD TO SYSTEMIC FAILURE. AN AIRPLANE PILOT CRASHES WITH BAD INSTRUMENTS, AND A SHIP CAPTAIN RUNS AGROUND, A BASIC LESSON. $$$

Focus on suppressed long-term interest rates and their consequences. They are broad, chronic, and highly destructive in quiet fashion that economists do not notice or discuss. The ship of state in the USEconomy is but an insolvent leaking ship traveling in icy waters filled with icebergs that come as byproducts from ultra-low interest rate environment. The captains of ruin believe that Americans are better off with lower rates. Many powerful consequences of interest rates kept low for years can be identified, mostly in paradoxical contradiction to common perceptions. Suppressing the 10-year bond yield has had dire consequences. Some but not all of them appear unintended. The Powerz want unlimited easy money for their speculation, and to float toxic assets along with toxic debt. But in doing so, they permit feeding a cancer. The American economic brain trust has no concept of capital formation, and thus capitalism. They have wiped out the middle class. They know asset inflation and errantly attempt to harness it. Some unintended consequences.

1)      Savers given nothing in interest yield, no reward, which actually slows the economy since savings exceed consumer debt in volume, while at the same time causing an erosion from inflation due to the low rate given.

2)      Banks are encouraged to continue holding their home inventory since it costs nothing, which means the housing market decline will continue for at least 2 to 3 years.

3)      Big banks will continue their USTreasury Bond carry trade schemes to replenish capital, which results in emphasis on speculation instead of business capital formation.

4)      Investment banks are encouraged to continue their reckless speculation, which inhibits actual business investment that produces jobs, thus killing their own client base.

5)      The USFed believes it can expand its balance sheet to buy toxic assets with cheap money, even printed money, which further cripples the central bank and renders impossible some regular functions.

6)      The USGovt is not discouraged from deficit reduction since it believes it has much more time, which will lead eventually to magnificent waste, massive inflation, dependent under-class, then debt default, and systemic failure.

7)      Institutions and individuals are encouraged to chase higher risk without the proper assessment of that risk, the best example being migration from safer USTBonds to toxic Mortgage Bonds, which resulted in gigantic losses.

BANKING WORLD RUIN & CHAOS

◄$$$ THE EUROPEAN SUMMIT MEETINGS HAVE TURNED INTO AN EXERCISE OF FUTILITY WITHOUT MEANING. DEALS STRUCK BY POLITICIANS WITH NO POLITICAL BASE EVAPORATE OVER TIME. THE DEBT ROLLOVER TIME BOMBS WILL CONTINUE IN RELENTLESS FASHION. $$$

The supposed leading politicians are wasting their efforts, biding time, deceiving the public, and supporting the bankers in last ditch attempts to salvage what cannot be rescued. The Union is doomed, both on the political front and the monetary front, and they know it. The politicians offer no solutions, as neither Merkel nor Sarkozy has any power left. No referendum by the people is conducted, since they would reject the deals conjured up. We have seen this movie six times before. The Germans have informed France that they are not included in the next chapter, an alliance with the East. Sarkozy is petrified and lost. The race is on to see which occurs first, a major French Govt Bond selloff or a major French bank failure. The bond schedule ahead is a nightmare. Either the Euro Central Bank bids on the majority of bond offerings, or the PIIGS bonds will default. Expect the crisis to blossom.

◄$$$ THE USGOVT DEBT RATIO IS ABOUT TO REACH 100%. THE USGOVT LOOKS LIKE YET ANOTHER PIIGS NATION. THE DEFICITS NEVER WENT UNDER $1 TRILLION AS  FORECASTED. THEY REMAINED IN THE $1.5 TRILLION RANGE AS THE JACKASS FORECASTED. $$$

In early 2009 the US populace was told that the USGovt budget deficit would return under $1 billion. It did not. According to the Jackass forecast, it zoomed up to $1.5 trillion and stayed there for consecutive years. The deficits persist chronically without remedy in the $1500 billion range annually, a staggering 43% ratio of the total budget. The other debt ratio is the cumulative debt versus the USEconomic size as measured by the Gross Domestic Product.  The United States Govt is soon to hit the 100% debt mark versus GDP. The event will gather much attention, bad attention. The pair of US debt ratios is typical of PIIGS nations in deep trouble. The profound risk to the US financial system is masked by the USFed activity. They are monetizing 10 times as much as they admit, and the Quantitative Easing programs never were interrupted. The Operation Twist was a grand deception to conceal coverage of what foreign central banks wished to dump. Look for more debt downgrade of the USGovt in coming months, after the Q4 shows a ripe $1 trillion in added deficits.

Compare to Canada which has a mere 34.9% total debt burden versus its GDP, a much stronger financial situation. The nation in the Great White North could have been a powerhouse leader with a huge sovereign wealth fund like Norway, except they followed the Goldman Sachs path to the fields of corruption and recklessness, selling almost all their gold in service to Wall Street masters. Then they followed the Bush Doctrine of fascism, embracing the war footing, sending soldiers to support the narco war, and tightening the security vise. Next Canada will become a Chinese commercial colony, a better fate than the US to be sure.

◄$$$ THE EURO CENTRAL BANK AVERTED 10 TO 20 LEHMANS WITH THE EXTENDED DOLLAR SWAP FACILITY PROVIDED BY THE USFED. MONEY IS ALMOST FREE. THE VOLUME OF MONEY GRANTS IS ENORMOUS, AS HUGE JUMPS WERE REALIZED. OBSERVE THE EFFECT OF THE CENTRAL BANKS SHOWING RELUCTANCE TO ENTER INTO BOND PURCHASES. THE SYSTEM BREAKS DOWN IN A POWERFUL MANNER. THE EURO CENTRAL BANK ITSELF COULD BE THE BIGGEST LEHMAN EVENT OF ALL, A LIKELY DOWNFALL, A VICTIM OF THE CRISIS. $$$

The European Central Bank said demand for three-month dollar loans surged after it announced a broader Dollar Swap Facility for European usage. The USFed cut the cost of the financing from an ultra-low 1.0% to an almost free 0.5% rate. The USFed discount window was made cheaper for foreign banks than US banks (who pay 75 basis points), an indication of the destruction. Five other central banks participated in the coordinated move which included the Bank of Japan. The Frankfurt-based EuroCB immediately made loans for $50.7 billion to 34 big teetering Euro banks on December 1st, the terms for 84 days at a fixed rate of 0.59 percent. That compares with the $395 million lent in the last three-month offering on November 9th at a 1.09% rate. The EuroCB also lent five banks $1.6 billion in regular weekly dollar operation on a single day as December opened, up from $352 million the previous week. The borrowing done at the Discount Window catapulted by 127-fold, from a paltry $395 million to $50.7 billion in a sudden move. Word is circulating that the USFed has given verbal commitment for up to $1 trillion in liquidity grants, hardly loans since free, and not expected to be returned. The central bank spigot is on full blast while the monetary system crumbles.

The public will not be informed of which banks tapped the credit line, more like a slush fund. They claim they do not wish to put the bank at risk of unwarranted attack. My view is the attack would be to put the proper value on participating banks at ZERO. My sources tell that one major French bank was on the verge of failure, probably Societe Generale or PNB Paribas. Another source of bank & gold information was very clear in telling that the USFed acted reluctantly and forcefully, in order to avert a major catastrophe. He described a situation where several big Euro banks (the usual suspects in France, Spain, and Italy) were on the verge of failure. The EuroCB appealed to the USFed so as to prevent an estimated 20 Lehmans from occurring, in multiple bank failures occurring as a flash event. He went on to mention that a flash event is inevitable, which the central bankers are powerless to stop. It will come in time, with an unknown trigger event that lights a fuse. It could be a seemingly minor event that has huge ripple effects in indefensible chambers. See the Global Economic Analysis article (CLICK HERE).

The Euro Central Bank cannot escape the consequence of embraced risk. John Taylor (cited for the Taylor Rule on bond paradox) believes the EuroCB is taking on massive risks. He calls attention to the duration risk in owning long-term European government securities that have lost considerable value. Some might default and go worthless. Enter the credit risk. Some nations like Greece will not repay their debt. Others will work for hefty debt writedowns that will put holes in the ECB balance sheet. Then the currency risk, as Greece, Italy, and Spain could very likely revert to their Drachma, Lira, and Peseta currencies. Doing so would involve banking system failure, reconstruction, and massive new currency devaluations. Some ECB debt securities will be reworked in the reverted currencies, with big writedowns. If any new political union revisions succeed that are in progress (futile in my view), the ECB will have a portfolio of junk sovereign debt that will overwhelm its capital when the first country leaves the Euro of its volition or by market forces. At that point, the hyper inflation arrives in the recapitalization phase, since big bankers never accept losses. Perhaps half the ECB balance sheet is of fictional value. See the Business Insider article (CLICK HERE).

◄$$$ CENTRAL BANKS ARE SUFFERING A FRANCHISE SYSTEM FAILURE. IT IS MARKED BY SOVEREIGN BOND MARKET PANICS, PREVALENT 0% INTEREST RATES, CAPITAL WITHDRAWAL, HYPER INFLATION TOWARD DEBT MONETIZATION, HEIGHTENED PRESSURES ON GOVERNMENT BUDGETS, WRECKAGE OF OBSCENE DEFICITS, AND EMERGENCY BAILOUTS. $$$

  • The current sovereign debt market is vacated by bidders, the province of central banks exclusively, integrity deteriorated. Monetary inflation is the New Normal, a travesty. As large European banks depart the Southern Europe sovereign debt market, they leave behind a vacuum filled by the European Central Bank. Their bond yields still rise despite the support, turned into dependence.
  • All eyes are on Italy to fracture the European Union wide open. The next futile solution in Europe has been delineated, only to fall apart as quickly. A motive to permit a failed system is at work to create the federal structure. Recent appointments prove the point. Again Goldman Sachs lieutenants arrive to the rescue in secret appointments. Calls for unlimited liquidity have come in the form of broader purchases.
  • The bust of Italy will spread to France and Spain, and lead to numerous big bank failures without a doubt. Time assures it, forced by debt rollover. The alarm bell is perceived as the 7% mark on the Italian Govt Bond. The situation in Italy will expose the Euro Central Bank as both powerless and ruined. Within months, valid realistic calls for reversion to the Lira currency will come, but the implementation will cause banking system collapse and massive contagion.
  • The steady prevailing 0% monetary policy acts as a severe dead end. It forces an economic failure from enforced slowdown and retired capital. Worse, the Zero Interest Rate Policy is a badge of failure, not a remedy from crisis. The monetary growth cannot be halted, and hyper-inflation must be continued. The United States is repeating the Japanese lost decade policy step for step, but doing a better job of lying about the results. Set artificially low, the wrong price of money assures broad capital destruction. The USGovt cannot permit a rise from 0% in capital cost, since it is running $1.5 trillion annual deficits. The United States is trapped by 0%, not stimulated by it. The system will hurtle toward systemic failure.
  • The central banks have responded to their failed Quantitative Easing initiatives, which raised the global cost structure and led to a firestorm of protest. While they continue the ample debt monetization, they are attempting to permit Western economies to deteriorate in order to win lower commodity prices. They are deathly afraid of setting off a hyper-inflationary event. The balance is between economic ruin and debt default versus rabid inflation and debt default. Therefore expect debt default.
  • New monetary creation is the advantage almost entirely for the banker class. It is being used to prepare for domination in the next chapter. By limiting largesse to Wall Street, and obstructing it to the Main Street, the Powerz believe they have won the battle over inflation. But they have won a wicked rot instead, in addition to a class war. Rising costs eat away at saved wealth, ruin businesses, and remove equipment from work cycles. The eventual cost will be lethal inflation and a thrust into a very dark place with no exits. They are the Lord of the Flies presiding over a nation thrust into the Third World.

◄$$$ THE WALL STREET BANKS FILLED A VOID IN PROVIDING LIQUIDITY IN USDOLLAR DENOMINATION TO THE BIG EUROPEAN BANKS. IN DOING SO, THE NEW YORK BANKS HAVE TIED THEMSELVES WITH A LETHAL FINANCIAL YOKE TO EUROPE. THE LONDON BANKS HAD ALREADY BEEN CONNECTED. $$$

A little publicized trend was put into effect in the middle months of 2011. The big Wall Street banks filled a void. The inter-bank lending in Europe came to a halt in response to the sovereign debt crisis, a euphemism for the Southern Euro pean Govt bond market collapse. The big Euro banks distrust each other to the extreme. The big US banks offered a lifeline in the form of leveraged liquidity based upon unregulated derivatives whose notional value is in the tens of $trillions. One can be certain that London banks were involved in a similar manner. In doing so, the Anglo banks created a mutual risk factor in the umbilical cord of shadowy structures that assures any big European bank failures will take down several London and US banks in their wake. If a handful of big European banks go bust, the contagion will be felt instantly (as in overnight) in New York and London. To claim that the US is insulated from Europe is nonsense. To claim that the European distress makes the US more attractive is patently false. Fifty major financial firms are tied around the necks with a common thick rope, weighed down by insolvency, going down together.

◄$$$ SOME BIG EUROPEAN BANKS ARE SOON TO FAIL. THEY DISTRUST EACH OTHER, SHUTTING DOWN THE INTER-BANK LENDING AND ISOLATING THE WEAKEST. HUGE FUNDS PLACED AT THE EURO-CB SIGNAL THE FAILURES. $$$

The EuroZone banking system is on the edge of collapse. A London-based executive at a major unidentified global bank said emphatically, "If anyone thinks things are getting better, then they simply do not understand how severe the problems are. I think a major bank could fail within weeks." Several banks from France, Italy, and Spain have exhausted acceptable forms of collateral such as USTreasurys and other liquid securities used to finance short-term loans. The distressed banks have been forced to resort to lending out their gold reserves to maintain access to US$ funding. Thus the hit to the Gold price. The Euro Central Bank has become the main arm for regional clearing functions, as lenders have lost trust with each other. Bank deposits with the EuroCB stand at EUR 905 billion, their highest level since June 2010. Lenders are withdrawing deposits held with other banks on the brink. At the same time, big Euro banks in France and Italy are totally dependent upon central bank funding. The banking system lacks duration in its funding, and it is thus in the process of failing.

The EuroZone is heading for a catastrophe. A major bank could collapse within weeks, taking down others. On December 9th, Moodys downgraded all three big French banks, BNP Paribas, Credit Agricole, and Societe Generale for liquidity and funding constraints. The near failure of a major French lender was the perceived trigger for the massive coordinated central bank intervention three weeks ago, complete with the $1 trillion credit line. They will soon learn that even with a great many zeroes, the funds will not buy much time. That volume is enough only to aid the Italian and Spanish Govt Bonds and their crippled banks. See the UK Telegraph article (CLICK HERE). With a phone call by the USGovt and an arm twist, Moodys still likes Bank of America, Citigroup, and Wells Fargo. The US debt rating agencies are weapons.

◄$$$ A GREEK BANK RUN IS AT FULL GALLOP. THE EXODUS SHOULD FINISH THEM OFF AND FORCE THE ISSUE. DEPOSITS ARE BEING PULLED RAPIDLY. THE GREEK FINANCIAL SYSTEM IS FINISHED, COOKED, RUINED, DEAD, AND SOON BURIED. BRING ON THE DRACHMA. $$$

An unprecedented EUR 6.8 billion in deposits was quickly removed from Greek banks in the month of October, following the September record outflow of EUR 5.5 billion. Funds from corporate and household deposits are being vacated, their banking system being gutted. This is unprecedented 4% of all of the country's period end deposits, which totaled EUR 176 billion at the end of October. Their deposit base has declined by almost 20% in 2011. The next month will be even worse. See the Zero Hedge article (CLICK HERE). The longer Greece waits to revert back to the Drachma, restructure its debt, and devaluate the currency, the more painful it will be later on.

◄$$$ SARBANES OXLEY LEGAL VIOLATIONS ARE COMMON AND NOT ENFORCED. THE LAW REQUIRES BANKS THAT RECEIVE T.A.R.P. FUNDS MUST REVEAL SPECIFIC AMOUNTS OF LOANS AND DIRECT REPORTING OF USAGE. VIOLATIONS ARE LIKE FINANCIAL JAY-WALKING WITHOUT CONSEQUENCE. CAPITALISM WITHIN THE REPUBLIC HAS BEEN MADE A TRAVESTY FROM THE FINANCIAL CABLES. $$$

A recent outlay of $7.7 trillion, revealed from USFed audits, is the latest in a series of unauthorized grants to big banks. The USCongress is powerless to stop the grants, as they hear about them after the deed is done and audits are forced upon the central bank. They cannot be stopped since the USFed as center of the Syndicate takes action under its own direction. Much hubbub has come over delineation of big US bank profit in the $10 billion range from TARP handouts and their implications. The details from federal government loans tied to TARP Funds serve as a major blemish on a system claimed to be capitalism, taking place within what is claimed to be a republic.

CRISIS BEGS SOLUTION

◄$$$ THE MEAN TIME BETWEEN SIGNIFICANT DISRUPTIVE EVENTS HAS BEEN MADE SHORTER AND SHORTER. SOME CALL IT THE QUICKENING. THE ABILITY TO MANAGE THE EVENTS HAS BECOMES MORE DIFFICULT, IF NOT IMPOSSIBLE. A CLIMAX IS FAST APPROACHING. $$$

The captains of the sinking fiat monetary system have been putting fingers in the dike for three years. They are running out of fingers. The holes pop up with greater frequency. The entire fortification is breaking down. What used to be a serious crisis event every eight to ten months became a crisis event every three or four months last year. Lately, the crisis events are occurring only a few weeks apart. The system is breaking. The financial structure like a grand stage will not push off a player of two. Rather the entire stage is collapsing. The rapid acceleration of events is a highly destructive quickening process. The trigger events for what leads to a catastrophe are uncertain. Some describe the inevitable time when key players are not at their desks when critical reaction is required. They will be occupied with other emergency action. An inadequate number of Syndicate team players might be available to meet the tasks. Some event regarded as inconsequential might

A great misjudgment might be made on liquidity needs for the insolvent corners of the imploding system. The greater frequency of important crisis events is in itself a big warning signal. It causes a deep-seated insecurity for the masses. The financial press seems eerily aware under the surface from their tone and expressions. They cannot push aside the extreme corruption in full view. Guests repeat the obvious nature of criminal fraud without prosecution. Not only is time between crisis events shortening after massive infusions of fresh funds, but the time bought by freshly printed $1 trillion batches is also shorter and shorter as the crisis unfolds.

◄$$$ THE HOUSING MARKET CANNOT RECOVER WHILE BANKS COLLECT FORECLOSED HOMES IN INVENTORY. THE HIDDEN HOME INVENTORY IS A GIGANTIC WET BLANKET OVER THE MARKET. THE ULTRA-LOW INTEREST RATES ENABLE THE BANKS TO CONTINUE TO CARRY THEM. $$$

The fully forecasted US housing market permanent decline is stuck in its fourth year. The quacks cite a recovery, but the reality is a chronic housing decline that will continue to have another two years to settle as long as a shadow inventory is maintained by the big US banks. Several hundred thousand homes are held in inventory, with 75 thousand new home foreclosures completed per month. No prospect of clearance is possible under current conditions. The housing tragedy is a double edged sword. Over 20% of the households are insolvent at a time when job security is non-existent. Thus the consumer is crippled. The majority of midsized banks and almost all large US banks are insolvent at a time when liquidity pressures are mounting. Thus the banking system is crippled. Release the bank inventory and home prices will decline another 15% to 20%, but it would start the bottoming process. Unfortunately, it would also force a skein of bank failures. The Case Shiller housing index reported that metro home prices are down by 1.0% in the last two months. The home ATM machine is gone. Without a cleared housing market, expect no bottom in home prices. Without a housing market in recovery, the USEconomy will languish, falter, and continue its deterioration. It hurtles toward systemic failure, a Jackass call made since late 2008.

This is all utterly basic economics. The banking sector is the holding the tail of the tiger. To add an exclamation point on the ruined housing market, CoreLogic estimated that the Realtors group overstated sales in 2010 by at least 15%. For years they have tended to intentionally overlook the busted sales from lack of financing, as buyers fail to qualify for approval. Mortgage applications do not equal home sales ultimately. See the USA Today article (CLICK HERE).

Any true solution, or meaningful steps toward a solution, must begin with $1 to $2 trillion in significant home loan adjustments. The large scale home loan balance reduction should have been done years ago. The fact that it has not been done until now means it will never be done in any meaningful volume. This glaring omission means the middle class is not valued. It means the elite in control of the USGovt are callous. They invite a class war. The reason why no home loan reform has been done, or will be done, is widespread bond fraud. Hundreds if not thousands of mortgage bonds were sold by Wall Street with duplicate attachment to properties and their income stream. A reform of home loans would involve tracking down the mortgages, untying them from the bonds, sorting them out, adjusting most of their loan balances, and continuing. Unfortunately, too many mortgage bonds are fraudulent. Worse, many Fannie Mae bonds are suspected to have no property at all in securitized linkage, and thus no income stream. So modification is not an option, never has been an option, and never will be an option. The Wall Street syndicate rifled through the mortgages, counterfeited bonds, created a vast income source for themselves in fees, and made it impossible to reverse. They prefer to be perceived as callous instead of being exposed as criminals guilty of fraud. My firm expectation is that in the next year, almost every single corner of major American finance will be exposed as a colossal fraud system. The realization should force a systemic failure and USGovt debt default.

◄$$$ THE ACTUAL SOLUTION TO THE GLOBAL FINANCIAL CRISIS IS THE EASTERN ALLIANCE BETWEEN GERMANY, RUSSIA, CHINA, AND THE PERSIAN GULF NATIONS. IT RECEIVES ZERO ATTENTION. IT WILL BE BASED UPON A BARTER SYSTEM WITH A NEW CURRENCY AND A GOLD CORE. $$$

The new accord with signatory nations of Germany, Russia, and China, includes the caravan from the Persian Gulf. It excludes France, which must accommodate life with the PIIGS. The bankers and builders of new system of commerce have another plan. A multi-tiered barter system has been in construction for three years. It is reportedly ready in wait, to be unveiled when the Anglo Western financial stage collapses. The highest level of the barter system involves pacts made and contracts signed between nations. Take for instance China making a deal with Bolivia for its industrial metals. The supplier Bolivia would earn massive credits in barter. China would provide finished products on the other end. The next tier of the barter system would be corporations that abide by the rules of exchange, earning credits from production and dispensing credits for income. The Chinese would honor obligations by supplying the finished products, but within the corporate layer. At the lower levels of the barter system would be the consumers. A factory worker would earn credits from his or her labor, to be honored in purchases like for food at supermarkets or home supplies or services in the economy. A newsletter writer could accept barter units in return for credit at hotels, supermarkets, stores, or from service providers.

The barter system platform will be inaugurated along with the Eastern Alliance as soon as the current system collapses. That day is not far off, to be sure. At the center of the barter system will be a short-term reserve core made of gold bullion. It will collateralize a short-term credit utility used between parties. The upshot of the entire system is that any nation that is a net blood sucking deficit parasite will find itself excluded. If a nation cannot contribute in a nearly net neutral fashion, it will not be permitted to participate. The United States with its vast deficits that eclipse those of all other nations or groups of nations must find much more to produce, if it wishes to participate. It will be excluded. No nation can legitimately call its own deficits an export like the United States does.

GOLD AMBUSHED BY CRIMINAL SYSTEM

◄$$$ A LEHMAN REDUX IS IN PROGRESS, AS THE GLOBAL FINANCIAL SYSTEM IS COLLAPSING. THIS TIME IT IS MUCH BIGGER AND MORE UNSTOPPABLE, CERTAINLY NOT FIXABLE. AT ISSUE IS THE HIDDEN COUNTER-PARTY RISK, WHICH CAN CRUSH AN ENTIRE ASSET POSITION, EVEN NEARBY ASSET POSITIONS. GOLD & SILVER HAVE NO COUNTER-PARTY RISK, BUT MUST BE KEPT AWAY FROM THE CRIME CENTERS. $$$

James Turk of Gold Money shared his thoughts on the extreme risk and game changing consequences of the biggest fraud case since Madoff. He said, "It is now becoming clear that the ramifications of MF Global are earth shaking, and consequently, we are already in another Lehman moment. The big difference from 2008 is that this time around, it is taking a longer time for the crisis reach its full force. The MF Global event has dealt a serious blow to the market structure itself. The situation today will get worse than what happened in 2008. When Lehman blew up back then, people scrambled for liquidity, but the market itself continued to function. Notwithstanding the enormous fallout from Lehman's collapse and the disruption and distortions occurring in markets from all of the government interventions with their so-called bazookas, the market structure itself was not questioned. Today is very different. You cannot trust any counter-party anymore. Not your broker, not your bank, not the regulators, not the exchange, and not even the clearinghouse. In one short stroke, MF Global has knocked out all the props holding up the one essential ingredient needed for any market to function, namely confidence. In other words, your paper assets one day appear valuable and then the next day are worthless or nearly so because the counter-party failed. That is the message from the MF Global collapse that the market is now assessing. Everyone should be carefully paying attention to what is happening on the CME, the biggest futures market in the world. The drop in volumes and open interest are a reflection of the decline in confidence in the various counterparties. This time I have been expecting a fear event, with money rushing into the precious metals for safety, to avoid counter-party risk. Therefore, higher metal prices will be the result. A fear event is the logical outcome we should expect. You would still be better off owning the precious metals. And even more importantly, physical gold and silver do not have a counter-party risk. So you never need to worry about the precious metals defaulting on some promise. Trying to contend with this fallout without owning physical gold and silver is like going into a war without any bullets." See the King World News interview (CLICK HERE). Turk does not stress the importance of holding Gold & Silver outside the crime centers of New York, London, and Switzerland.

◄$$$ THE GOLD LEASING BUSINESS HAS BECOME A GENERATOR FOR PRODUCING GOLD, OR BETTER DESCRIBED AS SLEDGE HAMMER TO RELEASE GOLD FROM WEAK FIRMS. THE NEGATIVE LEASE RATE ENABLES DISTRESSED BANKS TO RAISE CASH. INSOLVENT FINANCIAL FIRMS ARE BEING FORCED TO FORFEIT THEIR GOLD TO MEET OBLIGATIONS. OFTEN HEDGE FUNDS, THEY ARE OVER-LEVERAGED AND BEING SQUEEZED. $$$

The stories are ripe, painful, and numerous. Cash is in high demand in Europe. Dollar Swap lines are flowing to meet the need. Gold dealers report that banks, mainly from France and Italy, had been aggressively lending gold in the market in exchange for USDollars early December. My sources indicate Turkey also. The avid rush has pushed gold leasing rates to record lows. The lease rate is calculated as the implied interest rate for lending gold in the market in exchange for cash, after accounting for short-term borrowing costs. More precisely, the lease rate is the London Interbank Offered Rate (LIBOR) minus the Gold Forward Offered Rate (GOFO). Obviously the central banks encourage the low lease rates, since financial firms actively dump the gold. It is like being paid to dump gold and raise cash to meet distressed obligations. The one-month gold leasing rate fell hard, spending a lot of time under -0.5% in early December. Big bullion banks are paying to lend gold, while borrowers are encouraged to do so. Cash is in desperate need. Edel Tully is precious metals analyst at UBS. He believes banks were looking to offload gold either for balance sheet reasons or funding, or both. They must meet required reserve levels. They must pay out on US$-based obligations. One must wonder if gold bullion is being lent out of Allocated accounts illegally. Nothing stops fraud these days, nothing!

The strains in Europe for US$ funding are acute. Many bank analysts are surprised to see gold leasing at such high volume immediately after the US Federal Reserve and other central banks announced measures to accommodate liquidity to the financial system. It was not supposed to happen with the swap lines in place. These analysts fail to comprehend either the criminal element or the fiat paper ruin. The point driven home is that the vortex that destroys capital, in direct reflection of the grotesque big bank insolvency, has pulled money off the shelves. The real money is gold bullion. At a higher level, money is being destroyed. Conclude that the negative rate implies extremely low demand for gold compared to cash. More entities are prepared to lend gold at a terrible rate than to lend their cash for gold. Or central banks are willing to lease at negative rates to encourage the gold dump. See the FT Alphaville article (CLICK HERE) and the Cafe Americain article (CLICK HERE). A footnote for both horror and amusement, if not totalitarian shadow cast. The USGovt claims gold is used to finance terrorism. They are correct. The terrorism is done in the Western banking system, to protect their fiat paper based monetary system. Moreover, most major US, London, and European banks are up to their necks with outsized narcotics money laundering, the destination of the core funds being major Wall Street banks.

◄$$$ WALL STREET EXECUTIVES HAVE GIGANTIC LONG POSITIONS IN GOLD & SILVER. THEY TRASH THEIR FIRMS AND COMMIT TO GOLD IN THEIR PRIVATE ACCOUNTS. THE FIRMS ARE BAILED OUT BY THE USGOVT REPEATEDLY. IT IS QUITE THE SCAM. BEWARE OF POTENTIAL SHELL GAMES AND AN INTENTIONAL MF-GLOBAL SCUTTLE, A CREDIBLE PLOT. $$$

Jim Sinclair revealed in March 2008 at the PDAC gold conference in Toronto that Wall Street executives maintain extremely large private accounts at the Carlyle Group. In those accounts they hold long precious metals positions of huge size, in counter-party to the huge short positions maintained by the Wall Street corporate accounts. The investment banks are actively being trashed, knowing they will be constantly bailed out by the USGovt, which facilitates the deep commitment to gold by the executives to the Wall Street firms. They attempt to drive down the gold price in order to buy it privately. They enforce staggering short positions in the corporate accounts not only to protect the fiat paper monetary and financial system, but to accumulate gold bullion for the next global chapter.

Give some credence to another theory regarding MF Global, that in the zero-sum world of futures contracts, the loser sits opposite a winner. Investigations focus on the losses stacked at MF Global, but perhaps some shell companies were created by MFG and their dog handler JPMorgan. The credible but disturbing explanation has been proposed by Walter Burien of CAFR1.com for a potential conspiracy theory. By scuttling MFG, the patsy Corzine effectively gave lift to opposite positions held in some shell companies controlled by a cabal of his closest colleagues in Goldman Sachs or JPMorgan London offices. They made obscene profits that countered the massive losses suffered by MFG stakeholders in the vicious liquidation. As Burien says, "A government and media cover up would just focus on MFG's loss. A true and open investigation would be focused on who took the other side of the coin, the profit." To be sure, those hidden positions were short positions, made profitable when deliveries were never made to push up the price. In the aftermath, the long defenders were robbed and the ambushes were made easier. See the Zero Hedge article (CLICK HERE). MFG could have been a 911 type event.

◄$$$ WATCH THE SPROTT FUND FOR APPROVAL OF ITS SILVER ADDITION. THE SPROTT SILVER FUND PLANS TO PURCHASE $1.5 BILLION WORTH OF SILVER IN BLOCKS. THE EVENT WILL SPREAD OVER TIME, SURE TO CAUSE A GREAT PROBLEM FOR THE CORRUPTED SYSTEM. EXPECT THE SILVER PRICE TO RISE IN RADICAL FASHION. ERIC SPROTT IS ATTEMPTING TO CAUSE A CHANGE IN CASH MANAGEMENT PRACTICES AMONG MINING FIRMS, URGED TO HOLD SILVER INSTEAD OF CASH. $$$

John Embry of Sprott Asset Management has launched two attacks on the COMEX. First, he filed with the Canadian Govt to purchase C$1.5 billion in silver. The previous sourcing of silver bullion for a fund under his aegis led to the silver price zooming from $18 to past $30 per ounce in 2010. Secondly, he urged large silver miners to store silver on their balance sheets rather than cash after silver sales. Don't sell silver. His motive is to crush and break the COMEX. Let's see if mining firms can effectively use silver for raising cash, held as collateral for fresh loans, not actually sold. Unspoken but clearly implied is a desire to break the COMEX and the LBMA (London Bullion Market Assn) where fraud is rampant and entrenched. Also involved in the profound corruption are the Exchange Traded Funds GLD & SLV. These funds use paper derivatives to simulate the spot price of gold and silver. Their custodians routinely short the fund shares, and remove metal from inventory out the back door. A deep analysis of SLV reveals that their operating costs are covered from the sale of silver bullion. See the Profit Times article (CLICK HERE). Again Adam Hamilton, wake up and pay attention!

One should keep in mind a main point made by Gold Money founder James Turk. He harps on an important price factor. Half of the new funds invested in bullion goes into silver and half into gold. For every ounce of gold mined, only ten ounces of silver is mined. But silver has industrial uses that gold does not have, resulting in significant silver consumption and chronic shortages. The above ground supply of silver has diminished 93% in the past 40 years. Many stockpiles like with the USGovt are drained dry empty, such as the 6 billion ounces once stockpiled by President Teddy Roosevelt over a century ago. Note the ratio of the price of Gold/Silver is 50 to 1. When the current strangehold ends, the price of silver should rise two to three times faster than gold.

◄$$$ MOST EXCHANGE TRADED FUNDS ARE PURE FRAUD AND DIRECT DEVICES TO DENY ACTUAL OWNERSHIP OF PHYSICAL GOLD & SILVER METAL. EVIDENCE OF FRAUD IS BROUGHT TO LIGHT IN THE PREMIUM PAID BY LEGITIMATE FUNDS VERSUS DISCOUNTS GIVEN FOR CORRUPT FUNDS. THE BAD FUNDS DEPLETE INVENTORY OUT THE BACK DOOR FOR CARTEL PURPOSES, WHILE THE GOOD FUNDS PERMIT INVESTORS TO REMOVE THEIR HOLDINGS. BUTLER POINTS OUT THAT THE S.L.V. ETFUND HAS A GIGANTIC AND GROWING NAKED SHORT POSITION. $$$

Legitimate commodity based funds, like the major exchange traded funds, prove their integrity by showing a slight to moderate premium in the price. The premium exists since they actually locate the commodity, like gold or silver or crude oil, and pay up to secure it, then pay again to deliver it, then pay again to vault or store and guard it, even to insure it. That all costs money. Compare and contrast the discount to spot price, that comes to 2.9% for GLD and comes to 2.8% for SLV. The silver discount in SLV usually has been half that. The reason is simple. The custodians for GLD & SLV are shorting the shares, which by prospectus rules permits them to take delivery out the back door for their bullion metal in inventory. They are undermining their own funds. Eventually these two corrupt funds will be gutted of inventory and the object of numerous lawsuits. Compare and contrast the premium paid for all honest audited, closed end bullion funds traded in the United States. The fraud is exposed.

                        FUND             CONTENT                             PREMIUM

                        CEF                 (55 gold /45 silver)                       4%

                        GTU                (100% gold)                                  9%

                        PHYS              (100% gold)                                  3%

                        SVRZF           (100% silver)                                10%

                        PSLV              (100% silver)                                19%

Another significant contrast slaps the investor in the face. While GLD & SLV permit the Wall Street cartel to snatch and grab the investor precious metal, the honest funds enable the investor to take delivery of actual Gold & Silver under certain conditions. The size must be large and notice must be given. Notice the Sprott Silver Trust (PSLV) has a much larger premium than the Sprott Gold Trust (PHYS), a condition ongoing for many months. Conclude the physical silver market is much tighter, with great challenges to secure the metal during profound shortages. Watch the Sprott challenge both for regulatory approval on its big $1.5 billion expansion in the silver fund, and for securing the metal at source. He might secure the silver from mining firms, and thus cut off the COMEX delivery channels. These firms are angry at the artificially low corrupted silver price, and very motivated to do business in new ways.

The folks at Implode Explode describe the SLV corruption in detailed terms. The word Trust is used for the fund name in much the same way Pravda was used in the Soviet Union. The word means Truth, the title of a main communist newspaper. Implode Explode wrote, "For those not familiar with this skullduggery, the big trusts like SLV and GLD have a sort of loophole where the trustee can issue new shares even before they acquire the metal to back them. This is the same as naked short selling of the shares, selling shares you do not even have, and have not even borrowed from someone who does have them! The upshot is, this (by definition) ends up depressing the price, in a situation where the trust going out and buying more metal should be boosting the price. So it is actually a double whammy effect of price suppression." See the Implode Explode article (CLICK HERE).

Ted Butler pitched in with some hard data. He has shed much light on the corrupt ETF tickets that deceive the precious metals investors. He wrote, "Starting this year, the short position in SLV had grown dramatically, from around 13 million shares, to a peak of 37 million shares in the spring. Not only is the percentage of shorted shares of total outstanding shares higher in SLV than in any other hard metal ETF, it is higher for a very unique reason. There is not enough physical silver available to allow for the normal issuance of shares as dictated by the prospectus. Aside from the harm short sellers are having on SLV shareholders, these short sellers are also manipulating the price of silver. If they had to go out and buy 25 or 37 million ounces of silver to issue shares as dictated by the prospectus, the price of silver would have soared. Instead, the SLV short sellers are helping to manipulate the price of the metal itself by defeating the intent of how shares should be issued." This fund is the ultimate fraud and a successful congame to lure in unsuspecting investors. Advocates in the gold community still recommend it, like the blockheaded Adam Hamilton. He is either extremely stupid or paid off by the gold cartel. It is that corrupt. His wayward view is that off course.

◄$$$ DIVERGENCE BETWEEN PAPER GOLD AND PHYSICAL GOLD PRICE IS HAPPENING, THE PROCESS BEGUN. ACTUAL PHYSICAL SHORTAGES HAVE KEPT THE PRICE UP. THE NAKED SHORTING OF FUTURES HAS KEPT THE PAPER PRICE DOWN. THE FRAUD CASES AND LAWSUITS, WITH NO HINT OF PROSECUTION, PROVIDE THE LEVERED FORCE TO CREATE MUCH WIDER DIVERGENCE. TRUST HAS VANISHED ALONG WITH PRIVATE ACCOUNTS. $$$

At the center of the backdrop for the divergence, apart from the criminal events, is the economic deterioration and asset market downdraft. It leads to margin calls, loan payment obligations, fading investor confidence, negative sentiment, and a desire to avoid loss. Hence the huge liquidity concerns, selling of good assets that command a strong price, and central bank encouragement of gold sales even with lease. These forces conspire to push down the gold futures price from the discovery process, called the paper gold price. These forces, although real, are exaggerated by the Syndicate to explain all. On the other side is the desperation among central bankers to cover debt securities up for sale or rollover funding. They resort to utter hyper inflation by monetizing the many types of government bonds. They are obligated to aid their banker cohorts, and thus purchase truckloads of badly impaired sovereign bonds and other collateralized bonds. Over time these sovereign bonds have proved toxic. The compelling need to stimulate economies, to redeem toxic bonds, and to recapitalize and nationalize the big banks adds to the monetary inflation outcome. Therefore, two sides are in opposition in a battle to the death of one or the other. No middle ground can be achieved, not any longer. It is the quintessential battle between monetary hyper inflation and restoring bank system insolvency to avert collapse.

The hopeless incurable speculator junkies committed to the addictive leveraged game rigged by the Forces of Evil seem never to learn, stuck in their corner of futility. If their practice was to purchase physical, they could benefit from the paper price swoon, and join the Forces of Good team, rather than fighting the evil side on their dominated turf. The divergence between physical and paper gold price is widening. The desperation of the bad team is growing. The gold cartel has benefited significantly from the fresh Libyan gold supply (144 metric tons) and Greek gold supply (111 metric tons), not to mention the ample Dollar Swap Facility. It is the bankers New Gold, as reported by intrepid Jeff Neilson. In a fresh sign of bankster desperation, the lease rates for gold have been pushed down to net negative levels.

The hypothecation battle will bring sufficient publicity to help the divergence along. As more assets are seen as committed, involved, and tainted in the process of grabbing, snatching, and securing collateral, even by illegal means, the physical assets will be removed from the system. On the investment and speculation side, harm has been rendered to managed risk. The client funds have begun to flee. The protection and security of money in private accounts has been under siege in recent weeks since the MF Global crime scene was established and the yellow cordon has been put in place. Investors are pulling money out of hedge funds at a rapid rate. The COMEX will be increasingly isolated. Clients funds were redeemed to the tune of $9 billion in October, almost four times as much as they pulled in September, according to Barclay Hedge and TrimTabs Investment Research. Investors in October yanked more from hedge funds, setting a single month high over the last two years. The redemptions are the largest for the hedge fund industry since July 2009, when $17.8 billion was returned. The Barclay Hedge office put lipstick on the corrupt pig by commenting on how investors have lost patience with lackluster investor returns. To be sure, the average hedge fund is down by about 4% this year. The global hedge fund industry size has been reduced to $1.66 trillion, still sizeable. The macro type funds, long/short funds, and emerging market funds suffered $6.0 billion in total redemptions, while multi-strategy funds saw a $1 billion infusion in new capital. See the Fin Alternatives article (CLICK HERE).

◄$$$ GRAND DIVERGENCE DYNAMICS ARE BECOMING CLEAR. ANN BARNHARDT EXPLAINED IN DETAIL HOW THE C.O.M.E.X. WILL GO AWAY. IT WILL NOT DEFAULT, BUT RATHER FALL INTO IRRELEVANCE. IT MIGHT STILL SUFFER THE SHAME AND SPOTLIGHT OF CRIMINAL PROSECUTION. IT WILL MORE CERTAINLY SUFFER FROM BEING IGNORED AND SHUNNED. THE PHYSICAL BASIS MARKET WILL NOT RESPOND TO THE DECLINES IN THE PAPER FUTURES MARKET. THE CURRENT DOMINANT MARKET WILL GO AWAY DUE TO LOST INTEGRITY AND ERODED TRUST. $$$

The Barnhardt story has been recounted in this report. The consequences and implications are enormous, staggering, and sweeping. The changes from the MF Global failure and theft of private segregated accounts will come in time, perhaps accelerated by another similar event to slam the message home. The Syndicate has turned desperate, resorting to theft in the open, which results in direct consequences. Ann Barnhardt explained how the COMEX will fade away into oblivion. Its final chapter will be marred by a grand price divergence, where the futures market price declines from shunned avoidance, while the cash physical market price holds steady then rises. Many including the Jackass had thought that a slew of delivery demands would force a drain in their gold & silver inventory, eventually leading to a slew of lawsuits, together to shut them down as a corrupt enterprise arena. The MF Global theft reveals the alternative route. The gold cartel led by JPMorgan and secretly by the USFed will not go quietly. They have resorted to theft of private accounts on the open stage. The backlash has begun and will gain strength. She offered many cogent arguments with detail on how the COMEX will be ignored from distrust and suspicion of further thefts, as clients remove funds and close accounts. Here are her main points. They apply to Gold & Silver. See the Barnhardt weblog (CLICK HERE).

  • Arbitrage is set to kick in. Players will buy at the cheaper corrupt paper market in COMEX and sell in the higher honest physical market, wherever brokers can match to make deals. (It is the same phenomenon that ripped the Euro sovereign bond market apart, as the German Govt Bond yields remained much lower than the Spanish and Greek.) Until recently, traders could sell at a higher futures price than the spot. But a reversal has occurred in recent weeks and months. They will take advantage of a strong basis, buy at the discount offered by COMEX, and sell into the cash spot physical market.
  • A linchpin holds the market together. Keeping the futures markets tied to the underlying cash physical market is the fact that the futures contracts permit taking delivery. That delivery mechanism just broke as linchpin in full view. The futures market has lost viability and trustworthiness because of the MFG collapse and theft. Soon the delivery mechanism will be widely recognized as not reliable. Neither is holding cash in a futures account reliable any longer.
  • The entire delivery mechanism has been corrupted and undermined. Taking delivery has meant a holding of physical metal bars is stored in a certified vault with your name attached. No longer are such holdings considered safe. Thefts occurred, and lawsuits have occurred to decided upon ownership of bars in dispute.
  • The de-coupling process comes when arbitrageurs finally lose all confidence in market interaction dynamics, as the cash market will lose connection on price from the futures market. Players will not be willing to take the risk of having their money, positions, and physical metals stolen or confiscated. The former forces to ensure convergence of the cash and physical markets will have disappeared, a direct consequence of vanished accounts and vanished trust.
  • As players flee the futures market, the paper futures prices will decline. The cash physical market will hold steady. The divergence will come and be noticed, then be widely publicized. The players will realize that the physical market is the only remaining game to be played with honest rules in effect. The cash dealers will ignore the futures prices, no longer a valid price discovery, seeing that market demand for their physical inventory is robust, and maintain their prices steady. Later, they will even raise the physical prices. Then later still, the parabolic spike comes for physical Gold & Silver.

◄$$$ ASSET MGMT FUNDS ARE APPEALING TO MINING FIRMS FOR DIRECT METAL SUPPLY. THEY ARE BYPASSING THE C.O.M.E.X. IN A NEW TREND. THE SPROTT FUNDS ALSO SOURCED THEIR PRECIOUS METAL FROM MINING FIRMS LAST YEAR. THE OFFICIAL EXCHANGES ARE BEING CUT OFF, A FORM OF ISOLATION AS A RESULT. SEE THE ASHANTI STORY AS TYPICAL. $$$

The COMEX is seeing reduced supply lines, reduced operations, more criminal implications, horrible publicity, and fewer clients. Criminal fraud does that. The trend shapes up well for higher gold & silver prices. Mark Cutifani is CEO of AngloGold Ashanti, a $16 billion mining firm. He said, "Major [asset management fund] buyers are finding it is hard to get physical gold. People are coming directly to us [for large gold purchases,] people who want tonnes of physical gold, people with serious financial muscle, because they are finding it is very difficult to secure the volume of gold they want. That is something we have noticed over the last 18 months, and it has been increasing in the last six months. People are finding its hard to get physical gold." The clear message is that the COMEX has no spare available metal at all. Cutifani has good insights into the commodities and precious metals markets, and describes a fascination new trend regarding the global picture. He pointed out that major gold buyers are emerging from the Middle East and Asia. See the Bull Market Thinking article (CLICK HERE).

◄$$$ NEW GOLD CENTERS ARE FORMING, WHERE THE SAFETY IS MOST ASSURED. HONG KONG AND DUBAI HAVE EMERGED AS RELIABLE HONEST BROKERS, AND WILL CONTINUE TO PROVIDE VALID SAFE HAVEN. SWITZERLAND, LONDON, AND OTHER LOCATIONS ARE FADING FAST. THEY ARE THE CORRUPT CENTERS. $$$

Takahiro Morita, the Japan director of the World Gold Council, reported that Japan's gold exports in the 10 months ended October totaled 95.6 metric tonnes, their highest level since 2008, when it registered at 95.5 metric tonnes. People who bought gold and jewelry in the 1980 and 1990 decades are selling back what they purchased, according to precious metals traders. Japan has turned into a big exporter. Contrast to the official side. Central bank purchases have risen by 114% over the previous quarter. Purchases by central banks could hit 450 metric tonnes this year, concludes the investment research at the council. The volume represents the highest level of central bank buying since at least 1970, perhaps the greatest in recent history. See the Nasdaq Community article (CLICK HERE). A veteran gold trader with actual experience in these locations pitched in to explain. He said, "These are not sales in Japan. They are exports, an important distinction. Many investors are busily relocating their precious metal bullion to Hong Kong and Dubai UAE. Look for Dubai to be the HK of the Middle East. The Chinese have made that decision, and it is being implemented with lightning speed." Most of the relocation from Japan shows up as exports, which require payments.

◄$$$ OCTOBER IMPORTS INTO CHINA FROM HONG KONG ROSE 50% OVER SEPTEMBER, AND UP 40-FOLD FROM LAST YEAR. THE MORE ATTRACTIVE FAIR PRICE PAID IN SHANGHAI REACHED $50 ABOVE THE CORRUPT LONDON PRICE. THE ARBITRAGE HAS BEEN VERY ACTIVE. $$$

Chinese gold imports from Hong Kong hit a record. The Financial Times reported Chinese gold imports from Hong Kong hit a record high in October and astoundingly, they accounted for more than one quarter of the entire global demand. Data showed that China imported 85.7 tonnes of gold from Hong Kong in October, up 50% from the previous month and up more than 40 times from October of last year. It marks the fourth consecutive month that China's gold flows from Hong Kong have hit new highs. The article noted that the price arbitrage between London and Shanghai was favorable for Chinese imports during late September and early October, giving astute clever traders an edge. Gold on the Shanghai Exchange traded up to $50 per ounce above the main global market based in London, a record price difference. Purchases from China have fallen since October, as the recent strength in the USDollar has made gold more expensive. Also, considerable new strain has been felt inside China in recent weeks. See the Financial Times article (CLICK HERE).

◄$$$ INDIA HAS BEEN USING GOLD TO SERVE AS COLLATERAL IN LOANS. IT HAS SPURRED ECONOMIC DEVELOPMENT. THE NATION SERVES AS A LABORATORY FOR A GOLD BASED FINANCIAL SYSTEM, BUT A MICROCOSM. HARDLY A DEAD ASSET, GOLD IS A DYNAMIC CORE ELEMENT IN A CAPITALIST SYSTEM. $$$

Indians increasingly has been monetizing gold as collateral for loans. Over 50,000 Rupees worth of gold will have been pledged in 2011 to secure bank loans in a rapidly expanding gold loan market. A transition is in progress that allows the favorite hoarded asset in India to be released into the financial sector, thus providing a solid boost to the economy. Industry data cites around 200 tonnes of gold used as collateral to secure loans by end November. Many in the West call gold a dead asset, but they are ignorant fools, of corrupt minds on monetary matters. When it is placed in the center of credit engines, it is a dynamic fuel. The organized gold loan market is developing in India, unlocking capital, acting as a source of liquidity. The likelihood of default is very low because the borrowers are deeply attached to their gold, and do not wish to lose it. Borrowers are charged much less on interest that other personal loans. Uses of the funds are diverse throughout the Indian Economy. It is on the move. As of end November the total credit issued by banks grew at around 20%, while organized gold loans grew at near 50%, making it an increasingly important source of liquidity. Next consider the phenomenal future potential, given the 18,000 tonnes of gold Indians hold in possession. See the Economic Times of India article (CLICK HERE).

◄$$$ A GOLD STANDARD COULD BE DECLARED AND INSTALLED. IF GOLD WERE VALUED AT $10,000 PER OZ AS IT SHOULD, PLENTY OF GOLD WOULD EXIST TO COVER THE MONETARY AGGREGATE. THE MONEY SUPPLY COULD ACTUALLY BE BACKED BY A GOLD COVER CLAUSE, A LEVERAGE OF MONEY TO GOLD IN A STABLE SYSTEM. $$$

Many naive parties in the West believe there is inadequate gold bullion to match the world money supply. This is very shallow thinking. To begin with, the gold price is ridiculously low. It should be at least $10 thousand per ounce. At the higher price, the gold bullion stored could compare better to the fast rising money supply. If given proper value, an amazing amount of gold would reappear and enter the system in a strong viable sense, like in India where it is used as collateral. Furthermore, a cover clause could be used in clever fashion. Imagine someone demands cash for gold offered. In a new system, a certain percentage of the gold value could be redeemed for cash, like 1% or 2% or 5%. The cover clause could be adjusted like central banks move official interest rates to achieve a reaction that seeks stability. A very different healthier form of monetary policy could be fashioned. The current official interest rate approach is deeply flawed, where a floating currency exchange rate can be influenced by offering more inflation units, or fewer units. National export industries are victimized by successful economies and gathered trade surplus, which is totally backwards. In fact, it is the essence of the Competing Currency Wars, a deadly battle in full glory right now in which all nations are destroyed.

PRICES AGAINST DIVERGENCE

◄$$$ THE EUROPEAN UNION IS TOTALLY BROKEN. THE EURO CURRENCY IS TOTALLY BROKEN. THE BIG EUROPEAN BANKS ARE TOTALLY BROKEN. ITALY & FRANCE WILL BREAK THE GAME WIDE OPEN. THE DOLLAR SWAP FACILITY IS BEING USED TO CREATE NEW USDOLLARS, TO LEASE & SELL GOLD, AND TO PATCH THE BIG BANKS. THEY BUY TIME. NO SOLUTION EXISTS. THE EURO CURRENCY WILL CONTINUE DOWN UNTIL IT DIES. BUT THE USDOLLAR WILL RISE UNTIL IT DIES TOO. $$$

◄$$$ THE GOLD PRICE GIVEN PUBLICITY IS THE PAPER VERSION FROM THE CORRUPTED C.O.M.E.X. DISCOVERY PROCESS. THE CENTRAL BANKS ARE IN RUINS. THEY ARE ENCOUARGING GOLD LEASING TO RAISE CASH FOR THE BENEFIT OF BIG INSOLVENT TOPPLING EUROPEAN BANKS. ON DECEMBER 1ST ALMOST 20 BIG BANKS ALMOST SUFFERED A LEHMAN EVENT FAILURE. THE PRICE DIVERGENCE FORECASTED BY THE JACKASS HAS BEGUN TO SHOW ITSELF. IT WILL EVENTUALLY BE SHOWN IN FULL GLORY. $$$

◄$$$ THE SILVER MARKET HAS SUFFERED FROM ENORMOUS NAKED SHORTING IN THE PAST FEW WEEKS, AS JPMORGAN SHOWED ITS DESPERATION DURING FRAUDULENT EPISODES ON FULL STAGE. THEY STOLE OVER 600K OZ SILVER FROM CLIENT ACCOUNTS, PROBABLY USED IT TO LEVERAGE SALES, AND NAKED SHORTED MORE. WATCH THE SPROTT SILVER TRUST SOURCE ITS SILVER, A MAJOR EVENT. THE MINING FIRMS HAVE BEEN AVOIDING THE C.O.M.E.X. FOR THEIR CORRUPTED LOW PRICE. THE DIVERGENCE HAS EXTENDED TO SILVER. $$$

◄$$$ THE H.U.I. MINING STOCK INDEX HAS BEEN A GRAND DISAPPOINTMENT. BUT THE JACKASS WARNED IN 2008 TO AVOID IT. THE INDEX IS UNDER GREAT PRESSURE. NUMEROUS ARE THE FORCES PUSHING DOWN ON THE SECTOR. REMEMBER THAT MINING SHARES ARE MADE OF PAPER TOO. $$$

CHINA CRASH & EFFECT DOWN UNDER

◄$$$ CHINA IS FALTERING. A JACKASS ERROR MUST BE ADMITTED. MUCH OF THE $3.2 TRILLION IN CHINESE RESERVES IS COMMITTED IN THE STATE BANKING SYSTEM AND REGIONAL DEBT WITHIN THE COUNTRY. SOME DEEP SHOCKS ARE IN PROGRESS IN CHINA. THEY CHOSE THE USDOLLAR FOR INDUSTRIAL EXPANSION AND BANKING SYSTEM. SADLY, THE HARD LANDING IN CHINA WILL CONTINUE TO CAUSE MAJOR PROBLEMS IN THE REGION. $$$

The Jackass does not present himself as any great expert on China. Many items have been reported in past Hat Trick Letters. Many stories have been provided, surely not a comprehensive position. A great deep source with contacts in China expects the Middle Kingdom to suffer many shocks, and for their communist party perhaps to lose power during the next powerful disruptive phase. But China will emerge strong, buttressed by a powerful industrial base that the US would be jealous to command. China will have to encourage more middle class demand, which it will do. It has a growing educated labor class. Some of its biggest challenges extend from adequate water supply and clean air for health. Beijing has a severe water shortage. Their banking system was hitched to the USDollar wagon, a great calamity assured. The Peoples Bank of China has been reducing bank reserves ratios steadily as conditions worsen. Their Yuan currency has been on a recent slide, down to 6.341 per US$ in the exchange rate, down about 1.0% in the last three months. They have chosen to erect buildings and to construct cities, some of which are empty, even a highly promoted abandoned Wonderland to rival Disneyworld whose 100 acres outside Beijing are an embarrassment to planning. One must decide which is worse, the American blight of urban decay or empty new Chinese cities. The big new export from China seems to be Chinese wealthy individuals seeking opportunities. They are here in Costa Rica, seen in evidence during a Christmas parade in downtown San Jose, where they took the lead with numerous ornate floats.

An admission is required. Throughout the past few years, my analysis has pointed to vast reserve wealth in China. Their $3.2 trillion in reserves is stored in sovereign wealth funds, in gold reserves (far more than publicly disclosed), and other forms. Much of their reserves are not available, since committed as collateral for regional loans and for state banks. My realization recently that China might be more of a washout is a wake-up call. An increasing amount of its vast wealth stored will be devoted to the financial reconstruction of the nation. Again, one must decide which is worse, the American insolvency and grandiose deficits financed largely by hidden monetary press at work against a backdrop of severe fraud, or the reconstruction of China using vast reserve that to be sure has a basis in fiat money where the citizens are encouraged to save in gold. Read more about the very big broad story of China. See the Global Economics Analysis article (CLICK HERE) about the hard landing, capital flight, and risk of trade war. It is by Ambrose Evans Pritchard, and focuses on the hangover.

◄$$$ AUSTRALIA HAD WEALTH AT ITS FEET. BUT ITS GOVERNMENT EMBARKED ON A SOCIALIST PATH THAT INCLUDED A GRAND VEER TOWARD MILITARY INVESTMENT WITHOUT A CLEAR ENEMY. THEY FOLLOWED THE BUSH DOCTRINE, PUT ON RECKLESS SPENDING, AND ENTERED A DEEP INSOLVENCY. ITS FINANCES ARE IN RUINS. LOOK FOR THE UNIQUE CONTINENT DOWN UNDER TO EMERGE BUT AS A CHINESE COLONY. $$$

Mark McGovern from the Business School at Queensland University of Technology made the conclusion on the linkage to drag down Australia. He wrote, "Sadly, all the efforts of a generation of Australian men and women have only made them more indebted to the rest of the world. Australia's external net wealth is negative, soon passing minus $900 billion on an accelerating downward trajectory. This ongoing dissipation of national resources is unsustainable. Australians live in a debt dreamtime, one from which the rest of the world has been rudely awakened. After years of inadequate policies, the nation has a large external debt and significant government exposures. Servicing pressures are growing as rising uncertainties permeate global credit markets. Reserve Bank policies are worsening Australia's external position and needlessly driving up internal costs. Major policy rethinking is warranted. Relevant issues are still little considered, crowded out of dialogues by comforting myths that accompany the Australian Debt Dreamtime. Imbalances need proper recognition with new approaches and strategies developed. Automatic corrections will not occur as history and current overseas experiences demonstrate. A real awakening, improved positioning and a touch of luck are required if Australians are to avoid being seriously impoverished by world events and their own confused dreaming." The slowdown in China will definitely intensify Australia's problems. The drubbing in commodity markets will result in lower income streams for the nation. Nonetheless, their vast resources and distribution port facilities make them more highly attractive than most of their Western counterparts, who will be even more impoverished. The unique Australian continent will emerge from the crisis, probably as a Chinese commercial colony. See the EAP Journal essay (CLICK HERE).

Australia has been building its external liabilities in the last generation, with a sharp deterioration in recent years. The annual deficit has worsened by A$50 billion. This chart is utterly shocking. Many Aussies would point to the massive adoption of the Bush-era military expansion to explain much of the deterioration in finances. They shot themselves in the foot and leg and nether parts, following the military aggression, ironically with no identified enemy.

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