"The USDollar is a weak currency, except for all the
others" -- George Soros
"Our heightened concerns over sovereign credit quality
are not going to abate anytime soon. This is a reminder that
every country has its limit." -- David Rosenberg (chief
economist at Gluskin Sheff & Associates in Toronto)
◄$$$ THE USFED DISCOUNT RATE HIKE DEMONSTRATES LOST CONTROL
AND DESPERATION TO HOLD PRIVATE BANK RESERVES. THE USFED ADMITS
THE NEED TO EXTEND NEAR 0% LENDING, DENYING AN IMMINENT TIGHTENING
The USFed raised the Discount Rate by 25 basis points to 0.75%,
hardly distant from 0%. It is the rates banks pay for emergency
loans. They painted a false story of removing the extraordinary
conditions, of restoring the main crisis lending program closer
to normal. No such thing! The move loudly demonstrates
how the Fed Funds rate is out of their control. So they
control what they can. They offer a smokescreen on the emergency
window while maintaining a tight control over $1.2 trillion
in so-called excess bank reserves. They desperately must
not forfeit these funds, since they conceal the insolvency of
the USFed balance sheet. These same funds are more accurately
the Loan Loss Reserves for banks, and offset their deeply impaired
credit portfolios with awaiting heavy losses. The only honest
portion of the USFed message came with central bank admission
that the action should not be viewed as a signal that it will
soon boost interest rates in a new cycle. Record low borrowing
costs near 0% are still needed to foster the recovery, it stated.
The USFed cannot torpedo the housing bust further, and the USGovt
cannot afford to pay more for its trillion$borrowings.
Moreover, President Obama says "No way!"
to the prospect of a Double Dip recession. When the dreaded
recession (which never stopped) continues in more obvious form,
it will be interesting to observe Bernanke, Geithner, Obama,
and the rest of the usual suspects squirm. Watch them doctor
the USEconomic stats even worse. Watch them redefine many concepts.
Watch them blame others. Watch them lie badly. Watch them open
back doors for Goldman Sachs. Watch them squirm under pressure.
This Discount Rate move is a signal of lost control for the
Fed Funds rate. They decided to control what little they can
and sound tough. Observe the 3-month and 6-month and 12-month
USTBill yields. They barely budged after the new policy hit
the bond market.
◄$$$ BRITISH SHOPS TURN VACANT AT A RAPID RATE, AN EYESORE.
LITTLE GHOST TOWNS HAVE CROPPED UP IN SHAME. $$$
Without a full synopsis of the UK Economy, a tragic notable
detail is worthy of mention. The number of empty shops blighting
the high streets has tripled since the start of the credit crunch.
A report shows 12.4% of shops in town centers are empty, compared
to 4% in the summer of 2007. In some centers, fully one quarter
of shops lie vacant. Rents are on the rise, and well placed
lower cost shopping centers are springing up in the outskirts
and suburbs. Venerable towns like Wolverhampton and Margate are named as the biggest casualties. See the Daily Mail (CLICK
Not good news indeed for a nation that for many years was often
referred to as a country of shopkeepers.
◄$$$ LATIN AMERICAN CRUDE OIL SUPPLY IS FALLING OFF THE
CLIFF. SOON MEXICO
WILL BE A NET OIL IMPORTER. VENEZUELA
IS ON THE STEADY DECLINE. ON THE SUPPLY SIDE, MAJOR OLD-LINE
OIL PRODUCTION CENTERS ARE ON THE SHARP DECLINE. A NEW IRAQI
CHAPTER IS BEING WRITTEN, AS CONTRACTS TO ITS FORMER TRADE PARTNERS
ARE RE-ENTERED, WITH NOTABLE AMERICAN ABSENCE. $$$
Since summer 2007, the Hat Trick Letter has warned of the powerful
oil decline in Mexico. Their national oil
output is led by an aging flagship Cantarell,
the off-shore project. Its decline is in an accelerated phase.
Lack of brisk revenue has curtailed proper maintenance at a
time when the drug cartels are stealing oil, redirecting oil
pipelines, and infiltrating the PEMEX national company. The
Venezuelan national oil business is a model of inefficiency,
cronyism, and corruption. Each story has been thoroughly told
in these reports periodically. See the Oil Drum article (CLICK
Check the many pages for a perusal of oil & gas production
across the globe with technical details and dozens of charts.
Petroleos de Venezuela SA (PdVSA)
is the state run oil & natural gas company. It is the largest
employer in Venezuela, accounting for about one third of the
national GDP, 50% of the federal revenue, and 80% of export
revenues. In 2002, nearly half of the PdVSA
workers walked off the job in protest against President Chavez.
In the end PdVSA fired 18 thousand
workers, draining the company of technical knowledge and expertise.
Chavez replaced most key posts with his novice friends, who
have steadily been skimming from the revenue stream. Ever since
President Chavez infected the nation with his peculiar style
of socialism and wrecked business policies, the Venezuelan oil
machine has lost a cylinder every few years. Discouragement
of foreign oil contract firms further contributed to its declining
output. Expertise departed. The latest sign of failure is the
order by Chavez to devaluate the bolizar
currency by 50%, a ploy to deliver more bolizars
to his own syndicate.
Iraq is in the long drawn out process of dividing
up its oil rights. The Americans, despite a significant presence
with military boots on the ground, fare poorly in winning at
the oil auctions. European, Russian, and Chinese oil companies
including Shell, Lukoil, China National Petroleum Corp, and British Petroleum
are having a field day winning auctions to develop big Iraqi
oil fields. Russia
and other nations were in possession of valid oil contracts
with Iraq when the United States, with its imperial strokes, dishonored
and canceled them. Resentment is enormous in Russia and China
board rooms, in the Kremlin and Beijing.
Those parties are back to claim what was rightfully theirs,
outbidding the Americans. Yet the US
oil firms are not too angry, since they have skimmed tens of
billion$ from the USGovt for six full years. The Fascist Business Model worked
well for them.
◄$$$ SWITZERLAND PHASED OUT, DUBAI
PHASED IN. $$$ A quick update on global banking change of important
winds. The amount of money moving OUT of Switzerland
is enormous, over 100 billion Swiss Francs per week, at a minimum
on a slow week. The locations being abandoned are actually
London, and Luxembourg, in a mass exodus of cash. Cooperation
with the USGovt is the motive for
flight. One must wonder what the prime threat was given by the
American bank nazis. Switzerland, the once
venerable fortress of banking and gold prestige, went in league
with the US & London bankers in the 1990 decade, to their
ruin. Neither Wall Street nor the USGovt
comprehends the depth of the banking problems and migration
of capital. The United States and London are left exposed in the open, highly vulnerable. The run on
gold depositories, including the movement of cash, is staggering.
Little known is that $1.0 trillion of Indian cash will depart
from Swiss banks before mid-March. They too are distrustful.
In fact, the German banker contact who shared the Swiss exodus
volume also pointed out that between 150 and 225 Swiss financial
firms (banks, asset managers, hedge funds) will fail in the
current year, according to another expert source.
Money is going from Western Europe first to Singapore
and Hong Kong, then much is finding
its way to Dubai in the United Arab Emirates. Despite construction
project busts and debt default in the city state, Dubai will emerge as a major banking center. It contains the life boats
used by occupants of major sinking vessels. It enforces strict
compliance laws. Its FreeZone is occupied
by icon names like Halliburton, Microsoft, and Cisco Systems,
along with a diverse scattering of very visible Chinese firms.
They use Dubai to manage trade with Europe and Africa. The
FreeZone total over 800 firms in its
partner directory (CLICK HERE).
Dubai is fast becoming a Chinese Protectorate.
It will become a major gold trading and banking center. In time,
Dubai will become the Switzerland
of the Middle East, without a doubt. Its
infrastructure is intact, clean, extensive, modern,
just with new owner labels.
STILL EARLY IN DUBAI BUST
◄$$$ THE PERSIAN GULF DEBT PROBLEMS ARE MUCH WORSE IN
DUBAI THAN REVEALED.
DUBAI HAS MULTIPLES
MORE THAN THE KNOWN REVEALED $80 BILLION IN IMPAIRED DEBT. FURTHERM
HAS BEGUN TO SHOW ITS STRAIN AS IT STRUGGLES TO FIND CASH. $$$
mega-problems with excess debt and falling property prices,
according to a key new source with Persian Gulf connections. Kuwait needs cash desperately, and has begun a
campaign to raise cash. Zain is the biggest Kuwaiti phone company.
It received a formal $10.7 billion offer from Bharti Airtel
Ltd for most of its African assets, according to Al-Rai newspaper
in India. The offer excludes the purchase of Zain's
operations in Sudan. Bharti Airtel is a leading Asian integrated
telecom services providers with operations in India, Sri Lanka,
See the brief Bloomberg article (CLICK HERE).
A subscriber with broad experience on housing, insurance, and
finance matters pitched in with a comment worthy of recount.
Craig McC said, "Perhaps, this is a just a straightforward
business deal. However, as Dubai's financial problems are resurfacing, I wonder if there is more
than meets the eye. The sale of a prized asset indicates financial
problems in Kuwait."
The new Persian Gulf resource added, "Such
suspicions are spot on. Not only the Kuwaitis have mega problems.
more then $385 billion in debt that has not been disclosed yet,
much of it at risk!" Ouch! Wow!! Another $385
billion in hidden debt at high risk!! THEY ARE ONLY BEGINNING.
Never believe the clowns and hacks and talking heads on the
financial press who tell fairy tales that the debt default problems
are contained. They are global, contagious, and are sure to
continue to produce major shock waves.
◄$$$ DUBAI DEBT
CONCERNS RE-EMERGE. INSURANCE ON DEFAULT IS CURRENTLY MORE COSTLY
THAN THE PEAK CRISIS TIME 2 TO 3 MONTHS AGO. A SECOND ROUND
OF DEFAULTS AND SHOCKS SOON COMES. $$$
Dubai debt concerns have not dissipated. The cost of protection
against a default by the Persian Gulf emirate
climbed to the highest level since November. The price of
Credit Default Swaps on Dubai
government debt jumped to 630 basis points on February 12th,
up from 592 the day before, according to data provider Markit.
Since the end of November, the state owned conglomerate Dubai
World and its Nakheel property development subsidiary have not
actually resolved much of anything. They only revealed the tip
of the iceberg of bad debt from one of the most grandiose construction
follies ever known in the history of mankind. The sheiks have
routinely blocked attempts at disclosure. Dubai World could
not meet imminent debt obligations, but worse, they have not
revealed the full extent of their debt in the process of default.
Dubai World defiantly stated that it would not pay interest
until May, while it sought to reorganize more than $20 billion
of debt. The rot is deeper, much deeper.
The price of the Credit Default Swap contracts eased lower
after Abu Dhabi sheiks came through with $10 billion to aid
Dubai, enough to ease the cash crunch. They managed only
bought some time. Broader sovereign debt concerns have churned
credit markets, as recent focus in centered on Greece's problems. Credit Default Swaps are a
common type of derivative contract that, like any other bond
insurance, makes a payout in the event of default, whose risk
is reflect in the cost premium on the contract. A rising cost
for CDSwaps indicates that investors are more concerned about
loss from outright default (major loss), and thus are willing
to pay more for protection against defaults. The Dubai CDSwap
quoted at 630 basis points means an investor buying protection
on $10 million worth of five-year bonds must pay $630k per year
for insurance. Dubai World has debts of about $60 billion, revealed
to date, accumulated during a real estate development binge
last decade. Delayed projects, abandoned projects, absent buyer
demand, and folded companies have contributed to a crisis where
debt cannot be properly serviced. When news hits at a future
date about an additional $385 billion in hidden debt, the CDSwap
contract will shoot higher in cost. The global reaction will
surely be one of shock, and wonder how deep the debt nightmare
extends with other nations. The word 'contained' will be laughed
at and mocked openly. Nothing is contained. Contagion is absolute,
especially since Goldman Sachs has infected and corrupted every
single bond market on earth.
Dubai World met with its creditor banks on December 20th to
discuss restructuring plans with approximately 100 bank delegates,
according to the London Times. After loan commitments to Dubai
of $10 billion arrived from Abu
Dhabi sheiks, laden vast savings from oil & gas income,
certain large debts structured in Islamic bonds, were repaid
in full. Dubai World obligations have been financed through
the end of April 2010. Various subsidiaries pop up with need
and are satisfied. The United
Arab Emirates, in particular those in Abu
Dhabi, are playing a reaction game where the intensity will
pick up speed in the next couple months. They will lose control
in the debt collapse. See the Market Watch article (CLICK HERE).
◄$$$ DUBAI STILL
STALLED IN DEBT RESOLUTION. NOTHING HAS BEEN RESOLVED, LIKE
AN OPEN SORE. WORSE, ITS WOUND IS SOON TO BE REVEALED AS MORE
GAPING THAN PREVIOUSLY KNOWN. $$$
Delay is the main theme on the Dubai debt resolution. Dubai (the city state emirate) and Dubai World
(the corporation) have not yet made an offer to creditors on
the debt restructuring plan for the state owned holding company,
according to the emirate's Dept of Finance. The desire by the
UAE Govt was to give creditors enough time to understand the
Dubai World business plan and review any future debt restructuring
proposal. Dubai World, a state owned holding company, is
rumored to be preparing to offer creditors 60 cents per dollar
after seven years as part of a deal to restructure $22 billion
of debt, perhaps with zero interest. Zawya Dow Jones reported
these details, citing unidentified people familiar with the
plans. The deal could be guaranteed by the UAE Govt but might
not contain interest payments to creditors. See the Bloomberg
article (CLICK HERE).
Be sure to know what a truly pathetic floated offer this
really is. An offer of 60 cents on the dollar after a 7-year
wait with no interest is horrendous and an overt callous insult
to creditors. We might soon see some opposing bids, which will
make the scenery interesting. The more immediate term might
see a shocker like only 20 to 30 cents per dollar submitted.
GREEK EXPULSION MODEL
◄$$$ THE GREEK DRAMA WITH DEBT IS DEEPLY INTERTWINED
WITH EXIT STRATEGY IN THE EUROPEAN UNION.
THE EURO CENTRAL BANK RELAXED ITS COLLATERAL BANKING RULES,
THUS PERMITTING IMPAIRED SOVEREIGN DEBT (NOT JUST GREEK) TO
PERMEATE MONEY MARKETS. SO AS THE E.U. BANKS PURSUE AN EXIT
STRATEGY, THE GREEK BONDS WILL SOON DOWNGRADE OR DEFAULT FROM
MISSED INTEREST PAYMENTS. EUROPEAN BANKS ARE VULNERABLE TO A
SEVERE SECOND CREDIT CRISIS SHOCK WAVE. EUROPE
IS CONSOLIDATING AT ITS MIDDLE CORE. $$$
The Exit Strategy for Europe is liberation of Germany from its welfare guarantor role. The
entire landscape of Europe is on warning.
The sovereign debt crisis has spread far and wide, but hidden
from view is the banking system vulnerability. Nations from
Portugal and Italy (so-called PIGS nations) have experienced
credit distress, budget cutbacks, political repercussions, worker
strikes, and other disruptive events. The extent of the debt
tentacles is vast across Europe. The
factor given little emphasis in the financial press networks
is the interwoven nature of the Greek debt in particular and
the PIGS national debt in general across European banking systems.
The Greek Govt debt is ¬330 billion in total, but in 2010 an
amount of ¬50 billion short-term debt is due. That is the crux
of their pending default. Both the magnitude and impact of Greek
debt are similar to Lehman Brothers 18 months ago. Switzerland
is highly vulnerable, owning a hefty ¬47 billion in Greek debt
alone, equal to 12% of the entire Swiss GDP. The PIGS national
debt is dispersed among major European members. One can find
$331B in German banks, $307B in French banks, and $156B in British
banks. The French sovereign debt plus the funded debt from the
PIGS nations in French banks are sufficient to collapse France financially. One should
be aware that Eastern Europe will fall
directly after the PIGS nations are resolved, a further devastating
blow to the Swiss banks, which own the majority of their ruinous
The Euro Central Bank would prefer to begin its own Exit Strategy.
Just like the US
central bank counter-part, the ECB is stuck, but in a different
way. The EuroCB exit outcome will be a resounding breakup
fracture. Nations realize they must end the grand episode
of easy money, the powerful programs called Quantitative Easing
(QE). They cannot without major eruptions. The Bank of England
has announced that it is freezing its QE program, spurring debate
about the outlook for UKGilts, as bids are removed. The removal
of the printing money bid for government bonds should push up
bond yields significantly, at least in a real world. Southern
Europe sovereign debt securities have tumbled in principal bond
value. Yields have risen. Their Credit Default Swap contract
for insurance has risen markedly. A recent snapshot in the first
week of February showed the 5-year bond insurance cost for Greece to be 407 basis points, for Portugal 208 bpts, for Ireland 168 bpts, for Spain
167 bpts, and for Italy
143 bpts. These are very big numbers. Most recent data is 50%
higher in some cases.
Credit crisis contagion is here in loud form. Nevermind the
bond vigilantes. The sovereign default vigilantes have called
Almunia's bluff at the Euro Central Bank. An incredibly crucial
game is being played, calling the bluff of the German high banker
command. The main question is whether Germany
and the EuroCB will be able to resist the pressures for bailout
of these deeply distressed nations. See the Zero Hedge article
My sources claim Germany
will permit them to default and suffer the consequences. Germany wants its independence back, and to shed
its creditor role for the crippled Southern European nations.
Greece must contend with a spiraling deficit estimated
at 12.7% of its gross domestic product last year. That level
is far beyond the 3% limit permitted by the Maastricht rules for the European Monetary Union. The contagion has
spread from Greece
and Portugal, the nations pulled
down by a severe downturn in the property and construction industries.
Mohamed El-Erian is an executive of bond giant PIMCO. He said,
"It is going to take years to sort out the sovereign
balance sheet issue. Europe has become a huge game of chicken,
whereby the Greeks are waiting for help from the outside and
donors are waiting for Greece to take a step forward." Other
opinions circulate. Ron Paul, the USCongressional thorn and
El Cid to face down the US Federal Reserve, put a quick fine
summary on the Greek issue. He said, "The Greek government
is the latest to come close to default on their massive public
has insufficient funds in their Treasury to make even the minimum
payments that are now coming due. Their debt level is about
120% of their gross domestic product, and their public sector
absorbs what amounts to 40% of GDP. Any talk of cutting
costs and spending is met with violent protests from the many
Greeks heavily dependent on government payments. Mounting fears
of default have sent shock waves through their creditors and
all of the eurozone countries." No resolution comes
Over the last weekend, the major finance ministers convened
a G7 Meeting in Northern Canada, away from
crowds of onlookers, adorned an abundance of ice to reflect
their own ice cold arteries. US Treasury Secy Tim Geithner uttered
empty words, far from the decision rooms. He said, "European
authorities gave us a very comprehensive review of the program
now in place to address the challenges faced by the Greek economy."
Thanks, Tim! More empty words were uttered by Alistair Darling,
the Chancellor of the Exchequer from England.
He urged Greece
to stick to its plan to solve its debt woes, and assured the
EuroZone would support the nation. He said, "We understand
collectively that it is in all our interests that countries
return to good economic health as soon as they can."
Thanks, Alistair! At the same G7 Meeting, Jean-Claude Trichet
utter even more empty words. The president of the European Central
Bank said, "We expect and we are confident that the
Greek government will take all the decisions that will permit
it to reach that goal." Really, J-C? Even Luxembourg
Prime Minister Jean-Claude Juncker uttered empty words. The
head of the Eurogroup of finance ministers stressed that Spain
posed no risk to EuroZone stability. Really, J-C? See the UK
Telegraph article (CLICK HERE).
In my view Greece
is to Europe what Thailand
was to the Asia in 1998 before the great
Asian Meltdown that shook the world to its core.
An important second part to the tale must be told. The Euro
Central Bank has laid down a collateral policy for bank assets.
They opened the door in in the autumn of 2008, after the
collapse of Lehman Brothers, with loosened collateral rules
that govern how banks access central bank funds. They permitted
banks to use government bonds rated BBB or above in EuroCB money
market operations, instead of continuing to require bonds rated
A- or better. The temporary lax policy, intended to expire
in late 2009, has been extended until the end of 2010. This
is pure expedience at best, cowardice at worst, reckless to
be sure. All throughout 2009, banks holding Greek bonds have
been briskly exchanging them for other bond assets through the
ECB window. Without such a mechanism, the Greek Govt bonds,
and other sovereign bonds, would have fallen considerably in
value. So sovereign debt across Europe has been supported by relaxed rules, hiding impaired value. The
Greek banks with huge tranches of outstanding Greek bonds are
at grave risk of sudden death, with or without continued EU
membership. The money market mechanism in Europe serves
as a near perfect parallel to the relaxed policy for trade of
toxic mortgage bonds to the USFed within the United States. In Europe
the banks have frequently suspended accounting rules and asset
markdowns. Spain still holds gigantic tranches of mortgages,
pretending they are linked to property assets with 25% to 40%
The likelihood is very high of broad sovereign debt downgrade
this year. The process has already begun. Greek Govt bonds
will certainly be excluded from any newly tightened ECB regime,
no longer exchangeable. Banks will be caught in the cold. This
January, senior ECB officials indicated that they intended to
normalize the policy at the end of 2010, as part of their Exit
Strategy extended in time. The reiterated intention has yanked
the bid, and removed one key source of support for Greek debt.
They are trash. Investors such as German insurance companies
have scattered. They hold large blocks of weakened European
sovereign bonds. The ECB debate over bank collateral has important
consequences from ripple effects. The movement of funds has
begun to take on distinct similarities to 'Hot Money' pulling
out of emerging markets like Iceland
The macro-economic effect is in focus from sheer volume of money
flow in exit. Consensus is growing for an eventual Greek
Govt debt default. What Wall Street appears not to factor
into the equation is politics. The story is not only about economics,
but politics, and the fading determination to maintain European
unity. That mindset is slipping away, and the risky outcomes
are unclear. Lessons will be learned from Greece,
applied to Italy
and Spain immediately, as in rapid
expulsion. The German bankers wish to quickly exit from their
costly national welfare guarantor role!! This factor is
never mentioned in the mainstream controlled press, when it
is the primary motive for action. At a cost of $300 billion
per year, Germany has lost $3 trillion in wealth from this
disastrous experimental decade, a fact not even comprehended
by Wall Street. The German bankers want an end, but must manage
the politics of expulsion.
The Greek debt saga has exposed two major fault lines, namely
the level of government debt, and the exit strategy dilemma.
The Greek credit impairment has been masked for the entirety
of year 2009. Major investors do not have much faith in Greece
putting its fiscal house in order, nor Spain
or the United
Kingdom. The day of reckoning is approaching
fast. Central bankers are caught, trapped, stuck in an accommodative
policy. The implications for a Greek Govt debt writedown in
value, with suffered losses, will be powerful. Banks across
Europe will suffer losses, not just in the Greek bonds but the bonds
from other PIGS nations in a severe ripple effect. Regardless
of removal and expulsion from the European Monetary Union, the
banks across the continent will take major losses. The return
of Greece to the drachma currency will come at a
heavy cost to European banks, in a loud second shock, as bonds
fall in value from aftershock. An important process will be
set in motion at the bank level, as a result of ultra-easy artificial
collateral rules. The door has been open for a full year to
dump toxic bonds, scattered like poisonous fertilizer. So the
Euro Central Bank wants to tighten its monetary policy? Not
likely without enormous impact in this environment. See the
Financial Times article (CLICK HERE).
◄$$$ DISTRACTIONS COME FROM BASELESS STORIES ABOUT LAST
HOUR GERMAN RESCUE FOR GREECE.
THE GERMAN BANKERS ARE PLAYING A FIRM GAME, OFFERING AID WITH
CONDITIONS THAT WILL NOT BE MET. LATER AID DOES NOT ARRIVE,
AND DEFAULT WILL OCCUR. THIS IS PREDICTABLE. GREECE
HAS ALREADY REFUSED THE AUSTERITY REQUIREMENTS THAT WOULD HAVE
BEEN ECONOMIC SUICIDE. STRIKES TIE THE HANDS OF ITS LEADERS.
The last hour German rescue was touted across the Western press,
this time led by Financial Times Deutschland. The financial
markets and the people were told what they wanted to hear. The
story claims Germany is planning an aid package for Greece, citing ruling coalition
parties in an accord. The proposed package includes both bilateral
aid as well as measures coordinated by the European Union. See
the Market Watch article (CLICK HERE).
WOW! What a relief!! Unfortunately, no shred of reality to the
story. Germany is merely creating conditions for failure,
thus providing Bonn and Berlin the opportunity to place the responsibility upon Athens for the Greek failure to comply. The
conditions include economic arsenic designed to cause cardiac
arrest to their banking system. The conditions are also a moving
target never to be met. The EU has refused to reveal
details of how it might help Greece
raise ¬30 billion from global debt markets by the end of June.
Investors are unsure whether this is high jinks constructive
ambiguity to pressure Greece and keep them off balance, or whether the
maneuevers reflect the deep reluctance by Germany to be drawn deeper in an EU fiscal union.
Strange machinations have occurred in debt movement. A considerable
amount of Greek Govt debt has been transferred to French banks.
Perhaps German whiz bankers have set up France over the last few years to be bagholders
of the debt, a condition to weaken their bargaining position
will become German squires in my view, when their own Day of
quickly refused the austerity measures demanded by the European
Union, which is controlled by Germany. The refusal came
in the form of a denial by the Greek Govt finance minister,
calling for its nation to take further austerity measures in
debt reduction. The EU verdict amounted to a rejection of earlier
Greek austerity efforts, viewed as too reliant on one-time measures
and on negligible spending cuts. They demand Greece
to reduce the deficit from 12.7% of GDP to 3% in three years.
Olli Rehn, the new EU Commissioner for Economic & Monetary
Affairs said, "Our view is that risks... are materializing,
and therefore there is a clear case for additional measures.
We expect that in due course... the [Greek] government will
take additional measures to reach this objective."
George Papaconstantinou is the Finance Minister of Greece.
He argued that the EU needed to show more support to Greece instead of expecting more detailed austerity
measures. The finance minister claimed "[Greece] is doing enough" to reduce its
public deficit from 12% to 8% of GDP this year, under emergency
fiscal cuts submitted for review.
The Euro Central Bank also joined by piling on demands and
criticism. EuroCB president Trichet said that Greece must take extra measures to fix its budget
deficit, and scrutiny of its economic indicators must be heightened.
Senior figures at the European Commission believe that the plans
announced so far could leave Greece
short by as much as 1.25% of the 4% cut required by the end
of 2010. Anger is in the open, as Greek Prime Minister George
Papandreou is already furious at what he believes is a lack
of real support for his country. Further strikes and union
protest about austerity cuts have occurred and will surely continue.
Distrust of Athens
has thickened. Some culpability for deception belongs with the
Greek Govt executive branch, as Greece
had concealed the true size of its debt in order to meet the
criteria for the European Monetary Union in 2001. The Greek
Govt kept the transactions off the balance sheet by classifying
them as sales rather than loans. See the London Business Times
article (CLICK HERE).
PM Papandreou has appealed twice in a single week for the Greek
people to accept painful measures, arguing forecefully that
the country cannot afford strikes and blockades. Definatly,
instead the biggest union of Greek workers approved the second
mass strike in February, and worse, tax collectors began a 48-hour
walkout. About 98% of the 14 thousand collectors joined
the protest, an action by the POEDY-DOY union. Also striking
for 48 hours were customs workers and Finance Ministry employees,
who blocked entry at the airport border and finance ministries
in central Athens. Farmers have been blocking roads and border posts for about
two weeks to demand higher prices. They have a slogan for the
strike, "People come first, markets & profit second."
The spokesman for the big national GSEE union, representing
two million workers, repeated the labor view that Papandreou
had succumbed to the markets. See the Bloomberg article (CLICK
◄$$$ THE INTERNAL STRUCTURE OF EUROPE
HAS FAILED. GERMANY
IS NOT IN THE BUSINESS OF MANAGING VAST PROTECTORATES WITH HIDDEN
DEBTS. THE VOTING RIGHTS ARE SOON TO BE SUSPENDED. MORE GREEK
DEBT HAS BEEN FOUND. THE EUROPEAN SOVEREIGN DEBT SYSTEM HAS
BECOME A FARCE, A JOKE, A WRECKAGE. TYPICAL GAMES HAVE BEEN
PLAYED BY THE USUAL FUNDS, INCLUDING JPMORGAN AND GOLDMAN SACHS.
The leading German news magazine Der Spiegel dealt with the
thorny topic of failed structural integrity in direct tones.
It wrote, "In the more than 10 years since the Euro
was introduced, the Commission states, it has become clear that
simply controlling the development of member state budgets is
not enough. What that means, more concretely, is that the
stability provisions stipulated in the Maastricht Treaty to regulate the common currency
are not working, and member states need to better coordinate
their financial and economic policy measures. That is precisely
what Euro skeptics have said from the beginning, that a common
currency cannot work in the long run without a common economic
and financial policy. The governments of member countries
ignored these objections, unprepared to give up a further aspect
of their national sovereignty. The Greek Parliament and government
are now virtually stripped of power. They are not allowed to
decide on any new expenditures without EU approval. Finance
Minister Giorgos Papakonstantinou is required to report every
four weeks on progress made in budget restructuring. There were
even calls at the European Parliament last week to send a special
EU representative with extensive authority to Greece. The small country
has become little more than an EU protectorate. See
the Spiegel article (CLICK HERE).
" By protectorate the journal means a German protectorate,
a ward of the state, a big ward.
Greece is a debt sinkhole and a playground for
investment banker abuse. The thermometer on the Greek debt situation
is their Credit Default Swap insurance contract. Hardly a day
passes without some updated indication of the Greek economic
collapse. Never before under review, the CDSwap has been thrust
to the forefront. Its contract price immediately gapped on the
news of yet another indebted hole valued at $40 billion that
must be plugged with evermore aid or rollover. Investors will
eventually realize that the deeper they dig, the more indebted
dirt they will uncover. Greece is a financial and
political 'Debt Sinkhole' for anyone who tries to bail it out.
See the Zero Hedge article (CLICK HERE).
Major hedge funds and investment banks have been implicated
in attacks against the weakened Greek debt pillbox. The intrepid
website Alphaville reported that the mysterious hedge fund cabal
has struck again very recently, this time in Spain. More relevantly, the names associated are
much the same as in the destruction of the US debt fortress. The same
ones appear who are involved in Greece,
Dubai, and elsewhere. The list includes Moore Capital, Brevan Howard,
Paulson & Co, JPMorgan Chase, and Goldman Sachs. See the
Zero Hedge article (CLICK HERE).
An important insult and confirmation of second class status
came when the European Union council of finance ministers threatened
to cut off Greek voting power. The EU council demanded that
Athens must comply with austerity demands by March
16th or lose control over its own official policies altogether
on taxation and budgets. Cited is the draconian Article 126.9
of the Lisbon Treaty. While the move to suspend Greece of its voting rights is symbolic, it marks
a constitutional watershed and represents a crushing loss of
sovereignty. Austrian finance minister Josef Proll said, "We
certainly will not let them off the hook." Some German
officials have called for Greece to be denied a vote in all EU matter until
it emerges from what they call 'Receivership.' Many Germans
disagree about a broad EU support mechanism in the form of bilateral
aid from EuroZone states, including Otmar Issing. Their elder
Bundesbank statesman, Issing claims an EU rescue for Greece
would be fatal, arguing that unflinching rigor is the only way
to hold monetary union together without political union. See
the UK Telegraph article (CLICK HERE).
Unflinching rigor is the device used for expulsion with political
GOLDMAN SACHS EMBROILED IN EUROPE
◄$$$ A FRESH GOLDMAN SACHS QUERY COULD RESULT IN A BAN
FROM EUROPE. GSAX IS INVOLVED IN CORRUPTION
LACED IN FINANCIAL FRAUD THE WORLD OVER. GRAND MISREPRESENTATION
IN THE MARKETING & SALE OF EUROPEAN SOVEREIGN BONDS HAS
GSAX ON THE DEFENSIVE, WITHOUT ITS TRAINED USGOVT PROTECTOR
The world is beginning to realize that Goldman Sachs is a rogue
firm in control of the USGovt finance ministry, but worse, it
is deeply involved in borderline criminal behavior in European
sovereign bond trafficking. Simon Johnson, former IMF chief
economist and current professor at MIT Sloan School
is business, summarized well the GSax risk. He said, "We
now learn, from Der Spiegel last week and the New York Times,
that Goldman Sachs has not only helped or encouraged some
European governments to hide a large part of their debts,
but it also endeavored to do so for Greece as recently
as last November. These actions are fundamentally destabilizing
to the global financial system, as they undermine the EuroZone
area, all attempts to bring greater transparency to government
accounting, and the most basic principles that underlie well
functioning markets. When the data are all lies, the outcomes
are all bad. See the subprime mortgage crisis for further detail.
A single rogue trader can bring down a bank. Remember the case
of Barings. But a single rogue bank can bring down the world's
financial system." It is about time the world wakes
up to GSax criminality and the threat from the activity of this
Obviously, Goldman Sachs will attempt to deflect the criticism,
calling their hidden contract underpins business as usual. Well,
perhaps corrupt bond markets are their specialty for business
as usual. The GSax executives will seek protection from the
USFed itself, which casts a long shadow. The case of bond
misrepresentation by GSax next goes before the European Commission,
as EuroZone budget issues are under their jurisdiction.
Faced with enormous pressure, and even a desire to identify
blame, the Commission will surely launch a special audit of
Goldman and all its European clients. But does the Commission
contain GSax alumni??? Precedent exists for formal bans. As
was the case with Salomon Brothers twenty years ago, GSax could
be banned from participation in certain government securities
markets. Professor Johnson expects GSax will be blacklisted
from working with EuroZone Govts in the foreseeable future.
GSax consistently hid the full extent of Greek Govt debt,
used credit derivatives in the support of existing debt securities,
and thus misrepresented bond investors. GSax clearly placed
positions to profit from the falling bonds it sold, just like
with the US Mortgage Bonds. This is more conflict of interest,
basic fraud, and lack of disclosure.
The firm has a specialty of making private gains for double
dealing in conflict of interest that result in destabilization.
They are loyal only to their executives and share holders, a
private syndicate called an investment bank, now a commercial
bank holding company. My firm belief is GSax is the center of
a vast global financial crime syndicate. Johnson calls preserving
GSax on incredibly generous terms from the USGovt difficult
to defend, in the name of saving the financial system. Johnson
said, "To allow the current government backed (massive)
Goldman to behave recklessly and with complete disregard to
the basic tenets of international financial stability is utterly
indefensible. The credibility of the Federal Reserve, already
at an all-time low, has just suffered another crippling blow.
The ECB is also now in the line of fire. Goldman Sachs has a
lot to answer for." Maybe, but so what? Who will impose
punishment? Their retaliatory threats are never heard, only
in the private phone calls and hushed meetings. In some respects,
the USMilitary and the US security agencies enforce
GSax threats. People who deny such extended reach simply fail
to comprehend the modern day syndicate.
Jesse goes further in the same direction, when he said "There
is a case to be made that the money center banks, in particular
Goldman and JPM, are sometimes acting as instruments of US foreign
policy." See the Cafe Americain article (CLICK HERE).
The twin monoliths do the USGovt bidding and corrupt all markets
they touch, for syndicate benefit. They are parasites of high
order, protected by the agents in charge (US Presidential Administrations),
feeding off the vast host of the entire US nation, ruining the
financial foundation of not only the United States but Europe.
Awareness is growing of what the Hat Trick Letter has been exposing
of pure syndicate behavior for many years. Matt Taibbi best
portrays the GSax juggernaut as a massive vampire squid with
blood funnels well situated in any pool of money the world over.
It is not possible to improve on such metaphors.
◄$$$ GOLDMAN SACHS FAILED TO DISCLOSE UNDERLYING GREEK
SWAP CONTRACTS. THEY MISREPRESENTED THE GREEK SOVEREIGN DEBT.
INVESTORS COULD NOT PROPERLY GAUGE THE INHERENT RISK. CALL IT
FRAUD BY ANY NAME. $$$
Goldman Sachs specializes in advanced fraud. One cannot become
a GSax Vice President without a fraud violation, an unspoken
requirement, a rite of passage. They have been exposed with
Greek Govt debt misrepresentation. GSax failed to disclose high
volumes of currency swap contracts. GSax managed $15 billion
of sovereign bond sales for the Greek Govt after arranging a
currency swap that concealed the extent of its deficit.
The important part of the picture is the lack of disclosure
for the swap contracts in bond sales documents in the official
prospectus, as required by securities laws. Then again, GSax
is above the law. The violation occurred in at least six of
the ten sales the bank arranged for Greece, according to a review conducted by Bloomberg.
The syndicate giant GSax worked to raise funds for Greece totaling $1 billion
in funding off the balance sheet in 2002 through the swap. The
European Commission regulators admitted to knowing nothing about
the secretive deal until recent days. Bill Blain is co-head
of fixed income at Matrix Corporate Capital in London.
He pointed out that such failure in disclosure would permit
GSax, other bond underwriters, and the Greek Govt to obtain
a higher bond price upon issuance. Therein lies the fraud. Blain
said, "The price of bonds should reflect the reality
of Greece's finances. If a bank was selling them
to investors on the basis of publicly available information,
and they were aware that information was incorrect, then investors
have been fooled. The bottom line is foreign exchange and bond
investors bought something sellers knew not to be the case."
The deception is out in the open. If done in the United
States, the fraud would have been covered
up quickly and effectively, probably never even reaching the
Goldman Sachs has been the subject of strong direct criticism
by German politicians. They focus on Euro currency membership
compliance matters. The Greek Govt finance ministry is also
being criticized by other European Union nations for failure
to disclose the swaps to the EU regulators. The potential is
high for the fraud incident to blow up across the expanse of
Europe. The EU statistics office (called
Eurostat) last week ordered Greece to hand over information on the swaps transactions
by the weekend post haste in an investigation that could
quickly extend to other EU countries. The yield on Greek
10-year government bonds jumped on the news over greater debt
to create an even wider spread over the benchmark German bunds.
Simon Johnson cautioned that "When people start to fear
that the numbers are not accurate, they fear the worst... From
what we know, this is an egregious example of a conflict of
interest. Even if the deal had been authorized, it does not
let them off the hook." Thomas Hazen is law professor
at the Univ of North Carolina. He said Goldman Sachs could face
legal liability "if it could be established that they
were knowingly hiding risk, and therefore knew or had reason
to know that the bond disclosure documents were misleading.
But that would be a tough hill to climb, in terms of burden
of proof. There would have to be some sort of smoking gun memo."
The hunt for evidence is certainly on, and pressure to produce
damaging such information will be great. GSax is on the defensive,
especially after the AIG fraud.
European Commission officials made clear that the currency
swaps in question do not necessarily break EU rules. However,
they have called for a special audit. New rules are coming to
tighten any possible loopholes. German Chancellor Merkel will
push for new rules that will force EuroZone nations and banks
to disclose bond swaps relevant to public finances. Collusion
might have been rampant to falsify the financial data in order
to represent the Euro as a functional currency. See the Bloomberg
article (CLICK HERE).
For over three years, the EuroBonds with German markings have
not been exchangeable for EuroBonds with Spanish or Greek markings.
This point has been hammered home several times in the Hat Trick
Letter since 2006. A different bond value (both yield and
principal value) thus signified a different underlying currency,
yet the Euro currency traded interchangeably across the European
Union. It has been and still is a phony homogeneity. Vast
arbitrage strategies have been at work by GSax and many other
financial firms. The different values of EuroBonds for each
nation actually scream of a different Euro associated with each
nation. The bonds traded gradually at wider and wider spreads
versus the low benchmark German Bund. They therefore dictated
a different Euro per nation, with a range of values. Goldman
Sachs facilitated in the falsehood of European homogeneity,
and enabled artificially high bond values at sale.
The Jesse Commentary provides an outstanding conclusion. He
wrote, "This is in no way an excuse for the Greek government.
But what Simon Johnson is saying is that Goldman is not only
not blameless, but is enabling, complicit, and perhaps even
presenting the opportunity for market manipulation and fraud
to other parties. Typically they like to 'package' these
scams and take them from one customer to another, so that greed
meets need, as a corrupting influence. It is no different
than a bank engaging in money laundering in support of the criminal
activity of another organization. Is he right? Will the
EU begin to act to curtail the transgressions of multinational
banks based in the US? I think he may very well
be. It is one thing to take on pension funds and speculators,
and to run raids on companies. It is another thing to start
taking on countries, and especially those not so alone and weak
as Iceland. And even more than that. If it ever comes
to the light of day, the complicity of a few central banks
and governments in the actions of one or two of the money center
banks in manipulating several global commodity and asset
markets may ignite a firestorm of a political scandal of epic
proportions." We might be at the dawn of global shun
for US investment banks, the heart of the US financial crime syndicate.
If these commissions are not careful, they might expose narcotics
money laundering by US banks.
For additional reading on how Wall Street firms assisted Greece
in masking debt, and how it actually generated the European
debt crisis, see the New York Times article (CLICK HERE),
or the Baseline Scenario article (CLICK HERE),
or the Money Watch article (CLICK HERE).
◄$$$ ACTION TAKEN AGAINST GOLDMAN SACHS MIGHT BE FORTHCOMING.
LOOK FOR INNOVATIVE ATTACKS TO CONSTRICT THE FUNNELS AND FLOW.
EXPECT A MORE SUBSTANTIAL SCANDAL TO ERUPT. $$$
Craig McC, a colleague with insurance and construction experience
in California, made
a great conclusion. He said, "Given the many centuries
of intrigue throughout Europe, I would
think the ostracism of GSax and others would be approached in
a Machiavellian manner. Countries might ban the enforcement
and payment of derivative contracts, and ban banks in their
countries from dealing with firms that are involved in high
frequency trading or other activities that GS specializes in.
In short, starve the disease carriers without attacking them
directly." A ban of activities could be easier to enact
into law than a ban on a single rogue villain parasitic firm
like Goldman Sachs. A veteran global banker contact hinted of
something far deeper regarding exposure of GSax criminal behavior.
He wrote, "This will all unfold in an ugly manner. Just
wait what else will be made public. There is a real eye-opener
is just around the corner from being disclosed. The US will be held accountable
and so will Goldman. The real war against terror needs to start
on Wall Street and in the USGovt itself, their financial terror.
The Axis of Evil is inside the United
States itself." So expect
a bigger scandal centering upon Goldman Sachs soon,
the great vampire squid, the center of the U.S. financial syndicate.
Exposure comes soon perhaps!!
◄$$$ MATT TAIBBI IS MAKING A CAREER OF FOLLOWING AND
REPORTING THE GOLDMAN SACHS SYNDICATED CRIMINAL RECORD. HE PROVIDES
AN EXCELLENT SUMMARY THAT READS LIKE
A COURT INDICTMENT. EXPECT NO PROSECUTION SINCE GSAX OWNS THE
FEDERAL COPS. WITH CONTROL OF THE USDEPT TREASURY, GSAX IS THE
PRIMARY ORCHESTRATOR. $$$
Matt Taibbi is at risk, since exposing a crime syndicate often
results in a shortened career and an early grave. Matt chronicles
the trail in the Rolling Stone, an avant garde journal that
once focused on marijuana and the Vietnam War. He begins by
telling the story of the massive executive bonuses, a nice contrast
to the hefty USGovt banker welfare funds received. He next cites
the 'Swoop & Squat' technique to conduct the AIG insurance
scam. The Town of AIG
had lots of fire insurance policies, and GSax owned many of
them. So they started the fires in the town to collect big.
GSax demanded cash collateral from the policies, drained AIG,
then pushed the USGovt strings to nationalize AIG, and finally
stepped to the front of the line for contract redemptions. GSax
shifted identities to become a bank holding company, and thus
lined itself for much larger USGovt funds from the TARP slush
fund system. The newly created 'Dollar Store' was done via intimidation,
coercion, and unspeakable hidden threats to the USCongress.
Matt details the rough sketch of the housing bubble supported
by the mortgage finance bubble. Enter the USFed to buy up rafts
and flotillas of toxic bonds from Wall Street firms, including
Goldman Sachs. He describes the 'Rumanian Box' scheme. In it,
the Wall Street firms, flush with TARP funds, refused to lend
money to credit customers. The USGovt responded to a starved
sector with even more temporary lending facilities, which Wall
Street rushes to borrow. He describes the 'Nuclear Powered Balls'
which essentially are the powerful Quant itative Easing, the
massive print of new money to complement the 0% rates.
With Zero Interest Rate Policy (ZIRP) and QE, the Wall Street
firms could blithely proceed with rape & pillage of federal
finances, not giving a damn about the nation, the economy, or
any recovery. Money would be squirreled away in offshore banks.
He describes the rigged 'Big Mitt' games where the USGovt in
political cover took advice from Treasury Borrowing Advisory
Committee, a board loaded with Wall Street firms. The Public
Private Investment Program (PPIP) was devised not only to purchase
the most worthless of toxic bonds, but to tip off Wall Street
firms into loading their balance sheet with them before selling
at artifically high prices to the USGovt itself. He describes
'The Wire' which tipped off Wall Street firms ahead of time
when major clients prepare to make large investments. Goldman
Sachs is the superstar of frontrunning trades, and even was
caught red-handed with NYSE insider scheme software stolen.
But the FBI arrested the whistle blower and made GSax out to
be a victim of precious proprietary software. Matt finally describes
'The Reload' which has the USGovt offer of stupid tax credits
to sustain the housing prices for a while. Wall Street firms
take advantage. See the intriguing expose by Matt Taibbi in
the article entitled "Wall Street Bailout Hustle"
in the Rolling Stone due for March publication (CLICK HERE).
May Matt live a long life.
CENTRAL BANKS FRANCHISE FAILURE
◄$$$ A PAN-EUROPEAN SOVEREIGN DEBT CRISIS IS UNFOLDING. GOVT DEBT IS BOTH
AT EXTREME LEVELS AND UNDER HIGH LEVERAGE, LOADED WITH TOXIC
BONDS. A DELUSION OF REMEDY DRIFTS LIKE A CLOUD. GREECE
PLUS SPAIN WILL BE FORCED OUT OF
THE EURO CURRENCY. THE GREEK TRAGEDY HAS AN AMERICAN CONCLUSION,
WITH ZERO AWARENESS BY BANKERS AND LEADERS IN THE UNITED STATES.
THEY ARE DETERMINED TO SPIN A RECOVERY WHEN DEDICATED TO WAR.
USTREASURY DEBT IS BEING HEAVILY SCRUTINIZED FOR DOWNGRADE AND
DEFAULT. THE EURO IS UNDERGOING A TRANSFORMATION NOT A DEATH.
IT WILL RESEMEBLE A NEW DEUTSCHE MARK. $$$
After removing mountains of ruined bonds from private banks,
government debt grew to extremes in Europe.
It grew in parallel to the United
States and the United
Kingdom. A default cascade comes, as leverage
grew out of control quietly. A run on private banks is assured,
with a domino effect slamming against a wall of sovereign debt
risk, soon on a global basis. Bank assets are an order of magnitude
greater than national GDP sizes. Govt debt is the focus in the
last two months, but private banks will take that focus later.
For at least Europe, it is game over as
debt is not resolvable. The Greek chapter might be a diversion
from the core problem soon to erupt within Europe.
Excess liabilities and leverage make for a witch's brew.
The de-leverage process will knock many financial structures
to the ground. Europe has a recent history replete with riots in urban streets, more
than anywhere in the Western world. The inevitable fracture
of the European Union will unfold slowly at first, then much
more rapidly as the Greek Playbook is fully written and applied
elsewhere. It is a manual to deal with failure of currency management.
The Euro currency and Euro Bonds were not coordinated effectively,
operating in two arenas, mired in a landscape with indefensible
global currencies. Each nation under great debt distress will
go its separate way and revert to the old currency, complete
with massive devaluation and assured disruption. That includes
Germany, with a twist.
The immediate obstacle is delusion of remedy. Italy is the top threat to Euro, so Nobel Prize winner
Mundell believes, although some debate
is found. Italy
has a large total debt, but its annual fiscal deficit is the
smallest of the PIGS nations. It cannot be bailed out practically.
Greece and then Italy
will be forced out of the European Union, and out of the Euro currency. The
Spanish Economy grinds slower, as resolution of debt is non-existent
among their big banks, and as home prices have not adjusted
lower. Spain is in denial, stuck
in suspended state, its economy entering a deeper recession.
When it awakens, it will default. It might awaken when forced
to default. Witnessed is the failure of the Euro Central Bank,
badly designed without proper authority since a cord of independence
remained throughout. Europe cannot unite
unless under a tight grip of vicious fascist dictatorship. All
Like a tsunami, natural forces will strike the WashingtonDC
shores in a global process that is unstoppable. A sequence is
at work, with Southern Europe next in line, then England,
finally the United
States. Little do the US
bankers and leaders seem aware, but the Greek crisis will circle
the globe and strike America. The
initial gongs were Iceland
and Dubai, mininized
in meaning as usual, denied for their ripple effects even to
the foreign anking systems associated. The flaws of chronic
government deficits, expanding government functions, and fractional
banking have resulted in what Niall Ferguson
of the Financial Times calls the fractal geometry of debt in
a sea of vulnerabil ity. The USTreasurys are increasingly
isolated by heavy domestic monetization operations and reduce
foreign creditor purchases, both factors growing in dangerous
detection. Last week Moodys Investors Service warned that
the Aaa credit rating given the USGovt should not be taken for
granted. The agency stressed the crippling ongoing deficits
that are not in remedy mode. They seem to overlook the threat
of rising borrowing costs and short-term emphasis since the
Taleb of "Black Swan" fame advises to short
of USTreasurys, in particular due to Bernanke at the USFed helm
and Summers in the White House economist corps. He regards the
duo as reckless to monetary principles. Taleb points to a
broken USGovt fiscal condition, reckless bank leadership, and
a situation materially worse than a year ago. The USGovt
must cut spending on the endless wars and dismantle grandiose
siphons of funds by Wall Street and the Pentagon. Paul Craig
Roberts warns of a path to USTreasury default. He has past experience
in the USDept Treasury under Reagan. USGovt leaders in several
branches show a dismal awareness of the depth of problems, still
hellbent on recovery spin and aberrant war. Their designed stimulus
missed the mark. Their economic spin tries to overcome the lack
of revival whatsoever in the labor market, whose source they
fail to comprehend. It is the lack of industry, since dispatched
to the Pacific Rim then China. Their dedication to
the Pentagon, assured by sacred channels of funds, and devotion
to Wall Street, guaranteed by Goldman Sachs plants in control
of channels, are the only firm element visible. Roberts believes
the reserve currency system is flawed, and could be replaced
by a system only if bilateral responsibility is imposed, a daunting
challenge. The USGovt debt situation is far out of control.
Since the debt rating agencies are under thumb, the likely next
chapter is a serious decline in the USDollar, after a more certain
path is laid for Europe. A repaired, reformed, renewed smaller Euro currency would be
the potential death knell for the USDollar. A trimmed new version
of Euro currency is what to expect, not its death, one better
described as a new powerful Deutsche Mark.
◄$$$ CENTRAL BANKS HAD A MAJOR POW-WOW. THE MEETING SMACKS
OF A STRATEGIC MEETING OF SYNDICATE DONS. THE BANK FOR INTL
SETTLEMENTS STANDS AS THE CAPO DI CAPI. THE BANKERS ARE WORRIED.
IF THEY ARE NOT, THEY SHOULD BE. THEIR CENTRAL BANK FRANCHISE
SYSTEM HAS FAILED. THEY ARE WITHOUT EXIT STRATEGIES. $$$
Last week, a summit meeting took place with top bankers from
24 central banks and monetary authorities including the US Federal
Reserve and European Central Bank. Fears are out in the open
of a return to global recession, despite the fictitious US news on growth and trade. The news wires prefer
to call it a secret meeting but it was held at a cattle station
in the Australian NorthWest province that contains a resort
facility turned conference center. The gathering was organized
by the Bank for Intl Settlements last year. The two days of
talks were shrouded in secrecy, with tight security. The event
was expected to be dominated by Asian delegations, including
governors of the Peoples Bank of China,
the Bank of Japan, and the Reserve Bank of India. The agenda was certain to include major
selloffs in world stock markets, global concerns over sovereign
debt, the lack of job growth in Western nations, and the absent
door away from ultra-easy monetary policy. A key part of the
two day stressed jamboree was a special meeting of Asian central
bankers chaired by the governor of the Central Bank of Malaysia,
Zeti Akhtar Aziz. Influential BIS general manager Jaime Caruana
took a prominent role in the talks. Federal Treasurer Wayne
Swan addressed the central bank officials at a dinner.
The gathering came at an important time for the BIS. It has
attempted to initiate an overhaul of the global banking system,
which will include new capital rules applying to banks and more
stringent standards regulating executive pay. Their past rules
on bank reserves were ignored by the renegade US
bankers, who instituted phony FASB accounting rules in total
disrespect and disregard for BIS authority. Andrew Kaleel is
CEO of H3 Global Advisors. He said, "This does feel
like 2008 and 2007 all over again, whereby we had these sort
of little fires pop up. They are supposedly contained but in
reality they are not quite contained. Dubai should have been
an isolated incident and now we are seeing issues with Greece,
Portugal and Spain.'' Exactly, debt structures are a global
latticework. See the Australian News article (CLICK HERE).
These central bankers are undoubtedly alarmed how the Dubai debt default has set off a ripple effect
worldwide, my forecast made last August. The watchword for denial
of central bankers on deep credit market distress is 'CONTAINMENT'
just like in 2007 and 2008. They collectively argued the subprime
mortgage problem was contained. Instead, as cited here in the
Hat Trick Letter, the subprimes were the trigger for an absolute
bond contagion and global credit crisis. The Dubai
incident sparked round #2. Central bankers are worried about
the failure of their franchise central bank system, in unspoken
words. The banker limousines are falling into their own sink
holes, driving over roads paved by toxic bonds heading nowhere.
They are totally trapped with no Exit Strategy, just like my
claims for months. Most major industrialized nations are in
the same position, trapped. In my view, the 0% rate is a major
billboard not just of failure, but the end of the road. No reversal
to normalcy is possible.
One must wonder if these central bankers are scared,
whether they recognized their failed franchise system,
whether they realize that a move to the exits away from current
accommodation sets off a disaster, whether they realize the
USTreasury Bond bubble is their latest abomination. Any exit
would vastly increase the borrowing costs of government deficits,
which are skyrocketing with stimulus, bailouts, and nationalizations.
Better yet, one must wonder if they are aware of the wider
scope of banker murders, as the volume has risen
and the rank of victims has risen. One must wonder if they are
worried that a breakdown of resistance for USFed disclosure
of their balance sheet would set up a global upheaval against
the criminal collusion of central bankers pivoted upon bond
fraud, bond counterfeit, insider trading, rigged markets, and
even narcotics money laundering.
◄$$$ AN ARCTIC G-7 MEETING KEPT FINANCE MINISTERS INSULATED
FROM THE HEAT OF SCRUTINY OR OBSERVATIONS. THE MAJOR THEME WAS
CONTAGION AND ISOLATED SYSTEMIC FAILURES. A HINT OF DESPERATION
IS DETECTABLE, ALONG WITH CONFUSION AMONG APPROACHES AND SOLUTIONS.
THE G-20 MEETING IS WHERE LEADERSHIP LIES, AS G-7 IS WHERE VICTIMS
OF THEIR OWN DEVICES SPUTTER. $$$
The setting for the G-7 Meeting of finance ministers was Iqaluit
deep in Eskomo country, more correctly called Inuit lands. The
remote location rhymed with the lack of relevance for the entire
G-7 forum gaggle. The agenda centered upon Europe's worsening
debt crisis amidst fears that the fiscal sickness in Greece
was spreading like a contagious disease. Recall that some central
bankers claimed the problem was contained only a couple months
ago. Worries intensified about a potentially huge bailout as
destabilization of the EuroZone has captured world attention.
Canadian Finance Minister Jim Flaherty, host of the meeting,
said "I think we have to be very mindful of the potential
failure of domestic economies and of the persistence of some
toxic assets in some banks... We are all agreed that continued
stimulus is necessary, that we have not seen entrenched
growth, we have not seen an adequate replacement of public demand
with private demand. Flaherty comprehends the coming systemic
failure of individual weak nations, and heightened risks of
huge public deficits. He does not see the futility of more stimulus
in the form of the same toxin, additional debt. Expect a continued
flow of new money growth and the debauchery of major currencies.
EuroZone countries like the PIGS (Greece,
Spain, Italy, and Portugal)
are under increasing strain and focus, as financial markets
reflect the contagion reality throughout Europe.
A cloud was cast over the meeting. Debt ratings agency Moodys
Investors Service commented last week how the United States
must do more to keep its AAA rating after the Obama Admin
projected a deficit equivalent to 10.6% of GDP in 2010. Japan was warned by Standard & Poors last
month that it might suffer a downgrade over its deficit. Regardless
of debt sustainability, let alone prospects for repayment, the
G-7 ministers have no immediate concern about their spending
levels. They struggle to keep their economies on the path to
recovery. German Finance Minister Wolfgang Schaeuble claimed
the Euro currency would remain stable despite the problems in
certain countries. He should be taken for his word, since he
is clearly involved in the surgery to remove PIGS excess fat
from the European core body.
One could not help to notice desperation, confusion, and a
touch of irrelevance. The larger G-20 meeting that includes
China, Brazil, India, and other upstart nations, that forum
is where the power lies and the next chapters will be written.
Financial sector reforms have consistently featured confusion,
even moves further down the road to fascism. The approach by
the United States was discussed
for its far-reaching (destructive) proposals. In January, US
President Obama called for limiting bank size, restricting proprietary
trading, even severing their ties to hedge funds and private
equity firms. Such extreme calls added to the previous demand
for big bank fees. Clearly, the US direction is more toward
communism than capitalism, from a position of fascism, a note
not missed at the gathering. All discussion of the Chinese Yuan,
the clear newfound dominant currency, was understood to be best
held at the G-20. See the China Daily article (CLICK HERE).
The main topic of the G-7 Meeting might have been how irrelevant
the entire group had become to global economic growth, in fact
a major drag.
◄$$$ DAVOS SECURITY CHIEF FOUND DEAD, A MYSTERIOUS EVENT
IN ITSELF. THE WORLD ECONOMIC FORUM CENTERED ON EUROPEAN SOVEREIGN
DEBT DISCUSSIONS, WITH A HINT OF CENTRAL BANK FAILURES, EVEN
BANKING SYSTEM INSOLVENCY. $$$
The Head of Davos security was found dead in his room. The
usual kneejerk conclusion by the police was suspected suicide.
Hardly! More to this story! The police commander heading security
at the regular meeting in Davos Switzerland
was Markus Reinhardt, also head of police in the Swiss canton
of Graubuenden. Forum organizers put the best face on the incident.
World Economic Forum founder Klaus Schwab said in a statement
that the organizers appreciated the victim's professionalism
and kindness over years of cooperation. See the AlertNet article
(CLICK HERE). It is
impossible to be clear or confident of murder. Perhaps Reinhardt
stumbled in on some criminal culpability, like with audio systems.
If outside forces opposed to Western bankers and corporate chieftains
wished to make a visible statement, Davos was such a place to
do so. The billionaires are locked in a battle for global control.
The adversaries to the 'Good Guys' dominate such forums as Davos.
Starlets like George Soros, Jamie Dimon, former central bankers,
CB staffers, and important conglomerates are icons at such meetings,
along with many Western bankers. They call it an economic forum,
but it is all about the private bankers, the biggest private
UNHERALDED GOLD BREAKOUT
◄$$$ GOLD HAS BROKEN OUT IN EURO TERMS, WITH NO FANFARE
COMING FROM ANY GALLERIES. DOUBTS AND CONFUSION FUEL THE GOLD
RALLY. WHEN CLARITY COMES TO EUROPE, EVEN
IF FRACTURE, THE GOLD RALLY WILL END IN EURO TERMS. THE EURO
WILL NOT DIE, BUT RATHER TRANSFORM TO SOME TYPE OF DEUTSCHE
Nobody can dispute that Europe has captured
global attention with the threat of sovereign debt defaults,
a string of them potentially. While the asylum directs attention
of the paper gold price in US$ terms, pushed down by incredible
naked shorting of futu res contracts, the real story is
the Gold price in Euro terms. It has broken out past ¬800.
The Wall Street kings, the London masters, and the financial press infantry would prefer to cite
the struggling Gold price in US$ terms. Without some degree
of resolution in Europe concerning its
sovereign debt and reformed currency alignment, the Gold breakout
in Euro terms could reach the ¬940 to ¬950 range in the next
few months. A gold price recovery and continued Euro decline
would be sufficient. Its strength is evident in a surpassed
¬800 resistance level, a strong moving average uptrend, and
strong stochastix index. Gold is a veritable refuge in the European
sea of conflict and confusion. The strength of the Gold price
in Euro terms should continue until the Germans establish clarity
with the New Core Euro. They will order the financial surgeons
to carve off the PIGS fat on the Southern rim, leaving the Central
Europe core without the basket case burden. The Southern European
nations fell victim to the same devastation that befell the
busted housing bubbles, ruined banking systems, outsized federal
deficits, heavy import needs, and capital requirements impossible
to meet. When the New Core Euro is clear, only then the surviving
form of the Euro currency will rise with momentum, certainly
challenging the USDollar. Only then will the Euro push toward
200/US$ in its exchange rate. It will be the Deutsche Mark by
any other name, shared with its fiscally sound neighbors, as
the Benelux nations, and possibly one or two more nations including
Denmark. Europe can consolidate into its solid core economically, where federal
deficits are smaller and export trade is historically important
enough to preserve.
◄$$$ GOLD IN BRITISH POUNDS IS BREAKING OUT. THE BROKEN
STRUCTURE AND DETERIORATING U.K. ECONOMY ASSURE THAT GOLD WILL CONTINUE TO
RISE IN BPOUND TERMS. ITS CURRENCY HAS NO PROSPECT OF REVIVAL,
NO RELIABLE CORE. NO DURABLE RECOVERY CAN BE ASSURED. $$$
The Gold price in British Pound terms is on the verge of breakout.
Note the uptrend in moving averages and the possible bullish
crossover in the stochastix. However,
Kingdom cannot fall back into a strong
consolidated core. It has none. UK finances are like the US finances, burdened by a
financial engineering lunatic episode gone amok. The UK Economy
was built for a decade atop a housing bubble, just like the
US. The UK banks are insolvent, just like the US. The UK Economy is in an
unstoppable deterioration phase, just like the United States but without
benefit of the Printing Pre$$. One should be aware that the
US shares its printed money booty with its London masters. The USFed even operates in British sanctuaries. The Gold price
in BPound terms will rise until reality
strikes, the dark cloud to descend upon Britain that rains sovereign
default. The denial will grow louder and more shrill, whose
intensity only confirms the inevitable. The BPound
currency will sink together with the USDollar,
their fate terminally linked from deep corruption and longstanding
ties of the financial systems, dominated by investment banker
cancerous metastases. Wall Street and London
serve themselves and dominate whatever ministry is necessary
to continue their own profitability. They killed their hosts,
but before the hosts die, they will be gutted further.
◄$$$ THE GOLD BREAKOUT IN US$ TERMS IS THE FINAL CHAPTER
AND THE MOST POWERFUL REVERBERATION. IT REQUIRES TIME TO BUILD
TOWARD CLIMAX. THE LACK OF GOLD METAL INVENTORY IS THE ACHILLES
HEEL OF WALL STREET
AND LONDON FINANCIAL
CONTROL FOCUSED ON GOLD PRICE SUPPRESSION. NOTICE THE DOLLAR
DEATH DANCE, PART II. WE ARE AT THE BEGINNING OF A GOLD RALLY
IN ALL MAJOR CURRENCIES, THUS A LOUD GONG OF GOLD SUPREMACY
AS A CURRENCY. $$$
The Gold price in US$ terms, despite the hue & cry, is
hanging on well. It maintains support above the $1050 price,
the level forecasted as worst case by James Turk of GoldMoney. The 2Q2010 should mark the start of a strong recovery
phase. It has succumbed to two powerful downdrafts, aided to
be sure by selling golden paper. Its long-term 50-week moving
average remains in uptrend. In the last week, gold investors
have sighted a bullish stochastix crossover in the making. Never have the COMEX
and LBMA metals exchanges been in possession of less gold &
silver metal inventory in their history. In fact, the suppression
of the paper gold price has resulted in production ironically
of physical metal placed by honest brokers as margin collateral.
Margin calls result in forfeited metal posted as collateral.
The metals exchanges are attempting to institutionalize the
validity of derivatives in lieu of gold bullion. Remember the
summer 2009 when the major houses openly advertised that gold
bullion could be used to post margin on a wide variety of futures
contracts. The criminal machinations are in a conclusion phase
on gold price suppression. The US
leaders of all stripes fail to comprehend the depth of the fiat
currency problem, reflected in banking system insolvency and
federal debt explosion. Gold has been and will continue to be
the refuge, not the USTreasurys, which
are locked in the final bubble. In fact, USTBonds
constitute a Black Hole. Defense of the USTBond
leaves the USDollar more exposed to
a global selloff. Its defense also destroys the USEconomy.
When the makeup of the New Core Euro is clear, watch the
US$ DX long-term decline resume,
and do so powerfully. The trimmed version of the Euro will coincide
with expulsion of PIGS nations and consolidation to a German
core joined by its strongest neighbor partners. The globe
will face the worst monetary crisis in history, with epicenter
the USDollar. The sovereign debt defaults
will come full circle, the start being September 2008, the conclusion
an attack on the USTreasury Bond.
The USGovt debt is unsustainable,
growing worse, and will eventually break. Pure
financial physics. Gravity will sink the US Ship of State
and its tethered banker flotilla, even its imprisoned economic
ramparts. The global reserve currency in the USDollar stands
as the biggest travesty in the history of global finance.
The Dollar Death Dance part I occurred in autumn 2008. It was
sustained by incredibly massive credit derivative redemptions
and payouts, almost all in US$-based transactions. Thus the
USDollar demand was extraordinarily high. The US$
DX index rose in paradoxical fashion, due to the ruin of the
US financial foundation. The
Dollar Death Dance part II began in December 2009. It has been
sustained by a perception of the Euro currency being fatally
broken. The USDollar has been beneficiary in the Competing
Currency War, perceived as a safer acid pit of debt than other
regional currencies. The Euro currency is undergoing transformation,
not destruction. The European Union is fractured, but the
integrity of core nations is assured. Furthermore, the Euro
currency will fall back on its strongest core element, the German
financial power. It will eventually resemble the Deutsche Mark,
which Germany will permit usage by only its viable neighbor
partners. Little do US banking and political leaders realize
that the United States
suffers from a macrocosm of forces that strike Greece and the other PIGS nations.
For an excellent brief analysis of the competition among Stocks,
Gold, and USTreasurys, see the Kitco article by Graham Summers
entitled "Which is the Real Safe Haven: Treasuries or
Gold?" (CLICK HERE). He makes several
great points, like whenever the USTreasurys look like they are
on the brink of a meaningful breakdown, a Stock decline occurs,
and funds flow heavily into USTreasurys. He believes we at
the beginning of a rally in Gold in all currencies, a movement
kicked off by the European debt problems. The Gold breakout
in Euro terms is possibly soon to be joined by breakouts of
Gold in British Pounds, Gold in Japanese Yen, and Gold in Swiss
Francs, with the Gold breakout in USDollars last. When the surge
is universal, Gold will be perceived as a stand-alone currency!
◄$$$ CHINA DISHOARDS USTREASURYS PERHAPS TO PURCHASE
A HOARD OF I.M.F. GOLD. MOST OFFICIAL SALES ARE FOR CHINA. TRADE WAR PICKS UP.
Nothing is clear and certain on this matter. But China has sold off some of
its USTreasurys recently. Citigroup research believes
China will immediately use
the cash they pulled out of the USTBonds to purchase the 191
tonnes of gold from the Intl Monetary Fund. Bear in
mind that NEVER is an official IMF gold story true, never. The
Powerz have made the story sound like a big gold dump on the
market. No way! In the past, IMF gold sales have masked the
short covering trades by the mindless USGovt from a decade ago,
run by Rubin. They were merely closures of short gold trades,
with no sales at all, just short covers. The IMF owns no gold,
so this sale is from a member nation in Europe.
Alan Heap from Citigroup said, "The IMF announcement
that the fund intends to sell 191 tonnes of gold sent a quiver
through the market last week. However there was nothing new
here. The gold is the residual from the planned sale of 403
tonnes which will partially finance new loans to developing
countries... The bank said that sales would be phased over time.
But also kept open the possibility of direct transfers to other
central banks... The PBOC [Peoples Bank of China]
is the most likely central bank buyer. The bank is deeply
dissatisfied with the performance of its USTreasury holdings
and has made clear its intention to diversify including into
gold. In November and December the PBOC sold US$46 billion
of Treasuries. They must be buying something." Notice
the nonsense about IMF funding economic development. China is funding the development of emerging economies,
not the West. And China gains more gold bullion in the process,
which puts pressure on the crippled USDollar. The G-20 Meetings
in recent months set an agreement that China would buy all the gold that IMF pledges
organized as official Washington Accord sales. This is not their
first big buy. See the Business Insider article (CLICK HERE).
◄$$$ SILVER POISED FOR MASSIVE UPLEG, IF A SUPPRESSED
SLAM CAN BE AVOIDED. SILVER MIGHT BE MORE CRUCIAL THAN GOLD,
AS FAR AS PREVENTION OF A METALS EXCHANGE DEFAULT. IF SILVER
EXPLODES IN PRICE, GOLD WILL FOLLOW IT, NOT LEAD IT. $$$
Notice the potential for a massive Head & Shoulders reversal
pattern, wrapped around a nice bullish triangle nowhere near
resolution. A lower trendline has clearly formed. The battle
line is the 19 price level, defended rigorously and illicitly.
Governments and central banks own no silver, thus the greater
vulnerability. Their silver poverty and deficiency motivates
even grander schemes to naked short the metal in futures contracts.
The battle will linger on for months in all likelihood. Expect
greater propaganda to surface, as banker desperation reaches
acute levels. At the same time, expect exposure of the interwoven
frauds from the major metals exchanges, the leading exchange
traded funds, and possibly the top mining firms. The syndicate
control is slipping away very slowly. If the 19 level is overcome
and overrun, the entire precious metals fortress and its corrupted
columns could be crushed. The day is coming eventually, but
not very soon. The timing is unclear.
◄$$$ G.L.D. AND S.L.V. FRAUD EXPLAINED IN SOME DETAIL.
THE EXCHANGE TRADED FUNDS ATTRACT MORE ATTENTION FOR THEIR FRAUD
AND CONGAME, MORE IN FULL VIEW. $$$
The Powerz attempt to convert paper to metal, but they create
further complications. What it means for investors is they do
NOT own gold or silver in either the GLD or the SLV funds managed
by Street Tracks or Barclays. These ETFunds should never be
used by investors. To begin with, the gold cartel manages them.
The fund managers lease their bullion and hold paper derivatives.
An important rule change by the COMEX, the US-based commodity
exchange, allows ETF substitutes for precious metal delivery.
Jeffrey Lewis writes, "The exchange allows investors
to make good on their futures positions with gold & silver
ETFs rather than the real assets, thus opening up the door for
hugely distorted market prices. Under the clause 104.36 in
the COMEX Rulebook, exchanges can take place on the exchange
as long as the products meet certain criteria. After sorting
through legalese, investors find that the criteria is not as
demanding as one would expect from a multi-trillion dollar exchange,
but is actually quite loose. COMEX requires that exchanges be
made in economically equal products. For instance, a 1000-oz
silver futures position can be used in the delivery of 1000
oz of silver, despite their inherent differences. This creates
immense problems for investors, as well as the exchange itself.
First, no silver actually trades hands, but only a silver derivative
that has supposed claims to silver. Second, the Exchange Traded
Fund is economically similar in that it has equal worth to the
same amount of silver. However, investors cannot receive
physical delivery from the ETF issuer. In essence, purely
derivative investments are equal to physical metals in the eyes
of COMEX, even though the reality is quite different."
The Exchange Traded Funds are an extension of the paper
congame that attract naive ignorant investors, whose own funds
are used to neutralize their entire gold & silver demand.
Worse, the legal requirements behind the ETFunds permit them
to make claims against third parties (a derivative) to track
the price of gold or silver on the marketplace. This actually
opens the door for large manipulation in the silver markets,
whereby the fund managers can execute naked shorts in order
to push down the market price. They do not track the price,
but rather manipulate the price to drive it lower. The opportunity
is created also for an oversupply of silver shares compared
to what is actually in existence in the fund vaults. On
the other end, ETFund shares end up meeting delivery demands
on futures contract positions. The result is that derivative
products from these corrupted funds can easily find their way
into what one should expect to be a purely physical market.
The situation is even worse than what Lewis describes well on
the ETF share side. The gold from the Street Tracks GLD fund
is being shipped to London
in emergency measures to meet delivery demands, where angry
allocated account holders remove their physical bullion. The
same is probably true for silver bullion. So the ETFunds are
robbing their investors from both ends, removing legitimate
inventory and sending shares to match short COMEX positions.
This is fraud par excellence. See the Kitco article entitled
"New COMEX Rule: Another Reason to Fear ETFs"
by Jeffrey Lewis (CLICK HERE). In time, the fraud
from naked gold & silver contract sales, and the fraud of
charging bank vault fees for accounts having no metal, both
will be exposed.
◄$$$ GOLD OUTPUT BY NATION TELLS A STORY INDICATIVE OF
THE SHIFT IN GLOBAL POWER. THE ANGLOSPHRE (INCLUDING SOUTH AFRICA) IS
GASPING FOR BREATH. RUSSIA
IS RISING. CHINA
IS DOMINANT, HAVING TAKEN THE LEAD SPOT. $$$
China has taken the #1 gold output post since
mid-2007. Both Canada
have been surpassed in the process, in addition to the crippled
South Africans. The SAfrican electricity problems and next their
quadrupled tax levy will assure them an actual acceleration
downward. Canada is seen (in black) falling from almost
12 million ounces in 1998 to less than 8 moz in 2008. Australia is seen
(in yellow) falling from 10 moz in 1997 to under 8 moz in 2008.
The SAfrican decline is seen (in blue) as a tragic cut in half.
Notice China (in light brown)
more than doubling output from 4 moz in 1996 to 9 moz in 2008.
(in dark brown) is rising but not substantially, to around 6
moz in 2008. The United States and Indonesia are the laggards.
◄$$$ GOLD MINERS OUTPUT EVENTUALLY WILL BYPASS THE GOLD
EXCHANGES. SIMPLE DEMAND DYNAMICS DICTATE THAT INVESTMENT HOUSES
WILL OUTBID THE CORRUPTED METALS EXCHANGES. THE MINING FIRMS
IN TIME WILL REFUSE THE ARTIFICIAL LOW PRICES DICTATED BY THE
EXCHANGES AND FIND A BETTER BREED OF CUSTOMERS. $$$
My full expectation is that the gold & silver mining
firms will eventually rebel agains the corrupt London
LBMA and the New York
COMEX, which offer artificial low prices for metal bullion bars.
The metals exchanges, replete with well-known corruption, offer
lower prices to mining firms for their hard earned output. Paperhangers
in the financial dens do not work at all. The USGovt and UKGovt
sponsored corruption features selling gold & silver futures
contracts without benefit of metal in inventory or metal posted
as collateral. The result has been lower prices than what a
fair market would offer. So in time, the investment houses
will offer a higher price than the metals exchanges, especially
since they have difficulty in securing gold bullion. The
miners will accept the higher bid price. In the process a grand
bypass will occur that denies further supply to the corrupt
metals exchanges run by the LBMA and COMEX. The combination
of lower price with absent supply is a travesty to Economic
Mother Nature, who plans her revenge. The bypass will represent
a rebellion against sponsored fraud, namely selling metal not
in possession. The only resort for continued supply is for the
syndicates in charge of the metals exchanges to attack the big
mining firm stocks with more naked shorting, accumulate the
stocks, start proxy battles to unseat senior management, replace
the Board members, and thus annex the mining firms. That would
be a cancer! The resort left to miners is to threaten to set
their own prices or curtail their operations. Havoc comes!
A silver shortage is very much here and now with shortages
of coins. A subscriber from California
sent me a message, saying "I just got off the phone
with our coin dealer friend. He confirms physical shortage at
the dealer level. Says he is almost out of silver. He is having
to buy generic 1 ounce rounds at a price he feels he normally
would be retailing them. However, if he does not have the inventory,
it means lost sales since many people will not wait."
◄$$$ A COMING USDOLLAR CURRENCY CRISIS IS UNAVOIDABLE.
VAST INCREASE IN MONEY SUPPLY PROTECTED FROM RELEASE (LIKE AN
ABSCESS OR BOIL), INSOLVENT BANKING SYSTEM, USFED ACTING LIKE
AN ENTIRE BANKING SYSTEM, LACK OF ALTERNATIVES TO INFLATING
DEBT AWAY, FADING GLOBAL RESERVE STATUS, BIG U.S. STATES AT
PERIL, BIG BANK LIQUIDATIONS YET TO OCCUR, AND A PLETHORA OF
USMILITARY BASES, THESE ARE THE FACTORS THAT ASSURE A RENEWED
USDOLLAR DECLINE INTO A FULL BLOWN CRISIS. $$$
Jesse of the Crossroads Cafe American gives a fine peptalk
for the USDollar bears. He puts things nicely into perspective.
He wrote, "No matter how they wrap it, spin it, try
to hide it, we have seen an epic expansion in the US monetary base
not seen since 1932. This monetary expansion has not yet reached
into the broader money supply figures because it is not reaching
the public. Bernanke has most of that liquidity bottled up in
a few big banks collecting an easy riskless spread, with some
of it chasing beta in the speculative markets. Ben can talk
a tough game, and jawbone rates with his plans to someday return
to normalcy. But at the end of the day, the US is playing out a well worn script that is highly
predictable. There are three choices the Sith Lords at the
Fed and their western central bank apprentices have at this
point: inflation, inflation, and inflation. The only question
is how and when it will become obvious even to the most stubborn
believers in the Dollar Über Alles. Ben will seek to control
it, to unleash it from its cage very slowly, spread the pain
to the US
trading partners overseas. The US dollar reserve currency status
is faltering, but not yet under a serious assault. The monied
elite will try to eliminate any serious competition, such as
the Euro or precious metals, by any and all means possible.
is roughly 2.6% of the Eurozone GDP. California
is 13% of the US
GDP. How long they can continue this is anyone's guess.
These things tend to play out slowly, over years. I do not expect
the US dollar to fail precipitously in the manner of the Zimbabwe
dollar or with Weimar
Reichsmark, but rather to be devalued in a step-staggered
manner, over time, until it stabilizes and the debts are liquidated.
When the US starts closing
the greater portion of its 700+ overseas military bases, we
will know that it has become serious about financial reform
and balancing its books. Until then, all is posturing, self-interest,
demagoguery, and deception." See the Jesse Crossroads
Cafe article (CLICK HERE).
◄$$$ THE MAJORITY OF GERMANS WANT A FORMAL RETURN TO
THE D-MARK CURRENCY. THEY DO NOT WANT TO SAVE THE UNION.
The sense is that the German people want the order and stability
from the past under the Deutsche Mark currency. In her efforts
to save the Euro currency, Chancellor Merkel appears to be going
against the grain of a majority of voters. Such is typically
a dangerous strategy for a politician. Unless of course, the
talk is politically motivated, and the actions behind the curtains
are to return to the D-Mark by forcing Southern European nations
to return to their own former currencies like the Greek Drachma,
the Italian Lira, the Spanish Peseta, and the Portuguese Escudo.
Then later, after other nations revert to former currencies,
Germany can do the same. Be sure to know that
will permit other solid nations on their fiscal balance sheets
to share usage of the D-Mark. The new D-Mark will be called
the Core Euro or the Nordic Euro, otherwise known as the trimmed
down Euro. See the FazNet article in German (CLICK HERE).
CHINA DISTANCES FROM UNITED STATES
◄$$$ THE US-CHINA TRADE WAR CONTINUES TO RAMP UP. THE
CHINESE WILL DUMP ALL NON-USGOVT GUARANTEED BONDS, IN RETALIATION
FOR MILITARY WEAPONS SALES TO TAIWAN
(PROXIMAL CAUSE). THE TRADE WAR HAS TURNED FINANCIAL. THE CHINESE
MILITARY URGED A PUNCH AGAINST THE UNITED STATES. $$$
The dumping is to begin. Asia Times Online has reported that
the managers of Chinese reserve have been notified via an explicit
directive that any non-USGovt guaranteed securities must be
divested. The Chinese military officials want to punish
selling USTreasurys, by attacking the US system at its most vulnerable spot, the financials.
All risky US$-based assets are to be sold, including asset backed
bonds and corporate bonds. The order is given to hold onto explicitly
guaranteed USTreasurys and USAgency debt securities. The Treasury
Investment Capital (TIC) data indicates vividly that Chinese
enthusiasm for MBS/Agencies over the past year has been extremely
low and minimal, matched by the total lack of interest by Bill
Gross at PIMCO. No longer are US$-denominated bonds wanted at
the State Administration of Foreign Exchange (SAFE) nor at China's large commercial banks.
The directive has already been communicated to American securities
dealers, according to market participants with direct knowledge
of the events.
The usual debate has come. The Chinese Govt motive might be
basic risk aversion. They might be acting with political motive.
The expected termination in March of the US Federal Reserve
special facility to purchase mortgage backed securities has
caused their bond yields to rise. They might be selling before
the end of Quantitative Easing. They might be divesting the
most risky assets before a USDollar decline certain to resume.
The US$ counter-trend rally has run perhaps its full
course. My view is that the Chinese divestment decision is
urged by all the above motives. Due to timing alone, Beijing
leaders put front & center the Taiwan weapon sales as a key motive, and thus
the political element in the trade war has turned a financial
theme. In past years, Beijing
has not mixed investment and strategic policy.
Speculation has come that some decisions are being evaluated
that the Chinese Govt leaders are soon to lift labor wages broadly
across their economy, and thus reduce a key component to the
trade war. This is a traditional economic response, one that
must eventually be permitted in the still controlled Middle
Kingdom. Higher permitted labor costs would cut Chinese export
competitiveness while boosting domestic spending power and sustaining
economic growth, in textbook fashion. Premier Wen Jiabao
might soon permit greater domestic prosperity. That would be
a deft stroke, but might initially result in lower employment.
Some domestic pressures might be mollified while the bilateral
trade gap with the United States might diminish. Tao Dong is a Credit
Suisse economist in Hong Kong. He said,
"Wage increases are a better option because they largely
benefit Chinese workers. Currency appreciation will only result
in Chinese exporters losing out to competitors in countries
such as Malaysia
The strategy could result in the Yuan currency to gain 3% this
year, argued Tao. A 13% ordered increase in the minimum wage
in Eastern China's Jiangsu province clearly lays out how higher
worker pay will play an important role in the internal restructure
of the fastest growing major economy, again argued Tao. Ben
Simpfendorfer is an economist with Royal Bank of Scotland
in Hong Kong. He said, "[The wage
decision] argues against a large one-off yuan revaluation."
We should see one or the other option.
One thing is crystal clear. China will embark on a reform path of its own
design, not one dictated by the USGovt or Wall Street. If greater
negotiation leverage comes, great for Beijing.
If greater embarrassment comes to the Obama Admin, so be it.
Check a recent disclosure in the China Securities Journal. The
government backed daily newspaper accused the USGovt in a front
page editorial of playing the exchange rate card. It claimed
strongly that, just as China
did not interfere with US Federal Reserve purchases of USTreasurys.
They wrote, "the United
States has no right to interfere in China's exchange rate policy. Whether or not to
appreciate [the Yuan currency] is our own business. Whether
it will appreciate, when and by how much is an integral part
of China's monetary
policy." See the Asia Times article (CLICK HERE). It is interesting that an editorial
piece openly mentioned USGovt monetization of bonds, considered
the most destructive illicit behavior to undermine a foreign
held reserve asset.
Senior Chinese Military officers have proposed that their country
boost defense spending, adjust military deployments, and possibly
sell some US$-based bonds to punish the USGovt for its recent
arms sales to Taiwan. The USGovt
and USMilitary continue to abuse and piss on creditors. Retaliation
is the norm, either direct or indirect. See the Reuters article
◄$$$ CHINESE RESERVES HIT $2.4 TRILLION. TRADE FRICTION
CONTINUES TO RUB RAW. CHINESE RESERVES ENABLE THEM TO MANAGE
DOMESTIC SHOCK WAVES. BEIJING
RESPONDED TO GEITHNER COMMENTS WITH A STATEMENT THAT THE YUAN
CURRENCY IS PROPERLY VALUED. BARBS GO BACK & FORTH LIKE
A PING PONG BALL. $$$
The Chinese reserves have hit a record $2.4 trillion, equal
to $2400 billion. The Peoples Bank of China
issued a forma statement in mid-January. Their national reserves
grew by 23% on an annual basis. For the full year 2009, foreign
reserves rose $453 billion, surely sufficient to offset some
shocks. Furthermore, Chinese banks extended 379.8 billion Yuan
(=US$55.6 billion) of new loans, pushing the annual total to
an record high 9.59 trillion Yuan. Their M2 money supply jumped
27.7% in December from a year earlier. Liquidity is massive,
and bubble risk abounds. The PBOC has permitted open conjecture
that a 3% Yuan appreciation versus the US$ could occur,
in order to raise domestic costs and to reduce export trade.
Raising the bank reserve ratio might also be used to slow perceived
bubbles. The risk is to destabilize the Chinese Economic juggernaut,
as bubbles rest precariously from property to stock markets.
Purchases of other currencies have been routine to prevent the
Yuan from appreciating. The role as US creditor has been amplified in the process,
holds $799 billion in USTreasurys. Their currency reserves grew
by $127 billion in 4Q2009, compared with $141 billion in the
previous Q3, as the trade surplus and foreign investment channeled
in cash. In December, direct foreign investment more than doubled
from a year earlier to $12.1 billion. Foreign businesses continue
to make entry. See the Bloomberg article (CLICK HERE).
On a repeated basis, Chinese leaders publicly state the Yuan
currency is properly valued. Their response came one day after
President Obama promised to take a tougher line with Beijing over currency and trade. It is all talk from a debtor nation,
an embarrassing display. Chinese foreign ministry spokesman
Ma Zhaoxu insisted the value of the Chinese Yuan was not the
main reason for the large trade surplus with the United
States, the Yuan was at a reasonable level,
and China was not pursuing
a trade surplus. He declared, "At the moment... the
level of the yuan is close to reasonable and balanced."
He called for continued dialogue, trade cooperation, and
avoidance of accusations. Chinese trade figures released
in December showed China likely to overtake Germany as the #1 global export nation. The
Chinese claim exported goods worth $1.2 trillion in 2009, while
German exports are expected to register at $1.18 trillion. Without
question, the Chinese Economy is adapting to over-capacity and
asset bubbles that threaten a retreat. Their massive reserve
war chest enables them to manage the bubbles and their reduction.
But bubbles rarely can be controlled in reduction. One major
risk for that war chest is its heavy thread of toxicity from
US$ contamination. In no way is the outcome certain on whether
a bust comes. The excessive construction of both factories and
property is acute, and must be adjusted. See the British Broadcast
Corp article (CLICK HERE).
◄$$$ CHINESE EMPTY BUILDINGS HAVE BECOME A MAJOR PROBLEM
IN THE COMMERCIAL SECTOR. EXPERT ANALYSTS ESTIMATE BEIJING COMMERCIAL
BUILDINGS TO BE 50% VACANT. THE CHINESE GOVT CLEARLY IS ATTEMPTING
TO KEEP THE LABOR FORCE EMPLOYED AND BUSY, AS DECLINING PROPERTY
PRICE PRESSURES LOOM POWERFULLY LARGE. THE OVER-CAPACITY EXTENDS
TO FACTORIES AS WELL. $$$
Empty buildings dot the Chinese landscape like weeds, as companies
took advantage of the $1.4 trillion in new loans last year to
build yet more skyscrapers. Former Morgan Stanley chief Asia
economist Andy Xie and hedge fund manager James Chanos believe
their property market is in a huge bubble, one that accompanies
a bond bubble (of foreign type) and factory bubble. Beijing properties are 50% vacant. Chanos writes,
"There is a monumental property bubble and fixed-asset
investment bubble that China has underway
right now. And deflating that gently will be difficult at best."
He predicts a property crash. Last November the European
Union Chamber of Commerce in China
said a glut of factories is inflicting far-reaching damage on
the global economy, stoking trade tensions, and raising the
risk of bad loans. Nomura Holdings, Japan's
biggest brokerage, pointed out that the Chinese growth has provided
more than one third of world economic growth in 2010. Digesting
the debt from a popped commercial property bubble, reduced bank
lending, and credit portfolio writedowns will serve as a major
drag on growth lower for years to come. To determine how
exposed Chinese banks are to real estate debt is problematic,
maybe impossible, since loans to some state-owned companies
(registered as industrial lending) have been used to invest
Jack Rodman is president of Global Distressed Solutions, an
advisory private equity and hedge funds that works with Chinese
property and banking. He has made a career of selling soured
property loans from Los Angeles to Tokyo. A current
resident of Beijing, he sees a crash looming
He counts 55 empty office buildings in Beijing,
with another dozen likely candidates. Rodman estimates about
50% of the Beijing commercial space is vacant, a floorspace volume greater than
all leased properties in Germany's five biggest urban office markets in
2009. Chinese banks have NOT reduced valuations on their
balance sheet with writedowns. Real estate broker CB Richard
Ellis Group measured the Beijing office vacancy rate at 22.4% in 3Q2009,
the 9th highest of 103 markets they track. The Ellis tally does
not include newly opened buildings, thus a discrepancy.
Patrick Chovanec is an associate professor in the School of
Economics & Mgmt at Tsinghua University in Beijing, ranked China's
#1 university by the London Times. He said, "You have
state owned enterprises, using borrowed funds from the stimulus,
bidding up the price of land, not even desirable plots of land,
in Beijing to astronomical rates. At the same time you have 30%-plus vacancy
rates and slumping rents in commercial property. So it is just
a case of when you recognize the losses, or do not."
The contrast between vacancy and elevated property price is
stark, a resolution demanded in the last several months. Excessive
bank lending led to property prices in 70 cities to climb 9.5%
from a year earlier, the biggest jump in 21 months. Banks
have been urged by the China Banking Regulatory Commission to
strictly follow real estate lending policies, and to reasonably
control lending growth. The Peoples Bank of China
today recently ordered banks to increase reserves by 50 basis
points (0.5%) effective February 25th. The current level is
16% for big banks and 14% for smaller ones.
James Chanos is the founder of Kynikos Assoc based in New York. He maintains a dire view of China
as far as its prospects for property price declines. He predicted
that China could be "Dubai
times 100 or 1000." Real estate prices in Dubai
have fallen almost 50% from their 2008 peak as the United Arab Emirates struggles under at least
$80 billion of debt. Imagine the further price declines when
the rest of the hidden Dubai
debt breaks down. The commercial property space under construction
in China has not abated.
Building activity continues recklessly and mindlessly, as
though keeping the labor market busy is more urgent than keeping
the buildings occupied. At the end of November the new Chinese
construction in 2009 was the equivalent of 6800 Burj Khalifas,
the 160-story Dubai gigantic skyscraper. A serious decline in the property market
should be accompanied by a surge in non-performing loans. The
Shanghai office of
the banking regulatory commission said on February 4th that
a 10% drop in property values would triple the ratio of delinquent
mortgages in that city. Chinese and Hong
Kong construction banks have fallen in market capitalization
as a result.
Over-capacity stands as a threat uniformly across the entire
Chinese Economy. Their linkage of the Yuan to the USDollar from
1999 to 2005 is the underlying cause for massive bubbles, just
like what formed in the United States. Their
growth and trade surplus sustains their bubbles. The Chinese
Economy has vast over-capacity in manufacturing as well.
Check their investments in new factories and properties in 2009,
which surged 67% to 15.2 trillion Yuan. That amount surpasses
the Russian gross domestic product. Excess Chinese steel capacity
reached about 132 million tonnes in 2009, an amount that eclipses
the 87.5 million tonnes from Japan,
the world's second biggest producer. The European Union Chamber
of Commerce in Beijing reports what they call a looming deluge
of unnecessary cement capacity under construction. See the Bloomberg
article (CLICK HERE).
◄$$$ CHINA CURRENCY DISRUPTIONS ARE IMMINENT. A SUBSTANTIAL
UPWARD VALUATION COMES. THE LEADING GOLDMAN SACHS ECONOMIST
EXPECTS A 5% YUAN CURRENCY RISE THIS YEAR. $$$
Jim O'Neill is the Goldman Sachs Group chief economist. O'Neill
believes China could be poised to permit its Yuan currency to
strengthen up to 5% in order to slow the world's fastest growing
major economy. He responded to the Chinese central bank
decision for bank lenders on February 12th to set aside larger
reserves. He said, "I have a strong opinion that they
are close to moving the exchange rate. Something is brewing.
It could happen anytime. They need to do something to slow the
economy down and deal with the inflation consequences. The more
they do, and the sooner [they do it,] the better."
O'Neill forecasts the Chinese Economy will expand 11.4% over
the year 2010, which is currently growing between 12% and 14%.
Officials in Beijing have blocked gains in the Yuan currency. Tight controls have
been in effect since July 2008, after the Yuan had strengthened
21% against the US$
from the previous three years. In July 2005, the Chinese Govt
officially permitted the Yuan to float under guidelines. The
still under-valued Yuan provides continual advantages for Chinese
export firms, without a doubt. O'Neill anticipates the
Chinese Govt could possibly allow the Yuan to rise 5% in a single
thrust event revaluation. He refers to a single sudden
event. Afterwards, he surmises that the Yuan would then trade
within a bigger band, or else trade against a larger basket
of foreign currencies. The important factor is to counter international
pressure. That pressure has grown acute, as the Yuan recorded
its biggest weekly decline in more than a year last week on
speculation that importers bought USDollars before Chinese New
Year holiday last week. The Yuan depreciated 9 basis points
last week to 6.833 per US$. See the Bloomberg article (CLICK
◄$$$ CHINA HAS BEGUN TO SERIOUSLY DIVEST FROM USTREASURY
BONDS. FORGET ALL THE TALK, THE DISPUTE ON THE GLOBAL STAGE.
BEIJING SOLD A WHOPPING $34.2 BILLION TREASURYS IN DECEMBER, AS JAPAN
MOVED TO TAKE THE TOP#1 SPOT AS LARGEST OFFICIAL HOLDER OF USGOVT
China is no longer posturing about offloading
USTreasury debt. It is now real, evident in the data. The most
recent TIC data confirmed the USGovt potential nightmare, as
China is actively dumping USTBonds. Call it
reaction to Taiwan
military weapon sales, or response to favorably high US$ exchange
rate and lofty USTBond bubble principal value, or prudent diversification
in management. The justification is not so important as
the new pattern of behavior. In December China
sold $34.2 billion of USTreasury debt. They actually
sold $38.8 billion in USTBills but purchased $4.6 billion in
long-term bonds. They removed a chunk of short-term holdings,
placing more pressure on USGovt finance in the immediate sense.
Their total USTreasury holdings were reduced to $755.4 billion.
In the process, they relinquished the top US
debt holder rank to Japan,
which added $11.5 billion in holdings to arrive at a total of
$768.8 billion. Japan
has a totally different motive to lift the US$
exchange rate and bring down its Yen currency, so that exports
can be sustained. Dan Greenhaus is chief economic strategist
at Miller Tabak in New York. He said, "Clearly, the Chinese
are looking elsewhere at the margin for investments. Central
banks in general have been scaling back their exposure to Treasurys,
no doubt related to a reversal of the flight to quality trade
from late 2008 and early 2009, while also reducing their exposure
to USTBills." Heck! Maybe China sees no quality in the quality trade, or
no haven in the safe haven.
The other EYE-POPPER is the massive rise in United Kingdom holding
(in olive green). See the chart below. UK holdings increased from $230.7 billion
to $302.5 billion in December alone, a stunning $70 billion
increase in a two month span. Keep in mind that in USTreasury
auctions, a huge constant is Direct Bids from investment firms
and Indirect Bids from central banks. The UK
centers typically purchase on behalf of Arab Petro nations,
so as to conceal their identity of direct bidders. The UK
centers typically also are used as subterranean hidden locations
for illicit US & UK
central bank slush fund operations that conduct transactions
in large monetization operations. Also, the UK is the headquarters for a huge raft of hedge
funds. The UK
in my view handles the gargantuan bids that enable completed
USTreasury auctions, with massive self-dealing.
The USGovt buys its own debt with Printing Pre$$ funds, then
labels the auction a success in a monstrous public farce, repeated
over and over again. The easy inference is accumulated US debt under the radar. See the graph where the
steadily rising Japanese total (in red) has overtaken the Chinese
total (in dark blue), highlighted in the rose circle. This shift
has deadly bearish implications for the USDollar and is bullish
for precious metals. If China stops buying
USGovt debt, the USFed will be forced to monetize a greater
portion of the auctions, creating currency at a blistering pace,
in full view isolation. The US$ would be at risk of a decline due to an inflationary
tailspin, easily observed. The USGovt triple-A credit rating
cannot stand after removal of a principal creditor. Eventually,
investors will stop resorting to the USTreasurys as a safe haven,
and instead will begin turning to precious metals. A bubble
can never be a safe haven.
The official USDept Treasury International Capital (TIC) data
for December 2009 contains other pertinent data. Net foreign
purchases of long-term securities were $63.3 billion. Given
that far more, like $200 to $250 billion, is sold in USTreasury
auctions, one can conclude without benefit of math education
that the USGovt is monetizing between 50% and 75% of its new
and refinanced debt securities. It buys its own debt with Printing
Pre$$ funds. Foreign total holdings of US$-denominated short-term
bonds decreased by $67.7 billion. Foreign holdings of USTreasury
bills decreased by $53.0 billion. See the Zero Hedge article
Generally, international demand for US$-based financial assets
has slowed significantly. Net purchase of long-term Stocks,
Notes, and Bonds totaled $63.3 billion for the month
of December, compared with much greater net purchases of $126.4
billion in November. Including short-term securities such
as Bills and Stock Swaps, foreigners purchased a net
$60.9 billion in December, compared with net purchases of $30.7
billion in November. Some details are telling. Foreign demand
for USAgency Mortgage debt (i.e. Fannie Mae & Freddie Mac
et al) registered net purchases of a mere $49 million in December
after net purchase of $5.9 billion in November, a tremendous
99% decline, a veritable disappearing act. Net foreign purchases
of stocks were $20.1 billion in December after net purchases
of $9.7 billion in November, an actual rise. Investors sold
a net $7.9 billion in US Corporate bonds in December, the seventh
straight month of net sales. See the Bloomberg article (CLICK
◄$$$ CHINA TO BUY MORE GOLD THIS YEAR. THEIR PEOPLE
ARE HUGE BUYERS, TURNING SAVINGS TO GOLD HOLDINGS. THE PULLBACK
IN THE CHINESE GOVT USTREASURY PURCHASES OPENS THE DOOR TO MUCH
BIGGER OFFICIAL GOLD PURCHASES. $$$
The consensus is that China
will buy much more gold in the Year of the Tiger. Preface
all remarks by pointing out that the Chinese Govt purchases
and holds far more gold than their official statistics report,
like five times more. They just play the disinformation
game begun by the Americans. Official gold holdings are merely
from their government and central bank, and do not include major
commercial banks or state run sovereign wealth funds. The data
from them is kept private. The surprising fact on Chinese gold
accumulation is that the citizens are such avid buyers, and
they are buying in staggering volume. If the entire world's
citizenry bought gold at the same pace, the demand would be
noticed in the gold price. Between 2003 and 2009, households
bought almost 1800 tonnes of gold bars and coins, almost four
times the total volume purchases by the Peoples Bank of China. An auspicious year for gold purchases
is seen during the Chinese Year of the Tiger that has just started.
The listing of gold futures contracts on the Shanghai Futures
Exchange is also an encouraging development. They can perhaps
offset the criminal naked shorting routinely conducted by the
Wall Street gang, the USDept Treasury gang, and the London
gang, which collectively form a giant cabal.
With the well publicized decline in USTreasury Bond purchases
much more gold accumulation is anticipated. China once bought half of new USTBond issuance
in 2006, then only 20% in 2008, and recently a mere 5% last
year. In 2010 they are sellers. Many international bank analysts
expect bond yields must rise substantially this year. They as
usual ignore the vast monetization machine operated by JPMorgan,
which buys USTBonds with Printing Pre$$ funds, the phony money.
JPMorgan also uses powerful Interest Rate Swaps to push down
bond yields, funded in secrecy. With the signfiicant stimulation
programs targeting the Chinese domestic market in 2009, the
Middle Kingdom stands at risk of triggering a surge in price
inflation. The Chinese Economy is lined up as a potential victim
of its own broad stimulus. Chinese money supply increases
of 30% are experimental, and should produce predictable results.
Never before has such stimulus been attempted on this scale.
Even less ambitious official money supply amplification programs
have almost always resulted in notable price inflation in the
past. China is no different.
Once can expect the Chinese people to continue to buy the historical
protection against inflation in 2010. To hedge against their
own ordered price inflation, gold investment should continue
powerfully. Last year China surpassed India as the top private gold consumer in the
world. Both good and bad, China
is the world's biggest gold producer, ahead of South
Africa and Australia. The good side is that their people
can readily find gold to purchase. The bad side is that their
demand will not be directly noticed in the global gold market.
However, Chinese mining output will NOT be supplying any gold
to the global market.
Thanks to the following for charts StockCharts,
Financial Times, Wall Street Journal, Northern Trust,
Business Week, CIBC Bank, Merrill Lynch, Shadow Govt