MONETARY CRISIS REPORT
CLIMAX OF FINANCIAL FRAUD
COMPREHENSIVE GUIDE

* Vatican Evening Vespers
* Intro Money Fragments
* G-20 Agenda for Revolt
* Transformation of America
* USDollar Lost Control
* USDollar End Game
* Bond Bubble Craze
* Currency War Boils


HAT TRICK LETTER
Issue #107
Jim Willie CB, 
“the Golden Jackass”
17 February 2013

"The burden of proof is on the central bank to convince that a connection exists between accommodative monetary policy and expansion in the labor market. So far, they have not demonstrated that link." ~ Stephen Roach (Yale University Economics professor, back from his exile in Asia for speaking truths, probably banished from Wall Street)

"The system will be totally decentralized as it goes from hierarchical structures to relational structures. People who do not comprehend the shift will end up as scrap on the bone yard of society. Banks as we know them will be eventually been wiped out by massive independent collaboration. The reintroduction of a global barter system that applies 21st century technology will be the final nail in today's system. The USDollar is being prepared for its coffin." ~ The Voice (an excellent gold market source)

"In the 21st century Americans have experienced an extraordinary collapse in the rule of law and in their constitutional protections. Today American citizens, once a free people protected by law, can be assassinated and detained in prison indefinitely without any evidence being presented to a court of their guilt, and they can be sentenced to prison on the basis of secret testimony by anonymous witnesses not subject to cross examination. The US [so-called] justice system has been transformed by the Bush/Obama regime into the justice system of Gestapo Germany and Stalinist Russia. There is no difference." ~ Paul Craig Roberts (from recent essay entitled "In Amerika Law No Longer Exists: the Extermination of Truth")

"We now live in a nation where doctors destroy health, lawyers destroy justice, universities destroy knowledge, governments destroy freedom, the press destroys information, religion destroys morals, and our banks destroy the economy." ~ Chris Hedges (welcome to Nazi Amerika)

"The CIA owns everyone of any significance in the major media." ~ William Colby (former CIA Director)

"This year will go down in history. For the first time, a civilized nation has full gun registration. Our streets will be safer, our police more efficient, and the world will follow our lead into the future!" ~ Adolph Hitler, 1935 (The Weapons Act of Nazi Germany)

CORRECTION:  Phnom Penh, mentioned in the pan-Asian conference last month, is located in Cambodia, not in Vietnam. It was mentioned so often during the Vietnam War to the young Jackass, that an incorrect association was formed.

## VATICAN EVENING VESPERS

◄$$$ A GERMAN LAWYER IS TO HEAD THE VATICAN BANK. THIS IS THE BIG HEADLINE BEHIND THE PUBLICIZED STORY ON THE POPE'S RESIGNATION. SPECULATION ASIDE, THE CONFESSION OF MONETARY SINS COMES NEXT. $$$

The story of the first pope to resign in 600 years is captivating, and has generated heaps of speculation. All precedent since the 16th century has held that aging and infirmed popes die within the arms of the church. Not here! Benedict's resignation distracts from the bigger headline issue. A German lawyer is about to head the Vatican Bank, an institution replete with controversy. Its shady activity is blamed by some informed parties as the reason for the pontiff's premature departure. Truckloads of holy water will be required to wash the stain of past monetary sins. The door is open for the wrath of God to be let loose.

The Vatican appointed German lawyer Ernst von Freyberg to be the new president of its bank, filling a post left vacant since May when when a financial scandal involving narcotics money laundering with Roman banks tainted the institution for the umpteenth time. The appointment was made by a commission of Cardinals and approved by Pope Benedict before his departure was announced. The bank's formal name is a total joke, the Institute for Works of Religion (IOR). It has been dogged by scandals for decades, since its only auditor is God himself, who has not yet chosen to file formal charges with Ecumenical regulators. It should be noted that von Freyberg is not ex-Goldman. The strong rumors are that the past deals with JPMorgan, which ran gold leases and managed central banks loans, will be publicized and investigated and scrutinized. See the Zero Hedge article (CLICK HERE).

Numerous Rome reporters have been found murdered over the years, after pursuing Vatican financial dealings that run renegade to spiritual pursuits. The word passed on is that the Vatican has been active for years in making its gold available to central banks for leasing and other short-term inter-bank loans. Also, very large cash loans in the form of bearer bonds were frequent events, like the ones captured with Japanese national mules at the Swiss border in 2009. The bonds cover both gold loans and narcotics deals, as well as other diabolical dealings. In return, the Vatican bankers have requested certain murders be conducted by the US and UK intelligence agencies, who are eager to aid in the missionary efforts. It is highly doubtful that narcotics money laundering or gold market rigging or cover-up hit squads are part of God's will.

The Jackass has one source (met face to face), a man who left his two-year internship in 1998 at the Vatican after he penetrated two layers of security at their infamous secretive communication center. It connects the satanic covens of the world, and has five rings of security. The intern resigned after bothered by chronic sleep disorder and nightmares, with the many stories of sexual rituals a constant mist in the air in cafeterias and libraries. The Vatican banker sexual rituals with children will not be mentioned further. As footnote, let it be known that the Jackass was sexually molested between the ages of 12 and 14 years by teachers in high school, all from Franciscan order. Departing the Catholic Church was an easy decision, when in college. Conclude that the Vatican has changed from its original divine charter set by Simon Peter.

As a young catholic, the Jackass openly questioned the priests, nuns, and brothers of the order how a human being could be so arrogant as to speak ex-cathedra and claim infallibility. Speaking for God and being within fault appear on face to be horrendous violations of arrogance and insolence, an insult to the deity. The clergy never responded satisfactorally to the young Jackass, who quit at age 18 years from any formal association with the Roman Catholic Church, but remains a fervent Christian. A German banker contact, whose opinion was solicited, made a quick comment. He wrote, "It appears time to bring the knights in and clean up all the garbage that has piled up inside the Vatican Bank. If the Pope disclosed what he knows, many powerful people would go down long before he would. The man is very experienced and not a fool. By staying inside the Vatican sanctuary, he remains the Chairman Pope in spite of his official successor to become the CEO Pope. Clever move indeed. Benedict is not a politician. He despises the Vatican power jockeys, and he is far from being done dealing with sordid individuals, all of them Italians. Not one of the cardinals he appointed has been an Italian. There is a lot more going on than meets the eye." It would be so sweet if the Vatican broke the gold cartel, with some divine help.

◄$$$ THE VATICAN HAS A LONG HISTORY WITH GOLD. A MILLENIUM OF RULE DURING THE EUROPEAN DARK AGES LEFT THE ORGANIZATION RICH WITH GOLD. THE CRUSADES ADDED TO THEIR BOOTY. THEIR RELATIONSHIP WITH JPMORGAN MIGHT SEE SCRUTINY AS IT COMES TO THE SURFACE, WITH LIGHT SHED. JACKASS CURIOSITY WONDERS IF POPE BENEDICT, BEING GERMAN, IS AWARE OF EASTERN ALLIANCE PLANS COMING TO FORE THAT FOCUS ON GOLD AND TRADE. $$$

An unholy schism cometh, which will push aside the USDollar, in a final definitive divergence and division between paper gold and gold metal. Friend and colleague Rob Kirby offered some information. He pointed to a website concerning Vatican Bank Claims (SEE LINK) in which five hot links are included. There used to be six, the removed link pertaining to correspondence between the New York Fed and the Vatican Bank, which referenced gold accounts at Chase Manhattan Bank in New York. Kirby can attest that specific legal documents used to be available at this site referencing historical business relationship with Chase and gold dealings with the Vatican Bank. Historically their relationship was almost exclusively gold based, with bullion bars moving in brisk volume. Actually, on an historical basis, Chase provided bullion bank services for the Vatican. Think Rockefeller (roots to Chase), not the House of Morgan.

◄$$$ THE VATICAN HAS A LONG HISTORY OF NEFARIOUS DEEDS. $$$

The Voice could not restrain himself to join the interchange of historical accounts. He wrote the following, provided almost verbatim but edited to flow well. All is very convoluted with so many cooks and crooks in the kitchen. The origins go back to post-WWII when the US intelligence agency financed the Italian parties to keep communism in check. It is the infamous Operation Gladio. The Vatican played a major role in the activity, since largely based in Rome (see Red Brigade). The Holy See never could shake the old connections. The man who played a very big role in all this was Vince Cannistraro. A mutual acquaintance who knew Vince for decades held him in very high regard. He was a top professional. They killed his entire family (wife and children) in Lebanon when he was stationed there. It was said that Vince did not take shxx from anybody, not even the president, when he was still on active duty. He truly wore a white hat amongst all the black hats.

           Lightning Hits Basilica

One should keep firm in knowledge that the Vatican has been a major house of financial and violent crime for decades, many centuries. Just a couple days after Pope Benedict announced his almost unprecedented resignation, lightning struck St Peter Basilica in Rome, pictured above. We are told this is a common occurrence. Doubt that, period. When the bigger picture emerges, many missing pieces will come into view. The pope is a very smart man. He did the unthinkable and took the world by surprise, including some long-time scummy financial partners. He did not cave to pressure, but added to the intrigue. Some say he set a fatal trap for the the dark forces. He could have delivered a mortal blow to nasty insiders at the Vatican, who might find themselves falling onto their own swords.

## INTRO MONETARY FRAGMENTS

◄$$$ DAMAGING PRECEDENT COULD FORCE MAJOR LOSSES FOR BANK OF AMERICA IN MORTGAGE LIABILITY CASES. A RECENT COURT RULING WAS FOUND IN FAVOR OF THE MONOLINE INSURER, AGAINST THE BANK ISSUING MORTGAGE BONDS. $$$

The case is not reported much, but its precedent could be crippling. A judge has ruled that a large mortgage lender Flagstar is liable for damages to a monoline insurance company. Similar issues are at stake in several cases that Bank of America faces in court. Flagstar was a big mortgage lender, now dead. It lent risky mortgages, dubbed liar's loans where the borrower declared income that was never checked by the underwriters to the loans. These are pervasively fraudulent loans which have caused legal nightmares for the big banks, and direct liability. Flagstar was sued by a monoline insurer named Assured, which engages in specialized insurance in guaranteeing the quality of these loans, once packaged into a securitized bond. The exact same exposure exists in bigger cases for Bank of America. The big deal is that the monoline firm Assured recently won a huge case against Flagstar. The judge ruled that the lender lied repeatedly to the firm that insured the quality of their loans. Under that same methodology, Bank of America could actually face tens of $billions in liability from other parties. The massive exposure to Bank of America will not end from the mortgage fraud and basic misrepresentation of mortgage bonds. In essence, the insurance companies have demanded the return of their money from the fraudulent banks who lied about the asset quality being insured.

The judge found that 75% of the time in year 2005, the lender misrepresented to the insurance company on loan details. In 2006, they lied 65% of the time to the insurer. A massive business was built on fraud, which victimized even Fannie Mae. The bond investors all bought a raft of toxic bonds that went into sudden decline almost right out of the gate. Not only did the home loan borrowers lie to obtain the loans, the banks lied to investors who bought the big packages in bond securities. The entire industry lied to everybody, but the source on bond creation is banks. The banks grew enormously by doing incredible volume of crappy loans at a premium yield with extreme leverage, earning $billions, against which they posted almost no reserves against losses. All are liars in the US mortgage game that went foul. See the Real News article (CLICK HERE) with the interview of William Black, professor of Economics and Law at the University of Missouri in Kansas City. He is an expert on white collar crime and the law, a former financial regulator, and author. He wrote a book with an incredibly clever title that indicates the depth of corruption in the US financial system. It is entitled "The Best Way to Rob a Bank Is to Own One."

◄$$$ BERNANKE'S MENTOR AND DOCTORAL THESIS ADVISER HAS RESIGNED. THE EVENT MIGHT HAVE SOME MINOR SIGNIFICANCE, BUT MORE SO ON SYMBOLISM. FISCHER WAS A CHAMPION OF JUSTIFYING THE PRUDENCE OF FAILED MONETARY SYSTEMS AND GREAT ENABLER OF WESTERN THEFT OF WEALTH. $$$

Stanley Fischer has been the head of the central bank of Israel since 2005. He is often given credit for steering the small nation through difficult times. He has announced his resignation, effective in June, two years before his term ends. At age 69 years, he is hardly beyond his useful years, nor in poor health. Fischer is known as the PhD thesis advisor for current USFed chairman Ben Bernanke at the Massachusetts Institute of Technology (MIT) in the 1970s. They created a revisionist history thesis pertaining to the Great Depression, complete with unjustifiable untestable constructs. The highly praised thesis is seen as basis for Quantitative Easing and massive bond purchases to safe the system. However, since the nation is not subject to the Gold Standard, no solution has come. The Bernanke PhD thesis is being disproved with each passing month, and each new QE program. Fischer has held many top posts, all integral to the failed fiat paper financial structure that is crumbling on a global scale never witnessed in history. He served as deputy director of the Intl Monetary Fund, and held a top post at Citigroup Corp. At the IMF, he worked on resolving financial crises in Mexico, Russia, and Southeast Asia during the 1990s. He was mis-educated at the London School of Economics and MIT, along with many financial banking leaders. Under Fischer, the nation of Israel made a distinction. As central bank head, he led the movement early to raise interest rates, making it the first nation to take such a step toward stabilization.

Regard the imminent departure of Fischer as an important symbolic event. The mentor of Chairman Bernanke is leaving, possibly because he anticipates some dire events to occur. Benjamin might be tired of seeing his thesis disproved by current events, or tired of operating the Weimar machinery without a proper license. Ben might not wish to be present when a controversial seizure of private US wealth is ordered for to cover the USFed's ruined balance sheet. He might not wish to be in office when the global isolation and rejection of the USDollar occurs. Or when further exposure comes of the USFed having stolen official gold accounts. Or when revelations come that the USFed and other major central banks have been kept afloat by narcotics money laundering, led by the big US banks in coordination with the USGovt security agencies. Consider the Fischer resignation a key event, one that augurs badly for the future of the central bank franchise system, which has failed in very open and extreme ways. The USFed, the Euro Central Bank, the Bank of England, and the Bank of Japan have all embarked on a disastrous experiment to print money and to cover government debts, which has wrecked the capital structure, wrecked the economic structure, wrecked the banking structure, and wrecked the monetary structure. Their Weimar experiment is soon coming to an end. The chief architects will scatter like bugs in the summer sun.

Tyler Durden, editor of Zero Hedge, added a professional eulogy for Fischer. He wrote, "Ben Bernanke's personal mentor, and famous underwater investor in Apple shares, has announced his intention to step down. This resignation comes 10 months (and $100 lower in AAPL value) after the central bank's announcement to begin buying foreign stocks. Is this a harbinger of the change in the old brigade, and does it make Bernanke's departure one year from today virtually assured? We hope to find out, unless of course the most aggressive and ambitious central banking experiment in history to keep the global house of cards afloat fails in the meantime."


A harsh eulogy was given by the London Siren, who is far more unforgiving. He wrote, "Fischer served as the thesis adviser to US Federal Reserve Chairman Ben Bernanke at MIT in the 1970s. Ben is a sham. His work is sham. Quantitative Easing is a bond scheme to enrich the rich. It has failed, another sham. At the IMF, he worked on resolving financial crises in Mexico, Russia, and Southeast Asia during the 1990s. Far from resolving, he acted in the banker interests of the West. He was a US agent sent to destroy wealth and transfer assets to the West. He was an economic hit-man extraordinaire."

◄$$$ JIM O'NEILL FROM GOLDMAN SACHS WILL RETIRE FROM HEAD POST AT GSAX ASSET MANAGEMENT. A SIGN OF THE TIMES AND PERHAPS THE FADING INFLUENCE OF GSAX ITSELF. O'NEILL FORESEES BIG PROBLEMS AHEAD IN THE CURRENCY WAR FRONT AND EVEN WITH BOND BUBBLES. $$$

Terence James O'Neill will retire from his post at chairman of Goldman Sachs Asset Mgmt. O'Neill is best known for coining the term BRIC, the acronym that stands for Brazil, Russia, India, and China. They are cited in tandem as the four rapidly developing growing economies. He joined Goldman in 1995 as chief currency economist and co-head of global economics research, then became head of global economics, commodities, and strategy research in 2001. By 2010, he rose to chairman of their asset management division. Indeed, he challenged conventional economic thinking about emerging markets, leading to anticipated significant economic and social impact on the geopolitical stage. The seminal piece was entitled "Building Better Global Economic BRICs" dated November 2001. In the essay, he predicted that the weight of BRIC contributions, in particular China, would grow as a proportion of world economic output. In the following decade, stocks from emerging markets outperformed those of developed markets. A case in point. In the ten years ending December 2012, the Vanguard emerging markets stock index fund had annual returns of 16.2%, while the Vanguard developed markets index fund of non-United States stocks returned 8.4% annually.

O'Neill remains active, and plans to continue in the field, stroking his ego. In recent work, he foresees the threat of currency wars and the risk of rising bond yields. See the New York Times article (CLICK HERE). O'Neill is a mouthpiece of syndicate garbage, from frequent interviews, but with occasional insights. One well placed Hat Trick Letter client has personally met and talked with him. He found the GSax cog to be insufferably arrogant with little interest in discussion of relevant material with the plebeians operating in respectable financial sector posts. The term has been expanded to BRICS to include South Africa.

◄$$$ TIM GEITHNER HAS MOVED TO COUNCIL ON FOREIGN RELATIONS. ABSURD SPECULATION SWIRLS THAT HE MIGHT SUCCEED BERNANKE AT THE USFED. A LIKELY EVENT ONLY IF THE CENTRAL BANK IS TO BE INTENTIONALLY DESTROYED, THUS REQUIRING A BAGMAN. $$$

Outgoing Treasury Secretary Timothy Geithner has landed a job squarely in the banking syndicate, in a privileged think tank. His new office will be in New York City with the Council on Foreign Relations. He will offer his services to the slimy puppeteer that conjures foreign policy direction. The diminutive figure with small shadow, small mind, and small perspective will fit in as a wonk, a cog in the special adjunct outfit that controls the banks, controls much of the USMilitary, and unduly influences political process on foreign policy. Geithner is actually cited as being in line for the USFed Chairman post, as laughable as that is. Such an appointment would happen only if the USFed is expected to be scuttled and razed, a black hole to follow. The empty headed speculation centers on the Timmy the Tool moving to a transitional post without much substance, like the CFR, having no fixed tenure to lock him in office. The Bernanke term as chairman ends later this year. See the Fox Business News article (CLICK HERE).

## G-20 AGENDA FOR REVOLT

◄$$$ THE LESSER FADING G-7 MEETING ISSUED SEVERAL BIZARRE STATEMENTS, MOSTLY ON JAPANESE POLICY THAT DECLARED UP WAS DOWN. A GOOD AMOUNT OF DOUBLE-SPEAK IS EVIDENT AMONG THE MAJOR INDUSTRIALIZED NATIONS. HYPOCRISY IS A BETTER DESCRIPTION, AS THE COMPETING CURRENCY WAR IS RUNNING RED HOT. TRUTH IS NOT TO BE TOLD IN ANY PUBLIC FORUMS. THE G-7 SERVES AS PRELIMINARY SESSION OF FADING IMPORTANCE FOR THE G-20. MEETING. $$$

Any attempts to calm the Currency War fail quickly among the G-7 nations. The elite group G-7 includes the United States, Japan, Germany, Britain, France, Canada, and Italy. Why Canada and Italy are still members remains a mystery. Worse, France now resembles a PIIGS nation. The G-7 completed its charade before the most important and more eagerly awaited G-20 takes place, starting this weekend. All G-7 statements have been murky and meaningless, quickly contradicted afterwards. Confusion emanates and radiates. The hypocrisy is thick. The drafted statement contains a commitment to market exchange rates and an agreement that governments will not use fiscal or monetary policy to drive currencies. The Japanese are in violation before, during, and after such an absurd promise. The push by Japanese Prime Minister Shinzo Abe has resulted in a severe drop in the Yen exchange rate, exactly as desired by Tokyo. The last formal commitment made in Marseille France at the September 2011 meeting was a sham of vacant meaning. Review of the text back then provides the basis of pathetic tragic comedy. It read, "[We have] reaffirmed our shared interest in a strong and stable international financial system and our support for market determined exchange rates. Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We will consult closely in regard to actions in exchange markets and will cooperate as appropriate." Failure on all counts. Read rubbish, deceit, desperation, window dressing.

Both Germany and Canada have expressed concern about the Tokyo initiative, which has kicked the currency war into high gear internationally. The Abe Admin in Japan actually denies actively pursuing a lower Yen, which adds fuel to the fires of hypocrisy. Their economic minister stated the FOREX rates should be determined by the market. Tokyo claims that its bold monetary and fiscal policies were appropriate. Quiet the laughter, please, as the currency wars come to Moscow. As Ed Steer of GATA said it succinctly, "The G-20 forum, which put together a huge financial backstop to halt a market meltdown in 2009, is back in the spotlight after a week in which the Group of Seven rich nations tried, and spectacularly failed, to speak on currencies with one voice. The G-7 has long been the powerhouse of financial diplomacy. But tension between Washington and Tokyo has risen over new Prime Minister Shinzo Abe's bid to end two decades of deflation. The G-7 issued a joint statement on Tuesday reaffirming [market driven FOREX rates]. Yet the show of unity was quickly undermined by off-the-record briefings critical of Japan." As the Jackass has stated for the last year, the G-7 led by the United States is fading in importance. The broader G-20 led by China is taking over control. In fact, the G-7 has morphed into a preliminary G-20 exercise, to prep the hypocrisy, to express fear of agenda, and to set the stage for the important global forum. The lost prestige of the US & UK is very evident. Rebellion is next.

◄$$$ MOSCOW IS TAKING ITS ROLE AS ROTATING PRESIDENCY VERY SERIOUSLY ON THE G-20 CONFERENCE. THEY SMELL AN OPPORTUNITY TO EXERT SOME INFLUENCE, AND TO INFLICT DAMAGE ON THE AMERICAN DOMINANT ESTABLISHMENT ON THE GEOPOLITICAL STAGE. $$$

The Group of Twenty Finance Ministers and Central Bankers are meeting in Russia. They will focus on reforming the international monetary system, the stated priority of Kremlin officials, who take the role very seriously. At a preliminary press conference in Moscow, Russian Foreign Minister Sergei Lavrov reiterated the clear Russian monetary and financial priorities. The minister stressed the importance of the mission. He said, "Decisions have been adopted but only partially fulfilled. Therefore, Russia and its BRICS partners and the G-20 co-members, along with other like-minded parties, will seek to implement the decisions on reforming the international monetary and financial system. The Russian Presidency will pay due attention to the issues of enhancing and broadening investment conditions, introducing measures aimed at new jobs creation and managing sovereign debt without provoking global economic shocks." See the 4-Traders article (CLICK HERE). If the West will not reform itself, then the East will do so.

◄$$$ THE STAGE IS SET FOR THE G-20 MEETING IN MOSCOW. EXPECTATIONS ARE HIGH FOR SOME BOLD ACTION. THE UNITED STATES HAS OFFERED TOKEN REPRESENTATION. THE DOOR IS OPEN TO GANG UP ON THE ANGLO-AMERICAN AXIS WITH REBELLIOUS DECISIONS AND STERN INITIATIVES. AT RISK IS A COLLAPSE OF THE GLOBAL MONETARY AND FINANCIAL STRUCTURES, EXTENDING TO MAJOR CURRENCIES, SOVEREIGN BONDS, AND BIG BANKS. WATCH FOR GOLD TO BE MENTIONED. $$$

As preface, the G-20 Meeting issued a preliminary communique (CLICK HERE) in format with 26 major points for initiative and action. The rules seem clear. They will not single out Japan for massive currency devaluation. They will disregard the G-7 call to refrain from using economic policy to target exchange rates. They will not urge any national debts to be cut as targets. Expect no clash over currencies, since no nation can afford such a negative signal. It will be implicit and understood. While Japan is seen as the big currency warrior, having engineered a nasty 20% Yen decline, the United States is seen as the big currency destroyer, with its endless bond monetization. Tokyo officials argue a priority of exiting recession and deflation, the end game to debt abuse and currency abuse, which they perpetuate with more debt abuse and more currency abuse. The path to currency weakness programs (aka competitive currency devaluation) is to remain intact. Such efforts are actually economic defense mechanisms, to preserve export industries. No nation can argue that such programs are reckless or foolish. Remember that all nations lose in the currency war, yet no nation admits it.

The Europeans enter the fray as sideshow, sort of a lunatic fringe element. Euro Central Bank head Draghi criticized the parties on the currency war, calling the battles inappropriate, fruitless, and self-defeating, in his words. France has been a lone voice calling for Euro exchange rate targets, which no nation desires, but are consistent with socialist ignorance. Bright but errant Christine Lagarde of the Intl Monetary Fund said something stupid. "The current talk of currency wars is overblown. There is no major deviation from fair value of major currencies." Her comments have no bearing on reality. Australian Treasurer Wayne Swan gave support for the Japanese monetary policy, stating each nation is entitled to foster growth. Indonesia wishes to see a stronger Japan, whose domestic demand would aid their exports generally to Asia. Other nations have noted that the United States has created vast amounts of new money just like the Bank of Japan. The desire is to criticize the US without mentioning the US.

The communique reflected a conflict brewing between Europe and the United States over extending a promise to reduce budget deficits beyond 2016. The US is a laggard and hypocrite, operating from a broken political framework that is well noticed. At successive meetings, Germany has pressed the United States to do more to tackle debts. Washington in turn has urged Berlin to do more to increase demand, a lame reply. See the Reuters article (CLICK HERE). In the Jackass view, the Moscow G-20 is the most important G-7 or G-20 Meeting ever in modern history. It sets the stage for the lesser nations to declare monetary rebellion ag ainst the United States, United Kingdom, and any other Western Europe nation that stands beside them. The foundation is being laid for a global initiative to replace the USDollar as the basis of global trade, and consequently to replace the USTreasury Bond as the basis for banking reserves. The currency war is turning into an initiative to unseat and dethrone the Almighty Dollar after 70 years of dominance, if not hegemony. The abuse occurred after the 1971 abandonment and fracture of the Bretton Woods Accord, the Gold Standard that the US unilaterally discarded and trampled upon.

◄$$$ MEANING OF THE G-20 COMMUNIQUE IS AS IMPORTANT AS IT IS COMPLEX. DO NOT TAKE IT AS STATED IN CONSTRUCTIVE FORMAT. IT IS A DECLARATION OF WAR AGAINST THE UNITED STATES & THE BRITISH FOR THEIR MONETARY FORTRESS, THEIR BOND FOUNDATION, AND THEIR BANK WEAPONS, ALL DEFENDED AND WIELDED WITH BRUTAL FORCE FOR DECADES. THE OLD SYSTEM WILL GIVE WAY TO THE NEW, BUT THE AIR OF WAR MUST BE CLEARLY DEFINED AS THE PARADIGM SHIFT IS IMPLEMENTED AND ENABLED. IT WILL CAUSE SEVERE CHANGES AND CONSEQUENCES. GREAT DISRUPTION COMES IN RESTORING BALANCE. $$$

Consider the official communique. Point #5 addresses imbalances, structural reforms, reserves, and productivity, as well as volatility of fund flows and fast moving currency exchange rates. This is targeted towards the United States, the United Kingdom, and the PIIGS of Southern Europe, telling them to cut down on consumption, to pursue structural reforms, and to enact serious tax reform to create an environment that boosts savings, not consumption. The G-20 dislikes the Western emphasis on stimulated consumption, since they see the real issue is inadequate investment. The hidden message is that the West fails to understand capitalism anymore! The G-20 has pointed the finger directly at the USFed and Bank of England, telling them indirectly to stop QE and inflation abuse. China insists that no trade barriers and tariffs be imposed, another lob at the US. Conclude that the US and UK are being isolated and warned quite sternly to resist from QE, to stop stirring trade war, and to put their fiscal house in order. The BRICS are setting the agenda with cooperation from Europe. The constructive efforts will not succeed. The world is ultimately heading for outright rejection of the USDollar and British Pound, with profound price inflation hitting in US and UK. Europe will fracture in the process, with Germany turning eastward for alliances.

Point #9 addresses the need for local currency bond markets, to factor in regional initiatives, and to encourage deepened financing vehicles for economies from such devices. It is a formal G-20 Action Plan given high emphasis. This has huge implications. It is an implicit rejection of the four major bond markets, denominated in the USDollar, the Euro, the British Pound, and the Japanese Yen. Implementing such diversified bond markets would transfer control away from the Developed Market world to the Emerging Market world. Such drastic development would be deliver a huge blow to the bank cartel which has a monopoly of control with bonds. The initiative is probably being driven by China, which wants wider acceptance and encouragement for the growth of the Yuan-based credit market. That is essential for a new global reserve currency to be rooted.

Several important but minor points are addressed also. The G-20 has served an ultimatum to the Intl Monetary Fund to change the quota system. The ratios are absurd in today's global economic makeup. Implications will be felt in contribution requirements, voting rights, and Special Drawing Rights (currency basket). In the process, the United States would lose its powerful blocking stake that controls votes. The G-20 has given warning 1) to implement Basel III rules, 2) to implement OTC derivative reforms (Dodd-Frank), and 3) to allow for oversight of the shadow banking system. Translate to mean the Western banks are warned to obey rules and to stop their global derivative casino that threatens all. The G-20 has urged more transparency in commodity and energy markets. They wish to curb the banks and hedge funds from exploiting commodity producers via boom bust cycles. Emerging markets want stable fair prices. Price control devices and volatility is exactly what the Developed Markets and their banks want to continue.

◄$$$ MANTEGA OF BRAZIL EXPECTS A NASTIER MORE OPEN CURRENCY WAR TO COME. THE OBJECTIVE TO BOLSTER ECONOMIES WILL BE DIFFICULT. HE PERCEIVES THE BATTLE TO BE OVER SCRAPS, IN A RACE TO THE BOTTOM. MANTEGA DOES NOT UNDERSTAND THE CORNER THE UNITED STATES IS IN, EXPRESSING OPTIMISM OVER THE FISCAL CLIFF EVENTS. $$$

Brazilian Finance Minister Guido Mantega first mentioned the term Currency War over two years ago. He expects the global war over currency exchange rates to become nastier and more in the open. He makes a subtle but important point, that European countries should focus on reviving their economies with more investments, rather than trying to weaken the Euro to protects jobs as France has emphasized. Until the global economy is revived, the war will continue in his view. Therefore, it will heat up fiercely in the Jackass view, since all central bank monetary easing works to destroy the capital base gradually, and actually weakens the global economy, not stimulate it. The Global QE to Infinity is intended to aid banks and to cover the government debts, NOT to stimulate economies. The inflation is hitting the cost side, not the wage side. It is that simple.

Mantega has overseen policy action in his own Brazil in the last couple years. The competitive devaluation tool has been used. Brazil has actively sought to depreciate its Real currency to protect local manufacturers from shoes to suits to buses and make its exports more competitive. It has taken bold action to curb speculative capital inflows with higher taxes, imposing a tax on incoming funds that seek to exploit their higher bond yields, which should be higher. He make a great point that few central bankers comprehend, "It is useless for the European Union to try to get out of the crisis by exporting more to the United States, Asia, or even Brazil. We are battling over the scraps. We are elbowing each other to compete in a very restrictive market. I think the most important discussion at the G-20 will be the return of stimulus policies." Mantega urged the European nations to follow the pattern set by Brazil. It has been bolstering investment by launching their own infrastructure investment programs. He truly goes awry in views of the United States. He believes that risks to the global economy have reduced substantially after a break-up of the EuroZone was averted and after the United States avoided running off a fiscal cliff by cutting a deal. The EuroZone remains a broken amalgam even without formal break-up. It needs to break up and disband the common Euro. The USGovt would greatly benefit from the $600 billion in automatic tax increases and spending cuts, which would start a prudent new trend. He actually believes the global outlook has improved, and risks have diminished greatly. Nothing has changed except buying a little time, very little time. See the CNBC article (CLICK HERE).

## TRANSFORMATION OF AMERICA

◄$$$ ANONYMOUS HAS HACKED THE USFED COMPUTER SYSTEMS, WITH COMPROMISE TO 4000 BANKERS AND COMMUNICATIONS. THE BREAK-IN IS NOT SERIOUS, NOT YET. SOME BANKER INFORMATION HAS BEEN OBTAINED, LIKE IDENTIFICATION CREDENTIALS, NOT DEEP COMMUNIQUES BETWEEN HIGH LEVEL BANKERS. THE CASE HAS ATTRACTED ATTENTION OF THE USCONGRESS, BUT EXPECT NOTHING TO FOLLOW. $$$

Members of the intrepid populist underground movement Anonymous claim to have breached a computer system that the US Federal Reserve uses to communicate with bankers in emergencies. On Super Bowl Sunday February 3rd, the group boasted that they had compromised 4000 banker credentials from the USFed. The back door used is from the Emergency Communications System, which was compromised. To date, no financial or monetary policy information was breached. But they certainly attracted attention. The USFed claims that no critical operations at the central bank was compromised. The FBI has opened an investigation into the incident. Recent activity from Anonymous pertains to Operation Last Resort, which resulted in the death of Aaron Swartz, an internet developer and activist who started the website  Reddit.  Swartz was indicted by the USDept Justice in July 2011 on charges of wire fraud, computer fraud, unlawfully obtaining information from a protected computer, and recklessly damaging a protected computer. Swartz allegedly had downloaded vast information from JSTOR, an online library of academic and scholarly journals and articles that are available for a fee. The charges are trumped up to the extreme, since open source free information. Aware of a long prison term, Swartz committed suicide on January 11th last month. The USGovt wished to make an example of him, instead a martyr created. One must wonder if a wrongful death lawsuit might result.

Not deterred, Anonymous then hacked the website of the US Sentencing Commission, in reaction to Swartz's death. The case has garnered the attention of the USCongress. Members of the House Oversight & Govt Reform Committee have written queries to Attorney General Eric Holder on the handling of the case. See the ABC News article (CLICK HERE). Expect nothing of substance to follow, just like with Mexican Gun Running case led by Holder himself. So Anonymous and WikiLeaks are both active in exposing official corruption, while Occupy Wall Street is essentially defunct, having been run out of town and treated like terrorists before the Gestapo.

◄$$$ DISRUPTION TO THE OBAMA II ADMIN COULD COME IN STRANGE WAYS. A CHALLENGE PERHAPS TO HIS CABINET PICKS COULD COME. LATER STILL MORE DEVICES ARE WORTH WATCHING. $$$

It is worth watching, strange theater to be sure. It will be interesting to see if the Obama II Admin is hindered (even halted) by means of his picks. The motive behind opposition might be unstated, like abhorrence for his claimed right to murder citizens, even with domestic drone strikes. Much attention has come to the unprecedented voter fraud behind his election, including some Ohio officials who boasted at having voted twice for Obama. Such is bad press attention. Watch for obstruction to passage or even procedural progress on his next legislation bills. Look for hounding and possible isolation of Congressional House & Sentate leaders. The scuttlebutt with the most substance centers upon Senators who might work to block upcoming Obama appoinments, such as Treasury Secretary and CIA Director. See the PressTV artic le (CLICK HERE). If obstruction goes out of control, look for blockage of Michele's expense account, or commotion over Secret Service protection, or USMilitary revelations of his past identity. In the extreme, a signal would be temporary block of AirForce One usage. Just kidding. But since it served more like a campaign bus, that function is no longer relevant.

◄$$$ THE N.D.A.A. LAWSUIT MIGHT BE HEADED TO THE SUPREME COURT. THE HIGHLY CONTROVERSIAL EXECUTIVE ORDER TO KILL US-CITIZENS WITHOUT DUE PROCESS, WITH NO FORMAL CHARGES, IS FACING DIRECT CHALLENGES IN OPEN DISCUSSION WITH GRAPHIC EXAMPLES OF DRONE STRIKE TACTICS. EXPECT THE FASCIST STATE TO MORPH INTO A DICTATORSHIP VERY SOON IN A FORMAL DIRECTION, WHILE IN PARALLEL THE USECONOMY BREAKS DOWN VISIBLY. $$$

The National Defense Authorization Act (NDAA) lawsuit will set itself up as a key turning point event that exposes the United States as a nazi nation. It could be the most important lawsuit in the nation's history, along with the various civil rights and abortion cases. Recall that the Patriot Act has never been the object of formal lawsuit. This case is about permission for a tyrant leader to kill citizens for any reason at all, or no reason. If supported and upheld, it means the president and cohorts that form the ruling syndicate can kill anyone who opposes them, who works to expose their criminal activity, who works to reveal their many sordid deeds, who strives to reveal their identities and past assocations.

The USGovt executive branch wishes to secure permission to kill enemies of the state, in order to secure our way of life, to protect our freedoms, with the exception the non-white types of ethnic origin, such as the immigrants. Once obtained, then the permission is used wherever they wish, to kill people like organizers of state secession movements, or directors of class action lawsuits against corrupt banks, or litigants seeking disclosure of USFed activities, or website editors on mega crime events like 911, or even newsletter writers for instance. Section 1021 of the NDAA allows for the indefinite detention of American citizens without charges or a trial. All the above could be sent to a prison in Texas or Alaska forever on a whim, a suspicion, a retribution, a personal vendetta, or on false testimony. Such actions are pure nazi that would make the Gestapo proud, even Hitler himself, maybe Stalin too.

Journalist Chris Hedges and several others have filed lawsuit against the Obama Admin on the grounds of the NDAA being unconstitutional. Judge Katherine Forrest agreed and issued an injunction on it. The decision was immediately appealed by the Obama Admin to a higher court, which promptly issued a temporary stay on the injunction. The higher the court in the United States, the more corrupt the ruling body. Oral arguments have begun in front of the 2nd Circuit Court. As Chris Hedges states in the interview below, if the USGovt wins the case then it will likely be brought in front of the Supreme Court within weeks. On the other hand, if the Obama Admin wins and the Supreme Court refuses to hear the appeal, Hedges concludes, "At that point we have just become a military dictatorship." Expect the worst, since the higher courts have given rubber stamps on several important cases recently, like with MFGlobal and the incorrect application of bankruptcy law against a brokerage firm, like with the FBI case against the Russian man who stole the Goldman Sachs trading theft device, like the cases against the Wall Street banks on narcotics money laundering for tiny fines, like the limited mortgage bond fraud cases against the big US banks with grand attempts to corrall all sector liablity for tiny awards, like the case against the USDollar by the Gold Anti-Trust Action group. The Supreme Court has been slowly stacked by fascists with strong leaning toward state powers. The latest member Elaine Kagan won approval by protecting Obama on lawsuits concerning his birth and passport identities, and by her protection of Goldman Sachs during lawsuits for mortgage bond fraud. See the Zero Hedge article (CLICK HERE).

◄$$$ A RASH OF MILITARY EXERCISES HAS BEEN COORDINATED WITH POLICE. SO FAR MIAMI AND HOUSTON HAVE BEEN SITES. MORE COMING, AS THE POLICE STATE ARRIVES, IN REACTION TO (OR CAUSE OF) CIVIL DISORDER. THE PUBLIC HAS BEEN AND WILL BE TERRIFIED. $$$

Numerous times in recent days in late January and early February, the nation has seen large scale urban warfare exercises being conducted in American cities. The first occurred in Miami Florida, the second in Houston Texas. The events featured large scale deployments, with full usage of machine guns firing blanks and swooping attack helicopters. These have been joint exercises held with the USMilitary and police forces. The ordeals have been terrifying for residents who claim they were not warned ahead of time in any manner. Witnessed described a virtual war zone, as the public had no way of knowing that the rounds being fired were not real bullets. The Houston warfare exercises resulted in a school being locked down for a brief time, until they could verify if the threat was not real. An ambulance was dispatched, since the police were aware of the exercises, but nobody bothered to inform the fire & rescue services. Reports were heard that a similar event is set to occur in Chicago and another in Pennsylvania. See the Backwood article (CLICK HERE) and the Before Its News article (CLICK HERE). One must wonder if Chicago natives and Obama supporters will appreciate the next round of urban warfare exercises.

For more on the rising police state, see the YouTube on the FBI Terror Factory (CLICK HERE). For a shocking bold admission of lies in your face concerning the Benghazi attacks on the Libyan Embassy, with a dare to the public on consequences of known lies by outgoing Secy State Hillary Clinton, see the American Thinker article (CLICK HERE).

◄$$$ THE UNITED STATES WILL TRANSFORM INTO A NATION HARDLY RECOGNIZABLE. THE INTERMEDIARY PHASE WILL PRECEDE ENTRY INTO THE THIRD WORLD. CHALMERS JOHNSON IS WISE, ARTICULATE, AND FEARLESS. THE SIGNPOSTS READ OF ENDLESS WAR, LOST DEMOCRACY, PROPAGANDA, AND BANKRUPTCY, ALL THE BITTER FRUITS OF THE FASCIST BUSINESS MODEL EMBRACED AFTER THE 911 COUP D'ETAT. THE NATION WALKS BLINDLY BOUND WITHIN THE MODEL. $$$

Chalmers Johnson is fearless, an octagenarian, and a great patriot who sees the highly dangerous destructive trends for the United States as a nation. He wrote in "Sorrows of Empire" in 2004 about the great sorrows. They are worth a quick review since relevant in this era. Remember that fascism is the natural successor to democracy, with the parliament eclipsed by a ruling board of czars. Think Politburo.

"Four sorrows are certain to be visited on the United States. Their cumulative effect guarantees that the US will cease to resemble the country outlined in the Constitution of 1787. First, there will be a state of perpetual war, leading to more terrorism against Americans wherever they may be and a spreading reliance on nuclear weapons among smaller nations as they try to ward off the imperial juggernaut. Second is a loss of democracy and Constitutional rights as the presidency eclipses Congress and is itself transformed from a co- equal executive branch of government into a military junta. Third is the replacement of truth by propaganda, disinformation, and the glorification of war, power, and the military legions. Lastly, there is bankruptcy, as the United States pours its economic resources into ever more grandiose military projects and shortchanges the education, health, and safety of its citizens." The sequence is happening precisely as he described almost a decade ago. In fact, he describes a combination of a nazi takeover and the engrained Fascist Business Model that the Jackass has elaborated upon since the inception of the Hat Trick Letter. War, lost liberty, propaganda, and bankrupty are the marquee effects of fascism and its strong scarring effect on the national economic landscape.

◄$$$ THE CONTROVERSIAL JACKASS ARTICLE HAS BEEN LOCATED FROM MARCH 2006. IT RESULTED IN A DEATH THREAT, SINCE IT OPENLY DISCUSSED THE NAZI PLAYBOOK AND METHODS THEY USED IN THE 911 EVENTS. $$$

Many Hat Trick Letter subscribers have openly requested the original article that resulted in death threat to me. The other death threat related to similar topics, delivered on stage at a conference in Munich Germany in November 2006. The two events motivated my departure from the nazi-led nation, the United States. My main question is how long the nation's inhabitants will take before realizing the hidden nazi takeover and visible coup d'etat by grandsons of avowed nazis and their cadre bearing foreign passports. The 2006 article laid out some of the more basic Nazi Playbook tactics, which continue to confuse 90% of sleepy slow stodgy numb Americans. The US nation is not well-read in recent modern history. The keys are a very big false flag event, a smashing of glass, a call to war under false cause, a fight against an invisible enemy army, broad dubious labeling of enemies, snatching broad security powers, subjugation of parliament, gigantic military budgets, glorification of endless war, theft of foreign gold accounts, aggression toward enemy and ally alike, collusion with foreign castle dwellers, and heavy doses of media propaganda. These are neo-Nazis with far more tools, and far more control of the system than 70 years ago. The material in the public article resulted in death threats twice. It was entitled "Mosques, Civil War, Oil & Gold" and was published by many usual supporting web journals that have posted my work since 2004. Here is a Gold Seek article link (CLICK HERE). By the way, a couple of editors found the article too hot to handle for to post back then. Upon a quick review of the article this week, gotta say some rather good jackass insights back seven years ago. So much has happened since, mostly in line with the analysis presented.

## USDOLLAR LOST CONTROL

◄$$$ CASH USDOLLARS ARE BEING REJECTED IN JAPAN, WITH AN EXCUSE GIVEN OF WIDESPREAD COUNTERFEIT. THE REJECTION HAS BEGUN. THE PRETEXT IS COUNTERFEIT CONTROL SO FAR, A VALID CHARGE. THE NEWS IS WORTH WATCHING FOR A MUSHROOM OF REJECTION. $$$

Jim Kunstler offered a morning blog that featured an interesting comment by one reader. He referred to a trusted friend with a global perspective. Check out comments by a Pat Ormsby posted on February 11th. He wrote, "I was alerted by a source that I do not trust (Benjamin Fulford) that a dual US currency has arisen, and this was confirmed by a source I do trust (a personal friend engaged in international commerce). Apparently, dollars issued overseas are being accepted as international currency, but dollars issued and circulating in America are increasingly not. People returning to Japan from America, for example, and attempting to exchange their dollars are being told they cannot. I learned this just a few days ago and have not been able to find anything on the internet about it yet. I guess most travelers just use plastic, and the Japanese are stoic. They are told there is a problem with counterfeits. Fulford speculates that this is overseas bank reaction to the Fed's massive printing of dollars." See the Kunstler weblog (CLICK HERE). A valid charge indeed!

What incredible irony. An accurate pretext to refuse USDollars from the United States, as they might be counterfeit. In fact, the printed money is not real or valid, only accepted as legal tender. Yet the USFed monetary expansion appears to be massive counterfeit of wealth to cover a truly broken system. In the case of Japan, not accepted widely. This is an interesting angle to pursue by foreign nations in response to the hyper monetary inflation, which by any other name is a sanctioned counterfeit operation. The process is moving along to trap USDollars on the home front. The ultimate higher truth is that QE IS COUNTERFEIT for its bond purchase with printed money. One must wonder if soon a certain Mark of the US will be put on the domestic USD for trapping purposes over time. It is full of intrigue that the trapping process might originate from outside the US borders. The global reaction in rejection of the USDollar is going to achieve fierce levels, with many fronts. Amazing the early consequence to hyper monetary inflation being the entrenched norm. The arrogant desperate bankers believe they are in control. They are fast being isolated.

◄$$$ MONETARY BASE HAS ENDURED A BREAKOUT. THE RUIN OF MONEY IS FAR PAST FIXABLE. A DAM HAS BROKEN, AND USDOLLARS ARE FLOWING IN GIGANTIC WAVES. $$$

A buildup of USDollars has taken place. Last month it was reported that due to accounting gimmicks, the monetary aggregate base was not showing growth. It was disguised for its big recent burst. The release of recent data reveals the growth. What started with the reaction to the Lehman Brother episode has continued with a series of Quantitative Easing chapters that has nowhere ended. See the St Louis Fed data source (CLICK HERE).

◄$$$ CHINA ACCOUNTS FOR NEARLY HALF OF WORLD'S NEW MONEY SUPPLY. THE UNITED STATES IS LOSING CONTROL OF ITS CURRENCY, AS THE GLOBAL FINANCIAL COLLAPSE FORMS LIKE A GATHERING STORM OF ENDLESS NATURE. IN YEAR 2012, THE USFED INCREASED THE MONEY SUPPLY BY $1 TRILLION. BUT IN THE SAME 2012, THE CHINESE INCREASED THE USDOLLARS IN BANK DEPOSITS BY OVER $2 TRILLION. THE USFED IS BEING OVERWHELMED. DIRE EFFECTS AWAIT. $$$

China slowly is taking control of the foreign based USDollars. To be sure, the USFed is pumping liquidity on the European fires like a fleet of fire trucks. But the Chinese are quietly in control of production of almost half of the new money. The newest capitalists on stage have learned to abuse the monetary press as well. They do not make the news for such a grand feat. But as they introduce new financial vehicles to settle global trade, they will be in position to convert large blocks of USDollars in the process if they wish. What irony if China is printing USDollars to fortify a new trade system that settles outside the USDollar, or even using new money to purchase gold bullion for the trade system core. Back in 2005, China owned less than half the total US deposits. Since then, China has pumped enough cash into the economy using various public and private conduits to make a gigantic impact. Between January 2005 and January 2013, total Chinese bank deposits have soared by a whopping $11 trillion, having risen from $4 trillion to $15 trillion. Their monetary expansion in US$ terms currently stands at between 200% and 300% of their national GDP.

Furthermore, between January 2012 and January 2013, the total Chinese bank deposits rose by over $2 trillion. Most attention has been focused upon the Bernanke Fed and its manic expansion of the domestic money supply, by a cool $1 trillion in base money creation in 2013 alone. Contrast that data point with the fact that loan creation by commercial banks continues to decline in the United States, which means the US banks have morphed into casinos conducting USTBond carry trade, toxic bond redemptions, and derivative coverups. Well, turn to China, which has created more than double this amount of money in the recently completed 2012 year. See the Zero Hedge article (CLICK HERE).

◄$$$ THE USFED IS LOCKED INTO A HYPER MONETARY EASING, SINCE ITS BOND PURCHASES EXCEED THE ENTIRE USGOVT DEBT ISSUANCE IN THE FORM OF USTREASURY BONDS. THE PROGRAM EXCEEDS BASIC BOND PURCHASE IN LAST RESORT. THE CENTRAL BANK CONTINUES TO MONETIZE THE FINANCIAL SYSTEM, NOT JUST THE SOVEREIGN BOND. MANAGED FINANCE HAS GONE HAYWIRE WHILE THE MECHANISMS FOR BALANCE ARE ERODING OR GONE. TO MAKE ROOM, THE USGOVT DEBT LIMIT WAS SUSPENDED TO MAY 2013. $$$

To put it simply, so far this calendar year 2013, the Federal Reserve has bought more USGovt debt than the USDept Treasury has issued in securitized bonds. At year end 2012, the total USGovt debt was $16.4327 trillion. The legal limit was hit. In early February, the USCongress enacted a law to suspend the federal government debt limit until May 18, 2013. Added debt can be tacked on legally. By February 6th, the debt had grown by $47.2 billon in the new year. Consider the USFed bond account. At the close of business on January 2nd, the USFed had possession of $1.661 trillion in USTreasury securities. By the close of business on February 6th, it owned $1.7172 trillion, for an increase of $51.1 billion in the new year. Thus their purchases of USGovt debt in this calendar year have exceeded the Treasury net debt issuance by about $3.9 billion. The only USTBond buyers left on stage are the USFed press with Weimar nameplate.

The venerable ruined USFed, center for American financial crime, announced that it will continue purchasing additional longer-term USTreasury securities at a pace of $45 billion per month. All hail the Fed, broken as it is. A footnote that the US central bank purchases much more than they openly discuss, covering much mortgage bonds that have spurious value discharged by the big US banks. Quietly with little fanfare, the USFed is monetizing all that has been ruined, which means much of the entire US financial system. The bond market has gone far out of control in utter insolvency. Next they might examine wrecked big corporate bonds and a smatter of junk bonds. Why not, since money is free? See the CNS News article (CLICK HERE).

◄$$$ JANET YELLEN HAS GIVEN FIRM SIGNAL FOR Q.E. TO INFINITY, PRECISELY AS THE JACKASS FORECASTED. THE STIMULUS IS FOR SPECULATION AND FOR RISING COSTS, IN NO WAY ECONOMIC. $$$

The Jackass claimed in 2009 that the USFed could not execute any Exit Strategy, or else cause a calamity for the big banks, the USGovt, and financial derivatives. So far the call has been on the mark. When the Quantitative Easing desperate lunacy began in 2010, the Jackass claimed it would have numerous follow-on QE chapters. Then my conclusion was that QE to Infinity would be justified in a forever policy. So far the call has been on the mark. In a recent speech, the weather vane Janet Yellin confirmed the Jackass forever call. She said, "The Federal Reserve may keep interest rates near zero after its bond buying ends, even after hitting its targets for unemployment or inflation, in order to maintain stimulus." Clear as a bell, not even a flinch, no surprise to the Jackass. The confirmation is of Weimar Amerika. Those who accept the monetary policy as sound and sustainable are mentally deficient, to put it bluntly. The QE to Infinity Forever is the monetary policy, as in Reich Finance. Stimulus is not reason, but rather avoiding a collapse. See the Bloomberg article (CLICK HERE).

◄$$$ A USFED GOVERNOR HAS URGED A $33 TRILLION (NOT BILLION) BOND PURCHASE PROGRAM. THE ABSURDITY OF THE SITUATION HAS GROWN TO NEW HEIGHTS. HE ACTUALLY BELIEVES THE USGOVT FISCAL DEFICITS COULD BE MANAGED BY A 10-FOLD EXPANSION OF THE USTREASURY BOND CARRY TRADE. HALF THE PACK OF BANK LEADERS IS FULLY INSANE. $$$

David Kemper is a moron who wears a suit and collects a grand paycheck. He is a former president of the advisory council at the US Federal Reserve. He is currently plying his heretic trade as CEO of Commerce Bankshare. Consider that his viewpoint is somewhat typical of those conducting the insane Weimar Amerika experiment to print money to cover the bills. He actually said, "Why not expand the Fed balance sheet exponentially, from its current $3 trillion to $33 trillion. Would $30 trillion in extra buying power be inflationary when our entire current GDP is only about $15 trillion? Maybe, maybe not. But we need a game changer here. First let's celebrate the USFed record profits and its contribution to reducing our deficit. Then let's seize the moment to do something truly grand: to eliminate that stubborn deficit. We have the tools, and I for one say let's give it a try." The insane parade continues with bankers leading the way like pied pipers unaware of their folly.

The bizarre main attraction at the USFed has turned even more strange. The central bank just announced a supposed $90 billion profit for 2012, which must have excluded all their toxic bonds with no buyers globally and no markets in existence, which should take a near total writedown loss (since no market). They will with glee pass along the profits to the USTreasury, sure to put a dent in the $1.3 trillion deficit. The details are as ugly as the practice is obscene. The USFed profits are apparently twice those of Apple's after tax income. All hail the Fed. The central bank employs a tried and true device, the USTreasury carry trade. They borrow at 0% and earn 2% or 3% from long-term USTBonds. How simple, profits for free. Thus the obscenity laced with heresy. Given its resounding success in fabricated paper profits in a market long vanished, the wisdom seems to urge a 10-fold expansion from prudent stewardship. More insanity.

The moron Kemper demonstrates his mental deficiency by arguing that QE Cubed (his label) could move to a $33 trillion balance sheet, return $900 billion to the USTreasury, and work toward closing the USGovt deficit. Alchemy is wonderful. The moron goes on like on batteries, explaining that available bond supply could come from $16 trillion in all the USGovt debt, as well as most of the USAgency Mortgage debt. The debt could all be wiped out. Monetize it all. The foreign creditors could be satisfied, from the Chinese to the Japanese, the Saudis, even PIMCO. This is better than helicopter dumps on the masses, since it could restore the USGovt to fiscal balance. Kemper urges that we seize the money and continue the laudable success. He seems unaware that the only buyers to the outsized expansion of USTBonds would be the USFed also, in self-dealing. He seems unaware that the expanded experiment would frighten foreign USTBond holders into a revolt and rejection the Weimar Dollar itself. Repeat, Kemper is a monetary moron. Half the USFed is comprised of such fools.

The USFed governors are almost all converting to blind men on the extremely harmful effects on USTBond investors. Their arrogance is beyond repair and their self-admiration beyond rebuke. They are inflicting irreparable damage to the USDollar and USTBond. They are the Weimar engineers with better suits, who replaced wheelbarrows from the past era with better levered computers. The USDollar is in the process of being isolated before rejected. In fact, QE to Infinity is the clarion call to organize for the rejection. The Third World awaits the United States, very very deservedly. An alternative suggestion would be to hang Kemper from the lampposts on Wall Street, or to strip him then tar and feather him with monopoly money. The argument and rationale is frightening and comical. This guy is CEO of an important regional bank and advisory to the USFed. He seems tragically out of touch with reality, and unable to comprehend the Ponzi scheme. See the Zero Hedge article (CLICK HERE).

◄$$$ THE PROPAGANDA MACHINE IS IN FULL GEAR, PROMOTING THE VIRTUE OF FREE MONEY PRINTED. THEY ARGUE THAT ECONOMIC RECESSION IS AVOIDED, AS ARE ALL THE VARIOUS & SUNDRY EVILS OF INFLATION. THEY ARE KILLING THE ENTIRE SYSTEM, CORRODING ITS CAPITAL, PRESIDING OVER SYSTEMIC FAILURE UNDER THEIR NOSES. THE LUST FOR POWER TO REIGN OVER THE RUINS IS A STRONG MOTIVE. THE PUBLIC MUST BE FALSELY INDOCTRINATED TO ACCEPT THE CLIMAX OF PHONY MONEY WITHIN A FAILED SYSTEM. $$$

The United States has a partner in monetary crime. In Great Britain, Adair Turner is chairman of the UK Financial Services Authority. He submitted a research paper to the Cass Business School. He is a heretic. In the essay, he spoke about the virtues of monetization, referring to it as a true breakthrough. According to the alchemy of money creation, Turner claimed that central bankers and politicians should no longer consider as taboo the handing out of newly printed money directly to citizens of governments. Witness moral hazard. He went further, claiming that monetary financing of tax cuts or government spending should continue until economic activity revives. It will never revive under the current monetary regime, the Jackass claim. Therefore UNTIL means FOREVER. In his heretical treatise, Turner argued that monetary financing shows that long-term stagnation can be averted. Witness stupidity. He attempted to contradict the standard notions that dumping money on the masses is dangerous or reckless. He anticipates no dire effects from hyper-inflation and lost faith in the currency. Witness myopia.

The reaction in his demented view has been that the Japanese 20 years of stagnation can be avoided. The Western world is moving leaps toward monetary financing, rather than to endure the hardship from rebalancing that is so urgently required. Witness a cowardly control of power. The politicians and banking leaders are determined to make the monetary climate much worse. Expect something worse to befall the United States and United Kingdom and Western Europe. Three years from now, the West will crave the stagnation that Japan suffered, as the West endures certain relentless collapse and the guaranteed ruin of the economic platforms. The central bankers are printing money and killing capital without realization, the outcome of heresy wrapped in folly. As the Shamrock from the options pits in New York said, "These banksters should dedicate five minutes of the nightly newscast to report on how great printing money is. The brainwashing phase is in high gear. It is obvious the UK is about to ransack the Pound Sterling." The arbiter might be the FOREX market. See the Reuters article (CLICK HERE). Monetary inflation and managed finance from the Weimar offices is being promoted as a good thing to the masses.

◄$$$ THE EXCHANGE STABILIZATION FUND IS THE PRIMARY VEHICLE FOR THE USGOVT TO INTERVENE IN THE BIG FINANCIAL MARKETS, LIKE CURRENCY, BOND, AND STOCKS. THE GIANT SLUSH FUND CONTROLS MOST OF THE GLOBAL FINANCIALS, AND DEFENDS THE AMERICAN EMPIRE. LATELY, IT HAS DEFENDED THE US-BASED FINANCIAL CRIME SYNDICATE THAT HAS WRESTED CONTROL SINCE THE 1990 DECADE, HAVING MADE THEIR EMPHASIS STAMP OF SEIZED CONTROL ON 911. $$$

The Exchange Stabilization Fund (ESF) is run by the USDept Treasury. It is the most extensive pernicious vile fund on the planet, used and abused to control currencies, sovereign bonds, derivatives, and bank stocks. If it were shut down for two months, the US currency and financial securities would collapse. Eric deCarbonnel assembled an excellent five-part series about the Exchange Stabilisation Fund. It is a great tutorial intended to teach the basics of the USGovt market intervention and corruption of the free market equilibrium mechanics. See the Daily Motion video for parts I, II, III, IV (CLICK HERE) and part V (CLICK HERE).

The Exchange Stabilization Fund is a super secret fund to control activities in almost all major financial markets, with zero regulation and oversight. Operations are conducted through the New York Fed, which is essentially a manifestation of the fund itself. The fund controls international finance and its affairs. It manages all interventions in financial markets. They keep a low profile, using the USFed as a front for interference, which speaks and acts on its behalf. The ESFund was created with zero planned oversight by the USCongress in the 1930s to ensure support of the USDollar, by the Gold Reserve Act. It has done a terrible job, since the US currency has lost almost all its value. The ESFund has been in control of the USDept Treasury with absolute power. As a result, the ESF has acted as a giant slush fund that has funded the growth of the American Empire over the past century against the will of both USCongress and many bankers in private industry. It is managed by JPMorgan and Goldman Sachs, with satellite assistance by servile Wall Street banks. It has become a major syndicate weapon and tool, to cover the tracks of the complete pillage of the US Gold reserves held in Fort Knox. It covers the tracks of the big US bank bond fraud. It covers the tracks of the narco money laundering. It covers the tracks of the US Stock market rescues. With rejection of the USDollar, the ESFund will be kicked into the corner, where in the darkness of the Third World it will write its memoires.

◄$$$ THE FED'S BAILOUT OF EUROPE CONTINUES WITH RECORD $237 BILLION INJECTED INTO FOREIGN BANKS IN THE PAST MONTH. THE USFED IS RUNNING A VERITABLE BUCKET SHOP FOR GLOBAL ABUSE. THEY CANNOT CONCEIVABLY HOLD TOGETHER THE BIG BANKS OF THE WORLD WITH PAPER MACHE AND HUBRIS. WHILE TALKING OF AID TO US-BANKS, THEY DENY THE DOMESTIC BANKS WHILE HEAPING ONE QUARTER $TRILLION ON EURO-BANKS IN A SINGLE MONTH. $$$

In 2011, the USFed secretly funneled over $2.3 trillion to Europe, from the Dollar Swap Facility. It was basically free money, made at barely above the 0% rate on generous terms. They are doing it again. In fact, it seems in the last several months, more funds are directed to Europe than to the US zombie firms that stand erect but are listing badly. History repeats. Back in June 2011, much of the incremental surge of $600 billion linked to QE2 excess reserves expansion went to subsidiaries of foreign banks operating within the United States. The data is available (thanks for Tyler Durden instructions) on the H.8 Report every Friday night, line item 25 on page 18. The pattern has been renewed, to direct more funny money to the still hopelessly insolvent European banks. The chart below shows the surge to Europe. A whopping $237 billion went to support foreign banks from QE initiatives in January alone, while US banks were denied.

The volume of $236.9 billion must be brought into perspective. It is greater than the cash infusion seen after the Lehman collapse. It is greater than the massive buildup of cash during the spring and summer of 2011 when the USFed's revived QE2 cash spigot was turned on. That QE2 surge was solely devoted to overfund European bank cash reserves. They have US$-based debts and obligations to contend with. In the process, less cash has been made available to US-based banks of small and large US charter. Incredibly, of the record $1.8 trillion in cash sloshing within the US financial system overall, a record $955 billion, or 52.6% of the total is allocated to foreign owned banks. The Fed is bailing out European banks while American small businesses and consumers have a very difficult time obtaining loans.

Cash in the US financial system is exclusively a result of the latest open-ended QE, since the volume in excess reserves created by the USFed tracks tick by tick with the total amount of cash held by US and foreign banks. QE to Infinity is on track, to serve both the US and Europe alternatively. Another way of showing this correlation is to notice the change in excess reserves versus the change in cash assets held by foreign banks. It is almost exactly the same amount. The latest QE round is exclusively for European benefit. Tyler Durden of Zero Hedge made a clear forecast. The European banks will take the new channel of funds from Bernanke courtesy, then push the Euro exchange rate higher versus the USDollar. Durden expects by the summer 2011 it will go too far, and render damage to German export economy. The action will invite yet another central bank reaction to bail out European banks by the global central bankers. Expect a repeat of what the USFed did in 2011 with QE2. The action by the Euro Central Bank two weeks ago was crystal clear. The Draghi ECB moved to stop the sudden 10% rise in the Euro currency over the past two months. They were motivated to prevent the collapse of what remains in Europe's export economy. The Competing Currency War has reached Europe. On the Asian front, Japan has also been actively pushing down its own currency to promote its exports over those from Germany and France. All players suffer in this nasty game.

The key effect of competitive currency devaluations is that EVERYBODY LOSES. Worse, the USFed is a hypocrite, aiding Europe and turning a deaf monetary ear to the US banks. Durden concluded, "Things will be just a little bit more acute as everyone scrambles to be the exporter of only resort to what little import demand remains in a world, where everyone is desperate to grow their trade balance through currency manipulation. So whether European banks will continue buying the EURUSD, or redirect their Fed cash into purchasing the [European Stimulus] outright, or invest in other even riskier assets, remains unknown. What is, however, known beyond a reasonable doubt is that at least through this point, the sole beneficiary of the Fed's open-ended quantitative easing which launched in September of 2012, and which was supposed to help lower US unemployment and raise inflation are once again solely foreign. Read almost exclusively European banks." See the Zero Hedge article (CLICK HERE and HERE). The USFed sold QE3 to aid the USEconomy. They lied. Witness a deceptive Weimar Amerikaner.

## USDOLLAR END GAME

◄$$$ THE PETRO-DOLLAR SUNSET HAS GAINED SOME ATTENTION. $$$

The Leap 2020 group from Global Europe Anticipation Bulletin in Paris caught the Jackass article (CLICK HERE) on the subject, and so did the Iran news journal Hamsayeh (CLICK HERE). Word is fanning out.

◄$$$ GOLD IS A MONETARY METAL, NOT A COMMODITY. ITS SUPPLY DOES NOT DICTATE PRICE. THE LISTED PRICE IS CORRUPTED BY PAPER GAMES AND DEEP CORRUPTION IN THE FINANCIAL MARKETS. GOLD HAS DIFFERENT DYNAMICS, AND WILL TAKE ITS ASCENDANT ROLE. REMARKABLY, THE DEMAND IS INELASTIC, AND THE SUPPLY IS INELASTIC. THEREFORE, DEMAND RISES WITH HIGHER PRICE, AND SUPPLY FALLS WITH HIGHER PRICE. GOLD IS BACKWARDS, SINCE IT IS ARBITER OF MONETARY ABUSE AND HERETIC PRACTICE. $$$

The Economics field is an embarrassment to higher learning and advanced thought. The traditional approach of looking at the Gold supply from a global mining output perspective is virtually meaningless in determining its price. They overlook the monetary aspect of Gold, even though a metal. It has extremely few and limited industrial applications, no longer even in dentistry. Gold is not a commodity. A defiant argument can be made. Although an estimated 170 thousand tons exists above ground, almost all that has been produced over milleniums, and although 2500 metric tons is produced each year by mining operations, the gold price rises instead of heading toward zero. Demand is tiny for industry, while supply rises steadily. The usual university blather on Supply & Demand dynamics does not apply in typical economic law. The professors are admirers of each other, especially in abstruce meaningless research journals. Most gold bullion is held in strong hands, which realizes its value during an era of monetary destruction in the fiat paper chapter coming to a conclusion. Other gold bullion does not change hands or location over decades, if not centuries. It is stored wealth by the castle dwellers and other owners of the central banks. The appeal is the stable store of wealth and the absent nettlesome counter-party.

Some stores of wealth like art works or antique cars hold spurious value. With a new generation, the old Model-T car owners saw value slide badly, while the old Chevy Powerglide car came into vogue and wrested value. But collectible art still is a great value, except that sale often is difficult with auctions (and their percentage cuts). Even ancient coins involve a 25% cut to the selling agent. Other issues involve maintenance, storage, and insurance costs. Gold is universally recognized as a wealth asset, infinitely divisible, fungible, portable, and highly liquid. The value of Gold might be occasionally lost sight of, but it always returns during enduring crises after broad banker crimes end in tragic conclusion during wayward eras.

The dynamics of Gold price determination are different. Price is set by stock flow versus available stock. If gold bars are put aside in vaults, not intended for sale today tomorrow or the next day, then those bars are not available and do not push the price down in the typical supply argument. The Economics professors miss this point, being the blockheaded myopic university crew, 35% of whom derive a salary from the clandestine USFed research slush funds. The stock to flow ratio is called the STF ratio. For example, if every ounce of gold in existence was put up for sale, the STF ratio would go to one and the price would plummet toward zero. Conversely, if no gold ounces were made available for sale, the STF ratio would goto zero and the price would rise to great heights in a frenzy. So Supply & Demand has a subset concept.

Next consider the concept of Gold inelasticity, a truly fascinating concept with two sides. First, demand is inelastic, meaning that a rising price attracts more demand. Call it gold fever. The so-called Giffen Good rule dictates a spike in demand as price rises. Also, demand drops along with a falling price. See the Brown Bottom in 2002 in the gold price at $260/oz, with miniscule demand visible. Demand for gold is rising fast, while the monetary presses are hyper-active. A rising price will attract further new demand, as the public becomes fiercely worried about their future and their wealth stuck in paper bound by tax chains and bad habits. The inelastic demand phenomenon can be explained by the dynamic of available stock being removed during the storm. When that happens, the STF ratio falls, lifting price. If applied to television sets or cars or fine furniture, the dynamics are exposed as very different. No vendor wishes to hoard TVs, cars, or couches to push the price up. Their carrying costs are too high, obsolescence sets in, styles change, and mold builds. For the gold bar holder, no desire motivates the exchange of gold stock for USDollars or Euros or Pounds or SWFrancs or Yen, especially since the avalanche of fresh tainted money continues to pour out, changing the available stock of fiat paper money. The savvy investor holds the gold bars with a tight fist and firm mind and enlightened spirit. The Gold goes into hiding, as the central banks and governments debase the money. The Gresham Law dictates that bad (phony) money drives out good money (gold). However, real money emerges triumphant after the inevitable crisis that ensues. See the Zero Hedge article (CLICK HERE).

Consider Gold inelasticity briefly from the supply side, which is more intriguing in my view. It calls for lower supply coming to market with a higher price, the opposite of mindless Economics professors and even many financial mavens lacking all manner of insight. The supply inelasticity concept has been mentioned in Jackass analysis on occasions for eight years. Here are some dynamics. Many big mining firms are corrupt to the core, stacking their Boards with bankers who sell much more in forward contracts than mine output. They are disguised naked shorters who aid the corrupt Wall Street bankers. As the price rises, the mining firms are compelled to cover their big losses on the wrecked short positions, removing funds from operations. The result is less money for projects, as they are less capable to exploit the higher price. Another pernicious inelastic effect has been seen in recent months. As the central banks pursue their coordinated currency debasement programs by purchasing bonds with newly printed money, they force an unintended effect. They lift the cost of commodities, including foodstuffs. The workers rebel, under strain to provide for their families with rising food prices. They go on strike, and less mine output results.

Nations across the Andes region are on the move for both labor strikes and nationalization. A similar effect operates at the macro level. Governments suffer from slower economies, tougher capitalist climates, and rack up bigger deficits. So they turn to the mine deposits, move toward confiscation, in a movement given the name resource nationalism. The governments take control, impose their higher royalties and taxes, and introduce their standard grotesque inefficiency. Lower mine output results. See South Africa for the gold example. See Venezuela for the crude oil example.

◄$$$ THE BANK OF JAPAN BALANCE SHEET REFLECTS A MASSIVE ABUSE OF MONETARY AUTHORITY, WITH AN EXPANSION SEVEN-FOLD SINCE 2006. JAPAN AND SWITZERLAND ARE THE GREATEST ABUSIVE AGENTS IN THE CURRENCY WAR. THE JAPANESE CANNOT ESCAPE THE QUAGMIRE, AND WILL TURN TO GOLD WITH ENTHUSIASM. $$$

Thanks to Stewart Thompson at Graceland for this story. Look at the growth from 2006 to present, a massive seven-fold growth in their money supply. The Japanese are fighting the painful enduring costs of the zero bound interest rate. They cannot escape it. In defense, they print money to cover foreign debt purchases in order to prevent a rising Yen exchange rate. They print money to cover deficits for reconstruction from natural disasters. They abuse their currency like toilet paper, which is actually given better treatment. The United States does not learn from their example, but rather repeats it with multiples greater vigor and utter blindness. Watch the Japanese follow the Chinese lead in a thunderous march into Gold, as the Asians reject the USDollar.

◄$$$ THE BANK OF JAPAN HAS TARGETED 13000 FOR THE NIKKEI STOCK INDEX BY END MARCH. THE LUNACY OF VALUE DECEPTION CONTINUES WITH EVERMORE EXTENDED INSANITY. THE INTERNAL TURF WAR IN TOKYO CONTINUES. THE EURO-YEN CROSS RATE HAS RISEN HIGH ENOUGH TO CAUSE PROBLEMS, AS THE CURRENCY WAR RAGES. $$$

Japan is losing its mind. Their desperation in pushing down the Yen currency has extended into other financial avenues. They target their end of fiscal year. The Economics Minister Akira Amari in early February actually said, "It will be important to show our mettle and see the Nikkei reach the 13,000 mark by the end of the fiscal year. We want to continue taking steps to help the stock market rise." To hell with true value, as appearance rules the way. They must hope the rampant inflation spew does not reach the tangible economy, but it will in time since they do not go to lengths like the Americans to corrall 99.9% of benefits to the bankers. The Japanese permit entire companies to remain zombies, adopted by their conglomerates (keiretsus), whereas the US permits only corrupt giant banks to remain favored zombies. The inefficient allocation of capital is mindnumbing in Japan, as economic and monetary policy have turned destructive.

The internal divisional battles continue in Tokyo, having lasted for decades. The goals might be shared, like lifting price inflation to 2%. But battles continue. Talk swirls that the Bank of Japan should not openly purchase foreign currency bonds, since that is the role for the Finance Ministry. Suggestions are for the BOJ to purchase several hundred trillion Yen worth of domestic financial assets in an expanded QE program. They are in essence urging a monetization of portions of their industry. The insanity behind the Japanese monetary push is fully supported by the USDept Treasury, stated by minion Lael Brainard. In contrast, the Bundesbank chief Jens Weidmann said that discussions about an overvalued Euro are simply a diversion from the official task of sorting out their economies. He urged the Euro Central Bank to do no more on the monetary and bond front, as they have already stretched their mandate. The Euro-Yen cross rate has risen bigtime, enough to crimp exports to Japan. The new element in the Competing Currency War is the cross rates, like the Euro-Yen, like the Pound-Euro, and like the Euro-SWFranc. Nations are waging battle to protect their native economies. The war will intensify much more.

◄$$$ CHINA HAS SURPASSED THE UNITED STATES IN TRADE. BEAR IN MIND THAT TRADE PRACTICES WILL DICTATE BANK RESERVES AND THEIR MANAGEMENT. THE USDOLLAR IS POISED FOR REJECTION. THE RISE IN CHINA TO PROMINENCE WILL GO HAND IN HAND WITH THE FALL OF THE AMERICAN EMPIRE, AND ITS CERTAIN SLIDE INTO THE THIRD WORLD. ITS PROFOUND DEFICITS AND IMPORT REQUIREMENTS WILL FORCE A VERY BIG USDOLLAR DEVALUATION AFTER IT IS ISOLATED. $$$

The rejection of the USDollar is on track, dictated by trade factors. The United States is set up for a massive upheaval. Since 2005, a massive shift by China from an export dependent source of cheap manufacturing and labor, toward a moderate exporter and consumer hub has taken place. It has recently become a currency powerhouse with a new metals market in Shanghai. The trend indicates that China has positioned itself to decouple from its dependence on US markets and the USDollar, and to direct attention to Asian trade and regional growth instead. For the past decade, China has been slowly but surely issuing Yuan denominated bonds and securities around the globe, while simultaneously forming bilateral trade agreements with multiple nations and cutting off the USDollar at the pass of trade. As one should always focus upon, trade dictates banking practices, in order to make payment in trade settlement. This process has almost totally ignored by the mainstream financial media. Despite being in possession of the largest FOREX reserves, China began to issue Yuan-based debt securities. They are preparing for a new chapter. They also have between five and eight times as much gold held in reserves as officially stated. They have actually been borrowing more capital, more than required inside the Chinese Economy. They have been creating a financial platform with many sides. As they moved away from export dependence, they have been distributing their Yuan currency worldwide, thus putting it at risk of an increase in valuation.

It seems they anticipated a crisis for US consumption. The Chinese reportedly are responsible for triggering the adoption in 2008 of Fannie Mae by the USGovt. The event marked the beginning of the trade war. The Beijing leaders dumped mortgage bonds, and probably foresaw the crisis without end in the United States. They expected a marked reduction in US imports, and therefore built trade deals within the ASEAN trading bloc to insulate themselves. They expected trouble for the USDollar, maybe even props. For the last three years, they have been busy converting much of their long-term USTreasury holdings to short-term USTreasury bonds that will either mature or being treated as cash. By distributing the Yuan widely, and cutting goodwill deals like buying up impaired European bonds, they have curried favor with the Intl Monetary Fund. If and when the fully comprised and deeply corrupted IMF leads in any movement to promote the Special Drawing Rights as a new reserve replacing the USDollar, the global banksters might be more disposed toward the Yuan inclusion in the basket currency.

A conclusion is clear. By taking multi-lateral action, China no longer seeks to maintain the traditional trade relationship with the United States. The trade war has resulted in outright opposition to the US role as custodian of the global reserve currency. Back in 2005, the Jackass forecasted the cooperative relationship with China would turn adversarial in a couple years, then hostile in open trade war. That war is here, and the objective to earn more global respect by Beijing has come to an execution stage. They wish to control the dominant currency for trade. Lastly, China has not only become the world's largest gold producer, but also made strides to be its largest buyer, recently surpassing India. Official estimates place Chinese gold purchases in 2012 at around 800 metric tons, a massive increase in their stockpile. My sources indicate their gold reserve increase is multiples higher over the last few recent years, an urgent project underway perhaps to establish a gold-backed Yuan currency. By contrast, the USFed cannot even deliver gold it is supposed to be holding in official accounts, including that held for Germany. As footnote, China has recently quadrupled imports of rice and tripled its wheat and corn imports in just the last year. China is preparing itself, if not being groomed, as an alternative economic engine in opposition to the failing United States, which is steeped in horrendous economic policy, overcome by banker corruption, and deeply committed to self-annihilation by its own security agencies. China is ready to dump the USDollar. See the Bloomberg article (CLICK HERE).

The Chinese Economy has reached a milestone. It has surpassed the United States for the first time ever as the number one trading power in the world. US exports and imports last year totaled $3.82 trillion, according to the USDept Commerce in early February. The Beijing-based customs administration reported last month that the Chinese total trade in 2012 amounted to $3.87 trillion. The balance is far more favorable for China than the US deficits, a chronic feature that laughably has come with boasts from the knuckleheads inside the US chambers. China had a $231.1 billion annual trade surplus while the US had a trade deficit of $727.9 billion.

Nicholas Lardy from the Peterson Institute for Intl Economics wrote, "It is remarkable that an economy that is only a fraction of the size of the USEconomy has a larger trading volume. The surpassing of the United States is not because of a substantially undervalued currency that has led to an export boom." The point of proof is contained in an important detail. The Chinese imports have grown more rapidly than exports since 2007, something not possible for a badly under-valued currency. A major turning point has been reached in global trade. No doubt should linger that China will next be inducted into the SDR basket. Their trade with both Asia and other major players across the globe will increasingly move away from the USDollar. As a result, the USDollar will surely lose its world reserve status, and soon. While many cheer the step as necessary progress towards a more globally aware economic system, the practical result will be to force a profound devaluation of the USDollar on the American citizens, their economy, and their accumulated illusory wealth, including pension funds.

The Jackass theme has been steady for almost five years. The Third World awaits the United States when its currency is rejected and must seek proper value as an equilibrium is sought. Its gargantuan deficits, absent critical mass of industry, predominance of fraudulent financial sector, devotion to costly wars, and massive import requirements dictate a USDollar devaluation of 50%. The shift will cause enormous disruption, powerful price inflation, widespread supply shortages, and civil disorder. Never lose sight of the fact that the United States has turned heavily dependent upon covering its debts by monetary inflation means. The practice will backfire badly, when the devaluation comes. Few seem to recall that Third World nations suffer currency devaluations from lost control in expansion of their money supply. The US is no exception with consequence for established and chronic monetary abuse. The US will be isolated, then seen in glaring violation of monetary controls, under a shameful spotlight, as resident nazi cockroaches seek the darkness. Then comes the 50% currency devaluation as trade settlement ignores the USDollar.

◄$$$ THE CHINESE YUAN WILL SPREAD TO THE PERSIAN GULF REGION. A BIG TRADE DEAL WAS STRUCK WITH THE SAUDIS AND EMIRATES OF THE U.A.E. LAST YEAR, WHICH WAS ACCOMPANIED BY A YUAN CURRENCY SWAP FACILITY ESTABLISHED IN THE UNITED ARAB EMIRATES. THE LAST NAIL IN THE USDOLLAR COFFIN COMES WHEN THE SAUDIS PERMIT NON-USDOLLAR PAYMENT FOR CRUDE OIL. THAT DAY IS NEAR. $$$

The Chinese have taken more control of the Intl Monetary Fund itself. In January, a plan was revealed by Zhu Min, the deputy managing director of the IMF. He made a statement where he proclaimed that the shift by China into a more self-sufficient consumer based economy had been successful. The important step would be followed up by placing the Yuan currency as a world reserve currency. The IMF has confirmed the Yuan (renminbi) is set to become a Global Reserve Currency, the acknowledgment made at an Economic Forum in Hong Kong. See the Want China Times article (CLICK HERE). The Yuan is being called a Global Reserve Currency even by China, having established the foundation for changes in a short period of time. China does not reveal their hand until everything is already said and done. The USDollar has been owner of the global reserve for decades, seemingly forever. They must next share the control, then suffer its loss in a grand comparison in grotesque embarrassment and humiliation. The USDollar will suffer the lost prestige in practice very suddenly. The Chinese leaders are crafty and patient and deliberate. They put everything in place, making preparations, and then reveal their movements and plans.

Recall that the Premier of China had gone to Saudi Arabi and Dubai a year ago. He stayed a week, conducting meetings and making agreements. China signed economic and trade agreements worth 100 billion Yuan (=US$16 bn) with Saudi Arabia and the United Arab Emirates, as Premier Wen Jiabao completed a six-day visit to the Middle East. The first currency swap agreement with Arab nations, worth 35 billion Yuan, was also signed in Abu Dhabi. The news occurred last year, when Premier Wen attended the Fourth Arab-China Business Conference in Sharjah in the UAE.

Saudi Arabi is soon to announce being the last Middle Eastern country to trade outside the so-called Petro-Dollar. If (when) Saudi Arabia initiates crude oil trade in other currencies, then the death knell is rung, as in game over for the USDollar. Not just loss of the Global Reserve Currency status, but the USDollar will face isolation, judgment, criticism, and finally severe devaluation following the shameful debt downgrades. The US might be declared a financial rogue nation, my expectation. Given how the USDollar finds strength only in the active competitive devaluation process managed by numerous foreign nations, the USDollar will next find its truly (much lower) value when it is not used in global trade. With the USFed printing the dollar non-stop, the currency wars raging fierce, the US currency is poised for a massive fall. The process stops when the USDollar is deposed and the new Gold Standard is instituted, led by its newly adopted role in trade settlement. The only countries left all to themselves with their inflating currencies will be the United States and United Kingdom and certain Western European nations. They will form the new Industrialized Third World community. The day comes soon, signaled by both the IMF and China. The Yuan will share the stage as a Global Reserve Currency. Do not be mistaken. The USDollar cannot share that stage. It will fall off it rapidly.

For some good background material on the internationalization of the Chinese Yuan, aka renminbi, see the Swift research papers (CLICK HERE and HERE). For promoting the London financial center on Yuan currency issues, see the City of London research update (CLICK HERE).

## BOND BUBBLE CRAZE

◄$$$ THE BIG NEW YORK BANKS ARE CONSIDERED CRIMINAL YET UNTOUCHABLE IN FOREIGN FINANCIAL CENTERS. THEY OBSERVE A REVOLVING DOOR OF CONFLICTED INTEREST BY REGULATORS AND DEEP CORRUPTION BY USGOVT LAW ENFORCEMENT. THE RESULT WILL BE FURTHER ISOLATION OF THE USGOVT AND REFUSAL BY FOREIGN ENTITIES TO PURCHASE USTBOND DEBT SECURITIES. THE RESEMBLANCE TO THIRD WORLD WILL BE FOLLOWED BY ACTUAL THIRD WORLD LOCATION. $$$

The Project on Government Oversight (POGO) has come to stark conclusions about US-based bank fraud as being business as usual. The foreign financial centers observe the protected corrupt US practices, and have refused lately to participate in official bond purchases. They just say NO. The result is further isolation of the United States, which will suffer a dire fate falling into the Third World. The perception of the United States on financial sector matters is badly degrading, in fast acceleration, a consequence of a decade operating under the Fascist Business Model that few analysts notice or wish to mention. The perception held by foreign bankers and fund managers often is that New York City has degraded to a level on par with some Third World dictatorships. The MFGlobal crystallized the viewpoints, leading them to conclude the New York is no longer a safe place either to do business or place money. China has refused to buy USTBonds from the New York bankers. Even the New York press is unwilling to tell the truth about events. A recent case showed the New York press actually changing the transcripts in certain cases like one involving Zichettello.

Overseas, the New York big banks are called Untouchable. The end result is fast catching up to the USGovt and Wall Street bankers. Almost no foreign nation is willing to purchase the USTreasury Bond debt, since the US considers its leading financial firms to be above the law. That includes the New York Fed, which refuses to permit Germany to view its gold on account. The demise of the United States in a systemic failure is assured. The perception extends to where the USGovt and its banking leaders consider its own people and foreign governments to be part of a food chain for exploitation. At risk is the fabric of US society. My view has been firm since 2007 and 2008, when the bond market ruin and big bank collapse took place, that the United States was heading for a grand systemic failure and total breakdown. The path was made perfectly clear. It is on track and absolutely unstoppable.

The revolving door at the Securities & Exchange Commission is under focus again, as the prima facie for corruption in the financial sector. The POGO study has exposed that SEC prosecutors are hired so as to ensure the villain banks are not subjected to criminal prosecution. Doing so is seen as an attack on the system itself. In one specific case, the head of SEC enforcement Andrew Geist selected the law firm to be the receiver over Princeton Economics and made sure the employees could never be represented by a lawyer. Then he resigned from the SEC and joined the very firm he selected to receive $millions in fees as a partner. Outside of the USGovt, such action wold result in 25 years in prison for basic fraud in plain sight. See the Armstrong Economics article (CLICK HERE) and the CNBC article (CLICK HERE).

◄$$$ INVESTORS ARE SWAPPING LOW QUALITY SECURITIES (SOMETIMES JUNK BONDS) FOR SUPER SAFE USTBONDS IN ORDER TO CONDUCT DERIVATIVE TRADES. FINANCIAL FIRMS (BANKS, INSURANCE FIRMS) ARE GROPING FOR YIELD INCOME, PLAYING GAMES WITH COLLATERAL. THEY SOMETIMES ARE CAUSING A CHAIN OF EVENTS IN REVERSE WITH MARGIN CALLS. COMPLEXITY GROWS, BUT NOT STABLE PROGRESS. $$$

An extract from a speech by USFed Governor Jeremy Stein entitled "Overheating in Credit Markets: Origins, Measurement, and Policy Responses" reveals how shadow banking collateral transformations operate, as modern day alchemy transforms junk bonds into USTreasurys with the snap of a contract, but causes problems with margin calls down the road. The ultra-low interest yield has caused contortions not just for reaching toward risky mortgage bonds for yield, but in doing two-step derivative trades with transformed collateral. The alchemy requires something called collateral transformation. This activity has been around in some form for quite a while, but it has taken on tremendous volume in recent months. The entire US financial has been put at further risk.

Imagine an insurance company wants to do a derivatives transaction. To do so, it is required to post collateral with a clearing house, but the asset must be pristine, like USTBonds. All the firm has is junk bonds to post as collateral. So they approach a broker dealer and engage in what is effectively a two-way REPO transaction, whereby it gives the dealer its junk bonds as collateral, borrows the USTreasury securities, and agrees to unwind the transaction at some point in the future. A fee is paid by the insurance firm, which then can proceed to pledge the borrowed USTreasury securities as collateral for its derivatives trade. Usually the dealer has inventory, since USTBond buyers are scarce with all the toxic paper produced and frightened investors from QE bond monetization going on. The dealer might have to conduct a reverse swap with a pension fund to obtain the USTBonds. Pension funds are willing since they can secure higher yields from such swaps, without altering what appears on their balance sheets. Now go back to the insurance firm, which has secured via the swap some USTBonds as collateral.

Stein concludes on risk. "There are two points worth noting about these transactions. First, they reproduce some of the same unwind risks that would exist, had the clearing house lowered its own collateral standards in the first place. To see this point, observe that if the junk bonds fall in value, the insurance company will face a margin call on its collateral swap with the dealer. It will therefore have to scale back this swap, which in turn will force it to partially unwind its derivatives trade, just as would happen if it had posted the junk bonds directly to the clearing house. Second, the transaction creates additional counter-party exposures, which [come in the form of] exposures between the insurance company and the dealer, and between the dealer and the pension fund." The evidence is loud and clear, and the higher systemic risk is engrained. View the total amount of collateral pledged any given month with the NYFed, courtesy of tri-party REPO custodian JPMorgan. It has risen 18% in the last year. See the Zero Hedge article (CLICK HERE) and the NYFed tri-party REPO collateral data (CLICK HERE).

◄$$$ HIGH RISK BONDS ARE SUFFERING A MAJOR EXIT. THE TALKING HEADS MENTION RISK ON, WITH THE USFED LEADING THE MORAL HAZARD PARADE. BUT JUNK BONDS TELL A RISK OFF STORY. THE DIVERGENCE IS PRESENT, AND NEVER LASTS LONG BEFORE RESOLUTION. $$$

In recent weeks the bond Exchange Traded Funds and credit derivative markets have been indicating some serious divergence from stocks. They scream signs of risk off. The perceptual call on the financial networks is deceptive and unclear. What is clear is that this past week saw the largest outflow on record for the High Yield ETFund. Furthermore, HYG (symbol for the junk bond ETF) shares outstanding have plunged over 11% in the last 90 days, as ETF unit volume in existence are being destroyed on a sequential quarterly basis for the first time. Refer to HYG shares, not value. The rotation appears to be up toward USTBonds and Corporate Bonds, and up in strength of capital structure marked by book value. The divergence cannot last forever, since linkage comes via the balance sheet. The sell pressure is picking up into the very illiquid market for junk bonds. See the Zero Hedge article (CLICK HERE).

◄$$$ USFED ENSURES HYPER INFLATION. THE PUBLIC MUST PROTECT THEMSELVES. BUT THEY ALSO MUST EDUCATE THEMSELVES ON THE REALITY THAT IS BOND MONETIZATION AND THE ZERO RATE BOUND. THEY ARE SIGNALS OF WEIMAR AMERIKA, AN ENDORSED HYPER MONETARY INFLATION WITH NO SUCCESSFUL PRECEDENT IN HISTORY. $$$

For the mere mortals, some background is offered to comprehend the programs that are called Quantitative Easing (bond purchases with new electronic money) and the Zero Interest Rate Policy (stuck at 0% forever). See the Forbes video (CLICK HERE) for a quick tutorial. Also, the unwashed masses deserve to have explained the most outrageous outlandish monetary experiment ever conducted. It is most assuredly to end in disaster. The flip into national poverty status is coming. See the Before Its News article on QE For Dummies (CLICK HERE).

◄$$$ JPMORGAN CONTROLS A BIG MONEY ROOM IN FLORIDA, WHERE $TRILLIONS ARE MOVED EVERY DAY ON BEHALF OF BIG BANKS AND BIG CORPORATIONS. DIMON SPOKE WITH ARROGANCE AND HYPOCRISY. $$$

JPMorgan Chase maintains what they call a Money Room located in Florida. In it $trillions are moved every day, boasted CEO Jamie Dimon at a conference. He said, "It is a money room at an undisclosed location. It is in Florida, but it moves every day $2 to $5 trillion around the world. JPMorgan moves a lot of money for corporations and individuals. That room, which I took my Board of Directors to, is just very impressive." JPMorgan is the only bank with a giant money room in the United States. JPMorgan is the biggest bank in the country by assets, with total assets of $2.3 trillion as of the end of September 2012. It is also bankrupt, a tall hollow reed from the derivatives market unreported losses. It keeps the Interest Rate Swap structure in place, or tries to, which forces the USTBond yields low when no buyers exist.

Dimon talked openly about many topics, took shots at the press, and spoke like a true hypocrite. He argued that big banks are the only ones that have the power to service countries around the world. He said, "I agree with people who say banks should not be too big to fail. It should be bankruptcy and the damn bank board should be fired. Tax payers should never have to pay and you should believe it. I want to call it bankruptcy for big dumb banks. There should be some form of Old Testament justice including clawbacks of [executive] compensations." See the Business Insider article (CLICK HERE).

           Dimon --Criminal, Hypocrite, Parasite

What a hypocrite and elite parasite! JPMorgan exploited the Lehman Brothers and Bear Stearns collapses. JPM received $138 billion in funds from a Saturday 6am bankruptcy court decision in Manhattan that supposedly was devoted to settling Lehman Bros private accounts. The sum is an order of magnitude greater than what would be devoted for such purpose. It was in Jackass view an important reload of JPMorgan slush funds used in a number of different market manipulation schemes, such as USTreasurys and Gold. They clearly exploited the situation, as seen by anybody with an active brain stem. As footnote, rumors are brisk that Dimon has a penchant for married women, who philanders with the wives of his own associates. He walks a thin line. Harken back to Tiger Woods.

◄$$$ OVER $19 TRILLION IN PRIVATE US-CITIZEN RETIREMENT FUNDS COULD EASILY BAIL OUT THE USFED TOXIC BALANCE SHEET. SIX DOLLARS OF CAPTIVE PENSION FUNDS EXISTS FOR EVERY DOLLAR OF TOXIC USFED BALANCE SHEET FUNDS. A FORCED INVESTMENT IN THE USTBOND BUBBLE WILL COME BEFORE LONG, BECAUSE IT CAN. $$$

The USFed has boasted of innovative devices and channels for providing a torrent of liquidity to the insolvent US and European banks, to no avail however. Extra cash to borrow does not address brokenness from insolvency for a bank or a household. Talk has come of Bernanke possibly being forced to raise interest rates in 2016. Doing so would destroy his buddies at the big US banks, which are deeply committed to USTBond carry trade for easy profit, as they avoid the commercial lending function. Bernanke has the perfect exit strategy, steeped in exploitation and hegemony. He could simply sell the bonds on the USFed balance sheet to captured American citizens, who command pension funds totaling about $19.4 trillion in the form of private funds (IRA, 401k, Keough), defined contribution and defined benefit plans (corporate), annuity reserves (trusts), and government plans. A new special USTBond will be fashioned, which will absorb both USTreasurys and USAgency Mortgage Bonds. The USCongress will eventually pass the bill to authorize the seizure, amidst some uncertain controversy. With the forced purchase of USGovt securities from private retirement funds, the USFed will have all the buyers they need. Note that several other countries have already taken this identical step. See the Investment Company Institute database (CLICK HERE). Even the US Consumer Bureau is looking at the retirement accounts. See the Bloomberg article (CLICK HERE). At least the captive US citizens will be compelled to cover the new debt racked up by the USGovt each year. That would cover $1 trillion per year. Regard it as inevitable, since the bill has been tabled by the US Senate.

◄$$$ MORE IN INTEREST RATE SWAPS, EXPLAINED TO THE LAYMAN. THEY PRODUCE ARTIFICIAL USTBOND DEMAND WITHOUT A FORMAL COUNTER-PARTY INVOLVED. THEY PRODUCE A FABRICATED FICTITIOUS FALSE USTBOND RALLY. THEY SUSTAIN THE USTBOND DEBT BUBBLE (NOT ASSET BUBBLE). $$$

If the Jackass claimed to be an expert on Interest Rate Swaps, a lie would be told. Some explanation can be given though. First of all, they are not a contract entered into by two parties in any official counter-party setup. Take the simpler Credit Default Swap as preface. As an investor, one might believe in early 2008 that Lehman Brothers was a cooked dead goose awaiting revelation. So an insurance contract was purchased on its 10-year corporate bond against likely default. It is like investing in IBM stock, as you pay a price, and somewhere in the market supplies the stock to you. You pay 22 (just for argument, skip the unit denomination) before the revelation of bankruptcy and ruin. After September of that fateful year when the US banking sector died and was burned to a crisp by the scorching mortgage fires, you received 82 for the CDSwap contract upon redemption. You bagged almost 300% in profit. There was a counter-party for this derivative, since an insurance contract was traded from a previous owner. The party selling the CDSwap at 22 missed an opportunity.

The Interest Rate Swap is a complex device that plays the spread of long-term bonds versus the spread of short-term bills. The spread involves a cash value against a committed time to redemption on a bonded security, like all spreads. They are ugly complex, necessarily so in order to do what they do and to keep the public unaware. Remember that these derivatives are all unregulated, and therefore have grown totally wild like a weeded field given ample rain and sunshine. Think of it this way. The Boyz, principally JPMorgue here, use the bottomless well of 0% money to fund the IRSwap tables. With free money, they swap the securities and convert them into purchases of long-term USTBonds. No formal counter-party exists, except that the JPMorgue desks sit on both sides of the trade. The demand is purely artificial, and no seller was involved except the newly printed certificate in electronic form that floods the bond market. Since JPM fed the IRSwap engines so fully, no chance exists of rising rates from the 0% bound. Doing so would implode the IRSwap derivatives in a matter of days. Regard JPM as short $trillions in 0% USTBills of mere months maturity. Think leverage of between 30:1 and 100:1. The ZIRP policy will remain fixed near 0% forever and a day. The derivative machinery assures it.

In the second half of 2010, the assigned Wall Street agent Morgan Stanley bought $8 trillion of these Interest Rate Swaps. That is when the big USTBond rally supposedly happened, all very much fabricated to produce what seemed like a wondrous phony flight to safety. Borrow short, invest long, exactly like the big US-Banks are doing with the USFed carry trade on the USTreasurys since QE programs began. Except in the IRSwap case, they put it through the derivative machine, with a conversion to USTBond demand. Most of the Western world remains duped. Not the Jackass, thanks to Rob Kirby and his clear lessons on the congame.

◄$$$ THE USFED AS TOXIC PAPER GARBAGE COLLECTOR HIT $3 TRILLION IN THEIR BALANCE SHEET. WITH TOXIC PAPER, MORE IS NOT BETTER. THE UNCHARTED TERRITORY FOR THE CENTRAL BANK IS NEVER NEVER LAND. GIVEN THE SYSTEMIC FAILURE UNDERWAY AND INTERMINABLE RECESSION, THEIR BALANCE SHEET WILL GROW IN SIZE WITHOUT END. $$$

The USFed has formally promised to keep the current bond purchase program and the zero bound rate in place until the USEconomy responds favorably, most important the labor market recovers. It will never recover, since QE & ZIRP assure steady economic deterioration from capital destruction. The economist crew fail to comprehend this basic fact of economics and capitalism. The USFed is purchasing $85 billion of securities every month, using the full force of its balance sheet to undermine the USEconomy. The central bank began $40 billion in monthly purchases of mortgage backed bonds in September under QE3, then added $45 billion in USTreasury Bonds to that pace in recent months under QE4. Resident apologist Julia Coronado is a former USFed economist, and chief economist at BNP Paribas. She offered a bland view lacking any substance in reflection of her lofty salary. She said, "We are in uncharted territory. As the easy money will flow through financial markets and into the real economy at some point and lift us to a better growth trajectory, [the nation faces] a lot of risks." Dream on with growth, since QE & ZIRP ensure rising costs, which lock in falling profits, followed by job cuts, shut business segments, and retired equipment.

In late January a milestone was reached, a frequent occurrence. The total USFed balance sheet climbed to $3.01 trillion as of January 23rd. The lunatics at the central bank have expressed concern over overheating financial markets, when they should concerned about destroying all financial markets. The extremes have been touched, with a 22% official rate by Chairman Volcker in 1980, and recently a stuck 0% by Chairman Bernanke in the last couple years. Witness the zero bound, stuck in place. The USFed cannot raise rates, period! They focus on the labor mandate. They wish to reduce the ranks of the nation's 12.2 million unemployed workers. Their $85 billion monthly pace of toxic bond purchases will continue until the labor market improves substantially, thus forever. They disagree on how long that will be. Try forever, or until the systemic failure occurs under their watch. The Federal Open Market Committee at the December 11-12 meeting showed members evenly divided on ending official bond purchases by mid-2013. One must wonder who they would expect to purchase the worthless bonds. The answer is nobody. They might someday soon realize the QE to Infinity they have embarked upon. Maybe not. See the Bloomberg article (CLICK HERE).

◄$$$ A HUGE AMOUNT OF MONEY WAS WITHDRAWN FROM THE BIG-US BANKS IN THE FIRST WEEK OF JANUARY. THE REMOVAL TOTALED $114 BILLION FROM COMMERCIAL BANKS. THE END OF THE T.A.G. PROGRAM TO SUPPORT MID-SIZED BANKS SEEMS NOT TO BE THE EXPLANATION. $$$

More than $114 billion exited the biggest US banks in the first week of January reporting, and analysts are perplexed to explain it. It was the largest single week withdrawal since the September 11th of 2001. The most rational explanation offered is the expiration of the Transaction Account Guarantee (TAG) program, the extraordinary federal effort to shore up the mid-sized banks during the 2008 financial crisis. Smaller banks were vulnerable to runs, thus protected by TAG. The program backstopped their deposit bases by temporarily offering unlimited insurance on money kept in non-interest bearing accounts. That guarantee ended on December 31st. Thus the removal.

The TAG explanation does not hold. The USFed data shows $114 billion leaving the 25 biggest banks, equal to roughly 2% of their deposit base. Only $26.9 billion left all the other banks including the midsized, equivalent to 0.9% of their deposit base. Over four times as much money left the supposedly unaffected bigger banks. A grand shift is taking place for funds to find money market funds or elsewhere. Some like Paul Miller, a bank analyst with FBR Capital Markets, caution that the USFed weekly data is a noisy database. He claims the first quarter is always a whacky quarter. With the federal fiscal cliff drama, many companies shifted dividends, while other bank clients guessed on tax liabilities. At the same time, the payroll tax just went up, pushing on most wage earners a 2% hit. Some individuals might simply shun the federally guaranteed accounts and enter into investments like money markets or mutual funds, which saw their second highest inflows on record in the first week of the year. The public always chases the end of a low quality stock rally, like dumb sheep. See the Business Week article (CLICK HERE) and the RT News article (CLICK HERE).

## CURRENCY WAR BOILS

◄$$$ THE US-DX INDEX SHOWS AN OMINOUS BEARISH REVERSAL SIGNAL THAT HAS BUILT UP OVER A THREE-YEAR TIMESPAN. THE STANDARD USDOLLAR INDEX SHOWS A LONG-TERM RECOGNIZED BEAR PATTERN AND A SIMILAR (BUT LESS RELIABLE) INTERMEDIATE BEARISH PATTERN. HOWEVER, THE COMPETIVE CURRENCY DEVALUATIONS BY MOST MAJOR CENTRAL BANKS WILL KEEP THE USDOLLAR LEVITATED. IT WILL SHOW APPARENT CALM, DURING A MAELSTROM UNDER THE SURFACE. $$$

The long-term chart shows large Head & Shoulders bear pattern. The world wants to discard the USDollar for fiscal deficits, punishment for endless war, and horrific hyper monetary inflation by the USFed central bank. But the world cannot let the DX index crash, since each nation strives not to accept and endure a higher currency. Too much internal damage would be done economically. So the US-DX index will be levitated until the time comes when it is isolated completely, then rejected and snuffed out like a diseased rat trapped in the corner which has rendered deep damage from its filthy style for decades. Each nation watches in terror as the USFed directs the bond monetization with fresh toxic money, a process that raises the cost structure in the entire global economy. Nations have no choice except to sustain the crippled USDollar, so that their banking reserves do not degrade further, and their economies do not lose a competitive edge on their export industries. Alternatives are being sought to replace the USDollar, but only when a new structure is in place, the firewalls are in place, and the procedure for the players are in place. Expect the right side shoulder to extend and defend the 79 level, which is of paramount importance. All hell breaks loose if that level breaks down, as weakened banking systems will threaten to topple.

The intermediate chart shows a minor Head & Shoulders bear pattern, which is overwhelmed by active management in defensive action. Look for the recent downward correction in the Euro to lift the US DX index a little more, and possibly push it into the narrow band between 80.5 and 81.3 as seen in the daily chart below. The Euro had risen unduly in the last few months, helped along but a cool $237 billion in funny money European bank aid since January, courtesy of the USFed and its handy swap facility opened to European banks. That the Euro is rising at all during its crippled degeneration is laughable. Such is the nature of the managed currency arena. All the nations that push down their currencies in defense of their economies will see a strong buoy effect to lift the USDollar. It is actively managed. The USDollar index is dominated in absurd fashion by the Euro, thus the label anti-Euro index in some FOREX corners.

Notice how important the DXY = 79 support line is, in both the long-term and intermediate charts. It has been defended for 18 months. Keep in mind that for the US DX to break down badly, the Euro must rise with vigorous moves. Yet it is crippled. Expect the DX index to pay a visit in the next higher narrow band, but only for a short while. Too much profit for veteran traders lies in exploiting the potential for corrections after central banks moved their currencies by strong arm approaches. The action in Europe is turning into a tragic comedy. They want a higher Euro currency in order to defend broken banks and their balance sheets. But the Japanese and Swiss, maybe even the British, urgently work to keep their currencies down. The battle is high pitched.

◄$$$ THE CHALLENGE TO MAINTAIN THE SWISS FRANC--EURO PEG WAS GIVEN A GIANT ASSIST BY THE USFED DOLLAR FACILITY. SO THE SWISS BANKERS HAVE ENJOYED AN OPPORTUNITY TO DUMP EUROS ON THE DESPERATE EUROPEAN BANKS, EAGER TO LIFT THEIR ROTTEN BALANCE SHEETS. EVERYBODY WINS, BUT THE SYSTEM LOSES. $$$

The crisis to maintain the Swiss Franc peg to the Euro currency has been averted. But behind the marbled offices in Zurich is desperation as their diversifed reserves were shifted in favor of the Japanese Yen and British Pound. In the last few months, each currency fell hard, the Yen much more drastically (by design). To be sure, the big European banks desired the Euro lift, since they are on the edge of ruin. It should also be cited that the recent engineered lift in the Euro was to benefit the powerful influential Swiss bankers, who still shout orders from their castles. The $237 billion in easy USDollars was a huge factor, a huge open channel, which received almost zero press attention. Some big interests are at work, to lift the Euro. But it has gone too far, given the rotten fundamentals in the EuroZone economy and the more rotten balance sheets for the big European banks. Witness the convulsions of the fiat paper currencies, with the Euro, the Swiss Franc, the British Pound, and the Japanese Yen at the unstable periphery. They orbit around the toxic ruined USDollar, the Lord of the Flies.

◄$$$ THE CURRENCY WAR IS COMING INTO MAINSTREAM VIEW. THE COMPREHENSION BY COLUMNISTS IS SHALLOW SO FAR, THE BREADTH OF VIEW NARROW STILL. $$$

The mainstream economic and financial news lines have begun to describe a currency war, but the columnists lack much comprehension yet. They see only small porckets of the extremely wide battleground. Most US-based economists focus on USDollar strength, with little awareness of all the various major currencies jockeying for position. Although Kyle Bass puts the currency war on the table, he totally misses the destructive interplay between central banks. He made a loose single comment about exchange rates in movement without much awareness that central banks are desperately making policy decisions to push down their currencies in competitive devaluations in order to preserve their export industries. He seems to indicate that currency moves are passive outcoms and indirect effects. He did not mention the most important cross rate battles on the planet. The Swiss-Euro 120 peg has been in force for six months, recently damaged by Japan and its submerged Yen. He makes many general comments about Japanese demographics, post-tsunami changes, their failure to react in 20 years, takeover of the Bank of Japan by politicians, and the friction with China to affect trade. He actually expects the Dollar-Yen rate to rise to 200 as the Japanese debt takes a huge toll against the recession backdrop. That would mean the Yen priced at 50 cents, far lower than its current 107 value, over a 50% decline.

Bass puts too much focus on the bilateral cooperation between US and Japan on central bank actions. In doing so, he misses much of the rest of the world. Cite some. The South Koreans are considering strong currency actions. The Scandinavian nations are also struggling to manage their economies by using their currencies, frustrated at the punishment for successful fiscal balance. The Swiss and Japanese might have to meet, and if they do, look for two possible new nations to join forces with the non-USD trade settlement system. They each have motive to depart from a US$-centric financial system. The fiat floating garbage currencies are killing all the players, some faster than others. See the Money News article (CLICK HERE).

◄$$$ JAPAN HAS RECORDED CONSECUTIVE CURRENT ACCOUNT DEFICITS, THE LATEST IN DECEMBER. THEIR LEADERS ARE DESPERATE TO TAKE DRASTIC ACTION. GIVEN THAT THE NATION HAS BEEN STUCK AT THE ZERO BOUND FOR 20 YEARS, THEIR ONLY LEEWAY IS WITH THE YEN CURRENCY. IMPORTS ARE UP FROM CHINA. ELECTRICAL POWER GENERATION IS DOWN FROM THE NATURAL DISASTER. JAPAN STRUGGLES. $$$

Japan has the third largest world economy. Japan posted monthly Current Account deficits in back-to-back months for the first time since 1981, indicating policy failure and systemic strangle. The CA deficit equals the trade gap adjusted for investments, like stocks, bonds, property, patent royalty. The CA deficit was JPY 264.1 billion (=US$2.8 bn) in December. The proximal causes were weakness in global demand, disputes with China, and increased energy imports following nuclear plant shutdowns. The hope is for a revival for the export industries in response to the powerful Yen exchange rate decline, urged forcefully by the central bank and government in coordinated policy. The Yen move from 129 in September to 107 (a 17% decline) in February will spur exports, suddenly made cheaper to foreign buyers. The effect is expected in three to six months. This is pure competitive currency devaluation, a war. The recent embarrassment from the deficits emboldens the Abe campaign to continue with vigor, pushing the Yen lower still.

The last consecutive monthly Current Account deficit took place in February 1981. The trend has been down. The 2012 annual current surplus of JPY 4.7 trillion was the smallest since 1985, after falling 51% from 2011. A detail, the Chinese exports to Japan rose by 25% in January from a year earlier, according to data from Beijing. The Hat Trick Letter had reported a trend over the last few years to ship some industry to China for cost reduction, but the earthquake and tsunami in February 2011 added pain to the outsourcing initiatives. The Japanese Economy is caught in recession, having shrunk in Q2 and Q3 of 2012. See the Bloomberg article (CLICK HERE).

◄$$$ THE BANK OF ENGLAND WILL BECOME THE FIRST G-7 NATION TO ENTER A SWAP LINE AGREEMENT WITH CHINA ON YUAN CONVERSION. THE CURRENCY IS GRADUALLY ENTERING INTO FULL CONVERTIBLE STATUS FROM THE SWAP BACK DOOR. LONDON STRIVES TO CONTINUE AS A GLOBAL FINANCIAL CENTER. NOTICE THE NON-FOREX SOLUTION. $$$

The central bank for the United Kingdom is prepared to set up a Chinese Yuan swap line. This is very very big news, since England will be the first G-7 nation to cooperate in Chinese currency provision. The door is opening in yet another substantial step in moves to liberalize the Yuan currency into broader usage, if not convertibility. Chris Salmon is the Executive Director for Banking Services at the Bank of England (BOE). He told a meeting of senior bankers in London that the move was aimed at underpinning a developing offshore market in Yuan trade out of London. Add England to the long and growing list of nations making bilateral currency agreements with China. The list includes Brazil, Australia, Russia, Japan, South Korea, Belarus, Malaysia, and Indonesia. That the Yuan is not freely exchangeable has been a deterrent for British officials. The BOE actively wishes to see a more flourishing Yuan business in London. Salmon said, "The Bank would welcome the development of the offshore RMB market just as it would any other legitimate market innovation, and we would not want to inhibit that outcome inadvertently through gaps in our operational framework. To remove any residual uncertainty about our attitude, the Bank is ready in principle to agree a swap line with the PBOC (Peoples Bank of China), assuming a mutually agreeable format can be identified. Ultimately, the growth of the market will depend on the success of market participants in matching incipient demand and supply for RMB denominated products, just as the original EuroDollar market grew by satisfying a latent private sector demand for dollar assets in this time zone. There is a perception that market confidence would be boosted if the Bank and the PBOC agreed a swap line."

European and US officials have been pressuring China for years to take more action to open up the Yuan to market forces. The Beijing officials respond privately to stressing their unwillingness to subject their Yuan currency to the deep banker corruption in the West, with hidden devices and devious mechanisms scattered under the financial market tables. Thus the circumventing tactics by Beijing with barter deals based in currency swaps. The Western financial markets constitute a recognized gigantic trap for China, which they refuse to fall into. These are standard tools used by the West to control money and its flow, tilting the tables. See the Exchange Stabilization Fund and JPMorgan's derivative room, for instance. Complaints are tiresome about the Yuan bearing an artificially low valuation. The absurd USTBond bubbly values should be examined first. Despite the desire to keep tight reins, observe the internationalization of the RMB (renminbi = people's money), their initiative to introduce their Yuan currency globally. They are setting up currency swap lines around the world, in ways that Western analysts do not comprehend. The swap lines create a foundation for non-USDollar trade, in essence barter that revolts against the USDollar itself as the trade standard by side stepping it.

Britain has always been eager to reinforce London's status as Europe's biggest financial center. The City launched a currency and bond market for Yuan usage last year. The swap deal nails down the London center for the Chinese. One should be amazed that the New York clown criminals are not interested. Thus the US will isolate itself in preparation for Third World entry. For Chinese Govt Bond trading to indeed flourish, the Yuan currency must be made more accessible for trade. The swap deal does that specifically, although not in the manner preferred by the US & UK bankers. They bent to the will of Bejing leaders, who prefer no FOREX solution.

Issuance of Yuan-based bonds listed in London has been limited to a handful of firms, such as oil major British Petroleum, along with banks HSBC (British-Hong Kong) and ANZ (Australia-New Zealand). By comparison, the Hong Kong market for Yuan-based bond grew to around CNY 350 billion (=US$55.7 bn) since 2010, according to Thomson Reuters. Early indications are promising for London. The data from global transaction services organization SWIFT shows the UK is the leading center for offshore Yuan trade outside Asia. It has made far more progress in inducing companies to invoice in Yuan currency, rather than the USDollar. The main competition for London in Chinese financial trade is Hong Kong. See the Reuters article (CLICK HERE). The irony is growing thicker, as London discourages USDollar transactions in their London processing.

◄$$$ A BIG MARKET SQUEEZE IS COMING. A PRINCIPAL FACTOR WILL BE FROM A GOLD-BACKED CHINESE YUAN CURRENCY. THE STORY MUST BE CONFIRMED TO A GREATER DEGREE, SINCE SO IMPORTANT AND HIGHLY DISRUPTIVE. SEVERAL ROADWAYS ARE LEADING TOWARD A GOLD MARKET STAMPEDE. $$$

As preface, keep in mind that the World Gold Council is hardly a friend of gold, as strange as that sounds. They have too many ties to the establishment, eager to pump out reports on false official gold reserves, eager to promote the nonsensical jewelry arguments against a rising price effect, eager to cite the corrupted COMEX gold price itself. Aside from the tainted reputation, the council has confirmed the Chinese intend to back the Yuan currency with Gold bullion held in reserve. Introduce Keith Barron, who was co-founder of Aurelian Resources when they made a 13.7 million ounce gold discovery in 2006. Aurelian was later acquired by Kinross Gold in 2008. Before King World News, Barron expressed his opinion that the world will see a powerful short squeeze in gold. The Germans have given notice to the United States for repatriation of their gold on account. As the return starts to look difficult, expect the Germans to accelerate the process with more hostile demands. This will simply add fuel to the massive squeeze which lies in front of us, as a feeding frenzy in the gold market could easily occur. He expects the Gold & Silver bulls will begin to trample the bears soon. He cited other important factors. Dealers in the US have informed him that immediately after the Presidential Inauguration, the sale of monster boxes of US silver eagles went crazy, exploding in volume. Business is crazed right now, with strains to maintain inventory, which sells quickly. The public smells a financial breakdown.

Barron cited the hedge fund Pacific Group, which is converting one third of its assets into physical gold. The Hat Trick Letter reported on this story in the last month. They have already taken delivery of $35 million worth of gold bars. William Kaye of Pacific Group said, "In our judgment we are in the early stages of what would likely be the world's largest short squeeze in any instrument. This goes back to what we were talking about the last time I was interviewed on KWN regarding gold repatriation back to Germany. If several key nations claim their gold at the same time, the world will witness an incredible short squeeze."

Barron went on to cite a recently submitted document by the World Gold Council. It stated that the Chinese are going to back their currency with Gold. Doing so would displace the USDollar and make the Chinese Yuan the world's reserve currency. No paper currency can compete with a solid gold-backed currency, NEVER. The details on convertibility to Gold is as yet very unclear. The Chinese are sitting on mountains of USDollars. They have spent the last several years purchasing resource and mineral assets around the world, like in Brazil, Iran, Saudi Arabia, and Africa, using their less than desirable USTBonds in the large transactions. The reality is that all of the fiat currencies are in a race to the bottom, caught in the frenzy of accelerating currency war. Barron cited the Bank of Japan, which will yet again expand the QE bond purchase, push down the Yen currency, and print vast sums of money. Tokyo is a wreck. The move by the Japanese is very bullish for Gold, in his opinion. Barron concluded, "Between what is happening with the setup for the coming short squeeze in Gold, coupled with the Chinese moving to back the Yuan with Gold, and the shortages we are seeing in the Silver market, the outlook for Gold & Silver going forward is spectacular. Quite frankly, the Gold & Silver bulls are going to begin to trample the bears at some point in the near future." See the King World News article (CLICK HERE).

◄$$$ THE RUSSIANS ARE DIVULGING A GERMAN DEPARTURE FROM THE COMMON EURO AS CONCEIVABLE. EX-HEAD OF THEIR CENTRAL BANK, KUDRIN IS AN EXPERIENCED WARRIOR. HE BELIEVES THE GERMANS ARE UNDER GREAT STRAIN IN FUNDING COSTS FOR EUROPE, WITH POLICY DECISIONS COMING FROM BRUSSELS. $$$

Der Spiegel gave an interview with Alexei Kudrin, the former Russian Minister of Finance from 2000 to 2011. He has extensive experience and high credibility, having also been involved in the Dawson Creek conference in August 2005 hosted by GATA. The Russians at that time learned how their gold loans to London were used to suppress the gold price. The Russian central bank halted all leasing activity from that point onward. Kudrin discussed the issue of Germany leaving the Euro Monetary Union, soon to abandon common Euro currency usage. Given that Kudrin is extremely close to Vladimir Putin, such a statement could have never been made without consent of both Berlin and Moscow. Furthermore, Kudrin is seen as having good chances to succeed Dmitry Medvedev as Russian prime minister. The floating toxic currencies are gradually to be permitted to crash and burn.

      Alexei Kudrin

In the Spiegel interview, Alexei Kudrin spoke on diverse topics. His points are related here almost verbatim, but edited to fit in prose format. He claimed that Russian economic reform came to a standstill in the last year, and political reforms did not produce the results hoped for. He regarded as a positive trend the new active civil society has developed. They protested parliamentary elections not being conducted fairly. The public wants fundamental reforms. The nation must develop new parties and pass laws to prevent election fraud. Candidates should have equal access to the media, and business owners who fund opposition parties should no longer be punished for the influence. Russia has to take a chance with more democracy. He considers Putin open-minded to stated positions and above all pragmatic. He mentioned how he joined protests demanding democratic reforms and new leaders with sound judgment, which drew between 50,000 and 70,000 people mobilized by attorney Alexey Navalny or former Deputy Prime Minister Boris Nemtsov. He hopes for gradual change in a realistic manner. He discussed the widespread xenophobia and the imperial syndrome, where a significant number of Russians place their country above other nations and see neighboring countries as part of their zone of influence if not control.

Kudrin does not offer support for rising military budgets, a point of conflict with past leadership, in particular Medvedev. He regards the arms race as a main reason behind the demise of the Soviet Union, a wise viewpoint. He could not justify the production of tanks and fighter jets at a time when people were standing in line for food with their ration cards. On the energy front, he believes any oil price decline would quickly result in a reduction in FOREX reserves held by Russia, which stand as third largest in the world. Then either taxes would have to be increased or military and social spending cut. On economic reforms, he endorses several projects like increasing the retirement age (now 60 for men and 55 for women). He urges more investment in infrastructure, such as roads, housing, power grids, and water lines. He wants more privatization and fewer government owned companies, urges a capitalism movement, and favors more local power and tax revenues for the regions. He admitted a corruption problem in Russia, alluding to the defense minister who was dismissed for financial irregularities. He believes policeman, teachers, doctors, even bank managers issuing loans, are all open to bribery. He advocates stricter government spending controls, in response to fraud which has risen in proportion to official funding outlays.

On the European Union bailout for Cyprus valued at EUR 17.5 billion (=US$23.3 bn), he believes the effect to benefit Russian oligarchs is exaggerated. He believes such criticism distracts from the fact that Cyprus has been a convenient tax haven for companies from the West for a long time. The Western company usage of offshore models around the world is just as likely as Russian usage in Cyprus. He finally turned his viewpoint to Europe more directly. He wants the EuroZone to come to grips with its problems. To date, it is not doing enough to achieve that end. Spain is in a serious trouble, which along with Greece are effectively bankrupt. They cannot service their debts on their own. By purchasing sovereign bonds from these two nations, the Euro Central Bank helps them by merely buying time, which is not a solution. The situation will grow worse, since debt loads are not being reduced by policy actions. The European Union must proceed more decisively to reduce debt loads. Some debt might be written down in his opinion, if provisions are made to cushion the effect on creditor banks. It would constitute a step away from the precipice and toward stabilization of the markets.

The Euro currency was raised as a topic. Kudrin admitted he was very enthusiastic at the time of its introduction. However, today it is obvious how everything was not well planned. The rules to prevent debt limit violations were not enforced strictly enough. Productivity is too low in some countries, like in the South. He accepts the possibility that the EuroZone will fall apart. The financial and economic crisis can quickly turn into a political crisis. He described a potential shock for people in the West to drastically reduce their standard of living, as the Europeans are living beyond their means in his opinion. He called the social welfare state unsustainable in its current form. As for Germany, he estimates the European crisis costs Germany EUR 100 billion per year. The inherent strain would be incredible if the figure rose by 50%. To save the Euro currency, he believes a stronger fiscal union is required, as per government deficits and spending controls. He pointed to the conflict with Brussels of decisions on government spending and taxes, where Germans simply would not permit the detached commissioners to dictate policy. Kudrin directly agreed that a German withdrawal from the EuroZone is conceivable, since every solution will be expensive for Germany. He does not believe Germany has yet faced difficult political decisions directly tied to the Euro preservation or departure. See the Spiegel article (CLICK HERE)

◄$$$ VENEZUELA DEVALUED THEIR BOLIVAR CURRENCY, BUT NOT ENOUGH TO MATCH THE BLACK MARKET EXCHANGE RATE. EXPECT ANOTHER DEVALUATION SOON, SINCE THE BANKS WANT THE BUSINESS. THE MOVE SHOULD ADDRESS THE ABSURD SHORTAGES IN THEIR ECONOMY, SUCH AS FOOD IN SUPERMARKETS. BUT MUCH HIGHER PRICES WILL COME AS A RESULT. EXPECT ANOTHER DEVALUATION, SINCE A GAP CONTINUES VERSUS USDOLLARS OFFERED ON THE BLACK MARKET. $$$

The Venezuelan Govt devalued its Bolivar currency to 6.3 per US$ from 4.3 per US$ in early February. They actually hope to shore up government finances after reckless spending last year. It will not happen, but rather price inflation will be stoked instead. The outcome will be more available USDollars to bankers that to date has hindered imports and left many supermarkets barren of basic supplies such as flour or sugar. The big smash effect will be the higher consumer prices in the import dependent nation. It already has one of Latin America's highest inflation rates. Venezuela has stupidly and stubbornly maintained exchange controls on the Bolivar currency for a decade. Thus the adjustment will occur in large disruptive steps. They have forced importers and travelers to obtain USDollars through a state currency board, or else to buy them on an illegal black market where greenbacks fetched nearly four times the official rate. The currency exchange system known as SITME was also eliminated, a clumsy bond swap facility linked to the state currency control board. The powerful shock of price inflation should undermine the popularity of the clown criminal who occupies the president post, Hugo Chavez. He struggles with cancer and might not be able to complete his new term in office. He and his cohorts have robbed the state firms (PDVSA oil cash cow) blind for over a decade. Food issues usually break popularity and lead people to street protests. Consumer prices rose 3.3% in the single month of January, their second highest rate since 2010, while product shortages were the most severe in five years. See the Reuters article (CLICK HERE) and the Al Jazeera article (CLICK HERE).

USDollars on the illegal black market had for weeks been fetching nearly four times the official exchange, which economists cited as a key sign an exchange rate adjustment was imminent. Businesses frequently have to tap this market because they are unable to acquire US$ funds from the official Caracas offices. Despite a 32% official devaluation, the black market reflected an almost 75% discount before the devaluation occurred. The official move just announced was not enough. Expect another official devaluation soon as the new official rate must go lower. It is amazing that the black market is often a true market. Thanks to Craig McC of San Francisco for astute contributions.

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